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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-9861

M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (716)842-5445

Securities registered pursuant to Section 12(b) of the Act:

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)
8.277% Capital Securities of M&T Capital Trust II
(and the Guarantee of M&T Bank Corporation with respect thereto)
(Title of class)
8.277% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)

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  X  No ___

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. [  ]

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 February 27, 2001: $5,516,204,248.

Number of shares of the Common Stock, $0.50 par value, outstanding as of the close of business on February 27, 2001: 96,677,727 shares.

Documents Incorporated By Reference:

(1)

Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders of M&T Bank Corporation in Part III.

M&T BANK CORPORATION

FORM 10-K

For the year ended December 31, 2000

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M&T BANK CORPORATION

FORM 10-K

For the year ended December 31, 2000

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M&T BANK CORPORATION

FORM 10-K

For the year ended December 31, 2000

CROSS-REFERENCE SHEET - continued

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PART I

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, 2000 the Company had consolidated total assets of $28.9 billion, deposits of $20.2 billion and stockholders’ equity of $2.7 billion. The Company had 7,616 full-time and 1,120 part-time employees as of December 31, 2000.

At December 31, 2000, the Registrant had two wholly owned bank subsidiaries: Manufacturers and Traders Trust Company (“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, 2000, M&T Bank represented 97% of consolidated assets of the Company.

On February 9, 2001, M&T completed the merger of Premier National Bancorp, Inc. (“Premier”), a bank holding company headquartered in Lagrangeville, New York, with and into Olympia Financial Corp. (“Olympia”), a wholly owned subsidiary of M&T. Following the merger, Premier National Bank, Premier’s bank subsidiary, was merged into M&T Bank. Premier National Bank operated 34 banking offices in the mid-Hudson Valley region of New York State. At December 31, 2000, Premier had approximately $1.6 billion of assets, including $1.0 billion of loans, and approximately $1.4 billion of liabilities, including $1.3 billion of deposits. The transaction was accounted for using the purchase method of accounting and, accordingly, the operations acquired from Premier will be included in M&T’s financial results subsequent to the acquisition date. Premier’s stockholders received approximately $171 million in cash and 2,441,000 shares of M&T common stock in exchange for the Premier shares outstanding at the time of the acquisition.

On October 6, 2000, M&T completed the merger of Keystone Financial, Inc. (“Keystone”), a bank holding company headquartered in Harrisburg, Pennsylvania. Keystone Financial Bank, N.A., Keystone’s bank subsidiary, was merged into M&T Bank. Keystone Financial Bank, N.A. operated banking offices in Pennsylvania, Maryland and West Virginia. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the operations acquired from Keystone have been included in M&T’s financial results since the acquisition date. Keystone’s stockholders received $375 million in cash and 15,900,292 shares of M&T common stock in exchange for the Keystone shares outstanding at the time of acquisition. Assets acquired totaled approximately $7.4 billion and included loans and leases of $4.8 billion and investment securities of $1.2 billion. Liabilities assumed on October 6 were approximately $6.4 billion and included $5.2 billion of deposits. In connection with the Keystone transaction, the Company recorded approximately $615 million of goodwill and core deposit intangible.

On March 1, 2000, M&T Bank completed the acquisition of Matthews, Bartlett & Dedecker, Inc. (“MBD”), an insurance agency located in Buffalo, New York. MBD provides insurance services principally to the commercial market and operates as a subsidiary of M&T Bank. The acquisition of MBD has not had a material impact on the Company’s financial position or its results of operations.

On March 31, 2000, The Chase Manhattan Bank (“Chase”) transferred trust and fiduciary accounts with assets of approximately $147 million to M&T Bank,

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completing a transaction that began in September 1999 with M&T Bank’s acquisition from Chase of 29 branch offices in upstate New York and the investment management and custody accounts associated with those offices. At the time of closing in September 1999, the branches had approximately $634 million of deposits and approximately $44 million of retail installment and commercial loans, and the investment management and custody accounts had assets of approximately $286 million.

The Company from time to time considers acquiring banks, thrift institutions, branch offices or other businesses within markets currently served or in other nearby markets. 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.

Subsidiaries

Olympia is a Delaware corporation that holds the stock of M&T Bank and is registered as a bank holding company under the BHCA. Its registered office is located at 1209 Orange Street, Wilmington, Delaware 19801.

Keystone Financial Life Insurance Company (“KFLI”), a wholly owned subsidiary of Olympia, was incorporated as an Arizona business corporation in January 1984. KFLI is a captive credit reinsurer which provides credit life and accident and health insurance to M&T Bank consumer loan customers. As of December 31, 2000, KFLI had assets of $34 million and stockholders’ equity of $14 million. KFLI recorded revenues of $853 thousand for the period from October 6, 2000 (the date it was acquired as part of the Keystone merger) through December 31, 2000. Headquarters of KFLI are located at 101 North First Avenue, Phoenix, Arizona 85003.

M&T Bank is a banking corporation which 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. Olympia acquired all of the issued and outstanding shares of the capital stock of M&T Bank on April 1, 1998. The stock of Olympia and M&T Bank represent major assets 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, 2000, M&T Bank had 450 banking offices located throughout New York State, Pennsylvania, Maryland and West Virginia, plus a branch in Nassau, The Bahamas. As of December 31, 2000, M&T Bank had consolidated total assets of $28.0 billion, deposits of $19.5 billion and stockholder’s equity of $3.0 billion. The deposit liabilities of M&T Bank are insured by the FDIC through either its Bank Insurance Fund (“BIF”) or its Savings Association Insurance Fund (“SAIF”). Of M&T Bank’s $19.1 billion in assessable deposits at December 31, 2000, 89% were assessed as BIF-insured and the remainder as SAIF-insured deposits. 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 and Pennsylvania, and on small and medium-size businesses based in those areas. In addition, the Company conducts lending activities in Maryland and West Virginia, as well as other states through various 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.

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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 BIF. 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, primarily through direct mail and telephone marketing techniques. M&T Bank, N.A. is also a licensed insurance agency, and offers insurance products primarily through the banking offices of M&T Bank. As of December 31, 2000, M&T Bank, N.A. had total assets of $903 million, deposits of $799 million and stockholder’s equity of $59 million.

Highland Lease Corporation (“Highland Lease”), a wholly owned subsidiary of M&T Bank, was incorporated as a New York business corporation in October 1994. Highland Lease is a consumer leasing company with headquarters at One M&T Plaza, Buffalo, New York 14203. As of December 31, 2000, Highland Lease had assets of $637 million and stockholder’s equity of $35 million. Highland Lease recorded $30 million of revenue during 2000.

M&T Credit Corporation (“M&T Credit”), a wholly owned subsidiary of M&T Bank, was incorporated as a New York business corporation in April 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, with offices in Massachusetts and Pennsylvania. As of December 31, 2000, M&T Credit had assets of $910 million and stockholder’s equity of $25 million. M&T Credit recorded $62 million of revenue during 2000.

M&T Financial Corporation (“M&T Financial”), a New York business corporation, is a wholly owned subsidiary of M&T Bank which specializes in capital-equipment leasing. M&T Financial was formed in October 1985, had assets of $86 million and stockholder’s equity of $27 million as of December 31, 2000, and recorded approximately $14 million of revenue in 2000. The headquarters of M&T Financial are located at One M&T Plaza, Buffalo, New York 14203.

M&T Investment Company, Inc. (“M&T Investment Company”), a wholly owned subsidiary of M&T Bank, was incorporated as a New Jersey business corporation in December 1999. Operated as a New Jersey investment company, M&T Investment Company owns all of the outstanding common stock and 87.6% of the preferred stock of M&T Real Estate, Inc. As of December 31, 2000, M&T Investment Company had assets of approximately $7.7 billion and stockholder’s equity of approximately $7.6 billion. Excluding dividends from M&T Real Estate, Inc., M&T Investment Company recorded $9.8 million of revenue in 2000. The headquarters of M&T Investment Company are located at One Maynard Drive, Park Ridge, New Jersey 07656.

M&T Mortgage Corporation (“M&T Mortgage”), the wholly owned mortgage banking subsidiary of M&T Bank, was incorporated as a New York business corporation in November 1991. M&T Mortgage’s principal activities are comprised of the origination of residential mortgage loans and providing residential mortgage loan servicing to M&T Bank, M&T Bank, N.A. and others. M&T Mortgage operates throughout New York State and Pennsylvania, and also maintains branch offices in Arizona, Colorado, Idaho, Massachusetts, Ohio, Oregon, Utah and Washington. M&T Mortgage had assets of $958 million and stockholder’s equity of $156 million as of December 31, 2000, and recorded approximately $117 million of revenue during 2000. Residential mortgage loans serviced by M&T Mortgage for non-affiliates totaled $9.7 billion at December 31, 2000. The headquarters of M&T Mortgage are located at M&T Center, One Fountain Plaza, Buffalo, New York 14203.

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 mortgage lenders against the risk of a mortgage

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borrower’s payment default. 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. M&T Reinsurance had assets of approximately $1.9  million and stockholder’s equity of approximately $1.7 million as of December 31, 2000, and recorded approximately $767 thousand of revenue during 2000. M&T Reinsurance’s principal and registered office is at 148 College Street, Burlington, Vermont 05401.

M&T Real Estate, Inc.(“M&T Real Estate”), a subsidiary of M&T Investment Company, was incorporated as a New York business corporation in August 1995. All of the outstanding common stock and 87.6% of the preferred stock of M&T Real Estate is owned by M&T Investment Company. The remaining 12.4% of M&T Real Estate’s preferred stock is owned by officers or former officers of the Company. M&T Real Estate engages in commercial real estate lending and provides loan servicing to M&T Bank and others. As of December 31, 2000, M&T Real Estate had assets of $7.6 billion and stockholders’ equity of $7.4 billion. M&T Real Estate recorded $541 million of revenue in 2000. Commercial mortgage loans serviced for non-affiliates totaled $458 million at December  31, 2000. The headquarters of M&T Real Estate are located at M&T Center, One Fountain Plaza, Buffalo, New York 14203.

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, as an investment advisor under the Investment Advisors Act of 1940, as amended, and is licensed as an insurance agent. It provides securities brokerage, investment advisory and insurance services. As of December 31, 2000, M&T Securities had assets of $13 million and stockholder’s equity of $9 million. M&T Securities recorded $36 million of revenue during 2000. The headquarters of M&T Securities are located at One M&T Plaza, Buffalo, New York 14203.

Matthews, Bartlett & Dedecker, Inc. (“MBD”), a wholly owned subsidiary of M&T Bank, was incorporated as a New York insurance agency in March 1955. MBD provides insurance services principally to the commercial market. As of December 31, 2000, MBD had assets of $9 million and stockholder’s equity of $5 million. MBD recorded revenues of $4 million for the period from March 1, 2000 (the date it was acquired by M&T Bank) through December 31, 2000. The headquarters of MBD are located at 334 Delaware Avenue, Buffalo, New York 14202.

During 1997, the Company and one of its predecessors, ONBANCorp, Inc. (“ONBANCorp”), formed three Delaware business trusts to issue preferred capital securities (“Capital Securities”). M&T Capital Trust I (“Trust I”) issued $150 million of 8.234% Capital Securities, M&T Capital Trust II (“Trust II”) issued $100 million of 8.277% Capital Securities, and M&T Capital Trust III (“Trust III” and, together with Trust I and Trust II, the “Trusts”) issued $60 million of 9.25% Capital Securities. The common securities (“Common Securities”) of Trust I and Trust II are wholly owned by M&T and the common securities of Trust III are wholly owned by Olympia. The Common Securities of each Trust are the only class of each Trust’s securities possessing general voting powers. The Capital Securities represent preferred, undivided interests in the assets of the corresponding Trusts and are classified in the Company’s consolidated balance sheet as long-term borrowings, with accumulated distributions on such securities included in interest expense. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 capital. The proceeds from the issuances of the Capital Securities and the Common Securities were used by the Trusts to purchase junior subordinated, deferrable interest debentures issued by M&T in the case of Trust I and Trust II and Olympia in the case of Trust III. The junior subordinated debentures represent the sole assets of the Trusts and payments under the junior subordinated debentures are the sole source of cash flow for the Trusts. As

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of December 31, 2000, Trust I had assets of $160 million and stockholders’ equity of $155 million, and during 2000 Trust I recorded $13 million of revenue. Trust II had assets of $104 million and stockholders’ equity of $103 million at December 31, 2000, and during 2000 Trust II recorded $9 million of revenue. Trust III had assets of $73 million and stockholders’ equity of $62 million at December 31, 2000, and during 2000 Trust III recorded $5 million of revenue.

