UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the fiscal year ended December 31, 2005 | ||
| or | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission file number 1-9861
M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)
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New York
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16-0968385 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) | |
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One M&T Plaza, Buffalo, New York (Address of principal executive offices) |
14203 (Zip Code) |
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Registrant’s telephone number, including area code:
716-842-5445
Securities registered pursuant to Section 12(b) of the
Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
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Common Stock, $.50 par value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
8.234% Capital Securities of M&T Capital Trust I
(and the Guarantee of M&T Bank Corporation with respect
thereto)
(Title of class)
8.234% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
(check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act). Yes o No þ
Aggregate market value of the Common Stock, $0.50 par
value, held by non-affiliates of the registrant, computed by
reference to the closing price as of the close of business on
June 30, 2005: $7,665,999,214.
Number of shares of the Common Stock, $0.50 par value,
outstanding as of the close of business on January 31,
2006: 111,759,278 shares.
Documents Incorporated By Reference:
(1) Portions of the Proxy Statement for the 2006 Annual
Meeting of Stockholders of M&T Bank Corporation in
Parts II and III.
M&T
BANK CORPORATION
Form 10-K for the
year ended December 31, 2005
CROSS-REFERENCE SHEET
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PART I
| Item 1. | Business. |
M&T
Bank Corporation (“Registrant” or
“M&T”) is a
New York business corporation which is registered as a bank
holding company under the Bank Holding Company Act of 1956, as
amended (“BHCA”) and under Article III-A of the
New York Banking Law (“Banking Law”). The principal
executive offices of the Registrant are located at One
M&T Plaza, Buffalo, New
York 14203. The Registrant was incorporated in November 1969.
The Registrant and its direct and indirect subsidiaries are
collectively referred to herein as the “Company.” As
of December 31, 2005 the Company had consolidated total
assets of $55.1 billion, deposits of $37.1 billion and
stockholders’ equity of $5.9 billion. The Company had
11,952 full-time and 1,573 part-time employees as of
December 31, 2005.
At December 31, 2005, the
Registrant had two wholly owned bank subsidiaries:
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, 2005,
M&T Bank represented
99% of consolidated assets of the Company. M&T Bank operates
branch offices in New York, Maryland, Pennsylvania, Virginia,
West Virginia, Delaware and the District of Columbia.
The Company from time to time considers acquiring banks, thrift
institutions, branch offices of banks or thrift institutions, or
other businesses within markets currently served by the Company
or in other locations that would complement the Company’s
business or its geographic reach. The Company has pursued
acquisition opportunities in the past, continues to review
different opportunities, including the possibility of major
acquisitions, and intends to continue this practice.
Relationship With Allied Irish Banks, p.l.c.
On April 1, 2003,
M&T completed the
acquisition of Allfirst Financial Inc. (“Allfirst”), a
bank holding company headquartered in Baltimore, Maryland from
Allied Irish Banks, p.l.c. (“AIB”). Under the terms of
the Agreement and Plan of Reorganization dated
September 26, 2002 by and among AIB, Allfirst and M&T
(the “Reorganization Agreement”),
M&T combined with
Allfirst through the acquisition of all of the issued and
outstanding Allfirst stock in exchange for
26,700,000 shares of
M&T common stock and
$886,107,000 in cash paid to AIB. In addition, there were
several M&T corporate
governance changes that resulted from the transaction. While it
maintains a significant ownership in
M&T, AIB will have
representation on the
M&T board, the
M&T Bank board and key
M&T board committees
and will have certain protections of its rights as a substantial
M&T shareholder. In
addition, AIB will have rights that will facilitate its ability
to maintain its proportionate ownership position in
M&T.
M&T will also have
representation on the AIB board while AIB remains a significant
shareholder. The following is a description of the ongoing
relationship between
M&T and AIB. The
following description is qualified in its entirety by the terms
of the Reorganization Agreement. The Reorganization Agreement
was filed with the Securities Exchange Commission on
October 3, 2002 as Exhibit 2 to the Current Report on
Form 8-K of
M&T dated September 26, 2002.
Board of Directors; Management
At December 31, 2005, AIB
held approximately 23.8% of the issued and outstanding shares of
M&T common stock. In
defining their relationship after the acquisition,
M&T and AIB negotiated
certain agreements regarding share ownership and corporate
governance issues such as board representation, with the number
of AIB’s representatives on the
M&T and
M&T Bank boards of
directors being dependent upon the amount of
M&T common stock held
by AIB. M&T has the
right to one seat on the AIB board of directors until AIB no
longer holds at least 15% of the outstanding shares of
M&T common stock.
Pursuant to the Reorganization Agreement, AIB has the right to
name four members to serve on the Boards of Directors of
M&T and
M&T Bank, each of whom
must be reasonably acceptable to
M&T (collectively, the
“AIB Designees”). Further, one of the AIB Designees
will serve on each of the Executive Committee, Nomination,
Compensation and Governance Committee, and Audit Committee (or
any committee or committees performing comparable functions) of
the M&T board of
directors. In order to serve, the AIB Designees must meet the
requisite independence and expertise requirements prescribed
under applicable law or stock exchange rules. In addition, the
Reorganization
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Agreement provides that the board
of directors of M&T
Bank will include four members designated by AIB, each of whom
must be reasonably acceptable to
M&T.
As long as AIB remains a
significant shareholder of
M&T, AIB will have
representation on the boards of directors of both
M&T and
M&T Bank as follows:
| • | As long as AIB holds at least 15% of the outstanding shares of M&T common stock, AIB will be entitled to designate four persons on both the M&T and M&T Bank boards of directors and representation on the committees of the M&T board described above. | |
| • | If AIB holds at least 10%, but less than 15%, of the outstanding shares of M&T common stock, AIB will be entitled to designate at least two people on both the M&T and M&T Bank boards of directors. | |
| • | If AIB’s ownership interest in M&T is at least 5%, but less than 10%, of the outstanding shares of M&T common stock, AIB will be entitled to designate at least one person on both the M&T and M&T Bank boards of directors. | |
| • | As long as AIB holds at least 15% of the outstanding shares of M&T common stock, neither M&T’s board of directors nor M&T Bank’s board of directors will consist of more than twenty-eight directors without the consent of the AIB Designees. | |
| • | If AIB’s holdings of M&T common stock fall below 15%, but not lower than 12% of the outstanding shares of M&T common stock, AIB will continue to have the same rights that it would have had if it owned 15% of the outstanding shares of M&T common stock, as long as AIB restores its ownership percentage to 15% within one year. Additionally, as described in more detail below, M&T has agreed to repurchase shares of M&T common stock in order to offset dilution to AIB’s ownership interests that may otherwise be caused by issuances of M&T common stock under M&T employee and director benefit or stock purchase plans. Dilution of AIB’s ownership position caused by such issuances will not be counted in determining whether the “Sunset Date” has occurred or whether any of AIB’s other rights under the Reorganization Agreement have terminated. The “Sunset Date” is the date on which AIB no longer holds at least 15% of the M&T common stock, calculated as described in this paragraph. |
The AIB Designees at
December 31, 2005 were Michael D. Buckley, Colm E. Doherty,
Derek C. Hathaway and Eugene J. Sheehy. Mr. Buckley serves
as a member of the Executive Committee and the Nomination,
Compensation and Governance Committee, and Mr. Hathaway
serves as a member of the Audit Committee. Robert G. Wilmers,
Chairman of the Board of
M&T, is a member of the
AIB board of directors.
Amendments to
M&T’s
Bylaws
Pursuant to the Reorganization
Agreement, M&T amended
and restated its bylaws. The following is a description of the
amended bylaws:
The amended bylaws provide that
until the Sunset Date, the
M&T board of directors
may not take or make any recommendation to
M&T’s shareholders
regarding the following actions without the approval of the
Executive Committee, including the approval of the AIB Designee
serving on the committee:
| • | Any amendment of M&T’s Certificate of Incorporation or bylaws that would be inconsistent with the rights described herein or that would otherwise have an adverse effect on the board representation, committee representation or other rights of AIB contemplated by the Reorganization Agreement; | |
| • | Any activity not permissible for a U.S. bank holding company; | |
| • | The adoption of any shareholder rights plan or other measures having the purpose or effect of preventing or materially delaying completion of any transaction involving a change in control of M&T; and | |
| • | Any public announcement disclosing M&T’s desire or intention to take any of the foregoing actions. |
The amended bylaws also provide
that until the Sunset Date, the
M&T board of directors
may only take or make any recommendation to
M&T’s shareholders
regarding the following actions if the
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action has been approved by the Executive Committee (in the case
of the first four items and sixth item below) or Nomination and
Compensation Committee (in the case of the fifth item below) and
the members of such committee not voting in favor of the action
do not include the AIB Designee serving on such committee and at
least one other member of the committee who is not an AIB
Designee:
| • | Any reduction in M&T’s cash dividend policy such that the ratio of cash dividends to net income is less than 15%, or any extraordinary dividends or distributions to holders of M&T common stock; | |
| • | Any acquisition of any assets or businesses, (1) if the consideration is in M&T common stock, where the stock consideration paid by M&T exceeds 10% of the aggregate voting power of M&T common stock and (2) if the consideration is cash, M&T stock or other consideration, where the fair market value of the consideration paid by M&T exceeds 10% of the market capitalization of M&T, as determined under the Reorganization Agreement; | |
| • | Any sale of any assets or businesses in which the value of the aggregate consideration to be received exceeds 10% of the market capitalization of M&T, as determined under the Reorganization Agreement; | |
| • | Any liquidation or dissolution of M&T; | |
| • | The appointment or election of the Chairman of the board of directors or the Chief Executive Officer of M&T; and | |
| • | Any public announcement disclosing M&T’s desire or intention to take any of the foregoing actions prior to obtaining the requisite committee approval. |
The provisions of the bylaws
described above may not be amended or repealed without the
unanimous approval of the entire
M&T board of directors
or the approval of the holders of not less than 80% of the
outstanding shares of
M&T common stock. The
provisions of the bylaws described above will automatically
terminate when AIB holds less than 5% of the outstanding shares
of M&T common stock.
Investment Parameters
The Reorganization Agreement
provides that through the second anniversary of the Sunset Date,
without prior written consent of the
M&T board of directors,
AIB will not, directly or indirectly, acquire or offer to
acquire (except by way of stock dividends, offerings made
available to M&T
shareholders generally, or pursuant to compensation plans) more
than 25% of the then outstanding shares of
M&T common stock.
Further, during this period, AIB and AIB’s subsidiaries
have agreed not to participate in any proxy solicitation or to
otherwise seek to influence any
M&T shareholder with
respect to the voting of any shares of
M&T common stock for
the approval of any shareholder proposals.
The Reorganization Agreement also
provides that, during this period, AIB will not make any public
announcement with respect to any proposal or offer by AIB or any
AIB subsidiary with respect to certain transactions (such as
mergers, business combinations, tender or exchange offers, the
sale or purchase of securities or similar transactions)
involving M&T or any of
the M&T subsidiaries.
The Reorganization Agreement also provides that, during this
period, AIB may not subject any shares of
M&T common stock to any
voting trust or voting arrangement or agreement and will not
execute any written consent as a shareholder with respect to the
M&T common stock.
The Reorganization Agreement also
provides that, during this period, AIB will not seek to control
or influence the management, the board of directors or policies
of M&T, including
through communications with shareholders of
M&T or otherwise,
except through non-public communications with the directors of
M&T, including the AIB
Designees.
These restrictions on AIB will no
longer apply if a third party commences or announces its
intention to commence a tender offer or an exchange offer and,
within a reasonable time, the
M&T board of directors
either does not recommend that shareholders not accept the offer
or fails to adopt a shareholders rights plan, or if
M&T or
M&T Bank becomes
subject to any regulatory capital directive or becomes an
institution in “troubled” condition under applicable
banking regulations. However, in the
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event the tender offer or exchange offer is not commenced or
consummated in accordance with its terms, the restrictions on
AIB described above will thereafter continue to apply.
Anti-Dilution Protections
M&T
has agreed that until the Sunset Date, in the event
M&T issues shares of
M&T stock (other than
certain issuances to employees pursuant to option and benefit
plans), subject to applicable law and regulatory requirements,
AIB will have the right to purchase at fair market value up to
the number of shares of
M&T common stock
required to increase or maintain its equity interest in
M&T to 22.5% of the
then outstanding M&T
common stock.
M&T
has also agreed that until the Sunset Date, in connection with
any issuance of M&T
stock pursuant to employee option or benefit plans,
M&T will as soon as
reasonably practicable, taking into account applicable law,
regulatory capital requirements, capital planning and risk
management, take such necessary actions so that AIB’s
proportionate ownership of
M&T common stock is not
reduced as a result of such issuances, including by funding such
issuances through purchases of
M&T common stock in the
open market or by undertaking share repurchase programs.
Sale of
M&T Common Stock; Right
of First Refusal in Certain Circumstances
The
M&T common stock issued
to AIB was not registered under the Securities Act of 1933 (the
“Securities Act”) and may only be disposed of by AIB
pursuant to an effective registration statement or pursuant to
an exemption from registration under the Securities Act and
subject to the provisions of the Reorganization Agreement.
M&T
and AIB have entered into a registration rights agreement that
provides that upon AIB’s request,
M&T will file a
registration statement relating to all or a portion of
AIB’s shares of
M&T common stock
providing for the sale of such shares by AIB from time to time
on a continuous basis pursuant to Rule 415 under the
Securities Act, provided that
M&T need only effect
one such “shelf registration” in any
12-month period. In
addition, the registration rights agreement provides that AIB is
entitled to demand registration under the Securities Act of all
or part of its shares of
M&T stock, provided
that M&T is not
obligated to effect two such “demand registrations” in
any 12-month period.
Any demand or shelf registration must cover no less than one
million shares.
The registration rights agreement
further provides that in the event
M&T proposes to file a
registration statement other than pursuant to a shelf
registration or demand registration or
Forms S-8 or S-4,
for an offering and sale of shares by
M&T in an underwritten
offering or an offering and sale of shares on behalf of one or
more selling shareholders,
M&T must give AIB
notice at least 15 days prior to the anticipated filing
date, and AIB may request that all or a portion of its
M&T common shares be
included in the registration statement.
M&T will honor the
request, unless the managing underwriter advises
M&T in writing that in
its opinion the inclusion of all shares requested to be included
by M&T, the other
selling shareholders, if any, and AIB would materially and
adversely affect the offering, in which case
M&T may limit the
number of shares included in the offering to a number that would
not reasonably be expected to have such an effect. In such
event, the number of shares to be included in the registration
statement shall first include the number of shares requested to
be included by M&T and
then the shares requested by other selling shareholders,
including AIB, on a pro rata basis according to the number of
shares requested to be included in the registration statement by
each shareholder.
As long as AIB holds 5% or more of
the outstanding shares of
M&T common stock, AIB
will not dispose of any of its shares of
M&T common stock
except, subject to the terms and conditions of the
Reorganization Agreement and applicable law, in a widely
dispersed public distribution; a private placement in which no
one party acquires the right to purchase more than 2% of the
outstanding shares of
M&T common stock; an
assignment to a single party (such as a broker or investment
banker) for the purpose of conducting a widely dispersed public
distribution on AIB’s behalf; pursuant to Rule 144
under the Securities Act; pursuant to a tender or exchange offer
to M&T’s
shareholders not opposed by
M&T’s board of
directors, or open market purchase programs made by
M&T; with the consent
of M&T,
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which consent will not be
unreasonably withheld, to a controlled subsidiary of AIB; or
pursuant to M&T’s
right of first refusal as described below.
The Reorganization Agreement
provides that until AIB no longer holds at least 5% of the
outstanding shares of
M&T common stock, if
AIB wishes to sell or otherwise transfer any of its shares of
M&T common stock other
than as described in the preceding paragraph, AIB must first
submit an offer notice to
M&T identifying the
proposed transferee and setting forth the proposed terms of the
transaction, which shall be limited to sales for cash, cash
equivalents or marketable securities.
M&T will have the
right, for 20 days following receipt of an offer notice
from AIB, to purchase all (but not less than all) of the shares
of M&T common stock
that AIB wishes to sell, on the proposed terms specified in the
offer notice. If M&T
declines or fails to respond to the offer notice within
20 days, AIB may sell all or a portion of the
M&T shares specified in
the offer notice to the proposed transferee at a purchase price
equal to or greater than the price specified in the offer
notice, at any time during the three months following the date
of the offer notice, or, if prior notification to or approval of
the sale by the Federal Reserve Board or another regulatory
agency is required, AIB shall pursue regulatory approval
expeditiously and the sale may occur on the first date permitted
under applicable law.
Certain Post-Closing Bank Regulatory Matters
The Board of Governors of the
Federal Reserve System (“Federal Reserve Board”) deems
AIB to be M&T’s
bank holding company for purposes of the BHCA. In addition, the
New York Banking Superintendent (“Banking
Superintendent”) deems AIB to be
M&T’s bank holding
company for purposes of Article III-A of the Banking Law.
Among other things, this means that, should
M&T propose to make an
acquisition or engage in a new type of activity that requires
the submission of an application or notice to the Federal
Reserve Board or the Banking Superintendent, AIB, as well as
M&T, may also be
required to file an application or notice. The Reorganization
Agreement generally provides that AIB will make any
applications, notices or filings that
M&T determines to be
necessary or desirable. The Reorganization Agreement also
requires AIB not to take any action that would have a material
adverse effect on M&T
and to advise M&T prior
to entering into any material transaction or activity. These
provisions of the Reorganization Agreement would no longer apply
if AIB ceased to be
M&T’s bank holding
company and also was not otherwise considered to control
M&T for purposes of the
BHCA.
Pursuant to the Reorganization
Agreement, if, as a result of any administrative enforcement
action under Section 8 of the Federal Deposit Insurance Act
(the “FDI Act”), memorandum of understanding, written
agreement, supervisory letter or any other action or
determination of any regulatory agency relating to the status of
AIB (but not relating to the conduct of
M&T or any subsidiary
of M&T),
M&T or
M&T Bank also becomes
subject to such an action, memorandum, agreement or letter that
relates to M&T or any
M&T subsidiary, or
experiences any fact, event or circumstance that affects
M&T’s regulatory
status or compliance, and that in either case would be
reasonably likely to create a material burden on
M&T or to cause any
material adverse economic or operating consequences to
M&T or an
M&T subsidiary (a
“Material Regulatory Event”), then
M&T will notify AIB
thereof in writing as promptly as practicable. Should AIB fail
to cure the Material Regulatory Event within 90 days
following the receipt of such notice, AIB will, as promptly as
practicable but in no event later than 30 days from the end
of the cure period, take any and all such actions (with the
reasonable cooperation of
M&T as requested by
AIB) as may be necessary or advisable in order that it no longer
has “control” of
M&T for purposes of the
BHCA, including, if necessary, by selling some or all of its
shares of M&T common
stock (subject to the right of first refusal provisions of the
Reorganization Agreement) and divesting itself as required of
its board and committee representation and governance rights as
set forth in the Reorganization Agreement. If, at the end of
such 30-day period, the
Material Regulatory Event is continuing and AIB has not
terminated its control of
M&T, then
M&T will have the right
to repurchase, at fair market value, such amount of the
M&T common stock owned
by AIB as would result in AIB holding no less than 4.9% of the
outstanding shares of
M&T common stock,
pursuant to the procedures detailed in the Reorganization
Agreement.
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As long as AIB is considered to
“control” M&T
for purposes of the BHCA or the federal Change in Bank Control
Act, if AIB acquires any insured depository institution with
total assets greater than 25% of the assets of
M&T’s largest
insured depository institution subsidiary, then within two years
AIB must terminate its affiliation with the insured depository
institution or take such steps as may be necessary so that none
of M&T’s bank
subsidiaries would be subject to “cross guarantee”
liability for losses incurred if the institution AIB acquired
potentially were to fail. This liability applies under the FDI
Act to insured depository institutions that are commonly
controlled. The actions AIB would take could include disposing
of shares of M&T common
stock and/or surrendering its representation or governance
rights. Also, if such an insured depository institution that is
controlled by AIB and of the size described in the first
sentence of this paragraph that would be considered to be
commonly controlled with
M&T’s insured
depository institution subsidiaries fails to meet applicable
requirements to be “adequately capitalized” under
applicable U.S. banking laws, then AIB will have to take
the actions described in the previous sentence no later than
180 days after the date that the institution failed to meet
those requirements, unless the institution is sooner returned to
“adequately capitalized” status.
Subsidiaries
M&T
Bank is a banking corporation that is incorporated under the
laws of the State of New York.
M&T Bank is a member of
the Federal Reserve System and the Federal Home Loan Bank
System, and its deposits are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to applicable
limits. M&T acquired
all of the issued and outstanding shares of the capital stock of
M&T Bank in December
1969. The stock of M&T
Bank represents a major asset of
M&T.
M&T Bank operates under
a charter granted by the State of New York in 1892, and the
continuity of its banking business is traced to the organization
of the Manufacturers and Traders Bank in 1856. The principal
executive offices of
M&T Bank are located at
One M&T Plaza, Buffalo,
New York 14203. As of December 31, 2005,
M&T Bank had 658
banking offices located throughout New York State, Pennsylvania,
Maryland, Delaware, Virginia, West Virginia and the District of
Columbia, plus a branch in George Town, Cayman Islands. As of
December 31, 2005,
M&T Bank had
consolidated total assets of $54.4 billion, deposits of
$36.8 billion and stockholder’s equity of
$6.3 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
$34.6 billion in assessable deposits at December 31,
2005, 89% were assessed as BIF-insured deposits 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,
Pennsylvania, Maryland, northern Virginia and
Washington, D.C., 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. Additional financial services are provided
through other operating subsidiaries of the Company.
M&T
Bank, N.A., a national banking association and a member of the
Federal Reserve System and the FDIC, commenced operations on
October 2, 1995. The deposit liabilities of
M&T Bank, N.A. are
insured by the FDIC through the BIF. The main office of
M&T Bank, N.A. is
located at 48 Main Street, Oakfield, New York 14125.
M&T Bank, N.A. offers
selected deposit and loan products on a nationwide basis,
primarily through direct mail and telephone marketing
techniques. As of December 31, 2005,
M&T Bank, N.A. had
total assets of $625 million, deposits of $528 million
and stockholder’s equity of $87 million.
M&T
Life Insurance Company
(“M&T Life
Insurance”), a wholly owned subsidiary of
M&T, was incorporated
as an Arizona business corporation in January 1984.
M&T Life Insurance is a
captive credit reinsurer which reinsures credit life and
accident and health insurance purchased by the Company’s
consumer loan customers. As of December 31, 2005,
M&T Life Insurance had
assets of $34 million and stockholders’ equity of
$26 million. M&T
Life Insurance recorded revenues of $2 million during 2005.
Headquarters of M&T
Life Insurance are located at 101 North First Avenue, Phoenix,
Arizona 85003.
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M&T
Credit Services, LLC
(“M&T
Credit”), a wholly owned subsidiary of
M&T Bank, is a New York
limited liability company formed in June 2004, but its
operations can be traced to a predecessor company that was a
wholly owned subsidiary of
M&T Bank formed in
1994. M&T Credit is a
credit and leasing company offering consumer loans and
commercial loans and leases. Its headquarters are located at
M&T Center, One
Fountain Plaza, Buffalo, New York 14203, and it has offices in
Delaware, Massachusetts and Pennsylvania. As of
December 31, 2005,
M&T Credit had assets
of $4.4 billion and stockholder’s equity of
$431 million. M&T
Credit recorded $203 million of revenue during 2005.
M&T
Investment Company of Delaware, Inc.
(“M&T
Investment”), is an indirect subsidiary of
M&T Bank and a wholly
owned subsidiary of M&T
Investment Company, Inc.
M&T Investment is a
Delaware investment company that was formed on November 17,
2004 and shortly thereafter received substantially all of the
net assets of M&T
Investment Company, Inc. As a result of that transfer,
M&T Investment owns all
of the outstanding common stock and 88% of the preferred stock
of M&T Real Estate
Trust. As of December 31, 2005,
M&T Investment had
assets and stockholder’s equity of approximately
$12.1 billion. Excluding dividends from
M&T Real Estate Trust,
M&T Investment realized
$15 million of revenue in 2005. The headquarters of
M&T Investment are
located at 501 Silverside Road, Wilmington, Delaware 19809.
M&T Investment Company,
Inc. is a wholly owned subsidiary of
M&T Bank that was
incorporated as a New Jersey business corporation.
M&T Investment Company,
Inc. owns 100% of the common stock of
M&T Investment. Except
for that investment holding,
M&T Investment Company,
Inc. is largely inactive.
M&T
Lease, LLC (“M&T
Lease”), a wholly owned subsidiary of
M&T Bank, is a Delaware
limited liability company formed in June 2004, but its
operations can be traced to a predecessor company that was a
wholly owned subsidiary of
M&T Bank formed in
1994. M&T Lease is a
consumer leasing company with headquarters at One
M&T Plaza, Buffalo, New
York 14203. As of December 31, 2005,
M&T Lease had assets of
$90 million and stockholder’s equity of
$41 million. M&T
Lease recorded $16 million of revenue during 2005.
M&T
Mortgage Corporation
(“M&T
Mortgage”), a 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. On May 1, 2005,
M&T Mortgage assumed
the operations of Regions Financial Corporation’s wholesale
residential mortgage business. Those operations added 13
locations and approximately 140 employees to
M&T Mortgage’s
business. M&T Mortgage
operates throughout New York State, Maryland and Pennsylvania,
and also maintains branch offices in 19 other states.
M&T Mortgage had assets
of $3.1 billion and stockholder’s equity of
$348 million as of December 31, 2005, and recorded
approximately $275 million of revenue during 2005. Mortgage
loans serviced by M&T
Mortgage for non-affiliates totaled $15.6 billion at
December 31, 2005. The headquarters of
M&T Mortgage are
located at M&T Center,
One Fountain Plaza, Buffalo, New York 14203.
M&T
Mortgage Reinsurance Company, Inc.
(“M&T
Reinsurance”), a wholly owned subsidiary of
M&T Bank, was
incorporated as a Vermont business corporation in July 1999.
M&T Reinsurance enters
into reinsurance contracts with insurance companies who insure
against the risk of a mortgage borrower’s payment default
in connection with M&T
Mortgage-related mortgage loans.
M&T Reinsurance
receives a share of the premium for those policies in exchange
for accepting a portion of the insurer’s risk of borrower
default. M&T
Reinsurance had assets of approximately $17 million and
stockholder’s equity of approximately $16 million as
of December 31, 2005, and recorded approximately
$4 million of revenue during 2005.
M&T Reinsurance’s
principal and registered office is at 148 College Street,
Burlington, Vermont 05401.
M&T
Real Estate Trust
(“M&T Real
Estate”) is a Maryland Real Estate Investment Trust and is
a subsidiary of M&T
Investment. M&T Real
Estate was formed through the merger of two separate
subsidiaries, but traces its origin to
M&T Real Estate, Inc.,
a New York business corporation incorporated in July 1995.
M&T Real Estate engages
in commercial real estate lending and provides loan servicing to
M&T Bank. As of
December 31, 2005,
M&T Real Estate had
assets of $12.1 billion, common stockholders’ equity
of $11.8 billion, and preferred stockholders’ equity,
consisting of 9%
10
fixed-rate preferred stock (par
value $1,000), of $1 million. All of the outstanding common
stock and 88% of the preferred stock of
M&T Real Estate is
owned by M&T
Investment. The remaining 12% of
M&T Real Estate’s
outstanding preferred stock is owned by officers or former
officers of the Company.
M&T Real Estate
recorded $695 million of revenue in 2005. The headquarters
of M&T Real Estate are
located at M&T Center,
One Fountain Plaza, Buffalo, New York 14203.
M&T
Realty Capital Corporation
(“M&T Realty
Capital”), a wholly owned subsidiary of
M&T Bank, was
incorporated as a Maryland corporation in October 1973.
M&T Realty Capital
engages in multi-family commercial real estate lending and
provides loan servicing to purchasers of the loans it
originates. As of December 31, 2005
M&T Realty Capital
serviced $4.3 billion of commercial mortgage loans for
non-affiliates and had assets of $250 million and
stockholder’s equity of $29 million.
M&T Realty Capital
recorded revenues of $31 million in 2005. The headquarters
of M&T Realty Capital
are located at 25 South Charles Street, Baltimore, Maryland
21202.
M&T
Securities, Inc.
(“M&T
Securities”) is a wholly owned subsidiary of
M&T Bank that was
incorporated as a New York business corporation in November
1985. M&T Securities is
registered as a broker/ dealer under the Securities Exchange Act
of 1934, as amended, and as an investment advisor under the
Investment Advisors Act of 1940, as amended.
M&T Securities is
licensed as a life insurance agent in each state where
M&T Bank operates
branch offices and in a number of other states. It provides
securities brokerage, investment advisory and insurance
services. As of December 31, 2005,
M&T Securities had
assets of $39 million and stockholder’s equity of
$29 million. M&T
Securities recorded $77 million of revenue during 2005. The
headquarters of M&T
Securities are located at One
M&T Plaza, Buffalo, New
York 14203.
M&T
Insurance Agency, Inc.
(“M&T Insurance
Agency”), a wholly owned insurance agency subsidiary of
M&T Bank, was
incorporated as a New York corporation in March 1955.
M&T Insurance Agency,
which changed its name from Matthews, Bartlett &
Dedecker, Inc. in March 2005, provides insurance agency services
principally to the commercial market. As of December 31,
2005, M&T Insurance
Agency had assets of $19 million and stockholder’s
equity of $9 million.
M&T Insurance Agency
recorded revenues of $9 million during 2005. The
headquarters of M&T
Insurance Agency are located at 334 Delaware Avenue, Buffalo,
New York 14202.
M&T
Auto Receivables I, LLC
(“M&T Auto
Receivables”), a wholly owned subsidiary of
M&T Bank, was formed as
a Delaware limited liability company in May 2002.
M&T Auto Receivables is
a special purpose entity whose activities are generally
restricted to purchasing and owning automobile loans for the
purpose of securing a revolving asset-backed structured
borrowing. M&T Auto
Receivables had assets of $572 million and
stockholder’s equity of $70 million as of
December 31, 2005, and recorded approximately
$38 million of revenue during 2005.
M&T Auto
Receivables’ registered office is at 1209 Orange Street,
Wilmington, Delaware 19801.
MTB Investment Advisors, Inc.
(“MTB Investment Advisors”), a wholly owned subsidiary
of M&T Bank, was
incorporated as a Maryland corporation on June 30, 1995.
MTB Investment Advisors serves as investment advisor to the MTB
Group of Funds, a family of proprietary mutual funds, and
institutional clients. As of December 31, 2005, MTB
Investment Advisors had assets of $36 million and
stockholder’s equity of $32 million. MTB Investment
Advisors recorded revenues of $37 million in 2005. The
headquarters of MTB Investment Advisors are located at 100 East
Pratt Street, Baltimore, Maryland 21202.
The Registrant and its banking subsidiaries have a number of
other special-purpose or inactive subsidiaries. These other
subsidiaries did not represent, individually and collectively, a
significant portion of the Company’s consolidated assets,
net income and stockholders’ equity at December 31,
2005.
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 Registrant’s reportable segments have
been determined based upon its internal profitability reporting
system, which is organized by strategic business unit. Certain
strategic
11
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
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 only activities that, as a class, contributed 10% or more of
the sum of consolidated interest income and other income in any
of the last three years were lending and investment securities
transactions. The amount of income from such sources during
those years is set forth on the Company’s Consolidated
Statement of Income filed herewith in Part II, Item 8,
“Financial Statements and Supplementary Data.”
Supervision and Regulation of the Company
The banking industry is subject to extensive state and federal
regulation and continues to undergo significant change. The
following discussion summarizes certain aspects of the banking
laws and regulations that affect the Company. Proposals to
change the laws and regulations governing the banking industry
are frequently raised in Congress, in state legislatures, and
before the various bank regulatory agencies. The likelihood and
timing of any changes and the impact such changes might have on
the Company are impossible to determine with any certainty. A
change in applicable laws or regulations, or a change in the way
such laws or regulations are interpreted by regulatory agencies
or courts, may have a material impact on the business,
operations and earnings of the Company. To the extent that the
following information describes statutory or regulatory
provisions, it is qualified entirely by reference to the
particular statutory or regulatory provision.
Financial Services Modernization
The Gramm-Leach-Bliley Act of 1999 (“Gramm-Leach”)
enables combinations among banks, securities firms and insurance
companies. Under Gramm-Leach, bank holding companies are
permitted to offer their customers virtually any type of
financial service that is financial in nature or incidental
thereto, including banking, securities underwriting, insurance
(both underwriting and agency), and merchant banking.
In order to engage in these
financial activities, a bank holding company must qualify and
register with the Federal Reserve Board as a “financial
holding company” by demonstrating that each of its bank
subsidiaries is “well capitalized,” “well
managed,” and has at least a “satisfactory”
rating under the Community Reinvestment Act of 1977
(“CRA”). M&T
currently satisfies the qualifications for registering as a
financial holding company, but has not elected to do so to date.
For as long as AIB owns at least 15% of
M&T’s outstanding
common stock, M&T may
not become a financial holding company without the approval of
the Executive Committee of the
M&T board of directors,
which must also include the affirmative approval of the AIB
Designee on such committee, as described above under the caption
“Amendments to
M&T’s Bylaws.”
The financial activities
authorized by Gramm-Leach may also be engaged in by a
“financial subsidiary” of a national or state bank,
except for insurance or annuity underwriting, insurance company
portfolio investments, real estate investment and development,
and merchant banking, which must be conducted in a financial
holding company. In order for these financial activities to be
engaged in by a financial subsidiary of a national or state
bank, Gramm-Leach requires each of the parent bank (and its
sister-bank affiliates) to be well capitalized and well managed;
the aggregate consolidated assets of all of that bank’s
financial subsidiaries may not exceed the lesser of 45% of its
consolidated total assets or $50 billion; the bank must
have at least a satisfactory CRA rating; and, if that bank is
one of the 100 largest national banks, it must meet certain
financial rating or other comparable requirements.
M&T Bank and
M&T Bank, N.A.
currently satisfy the qualifications for engaging in financial
activities through financial subsidiaries, but neither has
elected to do so to date. Gramm-Leach also establishes a system
of functional regulation under which the federal banking
agencies will regulate the banking activities of
12
financial holding companies and banks’ financial
subsidiaries, the U.S. Securities and Exchange Commission
will regulate their securities activities, and state insurance
regulators will regulate their insurance activities. Rules
developed by the federal financial institutions regulators under
Gramm-Leach require disclosure of privacy policies to consumers
and, in some circumstances, allow consumers to prevent the
disclosure of certain personal information to nonaffiliated
third parties. The foregoing discussion is qualified in its
entirety by reference to the statutory provisions of Gramm-Leach
and the implementing regulations which have been adopted by
various government agencies pursuant to Gramm-Leach.
Bank Holding Company Regulation
As a registered bank holding company, the Registrant and its
nonbank subsidiaries are subject to supervision and regulation
under the BHCA by the Federal Reserve Board and under the
Banking Law by the 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.
The Registrant may not acquire direct or indirect ownership or
control of more than 5% of the voting shares of any company,
including a bank, without the prior approval of the Federal
Reserve Board, except as specifically authorized under the BHCA.
The Registrant is also subject to regulation under the Banking
Law with respect to certain acquisitions of domestic banks.
Under the BHCA, the Registrant, subject to the approval of the
Federal Reserve Board, may acquire shares of non-banking
corporations the activities of which are deemed by the Federal
Reserve Board to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The Federal Reserve Board has enforcement powers over bank
holding companies and their non-banking subsidiaries, among
other things, to interdict activities that represent unsafe or
unsound practices or constitute violations of law, rule,
regulation, administrative orders or written agreements with a
federal bank regulator. These powers may be exercised through
the issuance of cease-and-desist orders, civil money penalties
or other actions.
Under the Federal Reserve Board’s statement of policy with
respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength
to its subsidiary depository institutions and to commit all
available resources to support such institutions in
circumstances where it might not do so absent such policy.
Although this “source of strength” policy has been
challenged in litigation, the Federal Reserve Board continues to
take the position that it has authority to enforce it. For a
discussion of circumstances under which a bank holding company
may be required to guarantee the capital levels or performance
of its subsidiary banks, see “Capital Adequacy,”
below. Consistent with this “source of strength”
policy, the Federal Reserve Board takes the position that a bank
holding company generally should not maintain a rate of cash
dividends unless its net income available to common shareholders
has been sufficient to fully fund the dividends and the
prospective rate of earnings retention appears to be consistent
with the company’s capital needs, asset quality and overall
financial condition. 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.
13
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 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.
During these examinations, the Federal Reserve Board (or other
appropriate bank regulatory agency) rates such bank’s
compliance with the CRA as “Outstanding,”
“Satisfactory,” “Needs to Improve” or
“Substantial Noncompliance.” The failure of a bank to
receive at least a “Satisfactory” rating could inhibit
such bank or its bank holding company from undertaking certain
activities, including acquisitions of other financial
institutions or opening or relocating a branch office, as
further discussed below.
M&T Bank has a CRA
rating of “Outstanding” and
M&T Bank, N.A. has a
CRA rating of “Satisfactory.” 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.
M&T Bank has a CRA
rating of “Outstanding” as determined by the New York
State Banking Department.
Supervision and Regulation of Bank Subsidiaries
The Registrant’s bank
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 (“OCC”). The Registrant
and its direct non-banking subsidiaries are affiliates, within
the meaning of the Federal Reserve Act, of the Registrant’s
subsidiary banks and their subsidiaries. As a result, the
Registrant’s subsidiary banks and their subsidiaries are
subject to restrictions on loans or extensions of credit to,
purchases of assets from, investments in, and transactions with
the Registrant and its direct non-banking subsidiaries and on
certain other transactions with them or involving their
securities. Gramm-Leach places similar restrictions on the
Registrant’s subsidiary banks making loans or extending
credit to, purchasing assets from, investing in, or entering
into transactions with, their financial subsidiaries.
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
The Registrant is a legal entity
separate and distinct from its banking and other subsidiaries.
The majority of the Registrant’s revenue is from dividends
paid to the Registrant by its subsidiary banks.
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
14
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.
An insured depository institution is prohibited from making any
capital distribution to its owner, including any dividend, if,
after making such distribution, the depository institution fails
to meet the required minimum level for any relevant capital
measure, including the risk-based capital adequacy and leverage
standards discussed herein.
Supervision and Regulation of
M&T Bank’s
Subsidiaries
M&T
Bank has a number of subsidiaries. These subsidiaries are
subject to the laws and regulations of both the federal
government and the various states in which they conduct
business. For example,
M&T Securities is
regulated by the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc. and state
securities regulators.
M&T Mortgage also is
subject to state regulation in the states in which it operates.
Capital Adequacy
The Federal Reserve Board, the FDIC and the OCC have adopted
risk-based capital adequacy guidelines for bank holding
companies and banks under their supervision. Under these
guidelines, the so-called “Tier 1 capital” and
“Total capital” as a percentage of risk-weighted
assets and certain off-balance sheet instruments must be at
least 4% and 8%, respectively.
The Federal Reserve Board, the
FDIC and the OCC have also imposed a leverage standard to
supplement their risk-based ratios. This leverage standard
focuses on a banking institution’s ratio of Tier 1
capital to average total assets, adjusted for goodwill and
certain other items. Under these guidelines, banking
institutions that meet certain criteria, including excellent
asset quality, high liquidity, low interest rate exposure and
good earnings, and that have received the highest regulatory
rating must maintain a ratio of Tier 1 capital to total
adjusted average assets of at least 3%. Institutions not meeting
these criteria, as well as institutions with supervisory,
financial or operational weaknesses, along with those
experiencing or anticipating significant growth are expected to
maintain a Tier 1 capital to total adjusted average assets
ratio equal to at least 4% to 5%. As reflected in the table in
note 22 of Notes to Financial Statements filed herewith in
Part II, Item 8, “Financial Statements and
Supplementary Data,” the risk-based capital ratios and
leverage ratios of the Registrant,
M&T Bank and
M&T Bank, N.A. as of
December 31, 2005 exceeded the required capital ratios for
classification as “well capitalized,” the highest
classification under the regulatory capital guidelines.
The federal banking agencies,
including the Federal Reserve Board and the OCC, maintain
risk-based capital standards in order to ensure that those
standards take adequate account of interest rate risk,
concentration of credit risk, the risk of nontraditional
activities and equity investments in nonfinancial companies, 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, and consider
changes to the risk-based capital standards that could
significantly increase the amount of capital needed to meet the
requirements for the capital tiers described below. While the
Company’s management studies such proposals, the timing of
adoption, ultimate form and effect of any such proposed
amendments on
M&T’s capital
requirements and operations cannot be predicted.
The federal banking agencies are required to take “prompt
corrective action” in respect of depository institutions
and their bank holding companies that do not meet minimum
capital requirements. The Federal Deposit Insurance Corporation
Improvement Act 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
15
(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,
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.
Each federal banking agency prescribes standards for depository
institutions and depository institution holding companies
relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, a maximum ratio of
classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for
publicly traded shares and other standards as they deem
appropriate. The Federal Reserve Board and OCC have adopted such
standards.
Depository institutions that are
not “well capitalized” or “adequately
capitalized” and have not received a waiver from the FDIC
are prohibited from accepting or renewing brokered deposits. As
of December 31, 2005,
M&T Bank had
approximately $3.8 billion of brokered deposits, while
M&T Bank, N.A. did not
have any brokered deposits at that date.
Although
M&T has issued shares
of common stock in connection with acquisitions or at other
times, the Company has generally maintained capital ratios in
excess of minimum regulatory guidelines largely through internal
capital generation (i.e. net income less dividends paid).
Historically,
M&T’s dividend
payout ratio and dividend yield, when compared with other bank
holding companies, has been relatively low, thereby allowing for
capital retention to support growth or to facilitate purchases
of M&T’s common
stock to be held as treasury stock. Management’s policy of
reinvestment of earnings and repurchase of shares of common
stock is intended to enhance
M&T’s earnings per
share prospects
16
and thereby reward stockholders over time with capital gains in
the form of increased stock price rather than high dividend
income.
FDIC Deposit Insurance Assessments
As institutions with deposits
insured by the BIF and the SAIF,
M&T Bank and
M&T Bank, N.A. are
subject to FDIC deposit insurance assessments. Under current law
the regular insurance assessments to be paid by BIF-insured and
SAIF-insured institutions are specified in schedules issued by
the FDIC that specify, at semiannual intervals, target reserve
ratios designed to maintain the reserve ratios of each of those
insurance funds at 1.25% of their estimated insured deposits.
The FDIC is also authorized to impose one or more special
assessments.
The FDIC has implemented a risk-based deposit premium assessment
system under which each depository institution is placed in one
of nine assessment categories based on the institution’s
capital classification under the prompt corrective action
provisions described above, and whether such institution is
considered by its supervisory agency to be financially sound or
to have supervisory concerns. The adjusted assessment rates for
both BIF-insured and SAIF-insured institutions under the current
system range from .00% to .27% depending upon the assessment
category into which the insured institution is placed. Neither
of the Company’s bank subsidiaries paid regular insurance
assessments to the FDIC in 2005. However, the FDIC retains the
ability to increase regular BIF and SAIF assessments and to levy
special additional assessments.
In addition to deposit insurance fund assessments, beginning in
1997 the FDIC assessed BIF-assessable and SAIF-assessable
deposits to fund the repayment of debt obligations of the
Financing Corporation (“FICO”). FICO is a government
agency-sponsored entity that was formed to borrow the money
necessary to carry out the closing and ultimate disposition of
failed thrift institutions by the Resolution Trust Corporation.
The current annualized rates established by the FDIC for both
BIF-assessable and SAIF-assessable deposits are 1.32 basis
points (hundredths of one percent).
Any significant increases in
assessment rates or additional special assessments by the FDIC
could have an adverse impact on the results of operations and
capital of M&T Bank or
M&T Bank, N.A.
Consumer Protection Laws
In connection with their
respective lending and leasing activities,
M&T Bank, certain of
its subsidiaries, and
M&T Bank, N.A. are each
subject to a number of federal and state laws designed to
protect borrowers and promote lending to various sectors of the
economy and population. These laws include the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Home Mortgage Disclosure Act, and the Real
Estate Settlement Procedures Act, and various state law
counterparts.
In addition, federal law currently contains extensive customer
privacy protection provisions. Under these provisions, a
financial institution must provide to its customers, at the
inception of the customer relationship and annually thereafter,
the institution’s policies and procedures regarding the
handling of customers’ nonpublic personal financial
information. These provisions also provide that, except for
certain limited exceptions, a financial institution may not
provide such personal information to unaffiliated third parties
unless the institution discloses to the customer that such
information may be so provided and the customer is given the
opportunity to opt out of such disclosure. Federal law makes it
a criminal offense, except in limited circumstances, to obtain
or attempt to obtain customer information of a financial nature
by fraudulent or deceptive means.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002
implemented a broad range of corporate governance, accounting
and reporting measures for companies that have securities
registered under the Exchange Act, including publicly-held bank
holding companies such as
M&T. Specifically, the
Sarbanes-Oxley Act of 2002 and the various regulations
promulgated thereunder, established, among other things:
(i) new requirements for audit committees, including
independence, expertise, and responsibilities;
(ii) additional responsibili-
17
ties regarding financial statements for the Chief Executive
Officer and Chief Financial Officer of the reporting company;
(iii) the forfeiture of bonuses or other incentive-based
compensation and profits from the sale of the reporting
company’s securities by the Chief Executive Officer and
Chief Financial Officer in the twelve-month period following the
initial publication of any financial statements that later
require restatement; (iv) the creation of an independent
accounting oversight board; (v) new standards for auditors
and regulation of audits, including independence provisions that
restrict non-audit services that accountants may provide to
their audit clients; (vi) increased disclosure and
reporting obligations for the reporting company and their
directors and executive officers, including accelerated
reporting of stock transactions and a prohibition on trading
during pension blackout periods; (vii) a prohibition on
personal loans to directors and officers, except certain loans
made by insured financial institutions on nonpreferential terms
and in compliance with other bank regulatory requirements; and
(viii) a range of new and increased civil and criminal
penalties for fraud and other violations of the securities laws.
USA Patriot Act
The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001
(the “USA Patriot Act”) imposes additional obligations
on U.S. financial institutions, including banks and broker
dealer subsidiaries, to implement policies, procedures and
controls which are reasonably designed to detect and report
instances of money laundering and the financing of terrorism. In
addition, provisions of the USA Patriot Act require the federal
financial institution regulatory agencies to consider the
effectiveness of a financial institution’s anti-money
laundering activities when reviewing bank mergers and bank
holding company acquisitions. The Registrant and its impacted
subsidiaries have approved policies and procedures that are
believed to be compliant with the USA Patriot Act.
Regulatory Impact of
M&T’s Relationship
With AIB
As described above under the
caption “Relationship With Allied Irish Banks,
p.l.c.,” AIB owns approximately 23.8% of the issued and
outstanding shares of
M&T common stock and
has representation on the
M&T and
M&T Bank boards of
directors. As a result, AIB has become
M&T’s bank holding
company under the BHCA and the Banking Law and AIB’s
relationship with M&T
is subject to the statutes and regulations governing bank
holding companies described above. Among other things, AIB will
have to join M&T in
applications by M&T for
acquisitions and new activities. The Reorganization Agreement
requires AIB to join in such applications at
M&T’s request,
subject to certain limitations. In addition, because AIB is
regulated by the Central Bank of Ireland (the “CBI”),
the CBI may assert jurisdiction over
M&T as a company
controlled by AIB. Additional discussion of the regulatory
implications of the Allfirst acquisition for
M&T is set forth above
under the caption “Certain Post-Closing Bank Regulatory
Matters.”
Governmental Policies
The earnings of the Company are significantly affected by the
monetary and fiscal policies of governmental authorities,
including the Federal Reserve Board. Among the instruments of
monetary policy used by the Federal Reserve Board to implement
these objectives are open-market operations in
U.S. Government securities and federal funds, changes in
the discount rate on member bank borrowings and changes in
reserve requirements against member bank deposits. These
instruments of monetary policy are used in varying combinations
to influence the overall level of bank loans, investments and
deposits, and the interest rates charged on loans and paid for
deposits. The Federal Reserve Board frequently uses these
instruments of monetary policy, especially its open-market
operations and the discount rate, to influence the level of
interest rates and to affect the strength of the economy, the
level of inflation or the price of the dollar in foreign
exchange markets. The monetary policies of the Federal Reserve
Board have had a significant effect on the operating results of
banking institutions in the past and are expected to continue to
do so in the future. It is not possible to predict the nature of
future
18
changes in monetary and fiscal policies, or the effect which
they may have on the Company’s business and earnings.
Competition
The Company competes in offering commercial and personal
financial services with other banking institutions and with
firms in a number of other industries, such as thrift
institutions, credit unions, personal loan companies, sales
finance companies, leasing companies, securities firms and
insurance companies. Furthermore, diversified financial services
companies are able to offer a combination of these services to
their customers on a nationwide basis. The Company’s
operations are significantly impacted by state and federal
regulations applicable to the banking industry. Moreover, the
provisions of Gramm-Leach have allowed for increased competition
among diversified financial services providers, and the
Interstate Banking Act and the Banking Law may be considered to
have eased entry into New York State by
out-of-state banking
institutions. As a result, the number of financial services
providers and banking institutions with which the Company
competes may grow in the future.
Other Legislative Initiatives
Proposals may be introduced in the United States Congress and in
the New York State Legislature and before various bank
regulatory authorities which would alter the powers of, and
restrictions on, different types of banking organizations and
which would restructure part or all of the existing regulatory
framework for banks, bank holding companies and other providers
of financial services. Moreover, other bills may be introduced
in Congress which would further regulate, deregulate or
restructure the financial services industry. It is not possible
to predict whether these or any other proposals will be enacted
into law or, even if enacted, the effect which they may have on
the Company’s business and earnings.
Other Information
Through a link on the Investor
Relations section of
M&T’s website at
www.mandtbank.com, copies of
M&T’s Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q and
Current Reports on
Form 8-K, and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, are made
available, free of charge, as soon as reasonably practicable
after electronically filing such material with, or furnishing it
to, the Securities and Exchange Commission. Copies of such
reports and other information are also available at no charge to
any person who requests them or at www.sec.gov. Such requests
may be directed to M&T
Bank Corporation, Shareholder Relations Department, One
M&T Plaza,
13th Floor, Buffalo, NY 14203-2399, (716) 842-5445.
Corporate Governance
M&T’s
Corporate Governance Standards and the following corporate
governance documents are also available on
M&T’s website:
Disclosure Policy; Executive Committee Charter; Nomination,
Compensation and Governance Committee Charter; Audit Committee
Charter; Financial Reporting and Disclosure Controls and
Procedures Policy; Code of Ethics for CEO and Senior Financial
Officers; Code of Business Conduct and Ethics; and Employee
Complaint Procedures for Accounting and Auditing Matters. Copies
of such governance documents are also available, free of charge,
to any person who requests them. Such requests may be directed
to M&T Bank
Corporation, Shareholder Relations Department, One
M&T Plaza,
13th Floor, Buffalo, NY 14203-2399, (716) 842-5445.
19
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.
