<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 September 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 14203
Buffalo, New York (Zip Code)
(Address of principal
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 November 5, 1999: 7,794,263 shares.
<PAGE>
M&T BANK CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 -
September 30, 1999 and December 31, 1998 3
CONSOLIDATED STATEMENT OF INCOME -
Three and nine months ended
September 30, 1999 and 1998 4
CONSOLIDATED STATEMENT OF CASH FLOWS -
Nine months ended September 30, 1999 and 1998 5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY - Nine months ended
September 30, 1999 and 1998 6
CONSOLIDATED SUMMARY OF CHANGES IN
ALLOWANCE FOR POSSIBLE CREDIT LOSSES -
Nine months ended September 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>
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET (Unaudited)
September 30, December 31,
DOLLARS IN THOUSANDS, EXCEPT PER SHARE 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $ 517,461 493,792
Money-market assets
Interest-bearing deposits at banks 747 674
Federal funds sold and agreements to resell securities 517,381 229,066
Trading account 555,007 173,122
----------------------------------------------------------------------------------------------------
Total money-market assets 1,073,135 402,862
----------------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,779,804 at September 30, 1999;
$2,578,940 at December 31, 1998) 1,742,508 2,583,740
Held to maturity (market value: $94,732 at September 30, 1999;
$87,365 at December 31, 1998) 95,750 87,282
Other (market value: $115,193 at September 30, 1999;
$114,542 at December 31, 1998) 115,193 114,542
----------------------------------------------------------------------------------------------------
Total investment securities 1,953,451 2,785,564
----------------------------------------------------------------------------------------------------
Loans and leases 17,155,460 16,005,701
Unearned discount (171,837) (214,171)
Allowance for possible credit losses (314,965) (306,347)
----------------------------------------------------------------------------------------------------
Loans and leases, net 16,668,658 15,485,183
----------------------------------------------------------------------------------------------------
Premises and equipment 169,709 162,842
Goodwill and core deposit intangible 662,580 546,036
Accrued interest and other assets 714,307 707,612
----------------------------------------------------------------------------------------------------
Total assets $ 21,759,301 20,583,891
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 2,176,130 2,066,814
NOW accounts 538,328 509,307
Savings deposits 5,345,378 4,830,678
Time deposits 7,107,121 7,027,083
Deposits at foreign office 249,559 303,270
----------------------------------------------------------------------------------------------------
Total deposits 15,416,516 14,737,152
----------------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,370,044 1,746,078
Other short-term borrowings 459,987 483,898
Accrued interest and other liabilities 920,689 446,854
Long-term borrowings 1,774,897 1,567,543
----------------------------------------------------------------------------------------------------
Total liabilities 19,942,133 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 - 8,584 shares at September 30, 1999; 4,025 3,752
8,028 shares at December 31, 1998
Additional paid-in capital 460,246 480,014
Retained earnings 1,445,114 1,271,071
Accumulated other comprehensive income, net (22,078) 2,869
Treasury stock - common, at cost -
226,804 shares at September 30, 1999;
403,769 shares at December 31, 1998 (110,647) (195,848)
----------------------------------------------------------------------------------------------------
Total stockholders' equity 1,817,168 1,602,366
----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 21,759,301 20,583,891
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three months ended Nine months ended
September 30 September 30
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income Loans and leases, including fees $ 336,186 317,568 $ 973,002 884,907
Money-market assets
Deposits at banks 25 16 80 386
Federal funds sold and agreements
to resell securities 5,732 1,634 14,936 4,603
Trading account 355 1,763 2,980 2,368
Investment securities
Fully taxable 28,539 36,959 91,425 102,827
Exempt from federal taxes 2,220 2,084 6,499 5,757
---------------------------------------------------------------------------------------------------------------
Total interest income 373,057 360,024 1,088,922 1,000,848
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 1,055 1,328 3,460 3,472
Savings deposits 30,708 31,395 88,632 84,638
Time deposits 90,955 103,525 271,029 289,659
Deposits at foreign office 2,720 3,964 8,906 10,765
Short-term borrowings 26,886 29,376 75,389 78,942
Long-term borrowings 27,637 15,262 79,052 36,603
---------------------------------------------------------------------------------------------------------------
Total interest expense 179,961 184,850 526,468 504,079
---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 193,096 175,174 562,454 496,769
Provision for possible credit losses 13,500 10,500 30,500 35,700
---------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 179,596 164,674 531,954 461,069
- ------------------------------------------------------------------------------------------------------------------------------------
Other income Mortgage banking revenues 16,893 16,405 56,980 48,741
Service charges on deposit accounts 20,268 15,940 52,851 41,354
Trust income 10,227 9,355 30,828 28,778
Merchant discount and other credit card fees 1,906 2,321 5,409 10,889
Trading account and foreign exchange gains (losses) 742 (148) (1,331) 2,137
Gain on sales of bank investment securities 1,355 376 1,575 698
Other revenues from operations 21,108 19,737 65,709 65,357
---------------------------------------------------------------------------------------------------------------
Total other income 72,499 63,986 212,021 197,954
- ------------------------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 71,570 63,520 211,385 191,783
Equipment and net occupancy 18,617 18,876 54,121 50,233
Printing, postage and supplies 4,877 4,743 13,335 13,342
Amortization of goodwill and core deposit intangible 12,538 10,879 34,568 23,579
Other costs of operations 37,296 40,472 116,502 148,430
---------------------------------------------------------------------------------------------------------------
Total other expense 144,898 138,490 429,911 427,367
---------------------------------------------------------------------------------------------------------------
Income before income taxes 107,197 90,170 314,064 231,656
Income taxes 39,633 33,693 114,556 81,525
---------------------------------------------------------------------------------------------------------------
NET INCOME $ 67,564 56,477 $ 199,508 150,131
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share
Basic $ 8.57 7.09 $ 25.57 19.84
Diluted 8.29 6.81 24.63 19.01
Cash dividends per common share 1.25 1.00 3.25 2.80
Average common shares outstanding
Basic 7,880 7,966 7,802 7,566
Diluted 8,147 8,288 8,101 7,897
</TABLE>
-4-
<PAGE>
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
DOLLARS IN THOUSANDS 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from Net income $ 199,508 150,131
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 30,500 35,700
Depreciation and amortization of premises
and equipment 20,918 18,936
Amortization of capitalized servicing rights 14,840 14,733
Amortization of goodwill and core deposit intangible 34,568 23,579
Provision for deferred income taxes (1,708) (2,225)
Asset write-downs 1,342 3,304
Net gain on sales of assets (1,416) (4,257)
Net change in accrued interest receivable, payable (13,208) 12,451
Net change in other accrued income and expense (4,354) 32,927
Net change in loans held for sale 171,853 (141,177)
Net change in trading account assets and liabilities 113,068 (141,036)
------------------------------------------------------------------------------------------
Net cash provided by operating activities 565,911 3,066
- -------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 89,509 124,553
Other 7,223 3,976
Proceeds from maturities of investment securities
Available for sale 981,968 821,178
Held to maturity 39,620 74,536
Other -- 7,930
Purchases of investment securities
Available for sale (137,940) (141,230)
Held to maturity (39,791) (34,405)
Other (5,206) (21,873)
Net increase in interest-bearing
deposits at banks (73) (241)
Additions to capitalized servicing rights (13,373) (9,516)
Net increase in loans and leases (955,840) (771,606)
Proceeds from sale of retail credit card business -- 189,818
Capital expenditures, net (11,191) (17,207)
Acquisitions, net of cash acquired:
Banks and bank holding companies (51,423) 20,790
Deposits and banking offices 529,754 --
Purchases of bank owned life insurance -- (150,000)
Other, net 19,099 (13,204)
------------------------------------------------------------------------------------------
Net cash provided by investing activities 452,336 83,499
- -------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in deposits (465,505) (533,682)
financing activities Net increase (decrease) in short-term borrowings (399,837) 250,960
Proceeds from long-term borrowings 353,152 500,000
Payments on long-term borrowings (165,050) (2,479)
