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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

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)
     
New York
(State or other jurisdiction of
incorporation or organization)
  16-0968385
(I.R.S. Employer
Identification No.)
     
One M & T Plaza
Buffalo, New York
(Address of principal
executive offices)
  14203
(Zip Code)

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

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Number of shares of the registrant’s Common Stock, $.50 par value, outstanding as of the close of business on October 28, 2002: 91,901,413 shares.

 


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEET (Unaudited)
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES (Unaudited)
NOTES TO FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
CERTIFICATIONS
CERTIFICATIONS
EXHIBIT INDEX
EX-10.28 Employee Stock Purchase Plan
EX-99.1 Certification of Chief Executive Officer
EX-99.2 Certification of Chief Financial Officer


Table of Contents

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2002

             
Table of Contents of Information Required in Report   Page

 
Part I. FINANCIAL INFORMATION
       
 
Item 1. Financial Statements.
       
   
CONSOLIDATED BALANCE SHEET —
September 30, 2002 and December 31, 2001
    3  
   
CONSOLIDATED STATEMENT OF INCOME — Three and nine months ended September 30, 2002 and 2001
    4  
   
CONSOLIDATED STATEMENT OF CASH FLOWS — Nine months ended September 30, 2002 and 2001
    5  
   
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY — Nine months ended September 30, 2002 and 2001
    6  
   
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES — Nine months ended September 30, 2002 and 2001
    6  
   
NOTES TO FINANCIAL STATEMENTS
    7  
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    17  
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    39  
 
Item 4. Controls and Procedures.
    39  
Part II. OTHER INFORMATION
       
 
Item 1. Legal Proceedings.
    39  
 
Item 2. Changes in Securities and Use of Proceeds.
    39  
 
Item 3. Defaults Upon Senior Securities.
    39  
 
Item 4. Submission of Matters to a Vote of Security Holders.
    39  
 
Item 5. Other Information.
    39  
 
Item 6. Exhibits and Reports on Form 8-K.
    39  
SIGNATURES
    40  
CERTIFICATIONS
    41  
EXHIBIT INDEX
    43  

-2-


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

                               
                  September 30,   December 31,
Dollars in thousands, except per share   2002   2001

 
 
Assets  
Cash and due from banks
  $ 1,197,615       965,664  
       
Money-market assets
               
         
Interest-bearing deposits at banks
    6,497       4,341  
         
Federal funds sold and agreements to resell securities
    238,095       41,086  
         
Trading account
    50,821       38,929  
       
 
   
     
 
             
Total money-market assets
    295,413       84,356  
       
 
   
     
 
       
Investment securities
               
         
Available for sale (cost: $3,736,677 at September 30, 2002; $2,627,509 at December 31, 2001)
    3,806,492       2,663,184  
         
Held to maturity (market value: $103,062 at September 30, 2002; $122,107 at December 31, 2001)
    101,111       121,508  
         
Other (market value: $273,871 at September 30, 2002; $239,445 at December 31, 2001)
    273,871       239,445  
       
 
   
     
 
             
Total investment securities
    4,181,474       3,024,137  
       
 
   
     
 
       
Loans and leases
    26,509,660       25,395,468  
         
Unearned discount
    (201,041 )     (207,708 )
         
Allowance for credit losses
    (437,340 )     (425,008 )
       
 
   
     
 
             
Loans and leases, net
    25,871,279       24,762,752  
       
 
   
     
 
       
Premises and equipment
    243,859       261,877  
       
Goodwill
    1,097,553       1,097,553  
       
Core deposit and other intangible assets
    130,577       170,273  
       
Accrued interest and other assets
    1,130,720       1,083,584  
       
 
   
     
 
             
Total assets
  $ 34,148,490       31,450,196  
       
 
   
     
 
Liabilities  
Noninterest-bearing deposits
  $ 4,000,097       3,704,004  
       
NOW accounts
    1,001,328       930,400  
       
Savings deposits
    8,877,575       7,980,065  
       
Time deposits
    6,890,351       8,188,036  
       
Deposits at foreign office
    1,770,820       777,895  
       
 
   
     
 
             
Total deposits
    22,540,171       21,580,400  
       
 
   
     
 
       
Federal funds purchased and agreements to repurchase securities
    2,598,647       2,133,558  
       
Other short-term borrowings
    1,212,094       912,272  
       
Accrued interest and other liabilities
    424,667       422,746  
       
Long-term borrowings
    4,314,359       3,461,769  
       
 
   
     
 
             
Total liabilities
    31,089,938       28,510,745  
       
 
   
     
 
Stockholders' equity  
Preferred stock, $1 par, 1,000,000 shares authorized, none outstanding
           
       
Common stock, $.50 par, 150,000,000 shares authorized, 97,139,347 shares issued at September 30, 2002 and December 31, 2001
    48,570       48,570  
       
Common stock issuable, 126,193 shares at September 30, 2002; 130,428 shares at December 31, 2001
    6,153       6,162  
       
Additional paid-in capital
    1,058,670       1,096,340  
       
Retained earnings
    2,307,609       2,017,700  
       
Accumulated other comprehensive income, net
    41,778       22,819  
       
Treasury stock — common, at cost — 5,273,108 shares at September 30, 2002; 3,455,373, shares at December 31, 2001
    (404,228 )     (252,140 )
       
 
   
     
 
             
Total stockholders’ equity
    3,058,552       2,939,451  
       
 
   
     
 
             
Total liabilities and stockholders’ equity
  $ 34,148,490       31,450,196  
       
 
   
