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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9861
M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0968385
(State of incorporation) (I.R.S. Employer Identification No.)
One M&T Plaza, Buffalo, New York 14203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716)842-5445
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 par value New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
8.234% Capital Securities of M&T Capital Trust I
(and the Guarantee of M&T Bank Corporation with respect thereto)
(Title of class)
8.234% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)
8.277% Capital Securities of M&T Capital Trust II
(and the Guarantee of M&T Bank Corporation with respect thereto)
(Title of class)
8.277% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock, $5 par value, held by non-affiliates
of the registrant, computed by reference to the closing price as of the close of
business on February 18, 2000: $2,279,047,672.
Number of shares of the Common Stock, $5 par value, outstanding as of the close
of business on February 18, 2000: 7,687,175 shares.
Documents Incorporated By Reference:
(1) Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders of M&T Bank Corporation in Part III.
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M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
CROSS-REFERENCE SHEET Form
10-K
PART I PAGE
Item 1. Business. 5
Statistical disclosure pursuant to Guide 3
I. Distribution of assets, liabilities, and stockholders'
equity; interest rates and interest differential
A. Average balance sheets 50-51
B. Interest income/expense and resulting yield or rate
on average interest-earning assets (including non-
accrual loans) and interest-bearing liabilities 50-51
C. Rate/volume variances 19
II. Investment portfolio
A. Year-end balances 16
B. Maturity schedule and weighted average yield 62
C. Aggregate carrying value of securities that exceed ten
percent of stockholders' equity 77
III. Loan portfolio
A. Year-end balances 16,79
B. Maturities and sensitivities to changes in interest rates 59
C. Risk elements
Nonaccrual, past-due and renegotiated loans 57
Actual and pro forma interest on certain loans 79
Nonaccrual policy 70
Loan concentrations 34
IV. Summary of loan loss experience
A. Analysis of the allowance for loan losses 55
Factors influencing management's judgment concerning
the adequacy of the allowance and provision 32-34,71
B. Allocation of the allowance for loan losses 56
V. Deposits
A. Average balances and rates 50-51
B. Maturity schedule of domestic time deposits with
balances of $100,000 or more 58
VI. Return on equity and assets 18,25-26,39
VII. Short-term borrowings 83-84
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M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
CROSS-REFERENCE SHEET--CONTINUED Form
10-K
PAGE
PART I, continued
Item 2. Properties. 20,81
Item 3. Legal Proceedings. 20
Item 4. Submission of Matters to a Vote of Security Holders. 20
Executive Officers of the Registrant. 20-22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. 23
A. Principal market 23
Market prices 47
B. Approximate number of holders at year-end 16
C. Frequency and amount of dividends declared 17-18,46-47
D. Restrictions on dividends 11,112
Item 6. Selected Financial Data.
A. Selected consolidated year-end balances 16
B. Consolidated earnings, etc. 17-18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 23-62
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk. 36-39,60,63
Item 8. Financial Statements and Supplementary Data.
A. Report of Independent Accountants 64
B. Consolidated Balance Sheet -
December 31, 1999 and 1998 65
C. Consolidated Statement of Income -
Years ended December 31, 1999, 1998 and 1997 66
D. Consolidated Statement of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 67
E. Consolidated Statement of Changes in
Stockholders' Equity - Years ended December 31,
1999, 1998 and 1997 68
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M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
CROSS-REFERENCE SHEET--CONTINUED Form
10-K
PAGE
PART II, continued
Item 8. Financial Statements and Supplementary Data, continued
F. Notes to Financial Statements 69-115
G. Quarterly Trends 47
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 116
PART III
Item 10. Directors and Executive Officers of the
Registrant. 116
Item 11. Executive Compensation. 116
Item 12. Security Ownership of Certain Beneficial
Owners and Management. 116
Item 13. Certain Relationships and Related Transactions. 116
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. 117
Signatures 118-120
Exhibit Index 121-124
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PART I
Item 1. BUSINESS.
M&T Bank Corporation ("Registrant" or "M&T") is a New York business corporation
which is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended ("BHCA") and under Article III-A of the New York Banking Law
("Banking Law"). The principal executive offices of the Registrant are located
at One M&T Plaza, Buffalo, New York 14203. The Registrant was incorporated in
November 1969. The Registrant and its direct and indirect subsidiaries are
collectively referred to herein as the "Company". As of December 31, 1999 the
Company had consolidated total assets of $22.4 billion, deposits of $15.4
billion and stockholders' equity of $1.8 billion. The Company had 5,604
full-time and 965 part-time employees as of December 31, 1999.
At December 31, 1999, the Registrant had two wholly owned bank subsidiaries:
Manufacturers and Traders Trust Company ("M&T Bank") and M&T Bank, National
Association ("M&T Bank, N.A."). The banks collectively offer a wide range of
commercial banking, trust and investment services to their customers. At
December 31, 1999, M&T Bank represented 96% of consolidated assets of the
Company.
On June 1, 1999, M&T completed the acquisition of FNB Rochester Corp. ("FNB"), a
bank holding company headquartered in Rochester, New York. Immediately after the
acquisition, FNB's banking subsidiary, First National Bank of Rochester, which
had 17 banking offices in western and central New York State, was merged with
and into M&T Bank. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the operations of FNB have been included in the
financial results of the Company since the acquisition date. FNB's stockholders
received $76 million in cash and 122,516 shares of M&T common stock in exchange
for FNB shares outstanding at the time of acquisition. Assets acquired totaled
approximately $676 million and included loans and leases of $393 million and
investment securities of $148 million. Liabilities assumed on June 1 were
approximately $541 million and included $511 million of deposits.
On September 24, 1999, M&T Bank completed the acquisition of 29 upstate New York
branch offices from The Chase Manhattan Bank ("Chase"). The branch offices had
approximately $634 million of deposits and approximately $44 million of retail
installment and commercial loans at the closing. In addition, on September 30,
1999 M&T Bank received investment management and custody accounts having assets
of approximately $286 million. Chase also agreed to transfer up to approximately
$195 million of other trust and fiduciary account assets to M&T Bank following
the receipt of required court approvals. Subject to the receipt of court
approval, it is expected that this portion of the transaction will be completed
during the first quarter of 2000.
In connection with the transactions described in the two preceding paragraphs,
the Company recorded approximately $153 million of goodwill and core deposit
intangible. Nonrecurring expenses related to systems conversions and other costs
of integrating and conforming the acquired operations with and into the
operations of M&T Bank totaled $4.7 million ($3.0 million after-tax) during the
year ended December 31, 1999.
The Company from time to time considers acquiring banks, thrift institutions,
branch offices or other businesses within markets currently served or in other
nearby markets. The Company has pursued acquisition opportunities in the past,
continues to review different opportunities, including the possibility of major
acquisitions, and intends to continue this practice.
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SUBSIDIARIES
Olympia Financial Corp. ("Olympia"), a wholly owned subsidiary of M&T, is a
Delaware corporation that holds the stock of M&T Bank and is registered as a
bank holding company under the Bank Holding Company Act. Its registered office
is located at 1209 Orange Street, Wilmington, Delaware 19801.
M&T Bank is a banking corporation which is incorporated under the laws of the
State of New York. M&T Bank is a member of the Federal Reserve System and the
Federal Home Loan Bank System, and its deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to applicable limits. M&T acquired all
of the issued and outstanding shares of the capital stock of M&T Bank in
December 1969. Olympia acquired all of the issued and outstanding shares of the
capital stock of M&T Bank in connection with M&T's April 1, 1998 acquisition of
ONBANCorp, Inc. ("ONBANCorp"). The stock of Olympia and M&T Bank represents a
major asset of M&T. M&T Bank operates under a charter granted by the State of
New York in 1892, and the continuity of its banking business is traced to the
organization of the Manufacturers and Traders Bank in 1856. The principal
executive offices of M&T Bank are located at One M&T Plaza, Buffalo, New York
14203. As of December 31, 1999, M&T Bank had 261 banking offices located
throughout New York State, 19 offices in northeastern Pennsylvania, plus a
branch in Nassau, The Bahamas. As of December 31, 1999, M&T Bank had
consolidated total assets of $21.6 billion, deposits of $14.7 billion and
stockholder's equity of $2.1 billion. The deposit liabilities of M&T Bank are
insured by the FDIC through either its Bank Insurance Fund ("BIF") or its
Savings Association Insurance Fund ("SAIF"). Of M&T Bank's $14.7 billion in
assessable deposits at December 31, 1999, 85% were assessed as BIF-insured and
the remainder as SAIF-insured deposits. As a commercial bank, M&T Bank offers a
broad range of financial services to a diverse base of consumers, businesses,
professional clients, governmental entities and financial institutions located
in its markets. Lending is largely focused on consumers residing in New York
State and northeastern Pennsylvania, and on small and medium-size businesses
based in those areas. In addition, the Company conducts lending activities in
other states through various subsidiaries. M&T Bank and certain of its
subsidiaries also offer commercial mortgage loans secured by income producing
properties or properties used by borrowers in a trade or business. Other
financial services are also provided through operating subsidiaries.
M&T Bank, N.A., a national banking association and a member of the Federal
Reserve System and the FDIC, commenced operations on October 2, 1995. The
deposit liabilities of M&T Bank, N.A. are insured by the FDIC through the BIF.
The main office of M&T Bank, N.A. is located at 48 Main Street, Oakfield, New
York 14125. M&T Bank, N.A. offers selected deposit and loan products on a
nationwide basis, primarily through direct mail and telephone marketing
techniques. M&T Bank, N.A. is also a licensed insurance agency, and offers
insurance products primarily through the banking offices of M&T Bank. As of
December 31, 1999, M&T Bank, N.A. had total assets of $852 million, deposits of
$693 million and stockholder's equity of $50 million.
M&T Credit Corporation ("M&T Credit"), a wholly owned subsidiary of M&T Bank,
was incorporated as a New York business corporation in April 1994. M&T Credit is
a credit and leasing company offering consumer loans and commercial loans and
leases. Its headquarters are located at M&T Center, One Fountain Plaza, Buffalo,
New York 14203, with offices in Massachusetts and Pennsylvania. As of December
31, 1999, M&T Credit had assets of $699 million and stockholder's equity of $25
million. M&T Credit recorded $42 million of revenue during 1999.
