UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
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[x]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
or
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-9861
M&T BANK CORPORATION
| New York | 16-0968385 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| One M & T Plaza | ||
| Buffalo, New York | 14203 | |
| (Address of principal | (Zip Code) | |
| executive offices) |
(716) 842-5445
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [x] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [x]
Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on July 21, 2006: 111,006,937 shares.
M&T BANK CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 2006
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Table of Contents of Information Required in Report
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
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M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
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M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
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M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES (Unaudited)
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NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the
Company”) were compiled in accordance with the accounting policies set forth in note 1 of Notes to
Financial Statements included in the Company’s 2005 Annual Report, except as described below. In
the opinion of management, all adjustments necessary for a fair presentation have been made and
were all of a normal recurring nature.
2. Earnings per share
The computations of basic earnings per share follow:
The computations of diluted earnings per share follow:
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Comprehensive income
The following table displays the components of other comprehensive income (loss):
Accumulated other comprehensive income (loss), net consisted of unrealized gains (losses) as
follows:
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings
In 1997, M&T Capital Trust I (“Trust I”), M&T Capital Trust II (“Trust II”), and M&T Capital Trust
III (“Trust III”) issued $310 million of fixed rate preferred capital securities. In 1996, $150
million of floating rate preferred capital securities were issued by First Maryland Capital I
(“Trust IV”) and in 1997, $150 million of floating rate preferred capital securities were issued by
First Maryland Capital II (“Trust V”). The distribution rates on the preferred capital securities
of Trust IV and Trust V adjust quarterly based on changes in the three-month London Interbank
Offered Rate (“LIBOR”) and were 6.08% and 6.00%, respectively, at June 30, 2006 and 5.15% and
5.10%, respectively, at December 31, 2005. Trust I, Trust II, Trust III, Trust IV and Trust V are
referred to herein collectively as the “Trusts.”
Other than the following payment terms (and the redemption terms described below), the preferred
capital securities issued by the Trusts (“Capital Securities”) are substantially identical in all
material respects:
The common securities of each Trust (“Common Securities”) are wholly owned by M&T and 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. Under the
Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are
includable in M&T’s Tier 1 (core) capital.
The proceeds from the issuances of the Capital Securities and Common Securities were used by the
Trusts to purchase junior subordinated deferrable interest debentures (“Junior Subordinated
Debentures”) of M&T as follows:
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
The Junior Subordinated Debentures represent the sole assets of each Trust and payments under the
Junior Subordinated Debentures are the sole source of cash flow for each Trust. The financial
statement carrying values of junior subordinated debentures associated with preferred capital
securities of Trust III, Trust IV and Trust V at June 30, 2006 and December 31, 2005 include the
unamortized portions of purchase accounting adjustments to reflect estimated fair value as of the
date of M&T’s acquisition of the common securities of each respective trust. The interest rates
payable on the Junior Subordinated Debentures of Trust IV and Trust V were 6.08% and 6.00%,
respectively, at June 30, 2006 and 5.15% and 5.10%, respectively, at December 31, 2005.
Holders of the Capital Securities receive preferential cumulative cash distributions on each
distribution date at the stated distribution rate unless M&T exercises its right to extend the
payment of interest on the Junior Subordinated Debentures for up to ten semi-annual periods (in the
case of Trust I, Trust II and Trust III) or twenty quarterly periods (in the case of Trust IV and
Trust V), in which case payment of distributions on the respective Capital Securities will be
deferred for comparable periods. During an extended interest period, M&T may not pay dividends or
distributions on, or repurchase, redeem or acquire any shares of its capital stock. The agreements
governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional
guarantee by M&T of the payment of distributions on, the redemption of, and any liquidation
distribution with respect to the Capital Securities. The obligations under such guarantee and the
Capital Securities are subordinate and junior in right of payment to all senior indebtedness of
M&T.
The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid
at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts. The
Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the
stated maturity dates of the Junior Subordinated Debentures or the earlier redemption of the Junior
Subordinated Debentures in whole upon the occurrence of one or more events (“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 (January 15, 2007 in the case of Trust IV, February 1, 2007 in the
case of Trust I, Trust III and Trust V, and June 1, 2007 in the case of Trust II) contemporaneously
with the 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 (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 and the related
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
Junior Subordinated Debentures upon 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 Trust III, 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. In the case of Trust IV and Trust V, the redemption price upon
early redemption will be equal to 100% of the principal amount to be redeemed plus any accrued but
unpaid distributions to the redemption date.
In 1999, Allfirst Preferred Capital Trust (“Allfirst Capital Trust”) issued $100 million of
Floating Rate Non-Cumulative Subordinated Trust Enhanced Securities (“SKATES”). Allfirst Capital
Trust is a Delaware business trust that was formed in June 1999 for the exclusive purposes of (i)
issuing the SKATES and common securities, (ii) purchasing Asset Preferred Securities issued by
Allfirst Preferred Asset Trust (“Allfirst Asset Trust”) and (iii) engaging in only those other
activities necessary or incidental thereto. M&T holds 100% of the common securities of Allfirst
Capital Trust. Allfirst Asset Trust is a Delaware business trust that was formed in June 1999 for
the exclusive purposes of (i) issuing Asset Preferred Securities and common securities, (ii)
investing the gross proceeds of the Asset Preferred Securities in junior subordinated debentures
assumed by M&T in an acquisition and other permitted investments and (iii) engaging in only those
other activities necessary or incidental thereto. M&T holds 100% of the common securities of
Allfirst Asset Trust and Allfirst Capital Trust holds 100% of the Asset Preferred Securities of
Allfirst Asset Trust. M&T currently has outstanding $105.3 million aggregate liquidation amount
Floating Rate Junior Subordinated Debentures due July 15, 2029 that are payable to Allfirst Asset
Trust. The interest rates payable on such debentures were 6.51% at June 30, 2006 and 5.58% at
December 31, 2005.
Distributions on the SKATES are non-cumulative. The distribution rate on the SKATES and on the
Floating Rate Junior Subordinated Debentures is a rate per annum of three-month LIBOR plus 1.50%
and three-month LIBOR plus 1.43%, respectively, reset quarterly two business days prior to the
distribution dates of January 15, April 15, July 15, and October 15 in each year. Distributions on
the SKATES will be paid if, as and when Allfirst Capital Trust has funds available for payment.
The SKATES are subject to mandatory redemption if the Asset Preferred Securities of Allfirst Asset
Trust are redeemed. Allfirst Asset Trust will redeem the Asset Preferred Securities if the junior
subordinated debentures of M&T held by Allfirst Asset Trust are redeemed. M&T may redeem such
junior subordinated debentures, in whole or in part, at any time on or after July 15, 2009, subject
to regulatory approval. Allfirst Asset Trust will redeem the Asset Preferred Securities at par
plus accrued and unpaid distributions from the last distribution payment date. M&T has guaranteed,
on a subordinated basis, the payment in full of all distributions and other payments on the SKATES
and on the Asset Preferred Securities to the extent that Allfirst Capital Trust and Allfirst Asset
Trust, respectively, have funds legally available. Under the Federal
Reserve Board’s current risk-based capital guidelines, the SKATES are includable in M&T’s Tier 1
Capital.
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
Including the unamortized portions of purchase accounting adjustments to reflect estimated fair
value at the acquisition dates of the common securities of Trust III, Trust IV, Trust V and
Allfirst Asset Trust, the junior subordinated debentures associated with preferred capital
securities had financial statement carrying values as follows:
5. Segment 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, 2005. 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. As also described in note 21 to the
Company’s 2005 consolidated financial statements, goodwill and core deposit and other intangible
assets (and the amortization charges associated with such assets) resulting from acquisitions of
financial institutions have not been allocated to the Company’s reportable segments, but are
included in the “All Other” category. The Company has, however,
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Segment information, continued
assigned such intangible assets to business units for purposes of testing for impairment.
Information about the Company’s segments is presented in the following table:
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Segment information, continued
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Commitments and contingencies
In the normal course of business, various commitments and contingent liabilities are outstanding.
The following table presents the Company’s significant commitments. Certain of these commitments
are not included in the Company’s consolidated balance sheet.
Commitments to extend credit are agreements to lend to customers, generally having fixed expiration
dates or other termination clauses that may require payment of a fee. Standby and commercial
letters of credit are conditional commitments issued to guarantee the performance of a customer to
a third party. Standby letters of credit generally are contingent upon the failure of the customer
to perform according to the terms of the underlying contract with the third party, whereas
commercial letters of credit are issued to facilitate commerce and typically result in the
commitment being funded when the underlying transaction is consummated between the customer and
third party. The credit risk associated with commitments to extend credit and standby and
commercial letters of credit is essentially the same as that involved with extending loans to
customers and is subject to normal credit policies. Collateral may be obtained based on
management’s assessment of the customer’s creditworthiness.
Financial guarantees and indemnification contracts are oftentimes similar to standby letters of
credit and include mandatory purchase agreements issued to ensure that customer obligations are
fulfilled, recourse obligations associated with sold loans, and other guarantees of customer
performance or compliance with designated rules and regulations. Included in financial guarantees
and indemnification contracts are loan principal amounts sold with recourse in conjunction with the
Company’s involvement in the Federal National Mortgage Association Delegated Underwriting and
Servicing program. Under this program, the Company’s maximum credit risk associated with loans
sold with recourse totaled $986 million and $941 million at June 30, 2006 and December 31, 2005,
respectively.
Since many loan commitments, standby letters of credit, and guarantees and indemnification
contracts expire without being funded in whole or in part, the contract amounts are not necessarily
indicative of future cash flows.
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Commitments and
contingencies, continued
The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the fair
value of real estate loans held for sale. Such commitments are considered derivatives in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended, and along with commitments to originate
real estate loans to be held for sale and hedged real estate loans held for sale are now generally
recorded in the consolidated balance sheet at estimated fair market value. However, in accordance
with Staff Accounting Bulletin (“SAB”) No. 105, “Application of Accounting Principles to Loan
Commitments,” issued by the United States Securities and Exchange Commission, effective April 1,
2004, value ascribable to cash flows that will be realized in connection with loan servicing
activities has not been included in the determination of fair value of loans held for sale or
commitments to originate loans for sale. Value ascribable to that portion of cash flows is now
recognized at the time the underlying mortgage loans are sold.
The Company has an agreement with the Baltimore Ravens of the National Football League whereby the
Company obtained the naming rights to a football stadium in Baltimore, Maryland for a fifteen year
term. Under the agreement, the Company paid $3 million in both 2003 and 2004, $5 million in 2005,
and is obligated to pay $5 million per year from 2006 through 2013 and $6 million per year from
2014 through 2017.
The Company also has commitments under long-term operating leases.
M&T and its subsidiaries are subject in the normal course of business to various pending and
threatened legal proceedings in which claims for monetary damages are asserted. Management, after
consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising
out of litigation pending against M&T or its subsidiaries will be material to the Company’s
consolidated financial position, but at the present time is not in a position to determine whether
such litigation will have a material adverse effect on the Company’s consolidated results of
operations in any future reporting period.
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. Pension plans and other postretirement benefits
The Company provides defined benefit pension and other postretirement benefits (including health
care and life insurance benefits) to qualified retired employees. Net periodic benefit cost
consisted of the following:
Expense incurred in connection with the Company’s defined contribution pension and retirement
savings plans totaled $6,406,000 and $4,121,000 for the three months ended June 30, 2006 and 2005,
respectively, and $14,237,000 and $8,142,000 for the six months ended June 30, 2006 and 2005,
respectively.
8. Stock-based compensation plans
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share Based Payment,”
(“SFAS No. 123R”), an amendment of SFAS No. 123, “Accounting for Stock-Based Compensation,” as
amended. Prior to that date, the Company recognized expense for stock-based compensation using the
fair value method of accounting described in SFAS No. 123. Under SFAS No. 123R and SFAS No. 123,
stock-based compensation expense is recognized over the vesting period of the stock-based grant
based on the estimated grant date value of the stock-based compensation that is expected to vest.
For each of the quarters ended June 30, 2006 and 2005, the Company recognized $11 million of
stock-based compensation expense and $3 million of related income tax benefits. For the six months
ended June 30, 2006 and 2005, the Company recognized $29 million and $23 million, respectively, of
stock-based compensation expense and $7 million and $6 million, respectively, of related income tax
benefits. As required, coincident with the adoption of SFAS No. 123R, the Company began
accelerating the recognition of compensation costs for stock-based awards granted to
retirement-eligible employees and employees who become retirement-eligible prior to full vesting of
the award because the Company’s incentive compensation plans allow for vesting at the time an
employee retires. Stock-based compensation granted to retirement-eligible individuals through
December 31, 2005 was expensed over the normal vesting period with any remaining unrecognized compensation cost recognized at the time
- 17 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Stock-based compensation plans, continued
of retirement. This change affected the timing of stock-based compensation expense recognition in
the Company’s consolidated financial statements for the first and second quarters of 2006, as most
of the Company’s stock-based awards are granted in January, but did not affect the value ascribed
to stock-based compensation granted to employees nor the aggregate amount of stock-based
compensation expense to be recognized by the Company. The acceleration of such expense increased
stock-based compensation expense for the six-months ended June 30, 2006 by $5 million ($4 million
after taxes), and reduced basic and diluted earnings per share by $.04 from what would otherwise
have been recognized in that period had the expense recognition not been accelerated. If not for
this required change, the additional $5 million of stock-based compensation expense recognized in
the six-month period ended June 30, 2006 would have been recognized throughout the remainder of
2006, 2007, 2008 and 2009 following the normal vesting schedule for stock options granted by the
Company. The effect of the acceleration of such expense on the results of operations and basic and
diluted earnings per share for the second quarter of 2006 was insignificant. The following is
selected information pertaining to the Company’s stock option activity as of and for the six-month
periods ended June 30, 2006 and 2005. Additional information concerning the Company’s stock-based
compensation plans can be found in its Annual Report on Form 10-K for the year ended December 31,
2005.
