FORM 10-K
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

 

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-9861

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

New York   16-0968385
(State of incorporation)   (I.R.S. Employer IdentificationNo.)
One M&T Plaza, Buffalo, New York   14203
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

716-842-5445

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Name of Each Exchange on Which Registered
Common Stock, $.50 par value   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  ¨

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  ¨        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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer    þ       Accelerated filer    ¨   
Non-accelerated filer    ¨         Smaller reporting company    ¨   
(Do not check if a smaller reporting company)      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨        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, 2011: $9,926,718,437.

Number of shares of the Common Stock, $0.50 par value, outstanding as of the close of business on February 10, 2012: 126,406,098 shares.

Documents Incorporated By Reference:

(1) Portions of the Proxy Statement for the 2012 Annual Meeting of Shareholders of M&T Bank Corporation in Parts II and III.

 

 

 


Table of Contents

M&T BANK CORPORATION

Form 10-K for the year ended December 31, 2011

CROSS-REFERENCE SHEET

 

                        Form 10-K    
Page
 
PART I   

Item 1. Business

     4   

Statistical disclosure pursuant to Guide 3

  
   I.    Distribution of assets, liabilities, and shareholders’ equity; interest rates and interest differential   
      A.    Average balance sheets      44   
      B.    Interest income/expense and resulting yield or rate on average interest-earning assets (including non-accrual loans) and interest-bearing liabilities      44   
      C.    Rate/volume variances      25   
   II.    Investment portfolio   
      A.    Year-end balances      23   
      B.    Maturity schedule and weighted average yield      78   
      C.    Aggregate carrying value of securities that exceed ten percent of shareholders’ equity      113   
   III.    Loan portfolio   
      A.    Year-end balances      23, 116   
      B.    Maturities and sensitivities to changes in interest rates      76   
      C.    Risk elements   
         Nonaccrual, past due and renegotiated loans      57, 118-119   
         Actual and pro forma interest on certain loans      119, 125   
         Nonaccrual policy      104   
         Loan concentrations…      66   
   IV.    Summary of loan loss experience   
      A.    Analysis of the allowance for loan losses      56, 122-127   
         Factors influencing management’s judgment concerning the adequacy of the allowance and provision……      55-66, 105, 122-127   
      B.    Allocation of the allowance for loan losses      65, 122, 127   
   V.    Deposits   
      A.    Average balances and rates      44   
      B.    Maturity schedule of domestic time deposits with balances of $100,000 or more      79   
   VI.    Return on equity and assets      25, 38, 82-83, 87   
   VII.    Short-term borrowings      132   

Item 1A.

   Risk Factors      25-28   

Item 1B.

   Unresolved Staff Comments      28   

Item 2.

   Properties      28   

Item 3.

   Legal Proceedings      28-29   

Item 4.

   Mine Safety Disclosures      29   
      Executive Officers of the Registrant      29-30   
PART II   

Item 5.

   Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities      30-32   
      A.    Principal market      30   
         Market prices      94   
      B.    Approximate number of holders at year-end      23   

 

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                        Form 10-K    
Page
 
      C.    Frequency and amount of dividends declared      24-25, 94, 102   
      D.    Restrictions on dividends      8-16   
      E.    Securities authorized for issuance under equity compensation plans      31, 136-138   
      F.    Performance graph      31-32   
      G.    Repurchases of common stock      32   

Item 6.

   Selected Financial Data      33   
      A.    Selected consolidated year-end balances      23   
      B.    Consolidated earnings, etc      24   

Item 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      33-95   

Item 7A.

   Quantitative and Qualitative Disclosures About Market Risk      96   

Item 8.

   Financial Statements and Supplementary Data      96   
      A.    Report on Internal Control Over Financial Reporting      97   
      B.    Report of Independent Registered Public Accounting Firm      98   
      C.    Consolidated Balance Sheet — December 31, 2011 and 2010      99   
      D.    Consolidated Statement of Income — Years ended December 31, 2011, 2010 and 2009      100   
      E.    Consolidated Statement of Cash Flows — Years ended December 31, 2011, 2010 and 2009      101   
      F.    Consolidated Statement of Changes in Shareholders’ Equity — Years ended December 31, 2011, 2010 and 2009      102   
      G.    Notes to Financial Statements      103-171   
      H.    Quarterly Trends      94   

Item 9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      172   

Item 9A.

   Controls and Procedures      172   
      A.    Conclusions of principal executive officer and principal financial officer regarding disclosure controls and procedures      172   
      B.    Management’s annual report on internal control over financial reporting      172   
      C.    Attestation report of the registered public accounting firm      172   
      D.    Changes in internal control over financial reporting      172   

Item 9B.

   Other Information      172   
PART III   

Item 10.

   Directors, Executive Officers and Corporate Governance      172   

Item 11.

   Executive Compensation      172   

Item 12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      172-173   

Item 13.

   Certain Relationships and Related Transactions, and Director Independence      173   

Item 14.

   Principal Accounting Fees and Services      173   
PART IV   

Item 15.

   Exhibits and Financial Statement Schedules      173   

SIGNATURES

     174-175   

EXHIBIT INDEX

     176-178   

 

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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 financial holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”) and as a bank holding company 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, 2011 the Company had consolidated total assets of $77.9 billion, deposits of $59.4 billion and shareholders’ equity of $9.3 billion. The Company had 14,235 full-time and 1,431 part-time employees as of December 31, 2011.

At December 31, 2011, the Registrant had two wholly owned bank subsidiaries: M&T Bank and Wilmington Trust, National Association (“Wilmington Trust, N.A.”). The banks collectively offer a wide range of retail and commercial banking, trust, wealth management and investment services to their customers. At December 31, 2011, M&T Bank represented 99% of consolidated assets of the Company.

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.

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, 2011, M&T Bank had 774 domestic banking offices located throughout New York State, Pennsylvania, Maryland, Delaware, Virginia, West Virginia, and the District of Columbia, a full-service commercial banking office in Ontario, Canada, and an office in George Town, Cayman Islands. As of December 31, 2011, M&T Bank had consolidated total assets of $76.9 billion, deposits of $60.1 billion and shareholder’s equity of $9.7 billion. The deposit liabilities of M&T Bank are insured by the FDIC through its Deposit Insurance Fund (“DIF”). 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, Delaware, northern Virginia and Washington, D.C., and on small and medium-size businesses based in those areas, although loans are originated through lending offices in other states. In addition, the Company conducts lending activities in various states through other 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.

Wilmington Trust, N.A. (formerly named M&T Bank, National Association), 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 Wilmington Trust, N.A. are insured by the FDIC through the DIF. The main office of Wilmington Trust, N.A. is located at 1100 North Market Street, Wilmington, Delaware 19890. A second office is located in Oakfield, New York. Historically, Wilmington Trust, N.A. offered selected deposit and loan products on a nationwide basis, through direct mail, telephone marketing techniques and the Internet. Presently, Wilmington Trust, N.A. also offers various trust and wealth management services. As of December 31, 2011, Wilmington Trust, N.A. had total assets of $1.1 billion, deposits of $410 million and shareholder’s equity of $389 million.

Wilmington Trust Company, a wholly owned subsidiary of M&T Bank, was incorporated as a Delaware bank and trust company in March 1901 and amended its charter in July 2011 to become a non-depository trust company. Wilmington Trust Company provides a variety of Delaware based trust, fiduciary and custodial services to its clients. As of December 31, 2011, Wilmington Trust Company had total assets of

 

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$910 million and shareholder’s equity of $533 million. The headquarters of Wilmington Trust Company are located at 1100 North Market Street, Wilmington, Delaware 19890.

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 credit reinsurer which reinsures credit life and accident and health insurance purchased by the Company’s consumer loan customers. As of December 31, 2011, M&T Life Insurance had assets of $17 million and shareholder’s equity of $16 million. M&T Life Insurance recorded revenues of $1 million during 2011. Headquarters of M&T Life Insurance are located at 101 North First Avenue, Phoenix, Arizona 85003.

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 provides insurance agency services principally to the commercial market. As of December 31, 2011, M&T Insurance Agency had assets of $48 million and shareholder’s equity of $32 million. M&T Insurance Agency recorded revenues of $24 million during 2011. The headquarters of M&T Insurance Agency are located at 285 Delaware Avenue, Buffalo, New York 14202.

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 Bank-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. As of December 31, 2011, M&T Reinsurance had assets of $31 million and shareholder’s equity of $19 million. M&T Reinsurance recorded approximately $3 million of revenue during 2011. 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 that was formed through the merger of two separate subsidiaries, but traces its origin to the incorporation of M&T Real Estate, Inc. 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, 2011, M&T Real Estate had assets of $16.3 billion, common shareholder’s equity of $15.5 billion, and preferred shareholders’ equity, consisting of 9% fixed-rate preferred stock (par value $1,000), of $1 million. All of the outstanding common stock and 89% of the preferred stock of M&T Real Estate is owned by M&T Bank. The remaining 11% of M&T Real Estate’s outstanding preferred stock is owned by officers or former officers of the Company. M&T Real Estate recorded $763 million of revenue in 2011. 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 multifamily commercial real estate lending and provides loan servicing to purchasers of the loans it originates. As of December 31, 2011, M&T Realty Capital serviced $9.0 billion of commercial mortgage loans for non-affiliates and had assets of $339 million and shareholder’s equity of $69 million. M&T Realty Capital recorded revenues of $69 million in 2011. 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 (the “Investment Advisors Act”). 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, 2011, M&T Securities had assets of $50 million and shareholder’s equity of $30 million. M&T Securities recorded $85 million of revenue during 2011. The headquarters of M&T Securities are located at One M&T Plaza, Buffalo, New York 14203.

Wilmington Trust Investment Advisors, Inc. (“WT Investment Advisors”), a wholly owned subsidiary of M&T Bank and formerly known as MTB Investment Advisors prior to its name change on January 10, 2012, was incorporated as a Maryland corporation on June 30, 1995. WT Investment Advisors, a registered investment advisor under the Investment Advisors Act, serves as investment advisor to the MTB Group of Funds, a family of proprietary mutual funds, and institutional clients. As of December 31, 2011, WT Investment Advisors had assets of $20 million and shareholder’s equity of $17 million. WT Investment Advisors recorded revenues of $29 million in 2011. The headquarters of WT Investment Advisors are located at 100 East Pratt Street, Baltimore, Maryland 21202.

 

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Rodney Square Management Corporation (“Rodney Square Management”), a wholly owned subsidiary of M&T, was incorporated in September 1981 as a Delaware corporation. Rodney Square Management is registered as an investment advisor under the Investment Advisors Act and serves as the investment advisor to the Wilmington Funds, a family of proprietary mutual funds. Rodney Square Management had assets of $391 thousand and shareholder’s equity of $301 thousand as of December 31, 2011. Rodney Square Management had revenues of $2 million from May 16 to December 31, 2011. The headquarters of Rodney Square Management are located at 1100 North Market Street, Wilmington, Delaware 19890.

Wilmington Trust Investment Management, LLC (“WTIM”) is a wholly owned subsidiary of M&T and was incorporated in December 2001 as a Georgia limited liability company. WTIM is a registered investment advisor under the Investment Advisors Act and serves as the primary sub-advisor to the Wilmington Funds and provides investment management services to other clients, including certain private funds. WTIM’s headquarters is located at Terminus 27th Floor, 3280 Peachtree Road N.E., Atlanta, Georgia 30305. As of December 31, 2011, WTIM had assets of $21 million and shareholder’s equity of $19 million. WTIM had revenues of $9 million from May 16 to December 31, 2011.

On February 21, 2012, the shareholders of the Wilmington Funds approved the reorganization of twelve Wilmington Funds into the surviving MTB Group of Funds, which will be renamed as the Wilmington Funds upon the closing of the reorganization on or about March 9, 2012. Following the reorganization, Rodney Square Management will be renamed Wilmington Funds Management Corporation and will continue as the investment advisor to the Wilmington Funds, and WT Investment Advisors will become the primary sub-advisor to the Wilmington Funds. After the reorganization, WTIM will continue to provide investment management services to other clients, including certain private funds.

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 shareholders’ equity at December 31, 2011.

Segment Information, Principal Products/Services and Foreign Operations

Information about the Registrant’s business segments is included in note 22 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 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 Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking. The Company’s international activities are discussed in note 17 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 interest on loans and investment securities and fees for providing deposit account services. 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

M&T and its subsidiaries are subject to the extensive regulatory framework applicable to bank and financial holding companies and their subsidiaries. Regulation of financial institutions such as M&T and its subsidiaries is intended primarily for the protection of depositors, the FDIC’s DIF and the banking system as a whole, and generally is not intended for the protection of stockholders, creditors or other investors. Described below are the material elements of selected laws and regulations applicable to M&T and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulation, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business and results of M&T and its subsidiaries.

 

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Overview

M&T is registered with the Board of Governors of the Federal Reserve Board System (the “Federal Reserve Board”) as a bank holding company under the BHCA. As such, M&T and its subsidiaries are subject to the supervision, examination and reporting requirements of the BHCA and the regulations of the Federal Reserve Board.

In general, the BHCA limits the business of a bank holding company (“BHC”) to banking, managing or controlling banks and other activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve Board), without prior approval of the Federal Reserve Board. Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.

To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” M&T became a financial holding company on March 1, 2011. If a financial holding company fails to continue to meet any of the prerequisites for financial holding company status after engaging in activities not permissible for bank holding companies that have not elected to be treated as financial holding companies, the company must enter into an agreement with the Federal Reserve Board to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve Board may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in activities permissible only for a bank holding company electing to be treated as a financial holding company. In order for a financial holding company to commence any new activity permitted by the BHCA or to acquire a company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977 (the “CRA”). See the section captioned “Community Reinvestment Act” included elsewhere in this item.

Current federal law also establishes a system of functional regulation under which the federal banking agencies will regulate the banking activities of financial holding companies and banks’ financial subsidiaries, the U.S. Securities and Exchange Commission will regulate their securities activities, and state insurance regulators will regulate their insurance activities. Rules developed by the federal financial institutions regulators under these laws 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.

Recent Developments

The events of the past few years have led to numerous new laws in the United States and internationally for financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Dodd-Frank”), which was enacted in July 2010, significantly restructures the financial regulatory regime in the United States and provides for enhanced supervision and prudential standards for, among other things, bank holding companies like M&T that have total consolidated assets of $50 billion or more. The implications of the Dodd-Frank Act for the Company’s businesses will depend to a large extent on the manner in which rules adopted pursuant to the Dodd-Frank Act are implemented by the primary U.S. financial regulatory agencies as well as potential changes in market practices and structures in response to the requirements of the Dodd-Frank Act and financial reforms in other jurisdictions. Among other things:

   

Dodd-Frank repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

   

Dodd-Frank centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau (“CFPB”), and giving it responsibility for implementing, examining and enforcing compliance with federal consumer protection laws.

