M&T Bank Corporation
M&T BANK CORP (Form: 10-K, Received: 02/23/2009 09:44:49)
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2008
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9861
 
 
M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)
 
     
New York
  16-0968385
(State of incorporation)   (I.R.S. Employer Identification No.)
     
One M&T Plaza, Buffalo, New York
(Address of principal executive offices)
  14203
(Zip Code)
 
Registrant’s telephone number, including area code:
716-842-5445
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Common Stock, $.50 par value
  New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
 
8.234% Capital Securities of M&T Capital Trust I
(and the Guarantee of M&T Bank Corporation with respect thereto)
(Title of class)
8.234% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ      No  o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o      No  þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
     
Large accelerated filer  þ
  Accelerated filer  o
Non-accelerated filer  o
(Do not check if a smaller reporting company)
  Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o      No  þ
 
Aggregate market value of the Common Stock, $0.50 par value, held by non-affiliates of the registrant, computed by reference to the closing price as of the close of business on June 30, 2008: $5,001,234,294.
 
Number of shares of the Common Stock, $0.50 par value, outstanding as of the close of business on February 17, 2009: 111,060,239 shares.
 
 
Documents Incorporated By Reference:
 
(1) Portions of the Proxy Statement for the 2009 Annual Meeting of Stockholders of M&T Bank Corporation in Parts II and III.
 


Table of Contents

 
M&T BANK CORPORATION
 
Form 10-K for the year ended December 31, 2008
 
CROSS-REFERENCE SHEET
 
                     
            Form 10-K
            Page
 
                      4
Statistical disclosure pursuant to Guide 3
   
          I.     Distribution of assets, liabilities, and stockholders’ equity; interest rates and interest differential    
               
A. Average balance sheets
  42
               
B. Interest income/expense and resulting yield or rate on average interest-earning assets (including non-accrual loans) and interest-bearing liabilities
  42
               
C. Rate/volume variances
  22
          II.     Investment portfolio    
               
A. Year-end balances
  20
               
B. Maturity schedule and weighted average yield
  74
               
C. Aggregate carrying value of securities that exceed ten percent of stockholders’ equity
  106
          III.     Loan portfolio    
               
A. Year-end balances
  20,109
               
B. Maturities and sensitivities to changes in interest rates
  72
               
C. Risk elements
   
               
    Nonaccrual, past due and renegotiated loans
  55
               
    Actual and pro forma interest on certain loans
  110
               
    Nonaccrual policy
  101
               
    Loan concentrations
  63
          IV.     Summary of loan loss experience    
               
A. Analysis of the allowance for loan losses
  54
               
    Factors influencing management’s judgment concerning the adequacy of the allowance and provision
  53-63,101
               
B. Allocation of the allowance for loan losses
  62
          V.     Deposits    
               
A. Average balances and rates
  42
               
B. Maturity schedule of domestic time deposits with balances of $100,000 or more
  75
          VI.     Return on equity and assets   22,34,78
          VII.     Short-term borrowings   116
  22-25
  25
  25
  25-26
  26
              Executive Officers of the Registrant   26-27
 
PART II
  28-29
               
A. Principal market
  28
               
    Market prices
  91
               
B. Approximate number of holders at year-end
  20

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            Form 10-K
            Page
 
               
C. Frequency and amount of dividends declared
  21-22,91,99
               
D. Restrictions on dividends
  6,13-16,
119-120,149-151
               
E. Securities authorized for issuance under equity compensation plans
  28
               
F. Performance graph
  28
               
G. Repurchases of common stock
  29
  29
               
A. Selected consolidated year-end balances
  20
               
B. Consolidated earnings, etc
  21
  29-92
  93
  93
               
A. Report on Internal Control Over Financial Reporting
  94
               
B. Report of Independent Registered Public Accounting Firm
  95
               
C. Consolidated Balance Sheet — December 31, 2008 and 2007
  96
               
D. Consolidated Statement of Income — Years ended December 31, 2008, 2007 and 2006
  97
               
E. Consolidated Statement of Cash Flows — Years ended December 31, 2008, 2007 and 2006
  98
               
F. Consolidated Statement of Changes in Stockholders’ Equity — Years ended December 31, 2008, 2007 and 2006
  99
               
G. Notes to Financial Statements
  100-154
               
H. Quarterly Trends
  91
  155
  155
               
A. Conclusions of principal executive officer and principal financial officer regarding disclosure controls and procedures
  155
               
B. Management’s annual report on internal control over financial reporting
  155
               
C. Attestation report of the registered public accounting firm
  155
               
D. Changes in internal control over financial reporting
  155
  155
 
PART III
  155
  155
  156
  156
  156
 
PART IV
  156
  157-158
  159-163
  EX-10.3
  EX-12.1
  EX-23.1
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2

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PART I
 
Item 1.   Business.
 
M&T Bank Corporation (“Registrant” or “M&T”) is a New York business corporation which is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”) and under Article III-A of the New York Banking Law (“Banking Law”). The principal executive offices of the Registrant are located at One M&T Plaza, Buffalo, New York 14203. The Registrant was incorporated in November 1969. The Registrant and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” As of December 31, 2008 the Company had consolidated total assets of $65.8 billion, deposits of $42.6 billion and stockholders’ equity of $6.8 billion. The Company had 12,167 full-time and 1,453 part-time employees as of December 31, 2008.
At December 31, 2008, the Registrant had two wholly owned bank subsidiaries: M&T Bank and M&T Bank, National Association (“M&T Bank, N.A.”). The banks collectively offer a wide range of commercial banking, trust and investment services to their customers. At December 31, 2008, M&T Bank represented 98% of consolidated assets of the Company. M&T Bank operates branch offices in New York, Maryland, Pennsylvania, Delaware, New Jersey, Virginia, West Virginia and the District of Columbia.
The Company from time to time considers acquiring banks, thrift institutions, branch offices of banks or thrift institutions, or other businesses within markets currently served by the Company or in other locations that would complement the Company’s business or its geographic reach. The Company has pursued acquisition opportunities in the past, continues to review different opportunities, including the possibility of major acquisitions, and intends to continue this practice.
 
Relationship With Allied Irish Banks, p.l.c.
On April 1, 2003, M&T completed the acquisition of Allfirst Financial Inc. (“Allfirst”), a bank holding company headquartered in Baltimore, Maryland from Allied Irish Banks, p.l.c. (“AIB”). Under the terms of the Agreement and Plan of Reorganization dated September 26, 2002 by and among AIB, Allfirst and M&T (the “Reorganization Agreement”), M&T combined with Allfirst through the acquisition of all of the issued and outstanding Allfirst stock in exchange for 26,700,000 shares of M&T common stock and $886,107,000 in cash paid to AIB. In addition, there were several M&T corporate governance changes that resulted from the transaction. While it maintains a significant ownership in M&T, AIB will have representation on the M&T board, the M&T Bank board and key M&T board committees and will have certain protections of its rights as a substantial M&T shareholder. In addition, AIB will have rights that will facilitate its ability to maintain its proportionate ownership position in M&T. M&T will also have representation on the AIB board while AIB remains a significant shareholder. The following is a description of the ongoing relationship between M&T and AIB. The following description is qualified in its entirety by the terms of the Reorganization Agreement. The Reorganization Agreement was filed with the Securities Exchange Commission on October 3, 2002 as Exhibit 2 to the Current Report on Form 8-K of M&T dated September 26, 2002.
 
Board of Directors; Management
At December 31, 2008, AIB held approximately 24.2% of the issued and outstanding shares of M&T common stock. In defining their relationship after the acquisition, M&T and AIB negotiated certain agreements regarding share ownership and corporate governance issues such as board representation, with the number of AIB’s representatives on the M&T and M&T Bank boards of directors being dependent upon the amount of M&T common stock held by AIB. M&T has the right to one seat on the AIB board of directors until AIB no longer holds at least 15% of the outstanding shares of M&T common stock. Pursuant to the Reorganization Agreement, AIB has the right to name four members to serve on the Boards of Directors of M&T and M&T Bank, each of whom must be reasonably acceptable to M&T (collectively, the “AIB Designees”). Further, one of the AIB Designees will serve on each of the Executive Committee, Nomination, Compensation and Governance Committee, and Audit and Risk Committee (or any committee or committees performing comparable functions) of the M&T board of directors. In order to serve, the AIB Designees must meet the requisite independence and expertise requirements prescribed under applicable law or stock exchange rules. In addition, the Reorganization Agreement provides that the board of directors of M&T Bank will include four members designated by AIB, each of whom must be reasonably acceptable to M&T.

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As long as AIB remains a significant shareholder of M&T, AIB will have representation on the boards of directors of both M&T and M&T Bank as follows:
    As long as AIB holds at least 15% of the outstanding shares of M&T common stock, AIB will be entitled to designate four persons on both the M&T and M&T Bank boards of directors and representation on the committees of the M&T board described above.
    If AIB holds at least 10%, but less than 15%, of the outstanding shares of M&T common stock, AIB will be entitled to designate at least two people on both the M&T and M&T Bank boards of directors.
    If AIB’s ownership interest in M&T is at least 5%, but less than 10%, of the outstanding shares of M&T common stock, AIB will be entitled to designate at least one person on both the M&T and M&T Bank boards of directors.
    As long as AIB holds at least 15% of the outstanding shares of M&T common stock, neither M&T’s board of directors nor M&T Bank’s board of directors will consist of more than twenty-eight directors without the consent of the AIB Designees.
    If AIB’s holdings of M&T common stock fall below 15%, but not lower than 12% of the outstanding shares of M&T common stock, AIB will continue to have the same rights that it would have had if it owned 15% of the outstanding shares of M&T common stock, as long as AIB restores its ownership percentage to 15% within one year. Additionally, as described in more detail below, M&T has agreed to repurchase shares of M&T common stock in order to offset dilution to AIB’s ownership interests that may otherwise be caused by issuances of M&T common stock under M&T employee and director benefit or stock purchase plans. Dilution of AIB’s ownership position caused by such issuances will not be counted in determining whether the “Sunset Date” has occurred or whether any of AIB’s other rights under the Reorganization Agreement have terminated. The “Sunset Date” is the date on which AIB no longer holds at least 15% of the M&T common stock, calculated as described in this paragraph.
 
The AIB Designees at December 31, 2008 were Michael D. Buckley, Colm E. Doherty, Richard G. King and Eugene J. Sheehy. Mr. Buckley serves as a member of the Executive Committee and the Nomination, Compensation and Governance Committee, and Mr. King serves as a member of the Audit and Risk Committee. Robert G. Wilmers, Chairman of the Board and Chief Executive Officer of M&T, is a member of the AIB board of directors.
 
Amendments to M&T’s Bylaws
Pursuant to the Reorganization Agreement, M&T amended and restated its bylaws. The following is a description of the amended bylaws:
The amended bylaws provide that until the Sunset Date, the M&T board of directors may not take or make any recommendation to M&T’s shareholders regarding the following actions without the approval of the Executive Committee, including the approval of the AIB Designee serving on the committee:
    Any amendment of M&T’s Certificate of Incorporation or bylaws that would be inconsistent with the rights described herein or that would otherwise have an adverse effect on the board representation, committee representation or other rights of AIB contemplated by the Reorganization Agreement;
    Any activity not permissible for a U.S. bank holding company;
    The adoption of any shareholder rights plan or other measures having the purpose or effect of preventing or materially delaying completion of any transaction involving a change in control of M&T; and
    Any public announcement disclosing M&T’s desire or intention to take any of the foregoing actions.
 
The amended bylaws also provide that until the Sunset Date, the M&T board of directors may only take or make any recommendation to M&T’s shareholders regarding the following actions if the action has been approved by the Executive Committee (in the case of the first four items and sixth item below) or Nomination, Compensation and Governance Committee (in the case of the fifth item below)

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and the members of such committee not voting in favor of the action do not include the AIB Designee serving on such committee and at least one other member of the committee who is not an AIB Designee:
    Any reduction in M&T’s cash dividend policy such that the ratio of cash dividends to net income is less than 15%, or any extraordinary dividends or distributions to holders of M&T common stock;
    Any acquisition of any assets or businesses, (1) if the consideration is in M&T common stock, where the stock consideration paid by M&T exceeds 10% of the aggregate voting power of M&T common stock and (2) if the consideration is cash, M&T stock or other consideration, where the fair market value of the consideration paid by M&T exceeds 10% of the market capitalization of M&T, as determined under the Reorganization Agreement;
    Any sale of any assets or businesses in which the value of the aggregate consideration to be received exceeds 10% of the market capitalization of M&T, as determined under the Reorganization Agreement;
    Any liquidation or dissolution of M&T;
    The appointment or election of the Chairman of the board of directors or the Chief Executive Officer of M&T; and
    Any public announcement disclosing M&T’s desire or intention to take any of the foregoing actions prior to obtaining the requisite committee approval.
 
The provisions of the bylaws described above may not be amended or repealed without the unanimous approval of the entire M&T board of directors or the approval of the holders of not less than 80% of the outstanding shares of M&T common stock. The provisions of the bylaws described above will automatically terminate when AIB holds less than 5% of the outstanding shares of M&T common stock.
 
Investment Parameters
The Reorganization Agreement provides that through the second anniversary of the Sunset Date, without prior written consent of the M&T board of directors, AIB will not, directly or indirectly, acquire or offer to acquire (except by way of stock dividends, offerings made available to M&T shareholders generally, or pursuant to compensation plans) more than 25% of the then outstanding shares of M&T common stock. Further, during this period, AIB and AIB’s subsidiaries have agreed not to participate in any proxy solicitation or to otherwise seek to influence any M&T shareholder with respect to the voting of any shares of M&T common stock for the approval of any shareholder proposals.
The Reorganization Agreement also provides that, during this period, AIB will not make any public announcement with respect to any proposal or offer by AIB or any AIB subsidiary with respect to certain transactions (such as mergers, business combinations, tender or exchange offers, the sale or purchase of securities or similar transactions) involving M&T or any of the M&T subsidiaries. The Reorganization Agreement also provides that, during this period, AIB may not subject any shares of M&T common stock to any voting trust or voting arrangement or agreement and will not execute any written consent as a shareholder with respect to the M&T common stock.
The Reorganization Agreement also provides that, during this period, AIB will not seek to control or influence the management, the board of directors or policies of M&T, including through communications with shareholders of M&T or otherwise, except through non-public communications with the directors of M&T, including the AIB Designees.
These restrictions on AIB will no longer apply if a third party commences or announces its intention to commence a tender offer or an exchange offer and, within a reasonable time, the M&T board of directors either does not recommend that shareholders not accept the offer or fails to adopt a shareholders rights plan, or if M&T or M&T Bank becomes subject to any regulatory capital directive or becomes an institution in “troubled” condition under applicable banking regulations. However, in the event the tender offer or exchange offer is not commenced or consummated in accordance with its terms, the restrictions on AIB described above will thereafter continue to apply.
 
Anti-Dilution Protections
M&T has agreed that until the Sunset Date, in the event M&T issues shares of M&T stock (other than certain issuances to employees pursuant to option and benefit plans), subject to applicable law and

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regulatory requirements, AIB will have the right to purchase at fair market value up to the number of shares of M&T common stock required to increase or maintain its equity interest in M&T to 22.5% of the then outstanding M&T common stock.
M&T has also agreed that until the Sunset Date, in connection with any issuance of M&T stock pursuant to employee option or benefit plans, M&T will as soon as reasonably practicable, taking into account applicable law, regulatory capital requirements, capital planning and risk management, take such necessary actions so that AIB’s proportionate ownership of M&T common stock is not reduced as a result of such issuances, including by funding such issuances through purchases of M&T common stock in the open market or by undertaking share repurchase programs.
 
Sale of M&T Common Stock; Right of First Refusal in Certain Circumstances
The M&T common stock issued to AIB was not registered under the Securities Act of 1933 (the “Securities Act”) and may only be disposed of by AIB pursuant to an effective registration statement or pursuant to an exemption from registration under the Securities Act and subject to the provisions of the Reorganization Agreement.
M&T and AIB have entered into a registration rights agreement that provides that upon AIB’s request, M&T will file a registration statement relating to all or a portion of AIB’s shares of M&T common stock providing for the sale of such shares by AIB from time to time on a continuous basis pursuant to Rule 415 under the Securities Act, provided that M&T need only effect one such “shelf registration” in any 12-month period. In addition, the registration rights agreement provides that AIB is entitled to demand registration under the Securities Act of all or part of its shares of M&T stock, provided that M&T is not obligated to effect two such “demand registrations” in any 12-month period. Any demand or shelf registration must cover no less than one million shares.
The registration rights agreement further provides that in the event M&T proposes to file a registration statement other than pursuant to a shelf registration or demand registration or Forms S-8 or S-4, for an offering and sale of shares by M&T in an underwritten offering or an offering and sale of shares on behalf of one or more selling shareholders, M&T must give AIB notice at least 15 days prior to the anticipated filing date, and AIB may request that all or a portion of its M&T common shares be included in the registration statement. M&T will honor the request, unless the managing underwriter advises M&T in writing that in its opinion the inclusion of all shares requested to be included by M&T, the other selling shareholders, if any, and AIB would materially and adversely affect the offering, in which case M&T may limit the number of shares included in the offering to a number that would not reasonably be expected to have such an effect. In such event, the number of shares to be included in the registration statement shall first include the number of shares requested to be included by M&T and then the shares requested by other selling shareholders, including AIB, on a pro rata basis according to the number of shares requested to be included in the registration statement by each shareholder.
As long as AIB holds 5% or more of the outstanding shares of M&T common stock, AIB will not dispose of any of its shares of M&T common stock except, subject to the terms and conditions of the Reorganization Agreement and applicable law, in a widely dispersed public distribution; a private placement in which no one party acquires the right to purchase more than 2% of the outstanding shares of M&T common stock; an assignment to a single party (such as a broker or investment banker) for the purpose of conducting a widely dispersed public distribution on AIB’s behalf; pursuant to Rule 144 under the Securities Act; pursuant to a tender or exchange offer to M&T’s shareholders not opposed by M&T’s board of directors, or open market purchase programs made by M&T; with the consent of M&T, which consent will not be unreasonably withheld, to a controlled subsidiary of AIB; or pursuant to M&T’s right of first refusal as described below.
The Reorganization Agreement provides that until AIB no longer holds at least 5% of the outstanding shares of M&T common stock, if AIB wishes to sell or otherwise transfer any of its shares of M&T common stock other than as described in the preceding paragraph, AIB must first submit an offer notice to M&T identifying the proposed transferee and setting forth the proposed terms of the transaction, which shall be limited to sales for cash, cash equivalents or marketable securities. M&T will have the right, for 20 days following receipt of an offer notice from AIB, to purchase all (but not less than all) of the shares of M&T common stock that AIB wishes to sell, on the proposed terms specified in

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the offer notice. If M&T declines or fails to respond to the offer notice within 20 days, AIB may sell all or a portion of the M&T shares specified in the offer notice to the proposed transferee at a purchase price equal to or greater than the price specified in the offer notice, at any time during the three months following the date of the offer notice, or, if prior notification to or approval of the sale by the Federal Reserve Board or another regulatory agency is required, AIB shall pursue regulatory approval expeditiously and the sale may occur on the first date permitted under applicable law.
 
