M&T Bank Corporation — 2009 Form 10-K Summary
Reporting period: Year ended December 31, 2009; the filing also reports fourth-quarter results. M&T is a regional bank holding company headquartered in Buffalo, New York, providing commercial and retail banking, lending, mortgage, trust, brokerage and related services. It reported $68.9 billion in assets and $47.4 billion in deposits at year-end.
Financial results and condition
- Revenue and earnings: Net interest income was $2.056 billion, up 6% on a taxable-equivalent basis to $2.078 billion. Other income was $1.048 billion. Net income was $379.9 million, down 32% from $555.9 million in 2008; diluted EPS fell 42% to $2.89 from $5.01. Pre-tax income was $519.3 million.
- Margins and expenses: Net interest margin widened to 3.49% from 3.38%, primarily as deposit and borrowing costs fell. The efficiency ratio increased to 56.5% from 54.4%. Noninterest expense rose 15% to $1.981 billion.
- Credit quality: Provision for credit losses increased to $604 million from $412 million. Net charge-offs rose to $514 million, or 1.01% of average loans, from $383 million and 0.78%. Nonaccrual loans increased to $1.332 billion, or 2.56% of loans, from $755 million and 1.54%. The allowance was $878 million, equal to 1.69% of loans, versus $788 million and 1.61%.
- Cash flow: Operating cash flow was $1.189 billion, compared with $1.628 billion in 2008. Cash and cash equivalents ended the year at $1.246 billion, down $322 million during 2009.
- Balance sheet and funding: Total assets rose to $68.9 billion from $65.8 billion; loans and leases, net, were $51.1 billion versus $48.2 billion. Deposits rose to $47.4 billion from $42.6 billion. Short-term borrowings were $2.443 billion and long-term borrowings $10.240 billion, down from $3.010 billion and $12.075 billion, respectively.
- Capital and shareholder returns: Stockholders’ equity was $7.753 billion, compared with $6.785 billion. M&T and its bank subsidiaries exceeded regulatory “well-capitalized” thresholds; consolidated Tier 1 and total capital ratios were 8.59% and 12.30%. The common dividend remained $2.80 per share for the year; common-stock repurchases were not made under the announced plan.
Material changes versus 2008
- Lower earnings chiefly reflected rising credit costs, securities impairment losses and higher operating expenses, partly offset by stronger net interest income and fee income.
- Other-than-temporary impairment charges recognized in earnings were $138 million after adoption of updated accounting guidance, versus $182 million in 2008. The 2009 charge reduced diluted EPS by approximately $0.73 after tax.
- FDIC assessment expense climbed to $97 million from $7 million, including a $33 million special assessment. M&T also prepaid $249 million of assessments for 2010–2012; this was a cash outflow/prepayment, not the same as 2009 assessment expense.
- Year-end deposits and assets benefited from the Provident acquisition and Bradford Bank transaction. Provident added $332 million of goodwill; acquisition and integration expenses were $89 million before tax. Bradford generated a $29 million pre-tax gain and includes an FDIC loss-share arrangement.
- Fourth-quarter net income was $136.8 million, up from $102.2 million a year earlier; diluted EPS was $1.04 versus $0.92. Quarterly provision was $145 million versus $151 million, while net interest margin was 3.71% versus 3.37%.
Outlook, commentary, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management cited uncertainty about economic recovery, unemployment, housing and commercial real estate values, business and consumer repayment capacity, energy prices and financial markets. It expected weak economic conditions to affect the Company’s markets in 2010.
- Key exposures include concentrated real estate lending, especially commercial real estate in New York and residential builder/developer loans; Alt-A mortgages; consumer credit; interest-rate and liquidity risk; and potential funding pressure following a ratings downgrade or market disruption. Management stated that available liquidity was adequate for normal-course needs.
- Management considered the $878 million credit-loss allowance adequate, but its estimate depends on borrower, collateral and economic assumptions. Its sensitivity scenarios indicated a possible $95 million allowance increase under assumed deterioration or a $30 million decrease under assumed improvement.
- Private mortgage-backed securities valuation involved significant unobservable inputs. At year-end, the Company reported $381 million of pre-tax unrealized losses on available-for-sale privately issued mortgage-backed securities; it concluded remaining declines were temporary, but adverse credit or market changes could prompt further impairment.
- M&T had $752 million of Treasury-related TARP preferred stock outstanding, in addition to other preferred shares. TARP terms restrict increases to the common dividend and common-stock repurchases without required Treasury consent, and impose executive-compensation limits.
- Other items to note: AIB owned approximately 22.6% of M&T and had governance and regulatory rights; M&T held a 20% investment in Bayview Lending Group, with a $246 million carrying value and continuing impairment risk; and pending litigation was not expected to be material to financial position, although management could not determine whether it might materially affect a future period’s results.
- Management and the auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether nonaccrual loans, charge-offs and delinquencies stabilize, and whether the allowance remains sufficient as economic and collateral conditions change.
- Performance and valuation assumptions for private mortgage-backed securities, Alt-A loans and commercial real estate exposures, including New York-area concentrations.
- Provident integration results, expected synergies, remaining integration costs and the performance of acquired loans; also confirm the scope and recoveries of the Bradford FDIC loss-share protection.
- Liquidity and funding access, including FDIC assessment prepayments, wholesale borrowing needs and the effect of any deterioration in credit ratings or markets.
- TARP preferred-stock terms, related dividend restrictions, and the timing and regulatory conditions for any redemption.