     
 

-3-


Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

                                               
                  Three months ended September 30   Nine months ended September 30
                 
 
In thousands, except per share   2002   2001   2002   2001

 
 
 
 
Interest income  
Loans and leases, including fees
  $ 421,427       472,328     $ 1,261,573     $ 1,446,895  
       
Money-market assets
                               
           
Deposits at banks
    21       29       61       95  
           
Federal funds sold and agreements to resell securities
    458       167       2,647       1,118  
           
Trading account
    43       83       149       267  
       
Investment securities
                               
         
Fully taxable
    34,822       43,663       104,762       143,104  
         
Exempt from federal taxes
    4,500       5,699       14,691       18,693  
       
 
   
     
     
     
 
             
Total interest income
    461,271       521,969       1,383,883       1,610,172  
       
 
   
     
     
     
 
Interest expense  
NOW accounts
    1,024       1,896       2,998       7,287  
       
Savings deposits
    27,797       32,515       81,743       105,196  
       
Time deposits
    54,168       104,985       190,788       365,894  
       
Deposits at foreign office
    1,793       3,115       5,100       9,547  
       
Short-term borrowings
    14,197       32,808       38,905       105,603  
       
Long-term borrowings
    47,101       52,355       138,622       163,221  
       
 
   
     
     
     
 
             
Total interest expense
    146,080       227,674       458,156       756,748  
       
 
   
     
     
     
 
       
Net interest income
    315,191       294,295       925,727       853,424  
       
Provision for credit losses
    37,000       28,000       89,000       70,500  
       
 
   
     
     
     
 
       
Net interest income after provision for credit losses
    278,191       266,295       836,727       782,924  
       
 
   
     
     
     
 
Other income  
Mortgage banking revenues
    30,336       24,789       81,529       75,478  
       
Service charges on deposit accounts
    43,072       37,000       123,408       105,847  
       
Trust income
    14,432       15,589       45,555       47,733  
       
Brokerage services income
    11,055       9,489       34,052       28,969  
       
Trading account and foreign exchange gains
    287       223       1,716       2,591  
       
Gain (loss) on sales of bank investment securities
    (660 )     244       (659 )     1,873  
       
Other revenues from operations
    29,824       32,833       88,152       87,239  
       
 
   
     
     
     
 
             
Total other income
    128,346       120,167       373,753       349,730  
       
 
   
     
     
     
 
Other expense  
Salaries and employee benefits
    113,243       109,250       342,296       324,592  
       
Equipment and net occupancy
    28,073       28,227       81,004       84,112  
       
Printing, postage and supplies
    6,988       5,838       18,892       19,142  
       
Amortization of goodwill
          15,753             46,262  
       
Amortization of core deposit and other intangible assets
    13,011       15,257       39,696       45,708  
       
Other costs of operations
    72,511       61,869       198,387       184,191  
       
 
   
     
     
     
 
             
Total other expense
    233,826       236,194       680,275       704,007  
       
 
   
     
     
     
 
       
Income before taxes
    172,711       150,268       530,205       428,647  
       
Income taxes
    55,496       52,401       170,932       152,306  
       
 
   
     
     
     
 
       
Net income
  $ 117,215       97,867     $ 359,273       276,341  
       
 
   
     
     
     
 
       
Net income per common share
                               
           
Basic
  $ 1.27       1.02     $ 3.88     $ 2.87  
           
Diluted
    1.23       .98       3.75       2.77  
       
Cash dividends per common share
  $ .25       .25     $ .75     $ .75  
       
Average common shares outstanding
                               
           
Basic
    92,017       96,115       92,625       96,225  
           
Diluted
    95,036       99,597       95,901       99,644  

-4-


Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

                               
                  Nine months ended September 30
                 
In thousands   2002   2001

 
 
Cash flows from  
Net income
  $ 359,273       276,341  
operating activities  
Adjustments to reconcile net income to net cash provided by operating activities
               
           
Provision for credit losses
    89,000       70,500  
           
Depreciation and amortization of premises and equipment
    29,102       31,096  
           
Amortization of capitalized servicing rights
    28,663       23,200  
           
Amortization of goodwill
          46,262  
           
Amortization of core deposit and other intangible assets
    39,696       45,708  
           
Provision for deferred income taxes
    (27,100 )     (20,655 )
           
Asset write-downs
    888       1,010  
           
Net gain on sales of assets
    (2,333 )     (2,102 )
           
Net change in accrued interest receivable, payable
    (25,828 )     (7,471 )
           
Net change in other accrued income and expense
    (2,418 )     (26,688 )
           
Net change in loans held for sale
    36,511       (265,572 )
           
Net change in trading account assets and liabilities
    (2,678 )     3,883  
       
 
   
     
 
           
Net cash provided by operating activities
    522,776       175,512  
       
 
   
     
 
Cash flows from  
Proceeds from sales of investment securities
               
investing activities    
Available for sale
    45,680       380,507  
         
Other
    20,545        
       
Proceeds from maturities of investment securities
               
         
Available for sale
    669,225       671,427  
         
Held to maturity
    84,426       49,145  
       
Purchases of investment securities
               
         
Available for sale
    (1,830,418 )     (326,282 )
         
Held to maturity
    (64,150 )     (62,630 )
         
Other
    (54,971 )     (36,190 )
       
Additions to capitalized servicing rights
    (49,807 )     (29,570 )
       
Net increase in loans and leases
    (1,223,305 )     (988,398 )
       
