M&T Bank Corporation 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number 1-9861
M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)
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New York
(State or other jurisdiction of
incorporation or organization)
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16-0968385
(I.R.S. Employer
Identification No.) |
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One M & T Plaza
Buffalo, New York
(Address of principal
executive offices)
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14203
(Zip Code) |
(716) 842-5445
(Registrants telephone number, including area code)
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 (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
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 definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Number of shares of the registrants Common Stock, $0.50 par value, outstanding as of the close of
business on April 25, 2008: 110,111,644 shares.
M&T BANK CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 2008
- 2 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
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March 31, |
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December 31, |
Dollars in thousands, except per share |
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2008 |
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2007 |
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Assets
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Cash and due from banks |
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$ |
1,763,426 |
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1,719,509 |
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Interest-bearing deposits at banks |
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7,027 |
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18,431 |
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Federal funds sold |
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12,700 |
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48,038 |
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Trading account |
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372,067 |
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281,244 |
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Investment
securities (include pledged available for sale securities that can be
sold or |
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repledged of $2,087,546 at March 31, 2008; $1,988,128 at
December 31, 2007) |
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Available for sale (cost: $8,369,478 at March 31, 2008;
$8,451,411 at
December 31, 2007) |
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8,092,117 |
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8,379,169 |
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Held to maturity (fair value: $75,257 at March 31, 2008;
$78,250 at
December 31, 2007) |
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72,981 |
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76,441 |
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Other (fair value: $511,259 at March 31, 2008;
$506,388 at December 31, 2007) |
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511,259 |
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506,388 |
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Total investment securities |
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8,676,357 |
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8,961,998 |
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Loans and leases |
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49,615,489 |
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48,352,262 |
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Unearned discount |
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(336,608 |
) |
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(330,700 |
) |
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Allowance for credit losses |
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(773,624 |
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(759,439 |
) |
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Loans and leases, net |
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48,505,257 |
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47,262,123 |
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Premises and equipment |
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366,065 |
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370,765 |
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Goodwill |
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3,192,128 |
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3,196,433 |
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Core deposit and other intangible assets |
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230,093 |
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248,556 |
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Accrued interest and other assets |
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2,960,453 |
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2,768,542 |
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Total assets |
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$ |
66,085,573 |
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64,875,639 |
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Liabilities
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Noninterest-bearing deposits |
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$ |
7,890,326 |
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8,131,662 |
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NOW accounts |
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946,018 |
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1,190,161 |
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Savings deposits |
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17,333,096 |
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15,419,357 |
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Time deposits |
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9,657,146 |
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10,668,581 |
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Deposits at foreign office |
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5,706,424 |
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5,856,427 |
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Total deposits |
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41,533,010 |
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41,266,188 |
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Federal funds purchased and agreements
to repurchase securities |
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4,310,957 |
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4,351,313 |
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Other short-term borrowings |
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1,884,477 |
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1,470,584 |
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Accrued interest and other liabilities |
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1,196,756 |
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984,353 |
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Long-term borrowings |
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10,672,411 |
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10,317,945 |
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Total liabilities |
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59,597,611 |
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58,390,383 |
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Stockholders equity
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Preferred stock, $1 par, 1,000,000 shares authorized,
none outstanding |
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Common stock, $.50 par, 250,000,000 shares authorized,
120,396,611 shares issued at March 31, 2008 and at
December 31, 2007 |
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60,198 |
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60,198 |
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Common stock issuable, 77,364 shares at March 31, 2008;
82,912 shares at December 31, 2007 |
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4,529 |
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4,776 |
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Additional paid-in capital |
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2,849,320 |
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2,848,752 |
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Retained earnings |
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4,940,723 |
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4,815,585 |
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Accumulated other comprehensive income (loss), net |
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(259,484 |
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(114,822 |
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Treasury
stock - common, at cost - 10,365,863 shares at
March 31, 2008; 10,544,259 shares at December 31, 2007 |
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(1,107,324 |
) |
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(1,129,233 |
) |
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Total stockholders equity |
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6,487,962 |
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6,485,256 |
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Total liabilities and stockholders equity |
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$ |
66,085,573 |
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64,875,639 |
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- 3 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
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Three months ended March 31 |
In thousands, except per share |
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2008 |
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2007 |
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Interest income |
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Loans and leases, including fees |
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$ |
768,391 |
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768,121 |
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Deposits at banks |
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44 |
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66 |
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Federal funds sold |
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85 |
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260 |
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Agreements to resell securities |
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871 |
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4,541 |
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Trading account |
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259 |
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111 |
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Investment securities |
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Fully taxable |
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111,045 |
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84,674 |
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Exempt from federal taxes |
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3,467 |
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3,276 |
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Total interest income |
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884,162 |
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861,049 |
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Interest expense |
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NOW accounts |
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1,018 |
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1,167 |
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Savings deposits |
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66,622 |
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60,842 |
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Time deposits |
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106,643 |
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136,682 |
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Deposits at foreign office |
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38,373 |
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47,649 |
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Short-term borrowings |
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61,621 |
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63,564 |
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Long-term borrowings |
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131,035 |
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100,718 |
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Total interest expense |
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405,312 |
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410,622 |
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Net interest income |
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478,850 |
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450,427 |
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Provision for credit losses |
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60,000 |
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27,000 |
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Net interest income after provision for credit losses |
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418,850 |
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423,427 |
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Other income |
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Mortgage banking revenues |
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40,070 |
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13,873 |
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Service charges on deposit accounts |
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103,454 |
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94,587 |
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Trust income |
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40,304 |
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36,973 |
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Brokerage services income |
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15,473 |
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15,212 |
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Trading account and foreign exchange gains |
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4,713 |
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6,223 |
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Gain on bank investment securities |
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33,447 |
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1,063 |
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Equity in earnings of Bayview Lending Group LLC |
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(1,260 |
) |
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(2,428 |
) |
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Other revenues from operations |
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76,462 |
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70,980 |
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Total other income |
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312,663 |
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236,483 |
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Other expense |
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Salaries and employee benefits |
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251,871 |
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236,754 |
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Equipment and net occupancy |
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46,765 |
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42,846 |
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Printing, postage and supplies |
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9,896 |
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8,906 |
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Amortization of core deposit and other intangible assets |
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18,483 |
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18,356 |
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Other costs of operations |
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98,689 |
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92,175 |
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Total other expense |
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425,704 |
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399,037 |
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Income before taxes |
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305,809 |
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260,873 |
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Income taxes |
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103,613 |
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84,900 |
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Net income |
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$ |
202,196 |
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175,973 |
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Net income per common share |
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Basic |
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$ |
1.84 |
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1.60 |
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Diluted |
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1.82 |
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1.57 |
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Cash dividends per common share |
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$ |
.70 |
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.60 |
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Average common shares outstanding |
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Basic |
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110,017 |
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109,694 |
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Diluted |
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110,967 |
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112,187 |
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- 4 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
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Three months ended March 31 |
In thousands |
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2008 |
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2007 |
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Cash flows from
operating activities
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Net income |
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$ |
202,196 |
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175,973 |
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Adjustments to reconcile net income to net cash
provided by operating activities |
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Provision for credit losses
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60,000 |
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27,000 |
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Depreciation and amortization of premises
and equipment
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13,205 |
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12,579 |
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Amortization of capitalized servicing rights
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16,414 |
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15,591 |
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Amortization of core deposit and other intangible assets
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18,483 |
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18,356 |
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Provision for deferred income taxes
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(6,203 |
) |
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(19,402 |
) |
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Asset write-downs
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130 |
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12,777 |
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Net gain on sales of assets
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(32,714 |
) |
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(4,808 |
) |
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Net change in accrued interest receivable, payable
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24,332 |
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15,445 |
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Net change in other accrued income and expense
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47,486 |
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43,023 |
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Net change in loans originated for sale
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(65,976 |
) |
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136,065 |
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Net change in trading account assets and liabilities
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55,764 |
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(20,674 |
) |
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Net cash provided by operating activities
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333,117 |
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|
411,925 |
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Cash flows from
investing activities
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Proceeds from sales of investment securities |
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Available for sale
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49,678 |
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32,362 |
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Other
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35,188 |
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|
1,365 |
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Proceeds from maturities of investment securities |
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Available for sale
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652,254 |
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|
486,151 |
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Held to maturity
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13,706 |
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|
8,388 |
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Purchases of investment securities |
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Available for sale
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(587,345 |
) |
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(257,403 |
) |
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Held to maturity
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(10,255 |
) |
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(9,013 |
) |
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Other
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(40,059 |
) |
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(10,412 |
) |
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Net increase in agreements to resell securities
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(300,000 |
) |
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Net increase in loans and leases
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(1,271,522 |
) |
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(736,635 |
) |
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Other investments, net
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(3,506 |
) |
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(302,366 |
) |
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Additions to capitalized servicing rights
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(9,675 |
) |
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(14,031 |
) |
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Capital expenditures, net
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(8,516 |
) |
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(8,915 |
) |
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Other, net
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(37,593 |
) |
|
|
27,113 |
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Net cash used by investing activities
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|
(1,217,645 |
) |
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(1,083,396 |
) |
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Cash flows from
financing activities
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|
Net increase (decrease) in deposits
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|
267,852 |
|
|
|
(973,278 |
) |
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Net increase in short-term borrowings
|
|
|
373,623 |
|
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|
954,568 |
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Proceeds from long-term borrowings
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|
|
1,450,010 |
|
|
|
800,000 |
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Payments on long-term borrowings
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|
|
(1,120,237 |
) |
|
|
(27,669 |
) |
|
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Purchases of treasury stock
|
|
|
|
|
|
|
(207,875 |
) |
|
|
Dividends paid - common
|
|
|
(77,004 |
) |
|
|
(65,734 |
) |
|
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Other, net
|
|
|
(1,137 |
) |
|
|
34,249 |
|
|
|
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|
Net cash provided by financing activities
|
|
|
893,107 |
|
|
|
514,261 |
|
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Net increase (decrease) in cash and cash equivalents
|
|
|
8,579 |
|
|
|
(157,210 |
) |
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Cash and cash equivalents at beginning of period
|
|
|
1,767,547 |
|
|
|
1,624,964 |
|
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Cash and cash equivalents at end of period
|
|
$ |
1,776,126 |
|
|
|
1,467,754 |
|
|
Supplemental
disclosure of cash
flow information
|
|
Interest received during the period
|
|
$ |
917,644 |
|
|
|
870,337 |
|
|
|
Interest paid during the period
|
|
|
407,838 |
|
|
|
400,530 |
|
|
|
Income taxes paid during the period
|
|
|
3,696 |
|
|
|
1,403 |
|
|
Supplemental schedule of
noncash investing and
financing activities
|
|
Loans held for sale transferred to loans held for investment
|
|
$ |
|
|
|
|
870,759 |
|
|
|
Real estate acquired in settlement of loans
|
|
|
20,826 |
|
|
|
6,995 |
|
- 5 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
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|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
comprehensive |
|
|
|
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
stock |
|
|
paid-in |
|
|
Retained |
|
|
income (loss), |
|
|
Treasury |
|
|
|
|
In thousands, except per share |
|
stock |
|
|
stock |
|
|
issuable |
|
|
capital |
|
|
earnings |
|
|
net |
|
|
stock |
|
|
Total |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2007 |
|
$ |
|
|
|
|
60,198 |
|
|
|
5,060 |
|
|
|
2,889,449 |
|
|
|
4,443,441 |
|
|
|
(53,574 |
) |
|
|
(1,063,479 |
) |
|
|
6,281,095 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,973 |
|
|
|
|
|
|
|
|
|
|
|
175,973 |
|
Other comprehensive income,
net of tax and reclassification
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on
investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,407 |
|
|
|
|
|
|
|
17,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207,875 |
) |
|
|
(207,875 |
) |
Stock-based compensation plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and purchase plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,811 |
|
Exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,264 |
) |
|
|
|
|
|
|
|
|
|
|
53,497 |
|
|
|
33,233 |
|
Directors stock plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
327 |
|
Deferred compensation plans, net,
including dividend equivalents |
|
|
|
|
|
|
|
|
|
|
(321 |
) |
|
|
(420 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
738 |
|
|
|
(53 |
) |
Common stock cash dividends -
$0.60 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,734 |
) |
|
|
|
|
|
|
|
|
|
|
(65,734 |
) |
|
Balance - March 31, 2007 |
|
$ |
|
|
|
|
60,198 |
|
|
|
4,739 |
|
|
|
2,887,623 |
|
|
|
4,553,630 |
|
|
|
(36,167 |
) |
|
|
(1,216,839 |
) |
|
|
6,253,184 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2008 |
|
$ |
|
|
|
|
60,198 |
|
|
|
4,776 |
|
|
|
2,848,752 |
|
|
|
4,815,585 |
|
|
|
(114,822 |
) |
|
|
(1,129,233 |
) |
|
|
6,485,256 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,196 |
|
|
|
|
|
|
|
|
|
|
|
202,196 |
|
Other comprehensive income,
net of tax and reclassification
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on
investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,813 |
) |
|
|
|
|
|
|
(134,813 |
) |
Defined
benefit plans liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(205 |
) |
|
|
|
|
|
|
(205 |
) |
Unrealized
losses on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,338 |
) |
|
|
|
|
|
|
(12,338 |
) |
Reclassification of losses from
terminated
cash flow hedges to net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,694 |
|
|
|
|
|
|
|
2,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and purchase plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,449 |
|
|
|
|
|
|
|
|
|
|
|
4,032 |
|
|
|
18,481 |
|
Exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,397 |
) |
|
|
|
|
|
|
|
|
|
|
16,711 |
|
|
|
3,314 |
|
Directors stock plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
427 |
|
|
|
326 |
|
Deferred compensation plans, net,
including dividend equivalents |
|
|
|
|
|
|
|
|
|
|
(247 |
) |
|
|
(383 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
739 |
|
|
|
55 |
|
Common stock cash dividends -
$0.70 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,004 |
) |
|
|
|
|
|
|
|
|
|
|
(77,004 |
) |
|
Balance - March 31, 2008 |
|
$ |
|
|
|
|
60,198 |
|
|
|
4,529 |
|
|
|
2,849,320 |
|
|
|
4,940,723 |
|
|
|
(259,484 |
) |
|
|
(1,107,324 |
) |
|
|
6,487,962 |
|
|
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
In thousands |
|
2008 |
|
|
2007 |
|
|
Beginning balance |
|
$ |
759,439 |
|
|
$ |
649,948 |
|
Provision for credit losses |
|
|
60,000 |
|
|
|
27,000 |
|
Net charge-offs |
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(55,806 |
) |
|
|
(24,507 |
) |
Recoveries |
|
|
9,991 |
|
|
|
7,316 |
|
|
Total net charge-offs |
|
|
(45,815 |
) |
|
|
(17,191 |
) |
|
Ending balance |
|
$ |
773,624 |
|
|
|
659,757 |
|
|
- 6 -
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The consolidated financial statements of M&T Bank Corporation (M&T) and subsidiaries (the
Company) were compiled in accordance with the accounting policies set forth in note 1 of Notes to
Financial Statements included in the Companys 2007 Annual Report, except as described below. In
the opinion of management, all adjustments necessary for a fair presentation have been made and
were all of a normal recurring nature.
2. Earnings per share
The computations of basic earnings per share follow:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
March 31 |
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands, except per share) |
Income available to common
stockholders |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
202,196 |
|
|
|
175,973 |
|
|
Weighted-average shares
outstanding (including common
stock issuable) |
|
|
110,017 |
|
|
|
109,694 |
|
|
Basic earnings per share |
|
$ |
1.84 |
|
|
|
1.60 |
|
|
The computations of diluted earnings per share follow: |
|
|
Three months ended |
|
|
|
March 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands, except per share) |
|
Income available to common
stockholders |
|
$ |
202,196 |
|
|
|
175,973 |
|
|
Weighted-average shares
outstanding |
|
|
110,017 |
|
|
|
109,694 |
|
Plus: incremental shares from
assumed conversion of
stock-based compensation awards |
|
|
950 |
|
|
|
2,493 |
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares
outstanding |
|
|
110,967 |
|
|
|
112,187 |
|
|
Diluted earnings per share |
|
$ |
1.82 |
|
|
|
1.57 |
|
Options to purchase approximately 8.6 million and 3.0 million common shares during the
three-month periods ended March 31, 2008 and 2007, respectively, were not included in the
computations of diluted earnings per share because the effect on those periods would have been
antidilutive.
- 7 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Comprehensive income
The following table displays the components of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008 |
|
|
|
Before-tax |
|
|
Income |
|
|
|
|
|
|
amount |
|
|
taxes |
|
|
Net |
|
|
|
(in thousands) |
|
Unrealized losses
on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
losses during period |
|
$ |
(171,672 |
) |
|
|
57,245 |
|
|
|
(114,427 |
) |
Less: reclassification
adjustment for gains
realized in net income |
|
|
33,447 |
|
|
|
(13,061 |
) |
|
|
20,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(205,119 |
) |
|
|
70,306 |
|
|
|
(134,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses
on cash flow hedges |
|
|
(20,225 |
) |
|
|
7,887 |
|
|
|
(12,338 |
) |
Reclassification of
losses on terminated cash
flow hedges to income |
|
|
4,419 |
|
|
|
(1,725 |
) |
|
|
2,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,806 |
) |
|
|
6,162 |
|
|
|
(9,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans
liability adjustment |
|
|
(336 |
) |
|
|
131 |
|
|
|
(205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(221,261 |
) |
|
|
76,599 |
|
|
|
(144,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2007 |
|
|
|
Before-tax |
|
|
Income |
|
|
|
|
|
|
amount |
|
|
taxes |
|
|
Net |
|
|
|
(in thousands) |
|
Unrealized gains
on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
gains during period |
|
$ |
27,815 |
|
|
|
(9,751 |
) |
|
|
18,064 |
|
Less: reclassification
adjustment for gains
realized in net income |
|
|
1,063 |
|
|
|
(406 |
) |
|
|
657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,752 |
|
|
|
(9,345 |
) |
|
|
17,407 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), net consisted of unrealized gains (losses) as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
Defined |
|
|
|
|
|
|
|
Investment |
|
|
flow |
|
|
benefit |
|
|
|
|
|
|
|
securities |
|
|
hedges |
|
|
plans |
|
Total |
|
|
|
(in thousands) |
|
Balance - January 1, 2008 |
|
$ |
(59,406 |
) |
|
|
(8,931 |
) |
|
|
(46,485 |
) |
|
|
(114,822 |
) |
|
Net gain (loss) during period |
|
|
(134,813 |
) |
|
|
(9,644 |
) |
|
|
(205 |
) |
|
|
(144,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2008 |
|
$ |
(194,219 |
) |
|
|
(18,575 |
) |
|
|
(46,690 |
) |
|
|
(259,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2007 |
|
$ |
(25,311 |
) |
|
|
|
|
|
|
(28,263 |
) |
|
|
(53,574 |
) |
|
Net gain (loss) during period |
|
|
17,407 |
|
|
|
|
|
|
|
|
|
|
|
17,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2007 |
|
$ |
(7,904 |
) |
|
|
|
|
|
|
(28,263 |
) |
|
|
(36,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
- 8 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings
M&T Capital Trust I (Trust I), M&T Capital Trust II (Trust II), and M&T Capital Trust III
(Trust III) have issued fixed rate preferred capital securities aggregating $310 million. First
Maryland Capital I (Trust V) and First Maryland Capital II (Trust VI) have issued floating rate
preferred capital securities aggregating $300 million. The distribution rates on the preferred
capital securities of Trust V and Trust VI adjust quarterly based on changes in the three-month
London Interbank Offered Rate (LIBOR) and were 5.26% and 4.09%, respectively, at March 31, 2008 and 6.24% and 5.76%, respectively,
at December 31, 2007. As a result of an acquisition in the fourth quarter of 2007, M&T assumed
responsibility for $31.5 million of similar preferred capital securities previously issued by
special-purpose entities consisting of $16.5 million of fixed rate preferred capital securities
issued by BSB Capital Trust I (Trust VII) and $15 million of floating rate preferred capital
securities issued by BSB Capital Trust III (Trust VIII). The distribution rate on the preferred
capital securities of Trust VIII adjusts quarterly based on changes in the three-month LIBOR and
was 7.61% at March 31, 2008 and 8.59% at December 31, 2007. On January 31, 2008 M&T Capital Trust
IV (Trust IV), a Delaware business trust, issued $350 million of 8.50% fixed rate Enhanced Trust
Preferred Securities (8.50% Enhanced Trust Preferred Securities). Trust I, Trust II, Trust III,
Trust IV, Trust V, Trust VI, Trust VII and Trust VIII are referred to herein collectively as the
Trusts.
Other than the following payment terms (and the redemption and certain other terms described
below), the preferred capital securities issued by the Trusts (Capital Securities) are
substantially identical in all material respects:
|
|
|
|
|
|
|
|
|
Distribution |
|
Distribution |
Trust |
|
rate |
|
dates |
Trust I
|
|
|
8.234 |
% |
|
February 1 and August 1 |
|
|
|
|
|
|
|
Trust II
|
|
|
8.277 |
% |
|
June 1 and December 1 |
|
|
|
|
|
|
|
Trust III
|
|
|
9.25 |
% |
|
February 1 and August 1 |
|
|
|
|
|
|
|
Trust IV
|
|
|
8.50 |
% |
|
March 15, June 15, September 15
and December 15 |
|
|
|
|
|
|
|
Trust V
|
|
LIBOR
plus 1.00%
|
|
January 15, April 15, July 15
and October 15 |
|
|
|
|
|
|
|
Trust VI
|
|
LIBOR
plus .85%
|
|
February 1, May 1, August 1
and November 1 |
|
|
|
|
|
|
|
Trust VII
|
|
|
8.125 |
% |
|
January 31 and July 31 |
|
|
|
|
|
|
|
Trust VIII
|
|
LIBOR plus 3.35% |
|
January 7, April 7, July 7
and October 7 |
The common securities of each Trust (Common Securities) are wholly owned by M&T and are the
only class of each Trusts securities possessing general voting powers. The Capital Securities
represent preferred undivided interests in the assets of the corresponding Trust. Under the
Federal Reserve Boards current risk-based capital guidelines, the Capital Securities are
includable in M&Ts Tier 1 (core) capital.
- 9 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
The proceeds from the issuances of the Capital Securities and Common Securities were used by
the Trusts to purchase junior subordinated deferrable interest debentures (Junior Subordinated
Debentures) of M&T as follows:
|
|
|
|
|
|
|
|
|
Capital |
|
Common |
|
Junior Subordinated |
Trust |
|
Securities |
|
Securities |
|
Debentures |
Trust I
|
|
$150 million
|
|
$4.64 million
|
|
$154.64 million aggregate
liquidation amount of 8.234%
Junior Subordinated Debentures
due February 1, 2027. |
|
|
|
|
|
|
|
Trust II
|
|
$100 million
|
|
$3.09 million
|
|
$103.09 million aggregate
liquidation amount of 8.277%
Junior Subordinated Debentures
due June 1, 2027. |
|
|
|
|
|
|
|
Trust III
|
|
$60 million
|
|
$1.856 million
|
|
$61.856 million aggregate
liquidation amount of 9.25%
Junior Subordinated Debentures
due February 1, 2027. |
|
|
|
|
|
|
|
Trust IV
|
|
$350 million
|
|
$.01 million
|
|
$350.01 million aggregate
liquidation amount of 8.50%
Junior Subordinated Debentures
due January 31, 2068. |
|
|
|
|
|
|
|
Trust V
|
|
$150 million
|
|
$4.64 million
|
|
$154.64 million aggregate
liquidation amount of
floating rate Junior
Subordinated Debentures due
January 15, 2027. |
|
|
|
|
|
|
|
Trust VI
|
|
$150 million
|
|
$4.64 million
|
|
$154.64 million aggregate
liquidation amount of
floating rate Junior
Subordinated Debentures due
February 1, 2027. |
|
|
|
|
|
|
|
Trust VII
|
|
$16.5 million
|
|
$.928 million
|
|
$17.428 million aggregate
liquidation amount of 8.125%
Junior Subordinated Debentures
due July 31, 2028. |
|
|
|
|
|
|
|
Trust VIII
|
|
$15 million
|
|
$.464 million
|
|
$15.464 million aggregate
liquidation amount of
floating rate Junior
Subordinated Debentures due
January 7, 2033. |
The Junior Subordinated Debentures represent the sole assets of each Trust and payments under
the Junior Subordinated Debentures are the sole source of cash flow for each Trust. The financial
statement carrying values of junior subordinated debentures associated with preferred capital
securities at March 31, 2008 and December 31, 2007 of Trust III, Trust V, Trust VI and Trust VII
include the unamortized portions of purchase accounting adjustments to reflect estimated fair value
as of the date of M&Ts acquisition of the common securities of each respective trust. The interest
rates payable on the Junior Subordinated
- 10 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
Debentures of Trust V, Trust VI and Trust VIII were 5.26%, 4.09% and 7.61%, respectively, at March
31, 2008 and were 6.24%, 5.76% and 8.59%, respectively, at December 31, 2007.
