UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [x] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
or
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-9861
M&T BANK CORPORATION
| 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 October 27, 2006: 110,669,626 shares.
M&T BANK CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 2006
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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:
Accumulated other comprehensive income, net consisted of unrealized gains (losses) as follows:
-8-
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 6.51% and 6.40%, respectively, at September 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 September 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 6.51% and 6.40%,
respectively, at September 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
Junior Subordinated Debentures upon early redemption will be expressed as
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Borrowings, continued
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 6.94% at September 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 $912 million and $941 million at September 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 through 2017. Semi-annual payments to be made by
the Company over the remaining term of that agreement totaled $59 million as of September 30, 2006.
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:
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 September 30, 2006 and 2005, the Company recognized $11 million of
stock-based compensation expense and $3 million of related income tax benefits. For the nine
months ended September 30, 2006 and 2005, the Company recognized $40 million and $34 million,
respectively, of stock-based compensation expense and $10 million and $9 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 of retirement. This change affected the timing of
stock-based compensation expense recognition in the Company’s consolidated financial statements for
the first three 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
-17-
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Stock-based compensation plans, continued
expense increased stock-based compensation expense for the nine-months ended September 30, 2006 by
$5 million ($4 million after taxes), and reduced basic and diluted earnings per share by $.03 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 nine-month period ended September 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 third quarter of 2006
was insignificant. The following is selected information pertaining to the Company’s stock option
activity as of and for the nine-month periods ended September 30, 2006 and 2005. Additional
information concerning the Company’s stock-based compensation plans can be found in the Company’s
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 nine-month periods ended September 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:
For the nine months ended September 30, 2006 and 2005, M&T received $57 million and $72 million,
respectively, in cash and realized $20 million and $25 million, respectively, in tax benefits from
the exercise of stock options. The intrinsic value of stock options exercised during those periods
was $64 million and $75 million, respectively. As of September 30, 2006, there was $52 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 2.5 years. Reflecting
-18-
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Stock-based compensation plans, continued
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 nine
months ended September 30, 2006 and 2005 was $37 million and $41 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. The transaction did not have a significant
effect on M&T’s day-to-day operating results during the third 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 $1 million ($704 thousand net of
applicable income taxes) in the third quarter 2006, and $5 million ($3 million net of applicable
income taxes) for the nine-month period ended September 30, 2006.
-19-
Overview
Net income of M&T Bank Corporation (“M&T”) was $210 million or $1.85 of diluted earnings per
common share in the third quarter of 2006, representing increases of 10% and 13%, respectively,
from $191 million or $1.64 of diluted earnings per common share in the third quarter of 2005.
During the second quarter of 2006, net income was $213 million or $1.87 of diluted earnings per
common share. Basic earnings per common share were $1.89 in 2006’s third quarter, compared with
$1.68 in the year-earlier quarter and $1.91 in the second quarter of 2006.
On June 30, 2006, M&T Bank, the principal bank subsidiary of M&T, 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. M&T’s financial results for the third quarter of 2006
reflect the impact of that transaction. Expenses associated with integrating the acquired branches
into M&T Bank and introducing the customers associated with those branches to M&T Bank’s products
and services aggregated $1 million, after applicable tax effect, or $.01 of diluted earnings per
share during the third quarter of 2006 and $3 million, after applicable tax effect, or $.03 of
diluted earnings per share during the nine-month period ended September 30, 2006. M&T expects that
additional acquisition-related expenses will be incurred in the fourth quarter of 2006, however,
such expenses are not expected to be significant. Including the impact of acquisition-related
expenses and the amortization of core deposit intangible resulting from the transaction, net income
and diluted earnings per share of M&T and its subsidiaries (“the Company”) in the recent quarter
were reduced by approximately $5 million and $.04, respectively, as a result of the transaction.
The recent quarter’s results also reflect certain other notable events that in total had no
significant effect on net income. The Company recorded a $13 million gain resulting from the
accelerated recognition of a purchase accounting premium related to the call of a $200 million
Federal Home Loan Bank of Atlanta borrowing assumed in a previous acquisition. After
applicable taxes, that gain added $8 million to net income. Also reflected in the 2006 third
quarter results was a $3 million reduction of income tax expense related to the favorable
settlement of refund claims originally filed by Allfirst Financial Inc. (“Allfirst”) prior to
its acquisition by M&T on April 1, 2003. The refunds received, consisting of income taxes and
taxable interest, exceeded the amounts previously accrued for such items by $5 million
(pre-tax). Finally, an $18 million tax deductible contribution was made by M&T Bank to The
M&T Charitable Foundation, a tax-exempt private charitable foundation, which increased “other
expense” by the amount of the contribution and, after applicable tax effect, reduced net
income by $11 million. As noted above, the aggregate impact of these events had no
significant effect on the Company’s net income or diluted earnings per share in the third
quarter of 2006.
M&T’s results for the third quarter of 2005 included a $29 million other-than-temporary
impairment charge related to $133 million of variable rate preferred stock issuances of the Federal
National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”).
Although the securities were rated as investment grade, M&T recognized the impairment charge, in
accordance with generally accepted accounting principles (“GAAP”), in light of changing
circumstances during the third quarter of 2005. As a result of that
impairment charge and the recognition of available income tax benefits, the Company’s net
income in 2005’s third quarter was reduced by $18 million, or $.16 of diluted earnings per share.
-20-
For the nine-months ended September 30, 2006, net income was $626 million or $5.49 per
diluted share, increases of 8% and 11%, respectively, from $577 million or $4.95 per diluted
share during the similar period of 2005. Basic earnings per share were $5.62 for the first nine
months of 2006, compared with $5.06 in the corresponding nine-month period of 2005.
The annualized rate of return on the Company’s average total assets in the third quarter
of 2006 was 1.49%, compared with 1.39% in the year-earlier quarter and 1.54% in 2006’s second
quarter. The annualized rate of return on average common stockholders’ equity was 13.72% in the
recently completed quarter, compared with 12.97% in the third quarter of 2005 and 14.35% in 2006’s
second quarter. During the first nine months of 2006, the annualized rates of return on average
assets and average common stockholders’ equity were 1.51% and 14.01%, respectively, compared with
1.43% and 13.37%, respectively, in the similar 2005 period.
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 September 30, 2006 and $3.0 billion at each of September
30 and December 31, 2005. Included in such intangible assets at September 30, 2006, September 30,
2005 and December 31, 2005 was goodwill of $2.9 billion. Amortization of core deposit and other
intangible assets, after tax effect, totaled $12 million ($.10 per diluted share) during the third
quarter of 2006, compared with $9 million ($.08 per diluted share) in the similar 2005 quarter and
$7 million ($.06 per diluted share) in 2006’s second quarter. For each of the nine-month periods
ended September 30, 2006 and 2005, amortization of core deposit and other intangible assets, after
tax effect, totaled $27 million ($.23 per diluted share).
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 (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.
Reflecting the impact of each year’s third quarter events described earlier, net
operating income rose 12% to $223 million during the recent quarter from $200 million in the third
quarter of 2005. Diluted net operating earnings per share for 2006’s third quarter were $1.96, up
14% from $1.72 in the year-earlier quarter. Net operating income and diluted net operating
earnings per share were $222 million and $1.95, respectively, in the second quarter of 2006. For
the first three quarters of 2006, net operating income and diluted net operating earnings per share
were $656 million and $5.75, respectively, compared with $604 million and $5.18 in the
corresponding 2005 period.
Expressed as an annualized rate of return on average tangible assets, net operating
income was 1.67% in the recent quarter, compared with 1.54% in the
year-earlier quarter and 1.69% in the second quarter of 2006. Net operating income expressed as an
annualized return on average tangible common equity was 30.22% in 2006’s third quarter, compared
with 27.67% in the similar quarter of 2005 and 30.02% in 2006’s second quarter. For the nine-month
period ended September 30, 2006, net operating income represented an annualized return on average
tangible assets and average tangible common
-21-
stockholders’ equity of 1.67% and 29.86%, respectively,
compared with 1.59% and 29.04%, respectively, in the corresponding period of 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 increased 1% to $462 million in the third quarter of 2006
from $460 million in the similar quarter of 2005. Growth in taxable-equivalent net interest income
resulting from a $1.8 billion, or 5% increase in average loan balances outstanding, to $41.7
billion from $39.9 billion in the third quarter of 2005, was offset by a decline in the Company’s
net interest margin, or taxable-equivalent net interest income expressed as an annualized
percentage of average earning assets. The Company’s net interest margin was 3.68% in the third
quarter of 2006 and 3.76% in the third quarter of 2005. Taxable-equivalent net interest income was
$451 million in the second quarter of 2006. The increase in net interest income from the second
quarter of 2006 to the recently completed quarter reflects a 2 basis point (hundredth of one
percent) increase in net interest margin from 3.66% in 2006’s second quarter and a $730 million
increase in average loans outstanding from $41.0 billion.
For the first three quarters of 2006, taxable-equivalent net interest income was $1.37
billion, up 1% from $1.36 billion in the similar 2005 period. Similar to the circumstances
described above, growth in average loans and leases of $1.8 billion, or 5%, was largely offset by
the impact of a lower net interest margin, which declined 10 basis points to 3.69% during the first
nine months of 2006 from 3.79% in the corresponding 2005 period.
Higher average outstanding balances of commercial loans, commercial real estate loans and
residential real estate loans were responsible for the recent quarter’s growth in average loans
outstanding as compared with the third quarter of 2005 and the second quarter of 2006. As
compared with the year-earlier quarter, during 2006’s third quarter, average commercial loan
balances grew $939 million, or 9%, to $11.4 billion, while average commercial real estate loans
increased $905 million, or 6%, to $15.3 billion, and average balances of residential real estate
loans increased $785 million, or 18%, to $5.1 billion. Average outstanding consumer loan balances
decreased $798 million to $10.0 billion in the third quarter of 2006 from $10.8 billion in the
corresponding 2005 quarter, largely due to declines of $853 million in outstanding automobile loans
and leases, the result of the Company’s decision to not extend such credit at unfavorable interest
rates. Reflecting similar trends, increases in the average balances of commercial loans of $162
million, commercial real estate loans of $309 million, and residential real estate loans of $193
million contributed significantly to the $730 million growth in average loans outstanding from
2006’s second quarter to the third quarter. Average consumer loans outstanding increased $66
million or 1%, from 2006’s second quarter, reflecting growth in outstanding average balances of
home equity lines of credit of $152 million or 4%, offset by a decline of $165 million, or 6%, in
average automobile loan and lease balances. Approximately one-third
of the aggregate increase in average loans from the second to third
quarter of 2006 was due to the $269 million of loans obtained in
the June 30, 2006 branch acquisition, including $57 million of
commercial loans, $40 million of commercial real estate loans, $121
million of outstanding home equity line of credit balances and $51
million of other consumer loans. The
following table summarizes quarterly changes in the major components of the loan and lease
portfolio.
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AVERAGE LOANS AND LEASES
For the nine months ended September 30, 2006, average loans and leases totaled $41.1 billion,
up 5% from $39.2 billion in the similar 2005 period. Growth in the commercial, commercial real
estate and consumer real estate loan portfolios were each significant factors in the increase in
average loans and leases outstanding, partially offset by lower average consumer loan balances.
Investment securities averaged $7.9 billion in 2006’s third quarter, down 6% from $8.4
billion in the year-earlier quarter and 5% from $8.3 billion during 2006’s second quarter, largely
the result of net paydowns and maturities of collateralized residential mortgage obligations. For
the first nine months of 2006 and 2005, average investment securities were $8.2 billion and $8.5
billion, respectively. 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
September 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. Those other earning assets in the aggregate averaged
$241 million, $129 million and $149 million for the quarters ended September 30, 2006, September
30, 2005 and June 30, 2006, respectively. For the nine-month periods ended September 30, 2006 and
2005, such assets averaged $176 million and $108 million, respectively. 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.
The changes described herein resulted in a rise in average earning assets of $1.4 billion, or
3%, to $49.8 billion in the recent quarter from $48.4 billion in the third quarter of 2005. Average
earning assets were $49.4 billion in the second quarter of 2006 and totaled $49.5 billion and $47.9
billion for the nine-month periods ended September 30, 2006 and 2005, respectively.
-23-
The most significant source of funding for the Company is core deposits, which are comprised
of noninterest-bearing deposits, interest-bearing transaction accounts, nonbrokered savings
deposits and nonbrokered domestic time deposits under $100,000. The 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 subsidiary of M&T. Core deposits averaged $28.7 billion in 2006’s third quarter,
compared with $27.9 billion in the year-earlier quarter and $28.0 billion in 2006’s second quarter.
The previously discussed June 30, 2006 branch acquisition added approximately $900 million of
average core deposits to the recent quarter’s total. More notably, the rise in average balances of
time deposits less than $100,000 in the current quarter as compared with the third quarter of 2005
was due largely 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. The following table provides an analysis of quarterly changes in the components of
average core deposits. For the nine-month periods ended September 30, 2006 and 2005, core deposits
averaged $28.2 billion and $27.9 billion, respectively.
