<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One M & T Plaza
Buffalo, New York 14203
(Address of principal (Zip Code)
executive offices)
(716) 842-5445
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of the registrant's Common Stock, $5 par value, outstanding as
of the close of business on August 4, 1999: 7,868,100 shares.
<PAGE>
M&T BANK CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEET -
June 30, 1999 and December 31, 1998 3
CONSOLIDATED STATEMENT OF INCOME -
Three and six months ended
June 30, 1999 and 1998 4
CONSOLIDATED STATEMENT OF CASH FLOWS -
Six months ended June 30, 1999 and 1998 5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY - Six months ended
June 30, 1999 and 1998 6
CONSOLIDATED SUMMARY OF CHANGES IN
ALLOWANCE FOR POSSIBLE CREDIT LOSSES -
Six months ended June 30, 1999 and 1998 6
NOTES TO FINANCIAL STATEMENTS 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. 33
Part II. OTHER INFORMATION 33
Item 1. Legal Proceedings. 33
Item 2. Changes in Securities and Use of Proceeds. 33
Item 3. Defaults Upon Senior Securities. 33
Item 4. Submission of Matters to a Vote of Security
Holders. 33
Item 5. Other Information. 33
Item 6. Exhibits and Reports on Form 8-K. 33
SIGNATURES 34
EXHIBIT INDEX 35
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, December 31,
DOLLARS IN THOUSANDS, EXCEPT PER SHARE 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $ 543,669 493,792
Money-market assets
Interest-bearing deposits at banks 3,276 674
Federal funds sold and agreements to resell securities 418,188 229,066
Trading account 453,826 173,122
------------------------------------------------------------------------------------------------------
Total money-market assets 875,290 402,862
------------------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,901,035 at June 30, 1999;
$2,578,940 at December 31, 1998) 1,878,045 2,583,740
Held to maturity (market value: $85,985 at June 30, 1999;
$87,365 at December 31, 1998) 86,561 87,282
Other (market value: $113,022 at June 30, 1999;
$114,542 at December 31, 1998) 113,022 114,542
------------------------------------------------------------------------------------------------------
Total investment securities 2,077,628 2,785,564
------------------------------------------------------------------------------------------------------
Loans and leases 16,706,052 16,005,701
Unearned discount (193,191) (214,171)
Allowance for possible credit losses (314,398) (306,347)
------------------------------------------------------------------------------------------------------
Loans and leases, net 16,198,463 15,485,183
------------------------------------------------------------------------------------------------------
Premises and equipment 164,891 162,842
Goodwill and core deposit intangible 620,876 546,036
Accrued interest and other assets 724,635 707,612
------------------------------------------------------------------------------------------------------
Total assets $ 21,205,452 20,583,891
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 2,191,999 2,066,814
NOW accounts 543,245 509,307
Savings deposits 4,994,072 4,830,678
Time deposits 6,959,070 7,027,083
Deposits at foreign office 220,566 303,270
------------------------------------------------------------------------------------------------------
Total deposits 14,908,952 14,737,152
------------------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,474,297 1,746,078
Other short-term borrowings 467,203 483,898
Accrued interest and other liabilities 760,986 446,854
Long-term borrowings 1,821,507 1,567,543
------------------------------------------------------------------------------------------------------
Total liabilities 19,432,945 18,981,525
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity Preferred stock, $1 par, 1,000,000 shares authorized,
none outstanding - -
Common stock, $5 par, 15,000,000 shares
authorized, 8,101,539 shares issued 40,508 40,508
Common stock issuable - 8,764 shares at June 30, 1999; 4,112 3,752
8,028 shares at December 31,1998
Additional paid-in capital 463,767 480,014
Retained earnings 1,387,403 1,271,071
Accumulated other comprehensive income, net (13,595) 2,869
Treasury stock - common, at cost -
225,992 shares at June 30, 1999;
403,769 shares at December 31, 1998 (109,688) (195,848)
------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,772,507 1,602,366
------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 21,205,452 20,583,891
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
- -------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income Loans and leases, including fees $ 321,843 316,642 $ 636,816 567,339
Money-market assets
Deposits at banks 48 364 55 370
Federal funds sold and agreements
to resell securities 5,381 1,247 9,204 2,969
Trading account 1,380 467 2,625 605
Investment securities
Fully taxable 28,512 42,238 62,886 65,868
Exempt from federal taxes 2,156 2,101 4,279 3,673
---------------------------------------------------------------------------------------------------------------
Total interest income 359,320 363,059 715,865 640,824
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 1,125 1,189 2,405 2,144
Savings deposits 29,114 30,636 57,924 53,243
Time deposits 89,182 105,500 180,074 186,134
Deposits at foreign office 2,757 3,562 6,186 6,801
Short-term borrowings 22,768 30,969 48,503 49,566
Long-term borrowings 26,323 12,788 51,415 21,341
---------------------------------------------------------------------------------------------------------------
Total interest expense 171,269 184,644 346,507 319,229
---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 188,051 178,415 369,358 321,595
Provision for possible credit losses 8,500 13,200 17,000 25,200
---------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 179,551 165,215 352,358 296,395
- ---------------------------------------------------------------------------------------------------------------------------------
Other income Mortgage banking revenues 18,613 18,466 40,087 32,336
Service charges on deposit accounts 16,715 14,180 32,583 25,414
Trust income 10,275 9,938 20,601 19,423
Merchant discount and other credit card fees 1,803 4,330 3,503 8,568
Trading account and foreign exchange gains (losses) (3,242) 506 (2,073) 2,285
Gain on sales of bank investment securities 0 322 220 322
Other revenues from operations 22,642 17,333 44,601 45,620
---------------------------------------------------------------------------------------------------------------
Total other income 66,806 65,075 139,522 133,968
- ---------------------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 71,378 69,930 139,815 128,263
Equipment and net occupancy 17,480 17,878 35,504 31,357
Printing, postage and supplies 4,348 5,029 8,458 8,599
Amortization of goodwill and core deposit intangible 11,178 10,875 22,030 12,700
Other costs of operations 41,163 51,292 79,206 107,958
---------------------------------------------------------------------------------------------------------------
Total other expense 145,547 155,004 285,013 288,877
---------------------------------------------------------------------------------------------------------------
Income before income taxes 100,810 75,286 206,867 141,486
Income taxes 35,772 30,587 74,923 47,832
---------------------------------------------------------------------------------------------------------------
NET INCOME $ 65,038 44,699 $ 131,944 93,654
- ---------------------------------------------------------------------------------------------------------------------------------
Net income per common share
Basic $ 8.35 5.55 $ 17.00 12.72
Diluted 8.00 5.32 16.33 12.16
Cash dividends per common share 1.00 1.00 2.00 1.80
Average common shares outstanding
Basic 7,793 8,051 7,762 7,363
Diluted 8,132 8,409 8,078 7,699
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six months ended June 30
DOLLARS IN THOUSANDS 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from Net income $ 131,944 93,654
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 17,000 25,200
Depreciation and amortization of premises
and equipment 13,963 11,897
Amortization of capitalized servicing rights 9,857 9,708
Amortization of goodwill and core deposit intangible 22,030 12,700
Provision for deferred income taxes 935 (6,262)
Asset write-downs 914 3,166
Net gain on sales of assets (280) (700)
Net change in accrued interest receivable, payable (4,066) 1,936
Net change in other accrued income and expense (42,846) 13,250
Net change in loans held for sale 153,530 (134,486)
Net change in trading account assets and liabilities 95,801 (123,711)
-------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 398,782 (93,648)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 24,789 112,890
Other 7,154 7,930
Proceeds from maturities of investment securities
Available for sale 882,499 502,169
Held to maturity 23,013 28,092
Purchases of investment securities
Available for sale (93,913) (35,514)
Held to maturity (16,112) (18,969)
Other (2,965) (21,873)
Net increase in interest-bearing
deposits at banks (2,602) (2)
Additions to capitalized servicing rights (8,709) (6,469)
Net increase in loans and leases (496,024) (659,515)
Capital expenditures, net (6,874) (12,954)
Acquisitions, net of cash acquired:
Banks and bank holding companies (51,423) 20,790
Purchases of bank owned life insurance 0 (150,000)
Other, net (3,992) 2,511
-------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 254,841 (230,914)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in deposits (340,078) (115,908)
financing activities Net increase (decrease) in short-term borrowings (303,037) 978,727
Proceeds from long-term borrowings 299,152 0
Payments on long-term borrowings (64,534) (1,591)
Purchases of treasury stock (789) (74,711)
Dividends paid - common (15,595) (13,345)
Other, net 10,257 12,181
-------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (414,624) 785,353
-------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 238,999 460,791
Cash and cash equivalents at beginning of period 722,858 386,892
Cash and cash equivalents at end of period $ 961,857 847,683
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the period $ 718,860 636,669
disclosure of cash Interest paid during the period 354,094 317,942
flow information Income taxes paid during the period 112,794 47,233
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of Real estate acquired in settlement of loans $ 4,470 3,387
noncash investing and Acquisition of banks and bank holding companies:
financing activities Common stock issued 58,746 587,819
Fair value of:
Assets acquired (noncash) 650,841 5,206,168
Liabilities assumed 616,928 4,619,715
Stock options 0 19,424
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
----------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
----------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Additional other
Preferred Common stock paid-in Retained comprehensive Treasury
DOLLARS IN THOUSANDS, EXCEPT PER SHARE stock stock issuable capital earnings income, net stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1998 $ - 40,487 - 103,233 1,092,106 12,016 (217,576) $ 1,030,266
Comprehensive income:
Net income - - - - 93,654 - - 93,654
Other comprehensive income,
net of tax:
Unrealized losses on investment
securities, net of reclassification
adjustment - - - - - (5,374) - (5,374)
-----------
88,280
Purchases of treasury stock - - - - - - (74,711) (74,711)
Acquisition of ONBANCorp:
Common stock issued - 10 - 364,427 - - 223,382 587,819
Fair value of stock options - - - 19,424 - - - 19,424
Stock-based compensation plans:
Exercise of stock options - 11 - 785 - - 16,454 17,250
Directors' stock plan - - - 52 - - 97 149
Deferred bonus plan, net, including
dividend equivalents - - 3,885 5 (16) - 2 3,876
Common stock cash dividends -
$1.80 per share - - - - (13,345) - - (13,345)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1998 $ - 40,508 3,885 487,926 1,172,399 6,642 (52,352) $ 1,659,008
- -----------------------------------------------------------------------------------------------------------------------------------
1999
Balance - January 1, 1999 $ - 40,508 3,752 480,014 1,271,071 2,869 (195,848) $ 1,602,366
Comprehensive income:
Net income - - - - 131,944 - - 131,944
Other comprehensive income,
net of tax:
Unrealized losses on investment
securities, net of reclassification
adjustment - - - - - (16,464) - (16,464)
-----------
115,480
Purchases of treasury stock - - - - - - (789) (789)
Acquisition of FNB Rochester Corp.:
Common stock issued - - - (718) - - 59,464 58,746
Stock-based compensation plans:
Exercise of stock options - - - (15,521) - - 27,072 11,551
Directors' stock plan - - - 3 - - 148 151
Deferred bonus plan, net, including
dividend equivalents - - 360 (11) (17) - 265 597
Common stock cash dividends -
$2.00 per share - - - - (15,595) - - (15,595)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1999 $ - 40,508 4,112 463,767 1,387,403 (13,595) (109,688) $ 1,772,507
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES (Unaudited)
--------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30
DOLLARS IN THOUSANDS 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $ 306,347 274,656
Provision for possible credit losses 17,000 25,200
Allowance obtained through acquisition 5,636 27,905
Net charge-offs
Charge-offs (23,673) (25,292)
Recoveries 9,088 8,342
--------------------------------------------------------------------------------------------------------------------------------
Total net charge-offs (14,585) (16,950)
--------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 314,398 310,811
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of M&T Bank Corporation ("M&T") and
subsidiaries ("the Company") were compiled in accordance with the accounting
policies set forth in note 1 of Notes to Financial Statements included in the
Company's 1998 Annual Report, except as described below. In the opinion of
management, all adjustments necessary for a fair presentation have been made and
were all of a normal recurring nature. Certain reclassifications have been made
to the 1998 financial statements to conform with the current year presentation.