The Company used an option pricing model to estimate the grant date present value of stock options
granted. The weighted-average estimated grant date value per option was $28.10 and $22.96 during
the six-month periods ended June 30, 2006 and 2005, respectively. The values were calculated using
the following weighted-average assumptions; an option term of 6.5 years (representing the estimated
period between grant date and exercise date based on historical data); a risk-free interest rate of
4.28% in 2006 and 3.95% in 2005 (representing the yield on a U.S. Treasury security with a
remaining term equal to the expected option term); expected volatility of 24% in 2006 and 21% in
2005; and estimated dividend yields of 1.65% in 2006 and 1.57% in 2005 (representing the
approximate annualized cash dividend rate paid with respect to a share of common stock at or near
the grant date). Based on historical data and projected employee turnover rates, the Company
reduced the estimated value of stock options for purposes of recognizing stock-based compensation
expense by 7% in 2006 and 8% in 2005 to reflect the probability of forfeiture prior to vesting.
A summary of stock option activity follows:
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Stock-based compensation plans, continued
For the six months ended June 30, 2006 and 2005, M&T received $43 million and $62 million,
respectively, in cash and realized $14 million and $23 million, respectively, in tax benefits from
the exercise of stock options. The intrinsic value of stock options exercised during those periods
was $47 million and $66 million, respectively. As of June 30, 2006, there was $63 million of total
unrecognized compensation cost related to non-vested stock options. That cost is expected to be
recognized over a weighted-average period of 2.7 years. Reflecting the fact that the Company
grants most of its stock option awards in January and such options vest on annual anniversary
dates, the total grant date fair value of shares vested during the six months ended June 30, 2006
and 2005 was $37 million and $40 million, respectively. The Company recognized stock-based
compensation expense for these awards throughout their respective vesting period. Upon the
exercise of stock options, the Company generally issues shares from treasury stock to the extent
available, but may also issue new shares.
9. Acquisition of branch offices
On June 30, 2006, M&T Bank, M&T’s principal banking subsidiary, acquired 21 branch offices in
Buffalo and Rochester, New York from Citibank, N.A. in a cash transaction. The branches had
approximately $269 million in loans, mostly to consumers, small businesses and middle market
customers, and approximately $1.0 billion of deposits. Although the transaction had no effect on
day-to-day operating results during the second quarter of 2006, expenses associated with systems
conversions and other costs of integrating and introducing Citibank, N.A.’s former customers to M&T
Bank’s products and services aggregated $4 million ($2 million net of applicable income taxes) in
that quarter.
- 19 -
Overview
Net income for M&T Bank Corporation (“M&T”) in the second quarter of 2006 totaled $213 million or
$1.87 of diluted earnings per common share, up 8% and 11%, respectively, from $197 million or $1.69
of diluted earnings per common share in the year-earlier quarter. During 2006’s first quarter, net
income was $203 million or $1.77 of diluted earnings per common share. Basic earnings per common
share were $1.91 in the recent quarter, compared with $1.73 in the corresponding 2005 quarter and
$1.82 in the initial 2006 quarter.
For the six-month period ended June 30, 2006, net income totaled $415 million or $3.64 per
diluted share, up 8% and 10%, respectively, from $386 million or $3.31 per diluted share in the
similar 2005 period. Basic earnings per share for the first six months of 2006 and 2005 were $3.73
and $3.38, respectively.
The annualized rate of return on average total assets for M&T and its consolidated
subsidiaries (“the Company”) in the second quarter of 2006 was 1.54%, compared with 1.46% in the
year-earlier quarter and 1.49% in the first quarter of 2006. The annualized rate of return on
average common stockholders’ equity was 14.35% in the recently completed quarter, improved from
13.73% in the corresponding 2005 quarter and 13.97% in the initial quarter of 2006. During the
first half of 2006, the annualized rates of return on average assets and average common
stockholders’ equity were 1.52% and 14.16%, respectively, compared with 1.45% and 13.57%,
respectively, in the first six months of 2005.
On June 30, 2006, M&T Bank, M&T’s principal banking subsidiary, completed the acquisition of
21 branch offices in Buffalo and Rochester, New York from Citibank, N.A., including approximately
$269 million in loans, mostly to consumers, small businesses and middle market customers, and
approximately $1.0 billion of deposits. Although the transaction had no effect on day-to-day
operating results during the recent quarter, expenses associated with integrating and introducing
Citibank N.A.’s former customers to M&T’s products and services aggregated $2 million, after
applicable tax effect, or $.02 of diluted earnings per share during the three and six-month periods
ended June 30, 2006. M&T expects to incur additional acquisition-related expenses in the third
quarter of 2006.
Supplemental Reporting of Non-GAAP Results of Operations
As a result of accounting for business combinations using the purchase method of accounting, the
Company had recorded intangible assets consisting of goodwill and core deposit and other intangible
assets totaling $3.2 billion at June 30, 2006 and $3.0 billion at each of June 30 and December 31,
2005. Included in such intangible assets at June 30, 2006, June 30, 2005 and December 31, 2005 was
goodwill of $2.9 billion. Amortization of core deposit and other intangible assets, after tax
effect, was $7 million ($.06 per diluted share) during the second quarter of 2006, compared with $9
million ($.07 per diluted share) in the similar 2005 quarter and $8 million ($.07 per diluted
share) in the first quarter of 2006. For the six-month periods ended June 30, 2006 and 2005,
amortization of core deposit and other intangible assets, after tax effect, totaled $15 million
($.13 per diluted share) and $18 million ($.15 per diluted share), respectively.
Since 1998, M&T has consistently provided supplemental reporting of its results on a “net
operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of
core deposit and other intangible assets
- 20 -
(and the related goodwill, core deposit intangible and other intangible asset balances, net of
applicable deferred tax amounts) and expenses associated with merging acquired operations into the
Company, since such expenses are considered by management to be “nonoperating” in nature. Although
“net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this
information helps investors understand the effect of acquisition activity in reported results.
Net operating income rose 8% to $222 million in the recent quarter from $205 million in the
second quarter of 2005. Diluted net operating earnings per share for 2006’s second quarter were
$1.95, up 11% from $1.76 in the corresponding 2005 period. Net operating income and diluted net
operating earnings per share were $211 million and $1.84, respectively, in the initial 2006
quarter. For the first six months of 2006, net operating income and diluted net operating earnings
per share were $433 million and $3.79, respectively, compared with $405 million and $3.46 in the
similar 2005 period.
Net operating income expressed as an annualized return on average tangible assets was 1.69% in
2006’s second quarter, compared with 1.62% in the similar 2005 quarter and 1.64% in the first
quarter of 2006. Net operating income expressed as an annualized return on average tangible common
equity was 30.02% in the recent quarter, compared with 29.88% in the year-earlier quarter and
29.31% in the initial quarter of 2006. For the first half of 2006, net operating income
represented an annualized return on average tangible assets and average tangible common
stockholders’ equity of 1.67% and 29.67%, respectively, compared with 1.61% and 29.77%,
respectively, in the six-month period ended June 30, 2005.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income was $451 million in the recently completed quarter, compared
with $452 million in each of the second quarter of 2005 and the first quarter of 2006. Net
interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of
average earning assets, declined to 3.66% in 2006’s second quarter from 3.78% in the year-earlier
period and 3.73% in the first quarter of 2006. The impact of a lower net interest margin in the
recent quarter as compared with the year-earlier and immediately preceding quarters was largely
offset by higher average loans and leases outstanding, which increased $1.8 billion, or 4%, to
$41.0 billion from $39.2 billion in the second quarter of 2005 and were up $435 million, or 1%,
from $40.5 billion in the initial quarter of 2006.
For the first half of 2006, taxable-equivalent net interest income was $903 million, up 1%
from $898 million in the similar 2005 period. A 5% or $1.9 billion increase in average loans and
leases was the leading factor contributing to that improvement. Largely offsetting the impact of
growth in loans was a decline in the Company’s net interest margin, which decreased 11 basis points
(hundredths of one percent) to 3.70% during the first six months of 2006 from 3.81% in the first
half of 2005.
Higher average outstanding balances of commercial loans, commercial real estate loans and
residential real estate loans were largely responsible for the recent quarter’s growth in average
loans outstanding as compared with both the second quarter of 2005 and the first quarter of 2006.
In 2006’s second quarter, commercial loans and commercial real estate loans averaged $11.3 billion
and $14.9 billion, respectively, up 8% and 4%, respectively, from $10.5 billion and $14.4 billion
in the corresponding 2005 quarter. Average residential real estate loans rose 39% or $1.4 billion
from 2005’s second quarter, the result of a $600 million increase in loans held for sale
- 21 -
and the Company deciding to retain certain residential real estate loan originations rather than
selling them. Average outstanding consumer loans declined $954 million, or 9%, in the second
quarter of 2006 as compared with the year-earlier quarter, as average automobile loan and lease
balances declined $874 million, the result of the Company’s decision to not extend such credit at
unfavorable interest rates. Reflecting similar trends, increases in the commercial loan and
commercial real estate loan portfolios totaling $239 million and $269 million, respectively,
contributed significantly to the growth in average loans outstanding from 2006’s first to second
quarter. During that same period, average residential real estate loans increased $259 million,
while average consumer loans declined $332 million. The following table summarizes quarterly
changes in the major components of the loan and lease portfolio.
AVERAGE LOANS AND LEASES
For the first half of 2006, average loans and leases aggregated $40.8 billion, 5% above $38.9
billion in the first six months of 2005. Consistent with the loan portfolio changes discussed
above, growth in commercial loans, commercial real estate loans and residential real estate loans
was partially offset by lower average consumer loan balances.
Investment securities averaged $8.3 billion in the recent quarter, compared with $8.6 billion
in the second quarter of 2005 and $8.4 billion in the first quarter of 2006. The investment
securities portfolio is largely comprised of residential and commercial mortgage-backed securities
and collateralized mortgage obligations, debt securities issued by municipalities, debt and
preferred equity securities issued by government-sponsored agencies and certain financial
institutions, and shorter-term U.S. Treasury notes. When purchasing investment securities, the
Company considers its overall interest-rate risk profile as well as the adequacy of expected
returns relative to the risks assumed, including prepayments. In managing the investment
securities portfolio, the Company occasionally sells investment securities as a result of changes
in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a
particular security, or as a result of restructuring its investment securities portfolio following
completion of a business combination. The Company regularly reviews its investment securities for
declines in value below amortized cost that might be other than temporary. As of June 30, 2006 and
December 31, 2005, the Company concluded that such declines were temporary in nature.
Other earning assets include deposits at banks, trading account assets, federal funds sold and
agreements to resell securities. The amount of investment securities and other earning assets held
by the Company are influenced by such factors as demand for loans, which generally yield more than
investment securities and other earning assets, ongoing repayments, the levels of deposits, and
management of balance sheet size and resulting capital ratios.
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The changes described herein resulted in a rise in average earning assets of $1.5 billion, or
3%, to $49.4 billion in the second quarter of 2006 from $47.9 billion in the corresponding quarter
in 2005. Average earning assets were $49.1 billion in the initial quarter of 2006 and aggregated
$49.3 billion and $47.6 billion for the six-month periods ended June 30, 2006 and 2005,
respectively.
Core deposits represent the most significant source of funding for the Company and are
comprised of noninterest-bearing deposits, interest-bearing transaction accounts, nonbrokered
savings deposits and nonbrokered domestic time deposits under $100,000. The Company’s branch
network is the principal source of core deposits, which generally carry lower interest rates than
wholesale funds of comparable maturities. Also included in core deposits are 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 banking subsidiary of M&T. Average core deposits totaled $28.0
billion in the recent quarter, compared with $28.2 billion in the second quarter of 2005 and $27.8
billion in 2006’s initial quarter. The increase in average balances of time deposits less than
$100,000 in the current quarter as compared with the prior periods was due, in part, to customer
response to higher interest rates being offered on those products as market interest rates have
risen. In contrast, average savings deposits have declined, as depositors seek higher interest
rates on their deposits and shift deposit balances into time accounts. Although the branch
acquisition completed on June 30, 2006 added $921 million of core deposits, that transaction had no
impact on average core deposits for the recent quarter. The following table provides an analysis
of quarterly changes in the components of average core deposits. For each of the six-month periods
ended June 30, 2006 and 2005, core deposits averaged $27.9 billion.
AVERAGE CORE DEPOSITS
Additional funding sources for the Company include domestic time deposits of $100,000 or more,
deposits originated through the Company’s offshore branch office, and brokered deposits. Domestic
time deposits over $100,000, excluding brokered certificates of deposit, averaged $2.9 billion in
the second quarter of 2006, compared with $1.7 billion and $2.6 billion in the year-earlier quarter
and in the first quarter of 2006, respectively. Offshore branch deposits, primarily comprised of
accounts with balances of $100,000 or more, averaged $3.6 billion in the recent quarter, $3.9
billion in the second quarter of 2005, and $3.4 billion in 2006’s first quarter. Average brokered
time deposits were $3.8 billion in the second quarter of 2006, compared with $2.5 billion in the
year-earlier quarter and $3.7 billion in 2006’s first quarter. At June 30, 2006, brokered time
deposits totaled $3.5 billion and the weighted-average remaining term to maturity of such deposits
was 11 months. Certain of these brokered time deposits have provisions that allow for early
redemption. In connection with the Company’s management of interest rate risk, interest rate swap
agreements have been entered into under which the Company receives a fixed rate of interest and
pays a variable rate and that have notional amounts and terms substantially similar to the amounts
and terms of $650 million of brokered time deposits. The Company also had brokered money-market
deposit accounts which averaged $65 million during the second quarter of 2006, compared with $61
million and $66 million during the corresponding quarter of 2005 and the first quarter of 2006,
respectively. Offshore branch deposits and brokered deposits have been
- 23 -
used by the Company as alternatives to short-term borrowings. Additional amounts of offshore
branch deposits or brokered deposits may be solicited in the future depending on market conditions,
including demand by customers and other investors for those deposits, and the cost of funds
available from alternative sources at the time.
The Company also uses borrowings from banks, securities dealers, the Federal Home Loan Banks
of New York, Pittsburgh and Atlanta (together, the “FHLB”), and others as sources of funding.
Short-term borrowings averaged $4.3 billion in the recent quarter, compared with $5.0 billion in
the second quarter of 2005 and $4.6 billion in the initial quarter of 2006. Unsecured federal
funds borrowings, which generally mature daily, included in short-term borrowings averaged $3.4
billion, $4.0 billion and $3.8 billion in the second quarters of 2006 and 2005, and the first
quarter of 2006, respectively. Overnight federal funds borrowings represent the largest component
of short-term borrowings and are obtained daily from a wide variety of banks and other financial
institutions. Also included in short-term borrowings is a $500 million revolving asset-backed
structured borrowing secured by automobile loans that were transferred to M&T Auto Receivables I,
LLC, a special purpose subsidiary of M&T Bank. The subsidiary, the loans and the borrowings are
included in the consolidated financial statements of the Company.