Certain Post-Closing Bank Regulatory Matters
The Board of Governors of the Federal Reserve System (“Federal Reserve Board”) deems AIB to be M&T’s bank holding company for purposes of the BHCA. In addition, the New York Banking Superintendent (“Banking Superintendent”) deems AIB to be M&T’s bank holding company for purposes of Article III-A of the Banking Law. Among other things, this means that, should M&T propose to make an acquisition or engage in a new type of activity that requires the submission of an application or notice to the Federal Reserve Board or the Banking Superintendent, AIB, as well as M&T, may also be required to file an application or notice. The Reorganization Agreement generally provides that AIB will make any applications, notices or filings that M&T determines to be necessary or desirable. The Reorganization Agreement also requires AIB not to take any action that would have a material adverse effect on M&T and to advise M&T prior to entering into any material transaction or activity. These provisions of the Reorganization Agreement would no longer apply if AIB ceased to be M&T’s bank holding company and also was not otherwise considered to control M&T for purposes of the BHCA.
Pursuant to the Reorganization Agreement, if, as a result of any administrative enforcement action under Section 8 of the Federal Deposit Insurance Act (the “FDI Act”), memorandum of understanding, written agreement, supervisory letter or any other action or determination of any regulatory agency relating to the status of AIB (but not relating to the conduct of M&T or any subsidiary of M&T), M&T or M&T Bank also becomes subject to such an action, memorandum, agreement or letter that relates to M&T or any M&T subsidiary, or experiences any fact, event or circumstance that affects M&T’s regulatory status or compliance, and that in either case would be reasonably likely to create a material burden on M&T or to cause any material adverse economic or operating consequences to M&T or an M&T subsidiary (a “Material Regulatory Event”), then M&T will notify AIB thereof in writing as promptly as practicable. Should AIB fail to cure the Material Regulatory Event within 90 days following the receipt of such notice, AIB will, as promptly as practicable but in no event later than 30 days from the end of the cure period, take any and all such actions (with the reasonable cooperation of M&T as requested by AIB) as may be necessary or advisable in order that it no longer has “control” of M&T for purposes of the BHCA, including, if necessary, by selling some or all of its shares of M&T common stock (subject to the right of first refusal provisions of the Reorganization Agreement) and divesting itself as required of its board and committee representation and governance rights as set forth in the Reorganization Agreement. If, at the end of such 30-day period, the Material Regulatory Event is continuing and AIB has not terminated its control of M&T, then M&T will have the right to repurchase, at fair market value, such amount of the M&T common stock owned by AIB as would result in AIB holding no less than 4.9% of the outstanding shares of M&T common stock, pursuant to the procedures detailed in the Reorganization Agreement.
As long as AIB is considered to “control” M&T for purposes of the BHCA or the federal Change in Bank Control Act, if AIB acquires any insured depository institution with total assets greater than 25% of the assets of M&T’s largest insured depository institution subsidiary, then within two years AIB must terminate its affiliation with the insured depository institution or take such steps as may be necessary so that none of M&T’s bank subsidiaries would be subject to “cross guarantee” liability for losses incurred if the institution AIB acquired potentially were to fail. This liability applies under the FDI Act to insured depository institutions that are commonly controlled. The actions AIB would take could include disposing of shares of M&T common stock and/or surrendering its representation or governance rights. Also, if such an insured depository institution that is controlled by AIB and of the size described in the first sentence of this paragraph that would be considered to be commonly controlled with M&T’s insured depository institution subsidiaries fails to meet applicable requirements to be “adequately capitalized” under applicable U.S. banking laws, then AIB will have to take the actions described in the previous

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sentence no later than 180 days after the date that the institution failed to meet those requirements, unless the institution is sooner returned to “adequately capitalized” status.
 
Subsidiaries
M&T Bank is a banking corporation that is incorporated under the laws of the State of New York. M&T Bank is a member of the Federal Reserve System and the Federal Home Loan Bank System, and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. M&T acquired all of the issued and outstanding shares of the capital stock of M&T Bank in December 1969. The stock of M&T Bank represents a major asset of M&T. M&T Bank operates under a charter granted by the State of New York in 1892, and the continuity of its banking business is traced to the organization of the Manufacturers and Traders Bank in 1856. The principal executive offices of M&T Bank are located at One M&T Plaza, Buffalo, New York 14203. As of December 31, 2008, M&T Bank had 684 banking offices located throughout New York State, Pennsylvania, Maryland, Delaware, New Jersey, Virginia, West Virginia and the District of Columbia, plus a branch in George Town, Cayman Islands. As of December 31, 2008, M&T Bank had consolidated total assets of $64.8 billion, deposits of $42.4 billion and stockholder’s equity of $7.0 billion. The deposit liabilities of M&T Bank are insured by the FDIC through its Deposit Insurance Fund (“DIF”) of which, at December 31, 2008, $38.1 billion were assessable. As a commercial bank, M&T Bank offers a broad range of financial services to a diverse base of consumers, businesses, professional clients, governmental entities and financial institutions located in its markets. Lending is largely focused on consumers residing in New York State, Pennsylvania, Maryland, northern Virginia and Washington, D.C., and on small and medium-size businesses based in those areas, although residential and commercial real estate loans are originated through lending offices in 6 other states. In addition, the Company conducts lending activities in various states through other subsidiaries. M&T Bank and certain of its subsidiaries also offer commercial mortgage loans secured by income producing properties or properties used by borrowers in a trade or business. Additional financial services are provided through other operating subsidiaries of the Company. Effective November 1, 2008, M&T Investment Company of Delaware, Inc., previously a wholly owned subsidiary of M&T Bank, was merged into M&T Bank. As a result, M&T Bank owns all of the outstanding common stock and 88% of the preferred stock of M&T Real Estate Trust.
M&T Bank, N.A., a national banking association and a member of the Federal Reserve System and the FDIC, commenced operations on October 2, 1995. The deposit liabilities of M&T Bank, N.A. are insured by the FDIC through the DIF. The main office of M&T Bank, N.A. is located at 48 Main Street, Oakfield, New York 14125. M&T Bank, N.A. offers selected deposit and loan products on a nationwide basis, through direct mail, telephone marketing techniques and the Internet. As of December 31, 2008, M&T Bank, N.A. had total assets of $939 million, deposits of $886 million and stockholder’s equity of $42 million.
M&T Life Insurance Company (“M&T Life Insurance”), a wholly owned subsidiary of M&T, was incorporated as an Arizona business corporation in January 1984. M&T Life Insurance is a captive credit reinsurer which reinsures credit life and accident and health insurance purchased by the Company’s consumer loan customers. As of December 31, 2008, M&T Life Insurance had assets of $33 million and stockholder’s equity of $28 million. M&T Life Insurance recorded revenues of $2 million during 2008. Headquarters of M&T Life Insurance are located at 101 North First Avenue, Phoenix, Arizona 85003.
M&T Credit Services, LLC (“M&T Credit”), a wholly owned subsidiary of M&T Bank, is a New York limited liability company formed in June 2004, but its operations can be traced to a predecessor company that was a wholly owned subsidiary of M&T Bank formed in 1994. M&T Credit is a credit and leasing company offering consumer loans and commercial loans and leases. Its headquarters are located at M&T Center, One Fountain Plaza, Buffalo, New York 14203, and it has offices in Delaware, Massachusetts and Pennsylvania. As of December 31, 2008, M&T Credit had assets of $3.7 billion and stockholder’s equity of $529 million. M&T Credit recorded $248 million of revenue during 2008.
M&T Insurance Agency, Inc. (“M&T Insurance Agency”), a wholly owned insurance agency subsidiary of M&T Bank, was incorporated as a New York corporation in March 1955. M&T Insurance Agency provides insurance agency services principally to the commercial market. As of December 31, 2008, M&T Insurance Agency had assets of $42 million and stockholder’s equity of $25 million. M&T

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Insurance Agency recorded revenues of $21 million during 2008. The headquarters of M&T Insurance Agency are located at 285 Delaware Avenue, Buffalo, New York 14202.
M&T Mortgage Reinsurance Company, Inc. (“M&T Reinsurance”), a wholly owned subsidiary of M&T Bank, was incorporated as a Vermont business corporation in July 1999. M&T Reinsurance enters into reinsurance contracts with insurance companies who insure against the risk of a mortgage borrower’s payment default in connection with M&T Bank-related mortgage loans. M&T Reinsurance receives a share of the premium for those policies in exchange for accepting a portion of the insurer’s risk of borrower default. As of December 31, 2008, M&T Reinsurance had assets of $31 million and stockholder’s equity of $25 million. M&T Reinsurance recorded approximately $1 million of revenue during 2008. M&T Reinsurance’s principal and registered office is at 148 College Street, Burlington, Vermont 05401.
M&T Real Estate Trust (“M&T Real Estate”) is a Maryland Real Estate Investment Trust and, effective November 1, 2008, is a subsidiary of M&T Bank. M&T Real Estate was formed through the merger of two separate subsidiaries, but traces its origin to the incorporation of M&T Real Estate, Inc. in July 1995. M&T Real Estate engages in commercial real estate lending and provides loan servicing to M&T Bank. As of December 31, 2008, M&T Real Estate had assets of $15.2 billion, common stockholder’s equity of $14.9 billion, and preferred stockholders’ equity, consisting of 9% fixed-rate preferred stock (par value $1,000), of $1 million. All of the outstanding common stock and 88% of the preferred stock of M&T Real Estate is owned by M&T Bank. The remaining 12% of M&T Real Estate’s outstanding preferred stock is owned by officers or former officers of the Company. M&T Real Estate recorded $878 million of revenue in 2008. The headquarters of M&T Real Estate are located at M&T Center, One Fountain Plaza, Buffalo, New York 14203.
M&T Realty Capital Corporation (“M&T Realty Capital”), a wholly owned subsidiary of M&T Bank, was incorporated as a Maryland corporation in October 1973. M&T Realty Capital engages in multifamily commercial real estate lending and provides loan servicing to purchasers of the loans it originates. As of December 31, 2008 M&T Realty Capital serviced $6.4 billion of commercial mortgage loans for non-affiliates and had assets of $237 million and stockholder’s equity of $28 million. M&T Realty Capital recorded revenues of $45 million in 2008. The headquarters of M&T Realty Capital are located at 25 South Charles Street, Baltimore, Maryland 21202.
M&T Securities, Inc. (“M&T Securities”) is a wholly owned subsidiary of M&T Bank that was incorporated as a New York business corporation in November 1985. M&T Securities is registered as a broker/dealer under the Securities Exchange Act of 1934, as amended, and as an investment advisor under the Investment Advisors Act of 1940, as amended. M&T Securities is licensed as a life insurance agent in each state where M&T Bank operates branch offices and in a number of other states. It provides securities brokerage, investment advisory and insurance services. As of December 31, 2008, M&T Securities had assets of $50 million and stockholder’s equity of $37 million. M&T Securities recorded $92 million of revenue during 2008. The headquarters of M&T Securities are located at One M&T Plaza, Buffalo, New York 14203.
MTB Investment Advisors, Inc. (“MTB Investment Advisors”), a wholly owned subsidiary of M&T Bank, was incorporated as a Maryland corporation on June 30, 1995. MTB Investment Advisors serves as investment advisor to the MTB Group of Funds, a family of proprietary mutual funds, and institutional clients. As of December 31, 2008, MTB Investment Advisors had assets of $36 million and stockholder’s equity of $32 million. MTB Investment Advisors recorded revenues of $56 million in 2008. The headquarters of MTB Investment Advisors are located at 100 East Pratt Street, Baltimore, Maryland 21202.
The Registrant and its banking subsidiaries have a number of other special-purpose or inactive subsidiaries. These other subsidiaries did not represent, individually and collectively, a significant portion of the Company’s consolidated assets, net income and stockholders’ equity at December 31, 2008.
 
Segment Information, Principal Products/Services and Foreign Operations
Information about the Registrant’s business segments is included in note 22 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data” and is further discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Registrant’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Certain strategic

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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 Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking. The Company’s international activities are discussed in note 17 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”
The only activities that, as a class, contributed 10% or more of the sum of consolidated interest income and other income in any of the last three years were interest on loans and investment securities, and fees for providing deposit account services. The amount of income from such sources during those years is set forth on the Company’s Consolidated Statement of Income filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”
 
Supervision and Regulation of the Company
The banking industry is subject to extensive state and federal regulation and continues to undergo significant change. The following discussion summarizes certain aspects of the banking laws and regulations that affect the Company. Proposals to change the laws and regulations governing the banking industry are frequently raised in Congress, in state legislatures, and before the various bank regulatory agencies. The likelihood and timing of any changes and the impact such changes might have on the Company are impossible to determine with any certainty. A change in applicable laws or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material impact on the business, operations and earnings of the Company. To the extent that the following information describes statutory or regulatory provisions, it is qualified entirely by reference to the particular statutory or regulatory provision.
 
Financial Services Modernization
Under the BHCA, bank holding companies are permitted to offer their customers virtually any type of financial service that is financial in nature or incidental thereto, including banking, securities underwriting, insurance (both underwriting and agency), and merchant banking.
In order to engage in these financial activities, a bank holding company must qualify and register with the Federal Reserve Board as a “financial holding company” by demonstrating that each of its bank subsidiaries is “well capitalized,” “well managed,” and has at least a “satisfactory” rating under the Community Reinvestment Act of 1977 (“CRA”). To date, M&T has not elected to register as a financial holding company. For as long as AIB owns at least 15% of M&T’s outstanding common stock, M&T may not become a financial holding company without the approval of the Executive Committee of the M&T board of directors, which must also include the affirmative approval of the AIB Designee on such committee, as described above under the caption “Amendments to M&T’s Bylaws.”
The financial activities authorized by the BHCA may also be engaged in by a “financial subsidiary” of a national or state bank, except for insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development, and merchant banking, which must be conducted in a financial holding company. In order for these financial activities to be engaged in by a financial subsidiary of a national or state bank, federal law requires each of the parent bank (and its sister-bank affiliates) to be well capitalized and well managed; the aggregate consolidated assets of all of that bank’s financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and, if that bank is one of the 100 largest national banks, it must meet certain financial rating or other comparable requirements. M&T Bank and M&T Bank, N.A. have not elected to engage in financial activities through financial subsidiaries. Current federal law also establishes a system of functional regulation under which the federal banking agencies will regulate the banking activities of financial holding companies and banks’ financial subsidiaries, the U.S. Securities and Exchange Commission will regulate their securities activities, and state insurance regulators will regulate their insurance activities. Rules developed by the federal financial institutions regulators under these laws require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent the disclosure of certain personal information to nonaffiliated third parties.

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Bank Holding Company Regulation
As a registered bank holding company, the Registrant and its nonbank subsidiaries are subject to supervision and regulation under the BHCA by the Federal Reserve Board and under the Banking Law by the Banking Superintendent. The Federal Reserve Board requires regular reports from the Registrant and is authorized by the BHCA to make regular examinations of the Registrant and its subsidiaries.
The Registrant may not acquire direct or indirect ownership or control of more than 5% of the voting shares of any company, including a bank, without the prior approval of the Federal Reserve Board, except as specifically authorized under the BHCA. The Registrant is also subject to regulation under the Banking Law with respect to certain acquisitions of domestic banks. Under the BHCA, the Registrant, subject to the approval of the Federal Reserve Board, may acquire shares of non-banking corporations the activities of which are deemed by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
The Federal Reserve Board has enforcement powers over bank holding companies and their non-banking subsidiaries, among other things, to interdict activities that represent unsafe or unsound practices or constitute violations of law, rule, regulation, administrative orders or written agreements with a federal bank regulator. These powers may be exercised through the issuance of cease-and-desist orders, civil money penalties or other actions.
Under the Federal Reserve Board’s statement of policy with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit all available resources to support such institutions in circumstances where it might not do so absent such policy. Although this “source of strength” policy has been challenged in litigation, the Federal Reserve Board continues to take the position that it has authority to enforce it. For a discussion of circumstances under which a bank holding company may be required to guarantee the capital levels or performance of its subsidiary banks, see “Capital Adequacy,” below. Consistent with this “source of strength” policy, the Federal Reserve Board takes the position that a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve also has the authority to terminate any activity of a bank holding company that constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution or to terminate its control of any bank or nonbank subsidiaries.
The BHCA generally permits bank holding companies to acquire banks in any state, and preempts all state laws restricting the ownership by a bank holding company of banks in more than one state. The FDI Act also permits a bank to merge with an out-of-state bank and convert any offices into branches of the resulting bank if both states have not opted out of interstate branching; permits a bank to acquire branches from an out-of-state bank if the law of the state where the branches are located permits the interstate branch acquisition; and permits banks to establish and operate de novo interstate branches whenever the host state opts-in to de novo branching. Bank holding companies and banks seeking to engage in transactions authorized by these laws must be adequately capitalized and managed.
The Banking Law authorizes interstate branching by merger or acquisition on a reciprocal basis, and permits the acquisition of a single branch without restriction, but does not provide for de novo interstate branching.
Bank holding companies and their subsidiary banks are also subject to the provisions of the CRA. Under the terms of the CRA, the Federal Reserve Board (or other appropriate bank regulatory agency) is required, in connection with its examination of a bank, to assess such bank’s record in meeting the credit needs of the communities served by that bank, including low- and moderate-income neighborhoods. During these examinations, the Federal Reserve Board (or other appropriate bank regulatory agency) rates such bank’s compliance with the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” The failure of a bank to receive at least a “Satisfactory” rating could inhibit such bank or its bank holding company from undertaking certain activities, including acquisitions of other financial institutions or opening or relocating a branch office, as further discussed below. M&T Bank has a CRA rating of “Outstanding” and M&T Bank, N.A. has a CRA rating of “Satisfactory.” Furthermore, such assessment is also required of any bank that has applied, among other things, to

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merge or consolidate with or acquire the assets or assume the liabilities of a federally-regulated financial institution, or to open or relocate a branch office. In the case of a bank holding company applying for approval to acquire a bank or bank holding company, the Federal Reserve Board will assess the record of each subsidiary bank of the applicant bank holding company in considering the application. The Banking Law contains provisions similar to the CRA which are applicable to New York-chartered banks. M&T Bank has a CRA rating of “Outstanding” as determined by the New York State Banking Department.
 
Supervision and Regulation of Bank Subsidiaries
The Registrant’s bank subsidiaries are subject to supervision and regulation, and are examined regularly, by various bank regulatory agencies: M&T Bank by the Federal Reserve Board and the Banking Superintendent; and M&T Bank, N.A. by the Comptroller of the Currency (“OCC”). The Registrant and its direct non-banking subsidiaries are affiliates, within the meaning of the Federal Reserve Act, of the Registrant’s subsidiary banks and their subsidiaries. As a result, the Registrant’s subsidiary banks and their subsidiaries are subject to restrictions on loans or extensions of credit to, purchases of assets from, investments in, and transactions with the Registrant and its direct non-banking subsidiaries and on certain other transactions with them or involving their securities. Similar restrictions are imposed on the Registrant’s subsidiary banks making loans or extending credit to, purchasing assets from, investing in, or entering into transactions with, their financial subsidiaries.
Under the “cross-guarantee” provisions of the FDI Act, insured depository institutions under common control are required to reimburse the FDIC for any loss suffered by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. Thus, any insured depository institution subsidiary of M&T could incur liability to the FDIC in the event of a default of another insured depository institution owned or controlled by M&T. The FDIC’s claim under the cross-guarantee provisions is superior to claims of stockholders of the insured depository institution or its holding company and to most claims arising out of obligations or liabilities owed to affiliates of the institution, but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The FDIC may decline to enforce the cross-guarantee provisions if it determines that a waiver is in the best interest of the DIF.
 
Dividends
The Registrant is a legal entity separate and distinct from its banking and other subsidiaries. The majority of the Registrant’s revenue is from dividends paid to the Registrant by its subsidiary banks. M&T Bank and M&T Bank, N.A. are subject, under one or more of the banking laws, to restrictions on the amount of dividend declarations. Future dividend payments to the Registrant by its subsidiary banks will be dependent on a number of factors, including the earnings and financial condition of each such bank, and are subject to the limitations referred to in note 23 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data,” and to other statutory powers of bank regulatory agencies.
An insured depository institution is prohibited from making any capital distribution to its owner, including any dividend, if, after making such distribution, the depository institution fails to meet the required minimum level for any relevant capital measure, including the risk-based capital adequacy and leverage standards discussed herein.
As described herein under the heading “The Emergency Economic Stabilization Act of 2008,” in connection with the issuance of Series A Preferred Stock to the U.S. Treasury Department (“U.S. Treasury”), M&T is restricted from increasing its common stock dividend.
 
Supervision and Regulation of M&T Bank’s Subsidiaries
M&T Bank has a number of subsidiaries. These subsidiaries are subject to the laws and regulations of both the federal government and the various states in which they conduct business. For example, M&T Securities is regulated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority and state securities regulators.