Purchases of treasury stock (6,244) (135,528)
Dividends paid - common (25,437) (21,279)
Other, net 2,658 11,168
------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (706,263) 69,160
------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 311,984 155,725
Cash and cash equivalents at beginning of period 722,858 386,892
Cash and cash equivalents at end of period $ 1,034,842 542,617
- -------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the period $ 1,086,518 1,004,594
disclosure of cash Interest paid during the period 537,677 500,793
flow information Income taxes paid during the period 113,365 48,162
- -------------------------------------------------------------------------------------------------------------------
Supplemental schedule of Real estate acquired in settlement of loans $ 7,422 5,754
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 540,672 4,619,715
Stock options -- 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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Balance - January 1, 1998 $ -- 40,487 -- 103,233 1,092,106 12,016 (217,576)
Comprehensive income:
Net income -- -- -- -- 150,131 -- --
Other comprehensive income,
net of tax:
Unrealized losses on investment
securities, net of reclassification
adjustment -- -- -- -- -- (5,234) --
Purchases of treasury stock -- -- -- -- -- -- (135,528)
Acquisition of ONBANCorp:
Common stock issued -- 10 -- 364,427 -- -- 223,382
Fair value of stock options -- -- -- 19,424 -- -- --
Stock-based compensation plans:
Exercise of stock options -- 11 -- (2,303) -- -- 21,768
Directors' stock plan -- -- -- 49 -- -- 177
Deferred bonus plan, net, including
dividend equivalents -- -- 3,834 (1) (16) -- 59
Common stock cash dividends -
$2.80 per share -- -- -- -- (21,279) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1998 $ -- 40,508 3,834 484,829 1,220,942 6,782 (107,718)
- -----------------------------------------------------------------------------------------------------------------------------------
1999
Balance - January 1, 1999 $ -- 40,508 3,752 480,014 1,271,071 2,869 (195,848)
Comprehensive income:
Net income -- -- -- -- 199,508 -- --
Other comprehensive income,
net of tax:
Unrealized losses on investment
securities, net of reclassification
adjustment -- -- -- -- -- (24,947) --
Purchases of treasury stock -- -- -- -- -- -- (6,244)
Acquisition of FNB Rochester Corp.:
Common stock issued -- -- -- (718) -- -- 59,464
Stock-based compensation plans:
Exercise of stock options -- -- -- (19,050) -- -- 31,398
Directors' stock plan -- -- -- 13 -- -- 219
Deferred bonus plan, net, including
dividend equivalents -- -- 273 (13) (28) -- 364
Common stock cash dividends -
$3.25 per share -- -- -- -- (25,437) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1999 $ -- 40,508 4,025 460,246 1,445,114 (22,078) (110,647)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE Total
- -------------------------------------------------------------
<S> <C>
1998
Balance - January 1, 1998 $ 1,030,266
Comprehensive income:
Net income 150,131
Other comprehensive income,
net of tax:
Unrealized losses on investment
securities, net of reclassification
adjustment (5,234)
----------
144,897
Purchases of treasury stock (135,528)
Acquisition of ONBANCorp:
Common stock issued 587,819
Fair value of stock options 19,424
Stock-based compensation plans:
Exercise of stock options 19,476
Directors' stock plan 226
Deferred bonus plan, net, including
dividend equivalents 3,876
Common stock cash dividends -
$2.80 per share (21,279)
- -------------------------------------------------------------
Balance - September 30, 1998 $ 1,649,177
- -------------------------------------------------------------
1999
Balance - January 1, 1999 $ 1,602,366
Comprehensive income:
Net income 199,508
Other comprehensive income,
net of tax:
Unrealized losses on investment
securities, net of reclassification
adjustment (24,947)
----------
174,561
Purchases of treasury stock (6,244)
Acquisition of FNB Rochester Corp.:
Common stock issued 58,746
Stock-based compensation plans:
Exercise of stock options 12,348
Directors' stock plan 232
Deferred bonus plan, net, including
dividend equivalents 596
Common stock cash dividends -
$3.25 per share (25,437)
- -------------------------------------------------------------
Balance - September 30, 1999 $ 1,817,168
- -------------------------------------------------------------
</TABLE>
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Nine months ended
September 30
DOLLARS IN THOUSANDS 1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Beginning balance $ 306,347 274,656
Provision for possible credit losses 30,500 35,700
Allowance obtained through acquisition 5,636 27,905
Net charge-offs
Charge-offs (41,044) (41,088)
Recoveries 13,526 12,362
- --------------------------------------------------------------------
Total net charge-offs (27,518) (28,726)
- --------------------------------------------------------------------
Ending balance $ 314,965 309,535
- --------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of M&T Bank Corporation ("M&T") and
subsidiaries (referred to collectively as "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 Nine months ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share)
<S> <C> <C> <C> <C>
Income available to common stockholders:
Net income $67,564 56,477 199,508 150,131
Weighted-average shares
outstanding (including common
stock issuable) 7,880 7,966 7,802 7,566
Basic earnings per share $ 8.57 7.09 25.57 19.84
</TABLE>
The computations of diluted earnings per share follow:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share)
<S> <C> <C> <C> <C>
Income available to common
stockholders $67,564 56,477 199,508 150,131
Weighted-average shares
outstanding (including common
stock issuable) 7,880 7,966 7,802 7,566
Plus: incremental shares from
assumed conversions of
stock options 267 322 299 331
------- ------ ------- -------
Adjusted weighted-average shares
outstanding 8,147 8,288 8,101 7,897
Diluted earnings per share $ 8.29 6.81 24.63 19.01
</TABLE>
3. COMPREHENSIVE INCOME
The following table displays the components of other comprehensive income:
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Before-tax Income
amount taxes Net
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Unrealized losses on investment securities:
Unrealized holding
losses during period $(40,521) (16,510) (24,011)
Less: reclassification
adjustment for gains
realized in net income 1,575 639 936
------- ------- -------
Net unrealized losses $(42,096) (17,149) (24,947)
======== ======= =======
</TABLE>
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. COMPREHENSIVE INCOME, CONTINUED
NINE MONTHS ENDED SEPTEMBER 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) $(8,112) (3,291) (4,821)
Less: reclassification
adjustment for gains
realized in net income 698 285 413
------- ------- -------
Net unrealized losses $(8,810) (3,576) (5,234)
======= ====== ======
</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 that 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 September 24, 1999, Manufacturers and Traders Trust Company ("M&T Bank"),
M&T's principal banking subsidiary, acquired 29 upstate New York branches
from The Chase Manhattan Bank ("Chase"). Acquired loans and deposits totaled
approximately $44 million and $634 million, respectively, on September 24,
1999. In addition, on September 30, 1999 M&T Bank acquired from Chase
investment management and custody accounts associated with the branches
having assets of approximately $286 million. Chase has also agreed to
transfer up to approximately $195 million of other trust and fiduciary
account assets to M&T Bank following the receipt of required regulatory and
court approvals. It is expected that this transfer will be completed at or
about the end of March 2000. In connection with the acquisition, the Company
recorded approximately $55 million of goodwill and core deposit intangible.
The goodwill is being amortized on a straight-line basis over five years and
the core deposit intangible is being amortized on an accelerated basis over
seven years.
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
Financial Corp. ("Olympia"), a wholly owned subsidiary of M&T. 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.
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. ACQUISITIONS, CONTINUED
In connection with the transactions described in the two preceding paragraphs,
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 $2.2 million ($1.3 million net of applicable income taxes) and
$4.7 million ($3.0 million net of applicable income taxes) during the
three-month and nine-month periods ended September 30, 1999, respectively.
On April 1, 1998, M&T consummated the merger of ONBANCorp, Inc. ("ONBANCorp")
with and into Olympia. 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 M&T Bank.
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. The expenses were incurred during the first nine
months of 1998 including approximately $3.0 million ($1.8 million net of
applicable income taxes) during the three-month period ended September 30, 1998.
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 September
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 accordance with the provisions of Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information,"
reportable segments have been determined based upon the Company's internal
profitability reporting system, which is organized by strategic business units.