Capital expenditures, net
    (11,776 )     (16,345 )
       
Acquisitions, net of cash acquired:
               
         
Banks and bank holding companies
    (2,400 )     (59,247 )
       
Other, net
    9,472       (836 )
       
 
   
     
 
         
Net cash used by investing activities
    (2,407,479 )     (418,419 )
       
 
   
     
 
Cash flows from  
Net increase (decrease) in deposits
    962,900       (1,099,453 )
financing activities  
Net increase in short-term borrowings
    764,917       1,479,112  
       
Proceeds from long-term borrowings
    1,000,792       475,451  
       
Payments on long-term borrowings
    (153,214 )     (305,186 )
       
Purchases of treasury stock
    (240,314 )     (242,841 )
       
Dividends paid — common
    (69,268 )     (72,399 )
       
Other, net
    47,850       28,332  
       
 
   
     
 
         
Net cash provided by financing activities
    2,313,663       263,016  
       
 
   
     
 
       
Net increase in cash and cash equivalents
  $ 428,960       20,109  
       
Cash and cash equivalents at beginning of period
    1,006,750       767,520  
       
Cash and cash equivalents at end of period
  $ 1,435,710       787,629  
       
 
   
     
 
Supplemental  
Interest received during the period
  $ 1,384,475       1,632,665  
disclosure of cash  
Interest paid during the period
    483,526       789,798  
flow information  
Income taxes paid during the period
    205,794       147,972  
       
 
   
     
 
Supplemental  
Real estate acquired in settlement of loans
  $ 14,793       9,981  
schedule of non-  
Acquisition of banks and bank holding companies:
               
cash investing and      
Common stock issued
          169,270  
financing activities      
Fair value of:
               
             
Assets acquired (noncash)
          1,674,360  
             
Liabilities assumed
          1,461,449  
             
Stock options
          6,646  
       
 
   
     
 

-5-


Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

                                                                     
                                                Accumulated                
                        Common   Additional           other                
        Preferred   Common   stock   paid-in   Retained   comprehensive   Treasury        
In thousands, except per share   stock   stock   issuable   capital   earnings   income, net   stock   Total

 
 
 
 
 
 
 
 
2001
                                                               
Balance — January 1, 2001
  $       46,622       4,077       914,575       1,735,643       (432 )         $ 2,700,485  
Comprehensive income:
                                                               
 
Net income
                            276,341                   276,341  
 
Other comprehensive income, net of tax:
                                                               
   
Unrealized gains on investment securities, net of reclassification adjustment
                                  43,589             43,589  
   
Unrealized losses on cash flow hedge, net of reclassification adjustment
                                  (407 )           (407 )
 
                                                           
 
 
                                                            319,523  
Purchases of treasury stock
                                        (242,841 )     (242,841 )
Acquisition of Premier National Bancorp, Inc.:
                                                               
 
Common stock issued
          1,220             168,050                         169,270  
 
Fair value of stock options
                      6,646                         6,646  
Repayment of management stock ownership program receivable
                      112                         112  
Stock-based compensation plans:
                                                               
 
Exercise of stock options
          722             15,189                   55,960       71,871  
 
Directors’ stock plan
          2             225                   179       406  
 
Deferred compensation plans, net, including dividend equivalents
          4       2,137       211       (113 )           270       2,509  
Common stock cash dividends - $.75 per share
                            (72,399 )                 (72,399 )
 
   
     
     
     
     
     
     
     
 
Balance — September 30, 2001
  $       48,570       6,214       1,105,008       1,939,472       42,750       (186,432 )   $ 2,955,582  
 
   
     
     
     
     
     
     
     
 
2002
                                                               
Balance — January 1, 2002
  $       48,570       6,162       1,096,340       2,017,700       22,819       (252,140 )   $ 2,939,451  
Comprehensive income:
                                                               
 
Net income
                            359,273                   359,273  
 
Other comprehensive income, net of tax:
                                                               
   
Unrealized gains on investment securities, net of reclassification adjustment
                                  19,385             19,385  
   
Unrealized losses on cash flow hedges, net of reclassification adjustment
                                  (426 )           (426 )
 
                                                           
 
 
                                                            378,232  
Purchases of treasury stock
                                        (240,314 )     (240,314 )
Stock-based compensation plans:
                                                               
 
Exercise of stock options
                      (37,398 )                 86,840       49,442  
 
Directors’ stock plan
                      27                   680       707  
 
Deferred compensation plans, net, including dividend equivalents
                (9 )     (299 )     (96 )           706       302  
Common stock cash dividends - $.75 per share
                            (69,268 )                 (69,268 )
 
   
     
     
     
     
     
     
     
 
Balance — September 30, 2002
  $       48,570       6,153       1,058,670       2,307,609       41,778       (404,228 )   $ 3,058,552  
 
   
     
     
     
     
     
     
     
 

CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES (Unaudited)

                     
        Nine months ended September 30
       
In thousands   2002   2001

 
 
Beginning balance
  $ 425,008       374,703  
Provision for credit losses
    89,000       70,500  
Allowance obtained through acquisitions
          22,112  
Net charge-offs
               
 
Charge-offs
    (88,853 )     (69,228 )
 
Recoveries
    12,185       14,641  
 
   
     
 
   
Total net charge-offs
    (76,668 )     (54,587 )
 
   
     
 
Ending balance
  $ 437,340       412,728  
 
   
     
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS

1.   Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with the accounting policies set forth in note 1 of Notes to Financial Statements included in the Company’s 2001 Annual Report, except as described below. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

2.   Goodwill and other intangible assets

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 revised the accounting for purchased intangible assets and, in general, requires that goodwill no longer be amortized, but rather that it be tested for impairment at the reporting unit level, which is either at the same level or one level below an operating segment. Other acquired intangible assets with finite lives, such as core deposit intangibles, are required to be amortized over their estimated useful economic lives.