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Capital Adequacy
The Federal Reserve Board, the FDIC and the OCC have adopted risk-based capital adequacy guidelines for bank holding companies and banks under their supervision. Under these guidelines, the so-called “Tier 1 capital” and “Total capital” as a percentage of risk-weighted assets and certain off-balance sheet instruments must be at least 4% and 8%, respectively.
The Federal Reserve Board, the FDIC and the OCC have also imposed a leverage standard to supplement their risk-based ratios. This leverage standard focuses on a banking institution’s ratio of Tier 1 capital to average total assets, adjusted for goodwill and certain other items. Under these guidelines, banking institutions that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure and good earnings, and that have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total adjusted average assets of at least 3%. Institutions not meeting these criteria, as well as institutions with supervisory, financial or operational weaknesses, along with those experiencing or anticipating significant growth are expected to maintain a Tier 1 capital to total adjusted average assets ratio equal to at least 4% to 5%. As reflected in the table in note 23 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data,” the risk-based capital ratios and leverage ratios of the Registrant, M&T Bank and M&T Bank, N.A. as of December 31, 2008 exceeded the required capital ratios for classification as “well capitalized,” the highest classification under the regulatory capital guidelines.
The federal banking agencies, including the Federal Reserve Board and the OCC, maintain risk-based capital standards in order to ensure that those standards take adequate account of interest rate risk, concentration of credit risk, the risk of nontraditional activities and equity investments in nonfinancial companies, as well as reflect the actual performance and expected risk of loss on certain multifamily housing loans. Bank regulators periodically propose amendments to the risk-based capital guidelines and related regulatory framework, and consider changes to the risk-based capital standards that could significantly increase the amount of capital needed to meet the requirements for the capital tiers described below. While the Company’s management studies such proposals, the timing of adoption, ultimate form and effect of any such proposed amendments on M&T’s capital requirements and operations cannot be predicted.
The federal banking agencies are required to take “prompt corrective action” in respect of depository institutions and their bank holding companies that do not meet minimum capital requirements. The FDI Act establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier, or that of its bank holding company, depends upon where its capital levels are in relation to various relevant capital measures, including a risk-based capital measure and a leverage ratio capital measure, and certain other factors.
Under the implementing regulations adopted by the federal banking agencies, a bank holding company or bank is considered “well capitalized” if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” bank holding company or bank is defined as one that has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a composite CAMELS rating of 1). A bank holding company or bank is considered (A) “undercapitalized” if it has (i) a total risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of a bank with a composite CAMELS rating of 1); (B) “significantly undercapitalized” if the bank has (i) a total risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based capital ratio of less than 3% or (iii) a leverage ratio of less than 3% and (C) “critically undercapitalized” if the bank has a ratio of tangible equity to total assets equal to or less than 2%. The Federal Reserve Board may reclassify a “well capitalized” bank holding company or bank as “adequately capitalized” or subject an “adequately capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower capital category if it determines that the bank holding company or bank is in an unsafe or unsound condition or deems the bank holding company or bank to

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be engaged in an unsafe or unsound practice and not to have corrected the deficiency. M&T, M&T Bank and M&T Bank, N.A. met the definition of “well capitalized” institutions as of December 31, 2008.
“Undercapitalized” depository institutions, among other things, are subject to growth limitations, are prohibited, with certain exceptions, from making capital distributions, are limited in their ability to obtain funding from a Federal Reserve Bank and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan and provide appropriate assurances of performance. If a depository institution fails to submit an acceptable plan, including if the holding company refuses or is unable to make the guarantee described in the previous sentence, it is treated as if it is “significantly undercapitalized.” Failure to submit or implement an acceptable capital plan also is grounds for the appointment of a conservator or a receiver. “Significantly undercapitalized” depository institutions may be subject to a number of additional requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Moreover, the parent holding company of a “significantly undercapitalized” depository institution may be ordered to divest itself of the institution or of nonbank subsidiaries of the holding company. “Critically undercapitalized” institutions, among other things, are prohibited from making any payments of principal and interest on subordinated debt, and are subject to the appointment of a receiver or conservator.
Each federal banking agency prescribes standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and other standards as they deem appropriate. The Federal Reserve Board and OCC have adopted such standards.
Depository institutions that are not “well capitalized” or “adequately capitalized” and have not received a waiver from the FDIC are prohibited from accepting or renewing brokered deposits. As of December 31, 2008, M&T Bank had approximately $1.0 billion of brokered deposits, while M&T Bank, N.A. did not have any brokered deposits at that date.
Although M&T has issued shares of common stock in connection with acquisitions or at other times, the Company has generally maintained capital ratios in excess of minimum regulatory guidelines largely through internal capital generation (i.e. net income less dividends paid). Historically, M&T’s dividend payout ratio and dividend yield, when compared with other bank holding companies, has been relatively low, thereby allowing for capital retention to support growth or to facilitate purchases of M&T’s common stock to be held as treasury stock. Management’s policy of reinvestment of earnings and repurchase of shares of common stock is intended to enhance M&T’s earnings per share prospects and thereby reward stockholders over time with capital gains in the form of increased stock price rather than high dividend income.
 
The Emergency Economic Stabilization Act of 2008
In the third quarter of 2008, the Federal Reserve, the U.S. Treasury and the FDIC initiated measures to stabilize the financial markets and to provide liquidity for financial institutions. The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008 and authorizes the U.S. Treasury to provide funds to be used to restore liquidity and stability to the U.S. financial system. Under the authority of EESA, the U.S. Treasury instituted a voluntary capital purchase program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under the program, the U.S. Treasury has been purchasing senior preferred shares of financial institutions which will pay cumulative dividends at a rate of 5% per year for five years and thereafter at a rate of 9% per year. The terms of the senior preferred shares indicate that the shares may not be redeemed for three years except with the proceeds of a “qualifying equity offering” and that after three years, the shares may be redeemed, in whole or in part,

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at par value plus accrued and unpaid dividends. In February 2009, legislation was signed that may result in changes in those terms. The senior preferred shares are non-voting and qualify as Tier 1 capital for regulatory reporting purposes. In connection with purchasing senior preferred shares, the U.S. Treasury also receives warrants to purchase the common stock of participating financial institutions having a market price of 15% of the amount of senior preferred shares on the date of investment with an exercise price equal to the market price of the participating institution’s common stock at the time of approval, calculated on a 20-trading day trailing average. The warrants have a term of ten years and are immediately exercisable, in whole or in part. For a period of three years, the consent of the U.S. Treasury will be required for participating institutions to increase their common stock dividend or repurchase their common stock, other than in connection with benefit plans consistent with past practice. Participation in the capital purchase program also includes certain restrictions on executive compensation. The minimum subscription amount available to a participating institution is one percent of total risk-weighted assets. The maximum subscription amount is three percent of risk-weighted assets. On December 23, 2008, M&T issued to the U.S. Treasury $600 million of Series A Preferred Stock and warrants to purchase 1,218,522 shares of M&T Common Stock at $73.86 per share. M&T elected to participate in the capital purchase program at an amount equal to approximately 1% of its risk-weighted assets at the time.
Following a systemic risk determination pursuant to the FDI Act, the FDIC announced a Temporary Liquidity Guarantee Program (“TLGP”), which temporarily guarantees the senior debt of all FDIC-insured institutions and certain holding companies, as well as deposits in noninterest-bearing deposit transaction accounts, for those institutions and holding companies who did not elect to opt out of the TLGP by December 5, 2008. M&T chose to continue its participation in the TLGP and, thus, did not opt out. To further increase access to funding for businesses in all sectors of the economy, the Federal Reserve Board announced a Commercial Paper Funding Facility (“CPFF”) program, which provides a broad backstop for the commercial paper market. Beginning October 27, 2008, the CPFF began funding purchases of commercial paper of three-month maturity from high-quality issuers.
 
FDIC Deposit Insurance Assessments
As institutions with deposits insured by the FDIC, M&T Bank and M&T Bank, N.A. are subject to FDIC deposit insurance assessments. Under the provisions of the FDI Act, the regular insurance assessments to be paid by insured institutions are specified in schedules issued by the FDIC that specify a target reserve ratio designed to maintain that ratio between 1.15% and 1.50% of estimated insured deposits.
Under the FDI Act, the FDIC imposed deposit insurance assessments based on one of four assessment categories depending on the institution’s capital classification under the prompt corrective action provisions described above, and an institution’s long-term debt issuer ratings. The adjusted assessment rates for insured institutions under the modified system range from .05% to .43% depending upon the assessment category into which the insured institution is placed. The annual assessment rates for M&T Bank and M&T Bank N.A. during 2008 were each between .05% and .06%.
The FDI Act also allows for a one-time assessment credit for eligible insured depository institutions (those institutions that were in existence on December 31, 1996 and paid a deposit insurance assessment prior to that date, or are a successor to any such institution). The credit is determined based on the assessment base of the institution as of December 31, 1996 as compared with the combined aggregate assessment base of all eligible institutions as of that date. Those institutions having credits could use them to offset up to 100% of the 2007 DIF assessment, and if not completely used in 2007, may apply the remaining credits to not more than 90% of each of the aggregate 2008, 2009 and 2010 DIF assessments. M&T Bank and M&T Bank, N.A. offset 90% of their DIF assessments with available one-time assessment credits during 2008. For the first nine months of 2008, credits utilized to offset amounts assessed for M&T Bank and M&T Bank, N.A. totaled $13 million and $154 thousand, respectively. Fourth quarter 2008 assessments for M&T Bank and M&T Bank, N.A., which will be assessed in March 2009 and will also be offset by 90% of available credits, are estimated to be approximately $5 million and $120 thousand, respectively.
In December 2008, the FDIC approved a final rule on deposit assessment rates for the first quarter of 2009. The rule raised assessment rates uniformly by 7 basis points (annually) for the first quarter of

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2009 only. The FDIC expects to issue another final rule during the first quarter of 2009 to change the way that the FDIC’s assessment system differentiates for risk, make corresponding changes to assessment rates beginning with the second quarter of 2009, and make certain technical and other changes to the assessment rules. The increase in assessment rates effective January 1, 2009 will more than double the Company’s expected assessment for 2009’s first quarter. In addition, available credits for M&T Bank are now expected to be fully utilized in the first quarter of 2009. The Company expects that assessment rates subsequent to the first quarter 2009 will continue to be significantly higher than in 2008. As a result, and considering the full utilization of available credits for M&T Bank in the first quarter of 2009, increased FDIC insurance expense for the Company in 2009 is expected to have an adverse impact on the Company’s results of operations.
In addition to the standard deposit insurance assessments, as noted above, in the third quarter of 2008, the FDIC announced the TLGP which temporarily guarantees the senior debt of all FDIC-insured institutions and certain holding companies, as well as deposits in noninterest-bearing deposit transaction accounts. As a result, during the final quarter of 2008, M&T Bank recognized additional FDIC insurance expense of approximately $500 thousand. M&T Bank expects assessments related to the TLGP in 2009 of $3 million - $5 million.
Incremental to insurance fund assessments, the FDIC assesses deposits to fund the repayment of debt obligations of the Financing Corporation (“FICO”). FICO is a government agency-sponsored entity that was formed to borrow the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation. The current annualized rate established by the FDIC is 1.14 basis points (hundredths of one percent).
 
Consumer Protection Laws
In connection with their respective lending and leasing activities, M&T Bank, certain of its subsidiaries, and M&T Bank, N.A. are each subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures Act, and various state law counterparts.
In addition, federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, a financial institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.
 
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance, accounting and reporting measures for companies that have securities registered under the Exchange Act, including publicly-held bank holding companies such as M&T. Specifically, the Sarbanes-Oxley Act of 2002 and the various regulations promulgated thereunder, established, among other things: (i) requirements for audit committees, including independence, expertise, and responsibilities; (ii) responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) the forfeiture of bonuses or other incentive-based compensation and profits from the sale of the reporting company’s securities by the Chief Executive Officer and Chief Financial Officer in the twelve-month period following the initial publication of any financial statements that later require restatement; (iv) the creation of an independent accounting oversight board; (v) standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (vi) disclosure and reporting obligations for the reporting company and their directors and executive officers, including accelerated reporting of stock transactions and a

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prohibition on trading during pension blackout periods; (vii) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions on nonpreferential terms and in compliance with other bank regulatory requirements; and (viii) a range of civil and criminal penalties for fraud and other violations of the securities laws.
 
USA Patriot Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) imposes obligations on U.S. financial institutions, including banks and broker dealer subsidiaries, to implement policies, procedures and controls which are reasonably designed to detect and report instances of money laundering and the financing of terrorism. In addition, provisions of the USA Patriot Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions. The Registrant and its impacted subsidiaries have approved policies and procedures that are believed to be compliant with the USA Patriot Act.
 
Regulatory Impact of M&T’s Relationship With AIB
As described above under the caption “Relationship With Allied Irish Banks, p.l.c.,” AIB owns approximately 24.2% of the issued and outstanding shares of M&T common stock and has representation on the M&T and M&T Bank boards of directors. As a result, AIB has become M&T’s bank holding company under the BHCA and the Banking Law and AIB’s relationship with M&T is subject to the statutes and regulations governing bank holding companies described above. Among other things, AIB will have to join M&T in applications by M&T for acquisitions and new activities. The Reorganization Agreement requires AIB to join in such applications at M&T’s request, subject to certain limitations. In addition, because AIB is regulated by the Central Bank of Ireland (“CBI”), the CBI may assert jurisdiction over M&T as a company controlled by AIB. Additional discussion of the regulatory implications of the Allfirst acquisition for M&T is set forth above under the caption “Certain Post-Closing Bank Regulatory Matters.”
 
Governmental Policies
The earnings of the Company are significantly affected by the monetary and fiscal policies of governmental authorities, including the Federal Reserve Board. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open-market operations in U.S. Government securities and federal funds, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments and deposits, and the interest rates charged on loans and paid for deposits. The Federal Reserve Board frequently uses these instruments of monetary policy, especially its open-market operations and the discount rate, to influence the level of interest rates and to affect the strength of the economy, the level of inflation or the price of the dollar in foreign exchange markets. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of banking institutions in the past and are expected to continue to do so in the future. It is not possible to predict the nature of future changes in monetary and fiscal policies, or the effect which they may have on the Company’s business and earnings.
 
Competition
The Company competes in offering commercial and personal financial services with other banking institutions and with firms in a number of other industries, such as thrift institutions, credit unions, personal loan companies, sales finance companies, leasing companies, securities firms and insurance companies. Furthermore, diversified financial services companies are able to offer a combination of these services to their customers on a nationwide basis. The Company’s operations are significantly impacted by state and federal regulations applicable to the banking industry. Moreover, the provisions of the Gramm-Leach-Bliley Act of 1999 have allowed for increased competition among diversified financial services providers, and the Interstate Banking Act and the Banking Law may be considered to have eased

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entry into New York State by out-of-state banking institutions. As a result, the number of financial services providers and banking institutions with which the Company competes may grow in the future.
 
Other Legislative Initiatives
Proposals may be introduced in the United States Congress and in the New York State Legislature and before various bank regulatory authorities which would alter the powers of, and restrictions on, different types of banking organizations and which would restructure part or all of the existing regulatory framework for banks, bank holding companies and other providers of financial services. Moreover, other bills may be introduced in Congress which would further regulate, deregulate or restructure the financial services industry. It is not possible to predict whether these or any other proposals will be enacted into law or, even if enacted, the effect which they may have on the Company’s business and earnings.
 
Other Information
Through a link on the Investor Relations section of M&T’s website at www.mtb.com, copies of M&T’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are made available, free of charge, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the Securities and Exchange Commission. Copies of such reports and other information are also available at no charge to any person who requests them or at www.sec.gov. Such requests may be directed to M&T Bank Corporation, Shareholder Relations Department, One M&T Plaza, 13th Floor, Buffalo, NY 14203-2399 (Telephone: (716) 842-5138).
 
Corporate Governance
M&T’s Corporate Governance Standards and the following corporate governance documents are also available on M&T’s website at the Investor Relations link: Disclosure Policy; Executive Committee Charter; Nomination, Compensation and Governance Committee Charter; Audit and Risk Committee Charter; Financial Reporting and Disclosure Controls and Procedures Policy; Code of Ethics for CEO and Senior Financial Officers; Code of Business Conduct and Ethics; and Employee Complaint Procedures for Accounting and Auditing Matters. Copies of such governance documents are also available, free of charge, to any person who requests them. Such requests may be directed to M&T Bank Corporation, Shareholder Relations Department, One M&T Plaza, 13th Floor, Buffalo, NY 14203-2399 (Telephone: (716) 842-5138).

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Statistical Disclosure Pursuant to Guide 3
See cross-reference sheet for disclosures incorporated elsewhere in this Annual Report on Form 10-K. Additional information is included in the following tables.
 
Table 1
 
SELECTED CONSOLIDATED YEAR-END BALANCES
 
                                         
    2008     2007     2006     2005     2004  
    (In thousands)  
 
Interest-bearing deposits at banks
  $ 10,284     $ 18,431     $ 6,639     $ 8,408     $ 10,242  
Federal funds sold
    21,347       48,038       19,458       11,220       28,150  
Resell agreements
    90,000             100,000             1,026  
Trading account
    617,821       281,244       136,752       191,617       159,946  
Investment securities
                                       
U.S. Treasury and federal agencies
    3,909,493       3,540,641       2,381,584       3,016,374       3,965,110  
Obligations of states and political subdivisions
    135,585       153,231       130,207       181,938       204,792  
Other
    3,874,129       5,268,126       4,739,807       5,201,852       4,304,717  
                                         
Total investment securities
    7,919,207       8,961,998       7,251,598       8,400,164       8,474,619  
Loans and leases
                                       
Commercial, financial, leasing, etc. 
    14,563,091       13,387,026       11,896,556       11,105,827       10,169,695  
Real estate — construction
    4,568,368       4,190,068       3,453,981       2,335,498       1,797,106  
Real estate — mortgage
    19,224,003       19,468,449       17,940,083       16,636,557       15,538,227  
Consumer
    11,004,275       11,306,719       9,916,334       10,475,809       11,139,594  
                                         
Total loans and leases
    49,359,737       48,352,262       43,206,954       40,553,691       38,644,622  
Unearned discount
    (359,274 )     (330,700 )     (259,657 )     (223,046 )     (246,145 )
Allowance for credit losses
    (787,904 )     (759,439 )     (649,948 )     (637,663 )     (626,864 )
                                         
Loans and leases, net
    48,212,559       47,262,123       42,297,349       39,692,982       37,771,613  
Goodwill
    3,192,128       3,196,433       2,908,849       2,904,081       2,904,081  
Core deposit and other intangible assets
    183,496       248,556       250,233       108,260       165,507  
Real estate and other assets owned
    99,617       40,175       12,141       9,486       12,504  
Total assets
    65,815,757       64,875,639       57,064,905       55,146,406       52,938,721  
                                         
                                         
                                         
Noninterest-bearing deposits
    8,856,114       8,131,662       7,879,977       8,141,928       8,417,365  
NOW accounts
    1,141,308       1,190,161       940,439       901,938       828,999  
Savings deposits
    19,488,918       15,419,357       14,169,790       13,839,150       14,721,663  
Time deposits
    9,046,937       10,668,581       11,490,629       11,407,626       7,228,514  
Deposits at foreign office
    4,047,986       5,856,427       5,429,668       2,809,532       4,232,932  
                                         
Total deposits
    42,581,263       41,266,188       39,910,503       37,100,174       35,429,473  
Short-term borrowings
    3,009,735       5,821,897       3,094,214       5,152,872       4,703,664  
Long-term borrowings
    12,075,149       10,317,945       6,890,741       6,196,994       6,348,559  
Total liabilities
    59,031,026       58,390,383       50,783,810       49,270,020       47,209,107  
Stockholders’ equity
    6,784,731       6,485,256       6,281,095       5,876,386       5,729,614  
 
Table 2
 
STOCKHOLDERS, EMPLOYEES AND OFFICES
 
                                         
Number at Year-End
  2008     2007     2006     2005     2004  
 
Stockholders
    11,197       11,611       10,084       10,437       10,857  
Employees
    13,620       13,869       13,352       13,525       13,371  
Offices
    725       760       736       724       713  

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Table 3
 
CONSOLIDATED EARNINGS
 
                                         
    2008     2007     2006     2005     2004  
    (In thousands)  
 
Interest income
                                       
Loans and leases, including fees
  $ 2,825,587     $ 3,155,967     $ 2,927,411     $ 2,420,660     $ 1,974,469  
Deposits at banks
    109       300       372       169       65  
Federal funds sold
    254       857       1,670       807       123  
Resell agreements
    1,817       22,978       3,927       1       11  
Trading account
    1,469       744       2,446       1,544       375  
Investment securities
                                       
Fully taxable
    438,409       352,628       363,401       351,423       309,141  
Exempt from federal taxes
    9,946       11,339       14,866       14,090       14,548  
                                         
Total interest income
    3,277,591       3,544,813       3,314,093       2,788,694       2,298,732  
                                         
Interest expense
                                       
NOW accounts
    2,894       4,638       3,461       2,182       1,802  
Savings deposits
    248,083       250,313       201,543       139,445       92,064  
Time deposits
    330,389       496,378       551,514       294,782       154,722  
Deposits at foreign office
    84,483       207,990       178,348       120,122       43,034  
Short-term borrowings
    142,627       274,079       227,850       157,853       71,172  
Long-term borrowings
    529,319       461,178       333,836       279,967       201,366  
                                         
Total interest expense
    1,337,795       1,694,576       1,496,552       994,351       564,160  
                                         
Net interest income
    1,939,796       1,850,237       1,817,541       1,794,343       1,734,572  
Provision for credit losses
    412,000       192,000       80,000       88,000       95,000  
                                         
Net interest income after provision for credit losses
    1,527,796       1,658,237       1,737,541       1,706,343       1,639,572  
                                         