2. EARNINGS PER SHARE
The computations of basic earnings per share follow:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share)
<S> <C> <C> <C> <C>
Income available to common
stockholders:
Net income $65,038 44,699 131,944 93,654
Weighted-average shares
outstanding (including common
stock issuable) 7,793 8,051 7,762 7,363
Basic earnings per share $ 8.35 5.55 17.00 12.72
</TABLE>
The computations of diluted earnings per share follow:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share)
<S> <C> <C> <C> <C>
Income available to common
stockholders $65,038 44,699 131,944 93,654
Weighted-average shares
outstanding (including common
stock issuable) 7,793 8,051 7,762 7,363
Plus: incremental shares from
assumed conversions of
stock options 339 358 316 336
------- ------- ------- -------
Adjusted weighted-average shares
outstanding 8,132 8,409 8,078 7,699
Diluted earnings per share $ 8.00 5.32 16.33 12.16
</TABLE>
3. COMPREHENSIVE INCOME
The following table displays the components of other comprehensive income:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
------------------------------
Before-tax Income
Amount Taxes Net
------ ----- ---
(in thousands)
<S> <C> <C> <C>
Unrealized losses
on investment securities:
Unrealized holding
losses during period $(27,570) (11,236) (16,334)
Less: reclassification
adjustment for gains
realized in net income 220 90 130
-------- -------- --------
Net unrealized losses $(27,790) (11,326) (16,464)
-------- -------- --------
-------- -------- --------
</TABLE>
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. COMPREHENSIVE INCOME, CONTINUED
SIX MONTHS ENDED JUNE 30, 1998
------------------------------
<TABLE>
<CAPTION>
Before-tax Income
Amount Taxes Net
------ ----- ---
(in thousands)
<S> <C> <C> <C>
Unrealized losses on investment securities:
Unrealized holding
losses during period(a) $(8,729) (3,546) (5,183)
Less: reclassification
adjustment for gains
realized in net income 322 131 191
------- ------- -------
Net unrealized losses $(9,051) (3,677) (5,374)
------- ------- -------
------- ------- -------
</TABLE>
(a) Including the effect of the contribution of appreciated investment
securities described in note 4.
4. CONTRIBUTION OF APPRECIATED INVESTMENT SECURITIES
In January 1998, M&T contributed appreciated investment securities with a fair
value of $24.6 million to an affiliated, tax-exempt private charitable
foundation. As a result of this transfer, the Company recognized tax-exempt
other income of $15.3 million and incurred charitable contributions expense of
$24.6 million. These amounts are included in the Consolidated Statement of
Income in "Other revenues from operations" and "Other costs of operations,"
respectively. The transfer provided an income tax benefit of approximately $10.0
million and, accordingly, resulted in an after-tax increase in net income of
$0.7 million.
5. ACQUISITIONS
On April 1, 1998, M&T consummated the merger of ONBANCorp, Inc. ("ONBANCorp")
with and into Olympia Financial Corp.("Olympia"), a wholly owned subsidiary of
M&T. Following the merger with ONBANCorp, OnBank & Trust Co., Syracuse, New
York, and Franklin First Savings Bank, Wilkes-Barre, Pennsylvania, both wholly
owned subsidiaries of ONBANCorp, were merged with and into Manufacturers and
Traders Trust Company ("M&T Bank"), M&T's principal banking subsidiary.
After application of the election, allocation and proration procedures contained
in the merger agreement with ONBANCorp, M&T paid $266.3 million in cash and
issued 1,429,998 shares of common stock in exchange for the ONBANCorp common
shares outstanding at the time of acquisition. In addition, based on the merger
agreement and the exchange ratio provided for therein, M&T converted outstanding
and unexercised stock options granted by ONBANCorp into options to purchase
61,772 shares of M&T common stock. The purchase price of the transaction was
approximately $873.6 million based on the cash paid to ONBANCorp stockholders,
the market price of M&T common shares on October 28, 1997 before the terms of
the merger were agreed to and announced by M&T and ONBANCorp, and the estimated
fair value of ONBANCorp stock options converted into M&T stock options.
Acquired assets, loans and deposits of ONBANCorp on April 1, 1998 totaled
approximately $5.5 billion, $3.0 billion and $3.8 billion, respectively. The
transaction was accounted for as a purchase and, accordingly, operations
acquired from ONBANCorp have been included in the Company's financial results
since the acquisition date. In connection with the acquisition, the Company
recorded approximately $501 million of goodwill and $61 million of core deposit
intangible. The goodwill is being amortized on a straight-line basis over twenty
years and the core deposit intangible is being amortized on an accelerated basis
over ten years. The Company incurred expenses related to systems conversions and
other costs of integrating and conforming the acquired operations with and into
the Company of approximately $21.3 million ($14.0 million net of applicable
income taxes) during 1998, including approximately $16.7 million ($11.3 million
net of applicable income taxes) and $18.4 million ($12.3 million net of
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. ACQUISITIONS, CONTINUED
applicable income taxes) during the three and six-month periods ended June 30,
1998.
On June 1, 1999, M&T consummated the merger of FNB Rochester Corp.("FNB"), a
bank holding company headquartered in Rochester, New York, with and into
Olympia. Following the merger with FNB, First National Bank of Rochester, a
wholly owned subsidiary of FNB, was merged into M&T Bank. In accordance with the
terms of the merger agreements with FNB, M&T paid $76.3 million in cash and
issued 122,516 shares of M&T common stock in exchange for FNB shares outstanding
at the time of the acquisition. The purchase price of the transaction was
approximately $135.0 million based on the cash paid to FNB stockholders and the
market price of M&T common shares on December 8, 1998 before the terms of the
merger were agreed to and announced by M&T and FNB. Acquired assets, loans and
deposits of FNB on June 1, 1999 totaled approximately $676 million, $393 million
and $511 million, respectively. The transaction was accounted for as a purchase
and, accordingly, operations acquired from FNB have been included in the
Company's financial results since the acquisition date. In connection with the
acquisition, the Company recorded approximately $98 million of goodwill and core
deposit intangible. The goodwill is being amortized on a straight-line basis
over twenty years and the core deposit intangible is being amortized on an
accelerated basis over eight years. The Company incurred expenses related to
systems conversions and other costs of integrating and conforming the acquired
operations with and into the Company of approximately $2.5 million ($1.7 million
net of applicable income taxes) for the three-month and six-month periods ended
June 30, 1999. The Company expects to incur additional integration costs during
the remainder of 1999 which will be expensed as incurred.
On June 2, 1999, M&T Bank and The Chase Manhattan Bank ("Chase") entered into a
definitive agreement providing for M&T Bank's acquisition of 29 Chase branch
locations in upstate New York. At the time the transaction was announced, the
branches had approximately $600 million of retail and business banking deposits,
approximately $140 million of municipal balances, and approximately $40 million
of retail installment and small business loans. This transaction is subject to a
number of closing conditions. M&T Bank's assumption of the deposit liabilities,
its purchase of the loans and its acquisition of certain custody and investment
management accounts associated with the branches is expected to close by the end
of September 1999. A portion of the transaction relating to M&T Bank's
acquisition of fiduciary trust accounts associated with the Chase branches is
expected to close in the first quarter of 2000 following the receipt of
regulatory and court approvals.
6. BORROWINGS
In January 1997, First Empire Capital Trust I ("Trust I"), a Delaware business
trust organized by the Company on January 17, 1997, issued $150 million of
8.234% preferred capital securities. In June 1997, First Empire Capital Trust II
("Trust II"), a Delaware business trust organized by the Company on May 30,
1997, issued $100 million of 8.277% preferred capital securities. As a result of
the ONBANCorp acquisition, the Company assumed responsibility for similar
preferred capital securities previously issued by a special-purpose entity
formed by ONBANCorp. In February 1997, OnBank Capital Trust I ("OnBank Trust I"
and, together with Trust I and Trust II, the "Trusts"), a Delaware business
trust organized by ONBANCorp on January 24, 1997, issued $60 million of 9.25%
preferred capital securities. Including the unamortized portion of a purchase
accounting adjustment to reflect estimated fair value at the April 1, 1998
acquisition of ONBANCorp, the preferred capital securities of OnBank Trust I had
a financial statement carrying value of approximately $69 million at June 30,
1999 and December 31, 1998.
-9-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. BORROWINGS, CONTINUED
Other than the following payment terms (and the redemption terms described
below), the preferred capital securities issued by the Trusts ("Capital
Securities") are similar in all material respects:
<TABLE>
<CAPTION>
Distribution Distribution
Trust Rate Dates
----- ---- -----
<S> <C> <C>
Trust I 8.234% February 1 and August 1
Trust II 8.277% June 1 and December 1
OnBank Trust I 9.25% February 1 and August 1
</TABLE>
The common securities of Trust I and Trust II are wholly owned by M&T and the
common securities of OnBank Trust I are wholly owned by Olympia. The common
securities of each trust ("Common Securities") are the only class of each
Trust's securities possessing general voting powers. The Capital Securities
represent preferred undivided interests in the assets of the corresponding Trust
and are classified in the Company's consolidated balance sheet as long-term
borrowings, with accumulated distributions on such securities included in
interest expense. Under the Federal Reserve Board's current risk-based capital
guidelines, the Capital Securities are includable in the Company's Tier 1
capital.
The proceeds from the issuances of the Capital Securities and Common Securities
were used by the Trusts to purchase the following amounts of junior subordinated
deferrable interest debentures ("Junior Subordinated Debentures") issued by M&T
in the case of Trust I and Trust II and Olympia in the case of OnBank Trust I:
<TABLE>
<CAPTION>
Capital Common Junior Subordinated
Trust Securities Securities Debentures
----- ---------- ---------- ----------
<S> <C> <C> <C>
Trust I $150 million $4.64 million $154.64 million aggregate
liquidation amount of 8.234%
Junior Subordinated Debentures
due February 1, 2027.
Trust II $100 million $3.09 million $103.09 million aggregate
liquidation amount of 8.277%
Junior Subordinated Debentures
due June 1, 2027.
OnBank
Trust I $60 million $1.856 million $61.856 million aggregate
liquidation amount of 9.25%
Junior Subordinated Debentures
due February 1, 2027.
</TABLE>
The Junior Subordinated Debentures represent the sole assets of each Trust and
payments under the Junior Subordinated Debentures are the sole source of cash
flow for each Trust.
Holders of the Capital Securities receive preferential cumulative cash
distributions semi-annually on each distribution date at the stated distribution
rate unless M&T, in the case of Trust I and Trust II, or Olympia, in the case of
OnBank Trust I, exercise the right to extend the payment of interest on the
Junior Subordinated Debentures for up to ten semi-annual periods, in which case
payment of distributions on the respective Capital Securities will be deferred
for a comparable period. During an extended interest period, M&T and/or Olympia
may not pay dividends or distributions on, or repurchase, redeem or acquire any
shares of the respective company's capital stock. The agreements governing the
Capital Securities, in the aggregate, provide a full, irrevocable and
unconditional guarantee by M&T in the case of Trust I and Trust II and Olympia
in the case of OnBank Trust I of the payment of distributions on, the redemption
of, and any liquidation distribution with respect to the Capital Securities. The
-10-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. BORROWINGS, CONTINUED
obligations under such guarantee and the Capital Securities are subordinate and
junior in right of payment to all senior indebtedness of M&T and Olympia.