Long-term borrowings averaged $5.9 billion in the recent quarter, compared with $6.3 billion
in both the second quarter of 2005 and the first quarter of 2006. Included in average long-term
borrowings were amounts borrowed from the FHLB of $3.9 billion in the second quarter of 2006,
compared with $3.6 billion and $4.1 billion in the year-earlier quarter and the first quarter of
2006, respectively, and subordinated capital notes of $1.2 billion in the two most recent quarters
and $1.3 billion in the second quarter of 2005. Junior subordinated debentures associated with
trust preferred securities that were included in average long-term borrowings were $712 million in
each of the first two quarters of 2006, and $711 million in the second quarter of 2005.
Information regarding trust preferred securities and the related junior subordinated debentures is
provided in note 4 of Notes to Financial Statements.
In addition to changes in the composition of the Company’s earning assets and interest-bearing
liabilities as discussed herein, changes in interest rates and spreads can impact net interest
income. Net interest spread, or the difference between the taxable-equivalent yield on earning
assets and the rate paid on interest-bearing liabilities, was 3.07% in the recent quarter, down
from 3.36% in the second quarter of 2005. The yield on earning assets during the recently
completed quarter was 6.63%, up 93 basis points from 5.70% in the year-earlier quarter, while the
rate paid on interest-bearing liabilities increased 122 basis points to 3.56% from 2.34% in the
second quarter of 2005. In the first quarter of 2006, the net interest spread was 3.18%, the yield
on earning assets was 6.46% and the rate paid on interest-bearing liabilities was 3.28%. For the
first six months of 2006, the net interest spread was 3.13%, a decrease of 28 basis points from the
corresponding 2005 period. The yield on earning assets and the rate paid on interest-bearing
liabilities were 6.55% and 3.42%, respectively, in the first six months of 2006, compared with
5.61% and 2.20%, respectively, in the similar period of 2005. During the period from January 1,
2005 through June 30, 2006, the Federal Reserve raised its benchmark overnight federal funds target
rate twelve times, including eight increases since June 30, 2005, each increase representing a 25
basis point increment over the previously effective target rate. Those interest rate increases
resulted in a more rapid rise in rates paid on interest-bearing liabilities, most notably
short-term borrowings, than in the yields on earning assets. The result of these conditions was a
contraction of the net interest spread from the first quarter of 2005 through the second quarter of
2006.
- 24 -
Net interest-free funds consist largely of noninterest-bearing demand deposits and
stockholders’ equity, partially offset by bank owned life insurance and non-earning assets,
including goodwill and core deposit and other intangible assets. Net interest-free funds averaged
$8.2 billion in the second quarter of 2006, equal to the immediately preceding quarter, but down
from $8.7 billion in the year-earlier quarter. During the first half of 2006 and 2005, average net
interest-free funds aggregated $8.2 billion and $8.6 billion, respectively. The decreases in
average net interest-free funds in the 2006 periods as compared with the corresponding 2005 periods
were due largely to lower noninterest-bearing deposit balances, a result of the higher interest
rate environment. Goodwill and core deposit and other intangible assets averaged $3.0 billion
during each of the quarters ended June 30, 2006, June 30, 2005 and March 31, 2006. The cash
surrender value of bank owned life insurance averaged $1.1 billion during 2006’s second quarter,
compared with $1.0 billion in each of the second quarter of 2005 and the first quarter of 2006.
Increases in the cash surrender value of bank owned life insurance are not included in interest
income, but rather are recorded in “other revenues from operations.”
The contribution of net interest-free funds to the Company’s net interest margin was .59% in
the second quarter of 2006, compared with .42% in the year-earlier quarter and .55% in the first
quarter of 2006. The contribution of net interest-free funds to net interest margin for the first
six months of the year was .57% in 2006 and .40% in 2005. The increase in the contribution to net
interest margin ascribed to net interest-free funds in the three and six months ended June 30, 2006
as compared with the prior periods resulted largely from the impact of higher interest rates on
interest-bearing liabilities used to value such contribution.
Reflecting the changes to the net interest margin and the contribution of interest-free funds
as described herein, the Company’s net interest margin was 3.66% in the recent quarter, 12 basis
points lower than 3.78% in the corresponding quarter of 2005, and 7 basis points below 3.73% in the
first quarter of 2006. During the first six months of 2006 and 2005, the net interest margin was
3.70% and 3.81%, respectively. Future changes in market interest rates or spreads, as well as
changes in the composition of the Company’s portfolios of earning assets and interest-bearing
liabilities that result in reductions in spreads, could adversely impact the Company’s net interest
income and net interest margin. In general, the Company’s net interest margin has been declining
since the Federal Reserve began raising interest rates in June 2004. The only exception was an
increase in net interest margin from 2005’s final quarter to the first quarter of 2006 that was
largely due to higher fees associated with customer prepayments of commercial real estate loans and
the impact of two less days in the first quarter of 2006. Continued pressure on the Company’s net
interest margin is expected until the Federal Reserve slows or stops increasing interest rates.
Management assesses the potential impact of future changes in interest rates and spreads by
projecting net interest income under several interest rate scenarios. In managing interest rate
risk, the Company utilizes interest rate swap agreements to modify the repricing characteristics of
certain portions of its portfolios of earning assets and interest-bearing liabilities. Periodic
settlement amounts arising from these agreements are generally reflected in either the yields
earned on assets or, as appropriate, the rates paid on interest-bearing liabilities. The notional
amount of interest rate swap agreements entered into for interest rate risk management purposes was
$787 million at June 30, 2006, $755 million at June 30, 2005, $717 million at March 31, 2006 and
$652 million at December 31, 2005. Under the terms of these swap agreements, the Company receives
payments based on the outstanding notional amount of the swap agreements at fixed rates and makes
payments at variable rates.
- 25 -
As of June 30, 2006, all of the Company’s interest rate swap agreements entered into for risk
management purposes had been designated as fair value hedges. In a fair value hedge, the fair
value of the derivative (the interest rate swap agreement) and changes in the fair value of the
hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or
loss recognized in current earnings. The difference between changes in the fair value of the
interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded
in “other revenues from operations” in the Company’s consolidated statement of income. In a cash
flow hedge, unlike in a fair value hedge, the effective portion of the derivative’s gain or loss is
initially reported as a component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or
loss is reported in “other revenues from operations” immediately. The amounts of hedge
ineffectiveness recognized during the first two quarters of 2006 and in 2005’s second quarter were
not material to the Company’s results of operations. The estimated aggregate fair value of
interest rate swap agreements designated as fair value hedges represented losses of approximately
$16 million and $4 million at June 30, 2006 and 2005, respectively, and $9 million at December 31,
2005. The fair values of such swap agreements were substantially offset by changes in the fair
values of the hedged items. The changes in the fair values of the interest rate swap agreements
and the hedged items result from the effects of changing interest rates.
The weighted-average rates to be received and paid under interest rate swap agreements
currently in effect were 5.01% and 5.75%, respectively, at June 30, 2006. The average notional
amounts of interest rate swap agreements and the related effect on net interest income and margin,
and the weighted-average interest rates paid or received on those swap agreements are presented in
the accompanying table.
INTEREST RATE SWAPS
- 26 -
As a financial intermediary, the Company is exposed to various risks, including liquidity and
market risk. Liquidity refers to the Company’s ability to ensure that sufficient cash flow and
liquid assets are available to satisfy current and future obligations, including demands for loans
and deposit withdrawals, funding operating costs, and other corporate purposes. Liquidity risk
arises whenever the maturities of financial instruments included in assets and liabilities differ.
M&T’s banking subsidiaries have access to additional funding sources through FHLB borrowings, lines
of credit with the Federal Reserve Bank of New York, and other available borrowing facilities. The
Company has, from time to time, issued subordinated capital notes to provide liquidity and enhance
regulatory capital ratios. Such notes qualify for inclusion in the Company’s total capital as
defined by federal regulators. As an additional source of funding, the Company maintains the
already discussed $500 million revolving asset-backed structured borrowing secured by automobile
loans that were transferred to M&T Auto Receivables I, LLC. M&T Auto Receivables I, LLC was formed
for the purpose of borrowing $500 million in a revolving, asset-backed structured borrowing with an
unaffiliated conduit lender.
The Company has informal and sometimes reciprocal sources of funding available through various
arrangements for unsecured short-term borrowings from a wide group of banks and other financial
institutions. Short-term federal funds borrowings aggregated $4.4 billion, $3.5 billion and $4.0
billion at June 30, 2006, June 30, 2005 and December 31, 2005, respectively. In general, these
borrowings were unsecured and matured on the following business day. As already noted, offshore
branch deposits and brokered certificates of deposit have been used by the Company as alternatives
to short-term borrowings.
Should the Company experience a substantial deterioration in its financial condition or its
debt ratings, or should the availability of short-term funding become restricted due to a
disruption in the financial markets, the Company’s ability to obtain funding from these or other
sources could be negatively impacted. The Company attempts to quantify such credit-event risk by
modeling scenarios that estimate the liquidity impact resulting from a short-term ratings downgrade
over various grading levels. The Company estimates such impact by attempting to measure the effect
on available unsecured lines of credit, available capacity from secured borrowing sources and
securitizable assets. In addition to deposits and borrowings, other sources of liquidity include
maturities of interest-bearing deposits at banks, federal funds sold, agreements to resell
securities and investment securities; repayments of loans and investment securities; and cash
generated from operations, such as fees collected for services.
The Company serves in the capacity of remarketing agent for variable rate demand bonds
(“VRDBs”) issued by customers of the Company for the purpose of obtaining financing. The VRDBs are
generally enhanced by direct-pay letters of credit provided by M&T Bank. M&T Bank oftentimes acts
as remarketing agent for the VRDBs and, at its discretion, may from time-to-time own some of the
VRDBs while such instruments are remarketed. When this occurs, the VRDBs are classified as trading
assets in the Company’s consolidated balance sheet. Nevertheless, M&T Bank is not contractually
obligated to purchase the VRDBs. The value of VRDBs in the Company’s trading account totaled $49
million and $52 million at June 30, 2006 and 2005, respectively, and $58 million at December 31,
2005. The total amount of VRDBs outstanding backed by an M&T Bank letter of credit was $1.7
billion at June 30, 2006 and 2005, and at December 31, 2005. M&T Bank also serves as remarketing
agent for most of those bonds.
The Company enters into contractual obligations in the normal course of business which require
future cash payments. Such obligations include, among others, payments related to deposits,
borrowings, leases and other contractual commitments. The Company also enters into various other
off-
- 27 -
balance sheet commitments to customers that may impact liquidity, including commitments to extend
credit, standby letters of credit, commercial letters of credit, financial guarantees and
indemnification contracts, and commitments to sell real estate loans. Because many of these
commitments or contracts expire without being funded in whole or in part, the contract amounts are
not necessarily indicative of future cash flows. Further information relating to these commitments
is provided in note 6 of Notes to Financial Statements.
M&T’s primary source of funds to pay for operating expenses, shareholder dividends and
treasury stock repurchases has historically been the receipt of dividends from its banking
subsidiaries, which are subject to various regulatory limitations. Dividends from any banking
subsidiary to M&T are limited by the amount of earnings of the banking subsidiary in the current
year and the two preceding years. For purposes of that test, at June 30, 2006 approximately $240
million was available for payment of dividends to M&T from banking subsidiaries without prior
regulatory approval. These historic sources of cash flow have been augmented in the past by the
issuance of trust preferred securities. Information regarding trust preferred securities and the
related junior subordinated debentures is included in note 4 of Notes to Financial Statements. M&T
also maintains a $30 million line of credit with an unaffiliated commercial bank, of which there
were no borrowings outstanding at June 30, 2006 or at December 31, 2005.
Management closely monitors the Company’s liquidity position on an ongoing basis for
compliance with internal policies and believes that available sources of liquidity are adequate to
meet funding needs anticipated in the normal course of business. Management does not currently
anticipate engaging in any activities, either currently or in the long-term, for which adequate
funding would not be available and would therefore result in a significant strain on liquidity at
either M&T or its subsidiary banks.
Market risk is the risk of loss from adverse changes in 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 and by
different amounts as interest rates change. As a result, net interest income earned by the Company
is subject to the effects of changing interest rates. The Company measures interest rate risk by
calculating the variability of net interest income in future periods under various interest rate
scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives
used to hedge interest rate risk. Management’s philosophy toward interest rate risk management is
to limit the variability of net interest income. The balances of financial instruments used in the
projections are based on expected growth from forecasted business opportunities, anticipated
prepayments of loans and investment securities, and expected maturities of investment securities,
loans and deposits. Management uses a “value of equity” model to supplement the modeling technique
described above. Those supplemental analyses are based on discounted cash flows associated with
on- and off-balance sheet financial instruments. Such analyses are modeled to reflect changes in
interest rates and non-parallel shifts in the maturity curve of interest rates and provide
management with a long-term interest rate risk metric.
The Company’s Risk Management Committee, which includes members of senior management, monitors
the sensitivity of the Company’s net interest income to changes in interest rates with the aid of a
computer model that forecasts net interest income under different interest rate scenarios. In
modeling changing interest rates, the Company considers different yield curve shapes that consider
both parallel (that is, simultaneous changes in interest rates at each point on the yield curve)
and non-parallel (that is, allowing
- 28 -
interest rates at points on the yield curve to vary by different amounts) shifts in the yield
curve. In utilizing the model, market-implied forward interest rates over the subsequent twelve
months are generally used to determine a base interest rate scenario for the net interest income
simulation. That calculated base net interest income is then compared to the income calculated
under the varying interest rate scenarios. The model considers the impact of ongoing lending and
deposit gathering activities, as well as interrelationships in the magnitude and timing of the
repricing of financial instruments, including the effect of changing interest rates on expected
prepayments and maturities. Management has taken actions, when deemed prudent, to mitigate
exposure to interest rate risk through the use of on- or off-balance sheet financial instruments,
and intends to do so in the future. Possible actions include, but are not limited to, changes in
the pricing of loan and deposit products, modifying the composition of earning assets and
interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap
agreements or other financial instruments used for interest rate risk management purposes.