Table 1
SELECTED CONSOLIDATED YEAR-END BALANCES
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||
|
Money-market assets
|
||||||||||||||||||||||
|
Interest-bearing deposits at banks
|
$ | 8,408 | $ | 10,242 | $ | 13,194 | $ | 7,856 | $ | 4,341 | ||||||||||||
|
Federal funds sold and resell agreements
|
11,220 | 29,176 | 22,288 | 320,359 | 41,086 | |||||||||||||||||
|
Trading account
|
191,617 | 159,946 | 214,833 | 51,628 | 38,929 | |||||||||||||||||
|
Total money-market assets
|
211,245 | 199,364 | 250,315 | 379,843 | 84,356 | |||||||||||||||||
|
Investment securities
|
||||||||||||||||||||||
|
U.S. Treasury and federal agencies
|
3,016,374 | 3,965,110 | 3,398,547 | 1,209,180 | 1,448,397 | |||||||||||||||||
|
Obligations of states and political subdivisions
|
181,938 | 204,792 | 249,193 | 256,023 | 306,768 | |||||||||||||||||
|
Other
|
5,201,852 | 4,304,717 | 3,611,410 | 2,489,947 | 1,268,972 | |||||||||||||||||
|
Total investment securities
|
8,400,164 | 8,474,619 | 7,259,150 | 3,955,150 | 3,024,137 | |||||||||||||||||
|
Loans and leases
|
||||||||||||||||||||||
|
Commercial, financial, leasing, etc.
|
11,105,827 | 10,169,695 | 9,406,399 | 5,399,738 | 5,205,834 | |||||||||||||||||
|
Real estate — construction
|
2,335,498 | 1,797,106 | 1,537,880 | 1,001,553 | 1,034,362 | |||||||||||||||||
|
Real estate — mortgage
|
16,636,557 | 15,538,227 | 13,932,731 | 12,010,464 | 12,929,102 | |||||||||||||||||
|
Consumer
|
10,475,809 | 11,139,594 | 11,160,588 | 7,525,187 | 6,226,170 | |||||||||||||||||
|
Total loans and leases
|
40,553,691 | 38,644,622 | 36,037,598 | 25,936,942 | 25,395,468 | |||||||||||||||||
|
Unearned discount
|
(223,046 | ) | (246,145 | ) | (265,163 | ) | (209,158 | ) | (207,708 | ) | ||||||||||||
|
Allowance for credit losses
|
(637,663 | ) | (626,864 | ) | (614,058 | ) | (436,472 | ) | (425,008 | ) | ||||||||||||
|
Loans and leases, net
|
39,692,982 | 37,771,613 | 35,158,377 | 25,291,312 | 24,762,752 | |||||||||||||||||
|
Goodwill
|
2,904,081 | 2,904,081 | 2,904,081 | 1,097,553 | 1,097,553 | |||||||||||||||||
|
Core deposit and other intangible assets
|
108,260 | 165,507 | 240,830 | 118,790 | 170,273 | |||||||||||||||||
|
Real estate and other assets owned
|
9,486 | 12,504 | 19,629 | 17,380 | 16,387 | |||||||||||||||||
|
Total assets
|
55,146,406 | 52,938,721 | 49,826,081 | 33,201,181 | 31,469,185 | |||||||||||||||||
|
Noninterest-bearing deposits
|
8,141,928 | 8,417,365 | 8,411,296 | 4,072,085 | 3,704,004 | |||||||||||||||||
|
NOW accounts
|
901,938 | 828,999 | 1,738,427 | 1,029,060 | 930,400 | |||||||||||||||||
|
Savings deposits
|
13,839,150 | 14,721,663 | 14,118,521 | 9,156,678 | 7,980,065 | |||||||||||||||||
|
Time deposits
|
11,407,626 | 7,228,514 | 6,637,249 | 6,246,384 | 8,188,036 | |||||||||||||||||
|
Deposits at foreign office
|
2,809,532 | 4,232,932 | 2,209,451 | 1,160,716 | 777,895 | |||||||||||||||||
|
Total deposits
|
37,100,174 | 35,429,473 | 33,114,944 | 21,664,923 | 21,580,400 | |||||||||||||||||
|
Short-term borrowings
|
5,152,872 | 4,703,664 | 4,442,246 | 3,429,414 | 3,045,830 | |||||||||||||||||
|
Long-term borrowings
|
6,196,994 | 6,348,559 | 5,535,425 | 4,497,374 | 3,461,769 | |||||||||||||||||
|
Total liabilities
|
49,270,020 | 47,209,107 | 44,108,871 | 29,992,702 | 28,510,745 | |||||||||||||||||
|
Stockholders’ equity
|
5,876,386 | 5,729,614 | 5,717,210 | 3,208,479 | 2,958,440 | |||||||||||||||||
Table 2
STOCKHOLDERS, EMPLOYEES AND OFFICES
| Number at Year-End | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
|
Stockholders
|
10,437 | 10,857 | 11,258 | 11,587 | 12,565 | |||||||||||||||
|
Employees
|
13,525 | 13,371 | 14,000 | 9,197 | 9,291 | |||||||||||||||
|
Offices
|
724 | 713 | 735 | 493 | 513 | |||||||||||||||
20
Table 3
CONSOLIDATED EARNINGS
| 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
| (In thousands) | |||||||||||||||||||||
|
Interest income
|
|||||||||||||||||||||
|
Loans and leases, including fees
|
$ | 2,420,660 | $ | 1,974,469 | $ | 1,897,701 | $ | 1,670,412 | $ | 1,892,507 | |||||||||||
|
Money-market assets
|
|||||||||||||||||||||
|
Deposits at banks
|
169 | 65 | 147 | 76 | 116 | ||||||||||||||||
|
Federal funds sold and resell agreements
|
808 | 134 | 1,875 | 4,455 | 2,027 | ||||||||||||||||
|
Trading account
|
1,544 | 375 | 592 | 202 | 348 | ||||||||||||||||
|
Investment securities
|
|||||||||||||||||||||
|
Fully taxable
|
351,423 | 309,141 | 210,968 | 148,221 | 182,767 | ||||||||||||||||
|
Exempt from federal taxes
|
14,090 | 14,548 | 15,282 | 18,733 | 24,120 | ||||||||||||||||
|
Total interest income
|
2,788,694 | 2,298,732 | 2,126,565 | 1,842,099 | 2,101,885 | ||||||||||||||||
|
Interest expense
|
|||||||||||||||||||||
|
NOW accounts
|
2,182 | 1,802 | 3,613 | 3,900 | 8,548 | ||||||||||||||||
|
Savings deposits
|
139,445 | 92,064 | 102,190 | 107,281 | 134,454 | ||||||||||||||||
|
Time deposits
|
294,782 | 154,722 | 159,700 | 237,001 | 453,940 | ||||||||||||||||
|
Deposits at foreign office
|
120,122 | 43,034 | 14,991 | 8,460 | 11,264 | ||||||||||||||||
|
Short-term borrowings
|
157,853 | 71,172 | 49,064 | 52,723 | 124,810 | ||||||||||||||||
|
Long-term borrowings
|
279,967 | 201,366 | 198,252 | 185,149 | 210,581 | ||||||||||||||||
|
Total interest expense
|
994,351 | 564,160 | 527,810 | 594,514 | 943,597 | ||||||||||||||||
|
Net interest income
|
1,794,343 | 1,734,572 | 1,598,755 | 1,247,585 | 1,158,288 | ||||||||||||||||
|
Provision for credit losses
|
88,000 | 95,000 | 131,000 | 122,000 | 103,500 | ||||||||||||||||
|
Net interest income after provision for credit losses
|
1,706,343 | 1,639,572 | 1,467,755 | 1,125,585 | 1,054,788 | ||||||||||||||||
|
Other income
|
|||||||||||||||||||||
|
Mortgage banking revenues
|
136,114 | 124,353 | 149,105 | 116,408 | 102,699 | ||||||||||||||||
|
Service charges on deposit accounts
|
369,918 | 366,301 | 309,749 | 167,531 | 144,302 | ||||||||||||||||
|
Trust income
|
134,679 | 136,296 | 114,620 | 60,030 | 64,395 | ||||||||||||||||
|
Brokerage services income
|
55,572 | 53,740 | 51,184 | 43,261 | 39,349 | ||||||||||||||||
|
Trading account and foreign exchange gains
|
22,857 | 19,435 | 15,989 | 2,860 | 4,462 | ||||||||||||||||
|
Gain (loss) on bank investment securities
|
(28,133 | ) | 2,874 | 2,487 | (608 | ) | 1,873 | ||||||||||||||
|
Other revenues from operations
|
258,711 | 239,970 | 187,961 | 122,449 | 120,346 | ||||||||||||||||
|
Total other income
|
949,718 | 942,969 | 831,095 | 511,931 | 477,426 | ||||||||||||||||
|
Other expense
|
|||||||||||||||||||||
|
Salaries and employee benefits
|
822,239 | 806,552 | 740,324 | 496,990 | 467,194 | ||||||||||||||||
|
Equipment and net occupancy
|
173,689 | 179,595 | 170,623 | 107,822 | 111,403 | ||||||||||||||||
|
Printing, postage and supplies
|
33,743 | 34,476 | 36,985 | 25,378 | 25,512 | ||||||||||||||||
|
Amortization of goodwill
|
— | — | — | — | 61,820 | ||||||||||||||||
|
Amortization of core deposit and other intangible assets
|
56,805 | 75,410 | 78,152 | 51,484 | 59,816 | ||||||||||||||||
|
Other costs of operations
|
398,666 | 419,985 | 422,096 | 279,937 | 254,830 | ||||||||||||||||
|
Total other expense
|
1,485,142 | 1,516,018 | 1,448,180 | 961,611 | 980,575 | ||||||||||||||||
|
Income before income taxes
|
1,170,919 | 1,066,523 | 850,670 | 675,905 | 551,639 | ||||||||||||||||
|
Income taxes
|
388,736 | 344,002 | 276,728 | 219,153 | 198,551 | ||||||||||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | $ | 456,752 | $ | 353,088 | |||||||||||
|
Dividends declared — Common
|
$ | 198,619 | $ | 187,669 | $ | 135,423 | $ | 96,858 | $ | 95,872 | |||||||||||
21
Table 4
COMMON SHAREHOLDER DATA
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||
|
Per share
|
||||||||||||||||||||||
|
Net income
|
||||||||||||||||||||||
|
Basic
|
$ | 6.88 | $ | 6.14 | $ | 5.08 | $ | 4.94 | $ | 3.69 | ||||||||||||
|
Diluted
|
6.73 | 6.00 | 4.95 | 4.78 | 3.58 | |||||||||||||||||
|
Cash dividends declared
|
1.75 | 1.60 | 1.20 | 1.05 | 1.00 | |||||||||||||||||
|
Stockholders’ equity at year-end
|
52.39 | 49.68 | 47.55 | 34.82 | 31.54 | |||||||||||||||||
|
Tangible stockholders’ equity at year-end
|
25.91 | 23.62 | 21.97 | 22.04 | 18.54 | |||||||||||||||||
|
Dividend payout ratio
|
25.42 | % | 26.00 | % | 23.62 | % | 21.24 | % | 27.19 | % | ||||||||||||
Table 5
CHANGES IN INTEREST INCOME AND EXPENSE(a)
| 2005 Compared with 2004 | 2004 Compared with 2003 | ||||||||||||||||||||||||
| Resulting from | Resulting from | ||||||||||||||||||||||||
| Changes in: | Changes in: | ||||||||||||||||||||||||
| Total | Total | ||||||||||||||||||||||||
| Change | Volume | Rate | Change | Volume | Rate | ||||||||||||||||||||
| (Increase (decrease) in thousands) | |||||||||||||||||||||||||
|
Interest income
|
|||||||||||||||||||||||||
|
Loans and leases, including fees
|
$ | 446,762 | 133,491 | 313,271 | $ | 78,758 | 172,755 | (93,997 | ) | ||||||||||||||||
|
Money-market assets
|
|||||||||||||||||||||||||
|
Deposits at banks
|
104 | (15 | ) | 119 | (82 | ) | (15 | ) | (67 | ) | |||||||||||||||
|
Federal funds sold and agreements to resell securities
|
674 | 392 | 282 | (1,741 | ) | (2,118 | ) | 377 | |||||||||||||||||
|
Trading account
|
1,126 | 301 | 825 | (229 | ) | (23 | ) | (206 | ) | ||||||||||||||||
|
Investment securities
|
|||||||||||||||||||||||||
|
U.S. Treasury and federal agencies
|
(24,425 | ) | (26,869 | ) | 2,444 | 52,744 | 60,442 | (7,698 | ) | ||||||||||||||||
|
Obligations of states and political subdivisions
|
(4,157 | ) | (2,415 | ) | (1,742 | ) | (810 | ) | (2,230 | ) | 1,420 | ||||||||||||||
|
Other
|
69,859 | 56,376 | 13,483 | 44,544 | 48,932 | (4,388 | ) | ||||||||||||||||||
|
Total interest income
|
$ | 489,943 | $ | 173,184 | |||||||||||||||||||||
|
Interest expense
|
|||||||||||||||||||||||||
|
Interest-bearing deposits
|
|||||||||||||||||||||||||
|
NOW accounts
|
$ | 380 | (594 | ) | 974 | $ | (1,811 | ) | (1,611 | ) | (200 | ) | |||||||||||||
|
Savings deposits
|
47,381 | (2,601 | ) | 49,982 | (10,126 | ) | 14,311 | (24,437 | ) | ||||||||||||||||
|
Time deposits
|
140,060 | 58,514 | 81,546 | (4,978 | ) | 7,281 | (12,259 | ) | |||||||||||||||||
|
Deposits at foreign office
|
77,088 | 11,031 | 66,057 | 28,043 | 22,081 | 5,962 | |||||||||||||||||||
|
Short-term borrowings
|
86,681 | (3,668 | ) | 90,349 | 22,108 | 10,137 | 11,971 | ||||||||||||||||||
|
Long-term borrowings
|
78,601 | 21,319 | 57,282 | 3,114 | (6,268 | ) | 9,382 | ||||||||||||||||||
|
Total interest expense
|
$ | 430,191 | $ | 36,350 | |||||||||||||||||||||
| (a) | Interest income data are on a taxable-equivalent basis. The apportionment of changes resulting from the combined effect of both volume and rate was based on the separately determined volume and rate changes. |
22
| Item 1A. | Risk Factors. |
M&T
and its subsidiaries could be adversely impacted by various
risks and uncertainties which are difficult to predict. As a
financial institution, the Company has significant exposure to
market risk, including interest-rate risk, liquidity risk and
credit risk, among others. Adverse experience with these or
other risks could have a material impact on the Company’s
financial condition and results of operations, as well as on the
value of the Company’s financial instruments in general,
and M&T’s common stock, in particular.
Interest Rate Risk — The Company is exposed to
interest rate risk in its core banking activities of lending and
deposit-taking since assets and liabilities reprice at different
times and by different amounts as interest rates change. As a
result, net interest income, which represents the largest
revenue source for the Company, is subject to the effects of
changing interest rates. The Company closely monitors the
sensitivity of net interest income to changes in interest rates
and attempts to limit the variability of net interest income as
interest rates change. The Company makes use of both on- and
off-balance sheet financial instruments to mitigate exposure to
interest rate risk. Possible actions to mitigate such risk
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 adding to,
modifying or terminating interest rate swap agreements or other
financial instruments used for interest rate risk management
purposes.
Liquidity Risk — Liquidity refers to the
Company’s ability to ensure that sufficient cash flow and
liquid assets are available to satisfy current and future
financial obligations, including demands for loans and deposit
withdrawals, funding operating costs, and for other corporate
purposes. Liquidity risk arises whenever the maturities of
financial instruments included in assets and liabilities differ.
The Company obtains funding through deposits and various
short-term and long-term wholesale borrowings, including federal
funds purchased and securities sold under agreements to
repurchase, brokered certificates of deposit, offshore branch
deposits and borrowings from the Federal Home Loan Bank of
New York and others. Should the Company experience a substantial
deterioration in its financial condition or its debt ratings, or
should the availability of funding become restricted due to
disruption in the financial markets, the Company’s ability
to obtain funding from these or other sources could be
negatively impacted. The Company attempts to quantify such
credit-event risk by modeling scenarios that estimate the
liquidity impact resulting from a short-term ratings downgrade
over various grading levels. The Company estimates such impact
by attempting to measure the effect on available unsecured lines
of credit, available capacity from secured borrowing sources and
securitizable assets. To mitigate such risk, the Company
maintains available lines of credit with the Federal Reserve
Bank of New York and the Federal Home Loan Bank of New York
that are secured by loans and investment securities. On an
ongoing basis, management closely monitors the Company’s
liquidity position for compliance with internal policies and
believes that available sources of liquidity are adequate to
meet funding needs in the normal course of business.
Credit Risk — Factors that influence the
Company’s credit loss experience include 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. Other
factors that can influence the Company’s credit loss
experience, in addition to general economic conditions and
borrowers’ specific abilities to repay loans, include:
(i) 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; (ii) the amount of commercial and industrial
loans to businesses in areas of New York State outside of the
New York City metropolitan area and in central Pennsylvania that
have historically experienced less economic growth and vitality
than the vast majority of other regions of the country; and
(iii) the size of the Company’s portfolio of loans to
individual consumers, which historically have experienced higher
net charge-offs as a percentage of loans outstanding than other
loan types. Although the 2006 economic outlook predicts moderate
national growth with inflation expected to be reasonably well
contained,
23
concerns exist about higher energy prices; a waning housing
boom; Federal Reserve tightening of monetary policy; the
underlying impact on businesses’ operations and abilities
to repay loans resulting from rising interest rates; sluggish
job creation, which could cause consumer spending to slow;
continued stagnant population growth in the upstate New York and
central Pennsylvania regions; and sluggish commercial loan
demand in many market areas served by the Company. All of these
factors can affect the Company’s credit loss experience. To
help manage credit risk, the Company maintains a detailed credit
policy and utilizes various committees that include members of
senior management to approve significant extensions of credit.
The Company also maintains a credit review department that
regularly reviews the Company’s loan and lease portfolios
to ensure compliance with established credit policy. The Company
maintains an allowance for credit losses that in
management’s judgment is adequate to absorb losses inherent
in the loan and lease portfolio.
Supervision and Regulation — The Company is subject to
extensive state and federal laws and regulations governing the
banking industry, in particular, and public companies, in
general. Many of those laws and regulations are described in
Part I, Item 1 “Business.” Changes in those
laws and regulations, or the degree of the Company’s
compliance with those laws and regulations as judged by any of
several regulators that oversee the Company, could have a
significant effect on the Company’s operations and its
financial results.
Detailed discussions of the specific risks outlined above and
other risks facing the Company are included within this Annual
Report on
Form 10-K in
Part I, Item 1 “Business,” and Part II,
Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
Furthermore, in Part II, Item 7 under the heading
“Forward-Looking Statements” is included a description
of certain risks, uncertainties and assumptions identified by
management that are difficult to predict and that could
materially affect the Company’s financial condition and
results of operations, as well as the value of the
Company’s financial instruments in general, and M&T
common stock, in particular.
In addition, the market price of M&T common stock may
fluctuate significantly in response to a number of other
factors, including changes in securities analysts’
estimates of financial performance, volatility of stock market
prices and volumes, rumors or erroneous information, changes in
market valuations of similar companies and changes in accounting
policies or procedures as may be required by the Financial
Accounting Standards Board or other regulatory agencies.
| Item 1B. | Unresolved Staff Comments. |
None
| Item 2. | Properties. |
Both
M&T and
M&T Bank maintain their
executive offices at One
M&T Plaza in Buffalo,
New York. This twenty-one story headquarters building,
containing approximately 278,000 rentable square feet of
space, is owned in fee by
M&T Bank and was
completed in 1967. M&T,
M&T Bank and their
subsidiaries occupy approximately 78% of the building and the
remainder is leased to non-affiliated tenants. At
December 31, 2005, the cost of this property (including
improvements subsequent to the initial construction), net of
accumulated depreciation, was $6.0 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 89% 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, 2005, the cost of this building
(including improvements subsequent to acquisition), net of
accumulated depreciation, was $11.7 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 213,000 square feet and their
combined cost (including improvements subsequent to
acquisition), net of accumulated depreciation, was
$17.9 million at December 31, 2005.
24
M&T
Bank also owns a facility in Syracuse, New York with
approximately 151,000 rentable square feet of space.
Approximately 42% of this facility is occupied by
M&T Bank. At
December 31, 2005, the cost of this building (including
improvements subsequent to acquisition), net of accumulated
depreciation, was $7.3 million.
M&T
Bank also owns facilities in Harrisburg, Pennsylvania and
Millsboro, Delaware with approximately 206,000 and
322,000 rentable square feet of space, respectively.
M&T Bank occupies
approximately 35% and 82% of these respective facilities. At
December 31, 2005, the cost of these buildings (including
improvements subsequent to acquisition), net of accumulated
depreciation, was $13.2 million and $8.0 million,
respectively.
No other properties owned by
M&T Bank have more than
100,000 square feet of space. 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
659 domestic banking offices of the Registrant’s subsidiary
banks at December 31, 2005, 280 are owned in fee and 379
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. |
No matters were submitted to a
vote of M&T’s
security holders during the fourth quarter of 2005.
Executive Officers of the Registrant
Information concerning the Registrant’s executive officers
is presented below as of February 21, 2006. The year the
officer was first appointed to the indicated position with the
Registrant or its subsidiaries is shown parenthetically. In the
case of each corporation noted below, officers’ terms run
until the first meeting of the board of directors after such
corporation’s annual meeting, which in the case of the
Registrant takes place immediately following the Annual Meeting
of Stockholders, and until their successors are elected and
qualified.
Robert G. Wilmers, age 71, is
chairman of the board (2000) and a director (1982) of
the Registrant. From April 1998 until July 2000, he served as
president and chief executive officer of the Registrant, and
from July 2000 until June 2005, he served as chairman, president
(1988) and chief executive officer (1983) of the
Registrant. He is chairman of the board (2005) and a
director (1982) of
M&T Bank, and
previously served as chairman of the board of
M&T Bank from March
1983 to July 2003 and as president of
M&T Bank from March
1984 to June 1996.
Robert E. Sadler, Jr.,
age 60, is president and chief executive officer
(2005) and a director (1999) of the Registrant and
chief executive officer (2005) and a director
(1996) of M&T
Bank. From 1990 until 2005, Mr. Sadler served as an
executive vice president of the Registrant, and from 2003 until
2005, he served as chairman of the board of
M&T Bank. From June
1996 to July 2003, he served as president of
M&T Bank.
Mr. Sadler is chairman of the board (2005), president,
chief executive officer and a director (1995) of
M&T Bank, N.A.;
chairman of the board and a director of
M&T Mortgage (1991);
chairman of the board and a director of
M&T Securities (1994);
chairman of the board, president and a trustee of
M&T Real Estate (1995);
and a director (2000) of
M&T Insurance Agency.
James J. Beardi, age 59, is
an executive vice president (2003) of the Registrant and
M&T Bank, and is
responsible for managing the Company’s Residential Mortgage
business, as well as its Corporate Services Group. He is
president and a director of
M&T Mortgage (1991).
Mr. Beardi served as senior vice president of
M&T Bank from 1989 to
2003.
25
Robert J. Bojdak, age 50, is
an executive vice president and chief credit officer
(2004) of the Registrant and
M&T Bank. From April
2002 to April 2004, Mr. Bojdak served as senior vice
president and credit deputy for
M&T Bank. Previous to
joining M&T Bank in
2002, Mr. Bojdak served in several senior management
positions at KeyCorp., most recently as executive vice president
and regional credit executive. He is an executive vice president
and a director of M&T
Bank, N.A. (2004) and
M&T Credit (2004).
Stephen J. Braunscheidel,
age 49, is an executive vice president (2004) of the
Registrant and M&T
Bank, and is in charge of the Company’s Human Resources
Division. Previously, he was a senior vice president in the
M&T Investment Services
Group, where he managed the Private Client Services and Employee
Benefits departments. Mr. Braunscheidel has held a number
of management positions with
M&T Bank since 1978.
Emerson L. Brumback, age 54,
is an executive vice president (1997) and a director
(2003) of the Registrant and president and chief operating
officer and a director (2003) of
M&T Bank. Previously,
he was an executive vice president of
M&T Bank
(1997) and was in charge of the Company’s Retail
Banking Division. Mr. Brumback is an executive vice
president (1998) and a director of
M&T Bank, N.A.(1997),
chairman of the board (1999) and a director (1997) of
M&T Credit, and a
director of M&T
Mortgage (1997) and
M&T Securities (1997).
Atwood Collins, III,
age 59, is an executive vice president of the Registrant
(1997) and M&T
Bank (1996), and is the president and chief operating officer of
M&T Bank’s
Mid-Atlantic Division. Mr. Collins is a trustee of
M&T Real Estate
(1995) and a director of
M&T Realty Capital
(2003).
Mark J. Czarnecki, age 50, 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,
M&T Insurance Agency
and the Trust and Investment Services Division of
M&T Bank. He is also in
charge of the Company’s Retail Banking network which
includes branches, automated teller machines, web-banking and
telephone banking systems. Mr. Czarnecki is a director of
M&T Securities
(1999) and an executive vice president (1997) and a
director (2005) of
M&T Bank, N.A. He is
chairman of the board and a director of
M&T Insurance Agency
(2000) and MTB Investment Advisors (2003).
Gregory L. Ford, age 46, is
an executive vice president of the Registrant (2006) and
M&T Bank (2004), and is
responsible for managing the Company’s Consumer Lending
department, as well as its Automobile Floor Plan department. He
is president and a director of
M&T Credit
(1999) and is an executive vice president of
M&T Bank, N.A. (2004).
Mr. Ford served as a senior vice president of
M&T Bank from 1998 to
2004.
Brian E. Hickey, age 53, is
an executive vice president of the Registrant (1997) and
M&T Bank (1996). He is
a member of the Directors Advisory Council (1994) of the
Rochester Division of
M&T Bank.
Mr. Hickey is responsible for managing all of the
non-retail segments in the Albany, Hudson Valley, Rochester,
Syracuse and Southern Divisions of
M&T Bank, and he also
has responsibility for managing the Company’s middle market
commercial banking, health care and government banking
businesses.
René F. Jones, age 41,
is an executive vice president (2006) and chief financial
officer (2005) of the Registrant and
M&T Bank. Previously,
Mr. Jones was a senior vice president in charge of the
Financial Performance Measurement department within
M&T Bank’s Finance
Division. Mr. Jones has held a number of management
positions within M&T
Bank’s Finance Division since 1992. Mr. Jones is a
senior vice president and chief financial officer of
M&T Bank, N.A. (2005),
and he is a trustee of
M&T Real Estate (2005).
He is a director of M&T
Investment Company, Inc. (2005) and
M&T Investment (2005).
Adam C. Kugler, age 48, is an
executive vice president and treasurer (1997) of the
Registrant and M&T
Bank, and is in charge of the Company’s Treasury Division.
Mr. Kugler is chairman of the board and a director of
M&T Investment Company,
Inc. (1999) and
M&T Investment (2004),
a director of M&T
Securities (1997) and
M&T Realty Capital
(2003), and is an executive vice president, treasurer and a
director of M&T Bank,
N.A. (1997).
Kevin J. Pearson, age 44, is
an executive vice president (2002) of the Registrant and
M&T Bank. He is
president of the New York City Division of
M&T Bank (2002).
Mr. Pearson is responsible for managing all of the
non-retail segments in the New York City and Philadelphia
Divisions of M&T Bank,
26
as well as the Company’s
commercial real estate business. He is an executive vice
president of M&T Real
Estate (2003) and a director of
M&T Realty Capital
(2003). Mr. Pearson served as senior vice president of
M&T Bank from 2000 to
2002.
Michael P. Pinto, age 50, is
an executive vice president (1997) and a director
(2003) of the Registrant. He is a vice chairman and a
director (2003) of
M&T Bank and is the
chairman and chief executive officer of
M&T Bank’s
Mid-Atlantic Division (2005). Prior to April 2005,
Mr. Pinto was the chief financial officer of the Registrant
(1997) and M&T
Bank (1996), and he oversaw the Company’s Finance Division,
Technology and Banking Operations Division, Corporate Services
Group, Treasury Division and General Counsel’s Office.
Mr. Pinto is a director of
M&T Mortgage
(1996) and M&T
Investment (2004) and a trustee of
M&T Real Estate (1996).
He is an executive vice president (1996) and a director
(1998) of M&T
Bank, N.A.
Michele D. Trolli, age 44, is
an executive vice president (2005) of the Registrant and
M&T Bank. She is chief
information officer and is in charge of the Technology and
Banking Operations Division of
M&T Bank.
Ms. Trolli served as senior director, global systems
support, with Franklin Resources, Inc., a worldwide investment
management company, from May 2000 through December 2004.
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.
Equity Compensation Plan Information
The following table provides
information as of December 31, 2005 with respect to shares
of common stock that may be issued under
M&T Bank
Corporation’s existing equity compensation plans.
M&T Bank
Corporation’s existing equity compensation plans are the
M&T Bank Corporation
1983 Stock Option Plan (the “1983 Stock Option Plan”);
the M&T Bank
Corporation 2001 Stock Option Plan (the “2001 Stock Option
Plan”); the M&T
Bank Corporation 2005 Incentive Compensation Plan (the
“2005 Incentive Compensation Plan”), which replaced
the 2001 Stock Option Plan; and the
M&T Bank Corporation
Employee Stock Purchase Plan (the “Employee Stock Purchase
Plan”), each of which has been previously approved by
stockholders, and the
M&T Bank Corporation
Directors’ Stock Plan (the “Directors’ Stock
Plan”) and the M&T
Bank Corporation Deferred Bonus Plan (the “Deferred Bonus
Plan”), each of which did not require stockholder approval.
The table does not include
information with respect to shares of common stock subject to
outstanding options and rights assumed by
M&T Bank Corporation in
connection with mergers and acquisitions of the companies that
originally granted those options and rights. Footnote
(1) to the table
27
sets forth the total number of shares of common stock issuable
upon the exercise of such assumed options and rights as of
December 31, 2005, and their weighted-average exercise
price.
| Number of Securities | ||||||||||||||
| Number of | Remaining Available | |||||||||||||
| Securities | for Future Issuance | |||||||||||||
| to be Issued upon | Weighted-average | under Equity | ||||||||||||
| Exercise of | Exercise Price of | Compensation Plans | ||||||||||||
| Outstanding | Outstanding | (Excluding Securities | ||||||||||||
| Plan category | Options or Rights | Options or Rights | Reflected in Column A) | |||||||||||
| (A) | (B) | (C) | ||||||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||||
|
1983 Stock Option Plan
|
3,769,044 | $ | 49.97 | — | ||||||||||
|
2001 Stock Option Plan
|
6,474,875 | 87.89 | — | |||||||||||
|
2005 Incentive Compensation Plan
|
9,612 | 108.07 | 8,810,196 | |||||||||||
|
Employee Stock Purchase Plan
|
112,616 | 97.11 | 596,829 | |||||||||||
|
Equity compensation plans not approved by security holders:
|
||||||||||||||
|
Directors’ Stock Plan
|
2,317 | 109.05 | 25,703 | |||||||||||
|
Deferred Bonus Plan
|
70,132 | 56.05 | — | |||||||||||
|
Total
|
10,438,596 | $ | 74.11 | 9,432,728 | ||||||||||
| (1) | As of December 31, 2005, a total of 231,298 shares of M&T common stock were issuable upon exercise of outstanding options or rights assumed by M&T Bank Corporation in connection with merger and acquisition transactions. The weighted-average exercise price of those outstanding options or rights is $63.32 per share. |
Equity compensation plans adopted without the approval of
stockholders are described below:
Directors’ Stock
Plan.
M&T Bank Corporation
maintains a plan for non-employee members of the Board of
Directors of M&T Bank
Corporation and the members of its Directors Advisory Council,
and the non-employee members of the Board of Directors of
M&T Bank and the
members of its regional Directors Advisory Councils, which
allows such directors, advisory directors and members of
regional Directors Advisory Councils to receive all or a portion
of their directorial compensation in shares of
M&T common stock.
Deferred Bonus
Plan.
M&T Bank Corporation
maintains a deferred bonus plan pursuant to which its eligible
officers and those of its subsidiaries may elect to defer all or
a portion of their current annual incentive compensation awards
and allocate such awards to several investment options,
including M&T common
stock. Participants may elect the timing of distributions from
the plan. Such distributions are payable in cash, with the
exception of balances allocated to
M&T common stock, which
are distributable in the form of shares of common stock.
During the fourth quarter of 2005,
M&T did not issue any
shares of its common stock that were not registered under the
Securities Act of 1933.
In December 2004,
M&T announced that it
had been authorized by its Board of Directors to purchase up to
5,000,000 shares of its common stock.
M&T completed that
repurchase plan in December 2005. The common stock repurchased
pursuant to such plan was purchased at an average cost of
$104.12 per share. In November 2005,
M&T announced another
authorized 5,000,000 share repurchase plan, pursuant to
which 44,700 shares were purchased in 2005 at an average
per share cost of $110.36. In total,
M&T repurchased
4,891,800 shares of its common stock during 2005 at an
average cost per share of $104.18.
28
During the fourth quarter of 2005,
M&T purchased shares of
its common stock as follows:
| Issuer Purchases of Equity Securities | ||||||||||||||||
| (d)Maximum | ||||||||||||||||
| (c)Total | Number (or | |||||||||||||||
| Number | Approximate | |||||||||||||||
| of Shares | Dollar Value) | |||||||||||||||
| (or Units) | of Shares | |||||||||||||||
| Purchased | (or Units) | |||||||||||||||
| (a)Total | as Part of | that may yet | ||||||||||||||
| Number | (b)Average | Publicly | be Purchased | |||||||||||||
| of Shares | Price Paid | Announced | Under the | |||||||||||||
| (or Units) | per Share | Plans or | Plans or | |||||||||||||
| Period | Purchased(1) | (or Unit) | Programs | Programs(2) | ||||||||||||
|
October 1-October 31, 2005
|
401,017 | $ | 103.44 | 400,000 | 659,900 | |||||||||||
|
November 1-November 30, 2005
|
2,315 | 109.79 | — | 659,900 | ||||||||||||
|
December 1-December 31, 2005
|
553,905 | 109.64 | 551,700 | 4,955,300 | ||||||||||||
|
Total
|
957,237 | $ | 107.04 | 951,700 | ||||||||||||
| (1) | The total number of shares purchased during the periods indicated includes shares purchased as part of publicly announced programs and shares deemed to have been received from employees who exercised stock options by attesting to previously acquired common shares in satisfaction of the exercise price, as is permitted under M&T’s stock option plans. |
| (2) | On December 20, 2004, M&T announced a program to purchase up to 5,000,000 shares of its common stock. This stock purchase program was completed in December 2005. On November 21, 2005, M&T announced another program to purchase up to 5,000,000 additional shares of its common stock. |
| 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 $55.1 billion at December 31,
2005. The consolidated financial information presented herein
reflects M&T and all of
its subsidiaries, which are referred to collectively as
“the Company.”
M&T’s wholly owned
bank subsidiaries are
M&T Bank and
M&T Bank, National
Association (“M&T
Bank, N.A.”).
M&T
Bank, with total assets of $54.4 billion at
December 31, 2005, is a New York-chartered commercial bank
with 658 banking offices in New York State, Pennsylvania,
Maryland, Delaware, Virginia, West Virginia and the District of
Columbia, and an office in the Cayman Islands.
M&T Bank and its
subsidiaries offer a broad range of financial services to a
diverse base of consumers, businesses, professional clients,
governmental entities and financial institutions located in its
markets. Lending is largely focused on consumers residing in New
York State, Pennsylvania, Maryland, northern Virginia and
Washington, D.C., 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 Credit Services,
LLC, a consumer lending and commercial leasing and lending
company; M&T Mortgage
Corporation, a residential mortgage banking company;
M&T Real Estate Trust,
a commercial mortgage lender;
M&T Realty Capital
Corporation, a multi-family commercial mortgage lender;
M&T Securities, Inc.,
which provides brokerage, investment advisory and insurance
services; MTB Investment Advisors, Inc., which serves as
investment advisor to the MTB funds, a family of proprietary
mutual funds, and other funds and institutional clients; and
M&T Insurance Agency,
Inc., an insurance agency.
M&T
Bank, N.A., with total assets of $625 million at
December 31, 2005, is a national bank with an office in
Oakfield, New York. M&T
Bank, N.A. offers selected deposit and loan products on a
nationwide basis, largely through telephone and direct mail
marketing techniques.
29
On April 1, 2003,
M&T completed the
acquisition of Allfirst Financial Inc. (“Allfirst”), a
bank holding company headquartered in Baltimore, Maryland, from
Allied Irish Banks, p.l.c. (“AIB”), Dublin, Ireland.
Allfirst Bank, Allfirst’s primary bank subsidiary, was
merged into M&T Bank on
that date. Allfirst Bank operated 269 banking offices in
Maryland, Pennsylvania, Virginia and the District of Columbia at
the date of acquisition. As of the acquisition date, total
consolidated assets of Allfirst and its subsidiaries were
$16.5 billion, including $10.3 billion of loans and
leases and $1.3 billion of investment securities, and total
consolidated liabilities assumed were $14.5 billion,
including $10.9 billion of deposits. The acquisition of
Allfirst represented a major geographic expansion by
M&T and created a
strong Mid-Atlantic banking franchise. AIB received
26,700,000 shares of
M&T common stock and
$886 million in cash in exchange for all outstanding
Allfirst common shares. The results of operations acquired in
the Allfirst transaction have been included in the
Company’s financial results since April 1, 2003. The
Company recorded approximately $1.8 billion of goodwill and
$199 million of core deposit and other intangible assets as
a result of the Allfirst acquisition.
Merger-related expenses associated
with the Allfirst acquisition incurred during the year ended
December 31, 2003 totaled $60 million
($39 million after tax effect). Such expenses were for
professional services and temporary help associated with the
conversion of systems and/or integration of operations; initial
marketing and promotion expenses designed to introduce
M&T Bank to
Allfirst’s customers; travel and relocation costs; and
printing, supplies and other costs of commencing operations in
new markets and offices. There were no similar merger-related
expenses incurred during 2004 or 2005. In accordance with
generally accepted accounting principles (“GAAP”),
included in the determination of goodwill associated with the
Allfirst merger were charges totaling $29 million, net of
applicable income taxes ($48 million before tax effect),
for severance costs for former Allfirst employees; investment
banking and other professional fees; and termination of Allfirst
contracts for various services. As of December 31, 2005,
there were no significant amounts of unpaid merger-related
expenses or charges included in the determination of goodwill.
Critical Accounting Estimates
The Company’s significant accounting policies are described
in note 1 of Notes to Financial Statements. In applying
those accounting policies, management of the Company is required
to exercise judgment in determining many of the methodologies,
assumptions and estimates to be utilized. Certain of the
critical accounting estimates are more dependent on such
judgment and in some cases may contribute to volatility in the
Company’s reported financial performance should the
assumptions and estimates used change over time due to changes
in circumstances. Some of the more significant areas in which
management of the Company applies critical assumptions and
estimates include the following:
| • | Allowance for credit losses — The allowance for credit losses represents the amount which, in management’s judgment, will be adequate to absorb credit losses inherent in the loan and lease portfolio as of the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating losses inherent in the loan and lease portfolio, assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. Historical loss trends are also considered, as are economic conditions, industry trends, portfolio trends and borrower-specific financial data. Changes in the circumstances considered when determining management’s estimates and assumptions could result in changes in those estimates and assumptions, which may result in adjustment of the allowance. A detailed discussion of facts and circumstances considered by management in assessing the adequacy of the allowance for credit losses is included herein under the heading “Provision for Credit Losses.” | |
| • | Valuation methodologies — Management of the Company applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as trading assets, most investment securities, and residential real estate loans held for sale and related commitments. |
30
| However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include capitalized servicing assets, goodwill, core deposit and other intangible assets, pension and other postretirement benefit obligations, value ascribed to stock-based compensation, estimated residual values of property associated with commercial and consumer leases, and certain derivative and other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, costs of servicing and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations. Specific discussion of assumptions and estimates utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 3, 4, 7, 8, 10, 11, 17, 18 and 19 of Notes to Financial Statements. | ||
| • | Commitments, contingencies and off-balance sheet arrangements — Information regarding the Company’s commitments and contingencies, including guarantees and contingent liabilities arising from litigation, and their potential effects on the Company’s results of operations is included in note 20 of Notes to Financial Statements. In addition, the Company is routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should tax laws change or the tax authorities determine that management’s assumptions were inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations. Information regarding permanent and temporary income tax differences is presented in note 12 of Notes to Financial Statements. The recognition or de-recognition in the Company’s consolidated financial statements of assets and liabilities held by so- called variable interest entities is subject to the interpretation and application of complex accounting pronouncements or interpretations that require management to estimate and assess the probability of financial outcomes in future periods. Information relating to the Company’s involvement in such entities and the accounting treatment afforded each such involvement is included in note 18 of Notes to Financial Statements. |
Overview
The Company’s net income for 2005 totaled $782 million
or $6.73 of diluted earnings per common share, representing
increases of 8% and 12%, respectively, from $723 million or
$6.00 of diluted earnings per share in 2004. Basic earnings per
common share were $6.88 in 2005, 12% higher than $6.14 in 2004.
Net income in 2003 was $574 million, while diluted and
basic earnings per share were $4.95 and $5.08, respectively. The
after-tax impact of merger-related expenses associated with the
Allfirst acquisition was $39 million ($60 million
pre-tax) or $.34 of diluted earnings per share and $.35 of basic
earnings per share in 2003. There were no similar expenses in
either 2005 or 2004.
Net income represented a return on average assets in 2005 of
1.44%, compared with 1.40% in 2004 and 1.27% in 2003. The return
on average common stockholders’ equity was 13.49% in 2005,
12.67% in 2004 and 11.62% in 2003. Excluding the impact of
merger-related expenses, the rates of return on average assets
and average common equity in 2003 were 1.35% and 12.41%,
respectively.
Taxable-equivalent net interest income increased 3% to
$1.81 billion in 2005 from $1.75 billion in 2004,
largely due to higher average earning assets, which rose 6% to
$48.1 billion in 2005 from $45.2 billion in 2004. The
higher level of average earning assets was driven by increased
balances of loans, leases and investment securities. Average
loans and leases of $39.5 billion in 2005 were 6% higher
than $37.1 billion in 2004, due to growth in commercial
loans and leases of $921 million, or 10%, commercial real
estate loans of $1.1 billion, or 8%, and consumer real
estate loans of $814 million, or 26%, offset by a
$413 million, or 4% decline in consumer loans and leases.
Average balances of investment securities rose 6% to
$8.5 billion in 2005 from $8.0 billion in 2004.
Partially offsetting the impact of growth in earning assets was
a narrowing of the net interest margin, or taxable-equivalent
net interest income expressed as a percentage of average earning
assets. The net interest margin declined
31
11 basis points (hundredths of one percent) to 3.77% in
2005 from 3.88% in 2004, due largely to rising short-term
interest rates that produced a flattening of the yield curve in
2005 as compared with historic norms and had the effect of
increasing rates paid on interest-bearing liabilities more
rapidly than yields on earnings assets. Also as a result of
higher average earning assets, taxable-equivalent net interest
income in 2004 was 8% higher than $1.62 billion in 2003.
Average earning assets in 2004 increased 14% from
$39.5 billion in 2003. Average loans and leases outstanding
in 2004 increased $3.2 billion, or 9%, from
$34.0 billion in 2003, largely due to the full-year impact
of loans obtained in the April 1, 2003 acquisition of
Allfirst. Included in the 2003 average was the nine-month impact
of the $10.3 billion of loans and leases obtained in the
Allfirst acquisition. Net interest margin in 2004 declined
21 basis points from 4.09% in 2003, largely due to lower
yields earned on loans and investment securities.
The provision for credit losses was $88 million in 2005,
down from $95 million in 2004 and $131 million in
2003. The lower levels of the provision during the past two
years as compared with 2003 were reflective of favorable credit
quality. Net charge-offs declined to $77 million in 2005
from $82 million in 2004 and $97 million in 2003. Net
charge-offs as a percentage of average loans and leases
outstanding decreased to .19% in 2005 from .22% in 2004 and .28%
in 2003. The provision in each year represents the result of
management’s analysis of the composition of the loan and
lease portfolio and other factors, including concern regarding
uncertainty about economic conditions, both nationally and in
many of the markets served by the Company, and the impact of
such conditions and prospects on the abilities of borrowers to
repay loans.
Noninterest income increased 1% to
$950 million in 2005 from $943 million in 2004. Higher
mortgage banking revenues, corporate financing advisory fees,
gains on sales of commercial lease equipment and other property,
and other revenues contributed to that improvement. Losses from
bank investment securities in 2005 included a $29 million
other-than-temporary impairment charge related to preferred
stock issuances of the Federal National Mortgage Association
(“FNMA”) and the Federal Home Loan Mortgage
Corporation (“FHLMC”). A write-down was taken on
$133 million of variable-rate preferred securities held in
the Company’s portfolio of available-for-sale investment
securities. Although the securities are rated as investment
grade, the Company recognized the impairment charge, in
accordance with GAAP, in light of changing circumstances during
2005’s third quarter that included an announced further
delay in FNMA’s ability to provide restated financial
information about its results of operations until late 2006 and
a further decline in the market value of certain of FHLMC’s
preferred stock issuances despite its release of operating
results. However, because the preferred securities have been
held in the available-for-sale investment securities portfolio,
the unrealized losses had already been recorded as reductions of
other comprehensive income and, therefore, no incremental
reductions of investment securities or stockholders’ equity
were required. Accordingly, the accounting treatment for the
impairment charge made pursuant to GAAP had no significant
effect on M&T’s
consolidated balance sheet. Excluding gains and losses from
investment securities, noninterest income rose $38 million
or 4% from 2004. Noninterest income aggregated $831 million
in 2003. The increase in such income in 2004 as compared with
2003 was due to operations associated with Allfirst,
specifically, the inclusion of twelve months of Allfirst-related
income in 2004 compared with nine months of similar income in
2003. Excluding Allfirst-related revenues, higher levels of
service charges on deposit accounts, letter of credit and other
credit-related fees and insurance-related income were offset by
a decline in mortgage banking revenues resulting from a lower
level of loan originations in 2004.
Noninterest expense in 2005
totaled $1.49 billion, down 2% from $1.52 billion in
2004. Noninterest expense in 2003 was $1.45 billion.
Included in such amounts are expenses considered by
M&T to be
“nonoperating” in nature, consisting of amortization
of core deposit and other intangible assets of $57 million,
$75 million and $78 million in 2005, 2004 and 2003,
respectively, and merger-related expenses of $60 million in
2003. As already noted, there were no merger-related expenses in
2005 or 2004. Exclusive of these nonoperating expenses,
noninterest operating expenses aggregated $1.43 billion in
2005, $1.44 billion in 2004 and $1.31 billion in 2003.
As compared with 2004, increases in the cost of providing health
care and retirement benefits to employees and higher
professional services expenses in 2005 were partially offset by
a higher reversal of a portion of the valuation allowance for
the impairment of capitalized residential mortgage servicing
rights, due to higher
32
residential mortgage loan interest
rates. Included in 2004’s operating expenses was a
$25 million tax-deductible contribution made to The
M&T Charitable
Foundation, a tax-exempt private charitable foundation.
Excluding the impact of the charitable contribution, operating
expenses in 2005 increased $13 million, or less than 1%,
from 2004. A significant portion of the increase in noninterest
expense in 2004 as compared with 2003 was due to operations
associated with Allfirst, specifically, the inclusion of twelve
months of Allfirst-related expenses in 2004 compared with nine
months of similar expenses in 2003. Also contributing to the
higher expenses in 2004 was the $25 million charitable
contribution.
The efficiency ratio expresses the relationship of operating
expenses to revenues. The Company’s efficiency ratio, or
noninterest operating expenses divided by the sum of
taxable-equivalent net interest income and noninterest income
(exclusive of gains and losses from bank investment securities),
was 51.2% in 2005, improved from 53.5% in 2004 and 53.6% in
2003. If the $25 million charitable contribution was
excluded from the computation, the efficiency ratio for 2004
would have been 52.6%.
Table 1
EARNINGS SUMMARY
Dollars in millions
| Increase (Decrease)(a) | ||||||||||||||||||||||||||||||||||||||||
| Compound | ||||||||||||||||||||||||||||||||||||||||
| 2004 to 2005 | 2003 to 2004 | Growth Rate | ||||||||||||||||||||||||||||||||||||||
| 5 Years | ||||||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 to 2005 | |||||||||||||||||||||||||||||||
| $489.9 | 21 | $ | 173.2 | 8 |
Interest income(b)
|
$ | 2,806.0 | 2,316.1 | 2,142.9 | 1,856.1 | 2,119.4 | 9 | % | |||||||||||||||||||||||||||
| 430.2 | 76 | 36.4 | 7 |
Interest expense
|
994.4 | 564.2 | 527.8 | 594.5 | 943.6 | 2 | ||||||||||||||||||||||||||||||
| 59.7 | 3 | 136.8 | 8 |
Net interest income(b)
|
1,811.6 | 1,751.9 | 1,615.1 | 1,261.6 | 1,175.8 | 16 | ||||||||||||||||||||||||||||||
|
Less: provision for
|
||||||||||||||||||||||||||||||||||||||||
| (7.0 | ) | (7 | ) | (36.0 | ) | (27 | ) |
credit losses
|
88.0 | 95.0 | 131.0 | 122.0 | 103.5 | 18 | ||||||||||||||||||||||||||
|
Gain (loss) on bank investment
|
||||||||||||||||||||||||||||||||||||||||
| (31.0 | ) | — | .4 | — |
securities
|
(28.1 | ) | 2.9 | 2.5 | (.6 | ) | 1.9 | — | |||||||||||||||||||||||||||
| 37.7 | 4 | 111.5 | 13 |
Other income
|
977.8 | 940.1 | 828.6 | 512.5 | 475.5 | 24 | ||||||||||||||||||||||||||||||
|
Less:
|
||||||||||||||||||||||||||||||||||||||||
|
Salaries and
employee |
||||||||||||||||||||||||||||||||||||||||
| 15.6 | 2 | 66.2 | 9 |
benefits
|
822.2 | 806.6 | 740.3 | 497.0 | 467.2 | 18 | ||||||||||||||||||||||||||||||
| (46.6 | ) | (7 | ) | 1.6 | — |
Other expense
|
662.9 | 709.5 | 708.0 | 464.6 | 513.4 | 13 | ||||||||||||||||||||||||||||
|
Income before
|
||||||||||||||||||||||||||||||||||||||||
| 104.4 | 10 | 216.9 | 25 |
income taxes
|
1,188.2 | 1,083.8 | 866.9 | 689.9 | 569.1 | 22 | ||||||||||||||||||||||||||||||
|
Less:
|
||||||||||||||||||||||||||||||||||||||||
|
Taxable-equivalent
|
||||||||||||||||||||||||||||||||||||||||
| — | — | 1.0 | 6 |
adjustment(b)
|
17.3 | 17.3 | 16.3 | 14.0 | 17.5 | 10 | ||||||||||||||||||||||||||||||
| 44.7 | 13 | 67.3 | 24 |
Income taxes
|
388.7 | 344.0 | 276.7 | 219.1 | 198.5 | 20 | ||||||||||||||||||||||||||||||
| $ 59.7 | 8 | $ | 148.6 | 26 |
Net income
|
$ | 782.2 | 722.5 | 573.9 | 456.8 | 353.1 | 24 | % | |||||||||||||||||||||||||||
| (a) | Changes were calculated from unrounded amounts. |
| (b) | Interest income data are on a taxable-equivalent basis. The taxable-equivalent adjustment represents additional income taxes that would be due if all interest income were subject to income taxes. This adjustment, which is related to interest received on qualified municipal securities, industrial revenue financings and preferred equity securities, is based on a composite income tax rate of approximately 39% for 2005, 2004 and 2002, 36% for 2003, and 37% for 2001. |
Supplemental Reporting of Non-GAAP Results of Operations
M&T
has accounted for substantially all of its business combinations
using the purchase method of accounting. As a result, the
Company had recorded intangible assets consisting of goodwill
and core deposit and other intangible assets totaling
$3.0 billion at December 31, 2005 and
$3.1 billion at both December 31, 2004 and 2003.
Included in such intangible assets was goodwill of
$2.9 billion at
33
December 31, 2005, 2004 and 2003. Amortization of core
deposit and other intangible assets, after tax effect, totaled
$35 million, $46 million and $48 million during
2005, 2004 and 2003, respectively.
Since 1998,
M&T has consistently
provided supplemental reporting of its results on a “net
operating” or “tangible” basis, in which
M&T excludes the
after-tax effect of amortization of core deposit and other
intangible assets (and the related goodwill, core deposit
intangible and other intangible asset balances, net of
applicable deferred tax amounts, when calculating certain
performance ratios) and expenses associated with merging
acquired operations into the Company, since such expenses are
considered by management to be “nonoperating” in
nature. Although “net operating income” as defined by
M&T is not a GAAP
measure, M&T’s
management believes that this information helps investors
understand the effect of acquisition activity in reported
results.
Net operating income rose 6% to $817 million in 2005 from
$769 million in 2004. Diluted net operating earnings per
share in 2005 increased to $7.03, 10% higher than $6.38 in 2004.
In 2003, net operating income totaled $661 million and
diluted net operating earnings per share were $5.70.
A reconciliation of net income and diluted earnings per share
with net operating income and diluted net operating earnings per
share is presented in table 2.
Expressed as a rate of return on average tangible assets, net
operating income was 1.60% in 2005, compared with 1.59% in 2004
and 1.55% in 2003. Net operating return on average tangible
common equity was 29.06% in 2005, compared with 28.76% and
28.49% in 2004 and 2003, respectively. Including the effect of
merger-related expenses, net operating return on average
tangible assets and average tangible common equity in 2003 was
1.46% and 26.80%, respectively.
34
A reconciliation of average assets and equity with average
tangible assets and average tangible equity is presented in
table 2.
Table 2
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
| 2005 | 2004 | 2003 | |||||||||||
|
Income statement data
|
|||||||||||||
|
In thousands, except per share
|
|||||||||||||
|
Net income
|
|||||||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | |||||||
|
Amortization of core deposit and other intangible assets(a)
|
34,682 | 46,097 | 47,826 | ||||||||||
|
Merger-related expenses(a)
|
— | — | 39,163 | ||||||||||
|
Net operating income
|
$ | 816,865 | $ | 768,618 | $ | 660,931 | |||||||
|
Earnings per share
|
|||||||||||||
|
Diluted earnings per common share
|
$ | 6.73 | $ | 6.00 | $ | 4.95 | |||||||
|
Amortization of core deposit and other intangible assets(a)
|
.30 | .38 | .41 | ||||||||||
|
Merger-related expenses(a)
|
— | — | .34 | ||||||||||
|
Diluted net operating earnings per share
|
$ | 7.03 | $ | 6.38 | $ | 5.70 | |||||||
|
Other expense
|
|||||||||||||
|
Other expense
|
$ | 1,485,142 | $ | 1,516,018 | $ | 1,448,180 | |||||||
|
Amortization of core deposit and other intangible assets
|
(56,805 | ) | (75,410 | ) | (78,152 | ) | |||||||
|
Merger-related expenses
|
— | — | (60,387 | ) | |||||||||
|
Noninterest operating expense
|
$ | 1,428,337 | $ | 1,440,608 | $ | 1,309,641 | |||||||
|
Merger-related expenses
|
|||||||||||||
|
Salaries and employee benefits
|
$ | — | $ | — | $ | 8,542 | |||||||
|
Equipment and net occupancy
|
— | — | 2,126 | ||||||||||
|
Printing, postage and supplies
|
— | — | 3,216 | ||||||||||
|
Other costs of operations
|
— | — | 46,503 | ||||||||||
|
Total
|
$ | — | $ | — | $ | 60,387 | |||||||
|
Balance sheet data
|
|||||||||||||
|
In millions
|
|||||||||||||
|
Average assets
|
|||||||||||||
|
Average assets
|
$ | 54,135 | $ | 51,517 | $ | 45,349 | |||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,456 | ) | |||||||
|
Core deposit and other intangible assets
|
(135 | ) | (201 | ) | (233 | ) | |||||||
|
Deferred taxes
|
52 | — | — | ||||||||||
|
Average tangible assets
|
$ | 51,148 | $ | 48,412 | $ | 42,660 | |||||||
|
Average equity
|
|||||||||||||
|
Average equity
|
$ | 5,798 | $ | 5,701 | $ | 4,941 | |||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,456 | ) | |||||||
|
Core deposit and other intangible assets
|
(135 | ) | (201 | ) | (233 | ) | |||||||
|
Deferred taxes
|
52 | 76 | 68 | ||||||||||
|
Average tangible equity
|
$ | 2,811 | $ | 2,672 | $ | 2,320 | |||||||
|
At end of year
|
|||||||||||||
|
Total assets
|
|||||||||||||
|
Total assets
|
$ | 55,146 | $ | 52,939 | $ | 49,826 | |||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,904 | ) | |||||||
|
Core deposit and other intangible assets
|
(108 | ) | (166 | ) | (241 | ) | |||||||
|
Deferred taxes
|
42 | — | — | ||||||||||
|
Total tangible assets
|
$ | 52,176 | $ | 49,869 | $ | 46,681 | |||||||
|
Total equity
|
|||||||||||||
|
Total equity
|
$ | 5,876 | $ | 5,730 | $ | 5,717 | |||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,904 | ) | |||||||
|
Core deposit and other intangible assets
|
(108 | ) | (166 | ) | (241 | ) | |||||||
|
Deferred taxes
|
42 | 64 | 70 | ||||||||||
|
Total tangible equity
|
$ | 2,906 | $ | 2,724 | $ | 2,642 | |||||||
| (a) | After any related tax effect. |
35
Net Interest Income/ Lending and Funding Activities
Net interest income expressed on a taxable-equivalent basis
increased 3% to $1.81 billion in 2005 from
$1.75 billion in 2004, largely the result of growth in
average earning assets. Such assets totaled $48.1 billion
in 2005, up 6% from $45.2 billion in 2004. Increases of 6%
in each of average outstanding balances of loans and leases and
average balances of investment securities contributed to the
increase. Partially offsetting the positive impact on
taxable-equivalent net interest income of higher average earning
assets was a narrowing of the Company’s net interest
margin, which declined to 3.77% in 2005 from 3.88% in 2004.
Average loans and leases
outstanding in 2005 grew 6% to $39.5 billion from
$37.1 billion in 2004. The Company experienced growth in
most major loan categories during 2005 as compared with 2004.
Average commercial loans and leases rose 10% to
$10.5 billion in 2005 from $9.5 billion in 2004,
reflecting, in part, a $212 million rise in average
automobile floor plan loans outstanding. Commercial real estate
loans averaged $14.3 billion during 2005, up 8% from
$13.3 billion in 2004. Contributing to that increase were
$467 million of higher average balances of construction
loans to developers of residential real estate properties.
Average residential real estate loan balances increased 26% to
$3.9 billion in 2005 from $3.1 billion in 2004. Higher
residential real estate loans held for sale by
M&T Mortgage
Corporation were the most significant contributor to that
increase. Consumer loans and leases averaged $10.8 billion
during 2005, down 4% from $11.2 billion in 2004. Average
balances of automobile loans and leases decreased 16% to
$3.7 billion in 2005 from $4.4 billion in 2004,
largely due to the Company’s decision to not match the
pricing being offered by competitors. Partially offsetting the
drop in automobile loan and lease balances was a 13% rise in
average outstanding balances of home equity lines of credit to
$4.0 billion in 2005 from $3.5 billion in 2004.
Taxable-equivalent net interest income rose 8% to
$1.75 billion in 2004 from $1.62 billion in 2003. That
improvement reflected a 14% increase in average earning assets
to $45.2 billion in 2004 from $39.5 billion in 2003,
partially offset by a narrowing of the Company’s net
interest margin, which declined to 3.88% in 2004 from 4.09% in
2003. The growth in average earning assets reflects higher
average loans and leases outstanding, which totaled
$37.1 billion in 2004, up 9% from 2003’s average of
$34.0 billion, and higher investment securities balances
which averaged $8.0 billion in 2004, up 50% from
$5.3 billion in 2003. The 2003 average loan and lease
balance reflected the impact of $10.3 billion of loans
obtained on April 1, 2003 in the Allfirst acquisition for
the final nine months of that year, while the 2004 average
balance reflected a full-year impact of Allfirst-related loans.
The $10.3 billion of acquired loans were comprised of
approximately $4.5 billion of commercial loans and leases
(including $314 million of leveraged leases and
$230 million of loans to foreign borrowers),
$2.5 billion of commercial real estate loans,
$383 million of residential real estate loans and
$2.9 billion of consumer loans and leases.