As a result of the adoption of SFAS No. 142, the Company ceased amortization of goodwill associated with corporate acquisitions effective January 1, 2002. As prescribed by SFAS No. 142, the following is a reconciliation of reported net income and earnings per share and net income and earnings per share adjusted to exclude the impact of amortization of goodwill for the three months and nine months ended September 30, 2001:

                   
      Three months ended   Nine months ended
      September 30, 2001   September 30, 2001
     
 
      (in thousands, except per share)
Net income:
               
 
As reported
  $ 97,867       276,341  
 
Amortization of goodwill
    15,753       46,262  
 
 
   
     
 
 
Adjusted net income
  $ 113,620       322,603  
 
 
   
     
 
Basic earnings per share:
               
 
As reported
  $ 1.02       2.87  
 
Amortization of goodwill
    .16       .48  
 
 
   
     
 
 
Adjusted basic earnings per share
  $ 1.18       3.35  
 
 
   
     
 
Diluted earnings per share:
               
 
As reported
  $ .98       2.77  
 
Amortization of goodwill
    .16       .47  
 
 
   
     
 
 
Adjusted diluted earnings per share
  $ 1.14       3.24  
 
 
   
     
 

In accordance with the provisions of SFAS No. 142, the Company continues to amortize core deposit and other intangible assets over the estimated remaining life of each respective asset. Amortizing intangible assets were comprised of the following:

                           
      Gross carrying   Accumulated   Net carrying
      amount   amortization   amount
     
 
 
      (in thousands)
September 30, 2002
                       
 
Core deposit
  $ 249,960       133,236       116,724  
 
Other
    35,016       21,163       13,853  
 
   
     
     
 
 
Total
  $ 284,976       154,399       130,577  
 
   
     
     
 
December 31, 2001
                       
 
Core deposit
  $ 249,960       98,800       151,160  
 
Other
    35,016       15,903       19,113  
 
   
     
     
 
 
Total
  $ 284,976       114,703       170,273  
 
   
     
     
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.   Goodwill and other intangible assets, continued

Amortization of core deposit and other intangible assets was generally computed using an accelerated method over original amortization periods of five to ten years. The weighted average original amortization period was approximately seven years. The remaining weighted average amortization period as of January 1, 2002 was approximately five years. Amortization expense for core deposit and other intangible assets was $13,011,000 and $15,257,000 for the three months ended September 30, 2002 and 2001, respectively, and $39,696,000 and $45,708,000 for the nine months ended September 30, 2002 and 2001, respectively. Estimated amortization expense in 2002 and future years for intangible assets is as follows:

         
Year ending December 31:   (in thousands)

 
2002
  $ 51,483  
2003
    43,705  
2004
    33,919  
2005
    21,361  
2006
    13,449  
Later years
    6,356  
 
   
 
 
  $ 170,273  
 
   
 

Also in accordance with the provisions of SFAS No. 142, the Company completed a transitional goodwill impairment test as of January 1, 2002. For purposes of testing for impairment, the Company assigned all of its recorded goodwill to the reporting units originally intended to benefit from past business combinations. Goodwill was generally assigned based on the implied fair value of the acquired goodwill applicable to the benefited reporting units at the time of each respective acquisition. The implied fair value of the goodwill was determined as the difference between the incremental overall fair value of the reporting unit and the estimated fair value of the net assets assigned to the reporting unit as of each respective acquisition date. To test for goodwill impairment at January 1, 2002, the Company compared the fair value of each of its reporting units to their respective carrying amounts and certain other assets and liabilities assigned to the reporting unit, including goodwill and core deposit and other acquired intangible assets. The methodologies used to determine fair values of reporting units as of the acquisition dates and as of January 1, 2002 were similar. For the Company’s core customer relationship business reporting units, fair value was estimated as the present value of the expected future cash flows of the reporting unit. The Company’s non-relationship business reporting units were individually analyzed and fair value was largely determined by comparisons to market transactions for similar businesses. Based on the results of the transitional goodwill impairment test, the Company has concluded that the amount of recorded goodwill was not impaired as of January 1, 2002.

A summary of goodwill assigned to each of the Company’s reportable segments for purposes of testing for impairment was as follows:

         
    (in thousands)
Commercial Banking
  $ 236,012  
Commercial Real Estate
    114,883  
Discretionary Portfolio
     
Residential Mortgage Banking
     
Retail Banking
    627,564  
All Other
    119,094  
 
   
 
Total
  $ 1,097,553  
 
   
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.   Earnings per share

The computations of basic earnings per share follow:

                                   
      Three months ended   Nine months ended
      September 30   September 30
     
 
      2002   2001   2002   2001
     
 
 
 
      (in thousands, except per share)
Income available to common stockholders:
                               
 
Net income
  $ 117,215       97,867       359,273       276,341  
Weighted-average shares outstanding (including common stock issuable)
    92,017       96,115       92,625       96,225  
Basic earnings per share
  $ 1.27       1.02       3.88       2.87  

The computations of diluted earnings per share follow:

                                 
    Three months ended   Nine months ended
    September 30   September 30
   
 
    2002   2001   2002   2001
   
 
 