The Capital Securities are mandatorily redeemable in whole, but not in part,
upon repayment at the stated maturity dates of the Junior Subordinated
Debentures or the earlier redemption of the Junior Subordinated Debentures in
whole upon the occurrence of one or more events ("Events") set forth in the
indentures relating to the Capital Securities, and in whole or in part at any
time after the stated optional redemption dates (February 1, 2007 in the case of
Trust I and OnBank Trust I, and June 1, 2007 in the case of Trust II)
contemporaneously with the Company's optional redemption of the related Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures
are redeemable prior to their stated maturity dates at M&T's option in the case
of Trust I and Trust II and Olympia's option in the case of OnBank Trust I (i)
on or after the stated optional redemption dates, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of one or more of the
Events, in each case subject to possible regulatory approval. The redemption
price of the Capital Securities upon their early redemption will be expressed as
a percentage of the liquidation amount plus accumulated but unpaid
distributions. In the case of Trust I, such percentage adjusts annually and
ranges from 104.117% at February 1, 2007 to 100.412% for the annual period
ending January 31, 2017, after which the percentage is 100%, subject to a
make-whole amount if the early redemption occurs prior to February 1, 2007. In
the case of Trust II, such percentage adjusts annually and ranges from 104.139%
at June 1, 2007 to 100.414% for the annual period ending May 31, 2017, after
which the percentage is 100%, subject to a make-whole amount if the early
redemption occurs prior to June 1, 2007. In the case of OnBank Trust I, such
percentage adjusts annually and ranges from 104.625% at February 1, 2007 to
100.463% for the annual period ending January 31, 2017, after which the
percentage is 100%, subject to a make-whole amount if the early redemption
occurs prior to February 1, 2007.
7. SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information." In accordance with the provision of SFAS No. 131, reportable
segments have been determined based upon the Company's internal profitability
reporting system, which is organized by strategic business units. Certain
strategic business units have been combined for segment information reporting
purposes where the nature of the products and services, the type of customer and
the distribution of those products and services are similar. The reportable
segments are Commercial Banking, Commercial Real Estate, Discretionary
Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company's segments was compiled utilizing the
accounting policies described in note 21 to the Company's consolidated financial
statements as of and for the year ended December 31, 1998. The management
accounting policies and processes utilized in compiling segment financial
information are highly subjective and, unlike financial accounting, are not
based on authoritative guidance similar to generally accepted accounting
principles. As a result, the financial information of the reported segments is
not necessarily comparable with similar information reported by other financial
institutions. Information about the Company's segments is presented in the
following tables.
-11-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
Three Months Ended June 30
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ------------------------------------------
Inter- Net Inter- Net
Total segment income Total segment income
Revenues(a) Revenues (Loss) Revenues(a) Revenues (Loss)
----------- -------- ------ ----------- -------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Banking $ 45,270 100 19,926 43,746 148 19,152
Commercial
Real Estate 31,804 410 16,495 27,765 358 14,601
Discretionary
Portfolio 15,349 (812) 8,667 16,821 (836) 8,208
Residential
Mortgage Banking 34,198 9,364 5,972 36,710 12,508 6,104
Retail Banking 110,451 2,572 26,617 111,647 1,795 25,139
All Other 17,785 (11,634) (12,639) 6,801 (13,973) (28,505)
-------- -------- -------- -------- -------- --------
Total $254,857 -- 65,038 243,490 -- 44,699
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Six Months Ended June 30
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ------------------------------------------
Inter- Net Inter- Net
Total segment income Total segment income
Revenues(a) Revenues (Loss) Revenues(a) Revenues (Loss)
----------- -------- ------ ----------- -------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Banking $ 90,724 224 40,662 74,876 270 32,496
Commercial
Real Estate 60,445 678 30,889 57,697 644 30,402
Discretionary
Portfolio 32,052 (812) 17,511 28,363 (836) 13,577
Residential
Mortgage Banking 71,766 18,933 12,952 64,711 21,122 10,250
Retail Banking 215,863 4,513 51,161 196,467 3,394 44,319
All Other 38,030 (23,536) (21,231) 33,449 (24,594) (37,390)
-------- -------- -------- -------- -------- --------
Total $508,880 -- 131,944 455,563 -- 93,654
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
(a) Total revenues are comprised of net interest income and other income.
Net interest income is the difference between taxable-equivalent
interest earned on assets and interest paid on liabilities owned by a
segment and a funding charge (credit) based on the Company's internal
funds transfer pricing methodology. Segments are charged a cost to fund
any assets (e.g., loans) and are paid a funding credit for any funds
provided (e.g., deposits). The taxable-equivalent adjustment aggregated
$1,838,000 and $1,779,000 for the three-month periods ended June 30,
1999 and 1998, respectively, and $3,663,000 and $3,320,000 for the
six-month periods ended June 30, 1999 and 1998, respectively, and is
eliminated in "All Other" total revenues. Total revenues in "All Other"
for the six months ended June 30, 1998 include the impact of the
contribution of appreciated investment securities described in note 4.
Intersegment revenues are included in total revenues of the reportable
segments. The elimination of intersegment revenues is included in the
determination of "All Other" total revenues.
-12-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
Average Total Assets
------------------------------------
Twelve months
Six months ended ended
June 30, December 31,
1999 1998 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Commercial Banking $ 4,142 3,331 3,653
Commercial Real Estate 3,929 3,489 3,527
Discretionary Portfolio 6,778 5,352 6,025
Residential Mortgage
Banking 647 521 581
Retail Banking 4,075 3,546 3,781
All Other 868 578 742
------- ------- -------
Total $20,439 16,817 18,309
------- ------- -------
------- ------- -------
</TABLE>
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
Net income of M&T Bank Corporation ("M&T") was $65.0 million or $8.00 of diluted
earnings per common share in the second quarter of 1999, increases of 46% and
50%, respectively, from the second quarter of 1998 when net income was $44.7
million or $5.32 of diluted earnings per common share. Net income was $66.9
million or $8.34 of diluted earnings per common share in the initial 1999
quarter. Basic earnings per common share increased 50% to $8.35 in the recent
quarter from $5.55 in the second quarter of 1998, but declined 3% from $8.65
earned in the first quarter of 1999. The after-tax impact of nonrecurring
merger-related expenses associated with M&T's June 1, 1999 acquisition of FNB
Rochester Corp. ("FNB") and the April 1, 1998 acquisition of ONBANCorp Inc.
("ONBANCorp") was $1.7 million or $.21 of diluted earnings per share and $.22 of
basic earnings per share in the second quarter of 1999, compared with $11.3
million or $1.34 of diluted earnings per share and $1.40 of basic earnings per
share in the year-earlier quarter. For the six months ended June 30, 1999, net
income was $131.9 million or $16.33 per diluted share, up 41% and 34%,
respectively, from $93.7 million or $12.16 per diluted share during the first
half of 1998. Basic earnings per share rose to $17.00 in the first six months of
1999 from $12.72 in the corresponding 1998 period. Nonrecurring merger-related
expenses resulting from the acquisition of FNB lowered net income during the
first half of 1999 by $1.7 million and diluted and basic earnings per share by
$.21 and $.22, respectively. Similar expenses related to the acquisition of
ONBANCorp lowered net income in the first half of 1998 by $12.3 million and
reduced diluted and basic earnings per share by $1.59 and $1.66, respectively.
The annualized rate of return on average total assets for M&T and its
consolidated subsidiaries ("the Company") in the second quarter of 1999 was
1.27%, compared with .92% in the year-earlier quarter and 1.34% in 1999's
initial quarter. The annualized return on average common stockholders' equity
was 15.23% in the recent quarter, compared with 10.77% in the second quarter of
1998 and 16.56% in the first quarter of 1999. During the first half of 1999, the
annualized rates of return on average assets and average common stockholders'
equity were 1.30% and 15.88%, respectively, compared with 1.12% and 13.89%,
respectively, in the first six months of 1998. Excluding the impact of
merger-related expenses, the annualized returns on average assets and average
common equity were 1.30% and 15.63%, respectively, during the second quarter of
1999, compared with 1.15% and 13.50%, respectively, during the second quarter of
1998. On the same basis, the annualized returns on average assets and average
common equity during the first six months of 1999 were 1.32% and 16.08%,
respectively, compared with 1.27% and 15.70%, respectively, during the first
half of 1998.
On June 1, 1999, M&T completed the acquisition of 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
Manufacturers and Traders Trust Company ("M&T Bank"), M&T's principal banking
subsidiary. 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 $76.3 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. The Company recorded
approximately $98 million of goodwill and core deposit intangible in connection
with the acquisition. Liabilities assumed on June 1 were approximately $541
million and included $511 million of deposits. Nonrecurring expenses relating to
systems conversions and other costs of integrating and conforming the acquired
operations with and into M&T Bank totaled $2.5 million ($1.7 million after-tax)
for the three-month and six-month periods ended June 30, 1999. The Company
expects to incur
-14-
<PAGE>
additional integration costs during the remainder of 1999 which will be expensed
as incurred.
On June 2, 1999, M&T Bank and The Chase Manhattan Bank ("Chase")
entered into an agreement providing for M&T Bank's acquisition of 29 Chase
branches located in upstate New York, 11 of which are located in Binghamton, 8
of which are located in Jamestown, 7 of which are located in Buffalo, 2 of which
are located in Elmira-Corning, and 1 of which is located in Albany. At the time
the transaction was announced, the branches had approximately $600 million of
retail and business banking deposits, approximately $140 million of municipal
balances, and approximately $40 million of retail installment and small business
loans. This transaction is subject to a number of closing conditions. M&T Bank's
assumption of the deposit liabilities, its purchase of the loans and its
acquisition of certain custody and investment management accounts associated
with the branches is expected to close by the end of September 1999. A portion
of the transaction relating to M&T Bank's acquisition of fiduciary trust
accounts associated with the Chase branches is expected to close in the first
quarter of 2000 following the receipt of regulatory and court approvals.
CASH OPERATING RESULTS
As a result of the acquisitions of FNB and ONBANCorp and, to a significantly
lesser extent, acquisitions of other entities in prior years, M&T had recorded
as assets at June 30, 1999 goodwill and core deposit intangible totaling $621
million. Since the amortization of goodwill and core deposit intangible does not
result in a cash expense, M&T believes that supplemental reporting of its
operating results on a "cash" (or "tangible") basis (which excludes the
after-tax effect of amortization of goodwill and core deposit intangible and the
related asset balances) 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 possible
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 FNB and ONBANCorp.
Cash net income rose 17% to $76.5 million in the second quarter of 1999
from $65.4 million in the second quarter of 1998. Diluted cash earnings per
share for the recent quarter were $9.41, up 21% from $7.78 in the year- earlier
quarter. Cash net income and diluted cash earnings per share were $76.3 million
and $9.51, respectively, in the initial 1999 quarter. For the first half of
1999, cash net income and diluted cash earnings per share were $152.8 million
and $18.92, respectively, up 31% and 25%, respectively, from $116.9 million and
$15.18 in the corresponding 1998 period.
Cash return on average tangible assets was an annualized 1.53% in the
recent quarter, compared with 1.38% in the second quarter of 1998 and 1.57% in
the first quarter of 1999. Cash return on average tangible common equity was an
annualized 26.13% in the second quarter of 1999, compared with 23.50% in the
year-earlier quarter and 27.66% in the initial 1999 quarter. For the first six
months of 1999, the annualized cash return on average tangible assets and
average tangible common stockholders' equity was 1.55% and 26.88%, respectively,
compared with 1.43% and 21.89%, respectively, in the corresponding 1998 period.