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 $3.1 billion in
the third quarter of 2006, compared with $1.8 billion and $2.9 billion in the year-earlier quarter
and the second quarter of 2006, respectively. Offshore branch deposits, primarily comprised of
balances of $100,000 or more, averaged $3.7 billion, $4.0 billion and $3.6 billion for the
three-month periods ended September 30, 2006, September 30, 2005 and June 30, 2006, respectively.
Average brokered time deposits were $3.6 billion in the recent quarter, compared with $2.9 billion
in the third quarter of 2005 and $3.8 billion in 2006’s second quarter. At September 30, 2006,
brokered time deposits totaled $3.2 billion and had a weighted-average remaining term to maturity
of 10 months. Certain of those 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 $675 million of brokered time deposits. The Company also had brokered money-market
deposit accounts which averaged $69 million during 2006’s third quarter, compared with $63 million
and $65 million during the similar quarter of 2005 and second quarter of 2006, respectively.
Offshore branch deposits and brokered deposits have been 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.
-24-
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 $4.4 billion in the third quarter of 2006, compared with $4.8
billion in the corresponding 2005 quarter and $4.3 billion in 2006’s second quarter. Unsecured
federal funds borrowings, which generally mature daily, included in short-term borrowings averaged
$3.6 billion in the third quarter of 2006, $4.0 billion in the year-earlier quarter and $3.4
billion in the second quarter of 2006. 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 $5.7 billion in the recent quarter, compared with $6.4 billion
and $5.9 billion in the third quarter of 2005 and the second quarter of 2006, respectively.
Included in average long-term borrowings were amounts borrowed from the FHLB totaling $3.7 billion
in each of the third quarters of 2006 and 2005, and $3.9 billion in 2006’s second quarter, and
subordinated capital notes of $1.2 billion in each of those quarters. Junior subordinated
debentures associated with trust preferred securities that were included in average long-term
borrowings were $712 million in each of the two most recent quarters and $711 million in the third
quarter of 2005. Information regarding trust preferred securities and the related junior
subordinated debentures is provided in note 4 of Notes to Financial Statements.
Changes in the composition of the Company’s earning assets and interest-bearing liabilities as
discussed herein, as well as changes in interest rates and spreads, can impact net interest income.
Net interest spread, or the difference between the taxable-equivalent yield on earning assets and
the rate paid on interest-bearing liabilities, was 3.06% in the recent quarter, down from 3.30% in
the year-earlier quarter. The yield on earning assets during 2006’s third quarter was 6.83%, up 89
basis points from 5.94% in the similar quarter of 2005, while the rate paid on interest-bearing
liabilities increased 113 basis points to 3.77% from 2.64%. In the second quarter of 2006, the net
interest spread was 3.07%, the yield on earning assets was 6.63% and the rate paid on
interest-bearing liabilities was 3.56%. For the first nine months of 2006, the net interest spread
was 3.10%, a decrease of 27 basis points from the year-earlier period. The yield on earning assets
and the rate paid on interest-bearing liabilities were 6.64% and 3.54%, respectively, for the
nine-month period ended September 30, 2006, compared with 5.72% and 2.35%, respectively, in the
similar 2005 period. During the period from January 1, 2005 through June 30, 2006, the Federal
Reserve raised its benchmark overnight federal funds target rate twelve times, 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 the interest-bearing liabilities,
most notably short-term borrowings, than in yields on earning assets. The results of these
conditions was a contraction of the net interest spread from the first quarter of 2005 through the
third quarter of 2006.
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 two most recent quarters, compared with $8.5 billion in the third quarter of
2005. During the first nine months of 2006 and 2005, average net interest-free funds were $8.2
billion and $8.6 billion, respectively. The decreases in average net interest-free funds in the
2006 periods as compared
-25-
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 $3.2 billion during the third quarter of
2006, compared with $3.0 billion during each of the third quarter of 2005 and the second quarter of
2006. The cash surrender value of bank owned life insurance averaged $1.1 billion in the two most
recent quarters, and $1.0 billion in the third quarter of 2005. 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 .62% in
2006’s third quarter, compared with .46% in the third quarter of 2005 and .59% in 2006’s second
quarter. For the first three quarters of 2006 and 2005, the contribution of net interest-free
funds to net interest margin was .59% and .42%, respectively. The increased contribution to net
interest margin ascribed to interest-free funds in the three and nine months ended September 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 net interest spread and the contribution of interest-free funds
as described herein, the Company’s net interest margin was 3.68% in the recent quarter, 8 basis
points lower than 3.76% in the third quarter of 2005, but 2 basis points higher than 3.66% in the
second quarter of 2006. During the nine-month periods ended September 30, of 2006 and 2005, the
net interest margin was 3.69% and 3.79%, 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.
Until the recent quarter, the only exceptions were a one basis point increase in net interest
margin from 2004’s final quarter to the first quarter of 2005 due to the impact of two less days in
2005’s initial quarter and an increase in net interest margin of four basis points 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. During 2006’s third quarter, the Federal Reserve held interest rates steady and
the Company’s net interest margin stabilized. In addition, the impact of the June 30 branch
acquisition added approximately three basis points to the recent quarter’s net interest margin.
Management assesses the potential impact of future changes in interest rates and spreads by
projecting net interest income under several interest rate scenarios. In managing interest rate
risk, the Company utilizes interest rate swap agreements to modify the repricing characteristics of
certain portions of its portfolios of earning assets and interest-bearing liabilities. Periodic
settlement amounts arising from these agreements are generally reflected in either the yields
earned on assets or, 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
$812 million as of September 30, 2006, $700 million as of September 30, 2005, $787 million as of
June 30, 2006 and $652 million as of December 31, 2005. In general, 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.
As of September 30, 2006, all of the Company’s interest rate swap agreements entered into
for interest-rate 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
-26-
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
quarters ended September 30, 2006 and 2005 and during the quarter ended June 30, 2006 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 $8
million and $18 million at September 30, 2006 and 2005, respectively, and a loss of $9 million
at December 31, 2005. The fair values of such swap agreements were substantially offset by
unrealized gains or losses on the hedged items. The changes in the fair values of the interest
rate swap agreements and the hedged items resulted 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 5.04% and 5.98%, respectively, at September 30, 2006. The average
notional amounts of interest rate swap agreements and the related effect on net interest income and
margin, and weighted-average interest rates paid or received on those swap agreements, are
presented in the accompanying table.
INTEREST RATE SWAP AGREEMENTS
-27-
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 demand for loans
and deposit withdrawals, funding operating costs, and other corporate purposes. Liquidity risk
arises whenever the maturities of financial instruments included in assets
and liabilities differ. M&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 regulations. 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 $3.6 billion, $3.3 billion and $4.0
billion at September 30, 2006, September 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 money-market assets and investment securities,
repayments of loans and investment securities, and cash generated from operations, such as fees
collected for services.
Certain customers of the Company obtain financing through the issuance of variable rate
demand bonds (“VRDBs”). The VRDBs are generally enhanced by direct-pay letters of credit provided
by M&T Bank. M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion,
may from time-to-time own some of the VRDBs while such instruments are remarketed. When this
occurs, the VRDBs are classified as trading assets in the 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 $46 million and $53 million at September 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 September 30, 2006 and December 31, 2005,
compared with $1.6 billion at September 30, 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-
-28-
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 this test, at September 30, 2006 approximately
$286 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 September 30, 2006 or at December 31, 2005.
Management closely monitors the Company’s liquidity position for compliance with internal
policies and believes that available sources of liquidity are adequate to meet funding needs
anticipated in the normal course of business. 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 that 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 Company is exposed to interest rate risk in its core banking activities of
lending and deposit-taking, since 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
-29-
rates at each point on the yield curve)
and non-parallel (that is, allowing interest rates at points on the yield curve to vary by
different amounts) shifts in the yield curve. In utilizing the model, market-implied forward
interest rates over the subsequent twelve months are generally used to
determine a base interest rate scenario for the net interest income simulation. That
calculated base net interest income is then compared to the income calculated under the varying
interest rate scenarios. The model considers the impact of ongoing lending and deposit gathering
activities, as well as interrelationships in the magnitude and timing of the repricing of financial
instruments, including the effect of changing interest rates on expected prepayments and
maturities. 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 September 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 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,
-30-
mortgage-backed securities, mutual funds and interest rate contracts, such as 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 $8.0
billion at September 30, 2006, compared with $6.7 billion at each of September 30 and December 31,
2005. The notional amounts of foreign currency and other option and futures contracts entered into
for trading purposes were $727 million, $897 million and $679 million at September 30, 2006,
September 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 were $176 million and $67 million,
respectively, at September 30, 2006, $187 million and $79 million, respectively, at September 30,
2005, and $192 million and $77 million, respectively, at December 31, 2005. Included in trading
account assets at September 30, 2006 were $43 million related to deferred compensation plans,
compared with $41 million at each of September 30 and 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 each of
September 30, 2006, September 30, 2005 and December 31, 2005 were $48 million of 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 each of the second and third quarter of 2006 was $17 million, compared with $22 million
in the third quarter of 2005. Net loan charge-offs were $17 million and $22 million in the
quarters ended September 30, 2006 and 2005, respectively, and $10 million in 2006’s second quarter.
Net charge-offs as an annualized percentage of average loans and leases were .16% in the recent
quarter, compared with .21% in the third quarter of 2005 and .10% in the second quarter of 2006.
For the nine-month periods ended September 30, 2006 and 2005, the provision for credit losses was
$52 million and $65 million, respectively. Net charge-offs through September 30 were $43 million
and $54 million in 2006 and 2005, respectively, representing an annualized .14% and .18% 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, totaled
$180 million or .43% of total loans and leases outstanding at September 30, 2006, compared with
$166 million or .41% at September 30, 2005, $156 million or .39% at December 31, 2005, and $156
million or .38% at June 30, 2006. The increase in such loans as compared with the prior periods
was due to the recent quarter addition of approximately $26 million of loans related to a single
automobile dealer relationship.
Loans past due 90 days or more and accruing interest were $112 million or .27% of total loans
and leases at September 30, 2006, compared with $131 million or .32% a year earlier, $129 million
or .32% at December 31, 2005 and $101 million or .24% at June 30, 2006. Those loans included $76
million, $107 million, $106 million and $79 million at September 30, 2006, September 30, 2005,
December 31, 2005 and June 30, 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 in order 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 were $58
million and $74 million at September 30, 2006 and 2005, respectively, $79 million at December 31,
2005 and $58 million at June 30, 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 $18 million at
September 30, 2006, $30 million a year earlier, $26 million at December 31, 2005 and $21 million at
June 30, 2006.
Commercial loans and leases classified as nonperforming totaled $67 million at September 30,
2006, $39 million at each of September 30, 2005 and December 31, 2005, and $47 million at June 30,
2006.
Nonperforming commercial real estate loans totaled $40 million at September 30, 2006, $55
million a year earlier, $44 million at December 31, 2005 and $37 million at June 30, 2005.
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Nonperforming residential real estate loans aggregated $30 million at September 30, 2006, $32
million at each of September 30, 2005 and June 30, 2006, and $29 million at December 31, 2005.
Residential real estate loans past due 90 days or more and accruing interest totaled $81 million at
September 30, 2006, compared with $90 million at September 30, 2005, and $96 million and $71
million at December 31, 2005 and June 30, 2006, respectively. As already discussed, a significant
portion of such amounts relate to repurchased loans that are guaranteed by government-related
entities.
Nonperforming consumer loans and leases totaled $42 million at September 30, 2006, compared
with $40 million a year earlier and at June 30, 2006, and $44 million at December 31, 2005. As a
percentage of consumer loan balances outstanding, nonperforming consumer loans and leases were .42%
at the recent quarter-end and at December 31, 2005, .38% at September 30, 2005 and .40% at June 30,
2006.
Assets acquired in settlement of defaulted loans totaled $14 million at each of June 30 and
September 30, 2006, and $9 million at each of September 30 and December 31, 2005.
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
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
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loan category, the financial condition of specific borrowers, the economic environment in
which borrowers operate, the level of delinquent loans, the value of any collateral and, where
applicable, the existence of any guarantees or indemnifications. Management evaluated the impact
of changes in interest rates and overall economic conditions on the ability of borrowers to meet
repayment obligations when quantifying the Company’s exposure to credit losses and assessing the
adequacy of the Company’s allowance for such losses at 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
September 30, 2006 in light of (i) the sluggish pace of economic growth in many of the markets
served by the Company; (ii) continuing 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
national economy has experienced moderate growth in 2006 with inflation being reasonably well
contained, concerns exist about the level of energy prices; a weakening housing market; Federal
Reserve positioning of monetary policy; the underlying impact of 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 September 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 1.54% of total loans and leases at September 30, 2006, compared with $638
million or 1.58% at each of September 30 and December 31, 2005, and $646 million or 1.55% at June
30, 2006. The ratio of the allowance for credit losses to nonperforming loans was 360% at the most
recent quarter-end, compared with 383% a year earlier, 408% at December 31, 2005 and 414% at June
30, 2006. The level of the allowance reflects management’s evaluation of the loan and lease
portfolio as of each respective date.