36
Table 3
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Average balance in millions; interest in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Earning assets
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Loans and leases, net of unearned discount(a)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Commercial, financial, etc.
|
$ | 10,455 | $ | 589,644 | 5.64 | % | 9,534 | 410,258 | 4.30 | % | 8,523 | 358,629 | 4.21 | % | 5,146 | 261,867 | 5.09 | % | 5,271 | 372,234 | 7.06 | % | ||||||||||||||||||||||||||||||||||||||||
|
Real estate — commercial
|
14,341 | 941,017 | 6.56 | 13,264 | 763,134 | 5.75 | 11,573 | 706,022 | 6.10 | 9,498 | 661,382 | 6.96 | 9,224 | 732,162 | 7.94 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Real estate — consumer
|
3,925 | 235,364 | 6.00 | 3,111 | 184,125 | 5.92 | 3,777 | 232,454 | 6.15 | 4,087 | 285,055 | 6.98 | 4,354 | 328,979 | 7.55 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Consumer
|
10,808 | 664,509 | 6.15 | 11,220 | 626,255 | 5.58 | 10,098 | 607,909 | 6.02 | 6,776 | 467,167 | 6.89 | 5,581 | 464,151 | 8.32 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Total loans and leases, net
|
39,529 | 2,430,534 | 6.15 | 37,129 | 1,983,772 | 5.34 | 33,971 | 1,905,014 | 5.61 | 25,507 | 1,675,471 | 6.57 | 24,430 | 1,897,526 | 7.77 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Money-market assets
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits at banks
|
10 | 169 | 1.64 | 13 | 65 | .51 | 14 | 147 | 1.03 | 6 | 76 | 1.32 | 4 | 116 | 3.10 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Federal funds sold and agreements to resell securities
|
23 | 808 | 3.55 | 8 | 134 | 1.60 | 147 | 1,875 | 1.28 | 272 | 4,455 | 1.63 | 63 | 2,027 | 3.22 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Trading account
|
80 | 1,544 | 1.92 | 53 | 418 | .79 | 55 | 647 | 1.18 | 13 | 247 | 1.86 | 13 | 413 | 3.16 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Total money- market assets
|
113 | 2,521 | 2.22 | 74 | 617 | .83 | 216 | 2,669 | 1.24 | 291 | 4,778 | 1.64 | 80 | 2,556 | 3.20 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Investment securities(b)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and federal agencies
|
3,479 | 134,528 | 3.87 | 4,169 | 158,953 | 3.81 | 2,599 | 106,209 | 4.09 | 1,292 | 81,412 | 6.30 | 1,709 | 113,908 | 6.67 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Obligations of states and political subdivisions
|
180 | 10,860 | 6.04 | 218 | 15,017 | 6.90 | 251 | 15,827 | 6.30 | 279 | 17,828 | 6.40 | 332 | 24,483 | 7.37 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Other
|
4,817 | 227,562 | 4.72 | 3,610 | 157,703 | 4.37 | 2,494 | 113,159 | 4.54 | 1,552 | 76,659 | 4.94 | 1,267 | 80,925 | 6.39 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Total investment securities
|
8,476 | 372,950 | 4.40 | 7,997 | 331,673 | 4.15 | 5,344 | 235,195 | 4.40 | 3,123 | 175,899 | 5.63 | 3,308 | 219,316 | 6.63 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Total earning assets
|
48,118 | 2,806,005 | 5.83 | 45,200 | 2,316,062 | 5.13 | 39,531 | 2,142,878 | 5.42 | 28,921 | 1,856,148 | 6.42 | 27,818 | 2,119,398 | 7.62 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Allowance for credit losses
|
(638 | ) | (626 | ) | (574 | ) | (438 | ) | (409 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Cash and due from banks
|
1,400 | 1,599 | 1,542 | 732 | 706 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other assets
|
5,255 | 5,344 | 4,850 | 2,720 | 2,727 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total assets
|
$ | 54,135 | 51,517 | 45,349 | 31,935 | 30,842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Interest-bearing liabilities
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
NOW accounts
|
$ | 400 | 2,182 | .55 | 550 | 1,802 | .33 | 1,021 | 3,613 | .35 | 761 | 3,900 | .51 | 722 | 8,548 | 1.18 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Savings deposits
|
14,889 | 139,445 | .94 | 15,305 | 92,064 | .60 | 13,278 | 102,190 | .77 | 8,899 | 107,281 | 1.21 | 7,378 | 134,454 | 1.82 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Time deposits
|
9,158 | 294,782 | 3.22 | 6,948 | 154,722 | 2.23 | 6,638 | 159,700 | 2.41 | 7,398 | 237,001 | 3.20 | 8,906 | 453,940 | 5.10 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Deposits at foreign office
|
3,819 | 120,122 | 3.15 | 3,136 | 43,034 | 1.37 | 1,445 | 14,991 | 1.04 | 569 | 8,460 | 1.49 | 327 | 11,264 | 3.44 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Total interest- bearing deposits
|
28,266 | 556,531 | 1.97 | 25,939 | 291,622 | 1.12 | 22,382 | 280,494 | 1.25 | 17,627 | 356,642 | 2.02 | 17,333 | 608,206 | 3.51 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Short-term borrowings
|
4,890 | 157,853 | 3.23 | 5,142 | 71,172 | 1.38 | 4,331 | 49,064 | 1.13 | 3,125 | 52,723 | 1.69 | 3,280 | 124,810 | 3.81 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Long-term borrowings
|
6,411 | 279,967 | 4.37 | 5,832 | 201,366 | 3.45 | 6,018 | 198,252 | 3.29 | 4,162 | 185,149 | 4.45 | 3,538 | 210,581 | 5.95 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Total interest- bearing liabilities
|
39,567 | 994,351 | 2.51 | 36,913 | 564,160 | 1.53 | 32,731 | 527,810 | 1.61 | 24,914 | 594,514 | 2.39 | 24,151 | 943,597 | 3.91 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
8,050 | 8,039 | 6,801 | 3,618 | 3,327 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other liabilities
|
720 | 864 | 876 | 377 | 389 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total liabilities
|
48,337 | 45,816 | 40,408 | 28,909 | 27,867 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stockholders’ equity
|
5,798 | 5,701 | 4,941 | 3,026 | 2,975 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 54,135 | 51,517 | 45,349 | 31,935 | 30,842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net interest spread
|
3.32 | 3.60 | 3.81 | 4.03 | 3.71 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Contribution of interest-free funds
|
.45 | .28 | .28 | .33 | .52 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net interest income/margin on earning assets
|
$ | 1,811,654 | 3.77 | % | 1,751,902 | 3.88 | % | 1,615,068 | 4.09 | % | 1,261,634 | 4.36 | % | 1,175,801 | 4.23 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| (a) | Includes nonaccrual loans. |
| (b) | Includes available for sale securities at amortized cost. |
37
Other than the residential real estate loan portfolio, all of
the Company’s other significant loan categories (commercial
loans and leases, commercial real estate loans and consumer
loans and leases) experienced growth in 2004 when compared with
2003, after considering the full-year impact that the acquired
Allfirst loans had on 2004’s average loan balances. Average
commercial real estate loans were $13.3 billion in 2004,
15% higher than $11.6 billion in 2003. Excluding the impact
of the loans in the former Allfirst regions, average balances of
outstanding commercial real estate loans grew $936 million
in 2004 from 2003. Average consumer loans and leases totaled
$11.2 billion during 2004, up 11% from $10.1 billion
in the previous year, largely the result of growth in the
automobile loan and home equity line of credit portfolios. The
full-year impact of Allfirst-related loans and a
$362 million increase in average automobile floor plan
loans were the most significant contributors to higher average
commercial loans and leases, which totaled $9.5 billion in
2004, 12% above 2003’s average of $8.5 billion.
Average residential real estate loans declined in 2004 due
largely to customer repayments of loans and the full-year impact
of two separate securitization transactions totaling
$1.3 billion of such loans during 2003’s final
quarter. In connection with the first 2003 securitization
transaction, the Company transferred approximately
$838 million of
one-to-four family
residential mortgage loans to a qualified special purpose trust.
The Company received $112 million in cash and retained
approximately 87% of the resulting securities in exchange for
the loans. The Company realized a gain of $1 million on the
transaction which was included in “other revenues from
operations.” In 2003’s second
securitization transaction and in a similar securitization
transaction in 2005’s final quarter, approximately
$441 million and $126 million, respectively, of
one-to-four family
residential mortgage loans were converted to mortgage-backed
securities issued by FNMA. All of those mortgage-backed
securities were retained by the Company and, accordingly, no
gain or loss was recognized. In each securitization, the
retained securities were added to the Company’s portfolio
of investment securities classified as available for sale. There
were no comparable securitization transactions in 2004.
In accordance with GAAP, the qualified special purpose trust
related to the first 2003 mortgage loan securitization
transaction is not included in the Company’s consolidated
financial statements. Management believes that the resulting
mortgage-backed securities provide enhanced liquidity
opportunities to the Company because the securities may be more
readily pledged to secure borrowings or sold than the underlying
loans could be. Additionally, under present regulatory
risk-based capital rules, the Company is generally required to
maintain higher levels of regulatory capital when directly
investing in residential real estate loans than when investing
in government-guaranteed or highly-rated, privately-placed
mortgage-backed securities. Additional information about these
transactions and qualified special purpose trusts is included in
note 18 of Notes to Financial Statements. Information about
the Company’s regulatory capital requirements is included
in note 22 of Notes to Financial Statements.
38
Table 4 summarizes average loans and leases outstanding in 2005
and percentage changes in the major components of the portfolio
over the past two years.
Table 4
AVERAGE LOANS AND LEASES
(Net of unearned discount)
| Percent Increase (Decrease) from | ||||||||||||||
| 2005 | 2004 to 2005 | 2003 to 2004 | ||||||||||||
| (Dollars in | ||||||||||||||
| millions) | ||||||||||||||
|
Commercial, financial, etc.
|
$ | 10,455 | 10 | % | 12 | % | ||||||||
|
Real estate — commercial
|
14,341 | 8 | 15 | |||||||||||
|
Real estate — consumer
|
3,925 | 26 | (18 | ) | ||||||||||
|
Consumer
|
||||||||||||||
|
Automobile
|
3,716 | (16 | ) | 10 | ||||||||||
|
Home equity lines
|
4,008 | 13 | 25 | |||||||||||
|
Home equity loans
|
1,271 | (17 | ) | (6 | ) | |||||||||
|
Other
|
1,813 | 6 | 7 | |||||||||||
|
Total consumer
|
10,808 | (4 | ) | 11 | ||||||||||
|
Total
|
$ | 39,529 | 6 | % | 9 | % | ||||||||
Commercial loans and leases, excluding loans secured by real
estate, totaled $10.9 billion at December 31, 2005, or
27% of total loans and leases. Table 5 presents such commercial
loans and leases as of December 31, 2005 by geographic
area, size, and whether the loans are secured by collateral or
unsecured. Of the $10.9 billion of commercial loans and
leases outstanding at the 2005 year-end, approximately
$9.0 billion, or 82%, were secured, while 47%, 26% and 13%
were granted to businesses in New York State, Pennsylvania and
Maryland, respectively. The Company provides financing for
leases to commercial customers, primarily for equipment.
Commercial leases included in total commercial loans and leases
at December 31, 2005 aggregated $1.1 billion of which
39% were secured by collateral located in New York State, 10%
secured by collateral in Maryland, and 13% secured by collateral
in Pennsylvania.
International loans included in commercial loans and leases
totaled $217 million and $230 million at
December 31, 2005 and 2004, respectively. The Company
participates in the insurance and guarantee programs of the
Export-Import Bank of the United States. These programs provide
U.S. government repayment coverage of 90% to 100% on loans
supporting foreign borrowers’ purchases of U.S. goods
and services. The loans generally range from $500 thousand to
$10 million. The outstanding balances of loans under this
program at December 31, 2005 and 2004 were
$200 million and $204 million, respectively. The
Company’s commercial aircraft lease portfolio totaled
$59 million at December 31, 2005 and $82 million
at December 31, 2004. At December 31, 2005 AIB was
obligated to indemnify the Company for losses on approximately
$32 million of those aircraft leases. The Company has
decided not to pursue growing the commercial aircraft component
of the lease portfolio.
39
Table 5
COMMERCIAL LOANS AND LEASES, NET OF UNEARNED DISCOUNT
(Excluding Loans Secured by Real Estate)
December 31, 2005
| Percent of Dollars Outstanding by Loan Size | ||||||||||||||||||||||||||
| Outstandings | $0-1 | $1-5 | $5-10 | $10-15 | $15+ | |||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||
|
New York State
|
||||||||||||||||||||||||||
|
Secured
|
$ | 3,870 | 24 | % | 23 | % | 15 | % | 5 | % | 8 | % | ||||||||||||||
|
Unsecured
|
875 | 5 | 7 | 3 | 2 | — | ||||||||||||||||||||
|
Leases
|
429 | 4 | 3 | 1 | — | — | ||||||||||||||||||||
|
Total New York State
|
5,174 | 33 | % | 33 | % | 19 | % | 7 | % | 8 | % | |||||||||||||||
|
Pennsylvania
|
||||||||||||||||||||||||||
|
Secured
|
2,273 | 28 | % | 24 | % | 15 | % | 6 | % | 9 | % | |||||||||||||||
|
Unsecured
|
365 | 5 | 5 | 2 | 1 | 1 | ||||||||||||||||||||
|
Leases
|
149 | 2 | 1 | — | — | 1 | ||||||||||||||||||||
|
Total Pennsylvania
|
2,787 | 35 | % | 30 | % | 17 | % | 7 | % | 11 | % | |||||||||||||||
|
Maryland
|
||||||||||||||||||||||||||
|
Secured
|
972 | 29 | % | 20 | % | 8 | % | 4 | % | 6 | % | |||||||||||||||
|
Unsecured
|
355 | 6 | 6 | 2 | 1 | 10 | ||||||||||||||||||||
|
Leases
|
111 | 5 | 2 | 1 | — | — | ||||||||||||||||||||
|
Total Maryland
|
1,438 | 40 | % | 28 | % | 11 | % | 5 | % | 16 | % | |||||||||||||||
|
Other
|
||||||||||||||||||||||||||
|
Secured
|
737 | 10 | % | 19 | % | 12 | % | 2 | % | 5 | % | |||||||||||||||
|
Unsecured
|
365 | 9 | 5 | 3 | — | 7 | ||||||||||||||||||||
|
Leases
|
419 | 6 | 9 | 6 | 5 | 2 | ||||||||||||||||||||
|
Total other
|
1,521 | 25 | % | 33 | % | 21 | % | 7 | % | 14 | % | |||||||||||||||
|
Total commercial loans and leases
|
$ | 10,920 | 33 | % | 31 | % | 18 | % | 7 | % | 11 | % | ||||||||||||||
Loans secured by real estate, including outstanding balances of
home equity loans and lines of credit which the Company
classifies as consumer loans, represented approximately 60% of
the loan and lease portfolio during 2005, compared with 58% in
each of 2004 and 2003. At December 31, 2005, the Company
held approximately $14.5 billion of commercial real estate
loans, $4.4 billion of consumer real estate loans secured
by one-to-four family
residential properties and $5.3 billion of outstanding
balances of home equity loans and lines of credit, compared with
$14.0 billion, $3.3 billion and $5.2 billion,
respectively, at December 31, 2004.
A significant portion of commercial real estate loans originated
by the Company are 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 other areas of New York State where the Company
operates. Commercial real estate loans are also originated
through the Company’s offices in Pennsylvania, Maryland,
Virginia, Washington, D.C., Oregon and West Virginia.
Commercial real estate loans originated by the Company include
fixed-rate instruments with monthly payments and a balloon
payment of the remaining unpaid principal at maturity, in many
cases five years after origination. For borrowers in good
standing, the terms of such loans may be extended by the
customer for an additional five years at the then current market
rate of interest. The Company also originates fixed-rate
commercial real estate loans with maturities of greater than
five years, generally having original maturity terms of
approximately ten years, and adjustable-rate commercial real
estate loans. Excluding construction loans, adjustable-rate
commercial real estate loans represented approximately 42% of
the commercial real estate loan portfolio as of
December 31, 2005. Table 6 presents commercial real estate
40
loans by geographic area, type of collateral and size of the
loans outstanding at December 31, 2005. Of the
$4.6 billion of commercial real estate loans in the New
York City metropolitan area, approximately 34% were secured by
multifamily residential properties, 41% by retail space and 10%
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 multifamily residential
properties. Approximately 49% of the aggregate dollar amount of
New York City-area loans were for loans with outstanding
balances of $5 million or less, while loans of more than
$15 million made up approximately 21% of the total.
Table 6
COMMERCIAL REAL ESTATE LOANS
(Net of unearned discount)
December 31, 2005
| Percent of Dollars Outstanding by Loan Size | ||||||||||||||||||||||||||
| Outstandings | $0-1 | $1-5 | $5-10 | $10-15 | $15+ | |||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||
|
Metropolitan New York City
|
||||||||||||||||||||||||||
|
Apartments/ Multifamily
|
$ | 1,538 | 4 | % | 16 | % | 6 | % | 3 | % | 5 | % | ||||||||||||||
|
Office
|
442 | 1 | 3 | 3 | 1 | 2 | ||||||||||||||||||||
|
Retail/ Services
|
1,860 | 3 | 14 | 9 | 3 | 12 | ||||||||||||||||||||
|
Construction
|
173 | — | 1 | 1 | — | 1 | ||||||||||||||||||||
|
Industrial
|
121 | 1 | 1 | 1 | — | — | ||||||||||||||||||||
|
Other
|
436 | 1 | 4 | 2 | 1 | 1 | ||||||||||||||||||||
|
Total Metropolitan New York City
|
4,570 | 10 | % | 39 | % | 22 | % | 8 | % | 21 | % | |||||||||||||||
|
Other New York State
|
||||||||||||||||||||||||||
|
Apartments/ Multifamily
|
323 | 3 | % | 3 | % | 1 | % | 1 | % | 1 | % | |||||||||||||||
|
Office
|
978 | 8 | 12 | 6 | — | 1 | ||||||||||||||||||||
|
Retail/ Services
|
942 | 9 | 10 | 3 | 2 | 2 | ||||||||||||||||||||
|
Construction
|
313 | 1 | 4 | 1 | 2 | 1 | ||||||||||||||||||||
|
Industrial
|
273 | 4 | 4 | — | — | — | ||||||||||||||||||||
|
Other
|
751 | 7 | 8 | 2 | 1 | 3 | ||||||||||||||||||||
|
Total other New York State
|
3,580 | 32 | % | 41 | % | 13 | % | 6 | % | 8 | % | |||||||||||||||
|
Pennsylvania
|
||||||||||||||||||||||||||
|
Apartments/ Multifamily
|
307 | 4 | % | 4 | % | 1 | % | 2 | % | 2 | % | |||||||||||||||
|
Office
|
430 | 7 | 6 | 2 | 2 | — | ||||||||||||||||||||
|
Retail/ Services
|
521 | 7 | 10 | 2 | 1 | 1 | ||||||||||||||||||||
|
Construction
|
129 | 1 | 2 | 2 | — | — | ||||||||||||||||||||
|
Industrial
|
327 | 4 | 6 | 1 | 1 | 1 | ||||||||||||||||||||
|
Other
|
762 | 16 | 12 | 2 | 1 | — | ||||||||||||||||||||
|
Total Pennsylvania
|
2,476 | 39 | % | 40 | % | 10 | % | 7 | % | 4 | % | |||||||||||||||
|
Maryland
|
||||||||||||||||||||||||||
|
Apartments/ Multifamily
|
203 | 1 | % | 2 | % | 2 | % | — | % | 7 | % | |||||||||||||||
|
Office
|
370 | 9 | 6 | 3 | 1 | 2 | ||||||||||||||||||||
|
Retail/ Services
|
230 | 4 | 3 | 3 | 1 | 2 | ||||||||||||||||||||
|
Construction
|
400 | 1 | 6 | 9 | — | 7 | ||||||||||||||||||||
|
Industrial
|
119 | 2 | 4 | 1 | — | — | ||||||||||||||||||||
|
Other
|
416 | 8 | 10 | 2 | 1 | 3 | ||||||||||||||||||||
|
Total Maryland
|
1,738 | 25 | % | 31 | % | 20 | % | 3 | % | 21 | % | |||||||||||||||
|
Other
|
||||||||||||||||||||||||||
|
Apartments/ Multifamily
|
225 | 1 | % | 3 | % | 3 | % | 1 | % | 2 | % | |||||||||||||||
|
Office
|
186 | 1 | 2 | 1 | 2 | 3 | ||||||||||||||||||||
|
Retail/ Services
|
637 | 2 | 6 | 8 | 6 | 7 | ||||||||||||||||||||
|
Construction
|
736 | 9 | 11 | 6 | 1 | 7 | ||||||||||||||||||||
|
Industrial
|
136 | 1 | 2 | 1 | 2 | — | ||||||||||||||||||||
|
Other
|
265 | 2 | 5 | 3 | 2 | — | ||||||||||||||||||||
|
Total other
|
2,185 | 16 | % | 29 | % | 22 | % | 14 | % | 19 | % | |||||||||||||||
|
Total commercial real estate loans
|
$ | 14,549 | 23 | % | 37 | % | 17 | % | 8 | % | 15 | % | ||||||||||||||
41
Commercial real estate loans secured by properties located in
other parts of New York State, Pennsylvania, Maryland and other
areas 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 73%
of the aggregate dollar amount of commercial real estate loans
in New York State secured by properties located outside of the
metropolitan New York City area were for loans with outstanding
balances of $5 million or less. Of the outstanding balances
of commercial real estate loans in Pennsylvania and Maryland,
approximately 79% and 56%, respectively, were for loans with
outstanding balances of $5 million or less.
Commercial real estate loans secured by properties located
outside of Pennsylvania, Maryland, New York State and areas of
states neighboring New York considered to be part of the New
York City metropolitan area, comprised 15% of total commercial
real estate loans as of December 31, 2005.
Commercial real estate construction loans presented in table 6
totaled $1.8 billion at December 31, 2005, or 4% of
total loans and leases. Approximately 97% of those construction
loans had adjustable interest rates. Included in such loans at
December 31, 2005 were $926 million of loans to
developers of residential real estate properties. The remainder
of the commercial real estate construction loan portfolio was
comprised of loans made for various purposes including the
construction of office buildings, multi-family residential
housing, retail space and other commercial development.
M&T
Realty Capital Corporation, one of the Company’s commercial
real estate lending subsidiaries, participates in the FNMA
Delegated Underwriting and Servicing (“DUS”) program,
pursuant to which commercial real estate loans are originated in
accordance with terms and conditions specified by FNMA and sold.
Under this program, loans are sold with partial credit recourse
to M&T Realty Capital
Corporation. The amount of recourse is generally limited to
one-third of any credit loss incurred by the purchaser on an
individual loan, although in some cases the recourse amount is
less than one-third of outstanding principal. Accordingly, at
December 31, 2005 and 2004 approximately $941 million
and $926 million, respectively, of commercial real estate
loan balances serviced for others had been sold with recourse.
There have been no material losses incurred as a result of those
recourse arrangements. Commercial real estate loans held for
sale at December 31, 2005 and 2004 were $199 million
and $61 million, respectively.
Commercial real estate loans serviced for other investors by the
Company were $4.3 billion and $4.1 billion at
December 31, 2005 and 2004, respectively. Those serviced
loans are not included in the Company’s consolidated
balance sheet.
Real estate loans secured by
one-to-four family
residential properties totaled $4.4 billion at
December 31, 2005, including approximately 37% secured by
properties located in New York State, 13% secured by properties
located in Pennsylvania and 9% secured by properties located in
Maryland. At December 31, 2005, $1.2 billion of
residential real estate loans were held for sale, compared with
$790 million at December 31, 2004. Loans to finance
the construction of
one-to-four family
residential properties totaled $583 million at
December 31, 2005, or approximately 1% of total loans and
leases, compared with $431 million or 1% at
December 31, 2004.
Consumer loans and leases represented approximately 27% of the
average loan portfolio during 2005, compared with 30% in both
2004 and 2003. The two largest components of the consumer loan
portfolio are automobile loans and leases and outstanding
balances of home equity lines of credit. Average balances of
home equity lines of credit outstanding represented
approximately 10% of average loans outstanding in 2005 and 2004.
Automobile loans and leases represented approximately 9% of the
Company’s average loan portfolio during 2005, down from 12%
in 2004. No other consumer loan product represented more than 4%
of average loans outstanding in 2005. Approximately 55% of home
equity lines of credit outstanding at December 31, 2005
were secured by properties in New York State and 18% and 22%
were secured by properties in Pennsylvania and Maryland,
respectively. Average outstanding balances on home equity lines
of credit totaled $4.0 billion in 2005, 13% higher than
$3.5 billion in 2004. The Company continues to pursue
growing this portfolio, which has historically experienced a
lower level of credit losses than other types of consumer loans.
At December 31, 2005, 31% and 35% of the automobile loan
and lease portfolio were to customers residing in New York State
and Pennsylvania, respectively. Although automobile loans and
leases have generally been originated through dealers, all
applications submitted through dealers are subject to the
Company’s normal
42
underwriting and loan approval procedures. Since mid-2004, the
Company has experienced a general slowdown in its automobile
loan origination business, resulting from increased competition
from other lenders, including financing incentives offered by
automobile manufacturers. The Company chose not to match the
pricing being offered by many competitors.
The average outstanding balance of automobile leases was
approximately $137 million in 2005, $308 million in
2004 and $527 million in 2003. The Company ceased
origination of automobile leases during 2003. The decision to
cease origination of automobile leases did not have a
significant impact on the Company’s results of operations.
At December 31, 2005 and 2004, outstanding automobile
leases totaled $85 million and $205 million,
respectively.
Table 7 presents the composition of the Company’s loan and
lease portfolio at December 31, 2005, including outstanding
balances to businesses and consumers in New York State,
Pennsylvania, Maryland and other states. Approximately 47% of
total loans and leases at the 2005 year-end were to New
York State customers, while 22% and 13% were to Pennsylvania and
Maryland customers, respectively.
Table 7
LOANS AND LEASES, NET OF UNEARNED DISCOUNT
December 31, 2005
| Percent of Dollars Outstanding | |||||||||||||||||||||||
| New York | |||||||||||||||||||||||
| Outstandings | State | Pennsylvania | Maryland | Other | |||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
|
Real estate
|
|||||||||||||||||||||||
|
Residential
|
$ | 4,397 | 37 | % | 13 | % | 9 | % | 41 | % | |||||||||||||
|
Commercial
|
14,549 | 56 | (a) | 17 | 12 | 15 | |||||||||||||||||
|
Total real estate
|
18,946 | 52 | % | 16 | % | 11 | % | 21 | % | ||||||||||||||
|
Commercial, financial, etc.
|
9,812 | 48 | % | 27 | % | 14 | % | 11 | % | ||||||||||||||
|
Consumer
|
|||||||||||||||||||||||
|
Secured or guaranteed
|
10,134 | 41 | % | 28 | % | 14 | % | 17 | % | ||||||||||||||
|
Unsecured
|
246 | 44 | 25 | 27 | 4 | ||||||||||||||||||
|
Total consumer
|
10,380 | 41 | % | 28 | % | 15 | % | 16 | % | ||||||||||||||
|
Total loans
|
39,138 | 48 | % | 22 | % | 13 | % | 17 | % | ||||||||||||||
|
Leases
|
|||||||||||||||||||||||
|
Commercial
|
1,108 | 39 | % | 13 | % | 10 | % | 38 | % | ||||||||||||||
|
Consumer
|
85 | 22 | 47 | 1 | 30 | ||||||||||||||||||
|
Total leases
|
1,193 | 38 | % | 16 | % | 9 | % | 37 | % | ||||||||||||||
|
Total loans and leases
|
$ | 40,331 | 47 | % | 22 | % | 13 | % | 18 | % | |||||||||||||
| (a) | Includes loans secured by properties located in neighboring states generally considered to be within commuting distance of New York City. |
Average balances of investment securities were $8.5 billion
in 2005, compared with $8.0 billion and $5.3 billion
in 2004 and 2003, respectively. The increase from 2004 to 2005
was the result of net purchases in late 2004 and in 2005
consisting largely of collateralized residential mortgage
obligations. The retention of mortgage-backed securities related
to securitizations of residential real estate loans added
approximately $1.2 billion, $1.5 billion and
$817 million to average investment securities in 2005, 2004
and 2003, respectively. Also contributing to 2004’s higher
average balance were purchases of residential mortgage-backed
securities and collateralized mortgage obligations during the
year. The investment securities portfolio is largely comprised
of residential and commercial mortgage-backed securities and
collateralized mortgage obligations, debt securities issued by
municipalities, debt and
43
preferred equity securities issued by government-sponsored
agencies and certain financial institutions, 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 risks
assumed, including prepayments. In managing its investment
securities portfolio, the Company occasionally sells investment
securities as a result of changes in interest rates and spreads,
actual or anticipated prepayments, or credit risk associated
with a particular security, or as a result of restructuring its
investment securities portfolio following completion of a
business combination. The Company regularly reviews its
investment securities for declines in value below amortized cost
that might be other than temporary. As of December 31, 2005
and 2004, the Company concluded that such declines were
temporary in nature. As previously discussed, events occurring
during 2005’s third quarter resulted in the Company
recognizing an other-than-temporary impairment charge of
$29 million related to preferred securities of FNMA and
FHLMC. Additional information about the investment securities
portfolio is included in note 3 of Notes to Financial
Statements.
Money-market assets are comprised of interest-earning deposits
at banks, interest-earning trading account assets, federal funds
sold and agreements to resell securities. Average money-market
assets were $113 million in 2005, $74 million in 2004
and $216 million in 2003. The amounts of investment
securities and money-market assets held by the Company are
influenced by such factors as demand for loans, which generally
yield more than investment securities and money-market assets,
ongoing repayments, the level of deposits, and management of
balance sheet size and resulting capital ratios.
Core deposits represent the most
significant source of funding for the Company and are comprised
of noninterest-bearing deposits, interest-bearing transaction
accounts, nonbrokered savings deposits and nonbrokered domestic
time deposits under $100,000. The Company’s branch network
is its principal source of core deposits, which generally carry
lower interest rates than wholesale funds of comparable
maturities. Also included in core deposits are certificates of
deposit under $100,000 generated on a nationwide basis by
M&T Bank, N.A. Core
deposits averaged $27.9 billion in 2005, $28.1 billion
in 2004 and $25.8 billion in 2003. Core deposits assumed in
connection with the Allfirst acquisition totaled approximately
$10.7 billion on April 1, 2003. The rise in average
balances of time deposits less than $100,000 in 2005 as compared
with 2004 was due, in part, to higher interest rates, as
customers shifted their funds from savings and non-interest
bearing deposit accounts to time deposits. Due to the
historically low interest rate environment in 2003 and for much
of 2004, the Company experienced a significant shift in the
composition of core deposits in those years. Reflecting a change
in customer saving trends, average core savings and
noninterest-bearing deposits rose during those periods, while
average time deposits under $100,000 decreased, exclusive of the
impact of core deposits obtained in the Allfirst acquisition.
Average core deposits of M&T Bank, N.A. were
$216 million in 2005, $223 million in 2004 and
$267 million in 2003. Funding provided by core deposits
represented 58% of average earning assets in 2005, compared with
62% in 2004 and 65% in 2003. Table 8 summarizes average core
deposits in 2005 and percentage changes in the components of
such deposits over the past two years.
Table 8
AVERAGE CORE DEPOSITS
| Percentage Increase (Decrease) from | |||||||||||||
| 2005 | 2004 to 2005 | 2003 to 2004 | |||||||||||
| (Dollars in | |||||||||||||
| millions) | |||||||||||||
|
NOW accounts
|
$ | 400 | (27 | )% | (46 | )% | |||||||
|
Savings deposits
|
14,827 | (3 | ) | 15 | |||||||||
|
Time deposits under $100,000
|
4,624 | 8 | (10 | ) | |||||||||
|
Noninterest-bearing deposits
|
8,050 | — | 18 | ||||||||||
|
Total
|
$ | 27,901 | (1 | )% | 9 | % | |||||||
44
The Company also obtains funding through domestic time deposits
of $100,000 or more, deposits originated through the
Company’s offshore branch office, and brokered deposits.
Domestic time deposits over $100,000, excluding brokered
certificates of deposit, averaged $1.8 billion in 2005, and
$1.2 billion in each of 2004 and 2003. Offshore branch
deposits, primarily comprised of accounts with balances of
$100,000 or more, averaged $3.8 billion in 2005,
$3.1 billion in 2004 and $1.4 billion in 2003. Average
brokered time deposits totaled $2.7 billion in 2005,
compared with $1.4 billion in 2004 and $643 million in
2003, and at December 31, 2005 and 2004 were
$3.7 billion and $1.9 billion, respectively. The
weighted-average remaining term to maturity of brokered time
deposits at December 31, 2005 was 15 months. Certain
of these brokered deposits have provisions that allow for early
redemption. In connection with the Company’s management of
interest rate risk, interest rate swap agreements 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
$515 million of brokered time deposits. The Company also
had brokered money-market deposit accounts, which averaged
$62 million, $57 million and $70 million in 2005,
2004 and 2003, respectively. Offshore branch deposits and
brokered deposits have been used by the Company as an
alternative to short-term borrowings. Additional amounts of
offshore branch deposits or brokered deposits may be solicited
in the future depending on market conditions, including demand
by customers and other investors for such deposits, and the cost
of funds available from alternative sources at the time.
The Company also uses borrowings
from banks, securities dealers, the Federal Home Loan Bank
of New York, Pittsburgh and Atlanta (together, the
“FHLB”), and others as sources of funding. The average
balance of short-term borrowings was $4.9 billion in 2005,
$5.1 billion in 2004 and $4.3 billion in 2003.
Unsecured federal funds borrowings, which generally mature
daily, included in short-term borrowings averaged
$4.1 billion, $4.3 billion and $3.0 billion in
2005, 2004 and 2003, respectively. Overnight federal funds
borrowings represent the largest component of short-term
borrowings and are obtained daily from a wide variety of banks
and other financial institutions. Amounts borrowed from the FHLB
and included in short-term borrowings averaged $439 million
in 2003, while there were no similar short-term borrowings from
the FHLB during 2005 or 2004. Also included in short-term
borrowings is a $500 million revolving asset-backed
structured borrowing secured by automobile loans that were
transferred to M&T Auto
Receivables I, LLC, a special purpose subsidiary of
M&T Bank. The
subsidiary, the loans and the borrowings are included in the
consolidated financial statements of the Company. Additional
information about M&T
Auto Receivables I, LLC and the revolving borrowing
agreement is included in note 18 of Notes to Financial
Statements.
Long-term borrowings averaged
$6.4 billion in 2005, $5.8 billion in 2004 and
$6.0 billion in 2003. Included in average long-term
borrowings were amounts borrowed from the FHLB of
$3.8 billion in 2005, $3.3 billion in 2004 and
$3.9 billion in 2003, and subordinated capital notes of
$1.3 billion in 2005 and 2004, and $1.2 billion in
2003. In December 2005,
M&T Bank exchanged
$363 million of its 8.0% subordinated notes due 2010
for $409 million of subordinated notes bearing a fixed
coupon rate of interest of 5.585% through December 27, 2015
and a variable rate of interest equal to one-month LIBOR plus
1.215% from December 28, 2015 to the maturity date of
December 28, 2020. Beginning December 28, 2015, the
Company may, at its option and subject to prior regulatory
approval, redeem some or all of the new notes on any interest
payment date. In accordance with GAAP, the Company accounted for
the exchange as a modification of debt terms and not as an
extinguishment of debt because, among other factors, the present
value of the cash flows under the terms of the new subordinated
notes was not at least ten percent different from the present
value of the remaining cash flows under the original terms of
the exchanged subordinated notes. Coincident with the exchange,
the Company terminated $363 million out of a total notional
amount of $500 million of interest rate swap agreements
that were used to hedge the 8.0% subordinated notes. Under
the terms of the swap agreements, the Company pays a variable
rate of interest and receives a fixed rate. The Company paid
$15 million to terminate the $363 million notional
amount of the interest rate swap agreements. A hedge valuation
adjustment of $15 million related to the $363 million
of exchanged subordinated notes continues to be part of the
carrying value of the new subordinated notes and will be
amortized to interest expense over the period to expected
maturity of the new notes. The new subordinated notes
45
have an effective rate of 7.76%.
The $137 million notional amount of the interest rate swap
agreement that was not terminated continues to hedge the
remaining $137 million of 8.0% subordinated notes.
Further information on interest rate swap agreements is provided
in note 17 of Notes to Financial Statements. Junior
subordinated debentures associated with trust preferred
securities that were included in average long-term borrowings
were $711 million and $710 million in 2005 and 2004,
respectively. Trust preferred securities associated with junior
subordinated debentures of
M&T included in average
long-term borrowings in 2003 totaled $595 million.
Additional information regarding junior subordinated debentures,
as well as information regarding contractual maturities of
long-term borrowings, is provided in note 9 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, changes in interest rates and spreads can impact net
interest income. During 2005, the Federal Reserve raised its
benchmark overnight federal funds target rate eight times, each
increase representing a 25 basis point increment over the
previously effective target rate. Those interest rate increases
resulted in a more rapid rise in rates paid on interest-bearing
liabilities, most notably short-term borrowings, than in the
yields on earning assets, and contributed to a flattening of the
yield curve. That flattening removed much of the differential
between longer-term interest rates and shorter-term interest
rates. The result of these conditions was a contraction of the
net interest spread from 2004 to 2005. Net interest spread, or
the difference between the yield on earning assets and the rate
paid on interest-bearing liabilities, was 3.32% in 2005, down
from 3.60% in 2004. The yield on earning assets during 2005 was
5.83%, up 70 basis points from 5.13% in 2004, while the
rate paid on interest-bearing liabilities increased
98 basis points to 2.51% from 1.53% in 2004.
The yield on the Company’s earning assets decreased
29 basis points in 2004 from 5.42% in 2003, while the rate
paid on interest-bearing liabilities in 2004 was down
8 basis points from 1.61%. During the period from
June 30, 2004 through December 31, 2004, the Federal
Reserve raised its federal funds target rate five times, in
25 basis point increments over the previously effective
target rate. Lower rates earned on assets, including commercial
real estate and automobile loans and investment securities,
combined with short-term liabilities that repriced more rapidly
than many of the Company’s variable rate earning assets,
caused a contraction of the net interest spread from 2003 to
2004. As a result, the Company’s net interest spread
decreased from 3.81% in 2003 to 3.60% in 2004.
Net interest-free funds consist largely of noninterest-bearing
demand deposits and stockholders’ equity, partially offset
by bank owned life insurance and non-earning assets, including
goodwill and core deposit and other intangible assets. Net
interest-free funds averaged $8.6 billion in 2005, compared
with $8.3 billion in 2004 and $6.8 billion in 2003.
The significant increase in such funds in 2004 as compared with
2003 was largely due to the full-year impact of the Allfirst
acquisition and growth in other noninterest-bearing deposits.
Goodwill and core deposit and other intangible assets averaged
$3.0 billion in 2005, $3.1 billion in 2004 and
$2.7 billion in 2003. The cash surrender value of bank
owned life insurance averaged $1.0 billion in 2005,
$974 million in 2004 and $858 million in 2003.
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.” The
contribution of net interest-free funds to net interest margin
was .45% in 2005, and .28% in both 2004 and 2003. The rise in
the contribution to net interest margin ascribed to net
interest-free funds in 2005 as compared with 2004 and 2003
resulted largely from the impact of higher interest rates on
interest-bearing liabilities used to value such contribution.
Reflecting the changes to the net interest spread and the
contribution of interest-free funds as described herein, the
Company’s net interest margin was 3.77% in 2005, compared
with 3.88% in 2004 and 4.09% in 2003. 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
income and net interest margin. In general, the Company’s
net interest margin has been declining since the Federal Reserve
began raising interest rates in June 2004. Continued pressure on
the Company’s net interest margin is expected until the
Federal Reserve slows or stops increasing interest rates.
46
Management assesses the potential impact of future changes in
interest rates and spreads by projecting net interest income
under several interest rate scenarios. In managing interest rate
risk, the Company utilizes interest rate swap agreements to
modify the repricing characteristics of certain portions of its
portfolios of earning assets and interest-bearing liabilities.
Periodic settlement amounts arising from these agreements are
generally reflected in either the yields earned on assets or the
rates paid on interest-bearing liabilities. The notional amount
of interest rate swap agreements entered into for interest rate
risk management purposes as of December 31, 2005 was
$652 million. Under the terms of these swap agreements, the
Company receives payments based on the outstanding notional
amount of the swaps at fixed rates and makes payments at
variable rates.
As of December 31, 2005, all of the Company’s interest
rate swap agreements entered into for risk management purposes
had been designated as fair value hedges. In a fair value hedge,
the fair value of the derivative (the interest rate swap
agreement) and changes in the fair value of the hedged item are
recorded in the Company’s consolidated balance sheet with
the corresponding gain or loss recognized in current earnings.
The difference between changes in the fair value of the interest
rate swap agreements and the hedged items represents hedge
ineffectiveness and is recorded in “other revenues from
operations” in the Company’s consolidated statement of
income. In a cash flow hedge, unlike in a fair value hedge, the
effective portion of the derivative’s gain or loss is
initially reported as a component of other comprehensive income
and subsequently reclassified into earnings when the forecasted
transaction affects earnings. The ineffective portion of the
gain or loss is reported in “other revenues from
operations” immediately. The amounts of hedge
ineffectiveness recognized in 2005, 2004 and 2003 were not
material to the Company’s results of operations. The
estimated aggregate fair value of interest rate swap agreements
designated as fair value hedges represented a loss of
approximately $9 million and $4 million at
December 31, 2005 and 2004, respectively. The fair values
of such swap agreements were substantially offset by changes in
the fair values of the hedged items. The changes in the fair
values of the interest rate swap agreements and the hedged items
result from the effects of changing interest rates. The average
notional amounts of interest rate swap agreements entered into
for interest rate risk management purposes, the related effect
on net interest income and margin, and the weighted-average
interest rates paid or received on those swap agreements are
presented in table 9.
Table 9
INTEREST RATE SWAP AGREEMENTS
| Year Ended December 31 | |||||||||||||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||||||||||||
| Amount | Rate(a) | Amount | Rate(a) | Amount | Rate(a) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||
|
Increase (decrease) in:
|
|||||||||||||||||||||||||
|
Interest income
|
$ | — | — | % | $ | — | — | % | $ | — | — | % | |||||||||||||
|
Interest expense
|
(5,526 | ) | (.01 | ) | (18,276 | ) | (.05 | ) | (17,327 | ) | (.05 | ) | |||||||||||||
|
Net interest income/margin
|
$ | 5,526 | .01 | % | $ | 18,276 | .04 | % | $ | 17,327 | .05 | % | |||||||||||||
|
Average notional amount
|
$ | 767,175 | $ | 696,284 | $ | 688,603 | |||||||||||||||||||
|
Rate received(b)
|
6.62 | % | 6.98 | % | 6.06 | % | |||||||||||||||||||
|
Rate paid(b)
|
5.90 | % | 4.35 | % | 3.55 | % | |||||||||||||||||||
| (a) | Computed as a percentage of average earning assets or interest-bearing liabilities. |
| (b) | Weighted-average rate paid or received on interest rate swap agreements in effect during year. |
Provision For Credit Losses
The Company maintains an allowance for credit losses that in
management’s judgment is adequate to absorb losses inherent
in the loan and lease portfolio. A provision for credit losses
is recorded to adjust the level of the allowance as deemed
necessary by management. Reflecting continued improvement in
47
credit quality factors, the provision for credit losses was
$88 million in 2005, down from $95 million in 2004 and
$131 million in 2003. Net loan charge-offs declined to
$77 million in 2005 from $82 million and
$97 million in 2004 and 2003, respectively. Net loan
charge-offs as a percentage of average loans outstanding were
..19% in 2005, compared with .22% in 2004 and .28% in 2003. A
summary of loan charge-offs, provision and allowance for credit
losses is presented in table 10.
Table 10
LOAN CHARGE-OFFS, PROVISION AND ALLOWANCE FOR CREDIT
LOSSES
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||
|
Allowance for credit losses beginning balance
|
$ | 626,864 | $ | 614,058 | $ | 436,472 | $ | 425,008 | $ | 374,703 | ||||||||||||
|
Charge-offs during year
|
||||||||||||||||||||||
|
Commercial, financial, agricultural, etc.
|
32,210 | 33,340 | 44,782 | 57,401 | 35,555 | |||||||||||||||||
|
Real estate — construction
|
— | — | 2 | 88 | — | |||||||||||||||||
|
Real estate — mortgage
|
4,708 | 10,829 | 13,999 | 13,969 | 13,849 | |||||||||||||||||
|
Consumer
|
70,699 | 74,856 | 68,737 | 53,124 | 44,750 | |||||||||||||||||
|
Total charge-offs
|
107,617 | 119,025 | 127,520 | 124,582 | 94,154 | |||||||||||||||||
|
Recoveries during year
|
||||||||||||||||||||||
|
Commercial, financial, agricultural, etc.
|
6,513 | 13,581 | 12,517 | 3,129 | 3,949 | |||||||||||||||||
|
Real estate — construction
|
— | — | 4 | — | — | |||||||||||||||||
|
Real estate — mortgage
|
3,887 | 4,051 | 3,436 | 2,333 | 4,027 | |||||||||||||||||
|
Consumer
|
20,330 | 19,700 | 15,047 | 11,370 | 10,871 | |||||||||||||||||
|
Total recoveries
|
30,730 | 37,332 | 31,004 | 16,832 | 18,847 | |||||||||||||||||
|
Net charge-offs
|
76,887 | 81,693 | 96,516 | 107,750 | 75,307 | |||||||||||||||||
|
Provision for credit losses
|
88,000 | 95,000 | 131,000 | 122,000 | 103,500 | |||||||||||||||||
|
Allowance for credit losses acquired during the year
|
— | — | 146,300 | — | 22,112 | |||||||||||||||||
|
Allowance related to loans sold or securitized
|
(314 | ) | (501 | ) | (3,198 | ) | (2,786 | ) | — | |||||||||||||
|
Allowance for credit losses ending balance
|
$ | 637,663 | $ | 626,864 | $ | 614,058 | $ | 436,472 | $ | 425,008 | ||||||||||||
|
Net charge-offs as a percent of:
|
||||||||||||||||||||||
|
Provision for credit losses
|
87.37 | % | 85.99 | % | 73.68 | % | 88.32 | % | 72.76 | % | ||||||||||||
|
Average loans and leases, net of unearned discount
|
.19 | % | .22 | % | .28 | % | .42 | % | .31 | % | ||||||||||||
|
Allowance for credit losses as a percent of loans and leases,
net of unearned discount, at year-end
|
1.58 | % | 1.63 | % | 1.72 | % | 1.70 | % | 1.69 | % | ||||||||||||
Nonperforming loans, consisting of nonaccrual and restructured
loans, aggregated $156 million or .39% of outstanding loans
and leases at December 31, 2005, compared with
$172 million or .45% at December 31, 2004 and
$240 million or .67% at December 31, 2003. The lower
level of
48
nonperforming loans at the 2005 year-end as compared with a
year earlier reflects an overall improvement in borrower
repayment performance. In addition to a general improvement in
repayment performance by borrowers, the sale of two large
commercial loans during 2004 for cash equal to the
$37 million carrying value of the loans contributed to the
decrease in the amount of loans classified as nonperforming at
December 31, 2004 as compared with December 31, 2003.
Accruing loans past due 90 days or more were
$129 million or .32% total loans and leases at
December 31, 2005, compared with $155 million at each
of December 31, 2004 and 2003, representing .40% and .43%
of total loans and leases at those respective dates. Those loans
included $106 million, $121 million and
$125 million at December 31, 2005, 2004 and 2003,
respectively, of loans guaranteed by government-related
entities. Such guaranteed loans included
one-to-four family
residential mortgage loans serviced by the Company that were
repurchased to reduce servicing costs associated with them,
including a requirement to advance principal and interest
payments that had not been received from individual mortgagors.
The outstanding principal balances of the repurchased loans are
fully guaranteed by government-related entities and totaled
$79 million at December 31, 2005, $104 million at
December 31, 2004 and $122 million at
December 31, 2003. Loans past due 90 days or more and
accruing interest that were guaranteed by government-related
entities also included foreign commercial and industrial loans
supported by the Export-Import Bank of the United States that
totaled $26 million at December 31, 2005, compared
with $17 million and $1 million at December 31,
2004 and 2003, respectively. A summary of nonperforming assets
and certain past due loan data and credit quality ratios is
presented in table 11.
Table 11
NONPERFORMING ASSETS AND PAST DUE LOAN DATA
| December 31 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
|
Nonaccrual loans
|
$ | 141,067 | $ | 162,013 | $ | 232,983 | $ | 207,038 | $ | 180,344 | |||||||||||
|
Renegotiated loans
|
15,384 | 10,437 | 7,309 | 8,252 | 10,128 | ||||||||||||||||
|
Total nonperforming loans
|
156,451 | 172,450 | 240,292 | 215,290 | 190,472 | ||||||||||||||||
|
Real estate and other assets owned
|
9,486 | 12,504 | 19,629 | 17,380 | 16,387 | ||||||||||||||||
|
Total nonperforming assets
|
$ | 165,937 | $ | 184,954 | $ | 259,921 | $ | 232,670 | $ | 206,859 | |||||||||||
|
Accruing loans past due 90 days or more(a)
|
$ | 129,403 | $ | 154,590 | $ | 154,759 | $ | 153,803 | $ | 146,899 | |||||||||||
|
Government guaranteed loans included in totals above:
|
|||||||||||||||||||||
|
Nonperforming loans
|
$ | 13,845 | $ | 15,273 | $ | 19,355 | $ | 11,885 | $ | 10,196 | |||||||||||
|
Accruing loans past due 90 days or more
|
105,508 | 120,700 | 124,585 | 129,114 | 113,600 | ||||||||||||||||
|
Nonperforming loans to total loans and leases, net of unearned
discount
|
.39 | % | .45 | % | .67 | % | .84 | % | .76 | % | |||||||||||
|
Nonperforming assets to total net loans and leases and real
estate and other assets owned
|
.41 | % | .48 | % | .73 | % | .90 | % | .82 | % | |||||||||||
|
Accruing loans past due 90 days or more to total loans and
leases, net of unearned discount
|
.32 | % | .40 | % | .43 | % | .60 | % | .58 | % | |||||||||||
| (a) | Predominately residential mortgage loans. |
49
Factors that influence the Company’s credit loss experience
include 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 can be highly subjective, as they are based upon many
assumptions. Such valuations can be significantly affected over
relatively short periods of time by changes in business climate,
economic conditions, interest rates, and, in many cases, the
results of operations of businesses and other occupants of the
real property.
Commercial loans and leases charged-off during 2005, net of
recoveries, were $26 million, compared with
$20 million in 2004 and $32 million in 2003.
Nonperforming commercial loans and leases aggregated
$39 million at December 31, 2005, $45 million a
year earlier and $105 million at December 31, 2003. As
noted earlier, the decreases in such loans largely reflect
improvement in the repayment performance of borrowers.
Net recoveries of commercial real estate loans during 2005
totaled $1 million, compared with net charge-offs in 2004
and 2003 of $3 million and $6 million, respectively.
Commercial real estate loans classified as nonperforming totaled
$44 million at December 31, 2005, compared with
$45 million at December 31, 2004 and $48 million
at December 31, 2003.
Net charge-offs of residential real estate loans during 2005
were $2 million, compared with $4 million in 2004 and
$5 million in 2003. Nonperforming residential real estate
loans at 2005’s year-end totaled $29 million, compared
with $44 million and $51 million at December 31,
2004 and 2003, respectively. Residential real estate loans past
due 90 days or more and accruing interest aggregated
$96 million, $127 million and $141 million at
December 31, 2005, 2004 and 2003, respectively. As already
noted, a substantial portion of such amounts related to
guaranteed loans repurchased from government-related entities.
During 2005, net charge-offs of consumer loans and leases
totaled $50 million, representing .47% of average consumer
loans and leases outstanding, compared with $55 million or
..49% in 2004 and $54 million or .53% in 2003. Indirect
automobile loans and leases represented the most significant
category of consumer loan charge-offs in each of the past three
years. Charge-offs of indirect automobile loans and leases
during each of 2005 and 2004, net of recoveries, were
$37 million, and in 2003 were $32 million.
Nonperforming consumer loans and leases were $44 million at
December 31, 2005, representing .42% of outstanding
consumer loans and leases, compared with $38 million or
..35% at December 31, 2004 and $36 million or .33% at
December 31, 2003. Consumer loans and leases past due
90 days or more and accruing interest totaled
$1 million at December 31, 2005, $2 million at
December 31, 2004 and $3 million at December 31,
2003.
Management regularly assesses the adequacy of the allowance for
credit losses by performing ongoing evaluations of the loan and
lease portfolio, including such factors as the differing
economic risks associated with each loan category, the financial
condition of specific borrowers, the economic environment in
which borrowers operate, the level of delinquent loans, the
value of any collateral and, where applicable, the existence of
any guarantees or indemnifications. Management evaluated the
impact of changes in interest rates and overall economic
conditions on the ability of borrowers to meet repayment
obligations when quantifying the Company’s exposure to
credit losses and assessing the adequacy of the Company’s
allowance for such losses as of each reporting date. Factors
also considered by management when performing its assessment, in
addition to general economic conditions and the other factors
described above, included, but were not limited to: (i) 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; (ii) the amount of commercial and industrial
loans to businesses in areas of New York State outside of the
New York City metropolitan area and in central Pennsylvania that
have historically experienced less economic growth and vitality
than the vast majority of other regions of the country; and
(iii) the size of the Company’s portfolio of loans to
individual consumers, which historically have experienced higher
net charge-offs as a percentage of loans outstanding than other
loan types. The level of the allowance is adjusted based on the
results of management’s analysis.
Management cautiously and conservatively evaluated the allowance
for credit losses as of December 31, 2005 in light of
(i) the sluggish pace of economic growth in many of the
markets served by the Company; (ii) continuing weakness in
industrial employment in upstate New York and central
50
Pennsylvania; and (iii) the significant subjectivity
involved in commercial real estate valuations for properties
located in areas with stagnant or low growth economies. Although
the 2006 economic outlook predicts moderate national growth with
inflation expected to be reasonably well contained, concerns
exist about higher energy prices; a waning housing boom; Federal
Reserve tightening of monetary policy; the underlying impact on
businesses’ operations and abilities to repay loans
resulting from rising interest rates; sluggish job creation,
which could cause consumer spending to slow; continued stagnant
population growth in the upstate New York and central
Pennsylvania regions; and sluggish commercial loan demand in
many market areas served by the Company.
In ascertaining the adequacy of the allowance for credit losses,
the Company estimates losses attributable to specific troubled
credits and also estimates losses inherent in other loans and
leases. The total allowance for credit losses, therefore,
includes both specific and inherent base level loss components,
as well as inherent unallocated loss components. The following
paragraphs describe these components.
For purposes of determining the level of the allowance for
credit losses, the Company segments its loan and lease portfolio
by loan type. The amount of specific loss components in the
Company’s loan and lease portfolios is determined through a
loan by loan analysis of all commercial and commercial real
estate loans which are in nonaccrual status. Specific loss
components are also established for certain classified
commercial loans and leases and commercial real estate loans
greater than $350,000 when it is determined that there is a
differing risk of loss than otherwise prescribed under the
inherent base level loss component calculation. Measurement of
the specific loss components is typically based on expected
future cash flows, collateral values and other factors that may
impact the borrower’s ability to pay. Impaired loans, as
defined in Statement of Financial Accounting Standards
(“SFAS”) No. 114, “Accounting by Creditors
for Impairment of a Loan,” as amended, are evaluated for
specific loss components. Except for consumer loans and leases
and residential real estate loans that are considered smaller
balance homogeneous loans and are evaluated collectively, the
Company considers a loan to be impaired for purposes of applying
SFAS No. 114 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 or more.
Loans less than 90 days delinquent are deemed to have a
minimal delay in payment and are generally not considered to be
impaired for purposes of applying SFAS No. 114.
The inherent base level loss components are generally determined
by applying loss factors to specific loan balances based on loan
type and management’s classification of such loans under
the Company’s loan grading system. The Company utilizes an
extensive loan grading system which is applied to all commercial
and commercial real estate credits. Loan officers are
responsible for continually assigning grades to these loans
based on standards outlined in the Company’s Credit Policy.
Internal loan grades are also extensively monitored by the
Company’s loan review department to ensure consistency and
strict adherence to the prescribed standards.
Loan balances utilized in the inherent base level loss component
computations exclude loans and leases for which specific
allocations are maintained. Loan grades are assigned loss
component factors that reflect the Company’s loss estimate
for each group of loans and leases. Factors considered in
assigning loan grades and loss component factors include
borrower-specific information related to expected future cash
flows and operating results, collateral value, financial
condition, payment status, and other information; levels of and
trends in portfolio charge-offs and recoveries; levels of and
trends in portfolio delinquencies and impaired loans; changes in
the risk profile of specific portfolios; trends in volume and
terms of loans; national and local economic conditions and
trends; effects of changes in credit concentrations; and
observed trends and practices in the banking industry.
The specific loss components and the inherent base level loss
components together comprise the total base level or
“allocated” allowance for credit losses. Such
allocated portion of the allowance represents management’s
assessment of near-term charge-offs and losses existing in
specific larger balance loans that are reviewed in detail by
management and pools of other loans that are not individually
analyzed.
The inherent unallocated portion of the allowance is intended to
provide for probable losses that are not otherwise identifiable.
The inherent unallocated allowance includes management’s
subjective
51
determination of amounts necessary for such things as economic
uncertainties; customer, industry and geographic concentrations;
and expansion into new products and market areas. 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 many market regions served by
the Company, specifically the western and central portions of
New York State and Pennsylvania, that resulted in such regions
experiencing significantly poorer economic growth and vitality
as compared with much of the rest of the country;
(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 entered through
acquisitions, for which the Company does not have the same
degree of familiarity and experience regarding portfolio
performance in changing market conditions; (iv) the
introduction of new loan and lease product types, including
loans and leases to foreign and domestic borrowers obtained
through acquisitions; (v) additional risk associated with
the Company’s portfolio of consumer loans, in particular
automobile loans and leases, which generally have higher rates
of loss than other types of collateralized loans; and
(vi) the possible use of imprecise estimates in determining
the allocated portion of the allowance.