Certain strategic business units have been combined for segment information
reporting purposes where the nature of the products and services, the type of
customer and the distribution of those products and services are similar. The
reportable segments are Commercial Banking, Commercial Real Estate,
Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company's segments 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 SEPTEMBER 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 $ 47,561 102 17,406 41,473 178 17,818
Commercial
Real Estate 32,103 293 16,258 29,351 324 14,296
Discretionary
Portfolio 19,204 (167) 10,351 15,156 (570) 8,706
Residential
Mortgage Banking 31,594 7,272 4,599 34,941 12,069 4,576
Retail Banking 119,255 1,984 29,554 113,775 1,466 30,427
All Other 15,878 (9,484) (10,604) 4,464 (13,467) (19,346)
-------- ------ ------- ------- ------- -------
Total $265,595 -- 67,564 239,160 -- 56,477
======== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 $138,285 326 58,068 116,349 448 50,314
Commercial
Real Estate 92,548 971 47,147 87,048 968 44,698
Discretionary
Portfolio 51,256 (979) 27,862 43,519 (1,406) 22,283
Residential
Mortgage Banking 103,360 26,205 17,551 99,652 33,191 14,826
Retail Banking 335,118 6,497 80,715 310,242 4,860 74,746
All Other 53,908 (33,020) (31,835) 37,913 (38,061) (56,736)
-------- ------ ------- ------- ------- -------
Total $774,475 -- 199,508 694,723 -- 150,131
======== ====== ======= ======= ======= =======
</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 $1,964,000 and
$1,897,000 for the three-month periods ended September 30, 1999 and 1998,
respectively, and $5,627,000 and $5,217,000 for the nine-month periods
ended September 30, 1999 and 1998, respectively, and is eliminated in "All
Other" total revenues. Total revenues in "All Other" for the nine months
ended September 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
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Commercial Banking $ 4,189 3,473 3,653
Commercial Real Estate 4,028 3,559 3,527
Discretionary Portfolio 6,763 5,731 6,025
Residential Mortgage
Banking 642 551 581
Retail Banking 4,166 3,702 3,781
All Other 902 690 742
------- ----- -----
Total $20,690 17,706 18,309
======= ====== ======
</TABLE>
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
M&T Bank Corporation ("M&T") earned $67.6 million or $8.29 of diluted earnings
per common share in the third quarter of 1999, increases of 20% and 22%,
respectively, from the year-earlier quarter when net income was $56.5 million or
$6.81 of diluted earnings per common share. Net income was $65.0 million or
$8.00 of diluted earnings per common share in the second quarter of 1999. Basic
earnings per common share rose 21% to $8.57 in the recent quarter from $7.09 in
the third quarter of 1998 and were up 3% from $8.35 earned in the second quarter
of 1999. The after-tax impact of nonrecurring acquisition-related expenses
associated with the merger and acquisition activity described below was $1.3
million ($2.2 million pre-tax) or $.15 of diluted earnings per share and $.16 of
basic earnings per share in the third quarter of 1999, compared with $1.8
million ($3.0 million pre-tax) or $.21 of diluted earnings per share and $.22 of
basic earnings per share in the year-earlier quarter and $1.7 million ($2.5
million pre-tax) or $.21 of diluted earnings per share and $.22 of basic
earnings per share in the second quarter of 1999.
For the nine months ended September 30, 1999, net income was $199.5
million or $24.63 per diluted share, up 33% and 30%, respectively, from $150.1
million or $19.01 per diluted share during the first nine months of 1998. Basic
earnings per share rose to $25.57 in the first nine months of 1999 from $19.84
in the similar 1998 period. Nonrecurring merger-related expenses lowered net
income during the first three quarters of 1999 by $3.0 million and diluted and
basic earnings per share by $.37 and $.38, respectively. Similar expenses in the
first nine months of 1998 lowered net income by $14.0 million and reduced
diluted and basic earnings per share by $1.77 and $1.85, respectively.
The annualized rate of return on average total assets for M&T and its
consolidated subsidiaries ("the Company") in the third quarter of 1999 was
1.27%, up from 1.15% in the year-earlier quarter and equal to 1999's second
quarter. The annualized return on average common stockholders' equity was 14.97%
in the recent quarter, compared with 13.48% in the third quarter of 1998 and
15.23% in the second quarter of 1999. During the first nine months of 1999, the
annualized rates of return on average assets and average common stockholders'
equity were 1.29% and 15.56%, respectively, compared with 1.13% and 13.73%,
respectively, in the corresponding 1998 period. Excluding the impact of
merger-related expenses, the annualized returns on average assets and average
common equity were 1.29% and 15.25%, respectively, during the recent quarter,
compared with 1.19% and 13.91%, respectively, during the third quarter of 1998.
On the same basis, the annualized returns on average assets and average common
equity during the first nine months of 1999 were 1.31% and 15.79%, respectively,
compared with 1.24% and 15.01%, respectively, during the comparable period in
1998.
On September 24, 1999, Manufacturers and Traders Trust Company ("M&T
Bank"), the principal commercial bank subsidiary of M&T, completed the
acquisition of 29 upstate New York branches from The Chase Manhattan Bank
("Chase"). The branches had approximately $634 million of deposits and
approximately $44 million of retail installment and small business loans at the
closing. In addition, on September 30, 1999 M&T Bank acquired investment
management and custody accounts having assets of approximately $286 million.
Chase has also agreed to transfer up to approximately $195 million of other
trust and fiduciary account assets to M&T Bank following the receipt of
required regulatory and court approvals. It is expected that this transaction
will be completed at or about the end of March 2000. The impact of this
acquisition on the Company's financial results for the third quarter of 1999
was not significant.
On June 1, 1999, M&T completed the acquisition of FNB Rochester Corp.
("FNB"), a bank holding company headquartered in Rochester, New York.
-14-
<PAGE>
Immediately after the acquisition, FNB's banking subsidiary, First National Bank
of Rochester, which had 17 banking offices in western and central New York
State, was merged with and into M&T Bank. The acquisition was accounted for
using the purchase method of accounting, and, accordingly, the operations of FNB
have been included in the financial results of the Company since the acquisition
date. FNB's stockholders received $76.3 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 approximately $98 million of goodwill and
core deposit intangible. Liabilities assumed on June 1 were approximately $541
million and included $511 million of deposits.
Nonrecurring expenses related to systems conversions and other costs of
integrating and conforming the acquired operations described in the two
preceding paragraphs with and into M&T Bank totaled $2.2 million ($1.3 million
after-tax) and $4.7 million ($3.0 million after-tax) during the three-month and
nine-month periods ended September 30, 1999, respectively. Merger-related
expenses incurred in 1998 related to the April 1, 1998 merger with ONBANCorp,
Inc. ("ONBANCorp") totaled $3.0 million ($1.8 million after-tax) and $21.3
million ($14.0 million after-tax) during the three-month and nine-month periods
ended September 30, 1998, respectively.
CASH OPERATING RESULTS
As a result of the acquisitions of the Chase branches, FNB and ONBANCorp and, to
a significantly lesser extent, acquisitions of other entities in prior years,
M&T had recorded as assets at September 30, 1999 goodwill and core deposit
intangible totaling $663 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 the Chase branches, FNB and
ONBANCorp.
Cash net income rose 18% to $79.7 million in the third quarter of 1999
from $67.7 million in the year-earlier quarter. Diluted cash earnings per share
for the recent quarter were $9.78, up 20% from $8.17 in the third quarter of
1998. Cash net income and diluted cash earnings per share were $76.5 million and
$9.41, respectively, in the second 1999 quarter. For the first nine months of
1999, cash net income and diluted cash earnings per share were $232.6 million
and $28.71, respectively, up 26% and 23%, respectively, from $184.6 million and
$23.37 in the corresponding 1998 period.
On an annualized basis, cash return on average tangible assets was
1.54% in the recent quarter, compared with 1.42% in the third quarter of 1998
and 1.53% in the second quarter of 1999. Cash return on average tangible common
equity was an annualized 26.43% in the third quarter of 1999, compared with
23.90% in the year-earlier quarter and 26.13% in the second 1999 quarter. For
the first nine months of 1999, the annualized cash return on average tangible
assets and average tangible common stockholders' equity was 1.54% and 26.72%,
respectively, compared with 1.42% and 22.59%, respectively, in the corresponding
1998 period. Including the effect of merger-related expenses, the annualized
cash return on average tangible assets for the third quarter of 1999 and 1998
was 1.51% and 1.38%, respectively, and the annualized cash return on average
tangible common stockholders' equity was 26.00% and 23.28%, respectively.
-15-
<PAGE>
TAXABLE-EQUIVALENT NET INTEREST INCOME
Net interest income expressed on a taxable-equivalent basis was $195.1 million
in the third quarter of 1999, up 10% from $177.1 million in the year-earlier
quarter and 3% above the $189.9 million earned in the second quarter of 1999.
Growth in average loans and leases was the most significant factor contributing
to the improvement in net interest income. Average loans and leases rose $1.6
billion, or 10%, to $16.7 billion in the third quarter of 1999 from $15.1
billion in the year-earlier quarter. Average loans and leases in the recent
quarter were $622 million, or 4%, higher than the second quarter of 1999, due in
part to the impact of the FNB transaction. 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
3rd Qtr. 3rd Qtr. 2nd Qtr.