   

Dodd-Frank provided that debit card interchange fees must be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. This provision is known as the “Durbin Amendment.” In June 2011, the Federal Reserve Board adopted regulations setting the maximum permissible interchange fee as the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, with an additional adjustment of up to one cent per transaction if the

 

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issuer implements certain fraud-prevention standards. For more information regarding the impact of the Durbin Amendment on M&T’s results of operations, see Part II, Item 7.

   

Dodd-Frank created a new systemic risk oversight body, the Financial Stability Oversight Council (“FSOC”), to oversee and coordinate the efforts of the primary U.S. financial regulatory agencies in establishing regulations to address financial stability concerns.

   

Dodd-Frank directs the FSOC to make recommendations to the Federal Reserve Board as to enhanced supervision and prudential standards applicable to large, interconnected financial institutions, including as indicated above bank holding companies like M&T with total consolidated assets of $50 billion or more (often referred to as “systemically important financial institutions”), and authorizes the Federal Reserve Board to establish such standards either on its own or upon the recommendations of the FSOC. Dodd-Frank mandates that the requirements applicable to systemically important financial institutions be more stringent than those applicable to other financial companies. In December 2011, the Federal Reserve Board issued for public comment a notice of proposed rulemaking establishing enhanced prudential standards responsive to these provisions for:

   

risk-based capital requirements and leveraged limits;

   

stress testing of capital;

   

liquidity requirements;

   

overall risk management requirements;

   

resolution plan and credit exposure reporting; and

   

concentration/credit exposure limits.

Comments on the proposed rules (the “Proposed SIFI Rules”) are due by March 31, 2012. The Proposed SIFI Rules address a wide, diverse array of regulatory areas, each of which is highly complex. In some cases they would implement financial regulatory requirements being proposed for the first time, and in others over-lap with other regulatory reforms (including the Basel III capital and liquidity reforms discussed below in this section). The requirements generally will become effective on the first day of the fifth calendar quarter after the effective date of the final rule, although certain requirements have different transition periods. M&T is analyzing the impact of the Proposed SIFI Rules on its businesses. However, the full impact will not be known until the rules, and other regulatory initiatives that overlap with the rules, are finalized and their combined impacts can be understood.

   

Dodd-Frank requires various U.S. financial regulatory agencies to implement comprehensive rules governing the supervision, structure, trading and regulation of swap and over-the-counter derivative markets and participants. Dodd-Frank requires a large number of rulemaking in this area, many of which are not yet final. Once these rules are finalized, they could affect the way M&T or its subsidiaries operate, and changes to the markets and participants could impact business models and profitability of M&T or its subsidiaries.

The Dodd-Frank Act requires the federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds), with implementation starting as early as July 2012. The statutory provision is commonly called the “Volcker Rule”. In October 2011, federal regulators proposed rules to implement the Volcker Rule that included an extensive request for comments on the proposal, which were due by February 13, 2012. The proposed rules are highly complex, and many aspects of their application remain uncertain. Based on the proposed rules, M&T does not currently anticipate that the Volcker Rule will have a material effect on the operations of M&T and its subsidiaries. Until a final rule is adopted, the precise financial impact of the rule on M&T, its customers or the financial industry more generally, cannot be determined.

New laws or regulations or changes to existing laws and regulations (including changes in interpretation or enforcement) could materially adversely affect M&T’s financial condition or results of operations. As discussed further throughout this section, many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on M&T and its subsidiaries or the financial services industry generally. In addition to the

 

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discussion in this section, see “Recent Legislative Developments” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the potential impact legislative and regulatory reforms may have on the Company’s results of operations and financial condition.

Dividends

The Registrant is a legal entity separate and distinct from its banking and other subsidiaries. Historically, the majority of the Registrant’s revenue has been from dividends paid to the Registrant by its subsidiary banks. M&T Bank and Wilmington Trust, N.A. are subject, under one or more of the banking laws, to restrictions on the amount of dividend declarations. Future dividend payments to the Registrant by its subsidiary banks will be dependent on a number of factors, including the earnings and financial condition of each such bank, and are subject to the limitations referred to in note 23 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.

Dividend payments by M&T to its shareholders and stock repurchases by M&T are subject to the oversight of the Federal Reserve Board. As described below under the heading “Federal Reserve Board’s Comprehensive Capital Assessment Review”, dividends and stock repurchases generally may only be paid or made under a capital plan as to which the Federal Reserve Board has not objected.

As described herein under the heading “U.S. Treasury Capital Purchase Program”, in connection with the issuance of Series A Preferred Stock to the U.S. Department of the Treasury (“U.S. Treasury”), M&T is restricted from increasing its common stock dividend.

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 Financial Industry Regulatory Authority and state securities regulators.

Federal Reserve Board’s Comprehensive Capital Assessment Review

In November 2011, the Federal Reserve Board published a final rule requiring bank holding companies (including M&T) with $50 billion or more of total consolidated assets to submit annual capital plans to the appropriate Federal Reserve Bank. The capital analysis and review process provided for in the rule is known as the Comprehensive Capital Analysis and Review, or “CCAR”. The capital plans are required to be submitted on an annual basis. Such bank holding companies will also be required to collect and report certain related data on a quarterly basis to allow the Federal Reserve Board to monitor the companies’ progress against their annual capital plans. The comprehensive capital plans, which are prepared using Basel I capital guidelines, include a view of capital adequacy under four scenarios – a BHC-defined baseline scenario, a baseline scenario provided by the Federal Reserve Board, at least one BHC-defined stress scenario, and a stress scenario provided by the Federal Reserve Board. Covered bank holding companies, including M&T, may pay dividends and repurchase stock only in accordance with a capital plan that has been reviewed by the Federal Reserve Board and as to which the Federal Reserve Board has not objected. The rules provide that the Federal Reserve Board may object to a capital plan if the plan does not show that the covered BHC will meet all minimum regulatory capital ratios and maintain a ratio of Tier 1 common equity to risk-weighted assets of at least 5% on a pro forma basis under expected and stressful conditions throughout the nine-quarter planning horizon covered by the capital plan. The rules also require, among other things, that a covered BHC may not make a capital distribution unless after giving effect to the distribution it will meet all minimum regulatory capital ratios and have a ratio of Tier 1 common equity to risk-weighted assets of at least 5%. As part of this process, M&T also provides the Federal Reserve Board with projections covering the time period it will take to fully comply with Basel III capital guidelines, including the 7% Tier 1 common equity, 8.5% Tier 1 capital and 3% leverage ratios as well as granular components of those elements. M&T’s capital plan was filed with the Federal Reserve Board on January 9, 2012.

 

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The purpose of the Federal Reserve Board’s capital plan review is to ensure that these bank holding companies have robust, forward-looking capital planning processes that account for each BHC’s unique risks and that permit continued operations during times of economic and financial stress. The CCAR rule, consistent with prior Federal Reserve Board guidance, provides that capital plans contemplating dividend payout ratios exceeding 30% of projected after-tax net income will receive particularly close scrutiny.

Capital Requirements

M&T and its subsidiary banks are required to comply with the applicable capital adequacy standards established by the Federal Reserve Board. There are two basic measures of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve Board: a risk-based measure and a leverage measure.

Risk-based Capital Standards. The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in credit and market risk profiles among banks and financial holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital (“Total Capital”) to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8.0%. At least half of the Total Capital must be “Tier 1 Capital,” which currently consists of qualifying common equity, qualifying noncumulative perpetual preferred stock (including related surplus), senior perpetual preferred stock issued to the U.S. Treasury as part of the Troubled Asset Relief Program — Capital Purchase Program (the “CPP”), minority interests relating to qualifying common or noncumulative perpetual preferred stock issued by a consolidated U.S. depository institution or foreign bank subsidiary, and certain “restricted core capital elements,” as discussed below, less goodwill and certain other intangible assets. Currently, “Tier 2 Capital” may consist of, among other things, qualifying subordinated debt, mandatorily convertible debt securities, preferred stock and trust preferred securities not included in the definition of Tier 1 Capital, and a limited amount of the allowance for loan losses. Non-cumulative perpetual preferred stock, trust preferred securities and other so-called “restricted core capital elements” are currently limited to 25% of Tier 1 Capital. Pursuant to the Dodd-Frank Act, trust preferred securities will be phased-out of the definition of Tier 1 Capital of bank holding companies having consolidated assets exceeding $500 million, such as M&T, over a three-year period beginning in January 2013.

The minimum guideline to be considered well-capitalized for Tier 1 Capital and Total Capital is 6.0% and 10.0%, respectively. At December 31, 2011, the Registrant’s consolidated Tier 1 Capital ratio was 9.67% and its Total Capital ratio was 13.26%. The elements currently comprising Tier 1 Capital and Tier 2 Capital and the minimum Tier 1 Capital and Total Capital ratios may in the future be subject to change, as discussed in greater detail below.

Basel I and II Standards. M&T currently calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve Board based on the 1988 Capital Accord (“Basel I”) of the Basel Committee on Banking Supervision (the “Basel Committee”). In 2004, the Basel Committee published a new set of risk-based capital standards (“Basel II”) in order to update Basel I. Basel II provides two approaches for setting capital standards for credit risk — an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk-weighting on external credit assessments to a much greater extent than permitted in the existing risk-based capital guidelines. Basel II also would set capital requirements for operational risk and refine the existing capital requirements for market risk exposures. A definitive final rule for implementing the advanced approaches of Basel II in the United States, which applies only to internationally active banking organizations, or “core banks” (defined as those with consolidated total assets of $250 billion or more or consolidated on-balance sheet foreign exposures of $10 billion or more) became effective on April 1, 2008. Other U.S. banking organizations may elect to adopt the requirements of this rule (if they meet applicable qualification requirements), but are not required to comply. The rule also allows a banking organization’s primary federal supervisor to determine that application of the rule would not be appropriate in light of the bank’s asset size, level of complexity, risk profile or scope of operations. Neither M&T Bank nor Wilmington Trust, N.A. is currently required to comply with Basel II.

In July 2008, the U.S. bank regulatory agencies issued a proposed rule that would provide banking organizations that do not use the advanced approaches with the option to implement a new risk-based capital framework. This framework would adopt the standardized approach of Basel II for credit risk, the basic indicator approach of Basel II for operational risk, and related disclosure requirements. While this proposed rule generally parallels the relevant approaches under Basel II, it diverges where United States

 

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markets have unique characteristics and risk profiles, most notably with respect to risk weighting residential mortgage exposures. Comments on the proposed rule were due to the agencies by October 27, 2008, but a definitive final rule has not been issued as of February 2012.

Leverage Requirements. Neither Basel I nor Basel II includes a leverage requirement as an international standard, however, the Federal Reserve Board has established minimum leverage ratio guidelines to be considered well-capitalized for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets, less goodwill and certain other intangible assets (the “Leverage Ratio”), of 3.0% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 4%. M&T’s Leverage Ratio at December 31, 2011 was 9.28%.

The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

Basel III Standards. In December 2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as “Basel III.” Basel III, when implemented by the U.S. bank regulatory agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The Basel III final capital framework, among other things:

   

introduces as a new capital measure “Common Equity Tier 1”, or “CET1”, specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, defines CET1 narrowly by requiring that most deductions or adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expands the scope of the deductions or adjustments as compared to existing regulations;

   

when fully phased in on January 1, 2019, requires banks to maintain:

   

as a newly adopted international standard, a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%);

   

a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation);

   

a minimum ratio of Total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation);

   

as a newly adopted international standard, a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (as the average for each quarter of the month-end ratios for the quarter); and

   

provides for a “countercyclical capital buffer”, generally to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk, that would be a CET1 add-on to the capital conservation buffer in the range of 0% to 2.5% when fully implemented (potentially resulting in total buffers of between 2.5% and 5%).

The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

In July 2011, the Basel Committee introduced a consultative document establishing a requirement for a capital surcharge on certain globally systemically important banks (“G-SIBs”), and in November 2011, the Basel Committee issued final provisions substantially unchanged from the previous proposal. An “indicator-based approach” will be used to determine whether a bank is a G-SIB and the appropriate level of the surcharge to be applied. The “indicator-based approach” consists of five broad categories: size, interconnectedness, lack of substitutability, cross-jurisdictional activity and complexity. Banks found to be G-SIBs will be subject to a progressive CET1 surcharge ranging from 1% to 3.5% over the Basel III 7% CET1 requirement. The surcharge will become fully effective on January 1, 2019.

 

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The implementation of the Basel III final framework will commence January 1, 2013. On that date, banking institutions will be required to meet the following minimum capital ratios before the application of any buffer:

   

3.5% CET1 to risk-weighted assets;

   

4.5% Tier 1 capital to risk-weighted assets; and

   

8.0% Total capital to risk-weighted assets.

The Basel III final framework provides for a number of new deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2014 and will be phased-in over a five-year period (20% per year). The implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

The timing for the U.S. banking agency’s publication of proposed rules to implement the Basel III capital framework and the implementation schedule is uncertain. The release accompanying the Proposed SIFI Rules appears to indicate that rules implementing Basel III will be published for comment during the first quarter of 2012. The regulations ultimately applicable to M&T may be substantially different from the Basel III final framework as published in December 2010.

The Dodd-Frank Act appears to require the Federal Reserve Board to adopt regulations imposing a continuing “floor” of the Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital regulations resulting from Basel III otherwise would permit lower requirements. In December 2010, the Federal Reserve Board published for comment proposed regulations implementing this requirement. On June 14, 2011, the Federal Reserve Board, FDIC and OCC jointly approved a final rule which requires a banking organization operating under the agencies’ advanced approaches risk-based capital rules to adhere to the higher of the minimum requirements under the general risk-based capital rules and the minimum requirements under the advanced approaches risk-based capital rules.

Liquidity Ratios under Basel III. Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, both in the U.S. and internationally, without required formulaic measures. The Basel III final framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward will be required by regulation. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source. The Basel III liquidity framework contemplates that the LCR will be subject to an observation period continuing through mid-2013 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard on January 1, 2015. Similarly, it contemplates that the NSFR will be subject to an observation period through mid-2016 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard by January 1, 2018. These new standards are subject to further rulemaking and their terms may well change before implementation.