Commercial real estate valuations include many assumptions and,
as a result, can be highly subjective. Specifically, commercial
real estate values in the New York City metropolitan area can be
significantly affected over relatively short periods of time by
changes in business climate, economic conditions and interest
rates, and, in many cases, the results of operations of
businesses and other occupants of the real property. Economic
indicators in the most significant market regions served by the
Company were mixed during 2005. Private sector job growth in the
upstate New York market was 0.6%, or one-third the national
average. The manufacturing-oriented metropolitan areas of
Buffalo, Rochester and Binghamton continued to experience
weakness, including continued industrial downsizing. Job growth
in areas of Pennsylvania served by the Company also lagged the
national average. In contrast, job growth was higher than the
national average in the Hudson Valley region of New York State
(1.8%), Maryland (2.4%) and Northern Virginia (4.0%) in 2005.
These mixed signals on private sector job growth, combined with
concerns about higher interest rates, high levels of consumer
indebtedness, high energy prices, weak population growth in the
upstate New York and central Pennsylvania regions that lagged
national population growth trends and other factors, continue to
indicate an environment of economic uncertainty, particularly in
the markets served by the Company in New York and Pennsylvania
where more than two-thirds of its lending business is conducted.
A comparative allocation of the allowance for credit losses for
each of the past five year-ends is presented in table 12.
Amounts were allocated to specific loan categories based on
information available to management at the time of each year-end
assessment and using the methodology described herein.
Variations in the allocation of the allowance by loan category
as a percentage of those loans reflect changes in
management’s estimate of specific loss components and
inherent base level loss components. As described in note 4
of Notes to Financial Statements, loans considered impaired
pursuant to the requirements of SFAS No. 114 were
$93 million at December 31, 2005 and $106 million
at December 31, 2004. The allocated portion of the
allowance for credit losses related to impaired loans totaled
$15 million at December 31, 2005 and $17 million
at December 31, 2004. The unallocated portion of the
allowance for credit losses was equal to .51% and .42% of gross
loans outstanding at December 31, 2005 and 2004,
respectively. The increase in the unallocated portion of the
allowance for credit losses from the end of 2004 to
December 31, 2005 was largely attributable to the factors
described herein, including the significantly poorer economic
environment and performance in many of the major market regions
served by the Company, the uncertain impact that significantly
higher interest rates and energy prices were having on the
economy, in general, and on borrowers’ abilities to repay
loans, and management’s lack of familiarity and long-term
experience evaluating the impact of changing economic conditions
on the performance of borrowers located in market areas entered
through the Allfirst acquisition. Given the prolonged
underperformance of the economies of many of the regions served
by the Company over a number of years and the significant size
of the loan portfolio in the Company’s new market regions
entered through the Allfirst acquisition, management
deliberately remained cautious and conservative in establishing
the unallocated portion of the allowance for credit
52
losses. Given the Company’s high concentration of
commercial loans and commercial real estate loans in New York
State, including the upstate New York region, and central
Pennsylvania, and considering the other factors already
discussed herein, management considers the allocated and
unallocated portions of the allowance for credit losses to be
prudent and reasonable. Nevertheless, the Company’s
allowance is general in nature and is available to absorb losses
from any loan or lease category.
Table 12
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES TO LOAN
CATEGORIES
| December 31 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
|
Commercial, financial, agricultural, etc.
|
$ | 136,852 | $ | 147,550 | $ | 186,902 | $ | 120,627 | $ | 130,156 | |||||||||||
|
Real estate
|
161,003 | 166,910 | 170,493 | 152,758 | 139,848 | ||||||||||||||||
|
Consumer
|
133,541 | 148,591 | 152,759 | 113,711 | 94,710 | ||||||||||||||||
|
Unallocated
|
206,267 | 163,813 | 103,904 | 49,376 | 60,294 | ||||||||||||||||
|
Total
|
$ | 637,663 | $ | 626,864 | $ | 614,058 | $ | 436,472 | $ | 425,008 | |||||||||||
| As a percentage of gross loans | ||||||||||||||||||||
| and leases outstanding | ||||||||||||||||||||
|
Commercial, financial, agricultural, etc.
|
1.23 | % | 1.45 | % | 1.99 | % | 2.23 | % | 2.50 | % | ||||||||||
|
Real estate
|
.85 | .96 | 1.10 | 1.17 | 1.00 | |||||||||||||||
|
Consumer
|
1.27 | 1.33 | 1.37 | 1.51 | 1.52 | |||||||||||||||
Management believes that the allowance for credit losses at
December 31, 2005 was adequate to absorb credit losses
inherent in the portfolio as of that date. The allowance for
credit losses was $638 million or 1.58% of total loans and
leases at December 31, 2005, compared with
$627 million or 1.63% at December 31, 2004 and
$614 million or 1.72% at December 31, 2003. The
decline in the level of the allowance as a percentage of
outstanding loans and leases since the 2003 year end
reflects continued improvement in certain credit factors,
including the already discussed decreases in net charge-offs and
nonperforming loans. Should the various credit factors
considered by management in establishing the allowance for
credit losses reflect sustained positive trends and should
management’s assessment of losses inherent in the loan
portfolios decline, the level of the allowance as a percentage
of loans will decrease in future periods. The ratio of the
allowance to nonperforming loans at the end of 2005, 2004 and
2003 was 408%, 364% and 256%, respectively. The level of the
allowance reflects management’s evaluation of the loan and
lease portfolio as of each respective date.
In establishing the allowance for credit losses, management
follows a consistent methodology as described herein, including
taking a conservative view of borrowers’ abilities to repay
loans. The establishment of the allowance is extremely
subjective and requires management to make many judgments about
borrower, industry, regional and national economic health and
performance. In order to present examples of the possible impact
on the allowance from certain changes in credit quality factors,
the Company assumed the following scenarios for possible
deterioration of credit quality:
| • | For consumer loans and leases considered smaller balance homogenous loans and evaluated collectively, a 20 basis point increase in loss factors; | |
| • | For residential real estate loans and home equity loans and lines of credit, also considered smaller balance homogenous loans and evaluated collectively, a 10 basis point increase in loss factors; and | |
| • | For commercial loans and commercial real estate loans, which are not similar in nature, a migration of loans to lower-ranked risk grades resulting in a 30% increase in the balance of classified credits in each risk grade. |
53
For possible improvement in credit quality factors, the
scenarios assumed were:
| • | For consumer loans and leases, a 10 basis point decrease in loss factors; | |
| • | For residential real estate loans and home equity loans and lines of credit, a 5 basis point decrease in loss factors; and | |
| • | For commercial loans and commercial real estate loans, a migration of loans to higher-ranked risk grades resulting in a 5% decrease in the balance of classified credits in each risk grade. |
The scenario analyses resulted in an additional $45 million
in losses that could be identifiable under the assumptions for
credit deterioration, whereas under the assumptions for credit
improvement a $14 million reduction in such losses could
occur. These examples are only a few of numerous reasonably
possible scenarios that could be utilized in assessing the
sensitivity of the allowance for credit losses based on changes
in assumptions and other factors.
Commercial real estate loans secured by multifamily properties
and properties used in providing retail goods and services in
the New York City metropolitan area represented 4% and 5%,
respectively, of loans outstanding at December 31, 2005.
The Company had no concentrations of credit extended to any
specific industry that exceeded 10% of total loans at
December 31, 2005. Outstanding loans to foreign borrowers
were $217 million at December 31, 2005, or .5% of
total loans and leases.
Assets acquired in settlement of defaulted loans totaled
$9 million at December 31, 2005, compared with
$13 million and $20 million at December 31, 2004
and 2003, respectively.
Other Income
Other income totaled $950 million in 2005, compared with
$943 million in 2004. Higher mortgage banking revenues,
corporate financing advisory fees, gains on sales of commercial
lease equipment and other property, and other revenues were
offset by losses from investment securities, which reflect the
already discussed $29 million other-than-temporary
impairment charge related to the Company’s investment in
certain preferred stock issuances of FNMA and FHLMC. Excluding
gains and losses from investment securities, other income in
2005 rose $38 million or 4% from 2004. Other income in 2004
increased 13% from the $831 million earned in 2003. The
rise in such income in 2004 over the prior year was attributable
to the full-year impact of revenues related to operations or
market areas associated with the former Allfirst franchise.
Excluding Allfirst-related revenues, higher levels of service
charges on deposit accounts, letter of credit and other
credit-related fees and insurance-related sales commissions and
other revenues were offset by a decline in mortgage banking
revenues.
Mortgage banking revenues were $136 million in 2005,
compared with $124 million in 2004 and $149 million in
2003. Mortgage banking revenues are comprised of both
residential and commercial mortgage banking activities. The
Company’s involvement in commercial mortgage banking
activities are largely comprised of the origination, sales and
servicing of loans in conjunction with the FNMA DUS program.
Residential mortgage banking revenues, consisting of gains from
sales of residential mortgage loans and loan servicing rights,
residential mortgage loan servicing fees, and other residential
mortgage loan-related fees and income, rose 7% to
$107 million in 2005 from $100 million in 2004. Higher
origination activity in 2005 as compared with 2004 was the most
significant factor contributing to the increase in revenues.
Residential mortgage banking revenues in 2004 were 23% lower
than the $129 million earned in 2003, primarily due to
lower levels of loan originations. Also contributing to
2004’s decreased revenues was the adoption of Securities
and Exchange Commission (“SEC”) Staff Accounting
Bulletin (“SAB”) No. 105, “Application of
Accounting Principles to Loan Commitments.” In March
2004, the SEC issued SAB No. 105, which provides
guidance regarding the accounting for loans held for sale and
loan commitments accounted for as derivative instruments. In
accordance with SAB No. 105, effective April 1,
2004, value ascribable to loan cash flows that will ultimately
be realized in connection with mortgage servicing activities
should not be included in the determination of fair value of
loans held for sale or commitments to originate loans for sale,
but rather should only be recognized at the time the underlying
mortgage loans are sold. The Company’s adoption of the SEC
guidance resulted in a deferral of mortgage banking revenues of
approximately $6 million in 2004 as
54
compared with 2003. Neither the amount or timing of receipt of
cash flows nor the economic value of the loans and commitments
were changed as a result of this accounting guidance.
Residential mortgage loans
originated for sale to other investors totaled approximately
$7.7 billion in 2005, compared with $4.8 billion in
2004 and $5.9 billion in 2003. Realized gains from sales of
residential mortgage loans and loan servicing rights and
recognized net unrealized gains attributable to residential
mortgage loans held for sale, commitments to originate loans for
sale and commitments to sell loans totaled $42 million in
2005, up from $32 million in 2004, but down from
$65 million in 2003. On May 1, 2005,
M&T Mortgage
Corporation assumed the operations of Regions Financial
Corporation’s wholesale residential mortgage business.
Those operations added 13 locations and approximately 140
employees to M&T
Mortgage Corporation’s business. Approximately
$1.7 billion of residential mortgage loans originated in
2005 for sale to other investors were related to the assumed
operations. Nevertheless, including the effect of expenses, the
operations assumed did not have a material impact on the
Company’s net income during 2005.
Revenues from servicing residential mortgage loans for others
increased to $58 million in 2005 from $57 million in
2004 and $54 million in 2003. Included in such servicing
revenues were amounts related to purchased servicing rights
associated with small balance commercial mortgage loans totaling
$10 million, $6 million and $5 million in 2005,
2004 and 2003, respectively. Residential mortgage loans serviced
for others totaled $15.6 billion at December 31, 2005,
$14.9 billion a year earlier and $13.6 billion at
December 31, 2003, including the small balance commercial
mortgage loans noted above of approximately $2.4 billion,
$1.6 billion and $1.0 billion at December 31,
2005, 2004 and 2003, respectively. Capitalized residential
mortgage loan servicing assets, net of a valuation allowance for
possible impairment, totaled $140 million at
December 31, 2005, compared with $133 million and
$129 million at December 31, 2004 and 2003,
respectively. Included in capitalized residential mortgage
servicing assets were purchased servicing rights associated with
the small balance commercial mortgage loans noted above of
$23 million, $13 million and $8 million at
December 31, 2005, 2004 and 2003, respectively. Additional
information about the Company’s capitalized residential
mortgage loan servicing assets, including information about the
calculation of estimated fair value, is presented herein under
the heading “Other Expense” and in note 7 of
Notes to Financial Statements. Commitments to sell residential
mortgage loans and commitments to originate residential mortgage
loans for sale at pre-determined rates were $923 million
and $352 million, respectively, at December 31, 2005,
$764 million and $422 million, respectively, at
December 31, 2004 and $824 million and
$459 million, respectively, at December 31, 2003. Net
unrealized losses on residential mortgage loans held for sale,
commitments to sell loans, and commitments to originate loans
for sale were $5 million at December 31, 2005,
compared with net unrealized gains of $3 million and
$7 million at December 31, 2004 and 2003,
respectively. Changes in such net unrealized gains and losses
are recorded in mortgage banking revenues and resulted in net
decreases in revenue of $8 million in 2005, $4 million
in 2004 (reflecting a $6 million decrease attributable to
the implementation of SAB No. 105) and $8 million
in 2003.
Commercial mortgage banking revenues totaled $29 million in
2005, compared with $25 million and $20 million in
2004 and 2003, respectively. Revenues from loan origination and
sales activities were $14 million in 2005, compared with
$13 million during each of 2004 and 2003. Loan servicing
revenues increased to $15 million in 2005 from
$12 million in 2004 and $7 million in 2003.
Capitalized commercial mortgage loan servicing assets totaled
$21 million at December 31, 2005 and $22 million
at each of December 31, 2004 and 2003. Commercial mortgage
loans serviced for other investors totaled $4.3 billion,
$4.1 billion and $3.8 billion at December 31,
2005, 2004 and 2003, respectively, and included
$941 million, $926 million and $825 million,
respectively, of loan balances for which investors had recourse
to the Company if such balances are ultimately uncollectible.
Commitments to sell commercial mortgage loans and commitments to
originate commercial mortgage loans for sale were
$241 million and $42 million, respectively, at
December 31, 2005, $167 million and $106 million,
respectively, at December 31, 2004 and $72 million and
$71 million, respectively, at December 31, 2003.
Commercial mortgage loans held for sale totaled
$199 million, $61 million and $1 million at
December 31, 2005, 2004 and 2003, respectively.
Service charges on deposit accounts totaled $370 million in
2005, compared with $366 million in 2004. Higher consumer
service charges, largely resulting from higher debit card
transaction volumes
55
and overdraft fees, were partially offset by lower commercial
service charges. Deposit account service charges in 2004 were
18% higher than $310 million in 2003. Approximately 80% of
that year-over-year increase was in regions associated with
Allfirst and was largely due to the full-year impact of that
transaction.
Trust income includes fees for trust and custody services
provided to personal, corporate and institutional customers, and
investment management and advisory fees that are often based on
a percentage of the market value of assets under management.
Trust income aggregated $135 million in 2005, down slightly
from $136 million a year earlier. The impact of lower
balances in proprietary mutual funds caused the decline in
revenues from 2004 to 2005. Trust income grew 19% in 2004 from
$115 million in 2003 due to the full-year impact of the
Allfirst transaction. Total trust assets, which include assets
under management and assets under administration, were
$134.0 billion at December 31, 2005, compared with
$128.4 billion at December 31, 2004. Trust assets
under management totaled $21.6 billion and
$22.9 billion at December 31, 2005 and 2004,
respectively. Brokerage services income, which includes revenues
from the sale of mutual funds and annuities and securities
brokerage fees, totaled $56 million in 2005, 3% higher than
$54 million in 2004 due largely to higher revenues earned
from the sale of mutual funds. Brokerage services income was
$51 million in 2003. The increase from 2003 to 2004 was the
result of revenues earned in the former Allfirst regions.
Trading account and foreign exchange activity resulted in gains
of $23 million in 2005, $19 million in 2004 and
$16 million in 2003. The higher gains in 2005 and 2004 as
compared with 2003 were due in part to increased volumes of
trading assets and liabilities and reflect fees and market value
changes related to interest rate swap agreements and foreign
exchange contracts executed. The Company enters into interest
rate and foreign exchange contracts with customers who need such
services and concomitantly enters into offsetting trading
positions with third parties to minimize the risks involved with
these types of transactions. Information about the notional
amount of interest rate, foreign exchange and other contracts
entered into by the Company for trading account purposes is
included in note 17 of Notes to Financial Statements and
herein under the heading “Liquidity, Market Risk, and
Interest Rate Sensitivity.” Trading account revenues
related to interest rate and foreign exchange contracts totaled
$15 million, $11 million and $7 million in 2005,
2004 and 2003, respectively. Trading account assets held in
connection with deferred compensation plans were
$41 million and $40 million at December 31, 2005
and 2004, respectively. Trading account revenues resulting from
net increases in the market values of such assets were
$3 million in 2005, $4 million in 2004 and
$6 million in 2003. A largely offsetting expense resulting
from corresponding increases in deferred compensation
liabilities is included in other costs of operations. As a
result of the previously described charge for the
other-than-temporary impairment in value of the FNMA and FHLMC
preferred stock, losses on investment securities aggregated
$28 million during 2005, compared with gains of
$3 million and $2 million in 2004 and 2003,
respectively.
Other revenues from operations rose to $259 million in 2005
from $240 million in 2004 and $188 million in 2003. A
$5 million increase in revenues from providing corporate
financing advisory services and a $7 million increase in
gains on sales of commercial lease equipment and other property
contributed to the higher revenues in 2005 as compared with
2004. The increase from 2003 to 2004 was largely due to the
full-year impact of revenues associated with the Allfirst
transaction. Higher letter of credit and other credit-related
fees and insurance-related sales commissions and other revenues
also contributed to the increase from 2003 to 2004.
Included in other revenues from operations were the following
significant components. Letter of credit and other
credit-related fees totaled $75 million, $74 million
and $54 million in 2005, 2004 and 2003, respectively.
Tax-exempt income earned from bank owned life insurance
aggregated $47 million, $48 million and
$45 million in 2005, 2004 and 2003, respectively. Such
income includes increases in cash surrender value of life
insurance policies and benefits received. Revenues from merchant
discount and credit card fees were $30 million in 2005,
$28 million in 2004 and $26 million in 2003.
Insurance-related sales commissions and other revenues totaled
$22 million in each of 2005 and 2004, compared with
$18 million in 2003. ATM usage fees aggregated
$22 million in 2005 and in 2004, compared with
$19 million in 2003.
56
Other Expense
Other expense decreased 2% to $1.49 billion in 2005 from
$1.52 billion in 2004. In 2003, other expense totaled
$1.45 billion. Included in such amounts are expenses
considered to be “nonoperating” in nature consisting
of amortization of core deposit and other intangible assets of
$57 million, $75 million and $78 million in 2005,
2004 and 2003, respectively, and merger-related expenses of
$60 million in 2003. There were no merger-related expenses
in either 2005 or 2004. Exclusive of these nonoperating
expenses, noninterest operating expenses were $1.43 billion
in 2005, down 1% from $1.44 billion in 2004. Included in
2004’s operating expenses was the $25 million
charitable contribution already discussed. Excluding the impact
of the charitable contribution, operating expenses in 2005
increased $13 million, or less than 1% from 2004. That
increase from 2004 resulted from higher costs of providing
health care and retirement benefits to employees and increased
professional services expenses, partially offset by a higher
reversal of a portion of the valuation allowance for the
impairment of capitalized residential mortgage servicing rights,
due to higher residential mortgage loan interest rates.
Noninterest operating expenses were $1.31 billion in 2003.
A significant portion of the increase in noninterest expense in
2004 as compared with 2003 was due to operations associated with
Allfirst, specifically, the inclusion of twelve months of
Allfirst-related expenses in 2004 compared with nine months of
similar expenses in 2003, and to the $25 million charitable
contribution made in 2004. Table 2 provides a reconciliation of
other expense to noninterest operating expense and a summary of
2003’s merger-related expenses.
Salaries and employee benefits expense totaled $822 million
in 2005, 2% higher than $807 million in 2004. Expenses
related to providing employee health care and retirement
benefits were the most significant contributors to the rise in
salaries and benefits from 2004 to 2005. Salaries and employee
benefits expense was $740 million in 2003. The full-year
impact of expenses related to the acquired operations of
Allfirst was the leading contributor to the rise in salaries and
employee benefits costs in 2004 as compared with 2003. The
Company recognizes expense for stock-based compensation using
the fair value method of accounting for all stock-based
compensation granted to employees after January 1, 1995. As
a result, salaries and employee benefits expense in 2005, 2004
and 2003 included $45 million, $48 million and
$43 million, respectively, of stock-based compensation. The
number of full-time equivalent employees was 12,780 at
December 31, 2005, compared with 12,678 and 13,305 at
December 31, 2004 and 2003, respectively.
Pension benefit expense is a significant cost to the Company and
totaled $38 million in 2005, $30 million in 2004 and
$24 million in 2003. The determination of pension expense
and the recognition of net pension assets and liabilities
requires management to make various assumptions that can
significantly impact the actuarial calculations related thereto.
These assumptions include the expected long-term rate of return
on plan assets, the rate of increase in future compensation
levels and the discount rate. Changes in any of these
assumptions will impact the Company’s pension expense. The
expected long-term rate of return assumption is determined by
taking into consideration asset allocations, historical returns
on the types of assets held and current economic factors.
Returns on invested assets are periodically compared with target
market indices for each asset type to aid management in
evaluating such returns. The discount rate used by the Company
to determine the present value of the Company’s future
benefit obligations reflects specific market yields for a
hypothetical portfolio of highly rated corporate bonds that
would produce cash flows similar to the Company’s benefit
plan obligations and the level of market interest rates in
general. Other factors used to estimate the projected benefit
obligations include actuarial assumptions for mortality rate,
turnover rate, retirement rate and disability rate. Those other
factors do not tend to change significantly over time. The
Company reviews its pension plan assumptions annually to ensure
that such assumptions are reasonable and adjusts those
assumptions, as necessary, to reflect changes in future
expectations. The Company utilizes actuaries and others to aid
in that assessment.
The Company’s 2005 pension expense for its defined benefit
plans was determined using the following assumptions: a
long-term rate of return on assets of 8.50%; a rate of future
compensation increase of 4.90%; and a discount rate of 6.00%. To
demonstrate the sensitivity of pension expense to changes in the
Company’s pension plan assumptions, 25 basis point
increases in: the rate of return on
57
plan assets would have resulted in a decrease in pension expense
of $1 million; the rate of increase in compensation would
have resulted in an increase in pension expense of
$1 million; and the discount rate would have resulted in a
decrease in pension expense of $4 million. Decreases of
25 basis points in those assumptions would have resulted in
similar changes in amount, but in opposite direction from the
changes presented in the preceding sentence. The accounting
guidance promulgated in SFAS No. 87,
“Employers’ Accounting for Pensions,” reflects
the long-term nature of benefit obligations and the investment
horizon of plan assets, and has the effect of reducing earnings
volatility related to short-term changes in interest rates and
market valuations. Actuarial gains and losses include the impact
of plan amendments and various unrecognized gains and losses
resulting from changes in assumptions and investment returns
which are different from that which is assumed. As of
December 31, 2005, the Company had cumulative unrecognized
actuarial losses of approximately $155 million that could
result in an increase in the Company’s future pension
expense depending on several factors, including whether such
losses at each measurement date exceed ten percent of the
greater of the projected benefit obligation or the
market-related value of plan assets. In accordance with
SFAS No. 87, net unrecognized gains or losses that
exceed that threshold are required to be amortized over the
expected service period of active employees, and are included as
a component of net pension cost. Amortization of unrealized
losses had the effect of increasing the Company’s pension
expense by approximately $5 million in 2005 and
$2 million in each of 2004 and 2003.
Reflecting declines in the discount rate used to value pension
plan obligations from 6.25% at December 31, 2003 to 6.00%
at December 31, 2004 and 5.50% at December 31, 2005,
the accumulated benefit obligation of certain of the
Company’s pension plans exceeded the fair value of the
assets of such plans by approximately $208 million at
December 31, 2005 and $116 million at
December 31, 2004. The lower discount rate resulted from
declines in market rates of return on high quality fixed-income
investments currently available and expected to be available
during the period for payment of pension benefits. In accordance
with the provisions of SFAS No. 87, the Company was
required to have a recorded pension liability for those plans
that was at least equal to $208 million at
December 31, 2005 and $116 million at
December 31, 2004. As a result, as of December 31,
2005 the Company increased its previously recorded pension
liability by $60 million with a corresponding reduction of
other comprehensive income that, net of applicable deferred
taxes, was approximately $37 million. A combination of
lower than expected investment returns on plan assets during
2005 and a 50 basis point decline in the discount rate
assumption to 5.50% were the significant factors contributing to
the need for an additional charge to other comprehensive income
in 2005. A further 25 basis point decrease in the assumed
discount rate as of December 31, 2005 to 5.25% would have
resulted in increases in the accumulated benefit obligations and
projected benefit obligations of all pension plans of an
additional $23 million. Under that scenario, the
incremental minimum pension liability adjustment in 2005 would
have been $83 million rather than the $60 million that
was actually recorded, and the additional after tax-effect
charge to other comprehensive income in 2005 would have been
$51 million. A 25 basis point increase in the assumed
discount rate to 5.75% would have decreased the accumulated
benefit obligations and projected benefit obligations of all
pension plans by $24 million. Under this latter scenario,
the incremental minimum pension liability adjustment in 2005
would have been $36 million rather than the
$60 million actually recorded and the additional after
tax-effect charge to other comprehensive income in 2005 would
have been $22 million rather than $37 million. The
Company did not make any contributions to its qualified pension
plans in 2004 or 2005. Information about the Company’s
pension plans, including significant assumptions utilized in
completing actuarial calculations for the plans, is included in
note 11 of Notes to Financial Statements.
Effective January 1, 2006, the Company amended certain
provisions of its defined benefit pension plans. Such amendments
had the effect of reducing future benefits earned under the
plans. The formula was changed to reduce the future accrual of
benefits by lowering the accrual percentage and through use of a
career-average-pay formula as opposed to the previous
final-average-pay formula. The amendments affect benefits earned
for service periods beginning after December 31, 2005.
Active participants had the choice of electing to remain in the
defined benefit plan under the reduced benefit formula or
electing to participate in a new qualified defined contribution
pension plan. Under the new defined contribution pension plan,
the Company will make contributions to the plan each year in an
58
amount that is based on an individual participant’s total
compensation (generally defined as total wages, incentive
compensation, commissions and bonuses) and years of service.
Participants will not contribute to the defined contribution
pension plan. New employees will not be eligible to participate
in the defined benefit plan, but will participate in the defined
contribution pension plan. The amendment caused the projected
benefit obligation associated with the defined benefit plans to
decrease by approximately $98 million. There was no effect
on the accumulated benefit obligation. The financial impact from
these changes to the results of operations for 2005 was not
material.
In addition to the changes described above, the Company also
amended its retirement savings plan (“RSP”), effective
January 1, 2006. The RSP 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. The RSP was amended
to allow eligible employees to defer up to 50% of “total
compensation” as defined above in connection with the
defined contribution pension plan. RSP expense totaled
$17 million in 2005, $16 million in 2004 and
$15 million in 2003.
As a result of the amendments to the defined benefit pension
plans and the RSP and the introduction of the defined
contribution pension plan, the Company hopes to limit increases
in future period expenses associated with these plans.
Reflecting the impact of these changes, the Company projects
that expenses in 2006 associated with the defined benefit and
defined contribution pension plans and the RSP will not be
materially different than the aggregate amount of expense
recognized in 2005 for the defined benefit pension plans and the
RSP.
Excluding the nonoperating expense items already noted,
nonpersonnel operating expenses aggregated $606 million in
2005, 4% below $634 million in 2004. Excluding the
previously mentioned $25 million charitable contribution in
2004, nonpersonnel operating expenses decreased $3 million
from 2004. As compared with 2004, a $7 million higher
reversal in 2005 of a portion of the valuation allowance for the
impairment of capitalized residential mortgage servicing rights,
and lower equipment, net occupancy and other operating expenses
were partially offset by higher professional services costs. The
higher expenses incurred for professional services in 2005 were
due in part to several initiatives of the Company, including
projects focusing on procurement practices, consolidation of
loan application systems, revenue enhancement opportunities and
operational efficiencies, as well as costs related to the
already discussed subordinated note exchange. Nonpersonnel
operating expenses were $578 million in 2003. The full-year
impact of the Allfirst acquisition was a significant contributor
to the higher expense levels during 2004 as compared with 2003,
when only nine months of Allfirst-related operating expenses
were incurred. Also contributing to that increase in expenses in
2004 was the $25 million charitable contribution and higher
expenses for amortization of capitalized residential mortgage
servicing rights and professional services. Partially offsetting
those higher expenses were lower charges for impairment of
capitalized residential mortgage servicing rights. In 2004, a
$4 million partial reversal of the valuation allowance for
possible impairment of capitalized residential mortgage
servicing rights was recognized, while in 2003 a provision for
impairment of $2 million was recorded. Those adjustments to
the valuation allowance resulted from changes in the estimated
fair value of capitalized mortgage servicing rights that reflect
the impact of changing interest rates on the expected rate of
residential mortgage loan prepayments. Information about the
assumptions used by management in estimating the fair value of
capitalized mortgage servicing rights and the estimated impact
of changes in those assumptions are included in note 7 of
Notes to Financial Statements.
Income Taxes
The provision for income taxes was $389 million in 2005,
compared with $344 million in 2004 and $277 million in
2003. The effective tax rates were 33.2%, 32.3% and 32.5% in
2005, 2004 and 2003, respectively. The increase in the
Company’s effective tax rate from 2004 to 2005 was largely
due to the impact of the third quarter 2004 reorganization of
two of the Company’s subsidiaries that altered the taxable
status of such subsidiaries in certain jurisdictions thereby
decreasing the Company’s effective state income tax rate
for 2004. As a result of the reorganizations, both income tax
expense and deferred tax liabilities at September 30, 2004
were reduced by $12 million. The effective tax rate in
future
59
periods will be affected by the results of operations
attributable to the various tax jurisdictions within which the
Company operates and any changes in income tax regulations or
interpretations of such regulations that differ from the
Company’s interpretations by tax authorities within those
jurisdictions. 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.
International Activities
The Company’s net investment in international assets
totaled $230 million at December 31, 2005 and
$248 million at December 31, 2004. Such assets
included $217 million and $230 million, respectively,
of loans to foreign borrowers. Offshore deposits totaled
$2.8 billion at December 31, 2005 and
$4.2 billion at December 31, 2004. The Company uses
such deposits to facilitate customer demand and as an
alternative to short-term borrowings when the costs of such
deposits seem reasonable.
Liquidity, Market Risk, and Interest Rate Sensitivity
As a financial intermediary the Company is exposed to various
risks, including liquidity and market risk. Liquidity refers to
the Company’s ability to ensure that sufficient cash flow
and liquid assets are available to satisfy current and future
financial obligations, including demands for loans and deposit
withdrawals, funding operating costs, and for other corporate
purposes. Liquidity risk arises whenever the maturities of
financial instruments included in assets and liabilities differ.
The most significant funding source for the Company has
historically been core deposits, which are generated from a
large base of consumer, corporate and institutional customers.
That customer base has, over the past several years, 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. Core deposits financed 57% of the
Company’s earning assets at December 31, 2005,
compared with 59% and 67% at December 31, 2004 and 2003,
respectively.
The Company supplements funding
provided through core deposits with various short-term and
long-term wholesale borrowings, including federal funds
purchased and securities sold under agreements to repurchase,
brokered certificates of deposit, offshore branch deposits and
borrowings from the FHLB and others.
M&T Bank had short-term
and long-term credit facilities with the FHLB aggregating
$6.4 billion at December 31, 2005. Outstanding
borrowings under these credit facilities totaled
$3.9 billion and $3.7 billion at December 31,
2005 and 2004, respectively. Such borrowings are secured by
loans and investment securities.
M&T Bank and
M&T Bank, N.A. had
available lines of credit with the Federal Reserve Bank of New
York totaling approximately $3.6 billion at
December 31, 2005. The amounts of these lines are dependent
upon the balances of loans and securities pledged as collateral.
There were no borrowings outstanding under these lines of credit
at either December 31, 2005 or 2004.
The Company has, from time to
time, issued subordinated capital notes to provide liquidity and
enhance regulatory capital ratios. Such notes qualify for
inclusion in the Company’s total capital as defined by
federal regulators. In December 2005,
M&T Bank exchanged
$363 million of its 8.0% subordinated notes due 2010
for new fixed rate/floating rate subordinated notes with a par
value of $409 million due 2020. The new notes bear interest
at a fixed rate of 5.585% for ten years, while thereafter such
notes will bear interest at a floating rate that resets monthly
at a rate equal to one-month LIBOR plus 1.215%. The notes are
redeemable after the fixed-rate period ends at
M&T’s option,
subject to regulatory approval. No new funding was received as a
result of the exchange. A more detailed description of the
exchange is included herein under the heading “Net Interest
Income/ Lending and Funding Activities” and in note 9
of Notes to Financial Statements. In addition, in anticipation
of the Allfirst acquisition,
M&T Bank issued
$400 million of subordinated notes on March 31, 2003
to provide liquidity to fund a portion of the cash consideration
paid to AIB and to maintain appropriate regulatory capital
ratios. As an additional source of funding, in November 2002,
the Company entered into a $500 million revolving
asset-backed structured borrowing which is collateralized by
approximately
60
$572 million of automobile
loans and related assets. The automobile loans and related
assets have been transferred to a special purpose consolidated
subsidiary of M&T Bank.
As existing automobile loans of the subsidiary pay down, monthly
proceeds, after payment of certain fees and debt service costs,
are used by the subsidiary to obtain additional automobile loans
from M&T Bank or
another of its subsidiaries to replenish the collateral and
maintain the existing borrowing base. Additional information
about this borrowing is included in note 18 of Notes to
Financial Statements.
The Company has informal and sometimes reciprocal sources of
funding available through various arrangements for unsecured
short-term borrowings from a wide group of banks and other
financial institutions. Short-term federal funds borrowings
aggregated $4.0 billion and $3.7 billion at
December 31, 2005 and 2004, respectively. In general, these
borrowings were unsecured and matured on the next business day.
Offshore branch deposits have been used as an alternative to
short-term borrowings, as noted earlier, and such deposits
outstanding at December 31, 2005 and 2004 totaled
$2.8 billion and $4.2 billion, respectively, and
generally matured on the next business day.
Should the Company experience a
substantial deterioration in its financial condition or its debt
ratings, or should the availability of short-term funding become
restricted due to a disruption in the financial markets, the
Company’s ability to obtain funding from these or other
sources could be negatively impacted. The Company attempts to
quantify such credit-event risk by modeling scenarios that
estimate the liquidity impact resulting from a short-term
ratings downgrade over various grading levels. The Company
estimates such impact by attempting to measure the effect on
available unsecured lines of credit, available capacity from
secured borrowing sources and securitizable assets. Information
about the credit ratings of
M&T and
M&T Bank is presented
in table 13. Additional information regarding the terms and
maturities of all of the Company’s short-term and long-term
borrowings is provided in note 9 of Notes to Financial
Statements. 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.
Table 13
DEBT RATINGS
| Standard | |||||||||||||
| Moody’s | and Poor’s | Fitch | |||||||||||
|
M&T Bank Corporation
|
|||||||||||||
|
Senior debt
|
A3 | A- | A- | ||||||||||
|
Subordinated debt
|
Baa1 | BBB+ | BBB+ | ||||||||||
|
M&T Bank
|
|||||||||||||
|
Short-term deposits
|
Prime-1 | A-1 | F1 | ||||||||||
|
Long-term deposits
|
A2 | A | A | ||||||||||
|
Senior debt
|
A2 | A | A- | ||||||||||
|
Subordinated debt
|
A3 | A- | BBB+ | ||||||||||
The Company serves in the capacity
of remarketing agent for variable rate demand bonds
(“VRDBs”) issued by customers of the Company for the
purpose of obtaining financing. The VRDBs are generally enhanced
by direct-pay letters of credit provided by
M&T Bank.
M&T Bank oftentimes
acts as remarketing agent for the VRDBs and, at its discretion,
may from time-to-time
own some of the VRDBs while such instruments are remarketed.
When this occurs, the VRDBs are classified as trading assets in
the Company’s consolidated balance sheet. Nevertheless,
M&T Bank is not
contractually obligated to purchase the VRDBs. The value of
VRDBs in the Company’s trading account totaled
$58 million and $14 million at December 31, 2005
and 2004, respectively. At December 31, 2005 and 2004, the
total amount of VRDBs outstanding backed by
M&T Bank letters of
credit was $1.7 billion and $1.5 billion,
respectively. M&T Bank
also serves as remarketing agent for most of those bonds.
61
Table 14
MATURITY DISTRIBUTION OF SELECTED LOANS(a)
| December 31, 2005 | Demand | 2006 | 2007-2010 | After 2010 | |||||||||||||
| (In thousands) | |||||||||||||||||
|
Commercial, financial, agricultural, etc.
|
$ | 5,180,326 | $ | 1,069,356 | $ | 3,002,783 | $ | 526,935 | |||||||||
|
Real estate — construction
|
232,509 | 1,348,799 | 670,325 | 78,908 | |||||||||||||
|
Total
|
$ | 5,412,835 | $ | 2,418,155 | $ | 3,673,108 | $ | 605,843 | |||||||||
|
Floating or adjustable interest rates
|
$ | 2,900,198 | $ | 418,606 | |||||||||||||
|
Fixed or predetermined interest rates
|
772,910 | 187,237 | |||||||||||||||
|
Total
|
$ | 3,673,108 | $ | 605,843 | |||||||||||||
| (a) | The data do not include nonaccrual loans. |
The Company enters into contractual obligations in the normal
course of business which require future cash payments. The
contractual amounts and timing of those payments as of
December 31, 2005 are summarized in table 15. Liquidity may
be affected by off-balance sheet commitments to customers,
including commitments to extend credit, standby letters of
credit, commercial letters of credit, financial guarantees and
indemnification contracts, and commitments to sell real estate
loans. Because many of these commitments or contracts expire
without being funded in whole or in part, the contract amounts
are not necessarily indicative of future cash flows. Further
discussion of these commitments is provided in note 20 of
Notes to Financial Statements. Table 15 summarizes the
Company’s other commitments as of December 31, 2005
and the timing of the expiration of such commitments.
62
Table 15
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
| Less Than One | One to Three | Three to Five | Over Five | ||||||||||||||||||
| December 31, 2005 | Year | Years | Years | Years | Total | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
|
Payments due for contractual obligations
|
|||||||||||||||||||||
|
Time deposits
|
$ | 8,131,857 | $ | 2,836,849 | $ | 287,729 | $ | 151,191 | $ | 11,407,626 | |||||||||||
|
Deposits at foreign office
|
2,809,532 | — | — | — | 2,809,532 | ||||||||||||||||
|
Federal funds purchased and agreements to repurchase securities
|
4,211,978 | — | — | — | 4,211,978 | ||||||||||||||||
|
Other short-term borrowings
|
940,894 | — | — | — | 940,894 | ||||||||||||||||
|
Long-term borrowings
|
611,273 | 2,827,927 | 922,778 | 1,835,016 | 6,196,994 | ||||||||||||||||
|
Operating leases
|
45,971 | 81,505 | 55,392 | 96,346 | 279,214 | ||||||||||||||||
|
Other
|
25,591 | 13,858 | 10,302 | 41,050 | 90,801 | ||||||||||||||||
|
Total
|
$ | 16,777,096 | $ | 5,760,139 | $ | 1,276,201 | $ | 2,123,603 | $ | 25,937,039 | |||||||||||
|
Other commitments
|
|||||||||||||||||||||
|
Commitments to extend credit
|
$ | 6,527,471 | $ | 3,313,413 | $ | 3,794,994 | $ | 1,602,506 | $ | 15,238,384 | |||||||||||
|
Standby letters of credit
|
1,386,169 | 1,330,319 | 673,836 | 132,910 | 3,523,234 | ||||||||||||||||
|
Commercial letters of credit
|
21,360 | 5,056 | 20,944 | — | 47,360 | ||||||||||||||||
|
Financial guarantees and indemnification contracts
|
134,632 | 71,265 | 93,526 | 886,962 | 1,186,385 | ||||||||||||||||
|
Commitments to sell real estate loans
|
1,164,360 | — | — | — | 1,164,360 | ||||||||||||||||
|
Total
|
$ | 9,233,992 | $ | 4,720,053 | $ | 4,583,300 | $ | 2,622,378 | $ | 21,159,723 | |||||||||||
M&T’s
primary source of funds to pay for operating expenses,
shareholder dividends and treasury stock repurchases has
historically been the receipt of dividends from its banking
subsidiaries, which are subject to various 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 two preceding years. For purposes of the test, at
December 31, 2005 approximately $528 million was
available for payment of dividends to
M&T from banking
subsidiaries without prior regulatory approval. These historic
sources of cash flow have been augmented in the past by the
issuance of trust preferred securities. Information regarding
trust preferred securities and the related junior subordinated
debentures is included in note 9 of Notes to Financial
Statements. M&T also
maintains a $30 million line of credit with an unaffiliated
commercial bank, of which there were no borrowings outstanding
at December 31, 2005. A similar $30 million line of
credit was entirely available for borrowing at December 31,
2004.
63
On an ongoing basis, management
closely monitors the Company’s liquidity position for
compliance with internal policies and believes that available
sources of liquidity are adequate to meet funding needs in the
normal course of business. Management does not currently
anticipate engaging in any activities, either currently or in
the long-term, for which adequate funding would not be available
and would therefore result in a significant strain on liquidity
at either M&T or its
subsidiary banks.
Table 16
MATURITY AND TAXABLE-EQUIVALENT YIELD OF INVESTMENT
SECURITIES
| One Year | One to Five | Five to Ten | Over Ten | |||||||||||||||||||
| December 31, 2005 | or Less | Years | Years | Years | Total | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||
|
Investment securities available for sale(a)
|
||||||||||||||||||||||
|
U.S. Treasury and federal agencies
|
||||||||||||||||||||||
|
Carrying value
|
$ | 56,427 | $ | 258,475 | $ | 7,205 | $ | 1,099 | $ | 323,206 | ||||||||||||
|
Yield
|
3.26 | % | 3.60 | % | 4.22 | % | 4.38 | % | 3.56 | % | ||||||||||||
|
Obligations of states and political subdivisions
|
||||||||||||||||||||||
|
Carrying value
|
8,499 | 28,428 | 36,556 | 11,452 | 84,935 | |||||||||||||||||
|
Yield
|
5.71 | % | 5.94 | % | 5.00 | % | 8.09 | % | 5.80 | % | ||||||||||||
|
Mortgage-backed securities(b)
|
||||||||||||||||||||||
|
Government issued or guaranteed
|
||||||||||||||||||||||
|
Carrying value
|
167,219 | 706,470 | 740,072 | 1,079,407 | 2,693,168 | |||||||||||||||||
|
Yield
|
3.65 | % | 3.68 | % | 3.82 | % | 4.45 | % | 4.03 | % | ||||||||||||
|
Privately issued
|
||||||||||||||||||||||
|
Carrying value
|
56,505 | 446,593 | 410,966 | 3,360,948 | 4,275,012 | |||||||||||||||||
|
Yield
|
4.65 | % | 4.57 | % | 5.05 | % | 4.80 | % | 4.80 | % | ||||||||||||
|
Other debt securities
|
||||||||||||||||||||||
|
Carrying value
|
4,020 | 9,813 | 1,680 | 135,225 | 150,738 | |||||||||||||||||
|
Yield
|
5.35 | % | 4.40 | % | 4.75 | % | 6.56 | % | 6.37 | % | ||||||||||||
|
Equity securities
|
||||||||||||||||||||||
|
Carrying value
|
— | — | — | — | 404,644 | |||||||||||||||||
|
Yield
|
— | — | — | — | 4.68 | % | ||||||||||||||||
|
Total investment securities available for sale
|
||||||||||||||||||||||
|
Carrying value
|
292,670 | 1,449,779 | 1,196,479 | 4,588,131 | 7,931,703 | |||||||||||||||||
|
Yield
|
3.85 | % | 3.98 | % | 4.28 | % | 4.78 | % | 4.52 | % | ||||||||||||
|
Investment securities held to maturity
|
||||||||||||||||||||||
|
Obligations of states and political subdivisions
|
||||||||||||||||||||||
|
Carrying value
|
78,532 | 7,472 | 4,888 | 6,111 | 97,003 | |||||||||||||||||
|
Yield
|
4.67 | % | 5.70 | % | 7.47 | % | 11.27 | % | 5.31 | % | ||||||||||||
|
Other debt securities
|
||||||||||||||||||||||
|
Carrying value
|
— | — | 514 | 3,542 | 4,056 | |||||||||||||||||
|
Yield
|
— | — | 8.31 | % | 5.06 | % | 5.47 | % | ||||||||||||||
|
Total investment securities held to maturity
|
||||||||||||||||||||||
|
Carrying value
|
78,532 | 7,472 | 5,402 | 9,653 | 101,059 | |||||||||||||||||
|
Yield
|
4.67 | % | 5.70 | % | 7.55 | % | 8.99 | % | 5.31 | % | ||||||||||||
|
Other investment securities
|
— | — | — | — | 367,402 | |||||||||||||||||
|
Total investment securities
|
||||||||||||||||||||||
|
Carrying value
|
$ | 371,202 | $ | 1,457,251 | $ | 1,201,881 | $ | 4,597,784 | $ | 8,400,164 | ||||||||||||
|
Yield
|
4.02 | % | 3.99 | % | 4.29 | % | 4.79 | % | 4.33 | % | ||||||||||||
| (a) | Investment securities available for sale are presented at estimated fair value. Yields on such securities are based on amortized cost. | |
| (b) | 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. |
64
Table 17
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT AND TIME
DEPOSITS
WITH BALANCES OF $100,000 OR MORE
| December 31, 2005 | |||||
| (In thousands) | |||||
|
Under 3 months
|
$ | 1,112,513 | |||
|
3 to 6 months
|
805,226 | ||||
|
6 to 12 months
|
2,297,375 | ||||
|
Over 12 months
|
1,896,656 | ||||
|
Total
|
$ | 6,111,770 | |||
Market risk is the risk of loss from adverse changes in the
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 Company is exposed to
interest rate risk in its core banking activities of lending and
deposit-taking, since assets and liabilities reprice at
different times and by different amounts as interest rates
change. As a result, net interest income earned by the Company
is subject to the effects of changing interest rates. The
Company measures interest rate risk by calculating the
variability of net interest income in future periods under
various interest rate scenarios using projected balances for
earning assets, interest-bearing liabilities and derivatives
used to hedge interest rate risk. Management’s philosophy
toward interest rate risk management is to limit the variability
of net interest income. The balances of financial instruments
used in the projections are based on expected growth from
forecasted business opportunities, anticipated prepayments of
loans and investment securities, and expected maturities of
investment securities, loans and deposits. Management uses a
“value of equity” model to supplement the modeling
technique described above. Those supplemental analyses are based
on discounted cash flows associated with on- and off-balance
sheet financial instruments. Such analyses are modeled to
reflect changes in interest rates and non-parallel shifts in the
maturity curve of interest rates and provide management with a
long-term interest rate risk metric. The Company has entered
into interest rate swap agreements to help manage exposure to
interest rate risk. At December 31, 2005, the aggregate
notional amount of interest rate swap agreements entered into
for interest rate risk management purposes was
$652 million. Information about interest rate swap
agreements 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 Company’s Risk Management Committee, which includes
members of senior management, monitors the sensitivity of the
Company’s net interest income to changes in interest rates
with the aid of a computer model that forecasts net interest
income under different interest rate scenarios. In modeling
changing interest rates, the Company considers different yield
curve shapes that consider both parallel (that is, simultaneous
changes in interest rates at each point on the yield curve) and
non-parallel (that is, allowing interest rates at points on the
yield curve to vary by different amounts) shifts in the yield
curve. In utilizing the model, market implied forward interest
rates over the subsequent twelve months are generally used to
determine a base interest rate scenario for the net interest
income simulation. That calculated base net interest income is
then compared to the income calculated under the varying
interest rate scenarios. The model considers the impact of
ongoing lending and deposit-gathering activities, as well as
interrelationships in the magnitude and timing of the repricing
of financial instruments, including the effect of changing
interest rates on expected prepayments and maturities.
Management has taken actions, when deemed prudent, to mitigate
exposure to interest rate risk through the use of on- or
off-balance sheet financial instruments and intends to do so in
the future. 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 adding to, modifying or terminating existing
interest rate swap agreements or other financial instruments
used for interest rate risk management purposes.
65
Table 18 as of December 31, 2005 and 2004 displays the
estimated impact on net interest income from non-trading
financial instruments in the base scenario described above
resulting from parallel changes in interest rates across
repricing categories during the first modeling year.
Table 18
SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST
RATES
| Calculated Increase | ||||||||
| (Decrease) in Projected | ||||||||
| Net Interest Income | ||||||||
| December 31 | ||||||||
| Changes in Interest Rates | 2005 | 2004 | ||||||
| (Dollars in thousands) | ||||||||
|
+200 basis points
|
$ | (7,178 | ) | $ | (20,848 | ) | ||
|
+100 basis points
|
(4,096 | ) | (8,228 | ) | ||||
|
-100 basis points
|
(5,733 | ) | 12,386 | |||||
|
-200 basis points
|
(16,184 | ) | 4,900 | |||||
The Company utilized many assumptions to calculate the impact
that changes in interest rates may have on net interest income.
The more significant assumptions included the rate of
prepayments of mortgage-related assets, cash flows from
derivative and other financial instruments held for non-trading
purposes, loan and deposit volumes and pricing, and deposit
maturities. In the scenarios presented, the Company also assumed
gradual changes in rates during a twelve-month period of 100 and
200 basis points, as compared with the assumed base
scenario. In the event that a 100 or 200 basis point rate
change cannot be achieved, the applicable rate changes are
limited to lesser amounts such that interest rates cannot be
less than zero. The assumptions used in interest rate
sensitivity modeling are inherently uncertain and, as a result,
the Company cannot precisely predict the impact of changes in
interest rates on net interest income. Actual results may differ
significantly due to the timing, magnitude and frequency of
interest rate changes and changes in market conditions and
interest rate differentials (spreads) between
maturity/repricing categories, as well as any actions, such as
those previously described, which management may take to counter
such changes. In light of the uncertainties and assumptions
associated with the process, the amounts presented in the table
and changes in such amounts are not considered significant to
the Company’s past or projected net interest income.
In accordance with industry practice, table 19 presents
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. Management
believes that 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.
66
Table 19
CONTRACTUAL REPRICING DATA
| Three Months | Four to | One to | After | ||||||||||||||||||
| December 31, 2005 | or Less | Twelve Months | Five Years | Five Years | Total | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
|
Loans and leases, net
|
$ | 20,392,807 | $ | 3,594,829 | $ | 9,692,421 | $ | 6,650,588 | $ | 40,330,645 | |||||||||||
|
Money-market assets
|
120,586 | 700 | 150 | — | 121,436 | ||||||||||||||||
|
Investment securities
|
3,756,845 | 859,831 | 1,220,223 | 2,563,265 | 8,400,164 | ||||||||||||||||
|
Total earning assets
|
24,270,238 | 4,455,360 | 10,912,794 | 9,213,853 | 48,852,245 | ||||||||||||||||
|
NOW accounts
|
901,938 | — | — | — | 901,938 | ||||||||||||||||
|
Savings deposits
|
13,839,150 | — | — | — | 13,839,150 | ||||||||||||||||
|
Time deposits
|
5,525,813 | 4,336,397 | 1,492,526 | 52,890 | 11,407,626 | ||||||||||||||||
|
Deposits at foreign office
|
2,808,216 | 1,316 | — | — | 2,809,532 | ||||||||||||||||
|
Total interest-bearing deposits
|
23,075,117 | 4,337,713 | 1,492,526 | 52,890 | 28,958,246 | ||||||||||||||||
|
Short-term borrowings
|
5,152,872 | — | — | — | 5,152,872 | ||||||||||||||||
|
Long-term borrowings
|
3,275,266 | 58,867 | 1,448,731 | 1,414,130 | 6,196,994 | ||||||||||||||||
|
Total interest-bearing liabilities
|
31,503,255 | 4,396,580 | 2,941,257 | 1,467,020 | 40,308,112 | ||||||||||||||||
|
Interest rate swaps
|
(602,241 | ) | 405,000 | 20,000 | 177,241 | — | |||||||||||||||
|
Periodic gap
|
$ | (7,835,258 | ) | $ | 463,780 | $ | 7,991,537 | $ | 7,924,074 | ||||||||||||
|
Cumulative gap
|
(7,835,258 | ) | (7,371,478 | ) | 620,059 | 8,544,133 | |||||||||||||||
|
Cumulative gap as a % of total earning assets
|
(16.0 | )% | (15.1 | )% | 1.3 | % | 17.5 | % | |||||||||||||
The Company engages in trading
activities to meet the financial needs of customers, to fund the
Company’s obligations under certain deferred compensation
plans and, to a limited extent, to profit from perceived market
opportunities. Financial instruments utilized in trading
activities have included forward and futures contracts related
to foreign currencies and mortgage-backed securities,
U.S. Treasury and other government securities,
mortgage-backed securities, mutual funds and interest rate
contracts, such as swap agreements. 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 management and approved by
M&T’s Board of
Directors. However, as with any non-government guaranteed
financial instrument, the Company is exposed to credit risk
associated with counterparties to the Company’s trading
activities.
The notional amounts of interest rate contracts entered into for
trading purposes totaled $6.7 billion at December 31,
2005 and $5.9 billion at December 31, 2004. The
notional amounts of foreign currency and other option and
futures contracts entered into for trading purposes were
$679 million and $512 million at December 31,
2005 and 2004, respectively. Although the notional amounts of
these trading contracts are not recorded in the consolidated
balance sheet, 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 $192 million and $77 million,
respectively, at December 31, 2005 and $160 million
and $94 million, respectively, at December 31, 2004.
Included in trading account assets at December 31, 2005 and
2004 were $41 million and $40 million, respectively,
related to deferred compensation plans. Changes in the fair
value of such assets are recorded as trading
67
account and foreign exchange gains in the consolidated statement
of income. Included in other liabilities in the consolidated
balance sheet at December 31, 2005 and 2004 were
$48 million and $49 million, respectively, of
liabilities related to deferred compensation plans. Changes in
the balances of such liabilities due to the valuation of
allocated investment options to which the liabilities are
indexed are recorded in “other costs of operations” in
the consolidated statement of income.
Given the Company’s policies, limits and positions,
management believes that the potential loss exposure to the
Company resulting from market risk associated with trading
activities was not material. Additional information related to
trading derivative contracts is included in note 17 of
Notes to Financial Statements.
Capital
Stockholders’ equity at December 31, 2005 was
$5.9 billion or 10.66% of total assets, compared with
$5.7 billion or 10.82% at December 31, 2004 and
$5.7 billion or 11.47% at December 31, 2003. On a per
share basis, stockholders’ equity was $52.39 at the
2005 year-end, 5% higher than $49.68 at December 31,
2004 and 10% above $47.55 at December 31, 2003. Tangible
equity per share, which excludes goodwill and core deposit and
other intangible assets and applicable deferred tax balances,
was $25.91 at December 31, 2005, compared with $23.62 and
$21.97 at December 31, 2004 and 2003, respectively. In the
calculation of tangible equity per common share,
stockholders’ equity is reduced by the carrying values of
goodwill and core deposit and other intangible assets, net of
applicable deferred tax balances. A reconciliation of total
stockholders’ equity and tangible equity as of
December 31, 2005, 2004 and 2003 is presented in table 2.
The ratio of average total stockholders’ equity to average
total assets was 10.71%, 11.07% and 10.89% in 2005, 2004 and
2003, respectively.
To complete the acquisition of
Allfirst on April 1, 2003,
M&T issued
26,700,000 shares of common stock to AIB resulting in an
addition to stockholders’ equity of $2.0 billion. The
value ascribed to the common shares issued to AIB was based on
the market value of M&T
common stock at the time the terms of the merger were agreed to
and announced by M&T
and AIB.
Stockholders’ equity reflects accumulated other
comprehensive income or loss, which includes the net after-tax
impact of unrealized gains or losses on investment securities
classified as available for sale; unrealized fair value gains or
losses associated with interest rate swap agreements designated
as cash flow hedges; and minimum pension liability adjustments.