Holders of the Capital Securities receive preferential cumulative cash distributions on each
distribution date at the stated distribution rate unless M&T exercises its right to extend the
payment of interest on the Junior Subordinated Debentures for up to ten semi-annual periods (in the
case of Trust I, Trust II, Trust III and Trust VII), twenty quarterly periods (in the case of Trust
V, Trust VI and Trust VIII) or, with respect to Trust IV, for up to twenty quarterly periods
without being subject to the alternative payment mechanism (as described below), and for up to
forty quarterly periods, without giving rise to an event of default, in which case payment of
distributions on the respective Capital Securities will be deferred for comparable periods. During
an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem
or acquire any shares of its capital stock. In the event of an extended interest period exceeding
twenty quarterly periods for the Junior Subordinated Debentures due January 31, 2068 held by Trust
IV, M&T must fund the payment of accrued and unpaid interest through the alternative payment
mechanism, which requires M&T to issue common stock, non-cumulative perpetual preferred stock or
warrants to purchase common stock until M&T has raised an amount of eligible proceeds at least
equal to the aggregate amount of accrued and unpaid deferred interest on the Junior Subordinated
Debentures due January 31, 2068 held by Trust IV. The agreements governing the Capital Securities,
in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T of the payment of
distributions on, the redemption of, and any liquidation distribution with
respect to the Capital Securities. The obligations under such guarantee and the Capital
Securities are subordinate and junior in right of payment to all senior indebtedness of M&T.
The Capital Securities will remain outstanding until the Junior Subordinated Debentures are
repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts.
The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the
stated maturity dates of the Junior Subordinated Debentures or the earlier redemption of the Junior
Subordinated Debentures in whole upon the occurrence of one or more events set forth in the
indentures relating to the Capital Securities, and in whole or in part at any time after an
optional redemption contemporaneously with the optional redemption of the related Junior
Subordinated Debentures in whole or in part, subject to possible regulatory approval. In
connection with the issuance of the 8.50% Enhanced Trust Preferred Securities by Trust IV, M&T
entered into a replacement capital covenant that provides that neither M&T nor any of its
subsidiaries will repay, redeem or purchase any of the Junior Subordinated Debentures due January
31, 2068 or the 8.50% Enhanced Trust Preferred Securities prior to January 31, 2048, with certain
limited exceptions, except to the extent that, during the 180 days prior to the date of that
repayment, redemption or purchase, M&T and its subsidiaries have received proceeds from the sale of
qualifying securities that (i) have equity-like characteristics that are the same as, or more
equity-like than, the applicable characteristics of the 8.50% Enhanced Trust Preferred Securities
or the Junior Subordinated Debentures due January 31, 2068, as applicable, at the time of
repayment, redemption or purchase, and (ii) M&T has obtained the prior approval of the Federal
Reserve Board, if required.
- 11 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
Allfirst Preferred Capital Trust (Allfirst Capital Trust) has issued $100 million of
Floating Rate Non-Cumulative Subordinated Trust Enhanced Securities (SKATES). Allfirst Capital
Trust is a Delaware business trust that was formed for the exclusive purposes of (i) issuing the
SKATES and common securities, (ii) purchasing Asset Preferred Securities issued by Allfirst
Preferred Asset Trust (Allfirst Asset Trust) and (iii) engaging in only those other activities
necessary or incidental thereto. M&T holds 100% of the common securities of Allfirst Capital Trust.
Allfirst Asset Trust is a Delaware business trust that was formed for the exclusive purposes of (i)
issuing Asset Preferred Securities and common securities, (ii) investing the gross proceeds of the
Asset Preferred Securities in junior subordinated debentures of M&T and other permitted investments
and (iii) engaging in only those other activities necessary or incidental thereto. M&T holds 100%
of the common securities of Allfirst Asset Trust and Allfirst Capital Trust holds 100% of the Asset
Preferred Securities of Allfirst Asset Trust. M&T currently has outstanding $105.3 million
aggregate liquidation amount Floating Rate Junior Subordinated Debentures due July 15, 2029 that
are payable to Allfirst Asset Trust. The interest rates payable on such debentures were 5.69% and
6.67% at March 31, 2008 and December 31, 2007, respectively.
Distributions on the SKATES are non-cumulative. The distribution rate on the SKATES and on the
Floating Rate Junior Subordinated Debentures is a rate per annum of three-month LIBOR plus 1.50%
and three-month LIBOR plus 1.43%, respectively, reset quarterly two business days prior to the
distribution dates of January 15, April 15, July 15, and October 15 in each year. Distributions on
the SKATES will be paid if, as and when Allfirst Capital Trust has funds available for payment. The
SKATES are subject to mandatory redemption if the
Asset Preferred Securities of Allfirst Asset Trust are redeemed. Allfirst Asset Trust will
redeem the Asset Preferred Securities if the junior subordinated debentures of M&T held by Allfirst
Asset Trust are redeemed. M&T may redeem such junior subordinated debentures, in whole or in part,
at any time on or after July 15, 2009, subject to regulatory approval. Allfirst Asset Trust will
redeem the Asset Preferred Securities at par plus accrued and unpaid distributions from the last
distribution payment date. M&T has guaranteed, on a subordinated basis, the payment in full of all
distributions and other payments on the SKATES and on the Asset Preferred Securities to the extent
that Allfirst Capital Trust and Allfirst Asset Trust, respectively, have funds legally available.
Under the Federal Reserve Boards current risk-based capital guidelines, the SKATES are includable
in M&Ts Tier 1 Capital.
- 12 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
Including the unamortized portions of purchase accounting adjustments to reflect estimated
fair value at the acquisition dates of the common securities of Trust III, Trust V, Trust VI, Trust
VII and Allfirst Asset Trust, the junior subordinated debentures associated with preferred capital
securities had financial statement carrying values as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
Trust I |
|
$ |
154,640 |
|
|
|
154,640 |
|
|
Trust II |
|
|
103,093 |
|
|
|
103,093 |
|
|
Trust III |
|
|
67,978 |
|
|
|
68,059 |
|
|
Trust IV |
|
|
350,010 |
|
|
|
|
|
|
Trust V |
|
|
144,338 |
|
|
|
144,201 |
|
|
Trust VI |
|
|
142,152 |
|
|
|
141,986 |
|
|
Trust VII |
|
|
16,908 |
|
|
|
16,902 |
|
|
Trust VIII |
|
|
15,464 |
|
|
|
15,464 |
|
|
Allfirst Asset Trust |
|
|
101,991 |
|
|
|
101,952 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,096,574 |
|
|
|
746,297 |
|
|
|
|
|
|
|
|
5. Segment information
Reportable segments have been determined based upon the Companys 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 financial information of the Companys segments was compiled utilizing the accounting
policies described in note 21 to the Companys consolidated financial statements as of and for the
year ended December 31, 2007. The management accounting policies and processes utilized in
compiling segment financial information are highly subjective and, unlike financial accounting, are
not based on authoritative guidance similar to generally accepted accounting principles (GAAP). As a
result, the financial information of the reported segments is not necessarily comparable with
similar information reported by other financial institutions. As also described in note 21 to the
Companys 2007 consolidated financial statements, neither goodwill nor core deposit and other
intangible assets (and the amortization charges associated with such assets) resulting from
acquisitions of financial institutions have been allocated to the Companys reportable segments,
but are included in the All Other category. The Company has, however, assigned such intangible
assets to business units for purposes of testing for impairment.
- 13 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Segment information, continued
Information about the Companys segments is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Inter- |
|
|
Net |
|
|
|
|
|
|
Inter- |
|
|
Net |
|
|
|
Total |
|
|
segment |
|
|
income |
|
|
Total |
|
|
segment |
|
|
income |
|
|
|
revenues(a) |
|
|
revenues |
|
|
(loss) |
|
|
revenues(a)(b) |
|
|
revenues |
|
|
(loss)(b) |
|
|
|
(in thousands) |
|
Business
Banking |
|
$ |
95,249 |
|
|
|
|
|
|
|
32,783 |
|
|
|
89,079 |
|
|
|
|
|
|
|
31,578 |
|
|
Commercial
Banking |
|
|
162,584 |
|
|
|
85 |
|
|
|
66,809 |
|
|
|
135,705 |
|
|
|
125 |
|
|
|
54,478 |
|
|
Commercial
Real Estate |
|
|
86,278 |
|
|
|
208 |
|
|
|
42,809 |
|
|
|
71,319 |
|
|
|
151 |
|
|
|
34,288 |
|
|
Discretionary
Portfolio |
|
|
43,475 |
|
|
|
(4,329 |
) |
|
|
15,977 |
|
|
|
29,276 |
|
|
|
(2,346 |
) |
|
|
18,938 |
|
|
Residential
Mortgage Banking |
|
|
67,418 |
|
|
|
13,331 |
|
|
|
5,059 |
|
|
|
45,668 |
|
|
|
10,891 |
|
|
|
(2,523 |
) |
|
Retail Banking |
|
|
302,868 |
|
|
|
2,967 |
|
|
|
75,470 |
|
|
|
284,750 |
|
|
|
3,028 |
|
|
|
75,804 |
|
|
All Other |
|
|
33,641 |
|
|
|
(12,262 |
) |
|
|
(36,711 |
) |
|
|
31,113 |
|
|
|
(11,849 |
) |
|
|
(36,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
791,513 |
|
|
|
|
|
|
|
202,196 |
|
|
|
686,910 |
|
|
|
|
|
|
|
175,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
March 31 |
|
|
December 31 |
|
|
|
2008 |
|
|
2007(b) |
|
|
2007(b) |
|
|
|
(in millions) |
|
Business Banking |
|
$ |
4,410 |
|
|
|
4,127 |
|
|
|
4,179 |
|
|
Commercial Banking |
|
|
14,370 |
|
|
|
12,571 |
|
|
|
12,989 |
|
|
Commercial Real Estate |
|
|
11,045 |
|
|
|
9,273 |
|
|
|
9,550 |
|
|
Discretionary
Portfolio |
|
|
14,927 |
|
|
|
11,997 |
|
|
|
12,953 |
|
|
Residential Mortgage
Banking |
|
|
2,691 |
|
|
|
3,592 |
|
|
|
2,874 |
|
|
Retail Banking |
|
|
11,514 |
|
|
|
10,116 |
|
|
|
10,360 |
|
|
All Other |
|
|
6,058 |
|
|
|
5,531 |
|
|
|
5,640 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
65,015 |
|
|
|
57,207 |
|
|
|
58,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total revenues are comprised of net interest income and other income. Net interest income is
the difference between taxable-equivalent interest earned on assets and interest paid on
liabilities owed by a segment and a funding charge (credit) based on the Companys internal
funds transfer methodology. |
- 14 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Segment information, continued
Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit
for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated
$5,783,000 and $5,123,000 for the three-month periods ended March 31, 2008 and 2007,
respectively, and is eliminated in All Other total revenues. Intersegment revenues are
included in total revenues of the reportable segments. The elimination of intersegment
revenues is included in the determination of All Other total revenues.
(b) |
|
Effective January 1, 2008, the Company changed its internal profitability reporting to move a
New York City-based lending unit from the Commercial Banking segment to the Commercial Real
Estate segment. Accordingly, financial information presented herein for periods prior to
January 1, 2008 has been reclassified to conform to current year presentation. As a result,
total revenues and net income decreased in the Commercial Banking segment and increased in the
Commercial Real Estate segment for the quarter ended March 31, 2007 by $6 million and $3
million, respectively, as compared with amounts previously reported. The lending unit had
average total assets of $665 million during the quarter ended March 31, 2007 and $667 million
during the year ended December 31, 2007. Accordingly, average total assets presented for
those periods differ from amounts previously reported. |
6. Commitments and contingencies
In the normal course of business, various commitments and contingent liabilities are outstanding.
The following table presents the Companys significant commitments. Certain of these commitments
are not included in the Companys consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
Commitments to extend credit |
|
|
|
|
|
|
|
Home equity lines of credit |
|
$ |
6,009,922 |
|
|
|
5,937,903 |
|
Commercial real estate loans
to be sold |
|
|
179,119 |
|
|
|
96,995 |
|
Other commercial real estate
and construction |
|
|
3,006,300 |
|
|
|
2,869,961 |
|
Residential real estate loans
to be sold |
|
|
834,940 |
|
|
|
492,375 |
|
Other residential real estate |
|
|
445,958 |
|
|
|
425,579 |
|
Commercial and other |
|
|
7,237,796 |
|
|
|
7,346,790 |
|
|
Standby letters of credit |
|
|
3,679,294 |
|
|
|
3,691,971 |
|
|
Commercial letters of credit |
|
|
43,774 |
|
|
|
34,105 |
|
|
Financial guarantees and
indemnification contracts |
|
|
1,350,622 |
|
|
|
1,318,733 |
|
|
Commitments to sell
real estate loans |
|
|
1,299,019 |
|
|
|
946,457 |
|
Commitments to extend credit are agreements to lend to customers, generally having fixed
expiration dates or other termination clauses that may require payment of a fee. Standby and
commercial letters of credit are conditional commitments issued to guarantee the performance of a
customer to a
- 15 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Commitments and contingencies, continued
third party. Standby letters of credit generally are contingent upon the failure of the customer
to perform according to the terms of the underlying contract with the third party, whereas
commercial letters of credit are issued to facilitate commerce and typically result in the
commitment being funded when the underlying transaction is consummated between the customer and a
third party. The credit risk associated with commitments to extend credit and standby and
commercial letters of credit is essentially the same as that involved with extending loans to
customers and is subject to normal credit policies. Collateral may be obtained based on
managements assessment of the customers creditworthiness.
Financial guarantees and indemnification contracts are oftentimes similar to standby letters
of credit and include mandatory purchase agreements issued to ensure that customer obligations are
fulfilled, recourse obligations associated with sold loans, and other guarantees of customer
performance or compliance with designated rules and regulations. Included in financial guarantees
and indemnification contracts are loan principal amounts sold with recourse in conjunction with the
Companys involvement in the Federal National Mortgage Association Delegated Underwriting and
Servicing program. The Companys maximum credit risk for recourse associated with loans sold under
this program totaled approximately $1 billion at each of March 31, 2008 and December 31, 2007.
Since many loan commitments, standby letters of credit, and guarantees and indemnification
contracts expire without being funded in whole or in part, the contract amounts are not necessarily
indicative of future cash flows.
The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the
fair value of real estate loans held for sale. Such commitments are considered derivatives in
accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, and along with commitments to originate
real estate loans to be held for sale are generally recorded in the consolidated balance sheet at
estimated fair market value. Until January 1, 2008, in estimating that fair value for commitments
to originate loans for sale, value ascribable to cash flows to be realized in connection with loan
servicing activities was not included. Value ascribable to that portion of cash flows was
recognized at the time the underlying mortgage loans were sold. Effective January 1, 2008, the
Company adopted the provisions of Staff Accounting Bulletin (SAB) No. 109 issued by the
Securities and Exchange Commission (SEC), which reversed previous conclusions expressed by the
SEC staff regarding written loan commitments that are accounted for at fair value through earnings.
Specifically, the SEC staff now believes that the expected net future cash flows related to the
associated servicing of the loan should be included in the fair value measurement of the derivative
loan commitment. In accordance with SAB No. 105, Application of Accounting Principles to Loan
Commitments, the Company had not included such amount in the value of loan commitments accounted
for as derivatives at December 31, 2007. As a result of the Companys adoption of required changes
in accounting pronouncements on January 1, 2008, there was an acceleration of the recognition of
mortgage banking revenues of approximately $7 million during the first quarter of 2008. If not for
the changes in accounting pronouncements, those revenues would have been recognized later in 2008
when the underlying loans were sold.
The Company has an agreement with the Baltimore Ravens of the National Football League whereby
the Company obtained the naming rights to a football stadium in Baltimore, Maryland. Under the
agreement, the Company is obligated to pay $5 million per year through 2013 and $6 million per year
from 2014 through 2017.
- 16 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Commitments and contingencies, continued
The Company also has commitments under long-term operating leases.
The Company reinsures credit life and accident and health insurance purchased by consumer loan
customers. The Company also enters into reinsurance contracts with third party insurance
companies who insure against the risk of a mortgage borrowers payment default in connection with
certain mortgage loans originated by the Company. When providing reinsurance coverage, the Company
receives a premium in exchange for accepting a portion of the insurers risk of loss. The
outstanding loan principal balances reinsured by the Company were approximately $109 million at
March 31, 2008. Assets of subsidiaries providing reinsurance that are available to satisfy claims
totaled approximately $59 million at March 31, 2008. The amounts noted above are not necessarily
indicative of losses which may ultimately be incurred. Such losses are expected to be
substantially less because most loans are repaid by borrowers in accordance with the original loan
terms. The amount of the Companys recorded liability for reported reinsurance losses as well as
estimated losses incurred but not yet reported was not significant at either March 31, 2008 or
December 31, 2007.
In October 2007, Visa completed a reorganization in contemplation of its initial public
offering (IPO) expected to occur in 2008. As part of that reorganization, M&T Bank, M&Ts
principal banking subsidiary, and other member banks of Visa received shares of Class B common
stock of Visa. Those banks are also obligated under various agreements with Visa to share in
losses stemming from certain litigation involving Visa (Covered Litigation). As of December 31,
2007, although Visa was expected to set aside a portion of the proceeds from
its IPO in an escrow account to fund any judgments or settlements that may arise out of the
Covered Litigation, guidance from the SEC indicated that Visa member banks should record a
liability for the fair value of the contingent obligation to Visa. The estimation of the Companys
proportionate share of any potential losses related to the Covered Litigation was extremely
difficult and involved a great deal of judgment. Nevertheless, in the fourth quarter of 2007 the
Company recorded a pre-tax charge of $23 million ($14 million after tax effect) related to the
Covered Litigation. In accordance with GAAP and
consistent with the SEC guidance, the Company did not recognize any value for its common stock
ownership interest in Visa as of December 31, 2007. During the first quarter of 2008, Visa
completed its IPO and, as part of the transaction, funded an escrow account for $3 billion from the
proceeds of the IPO to cover potential settlements arising out of the Covered Litigation. As a
result, during the first three months of 2008, the Company reversed approximately $15 million of
the $23 million accrued during the fourth quarter of 2007 for the Covered Litigation. The initial
accrual in 2007 and the partial reversal in 2008 were included in other costs of operations in
the consolidated statement of income. In addition, M&T Bank was allocated 1,967,028 Class B common
shares of Visa. Of those shares, 760,455 were mandatorily redeemed in March 2008 resulting in pre-tax gain
of $33 million ($20 million after tax) which has been included in gain on bank investment
securities in the consolidated statement of income.
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 Companys
consolidated financial position, but at the present time is not in a position to determine whether
such litigation will have a material adverse effect on the Companys consolidated results of
operations in any future reporting period.
- 17 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. Pension plans and other postretirement benefits
The Company provides defined benefit pension and other postretirement benefits (including health
care and life insurance benefits) to qualified retired employees. Net periodic benefit cost for
defined benefit plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension |
|
|
postretirement |
|
|
|
benefits |
|
|
benefits |
|
|
|
Three months ended March 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
Service cost |
|
$ |
5,343 |
|
|
|
5,475 |
|
|
|
164 |
|
|
|
150 |
|
Interest cost on projected benefit
obligation |
|
|
10,764 |
|
|
|
9,375 |
|
|
|
1,076 |
|
|
|
925 |
|
Expected return on plan assets |
|
|
(11,114 |
) |
|
|
(10,025 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(1,640 |
) |
|
|
(1,650 |
) |
|
|
42 |
|
|
|
50 |
|
Amortization of net actuarial loss |
|
|
1,220 |
|
|
|
1,200 |
|
|
|
42 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
4,573 |
|
|
|
4,375 |
|
|
|
1,324 |
|
|
|
1,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred in connection with the Companys defined contribution pension and retirement
savings plans totaled $10,327,000 and $9,169,000 for the three months ended March 31, 2008 and
2007, respectively.
8. Acquisitions
On November 30, 2007, M&T completed the acquisition of Partners Trust Financial Group, Inc.
(Partners Trust), a bank holding company headquartered in Utica, New York. Partners Trust was
merged with and into M&T on that date. Partners Trust Bank, the primary banking subsidiary of
Partners Trust, was merged into M&T Bank on that date. Partners Trust Bank operated 33 branch
offices in upstate New York at the date of acquisition. The results of operations acquired in the
Partners Trust transaction have been included in the Companys financial results since November 30,
2007, but did not have a significant effect on the Companys results of operations in 2007 or in
the first quarter of 2008. After application of the election, allocation and proration procedures
contained in the merger agreement with Partners Trust, M&T paid $282 million in cash and issued
3,096,861 shares of M&T common stock in exchange for Partners Trust shares and stock options
outstanding at the time of acquisition. The purchase price was approximately $559 million based on
the cash paid to Partners Trust shareholders, the fair value of M&T common stock exchanged, and the
cash paid to holders of Partners Trust stock options. The acquisition of Partners Trust expands
M&Ts presence in upstate New York, making M&T Bank the deposit market share leader in the
Utica-Rome and Binghamton markets, while strengthening its lead position in Syracuse.
Assets acquired from Partners Trust on November 30, 2007 totaled $3.5 billion, including $2.2
billion of loans and leases (largely residential real estate and consumer loans), liabilities
assumed aggregated $3.0 billion, including $2.2 billion of deposits (largely savings, money-market
and time deposits), and $277 million was added to stockholders equity. In connection with the
acquisition, the Company recorded approximately $283 million of goodwill and $50 million of core
deposit intangible. The core deposit intangible is being amortized over 7 years using an
accelerated method.
As a condition of the approval of the Partners Trust acquisition by regulators, M&T Bank was
required to divest three branch offices in Binghamton, New York. The three branches were sold on
March 15, 2008, including loans of $13 million and deposits of $65 million. No gain
or loss was recognized on that transaction.
- 18 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Acquisitions, continued
On December 7, 2007, M&T Bank acquired 13 branch offices in the Mid-Atlantic region from First
Horizon Bank in a cash transaction. The offices had approximately $214 million of loans, $216
million of deposits and $80 million of trust and investment assets under management on the
transaction date.
The Company incurred merger-related expenses related to systems conversions and other costs of
integrating and conforming acquired operations with and into the Company of $4 million ($2 million
net of applicable income taxes) during the first quarter of 2008 and $15 million ($9 million net of
applicable income taxes) during the fourth quarter of 2007. There were no similar expenses in the
first quarter of 2007. Those 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; incentive compensation; initial marketing and
promotion expenses designed to introduce the Company to customers of the acquired operations;
travel costs; and printing, postage and supplies and other costs of commencing operations in new
offices.
9. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings, L.P.
On February 5, 2007 M&T invested $300 million to acquire a minority interest in Bayview Lending
Group LLC (BLG), a privately-held commercial mortgage lender that specializes in originating,
securitizing and servicing small balance commercial real estate loans. M&T recognizes income from
BLG using the equity
method of accounting.