Other income
                                       
Mortgage banking revenues
    156,012       111,893       143,181       136,114       124,353  
Service charges on deposit accounts
    430,532       409,462       380,950       369,918       366,301  
Trust income
    156,149       152,636       140,781       134,679       136,296  
Brokerage services income
    64,186       59,533       60,295       55,572       53,740  
Trading account and foreign exchange gains
    17,630       30,271       24,761       22,857       19,435  
Gain (loss) on bank investment securities
    (147,751 )     (126,096 )     2,566       (28,133 )     2,874  
Equity in earnings of Bayview Lending Group LLC
    (37,453 )     8,935                    
Other revenues from operations
    299,674       286,355       293,318       258,711       239,970  
                                         
Total other income
    938,979       932,989       1,045,852       949,718       942,969  
                                         
Other expense
                                       
Salaries and employee benefits
    957,086       908,315       873,353       822,239       806,552  
Equipment and net occupancy
    188,845       169,050       168,776       173,689       179,595  
Printing, postage and supplies
    35,860       35,765       33,956       33,743       34,476  
Amortization of core deposit and other intangible assets
    66,646       66,486       63,008       56,805       75,410  
Other costs of operations
    478,559       448,073       412,658       398,666       419,985  
                                         
Total other expense
    1,726,996       1,627,689       1,551,751       1,485,142       1,516,018  
                                         
Income before income taxes
    739,779       963,537       1,231,642       1,170,919       1,066,523  
Income taxes
    183,892       309,278       392,453       388,736       344,002  
                                         
Net income
  $ 555,887     $ 654,259     $ 839,189     $ 782,183     $ 722,521  
                                         
Dividends declared — Common
  $ 308,501     $ 281,900     $ 249,817     $ 198,619     $ 187,669  

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Table 4
 
COMMON SHAREHOLDER DATA
 
                                                   
    2008       2007       2006       2005       2004    
 
Per share
                                                 
Net income
                                                 
Basic
  $ 5.04       $ 6.05       $ 7.55       $ 6.88       $ 6.14    
Diluted
    5.01         5.95         7.37         6.73         6.00    
Cash dividends declared
    2.80         2.60         2.25         1.75         1.60    
Common stockholders’ equity at year-end
    56.29         58.99         56.94         52.39         49.68    
Tangible common stockholders’ equity at year-end
    25.94         27.98         28.57         25.91         23.62    
Dividend payout ratio
    55.62 %       43.12 %       29.79 %       25.42 %       26.00 %  
 
Table 5
 
CHANGES IN INTEREST INCOME AND EXPENSE(a)
 
                                                 
    2008 Compared with 2007     2007 Compared with 2006  
          Resulting from
          Resulting from
 
    Total
    Changes in:     Total
    Changes in:  
    Change     Volume     Rate     Change     Volume     Rate  
    (Increase (decrease) in thousands)  
 
Interest income
                                               
Loans and leases, including fees
  $ (328,595 )     316,338       (644,933 )   $ 231,565       190,322       41,243  
Deposits at banks
    (191 )     36       (227 )     (72 )     (112 )     40  
Federal funds sold and agreements to resell securities
    (21,764 )     (11,664 )     (10,100 )     18,238       19,560       (1,322 )
Trading account
    802       250       552       (1,702 )     (612 )     (1,090 )
Investment securities
                                               
U.S. Treasury and federal agencies
    80,487       70,137       10,350       (21,058 )     (26,626 )     5,568  
Obligations of states and political subdivisions
    624       1,169       (545 )     (1,604 )     (2,618 )     1,014  
Other
    2,443       8,964       (6,521 )     6,519       (3,559 )     10,078  
                                                 
Total interest income
  $ (266,194 )                   $ 231,886                  
                                                 
Interest expense
                                               
Interest-bearing deposits
                                               
NOW accounts
  $ (1,744 )     383       (2,127 )   $ 1,177       208       969  
Savings deposits
    (2,230 )     47,542       (49,772 )     48,770       8,463       40,307  
Time deposits
    (165,989 )     (44,273 )     (121,716 )     (55,136 )     (83,855 )     28,719  
Deposits at foreign office
    (123,507 )     (9,424 )     (114,083 )     29,642       28,553       1,089  
Short-term borrowings
    (131,452 )     32,037       (163,489 )     46,229       43,484       2,745  
Long-term borrowings
    68,141       153,793       (85,652 )     127,342       132,210       (4,868 )
                                                 
Total interest expense
  $ (356,781 )                   $ 198,024                  
                                                 
 
 
(a) Interest income data are on a taxable-equivalent basis. The apportionment of changes resulting from the combined effect of both volume and rate was based on the separately determined volume and rate changes.
 
Item 1A.    Risk Factors.
 
M&T and its subsidiaries could be adversely impacted by various risks and uncertainties which are difficult to predict. As a financial institution, the Company has significant exposure to market risk, including interest-rate risk, liquidity risk and credit risk, among others. Adverse experience with these or other risks could have a material impact on the Company’s financial condition and results of operations, as well as on the value of the Company’s financial instruments in general, and M&T’s common stock, in particular.

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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, which represents the largest revenue source for the Company, is subject to the effects of changing interest rates. The Company closely monitors the sensitivity of net interest income to changes in interest rates and attempts to limit the variability of net interest income as interest rates change. The Company makes use of both on- and off-balance sheet financial instruments to mitigate exposure to interest rate risk. Possible actions to mitigate such risk 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 interest rate swap agreements or other financial instruments used for interest rate risk management purposes.
Liquidity Risk — Liquidity refers to the Company’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations, including demands for loans and deposit withdrawals, funding operating costs, and for other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ. The Company obtains funding through deposits and various short-term and long-term wholesale borrowings, including federal funds purchased and securities sold under agreements to repurchase, brokered certificates of deposit, offshore branch deposits and borrowings from the Federal Home Loan Bank of New York and others. Should the Company experience a substantial deterioration in its financial condition or its debt ratings, or should the availability of funding become restricted due to 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. To mitigate such risk, the Company maintains available lines of credit with the Federal Reserve Bank of New York and the Federal Home Loan Bank of New York that are secured by loans and investment securities. On an ongoing basis, 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 in the normal course of business.
Credit Risk — Factors that influence the Company’s credit loss experience include overall economic conditions affecting businesses and consumers, in general, and, due to the size of the Company’s real estate loan portfolio and mortgage-related investment securities portfolio, real estate valuations, in particular. Other factors that can influence the Company’s credit loss experience, in addition to general economic conditions and borrowers’ specific abilities to repay loans, include: (i) the impact of declining real estate values in the Company’s portfolio of loans to residential real estate builders and developers; (ii) the repayment performance associated with the Company’s portfolio of alternative residential mortgage loans and residential and other mortgage loans supporting mortgage-related securities; (iii) 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; (iv) 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 (v) 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 many other loan types.
Throughout 2008, there had been considerable concerns about the deepening economic downturn in both national and international markets; the level and volatility of energy prices; a weakened housing market; the troubled state of financial and credit markets; Federal Reserve positioning of monetary policy; rising private sector layoffs and unemployment, which caused consumer spending to slow; the underlying impact on businesses’ operations and abilities to repay loans as consumer spending slowed; continued stagnant population growth in the upstate New York and central Pennsylvania regions; and continued slowing of automobile sales. Late in 2008 the U.S economy was identified as having been in recession since the fourth quarter of 2007. However, given that approximately 70% of the Company’s loans are to customers in New York State and Pennsylvania, including a large portion to customers in the

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traditionally slower growth or stagnant regions of upstate New York and Central Pennsylvania, the impact of deteriorating national market conditions was not as pronounced on borrowers in these regions as compared with other areas of the country. Home prices in upstate New York and central Pennsylvania increased in 2008, in sharp contrast to steep declines in values in other regions of the country. Therefore, despite the conditions, as previously described, the most severe credit issues experienced by the Company through 2008 were centered around residential real estate, including loans to developers and builders of residential real estate in areas other than New York state and Pennsylvania. In response, throughout 2008 the Company conducted detailed reviews of all loans to residential real estate builders and developers that exceeded $2.5 million. Those credit reviews were updated throughout the year and resulted in adjustments to loan grades and, if appropriate, commencement of intensified collection efforts, including foreclosure. With regard to residential real estate loans, with special emphasis on the portfolio of Alt-A mortgage loans, the Company expanded its collections and loan work-out staff and further refined its loss identification and estimation techniques by reference to loan performance and house price depreciation data in specific areas of the country where collateral that was securing the Company’s residential real estate loans was located.
All of these factors can affect the Company’s credit loss experience. To help manage credit risk, the Company maintains a detailed credit policy and utilizes various committees that include members of senior management to approve significant extensions of credit. The Company also maintains a credit review department that regularly reviews the Company’s loan and lease portfolios to ensure compliance with established credit policy. 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. In addition, the Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” Any declines in value below amortized cost that are deemed to be “other than temporary” are charged to earnings.
Economic Risk — The U.S. economy was in recession during 2008. As a result, several additional risk factors have been identified, as follows:
    The significant downturn in the residential real estate market that began in 2007 had continued in 2008. The impact of that downturn has resulted in declining home prices, higher foreclosures and loan charge-offs, and lower market prices on investment securities backed by residential real estate. These factors could negatively impact M&T’s results of operations.
    Lower demand for Company’s products and services and lower revenues and earnings could result from an economic recession.
    Lower fee income from the Company’s brokerage and trust businesses could result from significant declines in stock market prices.
    Lower earnings could result from other-than temporary impairment charges related to the Company’s investment securities portfolio.
    Higher FDIC insurance costs due to bank failures that have caused the FDIC Deposit Insurance Fund to fall below minimum required levels.
    There is no assurance that the Emergency Economic Stabilization Act of 2008 will improve the condition of the financial markets.
 
Supervision and Regulation — The Company is subject to extensive state and federal laws and regulations governing the banking industry, in particular, and public companies, in general, including laws related to corporate taxation. Many of those laws and regulations are described in Part I, Item 1 “Business.” Changes in those or other laws and regulations, or the degree of the Company’s compliance with those laws and regulations as judged by any of several regulators, including tax authorities, that oversee the Company, could have a significant effect on the Company’s operations and its financial results.
Detailed discussions of the specific risks outlined above and other risks facing the Company are included within this Annual Report on Form 10-K in Part  I, Item 1 “Business,” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Furthermore, in Part II, Item 7 under the heading “Forward-Looking Statements” is included a description of certain risks, uncertainties and assumptions identified by management that are difficult to predict and that could

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materially affect the Company’s financial condition and results of operations, as well as the value of the Company’s financial instruments in general, and M&T common stock, in particular.
In addition, the market price of M&T common stock may fluctuate significantly in response to a number of other factors, including changes in securities analysts’ estimates of financial performance, volatility of stock market prices and volumes, rumors or erroneous information, changes in market valuations of similar companies and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.
 
Item 1B.    Unresolved Staff Comments.
 
None.
 
Item 2.    Properties.
 
Both M&T and M&T Bank maintain their executive offices at One M&T Plaza in Buffalo, New York. This twenty-one story headquarters building, containing approximately 279,000 rentable square feet of space, is owned in fee by M&T Bank and was completed in 1967. M&T, M&T Bank and their subsidiaries occupy approximately 92% of the building and the remainder is leased to non-affiliated tenants. At December 31, 2008, the cost of this property (including improvements subsequent to the initial construction), net of accumulated depreciation, was $6.8 million.
In September 1992, M&T Bank acquired an additional facility in Buffalo, New York with approximately 360,000 rentable square feet of space. Approximately 89% of this facility, known as M&T Center, is occupied by M&T Bank and its subsidiaries, with the remainder leased to non-affiliated tenants. At December 31, 2008, the cost of this building (including improvements subsequent to acquisition), net of accumulated depreciation, was $11.8 million.
M&T Bank also owns and occupies two separate facilities in the Buffalo area which support certain back-office and operations functions of the Company. The total square footage of these facilities approximates 215,000 square feet and their combined cost (including improvements subsequent to acquisition), net of accumulated depreciation, was $18.7 million at December 31, 2008.
M&T Bank also owns a facility in Syracuse, New York with approximately 150,000 rentable square feet of space. Approximately 45% of this facility is occupied by M&T Bank. At December 31, 2008, the cost of this building (including improvements subsequent to acquisition), net of accumulated depreciation, was $7.3 million.
M&T Bank also owns facilities in Harrisburg, Pennsylvania and Millsboro, Delaware with approximately 207,000 and 322,000 rentable square feet of space, respectively. M&T Bank occupies approximately 38% and 84% of these respective facilities. At December 31, 2008, the cost of these buildings (including improvements subsequent to acquisition), net of accumulated depreciation, was $12.5 million and $7.5 million, respectively.
No other properties owned by M&T Bank have more than 100,000 square feet of space. The cost, net of accumulated depreciation and amortization, of the Company’s premises and equipment is detailed in note 6 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.” Of the 685 domestic banking offices of the Registrant’s subsidiary banks at December 31, 2008, 288 are owned in fee and 397 are leased.
 
Item 3.    Legal Proceedings.
 
In October 2007, Visa completed a reorganization in contemplation of its initial public offering (“IPO”) expected to occur in 2008. As part of that reorganization, M&T Bank and other member banks of Visa received shares of common stock of Visa, Inc. Those banks are also obligated under various agreements with Visa to share in losses stemming from certain litigation (“Covered Litigation”). M&T Bank is not a named defendant in any of the Covered Litigation. Although Visa was expected to set aside a portion of the proceeds from its IPO in an escrow account to fund any judgments or settlements that may arise out of the Covered Litigation, guidance from the Securities and Exchange Commission (“SEC”) indicated that Visa member banks should record a liability for the fair value of the contingent obligation to Visa. The estimation of the Company’s proportionate share of any potential losses related to the Covered

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Litigation was extremely difficult and involved a great deal of judgment. Nevertheless, in the fourth quarter of 2007 the Company recorded a pre-tax charge of $23 million ($14 million after tax effect) related to the Covered Litigation. In accordance with GAAP and consistent with the SEC guidance, the Company did not recognize any value for its common stock ownership interest in Visa, Inc. at that time. During the first quarter of 2008, Visa completed its IPO and, as part of the transaction, funded an escrow account for $3 billion from the proceeds of the IPO to cover potential settlements arising out of the Covered Litigation. As a result, during 2008, the Company reversed approximately $15 million of the $23 million accrued during the fourth quarter of 2007 for the Covered Litigation. The initial accrual in 2007 and the partial reversal in 2008 were included in “other costs of operations” in the consolidated statement of income. In addition, M&T Bank was allocated 1,967,028 Class B common shares of Visa. Of those shares, 760,455 were mandatorily redeemed in March 2008 resulting in a pre-tax gain of $33 million ($20 million after tax), which has been included in “gain on bank investment securities” in the consolidated statement of income. During the fourth quarter of 2008, Visa announced that it had settled an additional portion of the Covered Litigation and it further funded the escrow account to provide for that settlement. That settlement and subsequent funding of the escrow account did not result in a material impact to the Company’s consolidated financial position or results of operations.
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 4.    Submission of Matters to a Vote of Security Holders.
 
No matters were submitted to a vote of M&T’s security holders during the fourth quarter of 2008.
 
Executive Officers of the Registrant
Information concerning the Registrant’s executive officers is presented below as of February 21, 2009. The year the officer was first appointed to the indicated position with the Registrant or its subsidiaries is shown parenthetically. In the case of each corporation noted below, officers’ terms run until the first meeting of the board of directors after such corporation’s annual meeting, which in the case of the Registrant takes place immediately following the Annual Meeting of Stockholders, and until their successors are elected and qualified.
Robert G. Wilmers, age 74, is chief executive officer (2007), chairman of the board (2000) and a director (1982) of the Registrant. From April 1998 until July 2000, he served as president and chief executive officer of the Registrant and from July 2000 until June 2005 he served as chairman, president (1988) and chief executive officer (1983) of the Registrant. He is chief executive officer (2007), chairman of the board (2005) and a director (1982) of M&T Bank, and previously served as chairman of the board of M&T Bank from March 1983 until July 2003 and as president of M&T Bank from March 1984 until June 1996.
Michael P. Pinto, age 53, is a vice chairman (2007) and a director (2003) of the Registrant. Previously, he was an executive vice president of the Registrant (1997). He is a vice chairman and a director (2003) of M&T Bank and is the chairman and chief executive officer of M&T Bank’s Mid-Atlantic Division (2005). Prior to April 2005, Mr. Pinto was the chief financial officer of the Registrant (1997) and M&T Bank (1996), and he oversaw the Company’s Finance Division, Technology and Banking Operations Division, Corporate Services Group, Treasury Division and General Counsel’s Office. He is an executive vice president (1996) and a director (1998) of M&T Bank, N.A. Mr. Pinto is chairman of the board and a director of MTB Investment Advisors (2006).
Mark J. Czarnecki, age 53, is president and a director (2007) of the Registrant and president and a director (2007) of M&T Bank. Previously, he was an executive vice president of the Registrant (1999) and M&T Bank (1997) and was responsible for the M&T Investment Group and the Company’s Retail Banking network. Mr. Czarnecki is chairman of the board (2007) and a director (1999) of M&T

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Securities and chairman of the board, president and chief executive officer (2007) and a director (2005) of M&T Bank, N.A.
James J. Beardi, age 62, is an executive vice president (2003) of the Registrant and M&T Bank, and is responsible for managing the Company’s Corporate Services, Central Operations, Automobile Floor Plan and Lending Services Groups. Previously, Mr. Beardi was in charge of the Company’s Residential Mortgage business and the General Counsel’s Office. He was president and a director of M&T Mortgage Corporation (1991) until its merger into M&T Bank on January 1, 2007. Mr. Beardi served as senior vice president of M&T Bank from 1989 to 2003.
Robert J. Bojdak, age 53, is an executive vice president and chief credit officer (2004) of the Registrant and M&T Bank. From April 2002 to April 2004, Mr. Bojdak served as senior vice president and credit deputy for M&T Bank. Previous to joining M&T Bank in 2002, Mr. Bojdak served in several senior management positions at KeyCorp., most recently as executive vice president and regional credit executive. He is an executive vice president and a director of M&T Bank, N.A. (2004) and M&T Credit (2004).
Stephen J. Braunscheidel, age 52, is an executive vice president (2004) of the Registrant and M&T Bank, and is in charge of the Company’s Human Resources Division. Previously, he was a senior vice president in the M&T Investment Group, where he managed the Private Client Services and Employee Benefits departments. Mr. Braunscheidel has held a number of management positions with M&T Bank since 1978.
Atwood Collins, III, age 62, is an executive vice president of the Registrant (1997) and M&T Bank (1996), and is the president and chief operating officer of M&T Bank’s Mid-Atlantic Division. Mr. Collins is a trustee of M&T Real Estate (1995) and a director of M&T Securities (2008).
Richard S. Gold, age 48, is an executive vice president of the Registrant (2007) and M&T Bank (2006) and is responsible for managing the Company’s Residential Mortgage and Consumer Lending Divisions. Mr. Gold served as senior vice president of M&T Bank from 2000 to 2006, most recently responsible for the Retail Banking Division, including M&T Securities. Mr. Gold is an executive vice president of M&T Bank, N.A. (2006) and a director of M&T Credit (2008).
Brian E. Hickey, age 56, is an executive vice president of the Registrant (1997) and M&T Bank (1996). He is a member of the Directors Advisory Council (1994) of the Rochester Division of M&T Bank. Mr. Hickey is responsible for managing all of the non-retail segments in the Western New York and the Northern and Central Pennsylvania regions.
René F. Jones, age 44, is an executive vice president (2006) and chief financial officer (2005) of the Registrant and M&T Bank. Previously, Mr. Jones was a senior vice president in charge of the Financial Performance Measurement department within M&T Bank’s Finance Division. Mr. Jones has held a number of management positions within M&T Bank’s Finance Division since 1992. Mr. Jones is an executive vice president and chief financial officer (2005) and a director (2007) of M&T Bank, N.A., and he is a trustee of M&T Real Estate (2005). He is a director of M&T Insurance Agency (2007) and M&T Securities (2007).
Kevin J. Pearson, age 47, is an executive vice president (2002) of the Registrant and M&T Bank. He is a member of the Directors Advisory Council (2006) of the New York City/Long Island Division of M&T Bank. Mr. Pearson is responsible for managing all of the non-retail segments in the New York City, Philadelphia, Connecticut, New Jersey and Tarrytown markets of M&T Bank, as well as the Company’s commercial real estate business, Commercial Marketing and Treasury Management. He is an executive vice president of M&T Real Estate (2003), a director of M&T Realty Capital (2003) and an executive vice president and a director of M&T Bank, N.A. (2008). Mr. Pearson served as senior vice president of M&T Bank from 2000 to 2002.
Michele D. Trolli, age 47, is an executive vice president and chief information officer of the Registrant and M&T Bank (2005). She is in charge of the Company’s Retail Banking Division as well as the Company’s Technology and Global Sourcing groups. Previously, Ms. Trolli was in charge of the Technology and Banking Operations Division and the Corporate Services Group of M&T Bank. Ms. Trolli served as senior director, global systems support, with Franklin Resources, Inc., a worldwide investment management company, from May 2000 through December 2004.