Net unrealized losses on available-for-sale investment
securities were $49 million, or $.43 per common share,
at December 31, 2005, compared with losses of
$5 million, or $.04 per common share, at
December 31, 2004 and gains of $38 million, or
$.32 per common share, at December 31, 2003. Such
unrealized gains or losses are generally due to changes in
interest rates and represent the difference, net of applicable
income tax effect, between the estimated fair value and
amortized cost of investment securities classified as available
for sale. There were no outstanding interest rate swap
agreements designated as cash flow hedges at December 31,
2005, 2004 or 2003. The minimum pension liability adjustment,
net of applicable tax effect, reduced accumulated other
comprehensive income by $49 million at December 31,
2005 and by $12 million at each of December 31, 2004
and 2003, or by $.44 per share, $.11 per share and
$.10 per share on those respective dates. Information about
the funded status of the Company’s pension plans is
included in note 11 of Notes to Financial Statements.
Cash dividends paid in 2005 on
M&T’s common stock
aggregated $199 million, compared with $188 million
and $135 million in 2004 and 2003, respectively.
M&T increased the
quarterly dividend on its common stock in 2004’s first
quarter from $.30 per share to $.40 per share, and
again in the second quarter of 2005 to $.45 per share.
Dividends per common share totaled $1.75 in 2005, up 9% from
$1.60 in 2004 and 46% higher than $1.20 in 2003.
M&T
repurchased 4,891,800 shares of its common stock in 2005
and 6,520,800 shares in 2004, at a cost of
$510 million and $610 million, respectively.
M&T did not repurchase
any of its common stock during 2003, determining instead that it
would use the Company’s internal generation of capital to
support the acquisition of Allfirst. In December 2004,
M&T had announced a
plan to purchase up to 5,000,000 shares of its common
stock. That repurchase plan was completed in December 2005. In
November 2005, M&T
announced that it had been authorized by its Board of Directors
to purchase up
68
to an additional
5,000,000 shares of its common stock. Through
December 31, 2005,
M&T had repurchased a
total of 44,700 shares of common stock pursuant to such
plan at an average cost of $110.36 per share.
Federal regulators generally
require banking institutions to maintain “core
capital” and “total capital” ratios of at least
4% and 8%, respectively, of risk-adjusted total assets. In
addition to the risk-based measures, Federal bank regulators
have also implemented a minimum “leverage” ratio
guideline of 3% of the quarterly average of total assets. As of
December 31, 2005, core capital included $688 million
of the trust preferred securities described in note 9 of
Notes to Financial Statements and total capital further included
$963 million of subordinated capital notes. In December
2005, M&T Bank
exchanged $363 million of its 8.0% subordinated notes
due 2010 for new fixed rate/floating rate subordinated notes due
2020. The new notes bear interest at a fixed coupon rate of
5.585% for ten years, while thereafter such notes will bear
interest at a floating rate that resets monthly at a rate equal
to one-month LIBOR plus 1.215%. The notes are redeemable after
the fixed-rate period ends at
M&T’s option,
subject to regulatory approval. The subordinated note exchange
was done primarily to allow preferential regulatory capital
treatment for the new notes, as the 8.0% notes due 2010
would not completely qualify as Tier II capital due to
limitations when subordinated notes are within five years of
maturity.
The capital ratios of the Company and its banking subsidiaries
as of December 31, 2005 and 2004 are presented in
note 22 of Notes to Financial Statements.
The Company generates significant amounts of regulatory capital.
The rate of regulatory core capital generation, or net operating
income (as previously defined) less the sum of dividends paid
and the after-tax effect of merger-related expenses expressed as
a percentage of regulatory “core capital” at the
beginning of each year, was 18.50% in 2005, 18.12% in 2004 and
23.35% in 2003.
Fourth Quarter Results
Net income rose 7% to $205 million during the fourth
quarter of 2005 from $192 million in the corresponding
quarter of 2004. Diluted and basic earnings per share were $1.78
and $1.82, respectively, in 2005’s final quarter, compared
with $1.62 and $1.66, respectively, in the fourth quarter of
2004. The annualized rates of return on average assets and
average common stockholders’ equity for the fourth quarter
of 2005 were 1.48% and 13.85%, respectively, compared with 1.45%
and 13.37%, respectively, in the year-earlier period.
Net operating income increased to $213 million in the
fourth quarter of 2005, up 5% from $202 million in
2004’s final quarter. Diluted net operating earnings per
share rose 9% to $1.85 in the recently completed quarter from
$1.70 in the fourth quarter of 2004. The annualized net
operating returns on average tangible assets and average
tangible common equity were 1.63% and 29.12%, respectively, in
the final quarter of 2005, compared with 1.62% and 29.69%,
respectively, in the year-earlier quarter. Core deposit and
other intangible asset amortization, after tax effect, totaled
$8 million ($.07 per diluted share) and
$10 million ($.08 per diluted share) in the fourth
quarters of 2005 and 2004, respectively. Reconciliations of GAAP
results with non-GAAP results for the quarterly periods of 2005
and 2004 are provided in table 21.
Taxable-equivalent net interest income increased 2% to
$454 million in the recent quarter from $446 million
in the fourth quarter of 2004. That growth was the result of a
5% increase in average earning assets, partially offset by a
narrowing of the Company’s net interest margin. Average
earning assets totaled $48.8 billion in the fourth quarter
of 2005, compared with $46.5 billion in the year-earlier
period. Average loans and leases for the recently completed
quarter totaled $40.4 billion, 6% higher than
$38.1 billion during 2004’s final quarter. A
$1.5 billion rise in residential real estate loans,
including a $1.0 billion increase in residential real
estate loans held for sale, and an $819 million rise in
commercial loans were the leading contributors to the growth in
average loans outstanding. The yield on earning assets was 6.16%
in the last quarter of 2005, up 92 basis points from 5.24%
in the fourth quarter of 2004. The rate paid on interest-bearing
liabilities was 2.98% in the fourth quarter of 2005,
123 basis points higher than 1.75% in the similar period in
2004. The resulting net interest spread was 3.18% in 2005’s
final quarter, down 31 basis points from 3.49% in the
fourth quarter of 2004. That decline reflects the impact of
rising short-term interest rates in 2005 that increased rates on
interest-
69
bearing liabilities more rapidly than yields on earning assets
and resulted in a flattening of the yield curve. As a result,
the Company’s net interest margin declined to 3.69% in the
recent quarter from 3.82% in the final quarter of 2004.
The provision for credit losses was $23 million during the
final three months of 2005, down from $28 million in the
year-earlier period. Net charge-offs of loans were
$23 million in 2005’s fourth quarter, representing an
annualized .22% of average loans and leases outstanding,
compared with $27 million or .29% during the similar 2004
quarter.
Other income totaled $249 million in 2005’s final
quarter, 5% higher than $238 million in the year-earlier
quarter. Higher mortgage banking revenues and corporate
financing advisory fees contributed to that increase.
Other expense in the final three months of 2005 increased 2% to
$369 million from $362 million in the fourth quarter
of 2004. Included in such amounts are expenses considered
“nonoperating” in nature consisting of amortization of
core deposit and other intangible assets of $13 million and
$16 million in the fourth quarter of 2005 and 2004,
respectively. Exclusive of these nonoperating expenses,
noninterest operating expenses were up 3%, totaling
$356 million in the recently completed quarter, compared
with $346 million in 2004’s final quarter. Higher
costs for employee benefits and professional services were the
leading contributors to that increase, partially offset by a
higher reversal of a portion of the valuation allowance for
impairment of capitalized residential mortgage servicing rights.
Operating expenses in the final quarter of 2005 reflect a
$6 million reduction in expense resulting from a partial
reversal of that valuation allowance, compared with a $222
thousand reduction of such valuation allowance in 2004’s
fourth quarter. The Company’s efficiency ratio during the
fourth quarter of 2005 and 2004 was 50.7% and 50.6%,
respectively. Table 21 includes a reconciliation of other
expense to noninterest operating expense for each of the
quarters of 2005 and 2004.
Segment Information
In accordance with the provisions of SFAS No. 131,
“Disclosures About Segments of an Enterprise and Related
Information,” the Company’s reportable segments have
been determined based upon its internal profitability reporting
system, which is organized by strategic business unit. Certain
strategic business units have been combined for segment
information reporting purposes where the nature of the products
and services, the type of customer, and the distribution of
those products and services are similar. The reportable segments
are Commercial Banking, Commercial Real Estate, Discretionary
Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company’s segments was
compiled utilizing the accounting policies described in
note 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 GAAP. As a result, reported segments and the
financial information of the reported segments are not
necessarily comparable with similar information reported by
other financial institutions. Furthermore, changes in management
structure or allocation methodologies and procedures may result
in changes in reported segment financial data. Financial
information about the Company’s segments is presented in
note 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 served by the
Company. Services provided by this segment include commercial
lending and leasing, deposit products, and cash management
services. The Commercial Banking segment contributed net income
of $219 million in 2005, up 3% from $213 million in
2004. The favorable performance was due mainly to an increase in
net interest income of $21 million, largely the result of a
7% increase in loan balances outstanding, partially offset by a
$9 million increase in noninterest expenses, due
predominantly to higher personnel costs. Net income for this
segment totaled $170 million in 2003. The rise in net
income in 2004 as compared with 2003 was attributable to higher
net interest income of $46 million, service charges on
deposit accounts of $9 million, and letter of credit and
other credit-related fees of $17 million. Included in that
growth was the full-year impact of the acquired Allfirst-related
operations in 2004, while 2003
70
included only nine months of such operating results. Higher
average loan balances in non-Allfirst regions and a
$12 million decline in net charge-offs also contributed to
the higher net income in 2004 as compared with 2003. Partially
offsetting those favorable factors were higher salaries,
benefits and other noninterest expenses of $32 million,
also largely attributable to the full-year impact of Allfirst in
2004.
The Commercial Real Estate segment provides credit and deposit
services to its customers. Real estate securing loans in this
segment is generally located in the New York City metropolitan
area, upstate New York, Pennsylvania, Maryland, the District of
Columbia, Delaware, Virginia, West Virginia and the northwestern
portion of the United States. Commercial real estate loans may
be secured by apartment/multifamily buildings; office, retail
and industrial space; or other types of collateral. Activities
of this segment also include the origination, sales and
servicing of commercial real estate loans through the FNMA DUS
program and other programs. For the year ended December 31,
2005, the Commercial Real Estate segment contributed
$143 million to net income, up 13% from the
$126 million earned in 2004. The improvement was due to an
increase in net interest income of $19 million that
resulted from higher average loan balances and a wider margin
associated with deposits, a $4 million rise in commercial
mortgage banking revenues and a lower provision for credit
losses of $5 million. Net income in 2004 for the Commercial
Real Estate segment was 11% above the $114 million earned
in 2003. The improvement was due to higher net interest income
of $20 million, primarily due to higher loan balances
outstanding of $608 million, or 9%, largely the result of
growth in the markets already served by the Company and also
reflecting the full-year impact of balances obtained in the
Allfirst acquisition. Also contributing to the improved
performance were higher commercial mortgage banking revenues of
$5 million and increased letter of credit and other
credit-related fees. The higher revenues were offset, in part,
by a $13 million increase in noninterest expenses, largely
the result of the full-year impact of salaries, benefits and
other noninterest expenses related to the business obtained from
Allfirst.
The Discretionary Portfolio segment includes investment and
trading securities, residential mortgage loans and other assets;
short-term and long-term borrowed funds; brokered certificates
of deposit and interest rate swap agreements related thereto;
and offshore branch deposits. This segment also provides foreign
exchange services to customers. Included in the assets of the
Discretionary Portfolio segment are the preferred stock
issuances of FNMA and FHLMC owned by the Company. As previously
mentioned, included in the 2005 results was a $29 million
other-than-temporary impairment charge related to those
preferred stock issuances. As a result, this segment’s net
income of $93 million in 2005 was down 17% from
$112 million in 2004. The Discretionary Portfolio segment
recorded net income of $82 million in 2003. The 36%
increase in net income from 2003 to 2004 was primarily due to a
$40 million increase in net interest income resulting from
higher average earning assets. The primary contributor to those
higher earning assets was growth in the investment securities
portfolio, due largely to purchases of residential
mortgage-backed securities and collateralized mortgage
obligations during 2004 and the full-year impact of the
retention of mortgage-backed securities related to the fourth
quarter 2003 securitization of $1.2 billion of residential
real estate loans. Also contributing to the favorable
performance was a $2 million partial reversal during 2004
of a valuation allowance for possible impairment of capitalized
residential mortgage servicing rights, compared with a
$2 million addition to such allowance in 2003.
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 bank subsidiaries of
M&T. This segment also
originates and services loans to developers of residential real
estate properties. In addition to the geographic regions served
by or contiguous with the Company’s branch network, the
Company maintains mortgage loan origination offices in several
states throughout the southern and western United States. 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’s net income increased by 50% to
$43 million in 2005 from $29 million in 2004. That
improvement was due predominantly to higher noninterest revenues
of $20 million, resulting from loan origination, sales and
servicing activities, and higher net interest income of
$10 million, attributable primarily to an increase in
average loan balances outstanding. As mentioned
71
earlier, in May 2005
M&T Mortgage
Corporation assumed the operations of Regions Financial
Corporation’s wholesale residential mortgage business.
Those operations added 13 locations and approximately 140
employees to M&T
Mortgage Corporation’s business. Residential mortgage loans
originated for sale to other investors relating to the assumed
operations aggregated approximately $1.7 billion in 2005.
Including the effect of expenses, the operations assumed did not
have a material impact on net income. Also contributing to the
segment’s improved performance was the effect of an
$8 million partial reversal of the capitalized residential
mortgage servicing rights valuation allowance recognized during
2005, compared with a $2 million partial reversal of such
allowance recognized during 2004. Partially offsetting revenue
growth was a $14 million increase in salaries and benefits
expenses. Net income in 2004 for this segment was 57% lower than
the $67 million earned in 2003. This unfavorable variance
reflects a $75 million decrease in revenues, due primarily
to a lower level of loan originations in 2004 as compared with
2003. The higher origination activity in 2003 reflected the
impact of historically low levels of interest rates during that
year that produced a favorable environment for consumers to
participate in origination and refinancing activities. Also
contributing to the decline in revenues was the previously noted
$6 million impact of the adoption of SAB No. 105.
Partially offsetting the decline in revenues was a
$9 million decrease in salaries and benefits expenses
reflecting the lower loan originations in 2004. Gains from the
sales of loans to the Company’s Discretionary Portfolio
segment were $10 million, $9 million, and
$22 million in 2005, 2004, and 2003, respectively.
The Retail Banking segment offers
a variety of services to consumers and small businesses through
several delivery channels which include banking offices,
automated teller machines, telephone banking and internet
banking. The Company has banking offices in New York State,
Pennsylvania, Maryland, Virginia, the District of Columbia, West
Virginia and Delaware. 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 (originated both directly
and indirectly through dealers), home equity loans and lines of
credit, and loans and leases to small businesses. The segment
also offers to its customers deposit products, including demand,
savings and time accounts; investment products, including mutual
funds and annuities; and other services. The Retail Banking
segment recorded net income of $325 million in 2005, up 30%
from $251 in 2004. The favorable performance was due mainly to
increases in net interest income of $81 million, driven
largely by an increase in net interest margin attributable to
deposit products. Higher service charges on deposit accounts and
other fee income of $21 million, lower noninterest expenses
of $13 million, and a $10 million decline in the
provision for credit losses also contributed to the rise in net
income. In 2003, the Retail Banking segment contributed net
income of $206 million. The 22% increase from 2003 to 2004
was due largely to increases in net interest income of
$59 million and service charges on deposit accounts and
other fee income of $54 million, offset, in part, by higher
expenses of $51 million, all substantially related to the
acquired Allfirst franchise. A $14 million decline in the
provision for credit losses, due to slower growth in indirect
automobile loan balances, also contributed to the rise in net
income.
The “All Other” category
reflects other activities of the Company that are not directly
attributable to the reported segments as determined in
accordance with SFAS No. 131, such as the
M&T Investment Group,
which includes the Company’s trust, brokerage and insurance
businesses. Also reflected in this category are the amortization
of core deposit and other intangible assets, the net impact of
the Company’s allocation methodologies for internal funds
transfer pricing and the provision for credit losses, and, in
2003, merger-related expenses resulting from the Allfirst
acquisition. The various components of the “All Other”
category resulted in net losses of $41 million,
$9 million, and $66 million in 2005, 2004, and 2003,
respectively. The higher net loss incurred during 2005 as
compared with 2004 resulted largely from the Company’s
allocation methodologies for internal transfers for funding
charges and credits associated with earning assets and
interest-bearing liabilities of the Company’s reportable
segments and the provision for credit losses. Noninterest
expenses in 2004 were $44 million higher than in 2005,
reflecting 2004’s $25 million contribution to The
M&T Charitable
Foundation and a $19 million higher charge for amortization
of core deposit and other intangible assets. The 2004 net
loss also reflected the $12 million reduction in income tax
expense resulting from the
72
reorganization of certain of
M&T’s
subsidiaries. The lower net loss in 2004 as compared with 2003
was largely the result of merger-related costs of
$60 million in 2003 and the net impact of higher
noninterest income and expense in 2004 due to the full-year
impact of the Allfirst acquisition.
Recent Accounting Developments
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 123 (revised 2004),
“Share-Based Payment,”
(“SFAS No. 123R”), an amendment of
SFAS No. 123 which supercedes Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” and its related implementation guidance.
SFAS No. 123R establishes standards for the accounting
for transactions in which an entity exchanges its equity
instruments for goods or services. SFAS No. 123R also
addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value
of the entity’s equity instruments or that may be settled
by the issuance of such equity instruments.
SFAS No. 123R requires a public entity to measure the
cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the
award. That cost is to be recognized over the period during
which an employee is required to provide services in exchange
for the award. Additionally, in March 2005, the SEC issued
SAB No. 107. SAB No. 107 expresses the SEC
staff’s views regarding the valuation of share-based
payment arrangements for public companies and the interaction
between SFAS No. 123R and certain SEC rules and
regulations.
SFAS No. 123R is
effective for annual reporting periods that begin after
June 15, 2005. Effective January 1, 2003, the Company
began recognizing expense for stock-based compensation using the
fair value method of accounting described in
SFAS No. 123. Using the retroactive restatement method
described in SFAS No. 148, which amended
SFAS No. 123, financial information for prior periods
was restated to reflect the impact of recognizing expense for
stock-based compensation in those years as well. As required,
coincident with the adoption of SFAS No. 123R on
January 1, 2006, the Company will begin accelerating the
recognition of compensation costs for stock-based awards granted
to retirement-eligible employees and employees who will become
retirement-eligible prior to full vesting of the award because
the Company’s incentive compensation plan allows for
vesting at the time an employee retires. Through
December 31, 2005, stock-based compensation granted to such
individuals was expensed over the normal vesting period and any
remaining unrecognized compensation cost was recognized at the
time an individual employee actually retired. This change will
affect the timing of stock-based compensation expense
recognition in the Company’s consolidated financial
statements for the first quarter of 2006 and each first quarter
thereafter as most of the Company’s stock-based awards are
granted in January, but will not affect the fair value of
stock-based compensation granted to employees nor the aggregate
amount of stock-based compensation expense recognized by the
Company. Had M&T
recognized compensation costs under the new approach in 2005,
the effect would not have been material to the consolidated
financial statements for that year. The Company estimates the
impact of such change will be to increase salaries and employee
benefits expense by approximately $6 million in the first
quarter of 2006 and by approximately $4 million for the
year ending December 31, 2006, as compared to what
otherwise would have been recognized had the expense recognition
not been accelerated. If not for this required change, the
estimated $4 million of stock-based compensation expense to
be recognized in 2006 would have been recognized in 2007 through
2009 following the normal vesting schedule for stock options
granted by the Company.
Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and other sections of the
Company’s Annual Report contain forward-looking statements
that are based on current expectations, estimates and
projections about the Company’s business, management’s
beliefs and assumptions made by management. These statements are
not guarantees of future performance and involve certain risks,
uncertainties and assumptions (“Future Factors”) which
are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in
such forward-looking statements.
73
Future Factors include changes in
interest rates, spreads on earning assets and interest-bearing
liabilities, and interest rate sensitivity; prepayment speeds,
loan originations and credit losses; sources of liquidity;
common shares outstanding; common stock price volatility; fair
value of and number of stock-based compensation awards to be
issued in future periods; legislation affecting the financial
services industry as a whole, and/or
M&T and its
subsidiaries individually or collectively; 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; protection and validity
of intellectual property rights; reliance on large customers;
technological, implementation and cost/financial risks in large,
multi-year contracts; the outcome of pending and future
litigation and governmental proceedings; continued availability
of financing; financial resources in the amounts, at the times
and on the terms required to support the Company’s future
businesses; and material differences in the actual financial
results of merger and acquisition activities compared with the
Company’s expectations, including the full realization of
anticipated cost savings and revenue enhancements.
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 and political
conditions, either nationally or in the states in which the
Company conducts business, including interest rate and currency
exchange rate fluctuations, changes and trends in the securities
markets, and other Future Factors.
74
Table 20
QUARTERLY TRENDS
| 2005 Quarters | 2004 Quarters | ||||||||||||||||||||||||||||||||
| Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||||
|
Earnings and dividends
|
|||||||||||||||||||||||||||||||||
|
Amounts in thousands, except per share
|
|||||||||||||||||||||||||||||||||
|
Interest income (taxable-equivalent basis)
|
$ | 757,654 | $ | 725,129 | $ | 680,781 | $ | 642,441 | $ | 613,012 | $ | 587,598 | $ | 565,090 | $ | 550,362 | |||||||||||||||||
|
Interest expense
|
303,493 | 265,576 | 229,016 | 196,266 | 166,755 | 143,771 | 126,805 | 126,829 | |||||||||||||||||||||||||
|
Net interest income
|
454,161 | 459,553 | 451,765 | 446,175 | 446,257 | 443,827 | 438,285 | 423,533 | |||||||||||||||||||||||||
|
Less: provision for credit losses
|
23,000 | 22,000 | 19,000 | 24,000 | 28,000 | 17,000 | 30,000 | 20,000 | |||||||||||||||||||||||||
|
Other income
|
248,604 | 221,494 | 245,362 | 234,258 | 237,559 | 244,925 | 232,334 | 228,151 | |||||||||||||||||||||||||
|
Less: other expense
|
369,114 | 368,250 | 380,441 | 367,337 | 361,922 | 406,922 | 357,207 | 389,967 | |||||||||||||||||||||||||
|
Income before income taxes
|
310,651 | 290,797 | 297,686 | 289,096 | 293,894 | 264,830 | 283,412 | 241,717 | |||||||||||||||||||||||||
|
Applicable income taxes
|
101,113 | 95,348 | 96,589 | 95,686 | 97,624 | 73,843 | 94,538 | 77,997 | |||||||||||||||||||||||||
|
Taxable-equivalent adjustment
|
4,553 | 4,375 | 4,263 | 4,120 | 4,065 | 4,546 | 4,489 | 4,230 | |||||||||||||||||||||||||
|
Net income
|
$ | 204,985 | $ | 191,074 | $ | 196,834 | $ | 189,290 | $ | 192,205 | $ | 186,441 | $ | 184,385 | $ | 159,490 | |||||||||||||||||
|
Per common share data
|
|||||||||||||||||||||||||||||||||
|
Basic earnings
|
$ | 1.82 | $ | 1.68 | $ | 1.73 | $ | 1.65 | $ | 1.66 | $ | 1.59 | $ | 1.56 | $ | 1.33 | |||||||||||||||||
|
Diluted earnings
|
1.78 | 1.64 | 1.69 | 1.62 | 1.62 | 1.56 | 1.53 | 1.30 | |||||||||||||||||||||||||
|
Cash dividends
|
$ | .45 | $ | .45 | $ | .45 | $ | .40 | $ | .40 | $ | .40 | $ | .40 | $ | .40 | |||||||||||||||||
|
Average common shares outstanding
|
|||||||||||||||||||||||||||||||||
|
Basic
|
112,529 | 113,530 | 113,949 | 114,773 | 115,953 | 116,897 | 118,224 | 119,738 | |||||||||||||||||||||||||
|
Diluted
|
115,147 | 116,200 | 116,422 | 117,184 | 119,010 | 119,665 | 120,655 | 122,316 | |||||||||||||||||||||||||
|
Performance ratios, annualized
|
|||||||||||||||||||||||||||||||||
|
Return on
|
|||||||||||||||||||||||||||||||||
|
Average assets
|
1.48 | % | 1.39 | % | 1.46 | % | 1.44 | % | 1.45 | % | 1.42 | % | 1.45 | % | 1.29 | % | |||||||||||||||||
|
Average common stockholders’ equity
|
13.85 | % | 12.97 | % | 13.73 | % | 13.41 | % | 13.37 | % | 13.02 | % | 13.12 | % | 11.19 | % | |||||||||||||||||
|
Net interest margin on average earning assets
(taxable-equivalent basis)
|
3.69 | % | 3.76 | % | 3.78 | % | 3.83 | % | 3.82 | % | 3.85 | % | 3.92 | % | 3.92 | % | |||||||||||||||||
|
Nonperforming loans to total loans and leases, net of unearned
discount
|
.39 | % | .41 | % | .46 | % | .46 | % | .45 | % | .48 | % | .51 | % | .70 | % | |||||||||||||||||
|
Efficiency ratio(a)
|
52.49 | % | 51.94 | % | 54.58 | % | 54.00 | % | 52.95 | % | 59.08 | % | 53.27 | % | 60.07 | % | |||||||||||||||||
|
Net operating (tangible) results(b)
|
|||||||||||||||||||||||||||||||||
|
Net operating income (in thousands)
|
$ | 212,738 | $ | 199,577 | $ | 205,415 | $ | 199,135 | $ | 202,215 | $ | 197,822 | $ | 196,158 | $ | 172,423 | |||||||||||||||||
|
Diluted net operating income per common share
|
1.85 | 1.72 | 1.76 | 1.70 | 1.70 | 1.65 | 1.63 | 1.41 | |||||||||||||||||||||||||
|
Annualized return on
|
|||||||||||||||||||||||||||||||||
|
Average tangible assets
|
1.63 | % | 1.54 | % | 1.62 | % | 1.61 | % | 1.62 | % | 1.60 | % | 1.64 | % | 1.48 | % | |||||||||||||||||
|
Average tangible common stockholders’ equity
|
29.12 | % | 27.67 | % | 29.88 | % | 29.67 | % | 29.69 | % | 29.42 | % | 30.12 | % | 26.02 | % | |||||||||||||||||
|
Efficiency ratio(a)
|
50.69 | % | 49.97 | % | 52.56 | % | 51.63 | % | 50.56 | % | 56.38 | % | 50.39 | % | 56.81 | % | |||||||||||||||||
|
Balance sheet data
|
|||||||||||||||||||||||||||||||||
|
In millions, except per share
|
|||||||||||||||||||||||||||||||||
|
Average balances
|
|||||||||||||||||||||||||||||||||
|
Total assets(c)
|
$ | 54,835 | $ | 54,444 | $ | 53,935 | $ | 53,306 | $ | 52,725 | $ | 52,170 | $ | 51,251 | $ | 49,915 | |||||||||||||||||
|
Total tangible assets(c)
|
51,860 | 51,461 | 50,944 | 50,305 | 49,647 | 49,075 | 48,137 | 46,781 | |||||||||||||||||||||||||
|
Earning assets
|
48,833 | 48,447 | 47,931 | 47,240 | 46,535 | 45,874 | 44,923 | 43,444 | |||||||||||||||||||||||||
|
Investment securities
|
8,302 | 8,439 | 8,593 | 8,573 | 8,326 | 8,195 | 7,943 | 7,516 | |||||||||||||||||||||||||
|
Loans and leases, net of unearned discount
|
40,403 | 39,879 | 39,229 | 38,580 | 38,142 | 37,611 | 36,904 | 35,843 | |||||||||||||||||||||||||
|
Deposits
|
37,006 | 36,708 | 36,245 | 35,282 | 34,768 | 34,569 | 33,702 | 32,856 | |||||||||||||||||||||||||
|
Stockholders’ equity(c)
|
5,873 | 5,845 | 5,749 | 5,723 | 5,721 | 5,697 | 5,654 | 5,732 | |||||||||||||||||||||||||
|
Tangible stockholders’ equity(c)
|
2,898 | 2,862 | 2,758 | 2,722 | 2,710 | 2,675 | 2,619 | 2,665 | |||||||||||||||||||||||||
|
At end of quarter
|
|||||||||||||||||||||||||||||||||
|
Total assets(c)
|
$ | 55,146 | $ | 54,841 | $ | 54,482 | $ | 53,887 | $ | 52,939 | $ | 52,887 | $ | 52,094 | $ | 50,832 | |||||||||||||||||
|
Total tangible assets(c)
|
52,176 | 51,863 | 51,495 | 50,891 | 49,869 | 49,801 | 48,990 | 47,708 | |||||||||||||||||||||||||
|
Earning assets
|
48,852 | 48,691 | 48,341 | 47,853 | 46,970 | 46,454 | 45,757 | 44,335 | |||||||||||||||||||||||||
|
Investment securities
|
8,400 | 8,230 | 8,320 | 8,679 | 8,475 | 8,437 | 8,161 | 7,656 | |||||||||||||||||||||||||
|
Loans and leases, net of unearned discount
|
40,331 | 40,335 | 39,911 | 39,073 | 38,398 | 37,950 | 37,522 | 36,515 | |||||||||||||||||||||||||
|
Deposits
|
37,100 | 37,199 | 37,306 | 36,293 | 35,429 | 34,976 | 34,954 | 33,341 | |||||||||||||||||||||||||
|
Stockholders’ equity(c)
|
5,876 | 5,847 | 5,838 | 5,674 | 5,730 | 5,710 | 5,657 | 5,734 | |||||||||||||||||||||||||
|
Tangible stockholders’ equity(c)
|
2,906 | 2,869 | 2,851 | 2,678 | 2,724 | 2,694 | 2,629 | 2,674 | |||||||||||||||||||||||||
|
Equity per common share
|
52.39 | 51.81 | 51.20 | 49.78 | 49.68 | 49.11 | 48.21 | 48.17 | |||||||||||||||||||||||||
|
Tangible equity per common share
|
25.91 | 25.42 | 25.00 | 23.49 | 23.62 | 23.17 | 22.40 | 22.47 | |||||||||||||||||||||||||
|
Market price per common share
|
|||||||||||||||||||||||||||||||||
|
High
|
$ | 112.50 | $ | 112.50 | $ | 107.28 | $ | 108.04 | $ | 108.75 | $ | 98.66 | $ | 92.70 | $ | 98.65 | |||||||||||||||||
|
Low
|
96.71 | 103.50 | 98.75 | 96.71 | 95.40 | 86.80 | 82.90 | 88.08 | |||||||||||||||||||||||||
|
Closing
|
109.05 | 105.71 | 105.16 | 102.06 | 107.84 | 95.70 | 87.30 | 89.85 | |||||||||||||||||||||||||
| (a) | Excludes impact of net securities transactions. | |
| (b) | Excludes amortization and balances related to goodwill and core deposit and other intangible assets which, except in the calculation of the efficiency ratio, are net of applicable income tax effects. A reconciliation of net income and net operating income appears in Table 21. | |
| (c) | The difference between total assets and total tangible assets, and stockholders’ equity and tangible stockholders’ equity, represents goodwill, core deposit and other intangible assets, net of applicable deferred tax balances. A reconciliation of such balances appears in Table 21. |
75
Table 21
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
| 2005 Quarters | 2004 Quarters | ||||||||||||||||||||||||||||||||
| Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||||
|
Income statement data
|
|||||||||||||||||||||||||||||||||
|
In thousands, except per share
|
|||||||||||||||||||||||||||||||||
|
Net income
|
|||||||||||||||||||||||||||||||||
|
Net income
|
$ | 204,985 | $ | 191,074 | $ | 196,834 | $ | 189,290 | $ | 192,205 | $ | 186,441 | $ | 184,385 | $ | 159,490 | |||||||||||||||||
|
Amortization of core deposit and other intangible assets(a)
|
7,753 | 8,503 | 8,581 | 9,845 | 10,010 | 11,381 | 11,773 | 12,933 | |||||||||||||||||||||||||
|
Net operating income
|
$ | 212,738 | $ | 199,577 | $ | 205,415 | $ | 199,135 | $ | 202,215 | $ | 197,822 | $ | 196,158 | $ | 172,423 | |||||||||||||||||
|
Earnings per share
|
|||||||||||||||||||||||||||||||||
|
Diluted earnings per common share
|
$ | 1.78 | $ | 1.64 | $ | 1.69 | $ | 1.62 | $ | 1.62 | $ | 1.56 | $ | 1.53 | $ | 1.30 | |||||||||||||||||
|
Amortization of core deposit and other intangible assets(a)
|
.07 | .08 | .07 | .08 | .08 | .09 | .10 | .11 | |||||||||||||||||||||||||
|
Diluted net operating earnings per share
|
$ | 1.85 | $ | 1.72 | $ | 1.76 | $ | 1.70 | $ | 1.70 | $ | 1.65 | $ | 1.63 | $ | 1.41 | |||||||||||||||||
|
Other expense
|
|||||||||||||||||||||||||||||||||
|
Other expense
|
$ | 369,114 | $ | 368,250 | $ | 380,441 | $ | 367,337 | $ | 361,922 | $ | 406,922 | $ | 357,207 | $ | 389,967 | |||||||||||||||||
|
Amortization of core deposit and other intangible assets
|
(12,703 | ) | (13,926 | ) | (14,055 | ) | (16,121 | ) | (16,393 | ) | (18,619 | ) | (19,250 | ) | (21,148 | ) | |||||||||||||||||
|
Noninterest operating expense
|
$ | 356,411 | $ | 354,324 | $ | 366,386 | $ | 351,216 | $ | 345,529 | $ | 388,303 | $ | 337,957 | $ | 368,819 | |||||||||||||||||
|
Balance sheet data
|
|||||||||||||||||||||||||||||||||
|
In millions
|
|||||||||||||||||||||||||||||||||
|
Average assets
|
|||||||||||||||||||||||||||||||||
|
Average assets
|
$ | 54,835 | $ | 54,444 | $ | 53,935 | $ | 53,306 | $ | 52,725 | $ | 52,170 | $ | 51,251 | $ | 49,915 | |||||||||||||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | |||||||||||||||||
|
Core deposit and other intangible assets
|
(115 | ) | (128 | ) | (142 | ) | (157 | ) | (174 | ) | (191 | ) | (210 | ) | (230 | ) | |||||||||||||||||
|
Deferred taxes
|
44 | 49 | 55 | 60 | — | — | — | — | |||||||||||||||||||||||||
|
Average tangible assets
|
$ | 51,860 | $ | 51,461 | $ | 50,944 | $ | 50,305 | $ | 49,647 | $ | 49,075 | $ | 48,137 | $ | 46,781 | |||||||||||||||||
|
Average equity
|
|||||||||||||||||||||||||||||||||
|
Average equity
|
$ | 5,873 | $ | 5,845 | $ | 5,749 | $ | 5,723 | $ | 5,721 | $ | 5,697 | $ | 5,654 | $ | 5,732 | |||||||||||||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | |||||||||||||||||
|
Core deposit and other intangible assets
|
(115 | ) | (128 | ) | (142 | ) | (157 | ) | (174 | ) | (191 | ) | (210 | ) | (230 | ) | |||||||||||||||||
|
Deferred taxes
|
44 | 49 | 55 | 60 | 67 | 73 | 79 | 67 | |||||||||||||||||||||||||
|
Average tangible equity
|
$ | 2,898 | $ | 2,862 | $ | 2,758 | $ | 2,722 | $ | 2,710 | $ | 2,675 | $ | 2,619 | $ | 2,665 | |||||||||||||||||
|
At end of quarter
|
|||||||||||||||||||||||||||||||||
|
Total assets
|
|||||||||||||||||||||||||||||||||
|
Total assets
|
$ | 55,146 | $ | 54,841 | $ | 54,482 | $ | 53,887 | $ | 52,939 | $ | 52,887 | $ | 52,094 | $ | 50,832 | |||||||||||||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | |||||||||||||||||
|
Core deposit and other intangible assets
|
(108 | ) | (121 | ) | (135 | ) | (149 | ) | (166 | ) | (182 | ) | (200 | ) | (220 | ) | |||||||||||||||||
|
Deferred taxes
|
42 | 47 | 52 | 57 | — | — | — | — | |||||||||||||||||||||||||
|
Total tangible assets
|
$ | 52,176 | $ | 51,863 | $ | 51,495 | $ | 50,891 | $ | 49,869 | $ | 49,801 | $ | 48,990 | $ | 47,708 | |||||||||||||||||
|
Total equity
|
|||||||||||||||||||||||||||||||||
|
Total equity
|
$ | 5,876 | $ | 5,847 | $ | 5,838 | $ | 5,674 | $ | 5,730 | $ | 5,710 | $ | 5,657 | $ | 5,734 | |||||||||||||||||
|
Goodwill
|
(2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | (2,904 | ) | |||||||||||||||||
|
Core deposit and other intangible assets
|
(108 | ) | (121 | ) | (135 | ) | (149 | ) | (166 | ) | (182 | ) | (200 | ) | (220 | ) | |||||||||||||||||
|
Deferred taxes
|
42 | 47 | 52 | 57 | 64 | 70 | 76 | 64 | |||||||||||||||||||||||||
|
Total tangible equity
|
$ | 2,906 | $ | 2,869 | $ | 2,851 | $ | 2,678 | $ | 2,724 | $ | 2,694 | $ | 2,629 | $ | 2,674 | |||||||||||||||||
| (a) | After any related tax effect. |
76
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Incorporated by reference to the discussion contained in
Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations,” under the captions “Liquidity, Market
Risk, and Interest Rate Sensitivity” (including Table
18) and “Capital.”
| Item 8. | Financial Statements and Supplementary Data. |
Financial Statements and Supplementary Data consist of the
financial statements as indexed and presented below and Table 20
“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
| 78 | ||
| 79 | ||
| 81 | ||
| 82 | ||
| 83 | ||
| 84 | ||
| 85 |
77
Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting at M&T
Bank Corporation and subsidiaries (“the Company”).
Management has assessed the effectiveness of the Company’s
internal control over financial reporting as of
December 31, 2005 based on criteria described in
“Internal Control-Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on that assessment, management concluded that
the Company maintained effective internal control over financial
reporting as of December 31, 2005.
The consolidated financial statements of the Company have been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, that was engaged to express an opinion
as to the fairness of presentation of such financial statements.
PricewaterhouseCoopers LLP was also engaged to audit
management’s assessment of the effectiveness of the
Company’s internal control over financial reporting. The
report of PricewaterhouseCoopers LLP follows this report.
| M&T BANK CORPORATION | |
 |
|
| Robert E. Sadler, Jr. | |
| President and Chief Executive Officer | |
 |
|
| René F. Jones | |
| Executive Vice President and Chief Financial Officer |
78
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
M&T
Bank Corporation:
We have completed integrated
audits of M&T Bank
Corporation’s 2005 and 2004 consolidated financial
statements and of its internal control over financial reporting
as of December 31, 2005, and an audit of its 2003
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements
In our opinion, the consolidated
financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of
M&T Bank Corporation
and subsidiaries (the “Company”) at December 31,
2005 and 2004, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
the Report on Internal Control Over Financial Reporting
appearing under Item 8, that the Company maintained
effective internal control over financial reporting as of
December 31, 2005 based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), is fairly stated, in all material
respects, based on those criteria. Furthermore, in our opinion,
the Company maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control — Integrated Framework issued
by the COSO. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the
effectiveness of the Company’s internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in
79
accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Buffalo, New York
February 24, 2006
80
M&T
BANK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
| December 31 | ||||||||||
| 2005 | 2004 | |||||||||
| (In thousands) | ||||||||||
|
Assets
|
||||||||||
|
Cash and due from banks
|
$ | 1,479,239 | $ | 1,334,628 | ||||||
|
Money-market assets
|
||||||||||
|
Interest-bearing deposits at banks
|
8,408 | 10,242 | ||||||||
|
Federal funds sold and agreements to resell securities
|
11,220 | 29,176 | ||||||||
|
Trading account
|
191,617 | 159,946 | ||||||||
|
Total money-market assets
|
211,245 | 199,364 | ||||||||
|
Investment securities
|
||||||||||
|
Available for sale (cost: $8,011,560 in 2005; $8,047,681 in 2004)
|
7,931,703 | 8,054,717 | ||||||||
|
Held to maturity (market value: $102,880 in 2005; $100,275 in
2004)
|
101,059 | 98,050 | ||||||||
|
Other (market value: $367,402 in 2005; $321,852 in 2004)
|
367,402 | 321,852 | ||||||||
|
Total investment securities
|
8,400,164 | 8,474,619 | ||||||||
|
Loans and leases
|
40,553,691 | 38,644,622 | ||||||||
|
Unearned discount
|
(223,046 | ) | (246,145 | ) | ||||||
|
Allowance for credit losses
|
(637,663 | ) | (626,864 | ) | ||||||
|
Loans and leases, net
|
39,692,982 | 37,771,613 | ||||||||
|
Premises and equipment
|
337,115 | 367,204 | ||||||||
|
Goodwill
|
2,904,081 | 2,904,081 | ||||||||
|
Core deposit and other intangible assets
|
108,260 | 165,507 | ||||||||
|
Accrued interest and other assets
|
2,013,320 | 1,721,705 | ||||||||
|
Total assets
|
$ | 55,146,406 | $ | 52,938,721 | ||||||
|
Liabilities
|
||||||||||
|
Noninterest-bearing deposits
|
$ | 8,141,928 | $ | 8,417,365 | ||||||
|
NOW accounts
|
901,938 | 828,999 | ||||||||
|
Savings deposits
|
13,839,150 | 14,721,663 | ||||||||
|
Time deposits
|
11,407,626 | 7,228,514 | ||||||||
|
Deposits at foreign office
|
2,809,532 | 4,232,932 | ||||||||
|
Total deposits
|
37,100,174 | 35,429,473 | ||||||||
|
Federal funds purchased and agreements to repurchase securities
|
4,211,978 | 3,924,576 | ||||||||
|
Other short-term borrowings
|
940,894 | 779,088 | ||||||||
|
Accrued interest and other liabilities
|
819,980 | 727,411 | ||||||||
|
Long-term borrowings
|
6,196,994 | 6,348,559 | ||||||||
|
Total liabilities
|
49,270,020 | 47,209,107 | ||||||||
|
Stockholders’ equity
|
||||||||||
|
Preferred stock, $1 par, 1,000,000 shares authorized, none
outstanding
|
— | — | ||||||||
|
Common stock, $.50 par, 250,000,000 shares authorized,
120,396,611 shares issued in 2005 and 2004
|
60,198 | 60,198 | ||||||||
|
Common stock issuable, 100,298 shares in 2005;
107,517 shares in 2004
|
5,363 | 5,779 | ||||||||
|
Additional paid-in capital
|
2,886,153 | 2,897,912 | ||||||||
|
Retained earnings
|
3,854,275 | 3,270,887 | ||||||||
|
Accumulated other comprehensive income (loss), net
|
(97,930 | ) | (17,209 | ) | ||||||
|
Treasury stock — common, at cost —
8,336,907 shares in 2005; 5,168,896 shares in 2004
|
(831,673 | ) | (487,953 | ) | ||||||
|
Total stockholders’ equity
|
5,876,386 | 5,729,614 | ||||||||
|
Total liabilities and stockholders’ equity
|
$ | 55,146,406 | $ | 52,938,721 | ||||||
See accompanying notes to financial statements.
81
M&T
BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
| Year Ended December 31 | |||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||
| (In thousands, except per share) | |||||||||||||||
|
Interest income
|
|||||||||||||||
|
Loans and leases, including fees
|
$ | 2,420,660 | $ | 1,974,469 | $ | 1,897,701 | |||||||||
|
Money-market assets
|
|||||||||||||||
|
Deposits at banks
|
169 | 65 | 147 | ||||||||||||
|
Federal funds sold and agreements to resell securities
|
808 | 134 | 1,875 | ||||||||||||
|
Trading account
|
1,544 | 375 | 592 | ||||||||||||
|
Investment securities
|
|||||||||||||||
|
Fully taxable
|
351,423 | 309,141 | 210,968 | ||||||||||||
|
Exempt from federal taxes
|
14,090 | 14,548 | 15,282 | ||||||||||||
|
Total interest income
|
2,788,694 | 2,298,732 | 2,126,565 | ||||||||||||
|
Interest expense
|
|||||||||||||||
|
NOW accounts
|
2,182 | 1,802 | 3,613 | ||||||||||||
|
Savings deposits
|
139,445 | 92,064 | 102,190 | ||||||||||||
|
Time deposits
|
294,782 | 154,722 | 159,700 | ||||||||||||
|
Deposits at foreign office
|
120,122 | 43,034 | 14,991 | ||||||||||||
|
Short-term borrowings
|
157,853 | 71,172 | 49,064 | ||||||||||||
|
Long-term borrowings
|
279,967 | 201,366 | 198,252 | ||||||||||||
|
Total interest expense
|
994,351 | 564,160 | 527,810 | ||||||||||||
|
Net interest income
|
1,794,343 | 1,734,572 | 1,598,755 | ||||||||||||
|
Provision for credit losses
|
88,000 | 95,000 | 131,000 | ||||||||||||
|
Net interest income after provision for credit losses
|
1,706,343 | 1,639,572 | 1,467,755 | ||||||||||||
|
Other income
|
|||||||||||||||
|
Mortgage banking revenues
|
136,114 | 124,353 | 149,105 | ||||||||||||
|
Service charges on deposit accounts
|
369,918 | 366,301 | 309,749 | ||||||||||||
|
Trust income
|
134,679 | 136,296 | 114,620 | ||||||||||||
|
Brokerage services income
|
55,572 | 53,740 | 51,184 | ||||||||||||
|
Trading account and foreign exchange gains
|
22,857 | 19,435 | 15,989 | ||||||||||||
|
Gain (loss) on bank investment securities
|
(28,133 | ) | 2,874 | 2,487 | |||||||||||
|
Other revenues from operations
|
258,711 | 239,970 | 187,961 | ||||||||||||
|
Total other income
|
949,718 | 942,969 | 831,095 | ||||||||||||
|
Other expense
|
|||||||||||||||
|
Salaries and employee benefits
|
822,239 | 806,552 | 740,324 | ||||||||||||
|
Equipment and net occupancy
|
173,689 | 179,595 | 170,623 | ||||||||||||
|
Printing, postage and supplies
|
33,743 | 34,476 | 36,985 | ||||||||||||
|
Amortization of core deposit and other intangible assets
|
56,805 | 75,410 | 78,152 | ||||||||||||
|
Other costs of operations
|
398,666 | 419,985 | 422,096 | ||||||||||||
|
Total other expense
|
1,485,142 | 1,516,018 | 1,448,180 | ||||||||||||
|
Income before taxes
|
1,170,919 | 1,066,523 | 850,670 | ||||||||||||
|
Income taxes
|
388,736 | 344,002 | 276,728 | ||||||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | |||||||||
|
Net income per common share
|
|||||||||||||||
|
Basic
|
$ | 6.88 | $ | 6.14 | $ | 5.08 | |||||||||
|
Diluted
|
6.73 | 6.00 | 4.95 | ||||||||||||
See accompanying notes to financial statements.
82
M&T
BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
| Year Ended December 31 | |||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||
| (In thousands) | |||||||||||||||
|
Cash flows from operating activities
|
|||||||||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | |||||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|||||||||||||||
|
Provision for credit losses
|
88,000 | 95,000 | 131,000 | ||||||||||||
|
Depreciation and amortization of premises and equipment
|
58,477 | 62,779 | 62,603 | ||||||||||||
|
Amortization of capitalized servicing rights
|
58,466 | 57,885 | 50,907 | ||||||||||||
|
Amortization of core deposit and other intangible assets
|
56,805 | 75,410 | 78,152 | ||||||||||||
|
Provision for deferred income taxes
|
(88,071 | ) | (137,596 | ) | (60,906 | ) | |||||||||
|
Asset write-downs
|
32,765 | 737 | 565 | ||||||||||||
|
Net gain on sales of assets
|
(9,694 | ) | (7,127 | ) | (4,443 | ) | |||||||||
|
Net change in accrued interest receivable, payable
|
3,099 | (26,438 | ) | (5,709 | ) | ||||||||||
|
Net change in other accrued income and expense
|
(25,017 | ) | 4,528 | 30,629 | |||||||||||
|
Net change in loans held for sale
|
(609,433 | ) | (133,925 | ) | 356,754 | ||||||||||
|
Net change in trading account assets and liabilities
|
(49,208 | ) | 10,596 | 2,121 | |||||||||||
|
Net cash provided by operating activities
|
298,372 | 724,370 | 1,215,615 | ||||||||||||
|
Cash flows from investing activities
|
|||||||||||||||
|
Proceeds from sales of investment securities
|
|||||||||||||||
|
Available for sale
|
20,673 | 727,229 | 78,978 | ||||||||||||
|
Other
|
62,047 | 20,510 | 180,325 | ||||||||||||
|
Proceeds from maturities of investment securities
|
|||||||||||||||
|
Available for sale
|
2,158,675 | 2,902,255 | 2,467,366 | ||||||||||||
|
Held to maturity
|
104,500 | 142,799 | 128,524 | ||||||||||||
|
Purchases of investment securities
|
|||||||||||||||
|
Available for sale
|
(2,047,939 | ) | (4,874,927 | ) | (3,445,106 | ) | |||||||||
|
Held to maturity
|
(107,540 | ) | (136,018 | ) | (140,664 | ) | |||||||||
|
Other
|
(107,597 | ) | (51,021 | ) | (149,934 | ) | |||||||||
|
Additions to capitalized servicing rights
|
(50,367 | ) | (57,778 | ) | (61,973 | ) | |||||||||
|
Net increase in loans and leases
|
(1,509,896 | ) | (2,583,862 | ) | (1,427,209 | ) | |||||||||
|
Capital expenditures, net
|
(26,546 | ) | (31,785 | ) | (31,631 | ) | |||||||||
|
Acquisitions, net of cash acquired:
|
|||||||||||||||
|
Banks and bank holding companies
|
— | — | 2,134,822 | ||||||||||||
|
Other, net
|
(72,236 | ) | (15,404 | ) | (12,025 | ) | |||||||||
|
Net cash used by investing activities
|
(1,576,226 | ) | (3,958,002 | ) | (278,527 | ) | |||||||||
|
Cash flows from financing activities
|
|||||||||||||||
|
Net increase in deposits
|
1,680,945 | 2,329,792 | 537,552 | ||||||||||||
|
Net increase (decrease) in short-term borrowings
|
450,230 | 261,454 | (597,930 | ) | |||||||||||
|
Proceeds from long-term borrowings
|
1,801,657 | 1,400,660 | 1,299,568 | ||||||||||||
|
Payments on long-term borrowings
|
(1,927,070 | ) | (575,779 | ) | (1,498,842 | ) | |||||||||
|
Purchases of treasury stock
|
(509,609 | ) | (610,261 | ) | — | ||||||||||
|
Dividends paid — common
|
(198,619 | ) | (187,669 | ) | (135,423 | ) | |||||||||
|
Other, net
|
106,975 | 79,457 | 73,638 | ||||||||||||
|
Net cash provided (used) by financing activities
|
1,404,509 | 2,697,654 | (321,437 | ) | |||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
126,655 | (535,978 | ) | 615,651 | |||||||||||
|
Cash and cash equivalents at beginning of year
|
1,363,804 | 1,899,782 | 1,284,131 | ||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 1,490,459 | $ | 1,363,804 | $ | 1,899,782 | |||||||||
|
Supplemental disclosure of cash flow information
|
|||||||||||||||
|
Interest received during the year
|
$ | 2,721,155 | $ | 2,266,601 | $ | 2,151,057 | |||||||||
|
Interest paid during the year
|
964,548 | 589,799 | 577,741 | ||||||||||||
|
Income taxes paid during the year
|
472,773 | 453,006 | 329,827 | ||||||||||||
|
Supplemental schedule of noncash investing and financing
activities
|
|||||||||||||||
|
Real estate acquired in settlement of loans
|
$ | 10,417 | $ | 17,167 | $ | 17,794 | |||||||||
|
Acquisition of banks and bank holding companies
|
|||||||||||||||
|
Common stock issued
|
— | — | 1,993,956 | ||||||||||||
|
Fair value of
|
|||||||||||||||
|
Assets acquired (noncash)
|
— | — | 14,355,837 | ||||||||||||
|
Liabilities assumed
|
— | — | 14,496,703 | ||||||||||||
|
Securitization of residential mortgage loans allocated to
|
|||||||||||||||
|
Available for sale investment securities
|
124,600 | — | 1,150,834 | ||||||||||||
|
Capitalized servicing rights
|
1,410 | — | 17,279 | ||||||||||||
See accompanying notes to financial statements.
83
M&T
BANK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’
Equity
| Accumulated | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Common | Additional | Comprehensive | |||||||||||||||||||||||||||||||||
| Preferred | Common | Stock | Paid-in | Retained | Income (Loss), | Treasury | |||||||||||||||||||||||||||||
| Stock | Stock | Issuable | Capital | Earnings | Net | Stock | Total | ||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
|
2003
|
|||||||||||||||||||||||||||||||||||
|
Balance — January 1, 2003
|
$ | — | 48,570 | 6,190 | 1,192,998 | 2,297,848 | 54,772 | (391,899 | ) | 3,208,479 | |||||||||||||||||||||||||
|
Comprehensive income:
|
|||||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | 573,942 | — | — | 573,942 | |||||||||||||||||||||||||||
|
Other comprehensive income, net of tax and reclassification
adjustments:
|
|||||||||||||||||||||||||||||||||||
|
Unrealized losses on investment securities
|
— | — | — | — | — | (17,283 | ) | — | (17,283 | ) | |||||||||||||||||||||||||
|
Unrealized gains on cash flow hedge
|
— | — | — | — | — | 622 | — | 622 | |||||||||||||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | — | — | — | (12,458 | ) | — | (12,458 | ) | |||||||||||||||||||||||||
| 544,823 | |||||||||||||||||||||||||||||||||||
|
Acquisition of Allfirst Financial Inc. — common stock
issued
|
— | 10,969 | — | 1,617,034 | — | — | 365,953 | 1,993,956 | |||||||||||||||||||||||||||
|
Repayment of management stock ownership program receivable
|
— | — | — | 23 | — | — | — | 23 | |||||||||||||||||||||||||||
|
Stock-based compensation plans:
|
|||||||||||||||||||||||||||||||||||
|
Stock option and purchase plans:
|
|||||||||||||||||||||||||||||||||||
|
Compensation expense
|
— | — | — | 43,228 | — | — | — | 43,228 | |||||||||||||||||||||||||||
|
Exercises
|
— | 509 | — | 35,045 | — | — | 25,288 | 60,842 | |||||||||||||||||||||||||||
|
Directors’ stock plan
|
— | 4 | — | 726 | — | — | 175 | 905 | |||||||||||||||||||||||||||
|
Deferred compensation plans, net, including dividend equivalents
|
— | 1 | 136 | (91 | ) | (152 | ) | — | 483 | 377 | |||||||||||||||||||||||||
|
Common stock cash dividends — $1.20 per share
|
— | — | — | — | (135,423 | ) | — | — | (135,423 | ) | |||||||||||||||||||||||||
|
Balance — December 31, 2003
|
$ | — | 60,053 | 6,326 | 2,888,963 | 2,736,215 | 25,653 | — | 5,717,210 | ||||||||||||||||||||||||||
|
2004
|
|||||||||||||||||||||||||||||||||||
|
Comprehensive income:
|
|||||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | 722,521 | — | — | 722,521 | |||||||||||||||||||||||||||
|
Other comprehensive income, net of tax and reclassification
adjustments:
|
|||||||||||||||||||||||||||||||||||
|
Unrealized losses on investment securities
|
— | — | — | — | — | (42,823 | ) | — | (42,823 | ) | |||||||||||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | — | — | — | (39 | ) | — | (39 | ) | |||||||||||||||||||||||||
| 679,659 | |||||||||||||||||||||||||||||||||||
|
Purchases of treasury stock
|
— | — | — | — | — | — | (610,261 | ) | (610,261 | ) | |||||||||||||||||||||||||
|
Stock-based compensation plans:
|
|||||||||||||||||||||||||||||||||||
|
Stock option and purchase plans:
|
|||||||||||||||||||||||||||||||||||
|
Compensation expense
|
— | — | — | 48,103 | — | — | — | 48,103 | |||||||||||||||||||||||||||
|
Exercises
|
— | 144 | — | (38,361 | ) | — | — | 119,444 | 81,227 | ||||||||||||||||||||||||||
|
Directors’ stock plan
|
— | 1 | — | 167 | — | — | 817 | 985 | |||||||||||||||||||||||||||
|
Deferred compensation plans, net, including dividend equivalents
|
— | — | (547 | ) | (960 | ) | (180 | ) | — | 2,047 | 360 | ||||||||||||||||||||||||
|
Common stock cash dividends — $1.60 per share
|
— | — | — | — | (187,669 | ) | — | — | (187,669 | ) | |||||||||||||||||||||||||
|
Balance — December 31, 2004
|
$ | — | 60,198 | 5,779 | 2,897,912 | 3,270,887 | (17,209 | ) | (487,953 | ) | 5,729,614 | ||||||||||||||||||||||||
|
2005
|
|||||||||||||||||||||||||||||||||||
|
Comprehensive income:
|
|||||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | 782,183 | — | — | 782,183 | |||||||||||||||||||||||||||
|
Other comprehensive income, net of tax and reclassification
adjustments:
|
|||||||||||||||||||||||||||||||||||
|
Unrealized losses on investment securities
|
— | — | — | — | — | (43,864 | ) | — | (43,864 | ) | |||||||||||||||||||||||||
|
Minimum pension liability adjustment
|
— | — | — | — | — | (36,857 | ) | — | (36,857 | ) | |||||||||||||||||||||||||
| 701,462 | |||||||||||||||||||||||||||||||||||
|
Purchases of treasury stock
|
— | — | — | — | — | — | (509,609 | ) | (509,609 | ) | |||||||||||||||||||||||||
|
Repayment of management stock ownership program receivable
|
— | — | — | 304 | — | — | — | 304 | |||||||||||||||||||||||||||
|
Stock-based compensation plans:
|
|||||||||||||||||||||||||||||||||||
|
Stock option and purchase plans: Compensation expense
|
— | — | — | 45,191 | — | — | — | 45,191 | |||||||||||||||||||||||||||
|
Exercises
|
— | — | — | (57,112 | ) | — | — | 163,864 | 106,752 | ||||||||||||||||||||||||||
|
Directors’ stock plan
|
— | — | — | 87 | — | — | 1,009 | 1,096 | |||||||||||||||||||||||||||
|
Deferred compensation plans, net, including dividend equivalents
|
— | — | (416 | ) | (229 | ) | (176 | ) | — | 1,016 | 195 | ||||||||||||||||||||||||
|
Common stock cash dividends — $1.75 per share
|
— | — | — | — | (198,619 | ) | — | — | (198,619 | ) | |||||||||||||||||||||||||
|
Balance — December 31, 2005
|
$ | — | 60,198 | 5,363 | 2,886,153 | 3,854,275 | (97,930 | ) | (831,673 | ) | 5,876,386 | ||||||||||||||||||||||||
See accompanying notes to financial statements.