Bayview Financial Holdings, L.P. (together with its affiliates, Bayview Financial), a
privately-held specialty mortgage finance company, is BLGs majority investor. In addition to
their common investment in BLG, the Company and Bayview Financial conduct other business activities
with each other. The Company has purchased loan servicing rights for small balance commercial
mortgage loans from BLG and Bayview Financial having outstanding principal balances of $5.1 billion
and $4.9 billion at March 31, 2008 and December 31, 2007, respectively. Amounts recorded as
capitalized servicing assets for such loans totaled $63 million at March 31, 2008 and $57 million
at December 31, 2007. In addition, capitalized servicing rights at March 31, 2008 and December 31,
2007 also included $36 million and $40 million, respectively, for servicing rights that were
purchased from Bayview Financial related to residential mortgage loans with outstanding principal
balances of $4.5 billion at March 31, 2008 and $4.6 billion at December 31, 2007. Revenues from
servicing residential and small balance commercial mortgage loans purchased from BLG and Bayview
Financial were $13 million and $11 million for the quarters ended March 31, 2008 and 2007,
respectively. M&T Bank provided a $120 million revolving line of credit facility to Bayview
Financial at each of March 31, 2008 and December 31, 2007,
of which $77 million was
outstanding at March 31, 2008. There was no outstanding balance at
December 31, 2007. Finally, at March 31, 2008 and December 31, 2007, the
Company held $384 million and $450 million, respectively, of private collateralized mortgage
obligations in its available for sale investment securities portfolio that were securitized by
Bayview Financial.
10. Fair value measurements
Effective January 1, 2008,
the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements, for fair
value measurements of certain of its financial instruments. The provisions of SFAS No. 157 that
pertain to measurement of non-financial assets and liabilities have been deferred by the Financial
Accounting Standards Board (FASB) until 2009. The
- 19 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Fair value measurements, continued
adoption of SFAS No. 157 did not have a
material effect on the Companys financial position or results of operations.
The provisions of SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, which permit an entity to choose to measure eligible financial instruments and other
items at fair value, also became effective January 1, 2008. The Company has not made any fair
value elections under SFAS No. 159 as of March 31, 2008.
The definition of fair value is clarified by SFAS No. 157 to be the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157 establishes a three-level hierarchy for fair
value measurements based upon the inputs to the valuation of an asset or liability.
|
|
|
Level 1 Valuation is based on quoted prices in active markets for identical assets
and liabilities. |
|
|
|
|
Level 2 Valuation is determined from quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar instruments in markets that are
not active or by model-based techniques in which all significant inputs are observable in
the market. |
|
|
|
|
Level 3 Valuation is derived from model-based techniques in which at least one
significant input is unobservable and based on the Companys own estimates about the
assumptions that market participants would use to value the asset or liability. |
When available, the Company attempts to use quoted market prices to determine fair value and
classifies such items as Level 1 or Level 2. If quoted
market prices are not available, fair value is often determined using model-based techniques
incorporating various assumptions including interest rates, prepayment speeds and credit losses.
Assets and liabilities valued using model-based techniques are classified as either Level 2 or
Level 3, depending on the lowest level classification of an input that is considered significant to
the overall valuation. The following is a description of the valuation methodologies used for the
Companys assets and liabilities that are measured on a recurring basis at estimated fair value.
Trading
account assets and liabilities
Trading account assets and liabilities consist primarily of interest rate swap agreements and
foreign exchange contracts with customers who require such services with offsetting trading
positions with third parties to minimize the Companys risk with respect to such transactions. The
Company generally determines the fair value of its derivative trading account assets and
liabilities using externally developed pricing models based on market observable inputs and
therefore classifies such valuations as Level 2. Certain foreign exchange contracts are actively
traded and therefore have been classified as Level 1. Mutual funds held in connection
with deferred compensation arrangements have also been classified as Level 1 valuations.
Valuations of investments in municipal and other bonds can generally be obtained through reference
to quoted prices in less active markets for the same or similar securities or through model-based
techniques in which all significant inputs are observable and, therefore, such valuations have been
classified as Level 2.
Investment
securities available for sale
The
majority of the Companys available-for-sale investment securities have been valued by reference to prices for similar securities or
through model-based techniques in which all significant inputs are
observable and, therefore, such valuations have been classified as Level 2. Certain investments in
mutual funds and equity securities are actively traded and therefore have been classified as Level 1
- 20 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Fair value measurements, continued
valuations. For many privately
issued mortgage-backed securities and other securities where there is limited trading activity or
less observable valuation inputs, the Company has classified such valuations as Level 3.
Real
estate loans held for sale
The Company utilizes commitments to sell real estate loans to hedge the exposure to changes in fair
value of real estate loans held for sale. The carrying value of hedged real estate loans held for
sale includes changes in estimated fair value during the hedge period, typically from the date of
close through the sale date. Most of the Companys real estate loans held for sale have generally
been hedged since the origination date. The fair value of hedged real estate loans held for sale
is generally calculated by reference to quoted prices in secondary markets for commitments to sell
real estate loans with similar characteristics and, as such, have been classified as a Level 2
valuation.
Commitments to originate real estate loans for sale and commitments to sell real estate loans
The Company enters into various commitments to originate real estate loans for sale and commitments
to sell real estate loans. Such commitments are considered to be derivative financial instruments
and, therefore, are carried at estimated fair value on the consolidated balance sheet. The
estimated fair values of such commitments were generally calculated by reference to quoted prices
in secondary markets for commitments to sell real estate loans to certain government-sponsored
entities and other parties. The fair valuations of commitments to sell real estate loans generally
result in a Level 2 classification. The estimated fair value of commitments to originate real
estate loans for sale are oftentimes adjusted to reflect the Companys anticipated commitment
expirations. Estimated commitment expirations are considered a significant unobservable input,
which results in a Level 3 classification. Additionally, during the first quarter of 2008 the
Company adopted the provisions of SAB No. 109 for written loan commitments issued or modified after
January 1, 2008. SAB No. 109 reversed previous conclusions expressed by the SEC staff regarding
written loan commitments that are accounted for at fair value through earnings. Specifically, the
SEC staff now believes that the expected net future cash flows related to the associated servicing
of the loan should be included in the fair value measurement of the derivative loan commitment. In
accordance with SAB No. 105, the Company had not included such amount in the value of commitments
to originate real estate loans for sale at December 31, 2007. The estimated value ascribed to the
expected net future servicing cash flows is also considered a significant unobservable input
contributing to the Level 3 classification of commitments to originate real estate loans for sale.
Interest rate swap agreements used for interest rate risk management
The Company utilizes interest rate swap agreements as part of the management of interest rate risk
to modify the repricing characteristics of certain portions of its portfolios of earning assets and
interest-bearing liabilities. The Company generally determines the fair value of its interest rate
swap agreements using externally developed pricing models based on market observable inputs and
therefore classifies such valuations as Level 2.
- 21 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Fair value measurements, continued
A summary of assets and liabilities at March 31, 2008 measured at estimated fair value on a
recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
measurements |
|
|
|
|
|
|
|
|
|
|
|
|
at March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
(in thousands) |
|
Trading account assets |
|
$ |
372,067 |
|
|
|
57,003 |
|
|
|
315,064 |
|
|
|
|
|
Investment securities
available for sale |
|
|
8,092,117 |
|
|
|
201,126 |
|
|
|
6,718,190 |
|
|
|
1,172,801 |
|
Real estate loans held
for sale |
|
|
956,381 |
|
|
|
|
|
|
|
956,381 |
|
|
|
|
|
Other assets (a) |
|
|
60,492 |
|
|
|
|
|
|
|
49,400 |
|
|
|
11,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,481,057 |
|
|
|
258,129 |
|
|
|
8,039,035 |
|
|
|
1,183,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account
liabilities |
|
$ |
289,612 |
|
|
|
11,994 |
|
|
|
277,618 |
|
|
|
|
|
Other liabilities (a) |
|
|
25,302 |
|
|
|
|
|
|
|
22,338 |
|
|
|
2,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
314,914 |
|
|
|
11,994 |
|
|
|
299,956 |
|
|
|
2,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Comprised predominantly of interest rate swap agreements used for interest rate risk
management (Level 2), commitments to sell real estate loans (Level 2) and commitments to
originate real estate loans to be held for sale (Level 3). |
The changes in Level 3 assets and liabilities measured at estimated fair value on a
recurring basis during the three-month period ended March 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
securities |
|
|
Other assets |
|
|
|
available |
|
|
and other |
|
|
|
for sale |
|
|
liabilities |
|
|
|
(in thousands) |
|
Balance January 1, 2008 |
|
$ |
1,313,821 |
|
|
|
2,654 |
|
Total realized/unrealized
gains (losses): |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
12,720 |
(a) |
Included in other
comprehensive income |
|
|
(61,511 |
) |
|
|
|
|
Purchases, sales, issuances
and settlements, net |
|
|
(50,573 |
) |
|
|
|
|
Transfers in and/or out of
Level 3 |
|
|
(28,936 |
) |
|
|
(7,246 |
) |
|
|
|
|
|
|
|
Balance March 31, 2008 |
|
$ |
1,172,801 |
|
|
|
8,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains
(losses) included in earnings
related to assets and liabilities
still recorded on the balance
sheet at March 31, 2008 |
|
$ |
|
|
|
|
8,128 |
(a) |
|
|
|
(a) |
|
Reported as mortgage banking revenues in the consolidated statement of income and includes
the fair value of commitment issuances and expirations. |
- 22 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Fair value measurements, continued
The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets
or provide valuation allowances related to certain assets using fair value measurements in accordance with GAAP.
Loans
Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company
records nonrecurring adjustments to the carrying value of loans based
on fair value measurements for partial charge-offs of the
uncollectible portions of those loans.
Nonrecurring adjustments also include certain impairment amounts for
collateral-dependent loans calculated in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, when
establishing the allowance for credit losses. Such amounts are generally
based on the fair value of the underlying collateral supporting the
loan and, as a result, the carrying value of the loan less the
calculated valuation amount does not necessarily represent the fair
value of the loan. Real estate collateral is
typically valued using independent appraisals or other indications of value based on recent comparable sales
of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have
generally been classified as Level 2. Estimates of fair value used for other collateral supporting commercial
loans generally are based on assumptions not observable in the marketplace and therefore such
valuations have been classified as Level 3.
Capitalized servicing rights
Capitalized servicing rights are initially measured at fair value in the Companys consolidated
balance sheet. The Company utilizes the amortization method to subsequently measure its
capitalized servicing assets. In accordance with SFAS No. 156, Accounting for Servicing of
Financial Assets an amendment to FASB Statement No. 140, the Company must record impairment
charges, on a nonrecurring basis, when the carrying value of certain strata exceed their estimated
fair value. To estimate the fair value of servicing rights, the Company considers market prices
for similar assets and the present value of expected future cash flows associated with the
servicing rights calculated using assumptions that market participants would use in estimating
future servicing income and expense. Such assumptions include estimates of the cost of servicing
loans, loan default rates, an appropriate discount rate, and prepayment speeds. For purposes of
evaluating and measuring impairment of capitalized servicing rights, the Company stratifies such
assets based on the predominant risk characteristics of the underlying financial instruments that
are expected to have the most impact on projected prepayments, cost of servicing and other factors
affecting future cash flows associated with the servicing rights. Such factors may include
financial asset or loan type, note rate and term. The amount of impairment recognized is the
amount by which the carrying value of the capitalized servicing rights for a stratum exceed
estimated fair value. Impairment is recognized through a valuation allowance. The determination
of fair value of capitalized servicing rights is considered a Level 3 valuation.
- 23 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Fair value measurements, continued
Assets
subject to the nonrecurring fair value measurements described herein included in the consolidated balance
sheet at March 31, 2008 are summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recognized |
|
|
|
Carrying value at March 31, 2008 |
|
|
during the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarter ended |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
March 31, 2008 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
201,882 |
|
|
|
|
|
|
|
147,554 |
|
|
|
54,328 |
|
|
|
(22,552 |
) |
Capitalized servicing rights |
|
|
67,161 |
|
|
|
|
|
|
|
|
|
|
|
67,161 |
|
|
|
(4,500 |
) |
- 24 -
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
M&T Bank Corporation (M&T) recorded net income in the first quarter of 2008 of $202 million or
$1.82 of diluted earnings per common share, up 15% and 16%, respectively, from $176 million or
$1.57 of diluted earnings per common share in the first quarter of 2007. During the fourth quarter
of 2007, net income was $65 million or $.60 of diluted earnings per common share. Basic earnings
per common share were $1.84 in the initial quarter of 2008, compared with $1.60 and $.60 in the
first and fourth quarters of 2007, respectively. The after-tax impact of acquisition and
integration-related expenses (included herein as merger-related expenses) associated with the
November 30, 2007 acquisition of Partners Trust Financial Group, Inc. (Partners Trust) and the
December 7, 2007 acquisition by M&T Bank, the principal bank subsidiary of M&T, of the Mid-Atlantic
retail banking franchise of First Horizon Bank (First Horizon) was $2 million ($4 million
pre-tax) or $.02 of basic and diluted earnings per share in the first quarter of 2008, compared
with $9 million ($15 million pre-tax) or $.08 of basic and diluted earnings per share in the fourth
quarter of 2007. There were no similar expenses in 2007s initial quarter.
The annualized rate of return on average total assets for M&T and its consolidated
subsidiaries (the Company) in each of the first quarters of 2008 and 2007 was 1.25%, compared
with .42% in
the fourth quarter of 2007. The annualized rate of return on average common stockholders equity
was 12.49% in the first three months of 2008, compared with 11.38% and 4.05% in the first and
fourth quarters of 2007, respectively.
The
Companys financial results for the first three months of 2008 reflect $29 million, or $.26
of diluted earnings per share, resulting from M&T Banks status as a member bank of
Visa. During the last quarter of 2007, Visa completed a reorganization in contemplation
of its initial public offering (IPO) in 2008. As part of that reorganization M&T Bank and
other member banks of Visa received shares of Class B common stock of Visa. Those banks are
also obligated under various agreements with Visa to share in losses stemming from certain
litigation involving Visa (Covered Litigation). As of December 31, 2007, although Visa was
expected to set aside a portion of the proceeds from its IPO in an escrow account to fund any
judgments or settlements that may arise out of the Covered Litigation, guidance from the
Securities and Exchange Commission (SEC) indicated that Visa member banks should record a
liability for the fair value of the contingent obligation to Visa. The estimation of the
Companys proportionate share of any potential losses related to the Covered Litigation was
extremely difficult and involved a great deal of judgment. Nevertheless, in the fourth quarter
of 2007 the Company recorded a pre-tax charge of $23 million ($14 million after tax effect, or
$.13 per diluted share) related to the Covered Litigation. In accordance with generally
accepted accounting principles (GAAP) and consistent with the SEC guidance, the Company did
not recognize any value for its common stock ownership interest in Visa as of the 2007
year-end. During the first quarter of 2008, Visa completed its IPO and, as part of the
transaction, funded an escrow account with $3 billion from the proceeds of the IPO to cover
potential settlements arising out of the Covered Litigation. As a result, during the first
three months of 2008, the Company reversed approximately $15 million of the $23 million
accrued during the fourth quarter of 2007 for the Covered Litigation. In addition, M&T Bank
was allocated 1,967,028 Class B common shares of Visa based on its proportionate ownership of
Visa. Of those shares, 760,455 were mandatorily redeemed in March 2008 for an after-tax gain of $20 million
($33 million pre-tax), which has been recorded as gain on bank investment securities in the
consolidated statement of income.
- 25 -
Throughout 2007 and the first three months of 2008, the residential real estate marketplace in
the United States has experienced unprecedented turbulence. Problems experienced by lenders in the
sub-prime residential mortgage lending market also had negative repercussions on the rest of the
residential real estate marketplace. Those marketplace conditions had a direct impact on
the Companys financial results during that time frame. Specifically, financial results for the
first and fourth quarters of 2007 were adversely impacted by several events.
Through early 2007, the Company had been an active participant in the origination of
alternative (Alt-A) residential real estate loans and the sale of such loans in the secondary
market. Alt-A loans originated by the Company typically included some form of limited documentation
requirements as compared with more traditional residential real estate loans. Unfavorable market
conditions during the first quarter of 2007, including a lack of liquidity by previously active purchasers, impacted the Companys
willingness to sell Alt-A loans, as an auction of such loans initiated by the Company at that time
received fewer bids than normal and the pricing of those bids was substantially lower than
expected. As a result, $883 million of Alt-A loans previously held for sale (including $808 million
of first mortgage loans and $75 million of second mortgage loans) were transferred in March 2007 to
the Companys held-for-investment loan portfolio. In accordance with GAAP, loans held for sale must
be recorded at the lower of cost or market value. Accordingly, prior to reclassifying the Alt-A
mortgage loans to the held-for-investment portfolio, the carrying value of such loans was reduced
by $12 million ($7 million after tax effect, or $.07 of diluted earnings per share). Those loans
were reclassified because management believed at that time that the value of the Alt-A residential
real estate loans was greater than the amount implied by the few bidders who were active in the
market.
The downturn in the residential real estate market, specifically related to declining real
estate valuations and higher delinquencies, continued throughout the remainder of 2007 and had a
negative effect on the majority of financial institutions active in residential real estate
lending. Margins earned by the Company from sales of residential real estate loans in the secondary
market were lower in 2007 than in 2006.
Additionally, the Company may be contractually obligated to repurchase some previously sold residential real
estate loans that do not ultimately meet investor sale criteria, including instances where
mortgagors failed to make timely payments during the first 90 days subsequent to the sale date.
Requests from investors for the Company to repurchase residential real estate loans increased
significantly in early 2007, particularly related to Alt-A loans. As a result, during 2007s first
quarter the Company reduced mortgage banking revenues by $6 million ($4 million after tax effect,
or $.03 of diluted earnings per share) related to declines in market values of previously sold
residential real estate loans that the Company may be required to repurchase. Most of those loans
have not been repurchased as of March 31, 2008.
Including the impact of the $883 million of loans noted above, the Company had $1.2 billion of
Alt-A residential real estate loans in its held-for-investment loan portfolio at December 31, 2007.
Lower real estate values and higher levels of delinquencies and charge-offs contributed to
increased losses in that portfolio during 2007, which led to an assessment of the Companys
accounting practices during the fourth quarter as they related to the timing of the classification
of residential real estate loans as nonaccrual and when such loans were charged off. Beginning in
2007s fourth quarter, residential real estate loans were classified as nonaccrual when principal
or interest payments became 90 days delinquent. Previously, residential real estate loans had been
placed in nonaccrual status when payments were 180 past due. Also in 2007s fourth quarter, the
Company began charging off the excess of residential real estate loan balances over the net
-26-
realizable value of the property collateralizing the loan when such loans become 150 days
delinquent, whereas previously the Company provided an allowance for credit losses for those
amounts and charged-off loans upon foreclosure of the underlying property. The impact of the
acceleration of the classification of residential real estate loans as nonaccrual resulted in an
increase in nonperforming loans of $84 million at December 31, 2007 and a corresponding decrease in
loans past due 90 days and accruing interest. As a result of that acceleration, previously accrued
interest of $2 million was reversed and charged against income in the fourth quarter of 2007.
Included in the $53 million of net charge-offs during the fourth quarter of 2007 were $15 million
resulting from the change in accounting procedure. The declining residential real estate values
also contributed to specific allocations of the allowance for credit losses related to two
residential real estate builders and developers during the fourth quarter of 2007. Considering
these and other factors, the Company significantly increased the provision for credit losses in the
fourth quarter of 2007 to $101 million. Market prices for residential real estate properties,
including properties under development, have continued to be weak throughout the first quarter of
2008. That weakness contributed to the Company recording a provision for credit losses of $60
million in the recent quarter, up from $27 million in the year-earlier quarter. Additional
information about credit losses and nonperforming loans is included herein under the heading
Provision for Credit Losses.
The turbulence in the residential real estate market in 2007 also negatively affected the
Companys investment securities portfolio. Three collateralized debt obligations were purchased in
the first quarter of 2007 for approximately $132 million. The securities are backed largely by
residential mortgage-backed securities (collateralized by a mix of prime, mid-prime and sub-prime
residential mortgage loans) and are held in the Companys available-for-sale portfolio. Although
these securities were highly rated when purchased, two of the three securities were downgraded by
the rating agencies in late-2007. After a thorough analysis, management concluded that the
impairment of these securities was other than temporary. As a result, the Company recorded an
impairment charge of $127 million ($78 million after tax effect, or $.71 of diluted earnings per
share) in the fourth quarter of 2007.
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 $3.4 billion at each
of March 31, 2008 and December 31, 2007 and $3.1 billion at March 31, 2007. Included in such
intangible assets was goodwill of $3.2 billion at each of March 31, 2008 and December 31, 2007, and
$2.9 billion at March 31, 2007. Amortization of core deposit and other intangible assets, after
tax effect, was $11 million ($.10 per diluted share) during each of the first quarters of 2008 and
2007, and $10 million ($.09 per diluted share) in the fourth quarter of 2007.
M&T consistently provides supplemental reporting of its results on a net operating or
tangible basis, in which M&T excludes the after-tax effect of amortization of core deposit and
other intangible assets (and the related goodwill, core deposit intangible and other intangible
asset balances, net of applicable deferred tax amounts, when calculating certain performance
ratios) and expenses associated with integrating acquired operations into the Company, since such
expenses are considered by management to be nonoperating in nature. Although net operating
income as defined by M&T is not a GAAP
measure, M&Ts management believes that this information helps investors understand
the effect of acquisition activity in reported results.
-27-
Net operating income rose 15% to $216 million in the first quarter of 2008 from $187 million
in the year-earlier quarter. Diluted net operating earnings per share for the initial quarter of
2008 were $1.94, up 16% from $1.67 in the corresponding 2007 quarter. Net operating income and
diluted net operating earnings per share were $84 million and $.77, respectively, in the fourth
quarter of 2007.
Net operating income in the recently completed quarter represented an annualized rate of
return on average tangible assets of 1.41%, compared with 1.40% and .57% in the first and fourth
quarters of 2007, respectively. Net operating income expressed as an annualized return on average
tangible common equity was 27.86% in the first quarter of 2008, compared with 24.11% in the
year-earlier quarter and 10.49% in the final quarter of 2007.
Reconciliations of GAAP results with non-GAAP results are provided in table 2.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income increased to $485 million in the first quarter of 2008, up
6% from $456 million in the similar 2007 quarter and 2% above $476 million in the fourth quarter of
2007. The improvement in the recent quarter as compared with the first quarter of 2007 reflects a
$7.0 billion, or 14%, increase in average earning assets that was partially offset by a 26 basis
point (hundredths of one percent) narrowing of the Companys net interest margin, or
taxable-equivalent net interest income expressed as an annualized percentage of average earning
assets. The recent quarters improvement in taxable-equivalent net interest income as compared
with 2007s final quarter also resulted from growth in the average balance of earning assets, which
rose $2.9 billion or 5%, partially offset by a 7 basis point narrowing of the net interest margin.
Earning assets obtained in the Partners Trust and First Horizon
transactions at the respective acquisition dates in the fourth quarter of 2007 were $3.1 billion and $214 million, respectively.
Average loans and leases rose $5.5 billion, or 13%, to $48.6 billion in the first quarter of
2008 from $43.1 billion in the year-earlier quarter, and were $2.5 billion, or 5% higher than the
$46.1 billion average in the fourth quarter of 2007. Included in average loans and leases in the
first quarter of 2008 were loans obtained in the 2007 acquisitions of approximately $1.4
billion, compared with an average loan balance impact of approximately $750 million in the fourth
quarter of 2007. Commercial loans and leases averaged $13.3 billion in the initial 2008 quarter,
up 13% from $11.8 billion in the year-earlier quarter. Average commercial real estate loans rose
$2.5 billion or 16% to $18.0 billion in the recent quarter from $15.5 billion in the first quarter
of 2007. The Companys residential real estate loan portfolio averaged $6.0 billion in 2008s
initial quarter, up slightly from $5.9 billion in the similar quarter of 2007. Included in that
portfolio were loans held for sale, which averaged $718 million in the recently completed quarter,
compared with $1.8 billion in the first quarter of 2007. Excluding such loans, average residential
real estate loans increased $1.1 billion from the first quarter of 2007 to the first quarter of
2008. Average consumer loans and leases totaled $11.3 billion in the recent quarter, up $1.3
billion or 14% from $9.9 billion in the year-earlier period. That growth was due largely to higher
average automobile loan balances outstanding, including approximately $350 million of average
automobile loan balances related to the 2007 acquisition transactions.