The Proposed SIFI Rules address liquidity requirements for bank holding companies, including M&T, with $50 billion or more in total consolidated assets. In the release accompanying those rules, the Federal Reserve Board states a general intention to incorporate the Basel III liquidity framework for the bank holding companies covered by the Proposed SIFI Rules or a “subset” of those bank holding companies. Although these rules do not include prescriptive ratios like the LCR and NSFR, they do include detailed liquidity-related requirements, including requirements for cashflow projections, liquidity stress testing (including, at a minimum, over time horizons that include an overnight time horizon, a 30-day time

 

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horizon, a 90-day time horizon and a 1-year time horizon), and a requirement that covered bank holding companies maintain a liquidity buffer of unencumbered highly liquid assets sufficient to meet projected net cash outflows and the projected loss or impairment of existing funding sources for 30 days over a range of liquidity stress scenarios.

Capital Requirements of Subsidiary Depository Institutions. M&T Bank and Wilmington Trust, N.A. are subject to substantially similar capital requirements as those applicable to M&T. As of December 31, 2011, both M&T Bank and Wilmington Trust, N.A. were in compliance with applicable minimum capital requirements. None of M&T, M&T Bank or Wilmington Trust, N.A. has been advised by any federal banking agency of a failure to meet any specific minimum capital ratio requirement applicable to it as of December 31, 2011. Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. See “Regulatory Remedies under the FDIA” below.

Given that the Basel III rules are subject to change and the scope and content of capital regulations that U.S. federal banking agencies may adopt under the Dodd-Frank Act is uncertain, M&T cannot be certain of the impact new capital regulations will have on its capital ratios or those of its bank subsidiaries.

Safety and Soundness Standards

Guidelines adopted by the federal bank regulatory agencies pursuant to the Federal Deposit Insurance Act, as amended (the “FDIA”), establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. Additionally, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA. See “Regulatory Remedies under the FDIA” below. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Regulatory Remedies under the FDIA

The FDIA establishes a system of regulatory remedies to resolve the problems of undercapitalized institutions. The federal banking regulators have established five capital categories (“well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”) and must take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions which are undercapitalized, significantly undercapitalized or critically undercapitalized. The severity of these mandatory and discretionary supervisory actions depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the FDIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal bank regulatory agencies have specified by regulation the relevant capital levels for each category:

 

“Well-Capitalized”

  

“Adequately Capitalized”

Leverage Ratio of 5%,

Tier 1 Capital ratio of 6%,

Total Capital ratio of 10%, and

Not subject to a written agreement, order, capital directive or regulatory remedy directive requiring a specific capital level.

  

Leverage Ratio of 4%,

Tier 1 Capital ratio of 4%, and

Total Capital ratio of 8%.

“Undercapitalized”

  

“Significantly Undercapitalized”

Leverage Ratio less than 4%,

Tier 1 Capital ratio less than 4%, or

Total Capital ratio less than 8%.

  

Leverage Ratio less than 3%,

Tier 1 Capital ratio less than 3%, or

Total Capital ratio less than 6%.

“Critically undercapitalized”

     
Tangible equity to total assets less than 2%.   

 

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For purposes of these regulations, the term “tangible equity” includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards plus the amount of outstanding cumulative perpetual preferred stock (including related surplus), minus all intangible assets with certain exceptions. An institution that is classified as well-capitalized based on its capital levels may be classified as adequately capitalized, and an institution that is adequately capitalized or undercapitalized based upon its capital levels may be treated as though it were undercapitalized or significantly undercapitalized, respectively, if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment.

An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking regulator. Under the FDIA, in order for the capital restoration plan to be accepted by the appropriate federal banking agency, a bank holding company must guarantee that a subsidiary depository institution will comply with its capital restoration plan, subject to certain limitations. The bank holding company must also provide appropriate assurances of performance. The obligation of a controlling bank holding company under the FDIA to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary’s assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. Institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of 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. Critically undercapitalized depository institutions failing to submit or implement an acceptable capital restoration plan are subject to appointment of a receiver or conservator.

Support of Subsidiary Banks

Under longstanding Federal Reserve Board policy which has been codified by the Dodd-Frank Act, M&T is expected to act as a source of financial strength to, and to commit resources to support, its subsidiary banks. This support may be required at times when M&T may not be inclined to provide it. In addition, any capital loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Cross-Guarantee Provisions

Each insured depository institution “controlled” (as defined in the BHCA) by the same bank holding company can be held liable to the FDIC for any loss incurred, or reasonably expected to be incurred, by the FDIC due to the default of any other insured depository institution controlled by that holding company and for any assistance provided by the FDIC to any of those banks that is in danger of default. The FDIC’s claim under the cross-guarantee provisions is superior to claims of shareholders 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 DIF.

Transactions with Affiliates

There are various legal restrictions on the extent to which M&T and its non-bank subsidiaries may borrow or otherwise obtain funding from M&T Bank and Wilmington Trust, N.A. In general, Sections 23A and 23B of the Federal Reserve Board Act and Federal Reserve Board Regulation W require that any “covered transaction” by M&T Bank and Wilmington Trust, N.A. (or any of their respective subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited to (a) in the case of any single such affiliate, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries may not exceed 10% of the capital stock and surplus of such insured depository institution, and (b) in the case of all affiliates, the aggregate amount of covered transactions of an

 

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insured depository institution and its subsidiaries may not exceed 20% of the capital stock and surplus of such insured depository institution. The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking organization, including for example, the requirement that the 10% of capital limit on covered transactions begin to apply to financial subsidiaries. “Covered transactions” are defined by statute to include, among other things, a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. All covered transactions, including certain additional transactions (such as transactions with a third party in which an affiliate has a financial interest), must be conducted on market terms.

FDIC Insurance Assessments

Deposit Insurance Assessments. M&T Bank and Wilmington Trust, N.A. pay deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC.

On April 1, 2011, the deposit insurance assessment base changed from total domestic deposits to the average consolidated total assets of the depository institution minus its average tangible equity, pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act. Additionally, the FDIC revised the deposit insurance assessment system to create a two scorecard system for large institutions, one for most large institutions that have more than $10 billion in assets, such as M&T Bank, and another for “highly complex” institutions that have over $50 billion in assets and are fully owned by a parent with over $500 billion in assets. Each scorecard has a performance score and a loss-severity score that is combined to produce a total score, which is translated into an initial assessment rate. In calculating these scores, the FDIC utilizes the bank’s capital level and supervisory ratings (its “CAMELS” ratings) and certain new forward-looking financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress. The new assessment rule also eliminates the use of risk categories and long-term debt issuer ratings for calculating risk-based assessments for institutions having more than $10 billion in assets. The FDIC has the ability to make discretionary adjustments to the total score, up or down, based upon significant risk factors that are not adequately captured in the scorecard. The total score is then translated to an initial base assessment rate on a non-linear, sharply-increasing scale.

For large institutions, including M&T Bank, the initial base assessment rate ranges from 5 to 35 basis points (hundredths of one percent) on an annualized basis. After the effect of potential base-rate adjustments, the total base assessment rate could range from 2.5 to 45 basis points on an annualized basis. The potential adjustments to an institution’s initial base assessment rate include (i) a potential decrease of up to 5 basis points for certain long-term unsecured debt and (ii) (except for well-capitalized institutions with a CAMELS rating of 1 or 2) a potential increase of up to 10 basis points for brokered deposits in excess of 10% of domestic deposits. As the DIF reserve ratio grows, the rate schedule will be adjusted downward. Additionally, the rule includes a new adjustment for depository institution debt whereby an institution will pay an additional premium equal to 50 basis points on every dollar (above 3% of an institution’s Tier 1 capital) of long-term, unsecured debt held that was issued by another insured depository institution (excluding debt guaranteed under the Temporary Liquidity Guarantee Program).

In October 2010, the FDIC adopted a new restoration plan to ensure the designated reserve ratio reaches 1.35% by September 2020. The FDIC will, at least semi-annually, update its income and loss projections for the DIF and, if necessary, propose rules to further increase assessment rates.

On November 17, 2009, the FDIC implemented a final rule requiring insured institutions, such as M&T Bank and Wilmington Trust, N.A., to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Such prepaid assessments were paid on December 30, 2009, along with each institution’s quarterly risk-based deposit insurance assessment for the third quarter of 2009 (assuming 5% annual growth in deposits between the third quarter of 2009 and the end of 2012 and taking into account, for 2011 and 2012, the annualized three basis point increase discussed below). The remaining amount of prepaid insurance assessments at December 31, 2011 related to 2012 for M&T Bank was $89.2 million and for Wilmington Trust, N.A. was $1.7 million.

In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for temporary unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for noninterest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012.

 

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Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

FICO Assessments. In addition, the Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose assessments on DIF applicable deposits in order to service the interest on FICO’s bond obligations from deposit insurance fund assessments. The amount assessed on individual institutions by FICO is in addition to the amount, if any, paid for deposit insurance according to the FDIC’s risk-related assessment rate schedules. FICO assessment rates may be adjusted quarterly to reflect a change in assessment base. M&T Bank recognized $5 million of expense related to its FICO assessments and Wilmington Trust, N.A. recognized $51 thousand of such expense in 2011.

Acquisitions

The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before: (1) it may acquire direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition, the bank holding company will directly or indirectly own or control 5% or more of the voting shares of the institution; (2) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings and loan association; or (3) it may merge or consolidate with any other bank holding company. Since July 2011, financial holding companies and bank holding companies with consolidated assets exceeding $50 billion, such as M&T, have been required to (i) obtain prior approval from the Federal Reserve Board before acquiring certain nonbank financial companies with assets exceeding $10 billion and (ii) provide prior written notice to the Federal Reserve Board before acquiring direct or indirect ownership or control of any voting shares of any company having consolidated assets of $10 billion or more. Since July 2011, bank holding companies seeking approval to complete an acquisition have been required to be well-capitalized and well-managed.

The BHCA further provides that the Federal Reserve Board may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve Board is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues includes the parties’ performance under the CRA. The Federal Reserve Board must take into account the institutions’ effectiveness in combating money laundering. In addition, pursuant to the Dodd-Frank Act, the BHCA was amended to require the Federal Reserve Board, when evaluating a proposed transaction, to consider the extent to which the transaction would result in greater or more concentrated risks to the stability of the United States banking or financial system.

U.S. Treasury Capital Purchase Program

Pursuant to the CPP, on December 23, 2008, M&T issued and sold to the U.S. Treasury in a private offering (i) $600 million of Series A Preferred Stock and (ii) a warrant to purchase 1,218,522 shares of M&T Common Stock at an exercise price of $73.86 per share, subject to certain anti-dilution and other adjustments. M&T elected to participate in the capital purchase program at an amount equal to approximately 1% of its risk-weighted assets at the time. On May 18, 2011, M&T redeemed and retired $370 million of the Series A Preferred Stock. In connection with its acquisition of Provident on May 23, 2009, M&T issued $151.5 million of Series C Preferred Stock in exchange for the securities issued by Provident to the U.S. Treasury on November 14, 2008, and assumed a warrant issued by Provident to the U.S. Treasury, which, on a converted basis, provides for the purchase of 407,542 shares of M&T Common Stock at $55.76 per share.

The securities purchase agreement, dated December 23, 2008, pursuant to which the securities issued to the U.S. Treasury under the CPP were sold, limits the payment of quarterly dividends on M&T’s common stock to $0.70 per share without prior approval of the U.S. Treasury, limits M&T’s ability to repurchase shares of its common stock (with certain exceptions, including the repurchase of our common stock to offset share dilution from equity-based compensation awards), grants the holders of the Series A Preferred

 

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Stock, the Warrant and the common stock of M&T to be issued under the warrant certain registration rights, and subjects M&T to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008 (“EESA”), as amended by the American Recovery and Reinvestment Act of 2009 (“ARRA”), described below under “Executive and Incentive Compensation”. The securities purchase agreement between Provident and the U.S. Treasury, to which M&T succeeded, has the same limitations and effects.

Executive and Incentive Compensation

ARRA, an economic stimulus package signed into law on February 17, 2009, significantly expanded the restrictions on executive compensation that were included in Section 111 of EESA and imposed various corporate governance standards on recipients of TARP funds, including under the U.S. Treasury’s capital purchase program, until such funds are repaid. On June 10, 2009, the U.S. Treasury issued the TARP Interim Final Rule to clarify and provide additional guidance with respect to the restrictions on executive compensation that apply to executives and certain other employees of TARP recipients that includes: (i) a prohibition on paying bonuses, retention awards and incentive compensation, other than long-term restricted stock or pursuant to certain preexisting employment contracts, to its Senior Executive Officers (“SEOs”) and next 20 most highly-compensated employees; (ii) a prohibition on the payment of “golden parachute payments” to its SEOs and next five most highly compensated employees; (iii) a prohibition on paying incentive compensation for “unnecessary and excessive risks” and earnings manipulations; (iv) a requirement to clawback any bonus, retention award, or incentive compensation paid to a SEO and any of the next twenty most highly compensated employees based on statements of earnings, revenues, gains, or other criteria later found to be materially inaccurate; (v) a requirement to establish a policy on luxury or excessive expenditures, including entertainment or events, office and facility renovations, company owned aircraft and other transportation and similar activities or events; (vi) a requirement to provide shareholders with a non-binding advisory “say on pay” vote on executive compensation; (vii) a prohibition on deducting more than $500,000 in annual compensation or performance based compensation for the SEOs under Internal Revenue Code Section 162(m); (viii) a requirement that the compensation committee of the board of directors evaluate and review on a semi-annual basis the risks involved in employee compensation plans; and (ix) a requirement that the chief executive officer and chief financial officer provide written certifications of compliance with the foregoing requirements.

Guidelines adopted by the federal banking agencies pursuant to the FDIA prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In June 2010, the Federal Reserve Board issued comprehensive guidance on incentive compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, discussed above. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The Incentive Compensation Guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

The Dodd-Frank Act requires the federal bank regulatory agencies and the Securities and Exchange Commission to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such as M&T and M&T Bank, having at least $1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The agencies proposed such regulations in April

 

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2011, which may become effective before the end of 2012. If the regulations are adopted in the form initially proposed, they will impose limitations on the manner in which M&T may structure compensation for its executives.

The scope and content of the U.S. banking regulators’ policies on incentive compensation are continuing to develop and are likely to continue evolving in the future. It cannot be determined at this time whether compliance with such policies will adversely affect the ability of M&T and its subsidiaries to hire, retain and motivate their key employees.

Resolution Planning

As required by the Dodd-Frank Act, the Federal Reserve Board and FDIC have jointly issued a final rule that requires certain organizations, including bank holding companies with consolidated assets of $50 billion or more, to report periodically to regulators a resolution plan for their rapid and orderly resolution in the event of material financial distress or failure. M&T’s resolution plan must, among other things, ensure that its depository institution subsidiaries are adequately protected from risks arising from its other subsidiaries. The final rule sets specific standards for the resolution plans, including requiring a strategic analysis of the plan’s components, a description of the range of specific actions the company proposes to take in resolution, and a description of the company’s organizational structure, material entities, interconnections and interdependencies, and management information systems, among other elements.