M&T Financial Corporation ("M&T Financial"), a New York business corporation, is
a wholly owned subsidiary of M&T Bank which specializes in capital-equipment
leasing. M&T Financial was formed in October 1985, had assets of $79 million and
stockholder's equity of $19 million as of December 31, 1999, and recorded
approximately $4 million of revenue in 1999. The headquarters
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of M&T Financial are located at One M&T Plaza, Buffalo, New York 14203.
M&T Investment Company, Inc. ("M&T Investment Company"), a wholly owned
subsidiary of M&T Bank, was incorporated as a New Jersey business corporation in
December 1999. Operated as a New Jersey Investment Company, M&T Investment
Company owns all of the outstanding common stock and 87.5% of the preferred
stock of M&T Real Estate, Inc. As of December 31, 1999, M&T Investment Company
had assets of approximately $6.1 billion and stockholder's equity of
approximately $6.0 billion. Excluding dividends from M&T Real Estate, Inc., M&T
Investment Company recorded $534 thousand of revenue in 1999. The headquarters
of M&T Investment Company are located at One Maynard Drive, Park Ridge, New
Jersey 07656.
M&T Mortgage Corporation ("M&T Mortgage"), the wholly owned mortgage banking
subsidiary of M&T Bank, was incorporated as a New York business corporation in
November 1991. M&T Mortgage's principal activities are comprised of the
origination of residential mortgage loans and providing residential mortgage
loan servicing to M&T Bank, M&T Bank, N.A. and others. M&T Mortgage operates
throughout New York State, and also maintains branch offices in Arizona,
Colorado, Idaho, Massachusetts, Ohio, Oregon, Pennsylvania, Utah and Washington.
M&T Mortgage had assets of $519 million and stockholder's equity of $144 million
as of December 31, 1999, and recorded approximately $122 million of revenue
during 1999. Residential mortgage loans serviced by M&T Mortgage for
non-affiliates totaled $7.2 billion at December 31, 1999. The headquarters of
M&T Mortgage are located at M&T Center, One Fountain Plaza, Buffalo, New York
14203.
M&T Mortgage Reinsurance Company, Inc. ("M&T Reinsurance"), a wholly owned
subsidiary of M&T Bank, was incorporated as a Vermont business corporation in
July 1999. M&T Reinsurance enters into reinsurance contracts with insurance
companies who insure mortgage lenders against the risk of a mortgage borrower's
payment default. M&T Reinsurance receives a share of the premium for those
policies in exchange for accepting a portion of the insurer's risk of borrower
default. M&T Reinsurance had assets of approximately $720 thousand and
stockholder's equity of approximately $673 thousand as of December 31, 1999, and
recorded approximately $178 thousand of revenue during 1999. M&T Reinsurance's
principal and registered office is at 148 College Street, Burlington, Vermont
05401.
M&T Real Estate, Inc.("M&T Real Estate"), a subsidiary of M&T Investment
Company, was incorporated as a New York business corporation in August 1995. All
of the outstanding common stock and 87.5% of the preferred stock of M&T Real
Estate is owned by M&T Investment Company. The remaining 12.5% of M&T Real
Estate's preferred stock is owned by officers or former officers of the Company.
M&T Real Estate engages in commercial real estate lending and provides loan
servicing to M&T Bank and others. As of December 31, 1999, M&T Real Estate had
assets of $5.8 billion and stockholders' equity of $5.7 billion. M&T Real Estate
recorded $441 million of revenue in 1999. Commercial mortgage loans serviced for
non-affiliates totaled $21 million at December 31, 1999. The headquarters of M&T
Real Estate are located at M&T Center, One Fountain Plaza, Buffalo, New York
14203.
M&T Securities, Inc. ("M&T Securities") is a wholly owned subsidiary of M&T Bank
that was incorporated as a New York business corporation in November 1985. M&T
Securities is registered as a broker/dealer under the Securities Exchange Act of
1934, as amended, as an investment advisor under the Investment Advisors Act of
1940, as amended, and is licensed as an insurance agent. It provides securities
brokerage, investment advisory, and insurance services. As of December 31, 1999,
M&T Securities had assets of $13 million and stockholder's equity of $6 million.
M&T Securities recorded $30 million of revenue during 1999. The headquarters of
M&T Securities are located at One M&T Plaza, Buffalo, New York 14203.
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Highland Lease Corporation ("Highland Lease"), a wholly owned subsidiary of M&T
Bank, was incorporated as a New York business corporation in October 1994.
Highland Lease is a consumer leasing company with headquarters at One M&T Plaza,
Buffalo, New York 14203. As of December 31, 1999, Highland Lease had assets of
$395 million and stockholder's equity of $37 million. Highland Lease recorded
$25 million of revenue during 1999.
In December 1999, the names of First Empire Capital Trust I, First Empire
Capital Trust II, and OnBank Capital Trust I were changed to M&T Capital Trust
I, M&T Capital Trust II, and M&T Capital Trust III, respectively. During 1997,
the Company formed two Delaware business trusts and ONBANCorp formed one
Delaware business trust to issue preferred capital securities ("Capital
Securities"). M&T Capital Trust I ("Trust I") issued $150 million of 8.234%
Capital Securities on January 17, 1997, and M&T Capital Trust II ("Trust II")
issued $100 million of 8.277% Capital Securities on May 30, 1997. On February 4,
1997, M&T Capital Trust III ("Trust III" and, together with Trust I and Trust
II, the "Trusts") issued $60 million of 9.25% preferred capital securities. The
common securities ("Common Securities") of Trust I and Trust II are wholly owned
by M&T and the common securities of Trust III are wholly owned by Olympia. The
Common Securities of each Trust are the only class of each Trust's securities
possessing general voting powers. The Capital Securities represent preferred
undivided interests in the assets of the corresponding Trust and are classified
in the Company's consolidated balance sheet as long-term borrowings, with
accumulated distributions on such securities included in interest expense. Under
the Federal Reserve Board's current risk-based capital guidelines, the Capital
Securities are includable in M&T's Tier 1 capital. The proceeds from the
issuances of the Capital Securities and the Common Securities were used by the
Trusts to purchase junior subordinated deferrable interest debentures issued by
M&T in the case of Trust I and Trust II and Olympia in the case of Trust III.
The junior subordinated debentures represent the sole assets of each Trust and
payments under the junior subordinated debentures are the sole source of cash
flow for each Trust. As of December 31, 1999, Trust I had assets of $160 million
and stockholders' equity of $155 million, and during 1999 Trust I recorded $13
million of revenue. Trust II had assets of $104 million and stockholders' equity
of $103 million at December 31, 1999, and during 1999 Trust II recorded $9
million of revenue. Trust III had assets of $73 million and stockholders' equity
of $62 million at December 31, 1999, and during 1999 Trust III recorded $5
million of revenue.
The Registrant and its banking subsidiaries have a number of other
special-purpose or inactive subsidiaries. These other subsidiaries represented,
individually and collectively, an insignificant portion of the Company's
consolidated assets, net income and stockholders' equity at December 31, 1999.
SEGMENT INFORMATION, PRINCIPAL PRODUCTS/SERVICES
AND FOREIGN OPERATIONS
Information about the Registrant's business segments is included in note 19 of
Notes to Financial Statements filed herewith in Part II, Item 8, "Financial
Statements and Supplementary Data" and is further discussed in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Company's international activities are discussed in note 15 of
Notes to Financial Statements filed herewith in Part II, Item 8, "Financial
Statements and Supplementary Data".
The Registrant's reportable segments have been determined based upon its
internal profitability reporting system, which is organized by strategic
business unit. Certain strategic business units have been combined for segment
information reporting purposes where the nature of the products and services,
the type of customer and the distribution of those products and services are
similar. The reportable segments are Commercial Banking,
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Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking
and Retail Banking.
The only activities that, as a class, contributed 10% or more of the sum of
consolidated interest income and other income in each of the last three years
were lending and investment securities transactions. The amount of income from
such sources during those years is set forth on the Company's Consolidated
Statement of Income filed herewith in Part II, Item 8, "Financial Statements and
Supplementary Data".
SUPERVISION AND REGULATION OF THE COMPANY
The banking industry is subject to extensive state and federal regulation and
continues to undergo significant change. The following discussion summarizes
certain aspects of the banking laws and regulations that affect the Company.
Proposals to change the laws and regulations governing the banking industry are
frequently raised in Congress, in state legislatures, and before the various
bank regulatory agencies. The likelihood and timing of any changes and the
impact such changes might have on the Company are impossible to determine with
any certainty. A change in applicable laws or regulations, or a change in the
way such laws or regulations are interpreted by regulatory agencies or courts,
may have a material impact on the business, operations and earnings of the
Company. To the extent that the following information describes statutory or
regulatory provisions, it is qualified entirely by reference to the particular
statutory or regulatory provision.
FINANCIAL SERVICES MODERNIZATION
The Gramm-Leach-Bliley Act ("Gramm-Leach") was signed into law on November 12,
1999 and enables combinations among banks, securities firms and insurance
companies beginning March 11, 2000 by repealing depression-era laws which
restricted such affiliations. Under Gramm-Leach, bank holding companies are
permitted to offer their customers virtually any type of financial service that
is financial in nature or incidental thereto, including banking, securities
underwriting, insurance (both underwriting and agency), and merchant banking.
In order to engage in these new financial activities, a bank holding company
must qualify and register with the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") as a "financial holding company" by
demonstrating that each of its bank subsidiaries is "well capitalized," "well
managed," and has at least a "satisfactory" rating under the Community
Reinvestment Act of 1977 ("CRA").