1999 1998 1999
-------- -------- ------
<S> <C> <C> <C>
Commercial, financial, etc. $ 3,374 15 % 5 %
Real estate - commercial 6,039 16 5
Real estate - consumer 4,224 4 1
Consumer
Automobile 1,445 1 -
Home equity 830 12 7
Credit cards 10 (86) (5)
Other 756 12 7
-------- -------- ------
Total consumer 3,041 4 4
-------- -------- ------
Total $16,678 10 % 4 %
-------- -------- ------
-------- -------- ------
</TABLE>
For the first nine months of 1999, taxable-equivalent net interest
income rose 13% to $568.1 million from $502.0 million in the corresponding 1998
period. An increase in average loans and leases of $2.3 billion, including the
full nine-month effect in 1999 of loans acquired in the April 1, 1998 ONBANCorp
transaction, was the leading factor contributing to this improvement.
Investment securities averaged $2.0 billion in 1999's third quarter,
down from $2.5 billion in the third quarter of 1998 and $2.1 billion in the
second 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 $458 million in the
recent quarter, compared with $224 million in the third quarter of 1998 and $516
million in the second 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 the
management of balance sheet size and resulting capital ratios.
As a result of the changes described herein, average earning assets
rose to $19.2 billion in the third quarter of 1999, up 7% from $17.9 billion in
the third quarter of 1998. Average earning assets were $18.6 billion in the
second quarter of 1999 and aggregated $18.8 billion and $16.4 billion for the
nine months ended September 30, 1999 and 1998, respectively.
-16-
<PAGE>
Core deposits represent the most significant source of funding to the
Company and generally carry lower interest rates than wholesale funds of
comparable maturities. Such deposits consist of noninterest-bearing deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered domestic
time deposits under $100,000. The Company's branch network is the principal
source of core deposits, which also 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. Core deposits averaged
$11.9 billion in the third quarter of 1999, compared with $11.4 billion in the
year-earlier quarter and $11.6 billion in the second quarter of 1999. Core
deposits obtained on June 1 in the acquisition of FNB were approximately $480
million. Core deposits obtained in the acquisition of the former Chase branches
were approximately $550 million on September 24. However, these latter deposits
had little impact on average core deposits in the recent quarter. The
accompanying table provides an analysis of quarterly changes in the components
of average core deposits. For the nine months ended September 30, 1999 and 1998,
core deposits averaged $11.6 billion and $10.5 billion, respectively.
AVERAGE CORE DEPOSITS
Dollars in millions
<TABLE>
<CAPTION>
Percent increase
(decrease) from
3rd Qtr. 3rd Qtr. 2nd Qtr.
1999 1998 1999
-------- -------- ------
<S> <C> <C> <C>
NOW accounts $ 368 7 % (1)%
Savings deposits 5,244 11 4
Time deposits less than $100,000 4,345 (6) 2
Noninterest-bearing deposits 1,982 11 5
-------- -------- ------
Total $11,939 4 % 3 %
-------- -------- ------
-------- -------- ------
</TABLE>
Supplementing 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 have been used as an alternative to short-term borrowings to lengthen
the average maturity of interest-bearing liabilities. Brokered deposits averaged
$1.1 billion during the third quarter of 1999 and totaled $1.1 billion at
September 30, 1999, compared with an average balance of $1.4 billion during the
comparable 1998 period and a total balance of $1.4 billion at September 30,
1998. Brokered deposits averaged $1.2 billion in the second quarter of 1999. The
weighted average remaining term to maturity of brokered deposits at September
30, 1999 was 1.4 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 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.
The Company also uses borrowings from banks, securities dealers,
Federal Home Loan Banks ("FHLB") and others as sources of funding. Short-term
borrowings averaged $2.1 billion in the third quarter of 1999, unchanged from
the comparable 1998 quarter, but up from $1.9 billion in the second quarter of
1999. Long-term borrowings averaged $1.8 billion in the second and third
quarters of 1999 and $861 million in the third quarter of 1998. Included in
long-term borrowings during the second and third quarters of 1999 were $1.3
billion of FHLB borrowings, compared with $348 million in the third quarter of
1998. 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>
Net interest income is impacted by changes in the composition of the
Company's earning assets and interest-bearing liabilities, as well as changes in
interest rates and spreads. The yield on earning assets decreased 27 basis
points (hundredths of one percent) to 7.76% in the third quarter of 1999 from
8.03% in the corresponding quarter of 1998. The rate paid on interest-bearing
liabilities in the recent quarter was 4.27%, down 40 basis points from 4.67% in
the third quarter of 1998. The declines in the recent quarter's yields on
earning assets and rates paid on interest-bearing liabilities were due to
generally lower interest rates when compared with the corresponding 1998
quarter. As a result of the changes described above, net interest spread, or the
difference between the taxable-equivalent yield on earning assets and the rate
paid on interest-bearing liabilities, was 3.49% in the third quarter of 1999, up
13 basis points from 3.36% in the year-earlier quarter. The net interest spread
was 3.56% in the second quarter of 1999 when the yield on earning assets was
7.77% and the rate paid on interest-bearing liabilities was 4.21%. Increases in
interest rates as a result of action taken by the Federal Reserve during the
third quarter of 1999 contributed to the 6 basis point increase in the cost of
interest-bearing liabilities and the resultant narrowing of the net interest
spread.
Net interest-free funds consist largely of noninterest-bearing demand
deposits and stockholders' equity, partially offset by goodwill and core deposit
intangible, bank-owned life insurance, and other non-earning assets. Net
interest-free funds contributed .54% to net interest margin, or
taxable-equivalent net interest income expressed as an annualized percentage of
average earning assets, in the third quarter of 1999, compared with .57% in the
corresponding 1998 quarter and .53% in the second quarter of 1999. Average net
interest-free funds totaled $2.5 billion in the third quarter of 1999, up from
$2.2 billion a year earlier and $2.3 billion in the second 1999 quarter.
As a result of the changes described above, the Company's net interest
margin was 4.03% in the recent quarter, up from 3.93% in the third quarter of
1998, but down from 4.09% in the second quarter of 1999. During the first nine
months of 1999 and 1998, the net interest margin was 4.03% and 4.09%,
respectively.
Interest rate swap agreements are utilized by the Company as part of
the management of interest rate risk to modify the repricing characteristics of
certain portions of the portfolios of earning assets and interest-bearing
liabilities. Revenue and expense arising from these agreements are reflected in
either the yields earned on assets or, as appropriate, the 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 September 30, 1999 and 1998 was $1.7 billion and $2.5 billion,
respectively. Under the terms of these swaps, the Company generally 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 September 30, 1999, the weighted average rates to be received
and paid under interest rate swap agreements were 6.38% and 5.40%, respectively.
The Company had also entered into forward-starting swaps as of September 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 September 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 SEPTEMBER 30
----------------------------------------------
1999 1998
------------------- ------------------
AMOUNT RATE * AMOUNT RATE *
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income $ 2,786 .06 % $ 688 .02 %
Interest expense (3,148) (.07) (2,859) (.07)
--------- --------
Net interest
income/margin $ 5,934 .12 % $ 3,547 .08 %
========= === ======== ===
Average notional
amount ** $1,712,328 $2,538,794
========== ==========
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------
1999 1998
------------------- ------------------
AMOUNT RATE * AMOUNT RATE *
--------- -------- -------- --------
Increase (decrease) in:
Interest income $ 10,869 .08 % $ 1,378 .01 %
Interest expense (11,796) (.10) (9,193) (.09)
--------- --------
Net interest
income/margin $ 22,665 .16 % $ 10,571 .09 %
========= === ======== ===
Average notional
amount ** $2,032,302 $2,530,748
========== ==========
</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 September 30, 1999 it would have
received approximately $24 million if all interest rate swap agreements entered
into for interest rate risk management purposes had been terminated, compared
with $31 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.
The Company is exposed to various risks as a financial intermediary,
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 investment
securities and money-market assets, 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. These historical sources of cash flows
were augmented, in 1997, by the proceeds from issuance of $250 million of trust
preferred securities. M&T also maintains a $25 million line of credit with an
unaffiliated commercial bank, all of which was available for borrowing at
September 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. The Company has also
completed a liquidity contingency plan in anticipation
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<PAGE>
of the Year 2000, which is discussed under the heading "Year 2000
Initiatives."