In addition, the FDIC has issued a final rule that requires insured depository institutions with $50 billion or more in total assets, such as M&T Bank, to submit to the FDIC periodic plans for resolution in the event of the institution’s failure. The rule requires these insured institutions to submit a resolution plan that will enable the FDIC, as receiver, to resolve the bank in a manner that ensures that depositors receive access to their insured deposits within one business day of the institution’s failure, maximizes the net-present-value return from the sale or disposition of its assets, and minimizes the amount of any loss to be realized by the institution’s creditors. The final rule also sets specific standards for the resolution plans, including requiring a strategic analysis of the plan’s components, a description of the strategies for achieving the least costly resolution, and analyses of the financial company’s organization, material entities, interconnections and interdependencies, and management information systems, among other elements.

Insolvency of an Insured Depository Institution or a Bank Holding Company

If the FDIC is appointed as conservator or receiver for an insured depository institution such as M&T Bank or Wilmington Trust, N.A., upon its insolvency or in certain other events, the FDIC has the power:

   

to transfer any of the depository institution’s assets and liabilities to a new obligor, including a newly formed “bridge” bank without the approval of the depository institution’s creditors;

   

to enforce the terms of the depository institution’s contracts pursuant to their terms without regard to any provisions triggered by the appointment of the FDIC in that capacity; or

   

to repudiate or disaffirm any contract or lease to which the depository institution is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmance or repudiation of which is determined by the FDIC to promote the orderly administration of the depository institution.

In addition, under federal law, the claims of holders of domestic deposit liabilities and certain claims for administrative expenses against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including claims of debt holders of the institution, in the “liquidation or other resolution” of such an institution by any receiver. As a result, whether or not the FDIC ever sought to repudiate any debt obligations of M&T Bank or Wilmington Trust, N.A., the debt holders would be treated differently from, and could receive, if anything, substantially less than, the depositors of the bank. The Dodd-Frank Act created a new resolution regime (known as “orderly liquidation authority”) for systemically important non-bank financial companies, including bank holding companies and their affiliates. Under the orderly liquidation authority, the FDIC may be appointed as receiver for the systemically important institution, and its failed non-bank subsidiaries, for purposes of liquidating the entity if, among other conditions, it is determined at the time of the institution’s failure that it is in default or in danger of default and the failure poses a risk to the stability of the U.S. financial system.

If the FDIC is appointed as receiver under the orderly liquidation authority, then the powers of the receiver, and the rights and obligations of creditors and other parties who have dealt with the institution, would be determined under the Dodd-Frank Act provisions, and not under the insolvency law that would

 

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otherwise apply. The powers of the receiver under the orderly liquidation authority were based on the powers of the FDIC as receiver for depository institutions under the FDIA. However, the provisions governing the rights of creditors under the orderly liquidation authority were modified in certain respects to reduce disparities with the treatment of creditors’ claims under the U.S. Bankruptcy Code as compared to the treatment of those claims under the new authority. Nonetheless, substantial differences in the rights of creditors exist as between these two regimes, including the right of the FDIC to disregard the strict priority of creditor claims in some circumstances, the use of an administrative claims procedure to determine creditors’ claims (as opposed to the judicial procedure utilized in bankruptcy proceedings), and the right of the FDIC to transfer claims to a “bridge” entity.

The orderly liquidation authority provisions of the Dodd-Frank Act became effective upon enactment. However, a number of rulemakings are required under the terms of Dodd-Frank, and a number of provisions of the new authority require clarification. The FDIC has completed its initial phase of rulemaking under the orderly liquidation authority, but additional rules are under consideration.

An orderly liquidation fund will fund such liquidation proceedings through borrowings from the Treasury Department and risk-based assessments made, first, on entities that received more in the resolution than they would have received in liquidation to the extent of such excess, and second, if necessary, on bank holding companies with total consolidated assets of $50 billion or more, such as M&T. If an orderly liquidation is triggered, M&T could face assessments for the orderly liquidation fund.

Depositor Preference

Under federal law, depositors and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution in the “liquidation or other resolution” of such an institution by any receiver. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.

Financial Privacy

The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

Consumer Protection Laws

In connection with their respective lending and leasing activities, M&T Bank, Wilmington Trust, N.A., and certain of their subsidiaries, are each subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions 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.

 

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Since July 1, 2010, a federal banking rule under the Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machines (“ATM”) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those type of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws the consumer’s account will be denied. Overdrafts on the payment of checks and regular electronic bill payments are not covered by this new rule. Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. Financial institutions must provide consumers who do not opt in with the same account terms, conditions and features (including pricing) that they provide to consumers who do opt in.

Consumer Financial Protection Bureau Supervision

In July 2011, M&T Bank and Wilmington Trust, N.A. were notified that they will be supervised by the CFPB for certain consumer protection purposes. The CFPB will focus on:

   

risks to consumers and compliance with the federal consumer financial laws, when it evaluates the policies and practices of a financial institution;

   

the markets in which firms operate and risks to consumers posed by activities in those markets;

   

depository institutions that offer a wide variety of consumer financial products and services;

   

depository institutions with a more specialized focus; and

   

non-depository companies that offer one or more consumer financial products or services.

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) requirements for audit committees, including independence, expertise, and responsibilities; (ii) responsibilities 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) standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (vi) 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 civil and criminal penalties for fraud and other violations of the securities laws.

Community Reinvestment Act

M&T Bank and Wilmington Trust, N.A. are subject to the provisions of the CRA. Under the terms of the CRA, each appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess such bank’s record in assessing and meeting the credit needs of the communities served by that bank, including low- and moderate-income neighborhoods. During these examinations, the regulatory agency rates such bank’s compliance with the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” The regulatory agency’s assessment of the institution’s record is part of the regulatory agency’s consideration of applications to acquire, merge or consolidate with another banking institution or its holding company, or to open or relocate a branch office. M&T Bank has a CRA rating of “Outstanding” and Wilmington Trust, N.A. has a CRA rating of “Satisfactory.” 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, and such records may be the basis for denying 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 Department of Financial Services.

 

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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 obligations on U.S. financial institutions, including banks and broker dealer subsidiaries, to implement and maintain appropriate policies, procedures and controls which are reasonably designed to prevent, detect and report instances of money laundering and the financing of terrorism and to verify the identity of their customers. 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. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution. The Registrant and its impacted subsidiaries have approved policies and procedures that are believed to be compliant with the USA Patriot Act.

Office of Foreign Assets Control Regulation

The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These are typically known as the “OFAC” rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g. property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.

Regulation of Insurers and Insurance Brokers

The Company’s operations in the areas of insurance brokerage and reinsurance of credit life insurance are subject to regulation and supervision by various state insurance regulatory authorities. Although the scope of regulation and form of supervision may vary from state to state, insurance laws generally grant broad discretion to regulatory authorities in adopting regulations and supervising regulated activities. This supervision generally includes the licensing of insurance brokers and agents and the regulation of the handling of customer funds held in a fiduciary capacity. Certain of M&T’s insurance company subsidiaries are subject to extensive regulatory supervision and to insurance laws and regulations requiring, among other things, maintenance of capital, record keeping, reporting and examinations.

Governmental Policies

The earnings of the Company are significantly affected by the monetary and fiscal policies of governmental authorities, including the Federal Reserve Board. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open-market operations in U.S. Government securities and federal funds, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments and deposits, and the interest rates charged on loans and paid for deposits. The Federal Reserve Board frequently uses these instruments of monetary policy, especially its open-market operations and the discount rate, to influence the level of interest rates and to affect the strength of the economy, the level of inflation or the price of the dollar in foreign exchange markets. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of banking institutions in the past and are expected to continue to do so in the future. It is not possible to predict the nature of future changes in monetary and fiscal policies, or the effect which they may have on the Company’s business and earnings.

 

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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 the Gramm-Leach-Bliley Act of 1999, the Interstate Banking Act and the Banking Law have allowed for increased competition among diversified financial services providers.

Other Legislative and Regulatory Initiatives

Proposals may be introduced in the United States Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Registrant in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. M&T cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Registrant. A change in statutes, regulations or regulatory policies applicable to M&T or any of its subsidiaries could have a material effect on the business of the Registrant. See the section captioned “Recent Developments” included elsewhere in this item.

Other Information

Through a link on the Investor Relations section of M&T’s website at www.mtb.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 (Telephone: (716) 842-5138).

Corporate Governance

M&T’s Corporate Governance Standards and the following corporate governance documents are also available on M&T’s website at the Investor Relations link: Disclosure and Regulation FD Policy; Executive Committee Charter; Nomination, Compensation and Governance Committee Charter; Audit and Risk 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 (Telephone: (716) 842-5138).

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.

 

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Table 1

SELECTED CONSOLIDATED YEAR-END BALANCES

 

    2011     2010     2009     2008     2007  
    (In thousands)  

Interest-bearing deposits at banks

  $ 154,960      $ 101,222      $ 133,335      $ 10,284      $ 18,431   

Federal funds sold

    2,850        25,000        20,119        21,347        48,038   

Resell agreements

                         90,000          

Trading account

    561,834        523,834        386,984        617,821        281,244   

Investment securities

         

U.S. Treasury and federal agencies

    5,200,489        4,177,783        4,006,968        3,909,493        3,540,641   

Obligations of states and political subdivisions

    228,949        251,544        266,748        135,585        153,231   

Other

    2,243,716        2,721,213        3,506,893        3,874,129        5,268,126   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment securities

    7,673,154        7,150,540        7,780,609        7,919,207        8,961,998   

Loans and leases

         

Commercial, financial, leasing, etc.

    15,952,105        13,645,600        13,790,737        14,563,091        13,387,026   

Real estate — construction

    4,203,324        4,332,618        4,726,570        4,568,368        4,190,068   

Real estate — mortgage

    28,202,217        22,854,160        21,747,533        19,224,003        19,468,449   

Consumer

    12,020,229        11,483,564        12,041,617        11,004,275        11,306,719   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

    60,377,875        52,315,942        52,306,457        49,359,737        48,352,262   

Unearned discount

    (281,870     (325,560     (369,771     (359,274     (330,700
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans and leases, net of unearned discount

    60,096,005        51,990,382        51,936,686        49,000,463        48,021,562   

Allowance for credit losses

    (908,290     (902,941     (878,022     (787,904     (759,439
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans and leases, net

    59,187,715        51,087,441        51,058,664        48,212,559        47,262,123   

Goodwill

    3,524,625        3,524,625        3,524,625        3,192,128        3,196,433   

Core deposit and other intangible assets

    176,394        125,917        182,418        183,496        248,556   

Real estate and other assets owned

    156,592        220,049        94,604        99,617        40,175   

Total assets

    77,924,287        68,021,263        68,880,399        65,815,757        64,875,639   

Noninterest-bearing deposits

    20,017,883        14,557,568        13,794,636        8,856,114        8,131,662   

NOW accounts

    1,912,226        1,393,349        1,396,471        1,141,308        1,190,161   

Savings deposits

    31,001,083        26,431,281        23,676,798        19,488,918        15,419,357   

Time deposits

    6,107,530        5,817,170        7,531,495        9,046,937        10,668,581   

Deposits at Cayman Islands office

    355,927        1,605,916        1,050,438        4,047,986        5,856,427   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

    59,394,649        49,805,284        47,449,838        42,581,263        41,266,188   

Short-term borrowings

    782,082        947,432        2,442,582        3,009,735        5,821,897   

Long-term borrowings

    6,686,226        7,840,151        10,240,016        12,075,149        10,317,945   

Total liabilities

    68,653,078        59,663,568        61,127,492        59,031,026        58,390,383   

Shareholders’ equity

    9,271,209        8,357,695        7,752,907        6,784,731        6,485,256   

Table 2

SHAREHOLDERS, EMPLOYEES AND OFFICES

 

Number at Year-End

   2011      2010      2009      2008      2007  

Shareholders

     15,959         12,773         13,207         11,197         11,611   

Employees

     15,666         13,365         14,226         13,620         13,869   

Offices

     849         778         832         725         760   

 

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Table 3

CONSOLIDATED EARNINGS

 

    2011     2010     2009     2008     2007  
    (In thousands)  

Interest income

         

Loans and leases, including fees

  $ 2,522,567      $ 2,394,082      $ 2,326,748      $ 2,825,587      $ 3,155,967   

Deposits at banks

    2,934        88        34        109        300   

Federal funds sold

    57        42        63        254        857   

Resell agreements

    132        404        66        1,817        22,978   

Trading account

    1,198        615        534        1,469        744   

Investment securities

         

Fully taxable

    256,057        324,695        389,268        438,409        352,628   

Exempt from federal taxes

    9,142        9,869        8,484        9,946        11,339   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    2,792,087        2,729,795        2,725,197        3,277,591        3,544,813   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

         

NOW accounts

    1,145        850        1,122        2,894        4,638   

Savings deposits

    84,314        85,226        112,550        248,083        250,313   

Time deposits

    71,014        100,241        206,220        330,389        496,378   

Deposits at Cayman Islands office

    962        1,368        2,391        84,483        207,990   

Short-term borrowings

    1,030        3,006        7,129        142,627        274,079   

Long-term borrowings

    243,866        271,578        340,037        529,319        461,178   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

    402,331        462,269        669,449        1,337,795        1,694,576   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    2,389,756        2,267,526        2,055,748        1,939,796        1,850,237   

Provision for credit losses

    270,000        368,000        604,000        412,000        192,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for credit losses

    2,119,756        1,899,526        1,451,748        1,527,796        1,658,237   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income

         

Mortgage banking revenues

    166,021        184,625        207,561        156,012        111,893   

Service charges on deposit accounts

    455,095        478,133        469,195        430,532        409,462   

Trust income

    332,385        122,613        128,568        156,149        152,636   

Brokerage services income

    56,470        49,669        57,611        64,186        59,533   

Trading account and foreign exchange gains

    27,224        27,286        23,125        17,630        30,271   

Gain on bank investment securities

    150,187        2,770        1,165        34,471        1,204   

Total other-than-temporary impairment (“OTTI”) losses

    (72,915     (115,947     (264,363     (182,222     (127,300

Portion of OTTI losses recognized in other comprehensive income (before taxes)

    (4,120     29,666        126,066                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net OTTI losses recognized in earnings

    (77,035     (86,281     (138,297     (182,222     (127,300

Equity in earnings of Bayview Lending Group LLC

    (24,231     (25,768     (25,898     (37,453     8,935   

Other revenues from operations

    496,796        355,053        325,076        299,674        286,355   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

    1,582,912        1,108,100        1,048,106        938,979        932,989   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

         