The Registrant and its banking subsidiaries have a number of other special-purpose or inactive subsidiaries. These other subsidiaries represented, individually and collectively, an insignificant portion of the Company’s consolidated assets, net income and stockholders’ equity at December 31, 2000.

Segment Information, Principal Products/Services
and Foreign Operations

Information about the Registrant’s business segments is included in note 19 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 Company’s international activities are discussed in note 15 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”

The Registrant’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The reportable segments are Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

The only activities that, as a class, contributed 10% or more of the sum of consolidated interest income and other income in each of the last three years were lending and investment securities transactions. 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

The Gramm-Leach-Bliley Act of 1999 (“Gramm-Leach”) enables combinations among banks, securities firms and insurance companies. Under Gramm-Leach, 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

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agency), and merchant banking.

In order to engage in these new financial activities, a bank holding company must qualify and register with the Board of Governors of the Federal Reserve System (“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”).

The financial activities authorized by Gramm-Leach 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, Gramm-Leach 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.

Gramm-Leach 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. Gramm-Leach also provides new protections against the transfer and use by financial institutions of consumers’ nonpublic, personal information.

The foregoing discussion is qualified in its entirety by reference to the statutory provisions of Gramm-Leach and the implementing regulations which have been or will be adopted by various government agencies pursuant to Gramm-Leach.

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 the New York State Banking Superintendent (“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.

Although it meets the qualifications for electing to become a financial holding company, the Registrant has elected to retain its pre-Gramm-Leach status for the present time under the BHCA. 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

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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. 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 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended (the “Interstate Banking Act”) 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 Interstate Banking 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 the Interstate Banking Act 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. Furthermore, such assessment is also required of any bank that has applied, among other things, to 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.

Supervision and Regulation of Bank Subsidiaries

The Registrant’s banking 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,

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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. Gramm-Leach places similar restrictions 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, although the Registrant’s subsidiary banks have not yet commenced any activities through 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 either the BIF or SAIF of 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 BIF or SAIF or both.

Dividends from Bank Subsidiaries

M&T Bank and M&T Bank, N.A. are subject, under one or more of the banking laws, to restrictions on the amount and frequency (no more often than quarterly) 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 20 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 below.

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

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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 following table, the risk-based capital ratios and leverage ratios of the Registrant, M&T Bank and M&T Bank, N.A. as of December 31, 2000 exceeded the required capital ratios for classification as “well capitalized,” the highest classification under the regulatory capital guidelines.

Capital Components and Ratios at December 31, 2000
(dollars in millions)

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 and the risk of nontraditional activities, 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. While the Company’s management studies such proposals, the timing of adoption, ultimate form and effect of any such proposed amendments on the Company’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. FDICIA established 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

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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 be engaged in an unsafe or unsound practice and not to have corrected the deficiency. M&T, Olympia, M&T Bank and M&T Bank, N.A. currently meet the definition of “well capitalized” institutions.

“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, 2000, M&T Bank and M&T Bank, N.A. had approximately $528 million and $3 million of brokered deposits, respectively.

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

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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.

FDIC Deposit Insurance Assessments

As institutions with deposits insured by the BIF and the SAIF, M&T Bank and M&T Bank, N.A. are subject to FDIC deposit insurance assessments. Under current law the regular insurance assessments to be paid by BIF-insured and SAIF-insured institutions are specified in schedules issued by the FDIC that specify, at semiannual intervals, target reserve ratios designed to maintain the reserve ratios of each of those insurance funds at 1.25% of their estimated insured deposits. The FDIC is also authorized to impose one or more special assessments.

The FDIC has implemented a risk-based deposit premium assessment system under which each depository institution is placed in one of nine assessment categories based on the institution’s capital classification under the prompt corrective action provisions described above, and whether such institution is considered by its supervisory agency to be financially sound or to have supervisory concerns. The adjusted assessment rates for both BIF-insured and SAIF-insured institutions under the current system range from .00% to .27% depending upon the assessment category into which the insured institution is placed. Neither of the Company’s banking subsidiaries paid regular insurance assessments to the FDIC in 2000. However, the FDIC retains the ability to increase regular BIF and SAIF assessments and to levy special additional assessments.

In addition to deposit insurance fund assessments, beginning in 1997 the FDIC assessed BIF-assessable and SAIF-assessable 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 rates established by the FDIC for both BIF-assessable and SAIF-assessable deposits are 1.96 basis points (hundredths of one percent).

Any significant increases in assessment rates or additional special assessments by the FDIC could have an adverse impact on the results of operations and capital of M&T Bank or M&T Bank, N.A.

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

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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 Gramm-Leach may increase competition among diversified financial services providers, and the Interstate Banking Act and the Banking Law may further ease 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.

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.

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M&T BANK CORPORATION AND SUBSIDIARIES

Item 1, Table 1

SELECTED CONSOLIDATED YEAR-END BALANCES
In thousands				2000				1999
Money-market assets
	Interest-bearing deposits at banks			$	3,102				1,092
	Federal funds sold and resell agreements				17,261				643,555
	Trading account				37,431				641,114
		Total money-market assets			57,794				1,285,761
Investment securities
	U.S. Treasury and federal agencies				1,984,347				737,586
	Obligations of states and political subdivisions				249,425				79,189
	Other				1,076,081				1,083,747
		Total investment securities			3,309,853				1,900,522
Loans and leases
	Commercial, financial, leasing, etc.				5,171,959				3,697,058
	Real estate —construction				900,170				525,241
	Real estate —mortgage				12,654,236				10,152,905
	Consumer				4,243,949				3,197,657
		Total loans and leases			22,970,314				17,572,861
	Unearned discount				(227,500	)			(166,090	)
	Allowance for credit losses				(374,703	)			(316,165	)
		Loans and leases, net			22,368,111				17,090,606
Goodwill and core deposit intangible					1,199,407				648,040
Real estate and other assets owned					13,619				10,000
Total assets					28,949,456				22,409,115
Noninterest-bearing deposits					3,344,913				2,260,432
NOW accounts					873,472				583,471
Savings deposits					6,105,689				5,198,681
Time deposits					9,664,088				7,088,345
Deposits at foreign office					244,511				242,691
		Total deposits			20,232,673				15,373,620
Short-term borrowings					2,072,824				2,554,159
Long-term borrowings					3,414,516				1,775,133
Total liabilities					26,248,971				20,612,069
Stockholders’ equity					2,700,485				1,797,046

[Additional columns below]

[Continued from above table, first column(s) repeated]

SELECTED CONSOLIDATED YEAR-END BALANCES
In thousands				1998				1997				1996
Money-market assets
	Interest-bearing deposits at banks				674				668				47,325
	Federal funds sold and resell agreements				229,066				53,087				125,326
	Trading account				173,122				57,291				37,317
		Total money-market assets			402,862				111,046				209,968
Investment securities
	U.S. Treasury and federal agencies				1,321,000				1,081,247				1,023,038
	Obligations of states and political subdivisions				73,789				38,018				41,445
	Other				1,390,775				605,953				507,215
		Total investment securities			2,785,564				1,725,218				1,571,698
Loans and leases
	Commercial, financial, leasing, etc.				3,211,427				2,406,640				2,206,282
	Real estate —construction				489,112				254,434				90,563
	Real estate —mortgage				9,289,521				6,765,408				6,199,931
	Consumer				3,015,641				2,339,051				2,623,445
		Total loans and leases			16,005,701				11,765,533				11,120,221
	Unearned discount				(214,171	)			(268,965	)			(398,098	)
	Allowance for credit losses				(306,347	)			(274,656	)			(270,466	)
		Loans and leases, net			15,485,183				11,221,912				10,451,657
Goodwill and core deposit intangible					546,036				17,288				18,923
Real estate and other assets owned					11,129				8,413				8,523
Total assets					20,583,891				14,002,935				12,943,915
Noninterest-bearing deposits					2,066,814				1,458,241				1,352,929
NOW accounts					509,307				346,795				334,787
Savings deposits					4,830,678				3,344,697				3,280,788
Time deposits					7,027,083				5,762,497				5,352,749
Deposits at foreign office					303,270				250,928				193,236
		Total deposits			14,737,152				11,163,158				10,514,489
Short-term borrowings					2,229,976				1,050,918				1,127,900
Long-term borrowings					1,567,543				427,819				178,002
Total liabilities					18,981,525				12,972,669				12,038,256
Stockholders’ equity					1,602,366				1,030,266				905,659

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M&T BANK CORPORATION AND SUBSIDIARIES

Item 1, Table 2

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M&T BANK CORPORATION AND SUBSIDIARIES

Item 1, Table 3

COMMON SHAREHOLDER DATA

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M&T BANK CORPORATION AND SUBSIDIARIES

Item 1, Table 4

CHANGES IN INTEREST INCOME AND EXPENSE*
			2000 compared with 1999
							Resulting from
			Total				changes in:
Increase (decrease) in thousands			change				Volume				Rate
Interest income Loans and leases, including fees			$	257,100				176,459				80,641
Money-market assets
	Deposits at banks			221				172				49
	Federal funds sold and agreements to resell securities			(11,600	)			(15,023	)			3,423
	Trading account			(2,152	)			(1,501	)			(651	)
Investment securities
	U.S. Treasury and federal agencies			51,996				43,880				8,116
	Obligations of states and political subdivisions			4,230				3,398				832
	Other			(2,805	)			(7,985	)			5,180
	Total interest income		$	296,990
Interest expense Interest-bearing deposits
	NOW accounts		$	2,804				1,342				1,462
	Savings deposits			10,337				8,241				2,096
	Time deposits			77,777				32,630				45,147
	Deposits at foreign office			2,899				(168	)			3,067
Short-term borrowings				67,555				38,286				29,269
Long-term borrowings				37,991				22,511				15,480
	Total interest expense		$	199,363

[Additional columns below]

[Continued from above table, first column(s) repeated]

CHANGES IN INTEREST INCOME AND EXPENSE*
			1999 compared with 1998
							Resulting from
			Total				changes in:
Increase (decrease) in thousands			change				Volume				Rate
Interest income Loans and leases, including fees				124,849				173,474				(48,625	)
Money-market assets
	Deposits at banks			(313	)			(305	)			(8	)
	Federal funds sold and agreements to resell securities			16,198				16,499				(301	)
	Trading account			(1,303	)			(1,250	)			(53	)
Investment securities
	U.S. Treasury and federal agencies			(34,922	)			(30,636	)			(4,286	)
	Obligations of states and political subdivisions			94				101				(7	)
	Other			15,102				17,203				(2,101	)
	Total interest income			119,705
Interest expense Interest-bearing deposits
	NOW accounts			(168	)			810				(978	)
	Savings deposits			6,543				17,854				(11,311	)
	Time deposits			(20,296	)			2,885				(23,181	)
	Deposits at foreign office			(2,957	)			(1,667	)			(1,290	)
Short-term borrowings				(671	)			7,074				(7,745	)
Long-term borrowings				49,280				57,149				(7,869	)
	Total interest expense			31,731

•

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.

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Executive Officers of the Registrant

Information concerning the Registrant’s executive officers is presented below as of February 27, 2001. 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, and until their successors are elected and qualified.

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Robert G. Wilmers, age 66, is chairman of the board (2000), president (1988), chief executive officer (1983) and a director (1982) of the Registrant. From April 1998 until July 2000, he served as president and chief executive officer of the Registrant. He is chairman of the board, chief executive officer (1983) and a director (1982) of M&T Bank, and served as president of M&T Bank from March 1984 to June 1996. Mr. Wilmers is chairman of the board and a director of M&T Bank, N.A.(1995). He is a director of M&T Financial (1983).

Emerson L. Brumback, age 49, is an executive vice president (1997) of the Registrant and M&T Bank, and is in charge of the Company’s Retail Banking Division. Mr. Brumback is chairman of the Directors Advisory Council (1999) of M&T Bank’s Jamestown Division. Mr. Brumback is chairman of the board (1999) and a director (1997) of Highland Lease and an executive vice president (1998) and a director of M&T Bank, N.A.(1997). He is chairman of the board (1999) and a director (1997) of M&T Credit and a director of M&T Mortgage (1997), M&T Reinsurance (1999) and M&T Securities (1997). Mr. Brumback was executive vice president, national retail distribution, at BancOne Corporation prior to joining the Company.

Carl L. Campbell, age 57, is a vice chairman of the board and a director (2000) of the Registrant and M&T Bank. He is chairman (2000) of M&T Bank’s Pennsylvania Division. From 1986 through October 6, 2000, Mr. Campbell served as president and chief executive officer of Keystone, and since May 1998 he had also served as chairman of the board. He also was chairman and chief executive officer of Keystone Financial Bank, N.A., Keystone’s bank subsidiary, from January 1999 through October 6, 2000.