These new financial activities authorized by Gramm-Leach may also be engaged
in by a "financial subsidiary" of a national or state bank, except for
insurance or annuity underwriting, insurance company portfolio investments,
real estate investment and development, and merchant banking, which must be
conducted in a financial holding company. In order for the new financial
activities to be engaged in by a financial subsidiary of a national or state
bank, Gramm-Leach requires each of the parent bank (and its sister-bank
affiliates) to be well capitalized and well managed; the aggregate
consolidated assets of all of that bank's financial subsidiaries may not
exceed the lesser of 45% of its consolidated total assets or $50 billion; the
bank must have at least a satisfactory CRA rating; and, if that bank is one
of the 100 largest national banks, it must meet certain financial rating or
other comparable requirements.
Gramm-Leach establishes a system of functional regulation, under which the
federal banking agencies will regulate the banking activities of financial
holding companies and banks' financial subsidiaries, the U.S. Securities and
Exchange Commission will regulate their securities activities and state
insurance regulators will regulate their insurance activities. Gramm-Leach also
provides new protections against the transfer and use by financial institutions
of consumers' nonpublic, personal information.
The foregoing discussion is qualified in its entirety by reference to the
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statutory provisions of Gramm-Leach and the implementing regulations which
are adopted by various government agencies pursuant to Gramm-Leach.
BANK HOLDING COMPANY REGULATION
As a registered bank holding company, the Registrant and its nonbank
subsidiaries are subject to supervision and regulation under the BHCA by the
Federal Reserve Board and the New York State Banking Superintendent ("Banking
Superintendent"). The Federal Reserve Board requires regular reports from the
Registrant and is authorized by the BHCA to make regular examinations of the
Registrant and its subsidiaries.
Although it meets the qualifications for electing to become a financial holding
company, the Registrant has elected to retain its pre-Gramm-Leach status for the
present time under the BHCA. The Registrant may not acquire direct or indirect
ownership or control of more than 5% of the voting shares of any company,
including a bank, without the prior approval of the Federal Reserve Board,
except as specifically authorized under the BHCA. The Registrant is also subject
to regulation under the Banking Law with respect to certain acquisitions of
domestic banks. Under the BHCA, the Registrant, subject to the approval of the
Federal Reserve Board, may acquire shares of non-banking corporations the
activities of which are deemed by the Federal Reserve Board to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The Federal Reserve Board has enforcement powers over bank holding companies and
their non-banking subsidiaries, among other things, to interdict activities that
represent unsafe or unsound practices or constitute violations of law, rule,
regulation, administrative orders or written agreements with a federal bank
regulator. These powers may be exercised through the issuance of
cease-and-desist orders, civil money penalties or other actions.
Under the Federal Reserve Board's statement of policy with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit all available resources to support such institutions in circumstances
where it might not do so absent such policy. Although this "source of strength"
policy has been challenged in litigation, the Federal Reserve Board continues to
take the position that it has authority to enforce it. For a discussion of
circumstances under which a bank holding company may be required to guarantee
the capital levels or performance of its subsidiary banks, SEE CAPITAL ADEQUACY,
below. The Federal Reserve also has the authority to terminate any activity of a
bank holding company that constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution or to terminate its
control of any bank or nonbank subsidiaries.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as
amended (the "Interstate Banking Act") generally permits bank holding companies
to acquire banks in any state, and preempts all state laws restricting the
ownership by a bank holding company of banks in more than one state. The
Interstate Banking Act also permits a bank to merge with an out-of-state bank
and convert any offices into branches of the resulting bank if both states have
not opted out of interstate branching; permits a bank to acquire branches from
an out-of-state bank if the law of the state where the branches are located
permits the interstate branch acquisition; and permits banks to establish and
operate DE NOVO interstate branches whenever the host state opts-in to DE NOVO
branching. Bank holding companies and banks seeking to engage in transactions
authorized by the Interstate Banking Act must be adequately capitalized and
managed.
The Banking Law authorizes interstate branching by merger or acquisition on a
reciprocal basis, and permits the acquisition of a single branch without
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restriction, but does not provide for DE NOVO interstate branching.
Bank holding companies and their subsidiary banks are also subject to the
provisions of the CRA. Under the terms of the CRA, the Federal Reserve Board (or
other appropriate bank regulatory agency) is required, in connection with its
examination of a bank, to assess such bank's record in meeting the credit
needs of the communities served by that bank, including low- and moderate-
income neighborhoods. Furthermore, such assessment is also required of any bank
that has applied, among other things, to merge or consolidate with or acquire
the assets or assume the liabilities of a federally-regulated financial
institution, or to open or relocate a branch office. In the case of a bank
holding company applying for approval to acquire a bank or bank holding company,
the Federal Reserve Board will assess the record of each subsidiary bank of the
applicant bank holding company in considering the application. The Banking Law
contains provisions similar to the CRA which are applicable to New
York-chartered banks.
SUPERVISION AND REGULATION OF BANK SUBSIDIARIES
The Registrant's banking subsidiaries are subject to supervision and regulation,
and are examined regularly, by various bank regulatory agencies: M&T Bank by the
Federal Reserve Board and the Banking Superintendent; and M&T Bank, N.A. by the
Comptroller of the Currency (the "OCC"). The Registrant and its direct
non-banking subsidiaries are affiliates, within the meaning of the Federal
Reserve Act, of the Registrant's subsidiary banks and their subsidiaries. As a
result, the Registrant's subsidiary banks and their subsidiaries are subject to
restrictions on loans or extensions of credit to, purchases of assets from,
investments in, and transactions with the Registrant and its direct non-banking
subsidiaries and on certain other transactions with them or involving their
securities. Gramm-Leach places similar restrictions on the Registrant's
subsidiary banks making loans or extending credit to, purchasing assets from,
investing in, or entering into transactions with, their financial subsidiaries,
although the Registrant's subsidiary banks have not yet commenced any activities
through financial subsidiaries.
Under the "cross-guarantee" provisions of the FDI Act, insured depository
institutions under common control are required to reimburse the FDIC for any
loss suffered by either the BIF or SAIF of the FDIC as a result of the default
of a commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. Thus, any insured depository institution subsidiary of M&T
could incur liability to the FDIC in the event of a default of another insured
depository institution owned or controlled by M&T. The FDIC's claim under the
cross-guarantee provisions is superior to claims of stockholders of the insured
depository institution or its holding company and to most claims arising out of
obligations or liabilities owed to affiliates of the institution, but is
subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The FDIC may decline to enforce the cross-guarantee
provisions if it determines that a waiver is in the best interest of the BIF or
SAIF or both.
DIVIDENDS FROM BANK SUBSIDIARIES
M&T Bank and M&T Bank, N.A. are subject, under one or more of the banking laws,
to restrictions on the amount and frequency (no more often than quarterly) of
dividend declarations. Future dividend payments to the Registrant by its
subsidiary banks will be dependent on a number of factors, including the
earnings and financial condition of each such bank, and are subject to the
limitations referred to in note 20 of Notes to Financial Statements filed
herewith in Part II, Item 8, "Financial Statements and Supplementary Data," and
to other statutory powers of bank regulatory agencies.
-11-
An insured depository institution is prohibited from making any capital
distribution to its owner, including any dividend, if, after making such
distribution, the depository institution fails to meet the required minimum
level for any relevant capital measure, including the risk-based capital
adequacy and leverage standards discussed below.
CAPITAL ADEQUACY
The Federal Reserve Board, the FDIC and the OCC have adopted risk-based capital
adequacy guidelines for bank holding companies and banks under their
supervision. Under these guidelines, the so-called "Tier 1 capital" and "Total
capital" as a percentage of risk-weighted assets and certain off-balance sheet
instruments must be at least 4% and 8%, respectively.
The Federal Reserve Board, the FDIC and the OCC have also imposed a leverage
standard to supplement their risk-based ratios. This leverage standard focuses
on a banking institution's ratio of Tier 1 capital to average total assets,
adjusted for goodwill and certain other items. Under these guidelines, banking
institutions that meet certain criteria, including excellent asset quality, high
liquidity, low interest rate exposure and good earnings, and that have received
the highest regulatory rating must maintain a ratio of Tier 1 capital to total
adjusted average assets of at least 3%. Institutions not meeting these criteria,
as well as institutions with supervisory, financial or operational weaknesses,
along with those experiencing or anticipating significant growth are expected to
maintain a Tier 1 capital to total adjusted average assets ratio equal to at
least 4% to 5%.
As reflected in the following table, the risk-based capital ratios and leverage
ratios of the Registrant, M&T Bank and M&T Bank, N.A. as of December 31, 1999
exceeded the required capital ratios for classification as "well capitalized,"
the highest classification under the regulatory capital guidelines.
Capital Components and Ratios at December 31, 1999
(dollars in millions)
Registrant M&T Bank,
(Consolidated) M&T Bank N.A.
-------------- -------- ---------
Capital Components
Tier 1 capital $ 1,490 $ 1,436 $ 50
Total capital 1,846 1,787 55
Risk-weighted assets
and off-balance sheet
instruments $ 18,008 $ 17,534 $ 468
Risk-based Capital Ratio
Tier 1 capital 8.27% 8.19% 10.74%
Total capital 10.25% 10.19% 11.76%
Leverage Ratio 6.92% 6.92% 6.18%
The federal banking agencies, including the Federal Reserve Board and the OCC,
maintain risk-based capital standards in order to ensure that those standards
take adequate account of interest rate risk, concentration of credit risk and
the risk of nontraditional activities, as well as reflect the actual performance
and expected risk of loss on certain multifamily housing loans. Bank regulators
periodically propose amendments to the risk-based capital guidelines and related
regulatory framework. While the Company's management studies such proposals, the
timing of adoption, ultimate form and effect of any such proposed amendments on
the Company's capital requirements and operations cannot be predicted.
-12-
The federal banking agencies are required to take "prompt corrective action"
in respect of depository institutions and their bank holding companies that
do not meet minimum capital requirements. FDICIA established five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized". A
depository institution's capital tier, or that of its bank holding company,
depends upon where its capital levels are in relation to various relevant
capital measures, including a risk-based capital measure and a leverage ratio
capital measure, and certain other factors.
