M&T Bank Corporation — 2010 Form 10-K Summary
Business context and reporting period
Reports the fiscal year ended December 31, 2010, with comparative results for 2009 and 2008. M&T is a bank holding company focused on commercial and retail banking, lending, trust, mortgage, and related financial services, primarily in New York and the Mid-Atlantic. Year-end consolidated assets were $68.0 billion; the company operated 778 offices and had 13,365 employees.
Financial results and condition
| Metric | 2010 | 2009 |
|---|---|---|
| Net income | $736 million | $380 million |
| Diluted earnings per common share | $5.69 | $2.89 |
| Net interest income, GAAP | $2.268 billion | $2.056 billion |
| Noninterest income | $1.108 billion | $1.048 billion |
| Provision for credit losses | $368 million | $604 million |
| Net charge-offs | $346 million; 0.67% of average loans | $514 million; 1.01% |
| Net interest margin | 3.84% | 3.49% |
| Efficiency ratio | 53.7% | 56.5% |
| Operating cash flow | $1.676 billion | $1.189 billion |
Management attributed stronger earnings chiefly to margin expansion and lower credit costs. Taxable-equivalent net interest income increased 10% to $2.292 billion; average earning assets were nearly unchanged at $59.7 billion. The 2010 net income included a $17 million after-tax gain from the K Bank transaction. Net operating income, a company-defined non-GAAP measure, was $755 million, up from $455 million.
At year-end, deposits were $49.8 billion, up from $47.4 billion; loans and leases, net of unearned discount, were $52.0 billion, essentially flat. Total assets were $68.0 billion versus $68.9 billion. Short-term borrowings fell to $947 million from $2.443 billion, and long-term borrowings declined to $7.840 billion from $10.240 billion. Shareholders’ equity rose to $8.358 billion from $7.753 billion. Regulatory capital ratios were 9.47% Tier 1, 13.08% total capital, and 9.33% leverage, all above stated minimums. Year-end cash and cash equivalents were $934 million. Management said available liquidity was adequate in the normal course of business; available Federal Reserve credit lines were approximately $9.9 billion, subject to pledged collateral.
Material changes, outlook, and risks
- Credit performance improved, but remained stressed: nonaccrual loans were $1.239 billion, or 2.38% of loans, versus $1.332 billion, or 2.56%, in 2009. Nonperforming assets rose to $1.459 billion from $1.426 billion, partly reflecting foreclosed property growth. The allowance was $903 million, 1.74% of loans.
- Net other-than-temporary impairment losses recognized in earnings declined to $86 million from $138 million. The 2010 charges included privately issued mortgage securities, trust-preferred CDOs, and a $12 million write-down of AIB securities. Valuation of some private mortgage-backed securities depended on significant unobservable inputs.
- Deposit-account service charges were estimated to have fallen about $35 million in 2010 due to overdraft rules; management estimated a further full-year impact of $65–$80 million in 2011. Proposed debit-card interchange regulation could also affect revenue, but the impact was not estimable.
- M&T agreed to acquire Wilmington Trust for a stock consideration valued at $351 million and assumption of $330 million of preferred stock. The transaction, then expected to close by mid-2011, remained subject to shareholder and regulatory approvals. The 2010 K Bank acquisition added deposits and included FDIC loss-sharing; it generated a $17 million after-tax gain.
- Management described the recovery as slow and credit costs as still above historical levels. Key exposures include commercial real estate, homebuilders and developers, Alt-A mortgages, unemployment, real-estate valuations, and weak regional economies. The Dodd-Frank Act and Basel III implementation could increase compliance costs and impose stricter capital, liquidity, and other requirements; the ultimate effects were uncertain.
- The company had $752 million of Treasury-related preferred stock outstanding. Its agreement restricted common dividends above $0.70 quarterly per share without Treasury approval; the declared 2010 dividend was $0.70 per quarter. Common dividends totaled $2.80 per share for the year.
- Management and the auditor reported effective internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls. Management did not expect pending litigation to materially affect financial position, but could not determine whether it might materially affect results in a future period.
Investor verification priorities
- Review credit trends by portfolio, especially commercial real estate, builder/developer, and Alt-A loans, and test the allowance against subsequent charge-offs and collateral values.
- Assess the assumptions and marketability of private mortgage-backed securities, remaining impairment risk, and the $220 million carrying value of the Bayview Lending Group investment.
- Verify the expected impact of overdraft and interchange rules on fee income and the sustainability of net interest margin in a low-rate environment.
- Track Wilmington Trust approvals, integration costs, capital effects, and realization of expected benefits; separately confirm FDIC loss-share coverage and acquired-loan performance.
- Assess future capital and liquidity effects of Dodd-Frank and Basel III, including the phase-out of trust preferred securities from holding-company Tier 1 capital.