 
    (in thousands, except per share)
Income available to common stockholders
  $ 117,215       97,867       359,273       276,341  
Weighted-average shares outstanding
    92,017       96,115       92,625       96,225  
Plus: incremental shares from assumed conversion of stock options
    3,019       3,482       3,276       3,419  
 
   
     
     
     
 
Adjusted weighted-average shares outstanding
    95,036       99,597       95,901       99,644  
Diluted earnings per share
  $ 1.23       .98       3.75       2.77  

4.   Comprehensive income

The following tables display the components of other comprehensive income:

                           
      Nine months ended September 30, 2002
     
      Before-tax   Income        
      amount   taxes   Net
     
 
 
      (in thousands)
Unrealized gains on investment securities:
                       
 
Unrealized holding gains during period
  $ 33,481       (14,516 )     18,965  
 
Less: reclassification adjustment for losses realized in net income
    (659 )     239       (420 )
 
   
     
     
 
 
    34,140       (14,755 )     19,385  
Unrealized losses on cash flow hedges
    (726 )     300       (426 )
 
   
     
     
 
 
Net unrealized gains
  $ 33,414       (14,455 )     18,959  
 
   
     
     
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4.   Comprehensive income, continued

                           
      Nine months ended September 30, 2001
     
      Before-tax   Income        
      amount   taxes   Net
     
 
 
      (in thousands)
Unrealized gains on investment securities:
                       
 
Unrealized holding gains during period
  $ 69,204       (24,466 )     44,738  
 
Less: reclassification adjustment for gains realized in net income
    1,873       (724 )     1,149  
 
   
     
     
 
 
    67,331       (23,742 )     43,589  
Unrealized losses on cash flow hedges
    (628 )     221       (407 )
 
   
     
     
 
 
Net unrealized gains
  $ 66,703       (23,521 )     43,182  
 
   
     
     
 

Accumulated other comprehensive income, net consisted of unrealized gains (losses) as follows:

                         
    Investment   Cash flow        
    securities   hedges   Total
   
 
 
    (in thousands)
Balance – January 1, 2002
  $ 23,117       (298 )     22,819  
Net gain (loss) during period
    19,385       (426 )     18,959  
 
   
     
     
 
Balance – September 30, 2002
  $ 42,502       (724 )     41,778  
 
   
     
     
 
Balance — January 1, 2001
  $ (432 )           (432 )
Net gain (loss) during period
    43,589       (407 )     43,182  
 
   
     
     
 
Balance – September 30, 2001
  $ 43,157       (407 )     42,750  
 
   
     
     
 

5.   Borrowings

In 1997, M&T Capital Trust I (“Trust I”), M&T Capital Trust II (“Trust II”), and M&T Capital Trust III (“Trust III” and, together with Trust I and Trust II, the “Trusts”) issued $310 million of preferred capital securities. Including the unamortized portion of a purchase accounting adjustment to reflect estimated fair value at the April 1, 1998 acquisition of the common securities of Trust III, the preferred capital securities had a financial statement carrying value of approximately $318 million at September 30, 2002 and December 31, 2001.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.   Borrowings, continued

Other than the following payment terms (and the redemption terms described below), the preferred capital securities issued by the Trusts (“Capital Securities”) are identical in all material respects:

             
    Distribution   Distribution
Trust   Rate   Dates

 
 
Trust I     8.234%     February 1 and August 1
Trust II     8.277%     June 1 and December 1
Trust III     9.25%     February 1 and August 1

The 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 Financial Corp. (“Olympia”), a wholly owned subsidiary of M&T. The common securities of each Trust (“Common Securities”) 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 Trust 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 the Company’s Tier 1 capital.

The proceeds from the issuances of the Capital Securities and Common Securities were used by the Trusts to purchase the following amounts of junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of M&T in the case of Trust I and Trust II and Olympia in the case of Trust III:

             
    Capital   Common   Junior Subordinated
Trust   Securities   Securities   Debentures

 
 
 
Trust I   $150 million   $4.64 million   $154.64 million aggregate liquidation amount of 8.234% Junior Subordinated Debentures due February 1, 2027.
Trust II   $100 million   $3.09 million   $103.09 million aggregate liquidation amount of 8.277% Junior Subordinated Debentures due June 1, 2027.
Trust III   $60 million   $1.856 million   $61.856 million aggregate liquidation amount of 9.25% Junior Subordinated Debentures due February 1, 2027.

The Junior Subordinated Debentures represent the sole assets of each Trust and payments under the Junior Subordinated Debentures are the sole source of cash flow for each Trust.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.   Borrowings, continued

Holders of the Capital Securities receive preferential cumulative cash distributions semi-annually on each distribution date at the stated distribution rate unless M&T, in the case of Trust I and Trust II, or Olympia, in the case of Trust III, exercises the right to extend the payment of interest on the Junior Subordinated Debentures for up to ten semi-annual periods, in which case payment of distributions on the respective Capital Securities will be deferred for a comparable period. During an extended interest period, M&T and/or Olympia may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of the respective company’s capital stock. The agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T in the case of Trust I and Trust II and Olympia in the case of Trust III of the payment of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital Securities are subordinate and junior in right of payment to all senior indebtedness of M&T and Olympia.