Under the implementing regulations adopted by the federal banking agencies, a
bank holding company or bank is considered "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv)
is not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" bank holding
company or bank is defined as one that has (i) a total risk-based capital ratio
of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and
(iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a bank
with a composite CAMELS rating of 1). A bank holding company or bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage ratio of less than 4% (or 3% in the case of a bank with a composite
CAMELS rating of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based
capital ratio of less than 3% or (iii) a leverage ratio of less than 3% and
(C)"critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. The Federal Reserve Board may reclassify
a "well capitalized" bank holding company or bank as "adequately capitalized" or
subject an "adequately capitalized" or "undercapitalized" institution to the
supervisory actions applicable to the next lower capital category if it
determines that the bank holding company or bank is in an unsafe or unsound
condition or deems the bank holding company or bank to be engaged in an unsafe
or unsound practice and not to have corrected the deficiency. M&T, Olympia, M&T
Bank and M&T Bank, N.A. currently meet the definition of "well capitalized"
institutions.
"Undercapitalized" depository institutions, among other things, are subject to
growth limitations, are prohibited, with certain exceptions, from making capital
distributions, are limited in their ability to obtain funding from a Federal
Reserve Bank and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan and provide appropriate assurances of performance. If a
depository institution fails to submit an acceptable plan, including if the
holding company refuses or is unable to make the guarantee described in the
previous sentence, it is treated as if it is "significantly undercapitalized".
Failure to submit or implement an acceptable capital plan also is grounds for
the appointment of a conservator or a receiver. "Significantly undercapitalized"
depository institutions may be subject to a number of additional requirements
and restrictions, including orders to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and cessation of
receipt of deposits from correspondent banks. Moreover, the parent holding
company of a significantly undercapitalized depository institution may be
ordered to divest itself of the institution or of nonbank subsidiaries of the
holding company. "Critically undercapitalized" institutions, among other things,
are prohibited from making any payments of principal and interest on
subordinated debt, and are subject to the appointment of a receiver or
conservator.
-13-
Each federal banking agency prescribes standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares and other standards as they deem appropriate. The Federal Reserve
Board and OCC have adopted such standards.
Depository institutions that are not "well capitalized" or "adequately
capitalized" and have not received a waiver from the FDIC are prohibited from
accepting or renewing brokered deposits. As of December 31, 1999, M&T Bank and
M&T Bank, N.A. had approximately $998 million and $4 million in brokered
deposits, respectively.
Although M&T has issued shares of common stock in connection with acquisitions
or at other times, the Company has generally maintained capital ratios in excess
of minimum regulatory guidelines largely through internal capital generation
(i.e. net income less dividends paid). Historically, M&T's dividend payout ratio
and dividend yield, when compared with other bank holding companies, has been
relatively low, thereby allowing for capital retention to support growth or to
facilitate purchases of M&T's common stock to be held as treasury stock.
Management's policy of reinvestment of earnings and repurchase of shares of
common stock is intended to enhance M&T's earnings per share prospects and
thereby reward stockholders over time with capital gains in the form of
increased stock price rather than high dividend income.
FDIC DEPOSIT INSURANCE ASSESSMENTS
As institutions with deposits insured by the BIF and the SAIF, M&T Bank and M&T
Bank, N.A. are subject to FDIC deposit insurance assessments. Under current law
the regular insurance assessments to be paid by BIF-insured and SAIF-insured
institutions are specified in schedules issued by the FDIC that specify, at
semiannual intervals, target reserve ratios designed to maintain the reserve
ratios of each of those insurance funds at 1.25% of their estimated insured
deposits. The FDIC is also authorized to impose one or more special assessments.
The FDIC has implemented a risk-based deposit premium assessment system under
which each depository institution is placed in one of nine assessment categories
based on the institution's capital classification under the prompt corrective
action provisions described above, and whether such institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.
The adjusted assessment rates for both BIF-insured and SAIF-insured institutions
under the current system range from .00% to .27% depending upon the assessment
category into which the insured institution is placed. Neither of the Company's
banking subsidiaries paid regular insurance assessments to the FDIC in 1999.
However, the FDIC retains the ability to increase regular BIF and SAIF
assessments and to levy special additional assessments.
In addition to deposit insurance fund assessments, beginning in 1997 the FDIC
assessed BIF-assessable and SAIF-assessable deposits to fund the repayment of
debt obligations of the Financing Corporation ("FICO"). FICO is a government
agency-sponsored entity that was formed to borrow the money necessary to carry
out the closing and ultimate disposition of failed thrift institutions by the
Resolution Trust Corporation. The current annualized rates established by the
FDIC for both BIF-assessable and SAIF-assessable deposits are 2.12 basis points
(hundredths of one percent).
Any significant increases in assessment rates or additional special assessments
by the FDIC could have an adverse impact on the results of operations and
capital of M&T Bank or M&T Bank, N.A.
-14-
GOVERNMENTAL POLICIES
The earnings of the Company are significantly affected by the monetary and
fiscal policies of governmental authorities, including the Federal Reserve
Board. Among the instruments of monetary policy used by the Federal Reserve
Board to implement these objectives are open-market operations in U.S.
Government securities and Federal funds, changes in the discount rate on member
bank borrowings and changes in reserve requirements against member bank
deposits. These instruments of monetary policy are used in varying combinations
to influence the overall level of bank loans, investments and deposits, and the
interest rates charged on loans and paid for deposits. The Federal Reserve Board
frequently uses these instruments of monetary policy, especially its open-market
operations and the discount rate, to influence the level of interest rates and
to affect the strength of the economy, the level of inflation or the price of
the dollar in foreign exchange markets. The monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of banking
institutions in the past and are expected to continue to do so in the future. It
is not possible to predict the nature of future changes in monetary and fiscal
policies, or the effect which they may have on the Company's business and
earnings.
COMPETITION
The Company competes in offering commercial and personal financial services with
other banking institutions and with firms in a number of other industries, such
as thrift institutions, credit unions, personal loan companies, sales finance
companies, leasing companies, securities firms and insurance companies.
Furthermore, diversified financial services companies are able to offer a
combination of these services to their customers on a nationwide basis. The
Company's operations are significantly impacted by state and federal regulations
applicable to the banking industry. Moreover, the provisions of Gramm-Leach may
increase competition among diversified financial services providers, and the
Interstate Banking Act and the Banking Law may further ease entry into New York
State by out-of-state banking institutions. As a result, the number of financial
services providers and banking institutions with which the Company competes may
grow in the future.
OTHER LEGISLATIVE INITIATIVES
Proposals may be introduced in the United States Congress and in the New York
State Legislature and before various bank regulatory authorities which would
alter the powers of, and restrictions on, different types of banking
organizations and which would restructure part or all of the existing regulatory
framework for banks, bank holding companies and other providers of financial
services. Moreover, other bills may be introduced in Congress which would
further regulate, deregulate or restructure the financial services industry. It
is not possible to predict whether these or any other proposals will be enacted
into law or, even if enacted, the effect which they may have on the Company's
business and earnings.
STATISTICAL DISCLOSURE PURSUANT TO GUIDE 3
SEE cross-reference sheet for disclosures incorporated elsewhere in this Annual
Report on Form 10-K. Additional information is included in the following tables.