Atwood Collins, III, age 54, is an executive vice president of the Registrant (1997) and M&T Bank (1996), president (2000) of the Hudson Valley Division of M&T Bank and is chairman of the Directors Advisory Council (1998) of M&T Bank’s New York City Division. Previously, Mr. Collins served as president and chief executive officer of the New York City Division of M&T Bank (1997), and as president, chief executive officer and a director (1995) of The East New York Savings Bank, which had been a wholly owned subsidiary of the Registrant prior to its merger with and into M&T Bank on May 24, 1997. He is a director of M&T Real Estate (1995). Mr. Collins also has responsibility for managing the Company’s middle market, commercial real estate and business banking activities in Westchester, Putnam and Rockland counties of New York State and Connecticut, business banking in New York City and investment banking, institutional and correspondent banking activities. He also manages the Company’s Facilities Management and Services group.

Mark J. Czarnecki, age 45, is an executive vice president of the Registrant (1999) and M&T Bank (1997) and is in charge of the M&T Investment Group, which is comprised of M&T Securities, the Insurance Services Division of M&T Bank, N.A., MBD and the Trust and Investment Services Division of M&T Bank. Mr. Czarnecki is a director of M&T Securities (1999) and an executive vice president of M&T Bank, N.A. (1997). He is chairman of the board and a director of MBD (2000) and of KFLI (2000). Mr. Czarnecki has held a number of management positions with M&T Bank since 1977, most recently as senior vice president of the private client services group of the Trust and Investment Services Division (1994), and prior thereto as an administrative vice president and regional manager for the Retail Banking Division.

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Brian E. Hickey, age 48, is an executive vice president of the Registrant (1997) and M&T Bank (1996). He is president and a member of the Directors Advisory Council (1994) of the Rochester Division of M&T Bank, and is president (2000) of the Syracuse Division of M&T Bank. Mr. Hickey is a director of M&T Financial (1996). Mr. Hickey is responsible for managing all of the business segments in the Rochester, Syracuse and Southern Divisions of M&T Bank, and he also has responsibility for managing the Company’s Western New York Commercial Banking Division.

James L. Hoffman, age 61, is an executive vice president of the Registrant (1997) and M&T Bank (1996). Mr. Hoffman is a director of M&T Investment Company (1999). He served as president of the Hudson Valley Division of M&T Bank from 1992 until August 2000. Mr. Hoffman served as chairman of the board, president, chief executive officer and a director (1983) of The First National Bank of Highland, which had been a wholly owned subsidiary of the Registrant prior to its merger with and into M&T Bank on February 29, 1992.

Adam C. Kugler, age 43, is an executive vice president and treasurer (1997) of the Registrant and M&T Bank, and is in charge of the Company’s Treasury Division. Mr. Kugler is chairman of the board and a director of M&T Investment Company (1999), a director of M&T Financial (1997), M&T Securities (1997) and is an executive vice president, Treasurer and a director of M&T Bank, N.A. (1997). Mr. Kugler was previously a senior vice president in the Treasury Division of M&T Bank.

	Ray E. Logan, age 63, is an executive vice president of M&T Bank (1999) and is in charge of the Company’s Human Resources Division. Mr. Logan served as senior vice president of M&T Bank from 1986 to 1999.

John L. Pett, age 52, is an executive vice president (1997) and chief credit officer (1995) of the Registrant and is an executive vice president and chief credit officer of M&T Bank (1996). Mr. Pett is a director of Highland Lease (1997) and M&T Credit (1997). He is an executive vice president (1998) and a director (1996) of M&T Bank, N.A. Mr. Pett served as senior vice president of the Registrant from 1991 to 1997.

Michael P. Pinto, age 45, is an executive vice president and chief financial officer of the Registrant (1997) and M&T Bank (1996), and is in charge of the Company’s Finance Division and its Technology and Banking Operations Division. Mr. Pinto is chairman of the board, president and a director of Olympia Financial Corp. (1997), and a director of M&T Financial (1996), M&T Mortgage (1996), M&T Real Estate (1996) and M&T Investment Company (1999). He is an executive vice president and chief financial officer (1996) and a director (1998) of M&T Bank, N.A. Mr. Pinto served as senior vice president and controller of the Registrant from 1993 to 1997.

Robert E. Sadler, Jr., age 55, is an executive vice president (1990) and a director (1999) of the Registrant, president and a director of M&T Bank (1996), and is in charge of the Company’ s Commercial Banking Division. Mr. Sadler is president, chief executive officer and a director of M&T Bank, N.A.(1995); chairman of the board (1989) and a director of M&T Financial (1985); chairman of the board and a director of M&T Mortgage (1991); chairman of the board and a director of M&T Securities (1994); chairman of the board, president and a director of M&T Real Estate (1995); and a director (2000) of MBD.

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PART II

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 $28.9 billion at December 31, 2000. M&T and its consolidated subsidiaries are hereinafter referred to collectively as “the Company.” M&T’s wholly owned banking subsidiaries are Manufacturers and Traders Trust Company (“M&T Bank”) and M&T Bank, National Association (“M&T Bank, N.A.”).

      M&T Bank, with total assets of $28.0 billion at December 31, 2000, is a New York-chartered commercial bank with banking offices in New York State, Pennsylvania, Maryland and West Virginia, and an office in Nassau, The Bahamas. 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 its markets. Lending is largely focused on consumers residing in New York State and Pennsylvania, and on small and medium size businesses based in those areas. Certain lending activities are also conducted in other states through various subsidiaries. M&T Bank’s subsidiaries include: Highland Lease Corporation, a consumer leasing company; M&T Credit Corporation, a consumer lending and commercial leasing and lending company; M&T Financial Corporation, a commercial leasing company; M&T Mortgage Corporation, a residential mortgage banking company; M&T Real Estate, Inc., a commercial mortgage lender; M&T Securities, Inc., a broker/dealer; and Matthews, Bartlett & Dedecker, Inc., an insurance agency.

      M&T Bank, N.A., with total assets of $903 million at December 31, 2000, 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 and direct mail marketing techniques. Insurance products are offered by M&T Bank, N.A. through banking offices of M&T Bank.

      On February 9, 2001, M&T acquired Premier National Bancorp, Inc. (“Premier”), a bank holding company headquartered in Lagrangeville, New York. Premier National Bank, Premier’s bank subsidiary, was merged into M&T Bank on that date. Premier National Bank operated 34 banking offices in the mid-Hudson Valley region of New York State. At December 31, 2000, Premier had approximately $1.6 billion of assets, including $1.0 billion of loans, and $1.4 billion of liabilities, including $1.3 billion of deposits. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the operations acquired from Premier will be included in M&T’s financial results subsequent to the acquisition date. Premier’s stockholders received $171 million in cash and 2,441,000 shares of M&T common

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stock in exchange for the Premier shares outstanding at the time of the acquisition.

      On October 6, 2000, M&T completed the acquisition of Keystone Financial, Inc. (“Keystone”), a bank holding company headquartered in Harrisburg, Pennsylvania. Keystone Financial Bank, N.A., Keystone’s bank subsidiary, was merged into M&T Bank. Keystone Financial Bank, N.A. operated banking offices in Pennsylvania, Maryland and West Virginia. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the operations acquired from Keystone have been included in M&T’s financial results since the acquisition date. Keystone’s stockholders received $375 million in cash and 15,900,292 shares of M&T common stock in exchange for the Keystone shares outstanding at the time of the acquisition. The accompanying table provides a summary of assets acquired and liabilities assumed by the Company on October 6, 2000 in connection with the Keystone transaction:

      The Company recorded approximately $615 million of goodwill and core deposit intangible as a result of the Keystone acquisition, and incurred nonrecurring expenses related to systems conversions and other costs of integrating and conforming the acquired operations with and into the operations of M&T Bank. Nonrecurring expenses associated with the Keystone merger, and to a significantly lesser extent with the Premier merger, totaled approximately $26.0 million ($16.4 million after-tax) during the year ended December 31, 2000. Such expenses consisted largely of expenses for professional services and other temporary help fees associated with the conversion of systems and/or integration of operations; recruiting and other incentive compensation; initial marketing and promotion expenses designed to introduce M&T Bank to Keystone’s customers; travel; and printing, supplies and other costs of commencing operations in new markets. Although the systems conversions and integration of operations of Keystone are largely complete, the Company expects that it will incur some additional Keystone integration costs. However, the amount of such additional costs is not expected to be significant. Furthermore, the Company also expects to incur costs of a nature similar to those described above in connection with the February 2001 merger with Premier. In accordance with generally accepted accounting principles, included in the determination of goodwill associated with the Keystone merger were charges totaling $29.7 million, net of applicable income taxes, for severance of former Keystone employees; investment banking, legal and other professional fees; and termination of Keystone contracts for data processing and other services. As of December 31, 2000, the remaining unpaid portion of merger-related expenses and charges included in the determination of goodwill were $1.5 million and $7.3 million,

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respectively. The resolution of any preacquisition contingencies is not expected to have a material impact on the allocation of the purchase price or the amount of goodwill recorded as part of the acquisition.

      In anticipation of the Keystone and Premier acquisitions, M&T Bank issued $500 million of 8% fixed rate subordinated capital notes on October 5, 2000. The subordinated notes are included in total regulatory capital of M&T and M&T Bank. The notes pay interest semi-annually on April 1 and October 1, and will mature on October 1, 2010. In addition to providing regulatory capital, the proceeds were used to fund the cash portions of the Keystone and Premier merger consideration.

      On September 19, 2000, M&T’s Board of Directors authorized a ten-for-one split of M&T’s common stock in connection with the Keystone transaction. The additional shares were payable to stockholders of record as of September 29 and were distributed on October 5, 2000. The par value of each share of M&T’s common stock was reduced from $5.00 to $.50 in conjunction with the stock split. All per share data presented herein, including earnings, dividends and the number of common shares authorized, issued, issuable or held in treasury, have been adjusted to reflect the ten-for-one stock split. Also in connection with the Keystone transaction, in the fourth quarter of 2000 M&T doubled the quarterly cash dividend payable on its common stock to $.25 on each post-split share.

      On March 1, 2000, M&T Bank completed the acquisition of Matthews, Bartlett & Dedecker, Inc. (“MBD”), an insurance agency located in Buffalo, New York. MBD provides insurance services principally to the commercial market and operates as a subsidiary of M&T Bank. The acquisition has not had a material impact on the Company’s financial position or its results of operations.

      On March 31, 2000, The Chase Manhattan Bank (“Chase”) transferred trust and fiduciary accounts with assets of approximately $147 million to M&T Bank, completing a transaction that began in September 1999 with M&T Bank’s acquisition from Chase of 29 banking offices in upstate New York and the investment management and custody accounts associated with those offices. At the September 1999 closing, the banking offices had approximately $634 million of deposits and approximately $44 million of retail installment and commercial loans, and the investment management and custody accounts had assets of approximately $286 million.

      On June 1, 1999, M&T completed the acquisition of FNB Rochester Corp. (“FNB”), a bank holding company headquartered in Rochester, New York. Immediately after the acquisition, FNB’s banking subsidiary, First National Bank of Rochester, which had 17 banking offices in western and central New York State, was merged into M&T Bank. The acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations obtained from FNB have been included in the financial results of the Company since the acquisition date. FNB’s stockholders received $76 million in cash and 1,225,160 shares (stated to reflect the ten-for-one stock split) of M&T common stock in exchange for FNB shares outstanding at the time of the acquisition. Assets acquired totaled approximately $676 million on June 1, 1999 and included loans and leases of $393 million and investment securities of $148 million. Liabilities assumed on June 1, 1999 were approximately $541 million and included $511 million of deposits.

      The Company recorded approximately $153 million of goodwill and core deposit intangible in connection with the Chase branch and FNB acquisitions. Nonrecurring expenses related to systems conversions and other costs of integrating and conforming the acquired operations with and into M&T Bank totaled $4.7 million ($3.0 million after-tax) during the year ended December 31, 1999 and consisted largely of expenses similar in nature to those

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previously described as having been incurred in connection with the Keystone merger. In accordance with generally accepted accounting principles, included in the determination of goodwill were charges totaling $4.1 million, net of applicable income taxes, for severance of former Chase and FNB employees; legal and other professional fees; and termination of contracts for data processing and other services. As of December 31, 1999, the remaining unpaid portion of merger-related expenses and charges included in the determination of goodwill were $130 thousand and $960 thousand, respectively. Substantially all of these amounts were paid during 2000.