-28-
The Company experienced growth of $757 million or 6% in average commercial loan balances in
the recent quarter as compared with the fourth quarter of 2007. Average commercial real estate
loans rose $1.5 billion or 9% from $16.5 billion in the final 2007 quarter. The average balances
outstanding for residential real estate loans in the recent quarter declined $351 million or 6%
from the fourth quarter of 2007, while average consumer loans outstanding were up $579 million or
5% from the final 2007 quarter. The decline in average residential real estate loans from 2007s
fourth quarter to the recent quarter reflects a December 2007 securitization of approximately $950
million of loans obtained in the Partners Trust acquisition into Federal National Mortgage
Association (FNMA) mortgage-backed securities. Those securities are guaranteed by
FNMA and there
is no credit recourse to the Company. The Company recognized no gain or loss on the transaction as
it retained all of the resulting securities, which are held in the available-for-sale investment
securities portfolio. Approximately three-fourths of the rise in average consumer loan balances
from the fourth quarter of 2007 to the first 2008 quarter also resulted from the acquisition
transactions. The accompanying table summarizes quarterly changes in the major components of the
loan and lease portfolio.
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent increase |
|
|
|
|
|
|
|
(decrease) from |
|
|
|
1st Qtr. |
|
|
1st Qtr. |
|
|
4th Qtr. |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
Commercial, financial, etc. |
|
$ |
13,308 |
|
|
|
13 |
% |
|
|
6 |
% |
Real estate commercial |
|
|
17,994 |
|
|
|
16 |
|
|
|
9 |
|
Real estate consumer |
|
|
5,977 |
|
|
|
1 |
|
|
|
(6 |
) |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
3,744 |
|
|
|
35 |
|
|
|
9 |
|
Home equity lines |
|
|
4,317 |
|
|
|
3 |
|
|
|
3 |
|
Home equity loans |
|
|
1,150 |
|
|
|
(1 |
) |
|
|
3 |
|
Other |
|
|
2,085 |
|
|
|
15 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
11,296 |
|
|
|
14 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48,575 |
|
|
|
13 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
The investment securities portfolio averaged $8.9 billion during the initial quarter of 2008,
24% higher than $7.2 billion in the year-earlier quarter and up 13% from $7.9 billion in the fourth
quarter of 2007. The increases in such securities from both the first and fourth quarters of 2007
reflect the impact of the previously noted late-December 2007 securitization transaction. The
investment securities portfolio is largely comprised of residential and commercial mortgage-backed
securities and collateralized mortgage obligations, debt securities issued by municipalities, debt
and preferred equity securities issued by government-sponsored agencies and certain financial
institutions, and shorter-term U.S. Treasury and federal agency notes.
When purchasing investment securities, the Company considers its overall interest-rate risk
profile as well as the adequacy of expected returns relative to risks assumed, including
prepayments. In managing its investment securities portfolio, the Company occasionally sells
investment securities as a result of changes in interest rates and spreads, actual or anticipated
prepayments, credit risk associated with a particular security, or as a result of restructuring its
investment securities portfolio following completion of a business combination. The Company
regularly reviews its investment securities for declines in value below amortized cost that might
be characterized as other than temporary. As previously
discussed, during the fourth quarter of 2007 the Company recognized other-than-temporary impairment
charges of $127 million related to $132 million of collateralized debt obligations.
As of March 31,
2008 and December 31, 2007, the
Company concluded that the declines in value of other of its investment securities
-29-
were temporary in nature. Further discussion of the
fair value of investment securities is included herein under the heading Capital.
Other earning assets include deposits at banks, trading account assets, federal funds sold and
agreements to resell securities. Those other earning assets in the aggregate averaged $214 million
in the recently completed quarter, compared with $365 million and $805 million in the first and
fourth quarters of 2007, respectively. The decline in such assets in the recent quarter as
compared with the immediately preceding quarter resulted from maturities of investment securities
under agreements to resell. Those resell agreements had been entered into primarily to
collateralize municipal deposits. Resell agreements are accounted for similar to collateralized
loans, with changes in the fair value of the collateral monitored by the Company to ensure
sufficient coverage. Such agreements averaged $286 million and $713 million in the first and
fourth quarters of 2007, respectively, compared with $115 million during the initial quarter of
2008. The amounts of investment securities and other earning assets held by the Company are
influenced by such factors as demand for loans, which generally yield more than investment
securities and other earning assets, ongoing repayments, the level of deposits, and management of
balance sheet size and resulting capital ratios.
As a result of the changes described herein, average earning assets rose 14% to $57.7 billion
in the first quarter of 2008 from $50.7 billion in the corresponding 2007 quarter. Average earning
assets aggregated $54.8 billion in the fourth quarter of 2007.
The most significant source of funding for the Company is core deposits, which are comprised
of noninterest-bearing deposits, interest-bearing transaction accounts, nonbrokered savings
deposits and nonbrokered domestic time deposits under $100,000. The Companys branch network is its
principal source of core deposits, which generally carry lower interest rates than wholesale funds
of comparable maturities. Certificates of deposit under $100,000 generated on a nationwide basis
by M&T Bank, National Association (M&T Bank, N.A.), a wholly owned bank subsidiary of M&T, are
also included in core deposits. Core deposits averaged $30.6 billion in the first quarter of 2008,
compared with $28.6 billion in the corresponding quarter of 2007 and $28.9 billion in the final
quarter of 2007. The Partners Trust and First Horizon acquisition transactions in 2007s fourth
quarter added approximately $2.0 billion of core deposits at acquisition, but
only added $620 million to average core deposits during the fourth quarter of 2007. The following
table provides an analysis of quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent increase |
|
|
|
|
|
|
|
(decrease) from |
|
|
|
1st Qtr. |
|
|
1st Qtr. |
|
|
4th Qtr. |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
NOW accounts |
|
$ |
484 |
|
|
|
11 |
% |
|
|
(1 |
)% |
Savings deposits |
|
|
16,740 |
|
|
|
14 |
|
|
|
10 |
|
Time deposits less than $100,000 |
|
|
5,977 |
|
|
|
(1 |
) |
|
|
4 |
|
Noninterest-bearing deposits |
|
|
7,435 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,636 |
|
|
|
7 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
Additional sources of funding for the Company include domestic time
deposits of $100,000 or more, deposits originated through the Companys offshore branch
office, and brokered deposits. Domestic time deposits over $100,000, excluding brokered
certificates of deposit, averaged $2.6 billion during the quarter ended March 31, 2008, compared
with $2.9 billion in the first quarter of 2007 and $2.8 billion in 2007s fourth quarter. Offshore
branch deposits, primarily comprised of accounts with balances of $100,000 or more, averaged $4.8
billion, $3.7 billion and $5.0 billion for the quarters ended March 31,
2008, March 31, 2007 and
December 31, 2007, respectively. Average brokered time deposits totaled $1.8 billion
during the
recently completed quarter,
-30-
compared with $2.8 billion and $1.9 billion in the first and fourth
quarters of 2007, respectively. In connection with the Companys management of interest rate risk,
interest rate swap agreements have been entered into under which the Company receives a fixed rate
of interest and pays a variable rate and that have notional amounts and terms substantially similar
to the amounts and terms of $135 million of brokered time deposits. The Company also had brokered
money-market deposit accounts which averaged $102 million during the first quarter of 2008,
compared with $84 million in the year-earlier quarter and $98 million in the fourth quarter of
2007. Offshore branch deposits and brokered deposits have been used by the Company as an
alternative to short-term borrowings. Additional amounts of offshore branch deposits or brokered
deposits may be solicited in the future depending on market conditions, including demand by
customers and other investors for such deposits, and the cost of funds available from alternative
sources at the time.
The Company also uses borrowings from banks, securities dealers, various Federal Home Loan
Banks (FHLBs), and others as sources of funding. Short-term borrowings averaged $7.2 billion in
the first 2008 quarter, compared with $4.9 billion in the year-earlier quarter and $5.9 billion in
the last 2007 quarter. Included in short-term borrowings were unsecured federal funds borrowings,
which generally mature daily, that averaged $5.6 billion in the recent quarter, compared with $4.1
billion and $4.8 billion in the first and fourth quarters of 2007, respectively. Overnight federal
funds borrowings represent the largest component of short-term borrowings and are obtained from a
wide variety of banks and other financial institutions. Also included in short-term borrowings is
a $500 million revolving asset-backed structured borrowing secured by automobile loans that were
transferred to M&T Auto Receivables I, LLC, a special purpose subsidiary
of M&T Bank. The special purpose
subsidiary, the loans and the borrowings are included in the consolidated financial statements of
the Company. Average short-term borrowings during the recent quarter included $781 million of
borrowings from the FHLB of New York, compared with $617 million in the fourth quarter of 2007.
There were no similar short-term borrowings outstanding during the first quarter of 2007.
Long-term borrowings averaged $10.3 billion in the first quarter of 2008,
compared with $7.3
billion in the corresponding 2007 quarter and $9.8 billion in the fourth quarter of 2007. Included
in average long-term borrowings were amounts borrowed from the FHLBs of $5.4 billion in the initial
quarter of 2008 and $3.5 billion and $5.5 billion in the first and fourth quarters of 2007,
respectively, and subordinated capital notes of $1.9 billion in the most recent quarter, $1.7
billion in the first quarter of 2007 and $1.6 billion in 2007s final quarter. M&T Bank issued
$400 million of subordinated notes in December 2007, in part to maintain appropriate regulatory
capital ratios. Junior subordinated debentures associated with trust preferred securities that
were included in average long-term borrowings were $981 million
in the first quarter of 2008,
compared with $713 million and $725 million in the first and fourth quarters of 2007, respectively.
During January 2008, M&T issued $350 million of Enhanced Trust Preferred Securities, bearing a
fixed rate of interest of 8.50% and maturing in 2068. The related junior subordinated debentures
are included in long-term borrowings. Information regarding trust preferred securities and the
related junior subordinated debentures is provided in note 4 of Notes to Financial Statements.
Also included in long-term borrowings were agreements to repurchase securities, which averaged $1.6
billion during the last two quarters, and $1.4
billion in the first quarter of 2007. The agreements have various repurchase dates through
2017, however, the contractual maturities of the underlying securities extend beyond such
repurchase dates.
Changes in the composition of the Companys earning assets and interest-bearing liabilities as
described herein, as well as changes in interest rates and spreads, can impact net interest income.
Net interest spread, or the difference between the taxable-equivalent
yield on earning assets and
the rate paid on interest-bearing liabilities, was 2.94% in the first quarter of 2008 and 3.03% in
the year-earlier quarter. The yield on earning assets during the
-31-
recent quarter was 6.20%, down 73
basis points from 6.93% in the first quarter of 2007, while the rate paid on interest-bearing
liabilities decreased 64 basis points to 3.26% from 3.90%. In the fourth quarter of 2007, the net
interest spread was 2.90%, the yield on earning assets was 6.65% and the rate paid on
interest-bearing liabilities was 3.75%. In September 2007, the Federal Reserve began lowering its
benchmark overnight federal funds target rate, first by 50 basis points, then twice more during the
fourth quarter, each by 25 basis points. In response to deteriorating economic conditions, the
Federal Reserve aggressively continued the interest rate reductions during the recent quarter,
three times cutting its benchmark rate, in total by 200 basis points. The decline in the Companys
net interest spread during the recent quarter as compared with the first quarter of 2007 was
attributable to several factors, including significantly higher loan balances funded partially by
wholesale borrowings, higher levels of investment securities and other earning assets that
generally yield less than loans, and the impact of the recent acquisition transactions and
issuances of long-term borrowings. The improvement in net interest spread from the final quarter
of 2007 to the recent quarter was due, in part, to a more rapid decline in rates paid on
interest-bearing liabilities, most notably short-term borrowings, than in the yields on earning
assets.
Net interest-free funds consist largely of noninterest-bearing demand deposits and
stockholders equity, partially offset by bank owned life insurance and non-earning assets,
including goodwill, core deposit and other intangible assets and M&Ts investment in Bayview
Lending Group LLC (BLG), a privately-held commercial mortgage lender, in which M&T invested $300
million in February 2007. BLG specializes in originating, securitizing and servicing small balance
commercial real estate loans. Net interest-free funds averaged $7.7 billion in the first quarter
of 2008, compared with $8.0 billion in each of the first and fourth quarters of 2007. Goodwill and
core deposit and other intangible assets averaged $3.4 billion during the quarter ended March 31,
2008, $3.1 billion in the first quarter of 2007 and $3.2 billion in 2007s final quarter. The cash
surrender value of bank owned life insurance averaged $1.2 billion in each of the first quarter of
2008 and the fourth quarter of 2007, and $1.1 billion in the first quarter of 2007. Increases in
the cash surrender value of bank owned life insurance and benefits received are not included in
interest income, but rather are recorded in other revenues from operations.
The contribution of net interest-free funds to net interest margin was .44% in the recent
quarter, compared with .61% in the year-earlier quarter and .55% in 2007s final quarter. The
decrease in the contribution to net interest margin ascribed to net interest-free funds in the
recent quarter as compared with the first and fourth quarters of 2007 resulted largely from the
impact of lower interest rates on interest-bearing liabilities used to value such contribution.
Reflecting the changes to the net interest spread and the contribution of interest-free funds
as described herein, the Companys net interest margin was 3.38% in the first quarter of 2008,
compared with 3.64% in the first quarter of 2007 and 3.45% in the fourth quarter of 2007. Future
changes in market interest rates or spreads, as well as changes in the composition of the Companys
portfolios of earning assets and interest-bearing liabilities
that result in reductions in spreads, could adversely impact the Companys net interest income
and net interest margin.
Management assesses the potential impact of future changes in interest rates and spreads by
projecting net interest income under several interest rate scenarios. In managing interest rate
risk, the Company utilizes interest rate swap agreements to modify the repricing
characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. Periodic
settlement amounts arising from these agreements are generally reflected in either the yields
earned on assets or the rates paid on
-32-
interest-bearing liabilities. The notional amount of
interest rate swap agreements entered into for interest rate risk management purposes was
approximately $1.2 billion as of March 31, 2008, $1.0 billion as of March 31, 2007 and $2.3 billion
as of December 31, 2007. Under the terms of all of the swap agreements outstanding as of March 31,
2007 and 2008 and $842 million of the swap agreements outstanding as of December 31, 2007, the
Company received payments based on the outstanding notional amount of the swap agreements at fixed
rates and made payments at variable rates. Those swap agreements were designated as fair value
hedges of certain fixed rate time deposits and long-term borrowings. There were no interest rate
swap agreements designated as cash flow hedges at March 31, 2008 or at March 31, 2007. Under the
terms of the additional $1.5 billion of swap agreements outstanding at the 2007 year-end, the
Company paid a fixed rate of interest and received a variable rate. Those agreements had been
designated as cash flow hedges of certain variable rate long-term borrowings. During the first
quarter of 2008, those swap agreements were terminated by the Company resulting in the realization
of a loss of $37 million. That loss is being amortized over the original hedge period as an
adjustment to interest expense associated with the previously hedged long-term borrowings.
In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and
changes in the fair value of the hedged item are recorded in the Companys consolidated balance
sheet with the corresponding gain or loss recognized in current earnings. The difference between
changes in the fair value of the interest rate swap agreements and the hedged items represents
hedge ineffectiveness and is recorded in other revenues from operations in the Companys
consolidated statement of income. In a cash flow hedge, unlike in a fair value hedge, the
effective portion of the derivatives gain or loss is initially reported as a component of other
comprehensive income and subsequently reclassified into earnings when the forecasted transaction
affects earnings. The ineffective portion of the gain or loss is reported in other revenues from
operations immediately. The amounts of hedge ineffectiveness recognized during the quarters ended
March 31, 2008 and 2007 and the quarter ended December 31, 2007 were not material to the Companys
results of operations. The estimated aggregate fair value of interest rate swap agreements
designated as fair value hedges represented gains of approximately $41 million and $17 million at
March 31, 2008 and December 31, 2007, respectively, and a loss of approximately $12 million at
March 31, 2007. The fair values of such swap agreements were substantially offset by changes in
the fair values of the hedged items. The estimated fair values of interest rate swap agreements
designated as cash flow hedges were losses of approximately $17 million at December 31, 2007. No
interest rate swap agreements were designated as cash flow hedges at either March 31, 2008 or 2007.
The changes in the fair values of the interest rate swap agreements and the hedged items result
from the effects of changing interest rates.
The weighted-average rates to be received and paid under interest rate swap agreements
currently in effect were 6.16% and 4.96%, respectively, at March 31, 2008. The average notional
amounts of interest rate swap agreements entered into for interest rate risk management purposes,
the related effect on net interest income and margin, and the weighted-average rates paid or
received on those swap agreements are presented in the accompanying table.
-33-
INTEREST RATE SWAP AGREEMENTS
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
Amount |
|
|
Rate* |
|
|
Amount |
|
|
Rate* |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Interest expense |
|
|
(1,440 |
) |
|
|
(.01 |
) |
|
|
1,355 |
|
|
|
.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income/margin |
|
$ |
1,440 |
|
|
|
.01 |
% |
|
$ |
(1,355 |
) |
|
|
(.01 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average notional
amount |
|
$ |
1,716,307 |
|
|
|
|
|
|
$ |
996,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate received ** |
|
|
|
|
|
|
5.72 |
% |
|
|
|
|
|
|
5.71 |
% |
Rate paid ** |
|
|
|
|
|
|
5.38 |
% |
|
|
|
|
|
|
6.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Computed as an annualized percentage of average earning assets or
interest-bearing liabilities. |
|
** |
|
Weighted-average rate paid or received on interest rate swap
agreements in effect during the period. |
As a financial intermediary, the Company is exposed to various risks, including liquidity and
market risk. Liquidity refers to the Companys ability to ensure that sufficient cash flow and
liquid assets are available to satisfy current and future obligations, including demand for loans
and deposit withdrawals, funding operating costs, and other corporate purposes. Liquidity risk
arises whenever the maturities of financial instruments included in assets and liabilities differ.
M&Ts banking subsidiaries have access to additional funding sources through borrowings from the
FHLB of New York, lines of credit with the Federal Reserve Bank of New York, and other available
borrowing facilities. The Company has, from time to time, issued subordinated capital notes to
provide liquidity and enhance regulatory capital ratios. Such notes qualify for inclusion in the
Companys total capital as defined by federal regulators. In December 2007, M&T Bank issued $400
million of subordinated notes. The notes bear a fixed rate of interest of 6.625% and mature in
December 2017. As an additional source of funding, the Company maintains a $500 million revolving
asset-backed structured borrowing which is collateralized by automobile loans and related assets
that have been transferred to a special purpose subsidiary of M&T Bank. That subsidiary, the loans
and the borrowing are included in the Companys consolidated financial statements. As existing
loans of the subsidiary pay down, monthly proceeds, after payment of certain fees and debt service
costs, are used to obtain additional automobile loans from M&T Bank or other subsidiaries to
replenish the collateral and maintain the existing borrowing base.
The Company has informal and sometimes reciprocal sources of funding available through various
arrangements for unsecured short-term borrowings from a wide group of banks and other financial
institutions. Short-term federal funds borrowings aggregated $4.1 billion at March 31, 2008, $4.2
billion at December 31, 2007 and $3.3 billion at March 31, 2007. In general, those borrowings were
unsecured and matured on the following business day. As already noted, offshore branch deposits
and brokered certificates of deposit have been used by the Company as an alternative to short-term
borrowings.
Offshore branch deposits also generally mature on the next business day and totaled $5.7
billion, $4.8 billion and $5.9 billion at March 31, 2008, March 31, 2007 and December 31, 2007,
respectively. At March 31, 2008, the weighted-average remaining term to maturity of brokered time
deposits was 9 months. Certain of these brokered time deposits have provisions that allow for
early redemption.
The Companys ability to obtain funding from these or other sources could be negatively
impacted should the Company experience a substantial deterioration in its financial condition or
its debt ratings, or should the availability of short-term funding become restricted due to a
disruption in
-34-
the financial markets. 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. Such impact is estimated by attempting to measure the effect on
available unsecured lines of credit, available capacity from secured borrowing sources and
securitizable assets. In addition to deposits and borrowings, other sources of liquidity include
maturities of investment securities and other earning assets, repayments of loans and investment
securities, and cash generated from operations, such as fees collected for services.
Certain customers of the Company obtain financing through the issuance of variable rate demand
bonds (VRDBs). The VRDBs are generally enhanced by direct-pay letters of credit provided by M&T
Bank. M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion, may from
time-to-time own some of the VRDBs while such instruments are remarketed. When this occurs, the
VRDBs are classified as trading assets in the Companys consolidated balance sheet. Nevertheless,
M&T Bank is not contractually obligated to purchase the VRDBs. The value of VRDBs in the Companys
trading account totaled $9 million at March 31, 2008, $26 million at March 31, 2007 and $63 million
at December 31, 2007. The total amount of VRDBs outstanding backed by M&T Bank letters of credit
was $1.7 billion at March 31, 2008, March 31, 2007 and December 31, 2007. M&T Bank also serves as
remarketing agent for most of those bonds.
The Company enters into contractual obligations in the normal course of business which require
future cash payments. Such obligations include, among others, payments related to deposits,
borrowings, leases, and other contractual commitments. Off-balance sheet commitments to customers
may impact liquidity, including commitments to extend credit, standby letters of credit, commercial
letters of credit, financial guarantees and indemnification contracts, and commitments to sell real
estate loans. Because many of these commitments or contracts expire without being funded in whole
or in part, the contract amounts are not necessarily indicative of future cash flows. Further
information about these commitments is provided in note 6 of Notes to Financial Statements.
M&Ts primary source of funds to pay for operating expenses, shareholder dividends and
treasury stock repurchases has historically been the receipt of dividends from its banking
subsidiaries, which are subject to various regulatory limitations. Dividends from any banking
subsidiary to M&T are limited by the amount of earnings of the banking subsidiary in the current
year and the two preceding years. For purposes of the test, at March 31, 2008 approximately $407
million was available for payment of dividends to M&T from banking subsidiaries without prior
regulatory approval. These historic sources of cash flow have been augmented in the past by the
issuance of trust preferred securities, including $350 million of Enhanced Trust Preferred
Securities issued by M&T in January 2008, and the issuance by M&T of $300 million of senior notes
payable during the second quarter of 2007. Information regarding trust preferred securities and
the related junior subordinated debentures is included in note 4 of Notes to Financial Statements.
M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, of which
there were no borrowings outstanding at March 31, 2008 or at December 31, 2007.
Management closely monitors the Companys liquidity position for
compliance with internal policies and believes that available sources of liquidity are
adequate to meet funding needs anticipated in the normal course of business. Management does not
anticipate engaging in any activities, either currently or in the long-term, for which adequate
funding would not be available and would therefore result in a significant strain on liquidity at
either M&T or its subsidiary banks.
Market risk is the risk of loss from adverse changes in the market prices and/or interest
rates of the Companys financial instruments. The primary market risk the Company is exposed to is
interest rate risk. Interest rate risk arises from the Companys core banking activities of
-35-
lending and deposit-taking, because assets and liabilities reprice at different times and by
different amounts as interest rates change. As a result, net interest income earned by the Company
is subject to the effects of changing interest rates. The Company measures interest rate risk by
calculating the variability of net interest income in future periods under various interest rate
scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives
used to hedge interest rate risk. Managements philosophy toward interest rate risk management is
to limit the variability of net interest income. The balances of financial instruments used in the
projections are based on expected growth from forecasted business opportunities, anticipated
prepayments of loans and investment securities, and expected maturities of investment securities,
loans and deposits. Management uses a value of equity model to supplement the modeling technique
described above. Those supplemental analyses are based on discounted cash flows associated with
on- and off-balance sheet financial instruments. Such analyses are modeled to reflect changes in
interest rates and provide management with a long-term interest rate risk metric.
The Companys Risk Management Committee, which includes members of senior management, monitors
the sensitivity of the Companys net interest income to changes in interest rates with the aid of a
computer model that forecasts net interest income under different interest rate scenarios. In
modeling changing interest rates, the Company considers different yield curve shapes that consider
both parallel (that is, simultaneous changes in interest rates at each point on the yield curve)
and non-parallel (that is, allowing interest rates at points on the yield curve to vary by
different amounts) shifts in the yield curve. In utilizing the model, market implied forward
interest rates over the subsequent twelve months are generally used to determine a base interest
rate scenario for the net interest income simulation. That calculated base net interest income is
then compared to the income calculated under the varying interest rate scenarios. The model
considers the impact of ongoing lending and deposit-gathering activities, as well as
interrelationships in the magnitude and timing of the repricing of financial instruments, including
the effect of changing interest rates on expected prepayments and maturities. When deemed prudent,
management has taken actions to mitigate exposure to interest rate risk through the use of on- or
off-balance sheet financial instruments and intends to do so in the future. Possible actions
include, but are not limited to, changes in the pricing of loan and deposit products, modifying the
composition of earning assets and interest-bearing liabilities, and adding to, modifying or
terminating existing interest rate swap agreements or other financial instruments used for interest
rate risk management purposes.