Including the effect of merger-related expenses, the annualized cash return on
average tangible assets for the second quarters of 1999 and 1998 was 1.50% and
1.14%, respectively, and the annualized cash return on average tangible common
stockholders' equity was 25.55% and 19.45%, respectively.
-15-
<PAGE>
TAXABLE-EQUIVALENT NET INTEREST INCOME
Taxable-equivalent net interest income rose 5% to $189.9 million in the second
quarter of 1999 from $180.2 million in the year-earlier quarter and was up 4%
from the $183.1 million earned in the first quarter of 1999. Factors
contributing to the improvement in net interest income included growth in
average loans and leases, partially offset by lower rates earned on those loans
and leases, and lower rates paid on interest-bearing deposits and borrowings.
Average loans and leases increased $1.1 billion, or 7%, to $16.1 billion in the
second quarter of 1999 from $15.0 billion in the year-earlier quarter. Average
loans and leases in the recent quarter were $.3 billion, or 2%, higher than the
first quarter of 1999. The accompanying table summarizes quarterly changes in
the major components of the loan and lease portfolio.
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions
<TABLE>
<CAPTION>
Percent increase
(decrease) from
2nd Qtr. 2nd Qtr. 1st Qtr.
1999 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Commercial, financial, etc. $ 3,201 8 % 1 %
Real estate - commercial 5,752 15 4
Real estate - consumer 4,176 6 -
Consumer
Automobile 1,439 4 (1)
Home equity 772 3 4
Credit cards 11 (95) -
Other 705 (2) 3
-------- -------- --------
Total consumer 2,927 (5) 1
-------- -------- --------
Total $16,056 7 % 2 %
-------- -------- --------
-------- -------- --------
</TABLE>
For the first six months of 1999, taxable-equivalent net interest
income was $373.0 million, up 15% from $324.9 million in the corresponding 1998
period. An increase in average loans and leases of $2.6 billion, including loans
acquired in the ONBANCorp transaction, was the leading factor contributing to
this improvement.
Average investment securities decreased to $2.1 billion in the recent
quarter from $2.9 billion in the second quarter of 1998 and $2.5 billion in the
initial quarter of 1999. The investment securities portfolio is largely
comprised of mortgage-backed securities, collateralized mortgage obligations,
and shorter-term U.S. Treasury notes. When purchasing investment securities, the
Company considers its overall interest-rate risk profile as well as the adequacy
of expected returns relative to prepayment and other risks assumed. The Company
occasionally sells investment securities as a result of changes in interest
rates and spreads, actual or anticipated prepayments, or credit risk associated
with a particular security.
Money-market assets averaged $516 million in 1999's second quarter,
compared with $156 million in the year-earlier quarter and $406 million in the
first quarter of 1999. In general, the size of the investment securities and
money-market assets portfolios are influenced by such factors as demand for
loans, which generally yield more than investment securities and money-market
assets, ongoing repayments, the levels of deposits, and management of balance
sheet size and resulting capital ratios.
As a result of the changes described herein, average earning assets
increased 4% to $18.6 billion in the second quarter of 1999 from $18.0 billion
in the second quarter of 1998. Average earning assets were $18.7
-16-
<PAGE>
billion in the first quarter of 1999 and aggregated $18.7 billion and $15.7
billion for the six months ended June 30, 1999 and 1998, respectively.
Core deposits, consisting of noninterest-bearing deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered domestic
time deposits under $100,000, represent the most significant source of funding
to the Company and generally carry lower interest rates than wholesale funds of
comparable maturities. The Company's branch network is the principal source of
core deposits. Core deposits include certificates of deposit under $100,000
generated on a nationwide basis by M&T Bank, National Association ("M&T Bank,
N.A."), a wholly owned bank subsidiary of M&T. Average core deposits increased
to $11.6 billion in the second quarter of 1999, up from $11.5 billion in the
year-earlier quarter and $11.4 billion in the first quarter of 1999. The
accompanying table provides an analysis of quarterly changes in the components
of average core deposits. For the six months ended June 30, 1999 and 1998, core
deposits averaged $11.5 billion and $10.0 billion, respectively.
AVERAGE CORE DEPOSITS
Dollars in millions
<TABLE>
<CAPTION>
Percent increase
(decrease) from
2nd Qtr. 2nd Qtr. 1st Qtr.
1999 1998 1999
-------- -------- --------
<S> <C> <C> <C>
NOW accounts $ 370 22 % (7)%
Savings deposits 5,038 7 3
Time deposits less than $100,000 4,263 (10) (1)
Noninterest-bearing deposits 1,886 8 1
-------- -------- --------
Total $11,557 - % 1 %
-------- -------- --------
-------- -------- --------
</TABLE>
In addition to core deposits, the Company obtains funding through
domestic time deposits of $100,000 or more, deposits originated through M&T
Bank's offshore branch office, and brokered certificates of deposit. Brokered
deposits are used as an alternative to short-term borrowings to lengthen the
average maturity of interest-bearing liabilities. Brokered deposits averaged
$1.2 billion during the recent quarter and totaled $1.1 billion at June 30,
1999, compared with an average balance of $1.5 billion during the comparable
1998 period and a total balance of $1.5 billion at June 30, 1998. Brokered
deposits averaged $1.3 billion in the initial quarter of 1999. The weighted
average remaining term to maturity of brokered deposits at June 30, 1999 was 1.6
years. However, certain of the deposits have provisions that allow early
redemption. In connection with the Company's management of interest rate risk,
interest rate swaps have been entered into under which the Company receives a
fixed rate of interest and pays a variable rate and that have notional amounts
and terms substantially similar to the amounts and terms of the brokered
deposits. Additional amounts of brokered deposits may be solicited in the future
depending on market conditions and the cost of funds available from alternative
sources at the time.
In addition to deposits, the Company uses borrowings from banks,
securities dealers, Federal Home Loan Banks ("FHLB") and others as sources of
funding. Short-term borrowings averaged $1.9 billion in the recent quarter,
compared with $2.2 billion in the second 1998 quarter and $2.1 billion in the
first quarter of 1999. Long-term borrowings averaged $1.8 billion and $695
million in the second quarter of 1999 and 1998, respectively, and $1.6 billion
in the initial 1999 quarter. Included in long-term borrowings during the recent
quarter were $1.3 billion of FHLB borrowings, compared with $182 million in the
year-earlier quarter and $1.1 billion in the first quarter of 1999. Long-term
borrowings also include $319 million of trust preferred securities and $175
million of subordinated capital notes. Further information regarding the trust
preferred securities is provided in note 6 of Notes to Financial Statements.
-17-
<PAGE>
Changes in the composition of the Company's earning assets and
interest-bearing liabilities, as well as changes in interest rates and spreads,
can impact net interest income. Net interest spread, or the difference between
the taxable-equivalent yield on earning assets and the rate paid on
interest-bearing liabilities, was 3.56% in the second quarter of 1999, up from
3.47% in the year-earlier quarter. The yield on earning assets decreased 36
basis points (hundredths of one percent) to 7.77% in the second quarter of 1999
from 8.13% in the second quarter of 1998. The rate paid on interest-bearing
liabilities in the second quarter of 1999 was 4.21%, down from 4.66% in the
corresponding 1998 quarter. The decrease in the recent quarter's yield on
earning assets and interest-bearing liabilities was due to generally lower
interest rates when compared with the corresponding 1998 quarter. The net
interest spread was 3.46% in the first quarter of 1999 when the yield on earning
assets was 7.79% and the rate paid on interest-bearing liabilities was 4.33%.
The contribution to net interest margin, or taxable equivalent net
interest income expressed as an annualized percentage of average earning assets,
of interest-free funds was .53% in the second quarter of 1999, compared with
.55% in the corresponding 1998 quarter and .52% in the first quarter of 1999.
Average interest-free funds, which include noninterest- bearing demand deposits
and stockholders' equity, totaled $2.3 billion in the second quarter of 1999, up
from $2.1 billion a year earlier and $2.2 million in the initial 1999 quarter.
Due to the changes described above, the Company's net interest margin
was 4.09% in 1999's second quarter, up from 4.02% in the comparable quarter of
1998 and 3.98% in the initial 1999 quarter. During the first six months of 1999
and 1998, the net interest margin was 4.03% and 4.18%, respectively.
The Company utilizes interest rate swap agreements as part of the
management of interest rate risk to modify the repricing characteristics of
certain portions of its portfolios of earnings assets and interest-bearing
liabilities. Revenue and expense arising from these agreements are reflected in
either the yields earned on assets or, as appropriate, rates paid on
interest-bearing liabilities. The notional amount of interest rate swap
agreements used as part of the Company's management of interest rate risk in
effect at June 30, 1999 and 1998 was $1.8 billion and $2.5 billion,
respectively. In general, under the terms of these swaps, the Company receives
payments based on the outstanding notional amount of the swaps at fixed rates of
interest and makes payments at variable rates. However, under the terms of $82
million of swaps, the Company pays a fixed rate of interest and receives a
variable rate. At June 30, 1999, the weighted average rates to be received and
paid under interest rate swap agreements were 6.23% and 5.17%, respectively. The
Company had also entered into forward-starting swaps as of June 30, 1999, with
an aggregate notional amount of $391 million in which the Company will pay a
fixed rate of interest and receive a variable rate. The forward-starting swaps
had no effect on the Company's net interest income through June 30, 1999. The
average notional amounts of interest rate swaps and the related effect on net
interest income and margin are presented in the accompanying table.
-18-
<PAGE>
INTEREST RATE SWAPS
Dollars in thousands
<TABLE>
<CAPTION>
Three Months Ended June 30
-------------------------------------------
1999 1998
------------------- ------------------------
Amount Rate * Amount Rate *
------ ------ ------ ------
Increase (decrease) in:
<S> <C> <C> <C> <C>
Interest income $ 4,090 .09% $ 408 .01 %
Interest expense (4,302) (.11) (3,129) (.08)
----------- -----------
Net interest
income/margin $ 8,392 .18% $ 3,537 .08 %
----------- ------- ----------- -------
----------- ------- ----------- -------
Average notional
amount ** $ 2,052,899 $ 2,547,962
----------- -----------
----------- -----------
<CAPTION>
Six Months Ended June 30
--------------------------------------------------
1999 1998
-------------- --------------
AMOUNT RATE * AMOUNT RATE *
------ ------ ------ ------
Increase (decrease) in:
<S> <C> <C> <C> <C>
Interest income $ 8,803 0.9% $ 690 % --
Interest expense (8,648) (.11) (6,334) (.09)
---------- ----------
Net interest
income/margin $ 16,731 .18% $ 7,024 .09 %
---------- ------- ---------- ------
---------- ------- ---------- ------
Average notional
amount ** $2,194,941 $2,525,659
---------- ----------
---------- ----------
</TABLE>
* COMPUTED AS AN ANNUALIZED PERCENTAGE OF AVERAGE EARNING ASSETS OR
INTEREST-BEARING LIABILITIES.
** EXCLUDES FORWARD-STARTING INTEREST RATE SWAPS.
The Company estimates that as of June 30, 1999 it would have received
approximately $28 million if all interest rate swap agreements entered into for
interest rate risk management purposes had been terminated, compared with $18
million a year earlier and $23 million at December 31, 1998. The estimated fair
value of the interest rate swap portfolio results from the effects of changing
interest rates and should be considered in the context of the entire balance
sheet and the Company's overall interest rate risk profile. Changes in the
estimated fair value of interest rate swaps entered into for interest rate risk
management purposes are not recorded in the consolidated financial statements.