Salaries and employee benefits

    1,203,993        999,709        1,001,873        957,086        908,315   

Equipment and net occupancy

    249,514        216,064        211,391        188,845        169,050   

Printing, postage and supplies

    40,917        33,847        38,216        35,860        35,765   

Amortization of core deposit and other intangible assets

    61,617        58,103        64,255        66,646        66,486   

FDIC assessments

    100,230        79,324        96,519        6,689        4,203   

Other costs of operations

    821,797        527,790        568,309        471,870        443,870   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

    2,478,068        1,914,837        1,980,563        1,726,996        1,627,689   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    1,224,600        1,092,789        519,291        739,779        963,537   

Income taxes

    365,121        356,628        139,400        183,892        309,278   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 859,479      $ 736,161      $ 379,891      $ 555,887      $ 654,259   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared

         

Common

  $ 350,196      $ 335,502      $ 326,617      $ 308,501      $ 281,900   

Preferred

    48,203        40,225        31,946                 

 

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Table 4

COMMON SHAREHOLDER DATA

 

     2011     2010     2009     2008     2007  

Per share

          

Net income

          

Basic

   $ 6.37      $ 5.72      $ 2.90      $ 5.04      $ 6.05   

Diluted

     6.35        5.69        2.89        5.01        5.95   

Cash dividends declared

     2.80        2.80        2.80        2.80        2.60   

Common shareholders’ equity at year-end

     66.82        63.54        59.31        56.29        58.99   

Tangible common shareholders’ equity at year-end

     37.79        33.26        28.27        25.94        27.98   

Dividend payout ratio

     44.15     48.98     97.36     55.62     43.12

Table 5

CHANGES IN INTEREST INCOME AND EXPENSE(a)

 

    2011 Compared with 2010     2010 Compared with 2009  
    Total
Change
    Resulting from
Changes in:
    Total
Change
    Resulting from
Changes in:
 
      Volume     Rate       Volume     Rate  
    (Increase (decrease) in thousands)  

Interest income

           

Loans and leases, including fees

  $ 130,831        221,381        (90,550   $ 68,687        16,046        52,641   

Deposits at banks

    2,846        2,444        402        54        42        12   

Federal funds sold and agreements to resell securities

    (257     (76     (181     317        348        (31

Trading account

    622        4        618        149        56        93   

Investment securities

           

U.S. Treasury and federal agencies

    (36,338     (12,927     (23,411     9,514        30,242        (20,728

Obligations of states and political subdivisions

    (1,403     (1,244     (159     1,964        2,584        (620

Other

    (32,156     (23,759     (8,397     (73,893     (47,671     (26,222
 

 

 

       

 

 

     

Total interest income

  $ 64,145          $ 6,792       
 

 

 

       

 

 

     

Interest expense

           

Interest-bearing deposits

           

NOW accounts

  $ 295        230        65      $ (272     119        (391

Savings deposits

    (912     13,025        (13,937     (27,324     14,209        (41,533

Time deposits

    (29,227     (1,558     (27,669     (105,979     (44,066     (61,913

Deposits at Cayman Islands office

    (406     (228     (178     (1,023     (1,023       

Short-term borrowings

    (1,976     (1,361     (615     (4,123     (2,151     (1,972

Long-term borrowings

    (27,712     (72,152     44,440        (68,459     (56,729     (11,730
 

 

 

       

 

 

     

Total interest expense

  $ (59,938       $ (207,180    
 

 

 

       

 

 

     

 

 

(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.

 

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.

 

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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, Cayman Islands 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 real estate loan portfolio and mortgage-related investment securities 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 impact of declining real estate values in the Company’s portfolio of loans to residential real estate builders and developers; (ii) the repayment performance associated with the Company’s portfolio of residential mortgage loans and residential and other mortgage loans supporting mortgage-related securities; (iii) the concentrations of commercial real estate loans in the Company’s loan portfolio; (iv) 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 (v) 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 many other loan types. Considerable concerns exist about economic conditions in both national and international markets; the level and volatility of energy prices; a weakened housing market; the troubled state of financial and credit markets; Federal Reserve positioning of monetary policy; high levels of unemployment; the impact of economic conditions on businesses’ operations and abilities to repay loans in light of continued stagnant population growth in the upstate New York and central Pennsylvania regions; and continued uncertainty about possible responses to state and local government budget deficits.

Numerous 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 utilizes a loan grading system which is applied to all commercial and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are

 

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classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. Loan officers with the support of loan review personnel in different geographic locations are responsible to continuously review and reassign loan grades to pass and criticized loans based on their detailed knowledge of individual borrowers and their judgment of the impact on such borrowers resulting from changing conditions in their respective geographic regions. On a quarterly basis, the Company’s centralized loan review department reviews all larger balance criticized commercial and commercial real estate loans to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. For criticized nonaccrual loans, additional meetings are held with loan officers and their managers, workout specialists and senior management to discuss each of the relationships. In analyzing criticized loans, borrower-specific information is reviewed, including operating results, future cash flows, recent developments and the borrower’s outlook, and other pertinent data. The timing and extent of potential losses, considering collateral valuation and other factors, and the Company’s potential courses of action are reviewed. The collectibility of other loans is generally evaluated collectively by loan type after considering such factors as payment performance and recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. The Company maintains an allowance for credit losses that in management’s judgment appropriately reflects the losses inherent in the loan and lease portfolio. In addition, the Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” Any declines in value below amortized cost that are deemed to be “other than temporary” are charged to earnings.

Economic Risk — The U.S. economy experienced weak economic conditions during the last several years. Those conditions contributed to risk as follows:

   

The significant downturn in the residential real estate market that began in 2007 continued through the 2011 year-end. The impact of that downturn has resulted in depressed home prices, higher than historical levels of foreclosures and loan charge-offs, and lower market prices on investment securities backed by residential real estate. Those factors have negatively impacted M&T’s results of operations and could continue to do so.

   

Lower demand for the Company’s products and services and lower revenues and earnings could result from ongoing weak economic conditions. Those conditions could also result in higher loan charge-offs due to the inability of borrowers to repay loans.

   

Lower fee income from the Company’s brokerage and trust businesses could result from significant declines in stock market prices.

   

Lower earnings could result from other-than-temporary impairment charges related to the Company’s investment securities portfolio.

   

Higher FDIC assessments could be imposed on the Company due to bank failures that have caused the FDIC Deposit Insurance Fund to fall below minimum required levels.

   

There is no assurance that the Emergency Economic Stabilization Act of 2008 or the American Recovery and Reinvestment Act of 2009 will improve the condition of the financial markets.

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, including laws related to corporate taxation. Many of those laws and regulations are described in Part I, Item 1 “Business.” Changes in those or other laws and regulations, or the degree of the Company’s compliance with those laws and regulations as judged by any of several regulators, including tax authorities, that oversee the Company, could have a significant effect on the Company’s operations and its financial results. For example, the Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States and requires federal agencies to implement many new rules. It is expected that at a minimum those new rules will result in increased costs, decreased revenues and more stringent capital and liquidity requirements.

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.

 

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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 300,000 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 98% of the building and the remainder is leased to non-affiliated tenants. At December 31, 2011, the cost of this property (including improvements subsequent to the initial construction), net of accumulated depreciation, was $9.7 million.

In September 1992, M&T Bank acquired an additional facility in Buffalo, New York with approximately 395,000 rentable square feet of space. 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, 2011, the cost of this building (including improvements subsequent to acquisition), net of accumulated depreciation, was $9.7 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 225,000 square feet and their combined cost (including improvements subsequent to acquisition), net of accumulated depreciation, was $19.9 million at December 31, 2011.

M&T Bank also owns a facility in Syracuse, New York with approximately 160,000 rentable square feet of space. Approximately 48% of this facility is occupied by M&T Bank. At December 31, 2011, the cost of this building (including improvements subsequent to acquisition), net of accumulated depreciation, was $5.1 million.

M&T Bank also owns facilities in Harrisburg, Pennsylvania and Millsboro, Delaware with approximately 215,000 and 325,000 rentable square feet of space, respectively. M&T Bank occupies approximately 34% and 85% of these respective facilities. At December 31, 2011, the cost of these buildings (including improvements subsequent to acquisition), net of accumulated depreciation, was $11.6 million and $7.0 million, respectively.

The Company obtained facilities in connection with the Wilmington Trust acquisition in Wilmington, Delaware, with approximately 355,000 (known as Wilmington Trust Center) and 295,000 (known as Wilmington Trust Plaza) rentable square feet of space, respectively. The Company occupies approximately 50% of each of these respective facilities. At December 31, 2011, the cost of these buildings, net of accumulated depreciation, was $40.5 million and $14.3 million, respectively.

No other properties owned by the Company 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 776 domestic banking offices of the Registrant’s subsidiary banks at December 31, 2011, 313 are owned in fee and 463 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 arising out of litigation pending against M&T or its subsidiaries will be material to the Company’s consolidated financial position. On an on-going basis the Company assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the

 

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range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $40 million. Although the Company does not believe that the outcome of pending litigations will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

 

Item 4. Mine Safety Disclosures.

Not applicable.

Executive Officers of the Registrant

Information concerning the Registrant’s executive officers is presented below as of February 23, 2012. 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 entity noted below, officers’ terms run until the first meeting of the board of directors after such entity’s annual meeting, which in the case of the Registrant takes place immediately following the Annual Meeting of Shareholders, and until their successors are elected and qualified.

Robert G. Wilmers, age 77, is chief executive officer (2007), 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 chief executive officer (2007), 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 until July 2003 and as president of M&T Bank from March 1984 until June 1996.

Michael P. Pinto, age 56, is a vice chairman (2007) and a director (2003) of the Registrant. Previously, he was an executive vice president of the Registrant (1997). 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. He is an executive vice president (1996) and a director (1998) of Wilmington Trust, N.A., and a director (2011) of Wilmington Trust Company. Mr. Pinto is chairman of the board and a director of Wilmington Trust Investment Advisors (2006).

Mark J. Czarnecki, age 56, is president and a director (2007) of the Registrant and president and a director (2007) of M&T Bank. Previously, he was an executive vice president of the Registrant (1999) and M&T Bank (1997) and was responsible for the M&T Investment Group and the Company’s Retail Banking network. Mr. Czarnecki is a director (1999) of M&T Securities, chairman of the board, president and chief executive officer (2007) and a director (2005) of Wilmington Trust, N.A., and a director (2011) of Wilmington Trust Company.

Robert J. Bojdak, age 56, is an executive vice president and chief credit officer (2004) of the Registrant and M&T Bank, and is responsible for managing the Company’s enterprise-wide risk including credit, operational, compliance and investment risk. 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 Wilmington Trust, N.A. (2004), and a director (2011) of Wilmington Trust Company.

Stephen J. Braunscheidel, age 55, 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 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.

Atwood Collins, III, age 65, 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 Securities (2008).

William J. Farrell, II, age 54, is an executive vice president of the Registrant and M&T Bank (2011), and is responsible for M&T’s Wealth and Institutional Services Division, which includes Wealth Advisory Services, Corporate Client Services, Asset Management, M&T Securities and M&T Insurance Agency. Mr. Farrell joined the Company through the Wilmington Trust acquisition. He joined Wilmington Trust in 1976 and held a number of senior management positions, most recently as executive vice president and head of the Corporate Client Services business. Mr. Farrell is an executive vice president of Wilmington Trust, N.A. (2011), and an executive vice president (2002) of Wilmington Trust Company.

 

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Richard S. Gold, age 51, is an executive vice president of the Registrant (2007) and M&T Bank (2006) and is responsible for managing the Company’s Residential Mortgage, Consumer Lending and Business Banking Divisions. Mr. Gold served as senior vice president of M&T Bank from 2000 to 2006, most recently responsible for the Retail Banking Division, including M&T Securities. Mr. Gold is an executive vice president of Wilmington Trust, N.A. (2006).

Brian E. Hickey, age 59, 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 Upstate and Western New York and in the Northern and Central/Western Pennsylvania regions. Mr. Hickey is also responsible for M&T Bank’s Middle Market segment and the Auto Floor Plan lending business.

René F. Jones, age 47, 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 an executive vice president and chief financial officer (2005) and a director (2007) of Wilmington Trust, N.A., and he is chairman of the board, president (2009) and a trustee (2005) of M&T Real Estate. He is a director of M&T Insurance Agency (2007) and M&T Securities (2005). Mr. Jones is a director (2011) of Wilmington Trust Company.

Darren J. King, age 42, is an executive vice president of the Registrant (2010) and M&T Bank (2009), and is in charge of the Retail Banking Division. Mr. King previously served as senior vice president of M&T Bank, most recently responsible for the Business Banking Division, and has held a number of management positions within M&T Bank since 2000. Mr. King is an executive vice president of Wilmington Trust, N.A. (2009).

Kevin J. Pearson, age 50, is an executive vice president (2002) of the Registrant and M&T Bank. He is a member of the Directors Advisory Council (2006) of the New York City/Long Island Division of M&T Bank. Mr. Pearson is responsible for managing all of the non-retail segments in the New York metropolitan area and Philadelphia markets of M&T Bank, as well as the Company’s commercial real estate business, Commercial Marketing and Treasury Management. He is an executive vice president of M&T Real Estate (2003), chairman of the board (2009) and a director (2003) of M&T Realty Capital, an executive vice president and a director of Wilmington Trust, N.A. (2008) and a director (2011) of Wilmington Trust Company. Mr. Pearson served as senior vice president of M&T Bank from 2000 to 2002.

Michele D. Trolli, age 50, is an executive vice president and chief information officer of the Registrant and M&T Bank (2005). She is in charge of the Company’s Technology/Banking Operations Division, which encompasses Technology, Alternative Banking, Central and Lending Operations, Corporate Services and Global Sourcing. Ms. Trolli served as senior director, global systems support, with Franklin Resources, Inc., a worldwide investment management company, from May 2000 through December 2004.

D. Scott N. Warman, age 46, is an executive vice president (2009) and treasurer (2008) of the Registrant and M&T Bank. He is responsible for managing the Company’s Treasury Division. Mr. Warman previously served as senior vice president of M&T Bank and has held a number of management positions within M&T Bank since 1995. He is an executive vice president and treasurer of Wilmington Trust, N.A. (2008), a trustee of M&T Real Estate (2009) and a director of M&T Securities (2008).

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

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 shareholders at year-end, frequency and amounts of dividends on common stock and restrictions on the payment of dividends.

During the fourth quarter of 2011, M&T did not issue any shares of its common stock that were not registered under the Securities Act of 1933.