The accompanying table as of March 31, 2008 and December 31, 2007 displays the estimated
impact on net interest income from non-trading financial instruments in the base scenario described
above resulting from parallel changes in interest rates across repricing categories during the
first modeling year.
SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
Calculated increase(decrease) |
|
|
in projected net interest income |
Changes in interest rates |
|
March 31, 2008 |
|
December 31, 2007 |
+200 basis points |
|
$ |
(1,512 |
) |
|
|
4,707 |
|
+100 basis points |
|
|
(4,204 |
) |
|
|
(996 |
) |
-100 basis points |
|
|
(3,682 |
) |
|
|
(16,432 |
) |
-200 basis points |
|
|
(17,332 |
) |
|
|
(24,284 |
) |
The Company utilized many assumptions to calculate the impact that changes in interest rates
may have on net interest income. The more significant of those assumptions included the rate of
prepayments of mortgage-related assets, cash flows from derivative and other financial
-36-
instruments
held for non-trading purposes, loan and deposit volumes and pricing, and deposit maturities. In
the scenarios presented, the Company also assumed gradual changes in rates during a twelve-month
period of 100 and 200 basis points as compared with the assumed base scenario. In the event that a
100 or 200 basis point rate change cannot be achieved, the applicable rate changes are limited to
lesser amounts such that interest rates cannot be less than zero. The assumptions used in interest
rate sensitivity modeling are inherently uncertain and, as a result, the Company cannot precisely
predict the impact of changes in interest rates on net interest income. Actual results may differ
significantly from those presented due to the timing, magnitude and frequency of changes in
interest rates and changes in market conditions and interest rate differentials (spreads) between
maturity/repricing categories, as well as any actions, such as those previously described, which
management may take to counter such changes. In light of the uncertainties and assumptions
associated with the process, the amounts presented in the table and changes in such amounts are not
considered significant to the Companys past or projected net interest income.
Changes in fair value of the Companys financial instruments can also result from a lack of
trading activity for similar instruments in the financial markets. That impact is most notable on
the values assigned to the Companys investment securities. Information about the fair valuation
of such securities is presented herein under the heading Capital and in note 10 of Notes to
Financial Statements.
The Company engages in trading activities to meet the financial needs of customers, to fund
the Companys obligations under certain deferred compensation plans and, to a limited extent, to
profit from perceived market opportunities. Financial instruments utilized in trading activities
consist predominantly of interest rate contracts, such as swap agreements, and forward and futures
contracts related to foreign currencies, but have also included forward and futures contracts
related to mortgage-backed securities and investments in U.S. Treasury and other government
securities, mortgage-backed securities and mutual funds, and as previously described, a limited
number of VRDBs. The Company generally mitigates the foreign currency and interest rate risk
associated with trading activities by entering into offsetting trading positions. The amounts of
gross and net trading positions, as well as the type of trading activities conducted by the
Company, are subject to a well-defined series of potential loss exposure limits established by
management and approved by M&Ts Board of Directors. However, as with any non-government
guaranteed financial instrument, the Company is exposed to credit risk associated with
counterparties to the Companys trading activities.
The notional amounts of interest rate contracts entered into for trading purposes aggregated
$12.8 billion at March 31, 2008, compared with $8.1 billion at March 31, 2007 and $11.7 billion at
December 31, 2007. The increase in the notional amounts of such contracts from March 31, 2007 to
the two most recent quarter-ends was due largely to increased commercial lending volumes and the
desire of commercial customers to use swap agreements to
modify the characteristics of their borrowings. The notional amounts of foreign currency and
other option and futures contracts entered into for trading purposes totaled $902 million at March
31, 2008, compared with $678 million and $801 million at March 31, 2007 and December 31, 2007,
respectively. Although the notional amounts of these interest rate and foreign currency trading
transactions are not recorded in the consolidated balance sheet, the fair values of all financial
instruments used for trading activities are recorded in the consolidated balance sheet. The fair
values of all trading account assets and liabilities were $372 million and $290 million,
respectively, at March 31, 2008, $154 million and $61 million, respectively, at March 31, 2007, and
$281 million and $143 million, respectively, at December 31, 2007. The higher asset and liability
balances at the recent quarter-end as compared with a year earlier and at the 2007 year-end were
the result of higher interest rate swap agreements in the trading portfolio, for which the related
-37-
fair values largely offset each other, as the Company generally enters into offsetting positions.
Included in trading account assets were assets related to deferred compensation plans totaling $43
million and $45 million at March 31, 2008 and 2007, respectively, and $47 million at December 31,
2007. Changes in the fair values of such assets are recorded as trading account and foreign
exchange gains in the consolidated statement of income. Included in other liabilities in the
consolidated balance sheet at March 31, 2008 and March 31, 2007 were $47 million and $49 million,
respectively, of liabilities related to deferred compensation plans, compared with $50 million at
December 31, 2007. Changes in the balances of such liabilities due to the valuation of allocated
investment options to which the liabilities are indexed are recorded in other costs of operations
in the consolidated statement of income.
Given the Companys policies, limits and positions, management believes that the potential
loss exposure to the Company resulting from market risk associated with trading activities was not
material, however, as previously noted, the Company is exposed to credit risk associated with
counterparties to transactions associated with the Companys trading activities.
Provision for Credit Losses
The Company maintains an allowance for credit losses that in managements judgment is adequate to
absorb losses inherent in the loan and lease portfolio. A provision for credit losses is recorded
to adjust the level of the allowance as deemed necessary by management. The provision for credit
losses in the first quarter of 2008 was $60 million, compared with $27 million in the year-earlier
quarter and $101 million in the fourth quarter of 2007. The higher level of the provision in the
recent quarter as compared with the first quarter of 2007 reflects changes in the loan portfolio,
the impact of declining residential real estate valuations and higher delinquencies and charge-offs
related to the Alt-A residential real estate loan portfolio, and declining real estate values
related to residential real estate builder and developer collateral. The lower level of the
provision as compared with the fourth quarter of 2007 was due, in part, to provisions established
during the final 2007 quarter related to Alt-A residential real estate loans and two residential
builders and developers resulting from declining real estate valuations. Net loan charge-offs were
$46 million and $17 million in the first quarter of 2008 and 2007, respectively, compared with $53
million during the last quarter of 2007. Net charge-offs as an annualized percentage of average
loans and leases were .38% in the first quarter of 2008, compared with .16% and .46% in the first
and fourth quarters of 2007, respectively. A summary of net charge-offs by loan type follows:
NET CHARGE-OFFS
BY LOAN/LEASE TYPE
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
First Quarter |
|
|
Fourth Quarter |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
Commercial, financial, etc. |
|
$ |
4,377 |
|
|
|
4,533 |
|
|
|
8,997 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
4,380 |
|
|
|
671 |
|
|
|
4,528 |
|
Residential |
|
|
15,097 |
|
|
|
1,369 |
|
|
|
10,488 |
|
Consumer |
|
|
21,961 |
|
|
|
10,618 |
|
|
|
29,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,815 |
|
|
|
17,191 |
|
|
|
53,305 |
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans, consisting of nonaccrual and restructured loans, totaled $495 million or
1.00% of total loans and leases outstanding at March 31, 2008, compared with $273 million or .63% a
year earlier and $447 million or .93% at December 31, 2007. Major factors contributing to the rise
in nonperforming loans from the first quarter of 2007 were a $146 million increase in residential
real estate loans and a $91 million rise in loans to residential builders and developers. The
increase in nonperforming residential real estate loans was the result of the residential real
estate market turmoil and its
-38-
impact on the portfolio of Alt-A loans and also reflected a change in
accounting procedure in December 2007 whereby residential real estate loans previously classified
as nonaccrual when payments were 180 days past due now stop accruing interest when principal or
interest is delinquent 90 days. The impact of the acceleration of the classification of such loans
as nonaccrual resulted in an increase in nonperforming loans of $79 million and $84 million at
March 31, 2008 and December 31, 2007, respectively. The higher level of nonaccrual loans to
builders and developers was largely due to deteriorating residential real estate values.
Accruing loans past due 90 days or more were $81 million or .17% of total loans and leases at
March 31, 2008, compared with $118 million or .27% at March 31, 2007 and $77 million or .16% at
December 31, 2007. Those loans included $77 million, $71 million and $73 million at March 31,
2008, March 31, 2007 and December 31, 2007, respectively, of loans guaranteed by government-related
entities. Such guaranteed loans included one-to-four family residential mortgage loans serviced by
the Company that were repurchased to reduce associated servicing costs, including a requirement to
advance principal and interest payments that had not been received from individual mortgagors.
Despite the loans being purchased by the Company, the insurance or guarantee by the applicable
government-related entity remains in force. The outstanding principal balances of the repurchased
loans are fully guaranteed by government-related entities and totaled $72 million and $61 million
as of March 31, 2008 and 2007, respectively, and $67 million at December 31, 2007. Loans past due
90 days or more and accruing interest that were guaranteed by government-related entities also
included foreign commercial and industrial loans supported by the Export-Import Bank of the United
States that totaled $4 million at March 31, 2008, $10 million at March 31, 2007 and $5 million at
December 31, 2007.
Commercial loans and leases classified as nonperforming aggregated $85 million at March 31,
2008, $113 million at March 31, 2007 and $79 million at December 31, 2007. The decline in such
loans from March 31, 2007 to the last two quarter-ends was due, in part, to a reduction of
nonperforming loans to automobile dealers predominantly due to payments received.
Nonperforming commercial real estate loans totaled $141 million at March 31, 2008, $64 million
at March 31, 2007 and $118 million at December 31, 2007. The rise in such loans at March 31, 2008
as compared with the end of the first quarter of 2007 was the result of the addition of $91 million
of loans to residential homebuilders and developers, reflecting the impact of the downturn in the
residential real estate market, including declining real estate values. The collateral securing
those loans is largely located in the Mid-Atlantic region. The increase from the 2007 year-end was
due, in part,
to the net addition of $11 million of loans to residential homebuilders and developers.
Residential real estate loans classified as nonperforming were $198 million at March 31, 2008,
compared with $50 million at March 31, 2007 and $181 million at December 31, 2007. As already
noted, the significant increase in such loans from March 31, 2007 includes the effect of the change
in accounting procedure for nonaccrual residential real estate loans. Declining real estate values
and higher levels of delinquencies have also contributed to the rise in residential real estate
loans classified as nonaccrual, largely in the Companys Alt-A portfolio, and to the level of
charge-offs. Included in residential real estate loans net charge-offs and nonperforming loans
were net charge-offs of Alt-A loans in the first quarter of 2008 of $12 million, compared with $1
million and $7 million during the quarters ended March 31, 2007 and December 31, 2007,
respectively, while nonperforming Alt-A loans totaled $107 million, $14 million and $90 million at
March 31, 2008, March 31, 2007 and December 31, 2007, respectively. Residential real estate loans
past due 90 days or more and accruing interest totaled $72 million at March 31, 2008, compared with
$96 million a year earlier and $66 million at
-39-
December 31, 2007. A substantial portion of such
amounts relate to guaranteed loans repurchased from government-related entities.
Nonperforming consumer loans and leases aggregated $71 million at March 31, 2008, compared
with $46 million at March 31, 2007 and $69 million at December 31, 2007. Included in nonperforming
consumer loans and leases at March 31, 2008, March 31, 2007 and December 31, 2007 were indirect
automobile loans of $18 million, $8 million and $16 million, respectively; recreational vehicle
loans of $12 million, $6 million and $11 million, respectively; and outstanding balances of home
equity lines of credit of $13 million, $9 million and $12 million, respectively. As a percentage
of consumer loan balances outstanding, nonperforming consumer loans and leases were .63% at March
31, 2008, compared with .47% and .61% at March 31, 2007 and December 31, 2007, respectively. The
Company experienced a rise in delinquencies in the consumer loan portfolio over the last several
quarters, largely related to indirect automobile and recreational vehicle loans.
Assets acquired in settlement of defaulted loans were $53 million at March 31, 2008, compared
with $15 million at March 31, 2007 and $40 million at December 31, 2007. The increases from 2007
resulted from higher residential real estate loan defaults.
A comparative summary of nonperforming assets and certain past due loan data and credit
quality ratios as of the end of the periods indicated is presented in the accompanying table.
NONPERFORMING ASSET AND PAST DUE LOAN DATA
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
2007 Quarters |
|
|
|
|
|
|
First Quarter |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
Nonaccrual loans |
|
$ |
477,436 |
|
|
|
431,282 |
|
|
|
356,438 |
|
|
|
282,133 |
|
|
|
259,015 |
|
Renegotiated loans |
|
|
17,084 |
|
|
|
15,884 |
|
|
|
14,953 |
|
|
|
13,706 |
|
|
|
14,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
494,520 |
|
|
|
447,166 |
|
|
|
371,391 |
|
|
|
295,839 |
|
|
|
273,225 |
|
Real estate and other
assets owned |
|
|
52,805 |
|
|
|
40,175 |
|
|
|
22,080 |
|
|
|
17,837 |
|
|
|
15,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
547,325 |
|
|
|
487,341 |
|
|
|
393,471 |
|
|
|
313,676 |
|
|
|
288,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due
90 days or more* |
|
$ |
81,316 |
|
|
|
77,319 |
|
|
|
140,313 |
|
|
|
134,906 |
|
|
|
118,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government guaranteed loans
included in totals above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans |
|
$ |
22,320 |
|
|
|
19,125 |
|
|
|
15,999 |
|
|
|
16,717 |
|
|
|
18,007 |
|
Accruing loans past
due 90 days or more |
|
|
76,511 |
|
|
|
72,705 |
|
|
|
69,956 |
|
|
|
69,563 |
|
|
|
70,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans
to total loans and leases,
net of unearned discount |
|
|
1.00 |
% |
|
|
.93 |
% |
|
|
.83 |
% |
|
|
.68 |
% |
|
|
.63 |
% |
Nonperforming assets
to total net loans and
leases and real estate
and other assets owned |
|
|
1.11 |
% |
|
|
1.01 |
% |
|
|
.88 |
% |
|
|
.72 |
% |
|
|
.66 |
% |
Accruing loans past due
90 days or more to total
loans and leases, net of
unearned discount |
|
|
.17 |
% |
|
|
.16 |
% |
|
|
.31 |
% |
|
|
.31 |
% |
|
|
.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Predominately residential mortgage loans. |
-40-
Management regularly assesses the adequacy of the allowance for credit losses by performing
ongoing evaluations of the loan and lease portfolio, including such factors as the differing
economic risks associated with each loan category, the financial condition of specific borrowers,
the economic environment in which borrowers operate, the level of delinquent loans, the value of
any collateral and, where applicable, the existence of any guarantees or indemnifications.
Management evaluated the impact of changes in interest rates and overall economic conditions on the
ability of borrowers to meet repayment obligations when quantifying the Companys exposure to
credit losses and assessing the adequacy of the Companys allowance for such losses as of each
reporting date. Factors also considered by management when performing its assessment, in addition
to general economic conditions and the other factors described above, included, but were not
limited to: (i) the impact of declining residential real estate values in the Companys portfolio
of loans to residential real estate builders and developers; (ii) the repayment performance
associated with the Companys portfolio of Alt-A residential mortgage loans; (iii) the
concentration of commercial real estate loans in the Companys loan portfolio, particularly the
large concentration of loans secured by properties in New York State, in general, and in the New
York City metropolitan area, in particular; (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 Companys portfolio of loans to
individual consumers, which historically have experienced higher net charge-offs as a percentage of
loans outstanding than other loan types. The level of the allowance is adjusted based on the
results of managements analysis.
Management cautiously and conservatively evaluated the allowance for credit losses as of March
31, 2008 in light of (i) the declining residential real estate values and emergence of higher
levels of delinquencies of residential real estate loans; (ii) the sluggish pace of economic growth
in many of the markets served by the Company; (iii) continuing weakness in industrial employment in
upstate New York and central Pennsylvania; (iv) the significant subjectivity involved in commercial
real estate valuations for properties located in areas with stagnant or low growth economies; and
(v)
the amount of loan growth experienced by the Company in late 2007 and early 2008. Although
the national economy experienced moderate growth in 2007 with inflation being reasonably well
contained, concerns exist in 2008 about a deepening economic downturn 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;
sluggish job creation and rising unemployment, which could cause consumer spending to slow; the
underlying impact on businesses operations and abilities to repay loans should consumer spending
slow; continued stagnant population growth in the upstate New York and central Pennsylvania
regions; and continued slowing of domestic automobile sales.
Factors that influence the Companys credit loss experience include overall economic
conditions affecting businesses and consumers generally, such as those described above, but also
residential and commercial real estate valuations, in particular, given the size of the real estate
loan portfolios. Commercial real estate valuations can be highly subjective, as they are based
upon many assumptions. Such valuations can be significantly affected over relatively short periods
of time by changes in business climate, economic conditions, interest rates and, in many cases, the
results of operations of businesses and other occupants of the real property. Similarly,
residential real estate valuations can be impacted by housing trends, the availability of financing
at reasonable interest rates, and general economic conditions affecting consumers.
-41-
Management believes that the allowance for credit losses at March 31, 2008 was adequate to
absorb credit losses inherent in the portfolio as of that date. The allowance for credit losses was
$774 million, or 1.57% of total loans and leases at March 31, 2008, compared with $660 million or
1.52% at the end of the initial quarter of 2007 and $759 million or 1.58% at December 31, 2007.
The increase in the level of the allowance as a percentage of outstanding loans and leases from
March 31, 2007 to the two most recent quarter-ends reflects managements evaluation of the loan and
lease portfolio as described herein, including the impact of lower residential real estate values
and higher levels of delinquencies and charge-offs in the Companys portfolio of Alt-A loans and
lower residential real estate valuations related to loans to residential builders and developers.
Should the various credit factors considered by management in establishing the allowance for credit
losses change and should managements assessment of losses inherent in the loan portfolio also
change, the level of the allowance as a percentage of loans could increase or decrease in future
periods. The ratio of the allowance for credit losses to nonperforming loans was 156% at March 31,
2008, compared with 241% a year earlier and 170% at December 31, 2007. The level of the allowance
reflects managements evaluation of the loan and lease portfolio as of each respective date.
Other Income
Other income totaled $313 million in the first quarter of 2008, up 32% from $236 million in the
corresponding 2007 quarter and 95% higher than $160 million in the fourth quarter of 2007. The
increase in the level of such income in the recent quarter as compared with the first quarter of
2007 was largely due to the $33 million gain realized in 2008s initial quarter from the mandatory
sale of a portion of M&T Banks common stock holdings of Visa, and higher mortgage banking
revenues and service charges on deposit accounts. The significant rise from the fourth quarter of
2007 was the result of that quarters $127 million other-than-temporary impairment charge related
to collateralized debt obligations held in the Companys available-for-sale investment securities
portfolio and the recent quarters Visa gain. Also contributing to the improvement were higher
mortgage banking revenues. The impact of these items was partially offset by a decline in the contribution
from M&Ts pro-rata portion of the operating results of BLG.
Mortgage banking revenues totaled $40 million in the recently completed quarter, compared with
$14 million in the year-earlier quarter and $31 million in the fourth quarter of 2007. Mortgage
banking revenues are comprised of both residential and commercial mortgage banking activities. The
Companys involvement in commercial mortgage banking activities is largely comprised of the
origination, sales and servicing of loans in conjunction with the FNMA Delegated Underwriting and
Servicing (DUS) program.
Residential mortgage banking revenues, consisting of realized gains from sales of residential
mortgage loans and loan servicing rights, unrealized gains and losses on residential mortgage loans
held for sale and related commitments, residential mortgage loan servicing fees, and other
residential mortgage loan-related fees and income, were $32 million in the first quarter of 2008,
compared with $7 million in 2007s initial quarter and $24 million in the final quarter of 2007.
Contributing to the increased revenues in the recent quarter was the adoption of SEC Staff
Accounting Bulletin (SAB) No. 109 for written loan commitments issued or modified after January
1, 2008. In November 2007, the SEC issued SAB No. 109, which reversed previous conclusions
expressed by the SEC staff regarding written loan commitments that are accounted for at fair value
through earnings. Specifically, the SEC staff now believes that the expected net future cash flows
related to the associated servicing of the loan should be included in the fair value measurement of
the derivative loan commitment. In accordance with SAB No. 105, Application of Accounting
Principles to Loan Commitments, the Company had not included such amounts in the value of loan
commitments accounted for as derivatives at December 31, 2007. As a result of
-42-
the Companys
adoption of required changes in accounting pronouncements on January 1, 2008, there was an
acceleration of the recognition of residential mortgage banking revenues of approximately $5
million during the first quarter of 2008. If not for the changes in GAAP, those revenues would
have been recognized later in 2008 when the underlying loans were sold.
As already noted, residential mortgage banking revenues in the first quarter of 2007 were
reduced by $18 million as a result of unfavorable market conditions related to the Companys Alt-A
residential mortgage lending business. Those unfavorable market conditions and a lack of market
liquidity impacted the Companys willingness to sell Alt-A mortgage loans during the first quarter
of 2007. As a result, the Company reclassified $883 million of Alt-A loans previously held for
sale (including $808 million of first mortgage loans and $75 million of second mortgage loans) to
its held-for-investment portfolio. In accordance with GAAP, loans held for sale must be recorded
at the lower of cost or market value. Accordingly, prior to reclassifying the $883 million of
Alt-A mortgage loans to held for investment, the carrying value of such loans was reduced by $12
million to reflect estimated market value. The loans were reclassified to the held-for-investment
portfolio because the Companys management believed at the time that the economic value of those
Alt-A mortgage loans was greater than the market value implied by the few bidders for such loans
during the first quarter of 2007. In addition, the Company is contractually obligated to
repurchase previously sold Alt-A loans that do not ultimately meet investor sale criteria,
including instances when mortgagors fail to make timely payments during the first 90 days
subsequent to the sale date. As a result, during the first quarter of 2007, the Company accrued $6
million to provide for declines in market value of previously sold Alt-A mortgage loans that the
Company may be required to repurchase. The higher residential mortgage banking revenues in the
recent quarter as compared with the immediately preceding quarter were predominantly the result of
the adoption of SAB No. 109.
Residential mortgage loans originated for sale to other investors were approximately $1.4
billion during each of the three-month periods ended March 31, 2008, March 31, 2007 and December
31, 2007. Included in originations for the first quarter of 2007 were $326 million of Alt-A
mortgage loans that were transferred to the Companys held-for-investment portfolio in March 2007.
Residential mortgage loans sold to investors totaled $1.1 billion in the
recently completed quarter, compared with $1.4 billion and $1.3 billion in the first and
fourth quarter, respectively, of 2007. Realized gains from sales of residential mortgage loans and
loan servicing rights and recognized net unrealized gains and losses attributable to residential
mortgage loans held for sale, commitments to originate loans for sale and commitments to sell loans
totaled to a gain of $10 million in the first quarter of 2008, compared with a loss of $13 million
in the first quarter of 2007 (including the $18 million of losses described above) and a gain of $2
million in the fourth quarter of 2007. Revenues from servicing residential mortgage loans for
others were $20 million during the quarter ended March 31, 2008, compared with $18 million in the
year-earlier quarter and $19 million in the fourth quarter of 2007. Included in servicing
revenues were amounts related to purchased servicing rights associated with small balance
commercial mortgage loans which totaled $7 million in the most recent quarter, compared with $5
million and $6 million in the first and fourth quarters of 2007, respectively.
Residential mortgage loans serviced for others totaled $19.7 billion at March 31, 2008,
compared with $17.2 billion a year earlier and $19.4 billion at December 31, 2007, including the
small balance commercial mortgage loans noted above of approximately $5.1 billion at March 31,
2008, $3.6 billion at March 31, 2007 and $4.9 billion at December 31, 2007. Capitalized
residential mortgage servicing assets, net of a valuation allowance for impairment, were $163
million at March 31, 2008, compared with $152 million at March 31, 2007 and $170 million at
December 31, 2007. Included in capitalized residential mortgage servicing assets were $63 million
at March 31, 2008, $38 million at March 31, 2007 and $57 million at December 31, 2007
-43-
of purchased
servicing rights associated with the small balance commercial mortgage loans noted above.