Overview

The Company’s net income in 2000 totaled $286.2 million or $3.44 of diluted earnings per common share, increases of 8% and 5%, respectively, from $265.6 million or $3.28 per diluted share in 1999. Basic earnings per common share rose to $3.55 in 2000, an increase of 4% from $3.41 in 1999. Net income in 1998 was $208.0 million, while diluted and basic earnings per share were $2.62 and $2.73, respectively. The after-tax impact of nonrecurring expenses associated with the previously described acquisitions was $16.4 million ($26.0 million pre-tax) or $.20 of diluted and basic earnings per share in 2000, compared with $3.0 million ($4.7 million pre-tax) or $.03 of diluted earnings per share and $.04 of basic earnings per share in 1999. Nonrecurring merger-related expenses were incurred in 1998 in connection with the acquisition of ONBANCorp, Inc. (“ONBANCorp”) on April 1, 1998. The after-tax impact of such expenses was $14.0 million ($21.3 million pre-tax) or $.18 of diluted and basic earnings per share in 1998.

      Net income expressed as a rate of return on average assets in 2000 was 1.21%, compared with 1.26% in 1999 and 1.14% in 1998. The return on average common stockholders’ equity was 14.07% in 2000, 15.30% in 1999 and 13.86% in 1998. Excluding the impact of merger-related expenses, the rates of return on average assets and average common equity in 2000 were 1.28% and 14.88%, respectively; compared with 1.28% and 15.47%, respectively, in 1999; and 1.21% and 14.79%, respectively, in 1998.

      Taxable-equivalent net interest income increased 13% to $865 million in 2000 from $767 million in 1999 largely due to a $2.4 billion or 13% rise in average earning assets to $21.5 billion in 2000 from $19.1 billion in 1999. The increase in average earning assets resulted primarily from growth in average loans and leases. Despite the impact of the securitization of approximately $1.0 billion of residential mortgage loans during the second quarter of 2000, average loans and leases rose to $18.5 billion in 2000, an increase of $2.1 billion or 13% from $16.4 billion in 1999. Excluding the impact of the securitization, average loans and leases grew approximately $2.7 billion in 2000, approximately half of which was due to new originations, net of repayments. The remaining increase was largely the result of the $4.8 billion of loans and leases obtained in the acquisition of Keystone on October 6, 2000. A 15% increase in average loans outstanding in 1999 was the most significant factor contributing to the rise in that year’s net interest income from $679 million in 1998. Average loans and leases and average earning assets in 1998 were $14.3 billion and $16.9 billion, respectively. Net interest margin, or taxable-equivalent net interest income expressed as a percentage of average earning assets, has remained stable throughout the past three years, measuring 4.02% in 2000 and 1999, and 4.01% in 1998.

      Reflecting favorable credit loss experience, the provision for credit losses decreased to $38.0 million in 2000, compared with $44.5 million in 1999 and $43.2 million in 1998. Net charge-offs totaled $29.0 million in 2000, significantly lower than $40.3 million in 1999 and $39.4 million in 1998. Net charge-offs as a percentage of average loans and leases

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outstanding declined to .16% in 2000 from .25% in 1999 and .28% in 1998.

      Noninterest income grew by 15% to $325 million in 2000 from $282 million in 1999. Contributing to the higher noninterest income were increases in service charges on deposit accounts, income from leasing activities, and brokerage services income, partially offset by lower mortgage banking revenues and losses from sales of bank investment securities. Approximately 40% of the increase in noninterest income from 1999 to 2000 was attributable to revenues related to operations and/or market areas associated with the Keystone acquisition.

      In January 1998, M&T contributed appreciated investment securities with a fair value of $24.6 million to an affiliated, tax-exempt private charitable foundation. As a result of the contribution, in 1998 the Company recognized charitable contributions expense of $24.6 million and recognized tax-exempt other income of $15.3 million. The contribution provided an income tax benefit of approximately $10.0 million and, accordingly, resulted in an after-tax increase in 1998’s net income of $700 thousand, or $.01 per diluted share. Excluding the effect of this contribution, noninterest income in 1999 increased 14% from $248 million in 1998. Growth in mortgage banking revenues and fees earned from deposit services, as well as a full year of revenues associated with operations obtained in the ONBANCorp acquisition, were factors that contributed to the increase from 1998 to 1999.

      Noninterest expenses associated with operations, which exclude amortization of goodwill and core deposit intangible and certain nonrecurring expenses, were $599 million in 2000, an increase of 14% from $525 million in 1999. The excluded items consist of nonrecurring merger-related expenses of $26.0 million and $4.7 million in 2000 and 1999, respectively, and amortization of goodwill and core deposit intangible of $69.6 million in 2000 and $49.7 million in 1999. Higher salaries and employee benefits expenses, including merit salary increases, incentive-based compensation arrangements, and increased staffing levels as a result of acquisitions in 2000 and 1999, contributed to the increase in noninterest operating expenses. After excluding $21.3 million of nonrecurring merger-related expenses, $34.5  million of amortization of goodwill and core deposit intangible, and $24.6 million of expense related to the contribution to the affiliated charitable foundation, noninterest expenses associated with operations totaled $486 million in 1998. Higher expenses related to salaries, employee benefits and occupancy contributed to the higher expense level in 1999 compared with 1998.

      The efficiency ratio, or noninterest operating expenses divided by the sum of taxable-equivalent net interest income and noninterest income, measures how much of a company’s revenue is consumed by operating expenses. Reflecting the smooth integration of the acquisitions into M&T, the efficiency ratio, calculated using the adjusted income and expense totals noted above and excluding gains or losses from sales of bank investment securities from noninterest income, was 50.2% in 2000, compared with 50.1% in 1999 and 52.5% in 1998.

Cash Operating Results

Unlike many other banking companies, M&T has accounted for substantially all of its business combinations using the purchase method of accounting. As a result, the Company had recorded intangible assets consisting predominately of goodwill and core deposit intangible totaling $1.2 billion, $648 million and $546 million at December 31, 2000, 1999 and 1998, respectively. Included in such intangible assets at December 31, 2000, 1999 and 1998 was goodwill of $1.0 billion, $572 million and $493 million, respectively. Since the amortization of these acquired intangible assets does not result in a cash expense, M&T believes that supplemental reporting of its operating results on

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a “cash,” or “tangible” basis (which excludes the after-tax effect of amortization of goodwill and core deposit intangible and the related asset balances) represents a relevant measure of financial performance. The supplemental cash basis data presented herein do not exclude the effect of other non-cash operating expenses such as depreciation, provision for credit losses, or deferred income taxes associated with the results of operations. Unless noted otherwise, cash basis data does, however, exclude the after-tax impact of nonrecurring merger-related expenses associated with acquisitions.

      Cash net income grew to $358.6 million in 2000, an improvement of 15% from $311.0 million in 1999. Diluted and basic cash earnings per share in 2000 both increased by 12% to $4.31 and $4.45, respectively, from $3.84 and $3.99 in 1999. In 1998, cash net income was $251.9 million, while diluted and basic cash earnings per share were $3.17 and $3.31, respectively.

      Cash return on average tangible assets was 1.56% in 2000, compared with 1.52% in 1999 and 1.41% in 1998. Cash return on average tangible common equity was 27.65% in 2000, compared with 26.71% and 23.08% in 1999 and 1998, respectively. Including the effect of merger-related expenses, the cash return on average tangible assets for 2000, 1999 and 1998 was 1.49%, 1.50% and 1.33%, respectively, and the cash return on average tangible common equity was 26.38%, 26.45% and 21.80%, respectively.

Net Interest Income/Lending and Funding Activities

Net interest income expressed on a taxable-equivalent basis rose 13% to $865 million in 2000 from $767 million in 1999, largely the result of growth in average earning assets, which increased $2.4 billion or 13% to $21.5 billion in 2000 from $19.1 billion in 1999. Taxable-equivalent net interest income and average earning assets in 1998 were $679 million and $16.9 billion, respectively. The growth in average earning assets in 2000 and 1999 was largely attributable to higher average loans and leases outstanding, which totaled $18.5 billion in 2000, up 13% from $16.4 billion in 1999 and 30% higher than $14.3 billion in 1998. Growth in average loans and leases resulting from origination and acquisition activities was partially offset in 2000 by the impact of the securitization of approximately $1.0 billion of residential mortgage loans during the second quarter. The resulting mortgage-backed securities, which are fully guaranteed by the Federal National Mortgage Association, are included in the Company’s portfolio of available-for-sale investment securities. Excluding the impact of the securitization, average loans and leases grew by approximately $2.7 billion, or 17%, from 1999 to 2000. Approximately half of such growth was attributable to new originations, net of the impact of repayments. The remaining increase was largely the result of the $4.8 billion of loans obtained in the October 6, 2000 acquisition of Keystone. Those acquired loans included approximately $1.2 billion of commercial loans, $1.3 billion of commercial real estate loans, $1.1 billion of residential mortgage loans and $1.2 billion of consumer loans and leases. In addition to net origination activities, the impact of the $393 million of loans obtained in June 1999 from the FNB transaction and the full-year impact of the $3.0 billion of loans acquired in the April 1998 ONBANCorp transaction contributed to the higher average loan balances in 1999 compared with 1998. The accompanying table 4 summarizes average loans and leases outstanding in 2000 and percentage changes in the major components of the portfolio over the past two years.

      Loans secured by real estate, including home equity loans and outstanding home equity lines of credit which the Company classifies as consumer loans, represented approximately 65% of the loan and lease portfolio during 2000, compared with 66% in 1999 and 1998. At December 31, 2000, the Company held approximately $8.7 billion of commercial real estate loans,

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$4.8 billion of consumer real estate mortgage loans secured by one-to-four family residential properties and $1.1 billion of outstanding home equity loans and lines of credit, compared with $6.5 billion, $4.1 billion and $885 million, respectively, at December 31, 1999.

      Commercial real estate loans originated by the Company are largely 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, including the Buffalo, Rochester, Syracuse, Albany, Hudson Valley and Southern Tier regions. Commercial real estate loans are also originated through the Company’s offices in central Pennsylvania, Maryland, Oregon and West Virginia. 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. In response to customer needs, in recent years the Company has also originated fixed-rate commercial real estate loans with maturities of greater than five years. In general, these loans have original maturity terms of approximately ten years. The Company also originates adjustable-rate commercial real estate loans. As of December 31, 2000, approximately 32% of the commercial real estate loan portfolio consisted of adjustable-rate loans. The accompanying table 6 presents commercial real estate loans by geographic area, type of collateral and size of the loans outstanding at December 31, 2000. Of the $3.5 billion of commercial real estate loans in the New York City metropolitan area, approximately 47% were secured by multi-family residential properties, 21% by retail space and 14% by office space. The Company’s experience has been that office space and retail properties tend to demonstrate more volatile fluctuations in value through economic cycles and changing economic conditions than do multi-family residential properties. Approximately 52% of the aggregate dollar amount of New York City area loans were for $5 million or less, while loans of more than $10 million made up approximately 30% of the total. Commercial real estate loans secured by properties elsewhere in New York State and in Pennsylvania 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. Approximately 76% 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 $5 million or less. Approximately 86% of the outstanding balance of commercial real estate loans in Pennsylvania were for $5 million or less.

      Commercial real estate loans secured by properties located outside of New York State and Pennsylvania, and outside of areas of neighboring states considered to be part of the New York City metropolitan area, comprised 10% of total commercial real estate loans as of December 31, 2000.

      Of the $534 million of commercial construction loans presented in the accompanying table, $289 million represent loans for which the Company has also committed to provide permanent financing. At December 31, 2000, commercial construction loans represented 2% of total loans and leases.

      Real estate loans secured by one-to-four family residential properties totaled $4.8 billion at December 31, 2000, including approximately 46% secured by properties located in New York State and 31% secured by properties located in Pennsylvania. At December 31, 2000, $525 million of residential real estate loans were held for sale by M&T Mortgage Corporation, the Company’s residential mortgage banking subsidiary. Loans to finance the construction of one-to-four family residential properties totaled $364 million at December 31, 2000, or approximately 2% of total loans and leases.

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      Consumer loans and leases represented approximately 18% of the average loan portfolio during 2000 and 1999, down slightly from 19% in 1998. Automobile loans and leases and home equity loans and lines of credit represent the largest components of the consumer loan portfolio. Approximately 85% of home equity loans and lines of credit outstanding at December 31, 2000 were secured by properties in New York State and 12% were secured by properties in Pennsylvania. At December 31, 2000, 31% and 51% of the automobile loan and lease portfolio were to customers residing in New York State and Pennsylvania, respectively. Automobile loans and leases are generally originated through dealers, however, all applications submitted through dealers are subject to the Company’s normal underwriting and loan approval procedures. Automobile loans and leases represented approximately 8% of the Company’s average loan portfolio during 2000, while no other consumer loan product represented more than 6%. The average outstanding balance of automobile leases was approximately $375 million in both 2000 and 1999, and $315 million in 1998. Automobile leases acquired in the Keystone transaction totaled $231 million on October 6, 2000. Due to poorer than expected results, during 1998 and 1997 the Company terminated all of its co-branded credit card programs and sold its retail credit card business on July 31, 1998, including outstanding balances of approximately $186 million.