Equity Compensation Plan Information

The following table provides information as of December 31, 2011 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 include the M&T Bank Corporation 1983 Stock Option

 

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Plan, the 2001 Stock Option Plan, the 2005 Incentive Compensation Plan, which replaced the 2001 Stock Option Plan, the 2009 Equity Incentive Compensation Plan, and the M&T Bank Corporation Employee Stock Purchase Plan, each of which has been previously approved by shareholders, and the M&T Bank Corporation 2008 Directors’ Stock Plan and the M&T Bank Corporation Deferred Bonus Plan, each of which did not require shareholder 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 sets forth the total number of shares of common stock issuable upon the exercise of such assumed options and rights as of December 31, 2011, and their weighted-average exercise price.

 

Plan Category

   Number of
Securities
to be Issued Upon
Exercise of
Outstanding
Options or Rights
     Weighted-Average
Exercise Price of
Outstanding
Options or Rights
     Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column A)
 
     (A)      (B)      (C)  

Equity compensation plans approved by security holders:

        

2001 Stock Option Plan

     4,133,425       $ 89.12           

2005 Incentive Compensation Plan

     5,437,289         102.80         2,914,212   

2009 Equity Incentive Compensation Plan

     3,486         74.11         2,705,420   

Employee Stock Purchase Plan

     164,821         66.93         266,293   

Equity compensation plans not approved by security holders:

        

2008 Directors’ Stock Plan

     4,881         76.34         30,095   

Deferred Bonus Plan

     48,136         61.95           
  

 

 

    

 

 

    

 

 

 

Total

     9,792,038       $ 96.20         5,916,020   
  

 

 

    

 

 

    

 

 

 

 

 

(1) As of December 31, 2011, a total of 285,832 shares of M&T Bank Corporation 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 $145.46 per common share.

Equity compensation plans adopted without the approval of shareholders are described below:

2008 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 which was frozen effective January 1, 2010 and did not allow any deferrals after that date. Prior to January 1, 2010, the plan allowed eligible officers of M&T and its subsidiaries to elect to defer all or a portion of their annual incentive compensation awards and allocate such awards to several investment options, including M&T common stock. At the time of the deferral election, participants also elected 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.

Performance Graph

The following graph contains a comparison of the cumulative shareholder return on M&T common stock against the cumulative total returns of the KBW Bank Index, compiled by Keefe, Bruyette & Woods, Inc., and the S&P 500 Index, compiled by Standard & Poor’s Corporation, for the five-year period beginning on December 31, 2006 and ending on December 31, 2011. The KBW Bank Index is a market capitalization index consisting of 24 leading national money-center banks and regional institutions.

 

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LOGO

Shareholder Value at Year End*

 

      2006    2007    2008    2009    2010    2011

M&T Bank Corporation

   100    68    50    62    83    75

KBW Bank Index

   100    79    46    48    54    40

S&P 500 Index

   100    105    66    84    97    99

 

 

* Assumes a $100 investment on December 31, 2006 and reinvestment of all dividends.

In accordance with and to the extent permitted by applicable law or regulation, the information set forth above under the heading “Performance Graph” shall not be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act and shall not be deemed to be “soliciting material” or to be “filed” with the SEC under the Securities Act or the Exchange Act.

Issuer Purchases of Equity Securities

In February 2007, 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 did not repurchase any shares pursuant to such plan during 2011.

During the fourth quarter of 2011 M&T purchased shares of its common stock as follows:

 

Period

   (a)Total
Number
of Shares
(or Units)
Purchased(1)
     (b)Average
Price Paid
per Share
(or Unit)
     (c)Total
Number
of Shares
(or Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs
     (d)Maximum
Number (or
Approximate
Dollar Value)
of Shares
(or Units)
that may yet
be Purchased
Under the
Plans or
Programs(2)
 

October 1 - October 31, 2011

           $                 2,181,500   

November 1 - November 30, 2011

                             2,181,500   

December 1 - December 31, 2011

     739         76.89                 2,181,500   
  

 

 

    

 

 

    

 

 

    

Total

     739       $ 76.89              
  

 

 

    

 

 

    

 

 

    

 

 

(1) The total number of shares purchased during the periods indicated reflects 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 February 22, 2007, M&T announced a program to purchase up to 5,000,000 shares of its common stock. No shares were purchased under such program during the periods indicated.

 

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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 $77.9 billion at December 31, 2011. 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 Wilmington Trust, National Association (“Wilmington Trust, N.A.”).

M&T Bank, with total assets of $76.9 billion at December 31, 2011, is a New York-chartered commercial bank with 774 domestic banking offices in New York State, Pennsylvania, Maryland, Delaware, Virginia, West Virginia, and the District of Columbia, a full-service commercial banking office in Ontario, Canada, 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 their markets. Lending is largely focused on consumers residing in New York State, Pennsylvania, Maryland, Virginia, Delaware and Washington, D.C., and on small and medium size businesses based in those areas, although loans are originated through lending offices in other states and in Ontario, Canada. Certain lending activities are also conducted in other states through various subsidiaries. M&T Bank’s subsidiaries include: M&T Real Estate Trust, a commercial mortgage lender; M&T Realty Capital Corporation, a multifamily commercial mortgage lender; M&T Securities, Inc., which provides brokerage, investment advisory and insurance services; Wilmington Trust Company, a non-depository trust company; Wilmington Trust Investment Advisors, Inc., which serves as investment advisor to the MTB Group of Funds, a family of proprietary mutual funds, and other funds and institutional clients; and M&T Insurance Agency, Inc., an insurance agency.

Wilmington Trust, N.A., with total assets of $1.1 billion at December 31, 2011, is a national bank with offices in Wilmington, Delaware and Oakfield, New York. Wilmington Trust, N.A., formerly known as M&T Bank, National Association, offers selected deposit and loan products on a nationwide basis, largely through telephone, Internet and direct mail marketing techniques. Wilmington Trust, N.A. and its subsidiaries offer various trust and wealth management services.

On May 16, 2011, M&T acquired all of the outstanding common stock of Wilmington Trust Corporation (“Wilmington Trust”), headquartered in Wilmington, Delaware, in a stock-for-stock transaction. Wilmington Trust operated 55 banking offices in Delaware and Pennsylvania at the date of acquisition. The results of operations acquired in the Wilmington Trust transaction have been included in the Company’s financial results since May 16, 2011. Wilmington Trust shareholders received .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock, resulting in M&T issuing a total of 4,694,486 common shares with an acquisition date fair value of $406 million.

The Wilmington Trust transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled approximately $10.8 billion, including $6.4 billion of loans and leases (including approximately $3.2 billion of commercial real estate loans, $1.4 billion of commercial loans and leases, $680 million of residential real estate loans and $1.1 billion of consumer loans). Liabilities assumed aggregated $10.0 billion, including $8.9 billion of deposits. The common stock issued in the transaction added $406 million to M&T’s common shareholders’ equity. Immediately prior to the closing of the Wilmington Trust transaction, M&T redeemed the $330 million of preferred stock issued by Wilmington Trust as part of the Troubled Asset Relief Program – Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $112 million of core deposit and other intangible assets. The core deposit and other intangible assets are generally being amortized over periods of 5 to 7 years using an accelerated method. There was no goodwill recorded as a result of the transaction, however, in accordance with generally accepted accounting principles (“GAAP”), a non-taxable gain of $65 million was realized, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust added to M&T’s market-leading position in the Mid-Atlantic region by giving M&T a leading deposit market share in Delaware.

 

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On November 5, 2010, M&T Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits, except certain brokered deposits, and acquire certain assets of K Bank, based in Randallstown, Maryland. As part of the transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired in the transaction totaled approximately $556 million, including $154 million of loans and $186 million in cash, and liabilities assumed aggregated $528 million, including $491 million of deposits. There was no goodwill or other intangible assets recorded in connection with this transaction, however, in accordance with GAAP, M&T Bank recorded an after-tax gain on the transaction of $17 million ($28 million before taxes). The gain reflects the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. The operations obtained in the K Bank acquisition transaction did not have a material impact on the Company’s consolidated financial position or results of operations.

On August 28, 2009, M&T Bank entered into a purchase and assumption agreement with the FDIC to assume all of the deposits and acquire certain assets of Bradford Bank (“Bradford”), based in Baltimore, Maryland. As part of the transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired in the transaction totaled approximately $469 million, including $302 million of loans, and liabilities assumed aggregated $440 million, including $361 million of deposits. There was no goodwill or other intangible assets recorded in connection with this transaction, however, in accordance with GAAP, M&T Bank recorded an after-tax gain on the transaction of $18 million ($29 million before taxes). The gain reflects the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. The operations obtained in the Bradford transaction did not have a material impact on the Company’s consolidated financial position or results of operations.

On May 23, 2009, M&T acquired all of the outstanding common stock of Provident Bankshares Corporation (“Provident”), a bank holding company based in Baltimore, Maryland, in a stock-for-stock transaction. Provident Bank, Provident’s banking subsidiary, was merged into M&T Bank on that date. The results of operations acquired in the Provident transaction have been included in the Company’s financial results since May 23, 2009. Provident common shareholders received .171625 shares of M&T common stock in exchange for each share of Provident common stock, resulting in M&T issuing a total of 5,838,308 common shares with an acquisition date fair value of $273 million. In addition, based on the merger agreement, outstanding and unexercised options to purchase Provident common stock were converted into options to purchase the common stock of M&T. Those options had an estimated fair value of approximately $1 million. In total, the purchase price was approximately $274 million based on the fair value on the acquisition date of M&T common stock exchanged and the options to purchase M&T common stock. Holders of Provident’s preferred stock were issued shares of new Series B and Series C Preferred Stock of M&T having substantially identical terms. That preferred stock and warrants to purchase common stock associated with the Series C Preferred Stock added $162 million to M&T’s shareholders’ equity. The Series B Preferred Stock had a preference value of $27 million and paid non-cumulative dividends at a rate of 10%. In accordance with their terms, on April 1, 2011, the 26,500 shares of the Series B Preferred Stock converted into 433,144 shares of M&T common stock. The Series C Preferred Stock has a preference value of $152 million, pays cumulative dividends at a rate of 5% through November 2013 and 9% thereafter, and is held by the U.S. Treasury under the Troubled Asset Relief Program — Capital Purchase Program.

The Provident transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled $6.3 billion, including $4.0 billion of loans and leases (including approximately $1.7 billion of commercial real estate loans, $1.4 billion of consumer loans, $700 million of commercial loans and leases and $300 million of residential real estate loans) and $1.0 billion of investment securities. Liabilities assumed were $5.9 billion, including $5.1 billion of deposits. The transaction added $436 million to M&T’s shareholders’ equity, including $280 million of common equity and $156 million of preferred equity. In connection with the acquisition, the Company recorded $332 million of goodwill and $63 million of core deposit intangible. The core deposit intangible is being amortized over seven years using an accelerated method. The acquisition of Provident expanded the

 

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Company’s presence in the Mid-Atlantic area, gave the Company the second largest deposit share in Maryland, and tripled the Company’s presence in Virginia.

Net acquisition and integration-related gains and expenses (included herein as merger-related expenses) associated with the Wilmington Trust acquisition and, to a much lesser extent, with the November 2010 K Bank acquisition transaction incurred during 2011 totaled to a net gain of $13 million after tax-effect, or $.10 of diluted earnings per common share. Reflected in that amount are the $65 million non-taxable gain ($.52 of diluted earnings per common share) on the Wilmington Trust acquisition and $84 million of expenses ($52 million after tax-effect, or $.42 of diluted earnings per common share) associated with the Wilmington Trust and K Bank transactions. Net merger-related expenses incurred during 2010 totaled to a net gain of $27 million ($16 million after tax-effect, or $.14 of diluted earnings per common share). Reflected in that amount are the $28 million gain ($17 million after tax-effect, or $.14 of diluted earnings per common share) on the K Bank transaction and $771 thousand ($469 thousand after tax-effect) of expenses. Net merger-related expenses associated with the Bradford and Provident acquisition transactions incurred during 2009 totaled $60 million ($36 million after tax-effect, or $.31 of diluted earnings per common share). Reflected in that amount are the $29 million ($18 million after tax-effect, or $.15 of diluted earnings per common share) gain on the Bradford transaction and $89 million ($54 million after tax-effect, or $.46 of diluted earnings per common share) of expenses associated with the Provident and Bradford transactions. The expenses in 2011, 2010 and 2009 related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company. These expenses consisted largely of professional services and other temporary help fees associated with the conversion of systems and/or integration of operations; costs related to branch and office consolidations; costs related to termination of existing contractual arrangements for various services; initial marketing and promotion expenses designed to introduce M&T Bank to customers; severance for former employees; incentive compensation costs; travel costs; and printing, supplies and other costs of completing the transaction and commencing operations in new markets and offices.

The condition of the domestic and global economy over the last several years has significantly impacted the financial services industry as a whole, and specifically, the financial results of the Company. In particular, high unemployment levels and significantly depressed residential real estate valuations have led to increased loan charge-offs experienced by financial institutions throughout that time period. Since the official end of the recession in the United States sometime in the latter half of 2009, the recovery of the economy has been very slow. The Company has experienced loan charge-offs at higher than historical levels since 2008. In addition, many financial institutions have continued to experience unrealized losses related to investment securities backed by residential and commercial real estate due to a lack of liquidity in the financial markets and anticipated credit losses. Many financial institutions, including the Company, have taken charges for those unrealized losses that were deemed to be other than temporary. Also negatively impacting the financial results of financial institutions during 2011, including the Company, has been a series of new regulations, resulting in higher assessments by the FDIC and lower fee income.

Pursuant to its capital plan, M&T undertook the following actions during the second quarter of 2011:

   

Redeemed $370 million of its Series A Preferred Stock issued pursuant to the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Treasury; and

   

Issued $500 million of perpetual 6.875% non-cumulative preferred stock in order to supplement Tier 1 Capital.

Several other noteworthy items are reflected in 2011’s financial results, as follows:

   

A $79 million other-than-temporary impairment charge was recorded during the fourth quarter related to M&T’s 20% investment in Bayview Lending Group LLC (“BLG”). While Bayview’s asset management operations continue to grow and its business of managing capital in the distressed real estate market is performing well, the small-balance commercial real estate securitization market that BLG previously operated in continues to be stagnant. Reflecting those conditions, management increased its estimate of the time frame over which M&T could reasonably anticipate recovery of the previously recorded investment amount and, as a result, concluded that the investment was other-than-temporarily impaired. That investment was written-down to its estimated fair value of $115 million. The impairment charge was recorded in “other costs of operations.”

 

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During December 2011, M&T received $55 million of cash resulting from the full settlement of a lawsuit initiated by M&T in 2008 against Deutsche Bank Securities, Inc. and several other parties. M&T sought damages arising from a 2007 investment in collateralized debt obligations (“CDOs”) and alleged that the quality of the investment was not as represented. That $55 million is included in “other revenues from operations.”

   

The Company made a $30 million tax-deductible cash contribution in the fourth quarter to The M&T Charitable Foundation, a private charitable foundation that has supported thousands of not-for-profit organizations to improve the quality of life throughout the communities M&T serves.