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Other Income
Other income totaled $274 million in the third quarter of 2006, up 24% from $221 million in the
similar quarter of 2005 and 4% higher than $263 million in the second quarter of 2006. The
increase from the prior year’s third quarter was largely the result of the previously discussed $13
million gain in the recent quarter from the accelerated recognition of a purchase accounting
premium related to a call of an FHLB borrowing assumed in an acquisition and the $29 million charge
during 2005’s third quarter for the other-than-temporary declines in value of preferred stock of
FNMA and FHLMC. The increase from the immediately preceding quarter was the result of the $13
million gain from the call of the FHLB borrowing and higher service charges on deposit accounts,
partially offset by a decrease in mortgage banking revenues.
Mortgage banking revenues totaled $37 million in the recent quarter, up from $35 million in
the third quarter of 2005, but lower than $42 million in the second 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 $30 million in the recent quarter, up from $27
million in the year-earlier period, but down from $35 million in the second quarter of 2006.
Residential mortgage loans originated for sale to other investors were approximately $1.5 billion
during the third quarter of 2006, compared with $2.5 billion in the third quarter of 2005 and $1.9
billion in the second quarter of 2006. Realized gains from sales of residential mortgage loans and
loan servicing rights and recognized net unrealized losses attributable to residential mortgage
loans held for sale, commitments to originate loans for sale and commitments to sell loans
aggregated $12 million in the recently completed quarter, compared with $11 million in the third
quarter of 2005 and $16 million in 2006’s second quarter.
Revenues from servicing residential mortgage loans for others were $16 million in the two most
recent quarters, compared with $14 million in the third 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 in each of the two most recent quarters and $2
million in the third quarter of 2005. Residential mortgage loans serviced for others were $16.2
billion at September 30, 2006, $14.4 billion a year earlier and $15.6 billion at December 31, 2005,
including the small balance commercial mortgage loans noted above of approximately $2.8 billion and
$1.9 billion at September 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 $149 million at September 30, 2006, compared with $126 million at September 30, 2005 and $140
million at December 31, 2005. Included in capitalized residential mortgage servicing assets were
$32 million at September 30, 2006, $16 million a year earlier 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 $1.4 billion and $1.8
billion at September 30, 2006 and 2005, respectively, and $1.2 billion at December 31, 2005.
Commitments to sell loans and commitments to originate loans for sale at pre-determined rates were
$1.2 billion and $676 million, respectively, at September 30, 2006, $1.9 billion and $832 million,
respectively, at September 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
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commitments to originate loans for sale were approximately $1 million at September 30, 2006,
$2 million a year earlier and $5 million at December 31, 2005. Changes in such net unrealized
losses are recorded in mortgage banking revenues and resulted in a net decrease in revenues of $1
million in the third quarter of 2006, compared with decreases of $3 million during each of 2005’s
third quarter and the second quarter of 2006.
Commercial mortgage
banking revenues in the two most recent quarters were $7 million, compared with $8
million in 2005’s third quarter. Revenues from
commercial mortgage loan origination and sales activities were $3 million in each of the third
quarters of 2006 and 2005, compared with $4 million in the quarter ended June 30, 2006. Commercial
mortgage loan servicing revenues were $4 million in the third quarter of 2006, compared with $5
million in the third quarter of 2005 and $3 million in 2006’s second quarter. Capitalized
commercial mortgage servicing assets totaled $20 million at September 30, 2006, and $21 million at
each of September 30, 2005 and December 31, 2005. Commercial mortgage loans held for sale at
September 30, 2006 and 2005 were $70 million and $104 million, respectively, and $199 million at
December 31, 2005.
Service charges on deposit accounts increased 6% to $100 million in the third quarter of 2006
from $95 million in the year-earlier quarter and were 5% higher than $96 million in the second
quarter of 2006. The increases from the prior periods were largely due to higher overdraft and debit
card interchange fees. Trust income totaled $35 million in the two most recent quarters, compared
with $34 million in last year’s third quarter. Brokerage services income, which includes revenues
from the sale of mutual funds and annuities and securities brokerage fees, totaled $15 million in
the third quarter of 2006 and $14 million in each of the third quarter of 2005 and second quarter
of 2006. Trading account and foreign exchange activity resulted in gains of $5 million during the
third quarter of 2006 and $6 million in each of the third quarter of 2005 and second quarter of
2006. Gains from bank investment securities were $1 million during the third quarter of 2006,
compared with losses of $28 million in the third quarter of 2005. The losses in 2005 include the
previously noted $29 million charge for the other-than-temporary decline in value of FNMA and FHLMC
preferred stock.
Other revenues from operations aggregated $81 million in the recent quarter, compared with $66
million in 2005’s third quarter and $70 million in the second quarter of 2006. The increase in
such revenues in the recent quarter as compared with the prior quarters resulted predominantly from
the already discussed $13 million gain from the accelerated recognition of a purchase accounting
premium related to a call of an FHLB borrowing assumed in a prior acquisition. Other revenues from
operations included letter of credit and other credit-related fees of $20 million in the two most
recent quarters and $19 million in the third quarter of 2005. 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 $10
million in the recent quarter, $11 million in the year-earlier quarter and $14 million in 2006’s
second quarter. Merchant discount and credit card fees totaled $8 million in each of the second
and third quarters of 2006, compared with $7 million in the year-earlier quarter.
Insurance-related sales commissions and other revenues aggregated $8 million in the quarters ended
June 30, 2006 and September 30, 2006, compared with $6 million in the third quarter of 2005. The
higher insurance-related revenues in the 2006 quarters as compared with the third 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 totaled $789 million in the first nine months of 2006, compared with $701 million
in the corresponding 2005 period. The two largest factors in the rise in such income were the
previously noted recent quarter’s
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$13 million gain related to the call of an FHLB borrowing and the $29 million charge recognized in
the third quarter of 2005 related to the other-than-temporary decline in value of the preferred
stock of FNMA and FHLMC. Also contributing to the increase were higher mortgage banking revenues,
service charges on deposit accounts and other revenues from operations.
For the first three quarters of 2006, mortgage banking revenues totaled $113 million, up 13%
from $100 million in the year-earlier period. Residential mortgage banking revenues increased 19%
to $94 million during the nine-month period ended September 30, 2006 from $79 million in the
corresponding 2005 period. Residential mortgage loans originated for sale to other investors were
$4.8 billion in the first three quarters of 2006, compared with $5.4 billion in the similar 2005
period. 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 aggregated $40 million and $30 million during the
nine-month periods ended September 30, 2006 and 2005, respectively. Revenues from servicing
residential mortgage loans for others were $49 million and $43 million for the first three quarters
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
$10 million and $7 million for the nine-month periods ended September 30, 2006 and 2005,
respectively. Commercial mortgage banking revenues totaled $19 million during the first nine
months of 2006, compared with $21 million in the comparable 2005 period.
Service charges on deposit accounts were $285 million during the first nine months of 2006, up
3% from $276 million in the comparable 2005 period, while trust income aggregated $104 million, 4%
higher than $100 million a year earlier. Brokerage services income increased 5% to $44 million
during the first nine months of 2006 from $42 million in the similar 2005 period. Trading account
and foreign exchange activity resulted in gains of $18 million and $17 million for the nine-month
periods ended September 30, 2006 and 2005, respectively. Gains from bank investment securities
were $1 million during the first nine months of 2006, compared with losses of $28 million in the
year-earlier period. The losses in 2005 include the previously noted $29 million charge for the
other-than-temporary decline in value of FNMA and FHLMC preferred stock.
Other revenues from operations rose to $225 million in the first three quarters of 2006 from
$193 million in the comparable 2005 period. Included in other revenues from operations during the
nine-month periods ended September 30, 2006 and 2005 were letter of credit and other credit-related
fees of $59 million and $56 million, respectively, and income from bank owned life insurance of $38
million and $35 million, respectively. During the first three quarters of 2006 and 2005, merchant
discount and credit card fees were $24 million and $21 million, respectively, and insurance-related
sales commissions and other revenues totaled $23 million and $17 million, respectively. 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 from
operations was the previously noted $13 million gain from the call of an FHLB borrowing and higher
income from educational lending services, partially offset by lower revenues from commercial
leasing activities and fees from providing automated teller machine services.
Other Expense
Other expense totaled $409 million in the third quarter of 2006, up 11% from $368 million in the
year-earlier period, and 8% higher than $377 million in 2006’s second quarter. Included in the
amounts noted above are expenses considered by management to be “nonoperating” in nature consisting
of
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amortization of core deposit
and other intangible assets of $20 million and $14 million in the
third quarters of 2006 and 2005, respectively, and $11 million in the second 2006 quarter, and the
branch acquisition-related expenses of $4 million and $1 million in the second and third quarters
of 2006. There were no similar expenses in 2005. Exclusive of these nonoperating expenses,
noninterest operating expenses aggregated $388 million in the recent quarter, compared with $354
million in the third quarter of 2005 and $362 million in the second quarter of 2006. The most
significant contributor to the higher operating expenses in 2006’s third quarter as compared with
the prior quarters was the $18 million charitable contribution noted earlier. Also contributing to
the higher expense level in the third quarter of 2006 was an addition to the valuation allowance
for impairment of capitalized residential mortgage servicing rights of $5 million. In contrast,
partial reversals of the valuation allowance for capitalized servicing rights of $6 million and $8
million were recorded in the third quarter of 2005 and second quarter of 2006, respectively.
Other expense for the nine-month period ended September 30, 2006 aggregated $1.17 billion, up
$52 million or 5% from $1.12 billion in the corresponding 2005 period. Included in those amounts
are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit
and other intangible assets of $44 million in each of 2006 and 2005, and the branch
acquisition-related expenses of $5 million in the first nine months of 2006. Exclusive of these
nonoperating expenses, noninterest operating expenses through the first nine months of 2006
increased 4% to $1.12 billion from $1.07 billion in the comparable 2005 period. Higher costs for
salaries and the $18 million charitable contribution already discussed were the main contributors
to the higher expense level in the 2006 period, partially offset by net partial reversals of the
valuation allowance for impairment of capitalized residential mortgage servicing rights of $10
million in 2006, compared with reversals of $5 million in 2005. Table 2 provides a reconciliation
of other expense to noninterest operating expense.
Salaries and employee benefits expense totaled $219 million in the third quarter of 2006,
compared with $208 million in the corresponding 2005 quarter and $217 million in the second quarter
of 2006. For the first nine months of 2006, salaries and employee benefits expense increased to
$660 million from $619 million in the year-earlier period. The higher expense levels in the 2006
periods as compared with the 2005 periods were due largely to salaries-related costs, including the
impact of merit pay increases awarded to employees, a higher level of full-time equivalent
employees and higher stock-based compensation costs. Stock-based compensation totaled $11 million
for each of the quarters ended September 30, 2006, September 30, 2005 and June 30, 2006, and $40
million and $34 million for the nine-month periods ended September 30, 2006 and 2005, respectively.
The higher levels of stock-based compensation in the first three quarters 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. As of September 30, 2006, approximately $5 million of that $6 million amount would not
yet have been recognized as expense if the normal four year vesting schedule had been used for
purposes of expense recognition as allowed prior to the required adoption of SFAS No. 123R. The
number of full-time equivalent employees was 12,815 at September 30, 2006, 12,770 at September 30,
2005, 12,780 at December 31, 2005 and 12,932 at June 30, 2006.
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Excluding the nonoperating expense items previously noted, nonpersonnel expense totaled $169
million in the third quarter of 2006, compared with $147 million in the corresponding quarter of
2005 and $145 million in the second quarter of 2006. Nonpersonnel expenses in 2006’s third quarter
included the previously noted $18 million charitable contribution. Also contributing to the higher
level of expenses in the recent quarter was a $5 million addition to the valuation allowance for
the impairment of capitalized residential mortgage servicing rights. The addition to the valuation
allowance reflects a decrease in the value of capitalized mortgage servicing rights resulting from
lower residential mortgage interest rates at September 30, 2006 as compared with June 30, 2006.
The lower interest rates resulted in increases in the expected rate of residential mortgage loan
prepayments used in calculating the estimated fair value of capitalized servicing rights. In
contrast, during the third quarter of 2005 and the second quarter of 2006, the Company recognized
partial reversals of the valuation allowance for impairment of capitalized residential mortgage
servicing rights of $6 million and $8 million, respectively. The reductions of the valuation
allowance reflected the increases in value of capitalized mortgage servicing rights resulting from
higher residential mortgage loan interest rates at the end of each of those quarters as compared with such
rates at the immediately preceding quarter-end.