As a financial intermediary, the Company is exposed to various risks,
including liquidity and market risk. Liquidity risk arises whenever the
maturities of financial instruments included in assets and liabilities differ.
Accordingly, a critical element in managing a financial institution is ensuring
that sufficient cash flow and liquid assets are available to satisfy demands for
loans and deposit withdrawals, to fund operating expenses, and to be used for
other corporate purposes. Deposits and borrowings, maturities of money-market
assets and investment securities, repayments of loans and investment securities,
and cash generated from operations, such as fees collected for services, provide
the Company with sources of liquidity. M&T's banking subsidiaries have access to
additional funding sources through membership in the FHLB, as well as other
available borrowing facilities. M&T has historically utilized dividend payments
from its banking subsidiaries, which are subject to various regulatory
limitations, to pay for operating expenses, shareholder dividends and treasury
stock repurchases. In 1997, the proceeds from issuance of $250 million of trust
preferred securities provided funds to M&T. M&T also maintains a $25 million
line of credit with an unaffiliated commercial bank, all of which was available
for borrowing at June 30, 1999.
Management does not anticipate engaging in any activities, either
currently or in the long-term, which would cause a significant strain on
liquidity at either M&T or its subsidiary banks. Furthermore, management closely
monitors the Company's liquidity position for compliance with internal policies
and believes that available sources of liquidity are adequate to meet funding
needs anticipated in the normal course of business.
-19-
<PAGE>
Market risk is the risk of loss from adverse changes in market prices
and/or interest rates of the Company's financial instruments. The primary market
risk the Company is exposed to is interest rate risk. The core banking
activities of lending and deposit-taking expose the Company to interest rate
risk. Interest rate risk occurs when assets and liabilities reprice at different
times as interest rates change. As a result, net interest income earned by the
Company is subject to the effects of changing interest rates. The Company
measures interest rate risk by calculating the variability of net interest
income in future periods under various interest rate scenarios using projected
balances for earning assets, interest-bearing liabilities and off-balance sheet
financial instruments. Management's philosophy toward interest rate risk
management is to limit the variability of net interest income. The balances of
both on- and off-balance sheet financial instruments used in the projections are
based on expected growth from forecasted business opportunities, anticipated
prepayments of mortgage-related assets and expected maturities of investment
securities, loans and deposits. Management supplements the modeling technique
described above with analyses of market values of the Company's financial
instruments.
The Asset-Liability Committee, which includes members of senior
management, monitors the Company's interest rate sensitivity with the aid of a
computer model which considers the impact of ongoing lending and deposit
gathering activities, as well as statistically derived interrelationships in the
magnitude and timing of the repricing of financial instruments, including the
effect of changing interest rates on expected prepayments and maturities. When
deemed prudent, management has taken actions, and intends to do so in the
future, to mitigate exposure to interest rate risk through the use of on- or
off-balance sheet financial instruments. Possible actions include, but are not
limited to, changes in the pricing of loan and deposit products, modifying the
composition of earning assets and interest-bearing liabilities, and entering
into or modifying existing interest rate swap agreements.
The accompanying table as of June 30, 1999 and December 31, 1998
displays the estimated impact on net interest income from non-trading financial
instruments resulting from changes in interest rates during the first modeling
year.
SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
(dollars in thousands) Calculated increase (decrease)
in projected net interest income
Changes in Interest Rates June 30, 1999 December 31, 1998
- ------------------------- ------------- -----------------
<S> <C> <C>
+200 basis points $ (3,419) (7,668)
+100 basis points 1,460 335
- -100 basis points 7,212 5,161
- -200 basis points 6,733 4,498
</TABLE>
The calculation of the impact of changes in interest rates on net
interest income is based upon many assumptions, including prepayments of
mortgage-related assets, cash flows from derivative and other financial
instruments held for non-trading purposes, loan and deposit volumes and pricing,
and deposit maturities. The Company also assumes gradual changes in interest
rates of 100 and 200 basis points up and down during a twelve-month period.
These assumptions are inherently uncertain and, as a result, the Company cannot
precisely predict the impact of changes in interest rates on net interest
income. Actual results may differ significantly due to timing, magnitude and
frequency of interest rate changes and changes in market conditions, as well as
any actions, such as those previously described, which management may take to
counter these changes.
The Company engages in trading activities to meet the financial needs
of customers and to profit from perceived market opportunities. Trading
activities are conducted utilizing financial instruments that include forward
and futures contracts related to foreign currency exchange and mortgage-
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<PAGE>
backed securities, U.S. Treasury and other government securities, and interest
rate contracts such as swaps. The Company generally mitigates the foreign
currency and interest rate risk associated with trading activities by entering
into offsetting trading positions. The amounts of gross and net trading
positions as well as the type of trading activities conducted by the Company are
subject to a well-defined series of potential loss exposure limits established
by the Asset-Liability Committee.
The notional amounts of interest rate contracts and foreign exchange
and other option and futures contracts totaled $1.8 billion and $.9 billion,
respectively, at June 30, 1999, $2.7 billion and $2.0 billion, respectively, at
June 30, 1998, and $.4 billion and $2.0 billion, respectively, at December
31, 1998. The notional amounts of these trading contracts are not recorded in
the consolidated balance sheet. However, the fair values of all financial
instruments used for trading activities are recorded in the consolidated balance
sheet. The fair values of all trading account assets and liabilities were $454
million and $427 million, respectively, at June 30, 1999, $168 million and $97
million, respectively, at June 30, 1998, and $173 million and $51 million,
respectively, at December 31, 1998. Included in trading account assets were
mortgage-backed securities that served as collateral securing certain
money-market assets. The obligations to return such collateral were recorded as
noninterest-bearing trading account liabilities, and were included in accrued
interest and other liabilities in the Company's consolidated balance sheet. The
fair value of such collateral (and the related obligation to return collateral)
was $385 million at June 30, 1999 and $52 million at June 30, 1998. There was no
similar collateral held at December 31, 1998. Given the Company's policies,
limits and positions, management believes that the potential loss exposure to
the Company resulting from market risk associated with trading activities was
not material as of June 30, 1999 and December 31, 1998.
PROVISION FOR POSSIBLE CREDIT LOSSES
The purpose of the provision for possible credit losses is to adjust the
Company's allowance for possible credit losses to a level that is adequate to
absorb losses inherent in the loan and lease portfolio. The provision for
possible credit losses in the second quarter of 1999 was $8.5 million, down from
$13.2 million in the second quarter of 1998, but equal to 1999's first quarter.
Net loan charge-offs totaled $6.5 million in the second quarter of 1999,
compared with $9.0 million in the year-earlier quarter and $8.1 million in
1999's initial quarter. Net charge-offs as an annualized percentage of average
loans and leases were .16% in the recent quarter, compared with .24% in the
corresponding 1998 quarter and .21% in the first quarter of 1999. Net
charge-offs of consumer loans in the recent quarter were $5.1 million, compared
with $9.3 million in the second quarter of 1998 and $5.3 million in 1999's
initial quarter. Net consumer loan charge-offs as an annualized percentage of
average consumer loans and leases were .69% in the recent quarter, compared with
1.21% in the second quarter of 1998 and .75% in 1999's first quarter. Net
charge-offs of credit card balances included in net consumer loan charge-offs
were $89 thousand and $4.6 million in the second quarter of 1999 and 1998,
respectively, and $263 thousand in the first quarter of 1999. The Company sold
its retail credit card business in July 1998. For the six months ended June 30,
1999 and 1998, the provision for possible credit losses was $17.0 million and
$25.2 million, respectively. Through June 30, net charge-offs were $14.6 million
in 1999 and $17.0 million in 1998, representing .18% and .26%, respectively, of
average loans and leases. Consumer loan net charge-offs totaled $10.4 million
and $17.1 million during the six months ended June 30, 1999 and 1998,
respectively. Net credit card charge-offs were $352 thousand during the first
half of 1999 and $9.2 million during the corresponding 1998 period.
Nonperforming loans were $108.4 million or .66% of total loans and
leases outstanding at June 30, 1999, compared with $127.2 million or .83% at
June 30, 1998, $117.0 million or .74% at December 31, 1998, and $115.4 million
or .73% at March 31, 1999. Nonperforming commercial real estate loans totaled
$18.9 million at June 30, 1999, $24.8 million at June 30, 1998,
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<PAGE>
$17.8 million at December 31, 1998, and $21.6 million at March 31, 1999.
Nonperforming consumer loans and leases totaled $17.8 million at June 30, 1999,
compared with $30.0 million at June 30, 1998, $25.8 million at December 31,
1998, and $26.1 million at March 31, 1999. As a percentage of consumer loan
balances outstanding, nonperforming consumer loans and leases were .59% at June
30, 1999, .99% at June 30, 1998, and .89% at December 31, 1998 and March 31,
1999. The remaining nonperforming loans consisted largely of residential
mortgage loans. Assets acquired in settlement of defaulted loans were $10.1
million at June 30, 1999, $12.2 million at June 30, 1998 and $11.1 million at
December 31, 1998 and at March 31, 1999.
A comparative summary of nonperforming assets and certain credit
quality ratios is presented in the accompanying table.
NONPERFORMING ASSETS
Dollars in thousands
<TABLE>
<CAPTION>
1999 Quarters 1998 Quarters
Second First Fourth Third Second
------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 68,285 69,393 70,999 73,778 78,527
Loans past due
90 days or more 31,988 37,988 37,784 37,746 41,686
Renegotiated loans 8,146 8,014 8,262 7,656 7,025
------- ------- ------- ------- -------
Total nonperforming loans 108,419 115,395 117,045 119,180 127,238
Real estate and other
assets owned 10,108 11,052 11,129 11,106 12,211
------- ------- ------- ------- -------
Total nonperforming assets $118,527 126,447 128,174 130,286 139,449
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Government guaranteed
nonperforming loans* $ 14,618 13,368 14,316 13,776 16,062
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Nonperforming loans
to total loans and leases,
net of unearned discount .66% .73% .74% .79% .83%
Nonperforming assets
to total net loans and
leases and real estate
and other assets owned .72% .80% .81% .86% .91%
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
* INCLUDED IN TOTAL NONPERFORMING LOANS.
The allowance for possible credit losses was $314.4 million, or 1.90% of
total loans and leases at June 30, 1999, compared with $310.8 million or 2.04% a
year earlier, $306.3 million or 1.94% at December 31, 1998 and $306.7 million or
1.94% at March 31, 1999. The ratio of the allowance for possible credit losses
to nonperforming loans was 290% at the most recent quarter-end, compared with
244% a year earlier, 262% at December 31, 1998 and 266% at March 31, 1999. The
decline in the allowance as a percentage of total loans at June 30, 1999
reflects management's evaluation of the loan and lease portfolio, the July 1998
sale of the retail credit card business, the relatively favorable economic
environment for many commercial borrowers, and other factors. Management
regularly assesses the adequacy of the allowance by performing an ongoing
evaluation of the loan and lease portfolio, including such factors as the
differing economic risks associated with each loan category, the current
financial condition of specific borrowers, the economic environment in which
borrowers operate, the level of delinquent loans and the value of any
collateral. Significant loans are individually analyzed, while other smaller
balance loans are evaluated by loan category. Given the concentration of
commercial real estate loans in the Company's loan portfolio, particularly the
large concentration of loans secured by properties in New York State, in
general, and in the New York City metropolitan area, in particular, coupled with
the amount of commercial and industrial loans to businesses in New York State
outside of the New York City metropolitan area and significant growth in recent
years in loans to individual consumers, management cautiously evaluated the
impact of interest rates and overall economic conditions on the ability of
borrowers to meet
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<PAGE>
repayment obligations when assessing the adequacy of the Company's allowance for
possible credit losses as of June 30, 1999. Based upon the results of such
review, management believes that the allowance for possible credit losses at
June 30, 1999 was adequate to absorb credit losses from existing loans and
leases.