      The Company’s investment securities portfolio averaged $2.8 billion in 2000, $2.1 billion in 1999 and $2.4 billion in 1998. Investment securities obtained in the acquisition of Keystone added approximately $185 million to the average balance in 2000. The remaining increase in 2000 from 1999 was generally the result of the previously described securitization of approximately $1.0 billion of residential mortgage loans during the second quarter of 2000. The investment securities portfolio is largely comprised of residential mortgage-backed securities and collateralized mortgage obligations, commercial real estate mortgage-backed securities, and shorter-term U.S. Treasury notes. The Company has also invested in debt securities issued by municipalities and debt and preferred equity securities issued by government-sponsored agencies and certain financial institutions. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to prepayment and other risks assumed. In managing its investment securities portfolio, the Company occasionally sells investment securities following completion of a business combination, such as the recent acquisition of Keystone, and as a result of changes in interest rates and spreads, actual or anticipated prepayments, or credit risk associated with a particular security. Investment securities obtained in the Keystone transaction totaled approximately $1.2 billion on October 6, 2000. Through December 31, 2000, approximately $628 million of such securities were sold. The size of the investment securities portfolio is influenced by such factors as demand for loans, which generally yield more than investment securities, ongoing repayments, the level of deposits, and management of balance sheet size and resulting capital ratios.

      Money-market assets, which are comprised of interest-earning deposits at banks, interest-earning trading account assets, Federal funds sold and agreements to resell securities, averaged $239 million in 2000, compared with $517 million in 1999 and $230 million in 1998.

      Core deposits represent the most significant source of funding to the Company and consist of noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and nonbrokered domestic time deposits under $100,000. Core deposits generally carry lower interest rates than wholesale funds of comparable maturities. The Company’s branch network is its principal source of core deposits. Certificates of deposit under $100,000 generated on a nationwide basis by M&T Bank, N.A. are also included in core deposits. Average core deposits were $13.6 billion in 2000, up from $11.9 billion in 1999 and $10.7 billion in 1998. The increase in average

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core deposits in 2000 was due to the $4.7 billion of core deposits obtained on October 6, 2000 in connection with the Keystone transaction. The increase in average core deposits in 1999 from 1998 reflected the 1999 Chase branch and FNB acquisitions and the full-year impact of the 1998 ONBANCorp acquisition. Core deposits obtained in the Chase branch acquisition as of September 24, 1999 and in the FNB acquisition as of June 1, 1999 were $618 million and $419 million, respectively. Core deposits obtained in the acquisition of ONBANCorp totaled approximately $2.8 billion on April 1, 1998. Average core deposits of M&T Bank, N.A. were $643 million in 2000, $429 million in 1999 and $401 million in 1998. Funding provided by core deposits totaled 63% of average earning assets in 2000, compared with 62% in 1999 and 63% in 1998. The accompanying table 7 summarizes average core deposits in 2000 and percentage changes in the components of such deposits over the past two years.

      The Company also obtains funding through domestic time deposits of $100,000 or more, deposits originated through the Company’s offshore branch office, and brokered certificates of deposit. Domestic time deposits over $100,000, excluding brokered certificates of deposit, averaged $1.8 billion in 2000, compared with $1.6 billion in 1999 and $1.3 billion in 1998. Offshore branch deposits, comprised primarily of accounts with balances of $100,000 or more, averaged $250 million in 2000, compared with $254 million and $288 million in 1999 and 1998, respectively. Brokered deposits averaged $696 million in 2000, compared with $1.1 billion in 1999 and $1.4 billion in 1998, and totaled $531 million at December 31, 2000. Brokered deposits have been used as an alternative to short-term borrowings to lengthen the average maturity of interest-bearing liabilities. The weighted-average remaining term to maturity of brokered deposits at December 31, 2000 was 1.2 years. Certain of the brokered deposits have provisions that allow early redemption. In connection with the Company’s management of interest rate risk, interest rate swaps 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 similar to the amounts and terms of many of the brokered deposits. Additional amounts of brokered deposits may be solicited in the future depending on market conditions and the cost of funds available from alternative sources at the time.

      The Company also uses borrowings from banks, securities dealers, the Federal Home Loan Bank of New York and the Federal Home Loan Bank of Pittsburgh (together, the “FHLB”), and others as sources of funding. Short-term borrowings averaged $2.7 billion in 2000, $2.1 billion in 1999 and $1.9 billion in 1998. The average balance of long-term borrowings was $2.1 billion in 2000, $1.7 billion in 1999 and $835 million in 1998. Included in average long-term borrowings were amounts borrowed from the FHLB of $1.4 billion in 2000, $1.2 billion in 1999 and $343 million in 1998 and subordinated capital notes issued by M&T Bank of $295 million in 2000 and $175 million in 1999 and 1998. Trust preferred securities with a carrying value of $318 million that were issued by special-purpose entities in 1997 are also included in average long-term borrowings. Further information regarding the trust preferred securities, as well as information regarding contractual maturities of long-term borrowings, is provided in note 8 of Notes to Financial Statements. As previously noted, M&T Bank issued $500 million of 8% subordinated capital notes on October 5, 2000 in anticipation of the Keystone and Premier acquisitions.

      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 3.39% in 2000, compared with 3.48% in 1999. As a result of generally rising interest rates during much of 2000, the yield on earning assets increased 51 basis points (hundredths of one

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percent) to 8.30% from 7.79% in 1999. However, the rate paid on interest-bearing liabilities increased even further, rising 60 basis points to 4.91% from 4.31% in 1999. Actions taken by the Federal Reserve in 1999 and 2000 contributed to the rising level of interest rates in 2000. In 1998, the net interest spread was 3.44%, the yield on earning assets was 8.08% and the rate paid on interest-bearing liabilities was 4.64%.

      Net interest-free funds consist largely of noninterest-bearing demand deposits and stockholders’ equity, partially offset by goodwill and core deposit intangible, bank owned life insurance and other non-earning assets. Net interest-free funds contributed .63% to net interest margin in 2000, compared with .54% in 1999 and .57% in 1998. Average net interest-free funds totaled $2.8 billion in 2000, $2.4 billion in 1999 and $2.1 billion in 1998. The increase in the contribution to net interest margin ascribed to net interest-free funds in 2000 as compared with 1999 resulted from the impact of higher interest rates on interest-bearing liabilities used to value such contribution and a $390 million increase in the average balance of net interest-free funds, largely comprised of higher average balances in noninterest-bearing deposits and retained earnings. The decline from 1998 to 1999 in the contribution to net interest margin of net interest-free funds was due, in part, to the goodwill and core deposit intangible assets recorded in conjunction with the FNB, Chase branch and ONBANCorp acquisitions and the cash surrender value of bank owned life insurance. Goodwill and core deposit intangible assets averaged $766 million in 2000, $594 million in 1999 and $427 million in 1998, while the cash surrender value of bank owned life insurance averaged $458 million in 2000, $379 million in 1999 and $314 million in 1998. 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.”

      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 margin and net interest income. Management assesses the potential impact of future changes in interest rates and spreads by projecting net interest income under a number of different interest rate scenarios. As part of the management of 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. Revenue and expense arising from these agreements are reflected in either the yields earned on assets or, as appropriate, the rates paid on interest-bearing liabilities. The notional amount of interest rate swaps entered into for interest rate risk management purposes as of December 31, 2000 was approximately $534 million. In general, under the terms of these swaps, the Company receives payments based on the outstanding notional amount of the swaps at fixed rates and makes payments at variable rates. In anticipation of the previously noted issuance of $500 million of fixed-rate subordinated notes in October  2000, the Company terminated certain interest rate swap agreements during September, including forward-starting swaps, with an aggregate notional amount of approximately $421 million. Under the terms of the terminated swaps, the Company would have made fixed-rate payments and received variable-rate payments. The termination of these swaps, which had been entered into to hedge interest rate risk associated with fixed-rate commercial real estate loans, resulted in a net deferred gain of approximately $15.5 million which will be recognized in income over the designated hedge period of the swaps. The impact of the termination of the swaps on the Company’s results of operations in 2000 was not significant. The average notional amounts of interest rate swaps entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average rate paid or received on those swaps are presented in the accompanying table 8.

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      The Company estimates that as of December 31, 2000 it would have received approximately $1 million if all interest rate swap agreements entered into for interest rate risk management purposes had been terminated, compared with $25 million and $23 million at December 31, 1999 and 1998, respectively. The estimated fair value of the interest rate swap portfolio results from the effects of changing interest rates. Additional information about interest rate swaps is included in note 16 of Notes to Financial Statements. Through December 31, 2000, changes in the estimated fair value of interest rate swaps entered into for interest rate risk management purposes were not recorded in the consolidated financial statements. A discussion of the impact of changes in accounting for interest rate swaps and other derivative financial instruments that became effective January 1, 2001 is presented herein under the heading “Recently Issued Accounting Standards Not Yet Adopted.”

Provision For Credit Losses

A provision for credit losses is recorded to adjust the Company’s allowance for credit losses to a level that is adequate to absorb losses inherent in the loan and lease portfolio. The provision for credit losses was $38.0 million in 2000, down from $44.5 million in 1999 and $43.2 million in 1998. Net loan charge-offs in 2000 were $29.0 million, significantly lower than $40.3 million in 1999 and $39.4 million in 1998. Net loan charge-offs as a percentage of average loans outstanding decreased to .16% in 2000 from .25% in 1999 and .28% in 1998. Nonperforming loans, consisting of nonaccrual and restructured loans, totaled $110.6 million or .49% of loans and leases outstanding at December 31, 2000, compared with $72.2 million or .41% a year earlier and $79.3 million or .50% at December 31, 1998. The increase at December 31, 2000 as compared with 1999 and 1998 reflects the inclusion of approximately $43 million of nonperforming loans acquired in the merger with Keystone on October 6, 2000. Accruing loans past due 90 days or more totaled $141.8 million or .62% of total loans and leases at December 31, 2000, compared with $31.0 million or .18% at December 31, 1999 and $37.8 million or .24% at December 31, 1998. The increase resulted largely from the inclusion at December 31, 2000 of $87 million of one-to-four family residential mortgage loans serviced by the Company and repurchased during the fourth quarter of 2000 from the Government National Mortgage Association (“GNMA”). The outstanding principal balances of such loans are fully guaranteed by government agencies. The loans were repurchased to reduce servicing costs associated with the loans, including a requirement to advance principal and interest payments to GNMA that had not been received from individual mortgagors. Expenses incurred during the fourth quarter of 2000 associated with the repurchased loans were approximately $3 million and have been included in “Other costs of operations” in the consolidated statement of income.

      The allowance for credit losses was $374.7 million or 1.65% of net loans and leases at the end of 2000, compared with $316.2 million or 1.82% at December 31, 1999 and $306.3 million or 1.94% at December 31, 1998. The ratio of the allowance to nonperforming loans at year-end 2000, 1999 and 1998 was 339%, 438% and 387%, respectively. The decline in the allowance as a percentage of total loans at December 31, 2000 as compared with prior years reflects management’s evaluation of the loan and lease portfolio as of each date, the relatively favorable and/or stable economic environment for many commercial borrowers during much of the recent year, the July 1998 sale of the Company’s retail credit card business, and other factors. Management regularly assesses the adequacy of the allowance by performing an ongoing evaluation of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the current financial condition of specific borrowers, the economic environment in which borrowers operate, the level of delinquent loans and the value of any

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collateral. Significant loans are individually analyzed, while other smaller balance loans are evaluated by loan category. Management cautiously evaluated the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet repayment obligations when assessing the adequacy of the Company’s allowance for credit losses as of December 31, 2000. In addition to the impact of acquisitions, factors considered by management when performing such assessment included, but were not limited to: (i) the concentration of commercial real estate loans in the Company’s loan portfolio, particularly the large concentration of loans secured by properties in New York State, in general, and in the New York City metropolitan area, in particular; (ii) the amount of commercial and industrial loans to businesses in areas of New York State outside of the New York City metropolitan area that have not experienced the same degree of economic growth experienced by the vast majority of other regions of the country in recent years; and (iii) significant growth in loans to individual consumers. Based upon the results of such review, management believes that the allowance for credit losses at December 31, 2000 was adequate to absorb credit losses inherent in the portfolio as of that date.