Servicing rights for the small balance commercial mortgage loans were purchased from BLG or its
affiliates. In addition, at March 31, 2008, capitalized servicing rights included $36 million for
servicing rights for $4.5 billion of residential real estate loans that were purchased from
affiliates of BLG. Additional information about the Companys relationship with BLG and its
affiliates is provided in note 9 of Notes to Financial Statements.
Loans held for sale that are secured by residential real estate totaled $803 million and $973
million at March 31, 2008 and 2007, respectively, and $774 million at December 31, 2007.
Commitments to sell loans and commitments to originate loans for sale at pre-determined rates were
$966 million and $835 million, respectively, at March 31, 2008, $946 million and $495 million,
respectively, at March 31, 2007, and $772 million and $492 million, respectively, at December 31,
2007. Net unrealized losses on residential mortgage loans held for sale, commitments to sell
loans, and commitments to originate loans for sale were $2 million at March 31, 2008, $7 million at
December 31, 2007 and were less than $1 million at March 31, 2007. Changes in such net unrealized
gains and losses are recorded in mortgage banking revenues and resulted in a net increase in
revenues of $5 million in the first quarter of 2008, compared with net decreases in revenues of $3
million in the first quarter of 2007 and $2 million in the fourth quarter of 2007. The $3 million
unrealized loss noted for the first quarter of 2007 does not include any portion of the $18 million
of losses related to Alt-A mortgage loans described earlier.
Commercial mortgage banking revenues were $8 million in the first quarter of 2008, compared
with $7 million in each of the year-earlier quarter and the fourth quarter of 2007. Included in
such amounts were revenues from loan origination and sales activities of $5 million in the first
2008 quarter, $3 million in the first quarter of 2007 and $4 million in the final 2007 quarter.
The aforementioned adoption of required accounting changes prescribed by SAB No. 109 for written
loan commitments accounted for as derivatives resulted in the accelerated recognition of
approximately $2 million of commercial mortgage banking revenues during the first quarter of 2008.
Commercial mortgage loan servicing revenues were $3 million in each of
the quarters ended March 31, 2008 and December 31, 2007, and $4 million in the first quarter
of 2007. Capitalized commercial mortgage servicing assets totaled $21 million at March 31, 2008,
compared with $20 million at each of March 31 and December 31, 2007. Commercial mortgage loans
held for sale at March 31, 2008 and 2007 were $154 million and $66 million, respectively, and were
$79 million at December 31, 2007. Commitments to sell commercial mortgage loans and commitments to
originate commercial mortgage loans for sale were $333 million and $179 million, respectively, at
March 31, 2008, $93 million and $27 million, respectively, at March 31, 2007 and $176 million and
$97 million, respectively, at December 31, 2007. Net unrealized gains on commercial mortgage loans
held for sale, commitments to sell commercial mortgage loans, and commitments to originate
commercial mortgage loans for sale were $2 million at March 31, 2008. There were no net unrealized
gains or losses on commercial mortgage loans held for sale and the related commitments at March 31
or December 31, 2007.
Service charges on deposit accounts aggregated $103 million in the first quarter of 2008,
compared with $95 million in the year-earlier quarter and $106 million in the final 2007 quarter.
The increase from the year-earlier quarter reflects higher consumer overdraft and debit card
interchange fees, as well as increased commercial service charges. Such increase also reflects the
impact of the fourth quarter 2007 acquisition transactions. The modestly lower first quarter
revenues as compared with 2007s fourth quarter were largely due to traditional fourth quarter
seasonality, offset, in part, by the impact of the acquisition transactions. Trust income
aggregated $40 million in each of the last two quarters, and $37 million
in the initial quarter of
2007. Brokerage services income, which includes revenues from the sale of mutual funds and
-44-
annuities and securities brokerage fees, totaled $15 million in each of the first quarters of 2008
and 2007, compared with $13 million in the fourth quarter of 2007. Trading account and foreign
exchange activity resulted in gains of $5 million during the quarter ended March 31, 2008, $6
million in the first quarter of 2007 and $10 million in 2007s fourth quarter. The decline in such
revenues from the final 2007 quarter was due, in part, to market value losses in the recent quarter on
assets related to deferred compensation plans. The higher level of trading account gains in the
final 2007 quarter was due to higher revenues from interest rate swap agreements that resulted from
higher volumes of transactions executed on behalf of commercial customers.
During the first quarter of 2008, the Company realized gains on investment securities of $33
million, compared with gains of $1 million in the year-earlier quarter and losses of
$127 million
in the fourth quarter of 2007. As previously described, recognized in the most recent quarter was
the $33 million gain from the redemption of common shares of Visa, and in the fourth quarter of
2007, an other-than-temporary impairment charge of $127 million
was recorded as a result of declines in market
value of the Companys collateralized debt obligations backed by residential
mortgage-backed securities and
held in the available-for-sale investment securities portfolio.
M&Ts pro-rata share of the operating income or loss of BLG
in the recent quarter was a loss
of $1 million, compared with a loss of $2 million in the first quarter of 2007 and a gain of $15
million in the final 2007 quarter. The decline in M&Ts share of BLGs operating results in the
first quarter of 2008 as compared with the fourth quarter of 2007 was primarily due to lower gains
from securitizations resulting from recent significant disruptions in the commercial
mortgage-backed securities market. That decrease in income was muted by the effect of
restructurings by BLG of certain forward contracts to sell securities as part of BLGs contingent
liquidity plan. M&Ts pro-rata share of the gains recognized by BLG for
such restructurings was $9
million. Despite the credit and liquidity crises that began in 2007, BLG had been successfully
securitizing and selling significant volumes of small-balance commercial real estate loans up until
the first quarter of 2008. In response to the deteriorating market conditions, BLG has reduced its
originations activities, scaled back its workforce and begun using its contingent liquidity
sources. The Company anticipates operating losses at BLG in the
second quarter of 2008 due to costs associated with severance and certain lease terminations,
but believes BLG has sufficient liquidity and an appropriately-sized business plan to preserve the
franchise through this time of reduced liquidity in the securitization market. BLG is also
evaluating alternatives for its placement of small-balance commercial real estate loan originations
should the securitization market not improve. Significant fluctuations are expected as part of the
normal business cycle of any mortgage origination and securitization business. The Company
believes that the fundamental business model of BLG has not been significantly altered as a result
of the market turmoil in the first quarter of 2008 and that when sufficient liquidity returns to
the marketplace, BLG will be capable of returning to a normalized business plan. However, should
liquidity conditions in the securitization market not improve and BLG be unable to find alternative
sources of funding for its loan production, the Company may be required to recognize an
other-than-temporary impairment charge for some portion or all of the $308 million book value of
its investment in BLG. Information about the Companys relationship with BLG and its affiliates is
included in note 9 of Notes to Financial Statements.
Other revenues from operations totaled $76 million in the first quarter of 2008, compared with
$71 million in the corresponding 2007 quarter and $74 million in the fourth quarter of 2007.
Included in other revenues from operations were the following significant components. Letter of
credit and other credit-related fees totaled $28 million in the recent quarter, $21 million in the
first quarter of 2007 and $18 million in 2007s final quarter.
-45-
Tax-exempt income from bank owned
life insurance, which includes increases in the cash surrender value of life insurance policies and
benefits received, totaled $12 million during the first quarter of 2008, compared with $11 million
in each of the first and fourth quarters of 2007, respectively. Revenues from merchant discount and credit card
fees were $10 million in the quarter ended March 31, 2008, compared with $8 million and $9 million
in the first and fourth quarters of 2007. Insurance-related sales commissions and other revenues
totaled $9 million in each of the last two quarters and $8 million in the year-earlier quarter.
Partially offsetting the increases in revenues within the components noted above were declines in
several categories, none of which exceeded $3 million.
Other Expense
Other expense totaled
$426 million in the first quarter of 2008, 7% higher than $399 million in the
similar quarter of 2007, but 4% below $445 million in the final 2007 quarter. Included in the
amounts noted above are expenses considered by management to be nonoperating in nature consisting
of amortization of core deposit and other intangible assets of $18 million in each of the first
quarters of 2008 and 2007, and $16 million in the fourth quarter of 2007, and merger-related
expenses of $4 million and $15 million in the three-month periods ended March 31, 2008 and December
31, 2007, respectively. There were no similar merger-related expenses in the initial 2007 quarter. Exclusive of
these nonoperating expenses, noninterest operating expenses totaled $404 million in the first three
months of 2008, compared with $381 million and $415 million in the first and fourth quarters of
2007, respectively. Table 2 provides a reconciliation of other expense to noninterest operating
expense.
Salaries and employee benefits expense totaled $252 million in the recent quarter, compared
with $237 million in the first quarter of 2007 and $226 million in 2007s fourth quarter. The
higher expense level for the three months ended March 31, 2008 as compared with the similar 2007
period was largely the result of higher salaries-related costs, reflecting the impact of the fourth
quarter 2007 acquisition transactions, annual merit increases, and stock-based and other incentive
compensation costs. Higher costs for employee benefits, including health insurance and pension and
other retirement benefits, which increased approximately $4 million from the first quarter of 2007
to
the first quarter of 2008, also contributed to the year-over-year rise. Contributing to the
increase in salaries and employee benefits expense in the recent quarter as compared with the
fourth quarter of 2007, in addition to the impact of the acquisition transactions, were higher
stock-based and other incentive compensation, payroll-related taxes and the Companys contributions for
retirement savings plan benefits related to incentive compensation payments. The Company accounts
for stock-based compensation in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), Shared-Based Payment, (SFAS No. 123R). As required, the
Company has accelerated the recognition of compensation costs for stock-based awards granted to
retirement-eligible employees and employees who will become retirement-eligible prior to full
vesting of the award. As a result, stock-based compensation expense during each of the first
quarters of 2008 and 2007 included $8 million that would have been recognized over the normal
four-year vesting period if not for the accelerated expense recognition provisions of SFAS No.
123R. That acceleration had no effect on the value of stock-based compensation awarded to
employees. Salaries and benefits expense included stock-based compensation of $18 million, $19
million and $11 million in the quarters ended March 31, 2008, March 31, 2007 and December 31, 2007,
respectively. The number of full-time equivalent employees was 12,854 at March 31, 2008, compared
with 12,628 and 13,246 at March 31, 2007 and December 31, 2007, respectively.
-46-
As noted previously, during the first quarter of 2008, the Company reversed approximately $15
million of the $23 million accrued during the fourth quarter of 2007 for the Visa Covered
Litigation. Excluding the nonoperating expenses described earlier from each quarter and the impact
of the Covered Litigation-related accrual activity from the first quarter of 2008 and the fourth
quarter of 2007, nonpersonnel operating expenses were $167 million in each of the last two
quarters, and $144 million in the first quarter of 2007. The rise in nonpersonnel operating
expenses in 2008s initial quarter as compared with the year-earlier quarter was due, in part, to
higher costs for professional services, increased expenses related to the foreclosure process for
residential real estate properties, costs related to the operations acquired in the 2007
acquisition transactions and a $5 million addition to the valuation allowance for the impairment of
capitalized residential mortgage servicing rights, compared with a partial reversal of the
valuation allowance of $1 million during the first quarter of 2007. In the fourth quarter of 2007,
$2 million was added to that valuation allowance. Lower costs for professional services and
advertising in the recent quarter as compared with the fourth quarter of 2007 offset the higher
addition to the valuation allowance.
The efficiency ratio, or noninterest operating expenses (as defined above) divided by the sum
of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses
from bank investment securities) measures the relationship of noninterest operating expenses to
revenues. The Companys efficiency ratio was 52.8% in the first quarter of 2008, compared with
55.1% in the year-earlier period and 54.3% in the fourth quarter of 2007. Noninterest operating
expenses used in calculating the efficiency ratio do not include the amortization of core deposit
and other intangible assets, as noted earlier. If charges for amortization of core deposit and
other intangible assets were included, the efficiency ratio for the three-month periods ended March
31, 2008, March 31, 2007 and December 31, 2007 would have been 55.3%, 57.8% and 56.4%,
respectively.
Income Taxes
The provision for income taxes for the quarter ended March 31, 2008 was $104 million, compared with
$85 million and $19 million in the first and fourth quarters of 2007, respectively. The effective
tax rates were 33.9%, 32.5% and 22.9% for the quarters ended March 31, 2008, March 31, 2007 and
December 31, 2007, respectively. The effective tax rate is affected by the level of income earned that is
exempt from tax and by the level of income allocated to the various state and local jurisdictions
where the Company operates, because tax rates differ among such jurisdictions. The lower effective
tax rate in the fourth quarter of 2007 resulted from a lower level of taxable income due largely to
the events already noted that adversely impacted that quarters financial results.
The Companys effective tax rate in future periods will be affected by the results of
operations allocated to the various tax jurisdictions within which the Company operates, any change
in income tax regulations within those jurisdictions, or interpretations of income tax regulations
that differ from the Companys interpretations by any of various tax authorities that may examine
tax returns filed by M&T or any of its subsidiaries. During the first quarter of 2008, the Company
settled various federal and state examinations. The settlement of these examinations resulted in a
decrease of $5.9 million of unrecognized tax benefits that did not affect the effective tax rate,
but rather reduced the carrying value of goodwill associated with a past acquisition.
-47-
Capital
Stockholders equity was $6.5 billion at March 31, 2008, representing 9.82% of total assets,
compared with $6.3 billion or 10.81% at March 31, 2007 and $6.5 billion or 10.00% at December 31,
2007. On a per share basis, stockholders equity was $58.92 at March 31, 2008, compared with
$57.32 a year earlier and $58.99 at December 31, 2007. Tangible equity per share, which excludes
goodwill and core deposit and other intangible assets and applicable deferred tax balances, was
$28.14 at March 31, 2008, $28.77 at March 31, 2007 and $27.98 at December 31, 2007. A
reconciliation of total stockholders equity and tangible equity as of each of those respective
dates is presented in
table 2.
Stockholders equity reflects accumulated other comprehensive income or loss, which includes
the net after-tax impact of unrealized gains or losses on investment securities classified as
available for sale, gains or losses associated with interest rate swap agreements designated as
cash flow hedges, and adjustments to reflect the funded status of defined benefit pension and other
postretirement plans. Net unrealized losses on available-for-sale investment securities, net of
applicable tax effect, were $194 million, or $1.76 per common share, at March 31, 2008, compared
with similar losses of $8 million, or $.07 per share, at March 31, 2007 and $59 million, or $.54
per share at December 31, 2007. Such unrealized losses are generally due to changes in interest
rates and/or a temporary lack of liquidity in the market, and represent the difference, net of
applicable income tax effect, between the estimated fair value and amortized cost of investment
securities classified as available for sale. Reflected in net unrealized losses at March 31,
2008 were pre-tax effect unrealized losses of $351 million on available-for-sale investment
securities with an amortized cost of $4.0 billion and pre-tax effect unrealized gains of $74
million on securities with an amortized cost of $4.4 billion. The pre-tax effect unrealized losses
reflect $267 million of losses on $2.9 billion of privately issued collateralized mortgage
obligations ($93 million of such unrealized losses were on $632
million of securities using a Level 3 valuation, with the remainder
classified as Level 2 valuations), $48 million of losses on $162 million of preferred stock issued by FNMA and the
Federal Home Loan Mortgage Corporation (considered Level 2 valuations), and $22 million of losses on $206 million of trust
preferred securities issued by financial institutions (considered Level 2 valuations).
As
of March 31, 2008, based on a review of each of the collateralized mortgage
obligations noted above, the Company believed that it will
receive all principal and interest payments on such securities. Accordingly, the Company
concluded that the decline in value was temporary and that an other-than-temporary impairment
charge was not appropriate at March 31, 2008. Substantially all of the $48 million of unrealized
losses on the variable-rate preferred stock issuances of government-sponsored entities occurred in
late-2007. The Company concluded that as of March 31, 2008, the impairment was the result of a lack
of trading activity for such securities, reflecting the housing market downturn and its impact on
those government-sponsored agencies that resulted in the issuance of new, higher yielding preferred
stock in late-2007. As such, the Company believed that as of March 31, 2008 it was too soon to
conclude that the unrealized losses on those securities represented an other-than-temporary
impairment. The majority of the $22 million of unrealized losses on the trust preferred securities
occurred in the last two quarters. Due to the short-term duration of the unrealized losses and the
fact that the Company fully expects to receive all principal and interest payments on those
securities, the Company concluded that the decline in the value was temporary and that an
other-than-temporary impairment charge was not appropriate at March 31, 2008.
As of March 31, 2008, the Company had the ability and intent to hold each of the impaired
securities to recovery. The Company intends to closely monitor the performance of the privately
issued mortgage-backed securities,
-48-
the preferred stock of the government-sponsored agencies, and
other securities to assess if changes in their underlying credit performance or other events cause
the cost basis of those securities to become other than temporarily impaired. However, because the
unrealized losses described have already been reflected in the financial statement values for
investment securities and stockholders equity, any recognition of an other-than-temporary decline
in value of these investment securities would have no effect on the Companys consolidated
financial condition. Additional information concerning fair value
measurements and the Companys approach to and classification of
such measurements is included in note 10 of Notes to Financial
Statements.
Also reflected in accumulated other comprehensive income were net losses of $19 million, or
$.17 per share, representing the remaining unamortized losses related to the termination of
interest rate swap agreements designated as cash flow hedges. Included in this amount were
unamortized losses of $20 million related to swap agreements terminated by the Company during the
first quarter of 2008 that had originally been entered into as a cash flow hedge of variable rate
long-term borrowings. Net unrealized fair value losses associated with interest rate swap
agreements designated as cash flow hedges were $10 million, or $.09 per share, at December 31,
2007. There were no outstanding interest rate swap agreements designated as cash flow hedges at
March 31, 2007 or March 31, 2008. Adjustments to reflect the funded status of defined benefit
pension and other postretirement plans as required under SFAS No. 158, net of applicable tax
effect, reduced accumulated other comprehensive income by $47 million, or $.42 per share, at March
31, 2008, $28 million, or $.26 per share, at March 31, 2007, and $46 million, or $.42 per share, at
December 31, 2007.
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. There were no repurchases during the first
quarter of 2008. Through March 31, 2008, M&T had repurchased a total of 2,818,500 shares of common
stock pursuant to that authorization at an average cost of $108.30 per share.
Federal regulators generally require banking institutions to maintain core capital and
total capital ratios of at least 4% and 8%, respectively, of risk-adjusted total assets. In
addition to the risk-based measures, Federal bank regulators have also implemented a minimum
leverage ratio guideline of 3% of the quarterly average of total assets. As of March 31, 2008,
core capital included $1.1 billion of trust preferred securities described in note 4 of Notes to
Financial Statements and total capital further included $1.7 billion of subordinated capital notes.
As previously noted, in December 2007, M&T Bank issued $400 million of 6.625% fixed rate
subordinated notes due 2017 and in January 2008 M&T issued $350 million of Enhanced Trust
Preferred Securities that pay a fixed rate of interest of 8.50%. For further discussion of the
Enhanced Trust Preferred Securities, see note 4 of Notes to Financial Statements.
The Company generates significant amounts of regulatory capital from its ongoing operations.
The rate of regulatory core capital generation, or net operating income as previously defined, less
dividends paid, expressed as an annualized percentage of regulatory core capital at the beginning
of each period, was 14.32% during the first quarter of 2008 and 12.80% during the first quarter of
2007.
-49-
The regulatory capital ratios of the Company, M&T Bank and M&T Bank, N.A. as of March 31, 2008
are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M&T |
|
M&T |
|
M&T |
|
|
(Consolidated) |
|
Bank |
|
Bank, N.A. |
Core capital |
|
|
7.61 |
% |
|
|
6.57 |
% |
|
|
45.88 |
% |
Total capital |
|
|
11.90 |
% |
|
|
10.86 |
% |
|
|
46.79 |
% |
Leverage |
|
|
7.04 |
% |
|
|
6.10 |
% |
|
|
21.59 |
% |
Segment Information
In accordance with SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, the Companys reportable segments have been determined based upon its internal
profitability reporting system, which is organized by strategic business unit. Financial
information about the Companys segments is presented in note 5 of Notes to Financial Statements.
The Business Banking segments net income totaled $33 million in the first quarter of 2008,
compared with $32 million in each of the first and fourth quarters of 2007. The slight improvement
from the first quarter of 2007 resulted from a $4 million increase in net interest income, of which
approximately half was attributable to the acquisition transactions completed in 2007, partially
offset by a $2 million increase in the provision for credit losses, primarily due to higher net
charge-offs of loans. A $2 million reduction in the provision for credit losses, resulting from
lower net charge-offs of loans, was the main factor for the improved performance in the recent
quarter as compared with the fourth quarter of 2007.
Net income earned by the Commercial Banking segment totaled $67 million during the first three
months of 2008, up 23% from $54 million in the initial quarter of 2007 and 19% higher than $56
million in 2007s final quarter. The increase from the first quarter of 2007 was predominantly due
to higher net interest income of $16 million, resulting largely from a $1.8 billion increase in
average loan balances outstanding and an 11 basis point widening of the net interest margin
associated with such loans. Also contributing to the increase were higher fees of $7 million
received for providing loan syndication services and a $2 million increase in service charges on
deposit accounts. Partially offsetting these positive factors was a $2 million rise in personnel
costs. The improvement in the recent quarters net income as compared with the fourth quarter of
2007 resulted from higher net interest income of $13 million, due to a 27 basis point widening of
the net interest margin on loans and an increase in average loans outstanding of $968 million, and
a $7 million increase in fees received for providing loan syndication and corporate advisory
services.
The Commercial Real Estate segment contributed net income in the first quarter of 2008 of $43
million, up 25% from $34 million in the year-earlier quarter and 18% above $36 million in the
fourth quarter of 2007. The improved results as compared with the first quarter of 2007 were
mainly due to higher net interest income of $12 million, driven by a $1.8 billion rise in average
loan balances outstanding and a $141 million increase in average deposit balances. The increase
from 2007s fourth quarter was the result of a $6 million rise in net interest income, largely due
to a $868 million increase in average loan balances outstanding, and a $4 million decrease in the
provision for credit losses, primarily the result of lower net charge-offs of loans.
-50-
The Discretionary Portfolio segment earned $16 million in the first quarter of 2008, compared
with net income of $19 million recorded in the first quarter of 2007 and a $68 million net loss
incurred in the fourth quarter of 2007. The unfavorable performance compared with last years
first quarter was primarily due to a $16 million increase in the provision for credit losses, the
result of higher net charge-offs of Alt-A mortgage loans, and a $4 million increase in noninterest
expenses, largely from foreclosure-related costs, offset, in part, by a $15 million increase in net
interest income. Factors contributing to the increase in net interest income included higher
average balances of investment securities and loans of $1.7 billion and $1.1 billion, respectively,
and a 21 basis point widening of the net interest margin on investment securities. The increase in
investment securities was predominantly the result of the Partners Trust acquisition, while the
increase in loans reflects the higher average balance impact of loans transferred to held for
investment in March 2007. The main factor contributing to the loss in the fourth quarter of 2007
was the previously discussed other-than-temporary impairment charge on collateralized debt
obligations backed by sub-prime residential mortgage securities of $127 million. Higher net
interest income of $13 million in 2008s initial quarter also contributed to the improved
performance as compared with the immediately preceding quarter and predominantly resulted from a
widening of the segments net interest margin.
The Residential Mortgage Banking segment contributed net income of $5 million in the initial
quarter of 2008, up from the net losses incurred in the first and fourth quarters of 2007 of $3
million and $1 million, respectively. The improvement as compared with the first quarter of 2007
was primarily due to a $27 million increase in mortgage banking revenues. That increase largely
resulted from the previously described $18 million of charges recorded in the first quarter of 2007
related to Alt-A mortgage loans, $5 million resulting from required changes from accounting
pronouncements that were effective January 1, 2008 which accelerated the recognition of certain
mortgage banking revenues, and a $3 million increase in residential mortgage servicing revenues.