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PART II
 
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
The Registrant’s common stock is traded under the symbol MTB on the New York Stock Exchange. See cross-reference sheet for disclosures incorporated elsewhere in this Annual Report on Form 10-K for market prices of the Registrant’s common stock, approximate number of common stockholders at year-end, frequency and amounts of dividends on common stock and restrictions on the payment of dividends.
During the fourth quarter of 2008, M&T did not issue any shares of its common stock that were not registered under the Securities Act of 1933.
 
Equity Compensation Plan Information
 
Incorporated by reference to the caption “COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS” contained in the Registrant’s definitive Proxy Statement for its 2009 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission on or about March 6, 2009.
 
Performance Graph
The following graph contains a comparison of the cumulative stockholder return on M&T common stock against the cumulative total returns of the KBW Bank Index, compiled by Keefe, Bruyette & Woods Inc., and the S&P 500 Index, compiled by Standard & Poor’s Corporation, for the five-year period beginning on December 31, 2003 and ending on December 31, 2008. The KBW Bank Index is a market capitalization index consisting of 24 leading national money-center banks and regional institutions.
 
Comparison of Five-Year Cumulative Return*
 
(PERFORMANCE GRAPH)
 
Stockholder Value at Year End*
 
                                                             
      2003     2004     2005     2006     2007     2008
M&T Bank Corporation
    $ 100         112         115         131         90         66  
KBW Bank Index
    $ 100         109         112         134         105         61  
S&P 500 Index
    $ 100         111         116         135         142         90  
                                                             
 
 
* Assumes a $100 investment on December 31, 2003 and reinvestment of all dividends.

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In accordance with and to the extent permitted by applicable law or regulation, the information set forth above under the heading “Performance Graph” shall not be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act and shall not be deemed to be “soliciting material” or to be “filed” with the SEC under the Securities Act or the Exchange Act.
 
Issuer Purchases of Equity Securities
In February 2007, 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. M&T did not repurchase any shares pursuant to such plan during 2008.
During the fourth quarter of 2008, M&T purchased shares of its common stock as follows:
 
                                 
                      (d)Maximum
 
                (c)Total
    Number (or
 
                Number
    Approximate
 
                of Shares
    Dollar Value)
 
                (or Units)
    of Shares
 
                Purchased
    (or Units)
 
    (a)Total
          as Part of
    that may yet
 
    Number
    (b)Average
    Publicly
    be Purchased
 
    of Shares
    Price Paid
    Announced
    Under the
 
    (or Units)
    per Share
    Plans or
    Plans or
 
Period
  Purchased(1)     (or Unit)     Programs     Programs(2)  
 
October 1 - October 31, 2008
    2,693     $ 80.88             2,181,500  
November 1 - November 30, 2008
    901       77.52             2,181,500  
December 1 - December 31, 2008
    878       56.31             2,181,500  
                                 
Total
    4,472     $ 75.38                
                                 
 
 
(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 common shares in satisfaction of the exercise price, as is permitted under M&T’s stock option plans.
 
(2) On February 22, 2007, M&T announced a program to purchase up to 5,000,000 shares of its common stock.
 
Item 6.    Selected Financial Data.
 
See cross-reference sheet for disclosures incorporated elsewhere in this Annual Report on Form 10-K.
 
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Corporate Profile and Significant Developments
M&T Bank Corporation (“M&T”) is a bank holding company headquartered in Buffalo, New York with consolidated assets of $65.8 billion at December 31, 2008. The consolidated financial information presented herein reflects M&T and all of its subsidiaries, which are referred to collectively as “the Company.” M&T’s wholly owned bank subsidiaries are M&T Bank and M&T Bank, National Association (“M&T Bank, N.A.”).
M&T Bank, with total assets of $64.8 billion at December 31, 2008, is a New York-chartered commercial bank with 684 banking offices in New York State, Pennsylvania, Maryland, Delaware, New Jersey, Virginia, West Virginia and the District of Columbia, and an office in the Cayman Islands. M&T Bank and its subsidiaries offer a broad range of financial services to a diverse base of consumers, businesses, professional clients, governmental entities and financial institutions located in their markets. Lending is largely focused on consumers residing in New York State, Pennsylvania, Maryland, northern Virginia and Washington, D.C., and on small and medium size businesses based in those areas, although residential and commercial real estate loans are originated through lending offices in six other states. Certain lending activities are also conducted in other states through various subsidiaries. M&T Bank’s subsidiaries include: M&T Credit Services, LLC, a consumer lending and commercial leasing and lending company; M&T Real Estate Trust, a commercial mortgage lender; M&T Realty Capital Corporation, a

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multifamily commercial mortgage lender; M&T Securities, Inc., which provides brokerage, investment advisory and insurance services; MTB Investment Advisors, Inc., which serves as investment advisor to the MTB Group of Funds, a family of proprietary mutual funds, and other funds and institutional clients; and M&T Insurance Agency, Inc., an insurance agency.
M&T Bank, N.A., with total assets of $939 million at December 31, 2008, is a national bank with an office in Oakfield, New York. M&T Bank, N.A. offers selected deposit and loan products on a nationwide basis, largely through telephone, Internet and direct mail marketing techniques.
On December 18, 2008, M&T entered into a definitive agreement to acquire Provident Bankshares Corporation (“Provident”), a bank holding company headquartered in Baltimore, Maryland, in a stock-for-stock transaction. Provident will merge with and into First Empire State Holding Company, a wholly owned direct subsidiary of M&T formed solely for the purposes of the merger. Immediately following the acquisition, Provident’s wholly owned banking subsidiary, Provident Bank of Maryland (“Provident Bank”) will be merged with and into M&T Bank. Provident Bank operates 143 branch offices located primarily in Maryland and Virginia. At December 31, 2008, Provident had $6.6 billion in assets, including $4.4 billion of loans and leases and $1.4 billion of investment securities, and $5.9 billion of liabilities, including $4.8 billion of deposits. The merger requires the approval of various regulatory agencies and Provident’s shareholders and, assuming those approvals are obtained, is expected to be completed during the second quarter of 2009. Under the terms of the merger agreement, Provident common shareholders will receive 0.171625 shares of M&T common stock in exchange for each share of Provident common stock they own. Provident Series A and Series B preferred stock will be exchanged for series of M&T preferred stock on substantially the same terms. The acquisition of Provident will expand the Company’s presence in the Mid-Atlantic area, is expected to give the Company the second-largest deposit share in Maryland, and will triple the Company’s presence in Virginia.
The condition of the residential real estate marketplace and the U.S. economy in 2007 and 2008 has had a significant impact on the financial services industry as a whole, and specifically on the financial results of the Company. Beginning with a pronounced downturn in the residential real estate market in early 2007 that was led by problems in the sub-prime mortgage market, the deterioration of residential real estate values and higher delinquencies and charge-offs of loans continued throughout 2008. The drop in real estate values negatively impacted residential real estate builder and developer businesses. With the U.S. economy in recession in 2008, financial institutions were facing higher credit losses from distressed real estate values and borrower defaults, resulting in reduced capital levels. In addition, investment securities backed by residential and commercial real estate were reflecting substantial unrealized losses due to a lack of liquidity in the financial markets and anticipated credit losses. Some financial institutions were forced into liquidation or were merged with stronger institutions as losses increased and the amounts of available funding and capital levels lessened. The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”), two government-sponsored entities, were placed in conservatorship in September 2008 by the U.S. Government. The Federal Reserve also lowered its federal funds target rate in the fourth quarter of 2008 three times, from 2.00% at the beginning of the quarter to a range of 0% - .25% at December 31, 2008.
In the third quarter of 2008, the Federal Reserve, the U.S. Treasury Department (“U.S. Treasury”) and the Federal Deposit Insurance Corporation (“FDIC”) initiated measures to stabilize the financial markets and to provide liquidity for financial institutions. The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008 and authorizes the U.S. Treasury to provide funds to be used to restore liquidity and stability to the U.S. financial system. Under the authority of EESA, the U.S. Treasury instituted a voluntary capital purchase program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under the program, the U.S. Treasury has been purchasing senior preferred shares of financial institutions which will pay cumulative dividends at a rate of 5% per year for five years and thereafter at a rate of 9% per year. The terms of the senior preferred shares indicate that the shares may not be redeemed for three years except with the proceeds of a “qualifying equity offering” and that after three years, the shares may be redeemed, in whole or in part, at par value plus accrued and unpaid dividends. In February 2009, legislation was signed that may result in changes in those terms. The senior preferred shares are non-voting and qualify as Tier 1 capital for regulatory reporting purposes. In

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connection with purchasing senior preferred shares, the U.S. Treasury also receives warrants to purchase the common stock of participating financial institutions having a market price of 15% of the amount of senior preferred shares on the date of investment with an exercise price equal to the market price of the participating institution’s common stock at the time of approval, calculated on a 20-trading day trailing average. The warrants have a term of ten years and are immediately exercisable, in whole or in part. For a period of three years, the consent of the U.S. Treasury will be required for participating institutions to increase their common stock dividend or repurchase their common stock, other than in connection with benefit plans consistent with past practice. Participation in the capital purchase program also includes certain restrictions on executive compensation. The minimum subscription amount available to a participating institution is one percent of total risk-weighted assets. The maximum suggested subscription amount is three percent of risk-weighted assets. On December 23, 2008, M&T issued to the U.S. Treasury $600 million of Series A preferred stock and warrants to purchase 1,218,522 shares of M&T common stock at $73.86 per share. M&T elected to participate in the capital purchase program at an amount equal to approximately 1% of its risk-weighted assets at the time.
Following a systemic risk determination pursuant to the Federal Deposit Insurance Act, the FDIC announced a Temporary Liquidity Guarantee Program (“TLGP”), which temporarily guarantees the senior debt of all FDIC-insured institutions and certain holding companies, as well as deposits in noninterest-bearing deposit transaction accounts, for those institutions and holding companies who did not elect to opt out of the TLGP by December 5, 2008. M&T chose to continue its participation in the TLGP and, thus, did not opt out. To further increase access to funding for businesses in all sectors of the economy, the Federal Reserve Board announced a Commercial Paper Funding Facility (“CPFF”) program, which provides a broad backstop for the commercial paper market. Beginning October 27, 2008, the CPFF began funding purchases of commercial paper of three-month maturity from high-quality issuers.
On November 30, 2007, M&T acquired Partners Trust Financial Group, Inc. (“Partners Trust”), a bank holding company headquartered in Utica, New York. Partners Trust Bank, the primary banking subsidiary of Partners Trust, was merged into M&T Bank on that date. Partners Trust Bank operated 33 branch offices in upstate New York at the date of acquisition. The results of operations acquired in the Partners Trust transaction have been included in the Company’s financial results since November 30, 2007, but did not have a material effect on the Company’s results of operations in 2007 or in 2008. After application of the election, allocation and proration procedures contained in the merger agreement with Partners Trust, M&T paid $282 million in cash and issued 3,096,861 shares of M&T common stock in exchange for Partners Trust shares outstanding at the time of acquisition. In addition, based on the merger agreement, M&T paid $9 million in cash to holders of outstanding and unexercised stock options granted by Partners Trust. The purchase price was approximately $559 million based on the cash paid to Partners Trust shareholders, the fair value of M&T common stock exchanged, and the cash paid to holders of Partners Trust stock options. The acquisition of Partners Trust expanded the Company’s presence in upstate New York, making M&T Bank the deposit market share leader in the Utica-Rome and Binghamton markets, while strengthening its lead position in Syracuse.
Assets acquired from Partners Trust on November 30, 2007 totaled $3.5 billion, including $2.2 billion of loans and leases (largely residential real estate and consumer loans), liabilities assumed aggregated $3.0 billion, including $2.2 billion of deposits (largely savings, money-market and time deposits), and $277 million was added to stockholders’ equity. In connection with the acquisition, the Company recorded approximately $283 million of goodwill and $50 million of core deposit intangible. The core deposit intangible is being amortized over 7 years using an accelerated method.
As a condition of the approval of the Partners Trust acquisition by regulators, M&T Bank was required to divest three of the acquired branch offices in Binghamton, New York. The three branches were sold on March 15, 2008, including loans of $13 million and deposits of $65 million. No gain or loss was recognized on that transaction.
On December 7, 2007, M&T Bank acquired the Mid-Atlantic retail banking franchise of First Horizon Bank (“First Horizon”), a subsidiary of First Horizon National Corporation, in a cash transaction, including $214 million of loans, $216 million of deposits and $80 million of trust and investment assets under management. The transaction did not have a significant effect on the Company’s results of operations during 2007 or 2008. In connection with the transaction, the Company recorded

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approximately $15 million of core deposit and other intangible assets that are being amortized using accelerated methods over a weighted-average life of 7 years.
The Company incurred merger-related expenses associated with the Partners Trust and First Horizon transactions related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company of approximately $15 million ($9 million net of applicable income taxes, or $.08 of diluted earnings per common share) during 2007 and $4 million ($2 million net of applicable income taxes, or $.02 of diluted earnings per common share) during 2008. Those expenses consisted largely of professional services and other temporary help fees associated with the conversion of systems and/or integration of operations; costs related to branch and office consolidations; incentive compensation; initial marketing and promotion expenses designed to introduce the Company to customers of the acquired operations; travel costs; printing, postage and supplies; and other costs of commencing operations in new offices. In accordance with generally accepted accounting principles (“GAAP”), included in the determination of goodwill associated with the Partners Trust acquisition were charges totaling $14 million, net of applicable income taxes ($18 million before tax effect), for severance costs for former Partners Trust employees, termination of Partners Trust contracts for various services and other items. As of December 31, 2008, there were no significant amounts of unpaid merger-related expenses or charges included in the determination of goodwill.
On February 5, 2007, M&T invested $300 million to acquire a 20 percent minority interest in Bayview Lending Group LLC (“BLG”), a privately-held commercial mortgage lender that specializes in originating, securitizing and servicing small balance commercial real estate loans. M&T recognizes income from BLG using the equity method of accounting. M&T’s pro-rata portion of the results of operations of BLG was a loss of $37 million ($23 million after tax effect) in 2008 and income of $9 million ($5 million after tax effect) in 2007, which have been recorded as a component of “other income” in the consolidated statement of income. Including expenses associated with M&T’s investment in BLG, most notably interest expense, that investment reduced the Company’s net income in 2008 by $32 million (after tax effect) or $.29 per diluted common share and in 2007 by $4 million (after tax effect) or $.04 per diluted common share.
On June 30, 2006, M&T Bank completed the acquisition of 21 branch offices in Buffalo and Rochester, New York from Citibank, N.A., including approximately $269 million of loans, mostly to consumers, small businesses and middle market customers, and approximately $1.0 billion of deposits. 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 $3 million, after applicable tax effect, or $.03 of diluted earnings per common share during the year ended December 31, 2006.
 
Critical Accounting Estimates
The Company’s significant accounting policies conform with GAAP and are described in note 1 of Notes to Financial Statements. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company’s reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. Some of the more significant areas in which management of the Company applies critical assumptions and estimates include the following:
    Allowance for credit losses — The allowance for credit losses represents the amount which, in management’s judgment, will be adequate to absorb credit losses inherent in the loan and lease portfolio as of the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating losses inherent in the loan and lease portfolio, assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. Historical loss trends are also considered, as are economic conditions, industry trends, portfolio trends and borrower-specific financial data. Changes in the circumstances considered when determining management’s estimates and assumptions could result in

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  changes in those estimates and assumptions, which may result in adjustment of the allowance. A detailed discussion of facts and circumstances considered by management in assessing the adequacy of the allowance for credit losses is included herein under the heading “Provision for Credit Losses.”
    Valuation methodologies — Management of the Company applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as trading assets, most investment securities, and residential real estate loans held for sale and related commitments. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit and other intangible assets, and other assets and liabilities obtained or assumed in business combinations; capitalized servicing assets; pension and other postretirement benefit obligations; value ascribed to stock-based compensation; estimated residual values of property associated with leases; and certain derivative and other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, costs of servicing and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations. In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income. Examples include investment securities, other investments, mortgage servicing rights, goodwill, core deposit and other intangible assets, among others. Specific assumptions and estimates utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 3, 4, 7, 8, 10, 11, 12, 18, 19 and 20 of Notes to Financial Statements.
    Commitments, contingencies and off-balance sheet arrangements — Information regarding the Company’s commitments and contingencies, including guarantees and contingent liabilities arising from litigation, and their potential effects on the Company’s results of operations is included in note 21 of Notes to Financial Statements. In addition, the Company is routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should tax laws change or the tax authorities determine that management’s assumptions were inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations. Information regarding the Company’s income taxes is presented in note 13 of Notes to Financial Statements. The recognition or de-recognition in the Company’s consolidated financial statements of assets and liabilities held by so-called variable interest entities is subject to the interpretation and application of complex accounting pronouncements or interpretations that require management to estimate and assess the probability of financial outcomes in future periods. Information relating to the Company’s involvement in such entities and the accounting treatment afforded each such involvement is included in note 19 of Notes to Financial Statements.
 
Overview
The Company’s net income for 2008 was $556 million or $5.01 of diluted earnings per common share, representing declines of 15% and 16%, respectively, from $654 million or $5.95 of diluted earnings per common share in 2007. Basic earnings per common share decreased 17% to $5.04 in 2008 from $6.05 in 2007. Net income in 2006 aggregated $839 million, while diluted and basic earnings per common share were $7.37 and $7.55, respectively. The after-tax impact of acquisition and integration-related expenses (included herein as merger-related expenses) associated with the 2007 business combination and branch acquisition transactions were $2 million ($4 million pre-tax) or $.02 of basic and diluted earnings per

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common share in 2008 and $9 million ($15 million pre-tax) or $.08 of basic and diluted earnings per common share in 2007. Similar costs related to the 2006 branch acquisition transaction were $3 million ($5 million pre-tax) or $.03 of basic and diluted earnings per common share in 2006. Net income represented a rate of return on average assets in 2008 of .85%, compared with 1.12% in 2007 and 1.50% in 2006. The return on average common stockholders’ equity was 8.64% in 2008, 10.47% in 2007 and 13.89% in 2006.
The Company’s financial results for 2008 were affected by several notable factors. Largely the result of the state of the U.S. economy and the distressed residential real estate marketplace, the Company’s provision for credit losses in 2008 was $412 million, significantly higher than $192 million in 2007. Net charge-offs of loans rose dramatically in 2008, to $383 million from $114 million in 2007. Net loan charge-offs as a percentage of average loans outstanding were .78% and .26% in 2008 and 2007, respectively. While charge-offs were up in all major categories of loans, the most significant contributors to the sharp rise were loan charge-offs related to residential real estate markets; charge-offs of loans to builders and developers of residential real estate jumped from $4 million in 2007 to $100 million in 2008, and residential real estate loan charge-offs grew to $63 million in 2008 from $19 million in 2007. Not only did the condition of the residential real estate markets negatively impact the Company’s financial results in 2008 through a higher provision for credit losses, but significantly higher costs were incurred related to the workout process for modifying the residential mortgage loans of creditworthy borrowers and to the foreclosure process for borrowers unable to make payments on their loans.
During the third quarter, a $153 million (pre-tax) other-than-temporary impairment charge was recorded related to preferred stock issuances of Fannie Mae and Freddie Mac. The write-down was taken on preferred stock with a basis of $162 million following the U.S. Government’s placement of Fannie Mae and Freddie Mac under conservatorship on September 7, 2008. At December 31, 2008 the fair value of the securities of $2 million (adjusted cost basis of $9 million) was reflected in the Company’s available-for-sale investment securities portfolio. The Company recognized additional other-than-temporary impairment charges during 2008 totaling $29 million (pre-tax) related to certain collateralized debt obligations (obtained from Partners Trust) and collateralized mortgage obligations. In total, other-than-temporary impairment charges on investment securities aggregated $182 million ($111 million after tax effect) during 2008, thereby lowering diluted earnings per common share by $1.00.
Also reflected in the Company’s 2008 results was $29 million, or $.26 of diluted earnings per common share, resulting from M&T Bank’s status as a member bank of Visa. During the last quarter of 2007, Visa completed a reorganization in contemplation of its initial public offering (“IPO”) in 2008. As part of that reorganization M&T Bank and other member banks of Visa received shares of Class B common stock of Visa. Those banks are also obligated under various agreements with Visa to share in losses stemming from certain litigation involving Visa (“Covered Litigation”). As of December 31, 2007, although Visa was expected to set aside a portion of the proceeds from its IPO in an escrow account to fund any judgments or settlements that may arise out of the Covered Litigation, guidance from the Securities and Exchange Commission (“SEC”) indicated that Visa member banks should record a liability for the fair value of the contingent obligation to Visa. The estimation of the Company’s proportionate share of any potential losses related to the Covered Litigation was extremely difficult and involved a great deal of judgment. Nevertheless, in the fourth quarter of 2007 the Company recorded a pre-tax charge of $23 million ($14 million after tax effect, or $.13 per diluted common share) related to the Covered Litigation. In accordance with GAAP and consistent with the SEC guidance, the Company did not recognize any value for its common stock ownership interest in Visa as of the 2007 year-end. During the first quarter of 2008, Visa completed its IPO and, as part of the transaction, funded an escrow account with $3 billion from the proceeds of the IPO to cover potential settlements arising out of the Covered Litigation. As a result, during the first three months of 2008, the Company reversed approximately $15 million of the $23 million accrued during the fourth quarter of 2007 for the Covered Litigation, adding $9 million to net income ($.08 per diluted common share). In addition, M&T Bank was allocated 1,967,028 Class B common shares of Visa based on its proportionate ownership of Visa. Of those shares, 760,455 were mandatorily redeemed in March 2008 for an after-tax gain of $20 million ($33 million pre-tax), which has been recorded as “gain on bank investment securities” in the consolidated statement of income, adding $.18 to diluted earnings per common share. During the fourth quarter of 2008, Visa