The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events (“Events”) set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after the stated optional redemption dates (February 1, 2007 in the case of Trust I and Trust III, and June 1, 2007 in the case of Trust II) contemporaneously with the Company’s optional redemption of the related Junior Subordinated Debentures in whole or in part. The Junior Subordinated Debentures are redeemable prior to their stated maturity dates at M&T’s option in the case of Trust I and Trust II and at Olympia’s option in the case of Trust III (i) on or after the stated optional redemption dates, in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and during the continuation of one or more of the Events, in each case subject to possible regulatory approval. The redemption price of the Capital Securities upon their early redemption will be expressed as a percentage of the liquidation amount plus accumulated but unpaid distributions. In the case of Trust I, such percentage adjusts annually and ranges from 104.117% at February 1, 2007 to 100.412% for the annual period ending January 31, 2017, after which the percentage is 100%, subject to a make-whole amount if the early redemption occurs prior to February 1, 2007. In the case of Trust II, such percentage adjusts annually and ranges from 104.139% at June 1, 2007 to 100.414% for the annual period ending May 31, 2017, after which the percentage is 100%, subject to a make-whole amount if the early redemption occurs prior to June 1, 2007. In the case of Trust III, such percentage adjusts annually and ranges from 104.625% at February 1, 2007 to 100.463% for the annual period ending January 31, 2017, after which the percentage is 100%, subject to a make-whole amount if the early redemption occurs prior to February 1, 2007.

6.   Segment information

Reportable segments have been determined based upon the Company’s internal profitability reporting system, which is organized by strategic business units. 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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6.   Segment information, continued

The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 19 to the Company’s consolidated financial statements as of and for the year ended December 31, 2001. 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 generally accepted accounting principles. As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions. Information about the Company’s segments is presented in the following tables.

                                                 
    Three months ended September 30
   
    2002   2001
   
 
            Inter-   Net           Inter-   Net
    Total   segment   income   Total   segment   income
    revenues (a)   revenues   (loss)   revenues (a)   revenues   (loss)
   
 
 
 
 
 
    (in thousands)
Commercial Banking (b)
  $ 66,244       80       27,028       68,242       145       24,276  
Commercial Real Estate (b)
    44,214       254       22,462       43,988       278       22,838  
Discretionary Portfolio
    23,778       1,238       13,205       21,526       1,046       13,182  
Residential Mortgage Banking
    63,350       12,008       6,910       54,004       11,817       9,693  
Retail Banking
    201,035       3,733       42,621       205,927       3,068       50,905  
All Other
    44,716       (17,313 )     4,989       20,775       (16,354 )     (23,027 )
 
   
     
     
     
     
     
 
Total
  $ 443,537             117,215       414,462             97,867  
 
   
     
     
     
     
     
 

-13-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6.   Segment information, continued

                                                 
    Nine months ended September 30
   
    2002   2001
   
 
            Inter-   Net           Inter-   Net
    Total   segment   income   Total   segment   income
    revenues(a)   revenues   (loss)   revenues(a)   revenues   (loss)
   
 
 
 
 
 
    (in thousands)
Commercial Banking (b)
  $ 199,442       375       80,670       205,057       461       80,622  
Commercial Real Estate (b)
    133,594       863       68,640       125,915       701       65,037  
Discretionary Portfolio
    68,584       3,640       41,033       63,775       3,071       37,948  
Residential Mortgage Banking
    178,477       34,007       28,449       149,648       33,865       29,352  
Retail Banking
    587,457       11,550       126,005       613,344       9,018       156,156  
All Other
    131,926       (50,435 )     14,476       45,415       (47,116 )     (92,774 )
 
   
     
     
     
     
     
 
Total
  $ 1,299,480             359,273     $ 1,203,154             276,341  
 
   
     
     
     
     
     
 
                         
    Average total assets
   
    Nine months ended   Year ended
    September 30   December 31
   
 
    2002   2001   2001
   
 
 
    (in millions)
Commercial Banking (b)
  $ 6,218       6,333       6,317  
Commercial Real Estate (b)
    6,191       5,922       5,961  
Discretionary Portfolio
    6,988       7,393       7,359  
Residential Mortgage Banking
    1,547       1,292       1,361  
Retail Banking
    8,897       7,891       8,015  
All Other
    1,655       1,844       1,813  
 
   
     
     
 
Total
  $ 31,496       30,675       30,826  
 
   
     
     
 


(a)   Total revenues are comprised of net interest income and other income. Net interest income is the difference between taxable-equivalent interest earned on assets and interest paid on liabilities owned by a segment and a funding charge (credit) based on the Company’s internal funds transfer pricing methodology. Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated $3,530,000 and $4,257,000 for the three-month periods ended September 30, 2002 and 2001, respectively, and $10,750,000 and $13,443,000 for the nine-month periods ended September 30, 2002 and 2001, respectively, and is eliminated in “All Other” total revenues. Intersegment revenues are included in total revenues of the reportable segments. The elimination of intersegment revenues is included in the determination of “All Other” total revenues.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6.   Segment information, continued

(b)   During the second quarter of 2002, a strategic business unit which had previously been included in the Commercial Banking segment was moved to the Commercial Real Estate segment for internal profitability reporting purposes. As a result, approximately $270 million of loans were transferred from the Commercial Banking segment to the Commercial Real Estate segment. Reflecting this change, total revenues and net income decreased in the Commercial Banking segment and increased in the Commercial Real Estate segment from the amounts previously reported by approximately $2 million and $1 million, respectively, in each of the five quarters during the period that began January 1, 2001 and ended March 31, 2002. Financial information for such periods has been reclassified to conform to current period presentation.