The accompanying table as of June 30, 2006 and December 31, 2005 displays the estimated impact
on net interest income from non-trading financial instruments in the base scenario described above
resulting from parallel changes in interest rates across repricing categories during the first
modeling year.
SENSITIVITY OF NET INTEREST INCOME
The Company utilized many assumptions to calculate the impact that changes in interest rates
may have on net interest income. The more significant of those assumptions included the rate of
prepayments of mortgage-related assets, cash flows from derivative and other financial instruments
held for non-trading purposes, loan and deposit volumes and pricing, and deposit maturities. In
the scenarios presented, the Company also assumed gradual changes in interest rates during a
twelve-month period of 100 and 200 basis points as compared with the assumed base scenario. In the
event that a 100 or 200 basis point rate change cannot be achieved, the applicable rate changes are
limited to lesser amounts such that interest rates cannot be less than zero. The assumptions used
in interest rate sensitivity modeling are inherently uncertain and, as a result, the Company cannot
precisely predict the impact of changes in interest rates on net interest income. Actual results
may differ significantly from those presented due to the timing, magnitude and frequency of changes
in interest rates, market conditions, and interest rate differentials (spreads) between
maturity/repricing categories, as well as any actions, such as those previously described, which
management may take to counter such changes. In light of the uncertainties and assumptions
associated with the process, the amounts presented in the table and changes in such amounts are not
considered significant to the Company’s past or projected net interest income.
The Company engages in trading activities to meet the financial needs of customers, to fund
the Company’s obligations under certain deferred compensation plans and, to a limited extent, to
profit from perceived market opportunities. Financial instruments utilized in trading activities
have included forward and futures contracts related to foreign currencies and mortgage-backed
securities, U.S. Treasury and other government securities, mortgage-backed securities, mutual funds
and interest rate contracts, such as
- 29 -
swap agreements. The Company generally mitigates the foreign currency and interest rate risk
associated with trading activities by entering into offsetting trading positions. The amounts of
gross and net trading positions, as well as the type of trading activities conducted by the
Company, are subject to a well-defined series of potential loss exposure limits established by
management and approved by M&T’s Board of Directors. However, as with any non-government
guaranteed financial instrument, the Company is exposed to credit risk associated with
counterparties to the Company’s trading activities.
The notional amounts of interest rate contracts entered into for trading purposes totaled $7.2
billion at June 30, 2006, compared with $6.7 billion at each of June 30 and December 31, 2005. The
notional amounts of foreign currency and other option and futures contracts entered into for
trading purposes were $578 million, $681 million and $679 million at June 30, 2006, June 30, 2005
and December 31, 2005, respectively. Although the notional amounts of these trading contracts are
not recorded in the consolidated balance sheet, the fair values of all financial instruments used
for trading activities are recorded in the consolidated balance sheet. The fair values of all
trading account assets and liabilities totaled $208 million and $99 million, respectively, at June
30, 2006, $195 million and $88 million, respectively, at June 30, 2005, and $192 million and $77
million, respectively, at December 31, 2005. Included in trading account assets at June 30, 2006
were $43 million related to deferred compensation plans, compared with $40 million at June 30, 2005
and $41 million at December 31, 2005. Changes in the fair value of such assets are recorded as
trading account and foreign exchange gains in the consolidated statement of income. Included in
other liabilities in the consolidated balance sheet at June 30, 2006 and at December 31, 2005 were
$48 million of liabilities related to deferred compensation plans, while at June 30, 2005, $47
million of such liabilities related to deferred compensation plans. Changes in the balances of
such liabilities due to the valuation of allocated investment options to which the liabilities are
indexed are recorded in “other costs of operations” in the consolidated statement of income.
Given the 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.
Provision for Credit Losses
The Company maintains an allowance for credit losses that in management’s judgment is adequate to
absorb losses inherent in the loan and lease portfolio. A provision for credit losses is recorded
to adjust the level of the allowance as deemed necessary by management. The provision for credit
losses in the second quarter of 2006 was $17 million, compared with $19 million in the similar 2005
quarter and $18 million in the initial quarter of 2006. Net loan charge-offs declined to $10
million in the recent quarter from $14 million in the second quarter of 2005 and $17 million in
2006’s first quarter. Net charge-offs as an annualized percentage of average loans and leases were .10% in the recent quarter, compared with .14% and .17% in the quarters ended June 30, 2005 and March 31, 2006, respectively. Management expects that net charge-offs as a percentage of average
loans outstanding will be higher during the last half of 2006 than during 2006’s second quarter.
For the six-month periods ended June 30, 2006 and 2005, the provision for credit losses was $35
million and $43 million, respectively. Net charge-offs through June 30 aggregated $27 million in
2006 and $33 million in 2005, representing .13% and .17%, respectively, of average loans and
leases. A summary of net charge-offs by loan type follows.
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NET CHARGE-OFFS
Loans classified as nonperforming, consisting of nonaccrual and restructured loans, were $156
million or .38% of total loans and leases outstanding at June 30, 2006, compared with $184 million
or .46% at June 30, 2005, $156 million or .39% at December 31, 2005, and $143 million or .35% at
March 31, 2006. Accruing loans past due 90 days or more totaled $101 million or .24% of total
loans and leases at the recent quarter-end, compared with $123 million or .31% a year earlier, $129
million or .32% at December 31, 2005 and $109 million or .27% at March 31, 2006. Accruing loans
past due 90 days or more included $79 million, $99 million, $106 million and $86 million at June
30, 2006, June 30, 2005, December 31, 2005 and March 31, 2006, respectively, of loans guaranteed by
government-related entities. Such guaranteed loans included one-to-four family residential
mortgage loans serviced by the Company that were repurchased to reduce servicing costs associated
with them, including a requirement to advance principal and interest payments that had not been
received from individual mortgagors. The outstanding principal balances of the repurchased loans
are fully guaranteed by government-related entities and totaled $58 million and $73 million at June
30, 2006 and 2005, respectively, $79 million at December 31, 2005 and $66 million at March 31,
2006. Also included in loans past due 90 days or more and accruing interest that were guaranteed
by government-related entities were foreign commercial and industrial loans supported by the
Export-Import Bank of the United States totaling $21 million at June 30, 2006, compared with $24
million a year earlier, $26 million at December 31, 2005 and $20 million at March 31, 2006.
Nonperforming commercial loans and leases totaled $47 million at June 30, 2006, $48 million at
June 30, 2005, $39 million at December 31, 2005 and $38 million at March 31, 2006.
Commercial real estate loans classified as nonperforming totaled $37 million at June 30 and
March 31, 2006, $63 million at June 30, 2005 and $44 million at December 31, 2005.
Nonperforming residential real estate loans totaled $32 million at June 30, 2006, $35 million
at June 30, 2005, $29 million at December 31, 2005 and $30 million at March 31, 2006. Residential
real estate loans past due 90
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days or more and accruing interest totaled $71 million at June 30, 2006, compared with $89
million a year-earlier, and $96 million and $82 million at December 31, 2005 and March 31, 2006,
respectively. As already discussed, a significant portion of such amounts relate to repurchased
loans that are guaranteed by government-related entities.
Consumer loans and leases classified as nonperforming totaled $40 million at the recent
quarter-end, compared with $38 million a year earlier and at March 31, 2006, and $44 million at
December 31, 2005. As a percentage of consumer loan balances outstanding, nonperforming consumer
loans and leases were .40% and .35% at June 30, 2006 and 2005, respectively, .42% at December 31,
2005 and .38% at March 31, 2006.
Assets acquired in settlement of defaulted loans were $14 million at June 30, 2006, compared
with $8 million a year earlier, $9 million at December 31, 2005 and $10 million at March 31, 2006.
A comparative summary of nonperforming assets and certain past due loan data and credit
quality ratios as of the end of the periods indicated is presented in the accompanying table.
NONPERFORMING ASSET AND PAST DUE LOAN DATA
Dollars in thousands
Management regularly assesses the adequacy of the allowance for credit losses by
performing ongoing evaluations of the loan and lease portfolio, including such factors as the
differing economic risks associated with each loan category, the financial condition of specific
borrowers, the economic environment in which borrowers operate, the level of delinquent loans, the
value of any collateral and, where applicable, the existence of any
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guarantees or indemnifications. Management evaluated the impact of changes in interest rates
and overall economic conditions on the ability of borrowers to meet repayment obligations when
quantifying the Company’s exposure to credit losses and assessing the adequacy of the Company’s
allowance for such losses as of each reporting date. Factors also considered by management when
performing its assessment, in addition to general economic conditions and the other factors
described above, included, but were not limited to: (i) the 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; (ii) the amount of commercial and industrial loans to businesses in areas of New York
State outside of the New York City metropolitan area and in central Pennsylvania that have
historically experienced less economic growth and vitality than the vast majority of other regions
of the country; and (iii) the size of the Company’s portfolio of loans to individual consumers,
which historically have experienced higher net charge-offs as a percentage of loans outstanding
than other loan types. The level of the allowance is adjusted based on the results of management’s
analysis.
Management cautiously and conservatively evaluated the allowance for credit losses as of June
30, 2006 in light of (i) the sluggish pace of economic growth in many of the markets served by the
Company; (ii) continued weakness in industrial employment in upstate New York and central
Pennsylvania; and (iii) the significant subjectivity involved in commercial real estate valuations
for properties located in areas with stagnant or low growth economies. Although the remaining
economic outlook for 2006 predicts moderate national growth with inflation expected to be
reasonably well contained, concerns exist about higher energy prices; a waning housing boom;
Federal Reserve tightening of monetary policy; the underlying impact on businesses’ operations and
abilities to repay loans resulting from rising interest rates; sluggish job creation, which could
cause consumer spending to slow; continued stagnant population growth in the upstate New York and
central Pennsylvania regions; and moderate loan demand in many market areas served by the Company.
Factors that influence the Company’s credit loss experience include overall economic
conditions affecting businesses and consumers generally, such as those described above, but also
real estate valuations, in particular, given the size and geographic concentration of the
commercial real estate loan portfolio. Commercial real estate valuations can be highly subjective,
as they are based upon many assumptions. Such valuations can be significantly affected over
relatively short periods of time by changes in business climate, economic conditions, interest
rates and, in many cases, the results of operations of businesses and other occupants of the real
property.
Management believes that the allowance for credit losses at June 30, 2006 was adequate to
absorb credit losses inherent in the portfolio as of that date. The allowance for credit losses was
$646 million, or 1.55% of total loans and leases at June 30, 2006, compared with $637 million or
1.60% a year earlier, $638 million or 1.58% at December 31, 2005 and $639 million or 1.56% at March
31, 2006. The ratio of the allowance for credit losses to nonperforming loans was 414% at the most
recent quarter-end, compared with 346% a year earlier, 408% at December 31, 2005 and 448% at March
31, 2006. The level of the allowance reflects management’s evaluation of the loan and lease
portfolio as of each respective date.
Other Income
Other income was $263 million in the second quarter of 2006, up 7% from $245 million in the
year-earlier quarter and 4% higher than $253 million in the first quarter of 2006. The increases
in the recent quarter as compared with
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the second quarter of 2005 and 2006’s first quarter were due largely to higher revenues from
residential mortgage banking activities, deposit account service charges and trust department
income.
Mortgage banking revenues rose 33% to $42 million in the recent quarter from $31 million in
the corresponding quarter of 2005, and were up 20% from $35 million in the initial quarter of 2006.
Mortgage banking revenues are comprised of both residential and commercial mortgage banking
activities.
Residential mortgage banking revenues, consisting of gains from sales of residential mortgage
loans and loan servicing rights, residential mortgage loan servicing fees, and other residential
mortgage loan-related fees and income, totaled $35 million in the recent quarter, compared with $25
million in the year-earlier period and $29 million in 2006’s initial quarter. Residential mortgage
loans originated for sale to other investors were approximately $1.9 billion during the second
quarter of 2006, compared with $1.8 billion in the similar 2005 quarter and $1.4 billion in the
2006’s first quarter. Realized gains from sales of residential mortgage loans and loan servicing
rights and recognized net unrealized gains and losses attributable to residential mortgage loans
held for sale, commitments to originate loans for sale and commitments to sell loans aggregated $16
million in the recently completed quarter, compared with $9 million in the second quarter of 2005
and $11 million in the first quarter of 2006.
Revenues from servicing residential mortgage loans for others were $16 million in each of the
two most recently completed quarters, and $14 million in the second quarter of 2005. Included in
such servicing revenues were amounts related to purchased servicing rights associated with small
balance commercial mortgage loans which totaled $4 million and $2 million in the second quarter of
2006 and 2005, respectively, and $3 million in 2006’s initial quarter. Residential mortgage loans
serviced for others aggregated $16.1 billion at June 30, 2006, compared with $14.4 billion a year
earlier and $15.6 billion at December 31, 2005, including the small balance commercial real estate
loans noted above of approximately $2.9 billion and $1.7 billion at June 30, 2006 and 2005,
respectively, and $2.4 billion at December 31, 2005. Capitalized residential mortgage servicing
assets, net of a valuation allowance for impairment, were $156 million at June 30, 2006, compared
with $125 million a year earlier and $140 million at December 31, 2005. Included in capitalized
residential mortgage servicing assets were $29 million at June 30, 2006, $13 million at June 30,
2005 and $23 million at December 31, 2005 of purchased servicing rights associated with the small
balance commercial mortgage loans noted above.
Loans held for sale that were secured by residential real estate totaled $1.7 billion at June
30, 2006 and $1.2 billion at each of June 30 and December 31, 2005. Commitments to sell loans and
commitments to originate loans for sale at pre-determined rates were $1.7 billion and $648 million,
respectively, at June 30, 2006, $1.5 billion and $900 million, respectively, at June 30, 2005, and
$923 million and $352 million, respectively, at December 31, 2005. Net unrealized losses on
residential mortgage loans held for sale, commitments to sell loans, and commitments to originate
loans for sale were approximately $194 thousand at June 30, 2006 and $5 million at December 31,
2005, compared with net unrealized gains of $1 million at June 30, 2005. Changes in such net
unrealized gains and losses are recorded in mortgage banking revenues and resulted in net decreases
in revenues of $3 million and $442 thousand in the second quarter of 2006 and 2005, respectively,
compared with a net increase in revenues of $8 million in the first quarter of 2006.
Commercial mortgage banking revenues were $7 million in the recent quarter, compared with $6
million in each of the second quarter of 2005 and the first quarter of 2006. Revenues from
commercial mortgage loan origination and sales activities were $4 million in the second quarter of
2006, compared
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with $3 million in the second quarter of 2005 and $2 million in the initial 2006 quarter.