Allied Irish Banks (“AIB”) received 26,700,000 shares of M&T common stock on April 1, 2003 as a result of M&T’s acquisition of a subsidiary of AIB on that date. Those shares of common stock owned by AIB represented 22.4% of the issued and outstanding shares of M&T common stock on September 30, 2010. In an effort to raise its capital position to meet new Irish government-mandated capital requirements, AIB completed the sale of the 26,700,000 shares on November 4, 2010. As a result, the provisions of the Agreement and Plan of Reorganization between M&T and AIB related to AIB’s rights as a substantial shareholder in the corporate governance of M&T became inoperative as of that date.

Recent Legislative Developments

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law on July 21, 2010. That law has and will continue to significantly change the bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, and the system of regulatory oversight of the Company, including through the creation of the Financial Stability Oversight Council. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The Dodd-Frank Act could have a material adverse impact on the financial services industry as a whole, as well as on M&T’s business, results of operations, financial condition and liquidity.

The Dodd-Frank Act broadens the base for FDIC insurance assessments. Beginning in the second quarter of 2011, assessments are based on average consolidated total assets less average Tier 1 capital and certain allowable deductions of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and noninterest-bearing transaction accounts have unlimited deposit insurance through December 31, 2013.

The legislation also requires that publicly traded companies give shareholders a non-binding vote on executive compensation and “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials. The Dodd-Frank Act also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

The Dodd-Frank Act established a new Bureau of Consumer Financial Protection with broad powers to supervise and enforce consumer protection laws. The Bureau of Consumer Financial Protection has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Bureau of Consumer Financial Protection has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets.

In addition, the Dodd-Frank Act, among other things:

   

Weakens the federal preemption rules that have been applicable for national banks and gives state attorneys general the ability to enforce federal consumer protection laws;

   

Amends the Electronic Fund Transfer Act (“EFTA”) which has resulted in, among other things, the Federal Reserve Board issuing rules aimed at limiting debit-card interchange fees;

   

Applies the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies which, among other things, will, after a three-year phase-in period which begins January 1, 2013, remove trust preferred securities as a permitted component of a holding company’s Tier 1 capital;

   

Provides for an increase in the FDIC assessment for depository institutions with assets of $10 billion or more and increases the minimum reserve ratio for the deposit insurance fund from 1.15% to 1.35%;

 

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Imposes comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself;

   

Repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

   

Provides mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions; and

   

Creates the Financial Stability Oversight Council, which will recommend to the Federal Reserve Board increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

The environment in which banking organizations will operate after the financial crisis, including legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and compensation, changes in fiscal policy and steps to eliminate government support for banking organizations, may have long-term effects on the business model and profitability of banking organizations, the full extent of which cannot now be foreseen. Many aspects of the Dodd-Frank Act still remain subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on M&T, its customers or the financial industry more generally. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees directly impact the net income of financial institutions. Provisions in the legislation that revoke the Tier 1 capital treatment of trust preferred securities and otherwise require revisions to the capital requirements of M&T and M&T Bank could require M&T and M&T Bank to further seek other sources of capital in the future. The impact of new rules relating to overdraft fee practices and debit-card interchange fees are discussed herein under the heading “Other Income.”

Critical Accounting Estimates

The Company’s accounting policies conform with GAAP and 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 that in management’s judgment appropriately reflects 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. For acquired loans, which are initially recorded at fair value with no carry-over of an acquired entity’s previously established allowance for credit losses, the excess cash flows expected at acquisition over their estimated fair value is recognized as interest income over the remaining lives of the loans. Subsequent decreases in the expected principal cash flows require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows result first in the recovery of any applicable allowance for credit losses and then in the recognition of additional interest income over the remaining lives of the loans. 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 or, in the case of acquired loans, increases in interest income in future periods. A detailed discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein under the heading “Provision for Credit Losses” and in note 5 of Notes to Financial Statements.

 

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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. 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 loans, privately issued mortgage-backed securities, deposits, borrowings, goodwill, core deposit and other intangible assets, and other assets and liabilities obtained or assumed in business combinations; capitalized servicing assets; pension and other postretirement benefit obligations; value ascribed to stock-based compensation; estimated residual values of property associated with 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. In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income. Examples include investment securities, other investments, mortgage servicing rights, goodwill, core deposit and other intangible assets, among others. Specific 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, 11, 12, 18, 19 and 20 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 21 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 the Company’s income taxes is presented in note 13 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 and the degree to which the Company can influence those outcomes. Information relating to the Company’s involvement in such entities and the accounting treatment afforded each such involvement is included in note 19 of Notes to Financial Statements.

Overview

Net income for the Company during 2011 was $859 million or $6.35 of diluted earnings per common share, up 17% and 12%, respectively, from $736 million or $5.69 of diluted earnings per common share in 2010. Basic earnings per common share increased 11% to $6.37 in 2011 from $5.72 in 2010. Net income in 2009 totaled $380 million, while diluted and basic earnings per common share were $2.89 and $2.90, respectively. The after-tax impact of net merger-related gains and expenses associated with the acquisition transactions previously described totaled to a net gain of $13 million (net expenses of $19 million pre-tax) or $.10 of basic and diluted earnings per common share in 2011, compared with a net gain of $16 million ($27 million pre-tax) or $.14 of basic and diluted earnings per common share in 2010. Net merger-related expenses of $36 million ($60 million pre-tax) or $.31 of basic and diluted earnings per common share were incurred in 2009. Expressed as a rate of return on average assets, net income in 2011 was 1.16%, compared with 1.08% in 2010 and .56% in 2009. The return on average common shareholders’ equity was 9.67% in 2011, 9.30% in 2010 and 5.07% in 2009.

 

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Reflected in the Company’s financial results in 2011 were the operations acquired from Wilmington Trust since the May 16, 2011 acquisition date. The improved performance in 2011 as compared with 2010 was largely attributable to higher net interest income, lower credit costs and gains from the sale of investment securities available for sale.

Taxable-equivalent net interest income increased 5% to $2.42 billion in 2011 from $2.29 billion in 2010. That increase was attributable to higher average earning assets, which rose to $64.7 billion in 2011 from $59.7 billion in 2010. Partially offsetting the higher level of average earning assets was an 11 basis point (hundredths of one percent) narrowing of the net interest margin, or taxable-equivalent net interest income divided by average earning assets, to 3.73% in 2011 from 3.84% in 2010. The higher average earning assets and the decline in the net interest margin were each largely attributable to the May 2011 acquisition of Wilmington Trust. Net interest income recorded on a taxable-equivalent basis rose 10% in 2010 from $2.08 billion in 2009, reflecting a wider net interest margin. Average earning assets during 2010 were little changed from $59.6 billion in 2009.

The provision for credit losses was $270 million in 2011, 27% lower than $368 million in 2010. Net charge-offs also declined, to $265 million in 2011 from $346 million in 2010. Net charge-offs as a percentage of average loans and leases outstanding were .47% in 2011 and .67% in 2010. While the levels of the provision and net charge-offs subsequent to 2007 have been higher than historical levels, the Company experienced some improvement in those credit quality metrics during 2011. Nevertheless, generally depressed real estate valuations and their impact on the Company’s portfolios of residential mortgage loans and loans to residential real estate builders and developers have continued to contribute significantly to the level of loan losses. The provision for credit losses in 2010 was down $236 million or 39% from $604 million in 2009. Net charge-offs in 2010 declined $168 million from $514 million in 2009. Net charge-offs as a percentage of average loans and leases outstanding were 1.01% in 2009. 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 rose 43% to $1.58 billion in 2011 from $1.11 billion in 2010. Gains and losses on bank investment securities totaled to a net gain of $73 million in 2011 and to a net loss of $84 million in 2010. The Company sold investment securities in 2011, predominantly mortgage-backed securities guaranteed by government sponsored entities, resulting in pre-tax gains of $150 million. Such securities were sold in the first half of the year in connection with the Wilmington Trust acquisition in order to manage the Company’s balance sheet composition and resultant capital ratios. Excluding gains and losses from bank investment securities, the aforementioned $55 million CDO litigation settlement in 2011, and merger-related gains of $65 million recorded in 2011 associated with the acquisition of Wilmington Trust and $28 million in 2010 related to the K Bank transaction, noninterest income was $1.39 billion in 2011, compared with $1.16 billion in 2010. The predominant factor in that improvement was higher trust income resulting from the Wilmington Trust transaction. Also contributing to the higher noninterest income were increased revenues from letter of credit and credit-related fees and merchant discount and credit card fees. Partially offsetting those favorable factors were declines in mortgage banking revenues and service charges on deposit accounts. Excluding gains and losses from bank investment securities, the $28 million gain recorded on the K Bank transaction in 2010 and a $29 million gain recorded on the Bradford transaction in 2009, noninterest income was $1.16 billion in each of 2010 and 2009. Declines in revenues related to residential mortgage banking, brokerage services and the Company’s trust business were offset by higher service charges on deposit accounts, credit-related fees and other revenues from operations. Other-than-temporary impairment charges on investment securities were $77 million in 2011, $86 million in 2010 and $138 million in 2009.

Noninterest expense in 2011 totaled $2.48 billion, up 29% from $1.91 billion in 2010. During 2009, noninterest expense totaled $1.98 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 $62 million, $58 million and $64 million in 2011, 2010 and 2009, respectively, and merger-related expenses of $84 million in 2011, $771,000 in 2010 and $89 million in 2009. Exclusive of those nonoperating expenses, noninterest operating expenses aggregated $2.33 billion in 2011, $1.86 billion in 2010 and $1.83 billion in 2009. The rise in such expenses from 2010 to 2011 was largely attributable to the impact of the operations obtained in the Wilmington Trust acquisition, the $79 million other-than-temporary impairment charge related to BLG, the $30 million charitable contribution made in 2011’s fourth quarter and higher FDIC

 

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assessments. The increase in noninterest operating expenses from 2009 to 2010 was largely attributable to higher costs for professional services and advertising in 2010, and a $22 million reduction of the allowance for impairment of capitalized residential mortgage servicing rights in 2009. For the year ended December 31, 2010, there was no change to that impairment allowance. Partially offsetting those factors were declines in expenses in 2010 related to foreclosed properties and FDIC assessments.

The efficiency ratio expresses the relationship of operating expenses to revenues. The Company’s efficiency ratio, or noninterest operating expenses (as previously defined) divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from bank investment securities and gains on merger transactions), was 60.4% in 2011, compared with 53.7% in 2010 and 56.5% in 2009. Excluding the $79 million impairment charge related to M&T’s investment in BLG, the $55 million litigation settlement and the $30 million charitable contribution in the fourth quarter of 2011, the efficiency ratio for 2011 would have been 58.4%. The calculations of the efficiency ratio are presented in table 2.

Table 1

EARNINGS SUMMARY

Dollars in millions

 

Increase (Decrease)(a)                                      

Compound

Growth Rate

5 Years

2006 to 2011

 

 

   

 

   

 

                                     
2010 to 2011     2009 to 2010                                      
Amount     %     Amount     %         2011     2010     2009     2008     2007    
$ 64.1        2      $ 6.8             Interest income(b)   $ 2,817.9        2,753.8        2,747.0        3,299.5        3,565.6        (3 )% 
  (60.0     (13     (207.1     (31   Interest expense     402.3        462.3        669.4        1,337.8        1,694.6        (23

 

 

     

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  124.1        5        213.9        10      Net interest income(b)     2,415.6        2,291.5        2,077.6        1,961.7        1,871.0        6   
  (98.0     (27     (236.0     (39   Less: provision for credit losses     270.0        368.0        604.0        412.0        192.0        28   
  156.7               53.6             Gain (loss) on bank investment securities(c)     73.2        (83.5     (137.1     (147.8     (126.1       
  318.2        27        6.4        1      Other income     1,509.8        1,191.6        1,185.2        1,086.7        1,059.1        8   
        Less:            
  204.3        20        (2.2         

Salaries and employee benefits

    1,204.0        999.7        1,001.9        957.1        908.3        7   
  359.0        39        (63.6     (6  

Other expense

    1,274.1        915.1        978.7        769.9        719.3        13   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  133.7        12        575.7        106      Income before income taxes     1,250.5        1,116.8        541.1        761.6        984.4          
        Less:            
  1.9        8        2.2        10     

Taxable-equivalent adjustment(b)

    25.9        24.0        21.8        21.8        20.8        6   
  8.5        2        217.2        156     

Income taxes

    365.1        356.6        139.4        183.9        309.3        (1

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
$     123.3        17      $ 356.3        94      Net income   $ 859.5        736.2        379.9        555.9        654.3       

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

(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%.

 

(c) Includes other-than-temporary impairment losses, if any.

Supplemental Reporting of Non-GAAP Results of Operations

As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.7 billion at each of December 31, 2011, 2010 and 2009. Included in such intangible assets was goodwill of $3.5 billion at each of those dates. Amortization of core deposit and other intangible assets, after tax effect, totaled $38 million, $35 million and $39 million during 2011, 2010 and 2009, respectively.

M&T consistently provides supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible

 

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assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains and expenses associated with merging acquired operations into the Company, since such items 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 totaled $884 million in 2011, up 17% from $755 million in 2010. Diluted net operating earnings per common share in 2011 rose 12% to $6.55 from $5.84 in 2010. Net operating income and diluted net operating earnings per common share were $455 million and $3.54, respectively, during 2009.

Expressed as a rate of return on average tangible assets, net operating income was 1.26% in 2011, compared with 1.17% in 2010 and .71% in 2009. Net operating return on average tangible common equity was 17.96% in 2011, compared with 18.95% and 13.42% in 2010 and 2009, respectively.

Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in table 2.