-15-
- -------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
Item 1, Table 1
SELECTED CONSOLIDATED YEAR-END BALANCES
In thousands 1999 1998 1997
- ------------------------------------------------------------ --------------- --------------- ---------------
Money-market assets
Interest-bearing deposits at banks $ 1,092 674 668
Federal funds sold and resell agreements 643,555 229,066 53,087
Trading account 641,114 173,122 57,291
- ------------------------------------------------------------ --------------- --------------- ---------------
Total money-market assets 1,285,761 402,862 111,046
Investment securities
U.S. Treasury and federal agencies 737,586 1,321,000 1,081,247
Obligations of states and political subdivisions 79,189 73,789 38,018
Other 1,083,747 1,390,775 605,953
- ------------------------------------------------------------ --------------- --------------- ---------------
Total investment securities 1,900,522 2,785,564 1,725,218
Loans and leases
Commercial, financial, leasing, etc. 3,697,058 3,211,427 2,406,640
Real estate - construction 525,241 489,112 254,434
Real estate - mortgage 10,152,905 9,289,521 6,765,408
Consumer 3,197,657 3,015,641 2,339,051
- ------------------------------------------------------------ --------------- --------------- ---------------
Total loans and leases 17,572,861 16,005,701 11,765,533
Unearned discount (166,090) (214,171) (268,965)
Allowance for credit losses (316,165) (306,347) (274,656)
- ------------------------------------------------------------ --------------- --------------- ---------------
Loans and leases, net 17,090,606 15,485,183 11,221,912
Goodwill and core deposit intangible 648,040 546,036 17,288
Real estate and other assets owned 10,000 11,129 8,413
Total assets 22,409,115 20,583,891 14,002,935
- ------------------------------------------------------------ --------------- --------------- ---------------
Noninterest-bearing deposits 2,260,432 2,066,814 1,458,241
NOW accounts 583,471 509,307 346,795
Savings deposits 5,198,681 4,830,678 3,344,697
Time deposits 7,088,345 7,027,083 5,762,497
Deposits at foreign office 242,691 303,270 250,928
- ------------------------------------------------------------ --------------- --------------- ---------------
Total deposits 15,373,620 14,737,152 11,163,158
Short-term borrowings 2,554,159 2,229,976 1,050,918
Long-term borrowings 1,775,133 1,567,543 427,819
Total liabilities 20,612,069 18,981,525 12,972,669
- ------------------------------------------------------------ --------------- --------------- ---------------
Stockholders' equity 1,797,046 1,602,366 1,030,266
- ------------------------------------------------------------ --------------- --------------- ---------------
In thousands 1996 1995
- ------------------------------------------------------------ ------------ ------------
Money-market assets
Interest-bearing deposits at banks 47,325 125,500
Federal funds sold and resell agreements 125,326 1,000
Trading account 37,317 9,709
- ------------------------------------------------------------ ------------- ------------
Total money-market assets 209,968 136,209
Investment securities
U.S. Treasury and federal agencies 1,023,038 1,087,005
Obligations of states and political subdivisions 41,445 35,250
Other 507,215 647,040
- ------------------------------------------------------------ ------------- ------------
Total investment securities 1,571,698 1,769,295
Loans and leases
Commercial, financial, leasing, etc. 2,206,282 2,013,937
Real estate - construction 90,563 77,604
Real estate - mortgage 6,199,931 5,648,590
Consumer 2,623,445 2,133,592
- ------------------------------------------------------------ ------------- ------------
Total loans and leases 11,120,221 9,873,723
Unearned discount (398,098) (317,874)
Allowance for credit losses (270,466) (262,344)
- ------------------------------------------------------------ ------------- ------------
Loans and leases, net 10,451,657 9,293,505
Goodwill and core deposit intangible 18,923 28,234
Real estate and other assets owned 8,523 7,295
Total assets 12,943,915 11,955,902
- ------------------------------------------------------------ ------------- ------------
Noninterest-bearing deposits 1,352,929 1,184,359
NOW accounts 334,787 768,559
Savings deposits 3,280,788 2,765,301
Time deposits 5,352,749 4,596,053
Deposits at foreign office 193,236 155,303
- ------------------------------------------------------------ ------------- ------------
Total deposits 10,514,489 9,469,575
Short-term borrowings 1,127,900 1,270,022
Long-term borrowings 178,002 192,791
Total liabilities 12,038,256 11,109,649
- ------------------------------------------------------------ ------------- ------------
Stockholders' equity 905,659 846,253
- ------------------------------------------------------------ ------------- ------------
STOCKHOLDERS, EMPLOYEES AND OFFICES
Number at year-end 1999 1998 1997 1996 1995
- -------------------------------------- ------------- ------------ ------------ ----------- -----------
Stockholders 4,991 5,207 3,449 3,654 3,787
Employees 6,569 6,467 5,083 5,180 4,889
Offices 310 283 210 202 181
- -------------------------------------- ------------- ------------ ------------ ----------- -----------
-16-
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Item 1, Table 2
CONSOLIDATED EARNINGS
IN THOUSANDS 1999 1998 1997
- ------------------------------------------------- -------------- -------------- -------------
INTEREST INCOME
Loans and leases, including fees $ 1,323,262 1,198,639 954,974
Money-market assets
Deposits at banks 87 400 2,475
Federal funds sold and resell agreements 24,491 8,293 2,989
Trading account 3,153 4,403 1,781
Investment securities
Fully taxable 118,741 139,731 99,640
Exempt from federal taxes 8,897 7,984 5,640
- ---------------------------------------------------- ----------- -------------- -------------
Total interest income 1,478,631 1,359,450 1,067,499
- ---------------------------------------------------- ----------- -------------- -------------
INTEREST EXPENSE
NOW accounts 4,683 4,851 3,455
Savings deposits 121,888 115,345 90,907
Time deposits 367,889 388,185 327,611
Deposits at foreign office 12,016 14,973 12,160
Short-term borrowings 104,911 105,582 44,341
Long-term borrowings 107,847 58,567 29,619
- ---------------------------------------------------- ----------- -------------- -------------
Total interest expense 719,234 687,503 508,093
- ---------------------------------------------------- ----------- -------------- -------------
NET INTEREST INCOME 759,397 671,947 559,406
Provision for credit losses 44,500 43,200 46,000
- ---------------------------------------------------- ----------- -------------- -------------
Net interest income after provision
for credit losses 714,897 628,747 513,406
- ---------------------------------------------------- ----------- -------------- -------------
OTHER INCOME
Mortgage banking revenues 71,819 65,646 51,547
Service charges on deposit accounts 73,612 57,357 43,377
Trust income 40,751 38,211 30,688
Merchant discount and other credit card fees 7,515 12,436 19,395
Trading account and foreign exchange gains 315 3,963 3,690
Gain (loss) on sales of bank investment securities 1,575 1,761 (280)
Gain on sales of venture capital investments 80 - 2,677
Other revenues from operations 86,708 83,565 39,435
- ---------------------------------------------------- ----------- -------------- -------------
Total other income 282,375 262,939 190,529
- ---------------------------------------------------- ----------- -------------- -------------
OTHER EXPENSE
Salaries and employee benefits 284,822 259,487 220,017
Equipment and net occupancy 73,131 66,553 53,299
Printing, postage and supplies 17,510 17,603 13,747
Amortization of goodwill and core deposit intangible 49,715 34,487 7,291
Deposit insurance 2,798 2,710 1,935
Other costs of operations 150,982 185,283 125,487
- ---------------------------------------------------- ----------- -------------- -------------
Total other expense 578,958 566,123 421,776
- ---------------------------------------------------- ----------- -------------- -------------
Income before income taxes 418,314 325,563 282,159
Income taxes 152,688 117,589 105,918
- ---------------------------------------------------- ----------- -------------- -------------
NET INCOME $ 265,626 207,974 176,241
- ---------------------------------------------------- ----------- -------------- -------------
DIVIDENDS DECLARED
Common $ 35,128 28,977 21,207
Preferred - - -
- ---------------------------------------------------- ----------- -------------- -------------
IN THOUSANDS 1996 1995
- ------------------------------------------------- -------------- ---------------
INTEREST INCOME
Loans and leases, including fees 883,500 796,501
Money-market assets
Deposits at banks 2,413 8,181
Federal funds sold and resell agreements 2,985 3,007
Trading account 980 1,234
Investment securities
Fully taxable 107,415 118,791
Exempt from federal taxes 2,637 2,760
- ---------------------------------------------------- -------------- ---------------
Total interest income 999,930 930,474
- ---------------------------------------------------- -------------- ---------------
INTEREST EXPENSE
NOW accounts 9,430 11,902
Savings deposits 84,822 87,612
Time deposits 286,088 239,882
Deposits at foreign office 12,399 6,952
Short-term borrowings 59,442 84,225
Long-term borrowings 14,227 11,157
- ---------------------------------------------------- -------------- ---------------
Total interest expense 466,408 441,730
- ---------------------------------------------------- -------------- ---------------
NET INTEREST INCOME 533,522 488,744
Provision for credit losses 43,325 40,350
- ---------------------------------------------------- -------------- ---------------
Net interest income after provision
for credit losses 490,197 448,394
- ---------------------------------------------------- -------------- ---------------
OTHER INCOME
Mortgage banking revenues 44,484 37,142
Service charges on deposit accounts 40,659 38,290
Trust income 27,672 25,477
Merchant discount and other credit card fees 18,266 10,675
Trading account and foreign exchange gains 2,421 2,783
Gain (loss) on sales of bank investment securities (37) 4,479
Gain on sales of venture capital investments 3,175 2,619
Other revenues from operations 31,110 25,753
- ---------------------------------------------------- -------------- ---------------
Total other income 167,750 147,218
- ---------------------------------------------------- -------------- ---------------
OTHER EXPENSE
Salaries and employee benefits 208,342 188,222
Equipment and net occupancy 51,346 50,526
Printing, postage and supplies 15,167 14,442
Amortization of goodwill and core deposit intangible 6,292 6,293
Deposit insurance 9,337 14,675
Other costs of operations 118,494 100,281
- ---------------------------------------------------- -------------- ---------------
Total other expense 408,978 374,439
- ---------------------------------------------------- -------------- ---------------
Income before income taxes 248,969 221,173
Income taxes 97,866 90,137
- ---------------------------------------------------- -------------- ---------------
NET INCOME 151,103 131,036
- ---------------------------------------------------- -------------- ---------------
DIVIDENDS DECLARED
Common 18,617 16,224
Preferred 900 3,600
- ---------------------------------------------------- -------------- ---------------
-17-
- --------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------
Item 1, Table 3
COMMON SHAREHOLDER DATA
1999 1998 1997 1996 1995
- ---------------------------------------------------- ----- ----- ----- ----- -----
Per Share
Net income
Basic $ 34.05 27.30 26.60 22.54 19.61
Diluted 32.83 26.16 25.26 21.08 17.98
Cash dividends declared 4.50 3.80 3.20 2.80 2.50
Stockholders' equity at year-end 232.41 207.94 155.86 135.45 125.33
Tangible stockholders' equity at year-end 151.40 139.89 153.24 132.62 120.94
Dividend payout ratio 13.22 % 13.93 % 12.03 % 12.39 % 12.73 %
- ---------------------------------------------------- ------- ------ ------ ------ ------
-18-
- -------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------------
Item 1, Table 4
CHANGES IN INTEREST INCOME AND EXPENSE*
1999 compared with 1998
----------------------------------------
Resulting from
Total changes in:
---------------------------
Increase (decrease) in thousands change Volume Rate
- ----------------------------------------------------------------- ------------ ------------- ------------
Interest income
Loans and leases, including fees $ 124,849 173,474 (48,625)
Money-market assets
Deposits at banks (313) (305) (8)
Federal funds sold and agreements to resell securities 16,198 16,499 (301)
Trading account (1,303) (1,250) (53)
Investment securities
U.S. Treasury and federal agencies (34,922) (30,636) (4,286)
Obligations of states and political subdivisions 94 101 (7)
Other 15,102 17,203 (2,101)
- ----------------------------------------------------------------- ----------
Total interest income $ 119,705
- ----------------------------------------------------------------- ----------
Interest expense
Interest-bearing deposits
NOW accounts $ (168) 810 (978)
Savings deposits 6,543 17,854 (11,311)
Time deposits (20,296) 2,885 (23,181)
Deposits at foreign office (2,957) (1,667) (1,290)
Short-term borrowings (671) 7,074 (7,745)
Long-term borrowings 49,280 57,149 (7,869)
- ----------------------------------------------------------------- ----------
Total interest expense $ 31,731
- ----------------------------------------------------------------- ----------
1998 compared with 1997
--------------------------------------------
Resulting from
Total changes in:
----------------------------
Increase (decrease) in thousands change Volume Rate
- ----------------------------------------------------------------- -------------- -------------- ------------
Interest income
Loans and leases, including fees 243,937 279,155 (35,218)
Money-market assets
Deposits at banks (2,075) (1,414) (661)
Federal funds sold and agreements to resell securities 5,304 5,298 6
Trading account 2,587 2,723 (136)
Investment securities
U.S. Treasury and federal agencies 17,062 19,964 (2,902)
Obligations of states and political subdivisions 1,734 1,878 (144)
Other 24,748 23,816 932
- ----------------------------------------------------------------- --------------
Total interest income 293,297
- ----------------------------------------------------------------- --------------
Interest expense
Interest-bearing deposits
NOW accounts 1,396 1,008 388
Savings deposits 24,438 26,516 (2,078)
Time deposits 60,574 66,505 (5,931)
Deposits at foreign office 2,813 3,023 (210)
Short-term borrowings 61,241 60,997 244
Long-term borrowings 28,948 32,764 (3,816)
- ----------------------------------------------------------------- --------------
Total interest expense 179,410
- ----------------------------------------------------------------- --------------
* Interest income data are on a taxable-equivalent basis. The apportionment
of changes resulting from the combined effect of both volume and rate was
based on the separately determined volume and rate changes.