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announced that it had settled an additional portion of the Covered Litigation and it further funded the escrow account to provide for that settlement. That settlement and subsequent funding of the escrow account did not result in a material impact to the Company’s consolidated financial position or results of operations.
The Company resolved certain tax issues during the third quarter of 2008 related to its activities in various jurisdictions during the years 1999-2007. As a result, the Company paid $40 million to settle those issues, but was able to reduce previously accrued income tax expense in 2008 by $40 million, thereby adding $.36 to diluted earnings per common share.
The Company’s financial results for 2007 were adversely impacted by several events. Turmoil in the residential real estate market, which began in early 2007, significantly affected the Company’s financial results in a number of ways. Problems experienced by lenders in the sub-prime residential mortgage lending market also had negative repercussions on the rest of the residential real estate marketplace. Through early 2007, the Company had been an active participant in the origination of alternative (“Alt-A”) residential real estate loans and the sale of such loans in the secondary market. Alt-A loans originated by M&T typically included some form of limited documentation requirements as compared with more traditional residential real estate loans. Unfavorable market conditions during the first quarter of 2007, including a lack of liquidity, impacted the Company’s willingness to sell Alt-A loans, as an auction of such loans initiated by the Company received fewer bids than normal and the pricing of those bids was substantially lower than expected. As a result, $883 million of Alt-A loans previously held for sale (including $808 million of first mortgage loans and $75 million of second mortgage loans) were transferred in March 2007 to the Company’s held-for-investment loan portfolio. In accordance with GAAP, loans held for sale must be recorded at the lower of cost or market value. Accordingly, prior to reclassifying the Alt-A mortgage loans to the held-for-investment portfolio, the carrying value of such loans was reduced by $12 million ($7 million after tax effect, or $.07 of diluted earnings per common share). Those loans were reclassified because management believed at that time that the value of the Alt-A residential real estate loans was greater than the amount implied by the few bidders who were active in the market. The downturn in the residential real estate market, specifically related to declining real estate valuations and higher delinquencies, continued throughout the remainder of 2007 and had a negative effect on the majority of financial institutions active in residential real estate lending. Margins earned by the Company from sales of residential real estate loans in the secondary market were lower in 2007 than in 2006.
The Company is contractually obligated to repurchase some previously sold residential real estate loans that do not ultimately meet investor sale criteria, including instances where mortgagors fail to make timely payments during the first 90 days subsequent to the sale date. Requests from investors for the Company to repurchase residential real estate loans increased significantly in early 2007, particularly related to Alt-A loans. As a result, during 2007’s first quarter the Company reduced mortgage banking revenues by $6 million ($4 million after tax effect, or $.03 of diluted earnings per common share) related to declines in market values of previously sold residential real estate loans that the Company may be required to repurchase.
The Company had $1.2 billion of Alt-A residential real estate loans in its held-for-investment loan portfolio at December 31, 2007. Lower real estate values and higher levels of delinquencies and charge-offs contributed to increased losses in that portfolio during 2007, which led to an assessment of the Company’s accounting practices during the fourth quarter as they related to the timing of the classification of residential real estate loans as nonaccrual and when such loans were charged off. Beginning in the fourth quarter of 2007, residential real estate loans were classified as nonaccrual when principal or interest payments became 90 days delinquent. Previously, residential real estate loans had been placed in nonaccrual status when payments were 180 days past due. Also in 2007’s final quarter, the Company began charging-off loan balances over the net realizable value of the property collateralizing the loan when such loans become 150 days delinquent, whereas previously the Company provided an allowance for credit losses for those amounts and charged-off loans upon foreclosure of the underlying property. The impact of the acceleration of the classification of residential real estate loans as nonaccrual resulted in an increase in nonperforming loans of $84 million at December 31, 2007 and a corresponding decrease in loans past due 90 days and accruing interest. As a result of that acceleration, previously accrued

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interest of $2 million was reversed and charged against income. Included in the $114 million of net charge-offs for 2007 were $15 million resulting from the change in accounting procedure. The declining residential real estate values also contributed to specific allocations of the allowance for credit losses related to two residential real estate builders and developers during the fourth quarter of 2007. Considering these and other factors as discussed herein under the heading “Provision for Credit Losses,” the Company significantly increased the provision for credit losses in 2007 to $192 million, compared with $80 million in 2006.
The turbulence in the residential real estate market in 2007 also negatively affected the Company’s investment securities portfolio. Three collateralized debt obligations were purchased in the first quarter of 2007 for approximately $132 million. The securities are backed largely by residential mortgage-backed securities (collateralized by a mix of prime, mid-prime and sub-prime residential mortgage loans) and are held in the Company’s available-for-sale portfolio. Although these securities were highly rated when purchased, two of the three securities were downgraded by the rating agencies in late-2007. After a thorough analysis, management concluded that the impairment of the market value of these securities was other than temporary. As a result, the Company recorded an impairment charge of $127 million ($78 million after tax effect, or $.71 of diluted earnings per common share) in the fourth quarter of 2007. The impairment charge reduced the Company’s exposure to collateralized debt obligations backed by residential mortgage securities to approximately $4 million.
Finally, as already noted, during the last quarter of 2007, the Company recorded a pre-tax charge of $23 million ($14 million after tax effect, or $.13 per diluted common share) related to the Visa Covered Litigation.
Net interest income expressed on a taxable-equivalent basis in 2008 rose 5% to $1.96 billion from $1.87 billion in 2007. The positive impact of higher average earning assets was partially offset by a decline in net interest margin, or taxable-equivalent net interest income expressed as a percentage of average earning assets. Average earning assets increased 12% to $58.0 billion in 2008 from $52.0 billion in 2007, the result of increased average balances of loans and leases and investment securities. Earning assets obtained in the fourth quarter 2007 acquisition transactions were $3.3 billion. Average loans and leases of $48.8 billion in 2008 were $4.7 billion or 11% higher than $44.1 billion in 2007, due to growth in commercial loans and leases of $1.6 billion, or 13%, commercial real estate loans of $2.7 billion, or 17%, and consumer loans and leases of $961 million, or 9%, partially offset by a $550 million, or 9%, decline in consumer real estate loans. Reflected in those amounts were loans obtained in the 2007 acquisition transactions aggregating $2.4 billion at the respective acquisition dates, including $259 million of commercial loans and leases, $343 million of commercial real estate loans, $1.1 billion of residential real estate loans and $690 million of consumer loans. Of the $1.1 billion of residential real estate loans acquired, approximately $950 million were securitized into Fannie Mae mortgage-backed securities in December 2007. The acquired loans did not have a significant impact on average loans and leases for 2007. Average balances of investment securities increased 23% to $9.0 billion in 2008 from $7.3 billion in 2007. The net interest margin declined 22 basis points (hundredths of one percent) to 3.38% in 2008 from 3.60% in 2007, largely due to a decrease in the contribution ascribed to net interest-free funds that resulted largely from the impact of lower interest rates on interest-bearing liabilities used to value such funds.
Taxable-equivalent net interest income in 2007 was 2% higher than $1.84 billion in 2006. The impact of higher average earning asset balances was largely offset by a decline in net interest margin. Average earning assets increased 5% to $52.0 billion in 2007 from $49.7 billion in 2006 due to higher loan and lease balances, partially offset by lower average balances of investment securities. Average loans and leases outstanding in 2007 rose $2.7 billion or 7% to $44.1 billion from $41.4 billion in 2006, the result of growth in commercial loans and leases of $858 million, or 8%, commercial real estate loans of $653 million, or 4%, consumer real estate loans of $1.0 billion, or 20%, and consumer loans and leases of $186 million, or 2%. The $2.4 billion of loans obtained in the 2007 acquisition transactions did not have a significant impact on average loans and leases for 2007. The average balance of investment securities outstanding declined $717 million, or 9%, to $7.3 billion in 2007 from $8.0 billion in 2006 due largely to net paydowns and maturities of mortgage-backed securities, collateralized mortgage obligations and U.S. federal agency securities. The Company’s net interest margin narrowed 10 basis points to 3.60% in 2007 from 3.70% in 2006. That narrowing was the result of several factors, including higher rates paid

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on deposit accounts and variable-rate borrowings that were only partially offset by higher yields earned on loans and investment securities.
The provision for credit losses rose to $412 million in 2008 from $192 million in 2007 and $80 million in 2006. Deteriorating credit conditions that were reflected in rising levels of charge-offs and delinquencies, as well as rapidly declining residential real estate valuations during 2007 and continuing in 2008 and their impact on the Company’s portfolios of residential mortgage loans and loans to residential builders and developers, contributed significantly to the increases in the provision. Also contributing to the higher levels of the provision, charge-offs and delinquencies in 2008 was the impact of the condition of the U.S. economy, which was in recession. The level of the provision during 2006 was reflective of generally favorable credit quality. Net charge-offs were $383 million in 2008, up from $114 million in 2007 and $68 million in 2006. Net charge-offs as a percentage of average loans and leases outstanding rose to .78% in 2008 from .26% in 2007 and .16% in 2006. The provision in each year represents the result of management’s analysis of the composition of the loan and lease portfolio and other factors, including concern regarding uncertainty about economic conditions, both nationally and in many of the markets served by the Company, and the impact of such conditions and prospects on the abilities of borrowers to repay loans.
Noninterest income in 2008 aggregated $939 million, compared with $933 million in 2007. Reflected in 2008’s total were $148 million of losses from bank investment securities, compared with $126 million of such losses in the 2007 noninterest income amount. Those losses were due predominately to other-than-temporary impairment charges related to certain of M&T’s collateralized debt obligations, collateralized mortgage obligations, and preferred stock holdings of Fannie Mae and Freddie Mac, all held in the available-for-sale investment securities portfolio. The 2008 losses are net of the already noted $33 million gain from the sale of shares of Visa. Excluding the impact of those net securities losses, noninterest income was $1.09 billion in 2008, 3% higher than $1.06 billion in 2007. That 3% rise reflected higher mortgage banking revenues and fees for providing deposit services that were partially offset by a $46 million decline in M&T’s pro-rata portion of the operating results of BLG.
Noninterest income in 2007 declined 11% from $1.05 billion in 2006. That decline resulted from the $127 million other-than-temporary impairment charge in 2007 related to collateralized debt obligations held in the Company’s available-for-sale investment securities portfolio. That charge is reflected in “losses from bank investment securities” in the consolidated statement of income. Excluding securities gains or losses, noninterest income in 2007 was 1% higher than in 2006. Higher service charges on deposit accounts, trust income, and trading account and foreign exchange gains, and $9 million related to M&T’s pro-rata portion of the operating results of BLG, were largely offset by a $31 million decline in mortgage banking revenues. Contributing to the decline in mortgage banking revenues were changing market conditions, which led to slimmer margins realized on sales of residential real estate loans. In addition, the Company recognized $18 million of losses in the first quarter of 2007 related to its Alt-A loan portfolio due to declines in the market values of such loans. Included in noninterest income in 2006 was 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 (“FHLB”) of Atlanta borrowing assumed in a previous acquisition.
Noninterest expense in 2008 totaled $1.73 billion, up 6% from $1.63 billion in 2007. Noninterest expense in 2006 was $1.55 billion. Included in such amounts are expenses considered by M&T to be “nonoperating” in nature, consisting of amortization of core deposit and other intangible assets of $67 million, $66 million and $63 million in 2008, 2007 and 2006, respectively, and merger-related expenses of $4 million in 2008, $15 million in 2007 and $5 million in 2006. Exclusive of these nonoperating expenses, noninterest operating expenses aggregated $1.66 billion in 2008, $1.55 billion in 2007 and $1.48 billion in 2006. Noninterest expenses in 2008 included an addition to the valuation allowance for capitalized residential mortgage servicing rights of $16 million, as compared with partial reversals of the valuation allowance of $4 million in 2007 and $10 million in 2006. Also contributing to the rise in operating expenses were higher expenses for salaries, occupancy, professional services, advertising and promotion, and foreclosed residential real estate properties. Partially offsetting those factors was the $23 million charge taken in the fourth quarter of 2007 related to M&T Bank’s obligation as a member bank of Visa to share in losses stemming from certain litigation, compared with a partial

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reversal of that charge in the first quarter of 2008 of $15 million. Included in operating expenses in 2006 was an $18 million tax-deductible contribution made to The M&T Charitable Foundation, a tax-exempt private charitable foundation. A similar $6 million contribution was made in 2008, whereas no such contribution was made in 2007. Excluding the impact of the Visa charge in 2007 and the charitable contribution in 2006, operating expenses in 2007 were up 4% from 2006, largely due to a higher level of salaries and employee benefits expense reflecting the impact of merit pay increases, increased incentive compensation and higher costs for providing medical benefits to employees.
The efficiency ratio expresses the relationship of operating expenses to revenues. The Company’s efficiency ratio, or noninterest operating expenses divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from bank investment securities), was 54.4% in 2008, compared with 52.8% in 2007 and 51.5% in 2006.
 
Table 1
 
EARNINGS SUMMARY
Dollars in millions
 
                                                                                 
                                        Compound
Increase (Decrease)(a)                           Growth Rate
2007 to 2008   2006 to 2007                           5 Years
Amount   %   Amount   %       2008   2007   2006   2005   2004   2003 to 2008
 
$ (266.2 )     (7 )   $  231.9        7     Interest income(b)   $ 3,299.5       3,565.6       3,333.8       2,806.0       2,316.1       9 %
  (356.8 )     (21 )     198.0       13     Interest expense     1,337.8       1,694.6       1,496.6       994.4       564.2       20  
                                                                                 
  90.6       5       33.9       2     Net interest income(b)     1,961.7       1,871.0       1,837.2       1,811.6       1,751.9       4  
  220.0       115       112.0       140     Less: provision for credit losses     412.0       192.0       80.0       88.0       95.0       26  
  (21.7 )           (128.7 )        
Gain (loss) on bank investment securities
    (147.8 )     (126.1 )     2.6       (28.1 )     2.9        
  27.7       3       15.8       2     Other income     1,086.7       1,059.1       1,043.2       977.8       940.1       6  
                                Less:                                                
  48.8       5       35.0       4       Salaries and employee benefits     957.1       908.3       873.3       822.2       806.6       5  
  50.5       7       40.9       6       Other expense     769.9       719.3       678.4       662.9       709.5       2  
                                                                                 
  (222.7 )     (23 )     (266.9 )     (21 )   Income before income taxes     761.6       984.4       1,251.3       1,188.2       1,083.8       (3 )
                                Less:                                                
  1.0       5       1.2       6       Taxable-equivalent adjustment(b)     21.8       20.8       19.7       17.3       17.3       6  
  (125.3 )     (41 )     (83.2 )     (21 )     Income taxes     183.9       309.3       392.4       388.7       344.0       (8 )
                                                                                 
$ (98.4 )     (15 )   $ (184.9 )     (22 )   Net income   $ 555.9       654.3       839.2       782.2       722.5       (1 )%
                                                                                 
 
 
(a) Changes were calculated from unrounded amounts.
 
(b) Interest income data are on a taxable-equivalent basis. The taxable-equivalent adjustment represents additional income taxes that would be due if all interest income were subject to income taxes. This adjustment, which is related to interest received on qualified municipal securities, industrial revenue financings and preferred equity securities, is based on a composite income tax rate of approximately 39%.
 
Supplemental Reporting of Non-GAAP Results of Operations
As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.4 billion at each of December 31, 2008 and 2007, and $3.2 billion at December 31, 2006. Included in such intangible assets was goodwill of $3.2 billion at each of December 31, 2008 and 2007, and $2.9 billion at December 31, 2006. Amortization of core deposit and other intangible assets, after tax effect, totaled $41 million, $40 million and $38 million during 2008, 2007 and 2006, respectively.
M&T consistently provides 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

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“net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this information helps investors understand the effect of acquisition activity in reported results.
Net operating income totaled $599 million in 2008, compared with $704 million in 2007. Diluted net operating earnings per common share in 2008 declined 16% to $5.39 from $6.40 in 2007. Net operating income and diluted net operating earnings per common share were $881 million and $7.73, respectively, during 2006.
Reconciliations of net income and diluted earnings per common share with net operating income and diluted net operating earnings per common share are presented in table 2.
Net operating income expressed as a rate of return on average tangible assets was .97% in 2008, compared with 1.27% in 2007 and 1.67% in 2006. Net operating return on average tangible common equity was 19.63% in 2008, compared with 22.58% and 29.55% in 2007 and 2006, respectively.

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Reconciliations of average assets and equity with average tangible assets and average tangible common equity are also presented in table 2.
 
Table 2
 
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
 
                         
    2008     2007     2006  
 
Income statement data
                       
In thousands, except per share
                       
Net income
                       
Net income
  $ 555,887     $ 654,259     $ 839,189  
Amortization of core deposit and other intangible assets(a)
    40,504       40,491       38,418  
Merger-related expenses(a)
    2,160       9,070       3,048  
                         
Net operating income
  $ 598,551     $ 703,820     $ 880,655  
                         
Earnings per common share
                       
Diluted earnings per common share
  $ 5.01     $ 5.95     $ 7.37  
Amortization of core deposit and other intangible assets(a)
    .36       .37       .33  
Merger-related expenses(a)
    .02       .08       .03  
                         
Diluted net operating earnings per common share
  $ 5.39     $ 6.40     $ 7.73  
                         
Other expense
                       
Other expense
  $ 1,726,996     $ 1,627,689     $ 1,551,751  
Amortization of core deposit and other intangible assets
    (66,646 )     (66,486 )     (63,008 )
Merger-related expenses
    (3,547 )     (14,887 )     (4,997 )
                         
Noninterest operating expense
  $ 1,656,803     $ 1,546,316     $ 1,483,746  
                         
Merger-related expenses
                       
Salaries and employee benefits
  $ 62     $ 1,333     $ 815  
Equipment and net occupancy
    49       238       224  
Printing, postage and supplies
    367       1,474       155  
Other costs of operations
    3,069       11,842       3,803  
                         
Total
  $ 3,547     $ 14,887     $ 4,997  
                         
Balance sheet data
                       
In millions
                       
Average assets
                       
Average assets
  $ 65,132     $ 58,545     $ 55,839  
Goodwill
    (3,193 )     (2,933 )     (2,908 )
Core deposit and other intangible assets
    (214 )     (221 )     (191 )
Deferred taxes
    30       24       38  
                         
Average tangible assets
  $ 61,755     $ 55,415     $ 52,778  
                         
Average common equity
                       
Average common equity
  $ 6,423     $ 6,247     $ 6,041  
Goodwill
    (3,193 )     (2,933 )     (2,908 )
Core deposit and other intangible assets
    (214 )     (221 )     (191 )
Deferred taxes
    30       24       38  
                         
Average tangible common equity
  $ 3,046     $ 3,117     $ 2,980  
                         
At end of year
                       
Total assets
                       
Total assets
  $ 65,816     $ 64,876     $ 57,065  
Goodwill
    (3,192 )     (3,196 )     (2,909 )
Core deposit and other intangible assets
    (183 )     (249 )     (250 )
Deferred taxes
    23       36       30  
                         
Total tangible assets
  $ 62,464     $ 61,467     $ 53,936  
                         
Total common equity
                       
Total common equity
  $ 6,217     $ 6,485     $ 6,281  
Goodwill
    (3,192 )     (3,196 )     (2,909 )
Core deposit and other intangible assets
    (183 )     (249 )     (250 )
Deferred taxes
    23       36       30  
                         
Total tangible common equity
  $ 2,865     $ 3,076     $ 3,152  
                         
 
 
(a) After any related tax effect.