7.   Acquisitions

On September 26, 2002, M&T entered into a definitive agreement with Allied Irish Banks, p.l.c. (“AIB”), Dublin, Ireland, to acquire Allfirst Financial Inc. (“Allfirst”), a bank holding company headquartered in Baltimore, Maryland, and to merge it into M&T. Upon completion of the merger, Allfirst Bank, Allfirst’s primary banking subsidiary, will be merged into Manufacturers and Traders Trust Company (“M&T Bank”), M&T’s principal banking subsidiary. Allfirst Bank operates 262 banking offices in Maryland, Pennsylvania, Washington D.C., Virginia and Delaware. At June 30, 2002, Allfirst had $17.3 billion in assets, including $10.7 billion of loans and $3.4 billion of investment securities, and $15.6 billion of liabilities, including $11.6 billion of deposits. The merger is subject to a number of conditions, including the approvals of stockholders of both M&T and AIB and various regulatory agencies, and is expected to be completed by the end of the first quarter of 2003. Under the terms of the agreement between AIB and M&T, AIB will receive 26.7 million shares of M&T common stock (representing approximately 22.5% of M&T’s outstanding common shares) and approximately $886 million in cash in exchange for all outstanding Allfirst common shares.

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. 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. After application of the election, allocation, and proration procedures contained in the merger agreement with Premier, M&T paid $171 million in cash and issued 2,440,812 shares of M&T common stock in exchange for the Premier shares outstanding at the time of acquisition. In addition, based on the merger agreement and the exchange ratio provided therein, M&T converted outstanding and unexercised stock options granted by Premier into options to purchase 224,734 shares of M&T common stock. The purchase price was approximately $347 million based on the cash paid to Premier shareholders, the fair value of M&T common stock exchanged, and the estimated fair value of Premier stock options converted into M&T stock options.

Acquired assets, loans and deposits of Premier on February 9, 2001 totaled approximately $1.8 billion, $1.0 billion and $1.4 billion, respectively. The transaction has been accounted for using the purchase method of accounting and, accordingly, operations acquired from Premier have been included in the Company’s financial results since the acquisition date. In connection with the acquisition, the Company recorded approximately $178 million of goodwill and $32 million of core deposit intangible. The core deposit intangible is being amortized over seven years using an accelerated method. Through December 31, 2001, the goodwill was being amortized over twenty years using the straight-line method.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

7.   Acquisitions, continued

The Company incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company of approximately $8 million ($5 million net of applicable income taxes) during the three-month period ended March 31, 2001. There were no similar expenses incurred during the final nine months of 2001 nor during the nine-month period ended September 30, 2002.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Net income of M&T Bank Corporation (“M&T”) was $117 million or $1.23 of diluted earnings per common share in the third quarter of 2002, increases of 20% and 26%, respectively, from the third quarter of 2001 when net income was $98 million or $.98 of diluted earnings per common share. During the second quarter of 2002, net income was $121 million or $1.26 of diluted earnings per common share. Basic earnings per common share rose 25% to $1.27 in the recent quarter from $1.02 in the year-earlier quarter, but was 3% lower than $1.31 earned in the second quarter of 2002.

         Net income for the nine months ended September 30, 2002 was $359 million or $3.75 per diluted share, up 30% and 35%, respectively, from $276 million or $2.77 per diluted share during the corresponding 2001 period. Basic earnings per share rose 35% to $3.88 during the first nine months of 2002 from $2.87 in the comparable 2001 period. The after-tax impact of nonrecurring merger-related expenses associated with M&T’s merger and acquisition activity lowered net income during the first nine months of 2001 by approximately $5 million and diluted and basic earnings per share by $.05. There were no similar expenses during the first nine months of 2002.

         Net income expressed as an annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the third quarter of 2002 was 1.46%, up from 1.25% in the year-earlier quarter, but below 2002’s second quarter return of 1.56%. The annualized rate of return on average common stockholders’ equity was 15.47% in the recent quarter, compared with 12.93% in the third quarter of 2001 and 16.49% in the second quarter of 2002. During the first nine months of 2002, the annualized rates of return on average assets and average common stockholders’ equity were 1.53% and 16.19%, respectively, compared with 1.20% and 12.47%, respectively, in the corresponding 2001 period. Excluding the impact of merger-related expenses incurred in the first quarter of 2001, the annualized returns on average assets and average common equity were 1.23% and 12.69%, respectively, during the first nine months of 2001.

         On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 revised accounting standards for all purchased intangible assets, but not the accounting for internally developed intangible assets. SFAS No. 142, as amended, requires that most goodwill not be amortized, but rather that it be tested for impairment. Other acquired intangible assets with finite lives, such as core deposit intangible assets, are required to be amortized over their useful economic lives.

         In accordance with SFAS No. 142, effective January 1, 2002 the Company ceased amortization of goodwill associated with corporate acquisitions. Amortization of such goodwill during the third quarter and first nine months of 2001, none of which was tax deductible, was $16 million ($.16 per diluted share) and $46 million ($.47 per diluted share), respectively. Amortization expense related to core deposit and other intangible assets was $8 million (after-tax), or $.09 per diluted share, during the third quarter of 2002, compared with $10 million (after-tax), or $.10 per diluted share in the third quarter of 2001 and $9 million (after-tax), or $.09 per diluted share in the second quarter of 2002. Similar amortization charges for the first nine months of 2002 and 2001 were $25 million (after-tax), or $.26 per diluted share, and $28 million (after-tax), or $.28 per diluted share, respectively. Pro forma net income and diluted earnings per share for last year’s third quarter, computed as if SFAS No. 142 had been effective in 2001, were $114 million and $1.14, respectively. Pro forma annualized returns on average assets and average common stockholders’ equity for the third quarter of 2001 were 1.45% and 15.01%, respectively, after excluding the impact of goodwill amortization. Pro forma net income and diluted earnings per share for the first nine months of 2001, calculated on the same basis as noted above, were

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$323 million and $3.24, respectively, while pro forma annualized returns on average assets and average common stockholders’ equity in that period were 1.41% and 14.56%, respectively.