-19-
Item 2. PROPERTIES.
Both M&T and M&T Bank maintain their executive offices at One M&T Plaza in
Buffalo, New York. This twenty-one story headquarters building, containing
approximately 276,000 rentable square feet of space, is owned in fee by M&T
Bank, and was completed in 1967. M&T, M&T Bank and their subsidiaries occupy
approximately 84% of the building and the remainder is leased to non-affiliated
tenants. At December 31, 1999, the cost of this property (including improvements
subsequent to the initial construction), net of accumulated depreciation, was
$8.9 million.
In September 1992, M&T Bank acquired an additional facility in Buffalo, New York
with approximately 365,000 rentable square feet of space at a cost of
approximately $12 million. Approximately 77% of this facility, known as M&T
Center, is occupied by M&T Bank and its subsidiaries, with the remainder leased
to non-affiliated tenants. At December 31, 1999, the cost of this building
(including improvements subsequent to acquisition), net of accumulated
depreciation, was $15.1 million.
M&T Bank also owns and occupies two separate facilities in the Buffalo area
which support certain back-office and operations functions of the Company. The
total square footage of these facilities approximates 223,000 square feet and
their combined cost (including improvements subsequent to acquisition), net of
accumulated depreciation, was $13.1 million at December 31, 1999.
As a result of the April 1, 1998 ONBANCorp merger, M&T Bank acquired a facility
in Syracuse, New York with approximately 136,000 rentable square feet of space.
Approximately 48% of this facility is occupied by M&T Bank, with the remainder
leased to non-affiliated tenants. At December 31, 1999, the cost of this
building, net of accumulated depreciation, was $7.9 million.
The cost, net of accumulated depreciation and amortization, of the Company's
premises and equipment is detailed in note 6 of Notes to Financial Statements
filed herewith in Part II, Item 8, "Financial Statements and Supplementary
Data". Of the 281 domestic banking offices of the Registrant's subsidiary banks,
98 are owned in fee and 183 are leased.
Item 3. LEGAL PROCEEDINGS.
M&T and its subsidiaries are subject in the normal course of business to various
pending and threatened legal proceedings in which claims for monetary damages
are asserted. Management, after consultation with legal counsel, does not
anticipate that the aggregate ultimate liability, if any, arising out of
litigation pending against M&T or its subsidiaries will be material to M&T's
consolidated financial position, but at the present time is not in a position to
determine whether such litigation will have a material adverse effect on M&T's
consolidated results of operations in any future reporting period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not
applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Registrant's executive officers is presented below as
of February 25, 2000. The year the officer was first appointed to the indicated
position with the Registrant or its subsidiaries is shown parenthetically. In
the case of each corporation noted below, officers' terms run until the first
meeting of the board of directors after such corporation's annual meeting, and
until their successors are elected and qualified.
-20-
Robert J. Bennett, age 58, is chairman of the board and a director (1998)
of the Registrant. He is a vice chairman of the board and a director
(1998) of M&T Bank and serves as chairman of the Directors Advisory
Council of M&T Bank's Syracuse Division. Mr. Bennett is also a
director (1998) of M&T Bank, N.A. He served as chairman of the board,
president, chief executive officer and a director of ONBANCorp from
May 1989 until its merger with M&T on April 1, 1998.
Robert G. Wilmers, age 65, is president (1988), chief executive officer
(1983) and a director (1982) of the Registrant. Prior to the
acquisition of ONBANCorp, Mr. Wilmers held the additional position of
chairman of the board of the Registrant from April 1994 through March
1998. He is chairman of the board, chief executive officer (1983) and
a director (1982) of M&T Bank, and served as president of M&T Bank
from March 1984 to June 1996. Mr. Wilmers is chairman of the board
and a director of M&T Bank, N.A.(1995). He is a director of M&T
Financial (1983).
Emerson L. Brumback, age 48, is an executive vice president (1997) of
the Registrant and M&T Bank, and is in charge of the Company's Retail
Banking Division. Mr. Brumback is chairman of the board (1999) and a
director (1997) of Highland Lease and executive vice president (1998)
and a director of M&T Bank, N.A.(1997). He is chairman of the board
(1999) and a director (1997) of M&T Credit and a director of M&T
Mortgage (1997), M&T Reinsurance (1999) and M&T Securities (1997).
Mr. Brumback was executive vice president, national retail
distribution, at BancOne Corporation prior to joining the Company.
Atwood Collins, III, age 53, is an executive vice president of the
Registrant (1997) and M&T Bank (1996) and is chairman of the
Directors Advisory Council (1998) of M&T Bank's New York City
Division. Previously, Mr. Collins served as president and chief
executive officer of the New York City Division of M&T Bank (1997),
and as president, chief executive officer and a director (1995) of
The East New York Saving Bank, which had been a wholly owned
subsidiary of the Registrant prior to its merger with and into M&T
Bank on May 24, 1997. He is a director of M&T Real Estate (1995). Mr.
Collins has responsibility for managing the Company's middle market,
commercial real estate and business banking activities in
Westchester, Putnam and Rockland counties of New York State and
Connecticut, business banking in New York City and Investment
banking, Institutional and Correspondent banking activities. He also
manages the Company's Facilities Management and Services group.
Mark J. Czarnecki, age 44, is an executive vice president of the
Registrant (1999) and M&T Bank (1997) and is in charge of the M&T
Investment Group, which is comprised of M&T Securities, the Insurance
Services Division of M&T Bank, N.A. and the Trust and Investment
Services Division of M&T Bank. Mr. Czarnecki is a director of M&T
Securities (1999) and an executive vice president of M&T Bank, N.A.
(1997). Mr. Czarnecki has held a number of management positions with
M&T Bank since 1977, most recently as senior vice president of the
private client services group of the Trust and Investment Services
Division (1994), and prior thereto as an administrative vice
president and regional manager for the Retail Banking Division.
-21-
Brian E. Hickey, age 47, is an executive vice president of the
Registrant (1997) and M&T Bank (1996) and is president and a member
of the Directors Advisory Council (1994) of the Rochester Division of
M&T Bank. Mr. Hickey is a director of M&T Financial (1996). In
addition to managing all of M&T Bank's business segments in the
Rochester market, Mr. Hickey has responsibility for managing the
Company's Western New York Commercial Banking Division.
James L. Hoffman, age 60, is an executive vice president of the
Registrant (1997) and M&T Bank (1996) and is president (1992) of the
Hudson Valley Division of M&T Bank. Mr. Hoffman is a director of M&T
Investment Company (1999). Mr. Hoffman served as chairman of the
board, president, chief executive officer and a director (1983) of
The First National Bank of Highland, which had been a wholly owned
subsidiary of the Registrant prior to its merger with and into M&T
Bank on February 29, 1992.
Adam C. Kugler, age 42, is an executive vice president and treasurer
(1997) of the Registrant and M&T Bank, and is in charge of the
Company's Treasury Division. Mr. Kugler is chairman of the board and
a director of M&T Investment Company (1999), a director of M&T
Financial (1997), M&T Securities (1997) and is an executive vice
president, Treasurer and a director of M&T Bank, N.A. (1997). Mr
Kugler was previously a senior vice president in the Treasury
Division of M&T Bank.
Ray E. Logan, age 62, is an executive vice president of M&T Bank (1999)
and is in charge of the Company's Human Resources Division. Mr. Logan
served as senior vice president of M&T Bank from 1986 to 1999.
John L. Pett, age 51, is an executive vice president (1997) and chief
credit officer (1995) of the Registrant and is an executive vice
president and chief credit officer of M&T Bank (1996). Mr. Pett is a
director of Highland Lease (1997) and M&T Credit (1997). He is an
executive vice president (1998) and a director (1996) of M&T Bank,
N.A. Mr. Pett served as senior vice president of the Registrant from
1991 to 1997.
Michael P. Pinto, age 44, is an executive vice president and chief
financial officer of the Registrant (1997) and M&T Bank (1996), and
is in charge of the Company's Finance Division and its Technology and
Banking Operations Division. Mr. Pinto is chairman of the board,
president and a director of Olympia Financial Corp. (1997), and a
director of M&T Financial (1996), M&T Mortgage (1996), M&T Real
Estate (1996) and M&T Investment Company (1999). He is an executive
vice president and chief financial officer (1996) and a director
(1998) of M&T Bank, N.A. Mr. Pinto served as senior vice president
and controller of the Registrant from 1993 to 1997.
Robert E. Sadler, Jr., age 54, is an executive vice president (1990) and
a director (1999) of the Registrant, president and a director of M&T
Bank (1996), and is in charge of the Company's Commercial Banking
Division. Mr. Sadler is president, chief executive officer and a
director of M&T Bank, N.A.(1995); chairman of the board (1989) and a
director of M&T Financial (1985); chairman of the board and a
director of M&T Mortgage (1991); chairman of the board and a director
of M&T Securities (1994); and chairman of the board, president and a
director of M&T Real Estate (1995).