      The accompanying table 10 presents a comparative allocation of the allowance for credit losses for each of the past five year-ends. Amounts were allocated to specific loan categories based upon management’s classification of loans under the Company’s internal loan grading system and assessment of near-term charge-offs and losses existing in specific larger balance loans that are reviewed in detail by the Company’s internal loan review department and pools of other loans that are not individually analyzed. The unallocated portion of the allowance is intended to provide for probable losses that are not otherwise identifiable resulting from (i) comparatively poorer economic conditions and an unfavorable business climate in many market regions served by the Company that have not experienced the same degree of economic growth evident in much of the rest of the country in recent years; (ii) portfolio concentrations regarding loan type, collateral type and geographic location, in particular the large concentration of commercial real estate loans secured by properties in the New York City metropolitan area and other areas of New York State; (iii) the effect of expansion into new markets, including market areas entered through acquisitions; (iv) the introduction of new loan product types, including expansion of automobile loan and leasing activities in recent years; and, (v) the possible use of imprecise estimates in determining the allocated portion of the allowance. Led by growth in New York City, the economy in New York State expanded during 2000 at a rate similar to that of the national average. However, although improved when compared to prior years, economic growth in areas of New York State outside of the New York City metropolitan area continued to lag behind the rest of the country. Furthermore, consistent with other regions of the country, the rate of employment growth in New York State slowed during the second half of 2000. Slower job growth, coupled with a declining population base, has left the upstate New York region susceptible to potential credit problems, particularly related to commercial customers. After contracting throughout 1998 and 1999, the economy in central Pennsylvania stabilized in 2000. Nevertheless, the rate of employment growth in central Pennsylvania in 2000 was approximately one-half the rate experienced in the rest of the country. Given the Company’s high concentration of commercial loans and commercial real estate loans in New York State, including the upstate New York region, and central Pennsylvania, and considering the other factors already discussed, the level of the unallocated portion of the allowance for credit losses was deemed prudent and reasonable by management. Nevertheless, the allowance is general in nature and is available to absorb losses from any loan or lease category. Accordingly, the amounts presented in the table are not necessarily indicative of future losses within the individual loan categories.

      Several factors influence the Company’s credit loss experience,

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including overall economic conditions affecting businesses and consumers, in general, and, due to the size of the Company’s commercial real estate loan portfolio, real estate valuations, in particular. Commercial real estate valuations include many assumptions and, as a result, can be highly subjective. Commercial real estate values can be significantly affected over relatively short periods of time by changes in business climate, economic conditions and interest rates, and, in many cases, the results of operations of businesses and other occupants of the real property.

      Nonperforming commercial real estate loans totaled $37.0 million, $13.4 million and $18.9 million at December 31, 2000, 1999 and 1998, respectively. Commercial real estate loans acquired in the Keystone merger that were classified at December 31, 2000 as nonperforming were $23.0 million. During 2000 and 1999, the Company realized net recoveries of previously charged-off commercial real estate loans of $383 thousand and $2.2 million. During 1998, net charge-offs of commercial real estate loans were $3.6 million.

      Net charge-offs of consumer loans and leases were $18.9 million in 2000, or .56% of average consumer loans and leases outstanding during the year, compared with $21.7 million or .72% in 1999 and $31.5  million or 1.13% in 1998. Charge-offs of indirect automobile loans and leases represented the most significant type of consumer loans charged off during the past three years. Net indirect automobile loan and lease charge-offs during 2000 were $7.2 million, compared with $8.3 million in 1999 and $10.5 million in 1998. Net charge-offs of credit card balances in 1998 totaled $14.4 million. There were no significant charge-offs of credit card balances in 2000 and 1999 since the Company’s retail credit card business was sold in July 1998. Nonperforming consumer loans and leases totaled $12.1 million or .29% of outstanding consumer loans at December 31, 2000, compared with $11.5 million or .37% at December 31, 1999 and $10.3 million or .36% at December 31, 1998. Accruing consumer loans and leases past due ninety days or more at December 31, 2000 were $21.3 million, compared with $15.8 million and $18.0 million at December 31, 1999 and 1998, respectively. Consumer loans and leases acquired in the Keystone merger that were past due ninety days or more and accruing interest at December 31, 2000 were $5.6 million. Despite the existence of loan collateral in many cases, management conservatively evaluated the collectability of these delinquent consumer loans and leases when assessing the adequacy of the allowance for credit losses.

      During 2000, net charge-offs of commercial loans and leases totaled $5.7 million, compared with $17.0 million in 1999 and $2.7 million in 1998. The higher level of charge-offs in 1999 compared with 2000 and 1998 was largely the result of two commercial loans with partial charge-offs aggregating $15.0 million. Nonperforming commercial loans and leases totaled $25.5 million, $21.1 million and $20.0 million at December 31, 2000, 1999 and 1998, respectively. Commercial loans acquired in the Keystone merger that were classified as nonperforming at December 31, 2000 were $12.7 million.

      Net charge-offs of residential real estate loans were $4.7 million in 2000, compared with $3.9 million and $1.6 million in 1999 and 1998, respectively. Residential real estate loans classified as nonperforming at December 31, 2000 totaled $36.0 million, compared with $26.2 million and $30.1 million at December 31, 1999 and 1998, respectively. Residential real estate loans past due ninety days or more and accruing interest totaled $115.3 million, $13.9 million and $18.8 million at December 31, 2000, 1999 and 1998, respectively. The higher level of such loans in 2000 as compared with 1999 and 1998 resulted largely from the inclusion at December 31, 2000 of the previously discussed $87 million of loans repurchased from GNMA. The repurchased loans are fully guaranteed by government agencies. Residential real estate loans acquired in the Keystone merger that were classified at December 31, 2000 as nonperforming and accruing loans past due ninety days or more were $6.9 million and $8.0 million, respectively.

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      Commercial real estate loans secured by multi-family properties in the New York City metropolitan area represented 7% of loans outstanding at December 31, 2000. The Company had no concentrations of credit extended to any specific industry that exceeded 10% of total loans at December 31, 2000. Furthermore, the Company had no exposure to less developed countries and less than $1 million of outstanding foreign loans at December 31, 2000.

      Assets acquired in settlement of defaulted loans totaled $13.6 million at December 31, 2000, compared with $10.0 million a year earlier and $11.1 million at the end of 1998.

Other Income

Other income grew 15% to $325 million in 2000 from $282 million in 1999. Increases in service charges on deposit accounts, income from leasing activities, and brokerage services income were partially offset by lower mortgage banking revenues and losses from sales of bank investment securities. Approximately 40% of the increase in other income from 1999 to 2000 was attributable to revenues related to operations and/or market areas associated with the Keystone acquisition. Other income was $248 million in 1998, after excluding $15.3 million of tax-exempt income resulting from the previously noted transfer of appreciated investment securities to an affiliated, tax-exempt charitable foundation. Growth in mortgage banking revenues, fees earned from deposit services, and a full year of revenues associated with operations obtained in the ONBANCorp acquisition contributed to the increase from 1998 to 1999.

      Mortgage banking revenues, which consist of residential mortgage loan servicing fees, gains from sales of residential mortgage loans and loan servicing rights, and other residential mortgage loan-related fees, decreased 12% to $63.2 million in 2000 from $71.8 million in 1999. The Company maintains residential mortgage loan origination offices in New York State and Pennsylvania, as well as in Arizona, Colorado, Idaho, Massachusetts, Ohio, Oregon, Utah and Washington. Generally higher interest rates during the fourth quarter of 1999 and throughout most of 2000 negatively impacted mortgage origination volume. The lower volume and tighter pricing margins, due to competitive pressures, contributed to a decrease in gains from sales of residential mortgage loans and loan servicing rights to $24.8 million in 2000, compared with $39.7 million in 1999 and $32.4 million in 1998. Revenues from servicing residential mortgage loans for others were $32.3 million in 2000, compared with $26.8 million in 1999 and $29.3 million in 1998. Residential mortgage loans serviced for others totaled $9.7 billion (including approximately $1 billion of loans that had been serviced by Keystone), $7.2 billion and $7.3 billion at December 31, 2000, 1999 and 1998, respectively. Capitalized servicing assets were $101 million at December 31, 2000, $61 million at December 31, 1999, and $62 million at December 31, 1998. Capitalized servicing assets recorded during 2000 as a result of the Keystone transaction, other purchased servicing rights and the previously noted securitization of $1.0 billion of residential mortgage loans were approximately $15 million, $21 million and $14 million, respectively.

      Service charges on deposit accounts rose 26% to $92.5 million in 2000 from $73.6 million in 1999, and 61% from $57.4 million in 1998. The full-year effect in 2000 of a third quarter 1999 increase in fees and the impact of acquisitions were significant factors contributing to the increases. Fees for services provided to customers in the areas formerly served by Keystone contributed approximately 30% of the increase from 1999 to 2000. Trust income increased 11% to $45.2 million in 2000 from $40.8  million in 1999 and 18% from $38.2 million in 1998. The increase in 2000 from 1999 was attributable to the acquisition of Keystone. Higher revenues from investment management services contributed to the increase in 1999 from 1998. Brokerage

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services income, which is comprised of revenues from the sale of mutual funds and annuities and securities brokerage fees, totaled $32.8 million in 2000, up 21% from $27.1 million in 1999 and 67% higher than $19.6 million in 1998. Trading account and foreign exchange activity resulted in gains of $2.4 million in 2000, $315 thousand in 1999 and $4.0 million in 1998. The decline in 1999 income was largely the result of an approximate $3 million loss incurred as a result of a counterparty defaulting on the settlement of outstanding foreign exchange contracts. Losses from sales of bank investment securities in 2000 reflect $3.1 million of net losses incurred during the fourth quarter of 2000 from sales of investment securities following the acquisition of Keystone and the combination of the investment portfolios of Keystone and M&T. During 1999 and 1998, the Company sold bank investment securities resulting in gains of $1.6 million and $1.8 million, respectively. All sold securities had been previously classified as available for sale for financial reporting purposes.

      Other revenues from operations increased to $91.7 million in 2000, compared with $67.2 million in 1999 and $61.1 million in 1998 (excluding the effect of the contribution of securities to the affiliated foundation). Approximately one-sixth of the increase from 1999 to 2000 resulted from operations related to Keystone. Other revenues from operations included $25.5 million, $22.5 million and $17.6 million in 2000, 1999 and 1998, respectively, of tax-exempt income earned from bank owned life insurance, which includes increases in cash surrender value of life insurance policies and benefits received. Also included were revenues from merchant discount and credit card fees of $9.3 million, $7.5 million and $12.4 million in 2000, 1999 and 1998, respectively. Other items that contributed to the increase in other revenues from operations in 2000 from 1999 include income from leasing activities and higher insurance-related revenues. Income from leasing activities reflects a net gain of $9 million realized during the fourth quarter of 2000 resulting from a $13.5 million gain from the sale of equipment previously leased to a commercial customer and an accrual of $4.5 million for losses associated with selling automobiles and other vehicles presently leased to retail customers. Insurance-related revenues totaled $6.6 million in 2000, compared with $879 thousand and $635 thousand in 1999 and 1998, respectively. The previously noted acquisition of MBD in March 2000 was the leading factor contributing to higher insurance-related revenues. A $7.0 million increase in revenues from letter of credit and other credit-related fees also contributed to the rise in other revenues from operations in 1999 from 1998.

Other Expense

Operating expenses, which exclude amortization of goodwill and core deposit intangible as well as merger-related and other nonrecurring expenses, were $599 million in 2000, 14% higher than $525 million in 1999 and 23% higher than $486  million in 1998. Expenses related to acquired operations significantly contributed to the higher expense levels in 2000 and 1999. However, since the operating systems and support operations related to Keystone, ONBANCorp, FNB and the former Chase branches have been combined with those of the Company, the Company’s operating expenses cannot be precisely divided between or attributed directly to the acquired operations or to the Company as it existed prior to each transaction. Components of other expense considered to be non-operating in nature and therefore excluded from the operating expense totals noted above were amortization of goodwill and core deposit intangible of $69.6 million in 2000, $49.7 million in 1999 and $34.5 million in 1998; merger-related expenses of $26.0 million, $4.7 million and $21.3 million in 2000, 1999 and 1998, respectively; and $24.6 million of expense recognized in 1998 related to the previously discussed transfer of securities to an affiliated charitable foundation.

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      Salaries and employee benefits expense was $329 million in 2000, 16% higher than the $285 million in 1999 and 27% higher than the $259 million in 1998. Salaries and benefits related to acquired operations, merit salary increases, and higher expenses for incentive compensation arrangements were factors contributing to the increases in 2000 and 1999. Higher medical benefit costs in 1999 also contributed to the increase in 1999 from 1998. The number of full-time equivalent employees was 8,219 at December 31, 2000, compared with 6,171 at December 31, 1999 and 6,044 at December 31, 1998.