Commercial mortgage loan servicing revenues were $3 million in the second quarters of 2006 and
2005, and $4 million in the first quarter of 2006. Capitalized commercial mortgage servicing
assets totaled $20 million at June 30, 2006, $22 million at June 30, 2005 and $21 million at
December 31, 2005. Commercial mortgage loans held for sale at June 30, 2006 and 2005 were $51
million and $78 million, respectively, and $199 million at December 31, 2005.
Service charges on deposit accounts increased 3% to $96 million in the second quarter of 2006
from $93 million in the year-earlier quarter and were 8% higher than $89 million in the first
quarter of 2006. The increase from the immediately preceding quarter was due, in part, to lower
seasonal volume levels typically experienced in the first quarter of each year. Trust income
totaled $35 million in the recent quarter, up 6% from $33 million in last year’s second quarter and
3% above the initial quarter of 2006. Brokerage services income, which includes revenues from the
sale of mutual funds and annuities and securities brokerage fees, totaled $14 million in the second
quarters of 2006 and 2005, compared with $15 million in the first quarter of 2006. Trading account
and foreign exchange activity resulted in gains of $6 million during each of the second quarters of
2006 and 2005, and $7 million in the initial 2006 quarter.
Other revenues from operations were $70 million in the recent quarter, compared with $68
million in the second quarter of 2005 and $74 million in the first quarter of 2006. The increase
in such revenues in the recent quarter as compared with the second 2005 quarter reflects higher
income from educational lending and insurance-related activities, offset, in part, by a decrease in
income from commercial leasing. The decline in other revenues from operations from the initial
2006 quarter to the second quarter was largely due to lower revenues from commercial leasing and
educational lending activities. Other revenues from operations included letter of credit and other
credit-related fees of $20 million in each of the second quarters of 2006 and 2005, and $19 million
in the first quarter of 2006. Also included in other revenues from operations is tax-exempt income
from bank owned life insurance, which includes increases in the cash surrender value of life
insurance policies and benefits received. Such income totaled $14 million in the second quarters
of 2006 and 2005, compared with $13 million in the first quarter of 2006. Merchant discount and
credit card fees totaled $8 million in the recent quarter, and $7 million in each of the quarters
ended June 30, 2005 and March 31, 2006. Insurance-related sales commissions and other revenues
aggregated $8 million in the quarter ended June 30, 2006, compared with $5 million in the similar
quarter of 2005 and $7 million in 2006’s first quarter. The increase in insurance-related revenues
in the 2006 quarters as compared with the second quarter of 2005 was largely the result of the
February 1, 2006 acquisition by M&T Bank of a commercial insurance and surety brokerage agency
based in Maryland.
Other income rose 7% to $516 million in the first six months of 2006 from $480 million in the
corresponding 2005 period. The most significant contributors to the rise in other income were
higher revenues from mortgage banking, educational lending and insurance-related activities,
partially offset by gains realized in 2005 from venture capital investments.
Mortgage banking revenues totaled $76 million for the first six months of 2006, 18% higher
than $65 million in the year-earlier period. Residential mortgage banking revenues increased to
$63 million in the first half of 2006 from $52 million in the similar period of 2005. Residential
mortgage loans originated for sale to other investors were $3.3 billion through June 30, 2006,
compared with $2.9 billion in 2005’s first six months. Realized gains from sales of residential
mortgage loans and loan servicing rights and recognized unrealized gains on residential mortgage
loans held for sale, commitments to originate loans for sale and commitments to sell loans totaled
$28 million
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and $19 million during the six-month periods ended June 30, 2006 and 2005, respectively. Revenues
from servicing residential mortgage loans for others were $32 million and $29 million for the first
half of 2006 and 2005, respectively. Included in such amounts were revenues related to purchased
servicing rights associated with the previously noted small balance commercial mortgage loans of $7
million and $4 million for the first six months of 2006 and 2005, respectively. Commercial
mortgage banking revenues totaled $13 million during the first half of 2006 and in the similar 2005
period.
Service charges on deposit accounts were $184 million during the first half of 2006, up 2%
from $181 million in the comparable 2005 period. Trust income increased 3% to $69 million from $66
million a year earlier. Brokerage services income increased 3% to $29 million during the first six
months of 2006 from $28 million in the similar 2005 period. Trading account and foreign exchange
activity resulted in gains of $13 million and $11 million for the six-month periods ended June 30,
2006 and 2005, respectively. Other revenues from operations increased 13% to $144 million in the
first six months of 2006 from $128 million in the corresponding 2005 period. Included in other
revenues from operations during the six-month periods ended June 30, 2006 and 2005 were letter of
credit and other credit-related fees of $39 million and $37 million, respectively, and income from
bank owned life insurance totaling $27 million and $24 million, respectively. Merchant discount
and credit card fees were $15 million and $14 million, respectively, and insurance-related sales
commissions and other revenues totaled $15 million and $11 million, respectively, during the
six-month periods ended June 30, 2006 and 2005. The higher insurance-related revenues in 2006 were
predominantly a result of the previously-noted insurance agency acquisition. Also contributing to
the year-over-year increase in other revenues was the previously discussed rise in 2006 in income
from educational lending, partially offset by higher gains realized in 2005 from venture capital
investments.
Other Expense
Other expense aggregated $377 million in the recent quarter, down 1% from $380 million in the
second quarter of 2005, and also 1% below $382 million in the initial 2006 quarter. Included in
those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of
core deposit and other intangible assets of $11 million in 2006’s second quarter, $14 million in
the year-earlier quarter, and $13 million in the first quarter of 2006, and the previously noted
branch acquisition-related expenses that totaled $4 million in the second quarter of 2006. There
were no similar expenses in 2005 or in the initial 2006 quarter. Exclusive of these nonoperating
expenses, noninterest operating expenses aggregated $362 million in the recent quarter, compared
with $366 million in the year-earlier quarter and $369 million in the first quarter of 2006. The
lower expense level in 2006’s second quarter as compared with the year-earlier quarter was
predominantly due to an $8 million partial reversal of the valuation allowance for the impairment
of capitalized residential mortgage servicing rights during the recent quarter reflecting an
increase in the estimated fair value of such rights that resulted from higher residential mortgage
loan interest rates at June 30, 2006 as compared with three months earlier. In contrast, the
Company added $5 million to the valuation allowance for the impairment of such rights during the
second quarter of 2005. As compared with the first quarter of 2006, the decline in noninterest
operating expenses was largely the result of lower salaries and employee benefits expense.
Other expense for the first six-months of 2006 totaled $759 million, up 2% from $748 million
in the similar period of 2005. Included in those amounts are expenses considered to be
“nonoperating” in nature consisting of amortization of core deposit and other intangible assets of
$24 million in
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the first half of 2006 and $30 million in the corresponding 2005 period, and the branch
acquisition-related expenses of $4 million in the first six months of 2006. Exclusive of these
nonoperating expenses, noninterest operating expenses for the six-month period ended June 30, 2006
increased 2% to $731 million from $718 million in the similar 2005 period. The most significant
contributor to the higher expense levels in the 2006 period as compared with 2005 were higher
expenses for salaries, partially offset by a $16 million impact from reductions of the valuation
allowance for capitalized residential mortgage servicing rights. Table 2 provides a reconciliation
of other expense to noninterest operating expense.
Salaries and employee benefits expense totaled $217 million in the recent quarter, compared
with $205 million in the second quarter of 2005 and $224 million in 2006’s initial quarter. The
higher expense level in the recent quarter as compared with the year-earlier quarter was largely
due to salaries-related costs, including the impact of merit pay increases awarded to employees and
a higher level of full-time equivalent employees. The decline in salaries and benefits expense in
the second quarter of 2006 as compared with the immediately preceding quarter was largely due to
lower stock-based incentive compensation, and payroll-related taxes and Company contributions for
retirement savings plan benefits related to incentive compensation payments made in 2006’s first
quarter, partially offset by higher salaries and other incentive compensation expenses. For the
first half of 2006, salaries and employee benefits expense rose 7% to $441 million from $411
million in the corresponding 2005 period. Higher salaries-related costs were the largest factor
causing the increase, resulting from merit increases, more employees and higher stock-based
compensation costs. Stock-based compensation totaled $11 million in the second quarters of 2006
and 2005, $18 million in the quarter ended March 31, 2006, and $29 million and $23 million in the
six-month periods ended June 30, 2006 and 2005, respectively. The higher levels of stock-based
compensation in the first quarter and first half of 2006 were due to the adoption of Statement of
Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No.
123R”), effective January 1, 2006. As required, coincident with the adoption of SFAS No. 123R, the
Company began accelerating the recognition of compensation costs for stock-based awards granted to
retirement-eligible employees and employees who will become retirement-eligible prior to full
vesting of the award. As a result, stock-based compensation expense during the first quarter of
2006 included $6 million that would otherwise have been recognized over the normal four year
vesting period if not for the required adoption of SFAS No. 123R. That acceleration had no effect
on the value of stock-based compensation awarded to employees. The number of full-time equivalent
employees was 12,932 at June 30, 2006, 12,769 at June 30, 2005, 12,780 at December 31, 2005 and
12,837 at March 31, 2006.
Excluding the nonoperating expense items previously noted, nonpersonnel expense totaled $145
million in each of the two most recently completed quarters, compared with $162 million in the
second quarter of 2005. On the same basis, such expenses were $290 million during the first half
of 2006, down from $306 million during the similar 2005 period. The most significant contributors
to the lower nonpersonnel operating expense levels in the first two quarters of 2006 as compared
with the second quarter and first six months of 2005 were the partial reversals of the valuation
allowance for the impairment of capitalized residential mortgage servicing rights of $8 million and
$7 million that were recognized in the second and first quarters of 2006, respectively. During the
second quarter and first half of 2005, additional expense for provisions for the impairment of
capitalized residential mortgage servicing rights totaled $5 million and $1 million, respectively.
The efficiency ratio, or noninterest operating expenses (as defined above) divided by the sum
of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses
from bank investment securities), measures the relationship of noninterest operating expenses to
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revenues. The Company’s efficiency ratio was 50.7% during the recent quarter, compared with 52.6%
during the year-earlier quarter and 52.4% in the initial quarter of 2006. The efficiency ratios
for the six-month periods ended June 30, 2006 and 2005 were 51.5% and 52.1%, respectively.
Noninterest operating expenses used in calculating the efficiency ratio do not include the
acquisition-related costs and amortization of core deposit and other intangible assets noted
earlier. If charges for amortization of core deposit and other intangible assets were included,
the ratios for the three-month periods ended June 30, 2006, June 30, 2005 and March 31, 2006 would
have been 52.3%, 54.6% and 54.2%, respectively, and for the six-month periods ended June 30, 2006
and 2005 would have been 53.2% and 54.3%, respectively.
Capital
Stockholders’ equity was $6.0 billion at June 30, 2006, representing 10.62% of total assets,
compared with $5.8 billion or 10.71% of total assets a year earlier and $5.9 billion or 10.66% at
December 31, 2005. On a per share basis, stockholders’ equity was $54.01 at June 30, 2006, up from
$51.20 and $52.39 at June 30 and December 31, 2005, respectively. Tangible equity per share, which
excludes goodwill and core deposit and other intangible assets and applicable deferred tax
balances, was $25.55 at the end of the second quarter of 2006, compared with $25.00 a year earlier
and $25.91 at December 31, 2005. A reconciliation of total stockholders’ equity and tangible
equity as of each of those respective dates is presented in table 2.
Stockholders’ equity reflects accumulated other comprehensive income or loss, which includes
the net after-tax impact of unrealized gains or losses on investment securities classified as
available for sale and minimum pension liability adjustments. Net unrealized losses on available
for sale investment securities were $98 million, or $.89 per common share, at June 30, 2006,
compared with unrealized losses of $25 million, or $.22 per share, at June 30, 2005 and $49
million, or $.43 per share, at December 31, 2005. Such unrealized 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 minimum pension liability adjustment, net of applicable tax effect,
reduced accumulated other comprehensive income by $49 million at June 30, 2006 and December 31,
2005, or by $.44 per share at those respective dates, compared with $12 million at June 30, 2005,
or $.11 per share.
During the second quarter of 2006, M&T increased the quarterly dividend on its common stock
from $.45 per share to $.60 per share, an increase of 33%.
In November 2005, M&T announced that it had been authorized by its Board of Directors to
purchase up to 5,000,000 shares of its common stock. During the quarter ended June 30, 2006,
605,700 shares of common stock were repurchased by M&T pursuant to such plan at an average cost of
$114.61 per share. Through June 30, 2006, M&T had repurchased 1,919,400 shares of common stock
pursuant to such plan at an average cost of $110.48 per share.
Federal regulators generally require banking institutions to maintain “core capital” and
“total capital” ratios of at least 4% and 8%, respectively, of risk-adjusted total assets. In
addition to the risk-based measures, Federal bank regulators have also implemented a minimum
“leverage” ratio guideline of 3% of the quarterly average of total assets. At June 30, 2006, core
capital included $688 million of trust preferred securities described in note 4 of Notes to
Financial Statements, and total capital further included $943 million of subordinated notes.
The Company generates significant amounts of regulatory capital. The rate of regulatory core
capital generation, or net operating income (as
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previously defined) less the sum of dividends paid and the after-tax effect of merger-related
expenses expressed as an annualized percentage of regulatory “core capital” at the beginning of
each period was 17.00% during the second quarter of 2006, compared with 18.49% in the year-earlier
quarter and 18.11% in the first quarter of 2006.
The regulatory capital ratios of the Company, M&T Bank and M&T Bank, N.A., as of June 30, 2006
are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
Segment Information
In accordance with the provisions of SFAS No. 131, “Disclosures About Segments of an Enterprise and
Related Information,” the Company’s reportable segments have been determined based upon its
internal profitability reporting system, which is organized by strategic business unit. Financial
information about the Company’s segments is presented in note 5 of Notes to Financial Statements.