Nonpersonnel operating expenses were $459 million during the first nine months of 2006 and
$453 million during the similar period of 2005. The principal factor in the rise in expenses from
2005 to 2006 was the $18 million charitable contribution in 2006, offset, in part, by net partial
reversals of the valuation allowance for impairment of capitalized residential mortgage servicing
rights of $10 million in 2006 and $5 million in 2005.
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 on
bank investment securities), measures the relationship of noninterest operating expenses to
revenues. The Company’s efficiency ratio was 52.8% during the recent quarter, compared with 50.0%
during the third quarter of 2005 and 50.7% in the second quarter of 2006. Were the recent
quarter’s $18 million charitable contribution and the $13 million gain on the called borrowing with
the FHLB excluded from the computation, the Company’s efficiency ratio during that quarter would
have been 51.2%. The efficiency ratios for the nine months ended September 30, 2006 and 2005 were
52.0% and 51.4%, respectively. Noninterest operating expenses used in calculating the efficiency
ratio do not include the amortization of core deposit and
other intangible assets noted earlier. If charges for amortization of core deposit and other
intangible assets were included, the ratio for the three-month periods ended September 30, 2006,
September 30, 2005 and June 30, 2006 would have been 55.5%, 51.9% and 52.3%, respectively, and for
the nine-month periods ended September 30, 2006 and 2005 would have been 54.0% and 53.5%,
respectively.
Income Taxes
The provision for income taxes for each of the quarters ended September 30, 2006 and 2005 was $95
million, and for the quarter ended June 30, 2006 was $103 million, resulting in effective tax rates
for those periods of 31.1%, 33.3% and 32.6%, respectively. The lower tax rate in the recent
quarter as compared with the prior periods was the result of the previously noted $3 million
reduction of income tax expense related to the favorable settlement of refund claims originally
filed by Allfirst. The refunds received, consisting of income taxes and taxable interest, exceeded
the amounts previously accrued for such items by $5 million (pre-tax). For the nine-month periods
ended September 30, 2006 and 2005, the provision for income
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taxes was $294 million and $288 million, respectively, resulting in effective tax rates of 32.0% in
2006 and 33.3% in 2005.
Capital
Stockholders’ equity at September 30, 2006 totaled $6.2 billion and represented 10.91% of total
assets, compared with $5.8 billion or 10.66% 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 $55.58 at September
30, 2006, up from $51.81 and $52.39 at September 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 $27.15 at September 30, 2006, compared with $25.42 a year
earlier and $25.91 at December 31, 2005.
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 $38 million, or $.34 per common share, at September 30, 2006,
compared with unrealized losses of $33 million, or $.29 per share, at September 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 September 30, 2006 and December
31, 2005, or by $.45 per share at September 30, 2006 and $.44 per share at December 31, 2005. A
similar adjustment was $12 million at September 30, 2005, or $.11 per share.
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 third quarter of 2006, 762,000
shares of common stock were repurchased by M&T pursuant to such plan at an average cost of $120.44
per share. Through September 30, 2006, M&T had repurchased 2,681,400 shares of common stock
pursuant to such plan at an average cost of $113.31 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 September 30, 2006,
core capital included $688 million of the trust preferred securities described in note 4 of Notes
to Financial Statements, and total capital further included $902 million of subordinated notes.
The Company generates significant amounts of regulatory capital. The rate of regulatory core
capital generation, or net operating income (as 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 17.32% during the third quarter of
2006, compared with 16.90% in the similar quarter of 2005 and 17.00% in the second quarter of 2006.
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The regulatory capital ratios of the Company, M&T Bank and M&T Bank, N.A., as of September 30,
2006 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
Segment Information
In accordance with 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.
Net income earned by the Commercial Banking segment was $55 million in the third quarter of
2006, up slightly from $54 million in the year-earlier quarter, but lower than the $58 million
earned in the second quarter of 2006. The slight improvement from the third quarter of 2005 was
due to a $10 million increase in net interest income, largely the result of improved contribution
from deposit products and an 8% increase in loan balances outstanding, partially offset by lower
noninterest income of $3 million and higher noninterest expenses of $3 million. The decline from
the second quarter of 2006 was the result of a $5 million increase in the provision for credit
losses, partially offset by higher net interest income of $3 million. For the nine-month period
ended September 30, 2006, this segment contributed $169 million to net income, 3% above $164
million earned in the similar 2005 period. Higher net interest income in 2006 of $15 million and a
lower provision for credit losses of $6 million were offset, in part, by a $5 million increase in
personnel expenses and a decline in noninterest income of $4 million. The higher net interest
income was predominantly the result of a wider net interest margin on deposits.
The Commercial Real Estate segment’s net income for the recent quarter was $32 million, 22%
lower than $41 million in the third quarter of 2005, but little changed from 2006’s second quarter.
The decrease from the third quarter of 2005 was primarily due to lower net interest income of $12
million, largely the result of a 56 basis point decline in loan net interest margin. Net income
for this segment declined to $98 million during the first nine months of 2006 from $108 million in
the similar 2005 period, largely due to lower net interest income of $11 million, a $4 million
decline in noninterest income and a $4 million increase in noninterest expenses. A 25 basis point
decline in loan net interest margin contributed to the lower net interest income.
The Discretionary Portfolio segment’s net income totaled $27 million in the third quarter of
2006, up from $11 million in the year-earlier quarter and $24 million in 2006’s second quarter.
The favorable performance compared with last year’s third quarter was largely due to the previously
noted $29 million non-cash, other-than-temporary impairment charge related to the preferred stock
issuances of FNMA and FHLMC recorded in 2005’s third quarter and the recent quarter’s $13 million
gain resulting from the accelerated recognition of a purchase accounting premium related to the
call of an FHLB borrowing assumed in a previous acquisition. Partially offsetting these factors
-41-
was a $12 million decrease in net interest income, predominantly the result of a 66 basis
point decline in net interest margin on investment securities. As compared with the second quarter
of 2006, the $13 million gain recognized on the called FHLB
borrowing in 2006’s third quarter was offset, in part, by $3 million decreases in each of net interest income
and other revenues from operations. Net contribution for this segment increased to $73 million for
the first nine months of 2006 from $71 million in the corresponding 2005 period, with the impact of
the preferred stock impairment charge in 2005 and the gain on the FHLB borrowing in 2006 being
largely offset by lower net interest income of $34 million, resulting from a 71 basis point
decrease in net interest margin on investment securities.
Net income of the Residential Mortgage Banking segment was $10 million in the third quarter of
2006, down from $13 million in the corresponding quarter of last year and $19 million in the
immediately preceding quarter. The lower net income in the recent quarter as compared with the
prior quarters was the result of a $5 million addition to the capitalized mortgage servicing rights
valuation allowance being recognized during the recent quarter, while reductions to such allowance
of $4 million and $8 million were reflected in the results of 2005’s third quarter and the second
quarter of 2006, respectively. Through September 30, 2006, net income for this segment totaled $44
million, up 40% from $32 million in the similar 2005 period. The improvement was due to a $20
million increase in revenues from loan origination, sales, and servicing activities and an $8
million increase in net interest income, partially offset by higher salaries and benefits expenses
of $9 million. The increase in net interest income was attributable to a 43% increase in loan
balances outstanding offset, in part, by a 78 basis point decrease in loan net interest margin.
Partial reversals of the capitalized residential mortgage servicing rights valuation allowance of
$10 million and $4 million were made during the first nine months of 2006 and 2005, respectively.
The Retail Banking segment contributed net income of $110 million in the third quarter of
2006, up 28% from $86 million in the year-earlier quarter and 7% higher than $102 million earned in
the second quarter of 2006. The increase from the third quarter of last year was largely due to
higher net interest income of $37 million, the result of an increase in net interest margin
attributed to deposit products. Higher service charges on deposit accounts of $6 million also
contributed to the rise in net income. The favorable variance as compared with the second quarter
of 2006 was largely due to a $21 million increase in revenues, the result of higher net interest
income attributable to deposit products of $15 million and increased service charges on deposit
accounts of $5 million. Partially offsetting the higher revenues were increases in net occupancy
expenses of $5 million and the provision for credit losses of $4 million. For the first nine
months of 2006, the Retail Banking segment’s earnings rose 25% to $305 million from $243 million in
the year-earlier period. The favorable performance was due to an increase in net interest income
of $84 million resulting largely from a 52 basis point rise in net interest margin attributable to
deposit products. Also contributing to the favorable variance were a $13 million increase in
deposit service charges and a $4 million decrease in the provision for credit losses.
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 $24 million in the
-42-
third quarter of 2006, $14 million in the third quarter of 2005 and $22 million in the second
quarter of 2006. For the first nine months of 2006 and 2005, the “All Other” segment reported net
losses of $63 million and $41 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. The
previously mentioned $18 million charitable contribution made by M&T Bank to The M&T Charitable
Foundation is reflected in the “All Other” category’s results for the third 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. As currently
written, under SFAS No. 155 securities involving prepayable
assets (e.g. mortgage-backed securities) that are issued from a
securitization trust and that are obtained by an entity at a discount
would be accounted for in one of two ways. Under the first allowable
method, an entity would bifurcate the embedded derivative
feature with respect to prepayment risk and record the bifurcated derivative at
fair value. Subsequent changes in fair value of the bifurcated
derivative would be
reported in earnings. As an alternative, an entity could elect not to
bifurcate the embedded derivative but instead record the entire
security at fair value with subsequent changes in fair value of the
security being reported in
earnings. In
recent redeliberations, the FASB has indicated its intention to issue new guidance to address this
topic. In light of these developments, the Company is still evaluating the potential impact of
adopting SFAS No. 155 as of January 1, 2007.
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
-43-
of an entity’s fiscal year, provided the entity has not
yet issued financial
statements, including interim financial statements, for any period of that
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 September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157
defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements, but does not require any new fair
value measurements. The definition of fair value is clarified by SFAS No. 157 to be the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. SFAS No. 157 expands disclosures about the
use of fair value to measure assets and liabilities in interim and annual periods subsequent to
initial recognition. The disclosures focus on the inputs used to measure fair value and the effect
of the measurements on earnings for the period. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years. The provisions generally should be applied prospectively as of the beginning of the fiscal
year in which SFAS No. 157 is applied, with certain provisions required to be applied
retrospectively. Many of the Company’s assets, liabilities and off-balance sheet positions are
required to either be accounted for or disclosed using fair value as their relevant measurement
attribute. Given the pervasiveness of fair value measurements throughout the Company’s financial
statements, the Company has not yet determined the impact that the adoption of SFAS No. 157 will
have on its financial statements.
Also in September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans,” which requires an employer to recognize as an
asset or liability in its balance sheet the overfunded or underfunded status of a defined benefit
postretirement plan, measured as the difference between the fair value of plan assets and the
benefit obligation. For a pension plan, the benefit obligation is the projected benefit
obligation; for any other postretirement benefit plan, such as a retiree health care plan, the
benefit obligation is the accumulated postretirement benefit obligation. The measurement of the
funded status of a plan should be the date of a company’s year-end balance sheet. SFAS No. 158
requires the recognition of the gains or losses and prior service costs or credits that arise
during the period, but are not recognized as components of net periodic benefit cost pursuant to
SFAS No. 87, “Employers’ Accounting for Pensions,” or SFAS No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” as a component of other comprehensive income. Some
additional disclosures in the notes to financial statements are also required. An employer with
publicly-traded equity securities is required to initially recognize the funded status of a defined
benefit postretirement plan and to provide the required disclosures as of the end of the fiscal
year ending after
-44-
December 15, 2006. Any required adjustment to
the Company’s financial condition at December 31, 2006 will
depend on the fair value of plan assets and the level of long-term
interest rates at that date. As a result, the Company cannot
precisely predict the impact that the adoption of SFAS No. 158 will
have on its consolidated financial condition at December 31, 2006.
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 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 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.
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin (“SAB”) No. 108 to require quantification of financial statement misstatements under both
the “rollover approach” and the “iron curtain approach”. The “rollover approach” quantifies a
misstatement based on the amount of the error originating in the current year income statement, but
ignores the effects of correcting the portion of the current year balance sheet misstatement that
originated in prior years. The “iron curtain approach” quantifies a misstatement based on the
effects of
-45-
correcting the misstatement existing in the balance sheet at the end of the
current year, irrespective of the misstatement’s year(s) of origination. The provisions of
SAB No. 108 must be applied to financial statements for fiscal years ending after
November 15, 2006. The Company does not anticipate that the quantification of financial statement
misstatements pursuant to the provisions of SAB No. 108 will result in any material impact to the
Company’s financial statements at December 31, 2006.