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Net Interest Income/Lending and Funding Activities
Net interest income expressed on a taxable-equivalent basis rose 5% to $1.96 billion in 2008 from $1.87 billion in 2007, largely the result of growth in average earning assets. Those assets totaled $58.0 billion in 2008, up 12% from $52.0 billion in 2007. Growth in average loan and lease balances outstanding, which rose 11% to $48.8 billion in 2008 from $44.1 billion in 2007, and average investment securities, which increased 23% to $9.0 billion in 2008 from $7.3 billion in 2007, were the leading factors in that improvement. A lower net interest margin, which declined to 3.38% in 2008 from 3.60% in 2007, partially offset the positive impact on taxable-equivalent net interest income resulting from growth in average earning assets.
Average loans and leases increased to $48.8 billion in 2008 from $44.1 billion in 2007. Most of the Company’s major loan categories experienced growth during 2008, notwithstanding the impact of loans acquired in the late-2007 acquisition transactions. Average commercial loans and leases increased 13% to $13.8 billion in 2008 from $12.2 billion in 2007. Commercial real estate loans averaged $18.4 billion in 2008, up 17% from $15.7 billion in 2007. The Company’s consumer loan portfolio averaged $11.2 billion in 2008, 9% higher than $10.2 billion in 2007. Average residential real estate loans declined 9% to $5.5 billion in 2008 from $6.0 billion in 2007, due largely to a $533 million decrease in average loans held for sale to $591 million in 2008 from $1.1 billion in 2007.
Reflecting growth in average earning assets that was partially offset by a narrowing of the net interest margin, taxable-equivalent net interest income increased 2% to $1.87 billion in 2007 from $1.84 billion in 2006. Average earning assets rose $2.3 billion or 5% to $52.0 billion in 2007 from $49.7 billion in 2006. That growth resulted from a $2.7 billion or 7% increase in average outstanding balances of loans and leases, offset in part by a $717 million or 9% decline in average outstanding balances of investment securities. The positive impact of higher average earning assets on taxable-equivalent net interest income was offset by a narrowing of the Company’s net interest margin, which declined to 3.60% in 2007 from 3.70% in 2006.

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Table 3
 
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
 
                                                                                                                         
    2008     2007     2006     2005     2004  
    Average
          Average
    Average
          Average
    Average
          Average
    Average
          Average
    Average
          Average
 
    Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate  
    (Average balance in millions; interest in thousands)  
 
Assets
                                                                                                                       
Earning assets
                                                                                                                       
Loans and leases, net of unearned discount(a)
                                                                                                                       
Commercial, financial, etc. 
  $ 13,802     $ 723,851       5.24 %     12,177       871,743       7.16 %     11,319       802,451       7.09 %     10,455       589,644       5.64 %     9,534       410,258       4.30 %
Real estate — commercial
    18,428       1,072,178       5.82       15,748       1,157,156       7.35       15,096       1,104,518       7.32       14,341       941,017       6.56       13,264       763,134       5.75  
Real estate — consumer
    5,465       329,574       6.03       6,015       384,101       6.39       5,015       319,858       6.38       3,925       235,364       6.00       3,111       184,125       5.92  
Consumer
    11,150       716,678       6.43       10,190       757,876       7.44       10,003       712,484       7.12       10,808       664,509       6.15       11,220       626,255       5.58  
                                                                                                                         
Total loans and leases, net
    48,845       2,842,281       5.82       44,130       3,170,876       7.19       41,433       2,939,311       7.09       39,529       2,430,534       6.15       37,129       1,983,772       5.34  
                                                                                                                         
Interest-bearing deposits at banks
    10       109       1.07       9       300       3.36       12       372       3.01       10       169       1.64       13       65       .51  
Federal funds sold and agreements to resell securities
    109       2,071       1.91       432       23,835       5.52       81       5,597       6.91       23       808       3.55       8       134       1.60  
Trading account
    79       1,546       1.95       62       744       1.20       90       2,446       2.71       80       1,544       1.92       53       418       .79  
Investment securities(b) 
                                                                                                                       
U.S. Treasury and federal agencies
    3,740       181,098       4.84       2,274       100,611       4.42       2,884       121,669       4.22       3,479       134,528       3.87       4,169       158,953       3.81  
Obligations of states and political subdivisions
    136       9,243       6.79       119       8,619       7.23       157       10,223       6.53       180       10,860       6.04       218       15,017       6.90  
Other
    5,097       263,104       5.16       4,925       260,661       5.29       4,995       254,142       5.09       4,817       227,562       4.72       3,610       157,703       4.37  
                                                                                                                         
Total investment securities
    8,973       453,445       5.05       7,318       369,891       5.05       8,036       386,034       4.80       8,476       372,950       4.40       7,997       331,673       4.15  
                                                                                                                         
Total earning assets
    58,016       3,299,452       5.69       51,951       3,565,646       6.86       49,652       3,333,760       6.71       48,118       2,806,005       5.83       45,200       2,316,062       5.13  
                                                                                                                         
Allowance for credit losses
    (791 )                     (677 )                     (646 )                     (638 )                     (626 )                
Cash and due from banks
    1,224                       1,271                       1,346                       1,400                       1,599                  
Other assets
    6,683                       6,000                       5,487                       5,255                       5,344                  
                                                                                                                         
Total assets
  $ 65,132                       58,545                       55,839                       54,135                       51,517                  
                                                                                                                         
Liabilities and Stockholders’ Equity
                                                                                                                       
Interest-bearing liabilities
                                                                                                                       
Interest-bearing deposits
                                                                                                                       
NOW accounts
  $ 502       2,894       .58       461       4,638       1.01       435       3,461       .79       400       2,182       .55       550       1,802       .33  
Savings deposits
    18,170       248,083       1.37       14,985       250,313       1.67       14,401       201,543       1.40       14,889       139,445       .94       15,305       92,064       .60  
Time deposits
    9,583       330,389       3.45       10,597       496,378       4.68       12,420       551,514       4.44       9,158       294,782       3.22       6,948       154,722       2.23  
Deposits at foreign office
    3,986       84,483       2.12       4,185       207,990       4.97       3,610       178,348       4.94       3,819       120,122       3.15       3,136       43,034       1.37  
                                                                                                                         
Total interest-bearing deposits
    32,241       665,849       2.07       30,228       959,319       3.17       30,866       934,866       3.03       28,266       556,531       1.97       25,939       291,622       1.12  
                                                                                                                         
Short-term borrowings
    6,086       142,627       2.34       5,386       274,079       5.09       4,530       227,850       5.03       4,890       157,853       3.23       5,142       71,172       1.38  
Long-term borrowings
    11,605       529,319       4.56       8,428       461,178       5.47       6,013       333,836       5.55       6,411       279,967       4.37       5,832       201,366       3.45  
                                                                                                                         
Total interest-bearing liabilities
    49,932       1,337,795       2.68       44,042       1,694,576       3.85       41,409       1,496,552       3.61       39,567       994,351       2.51       36,913       564,160       1.53  
                                                                                                                         
Noninterest-bearing deposits
    7,674                       7,400                       7,555                       8,050                       8,039                  
Other liabilities
    1,089                       856                       834                       720                       864                  
                                                                                                                         
Total liabilities
    58,695                       52,298                       49,798                       48,337                       45,816                  
                                                                                                                         
Stockholders’ equity
    6,437                       6,247                       6,041                       5,798                       5,701                  
                                                                                                                         
Total liabilities and stockholders’ equity
  $ 65,132                       58,545                       55,839                       54,135                       51,517                  
                                                                                                                         
Net interest spread
                    3.01                       3.01                       3.10                       3.32                       3.60  
Contribution of interest-free funds
                    .37                       .59                       .60                       .45                       .28  
                                                                                                                         
Net interest income/margin on earning assets
          $ 1,961,657       3.38 %             1,871,070       3.60 %             1,837,208       3.70 %             1,811,654       3.77 %             1,751,902       3.88 %
                                                                                                                         
 
 
(a) Includes nonaccrual loans.
 
(b) Includes available for sale securities at amortized cost.

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The Company experienced growth in all major loan categories in 2007, particularly during the second half of the year. Average commercial loans and leases increased 8% to $12.2 billion in 2007 from $11.3 billion in 2006. Commercial real estate loans averaged $15.7 billion in 2007, up 4% from $15.1 billion in 2006, due, in part, to higher average balances of construction loans. Average residential real estate loans rose 20% in 2007 to $6.0 billion from $5.0 billion in 2006. In March 2007, the Company transferred $883 million of Alt-A residential real estate loans from the Company’s held-for-sale loan portfolio to its held-for-investment portfolio. Residential real estate loans held for sale averaged $1.1 billion in 2007 and $1.5 billion during 2006. Consumer loans and leases averaged $10.2 billion in 2007, up 2% from $10.0 billion in 2006, due in part to growth in the automobile loan portfolio.
Table 4 summarizes average loans and leases outstanding in 2008 and percentage changes in the major components of the portfolio over the past two years.
 
Table 4
 
AVERAGE LOANS AND LEASES
(Net of unearned discount)
 
                         
          Percent Increase
 
          (Decrease) from  
    2008     2007 to 2008     2006 to 2007  
    (Dollars in millions)              
 
Commercial, financial, etc
  $ 13,802       13 %     8 %
Real estate — commercial
    18,428       17       4  
Real estate — consumer
    5,465       (9 )     20  
Consumer
                       
Automobile
    3,560       17       5  
Home equity lines
    4,469       7       (1 )
Home equity loans
    1,067       (6 )     (6 )
Other
    2,054       11       8  
                         
Total consumer
    11,150       9       2  
                         
Total
  $ 48,845       11 %     7 %
                         
 
Commercial loans and leases, excluding loans secured by real estate, aggregated $14.3 billion at December 31, 2008, representing 29% of total loans and leases. Table 5 presents information on commercial loans and leases as of December 31, 2008 relating to geographic area, size, borrower industry and whether the loans are secured by collateral or unsecured. Of the $14.3 billion of commercial loans and leases outstanding at the end of 2008, approximately $11.3 billion, or 79%, were secured, while 53%, 23% and 15% were granted to businesses in New York State, Pennsylvania and the Mid-Atlantic area (which includes Maryland, Delaware, Virginia, West Virginia and the District of Columbia), respectively. The Company provides financing for leases to commercial customers, primarily for equipment. Commercial leases included in total commercial loans and leases at December 31, 2008 aggregated $1.4 billion, of which 48% were secured by collateral located in New York State, 16% were secured by collateral in the Mid-Atlantic area and another 11% were secured by collateral in Pennsylvania.

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Table 5
 
COMMERCIAL LOANS AND LEASES, NET OF UNEARNED DISCOUNT
(Excludes Loans Secured by Real Estate)
 
December 31, 2008
 
                                                 
    New York     Pennsylvania     Mid-Atlantic     Other     Total     Percent of Total  
    (Dollars in millions)  
 
Manufacturing
  $ 1,317     $ 562     $ 227     $ 161     $ 2,267       16 %
Services
    1,078       357       472       118       2,025       14  
Automobile dealerships
    894       523       116       321       1,854       13  
Wholesale
    664       322       347       39       1,372       10  
Financial and insurance
    854       115       105       73       1,147       8  
Transportation, communications, utilities
    388       295       67       223       973       7  
Public administration
    463       261       119       42       885       6  
Health services
    482       109       128       81       800       6  
Real estate investors
    461       117       98       84       760       5  
Construction
    267       192       110       32       601       4  
Retail
    271       153       96       39       559       4  
Agriculture, forestry, fishing, mining, etc. 
    107       75       11       37       230       2  
Other
    393       147       180       69       789       5  
                                                 
Total
  $ 7,639     $ 3,228     $ 2,076     $ 1,319     $ 14,262       100 %
                                                 
Percent of total
    53 %     23 %     15 %     9 %     100 %        
                                                 
Percent of dollars outstanding
                                               
Secured
    69 %     77 %     67 %     59 %     69 %        
Unsecured
    22       18       22       14       21          
Leases
    9       5       11       27       10          
                                                 
Total
    100 %     100 %     100 %     100 %     100 %        
                                                 
Percent of dollars outstanding by size of loan
                                               
Less than $1 million
    25 %     27 %     33 %     17 %     25 %        
$1 million to $5 million
    24       31       24       29       26          
$5 million to $10 million
    15       18       13       25       17          
$10 million to $20 million
    16       13       14       15       15          
$20 million to $30 million
    9       8       9       10       9          
$30 million to $50 million
    7       1       7             5          
$50 million to $100 million
    4       2             4       3          
                                                 
Total
    100 %     100 %     100 %     100 %     100 %        
                                                 

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International loans included in commercial loans and leases totaled $91 million and $107 million at December 31, 2008 and 2007, respectively. The Company participates in the insurance and guarantee programs of the Export-Import Bank of the United States. These programs provide U.S. government repayment coverage of 90% to 100% on loans supporting foreign borrowers’ purchases of U.S. goods and services. The loans generally range from $1 million to $10 million. The outstanding balances of loans under these programs at December 31, 2008 and 2007 were $76 million and $95 million, respectively.
Loans secured by real estate, including outstanding balances of home equity loans and lines of credit which the Company classifies as consumer loans, represented approximately 60% of the loan and lease portfolio during 2008, compared with 61% in 2007 and 62% in 2006. At December 31, 2008, the Company held approximately $18.8 billion of commercial real estate loans, $4.9 billion of consumer real estate loans secured by one-to-four family residential properties (including $352 million of loans held for sale) and $5.7 billion of outstanding balances of home equity loans and lines of credit, compared with $17.4 billion, $6.2 billion and $5.5 billion, respectively, at December 31, 2007. Loans obtained in the December 2007 acquisition transactions included $343 million of commercial real estate loans, $1.1 billion of consumer real estate loans secured by one-to-four family residential mortgages and $269 million of outstanding home equity loans and lines of credit. As already noted, approximately $950 million of the $1.1 billion of acquired consumer real estate loans were securitized into Fannie Mae mortgage-backed securities in December 2007. Included in total loans and leases were amounts due from builders and developers of residential real estate aggregating $1.9 billion and $1.5 billion at December 31, 2008 and 2007, respectively.
A significant portion of commercial real estate loans originated by the Company are secured by properties in the New York City metropolitan area, including areas in neighboring states generally considered to be within commuting distance of New York City, and other areas of New York State where the Company operates. Commercial real estate loans are also originated through the Company’s offices in Pennsylvania, Maryland, Virginia, Washington, D.C., Oregon, West Virginia and other states. Commercial real estate loans originated by the Company include fixed-rate instruments with monthly payments and a balloon payment of the remaining unpaid principal at maturity, in many cases five years after origination. For borrowers in good standing, the terms of such loans may be extended by the customer for an additional five years at the then current market rate of interest. The Company also originates fixed-rate commercial real estate loans with maturities of greater than five years, generally having original maturity terms of approximately ten years, and adjustable-rate commercial real estate loans. Excluding construction and development loans made to investors, adjustable-rate commercial real estate loans represented approximately 51% of the commercial real estate loan portfolio as of December 31, 2008. Table 6 presents commercial real estate loans by geographic area, type of collateral and size of the loans outstanding at December 31, 2008. New York City metropolitan area commercial real estate loans totaled $6.6 billion at the 2008 year-end. The $5.7 billion of investor-owned commercial real estate loans in the New York City metropolitan area were largely secured by multifamily residential properties, retail space, and office space. The Company’s experience has been that office, retail and service-related properties tend to demonstrate more volatile fluctuations in value through economic cycles and changing economic conditions than do multifamily residential properties. Approximately 54% of the aggregate dollar amount of New York City-area loans were for loans with outstanding balances of $10 million or less, while loans of more than $30 million made up approximately 22% of the total.

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Table 6
 
COMMERCIAL REAL ESTATE LOANS, NET OF UNEARNED DISCOUNT
 
December 31, 2008
                                                         
    Metropolitan
    Other
                               
    New York
    New York
          Mid-
                Percent of
 
    City     State     Pennsylvania     Atlantic     Other     Total     Total  
    (Dollars in millions)  
 
Investor-owned
                                                       
Permanent finance by property type
                                                       
Retail
  $ 1,734     $ 340     $ 242     $ 222     $ 479     $ 3,017       16 %
Office
    965       591       186       224       140       2,106       11  
Apartments/Multifamily
    1,414       262       161       81       83       2,001       11  
Hotel
    379       201       128       37       35       780       4  
Industrial/Warehouse
    169       146       151       73       58       597       3  
Health facilities
    37       108       34       58       154       391       2  
Other
    260       84       70       53       14       481       3  
                                                         
Total permanent
    4,958       1,732       972       748       963       9,373       50 %
                                                         
                                                         
Construction/Development
                                                       
Commercial
Construction
    329       687       181       467       218       1,882       10 %
Land/Land development
    115       26       40       127       62       370       2  
Residential builder and developer Construction
    150       202       124       134       128       738       4  
Land/Land development
    114       100       77       539       123       953       5  
                                                         
Total construction/development
    708       1,015       422       1,267       531       3,943       21 %
                                                         
Total investor-owned
    5,666       2,747       1,394       2,015       1,494       13,316       71 %
                                                         
                                                         
Owner-occupied by industry
                                                       
Health services
    298       300       154       277       94       1,123       6 %
Other services
    153       369       285       269       35       1,111       6  
Real estate investors
    176       266       195       111       27       775       4  
Retail
    89       179       161       109       5       543       3  
Manufacturing
    47       162       128       81       3       421       2  
Automobile dealerships
    47       161       98       32       33       371       2  
Wholesale
    38       81       114       85             318       2  
Other
    103       282       248       205       22       860       4  
                                                         
Total owner-occupied
    951       1,800       1,383       1,169       219       5,522       29 %
                                                         
Total commercial real estate
  $ 6,617     $ 4,547     $ 2,777     $ 3,184     $ 1,713     $ 18,838       100 %
                                                         
Percent of total
    35 %     24 %     15 %     17 %     9 %     100 %        
                                                         
                                                         
Percent of dollars outstanding by size of loan
                                                       
Less than $1 million
    7 %     27 %     32 %     19 %     10 %     18 %        
$1 million to $5 million
    28       35       36       27       19       30          
$5 million to $10 million
    19       16       10       19       16       17          
$10 million to $30 million
    24       19       16       23       24       21          
$30 million to $50 million
    10       3             8       9       6          
$50 million to $100 million
    9             6       4       11       6          
Greater than $100 million
    3                         11       2          
                                                         
Total
    100 %     100 %     100 %     100 %     100 %     100 %        
                                                         
 
Commercial real estate loans secured by properties located in other parts of New York State, Pennsylvania, the Mid-Atlantic area and other areas tend to have a greater diversity of collateral types and include a significant amount of lending to customers who use the mortgaged property in their trade or business (owner-occupied). Approximately 62% of the aggregate dollar amount of commercial real estate loans in New York State secured by properties located outside of the metropolitan New York City area were for loans with outstanding balances of $5 million or less. Of the outstanding balances of

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commercial real estate loans in Pennsylvania and the Mid-Atlantic area, approximately 68% and 46%, respectively, were for loans with outstanding balances of $5 million or less.
Commercial real estate loans secured by properties located outside of Pennsylvania, the Mid-Atlantic area, New York State and areas of states neighboring New York considered to be part of the New York City metropolitan area, comprised 9% of total commercial real estate loans as of December 31, 2008.
Commercial real estate construction and development loans made to investors presented in table 6 totaled $3.9 billion at December 31, 2008, or 8% of total loans and leases. Approximately 94% of those construction loans had adjustable interest rates. Included in such loans at December 31, 2008 were $1.7 billion of loans to developers of residential real estate properties. Information about the credit performance of the Company’s loans to builders and developers of residential real estate properties is included herein under the heading “Provision For Credit Losses.” The remainder of the commercial real estate construction loan portfolio was comprised of loans made for various purposes, including the construction of office buildings, multifamily residential housing, retail space and other commercial development.
M&T Realty Capital Corporation, one of the Company’s commercial real estate lending subsidiaries, participates in the Fannie Mae Delegated Underwriting and Servicing (“DUS”) program, pursuant to which commercial real estate loans are originated in accordance with terms and conditions specified by Fannie Mae and sold. Under this program, loans are sold with partial credit recourse to M&T Realty Capital Corporation. The amount of recourse is generally limited to one-third of any credit loss incurred by the purchaser on an individual loan, although in some cases the recourse amount is less than one-third of the outstanding principal balance. At December 31, 2008 and 2007, approximately $1.2 billion and $1.0 billion, respectively, of commercial real estate loan balances serviced for others had been sold with recourse. There have been no material losses incurred as a result of those recourse arrangements. Commercial real estate loans held for sale at December 31, 2008 and 2007 aggregated $156 million and $79 million, respectively. At December 31, 2008 and 2007, commercial real estate loans serviced for other investors by the Company were $6.4 billion and $5.3 billion, respectively. Those serviced loans are not included in the Company’s consolidated balance sheet.
Real estate loans secured by one-to-four family residential properties were $4.9 billion at December 31, 2008, including approximately 35% secured by properties located in New York State, 12% secured by properties located in Pennsylvania and 18% secured by properties located in the Mid-Atlantic area. At December 31, 2008, $352 million of residential real estate loans were held for sale, compared with $774 million at December 31, 2007. As already discussed, in March 2007 the Company transferred $883 million of Alt-A loans secured by residential real estate properties from its held-for-sale portfolio to its held-for-investment loan portfolio. The Company’s portfolio of Alt-A loans held for investment at December 31, 2008 totaled $974 million, compared with $1.2 billion at December 31, 2007. Loans to individuals to finance the construction of one-to-four family residential properties totaled $233 million at December 31, 2008, or approximately .5% of total loans and leases, compared with $417 million or 1% at December 31, 2007. Information about the credit performance of the Company’s Alt-A mortgage loans and other residential mortgage loans is included herein under the heading “Provision For Credit Losses.”
Consumer loans comprised approximately 23% of the average loan portfolio during each of 2008 and 2007, compared with 24% in 2006. The two largest components of the consumer loan portfolio are outstanding balances of home equity lines of credit and automobile loans. Average balances of home equity lines of credit outstanding represented approximately 9% of average loans outstanding in each of 2008 and 2007. Automobile loans represented approximately 7% of the Company’s average loan portfolio during each of 2008 and 2007. No other consumer loan product represented more than 4% of average loans outstanding in 2008. Approximately 51% of home equity lines of credit outstanding at December 31, 2008 were secured by properties in New York State, and 21% and 26% were secured by properties in Pennsylvania and the Mid-Atlantic area, respectively. Average outstanding balances on home equity lines of credit were approximately $4.5 billion and $4.2 billion in 2008 and 2007, respectively. At December 31, 2008, 33% and 22% of the automobile loan portfolio were to customers residing in New York State and Pennsylvania, respectively. Although automobile loans have generally been originated through dealers, all applications submitted through dealers are subject to the Company’s normal

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underwriting and loan approval procedures. Outstanding automobile loan balances declined to $3.3 billion at December 31, 2008 from $3.8 billion at December 31, 2007.
Table 7 presents the composition of the Company’s loan and lease portfolio at the end of 2008, including outstanding balances to businesses and consumers in New York State, Pennsylvania, the Mid-Atlantic area and other states. Approximately 51% of total loans and leases at December 31, 2008 were to New York State customers, while 19% and 17% were to Pennsylvania and the Mid-Atlantic area customers, respectively.
 