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, which 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 September 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.
<TABLE>
<CAPTION>
SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
(dollars in thousands) Calculated increase (decrease)
in projected net interest income
CHANGES IN INTEREST RATES September 30, 1999 December 31, 1998
- ------------------------- ------------------ -----------------
<S> <C> <C>
+200 basis points $ (2,257) (7,668)
+100 basis points (2,453) 335
- -100 basis points (1,077) 5,161
- -200 basis points (3,624) 4,498
</TABLE>
Many assumptions are utilized in calculating the impact of changes in
interest rates on net interest income, including prepayments of mortgage-related
assets, cash flows from derivative and other financial instruments held for
non-trading purposes and loan and deposit volumes, pricing and 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
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<PAGE>
activities are conducted utilizing financial instruments that include forward
and futures contracts related to foreign currencies and mortgage-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 $1.5 billion and $.6 billion,
respectively, at September 30, 1999, $1.5 billion and $2.2 billion,
respectively, at September 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. 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 September 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 third quarter of 1999 was $13.5 million, up from
$10.5 million in the corresponding 1998 quarter and $8.5 million in 1999's
second quarter. Net loan charge-offs totaled $12.9 million in the recent
quarter, compared with $11.8 million in the year-earlier quarter and $6.5
million in 1999's second quarter. The increase in charge-offs from the second
quarter of 1999 was due to a $6.2 million partial charge-off of a commercial
loan in the recent quarter. Net charge-offs as an annualized percentage of
average loans and leases were .31% in the third quarter of 1999, equal to the
corresponding 1998 quarter, but up from .16% in the second quarter of 1999. Net
charge-offs of consumer loans in the recent quarter were $5.1 million, equal to
1999's second quarter, but down from $8.5 million in the third quarter of 1998.
Net consumer loan charge-offs as an annualized percentage of average consumer
loans and leases were .66% in the recent quarter, compared with 1.16% in the
third quarter of 1998 and .69% in 1999's second quarter. Net charge-offs of
credit card balances included in net consumer loan charge-offs were $141
thousand and $4.6 million in the third quarter of 1999 and 1998, respectively,
and $89 thousand in the second quarter of 1999. The Company sold its retail
credit card business in July 1998. For the nine months ended September 30, 1999
and 1998, the provision for possible credit losses was $30.5 million and $35.7
million, respectively. Through September 30, net charge-offs were $27.5 million
in 1999 and $28.7 million in 1998, representing .23% and .28%, respectively, of
average loans and leases. Consumer loan net charge-offs totaled $15.5 million
and $25.6 million during the nine months ended September 30, 1999 and 1998,
respectively. Net credit card charge-offs were $493 thousand during the first
three quarters of 1999 and $13.8 million during the corresponding 1998 period.
Nonperforming loans totaled $116.3 million or .68% of total loans and
leases outstanding at September 30, 1999, compared with $119.2 million or .79%
at September 30, 1998, $117.0 million or .74% at December 31, 1998, and $108.4
million or .66% at June 30, 1999. The increase in nonperforming loans from June
30, 1999 was largely the result of the inclusion of the remaining $10 million
carrying value of the partially charged off commercial loan discussed in the
preceding paragraph. Nonperforming commercial real estate loans were $16.9
million at September 30, 1999, $18.7 million at September 30, 1998, $17.8
million at December 31, 1998, and $18.9 million at June 30, 1999. Nonperforming
consumer loans and leases totaled $24.0 million at September 30, 1999, compared
with $27.6 million at September 30, 1998, $25.8
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<PAGE>
million at December 31, 1998, and $17.8 million at June 30, 1999. As a
percentage of consumer loan balances outstanding, nonperforming consumer loans
and leases were .78% at September 30, 1999, .96% at September 30, 1998, .89% at
December 31, 1998 and .59% at June 30, 1999. The remaining nonperforming loans
consisted largely of residential mortgage loans and, to a lesser extent,
commercial loans. Assets acquired in settlement of defaulted loans were $10.2
million at September 30, 1999, $11.1 million at both September 30 and December
31, 1998 and $10.1 million at June 30, 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
Third Second First Fourth Third
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 77,716 68,285 69,393 70,999 73,778
Loans past due
90 days or more 29,618 31,988 37,988 37,784 37,746
Renegotiated loans 8,958 8,146 8,014 8,262 7,656
------- ------- ------- ------- -------
Total nonperforming loans 116,292 108,419 115,395 117,045 119,180
Real estate and other
assets owned 10,237 10,108 11,052 11,129 11,106
-------- ------- ------- ------- -------
Total nonperforming assets $126,529 118,527 126,447 128,174 130,286
======== ======= ======= ======= =======
Government guaranteed
nonperforming loans* $ 16,137 14,618 13,368 14,316 13,776
======== ======= ======= ======= =======
Nonperforming loans
to total loans and leases,
net of unearned discount .68% .66% .73% .74% .79%
Nonperforming assets
to total net loans and
leases and real estate
and other assets owned .74% .72% .80% .81% .86%
=== === === === ===
</TABLE>
* INCLUDED IN TOTAL NONPERFORMING LOANS.
The allowance for possible credit losses was $315.0 million, or 1.85%
of total loans and leases at September 30, 1999, compared with $309.5 million or
2.04% a year earlier, $306.3 million or 1.94% at December 31, 1998 and $314.4
million or 1.90% at June 30, 1999. The ratio of the allowance for possible
credit losses to nonperforming loans was 271% at the most recent quarter-end,
compared with 260% a year earlier, 262% at December 31, 1998 and 290% at June
30, 1999. The decline in the allowance as a percentage of total loans at
September 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 repayment obligations when assessing the adequacy of the
Company's allowance
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<PAGE>
for possible credit losses as of September 30, 1999. Based upon the results of
such review, management believes that the allowance for possible credit losses
at September 30, 1999 was adequate to absorb credit losses from existing loans
and leases.
OTHER INCOME
Other income totaled $72.5 million in the third quarter of 1999, compared with
$64.0 million in the year-earlier quarter and $66.8 million in the second
quarter of 1999. Growth in fees earned from deposit services was a significant
factor contributing to the increases. Higher profits from trading account and
foreign exchange activities also contributed to the increase from the second to
the third quarter of 1999.
Mortgage banking revenues totaled $16.9 million in the recent quarter,
compared with $16.4 million in the year-earlier quarter and $18.6 million in the
second quarter of 1999. The decline from the second 1999 quarter reflects a
decrease in gains from sales of loans and loan servicing rights which totaled
$9.0 million in the third quarter of 1999, $8.1 million in the corresponding
1998 quarter and $10.7 million in 1999's second quarter. Residential mortgage
loans originated for sale to other investors during the third quarter of 1999
were $691 million, compared with $710 million in 1998's third quarter and $663
million in the second quarter of 1999. Residential mortgage loans held for sale
totaled $273 million at September 30, 1999, $331 million at September 30, 1998,
$445 million at December 31, 1998, and $292 million at June 30, 1999.
Residential mortgage loan servicing fees were $6.5 million in the third quarter
of 1999, compared with $7.3 million in the third quarter of 1998 and $6.6
million in the second quarter of 1999. Residential mortgage loans serviced for
others totaled $7.1 billion at September 30, 1999, compared with $7.5 billion at
September 30, 1998 and $7.3 billion at December 31, 1998. Capitalized servicing
assets were $60 million and $64 million at September 30, 1999 and 1998,
respectively, and $62 million at December 31, 1998.
Reflecting a third quarter 1999 increase in fees, service charges on
deposit accounts rose to $20.3 million in the recent quarter from $15.9 million
in the corresponding quarter of 1998 and $16.7 million in the second quarter of
1999. Trust income was $10.2 million in the third quarter of 1999, up from $9.4
million a year earlier, but little changed from the previous quarter. Merchant
discount and credit card fees were $1.9 million in the recent quarter, compared
with $2.3 million in the similar period of 1998 and $1.8 million in the second
quarter of 1999. Trading account and foreign exchange activity resulted in gains
of $742 thousand in the third quarter of 1999, compared with losses of $148
thousand in the corresponding 1998 quarter and $3.2 million in the second
quarter of 1999. The second quarter results were largely due to a $3 million
loss incurred when a counterparty defaulted on the settlement of outstanding
foreign exchange contracts. During the third quarter of 1999, the Company sold
$63 million of fixed rate mortgage-backed securities resulting in a gain of $1.4
million. Gains on the sale of bank investment securities totaled $376 thousand
in the third quarter of 1998, while there were no similar sales in the second
quarter of 1999.