At its September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final
consensus on Issue 06-04, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements.” The consensus stipulates that an
agreement by an employer to share a portion of the proceeds of a life insurance policy with an
employee during the postretirement period is a postretirement benefit arrangement required to be
accounted for under SFAS No. 106 or Accounting Principles Board Opinion (“APB”) No. 12, “Omnibus
Opinion – 1967.” The consensus concludes that the purchase of a split-dollar life insurance policy
does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the
postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an
arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue 06-04
is effective for annual or interim reporting periods beginning after December 15, 2007. The
provisions of Issue 06-04 should be applied through either a cumulative effect adjustment to
retained earnings as of the beginning of the year of adoption or retrospective application. The
Company has endorsement split-dollar life insurance policies that it inherited through certain
acquisitions that are associated with employees who are no longer active, which it is currently in
the process of evaluating to determine the impact of adoption of Issue 06-04.
Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
sections of this quarterly report contain forward-looking statements that are based on current
expectations, estimates and projections about the Company’s business, management’s beliefs and
assumptions made by management. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions (“Future Factors”) which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements.
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 required capital
levels; increasing price and product/service competition by competitors, including new entrants;
rapid technological developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost-effective basis; the mix of products/services; containing
costs and expenses; governmental and public policy changes; 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
-46-
with 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.
-47-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 1
QUARTERLY TRENDS
-48-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
-49-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
(continued)
-50-
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
-51-
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 September 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 September 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.
-52-
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.
Item 5. Other Information.
-53-
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.
-54-
EXHIBIT INDEX
-55-
September 30,
December 31,
Dollars in thousands, except per share
2006
2005
$
1,336,737
1,479,239
10,425
8,408
123,245
11,220
176,450
191,617
7,202,117
7,931,703
67,370
101,059
356,813
367,402
7,626,300
8,400,164
42,351,264
40,553,691
(252,993
)
(223,046
)
(646,319
)
(637,663
)
41,451,952
39,692,982
332,504
337,115
2,908,849
2,904,081
270,910
108,260
2,136,104
2,013,320
$
56,373,476
55,146,406
$
7,754,061
8,141,928
839,219
901,938
13,974,350
13,839,150
12,535,348
11,407,626
3,975,811
2,809,532
39,078,789
37,100,174
3,783,899
4,211,978
634,457
940,894
1,001,600
819,980
5,723,488
6,196,994
50,222,233
49,270,020
—
—
60,198
60,198
5,080
5,363
2,889,631
2,886,153
4,296,655
3,854,275
(86,940
)
(97,930
)
(1,013,381
)
(831,673
)
6,151,243
5,876,386
$
56,373,476
55,146,406
Table of Contents
Three months ended
Nine months ended
September 30
September 30
In thousands, except per share
2006
2005
2006
2005
$
755,543
628,122
$
2,150,076
1,760,226
121
48
304
114
2,487
226
3,270
598
680
510
2,104
909
90,320
88,309
276,100
263,328
3,685
3,539
11,165
10,418
852,836
720,754
2,443,019
2,035,593
960
610
2,398
1,471
51,816
37,222
142,952
98,403
152,571
79,416
409,661
192,271
48,244
34,504
128,845
87,985
59,487
42,192
163,677
110,861
82,574
71,632
244,663
199,867
395,652
265,576
1,092,196
690,858
457,184
455,178
1,350,823
1,344,735
17,000
22,000
52,000
65,000
440,184
433,178
1,298,823
1,279,735
36,806
35,345
112,882
100,045
100,314
94,878
284,739
276,200
35,224
33,748
103,777
100,016
14,794
13,685
43,999
42,045
5,082
6,326
17,756
17,152
1,133
(27,995
)
1,427
(27,749
)
80,549
65,507
224,855
193,405
273,902
221,494
789,435
701,114
218,980
207,705
660,224
618,922
41,683
43,033
127,612
129,647
8,294
8,684
24,933
25,926
19,936
13,926
44,321
44,102
120,048
94,902
310,851
297,431
408,941
368,250
1,167,941
1,116,028
305,145
286,422
920,317
864,821
94,775
95,348
294,457
287,623
$
210,370
191,074
$
625,860
577,198
$
1.89
1.68
$
5.62
5.06
1.85
1.64
5.49
4.95
$
.60
.45
$
1.65
1.30
111,047
113,530
111,331
114,079
113,897
116,200
114,069
116,598
Table of Contents
Nine months ended September 30
In thousands
2006
2005
$
625,860
577,198
52,000
65,000
39,202
44,007
45,660
43,910
44,321
44,102
(58,107
)
(80,628
)
241
32,543
(11,086
)
(8,607
)
46,556
11,282
145,724
6,904
(5,009
)
(1,100,886
)
5,572
(41,961
)
930,934
(407,136
)
98,365
19,016
40,960
46,293
1,242,416
1,664,759
78,900
85,797
(596,108
)
(1,504,722
)
(45,228
)
(84,950
)
(30,371
)
(71,056
)
(44,450
)
(31,093
)
(1,541,817
)
(888,175
)
(26,627
)
(15,167
)
482,818
—
(51,753
)
(80,454
)
(392,895
)
(859,752
)
1,015,347
1,777,199
(806,767
)
(504,435
)
500,000
1,801,657
(969,595
)
(1,276,808
)
(298,896
)
(407,748
)
(183,328
)
(147,981
)
74,723
83,680
(668,516
)
1,325,564
$
(130,477
)
58,676
1,490,459
1,363,804
$
1,359,982
1,422,480
$
2,435,470
1,995,532
1,024,465
667,355
254,759
367,529
$
13,505
7,804
514,055
—
999,022
—
Table of Contents
Accumulated
other
Common
Additional
comprehensive
Preferred
Common
stock
paid-in
Retained
income (loss),
Treasury
In thousands, except per share
stock
stock
issuable
capital
earnings
net
stock
Total
$
—
60,198
5,779
2,897,912
3,270,887
(17,209
)
(487,953
)
5,729,614
—
—
—
—
577,198
—
—
577,198
—
—
—
—
—
(28,076
)
—
(28,076
)
549,122
—
—
—
—
—
—
(407,748
)
(407,748
)
—
—
—
304
—
—
—
304
—
—
—
33,915
—
—
—
33,915
—
—
—
(49,271
)
—
—
137,998
88,727
—
—
—
69
—
—
750
819
—
—
(343
)
(185
)
(131
)
—
910
251
—
—
—
—
(147,981
)
—
—
(147,981
)
$
—
60,198
5,436
2,882,744
3,699,973
(45,285
)
(756,043
)
5,847,023
$
—
60,198
5,363
2,886,153
3,854,275
(97,930
)
(831,673
)
5,876,386
—
—
—
—
625,860
—
—
625,860
—
—
—
—
—
10,990
—
10,990
636,850
—
—
—
—
—
—
(298,896
)
(298,896
)
—
—
—
225
—
—
—
225
—
—
—
40,059
—
—
—
40,059
—
—
—
(36,419
)
—
—
115,636
79,217
—
—
—
87
—
—
694
781
—
—
(283
)
(474
)
(152
)
—
858
(51
)
—
—
—
—
(183,328
)
—
—
(183,328
)
$
—
60,198
5,080
2,889,631
4,296,655
(86,940
)
(1,013,381
)
6,151,243
Nine months ended September 30
In thousands
2006
2005
$
637,663
626,864
52,000
65,000
(65,683
)
(77,604
)
22,339
23,559
(43,344
)
(54,045
)
$
646,319
637,819
Table of Contents
Three months ended
Nine months ended
September 30
September 30
2006
2005
2006
2005
(in thousands, except per share)
$
210,370
191,074
625,860
577,198
111,047
113,530
111,331
114,079
$
1.89
1.68
5.62
5.06
Three months ended
Nine months ended
September 30
September 30
2006
2005
2006
2005
(in thousands, except per share)
$
210,370
191,074
625,860
577,198
111,047
113,530
111,331
114,079
2,850
2,670
2,738
2,519
113,897
116,200
114,069
116,598
$
1.85
1.64
5.49
4.95
Table of Contents
Nine months ended September 30, 2006
Before-tax
Income
amount
taxes
Net
(in thousands)
$
15,092
(3,211
)
11,881
1,427
(536
)
891
$
13,665
( 2,675
)
10,990
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 September 30
2006
2005
Inter-
Net
Inter-
Net
Total
segment
income
Total
segment
income
revenues(a)
revenues
(loss)
revenues(a)
revenues
(loss)
(in thousands)
$
137,976
110
55,276
131,474
119
54,449
64,805
198
31,583
80,856
319
40,712
44,811
(500
)
27,251
14,687
(197
)
11,218
72,525
14,350
10,088
69,898
15,968
13,128
381,064
3,026
109,878
340,730
4,390
85,598
29,905
(17,184
)
(23,706
)
39,027
(20,599
)
(14,031
)
$
731,086
—
210,370
676,672
—
191,074
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 $5,172,000 and $4,375,000 for the three-month periods ended September
30, 2006 and 2005, respectively, and $14,544,000 and $12,758,000 for the nine-month periods
ended September 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
September 30,
December 31,
2006
2005
(in thousands)
$
5,412,831
4,903,834
163,045
41,662
2,186,191
2,249,805
676,491
351,898
949,730
848,015
6,884,384
6,843,170
3,598,424
3,523,234
60,913
47,360
1,042,823
1,186,385
1,475,347
1,164,360
Table of Contents
Table of Contents
Pension
Postretirement
benefits
benefits
Three months ended September 30
2006
2005
2006
2005
(in thousands)
$
5,537
7,620
137
(5
)
8,482
9,595
1,035
510
(9,767
)
(9,215
)
—
—
(1,504
)
29
35
85
1,772
1,395
110
(294
)
$
4,520
9,424
1,317
296
Pension
Postretirement
benefits
benefits
Nine months ended September 30
2006
2005
2006
2005
(in thousands)
$
16,687
23,620
437
495
26,832
29,445
2,735
3,210
(29,017
)
(28,365
)
—
—
(5,054
)
29
135
85
6,272
3,795
160
306
$
15,720
28,524
3,467
4,096
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
Table of Contents
(net of unearned discount)
Dollars in millions
Percent increase
(decrease) from
3rd Qtr.
3rd Qtr.
2nd Qtr.
2006
2005
2006
$
11,436
9
%
1
%
15,256
6
2
5,053
18
4
2,763
(24
)
(6
)
4,291
5
4
1,224
(1
)
2
1,687
(8
)
3
9,965
(7
)
1
$
41,710
5
%
2
%
Table of Contents
Dollars in millions
Percent increase
(decrease) from
3rd Qtr.
3rd Qtr.
2nd Qtr.
2006
2005
2006
$
434
9
%
(1
)%
14,393
(2
)
1
6,290
32
6
7,571
(5
)
2
$
28,688
3
%
2
%
Table of Contents
Table of Contents
Table of Contents
Dollars in thousands
Three months ended September 30
2006
2005
Amount
Rate*
Amount
Rate*
$
—
—
%
$
—
—
%
1,677
.02
(802
)
(.01
)
$
(1,677
)
(.01
)%
$
802
.01
%
$
795,665
$
694,565
5.22
%
6.85
%
6.05
%
6.39
%
*
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
September 30, 2006
December 31, 2005
$
3,799
(7,178
)
7,876
(4,096
)
(7,459
)
(5,733
)
(14,999
)
(16,184
)
Table of Contents
Table of Contents
BY LOAN/LEASE TYPE
In thousands
2006
Year
1st Qtr.
2nd Qtr.
3rd Qtr.
to-date
$
6,085
2,119
1,384
9,588
86
249
(105
)
230
473
696
2,431
3,600
10,188
6,916
12,822
29,926
$
16,832
9,980
16,532
43,344
Table of Contents
Dollars in thousands
2006 Quarters
2005 Quarters
Third
Second
First
Fourth
Third
$
162,933
140,626
127,934
141,067
154,768
16,579
15,399
14,790
15,384
11,697
179,512
156,025
142,724
156,451
166,465
13,920
13,805
9,588
9,486
8,624
$
194,432
169,830
152,312
165,937
175,089
$
112,090
101,001
109,287
129,403
130,944
$
13,655
13,542
13,804
13,845
14,932
76,050
79,272
85,775
105,508
106,596
.43
%
.38
%
.35
%
.39
%
.41
%
.46
%
.41
%
.37
%
.41
%
.43
%
.27
%
.24
%
.27
%
.32
%
.32
%
*
Predominately residential mortgage loans.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
September 30, 2006
M&T
M&T
M&T
(Consolidated)
Bank
Bank, N.A.