The Commercial Banking segment’s net income for the second quarter of 2006 was $58 million,
unchanged from the second quarter of 2005 but improved from $56 million in the initial quarter of
2006. As compared with the year-earlier quarter, lower revenues in 2006’s second quarter, largely
due to declines in service charges on deposit accounts and letter of credit and other
credit-related loan fees, were offset by a decline in the provision for credit losses. The current
quarter’s improved performance over the first quarter of 2006 was the result of a $2 million
decrease in the provision for credit losses and slightly higher
revenues of $1 million. For the six
months ended June 30, 2006, this segment contributed $114 million to net income, up 3% from $110
million earned in the corresponding period of 2005. The favorable performance was due to higher
revenues of $4 million, resulting mainly from increased net interest income, and a $7 million
decrease in the provision for credit losses, offset partially by a $5 million increase in
noninterest expenses predominantly due to higher salaries and employee benefit costs.
Net income earned by the Commercial Real Estate segment totaled $32 million during the second
quarter of 2006, down from $35 million in the year-earlier quarter and $34 million in the first
quarter of 2006. The decrease from the second quarter of 2005 was due to lower revenues of $2
million, primarily the result of a 24 basis point decline in loan interest margin, and higher
noninterest expenses of $2 million. In comparison to the first quarter of 2006, lower revenues of $3
million, due in large part to a 30 basis point decline in loan interest margin, and higher
noninterest expenses of $1 million, contributed to the unfavorable variance. Net contribution for
this segment declined to $66 million during the first six months of 2006 from $68 million in the
similar 2005 period. The lower net income was mainly due to higher noninterest expenses of $4
million, resulting from increased salaries and benefits costs and other costs of operations,
partially offset by a $1 million decrease in the provision for credit losses.
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The Discretionary Portfolio segment’s net income totaled $24 million in the recent quarter,
down from $30 million in the second quarter of 2005, but up from $22 million in 2006’s first
quarter. The unfavorable performance compared with last year’s second quarter was largely due to
a $12 million decline in net interest income, predominantly the result of a 76 basis point decline
in net interest margin on investment securities. In comparison to the first quarter of 2006, a
decrease in the provision for credit losses and slightly lower noninterest expenses were the main
factors contributing to the favorable performance. Net contribution for this segment decreased to
$46 million for the first six months of 2006 from $60 million in the corresponding 2005 period, due
primarily to a $22 million decline in net interest income resulting from a 74 basis point decline
in net interest margin on investment securities.
The Residential Mortgage Banking segment contributed $19 million in the second quarter of
2006, up from $8 million in last year’s similar quarter and $15 million in the immediately
preceding quarter. The increase from the prior year’s second quarter was due to a $14 million
increase in revenues largely from loan origination, sales, and servicing activities, and an $8
million reduction of the capitalized mortgage servicing rights valuation allowance during the
recent quarter, compared with a $3 million addition to such allowance in this segment during the
second quarter of 2005. Partially offsetting these favorable factors were higher salaries and
employee benefits costs of $4 million. The increase from the initial quarter of 2006 was due to
higher revenues of $6 million, predominately from loan origination, sales, and servicing
activities. During the first quarter of 2006, there was a $7 million reduction of the capitalized
mortgage servicing rights valuation allowance. For the first six months of 2006, net income for
this segment totaled $34 million, up from $18 million in the corresponding period of 2005. The
favorable variance was due to an $18 million increase in revenues from loan origination, sales, and
servicing activities, a $7 million increase in net interest income, primarily due to an increase in
average loan balances outstanding, and a $15 million reduction of the capitalized servicing rights
valuation allowance during the first half of 2006, compared with a $1 million addition to such
allowance during the corresponding period in 2005. Partially offsetting these favorable factors
was a $10 million increase in salaries and employee benefits costs in comparison to the first six
months of 2005.
Net income for the Retail Banking segment increased to $102 million in the second quarter of
2006 from $82 million in the year-earlier quarter and $93 million in the first quarter of 2006.
The favorable variance in comparison to the second quarter of 2005 was largely due to higher net
interest income of $24 million, primarily the result of rising market interest rates which resulted
in a 51 basis point increase in deposit net interest margin. Higher service charges on deposit
accounts of $4 million, a $2 million decline in net charge-offs, and a $2 million decline in
noninterest expenses also contributed to the favorable variance as compared with 2005’s second
quarter. The increase in the recent quarter’s net income when compared with the first quarter of
2006 was the result of higher revenues of $14 million, due to a 15 basis point increase in deposit
net interest margin and a $7 million increase in service charges on deposit accounts, and a $5
million decrease in net charge-offs. For the first six months of 2006, net income for this segment
totaled $195 million, up 24% from $158 million earned in the similar 2005 period. The favorable
performance was due to higher revenues of $61 million, resulting primarily from an increase in
deposit net interest margin and higher service charges on deposit accounts.
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The “All Other” category reflects other activities of the Company that are not directly
attributable to the reported segments as determined in accordance with SFAS No. 131, such as the
M&T Investment Group, which includes the Company’s trust, brokerage and insurance businesses. Also
reflected in this category are the amortization of core deposit and other intangible assets,
merger-related expenses resulting from acquisitions, and the net impact of the Company’s allocation
methodologies for internal funds transfer pricing and the provision for credit losses. The various
components of the “All Other” category resulted in net losses of $22 million in the second quarter
of 2006, $16 million in the second quarter of 2005 and $17 million in the first quarter of 2006.
For the first six months of 2006 and 2005, the “All Other” segment reported net losses of $39
million and $27 million, respectively. The net losses resulted from the Company’s allocation
methodologies for internal transfers for funding charges and credits associated with earning assets
and interest-bearing liabilities of the Company’s reportable segments, and higher levels of
noninterest expenses, including $4 million of branch acquisition-related expenses in the second
quarter of 2006.
Recent Accounting Developments
In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155,
“Accounting for Certain Hybrid Financial Instruments — an amendment to FASB Statements No. 133 and
140.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation. It also clarifies which
interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133
and establishes a requirement to evaluate interests in securitized financial assets to identify
interests that contain an embedded derivative requiring bifurcation. SFAS No. 155 is effective for
all financial instruments acquired or issued after the beginning of an entity’s first fiscal year
that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an
entity’s fiscal year, provided the entity has not yet issued financial statements, including
financial statements for any interim period for that fiscal year. The Company has not
early-adopted the provisions of SFAS No. 155 and does not currently anticipate that the impact of
such adoption in 2007 will have a material impact on its consolidated financial position.
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets —
an amendment of FASB Statement No. 140.” SFAS No. 156 defines the situations in which an entity
should recognize a servicing asset or servicing liability when it undertakes an obligation to
service a financial asset by entering into a servicing contract. SFAS No. 156 requires all
separately recognized servicing assets and servicing liabilities to be initially measured at fair
value and permits an entity to choose its subsequent measurement method for each class of
separately recognized servicing assets and servicing liabilities as either the amortization method
or fair value measurement method. The amortization method requires servicing assets and servicing
liabilities to be amortized in proportion to and over the period of estimated net servicing income
or net servicing loss and assess servicing assets or servicing liabilities for impairment or
increased obligation based on fair value at each reporting date. The fair value measurement method
requires servicing assets and servicing liabilities to be measured at fair value at each reporting
date and requires entities to report changes in fair value of servicing assets and liabilities in
earnings in the period in which the changes occur. SFAS No. 156 requires prospective adoption as
of the beginning of an entity’s first fiscal year that begins after September 15, 2006. Earlier
adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not
yet issued financial statements, including interim financial statements, for any period of that
-41-
fiscal year. An entity may elect to subsequently measure a class of separately recognized
servicing assets and servicing liabilities at fair value as of the beginning of any fiscal year,
beginning with the fiscal year in which the entity adopts this statement. Upon such election,
which is irrevocable, the effect of remeasuring an existing class of separately recognized
servicing assets and servicing liabilities at fair value should be reported as a cumulative-effect
adjustment to retained earnings as of the beginning of the fiscal year. Currently, the Company
initially measures servicing assets retained in sales and securitization transactions for which it
is the transferor under the relative fair value method prescribed in SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and subsequently
measures its servicing assets under the amortization method. The Company has not early-adopted the
provisions of SFAS No. 156. No decision has been reached as to whether the Company will elect to
adopt the fair value measurement method for any classes of separately recognized servicing assets,
and therefore, the impact of adoption of SFAS No. 156 cannot be determined at this time.
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized under SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of an
uncertain tax position taken or expected to be taken in a tax return. The evaluation of an
uncertain tax position in accordance with FIN 48 is a two-step process. The first step is
recognition, which requires a determination whether it is more likely than not that a tax position
will be sustained upon examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The second step is measurement: A tax
position that meets the more-likely-than-not recognition threshold is measured at the largest
amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement. Tax positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent financial reporting period in which that
threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be derecognized in the first subsequent financial reporting period in
which that threshold is no longer met. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The cumulative effect of applying the provisions of FIN 48 shall be reported as
an adjustment to the opening balance of retained earnings (or other appropriate components of
equity or net assets) for that fiscal year. The Company is still evaluating the applicability of
FIN 48 to positions taken on the Company’s tax returns. Although that evaluation is not complete,
the Company anticipates that the adoption of FIN 48 on January 1, 2007 will not have a material
impact on its financial position, but may impact the recognition of income tax expense in future
periods.
Also in July 2006, the FASB adopted FASB Staff Position No. 13-2, “Accounting for a Change or
Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged
Lease Transaction” (“FSP 13-2”). FSP 13-2 requires that a change or projected change in the timing
of cash flows relating to income taxes generated by a leveraged lease shall be accounted for in
accordance with the guidance in paragraph 46 of SFAS No. 13, “Accounting for Leases.” That is, the
projected timing of income tax cash flows generated by a leveraged lease transaction shall be
reviewed annually or more frequently if events or changes in circumstances indicate that a change
in timing has occurred or is projected to occur. If, during the lease term, the projected timing
of income tax cash flows generated by a leveraged lease is revised, the rate of return and the
allocation of income to positive investment years shall be recalculated from inception of the lease following the method
described in paragraph 44 of SFAS No. 13. The guidance in FSP 13-2 shall be applied to fiscal
years beginning after December 15, 2006. The
-42-
cumulative effect of applying the provisions of FSP
13-2 shall be reported as an adjustment to the opening balance of
retained earnings as of the
beginning of the period of adoption. The Company does not expect that the adoption of FSP 13-2 on
January 1, 2007 will have a material effect on its financial position or results of operations.
Forward-Looking Statements
Management’s discussion and analysis of financial condition and results of operations and other
sections of the Company’s Quarterly Report on Form 10-Q 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.
Future Factors include changes in interest rates, spreads on earning assets and
interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations
and credit losses; sources of liquidity; common shares outstanding; common stock price volatility;
fair value of and number of stock-based compensation awards to be issued in future periods;
legislation affecting the financial services industry as a whole, and/or M&T and its subsidiaries
individually or collectively; regulatory supervision and oversight, including monetary policy and
required capital levels; changes in accounting policies or procedures as may be required by the
FASB or other regulatory agencies; increasing price and product/service competition by competitors,
including new entrants; rapid technological developments and changes; the ability to continue to
introduce competitive new products and services on a timely, cost-effective basis; the mix of
products/services; containing costs and expenses; governmental and public policy changes;
protection and validity of intellectual property rights; reliance on large customers;
technological, implementation and cost/financial risks in large, multi-year contracts; the outcome
of pending and future litigation and governmental proceedings; continued availability of financing;
financial resources in the amounts, at the times and on the terms required to support the Company’s
future businesses; and material differences in the actual financial results of merger and
acquisition activities compared to the Company’s expectations, including the full realization of
anticipated cost savings and revenue enhancements.
These are representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by general industry and
market conditions and growth rates, general economic and political conditions, either nationally or
in the states in which the Company conducts business, including interest rate and currency exchange
rate fluctuations, changes and trends in the securities markets, and other Future Factors.
-43-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 1
QUARTERLY TRENDS
-44-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
-45-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
[Continued from above table, first column(s) repeated]
(continued)
-46-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
-47-
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.”
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the
effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules
13a-15(e) and 15d-15(e)), Robert E. Sadler, Jr., President and Chief Executive Officer, and René F.
Jones, Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure
controls and procedures were effective as of June 30, 2006.
(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy
of its internal control over financial reporting and enhances its controls in response to internal
control assessments and internal and external audit and regulatory recommendations. No changes in
internal control over financial reporting have been identified in connection with the evaluation of
disclosure controls and procedures during the quarter ended June 30, 2006 that have materially
affected, or are reasonably likely to materially affect, M&T’s internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
M&T and its subsidiaries are subject in the normal course of business to various pending and
threatened legal proceedings in which claims for monetary damages are asserted. Management, after
consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising
out of litigation pending against M&T or its subsidiaries will be material to M&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 1A. Risk Factors.
There have been no material changes in risk factors relating to M&T to those disclosed in
response to Item 1A. to Part I of Form 10-K for the year ended December 31, 2005.
-48-
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a)–(b) Not applicable.
(c)
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Information concerning the matters submitted to a vote of stockholders at M&T’s Annual Meeting
of Stockholders held on April 18, 2006 was previously reported in response to Item 4 of Part II of
M&T’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.
Item 5. Other Information.
-49-
Item 6. Exhibits.
The following exhibits are filed as a part of this report.
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.
