MTB » Topics » Overview

This excerpt taken from the MTB 10-K filed Feb 23, 2007.
Overview
Net income for the Company in 2006 was $839 million or $7.37 of diluted earnings per common share, up 7% and 10%, respectively, from $782 million or $6.73 of diluted earnings per share in 2005. Basic earnings per common share rose 10% to $7.55 in 2006 from $6.88 in 2005. Net income in 2004 totaled $723 million, while diluted and basic earnings per share were $6.00 and $6.14, respectively. The after-tax impact of acquisition and integration-related expenses (included herein as merger-related expenses) associated with the June 30 branch acquisition already discussed was $3 million ($5 million pre-tax) or $.03 of basic and diluted earnings per share in 2006. There were no similar expenses in either 2005 or 2004. Net income expressed as a rate of return on average assets in 2006 was 1.50%, compared with 1.44% in 2005 and 1.40% in 2004. The return on average common stockholders’ equity was 13.89% in 2006, 13.49% in 2005 and 12.67% in 2004.
Net interest income recorded on a taxable-equivalent basis increased 1% to $1.84 billion in 2006 from $1.81 billion in 2005. The impact of a higher level of average earning assets was largely offset by a decline in the Company’s net interest margin, or taxable-equivalent net interest income expressed as a percentage of average earning assets. Average earning assets rose 3% to $49.7 billion in 2006 from $48.1 billion in 2005, the result of increased balances of loans and leases, offset, in part, by a decline in average outstanding balances of investment securities. Average loans and leases of $41.4 billion in 2006 were $1.9 billion or 5% higher than $39.5 billion in 2005, due to growth in commercial loans and leases of $863 million, or 8%, commercial real estate loans of $755 million, or 5%, and consumer real estate loans of $1.1 billion, or 28%, partially offset by an $804 million, or 7% decline in consumer loans and leases. Average balances of investment securities decreased 5% to $8.0 billion in 2006 from $8.5 billion in 2005. The net interest margin declined 7 basis points (hundredths of one percent) to 3.70% in 2006 from 3.77% in 2005, largely due to higher short-term interest rates resulting from the Federal Reserve raising its benchmark overnight federal funds target rate 100 basis points during the first six months of 2006, continuing a trend of rate increases that began in June 2004. Such interest rate increases had the effect of increasing rates paid on interest-bearing liabilities more rapidly than yields on earning assets during 2005 and the first half of 2006. During the last six months of 2006, the Company’s net interest margin stabilized as compared to the first half of the year. As a result of higher average earning assets, taxable-equivalent net interest income in 2005 was 3% higher than $1.75 billion in 2004. Average earning assets in 2005 rose 6% from $45.2 billion in 2004. Average loans and leases outstanding in 2005 were up $2.4 billion, or 6%, from $37.1 billion in 2004, largely due to growth in commercial loans and leases, commercial real estate loans and consumer real estate loans, partially offset by a decline in consumer loans and leases. Net interest margin in 2005 declined 11 basis points from 3.88% in 2004, largely due to the rising interest rate environment which resulted in the rates paid on interest-bearing liabilities rising more rapidly than yields on earning assets.
 
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The provision for credit losses declined to $80 million in 2006 from $88 million in 2005 and $95 million in 2004. The reduced levels of the provision during the past two years as compared with 2004 were reflective of generally favorable credit quality. Net charge-offs were $68 million in 2006, down from $77 million in 2005 and $82 million in 2004. Net charge-offs as a percentage of average loans and leases outstanding decreased to .16% in 2006 from .19% in 2005 and .22% in 2004. 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. While most credit quality measures improved from 2004 to 2005, the Company did experience an increase in nonperforming loans during the second half of 2006, due largely to the addition of four relationships with automobile dealers.
Noninterest income rose 10% to $1.05 billion in 2006 from $950 million in 2005. Higher mortgage banking revenues, service charges on deposit accounts, trust income, brokerage services income, and other revenues contributed to that improvement. 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. Losses from bank investment securities in 2005 included a $29 million non-cash, other-than-temporary impairment charge in the third quarter related to preferred stock issuances of the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). Excluding the impact of securities gains and losses in both years and the $13 million gain on the called borrowing in 2006, noninterest income rose 5% from 2005 to 2006. Noninterest income totaled $943 million in 2004. Comparing 2005 with 2004, higher mortgage banking revenues, corporate financing advisory fees, gains on sales of commercial lease equipment and other property, and other revenues were largely offset by the $29 million impairment charge in 2005. Excluding gains and losses from investment securities, noninterest income in 2005 rose $38 million or 4% from 2004.
Noninterest expense in 2006 aggregated $1.55 billion, up 4% from $1.49 billion in 2005. Noninterest expense in 2004 was $1.52 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 $63 million, $57 million and $75 million in 2006, 2005 and 2004, respectively, and merger-related expenses of $5 million in 2006. As already noted, there were no merger-related expenses in 2005 or 2004. Exclusive of these nonoperating expenses, noninterest operating expenses aggregated $1.48 billion in 2006, $1.43 billion in 2005 and $1.44 billion in 2004. Included in operating expenses in 2006 and 2004 were tax-deductible contributions made to The M&T Charitable Foundation, a tax-exempt private charitable foundation, of $18 million and $25 million, respectively. There was no similar contribution made in 2005. Excluding the impact of the charitable contribution, operating expenses in 2006 increased $37 million, or 3%, from 2005. The most significant contributor to that increase was a higher level of salaries expense, reflecting the impact of merit pay increases and higher stock-based compensation costs and other incentive pay. Excluding the impact of the $25 million charitable contribution in 2004, noninterest operating expenses in 2005 increased $13 million, or less than 1%, from 2004. That slight increase reflects higher costs of providing health care and retirement benefits to employees and higher professional services expenses offset, in part, by a reversal of a portion of the valuation allowance for the impairment of capitalized residential mortgage servicing rights, due to higher residential mortgage loan interest rates.
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 51.5% in 2006, compared with 51.2% in 2005 and 53.5% in 2004.
 
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