Other revenue from operations totaled $21.1 million in the recent
quarter, compared with $19.7 million in the corresponding quarter of 1998 and
$22.6 million in the second quarter of 1999. The improvement from the year-
earlier period resulted from increased revenues from the sale of mutual funds
and annuities and higher letter of credit and other credit-related fees,
partially offset by the $3.2 million gain on the sale of the Company's retail
credit card business in July 1998. The decrease from the second quarter of 1999
was predominately the result of lower income from the Company's ownership of
bank-owned life insurance.
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
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<PAGE>
affiliated, tax-exempt, private charitable foundation, other income of $212.0
million in the first nine months of 1999 was up 16% from $182.6 million in the
year-earlier period. Growth in mortgage banking revenues, service charges on
deposit accounts and fees for trust, investment and credit-related services,
and a full nine 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 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 nine-month period ended September 30, 1999, mortgage banking
revenues rose 17% to $57.0 million from $48.7 million in the corresponding 1998
period. Reflecting a generally favorable interest rate environment for borrowers
in late 1998 and early 1999, gains from sales of loans and loan servicing rights
in 1999 increased by $8.8 million compared with the first nine months of 1998.
Including the impact of the ONBANCorp acquisition, when compared with the same
period in 1998, service charges on deposit accounts increased 28% to $52.9
million during the first nine months of 1999, while trust income increased 7% to
$30.8 million. Merchant discount and credit card fees decreased 50% to $5.4
million in 1999 from $10.9 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 $1.3 million
for the first nine months of 1999, compared with gains of $2.1 million during
the similar period of 1998. The losses in 1999 were largely the result of the
previously mentioned counterparty default on settling foreign exchange
contracts. Gains on the sale of bank investment securities totaled $1.6 million
and $.7 million for the nine months ended September 30, 1999 and 1998,
respectively. Excluding the effect of the previously noted transfer of
securities to the affiliated charitable foundation, other revenues from
operations increased 31% to $65.7 million in the first nine months of 1999 from
$50.0 million in the comparable 1998 period. The rise from 1998 resulted largely
from increases in tax-exempt income earned from bank-owned life insurance of
$4.7 million, letter of credit and other credit-related fees of $5.2 million and
fees earned from the sales of mutual funds and annuities of $5.2 million. These
latter fees totaled $18.6 million during the first nine months of 1999, while
income from bank-owned life insurance was $17.2 million and letter of credit and
other credit-related fees were $11.2 million.
OTHER EXPENSE
Excluding amortization of goodwill and core deposit intangible and nonrecurring
merger-related expenses, other expense totaled $130.2 million in the third
quarter of 1999, compared with $124.6 million in the third quarter of 1998 and
$131.8 million in the second quarter of 1999. On the same basis, through the
first nine months of 1999, other expense totaled $390.7 million, an increase of
9% from $357.9 million in the comparable 1998 period, after excluding from 1998
the $24.6 million non-cash charitable contribution expense previously noted.
Goodwill and core deposit intangible amortization was $12.5 million in the third
quarter of 1999, up from $10.9 million in the third quarter of 1998 and $11.2
million in the second quarter of 1999. The increases resulted from amortization
related to the June 1, 1999 acquisition of FNB. Amortization of goodwill and
core deposit intangible totaled $34.6 million in the first nine months of 1999,
up from $23.6 million in the corresponding 1998 period, due largely to the
impact of the ONBANCorp and FNB acquisitions. Nonrecurring merger-related
expenses were $2.2 million and $2.5 million in the third and second quarters of
1999, respectively, and $4.7 million in the first nine months of 1999. Such
costs were $3.0 million during the third quarter of 1998 and $21.3 million
during the first nine months of 1998.
Salaries and employee benefits expense was $71.6 million in the recent
quarter, 13% higher than the $63.5 million in the corresponding 1998 quarter,
but little changed from $71.4 million in the second quarter of 1999. For the
first nine months of 1999, salaries and employee benefits expense increased
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<PAGE>
10% to $211.4 million from $191.8 million in the corresponding 1998 period.
Salaries and benefits related to acquired operations, merit salary increases,
higher expenses for incentive compensation arrangements (including the impact of
stock appreciation rights) and higher medical benefit costs were contributing
factors for the increases from 1998.
Reflecting lower advertising, promotion and mortgage banking-related
expenses, nonpersonnel expense, excluding one-time merger-related expenses and
amortization of goodwill and core deposit intangible, totaled $58.7 million in
the third quarter of 1999, down from $61.9 million in the third quarter of 1998.
Similar expenses in the second quarter of 1999 were $60.5 million. On the same
basis, and after excluding the $24.6 million non-cash charitable contribution
expense from 1998, such expenses were $179.3 million during the first nine
months of 1999, an increase of 7% from $168.2 million during the corresponding
1998 period. The increase from the first nine months of 1998 was due, in part,
to expenses related to acquired operations 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.
CAPITAL
Stockholders' equity at September 30, 1999 was $1.8 billion or 8.35% of total
assets, compared with $1.6 billion or 8.47% of total assets a year earlier and
$1.6 billion or 7.78% at December 31, 1998. Stockholders' equity per share rose
to $230.51 at September 30, 1999 from $209.03 and $207.94 at September 30 and
December 31, 1998, respectively. Excluding goodwill and core deposit intangible,
net of applicable tax effect, tangible equity per share was $149.37 at September
30, 1999, up from $141.43 at September 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 September 30, 1999 reflected a loss of $22.1
million, or $2.80 per share, for the net after-tax impact of unrealized losses
on investment securities classified as available for sale, compared with
unrealized gains of $6.8 million or $.86 per share at September 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 September
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 September 30, 1999 are
presented in the accompanying table.
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<PAGE>
REGULATORY CAPITAL RATIOS
September 30, 1999
<TABLE>
<CAPTION>
M&T M&T M&T
(CONSOLIDATED) BANK BANK, N.A.
-------------- --------- ----------
<S> <C> <C> <C>
Core capital 8.56% 8.06% 15.55%
Total capital 10.64% 10.17% 16.98%
Leverage 7.28% 6.95% 7.51%
</TABLE>
The rate of internal capital generation, or net income less dividends
paid expressed as an annualized percentage of average total stockholders'
equity, was 12.79% and 13.57% during the three and nine-month periods ended
September 30, 1999, compared with 11.59% and 11.79% during the comparable
periods of 1998 and 13.39% in 1999's second quarter.
In February 1999, M&T's board of directors authorized a plan to
repurchase up to 134,342 shares of M&T's common stock for reissuance upon the
possible future exercise of outstanding stock options. During the three-month
and nine-month periods ended September 30, 1999, 10,000 shares were repurchased
under the plan at a total cost of $5.5 million. M&T completed a previously
authorized plan by repurchasing 1,581 common shares during January 1999 at a
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 has required that the Company
identify, remediate and test its Computer Systems that have date sensitive
functions. As part of this process, the Company 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. Moreover, management further believes
that the Company's non-Mission Critical Computer Systems are also Year 2000
compliant.
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, the Company's second survey of
commercial customers (which was completed in the second quarter of 1999)
indicated that a large majority of the Company's commercial customers were well
along in their preparation for potential Year 2000 issues. Nevertheless, the
Company continues to monitor the Year 2000 status of customers considered to
have a potentially high Year 2000 business risk. Furthermore, lending officers
have received training to address Year 2000 issues with customers, including
assessing customer needs for Year 2000 compliance. The Company has addressed 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 developed cash and liquidity contingency plans that include
arrangements with the Federal Reserve and others to ensure the availability
-26-
<PAGE>
of funding sources and the supply of currency. 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 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. All significant Year 2000
activities of the Company have been reviewed by the Company's Internal Audit
department.
Through September 30, 1999, the Company has spent approximately $8.0
million (including approximately $.5 million and $2.6 million during the third
quarter and first nine 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 additional costs to
finalize and monitor implementation of its Year 2000 program will not be
material. 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. The utilization of these resources 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 and the financial
results of such segments are not necessarily comparable with similar information
reported by other financial institutions.
The Commercial Banking segment's earnings were $17.4 million in the
third quarter of 1999, $17.8 million in the comparable 1998 quarter and $19.9
million in the second quarter of 1999. The decrease from the second quarter was
due to a $6.2 million partial charge-off of a commercial loan in the
-27-
<PAGE>
recent quarter. This partial charge-off also was the major factor for the
decrease from the third quarter of 1998, but was largely offset by higher
revenues generated from loan growth. For the nine months ended September 30,
1999 and 1998, earnings were $58.1 million and $50.3 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 nine months of 1998.