84
Notes to Financial Statements
| 1. | Significant accounting policies |
M&T
Bank Corporation
(“M&T”) is a
bank holding company headquartered in Buffalo, New York. Through
subsidiaries, M&T
provides individuals, corporations and other businesses, and
institutions with commercial and retail banking services,
including loans and deposits, trust, mortgage banking, asset
management, insurance and other financial services. Banking
activities are largely focused on consumers residing in New York
State, Pennsylvania, Maryland and the District of Columbia and
on small and medium-size businesses based in those areas.
Banking services are also provided in Delaware, Virginia and
West Virginia, while certain subsidiaries also conduct
activities in other states.
The accounting and reporting
policies of M&T and
subsidiaries (“the Company”) conform to generally
accepted accounting principles and to general practices within
the banking industry. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. The more significant accounting
policies are as follows:
Consolidation
Except as described in
note 18, the consolidated financial statements include
M&T and all of its
subsidiaries. All significant intercompany accounts and
transactions of consolidated subsidiaries have been eliminated
in consolidation. The financial statements of
M&T included in
note 24 report investments in subsidiaries under the equity
method. Information about some limited purpose entities that are
affiliates of the Company but are not included in the
consolidated financial statements appears in note 18.
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.
Securities purchased under agreements to resell and
securities sold under agreements to repurchase
Securities purchased under agreements to resell and securities
sold under agreements to repurchase are treated as
collateralized financing transactions and are recorded at
amounts equal to the cash or other consideration exchanged. It
is generally the Company’s policy to take possession of
collateral pledged to secure agreements to resell.
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. Except
for investment securities for which the Company has entered into
a related fair value hedge, unrealized gains or losses on
investment securities available for sale are reflected in
accumulated other comprehensive income (loss), net of applicable
income taxes.
Other securities are stated at cost and include stock of the
Federal Reserve Bank of New York and the Federal Home
Loan Bank of New York.
Amortization of premiums and accretion of discounts for
investment securities available for sale and held to maturity
are included in interest income. The cost basis of individual
securities is written down to estimated fair value through a
charge to earnings when declines in value below amortized cost
are considered to be other than temporary. Realized gains and
losses on the sales of investment securities are determined
using the specific identification method.
85
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Loans and leases
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. Commitments to sell real
estate loans are utilized by the Company to hedge the exposure
to changes in fair value of real estate loans held for sale.
Hedged real estate loans held for sale are recorded in the
consolidated balance sheet at estimated fair market value,
except for value ascribable to that portion of the loans’
cash flows that are expected to be realized through loan
servicing activities. Valuation adjustments made on these loans
and commitments 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 for
purposes of applying Statement of Financial Accounting Standards
(“SFAS”) No. 114, “Accounting by Creditors
for Impairment of a Loan,” as amended, 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 an
insignificant delay in payment and are generally not considered
impaired for purposes of applying SFAS No. 114. 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.
Residual value estimates for commercial leases are generally
determined through internal or external reviews of the leased
property. The Company reviews commercial lease residual values
at least annually and recognizes residual value impairments
deemed to be other than temporary. Initial estimates of residual
value for automobile leases are recorded based on published
industry standards and historical residual value losses incurred
relative to the published industry standards. Automobile leases
are considered small homogenous leases and, as such, impairments
to residual value are determined based on projected residual
value losses relative to the initially recorded residual values.
Allowance for credit losses
The allowance for credit losses represents the amount which, in
management’s judgment, will be adequate to absorb credit
losses inherent in the loan and lease portfolio as of the
balance sheet date. The adequacy of the allowance is determined
by management’s evaluation of the loan and lease portfolio
based on such factors as the differing economic risks associated
with each loan category, the current financial condition of
specific borrowers, the economic environment in which borrowers
operate, the level of delinquent loans, the value of any
collateral and, where applicable, the existence of any
guarantees or indemnifications.
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.
Sales and securitizations of financial assets
Transfers of financial assets for which the Company has
surrendered control of the financial assets are accounted for as
sales to the extent that consideration other than beneficial
interests in the transferred assets is received in exchange.
Retained interests in a sale or securitization of financial
assets are measured at the date of transfer by allocating the
previous carrying amount between the assets
86
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
transferred and any retained interests based on their relative
estimated fair values. The fair values of retained debt
securities are generally determined through reference to
independent pricing information. The fair values of retained
servicing rights and any other retained interests are determined
based on the present value of expected future cash flows
associated with those interests and by reference to market
prices for similar assets.
Capitalized servicing rights
Servicing assets purchased or servicing liabilities assumed that
are not recognized in connection with the sale or securitization
of financial assets 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 the predominant risk
characteristics of the 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 and other intangible assets
Goodwill represents the excess of the cost of an acquired entity
over the fair value of the identifiable net assets acquired.
Similar to goodwill, other intangible assets, which include core
deposit intangibles, also lack physical substance but, as
required by SFAS No. 141, “Business
Combinations,” have had portions of the cost of an acquired
entity assigned to such assets. The Company accounts for
goodwill and other intangible assets in accordance with
SFAS No. 142, “Goodwill and Other Intangible
Assets,” which, in general, requires that goodwill not be
amortized, but rather that it be tested for impairment at least
annually at the reporting unit level, which is either at the
same level or one level below an operating segment. Other
acquired intangible assets with finite lives, such as core
deposit intangibles, are required to be amortized over their
estimated lives. Core deposit and other intangible assets are
amortized using accelerated methods over estimated useful lives
of five to ten years. The Company periodically assesses whether
events or changes in circumstances indicate that the carrying
amounts of core deposit and other intangible assets may be
impaired.
Derivative financial instruments
The Company accounts for derivative financial instruments in
accordance with SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended.
SFAS No. 133 established accounting and reporting
standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those
instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of
the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment, (b) a
hedge of the exposure to variable cash flows of a forecasted
transaction or (c) a hedge of the foreign currency exposure
of a net investment in a foreign operation, an unrecognized firm
commitment, an available for sale security, or a foreign
currency denominated forecasted transaction. Pursuant to
SFAS No. 133, the accounting for changes in the fair
value of a derivative 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
87
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity’s approach to managing
risk.
The Company utilizes interest rate swap agreements as part of
the management of interest rate risk to modify the repricing
characteristics of certain portions of its portfolios of earning
assets and interest-bearing liabilities. For such agreements,
amounts receivable or payable are recognized as accrued under
the terms of the agreement and the net differential is recorded
as an adjustment to interest income or expense of the related
asset or liability. Interest rate swap agreements are designated
as either fair value hedges or cash flow hedges. In a fair value
hedge, the fair values of the interest rate swap agreements and
changes in the fair values of the hedged items are recorded in
the Company’s consolidated balance sheet with the
corresponding gain or loss being recognized in current earnings.
The difference between changes in the fair values of interest
rate swap agreements and the hedged items represents hedge
ineffectiveness and is recorded in “other revenues from
operations” in the Company’s consolidated statement of
income. In a cash flow hedge, the effective portion of the
derivative’s unrealized gain or loss is initially recorded
as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction
affects earnings. The ineffective portion of the unrealized gain
or loss is reported in “other revenues from
operations” immediately.
The Company utilizes commitments to sell real estate loans to
hedge the exposure to changes in the fair value of real estate
loans held for sale. Hedged real estate loans held for sale,
commitments to originate real estate loans to be held for sale,
and commitments to sell real estate loans are generally recorded
in the consolidated balance sheet at estimated fair market
value. However, in accordance with Staff Accounting Bulletin
(“SAB”) No. 105, “Application of Accounting
Principles to Loan Commitments,” issued by the United
States Securities and Exchange Commission, effective
April 1, 2004, value ascribable to cash flows that will be
realized in connection with loan servicing activities has not
been included in the determination of fair value of loans held
for sale or commitments to originate loans for sale. Value
ascribable to that portion of cash flows is now recognized at
the time the underlying mortgage loans are sold. The provisions
of SAB No. 105 were applied prospectively as of
April 1, 2004.
Derivative instruments, including financial futures commitments
and interest rate swap agreements, that do not satisfy the hedge
accounting requirements noted above are recorded at fair value
and are generally classified as trading account assets or
liabilities with resultant changes in fair value being
recognized in trading account and foreign exchange gains in the
Company’s consolidated statement of income.
Stock-based compensation
The Company recognizes expense for stock-based compensation
using the fair value method of accounting described in
SFAS No. 123, “Accounting for Stock-Based
Compensation,” as amended. Under SFAS No. 123,
stock-based compensation expense is recognized over the vesting
period of the stock-based grant based on the estimated grant
date value of the stock-based compensation that is expected to
vest. Information on the determination of the estimated value of
stock options and stock purchase plan rights used to calculate
stock-based compensation expense under the provisions of
SFAS No. 123 is included in note 10.
In implementing the fair value method of accounting described in
SFAS No. 123, the Company chose the retroactive
restatement method described in SFAS No. 148,
“Accounting for Stock-Based Compensation —
Transition and Disclosure,” which amended
SFAS No. 123. As a result, financial information for
all periods includes the expense applicable to all stock-based
compensation granted to employees after January 1, 1995.
Effective January 1, 2006, the Company adopted
SFAS No. 123 (revised 2004), “Share Based
Payment,” (“SFAS No. 123R”), an
amendment of SFAS No. 123. As required, coincident
with the adoption of SFAS No. 123R, the Company will
begin accelerating the recognition of compensation costs for
stock-based awards granted to retirement-eligible employees and
employees who will become retirement-eligible prior to full
vesting of the award because the Company’s incentive
compensation plan allows for vesting at the time an employee
retires. Through December 31, 2005, stock-based
compensation granted to such individuals was expensed over the
normal vesting period and any
88
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
remaining unrecognized compensation cost was recognized at the
time an individual employee actually retired. This change will
affect the timing of stock-based compensation expense
recognition in the Company’s consolidated financial
statements for the first quarter of 2006 and each first quarter
thereafter, as most of the Company’s stock-based awards are
granted in January, but will not affect the value ascribed to
stock-based compensation granted to employees nor the aggregate
amount of stock-based compensation expense recognized by the
Company. The Company estimates that the acceleration of such
expense will increase stock-based compensation expense by an
additional $6 million in the first quarter of 2006 and by
approximately $4 million for the full year 2006 from what
would otherwise have been recognized in those periods had the
expense recognition not been accelerated. If not for this
required change, the estimated $4 million of stock-based
compensation expense to be recognized in 2006 would have been
recognized in 2007 through 2009 following the normal vesting
schedule for stock options granted by the Company.
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.
Earnings per common share
Basic earnings per share exclude
dilution and are 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 reflect the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in earnings. Proceeds
assumed to have been received on such exercise or conversion are
assumed to be used to purchase shares of
M&T common stock at the
average market price during the period, as required by the
“treasury stock method” of accounting.
Treasury stock
Repurchases of shares of
M&T common stock are
recorded at cost as a reduction of stockholders’ equity.
Reissuances of shares of treasury stock are recorded at average
cost.
| 2. | Acquisition |
On April 1, 2003,
M&T completed the
acquisition of Allfirst Financial Inc. (“Allfirst”), a
bank holding company headquartered in Baltimore, Maryland, from
Allied Irish Banks, p.l.c. (“AIB”), Dublin, Ireland.
Allfirst was merged with and into
M&T on that date.
Allfirst Bank, Allfirst’s primary banking subsidiary, was
merged into M&T Bank, a
wholly owned subsidiary of
M&T, on that date.
Allfirst Bank operated 269 banking offices in Maryland,
Pennsylvania, Virginia and the District of Columbia at the date
of acquisition. The results of operations acquired in the
Allfirst transaction have been included in the Company’s
financial results since April 1, 2003. Acquired assets on
April 1, 2003 totaled $16 billion, including
$10 billion of loans and leases, liabilities assumed
aggregated $14 billion, including $11 billion of
deposits, and $2 billion was added to stockholders’
equity. AIB received 26,700,000 shares of
M&T common stock valued
at $2 billion (based on the market value of
M&T common stock at the
time the terms of the merger were agreed to and announced by
M&T and AIB in
September 2002) and $886 million in cash in exchange for
all outstanding Allfirst common shares. See note 23 for
further information on
M&T’s relationship
with AIB.
The acquisition of Allfirst
represented a major geographic expansion by
M&T and created a
strong Mid-Atlantic banking franchise. Following the
acquisition, the Company offers a broad range of products and
services through its banking offices in six states and the
District of Columbia. As a result of the acquisition, the
Company has greater geographic diversity of its banking
operations and the benefits of scale associated with a larger
company. As part of the purchase price allocation at
April 1, 2003, M&T
recorded $1.8 billion of goodwill (none of which is tax
deductible), $136 million of core
89
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
deposit intangible and $64 million of other intangible
assets. The weighted-average amortization periods for the
acquired core deposit intangible and other intangible assets
were eight years and seven years, respectively. Information
regarding the allocation of goodwill resulting from the Allfirst
acquisition to the Company’s reportable segments is as
follows:
| (In thousands) | ||||
|
Commercial Banking
|
$ | 602,153 | ||
|
Commercial Real Estate
|
140,283 | |||
|
Discretionary Portfolio
|
— | |||
|
Residential Mortgage Banking
|
— | |||
|
Retail Banking
|
813,361 | |||
|
All Other
|
250,731 | |||
|
Total
|
$ | 1,806,528 | ||
In connection with the Allfirst acquisition, the Company
incurred merger expenses related to systems conversions and
other costs of integrating and conforming acquired operations
with and into the Company of approximately $60 million
($39 million net of applicable income taxes) during 2003.
There were no significant similar expenses in 2005 or 2004.
Expenses related to systems conversions and other costs of
integration are included in the consolidated statement of income
for the year ended December 31, 2003 as follows:
| (In thousands) | ||||
|
Salaries and employee benefits
|
$ | 8,542 | ||
|
Equipment and net occupancy
|
2,126 | |||
|
Printing, postage and supplies
|
3,216 | |||
|
Other costs of operations
|
46,503 | |||
| $ | 60,387 | |||
The expenses noted above consisted
largely of professional services and other temporary help fees
associated with the conversion of systems and/or integration of
operations; recruiting and other incentive compensation; initial
marketing and promotion expenses designed to introduce
M&T Bank to customers
of Allfirst; travel and relocation costs; and printing, supplies
and other costs of commencing operations in new markets and
offices.
Presented herein is certain unaudited pro forma information for
2003 as if Allfirst had been acquired on January 1 of that
year. These results combine the historical results of Allfirst
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 on January 1, 2003.
| Pro Forma | ||||
| Year Ended | ||||
| December 31 2003 | ||||
| (In thousands, | ||||
| except per share) | ||||
|
Interest income
|
$ | 2,267,271 | ||
|
Other income
|
923,055 | |||
|
Net income
|
598,556 | |||
|
Diluted earnings per common share
|
4.89 | |||
90
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 3. | Investment securities |
The amortized cost and estimated fair value of investment
securities were as follows:
| Gross | Gross | ||||||||||||||||
| Amortized | Unrealized | Unrealized | Estimated | ||||||||||||||
| Cost | Gains | Losses | Fair Value | ||||||||||||||
| (In thousands) | |||||||||||||||||
|
December 31, 2005
|
|||||||||||||||||
|
Investment securities available for sale:
|
|||||||||||||||||
|
U.S. Treasury and federal agencies
|
$ | 330,945 | $ | 40 | $ | 7,779 | $ | 323,206 | |||||||||
|
Obligations of states and political subdivisions
|
81,024 | 3,912 | 1 | 84,935 | |||||||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||
|
Government issued or guaranteed
|
2,740,503 | 8,047 | 55,382 | 2,693,168 | |||||||||||||
|
Privately issued
|
4,318,988 | 8,423 | 52,399 | 4,275,012 | |||||||||||||
|
Other debt securities
|
144,967 | 6,904 | 1,133 | 150,738 | |||||||||||||
|
Equity securities
|
395,134 | 11,512 | 2,002 | 404,644 | |||||||||||||
| 8,011,561 | 38,838 | 118,696 | 7,931,703 | ||||||||||||||
|
Investment securities held to maturity:
|
|||||||||||||||||
|
Obligations of states and political subdivisions
|
97,003 | 1,955 | 134 | 98,824 | |||||||||||||
|
Other debt securities
|
4,056 | — | — | 4,056 | |||||||||||||
| 101,059 | 1,955 | 134 | 102,880 | ||||||||||||||
|
Other securities
|
367,402 | — | — | 367,402 | |||||||||||||
|
Total
|
$ | 8,480,022 | $ | 40,793 | $ | 118,830 | $ | 8,401,985 | |||||||||
|
December 31, 2004
|
|||||||||||||||||
|
Investment securities available for sale:
|
|||||||||||||||||
|
U.S. Treasury and federal agencies
|
$ | 334,337 | $ | 280 | $ | 2,766 | $ | 331,851 | |||||||||
|
Obligations of states and political subdivisions
|
103,415 | 6,365 | 8 | 109,772 | |||||||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||
|
Government issued or guaranteed
|
3,633,394 | 26,372 | 26,507 | 3,633,259 | |||||||||||||
|
Privately issued
|
3,393,255 | 23,650 | 12,738 | 3,404,167 | |||||||||||||
|
Other debt securities
|
183,937 | 8,415 | 1,250 | 191,102 | |||||||||||||
|
Equity securities
|
399,343 | 10,293 | 25,070 | 384,566 | |||||||||||||
| 8,047,681 | 75,375 | 68,339 | 8,054,717 | ||||||||||||||
|
Investment securities held to maturity:
|
|||||||||||||||||
|
Obligations of states and political subdivisions
|
95,020 | 2,378 | 153 | 97,245 | |||||||||||||
|
Other debt securities
|
3,030 | — | — | 3,030 | |||||||||||||
| 98,050 | 2,378 | 153 | 100,275 | ||||||||||||||
|
Other securities
|
321,852 | — | — | 321,852 | |||||||||||||
|
Total
|
$ | 8,467,583 | $ | 77,753 | $ | 68,492 | $ | 8,476,844 | |||||||||
No investment in securities of a single
non-U.S. Government
or government agency issuer exceeded ten percent of
stockholders’ equity at December 31, 2005.
91
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
As of December 31, 2005, the latest available investment
ratings of all privately issued mortgage-backed securities were
A or better, with the exception of 9 securities with an
aggregate amortized cost and estimated fair value of $41,533,000
and $42,604,000, respectively.
The amortized cost and estimated fair value of collateralized
mortgage obligations included in mortgage-backed securities were
as follows:
| December 31 | ||||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Amortized cost
|
$ | 5,837,340 | $ | 5,620,973 | ||||
|
Estimated fair value
|
5,753,823 | 5,611,968 | ||||||
Gross realized gains on the sale
of investment securities were $1,464,000 in 2005, $6,084,000 in
2004 and $2,487,000 in 2003. Gross realized losses on investment
securities were $414,000 in 2005 and $3,210,000 in 2004. There
were no such losses in 2003. During the third quarter of 2005,
the Company recognized a $29,183,000 other-than-temporary
impairment charge related to preferred stock issuances of the
Federal National Mortgage Association (“FNMA”) and the
Federal Home Loan Mortgage Corporation (“FHLMC”). The
write-down was taken on $132,900,000 of variable-rate preferred
securities that M&T
continues to hold. Although the securities are still rated as
investment grade, M&T
recognized the impairment charge, in accordance with generally
accepted accounting principles, in light of changing
circumstances during 2005’s third quarter that included an
announced further delay in FNMA’s ability to provide
restated financial information about its results of operations
until late 2006 and a further decline in the market value of
certain of FHLMC’s preferred stock issuances despite its
release of operating results.
At December 31, 2005, the amortized cost and estimated fair
value of debt securities by contractual maturity were as follows:
| Amortized | Estimated | |||||||
| Cost | Fair Value | |||||||
| (In thousands) | ||||||||
|
Debt securities available for sale:
|
||||||||
|
Due in one year or less
|
$ | 70,018 | $ | 68,946 | ||||
|
Due after one year through five years
|
302,790 | 296,716 | ||||||
|
Due after five years through ten years
|
43,720 | 45,441 | ||||||
|
Due after ten years
|
140,408 | 147,776 | ||||||
| 556,936 | 558,879 | |||||||
|
Mortgage-backed securities available for sale
|
7,059,491 | 6,968,180 | ||||||
| $ | 7,616,427 | $ | 7,527,059 | |||||
|
Debt securities held to maturity:
|
||||||||
|
Due in one year or less
|
$ | 78,532 | $ | 78,470 | ||||
|
Due after one year through five years
|
7,472 | 7,689 | ||||||
|
Due after five years through ten years
|
5,402 | 5,653 | ||||||
|
Due after ten years
|
9,653 | 11,068 | ||||||
| $ | 101,059 | $ | 102,880 | |||||
92
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
A summary of investment securities that as of December 31,
2005 and 2004 had been in a continuous unrealized loss position
for less than twelve months and those that had been in a
continuous unrealized loss position for twelve months or longer
follows:
| Less Than 12 Months | 12 Months or More | ||||||||||||||||
| Unrealized | Unrealized | ||||||||||||||||
| Fair Value | Losses | Fair Value | Losses | ||||||||||||||
| (In thousands) | |||||||||||||||||
|
December 31, 2005
|
|||||||||||||||||
|
U.S. Treasury and federal agencies
|
$ | 17,111 | $ | (141 | ) | $ | 302,942 | $ | (7,638 | ) | |||||||
|
Obligations of states and political subdivisions
|
55,830 | (112 | ) | 4,788 | (23 | ) | |||||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||
|
Government issued or guaranteed
|
408,924 | (7,754 | ) | 1,693,319 | (47,628 | ) | |||||||||||
|
Privately issued
|
2,209,915 | (23,252 | ) | 1,121,380 | (29,147 | ) | |||||||||||
|
Other debt securities
|
16,587 | (230 | ) | 57,684 | (903 | ) | |||||||||||
|
Equity securities
|
134,266 | (1,991 | ) | 32 | (11 | ) | |||||||||||
|
Total
|
$ | 2,842,633 | $ | (33,480 | ) | $ | 3,180,145 | $ | (85,350 | ) | |||||||
|
December 31, 2004
|
|||||||||||||||||
|
U.S. Treasury and federal agencies
|
$ | 300,496 | $ | (2,766 | ) | $ | — | $ | — | ||||||||
|
Obligations of states and political subdivisions
|
68,375 | (155 | ) | 439 | (6 | ) | |||||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||
|
Government issued or guaranteed
|
2,530,605 | (26,333 | ) | 27,626 | (174 | ) | |||||||||||
|
Privately issued
|
1,450,346 | (11,783 | ) | 53,245 | (955 | ) | |||||||||||
|
Other debt securities
|
31,516 | (241 | ) | 31,520 | (1,009 | ) | |||||||||||
|
Equity securities
|
16,420 | (3,580 | ) | 91,367 | (21,490 | ) | |||||||||||
|
Total
|
$ | 4,397,758 | $ | (44,858 | ) | $ | 204,197 | $ | (23,634 | ) | |||||||
The Company owned approximately six hundred individual
investment securities with aggregate gross unrealized losses of
$118,830,000 at December 31, 2005. Those investment
securities consisted predominantly of mortgage-backed securities
classified as available for sale. The unrealized losses at
December 31, 2005 were generally attributable to the level
of interest rates and, accordingly, were considered to be
temporary in nature. At December 31, 2005, the Company had
not identified events or changes in circumstance which may have
a significant adverse effect on the fair value of the
$367,402,000 of cost method investment securities.
At December 31, 2005, investment securities with a carrying
value of $4,553,552,000, including $4,265,216 of investment
securities available for sale, were pledged to secure demand
notes issued to the U.S. Treasury, borrowings from various
Federal Home Loan Banks (“FHLB”), repurchase
agreements, governmental deposits and interest rate swap
agreements.
Investment securities pledged by the Company to secure
obligations whereby the secured party is permitted by contract
or custom to sell or repledge such collateral totaled
$616,029,000 at December 31, 2005. The pledged securities
are included in government issued or guaranteed mortgage-backed
securities available for sale.
93
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 4. | Loans and leases |
Total gross loans and leases outstanding were comprised of the
following:
| December 31 | |||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Loans
|
|||||||||
|
Commercial, financial, agricultural, etc.
|
$ | 9,818,897 | $ | 8,914,230 | |||||
|
Real estate:
|
|||||||||
|
Residential
|
3,802,645 | 2,821,533 | |||||||
|
Commercial
|
12,833,912 | 12,716,694 | |||||||
|
Construction
|
2,335,498 | 1,797,106 | |||||||
|
Consumer
|
10,385,740 | 10,919,071 | |||||||
|
Total loans
|
39,176,692 | 37,168,634 | |||||||
|
Leases
|
|||||||||
|
Commercial
|
1,286,930 | 1,255,465 | |||||||
|
Consumer
|
90,069 | 220,523 | |||||||
|
Total leases
|
1,376,999 | 1,475,988 | |||||||
|
Total loans and leases
|
$ | 40,553,691 | $ | 38,644,622 | |||||
One-to-four family
residential mortgage loans held for sale were $1.2 billion
at December 31, 2005 and $790 million at
December 31, 2004.
One-to-four family
residential mortgage loans and smaller balance commercial
mortgage loans with many repayment characteristics similar to
residential mortgage loans that are serviced for others totaled
approximately $15.6 billion and $14.9 billion at
December 31, 2005 and 2004, respectively. As of
December 31, 2005, approximately $9 million of
one-to-four family
residential mortgage loans serviced for others had been sold
with recourse. Commercial mortgage loans held for sale were
$199 million at December 31, 2005 and $61 million
at December 31, 2004. Commercial mortgage loans serviced
for others totaled approximately $4.3 billion and
$4.1 billion at December 31, 2005 and 2004,
respectively. As of December 31, 2005 approximately
$941 million of commercial mortgage loan balances serviced
for others had been sold with recourse in conjunction with the
Company’s participation in the FNMA Delegated Underwriting
and Servicing (“DUS”) program. At December 31,
2005, the Company estimated that the recourse obligations
described above were not material to the Company’s
consolidated financial position. There have been no material
losses incurred as a result of those recourse arrangements.
Nonperforming loans (loans on which interest was not being
accrued or had been renegotiated at below-market interest rates)
totaled $156,451,000 at December 31, 2005 and $172,450,000
at December 31, 2004. If nonaccrual and renegotiated loans
had been accruing interest at their originally contracted terms,
interest income on such loans would have amounted to $12,144,000
in 2005 and $14,454,000 in 2004. The actual amounts included in
interest income during 2005 and 2004 on such loans were
$3,279,000 and $5,420,000, respectively.
The recorded investment in loans considered impaired for
purposes of applying SFAS No. 114 was $92,528,000 and
$106,418,000 at December 31, 2005 and 2004, respectively.
The recorded investment in loans considered impaired for which
there was a related valuation allowance for impairment included
in the allowance for credit losses and the amount of such
impairment allowance were $65,244,000 and $15,343,000,
respectively, at December 31, 2005 and $71,248,000 and
$16,548,000, respectively, at December 31, 2004. The
recorded investment in loans considered impaired for which there
was no related valuation allowance for impairment was
$27,284,000 and $35,170,000 at December 31, 2005 and 2004,
respectively. The average recorded investment in impaired loans
during 2005, 2004 and 2003 was $106,603,000, $135,431,000 and
$215,882,000, respectively. Interest income recognized on
impaired
94
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
loans totaled $4,522,000, $10,546,000 and $5,664,000 for the
years ended December 31, 2005, 2004 and 2003, respectively.
Borrowings by directors and
certain officers of M&T
and its banking subsidiaries, and by associates of such persons,
exclusive of loans aggregating less than $60,000, amounted to
$172,610,000 and $229,123,000 at December 31, 2005 and
2004, respectively. During 2005, new borrowings by such persons
amounted to $50,067,000 (including borrowings of new directors
or officers that were outstanding at the time of their election)
and repayments and other reductions (including reductions
resulting from retirements) were $106,580,000.
At December 31, 2005, approximately $1.9 billion of
commercial mortgage loans and $1.5 billion of
one-to-four family
residential mortgage loans were pledged to secure outstanding
borrowings. As described in note 18, as of
December 31, 2005, $572 million of automobile loans
and related assets were effectively pledged to secure a
$500 million revolving structured borrowing.
The Company’s loan and lease portfolio includes
(i) commercial lease financing receivables consisting of
direct financing and leveraged leases for machinery and
equipment, railroad equipment, commercial trucks and trailers,
and commercial aircraft, and (ii) consumer leases for
automobiles and light trucks. A summary of lease financing
receivables follows:
| December 31 | |||||||||||
| 2005 | 2004 | ||||||||||
| (In thousands) | |||||||||||
|
Commercial leases:
|
|||||||||||
|
Direct financings:
|
|||||||||||
|
Lease payments receivable
|
$ | 875,869 | $ | 797,338 | |||||||
|
Estimated residual value of leased assets
|
117,927 | 115,114 | |||||||||
|
Unearned income
|
(135,789 | ) | (131,441 | ) | |||||||
|
Investment in direct financings
|
858,007 | 781,011 | |||||||||
|
Leveraged leases:
|
|||||||||||
|
Lease payments receivable
|
135,469 | 152,424 | |||||||||
|
Estimated residual value of leased assets
|
157,665 | 190,589 | |||||||||
|
Unearned income
|
(43,374 | ) | (54,314 | ) | |||||||
|
Investment in leveraged leases
|
249,760 | 288,699 | |||||||||
|
Investment in commercial leases
|
1,107,767 | 1,069,710 | |||||||||
|
Consumer automobile leases:
|
|||||||||||
|
Lease payments receivable
|
27,649 | 79,602 | |||||||||
|
Estimated residual value of leased assets
|
62,420 | 140,921 | |||||||||
|
Unearned income
|
(4,867 | ) | (15,638 | ) | |||||||
|
Investment in consumer automobile leases
|
85,202 | 204,885 | |||||||||
|
Total investment in leases
|
$ | 1,192,969 | $ | 1,274,595 | |||||||
|
Deferred taxes payable arising from leveraged leases
|
$ | 211,980 | $ | 247,513 | |||||||
Included within the estimated residual value of leased assets at
December 31, 2005 and 2004 were $31 million and
$24 million, respectively, in residual value associated
with direct financing leases that are guaranteed by the lessees.
The Company is indemnified from loss by AIB on a portion of
leveraged leases obtained in the acquisition of Allfirst.
Amounts as of December 31, 2005 and 2004 in the leveraged
lease section of the table subject to such indemnification
included lease payments receivable of $9 million and
$21 million, respectively, estimated residual value of
leased assets of $31 million and $56 million,
respectively, and unearned income of $8 million and
$13 million,
95
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
respectively. For consumer automobile leases, substantially all
residual values were insured by third parties for declines in
published industry-standard residual values.
At December 31, 2005, the minimum future lease payments to
be received from lease financings were as follows:
| Commercial | Consumer | Total | |||||||||||
| (In thousands) | |||||||||||||
|
Year ending December 31:
|
|||||||||||||
|
2006
|
$ | 246,588 | $ | 19,456 | $ | 266,044 | |||||||
|
2007
|
200,589 | 7,542 | 208,131 | ||||||||||
|
2008
|
153,996 | 651 | 154,647 | ||||||||||
|
2009
|
96,694 | — | 96,694 | ||||||||||
|
2010
|
61,801 | — | 61,801 | ||||||||||
|
Later years
|
251,670 | — | 251,670 | ||||||||||
| $ | 1,011,338 | $ | 27,649 | $ | 1,038,987 | ||||||||
| 5. | Allowance for credit losses |
Changes in the allowance for credit losses were as follows:
| Year Ended December 31 | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands) | |||||||||||||
|
Beginning balance
|
$ | 626,864 | $ | 614,058 | $ | 436,472 | |||||||
|
Provision for credit losses
|
88,000 | 95,000 | 131,000 | ||||||||||
|
Allowance obtained through acquisitions
|
— | — | 146,300 | ||||||||||
|
Allowance related to loans sold or securitized
|
(314 | ) | (501 | ) | (3,198 | ) | |||||||
|
Net charge-offs
|
|||||||||||||
|
Charge-offs
|
(107,617 | ) | (119,025 | ) | (127,520 | ) | |||||||
|
Recoveries
|
30,730 | 37,332 | 31,004 | ||||||||||
|
Net charge-offs
|
(76,887 | ) | (81,693 | ) | (96,516 | ) | |||||||
|
Ending balance
|
$ | 637,663 | $ | 626,864 | $ | 614,058 | |||||||
96
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 6. | Premises and equipment |
The detail of premises and equipment was as follows:
| December 31 | |||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Land
|
$ | 49,191 | $ | 55,959 | |||||
|
Buildings — owned
|
225,828 | 225,449 | |||||||
|
Buildings — capital leases
|
1,598 | 1,598 | |||||||
|
Leasehold improvements
|
92,741 | 92,552 | |||||||
|
Furniture and equipment — owned
|
301,138 | 289,538 | |||||||
|
Furniture and equipment — capital leases
|
2,514 | 1,197 | |||||||
| 673,010 | 666,293 | ||||||||
|
Less: accumulated depreciation and amortization
|
|||||||||
|
Owned assets
|
334,024 | 297,666 | |||||||
|
Capital leases
|
1,871 | 1,423 | |||||||
| 335,895 | 299,089 | ||||||||
|
Premises and equipment, net
|
$ | 337,115 | $ | 367,204 | |||||
Net lease expense for all operating leases totaled $57,641,000
in 2005, $58,318,000 in 2004 and $51,511,000 in 2003. Minimum
lease payments under noncancelable operating leases are
presented in note 20. Minimum lease payments required under
capital leases are not material.
| 7. | Capitalized servicing assets |
Changes in capitalized servicing assets were as follows:
| Year Ended December 31 | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Beginning balance
|
$ | 186,225 | $ | 185,816 | $ | 135,076 | ||||||
|
Originations
|
16,928 | 26,285 | 50,125 | |||||||||
|
Purchases
|
35,135 | 32,009 | 34,243 | |||||||||
|
Assumed in loan securitizations (note 18)
|
1,411 | — | 17,279 | |||||||||
|
Amortization
|
(58,466 | ) | (57,885 | ) | (50,907 | ) | ||||||
| 181,233 | 186,225 | 185,816 | ||||||||||
|
Valuation allowance
|
(19,800 | ) | (30,878 | ) | (34,500 | ) | ||||||
|
Ending balance, net
|
$ | 161,433 | $ | 155,347 | $ | 151,316 | ||||||
Capitalized servicing assets at December 31, 2005 and 2004
included $140 million and $133 million, respectively,
of capitalized residential mortgage loan servicing rights, net
of the valuation allowance for impairment, and $21 million
and $22 million, respectively, of capitalized commercial
mortgage loan servicing rights. During 2005 and 2004,
$11,078,000 and $3,622,000, respectively, of the valuation
allowance was reversed because of increases in the market value
of certain strata of servicing assets relative to the amortized
cost basis of the servicing assets in such strata. During 2003,
a provision for impairment of $2,000,000 was added to the
valuation allowance because the carrying value of certain strata
of capitalized servicing assets exceeded estimated fair value.
The estimated fair value of capitalized servicing assets was
approximately $191 million at December 31, 2005 and
$178 million at December 31, 2004. In conjunction with
the Allfirst acquisition, the Company obtained capitalized
97
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
servicing assets of approximately $21 million, comprised
primarily of commercial mortgage loan servicing rights. The fair
value of capitalized residential mortgage loan servicing assets
was estimated using weighted-average discount rates of 16.6% and
12.6% at December 31, 2005 and 2004, respectively, and
contemporaneous prepayment assumptions that vary by loan type.
At December 31, 2005 and 2004, the discount rate
represented a weighted-average option-adjusted spread
(“OAS”) of 1,073 basis points (hundredths of one
percent) and 697 basis points, respectively, over market
implied forward London Interbank Offered Rates. The estimated
market value of capitalized servicing rights may vary
significantly in subsequent periods due to changing interest
rates and the effect thereof on prepayment speeds. An 18%
discount rate was used to estimate the fair value of capitalized
commercial mortgage loan servicing rights at December 31,
2005 and 2004 with no prepayment assumptions because, in
general, the servicing agreements allow the Company to share in
customer loan prepayment fees and thereby recover the remaining
carrying value of the capitalized servicing rights associated
with such loan. The Company’s ability to realize the
carrying value of capitalized commercial mortgage servicing
rights is more dependent on the borrowers’ abilities to
repay the underlying loans than on prepayments or changes in
interest rates.
The key economic assumptions used to determine the fair value of
capitalized servicing rights at December 31, 2005 and the
sensitivity of such value to changes in those assumptions are
summarized in the table that follows. Those calculated
sensitivities are hypothetical and actual changes in the fair
value of capitalized servicing rights may differ significantly
from the amounts presented herein. The effect of a variation in
a particular assumption on the fair value of the servicing
rights is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another
which may magnify or counteract the sensitivities. The changes
in assumptions are presumed to be instantaneous.
|
Weighted-average prepayment speeds — residential
(constant prepayment rate)
|
18.74 | % | ||
|
Impact on fair value of 10% adverse change
|
$ | (6,403,000 | ) | |
|
Impact on fair value of 20% adverse change
|
(12,211,000 | ) | ||
|
Weighted-average OAS — residential
|
10.73 | % | ||
|
Impact on fair value of 10% adverse change
|
$ | (3,208,000 | ) | |
|
Impact on fair value of 20% adverse change
|
(6,248,000 | ) | ||
|
Weighted-average discount rate — commercial
|
18.00 | % | ||
|
Impact on fair value of 10% adverse change
|
$ | (1,110,000 | ) | |
|
Impact on fair value of 20% adverse change
|
(2,142,000 | ) | ||
98
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 8. | Goodwill and other intangible assets |
In accordance with SFAS No. 142, the Company does not
amortize goodwill associated with corporate acquisitions,
however, core deposit and other intangible assets are amortized
over the estimated life of each respective asset. Total
amortizing intangible assets were comprised of the following:
| Gross Carrying | Accumulated | Net Carrying | |||||||||||
| Amount | Amortization | Amount | |||||||||||
| (In thousands) | |||||||||||||
|
December 31, 2005
|
|||||||||||||
|
Core deposit
|
$ | 385,725 | $ | 303,694 | $ | 82,031 | |||||||
|
Other
|
99,088 | 72,859 | 26,229 | ||||||||||
|
Total
|
$ | 484,813 | $ | 376,553 | $ | 108,260 | |||||||
|
December 31, 2004
|
|||||||||||||
|
Core deposit
|
$ | 385,725 | $ | 258,918 | $ | 126,807 | |||||||
|
Other
|
99,530 | 60,830 | 38,700 | ||||||||||
|
Total
|
$ | 485,255 | $ | 319,748 | $ | 165,507 | |||||||
Amortization of core deposit and other intangible assets was
generally computed using accelerated methods over original
amortization periods of five to ten years. The weighted-average
original amortization period was approximately eight years. The
remaining weighted-average amortization period as of
December 31, 2005 was approximately four years.
Amortization expense for core deposit and other intangible
assets was $56,805,000, $75,410,000 and $78,152,000 for the
years ended December 31, 2005, 2004 and 2003, respectively.
Estimated amortization expense in future years for such
intangible assets is as follows:
| (In thousands) | |||||
|
Year ending December 31:
|
|||||
|
2006
|
$ | 42,798 | |||
|
2007
|
29,311 | ||||
|
2008
|
17,707 | ||||
|
2009
|
11,473 | ||||
|
2010
|
5,654 | ||||
|
Later years
|
1,317 | ||||
| $ | 108,260 | ||||
Also in accordance with the provisions of
SFAS No. 142, the Company completed annual goodwill
impairment tests as of October 1, 2003, 2004 and 2005. For
purposes of testing for impairment, the Company assigned all
recorded goodwill to the reporting units originally intended to
benefit from past business combinations. Goodwill was generally
assigned based on the implied fair value of the acquired
goodwill applicable to the benefited reporting units at the time
of each respective acquisition. The implied fair value of the
goodwill was determined as the difference between the estimated
incremental overall fair value of the reporting unit and the
estimated fair value of the net assets assigned to the reporting
unit as of each respective acquisition date. To test for
goodwill impairment at each evaluation date, the Company
compared the estimated fair value of each of its reporting units
to their respective carrying amounts and certain other assets
and liabilities assigned to the reporting unit, including
goodwill and core deposit and other intangible assets. The
methodologies used to estimate fair values of reporting units as
of the acquisition dates and as of the evaluation dates were
similar. For the Company’s core customer relationship
business reporting units, fair value was estimated as the
present value of the expected future cash flows of the reporting
unit. The Company’s
99
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
non-relationship business reporting units were individually
analyzed and fair value was largely determined by comparisons to
market transactions for similar businesses. Based on the results
of the goodwill impairment tests, the Company concluded that the
amount of recorded goodwill was not impaired at the respective
testing dates.
A summary of goodwill assigned to each of the Company’s
reportable segments as of December 31, 2005 and 2004 for
purposes of testing for impairment is as follows:
| (In thousands) | ||||
|
Commercial Banking
|
$ | 838,165 | ||
|
Commercial Real Estate
|
255,166 | |||
|
Discretionary Portfolio
|
— | |||
|
Residential Mortgage Banking
|
— | |||
|
Retail Banking
|
1,440,925 | |||
|
All Other
|
369,825 | |||
|
Total
|
$ | 2,904,081 | ||
100
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 9. | 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, 2005
|
|||||||||||||
|
Amount outstanding
|
$ | 4,211,978 | $ | 940,894 | $ | 5,152,872 | |||||||
|
Weighted-average interest rate
|
4.07 | % | 4.26 | % | 4.10 | % | |||||||
|
For the year ended December 31, 2005
|
|||||||||||||
|
Highest amount at a month-end
|
$ | 4,547,239 | $ | 1,136,923 | |||||||||
|
Daily-average amount outstanding
|
4,232,002 | 658,229 | $ | 4,890,231 | |||||||||
|
Weighted-average interest rate
|
3.20 | % | 3.40 | % | 3.23 | % | |||||||
|
At December 31, 2004
|
|||||||||||||
|
Amount outstanding
|
$ | 3,924,576 | $ | 779,088 | $ | 4,703,664 | |||||||
|
Weighted-average interest rate
|
2.08 | % | 2.16 | % | 2.09 | % | |||||||
|
For the year ended December 31, 2004
|
|||||||||||||
|
Highest amount at a month-end
|
$ | 5,039,431 | $ | 779,088 | |||||||||
|
Daily-average amount outstanding
|
4,575,951 | 565,685 | $ | 5,141,636 | |||||||||
|
Weighted-average interest rate
|
1.36 | % | 1.59 | % | 1.38 | % | |||||||
|
At December 31, 2003
|
|||||||||||||
|
Amount outstanding
|
$ | 3,832,182 | $ | 610,064 | $ | 4,442,246 | |||||||
|
Weighted-average interest rate
|
.92 | % | 1.25 | % | .96 | % | |||||||
|
For the year ended December 31, 2003
|
|||||||||||||
|
Highest amount at a month-end
|
$ | 4,301,977 | $ | 1,322,839 | |||||||||
|
Daily-average amount outstanding
|
3,337,582 | 993,235 | $ | 4,330,817 | |||||||||
|
Weighted-average interest rate
|
1.09 | % | 1.27 | % | 1.13 | % | |||||||
In general, federal funds purchased and short-term repurchase
agreements outstanding at December 31, 2005 matured on the
next business day following year-end. Other short-term
borrowings included a $500 million revolving asset-backed
structured borrowing with an unaffiliated conduit lender.
Further information related to the revolving asset-backed
structured borrowing is provided in note 18. The remaining
balance of other short-term borrowings included borrowings from
the U.S. Treasury and others having original maturities of
one year or less.
At December 31, 2005, the Company had lines of credit under
formal agreements as follows:
| M&T | ||||||||||||
| M&T | M&T Bank | Bank, N.A. | ||||||||||
| (In thousands) | ||||||||||||
|
Outstanding borrowings
|
$ | — | $ | 3,861,744 | $ | — | ||||||
|
Unused
|
30,000 | 6,042,909 | 87,740 | |||||||||
M&T
has a revolving credit agreement with an unaffiliated commercial
bank whereby M&T may
borrow up to $30 million at its discretion through
December 8, 2006. At December 31, 2005,
M&T Bank had borrowing
facilities available with the FHLB whereby
M&T Bank could borrow
up to
101
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
approximately $6.4 billion.
Additionally, M&T Bank
and M&T Bank, National
Association (“M&T
Bank, N.A.”), a wholly owned subsidiary of
M&T, had available
lines of credit with the Federal Reserve Bank of New York
totaling approximately $3.6 billion, under which there were
no borrowings outstanding at December 31, 2005 or 2004.
M&T Bank and
M&T Bank, N.A. are
required to pledge loans or investment securities as collateral
for these borrowing facilities.
Long-term borrowings were as follows:
| December 31, | |||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Subordinated notes of M&T Bank:
|
|||||||||
|
7% due 2005
|
$ | — | $ | 100,000 | |||||
|
8% due 2010
|
132,118 | 499,655 | |||||||
|
3.85% due 2013
|
399,806 | 399,719 | |||||||
|
5.585% due 2020, variable rate commencing 2015
|
347,742 | — | |||||||
|
Subordinated notes of M&T:
|
|||||||||
|
7.2% due 2007
|
209,579 | 215,965 | |||||||
|
6.875% due 2009
|
105,594 | 107,273 | |||||||
|
Senior medium term notes — 6.5% due 2008
|
28,921 | 28,475 | |||||||
|
Advances from FHLB:
|
|||||||||
|
Variable rates
|
2,850,000 | 2,700,000 | |||||||
|
Fixed rates
|
1,025,145 | 1,053,831 | |||||||
|
Junior subordinated debentures associated with preferred capital
securities of:
|
|||||||||
|
M&T Capital Trust I — 8.234%
|
154,640 | 154,640 | |||||||
|
M&T Capital Trust II — 8.277%
|
103,093 | 103,093 | |||||||
|
M&T Capital Trust III — 9.25%
|
68,709 | 69,034 | |||||||
|
First Maryland Capital I — Variable rate
|
143,102 | 142,553 | |||||||
|
First Maryland Capital II — Variable rate
|
140,660 | 139,997 | |||||||
|
Allfirst Asset Trust — Variable rate
|
101,640 | 101,483 | |||||||
|
Other
|
386,245 | 532,841 | |||||||
| $ | 6,196,994 | $ | 6,348,559 | ||||||
The subordinated notes of
M&T Bank are unsecured
and are subordinate to the claims of depositors and other
creditors of M&T Bank.
In December 2005, M&T
Bank completed an offer to the holders of its
8% subordinated notes due October 2010 to exchange their
notes for fixed rate/floating rate subordinated notes due
December 2020. Approximately $363 million of the
8% notes with a carrying value of $348 million were
exchanged for new subordinated notes with a face value of
$409 million. The new subordinated notes bear a fixed rate
of interest of 5.585% until December 2015 and a floating rate of
interest thereafter until maturity in December 2020, at a rate
equal to the one-month London Interbank Offered Rate
(“LIBOR”) plus 1.215%. Beginning December 2015,
M&T Bank may, at its option and subject to prior
regulatory approval, redeem some or all of the new notes on any
interest payment date. In accordance with generally accepted
accounting principles, the Company has accounted for the
exchange as a modification of debt terms and not as an
extinguishment of debt because, among other factors, the present
value of the cash flows under the terms of the new subordinated
notes was not at least ten percent different from the
present value of the cash flows under the original terms of the
exchanged subordinated notes. Coincident with the exchange,
M&T Bank terminated $363 million of interest rate
swap agreements that were used to hedge the 8.0% subordi-
102
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
nated notes that were exchanged. A
$15 million valuation adjustment on the previously hedged
notes has been included in the carrying value of the new
subordinated notes and is being amortized to interest expense
over the period to expected maturity of the new notes. The new
subordinated notes have an effective rate of 7.76%. The
subordinated notes of
M&T are unsecured and
subordinate to the general creditors of
M&T. The senior medium
term notes were issued in 1998 by Keystone Financial
Mid-Atlantic Funding Corp., a wholly owned subsidiary of
M&T that was acquired
in 2000. The notes provide for semi-annual interest payments at
fixed rates of interest and are guaranteed by
M&T.
Long-term variable rate advances from the FHLB had contractual
interest rates that ranged from 4.16% to 4.45% at
December 31, 2005 and from 1.99% to 2.56% at
December 31, 2004. The weighted-average contractual
interest rates were 4.32% and 2.37% at December 31, 2005
and 2004, respectively. Long-term fixed-rate advances from the
FHLB had contractual interest rates ranging from 4.05% to 8.29%
at December 31, 2005 and 2004. The weighted-average
contractual interest rates payable were 5.28% and 5.31% at
December 31, 2005 and 2004, respectively. Advances from the
FHLB mature at various dates through 2029 and are secured by
residential real estate loans, commercial real estate loans and
investment securities.
In 1997,
M&T Capital
Trust I (“Trust I”),
M&T Capital
Trust II (“Trust II”), and
M&T Capital
Trust III (“Trust III”) issued
$310 million of fixed rate preferred capital securities. As
a result of the Allfirst acquisition,
M&T assumed
responsibility for $300 million of similar preferred
capital securities previously issued by special-purpose entities
formed by Allfirst consisting of $150 million of floating
rate preferred capital securities issued by First Maryland
Capital I (“Trust IV”) in December 1996 and
$150 million of floating rate preferred capital securities
issued by First Maryland Capital II
(“Trust V”) in January 1997. The distribution
rates on the preferred capital securities of Trust IV and
Trust V adjust quarterly based on changes in the
three-month LIBOR and were 5.15% and 5.10%, respectively, at
December 31, 2005 and 3.07% and 3.01%, respectively, at
December 31, 2004. Trust I, Trust II,
Trust III, Trust IV and Trust V are referred to
herein collectively as the “Trusts.”
Other than the following payment terms (and the redemption terms
described below), the preferred capital securities issued by the
Trusts (“Capital Securities”) are substantially
identical in all material respects:
| Trust | Distribution Rate | Distribution Dates | ||
|
Trust I
|
8.234% | February 1 and August 1 | ||
|
Trust II
|
8.277% | June 1 and December 1 | ||
|
Trust III
|
9.25% | February 1 and August 1 | ||
|
Trust IV
|
LIBOR plus 1.00% | January 15, April 15, July 15 and October 15 | ||
|
Trust V
|
LIBOR plus .85% | February 1, May 1, August 1 and November 1 |
The common securities of each
Trust (“Common Securities”) are wholly owned by
M&T and 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. Under the
Federal Reserve Board’s current risk-based capital
guidelines, the Capital Securities are includable in
M&T’s Tier 1
(core) capital.
103
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
The proceeds from the issuances of
the Capital Securities and Common Securities were used by the
Trusts to purchase junior subordinated deferrable interest
debentures (“Junior Subordinated Debentures”) of
M&T as follows:
| Capital | Common | |||||||||
| Trust | Securities | Securities | Junior Subordinated Debentures | |||||||
|
Trust I
|
$ | 150 million | $ | 4.64 million | $154.64 million aggregate liquidation amount of 8.234% Junior Subordinated Debentures due February 1, 2027. | |||||
|
Trust II
|
$ | 100 million | $ | 3.09 million | $103.09 million aggregate liquidation amount of 8.277% Junior Subordinated Debentures due June 1, 2027. | |||||
|
Trust III
|
$ | 60 million | $ | 1.856 million | $61.856 million aggregate liquidation amount of 9.25% Junior Subordinated Debentures due February 1, 2027. | |||||
|
Trust IV
|
$ | 150 million | $ | 4.64 million | $154.64 million aggregate liquidation amount of Floating Rate Junior Subordinated Debentures due January 15, 2027. | |||||
|
Trust V
|
$ | 150 million | $ | 4.64 million | $154.64 million aggregate liquidation amount of Floating Rate 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. The financial statement carrying values of
junior subordinated debentures associated with preferred capital
securities at December 31, 2005 and 2004 of Trust III,
Trust IV and Trust V include the unamortized portions
of purchase accounting adjustments to reflect estimated fair
value as of the date of
M&T’s acquisition
of the common securities of each respective trust. The interest
rates payable on the Junior Subordinated Debentures of
Trust IV and Trust V were 5.15% and 5.10%,
respectively, at December 31, 2005 and 3.07% and 3.01%,
respectively, at December 31, 2004.
Holders of the Capital Securities
receive preferential cumulative cash distributions on each
distribution date at the stated distribution rate unless
M&T exercises its right
to extend the payment of interest on the Junior Subordinated
Debentures for up to ten semi-annual periods (in the case of
Trust I, Trust II and Trust III) or twenty
quarterly periods (in the case of Trust IV and
Trust V), in which case payment of distributions on the
respective Capital Securities will be deferred for comparable
periods. During an extended interest period,
M&T may not pay
dividends or distributions on, or repurchase, redeem or acquire
any shares of its capital stock. The agreements governing the
Capital Securities, in the aggregate, provide a full,
irrevocable and unconditional guarantee by
M&T 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.
The Capital Securities will remain outstanding until the Junior
Subordinated Debentures are repaid at maturity, are redeemed
prior to maturity or are distributed in liquidation to the
Trusts. 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 (January 15, 2007 in the case of
Trust IV, February 1, 2007 in the case of
Trust I, Trust III and Trust V, and June 1,
2007 in the case of Trust II) contemporaneously with the
104
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
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
(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 and the
related Junior Subordinated Debentures upon early redemption
will be expressed as a percentage of the liquidation amount plus
accumulated but unpaid distributions. In the case of
Trust I, such percentage adjusts annually and ranges from
104.117% at February 1, 2007 to 100.412% for the annual
period ending January 31, 2017, after which the percentage
is 100%, subject to a make-whole amount if the early redemption
occurs prior to February 1, 2007. In the case of
Trust II, such percentage adjusts annually and ranges from
104.139% at June 1, 2007 to 100.414% for the annual period
ending May 31, 2017, after which the percentage is 100%,
subject to a make-whole amount if the early redemption occurs
prior to June 1, 2007. In the case of Trust III, such
percentage adjusts annually and ranges from 104.625% at
February 1, 2007 to 100.463% for the annual period ending
January 31, 2017, after which the percentage is 100%,
subject to a make-whole amount if the early redemption occurs
prior to February 1, 2007. In the case of Trust IV and
Trust V, the redemption price upon early redemption will be
equal to 100% of the principal amount to be redeemed plus any
accrued but unpaid distributions to the redemption date.