 

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Table 2

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

 

       2011        2010        2009  

Income statement data

              

In thousands, except per share

              

Net income

              

Net income

     $ 859,479         $ 736,161         $ 379,891   

Amortization of core deposit and other intangible assets(a)

       37,550           35,265           39,006   

Merger-related gain(a)

       (64,930        (16,730        (17,684

Merger-related expenses(a)

       52,154           469           54,163   
    

 

 

      

 

 

      

 

 

 

Net operating income

     $ 884,253         $ 755,165         $ 455,376   
    

 

 

      

 

 

      

 

 

 

Earnings per common share

              

Diluted earnings per common share

     $ 6.35         $ 5.69         $ 2.89   

Amortization of core deposit and other intangible assets(a)

       .30           .29           .34   

Merger-related gain(a)

       (.52        (.14        (.15

Merger-related expenses(a)

       .42                     .46   
    

 

 

      

 

 

      

 

 

 

Diluted net operating earnings per common share

     $ 6.55         $ 5.84         $ 3.54   
    

 

 

      

 

 

      

 

 

 

Other expense

              

Other expense

     $ 2,478,068         $ 1,914,837         $ 1,980,563   

Amortization of core deposit and other intangible assets

       (61,617        (58,103        (64,255

Merger-related expenses

       (83,687        (771        (89,157
    

 

 

      

 

 

      

 

 

 

Noninterest operating expense

     $ 2,332,764         $ 1,855,963         $ 1,827,151   
    

 

 

      

 

 

      

 

 

 

Merger-related expenses

              

Salaries and employee benefits

     $ 16,131         $ 7         $ 10,030   

Equipment and net occupancy

       412           44           2,975   

Printing, postage and supplies

       2,663           74           3,677   

Other costs of operations

       64,481           646           72,475   
    

 

 

      

 

 

      

 

 

 

Total

     $ 83,687         $ 771         $ 89,157   
    

 

 

      

 

 

      

 

 

 

Efficiency ratio

              

Noninterest operating expense (numerator)

     $ 2,332,764         $ 1,855,963         $ 1,827,151   
    

 

 

      

 

 

      

 

 

 

Taxable-equivalent net interest income

       2,415,632           2,291,549           2,077,577   

Other income

       1,582,912           1,108,100           1,048,106   

Less: Gain on bank investment securities

       150,187           2,770           1,165   

Net OTTI losses recognized in earnings

       (77,035        (86,281        (138,297

Merger-related gain

       64,930           27,539           29,109   
    

 

 

      

 

 

      

 

 

 

Denominator

     $ 3,860,462         $ 3,455,621         $ 3,233,706   
    

 

 

      

 

 

      

 

 

 

Efficiency ratio

       60.43        53.71        56.50
    

 

 

      

 

 

      

 

 

 

Balance sheet data

              

In millions

              

Average assets

              

Average assets

     $ 73,977         $ 68,380         $ 67,472   

Goodwill

       (3,525        (3,525        (3,393

Core deposit and other intangible assets

       (168        (153        (191

Deferred taxes

       43           29           33   
    

 

 

      

 

 

      

 

 

 

Average tangible assets

     $ 70,327         $ 64,731         $ 63,921   
    

 

 

      

 

 

      

 

 

 

Average common equity

              

Average total equity

     $ 9,004         $ 8,103         $ 7,282   

Preferred stock

       (797        (736        (666
    

 

 

      

 

 

      

 

 

 

Average common equity

       8,207           7,367           6,616   

Goodwill

       (3,525        (3,525        (3,393

Core deposit and other intangible assets

       (168        (153        (191

Deferred taxes

       43           29           33   
    

 

 

      

 

 

      

 

 

 

Average tangible common equity

     $ 4,557         $ 3,718         $ 3,065   
    

 

 

      

 

 

      

 

 

 

At end of year

              

Total assets

              

Total assets

     $ 77,924         $ 68,021         $ 68,880   

Goodwill

       (3,525        (3,525        (3,525

Core deposit and other intangible assets

       (176        (126        (182

Deferred taxes

       51           23           35   
    

 

 

      

 

 

      

 

 

 

Total tangible assets

     $ 74,274         $ 64,393         $ 65,208   
    

 

 

      

 

 

      

 

 

 

Total common equity

              

Total equity

     $ 9,271         $ 8,358         $ 7,753   

Preferred stock

       (865        (741        (730

Undeclared dividends — preferred stock

       (3        (6        (6
    

 

 

      

 

 

      

 

 

 

Common equity, net of undeclared preferred dividends

       8,403           7,611           7,017   

Goodwill

       (3,525        (3,525        (3,525

Core deposit and other intangible assets

       (176        (126        (182

Deferred taxes

       51           23           35   
    

 

 

      

 

 

      

 

 

 

Total tangible common equity

     $ 4,753         $ 3,983         $ 3,345   
    

 

 

      

 

 

      

 

 

 

 

 

(a) After any related tax effect.

 

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Net Interest Income/Lending and Funding Activities

Net interest income expressed on a taxable-equivalent basis totaled $2.42 billion in 2011, 5% higher than $2.29 billion in 2010. That improvement resulted from growth in average earning assets partially offset by a narrowing of the Company’s net interest margin. Average earning assets aggregated $64.7 billion in 2011, up 8% from $59.7 billion in 2010 predominantly the result of earning assets obtained in the acquisition of Wilmington Trust, which at the May 16, 2011 acquisition date totaled approximately $9.6 billion. The net interest margin narrowed 11 basis points from 3.84% in 2010 to 3.73% in 2011, partially attributable to the Wilmington Trust acquisition. Also contributing to that narrowing were significantly higher cash balances on deposit with the Federal Reserve Bank of New York.

Average loans and leases rose 10% to $56.2 billion in 2011 from $51.3 billion in 2010, due predominantly to loans obtained in the acquisition of Wilmington Trust. Loans associated with Wilmington Trust totaled $6.4 billion on the acquisition date, consisting of approximately $1.4 billion of commercial loans and leases, $3.2 billion of commercial real estate loans, $680 million of residential real estate loans and $1.1 billion of consumer loans. Including the impact of the acquired loan balances, commercial loans and leases averaged $14.7 billion in 2011, up $1.6 billion or 12% from $13.1 billion in 2010. Average commercial real estate loans increased 11% to $22.9 billion in 2011 from $20.7 billion in 2010. Residential real estate loans averaged $6.8 billion in 2011, up 18% from $5.7 billion in 2010. In addition to the impact of Wilmington Trust, higher amounts of loans originated to be held in portfolio contributed to that increase. Average consumer loans in 2011 were $11.9 billion, up 1% from $11.7 billion in 2010. Largely offsetting the impact of consumer loans obtained in the Wilmington Trust transaction were declines in average automobile and home equity loans.

Reflecting a 35 basis point widening of the net interest margin, taxable-equivalent net interest income rose 10% to $2.29 billion in 2010 from $2.08 billion in 2009. The Company’s net interest margin increased to 3.84% in 2010 from 3.49% in 2009, predominantly the result of lower interest rates paid on deposits and borrowings. Average earning assets were $59.7 billion in 2010, up slightly from $59.6 billion in 2009. As compared with 2009, a slight increase in average outstanding balances of loans and leases was offset by a decline in average outstanding balances of investment securities.

Average loans and leases of $51.3 billion in 2010 were up 1% from $51.0 billion in 2009. The full-year impact of the loans obtained in the Provident and Bradford acquisition transactions was offset by sluggish borrower demand for commercial loans. Average commercial loans and leases declined 6% to $13.1 billion in 2010 from $13.9 billion in 2009. Commercial real estate loans averaged $20.7 billion in 2010, up 3% from $20.1 billion in 2009. Average residential real estate loans increased 8% to $5.7 billion in 2010 from $5.3 billion in 2009, largely due to the impact of adopting the new accounting rules on January 1, 2010 that required the Company to include in its consolidated financial statements one-to-four family residential mortgage loans that were included in non-recourse securitization transactions using qualified special-purpose trusts. The effect of that consolidation as of January 1, 2010 was to increase residential real estate loans by $424 million, decrease the amortized cost of available-for-sale investment securities by $360 million (fair value of $355 million as of January 1, 2010), and increase borrowings by $65 million. The Company’s consumer loan portfolio averaged $11.7 billion in each of 2010 and 2009.

 

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Table 3

AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES

 

     2011     2010     2009     2008     2007  
     Average
Balance
    Interest      Average
Rate
    Average
Balance
    Interest      Average
Rate
    Average
Balance
    Interest      Average
Rate
    Average
Balance
    Interest      Average
Rate
    Average
Balance
    Interest      Average
Rate
 
     (Average balance in millions; interest in thousands)  

Assets

                                   

Earning assets

                                   

Loans and leases, net of unearned discount(a)

                                   

Commercial, financial, etc.

   $ 14,655      $ 564,787         3.85   $ 13,092      $ 521,747         3.99     13,855        524,609         3.79     13,802        723,851         5.24     12,177        871,743         7.16

Real estate — commercial

     22,901        1,051,772         4.59        20,714        974,047         4.70        20,085        894,691         4.45        18,428        1,072,178         5.82        15,748        1,157,156         7.35   

Real estate — consumer

     6,778        334,421         4.93        5,746        303,262         5.28        5,297        288,474         5.45        5,465        329,574         6.03        6,015        384,101         6.39   

Consumer

     11,865        592,386         4.99        11,745        613,479         5.22        11,722        636,074         5.43        11,150        716,678         6.43        10,190        757,876         7.44   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total loans and leases, net

     56,199        2,543,366         4.53        51,297        2,412,535         4.70        50,959        2,343,848         4.60        48,845        2,842,281         5.82        44,130        3,170,876         7.19   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Interest-bearing deposits at banks

     1,195        2,934         .25        102        88         .09        50        34         .07        10        109         1.07        9        300         3.36   

Federal funds sold and agreements to resell securities

     180        189         .11        221        446         .20        52        129         .25        109        2,071         1.91        432        23,835         5.52   

Trading account

     94        1,411         1.50        94        789         .84        87        640         .74        79        1,546         1.95        62        744         1.20   

Investment securities(b)

                                   

U.S. Treasury and federal agencies

     4,165        155,339         3.73        4,483        191,677         4.28        3,805        182,163         4.79        3,740        181,098         4.84        2,274        100,611         4.42   

Obligations of states and political subdivisions

     244        13,704         5.61        266        15,107         5.67        221        13,143         5.94        136        9,243         6.79        119        8,619         7.23   

Other

     2,655        101,020         3.80        3,269        133,176         4.07        4,377        207,069         4.73        5,097        263,104         5.16        4,925        260,661         5.29   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total investment securities

     7,064        270,063         3.82        8,018        339,960         4.24        8,403        402,375         4.79        8,973        453,445         5.05        7,318        369,891         5.05   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total earning assets

     64,732        2,817,963         4.35        59,732        2,753,818         4.61        59,551        2,747,026         4.61        58,016        3,299,452         5.69        51,951        3,565,646         6.86   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Allowance for credit losses

     (916          (906          (864          (791          (677     

Cash and due from banks

     1,207             1,099             1,121             1,224             1,271        

Other assets

     8,954             8,455             7,664             6,683             6,000        
  

 

 

        

 

 

        

 

 

        

 

 

        

 

 

      

Total assets

   $ 73,977           $ 68,380             67,472             65,132             58,545        
  

 

 

        

 

 

        

 

 

        

 

 

        

 

 

      

Liabilities and Shareholders’ Equity

                                   

Interest-bearing liabilities

                                   

Interest-bearing deposits

                                   

NOW accounts

   $ 753        1,145         .15      $ 601        850         .14        543        1,122         .21        502        2,894         .58        461        4,638         1.01   

Savings deposits

     30,403        84,314         .28        26,190        85,226         .33        22,832        112,550         .49        18,170        248,083         1.37        14,985        250,313         1.67   

Time deposits

     6,480        71,014         1.10        6,583        100,241         1.52        8,782        206,220         2.35        9,583        330,389         3.45        10,597        496,378         4.68   

Deposits at Cayman Islands office

     779        962         .12        953        1,368         .14        1,665        2,391         .14        3,986        84,483         2.12        4,185        207,990         4.97   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-bearing deposits

     38,415        157,435         .41        34,327        187,685         .55        33,822        322,283         .95        32,241        665,849         2.07        30,228        959,319         3.17   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Short-term borrowings

     827        1,030         .12        1,854        3,006         .16        2,911        7,129         .24        6,086        142,627         2.34        5,386        274,079         5.09   

Long-term borrowings

     6,959        243,866         3.50        9,169        271,578         2.96        11,092        340,037         3.07        11,605        529,319         4.56        8,428        461,178         5.47   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-bearing liabilities

     46,201        402,331         .87        45,350        462,269         1.02        47,825        669,449         1.40        49,932        1,337,795         2.68        44,042        1,694,576         3.85   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest-bearing deposits

     17,273             13,709             11,054             7,674             7,400        

Other liabilities

     1,499             1,218             1,311             1,089             856        
  

 

 

        

 

 

        

 

 

        

 

 

        

 

 

      

Total liabilities

     64,973             60,277             60,190             58,695             52,298        
  

 

 

        

 

 

        

 

 

        

 

 

        

 

 

      

Shareholders’ equity

     9,004             8,103             7,282             6,437             6,247        
  

 

 

        

 

 

        

 

 

        

 

 

        

 

 

      

Total liabilities and shareholders’ equity

   $ 73,977           $ 68,380             67,472             65,132             58,545        
  

 

 

        

 

 

        

 

 

        

 

 

        

 

 

      

Net interest spread

          3.48             3.59             3.21             3.01             3.01   

Contribution of interest-free funds

          .25             .25             .28             .37             .59   
    

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

 

Net interest income/margin on earning assets

     $ 2,415,632         3.73     $ 2,291,549         3.84       2,077,577         3.49       1,961,657         3.38       1,871,070         3.60
    

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

 

 

 

(a) Includes nonaccrual loans.

 

(b) Includes available-for-sale investment securities at amortized cost.

 

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Table 4 summarizes average loans and leases outstanding in 2011 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
 
     2011      2010 to 2011     2009 to 2010  
     (In millions)               

Commercial, financial, etc. 

   $ 14,655         12     (6 )% 

Real estate — commercial

     22,901         11        3   

Real estate — consumer

     6,778         18        8   

Consumer

       

Home equity lines

     5,940         2        8   

Home equity loans

     721         (17     (13

Automobile

     2,731         (3     (11

Other

     2,473         11        3   
  

 

 

    

 

 

   

 

 

 

Total consumer

     11,865         1          
  

 

 

    

 

 

   

 

 

 

Total

   $ 56,199         10     1
  

 

 

    

 

 

   

 

 

 

Commercial loans and leases, excluding loans secured by real estate, totaled $15.7 billion at December 31, 2011, representing 26% of total loans and leases. Table 5 presents information on commercial loans and leases as of December 31, 2011 relating to geographic area, size, borrower industry and whether the loans are secured by collateral or unsecured. Of the $15.7 billion of commercial loans and leases outstanding at the end of 2011, approximately $13.5 billion, or 86%, were secured, while 42%, 26% and 21% were granted to businesses in New York State, Pennsylvania and the Mid-Atlantic area (which includes Maryland, Delaware, Virginia, West Virginia and the District of Columbia), 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, 2011 aggregated $1.3 billion, of which 48% were secured by collateral located in New York State, 15% were secured by collateral in the Mid-Atlantic area and another 11% were secured by collateral in Pennsylvania.

 

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Table of Contents

Table 5

COMMERCIAL LOANS AND LEASES, NET OF UNEARNED DISCOUNT

(Excludes Loans Secured by Real Estate)

December 31, 2011

 

     N