-50-
EXHIBIT INDEX
-51-
June 30,
December 31,
Dollars in thousands, except per share
2006
2005
$
1,572,863
1,479,239
14,923
8,408
16,649
11,220
208,291
191,617
7,444,686
7,931,703
90,682
101,059
367,774
367,402
7,903,142
8,400,164
41,820,338
40,553,691
(220,877
)
(223,046
)
(645,851
)
(637,663
)
40,953,610
39,692,982
334,873
337,115
2,908,849
2,904,081
290,847
108,260
2,303,041
2,013,320
$
56,507,088
55,146,406
$
8,099,083
8,141,928
1,017,813
901,938
14,127,054
13,839,150
12,492,427
11,407,626
2,777,306
2,809,532
38,513,683
37,100,174
4,533,796
4,211,978
771,018
940,894
953,858
819,980
5,734,509
6,196,994
50,506,864
49,270,020
—
—
60,198
60,198
5,107
5,363
2,887,441
2,886,153
4,152,943
3,854,275
(147,794
)
(97,930
)
(957,671
)
(831,673
)
6,000,224
5,876,386
$
56,507,088
55,146,406
Table of Contents
Three months ended
Six months ended
June 30
June 30
In thousands, except per share
2006
2005
2006
2005
$
713,816
583,415
$
1,394,533
1,132,104
111
38
183
66
405
203
783
372
753
300
1,424
399
94,092
89,032
185,780
175,019
3,734
3,530
7,480
6,879
812,911
676,518
1,590,183
1,314,839
779
543
1,438
861
47,579
33,292
91,136
61,181
139,032
64,101
257,090
112,855
43,798
28,101
80,601
53,481
53,623
36,678
104,190
68,669
81,487
66,301
162,089
128,235
366,298
229,016
696,544
425,282
446,613
447,502
893,639
889,557
17,000
19,000
35,000
43,000
429,613
428,502
858,639
846,557
41,565
31,274
76,076
64,700
95,549
92,969
184,425
181,322
34,757
32,745
68,553
66,268
14,481
14,179
29,205
28,360
6,168
5,957
12,674
10,826
236
30
294
246
69,846
68,208
144,306
127,898
262,602
245,362
515,533
479,620
217,162
204,607
441,244
411,217
42,527
42,608
85,929
86,614
8,072
8,411
16,639
17,242
11,357
14,055
24,385
30,176
97,879
110,760
190,803
202,529
376,997
380,441
759,000
747,778
315,218
293,423
615,172
578,399
102,645
96,589
199,682
192,275
$
212,573
196,834
$
415,490
386,124
$
1.91
1.73
$
3.73
3.38
1.87
1.69
3.64
3.31
$
.60
.45
$
1.05
.85
111,259
113,949
111,474
114,359
113,968
116,422
114,157
116,801
Table of Contents
Six months ended June 30
In thousands
2006
2005
$
415,490
386,124
35,000
43,000
26,849
29,978
30,350
28,923
24,385
30,176
(46,425
)
(62,232
)
203
189
(9,801
)
(5,801
)
34,729
4,106
(25,162
)
36,610
(263,186
)
(438,607
)
5,766
(41,688
)
228,198
10,778
95,752
13,576
27,333
31,290
824,720
1,060,852
41,335
62,491
(520,429
)
(972,924
)
(30,970
)
(50,951
)
(27,705
)
(20,706
)
(32,230
)
(21,563
)
(779,886
)
(1,097,057
)
(16,736
)
(6,457
)
482,818
—
(73,763
)
(49,263
)
(9,761
)
(1,050,712
)
454,307
1,880,294
151,942
(417,712
)
500,000
801,322
(956,166
)
(826,552
)
(207,120
)
(252,550
)
(116,725
)
(97,001
)
54,378
66,394
(119,384
)
1,154,195
$
99,053
114,261
1,490,459
1,363,804
$
1,589,512
1,478,065
$
1,592,125
1,289,452
655,029
413,723
240,021
223,319
$
10,235
4,993
514,055
—
999,022
—
Table of Contents
Accumulated
Common
Additional
other
Preferred
Common
stock
paid-in
Retained
comprehensive
Treasury
In thousands, except per share
stock
stock
issuable
capital
earnings
income (loss), net
stock
Total
$
—
60,198
5,779
2,897,912
3,270,887
(17,209
)
(487,953
)
5,729,614
—
—
—
—
386,124
—
—
386,124
—
—
—
—
—
(20,603
)
—
(20,603
)
365,521
—
—
—
—
—
—
(252,550
)
(252,550
)
—
—
—
304
—
—
—
304
—
—
—
22,805
—
—
—
22,805
—
—
—
(42,113
)
—
—
110,286
68,173
—
—
—
48
—
—
508
556
—
—
(237
)
(168
)
(85
)
—
791
301
—
—
—
—
(97,001
)
—
—
(97,001
)
$
—
60,198
5,542
2,878,788
3,559,925
(37,812
)
(628,918
)
5,837,723
$
—
60,198
5,363
2,886,153
3,854,275
(97,930
)
(831,673
)
5,876,386
—
—
—
—
415,490
—
—
415,490
—
—
—
—
—
(49,864
)
—
(49,864
)
365,626
—
—
—
—
—
—
(207,120
)
(207,120
)
—
—
—
225
—
—
—
225
—
—
—
28,906
—
—
—
28,906
—
—
—
(27,493
)
—
—
79,894
52,401
—
—
—
54
—
—
485
539
—
—
(256
)
(404
)
(97
)
—
743
(14
)
—
—
—
—
(116,725
)
—
—
(116,725
)
$
—
60,198
5,107
2,887,441
4,152,943
(147,794
)
(957,671
)
6,000,224
Six months ended June 30
In thousands
2006
2005
$
637,663
626,864
35,000
43,000
(43,553
)
(48,547
)
16,741
16,028
(26,812
)
(32,519
)
$
645,851
637,345
Table of Contents
Three months ended
Six months ended
June 30
June 30
2006
2005
2006
2005
(in thousands, except per share)
$
212,573
196,834
415,490
386,124
111,259
113,949
111,474
114,359
$
1.91
1.73
3.73
3.38
Three months ended
Six months ended
June 30
June 30
2006
2005
2006
2005
(in thousands, except per share)
$
212,573
196,834
415,490
386,124
111,259
113,949
111,474
114,359
2,709
2,473
2,683
2,442
113,968
116,422
114,157
116,801
$
1.87
1.69
3.64
3.31
Table of Contents
Six months ended June 30, 2006
Before-tax
Income
amount
taxes
Net
(in thousands)
$
(87,097
)
37,414
(49,683
)
294
(113
)
181
$
(87,391
)
37,527
(49,864
)
Table of Contents
Capital
Common
Junior Subordinated
Trust
Securities
Securities
Debentures
$150 million
$4.64 million
$154.64 million aggregate
liquidation amount of 8.234%
Junior Subordinated Debentures
due February 1, 2027.
$100 million
$3.09 million
$103.09 million aggregate
liquidation amount of 8.277%
Junior Subordinated Debentures
due June 1, 2027.
$60 million
$1.856 million
$61.856 million aggregate
liquidation amount of 9.25%
Junior Subordinated Debentures
due February 1, 2027.
Table of Contents
Capital
Common
Junior Subordinated
Trust
Securities
Securities
Debentures
$150 million
$4.64 million
$154.64 million aggregate
liquidation amount of
Floating Rate Junior
Subordinated Debentures due
January 15, 2027.
$150 million
$4.64 million
$154.64 million aggregate
liquidation amount of
Floating Rate Junior
Subordinated Debentures due
February 1, 2027.
Table of Contents
Table of Contents
Table of Contents
Three months ended June 30
2006
2005
Inter-
Net
Inter-
Net
Total
segment
income
Total
segment
income
revenues(a)
revenues
(loss)
revenues(a)
revenues
(loss)(a)
(in thousands)
$
135,104
142
57,590
137,761
147
58,316
65,032
220
32,237
67,037
289
34,853
37,395
(1,098
)
23,730
49,116
(345
)
30,169
75,125
12,907
18,626
61,561
13,247
7,584
360,194
2,993
102,494
330,704
4,564
82,319
36,365
(15,164
)
(22,104
)
46,685
(17,902
)
(16,407
)
$
709,215
—
212,573
692,864
—
196,834
Table of Contents
(a)
Total revenues are comprised of net interest income and other income. Net interest income is
the difference between taxable-equivalent interest earned on assets and interest paid on
liabilities owed by a segment and a funding charge (credit) based on the Company’s internal
funds transfer 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 $4,641,000 and $4,263,000 for the three-month periods ended June 30,
2006 and 2005 respectively, and $9,372,000 and $8,383,000 for the six-month periods ended June
30, 2006 and 2005, respectively, and is eliminated in “All Other” total revenues.
Intersegment revenues are included in total revenues of the reportable segments. The
elimination of intersegment revenues is included in the determination of “All Other” total
revenues.
Table of Contents
June 30,
December 31,
2006
2005
(in thousands)
$
5,352,242
4,903,834
31,225
41,662
2,499,378
2,249,805
647,501
351,898
890,983
848,015
6,862,862
6,843,170
3,621,256
3,523,234
60,520
47,360
1,112,329
1,186,385
1,741,850
1,164,360
Table of Contents
Table of Contents
Pension
Postretirement
benefits
benefits
Three months ended June 30
2006
2005
2006
2005
(in thousands)
$
5,575
8,000
150
250
9,175
9,925
850
1,350
(9,625
)
(9,575
)
—
—
(1,775
)
—
50
—
2,250
1,200
25
300
$
5,600
9,550
1,075
1,900
Table of Contents
Table of Contents
Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Table of Contents
Table of Contents
(net of unearned discount)
Dollars in millions
Percent increase
(decrease) from
2nd Qtr.
2nd Qtr.
1st Qtr.
2006
2005
2006
$
11,274
8
%
2
%
14,947
4
2
4,860
39
6
2,928
(23
)
(7
)
4,139
4
1
1,202
(7
)
—
1,630
(9
)
(7
)
9,899
(9
)
(3
)
$
40,980
4
%
1
%
Table of Contents
Dollars in millions
Percent increase
(decrease) from
2nd Qtr.
2nd Qtr.
1st Qtr.
2006
2005
2006
$
438
9
%
7
%
14,189
(6
)
(1
)
5,937
33
7
7,446
(9
)
(2
)
$
28,010
(1
)%
1
%
Table of Contents
Table of Contents
Table of Contents
Dollars in thousands
Three months ended June 30
2006
2005
Amount
Rate*
Amount
Rate*
$
—
—
%
$
—
—
%
913
.01
(1,831
)
(.02
)
$
(913
)
(.01
)%
$
1,831
.02
%
$
769,988
$
754,011
5.13
%
6.73
%
5.60
%
5.75
%
*
Computed as an annualized percentage of average earning assets or interest-bearing liabilities.
**
Weighted-average rate paid or received on interest rate swap agreements in effect during the period.
Table of Contents
Table of Contents
Table of Contents
TO CHANGES IN INTEREST RATES
Dollars in thousands
Calculated increase (decrease)
in projected net interest income
Changes in interest rates
June 30, 2006
December 31, 2005
$
(21,241
)
(7,178
)
(9,186
)
(4,096
)
3,213
(5,733
)
(1,124
)
(16,184
)
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BY LOAN/LEASE TYPE
In thousands
2006
Year
1st Qtr.
2nd Qtr.
to-date
$
6,085
2,119
8,204
86
249
335
473
696
1,169
10,188
6,916
17,104
$
16,832
9,980
26,812
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2006 Quarters
2005 Quarters
Second
First
Fourth
Third
Second
$
140,626
127,934
141,067
154,768
173,403
15,399
14,790
15,384
11,697
10,649
156,025
142,724
156,451
166,465
184,052
13,805
9,588
9,486
8,624
8,123
$
169,830
152,312
165,937
175,089
192,175
$
101,001
109,287
129,403
130,944
123,301
$
13,542
13,804
13,845
14,932
13,593
79,272
85,775
105,508
106,596
98,711
.38
%
.35
%
.39
%
.41
%
.46
%
.41
%
.37
%
.41
%
.43
%
.48
%
.24
%
.27
%
.32
%
.32
%
.31
%
*
Predominantly residential mortgage loans and government-guaranteed commercial
loans.
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June 30, 2006
M&T
M&T
M&T
(Consolidated)
Bank
Bank, N.A.
7.31
%
6.98
%
27.13
%
10.49
%
10.18
%
27.93
%
6.84
%
6.58
%
11.70
%
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2006 Quarters
2005 Quarters
Second
First
Fourth
Third
Second
First
$
817,552
782,003
757,654
725,129
680,781
642,441
366,298
330,246
303,493
265,576
229,016
196,266
451,254
451,757
454,161
459,553
451,765
446,175
17,000
18,000
23,000
22,000
19,000
24,000
262,602
252,931
248,604
221,494
245,362
234,258
376,997
382,003
369,114
368,250
380,441
367,337
319,859
304,685
310,651
290,797
297,686
289,096
102,645
97,037
101,113
95,348
96,589
95,686
4,641
4,731
4,553
4,375
4,263
4,120
$
212,573
202,917
204,985
191,074
196,834
189,290
$
1.91
1.82
1.82
1.68
1.73
1.65
1.87
1.77
1.78
1.64
1.69
1.62
$
.60
.45
.45
.45
.45
.40
111,259
111,693
112,529
113,530
113,949
114,773
113,968
114,347
115,147
116,200
116,422
117,184
1.54
%
1.49
%
1.48
%
1.39
%
1.46
%
1.44
%
14.35
%
13.97
%
13.85
%
12.97
%
13.73
%
13.41
%
3.66
%
3.73
%
3.69
%
3.76
%
3.78
%
3.83
%
.38
%
.35
%
.39
%
.41
%
.46
%
.46
%
52.29
%
54.21
%
52.49
%
51.94
%
54.58
%
54.00
%
$
221,838
210,856
212,738
199,577
205,415
199,135
1.95
1.84
1.85
1.72
1.76
1.70
1.69
%
1.64
%
1.63
%
1.54
%
1.62
%
1.61
%
30.02
%
29.31
%
29.12
%
27.67
%
29.88
%
29.67
%
50.70
%
52.36
%
50.69
%
49.97
%
52.56
%
51.63
%
$
55,498
55,106
54,835
54,444
53,935
53,306
52,522
52,130
51,860
51,461
50,944
50,305
49,443
49,066
48,833
48,447
47,931
47,240
8,314
8,383
8,302
8,439
8,593
8,573
40,980
40,544
40,403
39,879
39,229
38,580
38,435
37,569
37,006
36,708
36,245
35,282
5,940
5,893
5,873
5,845
5,749
5,723
2,964
2,917
2,898
2,862
2,758
2,722
$
56,507
55,420
55,146
54,841
54,482
53,887
53,345
52,443
52,176
51,863
51,495
50,891
49,628
49,281
48,852
48,691
48,341
47,853
7,903
8,294
8,400
8,230
8,320
8,679
41,599
40,859
40,331
40,335
39,911
39,073
38,514
38,171
37,100
37,199
37,306
36,293
6,000
5,919
5,876
5,847
5,838
5,674
2,838
2,942
2,906
2,869
2,851
2,678
54.01
53.11
52.39
51.81
51.20
49.78
25.55
26.41
25.91
25.42
25.00
23.49
$
119.40
117.29
112.50
112.50
107.28
108.04
113.34
106.45
96.71
103.50
98.75
96.71
117.92
114.14
109.05
105.71
105.16
102.06
(a)
Excludes impact of merger-related expenses and net securities transactions.