As a result of the Allfirst
acquisition, M&T also
assumed responsibility for $100 million of Floating Rate
Non-Cumulative Subordinated Trust Enhanced Securities
(“SKATES”) that were issued by Allfirst Preferred
Capital Trust (“Allfirst Capital Trust”). Allfirst
Capital Trust is a Delaware business trust that was formed in
June 1999 for the exclusive purposes of (i) issuing the
SKATES and common securities, (ii) purchasing Asset
Preferred Securities issued by Allfirst Preferred Asset Trust
(“Allfirst Asset Trust”) and (iii) engaging in
only those other activities necessary or incidental thereto.
M&T holds 100% of the
common securities of Allfirst Capital Trust. Allfirst Asset
Trust is a Delaware business trust that was formed in June 1999
for the exclusive purposes of (i) issuing Asset Preferred
Securities and common securities, (ii) investing the gross
proceeds of the Asset Preferred Securities in junior
subordinated debentures originally issued by Allfirst (and
assumed by M&T as part
of its acquisition of Allfirst on April 1, 2003) and other
permitted investments and (iii) engaging in only those
other activities necessary or incidental thereto.
M&T holds 100% of the
common securities of Allfirst Asset Trust and Allfirst Capital
Trust holds 100% of the Asset Preferred Securities of Allfirst
Asset Trust. M&T
currently has outstanding $105.3 million aggregate
liquidation amount Floating Rate Junior Subordinated Debentures
due July 15, 2029 that were originally issued by Allfirst
and are payable to Allfirst Asset Trust. The interest rates
payable on such debentures were 5.58% and 3.50% at
December 31, 2005 and 2004, respectively.
Distributions on the SKATES are
non-cumulative. The distribution rate on the SKATES and on the
Floating Rate Junior Subordinated Debentures is a rate per annum
of three-month LIBOR plus 1.50% and three-month LIBOR plus
1.43%, respectively, reset quarterly two business days prior to
the distribution dates of January 15, April 15,
July 15, and October 15 in each year. Distributions on the
SKATES will be paid if, as and when Allfirst Capital Trust has
funds available for payment. The SKATES are subject to mandatory
redemption if the Asset Preferred Securities of Allfirst Asset
Trust are redeemed. Allfirst Asset Trust will redeem the Asset
Preferred Securities if the junior subordinated debentures of
M&T held by Allfirst
Asset Trust are redeemed.
M&T may redeem such
junior subordinated debentures, in whole or in part, at any time
on or after July 15, 2009, subject to regulatory approval.
Allfirst Asset Trust will redeem the Asset Preferred Securities
at par plus accrued and unpaid distributions from the last
distribution payment date.
M&T has guaranteed, on
a subordinated basis, the payment in full of all distributions
and other payments on the SKATES and on the Asset Preferred
Securities to the extent that Allfirst Capital Trust and
Allfirst Asset Trust, respectively, have funds legally
available. Under the Federal Reserve Board’s current
risk-based capital guidelines, the SKATES are includable in
M&T’s Tier 1
Capital.
As discussed in note 18, effective December 31, 2003
the Company applied new accounting provisions promulgated by the
Financial Accounting Standards Board (“FASB”) and
removed the Trusts
105
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
and Allfirst Asset Trust from the
Company’s consolidated balance sheet. Accordingly, at
December 31, 2005 and 2004, the Company included the Junior
Subordinated Debentures payable to the Trusts and the Floating
Rate Junior Subordinated Debentures payable to the Allfirst
Asset Trust as long-term borrowings in its consolidated balance
sheet. Prior to December 31, 2003 the Company included the
preferred capital securities of the Trusts and the SKATES issued
by Allfirst Capital Trust in its consolidated balance sheet as
long-term borrowings, with accumulated distributions on such
securities included in interest expense. That change in
financial statement presentation had no economic impact on the
Company, had no material or substantive impact on the
Company’s consolidated financial statements as of and for
the year ended December 31, 2003, and resulted in the
Company recognizing $30 million in other assets for its
“investment” in the common securities of the trusts
described herein that will be concomitantly repaid to
M&T by the respective
trust from the proceeds of
M&T’s repayment of
the junior subordinated debentures associated with preferred
capital securities described herein.
Long-term borrowings at December 31, 2005 mature as follows:
| (In thousands) | |||||
|
Year ending December 31:
|
|||||
|
2006
|
$ | 611,273 | |||
|
2007
|
528,944 | ||||
|
2008
|
2,298,983 | ||||
|
2009
|
387,345 | ||||
|
2010
|
535,433 | ||||
|
Later years
|
1,835,016 | ||||
| $ | 6,196,994 | ||||
| 10. | Stock-based compensation plans |
The Company recognizes expense for stock-based compensation
using the fair value method of accounting. As a result, salaries
and employee benefits expense in 2005, 2004 and 2003 included
$45 million, $48 million and $43 million,
respectively, of stock-based compensation.
| Stock option plans |
In April 2005, stockholders
approved the 2005 Incentive Compensation Plan (“2005
Plan”) which replaced
M&T’s previous
stock option plan. The 2005 Plan allows for the issuance of
various forms of stock-based compensation, including stock
options, restricted stock and performance-based awards. Through
December 31, 2005, only stock options that vest with the
passage of time as service is provided have been issued. Stock
options issued generally vest over four years and are
exercisable over terms not exceeding ten years and one day. In
2005, the Company granted 125,600 options to substantially all
employees who had not previously received awards under the
predecessor plan. The options granted under that award vest
three years after grant date and are exercisable for a period of
seven years thereafter. The 2005 Plan allows for share grants
not to exceed 6,000,000 shares of stock plus the shares
that remained available for grant under the prior plan. At
December 31, 2005 and 2004, respectively, there were
8,810,196 and 4,360,465 shares available for future grant.
106
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
A summary of stock option activity follows:
| Stock | ||||||||||
| Options | Weighted-Average | |||||||||
| Outstanding | Exercise Price | |||||||||
|
2003
|
||||||||||
|
Beginning balance
|
10,205,815 | $ | 49.80 | |||||||
|
Granted
|
1,787,701 | 80.33 | ||||||||
|
Exercised
|
(1,499,687 | ) | 35.57 | |||||||
|
Cancelled
|
(57,706 | ) | 71.56 | |||||||
|
At year-end
|
10,436,123 | 56.95 | ||||||||
|
2004
|
||||||||||
|
Granted
|
2,073,118 | 91.73 | ||||||||
|
Exercised
|
(1,694,501 | ) | 40.80 | |||||||
|
Cancelled
|
(184,749 | ) | 80.15 | |||||||
|
At year-end
|
10,629,991 | 65.90 | ||||||||
|
2005
|
||||||||||
|
Granted
|
1,785,421 | 101.79 | ||||||||
|
Exercised
|
(1,725,597 | ) | 51.69 | |||||||
|
Cancelled
|
(235,152 | ) | 91.02 | |||||||
|
At year-end
|
10,454,663 | $ | 73.81 | |||||||
|
Exercisable at:
|
||||||||||
|
December 31, 2005
|
5,471,061 | $ | 58.37 | |||||||
|
December 31, 2004
|
5,383,776 | 50.53 | ||||||||
|
December 31, 2003
|
5,152,482 | 42.92 | ||||||||
A summary of stock options at December 31, 2005 follows:
| Outstanding | Exercisable | |||||||||||||||||||
| Weighted- | ||||||||||||||||||||
| Number of | Weighted-Average | Number of | Average | |||||||||||||||||
| Stock | Exercise | Life | Stock | Exercise | ||||||||||||||||
| Range of Exercise Price | Options | Price | (in Years) | Options | Price | |||||||||||||||
|
$14.00 to $ 41.01
|
489,290 | $ | 27.71 | 1.0 | 489,290 | $ | 27.71 | |||||||||||||
|
42.00 to 70.44
|
3,442,816 | 53.52 | 4.0 | 3,442,816 | 53.52 | |||||||||||||||
|
72.41 to 88.69
|
3,041,859 | 78.07 | 6.4 | 1,367,199 | 77.35 | |||||||||||||||
|
90.13 to 110.00
|
3,480,698 | 96.66 | 8.5 | 171,756 | 91.90 | |||||||||||||||
| 10,454,663 | $ | 73.81 | 6.1 | 5,471,061 | $ | 58.37 | ||||||||||||||
The Company used an option pricing model to estimate the grant
date present value of stock options granted. The
weighted-average estimated grant date value per option was
$22.96 in 2005, $22.64 in 2004 and $22.62 in 2003. The values
were calculated using the following weighted-average
assumptions: an option term of 6.5 years (representing the
estimated period between grant date and exercise date based on
historical data); a risk-free interest rate of 3.95% in 2005,
3.53% in 2004 and 3.61% in 2003 (representing the yield on a
U.S. Treasury security with a remaining term equal to the
expected option term); expected volatility of 21% in 2005, 24%
in 2004 and 30% in 2003; and estimated dividend yields of 1.57%
in 2005, 1.31% in 2004 and 1.50% in 2003 (representing the
107
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
approximate annualized cash dividend rate paid with respect to a
share of common stock at or near the grant date). Based on
historical data and projected employee turnover rates, the
Company reduced the estimated value of stock options for
purposes of recognizing stock-based compensation expense by 8%
in 2005 and 2004, and 10% in 2003 to reflect the probability of
forfeiture prior to vesting.
Stock purchase plan
The stock purchase plan provides
eligible employees of the Company with the right to purchase
shares of M&T common
stock through accumulated payroll deductions. Shares of
M&T common stock will
be issued at the end of an option period, typically one year or
six months. In connection with the employee stock purchase plan,
1,000,000 shares of
M&T common stock were
authorized for issuance, of which 290,555 shares have been
issued, including 103,694 shares in 2005,
104,378 shares in 2004 and 82,483 shares in 2003.
Similar to the stock option plans, the Company used an option
pricing model to estimate the grant date present value of
purchase rights under the stock purchase plan. The estimated
weighted-average grant date value per right was $14.44 in 2005,
$11.93 in 2004 and $13.16 in 2003. Such values were calculated
using the following weighted-average assumptions: a term of six
months to one year (representing the period between grant date
and exercise date); a risk-free interest rate of 3.64% in 2005,
1.84% in 2004 and 1.24% in 2003 (representing the yield on a
U.S. Treasury security with a like term); expected
volatility of 16% in 2005, 17% in 2004 and 26% in 2003; and an
estimated dividend yield of 1.67% in 2005, 1.68% in 2004 and
1.41% in 2003 (representing the approximate annualized cash
dividend rate paid with respect to a share of common stock at or
near the grant date).
Deferred bonus plan
The Company provides a deferred
bonus plan pursuant to which eligible employees may elect to
defer all or a portion of their current annual incentive
compensation awards and allocate such awards to several
investment options, including
M&T common stock.
Participants may elect the timing of distributions from the
plan. Such distributions are payable in cash with the exception
of balances allocated to
M&T common stock which
are distributable in the form of
M&T common stock.
Shares of M&T common
stock distributable pursuant to the terms of the deferred bonus
plan were 70,132 and 75,425 at December 31, 2005 and 2004,
respectively. The obligation to issue shares is included in
common stock issuable in the consolidated balance sheet. Through
December 31, 2005, 80,117 shares have been issued in
connection with the deferred bonus plan.
Directors’ stock plan
The Company maintains a
compensation plan for non-employee members of the Company’s
boards of directors and directors advisory councils that allows
such members to receive all or a portion of their compensation
in shares of M&T common
stock. Through December 31, 2005, 71,980 shares have
been issued in connection with the directors’ stock plan.
Through an acquisition, the
Company assumed an obligation to issue shares of
M&T common stock
related to a deferred directors compensation plan. Shares of
common stock issuable under such plan were 30,166 and 32,092 at
December 31, 2005 and 2004, respectively. The obligation to
issue shares is included in common stock issuable in the
consolidated balance sheet.
Management stock ownership program
Through an acquisition,
M&T obtained loans that
are secured by M&T
common stock purchased by former executives of the acquired
entity. At December 31, 2005 and 2004, the loan amounts
owed M&T were less than
the fair value of the financed stock purchased and totaled
$4,274,000 and $4,578,000, respectively. Such loans are
classified as a reduction of additional paid-in capital in the
consolidated balance sheet. The amounts are due to
M&T no later than
October 5, 2010.
108
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 11. | Pension plans and other postretirement benefits |
The Company provides pension (defined benefit and defined
contribution plans) and other postretirement benefits (including
health care and life insurance benefits) to qualified retired
employees. The Company uses a December 31 measurement date
for all of its plans.
Net periodic pension expense consisted of the following:
| Year Ended December 31 | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Service cost
|
$ | 31,240 | $ | 28,505 | $ | 24,530 | ||||||
|
Interest cost on projected benefit obligation
|
39,041 | 36,704 | 31,495 | |||||||||
|
Expected return on plan assets
|
(37,579 | ) | (37,642 | ) | (34,426 | ) | ||||||
|
Amortization of prior service cost
|
245 | 57 | 35 | |||||||||
|
Recognized net actuarial loss
|
5,190 | 2,332 | 2,349 | |||||||||
|
Net periodic pension expense
|
$ | 38,137 | $ | 29,956 | $ | 23,983 | ||||||
Net postretirement benefits expense consisted of the following:
| Year Ended December 31 | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Service cost
|
$ | 490 | $ | 879 | $ | 701 | ||||||
|
Interest cost on projected benefit obligation
|
3,721 | 5,426 | 4,129 | |||||||||
|
Amortization of prior service cost
|
170 | 170 | 170 | |||||||||
|
Recognized net actuarial loss
|
12 | 889 | 371 | |||||||||
|
Net postretirement benefits expense
|
$ | 4,393 | $ | 7,364 | $ | 5,371 | ||||||
109
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Data relating to the funding position of the plans were as
follows:
| Pension Benefits | Postretirement Benefits | ||||||||||||||||
| 2005 | 2004 | 2005 | 2004 | ||||||||||||||
| (In thousands) | |||||||||||||||||
|
Change in benefit obligation:
|
|||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 654,886 | $ | 606,411 | $ | 87,338 | $ | 78,865 | |||||||||
|
Service cost
|
31,240 | 28,505 | 490 | 879 | |||||||||||||
|
Interest cost
|
39,041 | 36,704 | 3,721 | 5,426 | |||||||||||||
|
Plan participants’ contributions
|
— | — | 2,291 | 2,143 | |||||||||||||
|
Amendments
|
(69,623 | ) | — | — | — | ||||||||||||
|
Actuarial (gain) loss
|
66,794 | 17,349 | (14,926 | ) | 11,231 | ||||||||||||
|
Curtailments
|
(27,891 | ) | — | — | — | ||||||||||||
|
Benefits paid
|
(34,719 | ) | (34,083 | ) | (11,973 | ) | (11,206 | ) | |||||||||
|
Benefit obligation at end of year
|
659,728 | 654,886 | 66,941 | 87,338 | |||||||||||||
|
Change in plan assets:
|
|||||||||||||||||
|
Fair value of plan assets at beginning of year
|
465,462 | 464,594 | — | — | |||||||||||||
|
Actual return on plan assets
|
15,750 | 31,731 | — | — | |||||||||||||
|
Plan participants’ contributions
|
— | — | 2,291 | 2,143 | |||||||||||||
|
Benefits and other payments
|
(28,941 | ) | (30,863 | ) | (2,291 | ) | (2,143 | ) | |||||||||
|
Fair value of plan assets at end of year
|
452,271 | 465,462 | — | — | |||||||||||||
|
Funded status
|
(207,457 | ) | (189,424 | ) | (66,941 | ) | (87,338 | ) | |||||||||
|
Unrecognized net actuarial loss
|
154,553 | 99,011 | 5,902 | 20,843 | |||||||||||||
|
Unrecognized prior service cost
|
(69,366 | ) | 502 | 1,100 | 1,270 | ||||||||||||
|
Prepaid (accrued) benefit cost
|
$ | (122,270 | ) | $ | (89,911 | ) | $ | (59,939 | ) | $ | (65,225 | ) | |||||
|
Amounts recognized in the consolidated balance sheet were:
|
|||||||||||||||||
|
Prepaid benefit cost (asset)
|
$ | 4,575 | $ | 4,600 | $ | — | $ | — | |||||||||
|
Accrued benefit cost (liability)
|
(207,875 | ) | (115,561 | ) | (59,939 | ) | (65,225 | ) | |||||||||
|
Intangible asset
|
121 | 563 | — | — | |||||||||||||
|
Pre-tax charge to accumulated other comprehensive income
|
80,909 | 20,487 | — | — | |||||||||||||
| $ | (122,270 | ) | $ | (89,911 | ) | $ | (59,939 | ) | $ | (65,225 | ) | ||||||
The Company has an unfunded supplemental pension plan for
certain key executives. The projected benefit obligation and
accumulated benefit obligation included in the preceding data
related to such plan were each $46,923,000 as of
December 31, 2005 and $46,574,000 and $46,457,000,
respectively, as of December 31, 2004.
The accumulated benefit obligation for all defined benefit
pension plans was $659,728,000 and $580,325,000 at
December 31, 2005 and 2004, respectively.
Effective January 1, 2006, the Company amended certain
provisions of its defined benefit pension plans. The formula was
changed to reduce the future accrual of benefits by lowering the
accrual percentage and through use of a career-average-pay
formula as opposed to the previous final-average-pay formula.
The amendments affect benefits earned for service periods
beginning after December 31, 2005. The amendments caused
the projected benefit obligation associated with the defined
benefit plans to
110
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
decrease by approximately $98 million. There was no
corresponding effect on the accumulated benefit obligation. Also
effective January 1, 2006, the Company began to provide a
new qualified defined contribution pension plan. Active
participants had the choice of electing to remain in the defined
benefit plan under the reduced benefit formula, or electing to
participate in the new qualified defined contribution plan. New
employees will not be eligible to participate in the defined
benefit plan, but will participate in the defined contribution
plan.
As of December 31, 2005, the accumulated benefit obligation
and fair value of plan assets for the pension plans with
accumulated benefit obligations in excess of plan assets were
$652,758,000 (including $46,923,000 related to the unfunded
supplemental pension plan) and $444,883,000, respectively. As of
December 31, 2004, the accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $573,607,000
(including $46,457,000 related to the unfunded supplemental
pension plan) and $458,046,000, respectively. As of
December 31, 2005, the Company had recorded a cumulative
minimum pension liability adjustment of $81,030,000 and an
intangible asset of $121,000 that after applicable tax effect
resulted in a reduction of accumulated other comprehensive
income of $49,354,000. At December 31, 2004, the recorded
minimum pension liability adjustment and intangible asset
reduced accumulated other comprehensive income by $12,497,000.
The assumed weighted-average rates used to determine benefit
obligations at December 31 were:
| Pension | Postretirement | |||||||||||||||
| Benefits | Benefits | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
|
Discount rate
|
5.50 | % | 6.00 | % | 5.50 | % | 6.00 | % | ||||||||
|
Rate of increase in future compensation levels
|
4.90 | % | 4.91 | % | — | — | ||||||||||
The assumed weighted-average rates used to determine net benefit
expense for the years ended December 31 were:
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
|
Discount rate
|
6.00 | % | 6.25 | % | 6.75 | % | 6.00 | % | 6.25 | % | 6.75 | % | ||||||||||||
|
Long-term rate of return on plan assets
|
8.50 | % | 8.50 | % | 8.50 | % | — | — | — | |||||||||||||||
|
Rate of increase in future compensation levels
|
4.91 | % | 4.92 | % | 4.96 | % | — | — | — | |||||||||||||||
On April 1, 2003, pension and other benefit obligations
were assumed as a result of the acquisition of Allfirst. Initial
liabilities and net costs were determined using a 6.25% discount
rate and other assumptions as noted above.
Weighted-average pension plan asset allocations based on the
fair value of such assets at December 31, 2005 and 2004,
and target allocations for 2006, by asset category, are as
follows:
| December 31 | |||||||||||||
| Target | |||||||||||||
| 2005 | 2004 | Allocation 2006 | |||||||||||
|
Equity securities
|
63 | % | 76 | % | 55-75 | % | |||||||
|
Debt securities
|
33 | 23 | 25-40 | ||||||||||
|
Other
|
4 | 1 | 0-15 | ||||||||||
|
Total
|
100 | % | 100 | % | |||||||||
The expected long-term rate of return assumption as of each
measurement date was determined by taking into consideration
asset allocations as of each such date, target allocations of
assets, historical returns on the types of assets held and
current economic factors. The Company’s investment policy
for determining the asset allocation targets was developed based
on the desire to maximize total return while placing a strong
emphasis on preservation of capital. In general, it is hoped
that, in the aggregate, changes in the fair value of plan assets
will be less volatile than similar changes in appropriate market
111
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
indices. Returns on invested assets are periodically compared
with target market indices for each asset type to aid management
in evaluating such returns.
Pension plan assets included
common stock of M&T
with a fair value of $35,760,000 (8% of total plan assets) at
December 31, 2005 and $35,363,000 (8% of total plan assets)
at December 31, 2004.
The Company makes contributions to its funded qualified pension
plans as required by government regulation or as deemed
appropriate by management after considering the fair value of
plan assets, expected returns on such assets, and the present
value of benefit obligations of the plans. Subject to the impact
of actual events and circumstances that may occur in 2006, the
Company expects to make contributions to the qualified pension
plans of approximately $25 million to $30 million in
2006, however, actual contributions could differ from such
estimate. There were no contributions to the funded qualified
pension plans in 2005 or 2004. The Company regularly funds the
payment of benefit obligations for the supplemental pension and
postretirement benefit plans because such plans do not hold
assets for investment. Payments made by the Company for
supplemental pension benefits were $5,778,000 and $3,220,000 in
2005 and 2004, respectively. Payments made by the Company for
postretirement benefits were $9,682,000 and $9,063,000 in 2005
and 2004, respectively.
Estimated benefits expected to be paid in future years related
to the Company’s defined benefit pension and other
postretirement benefits plans are as follows:
| Pension | Postretirement | ||||||||
| Benefits | Benefits | ||||||||
| (In thousands) | |||||||||
|
Year ending December 31:
|
|||||||||
|
2006
|
$ | 27,783 | $ | 8,795 | |||||
|
2007
|
26,048 | 7,806 | |||||||
|
2008
|
26,371 | 7,184 | |||||||
|
2009
|
27,636 | 6,839 | |||||||
|
2010
|
28,971 | 6,544 | |||||||
|
2011 through 2015
|
176,971 | 28,890 | |||||||
For measurement of postretirement benefits, a 10% annual rate of
increase in the per capita cost of covered health care benefits
was assumed for 2006. The rate was assumed to decrease gradually
to 5% over 5 years and remain constant thereafter. Assumed
health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage point
change in assumed health care cost trend rates would have had
the following effects:
| +1% | -1% | ||||||||
| (In thousands) | |||||||||
|
Increase (decrease) in:
|
|||||||||
|
Service and interest cost
|
$ | 185 | $ | (165 | ) | ||||
|
Accumulated postretirement benefit obligation
|
3,713 | (3,303 | ) | ||||||
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% (50%
effective January 1, 2006) 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. Employee benefits expense resulting from the
Company’s contributions to the Savings Plan totaled
$16,507,000, $16,215,000 and $14,929,000 in 2005, 2004 and 2003,
respectively.
112
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 12. | Income taxes |
The components of income tax expense (benefit) were as follows:
| Year Ended December 31 | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In thousands) | ||||||||||||||
|
Current
|
||||||||||||||
|
Federal
|
$ | 453,425 | $ | 427,568 | $ | 317,023 | ||||||||
|
State and city
|
23,382 | 54,030 | 20,611 | |||||||||||
|
Total current
|
476,807 | 481,598 | 337,634 | |||||||||||
|
Deferred
|
||||||||||||||
|
Federal
|
(79,383 | ) | (88,904 | ) | (49,516 | ) | ||||||||
|
State and city
|
(8,688 | ) | (48,692 | ) | (11,390 | ) | ||||||||
|
Total deferred
|
(88,071 | ) | (137,596 | ) | (60,906 | ) | ||||||||
|
Total income taxes applicable to pre-tax income
|
$ | 388,736 | $ | 344,002 | $ | 276,728 | ||||||||
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, 2005,
M&T Bank’s tax bad
debt reserve for which no federal income taxes have been
provided was $74,021,000. No actions are planned that would
cause this reserve to become wholly or partially taxable.
The portion of income taxes attributable to gains or losses on
bank investment securities was a benefit of $5,434,000 in 2005,
and expense of $1,121,000 and $970,000 in 2004 and 2003,
respectively. No alternative minimum tax expense was recognized
in 2005, 2004 or 2003.
Total income taxes differed from the amount computed by applying
the statutory federal income tax rate to pre-tax income as
follows:
| Year Ended December 31 | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In thousands) | ||||||||||||||
|
Income taxes at statutory rate
|
$ | 409,822 | $ | 373,283 | $ | 297,735 | ||||||||
|
Increase (decrease) in taxes:
|
||||||||||||||
|
Tax-exempt income
|
(27,548 | ) | (26,920 | ) | (24,332 | ) | ||||||||
|
State and city income taxes, net of federal income tax effect,
applicable to:
|
||||||||||||||
|
Pre-tax income
|
9,551 | 15,969 | 5,994 | |||||||||||
|
Reorganization of subsidiaries
|
— | (12,499 | ) | — | ||||||||||
|
Other
|
(3,089 | ) | (5,831 | ) | (2,669 | ) | ||||||||
| $ | 388,736 | $ | 344,002 | $ | 276,728 | |||||||||
During the third quarter of 2004, the Company reorganized two of
its subsidiaries which altered the taxable status of such
subsidiaries in certain jurisdictions thereby decreasing the
Company’s effective state income tax rate. As a result of
the reorganizations, both income tax expense and deferred tax
liabilities were reduced by $12,499,000. The Company’s
effective income tax rate in future periods is
113
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
not expected to be significantly different from what it
otherwise would have been had the subsidiary reorganizations not
occurred.
Deferred tax assets (liabilities) were comprised of the
following at December 31:
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands) | |||||||||||||
|
Losses on loans and other assets
|
$ | 296,920 | $ | 293,664 | $ | 283,512 | |||||||
|
Postretirement and other supplemental employee benefits
|
39,926 | 43,900 | 44,157 | ||||||||||
|
Incentive compensation plans
|
28,786 | 28,172 | 28,871 | ||||||||||
|
Interest on loans
|
21,871 | 19,895 | 7,091 | ||||||||||
|
Retirement benefits
|
64,215 | 28,048 | 17,825 | ||||||||||
|
Stock-based compensation
|
41,379 | 39,899 | 33,535 | ||||||||||
|
Unrealized investment losses
|
31,281 | — | — | ||||||||||
|
Other
|
20,324 | 26,334 | 36,864 | ||||||||||
|
Gross deferred tax assets
|
544,702 | 479,912 | 451,855 | ||||||||||
|
Leasing transactions
|
(366,549 | ) | (444,467 | ) | (534,035 | ) | |||||||
|
Capitalized servicing rights
|
(16,964 | ) | (16,199 | ) | (20,390 | ) | |||||||
|
Interest on subordinated note exchange
|
(22,961 | ) | — | — | |||||||||
|
Depreciation and amortization
|
(342 | ) | (17,975 | ) | (32,668 | ) | |||||||
|
Unrealized investment gains
|
— | (11,748 | ) | (24,485 | ) | ||||||||
|
Other
|
(1,784 | ) | (8,086 | ) | (9,198 | ) | |||||||
|
Gross deferred tax liabilities
|
(408,600 | ) | (498,475 | ) | (620,776 | ) | |||||||
|
Net deferred tax asset (liability)
|
$ | 136,102 | $ | (18,563 | ) | $ | (168,921 | ) | |||||
The Company believes that it is more likely than not that the
deferred tax assets 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 24
arise principally from operating losses before dividends from
subsidiaries.
| 13. | Earnings per share |
The computations of basic earnings per share follow:
| Year Ended December 31 | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands, except per share) | |||||||||||||
|
Income available to common stockholders:
|
|||||||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | |||||||
|
Weighted-average shares outstanding (including common stock
issuable)
|
113,689 | 117,696 | 113,010 | ||||||||||
|
Basic earnings per share
|
$ | 6.88 | $ | 6.14 | $ | 5.08 | |||||||
114
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
The computations of diluted earnings per share follow:
| Year Ended December 31 | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands, except per share) | ||||||||||||
|
Income available to common stockholders
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | ||||||
|
Weighted-average shares outstanding
|
113,689 | 117,696 | 113,010 | |||||||||
|
Plus: incremental shares from assumed conversion of stock options
|
2,543 | 2,710 | 2,922 | |||||||||
|
Adjusted weighted-average shares outstanding
|
116,232 | 120,406 | 115,932 | |||||||||
|
Diluted earnings per share
|
$ | 6.73 | $ | 6.00 | $ | 4.95 | ||||||
| 14. | Comprehensive income |
The following table displays the components of other
comprehensive income:
| Before-tax | Income | ||||||||||||
| Amount | Taxes | Net | |||||||||||
| (In thousands) | |||||||||||||
|
For the year ended December 31, 2005
|
|||||||||||||
|
Unrealized losses on investment securities:
|
|||||||||||||
|
Unrealized holding losses
|
$ | (115,026 | ) | $ | 42,623 | $ | (72,403 | ) | |||||
|
Less: reclassification adjustment for losses recognized in net
income
|
(28,133 | ) | (406 | ) | (28,539 | ) | |||||||
| (86,893 | ) | 43,029 | (43,864 | ) | |||||||||
|
Minimum pension liability adjustment
|
(60,422 | ) | 23,565 | (36,857 | ) | ||||||||
|
Net unrealized losses
|
$ | (147,315 | ) | $ | 66,594 | $ | (80,721 | ) | |||||
|
For the year ended December 31, 2004
|
|||||||||||||
|
Unrealized losses on investment securities:
|
|||||||||||||
|
Unrealized holding losses
|
$ | (52,686 | ) | $ | 11,616 | $ | (41,070 | ) | |||||
|
Less: reclassification adjustment for gains realized in net
income
|
2,874 | (1,121 | ) | 1,753 | |||||||||
| (55,560 | ) | 12,737 | (42,823 | ) | |||||||||
|
Minimum pension liability adjustment
|
(64 | ) | 25 | (39 | ) | ||||||||
|
Net unrealized losses
|
$ | (55,624 | ) | $ | 12,762 | $ | (42,862 | ) | |||||
|
For the year ended December 31, 2003
|
|||||||||||||
|
Unrealized losses on investment securities:
|
|||||||||||||
|
Unrealized holding losses
|
$ | (25,752 | ) | $ | 9,986 | $ | (15,766 | ) | |||||
|
Less: reclassification adjustment for gains realized in net
income
|
2,487 | (970 | ) | 1,517 | |||||||||
| (28,239 | ) | 10,956 | (17,283 | ) | |||||||||
|
Unrealized gains on cash flow hedge
|
1,019 | (397 | ) | 622 | |||||||||
|
Minimum pension liability adjustment
|
(20,423 | ) | 7,965 | (12,458 | ) | ||||||||
|
Net unrealized losses
|
$ | (47,643 | ) | $ | 18,524 | $ | (29,119 | ) | |||||
115
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Accumulated other comprehensive income (loss), net consisted of
unrealized gains (losses) as follows:
| Minimum | ||||||||||||||||
| Pension | ||||||||||||||||
| Investment | Cash Flow | Liability | ||||||||||||||
| Securities | Hedges | Adjustment | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Balance at January 1, 2003
|
$ | 55,394 | $ | (622 | ) | $ | — | $ | 54,772 | |||||||
|
Net gain (loss) during 2003
|
(17,283 | ) | 622 | (12,458 | ) | (29,119 | ) | |||||||||
|
Balance at December 31, 2003
|
38,111 | — | (12,458 | ) | 25,653 | |||||||||||
|
Net gain (loss) during 2004
|
(42,823 | ) | — | (39 | ) | (42,862 | ) | |||||||||
|
Balance at December 31, 2004
|
(4,712 | ) | — | (12,497 | ) | (17,209 | ) | |||||||||
|
Net gain (loss) during 2005
|
(43,864 | ) | — | (36,857 | ) | (80,721 | ) | |||||||||
|
Balance at December 31, 2005
|
$ | (48,576 | ) | $ | — | $ | (49,354 | ) | $ | (97,930 | ) | |||||
| 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:
| Year Ended December 31 | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands) | |||||||||||||
|
Other income:
|
|||||||||||||
|
Bank owned life insurance
|
$ | 46,695 | $ | 48,010 | $ | 44,630 | |||||||
|
Letter of credit fees
|
38,600 | 33,579 | |||||||||||
|
Other expense:
|
|||||||||||||
|
Professional services
|
101,096 | 76,868 | 88,669 | ||||||||||
|
Amortization of capitalized servicing rights
|
58,467 | 57,885 | 50,907 | ||||||||||
|
Advertising and promotion
|
32,742 | 38,950 | |||||||||||
| 16. | International activities |
The Company engages in certain
international activities consisting largely of collecting
Eurodollar deposits, engaging in foreign currency trading,
providing credit to support the international activities of
domestic companies and holding certain loans to foreign
borrowers. Net assets identified with international activities
amounted to $230,021,000 and $247,709,000 at December 31,
2005 and 2004, respectively. Such assets included $216,798,000
and $230,033,000, respectively, of loans to foreign borrowers.
Deposits at M&T
Bank’s offshore branch office were $2,809,532,000 and
$4,232,932,000 at December 31, 2005 and 2004, respectively.
The Company uses such deposits to facilitate customer demand and
as an alternative to short-term borrowings when the costs of
such deposits seem reasonable.
| 17. | Derivative financial instruments |
As part of managing interest rate risk, the Company has entered
into several interest rate swap agreements. The agreements
modify the repricing characteristics of certain portions of the
Company’s portfolios of earning assets and interest-bearing
liabilities. Interest rate swap agreements are generally entered
into with counterparties that meet established credit standards
and most contain collateral provisions protecting the at-risk
party. The Company believes that the credit risk inherent in
these contracts is not significant.
The Company designates interest rate swap agreements utilized in
the management of interest rate risk as either fair value hedges
or cash flow hedges as defined in SFAS No. 133. Fair
value hedges
116
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
are intended to protect against exposure to changes in the fair
value of designated assets or liabilities. Cash flow hedges are
intended to protect against the variability in cash flows of
designated assets or liabilities.
Information about interest rate swap agreements entered into for
interest rate risk management purposes summarized by type of
financial instrument the swap agreements were intended to hedge
follows:
| Weighted- | Estimated Fair | |||||||||||||||||||
| Notional | Average | Average Rate | Value — Gain | |||||||||||||||||
| Amount | Maturity | Fixed | Variable | (Loss) | ||||||||||||||||
| (In thousands) | (In years) | (In thousands) | ||||||||||||||||||
|
December 31, 2005
|
||||||||||||||||||||
|
Fair value hedges:
|
||||||||||||||||||||
|
Fixed rate time deposits(a)
|
$ | 515,000 | 2.9 | 4.15 | % | 4.14 | % | $ | (3,851 | ) | ||||||||||
|
Fixed rate long-term borrowings(a)
|
137,241 | 4.8 | 8.00 | % | 7.97 | % | (4,997 | ) | ||||||||||||
| $ | 652,241 | 3.3 | 4.96 | % | 4.95 | % | $ | (8,848 | ) | |||||||||||
|
December 31, 2004
|
||||||||||||||||||||
|
Fair value hedges:
|
||||||||||||||||||||
|
Fixed rate time deposits(a)
|
$ | 150,000 | 5.9 | 3.43 | % | 2.21 | % | $ | (741 | ) | ||||||||||
|
Fixed rate long-term borrowings(a)
|
575,000 | 5.1 | 7.62 | % | 5.43 | % | (3,103 | ) | ||||||||||||
| $ | 725,000 | 5.2 | 6.75 | % | 4.76 | % | $ | (3,844 | ) | |||||||||||
| (a) | Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate. |
The estimated fair value of interest rate swap agreements
represents the amount the Company would have expected to receive
(pay) to terminate such contracts. The estimated fair value
of such swap agreements at December 31, 2005 and 2004
included gross unrealized gains of $81,000 and $1,060,000,
respectively, and gross unrealized losses of $8,929,000 and
$4,904,000, respectively. At December 31, 2005 and 2004,
the estimated fair values of interest rate swap agreements
designated as fair value hedges were substantially offset by
unrealized gains and losses resulting from changes in the fair
values of the hedged items.
The notional amount of interest rate swap agreements entered
into for risk management purposes that were outstanding at
December 31, 2005 mature as follows:
| (In thousands) | |||||
|
Year Ending December 31:
|
|||||
|
2006
|
$ | 285,000 | |||
|
2007
|
10,000 | ||||
|
2008
|
10,000 | ||||
|
2009
|
— | ||||
|
2010
|
207,241 | ||||
|
Later years
|
140,000 | ||||
| $ | 652,241 | ||||
The net effect of interest rate swap agreements was to increase
net interest income by $5,526,000 in 2005, $18,276,000 in 2004
and $17,327,000 in 2003. The average notional amount of interest
rate swap agreements impacting net interest income that were
entered into for interest rate risk management purposes were
$767,175,000 in 2005, $696,284,000 in 2004 and $688,603,000 in
2003.
117
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
The amount of hedge ineffectiveness recognized in 2005, 2004 and
2003 was not material to the Company’s results of
operations.
The Company utilizes commitments to sell residential real estate
loans to hedge the exposure to changes in the fair value of
residential real estate loans held for sale. Such commitments
have been designated as fair value hedges and, as a result, the
commitments and the hedged loans are generally recorded at
estimated fair value. The Company also utilizes commitments to
sell residential real estate loans to offset the exposure to
changes in the fair value of certain commitments to originate
residential real estate loans for sale. As a result of these
activities, at December 31, 2005 net unrealized
pre-tax losses related to loans held for sale, commitments to
originate loans for sale, and commitments to sell loans were
approximately $5 million while at December 31, 2004
there were net unrealized pre-tax gains of $3 million
related to such items. Such unrealized gains and losses are
included in mortgage banking revenues and, in general, are
realized in subsequent periods as the related loans are sold. As
required by SAB No. 105, in estimating such unrealized
gains and losses in 2005 and 2004, any value ascribable to cash
flows that will be realized in connection with loan servicing
activities has not been included in the determination of fair
value of loans held for sale or commitments to originate loans
for sale. Value ascribable to that portion of cash flows is now
recognized at the time the underlying mortgage loans are sold.
Derivative financial instruments used for trading purposes
included interest rate contracts, foreign exchange and other
option contracts, foreign exchange forward and spot contracts,
and financial futures. Interest rate contracts entered into for
trading purposes had notional values and estimated fair value
gains of $6.7 billion and $12,486,000, respectively, at
December 31, 2005 and notional values and estimated fair
value gains of $5.9 billion and $9,142,000, respectively,
at December 31, 2004. Foreign exchange and other option and
futures contracts totaled approximately $679 million and
$512 million at December 31, 2005 and 2004,
respectively. Such contracts were valued at gains of $428,000
and $261,000 at December 31, 2005 and 2004, respectively.
Trading account assets and liabilities are recorded in the
consolidated balance sheet at estimated fair value. The
following table includes information about the estimated fair
value of derivative financial instruments used for trading
purposes:
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
December 31:
|
|||||||||
|
Gross unrealized gains
|
$ | 89,810 | $ | 102,814 | |||||
|
Gross unrealized losses
|
76,896 | 93,411 | |||||||
|
Year ended December 31:
|
|||||||||
|
Average gross unrealized gains
|
$ | 93,465 | $ | 119,167 | |||||
|
Average gross unrealized losses
|
82,389 | 110,397 | |||||||
Net gains realized from derivative financial instruments used
for trading purposes were $14,380,000, $11,144,000 and
$6,620,000 in 2005, 2004 and 2003, respectively.
| 18. | Variable interest entities and asset securitizations |
Variable interest entities
In January 2003, the FASB issued FASB Interpretation No. 46
(“FIN 46”), “Consolidation of Variable
Interest Entities.” The FASB’s stated intent in
issuing FIN 46 was to clarify the application of Accounting
Research Bulletin No. 51, “Consolidated Financial
Statements,” to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties. FIN 46 requires an
enterprise to consolidate a variable interest entity (as defined
in FIN 46) if that enterprise has a variable interest (or
combination of variable interests) that will absorb a majority
of the entity’s expected losses if they occur, receive a
majority of the entity’s expected returns if they occur, or
both. In December 2003, the FASB issued a revised FIN 46
(“FIN 46R”), which attempted to clarify the
guidance in the original interpretation. FIN 46 applied to
118
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
variable interest entities created after January 31, 2003
and to all variable interest entities created prior to
February 1, 2003 that were considered to be special-purpose
entities (as defined in FIN 46R) as of December 31,
2003. FIN 46R was applicable to all variable interest
entities no later than the end of the first reporting period
that ended after March 15, 2004. A description of variable
interest entities in which the Company holds a significant
variable interest and the impact of the accounting provisions
related to investments in variable interest entities is
described below.
M&T
Auto Receivables I, LLC is a special purpose subsidiary of
M&T Bank formed for the
purpose of borrowing $500 million in a revolving
asset-backed structured borrowing with an unaffiliated conduit
lender. The revolving asset-backed structured borrowing is
secured by automobile loans and other assets transferred to the
special purpose subsidiary by
M&T Bank or other of
its subsidiaries that totaled $572 million and
$565 million at December 31, 2005 and 2004,
respectively. The activities of
M&T Auto
Receivables I, LLC are generally restricted to purchasing
and owning automobile loans for the purpose of securing this
revolving borrowing arrangement. Proceeds from payments on the
automobile loans are required to be applied in priority order
for fees, principal and interest on the borrowing, and funding
the monthly replenishment of loans. Any remaining proceeds are
available for distribution to
M&T Bank. The secured
borrowing is prepayable, in whole or in part, at any time and is
non-recourse to M&T
Bank and the Company. However, 80% of the borrowing can be put
back to M&T Bank upon
demand. The Company’s maximum incremental exposure to loss
resulting from the structure of this borrowing arrangement is
generally restricted to the amount that such borrowing is
overcollateralized. Management currently estimates no material
losses as a result of the pledging of assets and the terms of
the borrowing arrangement. The assets and liabilities of
M&T Auto
Receivables I, LLC have been included in the Company’s
consolidated financial statements since November 2002 when the
revolving structured borrowing arrangement was entered into.
Such accounting treatment did not change as a result of the
accounting provisions for variable interest entities described
above.
As part of the Allfirst
transaction, M&T
acquired a variable interest in a trust that holds AIB American
Depositary Shares (“ADSs”) for the purpose of
satisfying options to purchase such shares granted by Allfirst
to certain employees. The trust purchased the AIB ADSs with the
proceeds of a loan from Allfirst. The loan to the trust was
assumed by M&T on the
acquisition date. Proceeds from option exercises and any
dividends and other earnings on the trust assets are used to
repay the loan plus interest. Option holders have no
preferential right with respect to the trust assets and the
trust assets are subject to the claims of
M&T’s creditors.
The trust has been included in the Company’s consolidated
financial statements since April 1, 2003. As a result,
included in investment securities available for sale were
797,438 AIB ADSs with a carrying value of approximately
$18 million at December 31, 2005, compared with
1,183,091 AIB ADSs with a carrying value of approximately
$28 million at December 31, 2004. Outstanding options
granted to employees who have continued service with
M&T totaled 529,410 and
925,013 at December 31, 2005 and 2004, respectively. All
outstanding options were fully vested and exercisable at both
December 31, 2005 and 2004. The options expire at various
dates through June 2012.
M&T’s maximum
exposure to loss is $18 million at December 31, 2005.
Prior to December 31, 2003,
the Company included the Trusts and Allfirst Capital Trust (see
note 9) in its consolidated financial statements. As a
result of implementing the new accounting provisions for
variable interest entities, as of December 31, 2003 the
Trusts and Allfirst Capital Trust were removed from the
Company’s consolidated financial statements. Accordingly,
at December 31, 2005 and 2004, the Company included the
Junior Subordinated Debentures payable to the Trusts and the
Floating Rate Junior Subordinated Debentures payable to the
Allfirst Asset Trust as long-term borrowings in its consolidated
balance sheet. Prior to December 31, 2003, the Company
included the preferred capital securities of the Trusts and the
Allfirst Capital Trust in its consolidated balance sheet as
long-term borrowings, with accumulated distributions on such
securities included in interest expense. That change in
financial statement presentation had no economic impact on the
Company, had no material or substantive impact on the
Company’s consolidated financial statements, and resulted
in the Company recognizing $30 million in other assets for
its “investment” in the common securities of the
Trusts and Allfirst Asset Trust that will be concomitantly
repaid to M&T by the
respective trust from the
119
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
proceeds of
M&T’s repayment of
the junior subordinated debentures associated with preferred
capital securities described in note 9.
The Company has invested as a limited partner in various real
estate partnerships that collectively had total assets of
approximately $331 million and $296 million at
December 31, 2005 and 2004, respectively. Those
partnerships generally construct or acquire properties for which
the investing partners are eligible to receive certain federal
income tax credits in accordance with government guidelines.
Such investments may also provide tax deductible losses to the
partners. The partnership investments also assist the Company in
achieving its community reinvestment initiatives. As a limited
partner, there is no recourse to the Company by creditors of the
partnerships. However, the tax credits that result from the
Company’s investments in such partnerships are generally
subject to recapture should a partnership fail to comply with
the respective government regulations. The Company’s
maximum exposure to loss of its investments in such partnerships
was $143 million, including $27 million of unfunded
commitments, at December 31, 2005 and $111 million,
including $40 million of unfunded commitments, at
December 31, 2004. Management currently estimates that no
material losses are probable as a result of the Company’s
involvement with such entities. In accordance with the
accounting provisions for variable interest entities, the
partnership entities are not included in the Company’s
consolidated financial statements.
Securitizations
In December 2005 and 2003, the Company securitized approximately
$126 million and $441 million, respectively, of
one-to-four family
residential mortgage loans in guaranteed mortgage
securitizations with FNMA. The Company recognized no gain or
loss on the transactions as it retained all of the resulting
securities and allocated $1 million and $6 million of
the carrying value of the loans to capitalized servicing assets
in 2005 and 2003, respectively. All of the resulting securities
were classified as investment securities available for sale. The
Company expects no material credit-related losses on the
retained securities as a result of the guarantees by FNMA.
In 2003, the Company transferred
approximately $838 million of
one-to-four family
residential mortgage loans to Manufacturers and Traders Trust
Company Mortgage
Trust 2003-1
(“M&T 2003
Trust”), a qualified special purpose trust, in a
non-recourse securitization transaction. The Company received
$112 million in cash and retained approximately 87% of the
resulting securities in exchange for the loans. The Company
realized a $1 million gain on the transaction and allocated
$715 million and $11 million of the carrying value of
the loans to the retained securities and to capitalized
servicing assets, respectively. All of the retained securities
were classified as investment securities available for sale. In
a similar non-recourse securitization transaction in 2002, the
Company transferred approximately $1.1 billion of
one-to-four family
residential mortgage loans to Manufacturers and Traders Trust
Company Mortgage Trust 2002-1
(“M&T 2002
Trust”), a qualified special purpose trust. The Company
retained approximately 88% of the resulting securities as well
as the right to service those loans. All of the retained
securities were classified as investment securities available
for sale.
As qualified special purpose
trusts, neither M&T
2003 Trust nor M&T 2002
Trust are included in the Company’s consolidated financial
statements. Because the transactions were non-recourse, the
Company’s maximum exposure to loss as a result of its
association with the trusts is limited to realizing the carrying
value of the retained securities and servicing rights. The
combined outstanding principal amount of mortgage-backed
securities issued by
M&T 2003 Trust and
M&T 2002 Trust was
$877 million at December 31, 2005 and
$1.1 billion at December 31, 2004. The principal
amount of such securities held by the Company was
$757 million and $946 million at December 31,
2005 and 2004, respectively. At December 31, 2005 and 2004,
loans of the trusts that were 30 or more days delinquent totaled
$16 million and $18 million, respectively. Credit
losses, net of recoveries, for the trusts in 2005 and 2004 were
insignificant. The Company did not repurchase any delinquent or
120
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
foreclosed loans from the trusts in 2005 or 2004. Certain cash
flows between the Company and the two trusts were as follows:
| Year Ended December 31 | ||||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Principal and interest payments on retained securities
|
$ | 240,211 | $ | 304,448 | ||||
|
Servicing fees received
|
2,735 | 3,480 | ||||||
A summary of the fair values of retained subordinated interests
resulting from the Company’s residential mortgage loan
securitization activities follows. Although the estimated fair
values of the retained subordinated interests were obtained from
independent pricing sources, the Company has modeled the
sensitivity of such fair values to changes in certain
assumptions as summarized in the table below. These calculated
sensitivities are hypothetical and actual changes in the fair
value may differ significantly from the amounts presented
herein. The effect of a variation in a particular assumption on
the fair values is calculated without changing any other
assumption. In reality, changes in one factor may result in
changes in another which may magnify or counteract the
sensitivities. The changes in assumptions are presumed to be
instantaneous. The hypothetical effect of adverse changes on the
Company’s retained capitalized servicing assets at
December 31, 2005 is included in note 7.
| Weighted- | Weighted- | Annual | ||||||||||||||||
| Average | Average | Expected | ||||||||||||||||
| Fair | Prepayment | Discount | Credit | |||||||||||||||
| Value | Speed | Rate | Defaults | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
|
Retained subordinated interests:
|
||||||||||||||||||
|
As of securitization date
|
$ | 91,705 | 23.81 | % | 7.68 | % | .09 | % | ||||||||||
|
As of December 31, 2005
|
69,809 | 9.85 | % | 7.46 | % | .09 | % | |||||||||||
|
Impact on fair value of 10% adverse change
|
$ | (99 | ) | $ | (2,508 | ) | $ | (199 | ) | |||||||||
|
Impact on fair value of 20% adverse change
|
(205 | ) | (4,861 | ) | (401 | ) | ||||||||||||
The subordinated retained securities do not have pro rata
participation in loan principal prepayments for the first seven
years of the securitization. The assumed weighted-average
discount rate is 144 basis points higher than the
weighted-average coupon of the underlying mortgage loans at
December 31, 2005.
| 19. | 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.
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 calculated based on quoted
market prices at the respective year-end. In determining amounts
to present for other financial instruments, the Company
generally used calculations based upon discounted cash flows of
the related financial instruments or assigned some other amount
as required by SFAS No. 107. Additional information
about the assumptions and calculations utilized is presented
below.
121
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
The carrying amounts and calculated estimates for financial
instrument assets (liabilities) are presented in the
following table.
| December 31, 2005 | December 31, 2004 | ||||||||||||||||
| Carrying | Calculated | Carrying | Calculated | ||||||||||||||
| Amount | Estimate | Amount | Estimate | ||||||||||||||
| (In thousands) | |||||||||||||||||
|
Financial assets:
|
|||||||||||||||||
|
Cash and due from banks
|
$ | 1,479,239 | $ | 1,479,239 | $ | 1,334,628 | $ | 1,334,628 | |||||||||
|
Money-market assets
|
211,245 | 211,245 | 199,364 | 199,364 | |||||||||||||
|
Investment securities
|
8,400,164 | 8,401,985 | 8,474,619 | 8,476,844 | |||||||||||||
|
Commercial loans and leases
|
10,920,152 | 10,901,618 | 9,980,252 | 9,959,047 | |||||||||||||
|
Commercial real estate loans
|
14,549,217 | 14,549,353 | 14,040,000 | 14,060,200 | |||||||||||||
|
Residential real estate loans
|
4,396,197 | 4,370,325 | 3,261,589 | 3,273,555 | |||||||||||||
|
Consumer loans and leases
|
10,465,079 | 10,371,249 | 11,116,636 | 11,139,217 | |||||||||||||
|
Allowance for credit losses
|
(637,663 | ) | (637,663 | ) | (626,864 | ) | (626,864 | ) | |||||||||
|
Accrued interest receivable
|
240,484 | 240,484 | 200,232 | 200,232 | |||||||||||||
|
Financial liabilities:
|
|||||||||||||||||
|
Noninterest-bearing deposits
|
$ | (8,141,928 | ) | $ | (8,141,928 | ) | $ | (8,417,365 | ) | $ | (8,417,365 | ) | |||||
|
Savings deposits and NOW accounts
|
(14,741,088 | ) | (14,741,088 | ) | (15,550,662 | ) | (15,550,662 | ) | |||||||||
|
Time deposits
|
(11,407,626 | ) | (11,425,903 | ) | (7,228,514 | ) | (7,272,979 | ) | |||||||||
|
Deposits at foreign office
|
(2,809,532 | ) | (2,809,532 | ) | (4,232,932 | ) | (4,232,932 | ) | |||||||||
|
Short-term borrowings
|
(5,152,872 | ) | (5,152,872 | ) | (4,703,664 | ) | (4,703,664 | ) | |||||||||
|
Long-term borrowings
|
(6,196,994 | ) | (6,251,924 | ) | (6,348,559 | ) | (6,532,379 | ) | |||||||||
|
Accrued interest payable
|
(132,027 | ) | (132,027 | ) | (88,676 | ) | (88,676 | ) | |||||||||
|
Trading account liabilities
|
(76,896 | ) | (76,896 | ) | (93,411 | ) | (93,411 | ) | |||||||||
|
Other financial instruments:
|
|||||||||||||||||
|
Commitments to originate real estate loans for sale
|
$ | 1,813 | $ | 1,813 | $ | 1,764 | $ | 1,764 | |||||||||
|
Commitments to sell real estate loans
|
(6,274 | ) | (6,274 | ) | (2,322 | ) | (2,322 | ) | |||||||||
|
Other credit-related commitments
|
(43,249 | ) | (43,249 | ) | (36,721 | ) | (36,721 | ) | |||||||||
|
Interest rate swap agreements used for interest rate risk
management
|
(8,848 | ) | (8,848 | ) | (3,844 | ) | (3,844 | ) | |||||||||
The following assumptions and methods or calculations were used
in determining the disclosed value of financial instruments.
Cash and due from banks, money-market assets, short-term
borrowings, accrued interest receivable, accrued interest
payable and trading account liabilities
Due to the nature of cash and due from banks and the near
maturity of money-market assets, short-term borrowings, accrued
interest receivable, accrued interest payable and trading
account liabilities, the Company estimated that the carrying
amount of such instruments approximated estimated fair value.
122
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Investment securities
Estimated fair values of investments in readily marketable debt
and equity securities were based on quoted market prices.
Investment securities that were not readily marketable were
assigned amounts based on estimates provided by brokers,
discounted calculations of projected cash flows or, in the case
of other investment securities, which include capital stock of
the Federal Reserve Bank of New York and the Federal Home
Loan Bank of New York, at an amount equal to the carrying
amount.
Loans and leases
In general, discount rates used to calculate values for loan
products were based on the Company’s pricing at the
respective year end. A higher discount rate was assumed with
respect to estimated cash flows associated with nonaccrual
loans. The allowance for credit losses represents the
Company’s assessment of the overall level of credit losses
inherent in the portfolio as of the respective year end and may
not be indicative of the credit-related discount that a
purchaser of the Company’s loans and leases would seek.
Deposits
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. Time
deposit accounts are required to be revalued based upon
prevailing market interest rates for similar maturity
instruments. As a result, amounts assigned to time deposits were
based on discounted cash flow calculations using prevailing
market interest rates for deposits with comparable remaining
terms to maturity.
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
deposit attrition which often occurs following an acquisition.
Accordingly, estimating the fair value of deposits with any
degree of certainty is not practical.
Long-term borrowings
The amounts assigned to long-term borrowings were based on
quoted market prices, when available, or were based on
discounted cash flow calculations using prevailing market
interest rates for borrowings of similar terms.
Trading account assets and liabilities
Trading account assets and liabilities are carried in the
consolidated balance sheet at estimated fair value which, in
general, is based on quoted market prices. Trading account
assets are included in money-market assets and totaled
$191,617,000 and $159,946,000 at December 31, 2005 and
2004, respectively. Trading account liabilities are included in
other liabilities and totaled $76,896,000 and $93,411,000 at
December 31, 2005 and 2004, respectively.
Commitments to originate real estate loans for sale and
commitments to sell real estate loans
As described in note 17, the Company enters into various
commitments to originate real estate loans for sale and
commitments to sell real estate loans. Such commitments are
considered to be derivative financial instruments and,
therefore, are carried at estimated fair value on the
consolidated balance sheet. The estimated fair values of such
commitments were generally calculated based on quoted market
prices for commitments to sell real estate loans to certain
government-sponsored entities and other parties.
Interest rate swap agreements used for interest rate risk
management
The estimated fair value of interest rate swap agreements used
for interest rate risk management represents the amount the
Company would have expected to receive or pay to terminate such
agreements.