      Excluding the non-operating expense items previously noted, nonpersonnel expense totaled $272 million in 2000, 13% higher than $240 million in 1999 and 19% higher than $228 million in 1998. Higher equipment and net occupancy expenses, largely attributable to the impact of acquisitions, higher amortization of capitalized servicing rights and increased foreclosure-related expenses were significant factors contributing to the rise in nonpersonnel expenses from 1999 to 2000. Higher equipment and net occupancy expenses, largely related to acquired operations, also contributed to the increase in expense from 1998 to 1999.

Income Taxes

The provision for income taxes was $160 million in 2000, up from $153 million in 1999 and $118 million in 1998. The effective tax rates were 35.9% in 2000, 36.5% in 1999 and 36.1% in 1998. A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to pre-tax income is provided in note 11 of Notes to Financial Statements.

International Activities

The Company’s net investment in international assets was $7 million and $27 million at December 31, 2000 and 1999, respectively. Total offshore deposits were $245 million at December 31, 2000 and $243 million at December 31, 1999.

Liquidity, Market Risk, and Interest Rate Sensitivity

As a financial intermediary, the Company is exposed to various risks including liquidity and market risk. Liquidity refers to the Company’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy demands for loans and deposit withdrawals, to fund operating costs, and to be used for other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ.

      Core deposits have historically been the most significant funding source for the Company. Core deposits are generated from a large base of consumer, corporate and institutional customers, which over the past several years has become more geographically diverse as a result of acquisitions and expansion of the Company’s businesses. Nevertheless, in recent years the Company has faced increased competition in offering services and products from a large array of financial market participants, including banks, thrifts, mutual funds, securities dealers and others. Core deposits financed 65% of the Company’s earning assets at December 31, 2000, compared with 63% and 62% at December 31, 1999 and 1998, respectively.

      The Company supplements funding provided through core deposits with various short-term and long-term wholesale borrowings, including Federal funds purchased and securities sold under agreements to repurchase, brokered certificates of deposit, and borrowings from the FHLB and others. M&T Bank

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had short-term and long-term credit facilities with the FHLB aggregating $3.3 billion at December 31, 2000. Outstanding borrowings under the FHLB credit facilities totaled $2.8 billion at December 31, 2000 and $1.8 billion at December 31, 1999. Such borrowings are secured by loans and investment securities. M&T Bank and M&T Bank, N.A. had available lines of credit with the Federal Reserve Bank of New York at December 31, 2000 totaling approximately $1.4 billion. The amounts of these lines are dependent upon the balance of loans and securities pledged as collateral. There were no borrowings outstanding under these lines at either December 31, 2000 or 1999. As previously noted, M&T Bank issued $500 million of 8% fixed rate subordinated capital notes in October 2000 that provided liquidity and facilitated the acquisitions of Keystone and Premier. Although informal and sometimes reciprocal, sources of funding are available to the Company through various arrangements for unsecured short-term borrowings from a wide group of banks and other financial institutions. In addition to deposits and borrowings, other sources of liquidity include maturities of money-market assets and investment securities, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services.

      M&T’s primary source of funds to pay for operating expenses, stockholder dividends and treasury stock repurchases has historically been the receipt of dividends from its banking subsidiaries, which are subject to various regulatory limitations. These historic sources of cash flow were augmented in 1997 by the proceeds from issuance of $250 million of trust preferred securities, which provided a substantial portion of M&T’s funding needs during 1998 and 1997. Additional information regarding the trust preferred securities is included in note 8 of Notes to Financial Statements. M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, of which there were no borrowings outstanding at December 31, 2000. Outstanding borrowings under a similar $30 million line of credit that expired during 2000 totaled $29 million at December 31, 1999.

      Management closely monitors the Company’s liquidity position for compliance with internal policies and believes that available sources of liquidity are adequate to meet funding needs anticipated in the normal course of business. Management does not anticipate engaging in any activities, either currently or in the long-term, which would cause a significant strain on liquidity at either M&T or its subsidiary banks.

      Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Company’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Company to interest rate risk, which occurs when assets and liabilities reprice at different times as interest rates change. As a result, net interest income earned by the Company is subject to the effects of changing interest rates. The Company measures interest rate risk by calculating the variability of net interest income in future years under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and off-balance sheet financial instruments. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of both on- and off-balance sheet financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of mortgage-related assets and expected maturities of investment securities, loans and deposits. Management supplements the modeling technique described above with analyses of market values of the Company’s financial instruments. The Company has entered into interest rate swap agreements to help manage exposure to interest rate risk. At December 31, 2000, the aggregate notional amount of interest rate swaps entered into for interest rate risk management purposes was approximately $534 million. Information about interest rate swaps entered into for

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interest rate risk management purposes is included herein under “Net Interest Income/Lending and Funding Activities” and in note 16 of Notes to Financial Statements.

      The Company’s Asset-Liability Committee, which includes members of senior management, monitors interest rate sensitivity with the aid of a computer model that considers the impact of ongoing lending and deposit gathering activities, as well as statistically derived interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken action, and intends to do so in the future, to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and modifying or terminating existing interest rate swap agreements or entering into additional interest rate swap agreements.

      The accompanying table 14 as of December 31, 2000 and 1999 displays the estimated impact on net interest income from non-trading financial instruments resulting from changes in interest rates during the first modeling year.

      Many assumptions were utilized by the Company to calculate the impact that changes in interest rates may have on the Company’s net interest income. The more significant assumptions related to the rate of prepayments of mortgage-related assets, cash flows from derivative and other financial instruments held for non-trading purposes, loan and deposit volumes and pricing, and deposit maturities. The Company also assumed gradual changes in rates of 100 and 200 basis points up and down during a twelve-month period. These assumptions are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly from those presented due to timing, magnitude and frequency of interest rate changes and changes in market conditions, as well as any actions, such as those previously described, which management may take to counter such changes.

      In accordance with industry practice, the accompanying table 15 presents cumulative totals of net assets (liabilities) repricing on a contractual basis within the specified time frames, as adjusted for the impact of interest rate swap agreements entered into for interest rate risk management purposes. Management believes this measure does not appropriately depict interest rate risk since changes in interest rates do not necessarily affect all categories of earning assets and interest-bearing liabilities equally nor, as assumed in the table, on the contractual maturity or repricing date. Furthermore, this static presentation of interest rate risk fails to consider the effect of ongoing lending and deposit gathering activities, projected changes in balance sheet composition or any subsequent interest rate risk management activities the Company is likely to implement.

      The Company engages in trading activities to meet the financial needs of customers and to profit from perceived market opportunities. Trading activities are conducted utilizing financial instruments that include forward and futures contracts related to foreign currencies and mortgage-backed securities, U.S. Treasury and other government securities, mortgage-backed securities and interest rate contracts, such as swaps. The Company generally mitigates the foreign currency and interest rate risk associated with trading activities by entering into offsetting trading positions. The amounts of gross and net trading positions as well as the type of trading activities conducted by the Company are subject to a well-defined series of potential loss exposure limits established by the Asset-Liability Committee.

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      The notional amounts of interest rate and foreign currency and other option and futures contracts entered into for trading account purposes totaled $769 million and $293 million, respectively, at December 31, 2000 and $799 million and $573 million, respectively, at December 31, 1999. The notional amounts of these trading contracts are not recorded in the consolidated balance sheet. However, the fair values of all financial instruments used for trading activities are recorded in the consolidated balance sheet. The fair values of all trading account assets and liabilities were $37 million and $22 million, respectively, at December 31, 2000 and $641 million and $633 million, respectively, at December 31, 1999. Included in trading account assets at December 31, 1999 were mortgage-backed securities that served as collateral securing certain money market assets. The obligations to return such collateral were recorded as noninterest-bearing trading account liabilities and were included in accrued interest and other liabilities in the Company’s consolidated balance sheet. The fair value of such collateral (and the related obligation to return collateral) was $600 million at December 31, 1999.

      Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading activities was not material as of December 31, 2000 and 1999. Additional information related to trading derivative contracts is included in note 16 of Notes to Financial Statements.

Capital

Stockholders’ equity at December 31, 2000 was $2.7 billion or 9.33% of total assets, compared with $1.8 billion or 8.02% at December 31, 1999 and $1.6 billion or 7.78% at December 31, 1998. On a per share basis, stockholders’ equity increased 24% to $28.93 at December 31, 2000 from $23.24 at December 31, 1999, and was up 39% from $20.79 at December 31, 1998. Tangible equity per share, which excludes goodwill and core deposit intangible and applicable deferred tax balances, was $16.74 at December 31, 2000, compared with $15.14 at December 31, 1999 and $13.99 at December 31, 1998. The ratio of average total stockholders’ equity to average total assets was 8.59%, 8.24% and 8.20% in 2000, 1999 and 1998, respectively.

      M&T issued shares of common stock in 2000, 1999 and 1998 to complete the acquisitions of Keystone, FNB and ONBANCorp, respectively. To complete the acquisition of Keystone on October 6, 2000, M&T issued 15,900,292 shares of common stock to former holders of Keystone common stock and assumed employee stock options to purchase 1,259,493 shares of M&T common stock, resulting in an addition to stockholders’ equity of $663.7 million. On June 1, 1999, M&T issued 1,225,160 shares (stated to give effect to the ten-for-one stock split in 2000) of common stock to former holders of FNB common stock resulting in an addition to stockholders’ equity of $58.7 million. On April 1, 1998, M&T issued 14,299,980 shares (stated to give effect to the ten-for-one stock split in 2000) of common stock to former holders of ONBANCorp common stock and assumed employee stock options to purchase 617,720 shares (also stated to give effect to the stock split) of M&T common stock, resulting in an addition to stockholders’ equity of $607.2 million.

      Stockholders’ equity at December 31, 2000 reflected a loss of $432 thousand, or less than $.01 per share, for the net after-tax impact of unrealized losses on investment securities classified as available for sale, compared with unrealized losses of $26.0 million, or $.34 per common share, at December 31, 1999 and unrealized gains of $2.9 million, or $.04 per common share, at December 31, 1998. Such unrealized gains or losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available for sale.

      Cash dividends on M&T’s common stock of $52.0 million were paid in

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2000, compared with $35.1 million and $29.0 million in 1999 and 1998, respectively. As previously discussed, in conjunction with the Keystone acquisition, M&T increased its quarterly dividend on common stock in the fourth quarter of 2000 to $.25 per share from $.125 per share. In the third quarter of 1999 M&T’s quarterly common stock dividend rate was increased to $.125 per share from $.10 per share. In total, dividends per common share increased to $.625 in 2000 from $.45 in 1999 and $.38 in 1998.

      During 2000, 1999 and 1998, M&T repurchased an aggregate of 7,787,410 shares of its common stock at an aggregate cost of $366.5 million; 1,313,760 shares in 2000, 1,678,330 shares in 1999 and 4,795,320 shares in 1998, at a cost of $54.9 million, $79.8 million and $231.8 million, respectively. In November 1999, M&T announced its intention to repurchase and hold as treasury stock up to 1,904,650 shares of common stock for reissuance upon the possible future exercise of outstanding stock options. As of December 31, 2000, M&T had repurchased 1,632,860 shares of common stock pursuant to such plan at an average cost of $42.74 per share. Following the public announcement of the Keystone acquisition in May 2000, M&T has not been repurchasing its common stock, instead using the Company’s internal generation of capital to support the Keystone and Premier acquisitions.

      Federal regulators generally require banking institutions to maintain “core capital” and “total capital” ratios of at least 4% and 8%, respectively, of risk-adjusted total assets. In addition to the risk-based measures, Federal bank regulators have also implemented a minimum “leverage” ratio guideline of 3% of the quarterly average of total assets. Core capital includes the $318 million carrying value of trust preferred securities. As of December 31, 2000, total capital further included $594 million of subordinated notes issued by M&T Bank. The capital ratios of the Company and its banking subsidiaries, M&T Bank and M&T Bank, N.A., as of December 31, 2000 and 1999 are presented in note 20 of Notes to Financial Statements.

      The Company generates significant amounts of regulatory capital. The rate of regulatory core capital generation, or cash net income (reduced by the impact of nonrecurring merger-related expenses) less dividends paid expressed as a percentage of regulatory “core capital” at the beginning of each year, was 19.48% in 2000, 19.89% in 1999 and 16.71% in 1998.