Table 7
 
LOANS AND LEASES, NET OF UNEARNED DISCOUNT
 
December 31, 2008
 
                                         
          Percent of Dollars Outstanding  
          New York
                   
    Outstandings     State     Pennsylvania     Mid-Atlantic     Other  
    (Dollars in millions)                          
 
Real estate
                                       
Residential
  $ 4,904       35 %     12 %     18 %     35 %
Commercial
    18,838       59 (a)     15       17       9  
                                         
Total real estate
    23,742       54 %     14 %     17 %     15 %
                                         
Commercial, financial, etc. 
    12,833       54 %     24 %     14 %     8 %
Consumer
                                       
Home equity lines
    4,720       51 %     21 %     26 %     2 %
Home equity loans
    975       24       52       20       4  
Automobile
    3,306       33       22       11       34  
Other secured or guaranteed
    1,723       40       14       11       35  
Other unsecured
    272       47       28       23       2  
                                         
Total consumer
    10,996       42 %     23 %     18 %     17 %
                                         
Total loans
    47,571       51 %     19 %     17 %     13 %
                                         
Commercial leases
    1,429       48 %     11 %     16 %     25 %
                                         
Total loans and leases
  $ 49,000       51 %     19 %     17 %     13 %
                                         
 
 
(a) Includes loans secured by properties located in neighboring states generally considered to be within commuting distance of New York City.
 
Balances of investment securities averaged $9.0 billion in 2008, compared with $7.3 billion and $8.0 billion in 2007 and 2006, respectively. The increase of $1.7 billion or 23% from 2007 to 2008 was largely due to the impact of residential real estate loan securitizations in June and July of 2008 and in December 2007 and to the full-year impact of third quarter 2007 purchases of approximately $800 million of collateralized mortgage obligations and other mortgage-backed securities. During June and July 2008, the Company securitized approximately $875 million of residential real estate loans in guaranteed mortgage securitizations with Fannie Mae. During December 2007, approximately $950 million of residential real estate loans obtained in the Partners Trust acquisition were securitized in a guaranteed mortgage securitization with Fannie Mae. The Company recognized no gain or loss on those securitization transactions as it retained all of the resulting securities, which are held in the available-for-sale investment securities portfolio. The decline in average investment securities during 2007 as compared with 2006 largely reflects net paydowns and maturities of mortgage-backed securities, collateralized mortgage obligations and U.S. federal agency securities.

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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 and federal agency notes. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including credit and prepayment risk. 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.
During the third quarter of 2008, the Company purchased a $142 million AAA-rated private placement mortgage-backed security that had been securitized by Bayview Financial Holdings, L.P. (together with its affiliates, “Bayview Financial”). Bayview Financial is a privately-held company and is the majority investor of BLG. Upon purchase, the security was placed in the Company’s held-to-maturity portfolio, as management determined that it had the intent and ability to hold the security to maturity. Management subsequently reconsidered whether certain other similar mortgage-backed securities previously purchased from Bayview Financial and held in the Company’s available-for-sale portfolio should more appropriately be in the held-to-maturity portfolio. Concluding that it had the intent and ability to hold those securities to maturity as well, the Company transferred collateralized mortgage obligations having a fair value of $298 million and a cost basis of $385 million from its available-for-sale investment securities portfolio to the held-to-maturity portfolio during the third quarter of 2008.
The Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” As previously discussed, during the third quarter of 2008 the Company recognized an other-than-temporary impairment charge of $153 million related to its holdings of preferred stock of Fannie Mae and Freddie Mac. Additional other-than-temporary impairment charges of $29 million were recognized in 2008 on three collateralized mortgage obligations backed by option adjustable rate residential mortgages (“ARMs”) that had an amortized cost of $20 million and on three collateralized debt obligations backed by bank preferred capital securities that had an amortized cost of $12 million. The collateralized debt obligations were obtained in the Partners Trust transaction. As previously discussed, during 2007’s fourth quarter, the Company recognized other-than-temporary impairment charges of $127 million related to $132 million of collateralized debt obligations backed largely by residential mortgage-backed securities. As of December 31, 2008 and 2007, the Company concluded that the remaining declines associated with the rest of the investment securities portfolio were temporary in nature. That conclusion was based on management’s assessment of future cash flows associated with individual investment securities as of each respective date. A further discussion of fair values of investment securities is included herein under the heading “Capital.” Additional information about the investment securities portfolio is included in note 3 of Notes to Financial Statements.
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 $198 million in 2008, $503 million in 2007 and $183 million in 2006. Reflected in those balances were purchases of investment securities under agreements to resell which averaged $96 million and $417 million during 2008 and 2007, respectively, and $50 million in 2006. The higher level of resell agreements in 2007 as compared with 2008 and 2006 was due, in part, to the need to collateralize deposits of municipalities. Outstanding resell agreements at December 31, 2008 totaled $90 million. The amounts 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 most significant source of funding for the Company is core deposits, which are comprised of noninterest-bearing deposits, nonbrokered interest-bearing transaction accounts, nonbrokered savings deposits and nonbrokered domestic time deposits under $100,000. The Company’s branch network is its principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Certificates of deposit under $100,000 generated on a nationwide basis by M&T Bank, N.A. are also included in core deposits. Core deposits averaged $31.7 billion in 2008, up from

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$28.6 billion in 2007 and $28.3 billion in 2006. The acquisition transactions in late-2007 added $2.0 billion of core deposits on the respective acquisition dates, however, the Company’s average core deposits in 2007 only increased $156 million from those transactions. The previously discussed June 30, 2006 branch acquisition added approximately $880 million to average core deposits during the second half of 2006, or approximately $443 million for the year ended December 31, 2006. Average core deposits of M&T Bank, N.A. were $274 million in 2008, $208 million in 2007 and $387 million in 2006. Funding provided by core deposits represented 55% of average earning assets in each of 2008 and 2007, and 57% in 2006. Core deposits totaled $34.3 billion at December 31, 2008, compared with $30.7 billion at December 31, 2007. Table 8 summarizes average core deposits in 2008 and percentage changes in the components of such deposits over the past two years.
 
Table 8
 
AVERAGE CORE DEPOSITS
 
                         
          Percentage Increase
 
          (Decrease) from  
    2008     2007 to 2008     2006 to 2007  
    (Dollars in millions)              
 
NOW accounts
  $ 502       9 %     6 %
Savings deposits
    17,952       21       4  
Time deposits under $100,000
    5,600       (3 )     (3 )
Noninterest-bearing deposits
    7,674       4       (2 )
                         
Total
  $ 31,728       11 %     1 %
                         
 
Additional sources of funding for the Company include domestic time deposits of $100,000 or more, deposits originated through the Company’s offshore branch office, and brokered deposits. Domestic time deposits over $100,000, excluding brokered certificates of deposit, averaged $2.6 billion in 2008, $2.7 billion in 2007 and $2.9 billion in 2006. Offshore branch deposits, primarily comprised of accounts with balances of $100,000 or more, averaged $4.0 billion in 2008, $4.2 billion in 2007 and $3.6 billion in 2006. Average brokered time deposits totaled $1.4 billion in 2008, compared with $2.1 billion in 2007 and $3.5 billion in 2006, and at December 31, 2008 and 2007 totaled $487 million and $1.8 billion, respectively. 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 $70 million of brokered time deposits. The Company also had brokered NOW and money-market deposit accounts, which averaged $218 million, $87 million and $69 million in 2008, 2007 and 2006, respectively. Offshore branch deposits and brokered deposits have been used by the Company as an alternative to short-term borrowings. Additional amounts of offshore branch deposits or brokered deposits may be solicited in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.
The Company also uses borrowings from banks, securities dealers, various FHLBs, the Federal Reserve and others as sources of funding. The average balance of short-term borrowings was $6.1 billion in 2008, $5.4 billion in 2007 and $4.5 billion in 2006. Beginning in the second quarter of 2008, the Company actively sought to increase the average maturity of its non-deposit sources of funds and to reduce short-term borrowings. Average short-term borrowings for the 2008 quarters ended June 30, September 30 and December 31 totaled $6.9 billion, $5.4 billion and $5.0 billion, respectively. Included in short-term borrowings were unsecured federal funds borrowings, which generally mature daily, that averaged $4.5 billion, $4.6 billion and $3.7 billion in 2008, 2007 and 2006, respectively. Overnight federal funds borrowings represented the largest component of average short-term borrowings and were obtained from a wide variety of banks and other financial institutions. Overnight federal funds borrowings totaled $809 million at December 31, 2008 and $4.2 billion at December 31, 2007. Also included in short-term borrowings in 2008 were secured borrowings with the Federal Reserve through their Term Auction

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Facility (“TAF”). Borrowings under the TAF averaged $238 million during 2008, and totaled $1.0 billion at December 31, 2008. Such borrowings had maturities of 84 days. Also included in average short-term borrowings was a $500 million revolving asset-backed structured borrowing secured by automobile loans that was paid off during late-2008. All of the available amount of that structured borrowing was in use at the 2007 and 2006 year-ends. The subsidiary, the loans and the borrowings were included in the consolidated financial statements of the Company. The average balance of this borrowing was $463 million in 2008, $437 million in 2007 and $500 million in 2006. Additional information about that subsidiary, M&T Auto Receivables I, LLC, and the revolving borrowing agreement is included in note 19 of Notes to Financial Statements. Average short-term borrowings during 2008 and 2007 included $682 million and $160 million, respectively, of borrowings from the FHLB of New York. There were no similar short-term borrowings in 2006.
Long-term borrowings averaged $11.6 billion in 2008, $8.4 billion in 2007 and $6.0 billion in 2006. Included in average long-term borrowings were amounts borrowed from the FHLBs of $6.7 billion in 2008, $4.3 billion in 2007 and $3.8 billion in 2006, and subordinated capital notes of $1.9 billion in 2008, $1.6 billion in 2007 and $1.2 billion in 2006. M&T Bank issued $400 million and $500 million of subordinated notes in December 2007 and 2006, respectively, in part to maintain appropriate regulatory capital ratios. The notes issued in December 2007 bear a fixed rate of interest of 6.625% and mature in December 2017. The 2006 notes bear a fixed rate of interest of 5.629% until December 2016 and a floating rate thereafter until maturity in December 2021, at a rate equal to the three-month London Interbank Offered Rate (“LIBOR”) plus .64%. Beginning December 2016, M&T Bank may, at its option and subject to prior regulatory approval, redeem some or all of those notes on any interest payment date. The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of long-term debt. Those swap agreements are used to hedge approximately $1.0 billion of fixed rate subordinated notes. Further information on interest rate swap agreements is provided in note 18 of Notes to Financial Statements. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $1.1 billion, $716 million and $712 million in 2008, 2007 and 2006, respectively. During January 2008, M&T Capital Trust IV issued $350 million of Enhanced Trust Preferred Securities bearing a fixed rate of interest of 8.50% and maturing in 2068. The related junior subordinated debentures are included in long-term borrowings. Additional information regarding junior subordinated debentures, as well as information regarding contractual maturities of long-term borrowings, is provided in note 9 of Notes to Financial Statements. Also included in long-term borrowings were agreements to repurchase securities, which averaged $1.6 billion during 2008 and 2007, and $258 million during 2006. The agreements, which were entered into due to favorable rates available, have various repurchase dates through 2017, however, the contractual maturities of the underlying securities extend beyond such repurchase dates. Long-term borrowings also include $300 million of senior notes issued by M&T in May 2007, which averaged $182 million during 2007. Those notes bear a fixed rate of interest of 5.375% and mature in May 2012.
Changes in the composition of the Company’s earning assets and interest-bearing liabilities as described herein, as well as changes in interest rates and spreads, can impact net interest income. Net interest spread, or the difference between the yield on earning assets and the rate paid on interest-bearing liabilities, was 3.01% in each of 2008 and 2007. The yield on earning assets during 2008 was 5.69%, 117 basis points lower than 6.86% in 2007, while the rate paid on interest-bearing liabilities also decreased 117 basis points to 2.68% from 3.85% in 2007. The yield on the Company’s earning assets rose 15 basis points in 2007 from 6.71% in 2006, while the rate paid on interest-bearing liabilities in 2007 was up 24 basis points from 3.61% in 2006. As a result, the Company’s net interest spread decreased from 3.10% in 2006 to 3.01% in 2007. During 2008, the Federal Reserve lowered its benchmark overnight federal funds target rate seven times, representing decreases of 400 basis points for the year, such that, at December 31, 2008 the Federal Reserve’s target rate for overnight federal funds was expressed as a range from 0% to .25%. In the last four months of 2007, the Federal Reserve lowered its federal funds target rate three times totaling 100 basis points. Contributing to the decline in net interest spread from 2006 to 2007 was the impact of funding the $300 million BLG investment in February 2007 as well as higher rates paid on deposits and variable-rate borrowings that were only partially offset by higher yields on loans and investment securities.

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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, core deposit and other intangible assets and, in 2007 and 2008, M&T’s investment in BLG. Net interest-free funds averaged $8.1 billion in 2008, compared with $7.9 billion in 2007 and $8.2 billion in 2006. Goodwill and core deposit and other intangible assets averaged $3.4 billion in 2008, $3.2 billion in 2007, and $3.1 billion in 2006. The cash surrender value of bank owned life insurance averaged $1.2 billion in 2008 and $1.1 billion in each of 2007 and 2006. Increases in the cash surrender value of bank owned life insurance are not included in interest income, but rather are recorded in “other revenues from operations.” The contribution of net interest-free funds to net interest margin was .37% in 2008, .59% in 2007 and .60% in 2006. The decline in the contribution to net interest margin ascribed to net interest free funds in 2008 as compared with 2007 resulted largely from the impact of significantly lower interest rates on interest-bearing liabilities used to value such contribution. The impact on such contribution of slightly higher rates on interest-bearing liabilities during 2007 as compared with 2006 was offset by the effect of a lower balance of interest-free funds.
Reflecting the changes to the net interest spread and the contribution of interest-free funds as described herein, the Company’s net interest margin was 3.38% in 2008, compared with 3.60% in 2007 and 3.70% in 2006. 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.
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 the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was $1.1 billion at December 31, 2008, all of which were designated as fair value hedges of certain fixed rate time deposits and long-term borrowings. Under the terms of those swap agreements, the Company received payments based on the outstanding notional amount of the agreements at fixed rates and made payments at variable rates. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was $2.3 billion at December 31, 2007, of which $842 million were designated as fair value hedges whereby the Company received payments at fixed rates and made payments at variable rates. Under the terms of the remaining $1.5 billion of swap agreements outstanding at the 2007 year-end and that were designated as cash flow hedges, the Company paid a fixed rate of interest and received a variable rate. During the first quarter of 2008, those swap agreements were terminated by the Company, resulting in the realization of a loss of $37 million. That loss is being amortized over the original hedge period as an adjustment to interest expense associated with the previously hedged long-term borrowings.
In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded in “other revenues from operations” in the Company’s consolidated statement of income. In a cash flow hedge, unlike in a fair value hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in “other revenues from operations” immediately. The amounts of hedge ineffectiveness recognized in 2008, 2007 and 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 gains of approximately $146 million at December 31, 2008 and $17 million at December 31, 2007. The significant rise in fair value of those interest rate swap agreements resulted from sharply lower interest rates at the 2008 year-end as compared with December 31, 2007. The fair values of such swap agreements were substantially offset by changes in the fair values of the hedged items. The estimated fair values of the interest rate swap agreements designated as cash flow hedges were losses of approximately $17 million

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at December 31, 2007. Net of applicable income taxes, such losses were approximately $10 million and were included in “accumulated other comprehensive income, net” in the Company’s consolidated balance sheet. There were no swap agreements designated as cash flow hedges at December 31, 2008 or at December 31, 2006. The changes in the fair values of the interest rate swap agreements and the hedged items result from the effects of changing interest rates. Additional information about those swap agreements and the items being hedged is included in note 18 of Notes to Financial Statements. The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average interest rates paid or received on those swap agreements are presented in table 9.
 
Table 9
 
INTEREST RATE SWAP AGREEMENTS
 
                                                 
    Year Ended December 31  
    2008     2007     2006  
    Amount     Rate(a)     Amount     Rate(a)     Amount     Rate(a)  
                (Dollars in thousands)              
 
Increase (decrease) in:
                                               
Interest income
  $       %   $       %   $       %
Interest expense
    (15,857 )     (.03 )     2,556       .01       4,281       .01  
                                                 
Net interest income/margin
  $ 15,857       .03 %   $ (2,556 )     (.01 )%   $ (4,281 )     (.01 )%
                                                 
Average notional amount
  $ 1,269,017             $ 1,410,542             $ 774,268          
Rate received(b)
            6.12 %             5.66 %             5.19 %
Rate paid(b)
            4.87 %             5.84 %             5.74 %
 
 
(a) Computed as a percentage of average earning assets or interest-bearing liabilities.
(b) Weighted-average rate paid or received on interest rate swap agreements in effect during year.
 
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 was $412 million in 2008, up from $192 million in 2007 and $80 million in 2006. Net loan charge-offs increased to $383 million in 2008 from $114 million and $68 million in 2007 and 2006, respectively. Net loan charge-offs as a percentage of average loans outstanding were .78% in 2008, compared with .26% in 2007 and .16% in 2006. The significant increases in the provision for credit losses in 2007 and 2008 reflect a pronounced downturn in the residential real estate market that began in early-2007 and continued throughout 2008, and the deteriorating state of the U.S. economy, which was in recession during 2008. Declining real estate valuations and higher levels of delinquencies and charge-offs throughout 2007 and 2008 significantly affected the quality of the Company’s residential real estate loan portfolio. Specifically, the Company’s Alt-A residential real estate loan portfolio and its residential real estate builder and developer loan portfolio experienced the majority of the credit problems related to the turmoil in the residential real estate marketplace. In response to the deteriorating quality of the Alt-A portfolio, the Company decided in 2007’s fourth quarter to accelerate the timing related to when residential real estate loans are charged off. Beginning in that quarter, the Company began charging off the excess of residential real estate loan balances over the net realizable value of the property collateralizing the loan when such loans become past due 150 days, whereas previously the Company provided an allowance for credit losses for those amounts and charged off those loans upon foreclosure of the underlying property. The change in accounting procedure resulted in $15 million of additional charge-offs in 2007. A summary of the Company’s loan charge-offs, provision and allowance for credit losses is presented in table 10.

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