Partially offsetting those higher residential mortgage banking revenues was a $6 million decrease
in net interest income that resulted from a $973 million decline in average loan balances
outstanding, reflecting the full-years impact from the Alt-A mortgage loans transferred to the
Discretionary Portfolio segment during the first quarter of 2007, and the recent quarter addition
to the capitalized mortgage servicing rights valuation allowance of $5 million, compared with a
partial reversal of such allowance of $1 million in last years first quarter. The favorable
performance as compared with the fourth quarter of 2007 was largely due to higher revenues from the
origination and sales of residential mortgage loans of $9 million, including the
$5 million impact in the recent quarter from the adoption of accounting pronouncements that accelerated the recognition of
certain mortgage banking revenues. Also contributing to the improvement from the previous quarter
was a $4 million increase in net interest income, the result of a 59 basis point widening of the
loan interest margin, offset, in part, by a higher addition to the capitalized mortgage servicing
rights valuation allowance of $3 million.
Net income for the Retail Banking segment totaled $75 million in the first quarter of 2008,
compared with $76 million recorded in the year-earlier quarter and $74 million in the final 2007
quarter. When comparing the results of 2008s first quarter with the year-earlier quarter, a rise
in net interest income of $17 million was offset by higher personnel costs of $11 million
(including the impact of the 2007 acquisition transactions) and a $6 million increase in the
provision for credit losses, mainly due to higher net charge-offs of loans. Contributing to the
increase in net interest income were higher average loan and deposit balances of $1.4 billion and
$618 million, respectively, that include the impact of the 2007 acquisition transactions. The
favorable performance as compared with the fourth quarter of 2007 was due to a $3 million increase
in net interest income, and a $3
-51-
million decrease in the provision for credit losses, largely
offset by lower service charges on deposit accounts of $5 million. The higher net interest income
resulted mainly from a $586 million increase in average loan balances outstanding that also
resulted largely from the acquisition transactions, and a 10 basis point widening of the net
interest margin associated with such balances.
The All Other category reflects other activities of the Company that are not directly
attributable to the reported segments as determined in accordance with SFAS No. 131, such as the
M&T Investment Group, which includes the Companys trust, brokerage and insurance businesses. Also
reflected in this category are the amortization of core deposit and other intangible assets
resulting from the acquisitions of financial institutions, M&Ts equity in the earnings of BLG,
merger-related expenses resulting from acquisitions and the net impact of the Companys allocation
methodologies for internal funds transfer pricing and the provision for credit losses. The various
components of the All Other category resulted in net losses of $37 million in each of the first
quarters of 2008 and 2007, and $65 million in the fourth quarter of 2007. As compared with the
initial quarter of 2007, the previously discussed $33 million gain realized from the mandatory
partial redemption of Visa stock owned by M&T Bank and $15 million related to the reversal of Visa
litigation-related accruals made in the fourth quarter of 2007 were offset by the Companys
allocation methodologies for internal transfers for funding charges and credits associated with
earning assets and interest-bearing liabilities of the Companys reportable segments and the
provision for credit losses, $4 million of merger-related expenses recorded in the initial quarter
of 2008 compared with no such expenses in 2007s first quarter, and a $3 million reduction of net
income in the current quarter resulting from M&Ts investment in BLG (inclusive of interest expense
to fund that investment). The lower net loss incurred in 2008s first quarter as compared with the
fourth quarter of 2007 resulted from several favorable factors, including the $33 million gain from
the sale of a portion of Visa stock owned by M&T Bank; the impact from the $23 million accrual
recorded in the final quarter of 2007 related to Visa litigation and the subsequent $15 million
partial reversal of such accrual in the recent quarter; a $7 million reduction of professional
service costs related to the business and support units included in the All Other category; and
lower merger-related expenses of $11 million. Partially offsetting those favorable factors were
higher personnel-related costs of $22 million, including stock-based compensation expense,
payroll-related taxes and other employee benefits, and the Companys allocation methodologies for
internal transfers for funding charges and credits associated with earning assets and
interest-bearing liabilities of the Companys reportable segments and the provision for credit
losses. The recent quarters performance also reflects a $3 million reduction of net income from
M&Ts investment in BLG, inclusive of interest expense to fund that investment, while the fourth
quarter of 2007s results include a $6 million addition to net income from that investment.
Recent Accounting Developments
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, for fair value measurements of certain of its financial instruments. The provisions of SFAS No. 157 that pertain to measurement of non-financial assets and liabilities have been deferred by the FASB until 2009. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements required or permitted under other accounting pronouncements, but does not require any new fair value measurements. The definition of fair value is clarified by SFAS No. 157 to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The adoption of SFAS No. 157 did not have a material
-52-
effect on the Companys financial
position or results of operations. At March 31, 2008, approximately $1.2 billion or 12% of the
Companys $9.8 billion of assets and liabilities measured using fair value measurements on
a recurring basis were classified as Level 3 valuations. The Level 3 classified assets and
liabilities are primarily comprised of approximately $1.2 billion of available-for-sale
investment securities. Such securities are mainly comprised of privately issued collateralized
mortgage obligations that have been classified as a Level 3 valuation because of limited trading
activities or less observable valuation inputs. Fair valuation losses on Level 3 available for
sale investment securities of $62 million were recognized during the first quarter of 2008 as a
reduction of other comprehensive income, with no gains or losses recognized through earnings.
As previously disclosed, as of March 31, 2008 the Company believed that all principal and interest
payments on its portfolio of collateralized mortgage obligations will be received and therefore,
the Company believed that the aforementioned unrealized losses will not ultimately be realized.
Approximately $29 million of available for sale investment securities were transferred out of a
Level 3 classification and into a Level 2 classification during the first quarter of 2008 due to
increased transparency in the inputs used to determine fair value. Additionally, at March 31, 2008
commitments to originate mortgage loans for sale with a net fair value of $8 million have been
classified as a Level 3 valuation. Approximately $13 million of fair value changes on commitments
to originate mortgage loans for sale were recognized in mortgage banking revenues during the first
quarter of 2008. Upon loan origination, the fair value of the derivative loan commitments becomes
part of the basis of the closed loan held for sale. Approximately $7 million of fair value was
transferred from Level 3 to Level 2 classification to reflect the closing of commitments into
originated loans held for sale during the first quarter of 2008. Additional information
concerning fair value measurements and the Companys approach to and classification of such
measurements is included in note 10 of Notes to Financial Statements.
In December 2007, the Financial Accounting Standards Board (FASB) issued a revised SFAS No. 141,
Business Combinations (SFAS No. 141R). SFAS No. 141R retains the fundamental requirements of
SFAS No. 141 that the acquisition method of accounting be used for all business combinations and
for an acquirer to be identified for each business combination. SFAS No. 141R defines the acquirer
as the entity that obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date the acquirer achieves control. SFAS No. 141R retains
the guidance in SFAS No. 141 for identifying and recognizing intangible assets separately from
goodwill. With limited exceptions, the statement requires an acquirer to recognize the assets
acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair value as of that date. That replaces SFAS No. 141s
cost-allocation process, which required the cost of an acquisition to be allocated to the
individual assets acquired and liabilities assumed based on their estimated fair values. As a
result, certain acquisition-related costs previously included in the cost of an acquisition will be
required to be expensed as incurred. In addition, certain restructuring costs previously recognized
as if they were an assumed liability from an acquisition, will be required to be expensed. SFAS No.
141R also requires the acquirer in a business combination achieved in stages (sometimes referred to
as a step acquisition) to recognize the identifiable assets and liabilities, as well as the
noncontrolling interest in the acquiree, at the full amounts of their fair values. SFAS No. 141R
also requires an acquirer to recognize assets acquired and liabilities assumed arising from
contractual contingencies as of the acquisition date, measured at their acquisition-date fair
values. An acquirer is required to recognize assets or liabilities arising from all other
contingencies (noncontractual contingencies) as of the acquisition date, measured at their
acquisition-date fair values, only if it is more likely than not that they meet the definition of
an asset or a liability in FASB Concepts Statement No. 6, Elements of Financial Statements. The
statement requires the acquirer to recognize
-53-
goodwill as of the acquisition date measured as a
residual, which in most types of business combinations will result in measuring goodwill as the
excess of the consideration transferred plus the fair value of any noncontrolling interest in the
acquiree at the acquisition date over the fair value of the identifiable net assets acquired. SFAS
No. 141R also eliminates the recognition of a separate valuation allowance, such as an
allowance for credit losses, as of the acquisition
date for assets acquired in a business combination that are measured at their acquisition-date fair
values because the effects of uncertainty about future cash flows should be included in the fair value
measurement of those assets. SFAS No. 141R should be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier adoption is prohibited. The Company is still evaluating the
provisions of SFAS No. 141R, but believes that its adoption will significantly impact its
accounting for any acquisitions it may consummate in 2009 and beyond.
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51. A noncontrolling interest, sometimes called a
minority interest, is a portion of equity in a subsidiary not attributable, directly or indirectly,
to a parent. SFAS No. 160 requires that the ownership interest in subsidiaries held by parties
other than the parent be clearly identified, labeled and presented in the consolidated statement of
financial position within equity, but separate from the parents equity. The amount of consolidated
net income attributable to the parent and to the noncontrolling interest is required to be clearly
identified and presented on the face of the consolidated statement of income. SFAS No. 160 also
requires entities to provide disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 should be
applied prospectively as of the beginning of a fiscal year beginning on or after December 15, 2008.
Earlier adoption is prohibited. The Company does not anticipate that the adoption of SFAS No. 160
will have a
significant impact on the reporting of its financial position or results of its operations.
In February 2008, the FASB issued FASB Staff Position FAS 140-3, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities (FSP FAS 140-3). FSP FAS 140-3
was issued to provide guidance on accounting for a transfer of a financial asset and repurchase
financing. FSP FAS 140-3 presumes that an initial transfer of a financial asset and a repurchase
financing are considered part of the same arrangement (linked transaction) under SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
However, if certain criteria are met, the initial transfer and repurchase financing should not be
evaluated as a linked transaction and should be evaluated separately under SFAS No. 140. FSP FAS
140-3 is effective for financial statements issued for fiscal years beginning after November 15,
2008 and interim periods within those fiscal years. Earlier application is not permitted. FSP FAS
140-3 should be applied prospectively to initial transfers and repurchase financings for which the
initial transfer is executed on or after the beginning of the fiscal year for which FSP FAS 140-3
is effective. The Company is still evaluating the provisions of FSP FAS 140-3, but does not
believe its adoption will have a material impact on its financial position or results of
operations.
The FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, in March 2008. SFAS No. 161 requires enhanced disclosures about an entitys
derivative and hedging activities including (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedging items are accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entitys financial position,
financial performance and
-54-
cash flows. SFAS No. 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008, with earlier application
encouraged. The Company is currently evaluating SFAS No. 161 and intends to comply with its
disclosure requirements as required.
Forward-Looking Statements
Managements Discussion and Analysis of Financial Condition and Results of Operations and other
sections of this quarterly report contain forward-looking statements that are based on current
expectations, estimates and projections about the Companys business, managements beliefs and
assumptions made by management. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions (Future Factors) which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements.
Future Factors include changes in interest rates, spreads on earning assets and
interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations,
credit losses and market values of loans, other assets and collateral securing loans; sources of
liquidity; common shares outstanding; common stock price volatility; fair value of and number of
stock-based compensation awards to be issued in future periods; legislation affecting the financial
services industry as a whole, and M&T and its subsidiaries individually or collectively, including
tax legislation; regulatory supervision and oversight, including monetary policy and required
capital levels; changes in accounting policies or procedures as may be required by the Financial
Accounting Standards Board or other regulatory agencies; increasing price and product/service
competition by competitors, including new entrants; rapid technological developments and changes;
the ability to continue to introduce competitive new products and services on a
timely, cost-effective basis; the mix of products/services; containing costs and expenses;
governmental and public policy changes; protection and validity of intellectual property rights;
reliance on large customers; technological, implementation and cost/financial risks in large,
multi-year contracts; the outcome of pending and future litigation and governmental proceedings,
including tax-related examinations and other matters; continued availability of financing;
financial resources in the amounts, at the times and on the terms required to support M&T and its
subsidiaries future businesses; and material differences in the actual financial results of
merger, acquisition and investment activities compared with M&Ts initial expectations, including
the full realization of anticipated cost savings and revenue enhancements.
These are representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by general industry and
market conditions and growth rates, general economic and political conditions, either nationally or
in the areas in which M&T and its subsidiaries do business, including interest rate and currency
exchange rate fluctuations, changes and trends in the securities markets, and other Future Factors.
-55-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 1
QUARTERLY TRENDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 Quarters |
|
|
First Quarter |
|
Fourth |
|
Third |
|
Second |
|
First |
|
Earnings and dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in thousands, except per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (taxable-equivalent basis) |
|
$ |
889,945 |
|
|
|
918,200 |
|
|
|
898,126 |
|
|
|
883,148 |
|
|
|
866,172 |
|
Interest expense |
|
|
405,312 |
|
|
|
442,364 |
|
|
|
425,326 |
|
|
|
416,264 |
|
|
|
410,622 |
|
|
Net interest income |
|
|
484,633 |
|
|
|
475,836 |
|
|
|
472,800 |
|
|
|
466,884 |
|
|
|
455,550 |
|
Less: provision for credit losses |
|
|
60,000 |
|
|
|
101,000 |
|
|
|
34,000 |
|
|
|
30,000 |
|
|
|
27,000 |
|
Other income |
|
|
312,663 |
|
|
|
160,490 |
|
|
|
252,899 |
|
|
|
283,117 |
|
|
|
236,483 |
|
Less: other expense |
|
|
425,704 |
|
|
|
445,473 |
|
|
|
390,528 |
|
|
|
392,651 |
|
|
|
399,037 |
|
|
Income before income taxes |
|
|
311,592 |
|
|
|
89,853 |
|
|
|
301,171 |
|
|
|
327,350 |
|
|
|
265,996 |
|
Applicable income taxes |
|
|
103,613 |
|
|
|
19,297 |
|
|
|
96,872 |
|
|
|
108,209 |
|
|
|
84,900 |
|
Taxable-equivalent adjustment |
|
|
5,783 |
|
|
|
5,626 |
|
|
|
5,112 |
|
|
|
4,972 |
|
|
|
5,123 |
|
|
Net income |
|
$ |
202,196 |
|
|
|
64,930 |
|
|
|
199,187 |
|
|
|
214,169 |
|
|
|
175,973 |
|
|
Per common share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings |
|
$ |
1.84 |
|
|
|
.60 |
|
|
|
1.86 |
|
|
|
1.98 |
|
|
|
1.60 |
|
Diluted earnings |
|
|
1.82 |
|
|
|
.60 |
|
|
|
1.83 |
|
|
|
1.95 |
|
|
|
1.57 |
|
Cash dividends |
|
$ |
.70 |
|
|
|
.70 |
|
|
|
.70 |
|
|
|
.60 |
|
|
|
.60 |
|
Average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
110,017 |
|
|
|
107,859 |
|
|
|
107,056 |
|
|
|
107,939 |
|
|
|
109,694 |
|
Diluted |
|
|
110,967 |
|
|
|
109,034 |
|
|
|
108,957 |
|
|
|
109,919 |
|
|
|
112,187 |
|
|
Performance ratios, annualized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
|
1.25 |
% |
|
|
.42 |
% |
|
|
1.37 |
% |
|
|
1.49 |
% |
|
|
1.25 |
% |
Average common stockholders equity |
|
|
12.49 |
% |
|
|
4.05 |
% |
|
|
12.78 |
% |
|
|
13.92 |
% |
|
|
11.38 |
% |
Net interest margin on average earning assets
(taxable-equivalent basis) |
|
|
3.38 |
% |
|
|
3.45 |
% |
|
|
3.65 |
% |
|
|
3.67 |
% |
|
|
3.64 |
% |
Nonperforming loans to total loans and leases,
net of unearned discount |
|
|
1.00 |
% |
|
|
.93 |
% |
|
|
.83 |
% |
|
|
.68 |
% |
|
|
.63 |
% |
Efficiency ratio (a) |
|
|
55.27 |
% |
|
|
56.39 |
% |
|
|
53.80 |
% |
|
|
52.37 |
% |
|
|
57.75 |
% |
|
Net operating (tangible) results (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (in thousands) |
|
$ |
215,597 |
|
|
|
83,719 |
|
|
|
208,749 |
|
|
|
224,190 |
|
|
|
187,162 |
|
Diluted net operating income per common share |
|
|
1.94 |
|
|
|
.77 |
|
|
|
1.92 |
|
|
|
2.04 |
|
|
|
1.67 |
|
Annualized return on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average tangible assets |
|
|
1.41 |
% |
|
|
.57 |
% |
|
|
1.51 |
% |
|
|
1.65 |
% |
|
|
1.40 |
% |
Average tangible common stockholders equity |
|
|
27.86 |
% |
|
|
10.49 |
% |
|
|
26.80 |
% |
|
|
29.35 |
% |
|
|
24.11 |
% |
Efficiency ratio (a) |
|
|
52.85 |
% |
|
|
54.30 |
% |
|
|
51.64 |
% |
|
|
50.18 |
% |
|
|
55.09 |
% |
|
Balance sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (c) |
|
$ |
65,015 |
|
|
|
61,549 |
|
|
|
57,862 |
|
|
|
57,523 |
|
|
|
57,207 |
|
Total tangible assets (c) |
|
|
61,614 |
|
|
|
58,355 |
|
|
|
54,766 |
|
|
|
54,415 |
|
|
|
54,085 |
|
Earning assets |
|
|
57,713 |
|
|
|
54,765 |
|
|
|
51,325 |
|
|
|
50,982 |
|
|
|
50,693 |
|
Investment securities |
|
|
8,924 |
|
|
|
7,905 |
|
|
|
7,260 |
|
|
|
6,886 |
|
|
|
7,214 |
|
Loans and leases, net of unearned discount |
|
|
48,575 |
|
|
|
46,055 |
|
|
|
43,750 |
|
|
|
43,572 |
|
|
|
43,114 |
|
Deposits |
|
|
39,999 |
|
|
|
38,565 |
|
|
|
36,936 |
|
|
|
37,048 |
|
|
|
37,966 |
|
Stockholders equity (c) |
|
|
6,513 |
|
|
|
6,360 |
|
|
|
6,186 |
|
|
|
6,172 |
|
|
|
6,270 |
|
Tangible stockholders equity (c) |
|
|
3,112 |
|
|
|
3,166 |
|
|
|
3,090 |
|
|
|
3,064 |
|
|
|
3,148 |
|
|
At end of quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (c) |
|
$ |
66,086 |
|
|
|
64,876 |
|
|
|
60,008 |
|
|
|
57,869 |
|
|
|
57,842 |
|
Total tangible assets (c) |
|
|
62,696 |
|
|
|
61,467 |
|
|
|
56,919 |
|
|
|
54,767 |
|
|
|
54,727 |
|
Earning assets |
|
|
58,030 |
|
|
|
57,163 |
|
|
|
53,267 |
|
|
|
51,131 |
|
|
|
51,046 |
|
Investment securities |
|
|
8,676 |
|
|
|
8,962 |
|
|
|
8,003 |
|
|
|
6,982 |
|
|
|
7,028 |
|
Loans and leases, net of unearned discount |
|
|
49,279 |
|
|
|
48,022 |
|
|
|
44,778 |
|
|
|
43,744 |
|
|
|
43,507 |
|
Deposits |
|
|
41,533 |
|
|
|
41,266 |
|
|
|
38,473 |
|
|
|
39,419 |
|
|
|
38,938 |
|
Stockholders equity (c) |
|
|
6,488 |
|
|
|
6,485 |
|
|
|
6,238 |
|
|
|
6,175 |
|
|
|
6,253 |
|
Tangible stockholders equity (c) |
|
|
3,098 |
|
|
|
3,076 |
|
|
|
3,149 |
|
|
|
3,073 |
|
|
|
3,138 |
|
Equity per common share |
|
|
58.92 |
|
|
|
58.99 |
|
|
|
58.40 |
|
|
|
57.59 |
|
|
|
57.32 |
|
Tangible equity per common share |
|
|
28.14 |
|
|
|
27.98 |
|
|
|
29.48 |
|
|
|
28.66 |
|
|
|
28.77 |
|
|
Market price per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
94.03 |
|
|
|
108.32 |
|
|
|
115.81 |
|
|
|
114.33 |
|