123
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Other commitments and contingencies
As described in note 20, 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. Loan commitments often 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, which
are included in other liabilities, are reasonable estimates of
the fair value of these financial instruments.
The Company does not believe that the estimated 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 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, because 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.
| 20. | Commitments and contingencies |
In the normal course of business, various commitments and
contingent liabilities are outstanding. The following table
presents the Company’s significant commitments. Certain of
these commitments are not included in the Company’s
consolidated balance sheet.
| December 31 | |||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Commitments to extend credit
|
|||||||||
|
Home equity lines of credit
|
$ | 4,903,834 | $ | 4,283,371 | |||||
|
Commercial real estate loans to be sold
|
41,662 | 105,660 | |||||||
|
Other commercial real estate and construction
|
2,249,805 | 1,809,382 | |||||||
|
Residential real estate loans to be sold
|
351,898 | 422,159 | |||||||
|
Other residential real estate
|
848,015 | 449,564 | |||||||
|
Commercial and other
|
6,843,170 | 6,645,878 | |||||||
|
Standby letters of credit
|
3,523,234 | 3,162,901 | |||||||
|
Commercial letters of credit
|
47,360 | 57,455 | |||||||
|
Financial guarantees and indemnification contracts
|
1,186,385 | 1,168,517 | |||||||
|
Commitments to sell real estate loans
|
1,164,360 | 931,924 | |||||||
Commitments to extend credit are agreements to lend to
customers, generally having fixed expiration dates or other
termination clauses that may require payment of a fee. Standby
and commercial letters of credit are conditional commitments
issued to guarantee the performance of a customer to a third
party. Standby letters of credit generally are contingent upon
the failure of the customer to perform according to the terms of
the underlying contract with the third party, whereas commercial
letters of credit are issued to facilitate commerce and
typically result in the commitment being funded when the
underlying transaction is consummated between the customer and
third party. The credit risk associated with commitments to
extend credit and standby and commercial letters of credit is
essentially
124
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
the same as that involved with extending loans to customers and
is subject to normal credit policies. Collateral may be obtained
based on management’s assessment of the customer’s
creditworthiness.
Financial guarantees and indemnification contracts are
oftentimes similar to standby letters of credit and include
mandatory purchase agreements issued to ensure that customer
obligations are fulfilled, recourse obligations associated with
sold loans, and other guarantees of customer performance or
compliance with designated rules and regulations. Included in
financial guarantees and indemnification contracts are loan
principal amounts sold with recourse in conjunction with the
Company’s involvement in the FNMA DUS program. Under this
program, the Company’s maximum credit risk associated with
loans sold with recourse at December 31, 2005 and 2004
totaled $941 million and $926 million, respectively.
Those recourse amounts were approximately equal to one-third of
each sold loan’s outstanding principal balance.
Since many loan commitments, standby letters of credit, and
guarantees and indemnification contracts expire without being
funded in whole or in part, the contract amounts are not
necessarily indicative of future cash flows.
The Company utilizes commitments to sell real estate loans to
hedge exposure to changes in the fair value of real estate loans
held for sale. Such commitments are considered derivatives in
accordance with SFAS No. 133 and along with
commitments to originate real estate loans to be held for sale
and hedged real estate loans held for sale are now generally
recorded in the consolidated balance sheet at estimated fair
market value. However, in accordance with SAB No. 105,
effective April 1, 2004, value ascribable to cash flows
that will be realized in connection with loan servicing
activities has not been included in the determination of fair
value of loans held for sale or commitments to originate loans
for sale. Value ascribable to that portion of cash flows is now
recognized at the time the underlying mortgage loans are sold.
Additional information about such derivative financial
instruments is included in note 17.
The Company occupies certain banking offices and uses certain
equipment under noncancellable operating lease agreements
expiring at various dates over the next 43 years. Minimum
lease payments under noncancellable operating leases are
summarized in the following table:
| (In thousands) | |||||
|
Year ending December 31:
|
|||||
|
2006
|
$ | 45,971 | |||
|
2007
|
44,178 | ||||
|
2008
|
37,327 | ||||
|
2009
|
30,567 | ||||
|
2010
|
24,825 | ||||
|
Later years
|
96,346 | ||||
| $ | 279,214 | ||||
The Company entered into an agreement in 2003 with the Baltimore
Ravens of the National Football League whereby the Company
obtained the naming rights to a football stadium in Baltimore,
Maryland for a fifteen year term. Under the agreement, the
Company paid $3 million in both 2003 and 2004,
$5 million in 2005, and is obligated to pay $5 million
per year from 2006 through 2013 and $6 million per year
from 2014 through 2017.
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 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.
125
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 21. | Segment information |
In accordance with the provisions of SFAS No. 131,
“Disclosures About Segments of an Enterprise and Related
Information,” reportable segments have been determined
based upon the Company’s internal profitability reporting
system, which is organized by strategic business units. Certain
strategic business units have been combined for segment
information reporting purposes where the nature of the products
and services, the type of customer and the distribution of those
products and services are similar. The reportable segments are
Commercial Banking, Commercial Real Estate, Discretionary
Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company’s segments has
been compiled utilizing the accounting policies described in
note 1 with certain exceptions. The more significant of
these exceptions are described herein. The Company allocates
interest income or interest expense using a methodology that
charges users of funds (assets) interest expense and
credits providers of funds (liabilities) with income based
on the maturity, prepayment and/or repricing characteristics of
the assets and liabilities. The net effect of this allocation is
recorded in the “All Other” category. A provision for
credit losses is allocated to segments in an amount based
largely on actual net charge-offs incurred by the segment during
the period plus or minus an amount necessary to adjust the
segment’s allowance for credit losses due to changes in
loan balances. In contrast, the level of the consolidated
provision for credit losses is determined using the
methodologies described in note 1 to assess the overall
adequacy of the allowance for credit losses. Indirect fixed and
variable expenses incurred by certain centralized support areas
are allocated to segments based on actual usage (for example,
volume measurements) and other criteria. Certain types of
administrative expenses and bankwide expense accruals (including
amortization of core deposit and other intangible assets) are
generally not allocated to segments. Income taxes are allocated
to segments based on the Company’s marginal statutory tax
rate adjusted for any tax-exempt income or non-deductible
expenses. Equity is allocated to the segments based on
regulatory capital requirements and in proportion to an
assessment of the inherent risks associated with the business of
the segment (including interest, credit and operating risk).
The management accounting policies and processes utilized in
compiling segment financial information are highly subjective
and, unlike financial accounting, are not based on authoritative
guidance similar to generally accepted accounting principles. As
a result, reported segment results are not necessarily
comparable with similar information reported by other financial
institutions. Furthermore, changes in management structure or
allocation methodologies and procedures may result in changes in
reported segment financial data. Information about the
Company’s segments is presented in the accompanying table.
126
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| Residential | ||||||||||||||||||||||||||||
| Commercial | Commercial | Discretionary | Mortgage | Retail | ||||||||||||||||||||||||
| Banking | Real Estate | Portfolio | Banking | Banking | All Other | Total | ||||||||||||||||||||||
| (In thousands, except asset data) | ||||||||||||||||||||||||||||
|
For the year ended December 31, 2005
|
||||||||||||||||||||||||||||
|
Net interest income(a)
|
$ | 366,894 | $ | 236,937 | $ | 128,794 | $ | 92,071 | $ | 945,273 | $ | 24,374 | $ | 1,794,343 | ||||||||||||||
|
Noninterest income
|
161,170 | 46,514 | 16,076 | 166,179 | 384,924 | 174,855 | 949,718 | |||||||||||||||||||||
| 528,064 | 283,451 | 144,870 | 258,250 | 1,330,197 | 199,229 | 2,744,061 | ||||||||||||||||||||||
|
Provision for credit losses
|
8,081 | (1,651 | ) | 1,392 | 1,372 | 57,627 | 21,179 | 88,000 | ||||||||||||||||||||
|
Amortization of core deposit and other intangible assets
|
— | — | — | — | — | 56,805 | 56,805 | |||||||||||||||||||||
|
Depreciation and other amortization
|
415 | 6,024 | 5,385 | 48,719 | 26,165 | 30,235 | 116,943 | |||||||||||||||||||||
|
Other noninterest expense
|
148,454 | 59,261 | 13,073 | 141,640 | 696,667 | 252,299 | 1,311,394 | |||||||||||||||||||||
|
Income (loss) before taxes
|
371,114 | 219,817 | 125,020 | 66,519 | 549,738 | (161,289 | ) | 1,170,919 | ||||||||||||||||||||
|
Income tax expense (benefit)
|
152,449 | 76,880 | 32,394 | 23,426 | 224,267 | (120,680 | ) | 388,736 | ||||||||||||||||||||
|
Net income (loss)
|
$ | 218,665 | $ | 142,937 | $ | 92,626 | $ | 43,093 | $ | 325,471 | $ | (40,609 | ) | $ | 782,183 | |||||||||||||
|
Average total assets (in millions)
|
$ | 11,723 | $ | 8,335 | $ | 11,810 | $ | 2,712 | $ | 14,639 | $ | 4,916 | $ | 54,135 | ||||||||||||||
|
Capital expenditures (in millions)
|
$ | 1 | $ | — | $ | — | $ | 2 | $ | 17 | $ | 7 | $ | 27 | ||||||||||||||
|
For the year ended December 31, 2004
|
||||||||||||||||||||||||||||
|
Net interest income(a)
|
$ | 345,399 | $ | 217,708 | $ | 130,739 | $ | 81,580 | $ | 863,991 | $ | 95,155 | $ | 1,734,572 | ||||||||||||||
|
Noninterest income
|
161,558 | 38,098 | 50,386 | 145,764 | 363,893 | 183,270 | 942,969 | |||||||||||||||||||||
| 506,957 | 255,806 | 181,125 | 227,344 | 1,227,884 | 278,425 | 2,677,541 | ||||||||||||||||||||||
|
Provision for credit losses
|
6,468 | 3,353 | 2,682 | 1,714 | 67,871 | 12,912 | 95,000 | |||||||||||||||||||||
|
Amortization of core deposit and other intangible assets
|
— | — | — | — | — | 75,410 | 75,410 | |||||||||||||||||||||
|
Depreciation and other amortization
|
380 | 5,008 | 7,012 | 47,558 | 26,870 | 33,836 | 120,664 | |||||||||||||||||||||
|
Other noninterest expense
|
139,101 | 53,635 | 12,641 | 131,977 | 708,924 | 273,666 | 1,319,944 | |||||||||||||||||||||
|
Income (loss) before taxes
|
361,008 | 193,810 | 158,790 | 46,095 | 424,219 | (117,399 | ) | 1,066,523 | ||||||||||||||||||||
|
Income tax expense (benefit)
|
148,083 | 67,872 | 46,583 | 17,301 | 172,912 | (108,749 | ) | 344,002 | ||||||||||||||||||||
|
Net income (loss)
|
$ | 212,925 | $ | 125,938 | $ | 112,207 | $ | 28,794 | $ | 251,307 | $ | (8,650 | ) | $ | 722,521 | |||||||||||||
|
Average total assets (in millions)
|
$ | 10,946 | $ | 7,868 | $ | 10,936 | $ | 1,801 | $ | 14,739 | $ | 5,227 | $ | 51,517 | ||||||||||||||
|
Capital expenditures (in millions)
|
$ | — | $ | — | $ | — | $ | 2 | $ | 25 | $ | 5 | $ | 32 | ||||||||||||||
|
For the year ended December 31, 2003
|
||||||||||||||||||||||||||||
|
Net interest income(a)
|
$ | 299,403 | $ | 197,258 | $ | 90,304 | $ | 99,166 | $ | 804,499 | $ | 108,125 | $ | 1,598,755 | ||||||||||||||
|
Noninterest income
|
115,037 | 30,553 | 47,168 | 202,924 | 309,618 | 125,795 | 831,095 | |||||||||||||||||||||
| 414,440 | 227,811 | 137,472 | 302,090 | 1,114,117 | 233,920 | 2,429,850 | ||||||||||||||||||||||
|
Provision for credit losses
|
18,661 | 974 | 1,731 | 967 | 81,509 | 27,158 | 131,000 | |||||||||||||||||||||
|
Amortization of core deposit and other intangible assets
|
— | — | — | — | — | 78,152 | 78,152 | |||||||||||||||||||||
|
Depreciation and other amortization
|
392 | 2,998 | 5,495 | 44,088 | 24,938 | 35,599 | 113,510 | |||||||||||||||||||||
|
Other noninterest expense(b)
|
107,118 | 42,297 | 20,686 | 147,601 | 659,382 | 279,434 | 1,256,518 | |||||||||||||||||||||
|
Income (loss) before taxes
|
288,269 | 181,542 | 109,560 | 109,434 | 348,288 | (186,423 | ) | 850,670 | ||||||||||||||||||||
|
Income tax expense (benefit)
|
118,467 | 67,761 | 27,100 | 42,407 | 141,913 | (120,920 | ) | 276,728 | ||||||||||||||||||||
|
Net income (loss)
|
$ | 169,802 | $ | 113,781 | $ | 82,460 | $ | 67,027 | $ | 206,375 | $ | (65,503 | ) | $ | 573,942 | |||||||||||||
|
Average total assets (in millions)
|
$ | 9,693 | $ | 7,244 | $ | 8,821 | $ | 1,862 | $ | 13,166 | $ | 4,563 | $ | 45,349 | ||||||||||||||
|
Capital expenditures (in millions)
|
$ | — | $ | — | $ | — | $ | 2 | $ | 12 | $ | 18 | $ | 32 | ||||||||||||||
| (a) | Net interest income is the difference between actual taxable-equivalent interest earned on assets and interest paid on liabilities 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). Net income (loss) for 2004 and 2003 have been adjusted to reflect modifications to the internal funds transfer methodology effective January 1, 2005. The net effect of the change was to increase previously reported net income for 2004 in the Retail Banking, Residential Mortgage and “All Other” segments by $16 million, $1 million and $2 million, respectively, and to decrease the previously reported net income for each of the Commercial Banking and Discretionary Portfolio segments by $5 million and the Commercial Real Estate segment by $9 million. For 2003, the net effect of the change was to increase previously reported net income in the Retail Banking segment by $15 million and for each of the Residential Mortgage and “All Other” segments by $1 million, and to decrease the previously reported net income for the Commercial Banking, Commercial Real Estate and Discretionary Portfolio segments by $5 million, $8 million and $4 million, respectively. The taxable-equivalent adjustment aggregated $17,311,000 in 2005, $17,330,000 in 2004 and $16,313,000 in 2003 and is eliminated in “All Other” net interest income and income tax expense (benefit). | |
| (b) | Including the impact in the “All Other” category of the merger-related expenses described in note 2. |
127
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
The Commercial Banking segment
provides a wide range of credit products and banking services to
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, letters of credit,
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. Activities of this
segment also include the origination, sales and servicing of
commercial real estate loans. 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 swap agreements
related thereto; and offshore branch deposits. This segment also
provides foreign exchange services to customers. 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 bank
subsidiaries of M&T.
The segment periodically purchases servicing rights to loans
that have been originated by other entities. This segment also
originates and services loans to developers of residential real
estate properties. Residential mortgage loans held for sale are
included in the Residential Mortgage Banking segment. The Retail
Banking segment offers a variety of services to consumers and
small businesses through several delivery channels that include
banking offices, automated teller machines, telephone banking
and internet banking. The “All Other” category
includes other operating activities of the Company that are not
directly attributable to the reported segments as determined in
accordance with SFAS No. 131, the difference between
the provision for credit losses and the calculated provision
allocated to the reportable segments, goodwill and core deposit
and other intangible assets 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 | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenues
|
$ | (70,698 | ) | $ | (60,195 | ) | $ | (87,309 | ) | |||
|
Expenses
|
(18,445 | ) | (16,950 | ) | (18,307 | ) | ||||||
|
Income taxes (benefit)
|
(21,262 | ) | (17,596 | ) | (28,077 | ) | ||||||
|
Net income (loss)
|
(30,991 | ) | (25,649 | ) | (40,925 | ) | ||||||
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, 2005, approximately $528,216,000 was available
for payment of dividends to
M&T from banking
subsidiaries without prior regulatory approval.
Banking regulations prohibit
extensions of credit by the subsidiary banks to
M&T unless
appropriately secured by assets. Securities of affiliates are
not eligible as collateral for this purpose.
The bank subsidiaries are required to maintain
noninterest-earning reserves against certain deposit
liabilities. During the maintenance periods that included
December 31, 2005 and 2004, cash and due from banks
included a daily average of $388,697,000 and $408,450,000,
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
128
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
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, 2005,
M&T and each of its
banking subsidiaries exceeded all applicable capital adequacy
requirements. As of December 31, 2005 and 2004, the most
recent notifications from federal regulators categorized each of
M&T’s bank
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 bank
subsidiaries.
The capital ratios and amounts of the Company and its banking
subsidiaries as of December 31, 2005 and 2004 are presented
below:
| M&T | M&T | ||||||||||||
| (Consolidated) | M&T Bank | Bank, N.A. | |||||||||||
| (Dollars in thousands) | |||||||||||||
|
December 31, 2005:
|
|||||||||||||
|
Tier 1 capital
|
|||||||||||||
|
Amount
|
$ | 3,598,829 | 3,313,343 | 84,355 | |||||||||
|
Ratio(a)
|
7.56 | % | 7.02 | % | 27.99 | % | |||||||
|
Minimum required amount(b)
|
1,903,593 | 1,886,707 | 12,054 | ||||||||||
|
Total capital
|
|||||||||||||
|
Amount
|
5,161,173 | 4,882,057 | 86,920 | ||||||||||
|
Ratio(a)
|
10.85 | % | 10.35 | % | 28.84 | % | |||||||
|
Minimum required amount(b)
|
3,807,186 | 3,773,414 | 24,108 | ||||||||||
|
Leverage
|
|||||||||||||
|
Amount
|
3,598,829 | 3,313,343 | 84,355 | ||||||||||
|
Ratio(c)
|
6.94 | % | 6.46 | % | 15.34 | % | |||||||
|
Minimum required amount(b)
|
1,556,213 | 1,539,784 | 16,501 | ||||||||||
129
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| M&T | M&T | ||||||||||||
| (Consolidated) | M&T Bank | Bank, N.A. | |||||||||||
| (Dollars in thousands) | |||||||||||||
|
December 31, 2004:
|
|||||||||||||
|
Tier 1 capital
|
|||||||||||||
|
Amount
|
$ | 3,340,974 | 3,132,925 | 78,908 | |||||||||
|
Ratio(a)
|
7.31 | % | 6.92 | % | 29.80 | % | |||||||
|
Minimum required amount(b)
|
1,827,356 | 1,810,262 | 10,590 | ||||||||||
|
Total capital
|
|||||||||||||
|
Amount
|
4,984,374 | 4,758,812 | 82,105 | ||||||||||
|
Ratio(a)
|
10.91 | % | 10.52 | % | 31.01 | % | |||||||
|
Minimum required amount(b)
|
3,654,712 | 3,620,525 | 21,180 | ||||||||||
|
Leverage
|
|||||||||||||
|
Amount
|
3,340,974 | 3,132,925 | 78,908 | ||||||||||
|
Ratio(c)
|
6.73 | % | 6.38 | % | 21.24 | % | |||||||
|
Minimum required amount(b)
|
1,489,266 | 1,472,892 | 11,145 | ||||||||||
(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.
| 23. | Relationship of M&T and AIB |
As a result of
M&T’s acquisition
of Allfirst (see note 2), AIB acquired
26,700,000 shares of
M&T common stock on
April 1, 2003. Those shares of common stock owned by AIB
represented 23.8% of the issued and outstanding shares of
M&T common stock on
December 31, 2005. While AIB maintains a significant
ownership in M&T, the
Agreement and Plan of Reorganization by and among
M&T, AIB and Allfirst
(“Reorganization Agreement”) includes several
provisions related to the corporate governance of
M&T that provide AIB
with representation on the
M&T and
M&T Bank boards of
directors and key board committees and certain protections of
its rights as a substantial
M&T shareholder. In
addition, AIB has rights that will facilitate its ability to
maintain its proportionate ownership position in
M&T.
With respect to AIB’s right
to have representation on the
M&T and
M&T Bank boards of
directors and key board committees, for as long as AIB holds at
least 15% of M&T’s
outstanding common stock, AIB is entitled to designate four
individuals, reasonably acceptable to
M&T, on both the
M&T and
M&T Bank boards of
directors. In addition, one of the AIB designees to the
M&T board of directors
will serve on each of the Executive; Nomination, Compensation
and Governance; and Audit committees. Also, as long as AIB holds
at least 15% of
M&T’s outstanding
common stock, neither the
M&T nor the
M&T Bank board of
directors may consist of more than 28 directors without the
consent of the M&T
directors designated by AIB. AIB will continue to enjoy these
rights if its holdings of
M&T common stock drop
below 15%, but not below 12%, so long as AIB restores its
ownership percentage to 15% within one year. In the event that
AIB holds at least 10%, but less than 15%, of
M&T’s outstanding
common stock, AIB will be entitled to designate at least two
individuals on both the
M&T and
M&T Bank boards of
directors and, in the event that AIB holds at least 5%, but less
than 10%, of M&T’s
outstanding common stock, AIB will be entitled to designate one
individual on both the
M&T and
M&T Bank boards of
directors. M&T also has
the right to appoint one representative to the AIB board while
AIB remains a significant shareholder.
There are several other corporate
governance provisions that serve to protect AIB’s rights as
a substantial M&T
shareholder and are embodied in
M&T’s certificate
of incorporation and bylaws, which
130
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
were both amended in connection
with the Allfirst acquisition to incorporate such provisions.
These protections include an effective consent right in
connection with certain actions by
M&T, such as amending
M&T’s certificate
of incorporation or bylaws in a manner inconsistent with
AIB’s rights, engaging in activities not permissible for a
bank holding company or adopting any shareholder rights plan or
other measures intended to prevent or delay any transaction
involving a change in control of
M&T. AIB has the right
to limit, with the agreement of at least one non-AIB designee on
the M&T board of
directors, other actions by
M&T, such as reducing
M&T’s cash
dividend policy such that the ratio of cash dividends to net
income is less than 15%, acquisitions and dispositions of
significant amounts of assets, and the appointment or election
of the chairman of the board of directors or the chief executive
officer of M&T. The
protective provisions described above will cease to be
applicable when AIB no longer owns at least 15% of
M&T outstanding common
stock, calculated as described in the Reorganization Agreement.
M&T
assumed from Allfirst two floating rate notes payable to AIB. A
$100 million floating rate note payable to AIB was repaid
by M&T on June 3,
2003. An additional $200 million floating rate note payable
to AIB was repaid by
M&T on
September 30, 2003. Interest expense related to those notes
aggregated $2 million in 2003.
131
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
| 24. | Parent company financial statements |
Condensed Balance Sheet
| December 31 | ||||||||||
| 2005 | 2004 | |||||||||
| (In thousands) | ||||||||||
|
Assets
|
||||||||||
|
Cash
|
||||||||||
|
In subsidiary bank
|
$ | 5,045 | $ | 4,785 | ||||||
|
Other
|
1 | 1 | ||||||||
|
Total cash
|
5,046 | 4,786 | ||||||||
|
Due from consolidated subsidiaries
|
||||||||||
|
Banks
|
||||||||||
|
Money-market assets
|
214,572 | 139,086 | ||||||||
|
Note receivable
|
200,000 | 200,000 | ||||||||
|
Current income tax receivable
|
3,639 | 2,718 | ||||||||
|
Other
|
1,315 | 743 | ||||||||
|
Other
|
— | 30 | ||||||||
|
Total due from consolidated subsidiaries
|
419,526 | 342,577 | ||||||||
|
Investments in consolidated subsidiaries
|
||||||||||
|
Banks
|
6,358,416 | 6,287,009 | ||||||||
|
Other
|
32,358 | 28,762 | ||||||||
|
Investments in unconsolidated subsidiaries (note 18)
|
29,897 | 30,228 | ||||||||
|
Other assets
|
132,014 | 145,302 | ||||||||
|
Total assets
|
$ | 6,977,257 | $ | 6,838,664 | ||||||
|
Liabilities
|
||||||||||
|
Due to consolidated subsidiaries
|
||||||||||
|
Banks
|
$ | 2 | $ | 39 | ||||||
|
Other
|
2,377 | 1,533 | ||||||||
|
Total due to consolidated subsidiaries
|
2,379 | 1,572 | ||||||||
|
Accrued expenses and other liabilities
|
50,815 | 52,780 | ||||||||
|
Long-term borrowings
|
1,047,677 | 1,054,698 | ||||||||
|
Total liabilities
|
1,100,871 | 1,109,050 | ||||||||
|
Stockholders’ equity
|
5,876,386 | 5,729,614 | ||||||||
|
Total liabilities and stockholders’ equity
|
$ | 6,977,257 | $ | 6,838,664 | ||||||
132
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Condensed Statement of Income
| Year Ended December 31 | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands, except per share) | |||||||||||||
|
Income
|
|||||||||||||
|
Dividends from consolidated subsidiaries
|
|||||||||||||
|
Banks
|
$ | 700,000 | $ | 864,000 | $ | 65,000 | |||||||
|
Other
|
— | 3,650 | — | ||||||||||
|
Other income
|
22,291 | 16,901 | 18,601 | ||||||||||
|
Total income
|
722,291 | 884,551 | 83,601 | ||||||||||
|
Expense
|
|||||||||||||
|
Interest on short-term borrowings
|
— | — | 25 | ||||||||||
|
Interest on long-term borrowings
|
62,090 | 56,091 | 51,971 | ||||||||||
|
Other expense
|
7,072 | 6,215 | 7,877 | ||||||||||
|
Total expense
|
69,162 | 62,306 | 59,873 | ||||||||||
|
Income before income taxes and equity in undistributed income of
subsidiaries
|
653,129 | 822,245 | 23,728 | ||||||||||
|
Income tax credits
|
18,334 | 17,777 | 16,316 | ||||||||||
|
Income before equity in undistributed income of
subsidiaries
|
671,463 | 840,022 | 40,044 | ||||||||||
|
Equity in undistributed income of subsidiaries
|
|||||||||||||
|
Net income of subsidiaries
|
810,720 | 750,149 | 598,898 | ||||||||||
|
Less: dividends received
|
(700,000 | ) | (867,650 | ) | (65,000 | ) | |||||||
|
Equity in undistributed income of subsidiaries
|
110,720 | (117,501 | ) | 533,898 | |||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | |||||||
|
Net income per common share
|
|||||||||||||
|
Basic
|
$ | 6.88 | $ | 6.14 | $ | 5.08 | |||||||
|
Diluted
|
6.73 | 6.00 | 4.95 | ||||||||||
133
M&T
BANK CORPORATION AND SUBSIDIARIES
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Condensed Statement of Cash Flows
| Year Ended December 31 | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands) | |||||||||||||
|
Cash flows from operating activities
|
|||||||||||||
|
Net income
|
$ | 782,183 | $ | 722,521 | $ | 573,942 | |||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|||||||||||||
|
Equity in undistributed income of subsidiaries
|
(110,720 | ) | 117,501 | (533,898 | ) | ||||||||
|
Provision for deferred income taxes
|
1,726 | 3,436 | 3,524 | ||||||||||
|
Net change in accrued income and expense
|
(4,378 | ) | (15,528 | ) | (12,050 | ) | |||||||
|
Net cash provided by operating activities
|
668,811 | 827,930 | 31,518 | ||||||||||
|
Cash flows from investing activities
|
|||||||||||||
|
Proceeds from sales of investment securities
|
12,848 | 16,755 | 70,065 | ||||||||||
|
Proceeds from maturities of investment securities
|
15,975 | 27,418 | 14,434 | ||||||||||
|
Purchases of investment securities
|
(19,893 | ) | (12,380 | ) | (1,369 | ) | |||||||
|
Net decrease in loans to affiliates
|
— | — | 158,000 | ||||||||||
|
Acquisitions, net of cash acquired
|
— | — | 163,046 | ||||||||||
|
Other, net
|
(2,221 | ) | 2,450 | 3,832 | |||||||||
|
Net cash provided by investing activities
|
6,709 | 34,243 | 408,008 | ||||||||||
|
Cash flows from financing activities
|
|||||||||||||
|
Net decrease in short-term borrowings
|
— | — | (100,000 | ) | |||||||||
|
Payments on long-term borrowings
|
— | (63,435 | ) | (300,000 | ) | ||||||||
|
Purchases of treasury stock
|
(509,609 | ) | (610,261 | ) | — | ||||||||
|
Dividends paid — common
|
(198,619 | ) | (187,669 | ) | (135,423 | ) | |||||||
|
Other, net
|
108,454 | 81,295 | 72,047 | ||||||||||
|
Net cash used by financing activities
|
(599,774 | ) | (780,070 | ) | (463,376 | ) | |||||||
|
Net increase (decrease) in cash and cash equivalents
|
75,746 | 82,103 | (23,850 | ) | |||||||||
|
Cash and cash equivalents at beginning of year
|
143,872 | 61,769 | 85,619 | ||||||||||
|
Cash and cash equivalents at end of year
|
$ | 219,618 | $ | 143,872 | $ | 61,769 | |||||||
|
Supplemental disclosure of cash flow information
|
|||||||||||||
|
Interest received during the year
|
$ | 10,434 | $ | 6,805 | $ | 14,401 | |||||||
|
Interest paid during the year
|
65,376 | 60,294 | 34,846 | ||||||||||
|
Income taxes received during the year
|
40,691 | 42,946 | 32,720 | ||||||||||
134
| Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
(a) Evaluation of disclosure
controls and procedures. Based upon their evaluation of the
effectiveness of
M&T’s disclosure
controls and procedures (as defined in Exchange Act rules
13a-15(e) and
15d-15(e)), Robert E.
Sadler, Jr., President and Chief Executive Officer, and
René F. Jones, Executive Vice President and Chief Financial
Officer, believe that
M&T’s disclosure
controls and procedures were effective as of December 31,
2005.
(b) Management’s annual report on internal control
over financial reporting. Included under the heading
“Report on Internal Control Over Financial Reporting”
at Item 8 of this Annual Report on
Form 10-K.
(c) Attestation report of the registered public accounting
firm. Included under the heading “Report of Independent
Registered Public Accounting Firm” at Item 8 of this
Annual Report on
Form 10-K.
(d) Changes in internal
control over financial reporting.
M&T continually
assesses the adequacy of its internal control over financial
reporting and enhances its controls in response to internal
control assessments and internal and external audit and
regulatory recommendations. No control enhancements during the
quarter ended December 31, 2005 have materially affected,
or are reasonably likely to materially affect,
M&T’s internal
control over financial reporting.
Item 9B. Other
Information.
None.
PART III
| Item 10. | Directors and Executive Officers of the Registrant. |
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 2006 Annual Meeting of Stockholders,
which will be filed with the Securities and Exchange Commission
on or about March 8, 2006.
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 2006 Annual Meeting of
Stockholders which will be filed with the Securities and
Exchange Commission on or about March 8, 2006.
The other information required by Item 10 is incorporated
by reference to the captions “BOARD OF DIRECTORS,
COMMITTEES OF THE BOARD AND ATTENDANCE” and “CODES OF
BUSINESS CONDUCT AND ETHICS” contained in the
Registrant’s definitive Proxy Statement for its 2006 Annual
Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or about March 8, 2006.
135
| Item 11. | Executive Compensation. |
Incorporated by reference to the captions “COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS” and “PERFORMANCE
GRAPH” contained in the Registrant’s definitive Proxy
Statement for its 2006 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission on or
about March 8, 2006.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Incorporated by reference to the captions “PRINCIPAL
BENEFICIAL OWNERS OF SHARES” and “STOCK OWNERSHIP BY
DIRECTORS AND EXECUTIVE OFFICERS” contained in the
Registrant’s definitive Proxy Statement for its 2006 Annual
Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or about March 8, 2006.
The information required by this item concerning Equity
Compensation Plan information is presented under the caption
“EQUITY COMPENSATION PLAN INFORMATION” contained in
Part II, Item 5. “Market for Registrant’s
Common Equity and Related Stockholder Matters.”
| Item 13. | Certain Relationships and Related Transactions. |
Incorporated by reference to the caption “TRANSACTIONS WITH
DIRECTORS AND EXECUTIVE OFFICERS” contained in the
Registrant’s definitive Proxy Statement for its 2006 Annual
Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or about March 8, 2006.
| Item 14. | Principal Accountant Fees and Services. |
Incorporated by reference to the
caption “PROPOSAL TO RATIFY THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT PUBLIC ACCOUNTANT
OF M&T BANK
CORPORATION” contained in the Registrant’s definitive
Proxy Statement for its 2006 Annual Meeting of Stockholders,
which will be filed with the Securities and Exchange Commission
on or about March 8, 2006.
PART IV
| Item 15. | Exhibits and Financial Statement Schedules. |
(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) Exhibits required by Item 601 of
Regulation S-K.
The exhibits listed on the Exhibit Index of this Annual
Report on
Form 10-K have
been previously filed, are filed herewith or are incorporated
herein by reference to other filings.
(c) Additional financial statement schedules. None.
136
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 28th day of February, 2006.
| M&T BANK CORPORATION |
| By: | /s/ Robert E. Sadler, Jr. |
|
|
|
| Robert E. Sadler, Jr. | |
| 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 E. Sadler,
Jr. Robert E. Sadler, Jr. |
President and Chief Executive Officer |
February 28, 2006 | ||||
| Principal Financial Officer: | ||||||
|
/s/ René F. Jones René F. Jones |
Executive Vice President and Chief Financial Officer | February 28, 2006 | ||||
| Principal Accounting Officer: | ||||||
|
/s/ Michael R. Spychala Michael R. Spychala |
Senior Vice President and Controller | February 28, 2006 | ||||
137
A majority of the board of directors:
|
William F. Allyn |
||||||
|
/s/ Brent D. Baird Brent D. Baird |
February 28, 2006 | |||||
|
/s/ Robert J. Bennett Robert J. Bennett |
February 28, 2006 | |||||
|
/s/ C. Angela Bontempo C. Angela Bontempo |
February 28, 2006 | |||||
|
/s/ Robert T. Brady Robert T. Brady |
February 28, 2006 | |||||
|
/s/ Emerson L. Brumback Emerson L. Brumback |
February 28, 2006 | |||||
|
/s/ Michael D. Buckley Michael D. Buckley |
February 28, 2006 | |||||
|
/s/ Patrick J. Callan Patrick J. Callan |
February 28, 2006 | |||||
|
/s/ R. Carlos
Carballada R. Carlos Carballada |
February 28, 2006 | |||||
|
/s/ T. Jefferson
Cunningham III T. Jefferson Cunningham III |
February 28, 2006 | |||||
|
/s/ Colm E. Doherty Colm E. Doherty |
February 28, 2006 | |||||
|
/s/ Richard E. Garman Richard E. Garman |
February 28, 2006 | |||||
|
Derek C. Hathaway |
||||||
|
/s/ Daniel R. Hawbaker Daniel R. Hawbaker |
February 28, 2006 | |||||
|
/s/ Patrick W.E.
Hodgson Patrick W.E. Hodgson |
February 28, 2006 | |||||
|
/s/ Richard G. King Richard G. King |
February 28, 2006 | |||||
138
|
/s/ Reginald B.
Newman, II Reginald B. Newman, II |
February 28, 2006 | |||||
|
/s/ Jorge G. Pereira Jorge G. Pereira |
February 28, 2006 | |||||
|
/s/ Michael P. Pinto Michael P. Pinto |
February 28, 2006 | |||||
|
/s/ Robert E. Sadler,
Jr. Robert E. Sadler, Jr. |
February 28, 2006 | |||||
|
Eugene J. Sheehy |
||||||
|
/s/ Stephen G. Sheetz Stephen G. Sheetz |
February 28, 2006 | |||||
|
/s/ Herbert L.
Washington Herbert L. Washington |
February 28, 2006 | |||||
|
/s/ Robert G. Wilmers Robert G. Wilmers |
February 28, 2006 | |||||
139
EXHIBIT INDEX
140
| 2.1 | Agreement and Plan of Reorganization, dated as of September 26, 2002, by and among M&T Bank Corporation, Allied Irish Banks, p.l.c. and Allfirst Financial Inc. Incorporated by reference to Exhibit No. 2 to the Form 8-K dated October 3, 2002 (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 | Certificate of Amendment of the Certificate of Incorporation of M&T Bank Corporation dated October 2, 2000. Incorporated by reference to Exhibit 3.2 to the Form 10-K for the year ended December 31, 2000 (File No. 1-9861). | |||
| 3.3 | Certificate of Amendment to the Certificate of Incorporation of M&T Bank Corporation dated March 4, 2003, effective as of March 25, 2003. Incorporated by reference to Exhibit 3.3 to the Form 10-Q for the quarter ended March 31, 2003 (File No. 1-9861). | |||
| 3.4 | Certificate of Amendment to the Certificate of Incorporation of M&T Bank Corporation dated March 28, 2003, effective as of April 1, 2003. Incorporated by reference to Exhibit 3.4 to the Form 10-Q for the quarter ended March 31, 2003 (File No. 1-9861). | |||
| 3.5 | Amended and Restated Bylaws of M&T Bank Corporation effective as of October 21, 2003. Incorporated by reference to Exhibit 3.5 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.1 | Instruments defining the rights of security holders, including indentures. Incorporated by reference to Exhibit Nos. 3.1 through 3.5, 10.1 through 10.5, 10.12 through 10.15, and 10.17 through 10.26 hereof. | |||
| 4.2 | Amended and Restated Trust Agreement dated as of January 31, 1997 by and among M&T Bank Corporation, Bankers Trust Company, Bankers Trust (Delaware), and the Administrators named therein. Incorporated by reference to Exhibit No. 4.1 to the Form 8-K dated January 31, 1997 (File No. 1-9861). | |||
| 4.3 | Amendment to Amended and Restated Trust Agreement dated as of January 31, 1997 by and among M&T Bank Corporation, Bankers Trust Company, Bankers Trust (Delaware), and the Administrators named therein. Incorporated by reference to Exhibit 4.3 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.4 | Junior Subordinated Indenture dated as of January 31, 1997 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit No. 4.2 to the Form 8-K dated January 31, 1997 (File No. 1-9861). | |||
| 4.5 | Supplemental Indenture dated December 23, 1999 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit 4.5 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.6 | Guarantee Agreement dated as of January 31, 1997 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit No. 4.3 to the Form 8-K dated January 31, 1997 (File No. 1-9861). | |||
| 4.7 | Amendment to Guarantee Agreement dated as of January 31, 1997 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit 4.7 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.8 | Amended and Restated Trust Agreement dated as of June 6, 1997 by and among M&T Bank Corporation, Bankers Trust Company, Bankers Trust (Delaware), and the Administrators named therein. Incorporated by reference to Exhibit No. 4.1 to the Form 8-K dated June 6, 1997 (File No. 1-9861). |
| 4.9 | Amendment to Amended and Restated Trust Agreement dated as of June 6, 1997 by and among M&T Bank Corporation, Bankers Trust Company, Bankers Trust (Delaware), and the Administrators named therein. Incorporated by reference to Exhibit 4.9 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.10 | Junior Subordinated Indenture dated as of June 6, 1997 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit No. 4.2 to the Form 8-K dated June 6, 1997 (File No. 1-9861). | |||
| 4.11 | Supplemental Indenture dated December 23, 1999 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit 4.11 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.12 | Guarantee Agreement dated as of June 6, 1997 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit No. 4.3 to the Form 8-K dated June 6, 1997 (File No. 1-9861). | |||
| 4.13 | Amendment to Guarantee Agreement dated as of June 6, 1997 by and between M&T Bank Corporation and Bankers Trust Company. Incorporated by reference to Exhibit 4.13 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.14 | Amended and Restated Declaration of Trust dated as of February 4, 1997 by and among Olympia Financial Corp., The Bank of New York, The Bank of New York (Delaware), and the administrative trustees named therein. Incorporated by reference to Exhibit 4.14 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.15 | Amendment to Amended and Restated Declaration of Trust dated as of February 4, 1997 by and among Olympia Financial Corp., The Bank of New York, The Bank of New York (Delaware), and the administrative trustees named therein. Incorporated by reference to Exhibit 4.15 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.16 | Indenture dated as of February 4, 1997 by and between Olympia Financial Corp. and The Bank of New York. Incorporated by reference to Exhibit 4.16 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.17 | Supplemental Indenture dated as of December 17, 1999 by and between Olympia Financial Corp. and The Bank of New York. Incorporated by reference to Exhibit 4.17 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.18 | Second Supplemental Indenture dated as of February 28, 2003 by and between M&T Bank Corporation (as successor by merger to Olympia Financial Corp.) and The Bank of New York. Incorporated by reference to Exhibit 4.18 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.19 | Common Securities Guarantee Agreement dated as of February 4, 1997 by and between Olympia Financial Corp. and The Bank of New York. Incorporated by reference to Exhibit 4.18 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.20 | Amendment to Common Securities Guarantee Agreement as of December 17, 1999 by and between Olympia Financial Corp. and The Bank of New York. Incorporated by reference to Exhibit 4.19 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.21 | Series A Capital Securities Guarantee Agreement dated as of February 4, 1997 by and between Olympia Financial Corp. and The Bank of New York. Incorporated by reference to Exhibit 4.20 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). | |||
| 4.22 | Amendment to Series A Capital Securities Guarantee Agreement dated as of December 17, 1999 by and between Olympia Financial Corp. and The Bank of New York. Incorporated by reference to Exhibit 4.21 to the Form 10-K for the year ended December 31, 1999 (File No. 1-9861). |
141
| 4.23 | Senior Indenture dated as of May 1, 1997 by and among Keystone Financial Mid-Atlantic Funding Corp., Olympia Financial Corp. (as successor by merger to Keystone Financial, Inc.), and Bankers Trust Company. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 of Keystone Financial Mid-Atlantic Funding Corp. and Keystone Financial, Inc. dated April 17, 1997 (File No. 333-25393). | |||
| 4.24 | First Supplemental Indenture, dated as of October 6, 2000, by and between Olympia Financial Corp. and Bankers Trust Company. Incorporated by reference to Exhibit 4.24 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.25 | Second Supplemental Indenture, dated as of February 28, 2003, by and between M&T Bank Corporation (as successor by merger to Olympia Financial Corp.) and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company). Incorporated by reference to Exhibit 4.25 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.26 | Indenture, dated as of December 30, 1996, by and between First Maryland Bancorp and The Bank of New York. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.27 | Supplemental Indenture No. 1, dated as of September 15, 1999, by and between Allfirst Financial Inc. (successor by merger to First Maryland Bancorp) and The Bank of New York. Incorporated by reference to Exhibit 4.2 to the Form 8-K of Allfirst Financial Inc. dated September 15, 1999 (File No. 2-50235). | |||
| 4.28 | Supplemental Indenture No. 2, dated as of April 1, 2003, by and between M&T Bank Corporation (successor by merger to Allfirst Financial Inc.) and The Bank of New York. Incorporated by reference to Exhibit 4.28 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.29 | Amended and Restated Declaration of Trust, dated as of December 30, 1996, by and among First Maryland Bancorp, The Bank of New York, The Bank of New York (Delaware) and the Regular Trustees named therein. Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.30 | Guarantee Agreement, dated as of December 30, 1996, by and between First Maryland Bancorp and The Bank of New York. Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.31 | Registration Rights Agreement, dated as of December 30, 1996, by and among First Maryland Bancorp, First Maryland Capital I and the Initial Purchasers named therein. Incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.32 | Indenture, dated as of February 4, 1997, by and between First Maryland Bancorp and The Bank of New York. Incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.33 | Supplemental Indenture No. 1, dated as of September 15, 1999, by and between Allfirst Financial Inc. (successor by merger to First Maryland Bancorp) and The Bank of New York. Incorporated by reference to Exhibit 4.3 to the Form 8-K of Allfirst Financial Inc. dated September 15, 1999 (File No. 2-50235). | |||
| 4.34 | Supplemental Indenture No. 2, dated as of April 1, 2003, by and between M&T Bank Corporation (successor by merger to Allfirst Financial Inc.) and The Bank of New York. Incorporated by reference to Exhibit 4.34 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). |
142
| 4.35 | Amended and Restated Declaration of Trust, dated as of February 4, 1997, by and among First Maryland Bancorp, The Bank of New York, The Bank of New York (Delaware) and the Regular Trustees named therein. Incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.36 | Guarantee Agreement, dated as of February 4, 1997, by and between First Maryland Bancorp and The Bank of New York. Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.37 | Registration Rights Agreement, dated as of February 4, 1997, by and among First Maryland Bancorp, First Maryland Capital II and the Initial Purchasers named therein. Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-4 of First Maryland Bancorp, First Maryland Capital I and First Maryland Capital II dated March 6, 1997 (File No. 333-22871). | |||
| 4.38 | Indenture, dated as of July 13, 1999, by and between First Maryland Bancorp and The Bank of New York. Incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). | |||
| 4.39 | Supplemental Indenture No. 1, dated as of September 15, 1999, by and between Allfirst Financial Inc. (successor by merger to First Maryland Bancorp) and The Bank of New York. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). | |||
| 4.40 | Supplemental Indenture No. 2, dated as of April 1, 2003, by and between M&T Bank Corporation (successor by merger to Allfirst Financial Inc.) and The Bank of New York. Incorporated by reference to Exhibit 4.40 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.41 | Amended and Restated Declaration of Trust of Allfirst Preferred Capital Trust, dated as of July 13, 1999, by and among First Maryland Bancorp, The Bank of New York, The Bank of New York (Delaware) and the Administrators named therein. Incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). | |||
| 4.42 | Amended and Restated Declaration of Trust of Allfirst Preferred Asset Trust, dated as of July 13, 1999, by and among First Maryland Bancorp, The Bank of New York, The Bank of New York (Delaware) and the Administrators named therein. Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). | |||
| 4.43 | Series B Capital Trust Guarantee Agreement, dated as of December 29, 1999, by and between Allfirst Financial Inc. (successor by merger to First Maryland Bancorp) and The Bank of New York. Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). | |||
| 4.44 | Series B Asset Trust Preferred Guarantee Agreement, dated as of December 29, 1999, by and between Allfirst Financial Inc. (successor by merger to First Maryland Bancorp) and The Bank of New York. Incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). |
143
| 4.45 | Registration Rights Agreement, dated as of July 9, 1999, by and among First Maryland Bancorp, Allfirst Preferred Capital Trust, Allfirst Preferred Asset Trust and the initial purchaser named therein. Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-4 of Allfirst Financial Inc., Allfirst Preferred Capital Trust and Allfirst Preferred Asset Trust dated October 5, 1999 (File No. 333-88484). | |||
| 4.46 | Indenture, dated as of May 15, 1992, by and between First Maryland Bancorp and Bankers Trust Company. Incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 of First Maryland Bancorp (File No. 33-46277). | |||
| 4.47 | Supplemental Indenture No. 1, dated as of September 15, 1999, by and between Allfirst Financial Inc. (successor by merger to First Maryland Bancorp) and Bankers Trust Company. Incorporated by reference to Exhibit 4.1 to the Form 8-K of Allfirst Financial Inc. dated September 15, 1999 (File No. 2-50235). | |||
| 4.48 | Supplemental Indenture No. 2, dated as of April 1, 2003, by and between M&T Bank Corporation (successor by merger to Allfirst Financial Inc.) and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company). Incorporated by reference to Exhibit 4.48 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 4.49 | Registration Rights Agreement, dated April 1, 2003, between M&T Bank Corporation and Allied Irish Banks, p.l.c. Incorporated by reference to Exhibit 4.23 to the Form 10-Q for the quarter ended March 31, 2003 (File No. 1-9861). | |||
| 10.1 | Credit Agreement, dated as of December 15, 2000, between M&T Bank Corporation and Citibank, N.A. Incorporated by reference to Exhibit 10.1 to the Form 10-K for the year ended December 31, 2000 (File No. 1-9861). | |||
| 10.2 | Waiver, dated as of January 15, 2003, to Credit Agreement dated as of December 15, 2000, between M&T Bank Corporation and Citibank, N.A. Incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended December 31, 2002 (File No. 1-9861). | |||
| 10.3 | Amendment No. 1, dated December 9, 2003, to the Credit Agreement, dated as of December 15, 2000, between M&T Bank Corporation and Citibank, N.A. Incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 10.4 | M&T Bank Corporation 1983 Stock Option Plan as last amended on April 20, 1999. Incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended March 31, 1999 (File No. 1-9861).* | |||
| 10.5 | M&T Bank Corporation 2001 Stock Option Plan. Incorporated by reference to Appendix A to the Proxy Statement of M&T Bank Corporation dated March 6, 2001 (File No. 1-9861).* | |||
| 10.6 | 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).* | |||
| 10.7 | Supplemental Deferred Compensation Agreement between Manufacturers and Traders Trust Company and 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).* | |||
| 10.8 | Supplemental Deferred Compensation Agreement between Manufacturers and Traders Trust Company and 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).* | |||
| 10.9 | 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).* | |||
| 10.10 | M&T Bank Corporation Supplemental Pension Plan, as amended and restated. Incorporated by reference to Exhibit No. 10.1 to the Form 8-K dated November 15, 2005 (File No. 1-9861).* |
144
| 10.11 | M&T Bank Corporation Supplemental Retirement Savings Plan. Incorporated by reference to Exhibit No. 10.2 to the Form 8-K dated November 15, 2005 (File No. 1-9861).* | |||
| 10.12 | M&T Bank Corporation Deferred Bonus Plan, as amended and restated. Incorporated by reference to Exhibit No. 10.12 to the Form 10-K for the year ended December 31, 2004 (File No. 1-9861).* | |||
| 10.13 | M&T Bank Corporation Directors’ Stock Plan, as amended and restated. Incorporated by reference to Exhibit No. 10.11 to the Form 10-K for the year ended December 31, 2002 (File No. 1-9861).* | |||
| 10.14 | Restated 1987 Stock Option and Appreciation Rights Plan of ONBANCorp, Inc. Incorporated by reference to Exhibit 10.11 to the Form 10-Q for the quarter ended June 30, 1998 (File No. 1-9861).* | |||
| 10.15 | 1992 ONBANCorp Directors’ Stock Option Plan. Incorporated by reference to Exhibit 10.12 to the Form 10-Q for the quarter ended June 30, 1998 (File No. 1-9861).* | |||
| 10.16 | Consulting agreement, dated July 9, 2000, between M&T Bank Corporation and T. Jefferson Cunningham III. Incorporated by reference to Exhibit 10.15 to the Form 10-K for the year ended December 31, 2000 (File No. 1-9861).* | |||
| 10.17 | Keystone Financial, Inc. 1997 Stock Incentive Plan, as amended November 19, 1998. Incorporated by reference to Exhibit 10.16 to the Form 10-K of Keystone Financial, Inc. for the year ended December 31, 1998 (File No. 000-11460).* | |||
| 10.18 | Keystone Financial, Inc. 1992 Stock Incentive Plan. Incorporated by reference to Exhibit 10.10 to the Form 10-K of Keystone Financial, Inc. for the year ended December 31, 1997 (File No. 000-11460).* | |||
| 10.19 | Keystone Financial, Inc. 1988 Stock Incentive Plan. Incorporated by reference to Exhibit 10.2 to the Form 10-K of Keystone Financial, Inc. for the year ended December 31, 1998 (File No. 000-11460).* | |||
| 10.20 | Keystone Financial, Inc. 1995 Non-Employee Directors’ Stock Option Plan. Incorporated by reference to Exhibit B to the Proxy Statement of Keystone Financial, Inc. dated April 7, 1995 (File No. 000-11460).* | |||
| 10.21 | Keystone Financial, Inc. 1990 Non-Employee Directors’ Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.9 to the Form 10-K of Keystone Financial, Inc. for the year ended December 31, 1998 (File No. 000-11460).* | |||
| 10.22 | Keystone Financial, Inc. 1992 Director Fee Plan. Incorporated by reference to Exhibit 10.11 to the Form 10-K of Keystone Financial, Inc. for the year ended December 31, 1999 (File No. 000-11460).* | |||
| 10.23 | Financial Trust Corp Non-Employee Director Stock Option Plan of 1994. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 of Financial Trust Corp, dated March 26, 1996 (File No. 333-01989).* | |||
| 10.24 | Progressive Bank, Inc. 1993 Non-Qualified Stock Option Plan for Directors. Incorporated by reference to Exhibit 10.9 to the Progressive Bank, Inc. Form 10-K for the year ended December 31, 1993 (File No. 0-15025).* | |||
| 10.25 | Premier National Bancorp, Inc. 1995 Incentive Stock Plan (as amended and restated effective May 13, 1999). Incorporated by reference to Exhibit 10.4 to the Premier National Bancorp, Inc. Form 10-K for the year ended December 31, 1999 (File No. 1-13213).* | |||
| 10.26 | M&T Bank Corporation Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.28 to the Form 10-Q for the quarter ended September 30, 2002 (File No. 1-9861).* | |||
| 10.27 | M&T Bank Corporation 2005 Incentive Compensation Plan. Incorporated by reference to Exhibit No. 10 to the Form 8-K dated April 19, 2005 and filed April 21, 2005 (File No. 1-9861).* |
145
| 10.28 | M&T Bank Corporation Employee Severance Plan. Incorporated by reference to Exhibit No. 10.2 to the Form 10-Q for the quarter ended March 31, 2005 (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.” | |||
| 14.1 | M&T Bank Corporation Code of Ethics for CEO and Senior Financial Officers. Incorporated by reference to Exhibit 14.1 to the Form 10-K for the year ended December 31, 2003 (File No. 1-9861). | |||
| 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. 333-57330, 333-63660, 33-12207, 33-58500, 33-63917, 333-43171, 333-43175, 333-63985, 333-97031, 33-32044, 333-16077, 333-84384, 333-127406 and 333-122147. Filed herewith. | |||
| 31.1 | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | |||
| 31.2 | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | |||
| 32.1 | Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. | |||
| 32.2 | Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
| * | Management contract or compensatory plan or arrangement. |
146
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the
incorporation by reference in the Registration Statements on
Form S-8 (Nos.
333-57330,
333-63660,
33-12207,
33-58500,
33-63917,
333-43171, 333-43175,
333-63985,
333-97031,
33-32044,
333-16077,
333-84384 and
333-127406) and
Form S-3
(No. 333-122147)
of M&T Bank Corporation
of our report dated
February 24, 2006 relating to
the financial statements, management’s assessment of the
effectiveness of internal control over financial reporting and
the effectiveness of internal control over financial reporting,
which appears in this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
Buffalo, New York
February 27, 2006
EXHIBIT 31.1
CERTIFICATIONS
I, Robert E. Sadler, Jr. certify that:
| 1. | I have reviewed this annual report on Form 10-K of M&T Bank Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ ROBERT E. SADLER, JR. |
|
|
|
| Robert E. Sadler, Jr. | |
| President and Chief Executive Officer |
Date: February 28, 2006
EXHIBIT 31.2
CERTIFICATIONS
I, René F. Jones, certify that:
| 1. | I have reviewed this annual report on Form 10-K of M&T Bank Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ RENÉ F. JONES |
|
|
|
| René F. Jones | |
| Executive Vice President | |
| and Chief Financial Officer |
Date: February 28, 2006
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C.
§1350
I, Robert E. Sadler, Jr.,
President and Chief Executive Officer of
M&T Bank Corporation,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. Section 1350, that:
(1) the Annual Report on
Form 10-K of
M&T Bank Corporation
for the annual period ended December 31, 2005 (the
“Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained
in the Report fairly presents, in all material respects, the
financial condition and results of operations of
M&T Bank Corporation.
The foregoing certification is being furnished solely pursuant
to 18 U.S.C. §1350 and is not being filed as part of
the Report or as a separate disclosure document.
| /s/ ROBERT E. SADLER, JR. | |
|
|
|
| Robert E. Sadler, Jr. |
February 28, 2006
A signed original of this written
statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic
version of this written statement required by Section 906,
has been provided to
M&T Bank Corporation
and will be retained by
M&T Bank Corporation
and furnished to the Securities and Exchange Commission or its
staff upon request.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C.
§1350
I, René F. Jones, Executive
Vice President and Chief Financial Officer of
M&T Bank Corporation,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. Section 1350, that:
(1) the Annual Report on
Form 10-K of
M&T Bank Corporation
for the annual period ended December 31, 2005 (the
“Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained
in the Report fairly presents, in all material respects, the
financial condition and results of operations of
M&T Bank Corporation.
The foregoing certification is being furnished solely pursuant
to 18 U.S.C. §1350 and is not being filed as part of
the Report or as a separate disclosure document.
| /s/ RENÉ F. JONES | |
|
|
|
| René F. Jones |
February 28, 2006
A signed original of this written
statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic
version of this written statement required by Section 906,
has been provided to
M&T Bank Corporation
and will be retained by
M&T Bank Corporation
and furnished to the Securities and Exchange Commission or its
staff upon request.