In the third quarter of 1999, the Commercial Real Estate segment
contributed net income of $16.3 million, compared with $14.3 million in the
year-earlier period and $16.5 million in the second quarter of 1999. The major
factor in the improvement in earnings over the third quarter of 1998 was higher
loan balances. Earnings in the first nine months of 1999 and 1998 were $47.1
million and $44.7 million, respectively. The increase in net income was due in
part to commercial real estate loans acquired from ONBANCorp and loan growth in
the markets already served by the Company.
Net income contributed by the Discretionary Portfolio segment in the
third quarter of 1999 totaled $10.4 million, compared with $8.7 million in both
the third quarter of 1998 and the second quarter of 1999. Higher income from
trading account and foreign exchange activity and gains on the sale of bank
investment securities contributed to the increases. In the first three quarters,
net income from this segment was $27.9 million in 1999 and $22.3 million in
1998. The increase over 1998 was largely the result of a $4.7 million increase
in tax-exempt income earned from bank-owned life insurance and higher net
interest income from holdings of residential mortgage loans. Partially
offsetting these increases was the previously mentioned $3 million settlement
loss on foreign exchange contracts.
The Residential Mortgage Banking segment had net income of $4.6 million
in the third 1999 quarter, unchanged from the corresponding 1998 quarter but
down from $6.0 million in the second 1999 quarter. The decrease from the
previous quarter was predominately the result of a $1.7 million decrease in
gains from sales of loans and loan servicing rights. Reflecting the impact on
gains from sales of loans and loan servicing rights resulting from a generally
favorable interest rate environment for borrowers in late 1998 and early 1999,
net income in this segment for the first nine months of the year increased to
$17.6 million in 1999 from $14.8 million in 1998. As of September 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
$11.0 billion a year earlier.
Retail Banking earned $29.6 million in 1999's third quarter, down from
$30.4 million in the year-earlier period (which included the $3.2 million gain
on the sale of the Company's retail credit card business) but up from $26.6
million in the second quarter of 1999. Higher loan and deposit balances and
service charges on deposit accounts were the major factors contributing to the
improvement in net income, after factoring in the sale of the retail credit card
business. For the first nine months of the year, Retail Banking net income
totaled $80.7 million in 1999 and $74.7 million in 1998. The acquisitions of
ONBANCorp on April 1, 1998 and FNB on June 1, 1999, increased service charges on
deposit accounts and higher earnings from indirect consumer lending were the
leading factors contributing to the increase.
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
-28-
<PAGE>
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.
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; legislation affecting the financial services
industry as a whole, and the Company individually; 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
- --------------------------------------------------------------------------------
QUARTERLY TRENDS
<TABLE>
<CAPTION>
1999 Quarters 1998 Quarters
- ------------------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AND DIVIDENDS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
Interest income (taxable-equivalent basis) $375,021 361,158 358,370 360,571 361,921 364,838 279,306
Interest expense 179,961 171,269 175,238 183,424 184,850 184,644 134,585
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 195,060 189,889 183,132 177,147 177,071 180,194 144,721
Less: provision for possible credit losses 13,500 8,500 8,500 7,500 10,500 13,200 12,000
Other income 72,499 66,806 72,716 64,985 63,986 65,075 68,893
Less: other expense 144,898 145,547 139,466 138,756 138,490 155,004 133,873
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 109,161 102,648 107,882 95,876 92,067 77,065 67,741
Applicable income taxes 39,633 35,772 39,151 36,064 33,693 30,587 17,245
Taxable-equivalent adjustment 1,964 1,838 1,825 1,969 1,897 1,779 1,541
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 67,564 65,038 66,906 57,843 56,477 44,699 48,955
- ------------------------------------------------------------------------------------------------------------------------------------
Per common share data
Net income
Basic $ 8.57 8.35 8.65 7.44 7.09 5.55 7.34
Diluted 8.29 8.00 8.34 7.14 6.81 5.32 7.01
Cash dividends $ 1.25 1.00 1.00 1.00 1.00 1.00 .80
Average common shares outstanding
Basic 7,880 7,793 7,731 7,778 7,966 8,051 6,666
Diluted 8,147 8,132 8,023 8,105 8,288 8,409 6,981
- ------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS, ANNUALIZED
Return on
Average assets 1.27 % 1.27 % 1.34 % 1.14 % 1.15 % .92 % 1.41 %
Average common stockholders' equity 14.97 % 15.23 % 16.56 % 14.20 % 13.48 % 10.77 % 18.86 %
Net interest margin on average earning assets
(taxable-equivalent basis) 4.03 % 4.09 % 3.98 % 3.82 % 3.93 % 4.02 % 4.39 %
Nonperforming assets to total assets,
at end of quarter .58 % .56 % .62 % .62 % .67 % .69 % .53 %
Efficiency ratio (1) 53.62 % 55.72 % 54.56 % 57.56 % 56.30 % 56.45 % 54.29 %
- ------------------------------------------------------------------------------------------------------------------------------------
CASH (TANGIBLE) OPERATING RESULTS (2)
Net income (in thousands) $ 79,714 76,511 76,333 67,326 67,703 65,445 51,448
Diluted net income per common share 9.78 9.41 9.51 8.31 8.17 7.78 7.37
Annualized return on
Average tangible assets 1.54 % 1.53 % 1.57 % 1.36 % 1.42 % 1.38 % 1.49 %
Average tangible common stockholders' equity 26.43 % 26.13 % 27.66 % 24.57 % 23.90 % 23.50 % 20.13 %
Efficiency ratio (1) 48.91 % 51.36 % 50.31 % 53.03 % 51.78 % 52.01 % 53.37 %
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
DOLLARS IN MILLIONS, EXCEPT PER SHARE
Average balances
Total assets $ 21,183 20,579 20,298 20,101 19,455 19,547 14,055
Earning assets 19,184 18,636 18,664 18,401 17,881 17,992 13,357
Investment securities 2,048 2,064 2,497 2,617 2,533 2,858 1,614
Loans and leases, net of unearned discount 16,678 16,056 15,761 15,389 15,124 14,978 11,602
Deposits 14,821 14,578 14,497 14,617 14,552 14,726 10,988
Stockholders' equity 1,791 1,713 1,638 1,616 1,662 1,664 1,053
- ------------------------------------------------------------------------------------------------------------------------------------
At end of quarter
Total assets $ 21,759 21,205 20,285 20,584 19,478 20,138 14,570
Earning assets 19,467 19,050 18,382 18,926 17,905 18,419 13,778
Investment securities 1,953 2,078 2,088 2,786 2,446 2,707 1,530
Loans and leases, net of unearned discount 16,984 16,513 15,813 15,792 15,163 15,245 12,033
Deposits 15,417 14,909 14,476 14,737 14,394 14,813 11,085
Stockholders' equity 1,817 1,773 1,667 1,602 1,649 1,659 1,069
Equity per common share 230.51 224.81 215.34 207.94 209.03 207.18 160.06
Tangible equity per common share 149.37 149.14 148.95 139.89 141.43 139.37 157.75
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET PRICE PER COMMON SHARE
High $ 575 582 1/2 518 3/4 539 1/2 582 554 504
Low 412 1/2 462 1/2 464 400 410 480 429
Closing 459 550 479 518 15/16 461 554 499 7/8
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1)Excludes impact of nonrecurring merger-related expenses, net securities
transactions and contribution of appreciated investment securities to
affiliated, tax-exempt charitable foundation during the quarter ended
March 31, 1998.
(2)Excludes amortization and balances related to goodwill and core deposit
intangible and nonrecurring merger-related expenses, net of applicable
income tax effects.