(b)
Excludes amortization and balances related to goodwill and core deposit and other intangible assets and merger-related expenses which,
except in the calculation of the efficiency ratio, are net of applicable income tax effects. A reconciliation of net income and net operating
income appears in table 2.
(c)
The difference between total assets and total tangible assets, and stockholders’ equity and tangible stockholders’ equity, represents goodwill,
core deposit and other intangible assets, net of applicable deferred tax balances. A reconciliation of such balances appears in table 2.
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2006 Quarters
2005 Quarters
Second
First
Fourth
Third
Second
First
$
212,573
202,917
204,985
191,074
196,834
189,290
6,921
7,939
7,753
8,503
8,581
9,845
2,344
—
—
—
—
—
$
221,838
210,856
212,738
199,577
205,415
199,135
$
1.87
1.77
1.78
1.64
1.69
1.62
.06
.07
.07
.08
.07
.08
.02
—
—
—
—
—
$
1.95
1.84
1.85
1.72
1.76
1.70
$
376,997
382,003
369,114
368,250
380,441
367,337
(11,357
)
(13,028
)
(12,703
)
(13,926
)
(14,055
)
(16,121
)
(3,842
)
—
—
—
—
—
$
361,798
368,975
356,411
354,324
366,386
351,216
$
510
—
—
—
—
—
212
—
—
—
—
—
14
—
—
—
—
—
3,106
—
—
—
—
—
$
3,842
—
—
—
—
—
$
55,498
55,106
54,835
54,444
53,935
53,306
(2,909
)
(2,907
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(107
)
(112
)
(115
)
(128
)
(142
)
(157
)
40
43
44
49
55
60
$
52,522
52,130
51,860
51,461
50,944
50,305
$
5,940
5,893
5,873
5,845
5,749
5,723
(2,909
)
(2,907
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(107
)
(112
)
(115
)
(128
)
(142
)
(157
)
40
43
44
49
55
60
$
2,964
2,917
2,898
2,862
2,758
2,722
$
56,507
55,420
55,146
54,841
54,482
53,887
(2,909
)
(2,909
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(291
)
(111
)
(108
)
(121
)
(135
)
(149
)
38
43
42
47
52
57
$
53,345
52,443
52,176
51,863
51,495
50,891
$
6,000
5,919
5,876
5,847
5,838
5,674
(2,909
)
(2,909
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(291
)
(111
)
(108
)
(121
)
(135
)
(149
)
38
43
42
47
52
57
$
2,838
2,942
2,906
2,869
2,851
2,678
(1)
After any related tax effect.
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2006 Second Quarter
2006 First Quarter
Average
Average
Average
Average
Average balance in millions; interest in thousands
balance
Interest
rate
balance
Interest
rate
$
11,274
$
197,945
7.04
%
11,034
181,057
6.65
%
14,947
269,632
7.22
14,678
260,008
7.09
4,860
76,377
6.29
4,601
71,097
6.18
9,899
172,523
6.99
10,231
171,342
6.79
40,980
716,477
7.01
40,544
683,504
6.84
16
111
2.85
10
72
3.03
30
405
5.36
31
378
4.88
103
753
2.94
98
671
2.75
3,062
32,473
4.25
3,024
30,310
4.06
171
2,804
6.55
176
2,741
6.21
5,081
64,529
5.09
5,183
64,327
5.03
8,314
99,806
4.81
8,383
97,378
4.71
49,443
817,552
6.63
49,066
782,003
6.46
(645
)
(641
)
1,326
1,360
5,374
5,321
$
55,498
55,106
$
438
779
.71
409
659
.65
14,254
47,579
1.34
14,335
43,557
1.23
12,699
139,032
4.39
11,870
118,058
4.03
3,598
43,798
4.88
3,383
36,803
4.41
30,989
231,188
2.99
29,997
199,077
2.69
4,326
53,623
4.97
4,555
50,567
4.50
5,930
81,487
5.51
6,293
80,602
5.19
41,245
366,298
3.56
40,845
330,246
3.28
7,446
7,572
867
796
49,558
49,213
5,940
5,893
$
55,498
55,106
3.07
3.18
.59
.55
$
451,254
3.66
%
451,757
3.73
%
*
Includes nonaccrual loans.
**
Includes available for sale securities at amortized cost.
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2005 Third Quarter
2005 Second Quarter
Average
Average
Average
Average
Average balance in millions; interest in thousands
balance
Interest
rate
balance
Interest
rate
$
10,497
$
151,076
5.71
%
10,484
142,228
5.44
%
14,351
245,965
6.86
14,399
229,117
6.37
4,268
63,940
5.99
3,493
52,390
6.00
10,763
169,648
6.25
10,853
162,070
5.99
39,879
630,629
6.27
39,229
585,805
5.99
11
48
1.77
10
38
1.48
24
226
3.79
24
203
3.37
94
510
2.16
75
299
1.60
3,348
32,442
3.84
3,618
34,797
3.86
171
2,527
5.92
183
2,766
6.06
4,920
58,747
4.74
4,792
56,873
4.76
8,439
93,716
4.41
8,593
94,436
4.41
48,447
725,129
5.94
47,931
680,781
5.70
(641
)
(637
)
1,395
1,395
5,243
5,246
$
54,444
53,935
$
400
610
.60
401
543
.54
14,822
37,222
1.00
15,163
33,292
.88
9,540
79,416
3.30
8,609
64,101
2.99
4,005
34,504
3.42
3,850
28,101
2.93
28,767
151,752
2.09
28,023
126,037
1.80
4,779
42,192
3.50
4,969
36,678
2.96
6,373
71,632
4.46
6,263
66,301
4.25
39,919
265,576
2.64
39,255
229,016
2.34
7,941
8,222
739
709
48,599
48,186
5,845
5,749
$
54,444
53,935
3.30
3.36
.46
.42
$
459,553
3.76
%
451,765
3.78
%
*
Includes nonaccrual loans.
**
Includes available for sale securities at amortized cost.
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(1)
The total number of shares purchased during the periods indicated includes shares
purchased as part of publicly announced programs and shares deemed to have been received from
employees who exercised stock options by attesting to previously acquired shares in
satisfaction of the exercise price, as is permitted under M&T’s stock option plans.
(2)
In November 2005, M&T announced a program to purchase up to 5,000,000 shares of its common
stock.
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Exhibit
No.
M&T Bank Corporation Directors’ Stock Plan, as amended and restated. Filed herewith.
Certificate of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
Certificate of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Filed herewith.
Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Filed herewith.
M&T BANK CORPORATION
By:
/s/ René F. Jones
René F. Jones
Executive Vice President
and Chief Financial Officer
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Exhibit
No.
M&T Bank Corporation Directors’ Stock Plan, as amended and restated. Filed herewith.
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Filed herewith.
Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. Filed herewith.
EXHIBIT 10.1
M&T BANK CORPORATION DIRECTORS’ STOCK PLAN
(As Amended and Restated April 18, 2006)
1. Name:
This plan shall be known as the M&T Bank Corporation Directors’ Stock Plan (the “Plan”).
2. Purpose and Intent:
The purpose of the Plan is to enable M&T Bank Corporation, a New York corporation (the “Corporation”), to attract and retain persons of exceptional ability to serve as directors of the Corporation and its subsidiaries and as members of M&T Bank Corporation’s or M&T Bank’s Directors Advisory Councils and to further align the interests of directors and stockholders in enhancing the value of the Corporation’s common stock (the “Common Stock”). The Plan provides for the payment in Common Stock of all or a portion of the Annual Compensation paid to each Non-employee Director and Advisory Director. The Plan, as amended and restated, is effective as of July 1, 2006 (the “Effective Date”), and shall continue in effect unless and until terminated by the Board of the Corporation in accordance with Section 10 below.
3. Definitions:
For purposes of the Plan, the following terms shall have the following meanings:
(a) “Advisory Director” means any individual who is a current or future member of one or more of the Directors Advisory Councils of M&T Bank Corporation or M&T Bank, but who is not a Non-employee Director or a salaried officer of the Corporation or any of its subsidiaries.
(b) “Annual Compensation” means the total annual compensation payable to a Non-employee Director or an Advisory Director under the Corporation’s or M&T Bank’s compensation policies for directors in effect from time to time.
(c) “Board” means the Board of Directors of the Corporation or any subsidiary thereof.
(d) “Compensation Committee” means the Nomination, Compensation and Governance Committee of the Board of the Corporation.
(e) “Directors Advisory Councils” means the Directors Advisory Council of M&T Bank Corporation and current or future regional Directors Advisory Councils of M&T Bank with members appointed by the Boards of M&T Bank Corporation and M&T Bank, respectively.
(f) “Fair Market Value” of a share of Common Stock means the closing price on the date immediately preceding the Payment Date of a share of Common Stock on the New York Stock Exchange (or such other principal securities exchange on which the shares of the Common Stock are traded if such shares are no longer traded on the New York Stock Exchange).
(g) “M&T Bank” means Manufacturers and Traders Trust Company.
(h) “Non-employee Director” means an individual who is a member of a Board, but who is not a salaried officer of the Corporation or any of its subsidiaries.
(i) “Payment Date” of Annual Compensation in any calendar year means the first business day following the last business day of a calendar quarter on which the Fair Market Value of shares of the Common Stock are quoted on the New York Stock Exchange (or such other principal securities exchange on which the shares of the Common Stock are traded if such shares are no longer traded on the New York Stock Exchange).
4. Administration:
The Compensation Committee shall be responsible for administering the Plan. The Compensation Committee shall have all of the powers necessary to enable it to properly carry out its duties under the Plan. Not in limitation of the foregoing, the Compensation Committee shall have the power to construe and interpret the Plan and to determine all questions that shall arise thereunder. The Compensation Committee shall have such other and further specified duties, powers, authority and discretion as are elsewhere in the Plan either expressly or by necessary implication conferred upon it. The Compensation Committee may authorize such agents as it may deem necessary for the effective performance of its duties, and may delegate to such agents such powers and duties as the Compensation Committee may deem expedient or appropriate that are not inconsistent with the intent of the Plan. The decision of the Compensation Committee upon all matters within its scope of authority shall be final and conclusive on all persons, except to the extent otherwise provided by law.
5. Shares Available:
Shares issued under the Plan shall be issued out of the authorized but unissued shares of Common Stock or treasury shares, as the Compensation Committee shall determine.
6. Shares for Annual Compensation:
The Annual Compensation payable to a Non-employee Director or Advisory Director on or after the Effective Date shall be paid in accordance with this Section 6. Each Non-employee Director or Advisory Director shall file with the Corporation a form under which such Non-employee Director or Advisory Director shall elect to have Annual Compensation paid either (i) fifty percent (50%) in shares of Common Stock and fifty percent (50%) in cash, or (ii) one hundred percent (100%) in shares of Common Stock. Such election may be changed by the Non-employee Director or Advisory Director at least fifteen days prior to the end of any calendar quarter, effective as of the first day of the following calendar quarter. The total number of shares of Common Stock to be paid under this Section to a Non-employee Director or Advisory Director with respect to Annual Compensation shall be determined by dividing the amount of such Annual Compensation payable in shares of Common Stock by the Fair Market Value of the Common Stock on the applicable Payment Date. In no event shall the Corporation be obligated to issue fractional shares under this Section, but instead shall pay the amount that would constitute a fractional share in cash based on the Fair Market Value of the Common Stock on the Payment Date.
- 2 -
7. Adjustments in Authorized Shares:
In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Corporation, any reorganization (whether or not such reorganization comes within the definition of such term in Internal Revenue Code Section 368) or any partial or complete liquidation of the Corporation, such adjustment shall be made in the number and class of shares which may be paid under the Plan, as may be determined to be appropriate and equitable by the Compensation Committee in its sole discretion.
8. Resales of Shares:
The Corporation may impose such restrictions on the sale or other disposition of shares paid under this Plan as the Compensation Committee deems necessary to comply with applicable securities laws. Certificates for shares paid under this Plan may bear such legends as the Corporation deems necessary to give notice of such restrictions.
9. Compliance with Law and Other Conditions:
No shares shall be paid under this Plan prior to compliance by the Corporation, to the satisfaction of its counsel, with any applicable laws. The Corporation shall not be obligated to (but may in its discretion) take any action under applicable federal or state securities laws (including registration or qualification of the Plan or the Common Stock) necessary for compliance therewith in order to permit the payment of shares hereunder, except for actions (other than registration or qualification) that may be taken by the Corporation without unreasonable effort or expense and without the incurrence of any material exposure to liability.
10. Amendment, Modification and Termination of the Plan:
The Board of the Corporation shall have the right and power at any time and from time to time to amend the Plan in whole or in part and at any time to terminate the Plan; provided, however, that the provisions of Section 6 of the Plan cannot be amended more than once every six (6) months to the extent such restriction is necessary to ensure that awards of Common Stock paid under the Plan are exempt from the short-swing profit recovery rules of Section 16(b) of the Securities Exchange Act of 1934.
11. Miscellaneous:
The Plan shall be construed, administered, regulated and governed in all respects under and by the laws of the United States to the extent applicable, and to the extent such laws are not applicable, by the laws of the state of New York. The Plan shall be binding on the Corporation and any successor in interest of the Corporation.
- 3 -
EXHIBIT 31.1
CERTIFICATIONS
I, Robert E. Sadler, Jr., certify that:
Date: August 1, 2006
1.
I have reviewed this quarterly report on Form 10-Q of M&T Bank Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d)
disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ Robert E. Sadler, Jr.
Robert E. Sadler, Jr.
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, René F. Jones, certify that:
Date: August 1, 2006
1.
I have reviewed this quarterly report on Form 10-Q of M&T Bank Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d)
disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ René F. Jones
René F. Jones
Executive Vice President
and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. §1350
I, Robert E. Sadler, Jr., President and Chief Executive Officer of M&T Bank Corporation, certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being
filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906, has been provided
to M&T Bank Corporation and will be retained by M&T Bank Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
(1)
the Quarterly Report on Form 10-Q of M&T Bank Corporation for
the quarterly period ended June 30, 2006 (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
M&T Bank Corporation.
August 1, 2006
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. §1350
I, René F. Jones, Executive Vice President and Chief Financial Officer of M&T Bank Corporation,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being
filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906, has been provided
to M&T Bank Corporation and will be retained by M&T Bank Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
(1)
the Quarterly Report on Form 10-Q of M&T Bank Corporation for
the quarterly period ended June 30, 2006 (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
M&T Bank Corporation.
August 1, 2006