7.53
%
7.13
%
29.69
%
10.63
%
10.32
%
30.52
%
6.97
%
6.64
%
12.70
%
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
2006 Quarters
2005 Quarters
Third
Second
First
Fourth
Third
Second
First
$
858,008
817,552
782,003
757,654
725,129
680,781
642,441
395,652
366,298
330,246
303,493
265,576
229,016
196,266
462,356
451,254
451,757
454,161
459,553
451,765
446,175
17,000
17,000
18,000
23,000
22,000
19,000
24,000
273,902
262,602
252,931
248,604
221,494
245,362
234,258
408,941
376,997
382,003
369,114
368,250
380,441
367,337
310,317
319,859
304,685
310,651
290,797
297,686
289,096
94,775
102,645
97,037
101,113
95,348
96,589
95,686
5,172
4,641
4,731
4,553
4,375
4,263
4,120
$
210,370
212,573
202,917
204,985
191,074
196,834
189,290
$
1.89
1.91
1.82
1.82
1.68
1.73
1.65
1.85
1.87
1.77
1.78
1.64
1.69
1.62
$
.60
.60
.45
.45
.45
.45
.40
111,047
111,259
111,693
112,529
113,530
113,949
114,773
113,897
113,968
114,347
115,147
116,200
116,422
117,184
1.49
%
1.54
%
1.49
%
1.48
%
1.39
%
1.46
%
1.44
%
13.72
%
14.35
%
13.97
%
13.85
%
12.97
%
13.73
%
13.41
%
(taxable-equivalent basis)
3.68
%
3.66
%
3.73
%
3.69
%
3.76
%
3.78
%
3.83
%
.43
%
.38
%
.35
%
.39
%
.41
%
.46
%
.46
%
55.47
%
52.29
%
54.21
%
52.49
%
51.94
%
54.58
%
54.00
%
$
223,228
221,838
210,856
212,738
199,577
205,415
199,135
1.96
1.95
1.84
1.85
1.72
1.76
1.70
1.67
%
1.69
%
1.64
%
1.63
%
1.54
%
1.62
%
1.61
%
30.22
%
30.02
%
29.31
%
29.12
%
27.67
%
29.88
%
29.67
%
52.76
%
50.70
%
52.36
%
50.69
%
49.97
%
52.56
%
51.63
%
$
56,158
55,498
55,106
54,835
54,444
53,935
53,306
53,004
52,522
52,130
51,860
51,461
50,944
50,305
49,849
49,443
49,066
48,833
48,447
47,931
47,240
7,898
8,314
8,383
8,302
8,439
8,593
8,573
41,710
40,980
40,544
40,403
39,879
39,229
38,580
39,158
38,435
37,569
37,006
36,708
36,245
35,282
6,085
5,940
5,893
5,873
5,845
5,749
5,723
2,931
2,964
2,917
2,898
2,862
2,758
2,722
$
56,373
56,507
55,420
55,146
54,841
54,482
53,887
53,227
53,345
52,443
52,176
51,863
51,495
50,891
49,950
49,628
49,281
48,852
48,691
48,341
47,853
7,626
7,903
8,294
8,400
8,230
8,320
8,679
42,098
41,599
40,859
40,331
40,335
39,911
39,073
39,079
38,514
38,171
37,100
37,199
37,306
36,293
6,151
6,000
5,919
5,876
5,847
5,838
5,674
3,005
2,838
2,942
2,906
2,869
2,851
2,678
55.58
54.01
53.11
52.39
51.81
51.20
49.78
27.15
25.55
26.41
25.91
25.42
25.00
23.49
$
124.21
119.40
117.29
112.50
112.50
107.28
108.04
116.39
113.34
106.45
96.71
103.50
98.75
96.71
119.96
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.
Table of Contents
2006 Quarters
2005 Quarters
Third
Second
First
Fourth
Third
Second
First
$
210,370
212,573
202,917
204,985
191,074
196,834
189,290
12,154
6,921
7,939
7,753
8,503
8,581
9,845
704
2,344
—
—
—
—
—
$
223,228
221,838
210,856
212,738
199,577
205,415
199,135
$
1.85
1.87
1.77
1.78
1.64
1.69
1.62
.10
.06
.07
.07
.08
.07
.08
.01
.02
—
—
—
—
—
$
1.96
1.95
1.84
1.85
1.72
1.76
1.70
$
408,941
376,997
382,003
369,114
368,250
380,441
367,337
(19,936
)
(11,357
)
(13,028
)
(12,703
)
(13,926
)
(14,055
)
(16,121
)
(1,155
)
(3,842
)
—
—
—
—
—
$
387,850
361,798
368,975
356,411
354,324
366,386
351,216
$
305
510
—
—
—
—
—
12
212
—
—
—
—
—
141
14
—
—
—
—
—
697
3,106
—
—
—
—
—
$
1,155
3,842
—
—
—
—
—
$
56,158
55,498
55,106
54,835
54,444
53,935
53,306
(2,909
)
(2,909
)
(2,907
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(281
)
(107
)
(112
)
(115
)
(128
)
(142
)
(157
)
36
40
43
44
49
55
60
$
53,004
52,522
52,130
51,860
51,461
50,944
50,305
$
6,085
5,940
5,893
5,873
5,845
5,749
5,723
(2,909
)
(2,909
)
(2,907
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(281
)
(107
)
(112
)
(115
)
(128
)
(142
)
(157
)
36
40
43
44
49
55
60
$
2,931
2,964
2,917
2,898
2,862
2,758
2,722
$
56,373
56,507
55,420
55,146
54,841
54,482
53,887
(2,909
)
(2,909
)
(2,909
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(271
)
(291
)
(111
)
(108
)
(121
)
(135
)
(149
)
34
38
43
42
47
52
57
$
53,227
53,345
52,443
52,176
51,863
51,495
50,891
$
6,151
6,000
5,919
5,876
5,847
5,838
5,674
(2,909
)
(2,909
)
(2,909
)
(2,904
)
(2,904
)
(2,904
)
(2,904
)
(271
)
(291
)
(111
)
(108
)
(121
)
(135
)
(149
)
34
38
43
42
47
52
57
$
3,005
2,838
2,942
2,906
2,869
2,851
2,678
(1)
After any related tax effect.
Table of Contents
2006 Third Quarter
2006 Second Quarter
2006 First Quarter
Average
Average
Average
Average
Average
Average
Average balance in millions; interest in thousands
balance
Interest
Rate
balance
Interest
rate
balance
Interest
rate
$
11,436
$
210,733
7.31
%
11,274
197,945
7.04
%
11,034
181,057
6.65
%
15,256
283,197
7.43
14,947
269,632
7.22
14,678
260,008
7.09
5,053
81,833
6.48
4,860
76,377
6.29
4,601
71,097
6.18
9,965
183,041
7.29
9,899
172,523
6.99
10,231
171,342
6.79
41,710
758,804
7.22
40,980
716,477
7.01
40,544
683,504
6.84
13
121
3.67
16
111
2.85
10
72
3.03
136
2,487
7.23
30
405
5.36
31
378
4.88
92
680
2.97
103
753
2.94
98
671
2.75
2,826
30,396
4.27
3,062
32,473
4.25
3,024
30,310
4.06
147
2,434
6.61
171
2,804
6.55
176
2,741
6.21
4,925
63,086
5.08
5,081
64,529
5.09
5,183
64,327
5.03
7,898
95,916
4.82
8,314
99,806
4.81
8,383
97,378
4.71
49,849
858,008
6.83
49,443
817,552
6.63
49,066
782,003
6.46
(648
)
(645
)
(641
)
1,365
1,326
1,360
5,592
5,374
5,321
$
56,158
55,498
55,106
$
434
960
.88
438
779
.71
409
659
.65
14,463
51,816
1.42
14,254
47,579
1.34
14,335
43,557
1.23
13,016
152,571
4.65
12,699
139,032
4.39
11,870
118,058
4.03
3,674
48,244
5.21
3,598
43,798
4.88
3,383
36,803
4.41
31,587
253,591
3.19
30,989
231,188
2.99
29,997
199,077
2.69
4,441
59,487
5.31
4,326
53,623
4.97
4,555
50,567
4.50
5,660
82,574
5.79
5,930
81,487
5.51
6,293
80,602
5.19
41,688
395,652
3.77
41,245
366,298
3.56
40,845
330,246
3.28
7,571
7,446
7,572
814
867
796
50,073
49,558
49,213
6,085
5,940
5,893
$
56,158
55,498
55,106
3.06
3.07
3.18
.62
.59
.55
$
462,356
3.68
%
451,254
3.66
%
451,757
3.73
%
*
Includes nonaccrual loans.
**
Includes available for sale securities at amortized cost.
Table of Contents
2005 Fourth Quarter
2005 Third Quarter
Average
Average
Average
Average
Average balance in millions; interest in thousands
balance
Interest
rate
balance
Interest
rate
$
10,738
$
169,192
6.25
%
10,497
151,076
5.71
%
14,419
249,416
6.92
14,351
245,965
6.86
4,674
70,567
6.04
4,268
63,940
5.99
10,572
173,884
6.53
10,763
169,648
6.25
40,403
663,059
6.51
39,879
630,629
6.27
10
55
2.14
11
48
1.77
19
210
4.29
24
226
3.79
99
635
2.57
94
510
2.16
3,103
30,398
3.89
3,348
32,442
3.84
174
2,663
6.13
171
2,527
5.92
5,025
60,634
4.79
4,920
58,747
4.74
8,302
93,695
4.48
8,439
93,716
4.41
48,833
757,654
6.16
48,447
725,129
5.94
(642
)
(641
)
1,389
1,395
5,255
5,243
$
54,835
54,444
$
421
711
.67
400
610
.60
14,498
41,042
1.12
14,822
37,222
1.00
11,018
102,511
3.69
9,540
79,416
3.30
3,227
32,137
3.95
4,005
34,504
3.42
29,164
176,401
2.40
28,767
151,752
2.09
4,625
46,992
4.03
4,779
42,192
3.50
6,606
80,100
4.81
6,373
71,632
4.46
40,395
303,493
2.98
39,919
265,576
2.64
7,842
7,941
725
739
48,962
48,599
5,873
5,845
$
54,835
54,444
3.18
3.30
.51
.46
$
454,161
3.69
%
459,553
3.76
%
*
Includes nonaccrual loans.
**
Includes available for sale securities at amortized cost.
Table of Contents
Table of Contents
(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.
(Not applicable.)
(None.)
(None.)
Table of Contents
Exhibit
No.
10.1
First amendment, dated as of August 1, 2006, to the Supplemental Deferred
Compensation Agreement between Manufacturers and Traders Trust Company and Robert E.
Sadler, Jr. dated as of March 7, 1985. Filed herewith.
10.2
First amendment, dated as of August 1, 2006, to the Supplemental Deferred
Compensation Agreement between Manufacturers and Traders Trust Company and Brian E.
Hickey dated as of July 21, 1994. Filed herewith.
10.3
First amendment, dated as of August 1, 2006, to the Supplemental Deferred
Compensation Agreement, dated July 17, 1989, between The East New York Savings Bank
and Atwood Collins, III. Filed herewith.
31.1
Certificate of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
31.2
Certificate of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
32.1
Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2
Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
M&T BANK CORPORATION
By:
/s/ René F. Jones
René F. Jones
Executive Vice President
and Chief Financial Officer
Table of Contents
Exhibit
No.
10.1
First amendment, dated as of August 1, 2006, to the Supplemental Deferred
Compensation Agreement between Manufacturers and Traders Trust Company and Robert E. Sadler,
Jr. dated as of March 7, 1985. Filed herewith.
10.2
First amendment, dated as of August 1, 2006, to the Supplemental Deferred Compensation
Agreement between Manufacturers and Traders Trust Company and Brian E. Hickey dated as of
July 21, 1994. Filed herewith.
10.3
First amendment, dated as of August 1, 2006, to the Supplemental Deferred Compensation
Agreement, dated July 17, 1989, between The East New York Savings Bank and Atwood Collins,
III. Filed herewith.
31.1
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
31.2
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
32.1
Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2
Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. Filed herewith.
EXHIBIT 10.1
FIRST AMENDMENT OF
SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT
This First Amendment of the Supplemental Deferred Compensation Agreement is made and entered into effective August 1, 2006 by and between Manufacturers and Traders Trust Company (hereinafter referred to as the “Company” and Robert E. Sadler, an individual residing at 35 New Amsterdam Avenue, Buffalo, New York 14216 (hereinafter referred to as “Executive”).
WHEREAS, the parties hereto entered into that certain Supplemental Deferred Compensation Agreement dated March 7, 1985 (the “Agreement”); and
WHEREAS, the parties wish to amend the Agreement to clarify and reflect the mutual understanding and intentions of the parties with respect to the Agreement and to comply with the requirements of the Internal Revenue Code as amended by the American Jobs Creation Act of 2004.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:
1. Definitions . Except as expressly stated otherwise herein, capitalized terms in this First Amendment shall have the meanings given to them in the Agreement.
2. Amendments .
(a) Section 1.1 of the Agreement shall be amended by deleting the words “Manufacturers and Traders Trust Company Retirement Plan and by substituting therefor “M&T Bank Corporation Pension Plan”.