|
|
125.13 |
|
Low |
|
|
70.49 |
|
|
|
77.39 |
|
|
|
97.26 |
|
|
|
104.00 |
|
|
|
112.05 |
|
Closing |
|
|
80.48 |
|
|
|
81.57 |
|
|
|
103.45 |
|
|
|
106.90 |
|
|
|
115.83 |
|
|
|
|
|
(a) |
|
Excludes impact of merger-related expenses and net securities transactions. |
|
(b) |
|
Excludes amortization and balances related to goodwill and core deposit and other intangible
assets and merger-related expenses which, except in the calculation of the efficiency ratio, are
net of applicable income tax effects. A reconciliation of net income and net operating income
appears in table 2. |
|
(c) |
|
The difference between total assets and total tangible assets, and stockholders equity and
tangible stockholders equity, represents goodwill, core deposit and other intangible assets, net
of applicable deferred tax balances. A reconciliation of such balances appears in table 2. |
- 56 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 Quarters |
|
|
First Quarter |
|
Fourth |
|
Third |
|
Second |
|
First |
|
Income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
202,196 |
|
|
|
64,930 |
|
|
|
199,187 |
|
|
|
214,169 |
|
|
|
175,973 |
|
Amortization of core deposit and other
intangible assets (a) |
|
|
11,241 |
|
|
|
9,719 |
|
|
|
9,562 |
|
|
|
10,021 |
|
|
|
11,189 |
|
Merger-related expenses (a) |
|
|
2,160 |
|
|
|
9,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
$ |
215,597 |
|
|
|
83,719 |
|
|
|
208,749 |
|
|
|
224,190 |
|
|
|
187,162 |
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
1.82 |
|
|
|
.60 |
|
|
|
1.83 |
|
|
|
1.95 |
|
|
|
1.57 |
|
Amortization of core deposit and other
intangible assets (a) |
|
|
.10 |
|
|
|
.09 |
|
|
|
.09 |
|
|
|
.09 |
|
|
|
.10 |
|
Merger-related expenses (a) |
|
|
.02 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net operating earnings per share |
|
$ |
1.94 |
|
|
|
.77 |
|
|
|
1.92 |
|
|
|
2.04 |
|
|
|
1.67 |
|
|
Other expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
$ |
425,704 |
|
|
|
445,473 |
|
|
|
390,528 |
|
|
|
392,651 |
|
|
|
399,037 |
|
Amortization of core deposit and other
intangible assets |
|
|
(18,483 |
) |
|
|
(15,971 |
) |
|
|
(15,702 |
) |
|
|
(16,457 |
) |
|
|
(18,356 |
) |
Merger-related expenses |
|
|
(3,547 |
) |
|
|
(14,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest operating expense |
|
$ |
403,674 |
|
|
|
414,615 |
|
|
|
374,826 |
|
|
|
376,194 |
|
|
|
380,681 |
|
|
Merger-related expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
62 |
|
|
|
1,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and net occupancy |
|
|
49 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing, postage and supplies |
|
|
367 |
|
|
|
1,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs of operations |
|
|
3,069 |
|
|
|
11,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,547 |
|
|
|
14,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
$ |
65,015 |
|
|
|
61,549 |
|
|
|
57,862 |
|
|
|
57,523 |
|
|
|
57,207 |
|
Goodwill |
|
|
(3,196 |
) |
|
|
(3,006 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
Core deposit and other intangible assets |
|
|
(239 |
) |
|
|
(213 |
) |
|
|
(208 |
) |
|
|
(223 |
) |
|
|
(241 |
) |
Deferred taxes |
|
|
34 |
|
|
|
25 |
|
|
|
21 |
|
|
|
24 |
|
|
|
28 |
|
|
Average tangible assets |
|
$ |
61,614 |
|
|
|
58,355 |
|
|
|
54,766 |
|
|
|
54,415 |
|
|
|
54,085 |
|
|
Average equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity |
|
$ |
6,513 |
|
|
|
6,360 |
|
|
|
6,186 |
|
|
|
6,172 |
|
|
|
6,270 |
|
Goodwill |
|
|
(3,196 |
) |
|
|
(3,006 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
Core deposit and other intangible assets |
|
|
(239 |
) |
|
|
(213 |
) |
|
|
(208 |
) |
|
|
(223 |
) |
|
|
(241 |
) |
Deferred taxes |
|
|
34 |
|
|
|
25 |
|
|
|
21 |
|
|
|
24 |
|
|
|
28 |
|
|
Average tangible equity |
|
$ |
3,112 |
|
|
|
3,166 |
|
|
|
3,090 |
|
|
|
3,064 |
|
|
|
3,148 |
|
|
At end of quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
66,086 |
|
|
|
64,876 |
|
|
|
60,008 |
|
|
|
57,869 |
|
|
|
57,842 |
|
Goodwill |
|
|
(3,192 |
) |
|
|
(3,196 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
Core deposit and other intangible assets |
|
|
(230 |
) |
|
|
(249 |
) |
|
|
(200 |
) |
|
|
(216 |
) |
|
|
(232 |
) |
Deferred taxes |
|
|
32 |
|
|
|
36 |
|
|
|
20 |
|
|
|
23 |
|
|
|
26 |
|
|
Total tangible assets |
|
$ |
62,696 |
|
|
|
61,467 |
|
|
|
56,919 |
|
|
|
54,767 |
|
|
|
54,727 |
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
$ |
6,488 |
|
|
|
6,485 |
|
|
|
6,238 |
|
|
|
6,175 |
|
|
|
6,253 |
|
Goodwill |
|
|
(3,192 |
) |
|
|
(3,196 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
|
|
(2,909 |
) |
Core deposit and other intangible assets |
|
|
(230 |
) |
|
|
(249 |
) |
|
|
(200 |
) |
|
|
(216 |
) |
|
|
(232 |
) |
Deferred taxes |
|
|
32 |
|
|
|
36 |
|
|
|
20 |
|
|
|
23 |
|
|
|
26 |
|
|
Total tangible equity |
|
$ |
3,098 |
|
|
|
3,076 |
|
|
|
3,149 |
|
|
|
3,073 |
|
|
|
3,138 |
|
|
|
|
|
(a) |
|
After any related tax effect. |
- 57 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 First Quarter |
|
2007 Fourth Quarter |
|
2007 Third Quarter |
|
|
Average |
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
Average balance in millions; interest in thousands |
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of unearned discount* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, etc. |
|
$ |
13,308 |
|
|
$ |
200,509 |
|
|
|
6.06 |
% |
|
|
12,551 |
|
|
|
218,318 |
|
|
|
6.90 |
% |
|
|
12,239 |
|
|
|
223,525 |
|
|
|
7.25 |
% |
Real estate commercial |
|
|
17,994 |
|
|
|
285,831 |
|
|
|
6.35 |
|
|
|
16,459 |
|
|
|
293,135 |
|
|
|
7.12 |
|
|
|
15,474 |
|
|
|
291,569 |
|
|
|
7.54 |
|
Real estate consumer |
|
|
5,977 |
|
|
|
92,179 |
|
|
|
6.17 |
|
|
|
6,327 |
|
|
|
97,009 |
|
|
|
6.13 |
|
|
|
5,915 |
|
|
|
95,629 |
|
|
|
6.47 |
|
Consumer |
|
|
11,296 |
|
|
|
193,938 |
|
|
|
6.91 |
|
|
|
10,718 |
|
|
|
198,509 |
|
|
|
7.35 |
|
|
|
10,122 |
|
|
|
191,628 |
|
|
|
7.51 |
|
|
Total loans and leases, net |
|
|
48,575 |
|
|
|
772,457 |
|
|
|
6.40 |
|
|
|
46,055 |
|
|
|
806,971 |
|
|
|
6.95 |
|
|
|
43,750 |
|
|
|
802,351 |
|
|
|
7.28 |
|
|
Interest-bearing deposits at banks |
|
|
10 |
|
|
|
44 |
|
|
|
1.65 |
|
|
|
12 |
|
|
|
103 |
|
|
|
3.48 |
|
|
|
8 |
|
|
|
64 |
|
|
|
3.27 |
|
Federal funds sold and agreements
to resell securities |
|
|
129 |
|
|
|
956 |
|
|
|
2.99 |
|
|
|
725 |
|
|
|
8,871 |
|
|
|
4.86 |
|
|
|
248 |
|
|
|
3,429 |
|
|
|
5.47 |
|
Trading account |
|
|
75 |
|
|
|
259 |
|
|
|
1.39 |
|
|
|
68 |
|
|
|
253 |
|
|
|
1.48 |
|
|
|
59 |
|
|
|
145 |
|
|
|
.98 |
|
Investment securities** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
|
3,523 |
|
|
|
41,757 |
|
|
|
4.77 |
|
|
|
2,364 |
|
|
|
26,828 |
|
|
|
4.50 |
|
|
|
2,156 |
|
|
|
23,935 |
|
|
|
4.40 |
|
Obligations of states and political subdivisions |
|
|
149 |
|
|
|
2,436 |
|
|
|
6.56 |
|
|
|
121 |
|
|
|
2,046 |
|
|
|
6.75 |
|
|
|
108 |
|
|
|
2,040 |
|
|
|
7.55 |
|
Other |
|
|
5,252 |
|
|
|
72,036 |
|
|
|
5.52 |
|
|
|
5,420 |
|
|
|
73,128 |
|
|
|
5.35 |
|
|
|
4,996 |
|
|
|
66,162 |
|
|
|
5.25 |
|
|
Total investment securities |
|
|
8,924 |
|
|
|
116,229 |
|
|
|
5.24 |
|
|
|
7,905 |
|
|
|
102,002 |
|
|
|
5.12 |
|
|
|
7,260 |
|
|
|
92,137 |
|
|
|
5.04 |
|
|
Total earning assets |
|
|
57,713 |
|
|
|
889,945 |
|
|
|
6.20 |
|
|
|
54,765 |
|
|
|
918,200 |
|
|
|
6.65 |
|
|
|
51,325 |
|
|
|
898,126 |
|
|
|
6.94 |
|
|
Allowance for credit losses |
|
|
(778 |
) |
|
|
|
|
|
|
|
|
|
|
(711 |
) |
|
|
|
|
|
|
|
|
|
|
(675 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
1,297 |
|
|
|
|
|
|
|
|
|
|
|
1,302 |
|
|
|
|
|
|
|
|
|
|
|
1,235 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
6,783 |
|
|
|
|
|
|
|
|
|
|
|
6,193 |
|
|
|
|
|
|
|
|
|
|
|
5,977 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
65,015 |
|
|
|
|
|
|
|
|
|
|
|
61,549 |
|
|
|
|
|
|
|
|
|
|
|
57,862 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
$ |
484 |
|
|
|
1,018 |
|
|
|
.85 |
|
|
|
491 |
|
|
|
1,465 |
|
|
|
1.18 |
|
|
|
464 |
|
|
|
982 |
|
|
|
.84 |
|
Savings deposits |
|
|
16,843 |
|
|
|
66,622 |
|
|
|
1.59 |
|
|
|
15,265 |
|
|
|
65,635 |
|
|
|
1.71 |
|
|
|
14,908 |
|
|
|
62,883 |
|
|
|
1.67 |
|
Time deposits |
|
|
10,416 |
|
|
|
106,643 |
|
|
|
4.12 |
|
|
|
10,353 |
|
|
|
118,612 |
|
|
|
4.55 |
|
|
|
9,880 |
|
|
|
117,064 |
|
|
|
4.70 |
|
Deposits at foreign office |
|
|
4,821 |
|
|
|
38,373 |
|
|
|
3.20 |
|
|
|
4,975 |
|
|
|
56,674 |
|
|
|
4.52 |
|
|
|
4,324 |
|
|
|
55,666 |
|
|
|
5.11 |
|
|
Total interest-bearing deposits |
|
|
32,564 |
|
|
|
212,656 |
|
|
|
2.63 |
|
|
|
31,084 |
|
|
|
242,386 |
|
|
|
3.09 |
|
|
|
29,576 |
|
|
|
236,595 |
|
|
|
3.17 |
|
|
Short-term borrowings |
|
|
7,153 |
|
|
|
61,621 |
|
|
|
3.46 |
|
|
|
5,899 |
|
|
|
68,639 |
|
|
|
4.62 |
|
|
|
5,228 |
|
|
|
68,376 |
|
|
|
5.19 |
|
Long-term borrowings |
|
|
10,270 |
|
|
|
131,035 |
|
|
|
5.13 |
|
|
|
9,809 |
|
|
|
131,339 |
|
|
|
5.31 |
|
|
|
8,661 |
|
|
|
120,355 |
|
|
|
5.51 |
|
|
Total interest-bearing liabilities |
|
|
49,987 |
|
|
|
405,312 |
|
|
|
3.26 |
|
|
|
46,792 |
|
|
|
442,364 |
|
|
|
3.75 |
|
|
|
43,465 |
|
|
|
425,326 |
|
|
|
3.88 |
|
|
Noninterest-bearing deposits |
|
|
7,435 |
|
|
|
|
|
|
|
|
|
|
|
7,481 |
|
|
|
|
|
|
|
|
|
|
|
7,360 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
851 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
58,502 |
|
|
|
|
|
|
|
|
|
|
|
55,189 |
|
|
|
|
|
|
|
|
|
|
|
51,676 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
6,513 |
|
|
|
|
|
|
|
|
|
|
|
6,360 |
|
|
|
|
|
|
|
|
|
|
|
6,186 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
65,015 |
|
|
|
|
|
|
|
|
|
|
|
61,549 |
|
|
|
|
|
|
|
|
|
|
|
57,862 |
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.94 |
|
|
|
|
|
|
|
|
|
|
|
2.90 |
|
|
|
|
|
|
|
|
|
|
|
3.06 |
|
Contribution of interest-free funds |
|
|
|
|
|
|
|
|
|
|
.44 |
|
|
|
|
|
|
|
|
|
|
|
.55 |
|
|
|
|
|
|
|
|
|
|
|
.59 |
|
|
Net interest income/margin on earning assets |
|
|
|
|
|
$ |
484,633 |
|
|
|
3.38 |
% |
|
|
|
|
|
|
475,836 |
|
|
|
3.45 |
% |
|
|
|
|
|
|
472,800 |
|
|
|
3.65 |
% |
|
(continued)
|
|
|
|
* |
|
Includes nonaccrual loans. |
|
** |
|
Includes available for sale securities at amortized cost. |
- 58 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Second Quarter |
|
|
2007 First Quarter |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
Average balance in millions; interest in thousands |
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of unearned discount* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, etc. |
|
$ |
12,155 |
|
|
$ |
219,011 |
|
|
|
7.23 |
% |
|
|
11,753 |
|
|
|
210,889 |
|
|
|
7.28 |
% |
Real estate commercial |
|
|
15,578 |
|
|
|
290,130 |
|
|
|
7.45 |
|
|
|
15,474 |
|
|
|
282,322 |
|
|
|
7.30 |
|
Real estate consumer |
|
|
5,875 |
|
|
|
95,327 |
|
|
|
6.49 |
|
|
|
5,939 |
|
|
|
96,136 |
|
|
|
6.48 |
|
Consumer |
|
|
9,964 |
|
|
|
185,553 |
|
|
|
7.47 |
|
|
|
9,948 |
|
|
|
182,186 |
|
|
|
7.43 |
|
|
Total loans and leases, net |
|
|
43,572 |
|
|
|
790,021 |
|
|
|
7.27 |
|
|
|
43,114 |
|
|
|
771,533 |
|
|
|
7.26 |
|
|
Interest-bearing deposits at banks |
|
|
9 |
|
|
|
67 |
|
|
|
3.12 |
|
|
|
8 |
|
|
|
66 |
|
|
|
3.56 |
|
Federal funds sold and agreements
to resell securities |
|
|
448 |
|
|
|
6,734 |
|
|
|
6.03 |
|
|
|
304 |
|
|
|
4,801 |
|
|
|
6.40 |
|
Trading account |
|
|
67 |
|
|
|
235 |
|
|
|
1.40 |
|
|
|
53 |
|
|
|
111 |
|
|
|
.83 |
|
Investment securities** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
|
2,151 |
|
|
|
23,238 |
|
|
|
4.33 |
|
|
|
2,428 |
|
|
|
26,610 |
|
|
|
4.45 |
|
Obligations of states and political subdivisions |
|
|
122 |
|
|
|
2,299 |
|
|
|
7.53 |
|
|
|
125 |
|
|
|
2,234 |
|
|
|
7.11 |
|
Other |
|
|
4,613 |
|
|
|
60,554 |
|
|
|
5.27 |
|
|
|
4,661 |
|
|
|
60,817 |
|
|
|
5.29 |
|
|
Total investment securities |
|
|
6,886 |
|
|
|
86,091 |
|
|
|
5.01 |
|
|
|
7,214 |
|
|
|
89,661 |
|
|
|
5.04 |
|
|
Total earning assets |
|
|
50,982 |
|
|
|
883,148 |
|
|
|
6.95 |
|
|
|
50,693 |
|
|
|
866,172 |
|
|
|
6.93 |
|
|
Allowance for credit losses |
|
|
(667 |
) |
|
|
|
|
|
|
|
|
|
|
(656 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
1,304 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
5,964 |
|
|
|
|
|
|
|
|
|
|
|
5,866 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
57,523 |
|
|
|
|
|
|
|
|
|
|
|
57,207 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
$ |
453 |
|
|
|
1,024 |
|
|
|
.91 |
|
|
|
437 |
|
|
|
1,167 |
|
|
|
1.08 |
|
Savings deposits |
|
|
15,027 |
|
|
|
60,953 |
|
|
|
1.63 |
|
|
|
14,733 |
|
|
|
60,842 |
|
|
|
1.67 |
|
Time deposits |
|
|
10,523 |
|
|
|
124,020 |
|
|
|
4.73 |
|
|
|
11,657 |
|
|
|
136,682 |
|
|
|
4.76 |
|
Deposits at foreign office |
|
|
3,706 |
|
|
|
48,001 |
|
|
|
5.19 |
|
|
|
3,717 |
|
|
|
47,649 |
|
|
|
5.20 |
|
|
Total interest-bearing deposits |
|
|
29,709 |
|
|
|
233,998 |
|
|
|
3.16 |
|
|
|
30,544 |
|
|
|
246,340 |
|
|
|
3.27 |
|
|
Short-term borrowings |
|
|
5,555 |
|
|
|
73,500 |
|
|
|
5.31 |
|
|
|
4,852 |
|
|
|
63,564 |
|
|
|
5.31 |
|
Long-term borrowings |
|
|
7,905 |
|
|
|
108,766 |
|
|
|
5.52 |
|
|
|
7,308 |
|
|
|
100,718 |
|
|
|
5.59 |
|
|
Total interest-bearing liabilities |
|
|
43,169 |
|
|
|
416,264 |
|
|
|
3.87 |
|
|
|
42,704 |
|
|
|
410,622 |
|
|
|
3.90 |
|
|
Noninterest-bearing deposits |
|
|
7,339 |
|
|
|
|
|
|
|
|
|
|
|
7,422 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
811 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
51,351 |
|
|
|
|
|
|
|
|
|
|
|
50,937 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
6,172 |
|
|
|
|
|
|
|
|
|
|
|
6,270 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
57,523 |
|
|
|
|
|
|
|
|
|
|
|
57,207 |
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.08 |
|
|
|
|
|
|
|
|
|
|
|
3.03 |
|
Contribution of interest-free funds |
|
|
|
|
|
|
|
|
|
|
.59 |
|
|
|
|
|
|
|
|
|
|
|
.61 |
|
|
Net interest income/margin on earning assets |
|
|
|
|
|
$ |
466,884 |
|
|
|
3.67 |
% |
|
|
|
|
|
|
455,550 |
|
|
|
3.64 |
% |
|
|
|
|
* |
|
Includes nonaccrual loans. |
|
** |
|
Includes available for sale securities at amortized cost. |
- 59 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference to the discussion contained under the caption Taxable-equivalent
Net Interest Income in Part I, Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the
effectiveness of M&Ts disclosure controls and procedures (as defined in Exchange Act rules
13a-15(e) and 15d-15(e)), Robert G. Wilmers, Chairman of the Board and Chief Executive Officer,
and
René F. Jones, Executive Vice President and Chief Financial Officer, concluded that M&Ts disclosure
controls and procedures were effective as of March 31, 2008.
(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy
of its internal control over financial reporting and enhances its controls in response to internal
control assessments and internal and external audit and regulatory recommendations. No changes in
internal control over financial reporting have been identified in connection with the evaluation of
disclosure controls and procedures during the quarter ended March 31, 2008 that have materially
affected, or are reasonably likely to materially affect, M&Ts internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. 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 M&Ts consolidated
financial position, but at the present time is not in a position to determine whether such
litigation will have a material adverse effect on M&Ts consolidated results of operations in any
future reporting period.
Item 1A. Risk Factors.
There have been no material changes in risk factors relating to M&T to those disclosed in
response to Item 1A. to Part I of Form 10-K for the year ended December 31, 2007.
- 60 -
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a)-(b) Not applicable.
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)Maximum |
|
|
|
|
|
|
|
|
|
|
|
(c)Total |
|
|
Number (or |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Dollar Value) |
|
|
|
|
|
|
|
|
|
|
|
(or Units) |
|
|
of Shares |
|
|
|
|
|
|
|
|
|
|
|
Purchased |
|
|
(or Units) |
|
|
|
(a)Total |
|
|
|
|
|
|
as Part of |
|
|
that may yet |
|
|
|
Number |
|
|
(b)Average |
|
|
Publicly |
|
|
be Purchased |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Announced |
|
|
Under the |
|
|
|
(or Units) |
|
|
per Share |
|
|
Plans or |
|
|
Plans or |
|
Period |
|
Purchased(1) |
|
|
(or Unit) |
|
|
Programs |
|
|
Programs (2) |
|
|
January 1 -
January 31, 2008 |
|
|
65,955 |
|
|
$ |
73.85 |
|
|
|
|
|
|
|
2,181,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1 -
February 29, 2008 |
|
|
283 |
|
|
|
87.35 |
|
|
|
|
|
|
|
2,181,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1 -
March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,181,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
66,238 |
|
|
$ |
73.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total number of shares purchased during the periods indicated includes 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&Ts 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. |
Item 3. Defaults Upon Senior Securities.
(Not applicable.)
Item 4. Submission of Matters to a Vote of Security Holders.
(a)-(c) The 2008 Annual Meeting of Stockholders of M&T was held on April 15, 2008. At the
2008 Annual Meeting, stockholders elected twenty (20) directors, all of whom were then serving as
directors of M&T, for terms of one (1) year and until their successors are elected and qualified.
The following table reflects the tabulation of the votes with respect to each director who was
elected at the 2008 Annual Meeting.
|
|
|
|
|
|
|
|
|
|
|
Number of Votes |
Nominee |
|
For |
|
Withheld |
Brent D. Baird |
|
|
100,853,345 |
|
|
|
1,386,592 |
|
Robert J. Bennett |
|
|
100,931,172 |
|
|
|
1,308,765 |
|
C. Angela Bontempo |
|
|
100,849,104 |
|
|
|
1,390,833 |
|
Robert T. Brady |
|
|
90,369,030 |
|
|
|
11,870,907 |
|
Michael D. Buckley |
|
|
100,007,982 |
|
|
|
2,231,955 |
|
T. Jefferson Cunningham III |
|
|
100,799,081 |
|
|
|
1,440,856 |
|
Mark J. Czarnecki |
|
|
100,873,960 |
|
|
|
1,365,977 |
|
Colm E. Doherty |
|
|
100,876,328 |
|
|
|
1,363,609 |
|
Richard E. Garman |
|
|
100,899,453 |
|
|
|
1,340,484 |
|
- 61 -
|
|
|
|
|
|
|
|
|
|
|
Number of Votes |
Nominee |
|
For |
|
Withheld |
Daniel R. Hawbaker |
|
|
100,919,209 |
|
|
|
1,320,728 |
|
Patrick W.E. Hodgson |
|
|
100,896,735 |
|
|
|
1,343,202 |
|
Richard G. King |
|
|
100,654,818 |
|
|
|
1,585,119 |
|
Reginald B. Newman, II |
|
|
100,864,821 |
|
|
|
1,375,116 |
|
Jorge G. Pereira |
|
|
100,885,186 |
|
|
|
1,354,751 |
|
Michael P. Pinto |
|
|
100,886,147 |
|
|
|
1,353,790 |
|
Robert E. Sadler, Jr. |
|
|
100,869,373 |
|
|
|
1,370,564 |
|
Eugene J. Sheehy |
|
|
100,844,108 |
|
|
|
1,395,829 |
|
Stephen G. Sheetz |
|
|
100,927,857 |
|
|
|
1,312,080 |
|
Herbert L. Washington |
|
|
100,850,165 |
|
|
|
1,389,772 |
|
Robert G. Wilmers |
|
|
100,876,061 |
|
|
|
1,363,876 |
|
At the 2008 Annual Meeting, stockholders also ratified the appointment of
PricewaterhouseCoopers LLP as the independent public accountant of M&T Bank Corporation for the
year ending December 31, 2008. The following table presents the tabulation of the votes with
respect to such ratification.
|
|
|
|
|
Number of Votes |
For |
|
Against |
|
Abstain |
101,343,582
|
|
408,884
|
|
487,471 |
(d) Not applicable.
Item 5. Other Information.
(None.)
Item 6. Exhibits.
The following exhibits are filed as a part of this report.
|
|
|
Exhibit |
|
|
No. |
|
|
|
|
|
4.1
|
|
Junior Subordinated Indenture dated as of January 31, 2008 between M&T Bank
Corporation and The Bank of New York. Incorporated by reference to Exhibit 4.1 to the
Form 8-K dated January 31, 2008 (File No. 1-9861). |
|
|
|
4.2
|
|
First Supplemental Indenture dated as of January 31, 2008 between M&T Bank
Corporation and The Bank of New York. Incorporated by reference to Exhibit 4.2 to the
Form 8-K dated January 31, 2008 (File No. 1-9861). |
|
|
|
4.3
|
|
Amended and Restated Trust Agreement of M&T Capital Trust IV dated as of
January 31, 2008 by and among M&T Bank Corporation, The Bank of New York, BNYM
(Delaware) and the Administrators named therein. Incorporated by reference to Exhibit
4.3 to the Form 8-K dated January 31, 2008 (File No. 1-9861). |
|
|
|
10.1
|
|
M&T Bank Corporation 2008 Directors Stock Plan. Incorporated by reference
to Exhibit 4.1 to the Form S-8 dated April 7, 2008 (File No. 333-150122). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith. |
- 62 -
|
|
|
Exhibit |
|
|
No. |
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Under 18 U.S.C. §1350 pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Under 18 U.S.C. §1350 pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
|
|
|
99.1
|
|
Replacement Capital Covenant of M&T Bank Corporation dated January 31, 2008.
Incorporated by reference to Exhibit 99.1 to the Form 8-K dated January 31, 2008 (File
No. 1-9861). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
M&T BANK CORPORATION
|
|
Date: May 7, 2008 |
By: |
/s/ René F. Jones
|
|
|
|
René F. Jones |
|
|
|
Executive Vice President
and Chief Financial Officer |
|
|
- 63 -
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
No. |
|
|
|
|
|
4.1
|
|
Junior Subordinated Indenture dated as of January 31, 2008 between M&T Bank Corporation
and The Bank of New York. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated
January 31, 2008 (File No. 1-9861). |
|
|
|
4.2
|
|
First Supplemental Indenture dated as of January 31, 2008 between M&T Bank
Corporation and The Bank of New York. Incorporated by reference to Exhibit 4.2 to the
Form 8-K dated January 31, 2008 (File No. 1-9861). |
|
|
|
4.3
|
|
Amended and Restated Trust Agreement of M&T Capital Trust IV dated as of January 31,
2008 by and among M&T Bank Corporation, The Bank of New York, BNYM (Delaware) and the
Administrators named therein. Incorporated by reference to Exhibit 4.3 to the Form 8-K
dated January 31, 2008 (File No. 1-9861). |
|
|
|
10.1
|
|
M&T Bank Corporation 2008 Directors Stock Plan. Incorporated by reference to Exhibit
4.1 to the Form S-8 dated April 7, 2008 (File No. 333-150122). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Under 18 U.S.C. §1350 pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. Filed herewith. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Under 18 U.S.C. §1350 pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. Filed herewith. |
|
|
|
99.1
|
|
Replacement Capital Covenant of M&T Bank Corporation dated January 31, 2008.
Incorporated by reference to Exhibit 99.1 to the Form 8-K dated January 31, 2008 (File No.
1-9861). |
- 64 -