-30-
<PAGE>
- -------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1999 Third quarter 1999 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 $ 3,374 $ 68,452 8.05% 3,201 62,928 7.88%
Real estate 10,263 205,772 8.02 9,928 198,370 7.99
Consumer 3,041 62,626 8.17 2,927 61,114 8.37
- ------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 16,678 336,850 8.01 16,056 322,412 8.05
- ------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 2 25 3.93 5 49 4.08
Federal funds sold and agreements
to resell securities 430 5,732 5.29 430 5,381 5.02
Trading account 26 374 5.77 81 1,398 6.89
- ------------------------------------------------------------------------------------------------------------------
Total money-market assets 458 6,131 5.31 516 6,828 5.30
- ------------------------------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 880 12,800 5.77 902 13,063 5.81
Obligations of states and political subdivisions 76 1,176 6.20 71 1,121 6.30
Other 1,092 18,064 6.56 1,091 17,734 6.52
- ------------------------------------------------------------------------------------------------------------------
Total investment securities 2,048 32,040 6.21 2,064 31,918 6.20
- ------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 19,184 375,021 7.76 18,636 361,158 7.77
- ------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (316) (310)
Cash and due from banks 438 439
Other assets 1,877 1,814
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 21,183 20,579
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 368 1,055 1.14 370 1,125 1.22
Savings deposits 5,244 30,708 2.32 5,038 29,114 2.32
Time deposits 7,000 90,955 5.15 7,041 89,182 5.08
Deposits at foreign office 227 2,720 4.75 243 2,757 4.56
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,839 125,438 3.88 12,692 122,178 3.86
- ------------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,058 26,886 5.18 1,876 22,768 4.87
Long-term borrowings 1,806 27,637 6.07 1,763 26,323 5.99
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 16,703 179,961 4.27 16,331 171,269 4.21
- ------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,982 1,886
Other liabilities 707 649
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 19,392 18,866
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,791 1,713
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 21,183 20,579
- ------------------------------------------------------------------------------------------------------------------
Net interest spread 3.49 3.56
Contribution of interest-free funds 0.54 0.53
- ------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $195,060 4.03% 189,889 4.09%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 First 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 3,179 64,028 8.17%
Real estate 9,691 191,482 7.90
Consumer 2,891 60,003 8.42
- ------------------------------------------------------------------------------------
Total loans and leases, net 15,761 315,513 8.12
- ------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 1 7 2.68
Federal funds sold and agreements
to resell securities 331 3,823 4.68
Trading account 74 1,256 6.91
- ------------------------------------------------------------------------------------
Total money-market assets 406 5,086 5.08
- ------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 1,112 15,832 5.77
Obligations of states and political subdivisions 72 1,116 6.30
Other 1,313 20,823 6.43
- ------------------------------------------------------------------------------------
Total investment securities 2,497 37,771 6.13
- ------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 18,664 358,370 7.79
- ------------------------------------------------------------------------------------
Allowance for possible credit losses (308)
Cash and due from banks 442
Other assets 1,500
- ------------------------------------------------------------------------------------
Total assets 20,298
- ------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts 399 1,280 1.30
Savings deposits 4,881 28,810 2.39
Time deposits 7,049 90,892 5.23
Deposits at foreign office 303 3,429 4.59
- ------------------------------------------------------------------------------------
Total interest-bearing deposits 12,632 124,411 3.99
- ------------------------------------------------------------------------------------
Short-term borrowings 2,138 25,735 4.88
Long-term borrowings 1,647 25,092 6.18
- ------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 16,417 175,238 4.33
- ------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,865
Other liabilities 378
- ------------------------------------------------------------------------------------
Total liabilities 18,660
- ------------------------------------------------------------------------------------
Stockholders' equity 1,638
- ------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 20,298
- ------------------------------------------------------------------------------------
Net interest spread 3.46
Contribution of interest-free funds 0.52
- ------------------------------------------------------------------------------------
Net interest income/margin on earning assets 183,132 3.98%
- ------------------------------------------------------------------------------------
</TABLE>
*INCLUDES NONACCRUAL LOANS.
**INCLUDES AVAILABLE FOR SALE SECURITIES AT AMORTIZED COST. (continued)
-31-
<PAGE>
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
<TABLE>
<CAPTION>
1998 Fourth quarter 1998 Third 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. $ 3,034 $ 61,936 8.10 2,935 61,711 8.34%
Real estate 9,458 189,222 8.00 9,273 191,102 8.24
Consumer 2,897 63,154 8.65 2,916 65,389 8.90
- -----------------------------------------------------------------------------------------------------------------
Total loans and leases, net 15,389 314,312 8.10 15,124 318,202 8.35
- -----------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 2 14 3.80 2 16 3.07
Federal funds sold and agreements
to resell securities 276 3,690 5.30 119 1,634 5.44
Trading account 117 2,066 6.99 103 1,797 6.93
- -----------------------------------------------------------------------------------------------------------------
Total money-market assets 395 5,770 5.80 224 3,447 6.11
- -----------------------------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 1,398 20,905 5.93 1,561 23,644 6.01
Obligations of states and political subdivisions 78 1,217 6.19 85 1,321 6.18
Other 1,141 18,367 6.39 887 15,307 6.84
- -----------------------------------------------------------------------------------------------------------------
Total investment securities 2,617 40,489 6.14 2,533 40,272 6.31
- -----------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 18,401 360,571 7.77 17,881 361,921 8.03
- -----------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (310) (311)
Cash and due from banks 425 413
Other assets 1,585 1,472
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 20,101 19,455
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 390 1,379 1.40 344 1,328 1.53
Savings deposits 4,828 30,707 2.52 4,709 31,395 2.65
Time deposits 7,216 98,526 5.42 7,414 103,525 5.54
Deposits at foreign office 341 4,208 4.89 293 3,964 5.36
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,775 134,820 4.19 12,760 140,212 4.36
- -----------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,055 26,640 5.14 2,069 29,376 5.63
Long-term borrowings 1,344 21,964 6.48 861 15,262 7.03
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 16,174 183,424 4.50 15,690 184,850 4.67
- -----------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,842 1,792
Other liabilities 469 311
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 18,485 17,793
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,616 1,662
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 20,101 19,455
- -----------------------------------------------------------------------------------------------------------------
Net interest spread 3.27 3.36
Contribution of interest-free funds 0.55 0.57
- -----------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $177,147 3.82% 177,071 3.93%
- -----------------------------------------------------------------------------------------------------------------
</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.
(Not applicable.)
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 September 30, 1999, a Current Report on Form 8-K dated September 24,
1999 was filed to announce the consummation of M&T Bank's acquisition of 32
branches (29 sites) from The Chase Manhattan Bank ("Chase"). The branches are
located in the Binghamton, Corning, Buffalo, Jamestown and Albany areas of
upstate New York. The Current Report on Form 8-K also reported Chase's agreement
to transfer up to $533 million of trust and fiduciary account assets to M&T Bank
following receipt of required approvals and the satisfaction of necessary
closing conditions, to be completed in two phases commencing at the end of
September 1999 and concluding at or about the end of March 2000.
-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: November 10, 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
<LEGEND>
Article 9 Financial Data Schedule for Form 10-Q for the nine-month period ended
September 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 517,461
<INT-BEARING-DEPOSITS> 747
<FED-FUNDS-SOLD> 517,381
<TRADING-ASSETS> 555,007
<INVESTMENTS-HELD-FOR-SALE> 1,742,508
<INVESTMENTS-CARRYING> 210,943
<INVESTMENTS-MARKET> 209,925
<LOANS> 17,155,460
<ALLOWANCE> 314,965
<TOTAL-ASSETS> 21,759,301
<DEPOSITS> 15,416,516
<SHORT-TERM> 1,830,031
<LIABILITIES-OTHER> 920,689
<LONG-TERM> 1,774,897
0
0
<COMMON> 40,508
<OTHER-SE> 1,776,660
<TOTAL-LIABILITIES-AND-EQUITY> 21,759,301
<INTEREST-LOAN> 973,002
<INTEREST-INVEST> 97,924
<INTEREST-OTHER> 17,996
<INTEREST-TOTAL> 1,088,922
<INTEREST-DEPOSIT> 372,027
<INTEREST-EXPENSE> 526,468
<INTEREST-INCOME-NET> 562,454
<LOAN-LOSSES> 30,500
<SECURITIES-GAINS> 1,575
<EXPENSE-OTHER> 429,911
<INCOME-PRETAX> 314,064
<INCOME-PRE-EXTRAORDINARY> 199,508
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,508
<EPS-BASIC> 25.57
<EPS-DILUTED> 24.63
<YIELD-ACTUAL> 4.03
<LOANS-NON> 77,716
<LOANS-PAST> 29,618
<LOANS-TROUBLED> 8,958
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 306,347
<CHARGE-OFFS> 41,044
<RECOVERIES> 13,526
<ALLOWANCE-CLOSE> 314,965
<ALLOWANCE-DOMESTIC> 216,452
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 98,513
</TABLE>