OTHER INCOME
Other income totaled $66.8 million in the second quarter of 1999, compared with
$65.1 million in the year-earlier quarter and $72.7 million in the first quarter
of 1999. The decrease from the first quarter of 1999 was largely attributable to
lower mortgage banking revenues, trading account and foreign exchange losses
realized during the recent quarter and a $2.9 million award received in the
first quarter of 1999 in recognition of the Company's community reinvestment
activities.
Mortgage banking revenues totaled $18.6 million in the recent quarter,
compared with $18.5 million in the year-earlier quarter and $21.5 million in
the first quarter of 1999. Residential mortgage loan servicing fees were $6.6
million in the recently completed quarter, compared with $7.8 million a year
earlier and $7.0 million in the initial quarter of 1999. Gains from sales of
residential mortgage loans and loan servicing rights were $10.7 million in
the second quarter of 1999, compared with $9.9 million in the corresponding
1998 quarter and $13.0 million in 1999's first quarter. A generally favorable
interest rate environment in the fourth quarter of 1998 and in early 1999
resulted in higher realized gains from sales of residential mortgage loans in
the initial 1999 quarter. During the second quarter of 1999 residential
mortgage loans originated for sale to other investors totaled $663 million,
compared with $735 million in 1998's second quarter and $652 million in the
first 1999 quarter. Residential mortgage loans held for sale totaled $292
million at June 30, 1999, $324 million at March 31, 1999 and $445 million at
December 31, 1998. Residential mortgage loans serviced for others totaled
$7.1 billion at June 30, 1999, $8.1 billion at June 30, 1998 and $7.3 billion
at December 31, 1998. Capitalized servicing assets were $61 million and $67
million at June 30, 1999 and 1998, respectively, and $62 million at December
31, 1998.
Service charges on deposit accounts were $16.7 million in the second
quarter of 1999, up from $14.2 million in the corresponding quarter of the
previous year and $15.9 million in the first quarter of 1999. Trust income was
$10.3 million in the second quarter of 1999, up from $9.9 million a year
earlier, but little changed from the previous quarter. Merchant discount and
credit card fees were $1.8 million in the recent quarter, compared with $4.3
million in the similar period of 1998 and $1.7 million in the initial quarter of
1999. The decrease from the second quarter of 1998 was predominately the result
of the July 1998 sale of the Company's retail credit card business. Through the
date of sale, the results of operations of the retail credit card business in
1998, including internal allocations of the provision for possible credit
losses, interest expense and other expenses, were essentially break-even.
Trading account and foreign exchange activity resulted in losses of $3.2 million
in the second quarter of 1999, largely due to a $3 million loss incurred when a
counterparty defaulted on the settlement of outstanding foreign exchange
contracts. In the year-earlier period, trading account and foreign exchange
activity resulted in gains of $.5 million, while in the first quarter of 1999
gains were $1.2 million. Other revenue from operations totaled $22.6 million in
the recent quarter, compared with $17.3 million in the corresponding quarter of
1998 and $22.0 million in the initial quarter of 1999. The improvement from the
year-earlier period was due largely to increased revenues of $2.5 million in
tax-exempt income earned from the Company's ownership of bank-owned life
insurance, $2.0 million from the sale of mutual funds and annuities, and $1.9
million from letter of credit and other credit-related fees. The increase from
the first quarter of 1999 (which included a $2.9 million community reinvestment
award) was achieved predominately through higher revenues from bank-owned life
insurance and the sale of mutual funds and annuities.
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<PAGE>
Excluding $15.3 million of tax-exempt other income the Company
recognized in 1998's first quarter in connection with the contribution of
appreciated investment securities with a fair value of $24.6 million to an
affiliated, tax-exempt private charitable foundation, other income totaled
$139.5 million in the first half of 1999, up 18% from $118.7 million in the
year-earlier period. Growth in mortgage banking revenues, service charges on
deposits and fees for trust, investment and credit-related services, and a full
six months of revenues associated with operations obtained in the ONBANCorp
acquisition, were factors contributing to the increase. As a result of the
charitable contribution described in the first sentence of this paragraph, the
Company also incurred $24.6 million of charitable contributions expense and
realized income tax benefits of $10.0 million in 1998.
For the six-month period ended June 30, 1999, mortgage banking revenues
totaled $40.1 million, up 24% from $32.3 million in the corresponding 1998
period. Compared with the first half of 1998, gains from sales of loans and loan
servicing rights in 1999 were up by $7.9 million. Including the impact of the
ONBANCorp acquisition, when compared with the same period in 1998, service
charges on deposit accounts increased 28% to $32.6 million during the first six
months of 1999, while trust income increased 6% to $20.6 million. Merchant
discount and credit card fees decreased 59% to $3.5 million from $8.6 million in
the similar period of 1998, predominately the result of the July 1998 sale of
the Company's retail credit card business. Trading account and foreign exchange
activity resulted in losses of $2.1 million for the initial half of 1999,
compared with gains of $2.3 million during the first six months of 1998. The
losses in 1999 were largely the result of the previously mentioned counterparty
default on settling foreign exchange contracts. Excluding the effect of the
transfer of securities to the affiliated charitable foundation, other revenues
from operations increased 47% to $44.6 million in the first six months of 1999
from $30.3 million in the comparable 1998 period. The rise resulted largely from
increases in tax-exempt income earned from bank-owned life insurance of $4.6
million and increased credit-related fees of $3.4 million and fees earned from
the sales of mutual funds and annuities of $3.5 million. These latter fees
totaled $12.4 million during the first six months of 1999.
OTHER EXPENSE
Excluding amortization of goodwill and core deposit intangible and nonrecurring
merger-related expenses, other expense totaled $131.8 million in the second
quarter of 1999, up from $127.4 million in the second quarter of 1998 and $128.6
million in the first quarter of 1999. On the same basis, through the first half
of 1999, other expense totaled $260.5 million, an increase of 12% from $233.2
million in the comparable 1998 period, after excluding from 1998 the $24.6
million non-cash charitable contribution expense previously noted. Expenses
related to the acquired operations of ONBANCorp contributed to the higher level
of expenses for the first six months of 1999 compared with the first half of
1998. Goodwill and core deposit intangible amortization was $11.2 million in the
second quarter of 1999, up from $10.9 million in the second quarter of 1998 and
first quarter of 1999. The increase from the second quarter of 1998 resulted
from amortization related to the FNB acquisition. Amortization of goodwill and
core deposit intangible totaled $22.0 million in the first six months of 1999,
up from $12.7 million in the corresponding 1998 period, due largely to the
impact of the April 1, 1998 ONBANCorp acquisition. Nonrecurring merger- related
expenses were $2.5 million in the second quarter and first half of 1999,
compared with $16.7 million during the second quarter of 1998 and $18.3 million
during the first six months of 1998.
Salaries and employee benefits expense was $71.4 million in the recent
quarter, 2% higher than the $69.9 million in the corresponding 1998 quarter, and
4% higher than the $68.4 million in the first quarter of 1999. For the first six
months of 1999, salaries and employee benefits expense increased 9% to $139.9
million from $128.3 million in the corresponding 1998 period. The increase from
the first quarter of 1999 was predominately attributable to
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<PAGE>
higher costs associated with stock appreciation rights. Salaries and employee
benefits relating to the operations acquired from ONBANCorp, merit salary
increases, and higher costs associated with incentive-based compensation
arrangements and employee benefits, partially offset by lower costs associated
with stock appreciation rights, were the contributing factors for the increase
from the first six months of 1998.
Excluding the previously mentioned one-time merger-related expenses and
amortization of goodwill and core deposit intangible, nonpersonnel expense
totaled $60.5 million in the second quarter of 1999, up from $58.8 million in
the second quarter of 1998, but little changed from the first quarter of 1999.
On the same basis, and after excluding the $24.6 million non-cash charitable
contribution expense from 1998, such expenses were $120.7 million during the
first six months of 1999, an increase of 14% from $106.3 million during the
corresponding 1998 period. The increase from the first six months of 1998 was
due, in part, to expenses related to the acquired operations of ONBANCorp and
higher expenses for advertising and professional services, partially offset by
lower co-branded credit card rebate expenses resulting from the Company's
decision to terminate all of its co-branded credit card programs in 1997 and
1998 due to poorer than expected results.
CAPITAL
Stockholders' equity at June 30, 1999 was $1.8 billion or 8.36% of total assets,
compared with $1.7 billion or 8.24% of total assets a year earlier and $1.6
billion or 7.78% at December 31, 1998. On a per share basis, stockholders'
equity was $224.81 at June 30, 1999, up from $207.18 and $207.94 at June 30 and
December 31, 1998, respectively. Excluding goodwill and core deposit intangible,
net of applicable tax effect, tangible equity per share was $149.14 at June 30,
1999, compared with $139.37 at June 30, 1998 and $139.89 at December 31, 1998.
To complete the acquisition of FNB on June 1, 1999, M&T issued 122,516 shares of
common stock to former holders of FNB common stock resulting in an addition to
stockholders' equity of $58.7 million.
Stockholders' equity at June 30, 1999 reflected a loss of $13.6
million, or $1.72 per share, for the net after-tax impact of unrealized losses
on investment securities classified as available for sale, compared with
unrealized gains of $6.6 million or $.83 per share at June 30, 1998 and $2.9
million or $.37 per share at December 31, 1998. Such unrealized gains and losses
are generally due to changes in interest rates and represent the difference, net
of applicable income tax effect, between the estimated fair value and amortized
cost of investment securities classified as available for sale. The market
valuation of investment securities should be considered in the context of the
entire balance sheet of the Company. With the exception of investment securities
classified as available for sale, trading account assets and liabilities, and
residential mortgage loans held for sale, the carrying values of financial
instruments in the balance sheet are generally not adjusted for appreciation or
depreciation in market value resulting from changes in interest rates.
Federal regulators generally require banking institutions to maintain
"core capital" and "total capital" ratios of at least 4% and 8%, respectively,
of risk-adjusted total assets. In addition to the risk-based measures, Federal
bank regulators have also implemented a minimum "leverage" ratio guideline of 3%
of the quarterly average of total assets. Under regulatory guidelines,
unrealized gains or losses on investment securities classified as available for
sale are not recognized in determining regulatory capital. Core capital includes
the $319 million carrying value of trust preferred securities. As of June 30,
1999, total capital also included $145 million of subordinated notes issued by
M&T Bank in prior years. The capital ratios of the Company and its banking
subsidiaries, M&T Bank and M&T Bank, N.A., as of June 30, 1999 are presented in
the accompanying table.
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<PAGE>
REGULATORY CAPITAL RATIOS
June 30, 1999
<TABLE>
<CAPTION>
M&T M&T M&T
(Consolidated) Bank Bank, N.a.
-------------- ---- ----------
<S> <C> <C> <C>
Core capital 8.74% 8.30% 15.74%
Total capital 10.86% 10.43% 17.27%
Leverage 7.44% 7.13% 7.89%
</TABLE>
The rate of internal capital generation, or net income less dividends
paid expressed as an annualized percentage of average total stockholders'
equity, was 13.39% during the second quarter of 1999, compared with 8.84% in the
second quarter of 1998 and 14.65% in the initial 1999 quarter.
In February 1999, M&T's board of directors authorized a plan to
repurchase up to 134,342 shares of its common stock for reissuance upon the
possible future exercise of outstanding stock options. As of June 30, 1999, no
shares had been repurchased under the plan. Under a previously authorized plan,
M&T repurchased 1,581 common shares during the first six months of 1999 at a
total cost of $789 thousand.