(b) Section 1.3 of the Agreement shall be amended by deleting it in its entirety and by substituting a new Section 1.3 to read as follows:
| 1.3 | “Average Annual Compensation” and “Compensation” shall have the same meanings accorded to such words under the provisions of the Retirement Plan as in effect on December 31, 2005 and without regard to the dollar amount of annual compensation limitation under Section 401(a)(17) of the Code, as in effect and adjusted from time to time under such section. |
(c) Section 1 shall be amended by adding at the end thereof new subsections 1.8, 1.9, 1.10, 1.11, 1.12 and 1.13 to read as follows:
| 1.8 | “Code” shall mean the Internal Revenue Code of 1986, as amended. | |||
| 1.9 | “Separation from Service” shall mean Executive’s separation from service (within the meaning of Section 409A of the Code) with the Company and all entities which would be considered a single employer with the Company under Section 414(b) and (c) of the Code. | |||
| 1.10 | “Surviving Spouse’s Benefit Commencement Date” shall mean the date on which the Surviving Spouse’s Supplemental Death Benefit becomes payable under this Agreement. | |||
| 1.11 | “Surviving Spouse” shall mean the spouse (as defined and interpreted under the Retirement Plan) to whom the Executive was married for at least 12 months at the time of the Executive’s death. | |||
| 1.12 | “Supplemental Death Benefit” shall mean an annual annuity payable over the lifetime of a Surviving Spouse upon the death of the Executive prior to Executive’s commencement of his Benefit under this Agreement as provided in Sections 3.4 and 3.5 of this Agreement. | |||
| 1.13 | “Earliest Retirement Age” shall mean (a) age 65, if the Executive is credited with less than 10 years of Vesting Service under the Retirement Plan or (b) age 55, if the Executive is credited with at least 10 years of Vesting Service under the Retirement Plan. | |||
(d) Section 2.1 shall be amended by deleting the words “termination of employment” in each place those words appear and by substituting the term “Separation from Service”.
(e) Section 2.2 shall be amended by deleting the words “termination of employment” in each place those words appear and by substituting the term “Separation from Service”.
(f) Section 2.3 shall be amended by deleting the words “termination of employment” and by substituting the term “Separation from Service”.
(g) Section 3 of the Agreement shall be amended by deleting it in its entirety and by substituting a new Section 3 to read as follows:
3. METHODS OF PAYMENT
3.1 Payment Elections .
| (a) | Not later than December 31, 2006, the Executive, in lieu of receiving his supplemental retirement benefit in the form of a single life annuity, may make an election as to the form of payment of his benefit under (b) below. The election made under this Section 3.1 shall be made in the manner prescribed by the Company. | |||
| (b) | The Executive may elect to have his benefit paid as either (i) a Five-, Ten- or Fifteen-Year Certain Life Annuity or (ii) a Joint and Survivor Annuity. In the event of an election under this paragraph (b) the monthly amount of the benefit payable shall be reduced and adjusted in the same manner as optional forms of benefit under the Retirement Plan. In the event the Executive elects an optional form of benefit pursuant to this | |||
2
| paragraph (b) a survivor benefit shall be payable under this Agreement to the beneficiary designated by the Executive. | ||||
| (c) | Subject to Sections 3.2 and 3.3 hereof, the Executive’s elections under this Section 3.1 shall be irrevocable and may not be changed, except that, if the Executive elects an annuity form of payment, then prior to his termination of employment date, the Executive may revoke his annuity election and make a new election for a different actuarially equivalent (as defined in the Retirement Plan) annuity. | |||
| 3.2 | Mandatory Delay in Benefit Payments . Notwithstanding Section 3.1 hereof, to the extent required by Section 409A of the Code, the Company shall delay payment to the Executive of any benefit provided under this Agreement if the Executive is a “specified employee” (as defined below) until the earlier of (a) the date that is six months after the date of any termination of employment or other event that constitutes the Executive’s Separation from Service, or (b) the date of the Executive’s death. The aggregate amount of payments otherwise payable during this delay period (plus interest thereon at the Applicable Federal Rate, provided that such interest does not cause this Agreement to violate Section 409A of the Code) shall be payable to the Executive as soon as practicable after the expiration of the delay period. For purposes of this Section 3.2, the term “specified employee” shall have the same meaning as under Section 409A of the Code. | |||
| 3.3 | Discretionary Delay in Payments . Notwithstanding Section 3.1 hereof, the Company may delay payment of any benefit provided under this Agreement by reason of any event(s) or condition(s) permitted under Section 409A of the Code, including without limitation, delays relating to (a) nondeductible compensation payments under Section 162(m) of the Code; (b) violations of loan agreements; and (c) violations of federal securities law or other applicable laws. | |||
| 3.4 | Pre-2007 Commencement of Supplemental Death Benefit . If the Surviving Spouse begins to receive pre-retirement survivor benefits under the Retirement Plan prior to January 1, 2007, the Surviving Spouse shall be paid under this Agreement a Supplemental Death Benefit hereunder beginning on the date on which the Surviving Spouse begins receiving pension or pre-retirement survivor benefits under the Retirement Plan, and the form of the payment of the Supplemental Death Benefit hereunder shall be in the same form of payment as the Surviving Spouse’s 50% pre-retirement survivor benefit under the Retirement Plan. | |||
| 3.5 | Post-2007 Commencement of Supplemental Death Benefit . A Supplemental Death Benefit shall be payable under this Agreement to the Surviving Spouse as follows: | |||
| (a) | If a Surviving Spouse does not begin to receive pre-retirement survivor benefits under the Retirement Plan before January 1, 2007, the Benefit Commencement Date of the Surviving Spouse’s Benefit shall be the later of the date (i) on which the Executive attains Earliest Retirement Age (or would have attained Earliest Retirement Age assuming that the |
3
| Executive terminated employment on the date of his death and survived until such age) or (ii) of the Executive’s death. | ||||
| (b) | The Supplemental Death Benefit payable under this Section 3.5 shall be paid or begin to be paid on the Surviving Spouse’s Benefit Commencement Date or as soon as practicable thereafter, but later than the later of (i) December 31 of the calendar year in which the Benefit Commencement Date occurs, or (ii) the 15 th day of the third calendar month following the Benefit Commencement Date. | |||
| (c) | The form of payment under this Section 3.5 shall be in the same form of payment as the Surviving Spouse’s 50% pre-retirement survivor benefits under the Retirement Plan. | |||
(h) Section 4.2 of the Agreement shall be amended by inserting prior to the word “Board” the following words “Nomination, Compensation and Governance Committee of the”.
(i) Amend Section 4 of the Agreement by adding a new Section 4.7 to read as follows:
| 4.7 | Compliance with Section 409A of the Code . This Agreement is intended to comply with the requirements of Section 409A of the Code, and shall be administered and interpreted in accordance with its requirements. If any provision of the Agreement conflicts with the requirements of Section 409A of the Code, the requirements of Section 409A shall supersede any such provisions. |
4. In all other respect the provisions of the Agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first written above.
|
MANUFACTURERS AND TRADERS TRUST COMPANY
|
||||
| By: | /s/ Stephen J. Braunscheidel | |||
| Stephen J. Braunscheidel, Executive Vice President | ||||
| /s/ Robert E. Sadler | ||||
| Robert E. Sadler | ||||
4
EXHIBIT 10.2
FIRST AMENDMENT OF
SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT
This First Amendment of the Supplemental Deferred Compensation Agreement is made and entered into effective August 1, 2006 by and between Manufacturers and Traders Trust Company (hereinafter referred to as the “Company”) and Brian J. Hickey, an individual residing at 14 Stefenage Court, Pittsford, New York 14534 (hereinafter referred to as “Executive”).
WHEREAS, the parties hereto entered into that certain Supplemental Deferred Compensation Agreement dated July 21, 1994 (the “Agreement”); and
WHEREAS, the parties wish to amend the Agreement to clarify and reflect the mutual understanding and intentions of the parties with respect to the Agreement and to comply with the requirements of the Internal Revenue Code as amended by the American Jobs Creation Act of 2004;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree to amend the Agreement as follows:
| 1. | Definitions . Except as expressly stated otherwise herein, capitalized terms in this First Amendment shall have the meanings given to them in the Agreement. | |||
| 2. | Amendments . | |||
(a) Section 1.1 of the Agreement shall be amended by deleting the words “First Empire State Corporation Retirement Plan” and by substituting therefor “M&T Bank Corporation Pension Plan”
(b) Section 1.2 of the Agreement shall be amended by deleting it in its entirety and by substituting a new Section 1.2 to read as follows:
| 1.2 | “Average Annual Compensation” and “Compensation” shall have the same meanings accorded to such words under the provisions of the Retirement Plan as in effect on the Executive’s Separation from Service and without regard to the dollar amount of annual compensation limitation under Section 401(a)(17) of the Code, as in effect and adjusted from time to time under such section. |
(c) Section 1.4 of the Agreement is amended by adding after the term “Retirement Plan” the following words: “determined under the provisions of the Retirement Plan as in effect on January 1, 2006”.
(d) Section 1 shall be amended by adding at the end thereof new subsections 1.6, 1.7, 1.8, 1.9, 1.10, 1.11, 1.12, and 1.13 to read as follows:
| 1.6 | “Benefit” shall mean the monthly supplemental retirement benefit payable to the Executive as provided in Sections 2.1 and 2.2, of this Agreement or the Supplemental Death Benefit. | |||
| 1.7 | “Benefit Commencement Date” shall mean (a) the date on which the Executive elects to receive his Benefit or (b) in the case of the Surviving Spouse, the date on which the Surviving Spouse’s Supplemental Death Benefit becomes payable under this Agreement. | |||
| 1.8 | “Code” shall mean the Internal Revenue Code of 1986, as amended. | |||
| 1.9 | “Separation from Service” shall mean Executive’s separation from service (within the meaning of Section 409A of the Code) with the Company and all entities which would be considered a single employer with the Company under Section 414(b) and (c) of the Code. | |||
| 1.10 | “Disability” or “Disabled” shall mean, that the Executive is determined (a) to be totally disabled by the federal Social Security Administration, or (b) to have a “disability” under the Company’s long-term disability plan, provided that the definition of the term “disability” under such long-term disability plan satisfies the requirements for disability under Section 409A of the Code. | |||
| 1.11 | “Earliest Retirement Age” shall mean (a) age 65, if the Executive is credited with less than 10 years of Vesting Service under the Retirement Plan or (b) age 55, if the Executive is credited with at least 10 years of Vesting Service under the Retirement Plan. | |||
| 1.12 | “Surviving Spouse” shall mean the spouse (as defined and interpreted under the Retirement Plan) to whom the Executive was married for at least 12 months at the time of the Executive’s death. | |||
| 1.13 | “Supplemental Death Benefit” shall mean an annual annuity payable over the lifetime of a Surviving Spouse upon the death of the Executive prior to Executive’s commencement of his Benefit under this Agreement. | |||
(e) The first sentence of Section 2.1 of the Agreement is amended by deleting the words “determined under the provisions of the Retirement Plan”.
(f) Section 2.1 of the Agreement is amended by deleting the last sentence thereof and by substituting a new sentence to read as follows:
“Commencement and payment of (but not eligibility for) a monthly benefit under this Agreement shall be subject to the Executive’s election pursuant to Section 2.3 hereof.”
(g) The first sentence of Section 2.2 of the Agreement is amended by deleting the words “determined under the provisions of the Retirement Plan” from clause (a).
2
(h) Section 2.2 of the Agreement is amended by deleting the last sentence thereof and by substituting a new sentence to read as follows:
“Commencement and payment of (but not eligibility for) a monthly benefit under this Agreement shall be subject to the Executive’s election pursuant to Section 2.3 hereof.”