Fourth Quarter Results

As previously noted, M&T completed its acquisition of Keystone on October 6, 2000. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the results of operations obtained from Keystone have been included in M&T’s financial results since the acquisition date. M&T reported net income in the fourth quarter of 2000 of $72.0 million, an increase of 9% from $66.1 million in the final quarter of 1999. Diluted and basic earnings per share in the recent quarter were $.76 and $.78, respectively, compared with $.82 and $.85, respectively, in the year-earlier quarter. Net income for the fourth quarter of 2000 expressed as an annualized rate of return on average assets was 1.01%, compared with 1.18% in the comparable 1999 quarter. The annualized rate of return on average common stockholders’ equity in the recent quarter was 11.03%, compared with 14.58% in 1999’s fourth quarter. Cash net income in the fourth quarter of 2000 rose to $108.1 million, up 38% from $78.4 million earned in the year-earlier quarter. Diluted cash earnings per share increased 18% to $1.14 in 2000’s final quarter from $.97 in the comparable 1999 period. Cash return on average tangible assets was an annualized 1.57% in the recent quarter, compared with 1.45% in the corresponding 1999 quarter. Cash return on average tangible common equity rose to an annualized 28.93% in the fourth quarter of 2000 from 26.67% in the year-earlier quarter.

      Taxable-equivalent net interest income rose to $262 million in the

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fourth quarter of 2000, an increase of $63 million or 32% from $199 million in the comparable 1999 quarter. A 30% increase in average earning assets, largely the result of the Keystone acquisition on October 6, 2000, was the most significant factor contributing to the improvement in net interest income. Average earning assets were $25.7 billion and $19.8 billion in the fourth quarter of 2000 and 1999, respectively. Average loans and leases for the fourth quarter of 2000 totaled $22.1 billion, up from $17.1 billion during the year-earlier quarter. Net interest margin was 4.05% in the fourth quarter of 2000, up from 3.99% in 1999’s final quarter. The yield on earning assets was 8.47% in the recent quarter, up 62 basis points from 7.85% in the year-earlier period. The rate paid on interest-bearing liabilities was 5.12% in 2000’s final quarter, compared with 4.43% in the fourth quarter of 1999. The resulting net interest spread was 3.35% in the recent quarter, compared with 3.42% in 1999’s final quarter.

      The provision for credit losses was $14.0 million in the fourth quarter of both 2000 and 1999. Net charge-offs totaled $12.1 million in 2000’s fourth quarter, compared with $12.8 million in the year-earlier period. Net charge-offs as an annualized percentage of average loans and leases were .22% in the final 2000 quarter, compared with .30% in the corresponding 1999 quarter.

      Other income increased 46% to $102.8 million in the fourth quarter of 2000 from $70.4 million in the fourth quarter of 1999. Approximately one-half of the increase was attributable to revenues related to operations and/or market areas associated with the Keystone acquisition. Income from leasing activities and increases in service charges on deposit accounts of $8.6 million and trust income of $5.7 million, largely attributable to acquired Keystone operations, were partially offset by $3.1 million of losses from sales of bank investment securities. Income from leasing activities reflects a net gain of $9 million during the fourth quarter of 2000 resulting from a $13.5 million gain from the sale of equipment previously leased to a commercial customer and an accrual of $4.5 million for losses associated with selling automobiles and other vehicles presently leased to retail customers.

      Reflecting the impact of expenses resulting from the acquisition of Keystone, including expenses for salaries and benefits, equipment and net occupancy, and amortization of goodwill and core deposit intangible, other expense increased 57% to $234.2 million in 2000’s final quarter from $149.0 million in the corresponding 1999 period. Nonrecurring merger-related expenses totaled $22.3 million in the fourth quarter of 2000. There were no similar expenses in the fourth quarter of 1999.

Segment information

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer, and the distribution of those products and services are similar. The reportable segments are Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

      The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 19 of Notes to Financial Statements. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to

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generally accepted accounting principles. As a result, reported segments and the financial results of such segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. Financial information about the Company’s segments is presented in note 19 of Notes to Financial Statements.

      The Commercial Banking segment provides a wide range of credit products and banking services for middle-market and large commercial customers, largely within the markets the Company serves. Among the services provided by this segment are commercial lending and leasing, deposit products, and cash management services. The Commercial Banking segment’s earnings increased 27% to $98.4 million in 2000 from $77.6 million in 1999. The higher net income in 2000 when compared with 1999 resulted largely from an increase of $34.9 million, or 22%, in net interest income. Net interest income from loans and leases increased $24.0 million, as a result of a 23% increase in average balances outstanding, while the contribution to net interest income from deposits increased $8.2 million, due to a higher net interest spread and a 9% increase in average balances outstanding. Growth in most markets already served by the Company, as well as the impact of balances obtained in acquisitions, contributed to the higher loan and deposit levels. Net income in 1998 was $67.4 million. Higher net interest income of $17.8 million, or 13%, the result of a 17% increase in average loans outstanding, and increases in letter of credit and other credit related fee income of $6.1 million were factors contributing to the rise in net income from 1998 to 1999. Growth in most markets served by the Company, as well as the full year impact in 1999 of loans acquired from ONBANCorp, contributed to the higher loan balances. Reflecting higher net charge-offs, including charge-offs of $11.2 million related to one commercial customer, the segment’s provision for credit losses increased to $11.3 million in 1999 from $3.0 million in 1998. The segment’s provision for credit losses was $7.3 million in 2000.

      The Commercial Real Estate segment provides credit and deposit services to its customers. Loans are largely secured by properties in the New York City metropolitan area and in western New York, upstate New York, Pennsylvania and, to a lesser extent, in Maryland, West Virginia and the northwestern portion of the United States. Commercial real estate loans may be secured by apartment/ multifamily buildings, office space, retail space, industrial space or other types of collateral. Net income earned by the Commercial Real Estate segment in 2000 was $72.1 million, up 12% from $64.2 million realized in 1999. The major factor for the rise in net income was a 17% increase in average loan balances outstanding which contributed to a $12.3 million, or 10%, increase in net interest income. Loan growth in all markets served by the Company and the impact of commercial real estate loans obtained in the Keystone acquisition contributed to the increase in outstanding balances. Net income for the Commercial Real Estate segment was $57.3 million in 1998. Higher net interest income of $12.8 million, the result of a 15% increase in average loan balances outstanding, was the major factor for the higher 1999 net income. Higher loan balances were due to loan growth in substantially all markets served by the Company and the full-year impact in 1999 of commercial real estate loans obtained in the acquisition of ONBANCorp.

      The Discretionary Portfolio segment includes securities, residential mortgage loans and other assets; short-term and long-term borrowed funds; brokered certificates of deposit and interest rate swaps related thereto; and offshore branch deposits. This segment also provides services to commercial customers and consumers that include foreign exchange, securities trading and municipal bond underwriting and sales. The Discretionary Portfolio segment earned net income of $33.9 million in 2000, compared with $38.2 million in 1999 and $31.7 million in 1998. Factors contributing to the decline in net

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income for 2000 include an $11.0 million, or 23%, decrease in net interest income and losses from sales of bank investment securities of $3.1 million, offset, in part, by a $3.0 million increase in tax-exempt income earned from bank owned life insurance. The decline in net interest income largely reflects a narrowing of the segment’s net interest margin. The higher net income in 1999 as compared with 1998 was due, in part, to a $4.9 million increase in income from bank owned life insurance and higher net interest income from holdings of residential mortgage loans. Partially offsetting these increases was the previously mentioned $3 million settlement loss on foreign exchange contracts in 1999.

      The Residential Mortgage Banking segment originates and services residential mortgage loans for consumers and sells substantially all of those loans in the secondary market to investors or to banking subsidiaries of M&T. The Company maintains mortgage loan origination offices in New York State and Pennsylvania, as well as in Arizona, Colorado, Idaho, Maryland, Massachusetts, Ohio, Oregon, Utah, Washington and West Virginia. The Company also periodically purchases the rights to service residential mortgage loans. Residential mortgage loans held for sale are included in this segment. This segment’s net income was $6.5 million in 2000, compared with $20.8 million a year earlier and $19.5 million in 1998. The significant decrease from 1999 was largely due to lower gains from sales of residential mortgage loans and loan servicing rights, which decreased $14.9 million, and higher noninterest expenses of $5.8 million resulting from increases in foreclosure expenses and amortization of capitalized servicing rights. The decline in revenue resulted from the impact that generally higher interest rates in 2000 had on loan origination volume and from tighter pricing margins resulting from competitive pressures. A $6.2 million decrease in noninterest expenses associated with origination and servicing activities, partially offset by a $4.1 million decline in revenue, led to the improved net income in this segment in 1999 as compared with 1998. The lower 1999 expense level included a $1.7 million decrease in the valuation allowance for capitalized servicing assets, compared with a $1.0 million addition to such allowance in 1998. The decline in revenue was the result of a lower volume of loans originated for sale during 1999 as compared with 1998, including loans originated for transfer to M&T’s bank subsidiaries.

      The Retail Banking segment offers a variety of consumer and small business services through several delivery channels which include traditional and “in-store” banking offices, automated teller machines, telephone banking and internet banking. The Company has banking offices in New York State, Pennsylvania, Maryland and West Virginia. The Retail Banking segment also offers certain deposit and loan products on a nationwide basis through M&T Bank, N.A. Credit services offered by this segment include consumer installment loans, student loans, automobile loans and leases (both directly and indirectly through dealers), home equity loans and lines of credit, and loans and leases to small businesses. The segment also offers to its customers deposit products, including demand, savings and time accounts; investment products, including mutual funds and annuities; and other services. The Retail Banking segment contributed net income of $163.7 million in 2000, up 47% from $111.5 million in 1999. The increase was due, in part, to the impact of the 2000 and 1999 acquisitions of Keystone, FNB and the Chase branches that resulted in higher net interest income and service charges on deposit accounts, partially offset by increases in operating expenses. The full-year impact in 2000 of a third quarter 1999 increase in fees charged for deposit account services also contributed to the improvement. In 1998, Retail Banking had net income of $100.1 million. The impact of the acquisitions of FNB on June 1, 1999 and ONBANCorp on April 1, 1998 and increased service charges on deposit accounts, reflecting the third quarter 1999 rate increases, were the leading factors contributing to the increase from 1998 to 1999. The financial results of Retail Banking for 1998 also include a $3.2 million gain that resulted from the sale of the retail

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credit card business in July 1998 and the results of providing retail credit card services to customers.

Recently Issued Accounting Standards Not Yet Adopted

In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available for sale security, or a foreign currency denominated forecasted transaction.

      Pursuant to SFAS No. 133, the accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. An entity that elects to apply hedge accounting will be required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity’s approach to managing risk.

      SFAS No. 133 was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB amended SFAS No. 133, deferring the effective date by one year. In 1998, the FASB organized the Derivatives Implementation Group (“DIG”) to assist with the interpretation of SFAS No. 133 and to address implementation issues. In June 2000, the FASB again amended SFAS No. 133 through the issuance of SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 138 was issued to address some of the implementation issues and to reflect certain decisions arising from the DIG process.

      Initial application of SFAS No. 133, as amended, must be as of the beginning of an entity’s fiscal quarter; on that date, hedging relationships must be designated anew and documented pursuant to the provisions of the statement. SFAS No. 133, as amended, may not be applied retroactively to financial statements of prior periods.

      The Company adopted SFAS No. 133, as amended, as of January 1, 2001. The Company anticipates that adoption of SFAS No. 133 could increase the volatility of reported earnings and stockholders’ equity in future periods. Nevertheless, the initial impact of adopting SFAS No. 133 as of January 1, 2001 was not considered material to the Company’s consolidated financial statements.

      In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 140 replaces SFAS No. 125, which was issued in 1996 and had the same title. SFAS No. 140 revises standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures.

      SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001.

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      The statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Disclosures about securitization and collateral accepted need not be reported for periods ending on or before December 15, 2000, for which financial statements are presented for comparative purposes. In general, SFAS No. 140 is to be applied prospectively. Earlier or retroactive application of its accounting provisions is generally not permitted. The adoption of SFAS No. 140 is not expected to have a material impact on the Company’s consolidated financial statements.

Forward-Looking Statements

This Financial Review and other sections of this Annual Report contain forward-looking statements that are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

      Future Factors include changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; credit losses; sources of liquidity; legislation affecting the financial services industry as a whole, and the Company individually; regulatory supervision and oversight, including required capital levels; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes, including environmental regulations; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support the Company’s future businesses; and material differences in the actual financial results of merger and acquisition activities compared to the Company’s initial expectations, including the full realization of anticipated cost savings and revenue enhancements. These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general economic conditions, including interest rate and currency exchange rate fluctuations, and other Future Factors.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 1

FINANCIAL HIGHLIGHTS