YEAR 2000 INITIATIVES
The "Year 2000" problem relates to the ability of computer systems, including
those in non-information technology equipment and systems ("Computer Systems"),
to distinguish date data between the twentieth and twenty-first centuries.
Addressing the Year 2000 problem requires that the Company identify,
remediate and test its Computer Systems that have date sensitive functions. As
part of this process, the Company has identified those of its Computer Systems
which, if uncorrected, would have a material adverse impact on the Company's
customers, the Company's compliance with applicable regulations, or the
Company's financial statements ("Mission Critical Systems"). Based on the
remediation efforts completed and test work performed (either by the Company or
through proxy testing) and, where appropriate, documentation provided by
vendors, management believes that 100% of the Company's Mission Critical Systems
should be able to accurately process date data before and after January 1, 2000.
Management further believes that substantially all of the Company's remaining
Computer Systems are Year 2000 compliant, even though certain non-critical
equipment upgrades are scheduled for the second-half of 1999.
The Company could also be adversely affected if its customers and other
parties that rely on data processing systems are not Year 2000 compliant prior
to the end of 1999. For example, the credit quality of commercial and other
loans may be adversely affected by the failure of customers' operating systems
resulting from Year 2000 issues. In this regard, lending officers have received
training to address Year 2000 issues with customers, including assessing
customer needs for Year 2000 compliance. Additionally, the Company has completed
a second survey of its commercial customers and is monitoring the Year 2000
status of customers considered to have a potentially high Year 2000 business
risk. The Company is addressing the Year 2000 risks posed by other parties such
as its funds providers and capital market/asset management counterparties. Lack
of corrective measures by government agencies or service providers which the
Company either receives data from or provides data to could also have a negative
impact on the Company's operations. To be adequately prepared in the event its
customers place higher than normal demands for cash or funding during the period
surrounding January 1, 2000, the Company has been, and will continue to be,
working with the Federal Reserve and other sources of funds to refine its cash
and liquidity contingency plans. The Company also continues to evaluate
information regarding Year 2000 activities received from significant vendors.
Based on information provided to date by these vendors, management believes that
such parties are taking steps to address Year 2000 issues on a timely basis.
Notwithstanding the Company's efforts, a risk remains that all aspects of
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<PAGE>
Year 2000 issues will not be adequately resolved by each of the parties referred
to above before January 1, 2000. If that were to be the case, the Company's
future business operations, financial position and results of operations could
be adversely impacted.
Management is closely monitoring the Company's progress regarding Year
2000 issues. The Company has established a Year 2000 Steering Committee
consisting of senior members of management to oversee all Year 2000 activities.
In conjunction with its assessment of the Company's Year 2000 remediation plans,
and the remediation efforts of other parties such as those described in the
preceding paragraph, management has developed contingency plans to mitigate
risks associated with critical Year 2000 issues that could arise during the
period leading up to and after January 1, 2000.
Through June 30, 1999, the Company has spent approximately $7.5
million (including approximately $1.0 million and $2.1 million during the
second quarter and first six months of 1999, respectively,) in addressing its
potential Year 2000 problems. Management believes that the Company is
continuing to devote appropriate financial and human resources to monitor and
resolve Year 2000 issues in a timely manner. The Company estimates that it
may expend an additional $1 - $1.5 million to finalize and monitor
implementation of its Year 2000 program, including the upgrading of certain
non-critical equipment scheduled for the second-half of 1999. A majority of
the Company's Year 2000 costs relate to internal costs and constitute
resources that would otherwise have been reallocated within the Company. Such
reallocation has not had a material adverse impact on the Company's financial
condition or results of operations, nor is it expected to have a material
adverse impact in future periods. Costs associated with Year 2000 issues are
recognized in expense as incurred.
The preceding discussion of Year 2000 initiatives contains forward-
looking statements as to Year 2000 issues. See also the discussion of Future
Factors under the caption "Forward-Looking Statements," which are incorporated
by reference into the preceding discussion.
SEGMENT INFORMATION
The Company's reportable segments have been determined based upon its internal
profitability reporting system, which is organized by strategic business unit.
Certain strategic business units have been combined for segment information
reporting purposes where the nature of the products and services, the type of
customer, and the distribution of those products and services are similar. The
reportable segments are Commercial Banking, Commercial Real Estate,
Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company's segments was compiled
utilizing the accounting policies described in note 21 to the Company's
consolidated financial statements as of and for the year ended December 31,
1998. The management accounting policies and processes utilized in compiling
segment financial information are highly subjective and, unlike financial
accounting, are not based on authoritative guidance similar to generally
accepted accounting principles. As a result, reported segments are not
necessarily comparable with similar information reported by other financial
institutions.
The Commercial Banking segment's earnings were $19.9 million in the
second quarter of 1999, $19.2 million in the comparable 1998 quarter and $20.7
million in the initial quarter of 1999. For the six months ended June 30, 1999
and 1998, earnings were $40.7 million and $32.5 million, respectively.
Commercial loans obtained from ONBANCorp and loan growth in most of the markets
already served by the Company were the leading factors contributing to the
increase from the first-half of 1998. In the second quarter of 1999, the
Commercial Real Estate segment contributed net income of $16.5 million, compared
with $14.6 million in the year-earlier period and $14.4 million in the first
three months of 1999. The major factor in the improvement in earnings over the
second quarter of 1998 was higher loan
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<PAGE>
balances. The increase from the first quarter of 1999 was in part the result of
higher loan margins and a lower provision for loan losses. Earnings in the first
half of 1999 and 1998 were $30.9 million and $30.4 million, respectively. The
increase in net income was due in part to commercial real estate loans acquired
from ONBANCorp, partially offset by a higher provision for loan losses of $1.1
million in the first six months of 1999 over the corresponding 1998 period. Net
income contributed by the Discretionary Portfolio segment in the second quarter
of 1999 totaled $8.7 million, compared with $8.2 million in the second quarter
of 1998 and $8.8 million in the first quarter of 1999. Higher tax-exempt
noninterest income from bank-owned life insurance of $2 million in the second
quarter of 1999 over the second quarter of 1998 and the initial 1999 quarter was
partially offset by a $3 million loss incurred when a counterparty defaulted on
the settlement of outstanding foreign exchange contracts. In the first two
quarters, net income from this segment was $17.5 million in 1999 and $13.6
million in 1998. The increase over 1998 was largely the result of a $4.6 million
increase in tax exempt income earned from bank-owned life insurance. An increase
in earning assets, including residential mortgage loans and investment
securities obtained in the ONBANCorp acquisition, also contributed to the
improvement in net income. Partially offsetting these increases was the
previously mentioned settlement loss on foreign exchange contracts. The
Residential Mortgage Banking segment had net income of $6.0 million in the
second 1999 quarter, compared to $6.1 million in the corresponding 1998 quarter
and $7.0 million in the initial 1999 quarter. For the first half of the year,
net income increased to $13.0 million in 1999 from $10.3 million in 1998,
largely the result of a $7.9 million increase in gains from sales of loans and
loan servicing rights. A favorable interest rate environment was the primary
factor leading to an increase in loan origination volume and the related
increase in net income for this segment. As of June 30, 1999, loans serviced by
the Residential Mortgage Banking segment totaled $10.7 billion, including $3.6
billion of loans serviced for the Company, compared with $11.4 billion a year
earlier. Retail Banking earned $26.6 million in 1999's second quarter, up from
$25.1 million in the year-earlier period and $24.5 million in the first quarter
of 1999. Higher loan and deposit balances were the major factors contributing to
the improvement in net income. For the first half of the year, earnings were
$51.2 million in 1999 and $44.3 million in 1998. The acquisition of ONBANCorp on
April 1, 1998 and higher earnings from indirect consumer lending and small
business banking were the leading factors contributing to the increases from the
1998 periods.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available for sale security, or a foreign currency denominated forecasted
transaction.
The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. An entity that
elects to apply hedge accounting is required to establish at the inception of
the hedge the method it will use for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective aspect
of the hedge. Those methods must be consistent with the entity's approach to
managing risk.
-28-
<PAGE>
SFAS No. 133 was to be effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the Financial Accounting
Standards Board amended SFAS No. 133, deferring the effective date by one
year. Initial application of SFAS No. 133 must be as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of the statement.
Early application of all of the provisions of SFAS No. 133 is encouraged, but
is permitted only as of the beginning of any fiscal quarter that begins after
issuance of the statement. SFAS No. 133 may not be applied retroactively to
financial statements of prior periods.
The method of adoption expected to be utilized by the Company has yet
to be determined and the estimated impact that adopting the provisions of SFAS
No. 133 will have on the Company's financial statements has not been quantified.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly report contain forward- looking
statements that are based on current expectations, estimates and projections
about the Company's business, management's beliefs and assumptions made by
management. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") which
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Future Factors include changes in interest rates, spreads on earning
assets and interest-bearing liabilities, and interest rate sensitivity; credit
losses; sources of liquidity; regulatory supervision and oversight, including
required capital levels; increasing price and product/service competition by
competitors, including new entrants; rapid technological developments and
changes; the ability to continue to introduce competitive new products and
services on a timely, cost-effective basis; the mix of products/services;
containing costs and expenses; governmental and public policy changes, including
environmental regulations; protection and validity of intellectual property
rights; reliance on large customers; technological, implementation and
cost/financial risks in large, multi-year contracts; technological,
implementation and financial risks associated with Year 2000 issues; the outcome
of pending and future litigation and governmental proceedings; continued
availability of financing; and financial resources in the amounts, at the times
and on the terms required to support the Company's future businesses. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general economic
conditions, including interest rate and currency exchange rate fluctuations, and
other Future Factors.