(i) Amend Section 2 by adding new subsections 2.3, 2.4, 2.5, 2.6, and 2.7 to read as follows:
| 2.3 | Payment Elections | |||
| (a) | Not later than December 31, 2006, the Executive shall make an election under (b) or (c) below regarding the date and form of payment of his Benefit. The election shall apply only with respect to Compensation earned after the date on which the election is made to the extent required by Section 409A of the Code. The election made under this Section 2.3 shall be made in the manner prescribed by the Company. | |||
| (b) | The Executive shall elect as his Benefit Commencement Date either (i) the date on which the Executive has a Separation from Service or becomes Disabled, whichever is earlier, or (ii) the later of the date on which the Participant (A) attains Earliest Retirement Age, or (B) has a Separation from Service or becomes Disabled, whichever is earlier. | |||
| (c) | The Executive shall elect to have his Benefit paid as either (i) a Single Life Annuity, (ii) a Five-, Ten- or Fifteen-Year Certain Life Annuity, or (iii) a Joint and Survivor Annuity. | |||
| (d) | Subject to Sections 2.4 and 2.5 hereof, the Executive’s elections under this Section 3.2 shall be irrevocable and may not be changed, except that, if the Executive elects an annuity form of payment, then prior to his Benefit Commencement Date, the Executive may revoke his annuity election and make a new election for a different actuarially equivalent (as defined in the Retirement Plan) annuity. | |||
| 2.4 | Mandatory Delay in Benefit Payments . Notwithstanding Section 2.3 hereof, to the extent required by Section 409A of the Code, the Company shall delay payment of the Benefit of the Executive if the Executive is a “specified employee” (as defined below) until the earlier of (a) the date that is six months after the date of any termination of employment or other event that constitutes the Executive’s Separation from Service, or (b) the date of the Executive’s death. The aggregate amount of payments otherwise payable during this delay period (plus interest thereon at the Applicable Federal Rate, provided that such interest does not cause this Agreement to violate Section 409A of the Code) shall be payable to the Executive as soon as practicable after the expiration of the delay period. For purposes of this Section 2.4, the term “specified employee” shall have the same meaning as under Section 409A of the Code. | |||
3
| 2.5 | Discretionary Delay in Payments . Notwithstanding Section 2.3 hereof, the Company may delay payment of any benefit provided under this Agreement by reason of any event(s) or condition(s) permitted under Section 409A of the Code, including without limitation, delays relating to (a) nondeductible compensation payments under Section 162(m) of the Code; (b) violations of loan agreements; and (c) violations of federal securities law or other applicable laws. | |||
| 2.6 | Pre-2007 Benefit Commencement and Payment Form . If the Executive begins to receive pension benefits, or a Surviving Spouse begins to receive pre-retirement survivor benefits under the Retirement Plan prior to January 1, 2007, the Benefit Commencement Date of the Executive’s Benefit or the Surviving Spouse’s Supplemental Death Benefit hereunder shall be the date on which the Executive or the Surviving Spouse begins receiving pension or pre-retirement survivor benefits under the Retirement Plan, and the form of the payment of the Executive’s Benefit or the Supplemental Death Benefit hereunder shall be the same form of payment as the Executive’s or Surviving Spouse’s pension or 50% pre-retirement survivor benefit under the Retirement Plan, respectively. | |||
| 2.7 | Post-2006 Benefit Commencement Date and Payment Form . | |||
| (a) | If the Executive does not begin to receive pension benefits under the Retirement Plan before January 1, 2007, the Executive’s Benefit shall be paid or begin to be paid in accordance with the Executive’s payment elections under Section 2.3. | |||
| (b) | If a Surviving Spouse does not begin to receive pre-retirement survivor benefits under the Retirement Plan before January 1, 2007, the Benefit Commencement Date of the Supplemental Death Benefit shall be the later of the date (i) on which the Executive attains Earliest Retirement Age (or would have attained Earliest Retirement Age assuming that the Executive terminated employment on the date of his death and survived until such age) or (ii) of the Executive’s death. The form of the Supplemental Death Benefit shall be in the same form as the 50% pre-retirement survivor benefit under the Retirement Plan. | |||
| (c) | The Benefit payable under this Agreement shall be paid or begin to be paid on the Executive’s Benefit Commencement Date or as soon as practicable thereafter, but not later than (i) December 31 of the calendar year in which the Benefit Commencement Date occurs, or (ii) the 15 th day of the third calendar month following the Benefit Commencement Date. | |||
(j) Section 3.2 of the Agreement shall be amended by inserting prior to the word “Board” the following words “Nomination, Compensation and Governance Committee of the”.
(k) Amend Section 3 of the Agreement by adding a new section 3.7 to read as follows:
4
| 3.7 | Compliance with Section 409A of the Code . This Agreement is intended to comply with the requirements of Section 409A of the Code, and shall be administered and interpreted in accordance with its requirements. If any provision of the Agreement conflicts with the requirements of Section 409A of the Code, the requirements of Section 409A shall supersede any such provisions. |
| 4. | In all other respect the provisions of the Agreement shall remain unchanged. |
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first written above.
| MANUFACTURERS AND TRADERS TRUST COMPANY | ||||||
|
|
||||||
|
|
By: | /s/ Jeffrey A. Long | ||||
|
|
|
|||||
|
|
Jeffrey A. Long, Group Vice President | |||||
|
|
||||||
|
|
/s/ Brian J. Hickey | |||||
|
|
|
|||||
|
|
Brian J. Hickey | |||||
5
EXHIBIT 10.3
FIRST AMENDMENT OF
SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT
This First Amendment of the Supplemental Deferred Compensation Agreement is made and entered into effective August 1, 2006 by and between Manufacturers and Traders Trust Company (hereinafter referred to as the “Company” and Atwood Collins III, an individual residing at 100 Harborview Drive, #901, Baltimore, Maryland 21230 (hereinafter referred to as “Executive”).
WHEREAS, the parties hereto entered into that certain Supplemental Deferred Compensation Agreement dated July 17, 1989 (the “Agreement”); and
WHEREAS, the parties wish to amend the Agreement to clarify and reflect the mutual understanding and intentions of the parties with respect to the Agreement and to comply with the requirements of the Internal Revenue Code as amended by the American Jobs Creation Act of 2004;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree to amend the Agreement as follows:
| 1. | Definitions . Except as expressly stated otherwise herein, capitalized terms in this First Amendment shall have the meanings given to them in the Agreement. | |||
| 2. | Amendments . | |||
(a) Section 1.1 of the Agreement shall be amended by deleting the words “First Empire State Retirement Plan and by substituting therefor “M&T Bank Corporation Pension Plan”.
(b) Section 1.3 of the Agreement shall be amended by deleting it in its entirety and by substituting a new Section 1.3 to read as follows:
| 1.3 | “Average Annual Compensation” and “Compensation” shall have the same meanings accorded to such words under the provisions of the Retirement Plan as in effect on December 31, 2005 and without regard to the dollar amount of annual compensation limitation under Section 401(a)(17) of the Code, as in effect and adjusted from time to time under such section. |
(c) Section 1 shall be amended by adding at the end thereof new subsections 1.8, 1.9, 1.10, 1.11, 1.12 and 1.13 to read as follows:
| 1.8 | “Code” shall mean the Internal Revenue Code of 1986, as amended. | |||
| 1.9 | “Separation from Service” shall mean Executive’s separation from service (within the meaning of Section 409A of the Code) with the Company and all entities which would be considered a single employer with the Company under Section 414(b) and (c) of the Code. | |||
| 1.10 | “Surviving Spouse’s Benefit Commencement Date” shall mean the date on which the Surviving Spouse’s Supplemental Death Benefit becomes payable under this Agreement. | |||
| 1.11 | “Surviving Spouse” shall mean the spouse (as defined and interpreted under the Retirement Plan to whom the Executive was married for at least 12 months at the time of the Executive’s death. | |||
| 1.12 | “Supplemental Death Benefit” shall mean an annual annuity payable over the lifetime of a Surviving Spouse upon the death of the Executive prior to Executive’s commencement of his Benefit under this Agreement as provided in Sections 3.4 and 3.5 of this Agreement. | |||
| 1.13 | “Earliest Retirement Age” shall mean (a) age 65, if the Executive is credited with less than 10 years of Vesting Service under the Retirement Plan or (b) age 55, if the Executive is credited with at least 10 years of Vesting Service under the Retirement Plan. | |||
(d) Section 2.1 shall be amended by deleting the words “termination of employment” in each place those words appear and by substituting the term “Separation from Service”.
| (e) | Section 2.2 shall be amended by deleting the words “termination of employment” in each place those words appear and by substituting the term “Separation from Service”. | |||
| (f) | Section 2.3 shall be amended by deleting the words “termination of employment” and by substituting the term “Separation from Service”. | |||
| (g) | Section 3 of the Agreement shall be amended by deleting it in its entirety and by substituting a new Section 3 to read as follows: | |||
| 3. | METHODS OF PAYMENT | |||
| 3.1 | Payment Elections . |
| (a) | Not later than December 31, 2006, the Executive, in lieu of receiving his supplemental retirement benefit in the form of a single life annuity, may make an election as to the form of payment of his benefit under (b) below. The election made under this Section 3.1 shall be made in the manner prescribed by the Company. | |||
| (b) | The Executive may elect to have his benefit paid as either (i) a Five-, Ten- or Fifteen-Year Certain Life Annuity or (ii) a Joint and Survivor Annuity. In the event of an election under this paragraph (b) the monthly amount of the benefit payable shall be reduced and adjusted in the same manner as optional forms of benefit under the Retirement Plan. In the event the Executive elects an optional form of benefit pursuant to this | |||
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| paragraph (b), which provides for a survivor benefit, such benefit shall be payable under the agreement to the beneficiary designated by the Executive. | ||||
| (c) | Subject to Sections 3.2 and 3.3 hereof, the Executive’s elections under this Section 3.1 shall be irrevocable and may not be changed, except that, if the Executive elects an annuity form of payment, then prior to his termination of employment date, the Executive may revoke his annuity election and make a new election for a different actuarially equivalent (as defined in the Retirement Plan) annuity. | |||
| 3.2 | Mandatory Delay in Benefit Payments . Notwithstanding Section 3.1 hereof, to the extent required by Section 409A of the Code, the Company shall delay payment to the Executive of any benefit provided under this Agreement if the Executive is a “specified employee” (as defined below) until the earlier of (a) the date that is six months after the date of any termination of employment or other event that constitutes the Executive’s Separation from Service, or (b) the date of the Executive’s death. The aggregate amount of payments otherwise payable during this delay period (plus interest thereon at the Applicable Federal Rate, provided that such interest does not cause this Agreement to violate Section 409A of the Code) shall be payable to the Executive as soon as practicable after the expiration of the delay period. For purposes of this Section 3.2, the term “specified employee” shall have the same meaning as under Section 409A of the Code. | |||
| 3.3 | Discretionary Delay in Payments . Notwithstanding Section 3.1 hereof, the Company may delay payment of any benefit provided under this Agreement by reason of any event(s) or condition(s) permitted under Section 409A of the Code, including without limitation, delays relating to (a) nondeductible compensation payments under Section 162(m) of the Code; (b) violations of loan agreements; and (c) violations of federal securities law or other applicable laws. | |||
| 3.4 | Pre-2007 Commencement of Supplemental Death Benefit . If the Surviving Spouse begins to receive pre-retirement survivor benefits under the Retirement Plan prior to January 1, 2007, the Surviving Spouse shall be paid under this Agreement a Supplemental Death Benefit hereunder beginning on the date on which the Surviving Spouse begins receiving pension or pre-retirement survivor benefits under the Retirement Plan, and the form of the payment of the Supplemental Death Benefit hereunder shall be in the same form of payment as the Surviving Spouse’s 50% pre-retirement survivor benefit under the Retirement Plan. | |||
| 3.5 | Post-2006 Commencement of Supplemental Death Benefit . A Supplemental Death Benefit shall be payable under this Agreement to the Surviving Spouse as follows: | |||
| (a) | If a Surviving Spouse does not begin to receive pre-retirement survivor benefits under the Retirement Plan before January 1, 2007, the Benefit Commencement Date of the Surviving Spouse’s Benefit shall be the later of the date (i) on which the Executive attains Earliest Retirement Age (or |
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| would have attained Earliest Retirement Age assuming that the Executive terminated employment on the date of his death and survived until such age) or (ii) of the Executive’s death. | ||||
| (b) | The Supplemental Death Benefit payable under this Section 3.5 shall be paid or begin to be paid on the Surviving Spouse’s Benefit Commencement Date or as soon as practicable thereafter, but later than the later of (i) December 31 of the calendar year in which the Benefit Commencement Date occurs, or (ii) the 15 th day of the third calendar month following the Benefit Commencement Date. | |||
| (c) | The form of payment under this Section 3.5 shall be the same form of payment as the Surviving Spouse’s 50% pre-retirement survivor benefit under the Retirement Plan. | |||
| (h) | Section 4.2 of the Agreement shall be amended by inserting prior to the word “Board” the following words “Compensation Committee of the”. | |||
| (i) | Amend Section 4 of the Agreement by adding a new Section 4.7 to read as follows: | |||
4.7 Compliance with Section 409A of the Code . This Agreement is intended to comply with the requirements of Section 409A of the Code, and shall be administered and interpreted in accordance with its requirements. If any provision of the Agreement conflicts with the requirements of Section 409A of the Code, the requirements of Section 409A shall supersede any such provisions.
| 4. | In all other respect the provisions of the Agreement shall remain unchanged. |
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first written above.
| MANUFACTURERS AND TRADERS TRUST COMPANY | ||||||
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By: | /s/ Jeffrey A. Long | ||||
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Jeffrey A. Long, Group Vice President | |||||
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/s/ Atwood Collins III | |||||
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Atwood Collins III | |||||
4
EXHIBIT 31.1
CERTIFICATIONS
I, Robert E. Sadler, Jr., certify that:
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.
Date: November 3, 2006
/s/ Robert E. Sadler, Jr.
Robert E. Sadler, Jr.
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, René F. Jones, certify that:
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.
Date: November 3, 2006
/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
September 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.
Robert E. Sadler, Jr.
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
September 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.
René F. Jones