-22-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS. The Registrant's common stock is traded under the symbol
MTB on the New York Stock Exchange. SEE cross-reference sheet for
disclosures incorporated elsewhere in this Annual Report on
Form 10-K for market prices of the Registrant's common stock,
approximate number of common stockholders at year-end, frequency
and amounts of dividends on common stock and restrictions on the
payment of dividends.
Item 6. SELECTED FINANCIAL DATA. SEE cross-reference sheet for
disclosures incorporated elsewhere in this Annual Report on Form
10-K.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CORPORATE PROFILE AND SIGNIFICANT DEVELOPMENTS
M&T Bank Corporation ("M&T") is a bank holding company headquartered in Buffalo,
New York with consolidated assets of $22.4 billion at December 31, 1999. M&T and
its consolidated subsidiaries are hereinafter referred to collectively as "the
Company." M&T's wholly owned banking subsidiaries are Manufacturers and Traders
Trust Company ("M&T Bank") and M&T Bank, National Association ("M&T Bank,
N.A.").
M&T Bank, with total assets of $21.6 billion at December 31, 1999, is a
New York-chartered commercial bank with 261 banking offices throughout New York
State, 19 banking offices in northeastern Pennsylvania and an office in Nassau,
The Bahamas. M&T Bank and its subsidiaries offer a broad range of financial
services to a diverse base of consumers, businesses, professional clients,
governmental entities and financial institutions located in its markets. Lending
is largely focused on consumers residing in New York State and northeastern
Pennsylvania, and on small and medium size businesses based in those areas.
Certain lending activities are also conducted in other states through various
subsidiaries. M&T Bank's subsidiaries include Highland Lease Corporation, a
consumer leasing company; M&T Credit Corporation, a consumer lending and
commercial leasing and lending company; M&T Financial Corporation, a commercial
leasing company; M&T Mortgage Corporation, a residential mortgage banking
company; M&T Real Estate, Inc., a commercial mortgage lender; and M&T
Securities, Inc., a broker/dealer.
M&T Bank, N.A., with total assets of $852 million at December 31, 1999,
is a national bank with an office in Oakfield, New York. M&T Bank, N.A. offers
selected deposit, loan and insurance products on a nationwide basis, primarily
through telephone and direct mail marketing techniques. Insurance products are
also offered by M&T Bank, N.A. through banking offices of M&T Bank.
On September 24, 1999, M&T Bank completed the acquisition of 29 upstate
New York branches from The Chase Manhattan Bank ("Chase"). The branches had
approximately $634 million of deposits and approximately $44 million of retail
installment and commercial loans at the closing. In addition, on September 30,
1999 M&T Bank received from Chase investment management and custody accounts
having assets of approximately $286 million. Chase also agreed to transfer up to
approximately $195 million of other trust and fiduciary account assets to M&T
Bank following the receipt of required court approvals. It is expected that this
portion of the transaction will be completed in the first quarter of 2000.
-23-
On June 1, 1999, M&T completed the acquisition of FNB Rochester Corp.
("FNB"), a bank holding company headquartered in Rochester, New York.
Immediately after the acquisition, FNB's banking subsidiary, First National Bank
of Rochester, which had 17 banking offices in western and central New York
State, was merged with and into M&T Bank. The acquisition was accounted for
using the purchase method of accounting, and, accordingly, the operations of FNB
have been included in the financial results of the Company since the acquisition
date. FNB's stockholders received $76 million in cash and 122,516 shares of M&T
common stock in exchange for FNB shares outstanding at the time of acquisition.
Assets acquired totaled approximately $676 million and included loans and leases
of $393 million and investment securities of $148 million. Liabilities assumed
on June 1 were approximately $541 million and included $511 million of deposits.
In connection with the transactions described in the two preceding
paragraphs the Company recorded approximately $153 million of goodwill and core
deposit intangible. Nonrecurring expenses related to systems conversions and
other costs of integrating and conforming the acquired operations with and into
M&T Bank totaled $4.7 million ($3.0 million after-tax) during the year ended
December 31, 1999 and consisted largely of expenses for professional services
and other temporary help fees associated with the conversion of systems and/or
integration of operations; initial marketing and promotion expenses designed to
introduce M&T Bank to Chase and FNB customers; and printing, supplies and other
costs. Since the systems conversions and integration of operations are complete,
the Company does not expect to incur a material amount of additional integration
costs. In accordance with generally accepted accounting principles, included in
the determination of goodwill were charges totaling $4.1 million, net of
applicable income taxes, for severance of former Chase and FNB employees; legal
and other professional fees; and termination of contracts for data processing
and other services. As of December 31, 1999, the remaining unpaid portion of
merger-related expenses and charges included in the determination of goodwill
were $130 thousand and $960 thousand, respectively. The resolution of any
preacquisition contingencies is not expected to have a material impact on the
allocation of the purchase price or the amount of goodwill recorded as part of
the acquisitions.
On April 1, 1998, M&T completed the acquisition of ONBANCorp, Inc.
("ONBANCorp"), a bank holding company headquartered in Syracuse, New York.
Immediately after the acquisition, ONBANCorp's two banking subsidiaries, OnBank
& Trust Co. in Syracuse, which operated 59 offices in upstate New York, and
Franklin First Savings Bank in Wilkes-Barre, Pennsylvania, which operated 19
offices in northeastern Pennsylvania, were merged with and into M&T Bank. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the operations acquired from ONBANCorp have been included in the
financial results of the Company since the acquisition date. ONBANCorp's
stockholders received $266 million in cash and 1,429,998 shares of M&T common
stock in exchange for ONBANCorp shares outstanding at the time of acquisition.
The accompanying table provides a summary of assets acquired
-24-
and liabilities assumed on April 1, 1998 in connection with the ONBANCorp
transaction:
Assets
(in thousands)
Investment securities $1,576,604
Loans and leases, net of unearned discount 2,970,306
Allowance for possible credit losses (27,905)
---------
Loans and leases, net 2,942,401
Goodwill and core deposit intangible 562,533
Other assets 411,727
---------
Total assets $5,493,265
==========
Liabilities
Deposits $3,767,729
Short-term borrowings 541,689
Long-term borrowings 268,617
Other liabilities 41,680
---------
Total liabilities $4,619,715
==========
In connection with the ONBANCorp acquisition, the Company recorded
approximately $563 million of goodwill and core deposit intangible, and incurred
nonrecurring expenses related to systems conversions and other costs of
integrating and conforming the acquired operations with and into the operations
of M&T Bank of approximately $21.3 million ($14.0 million after-tax) during the
year ended December 31, 1998. Included in the determination of goodwill were
charges totaling $16.8 million, net of applicable income taxes, for severance of
former ONBANCorp employees; investment banking, legal and other professional
fees; and termination of ONBANCorp contracts for data processing and other
services. As of December 31, 1998, the remaining unpaid portion of
merger-related expenses and charges included in the determination of goodwill
were $2.1 million and $1.1 million, respectively. Substantially all of these
balances were paid during 1999.
In December 1999, M&T Bank entered into a definitive agreement to
acquire Matthews, Bartlett & Dedecker, Inc. ("MBD"), an insurance agency located
in Buffalo, New York. MBD provides insurance services principally to the
commercial market and will operate as a subsidiary of M&T Bank. It is expected
that the acquisition will be completed in the first quarter of 2000 and that it
will not have a material impact on the Company's financial position or results
of operations.
OVERVIEW
M&T reported net income in 1999 of $265.6 million or $32.83 of diluted earnings
per common share, increases of 28% and 25%, respectively, from $208.0 million or
$26.16 per diluted share in 1998. Basic earnings per common share rose to $34.05
in 1999, an increase of 25% from $27.30 in 1998. Net income totaled $176.2
million in 1997, while diluted and basic earnings per share were $25.26 and
$26.60, respectively. The after-tax impact of nonrecurring expenses associated
with the merger and acquisition activity previously described was $3.0 million
($4.7 million pre-tax) or $.37 of diluted earnings per share and $.38 of basic
earnings per share in 1999, compared with $14.0 million ($21.3 million pre-tax)
or $1.76 of diluted earnings per share and $1.84 of basic earnings per share in
1998. The impact on 1999's net income resulting from the FNB and Chase branch
acquisitions was not material.
Net income represented a return on average assets in 1999 of 1.26%,
-25-
compared with 1.14% in 1998 and 1.32% in 1997. The return on average common
stockholders' equity was 15.30% in 1999, 13.86% in 1998 and 18.49% in 1997.
Excluding the impact of merger-related expenses, the rates of return on average
assets and average common equity in 1999 were 1.28% and 15.47%, respectively,
compared with 1.21% and 14.79%, respectively, in 1998.
Growth in average loans and leases was the most significant factor
contributing to a 13% increase in taxable-equivalent net interest income to $767
million in 1999 from $679 million in 1998. Average loans and leases rose to
$16.4 billion in 1999, an increase of 15% from $14.3 billion in 1998. Similarly,
average earning assets totaled $19.1 billion in 1999, up 13% from $16.9 billion
in 1998. A 30% increase in average loans outstanding in 1998, including the
impact of the $3.0 billion of loans obtained on April 1, 1998 in the ONBANCorp
acquisition, was the most significant factor for the rise in that year's net
interest income from $565 million in 1997. Average loans and average earning
assets in 1997 were $11.0 billion and $12.8 billion, respectively. Improvement
in 1998's net interest income resulting from asset growth was partially offset
by a reduction of the Company's net interest margin, or taxable-equivalent net
interest income expressed as a percentage of average earning assets. Net
interest margin in 1999 was 4.02%, compared with 4.01% in 1998 and 4.42% in
1997.
The provision for credit losses in 1999 was $44.5 million, compared
with $43.2 million in 1998 and $46.0 million in 1997. Net charge-offs totaled
$40.3 million in 1999, compared with $39.4 million in 1998 and $41.8 million in
1997. Net charge-offs as a percentage of average loans outstanding declined to
.25% in 1999, from .28% in 1998 and .38% in 1997.