-29-
<PAGE>
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTERLY TRENDS
1999 Quarters 1998 Quarters
-------------------- --------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TAXABLE-EQUIVALENT BASIS Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AND DIVIDENDS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
Interest income $361,158 358,370 360,571 361,921 364,838 279,306
Interest expense 171,269 175,238 183,424 184,850 184,644 134,585
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 189,889 183,132 177,147 177,071 180,194 144,721
Less: provision for possible credit losses 8,500 8,500 7,500 10,500 13,200 12,000
Other income 66,806 72,716 64,985 63,986 65,075 68,893
Less: other expense 145,547 139,466 138,756 138,490 155,004 133,873
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 102,648 107,882 95,876 92,067 77,065 67,741
Applicable income taxes 35,772 39,151 36,064 33,693 30,587 17,245
Taxable-equivalent adjustment 1,838 1,825 1,969 1,897 1,779 1,541
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 65,038 66,906 57,843 56,477 44,699 48,955
- ---------------------------------------------------------------------------------------------------------------------------------
Per common share data
Net income
Basic $ 8.35 8.65 7.44 7.09 5.55 7.34
Diluted 8.00 8.34 7.14 6.81 5.32 7.01
Cash dividends $ 1.00 1.00 1.00 1.00 1.00 .80
Average common shares outstanding
Basic 7,793 7,731 7,778 7,966 8,051 6,666
Diluted 8,132 8,023 8,105 8,288 8,409 6,981
- ---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS, ANNUALIZED
Return on
Average assets 1.27 % 1.34 % 1.14 % 1.15 % .92 % 1.41 %
Average common stockholders' equity 15.23 % 16.56 % 14.20 % 13.48 % 10.77 % 18.86 %
Net interest margin on average earning assets
(taxable-equivalent basis) 4.09 % 3.98 % 3.82 % 3.93 % 4.02 % 4.39 %
Nonperforming assets to total assets,
at end of quarter .56 % .62 % .62 % .67 % .69 % .53 %
- ---------------------------------------------------------------------------------------------------------------------------------
CASH (TANGIBLE) OPERATING RESULTS (1)
Net income (in thousands) $ 76,511 76,333 67,326 67,703 65,445 51,448
Diluted net income per common share 9.41 9.51 8.31 8.17 7.78 7.37
Annualized return on
Average tangible assets 1.53 % 1.57 % 1.36 % 1.42 % 1.38 % 1.49 %
Average tangible common stockholders' equity 26.13 % 27.66 % 24.57 % 23.90 % 23.50 % 20.13 %
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
DOLLARS IN MILLIONS, EXCEPT PER SHARE
Average balances
Total assets $ 20,579 20,298 20,101 19,455 19,547 14,055
Earning assets 18,636 18,664 18,401 17,881 17,992 13,357
Investment securities 2,064 2,497 2,617 2,533 2,858 1,614
Loans and leases, net of unearned discount 16,056 15,761 15,389 15,124 14,978 11,602
Deposits 14,578 14,497 14,617 14,552 14,726 10,988
Stockholders' equity 1,713 1,638 1,616 1,662 1,664 1,053
- ---------------------------------------------------------------------------------------------------------------------------------
At end of quarter
Total assets $ 21,205 20,285 20,584 19,478 20,138 14,570
Earning assets 19,435 18,730 18,926 17,905 18,419 13,778
Investment securities 2,078 2,088 2,786 2,446 2,707 1,530
Loans and leases, net of unearned discount 16,513 15,813 15,792 15,163 15,245 12,033
Deposits 14,909 14,476 14,737 14,394 14,813 11,085
Stockholders' equity 1,773 1,667 1,602 1,649 1,659 1,069
Equity per common share 224.81 215.34 207.94 209.03 207.18 160.06
Tangible equity per common share 149.14 148.95 139.89 141.43 139.37 157.75
- ---------------------------------------------------------------------------------------------------------------------------------
MARKET PRICE PER COMMON SHARE
High $ 582 1/2 518 3/4 539 1/2 582 554 504
Low 462 1/2 464 400 410 480 429
Closing 550 479 518 15/16 461 554 499 7/8
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Excludes amortization and balances related to goodwill and core deposit
intangible and nonrecurring merger-related expenses, net of applicable
income tax effects.
-30-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1999 Second quarter 1999 First quarter
Average Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate balance Interest rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 3,201 $ 62,928 7.88 % 3,179 64,028 8.17 %
Real estate 9,928 198,370 7.99 9,691 191,482 7.90
Consumer 2,927 61,114 8.37 2,891 60,003 8.42
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 16,056 322,412 8.05 15,761 315,513 8.12
- -----------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 5 49 4.08 1 7 2.68
Federal funds sold and agreements
to resell securities 430 5,381 5.02 331 3,823 4.68
Trading account 81 1,398 6.89 74 1,256 6.91
- -----------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 516 6,828 5.30 406 5,086 5.08
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 902 13,063 5.81 1,112 15,832 5.77
Obligations of states and political subdivisions 71 1,121 6.30 72 1,116 6.30
Other 1,091 17,734 6.52 1,313 20,823 6.43
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,064 31,918 6.20 2,497 37,771 6.13
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 18,636 361,158 7.77 18,664 358,370 7.79
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (310) (308)
Cash and due from banks 439 442
Other assets 1,814 1,500
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 20,579 20,298
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 370 1,125 1.22 399 1,280 1.30
Savings deposits 5,038 29,114 2.32 4,881 28,810 2.39
Time deposits 7,041 89,182 5.08 7,049 90,892 5.23
Deposits at foreign office 243 2,757 4.56 303 3,429 4.59
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,692 122,178 3.86 12,632 124,411 3.99
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,876 22,768 4.87 2,138 25,735 4.88
Long-term borrowings 1,763 26,323 5.99 1,647 25,092 6.18
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 16,331 171,269 4.21 16,417 175,238 4.33
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,886 1,865
Other liabilities 649 378
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 18,866 18,660
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,713 1,638
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 20,579 20,298
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.56 3.46
Contribution of interest-free funds .53 .52
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 189,889 4.09 % 183,132 3.98 %
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1998 Fourth quarter
Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. 3,034 61,936 8.10 %
Real estate 9,458 189,222 8.00
Consumer 2,897 63,154 8.65
- ---------------------------------------------------------------------------------------------
Total loans and leases, net 15,389 314,312 8.10
- ---------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 2 14 3.80
Federal funds sold and agreements
to resell securities 276 3,690 5.30
Trading account 117 2,066 6.99
- ---------------------------------------------------------------------------------------------
Total money-market assets 395 5,770 5.80
- ---------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 1,398 20,905 5.93
Obligations of states and political subdivisions 78 1,217 6.19
Other 1,141 18,367 6.39
- ---------------------------------------------------------------------------------------------
Total investment securities 2,617 40,489 6.14
- ---------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 18,401 360,571 7.77
- ---------------------------------------------------------------------------------------------
Allowance for possible credit losses (310)
Cash and due from banks 425
Other assets 1,585
- ---------------------------------------------------------------------------------------------
Total assets 20,101
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts 390 1,379 1.40
Savings deposits 4,828 30,707 2.52
Time deposits 7,216 98,526 5.42
Deposits at foreign office 341 4,208 4.89
- ---------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,775 134,820 4.19
- ---------------------------------------------------------------------------------------------
Short-term borrowings 2,055 26,640 5.14
Long-term borrowings 1,344 21,964 6.48
- ---------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 16,174 183,424 4.50
- ---------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,842
Other liabilities 469
- ---------------------------------------------------------------------------------------------
Total liabilities 18,485
- ---------------------------------------------------------------------------------------------
Stockholders' equity 1,616
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 20,101
- ---------------------------------------------------------------------------------------------
Net interest spread 3.27
Contribution of interest-free funds .55
- ---------------------------------------------------------------------------------------------
Net interest income/margin on earning assets 177,147 3.82 %
- ---------------------------------------------------------------------------------------------
</TABLE>
*INCLUDES NONACCRUAL LOANS.
**INCLUDES AVAILABLE FOR SALE SECURITIES AT AMORTIZED COST. (continued)
-31-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1998 Third quarter 1998 Second quarter
Average Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 2,935 $ 61,711 8.34 % 2,954 62,185 8.44 %
Real estate 9,273 191,102 8.24 8,951 185,138 8.27
Consumer 2,916 65,389 8.90 3,073 69,830 9.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 15,124 318,202 8.35 14,978 317,153 8.49
- ------------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 2 16 3.07 37 364 3.93
Federal funds sold and agreements
to resell securities 119 1,634 5.44 88 1,247 5.70
Trading account 103 1,797 6.93 31 494 6.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 224 3,447 6.11 156 2,105 5.40
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 1,561 23,644 6.01 1,816 27,620 6.10
Obligations of states and political subdivisions 85 1,321 6.18 90 1,396 6.25
Other 887 15,307 6.84 952 16,564 6.98
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,533 40,272 6.31 2,858 45,580 6.40
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 17,881 361,921 8.03 17,992 364,838 8.13
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (311) (310)
Cash and due from banks 413 417
Other assets 1,472 1,448
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 19,455 19,547
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 344 1,328 1.53 304 1,189 1.57
Savings deposits 4,709 31,395 2.65 4,718 30,636 2.60
Time deposits 7,414 103,525 5.54 7,686 105,500 5.51
Deposits at foreign office 293 3,964 5.36 267 3,562 5.34
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,760 140,212 4.36 12,975 140,887 4.36
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,069 29,376 5.63 2,207 30,969 5.63
Long-term borrowings 861 15,262 7.03 695 12,788 7.38
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 15,690 184,850 4.67 15,877 184,644 4.66
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,792 1,751
Other liabilities 311 255
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 17,793 17,883
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,662 1,664
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 19,455 19,547
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.36 3.47
Contribution of interest-free funds .57 .55
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 177,071 3.93 % 180,194 4.02 %
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*INCLUDES NONACCRUAL LOANS.
**INCLUDES AVAILABLE FOR SALE SECURITIES AT AMORTIZED COST.
-32-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Incorporated by reference to the discussion contained under the caption
"Taxable-equivalent Net Interest Income" in Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
M&T and its subsidiaries are subject in the normal course of business
to various pending and threatened legal proceedings in which claims for monetary
damages are asserted. Management, after consultation with legal counsel, does
not anticipate that the aggregate ultimate liability, 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 2. Changes in Securities and Use of Proceeds.
(Not applicable.)
Item 3. Defaults Upon Senior Securities.
(Not applicable.)
Item 4. Submission of Matters to a Vote of Security Holders.
Information concerning the matters submitted to a vote of stockholders
at M&T Bank Corporation's Annual Meeting of Stockholders held on April 20, 1999
was previously reported in response to Item 4 of Part II of M&T's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
Item 5. Other Information.
(None.)
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of this report:
Exhibit
No.
-------
27.1 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K. The following Current Report on Form 8-K was
filed with the Securities and Exchange Commission:
On June 7, 1999, a Current Report on Form 8-K dated June 1, 1999
was filed to announce the consummation of the merger of FNB Rochester Corp.
with and into Olympia Financial Corp., a wholly owned subsidiary of M&T, on
June 1, 1999. That Form 8-K also reported that on June 2, 1999, M&T Bank and
The Chase Manhattan Bank ("Chase") entered into an agreement providing for
M&T Bank's acquisition of 29 Chase branches located in the Binghamton, Elmira,
Corning, Buffalo, Jamestown and Albany areas of upstate New York.
-33-<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
M&T BANK CORPORATION
Date: August 12, 1999 By: /s/ Michael P. Pinto
-------------------------------------
Michael P. Pinto
Executive Vice President
and Chief Financial Officer
-34-
<PAGE>
EXHIBIT INDEX
Exhibit
NO.
27.1 Financial Data Schedule. Filed herewith.
-35-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 543,669
<INT-BEARING-DEPOSITS> 3,276
<FED-FUNDS-SOLD> 418,188
<TRADING-ASSETS> 453,826
<INVESTMENTS-HELD-FOR-SALE> 1,878,045
<INVESTMENTS-CARRYING> 199,583
<INVESTMENTS-MARKET> 199,007
<LOANS> 16,706,052
<ALLOWANCE> 314,398
<TOTAL-ASSETS> 21,205,452
<DEPOSITS> 14,908,952
<SHORT-TERM> 1,941,500
<LIABILITIES-OTHER> 760,986
<LONG-TERM> 1,821,507
0
0
<COMMON> 40,508
<OTHER-SE> 1,731,999
<TOTAL-LIABILITIES-AND-EQUITY> 21,205,452
<INTEREST-LOAN> 636,816
<INTEREST-INVEST> 67,165
<INTEREST-OTHER> 11,884
<INTEREST-TOTAL> 715,865
<INTEREST-DEPOSIT> 246,589
<INTEREST-EXPENSE> 346,507
<INTEREST-INCOME-NET> 369,358
<LOAN-LOSSES> 17,000
<SECURITIES-GAINS> 220
<EXPENSE-OTHER> 285,013
<INCOME-PRETAX> 206,867
<INCOME-PRE-EXTRAORDINARY> 131,944
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,944
<EPS-BASIC> 17.00
<EPS-DILUTED> 16.33
<YIELD-ACTUAL> 4.03
<LOANS-NON> 68,285
<LOANS-PAST> 31,988
<LOANS-TROUBLED> 8,146
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 306,347
<CHARGE-OFFS> 23,673
<RECOVERIES> 9,088
<ALLOWANCE-CLOSE> 314,398
<ALLOWANCE-DOMESTIC> 206,345
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 108,053
</TABLE>