In January 1998, M&T contributed appreciated investment securities with
a fair value of $24.6 million to an affiliated, tax-exempt private charitable
foundation. As a result of the contribution, in 1998 the Company recognized
charitable contributions expense of $24.6 million and recognized tax-exempt
other income of $15.3 million. The contribution provided an income tax benefit
of approximately $10.0 million and, accordingly, resulted in an after-tax
increase in 1998's net income of $700 thousand, or $.09 per diluted share.
Excluding the effect of this contribution, noninterest income of $282 million in
1999 increased 14% from $248 million in 1998 and was 48% above the $191 million
earned in 1997. Growth in mortgage banking revenues, fees earned from deposit
services, and a full year of revenues associated with operations obtained in the
ONBANCorp acquisition were factors contributing to the increase from 1998 to
1999. Revenues related to operations and/or market areas associated with the
ONBANCorp acquisition, along with higher revenues from mortgage banking, trust
activities and bank owned life insurance contributed to the increase from 1997
to 1998. Approximately 40% of the increase from 1997 to 1998 was attributable to
revenues related to operations and/or market areas associated with the ONBANCorp
acquisition.
Noninterest expenses associated with operations, which exclude
amortization of goodwill and core deposit intangible and certain nonrecurring
expenses, were $525 million in 1999, an increase of 8% from $486 million in
1998. The excluded items consist of nonrecurring merger-related expenses of $4.7
million and $21.3 million in 1999 and 1998, respectively, amortization of
goodwill and core deposit intangible of $49.7 million in 1999 and $34.5 million
in 1998, and $24.6 million of expense related to the previously mentioned
contribution to the affiliated charitable foundation in 1998. Higher expenses
related to salaries, employee benefits and occupancy contributed to the higher
expense level in 1999 compared with 1998. After excluding $7.3 million of
amortization of goodwill and core deposit intangible, noninterest expenses
associated with operations in 1997 totaled $414 million. Operating expenses
related to the acquired operations of ONBANCorp significantly contributed to the
increase from 1997 to 1998.
-26-
The efficiency ratio, or noninterest expense divided by the sum of
taxable-equivalent net interest income and noninterest income, measures how much
of a company's revenue is consumed by operating expenses. Reflecting the smooth
integration of the 1998 and 1999 acquisitions, M&T's efficiency ratio,
calculated using the adjusted income and expense totals noted above and
excluding gains from sales of bank investment securities from noninterest
income, improved significantly to 50.06% in 1999 from 52.51% in 1998 and 54.82%
in 1997.
CASH OPERATING RESULTS
As a result of the acquisitions of ONBANCorp, FNB and the Chase branches and, to
a significantly lesser extent, acquisitions of other entities in prior years,
the Company had recorded as assets goodwill and core deposit intangible totaling
$648 million and $546 million at December 31, 1999 and 1998, respectively. Since
the amortization of goodwill and core deposit intangible does not result in a
cash expense, M&T believes that supplemental reporting of its operating results
on a "cash" (or "tangible") basis (which excludes the after-tax effect of
amortization of goodwill and core deposit intangible and the related asset
balances) represents a relevant measure of financial performance. The
supplemental cash basis data presented herein do not exclude the effect of other
non-cash operating expenses such as depreciation, provision for credit losses,
or deferred income taxes associated with the results of operations. Unless noted
otherwise, cash basis data does, however, exclude the after-tax impact of
nonrecurring merger-related expenses associated with the acquisitions of
ONBANCorp, FNB and the Chase branches.
Cash net income rose 23% to $311.0 million in 1999 from $251.9 million
in 1998. Diluted and basic cash earnings per share in 1999 were each up 21% to
$38.44 and $39.87, respectively, from $31.69 and $33.06 in 1998. In 1997, cash
net income was $182.4 million while diluted and basic cash earnings per share
were $26.14 and $27.53, respectively. The impact of the FNB and Chase branch
acquisitions on 1999 cash net income was not material.
Cash return on average tangible assets was 1.52% in 1999, compared with
1.41% in 1998 and 1.37% in 1997. Cash return on average tangible common equity
was 26.71% in 1999, compared with 23.08% and 19.56% in 1998 and 1997,
respectively. Including the effect of merger-related expenses, the cash return
on average tangible assets for 1999 and 1998 was 1.50% and 1.33%, respectively,
and the cash return on average tangible common equity was 26.45% and 21.80%,
respectively.
NET INTEREST INCOME/LENDING AND FUNDING ACTIVITIES
Taxable-equivalent net interest income rose 13% to $767 million in 1999 from
$679 million in 1998, largely the result of growth in average earning assets,
which increased $2.2 billion or 13% to $19.1 billion in 1999 from $16.9 billion
in 1998. Taxable-equivalent net interest income and average earning assets in
1997 were $565 million and $12.8 billion, respectively. The growth in average
earning assets in 1999 and 1998 was largely attributable to higher average loans
and leases outstanding. Average loans and leases totaled $16.4 billion in 1999,
up 15% from $14.3 billion in 1998 and 50% higher than $11.0 billion in 1997. The
impact of the $393 million of loans obtained in the FNB transaction in June 1999
and the full-year impact of loans acquired in the April 1998 ONBANCorp
transaction contributed to the higher average loan balances in 1999 compared
with 1998. The primary reason for the higher loan balances in 1998 as compared
to 1997 was the $3.0 billion of loans obtained in the ONBANCorp acquisition,
including approximately $450 million of commercial loans, $380 million of
commercial real estate loans, $1.2 billion
-27-
of residential mortgage loans and $930 million of consumer loans. Partially
offsetting these increases in average loans and leases in 1998 was the impact of
the July 1998 sale of M&T's retail credit card business, including approximately
$186 million of outstanding credit card balances as of the sale date. Average
credit card balances, including cards issued to small businesses, were $10
million in 1999, compared with $136 million in 1998 and $268 million in 1997.
The accompanying table 4 summarizes average loans and leases outstanding in 1999
and percentage changes in the major components of the portfolio over the past
two years.
Loans secured by real estate, including home equity loans and
outstanding home equity lines of credit which the Company classifies as consumer
loans, represented approximately 66% of the loan and lease portfolio during 1999
and 1998, up from 64% in 1997. At December 31, 1999, the Company held
approximately $6.5 billion of commercial real estate loans, $4.1 billion of
consumer real estate mortgage loans secured by one-to-four family residential
properties and $885 million of outstanding home equity loans and lines of
credit, compared with $5.5 billion, $4.3 billion and $739 million, respectively,
at December 31, 1998.
Commercial real estate loans originated by the Company are
predominately secured by properties in the New York City metropolitan area,
including areas in neighboring states generally considered to be within
commuting distance of New York City, and Western New York, which includes
Buffalo, Niagara Falls, Rochester and surrounding areas. Commercial real estate
loans are also originated in the Syracuse, Albany, Hudson Valley and Southern
Tier regions of New York State, as well as in northeastern Pennsylvania.
Historically, commercial real estate loans originated by the Company are
fixed-rate instruments with monthly payments and a balloon payment of the
remaining unpaid principal at maturity, in many cases five years after
origination. For borrowers in good standing, the terms of such loans may be
extended by the customer for an additional five years at the then-current market
rate of interest. In response to customer needs, in recent years the Company has
also originated fixed-rate commercial real estate loans with maturities of
greater than five years. In general, these loans have original maturity terms of
approximately ten years. The Company also originates adjustable-rate commercial
real estate loans. As of December 31, 1999, approximately 27% of the commercial
real estate loan portfolio consisted of adjustable-rate loans. The accompanying
table 6 presents commercial real estate loans by geographic area, type of
collateral and size of the loans outstanding at December 31, 1999. Of the $3.2
billion of commercial real estate loans in the New York City metropolitan area,
approximately 50% were secured by multi-family residential properties, 20% by
retail space and 12% by office space. The Company's experience has been that
office space and retail properties tend to demonstrate more volatile
fluctuations in value through economic cycles and changing economic conditions
than do multi-family residential properties. Approximately 54% of the aggregate
dollar amount of New York City area loans were for $5 million or less, while
loans of more than $10 million made up approximately 28% of the total.
Commercial real estate loans secured by properties elsewhere in New York State
tend to have a greater diversity of collateral types and include a significant
amount of lending to customers who use the mortgaged property in their trade or
business. Approximately 77% of the aggregate dollar amount of these New York
State loans were for $5 million or less.
Commercial real estate loans secured by properties located outside of
New York State and outside of areas of neighboring states considered to be part
of the New York City metropolitan area comprised 10% of total commercial real
estate loans as of December 31, 1999.
Of the $395 million of commercial construction loans presented in the
accompanying table 6, $226 million represent loans for which the Company has
-28-
also committed to provide permanent financing. At December 31, 1999, commercial
construction loans represented 2% of total loans and leases.
Real estate loans secured by one-to-four family residential properties
totaled $4.1 billion at December 31, 1999, including approximately 67% secured
by properties located in New York State. At December 31, 1999, $239 million of
residential real estate loans were held for sale by M&T Mortgage Corporation,
the Company's mortgage banking subsidiary.
Consumer loans and leases represented approximately 18% of the average
loan portfolio during 1999, compared with 19% and 21% in 1998 and 1997,
respectively. Automobile loans and leases and home equity loans and lines of
credit represent the largest components of the consumer loan portfolio.
Approximately 96% of home equity loans and lines of credit outstanding at
December 31, 1999 were secured by properties in New York State. At December 31,
1999, 40% of the automobile loan and lease portfolio was to customers residing
in New York State, while the remainder was largely to customers in Pennsylvania.
Automobile loans and leases are generally originated through dealers, however,
all applications submitted by dealers are subject to the Company's normal
underwriting and loan approval procedures. Automobile loans and leases
represented approximately 9% of the Company's average loan portfolio during
1999, while no other consumer loan product represented more than 5%. The average
outstanding balance of automobile leases outstanding was approximately $375
million in 1999, $315 million in 1998 and $147 million in 1997. Due to poorer
than expected results, during 1998 and 1997 the Company terminated all of its
co-branded credit card programs and sold its retail credit card business on July
31, 1998, including outstanding balances of approximately $186 mi