         In accordance with SFAS No. 142, for purposes of testing for impairment of goodwill the Company assigned all of its recorded goodwill to the reporting units originally intended to benefit from past business combinations and completed a transitional goodwill impairment test as of January 1, 2002. The Company determined that, pursuant to the provisions of SFAS No. 142, impairment of goodwill was not permitted or required as of January 1, 2002. At September 30, 2002, September 30, 2001 and December 31, 2001, the Company had goodwill of $1.1 billion recorded as assets. Core deposit and other intangible assets at September 30, 2002 totaled $131 million, compared with $184 million a year earlier and $170 million at December 31, 2001.

         On September 26, 2002, M&T entered into a definitive agreement with Allied Irish Banks, p.l.c. (“AIB”), Dublin, Ireland, to acquire Allfirst Financial Inc. (“Allfirst”), a bank holding company headquartered in Baltimore, Maryland, and to merge it into M&T. Upon completion of the merger, Allfirst Bank, Allfirst’s primary banking subsidiary, will be merged into Manufacturers and Traders Trust Company (“M&T Bank”), M&T’s principal banking subsidiary. Allfirst Bank operates 262 banking offices in Maryland, Pennsylvania, Washington D.C., Virginia and Delaware. At June 30, 2002, Allfirst had $17.3 billion in assets, including $10.7 billion of loans and $3.4 billion of investment securities, and $15.6 billion of liabilities, including $11.6 billion of deposits. The merger is subject to a number of conditions, including the approvals of stockholders of both M&T and AIB and various regulatory agencies, and is expected to be completed by the end of the first quarter of 2003. Under the terms of the agreement between AIB and M&T, AIB will receive 26.7 million shares of M&T common stock (representing approximately 22.5% of M&T’s post-merger outstanding common shares) and $886 million in cash in exchange for all outstanding Allfirst common shares.

         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. As of the merger date, assets acquired totaled approximately $1.8 billion, including approximately $1.0 billion of loans and leases, and liabilities assumed were approximately $1.5 billion, including approximately $1.4 billion of deposits. The acquisition was accounted for using the purchase method of accounting and, accordingly, the operations acquired from Premier have been included in M&T’s financial results subsequent to the acquisition date. Premier’s stockholders received $171 million in cash and 2,440,812 shares of M&T common stock in exchange for the Premier shares outstanding at the time of the acquisition. In connection with the acquisition, the Company recorded approximately $178 million of goodwill and $32 million of core deposit intangible. The Company incurred nonrecurring expenses during the first quarter of 2001 related to systems conversions and other costs of integrating and conforming acquired operations with and into the operations of M&T Bank totaling approximately $8 million ($5 million after-tax). There were no similar expenses incurred during the remainder of 2001 or during the first nine months of 2002.

Cash Operating Results

As a result of accounting for substantially all of its business combinations using the purchase method of accounting, the Company had recorded intangible assets consisting of goodwill and core deposit and other intangible assets totaling $1.2 billion at September 30, 2002 and $1.3 billion at September 30 and December 31, 2001. Since the amortization of these intangible assets does not result in a cash expense, M&T believes that supplemental reporting of its operating results on a “cash” or “tangible” basis (which excludes the after-tax effect of amortization of goodwill and core deposit and other intangible assets and the related asset balances) represents a relevant

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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 do, however, exclude the after-tax impact of nonrecurring merger-related expenses associated with acquisitions.

         Cash net income was $125 million in the third quarter of 2002, up slightly from $124 million in the year-earlier quarter. Diluted cash earnings per share for the recent quarter were $1.32, an increase of 6% from $1.24 in the third quarter of 2001. Cash net income and diluted cash earnings per share were $130 million and $1.35, respectively, in the second quarter of 2002. For the first nine months of 2002, cash net income and diluted cash earnings per share were $385 million and $4.01, respectively, up 8% and 12%, respectively, from $356 million and $3.57 in the corresponding 2001 period.

         The annualized cash return on average tangible assets was 1.62% in the recent quarter, compared with 1.64% in the year earlier quarter and 1.73% in the second quarter of 2002. Cash return on average tangible common equity was an annualized 27.34% in the third quarter of 2002, compared with 28.39% in the third quarter of 2001 and 29.69% in the second quarter of 2002. For the first nine months of 2002, the annualized cash return on average tangible assets and average tangible common stockholders’ equity was 1.70% and 29.07%, respectively, compared with 1.62% and 28.19%, respectively, in the similar 2001 period. Including the effect of merger-related expenses, the annualized cash returns on average tangible assets and average tangible common stockholders’ equity through the first three quarters of 2001 were 1.60% and 27.80%, respectively.

         A summary of net income and diluted earnings per share, pro forma net income and pro forma diluted earnings per share (computed as if SFAS No. 142 had been effective in 2001) and cash net income and diluted cash earnings per share follows:

                                 
    Three months ended   Nine months ended
    September 30   September 30
   
 
    2002   2001   2002   2001
   
 
 
 
    (in thousands, except per share)
Net income
  $ 117,215       97,867       359,273       276,341  
Amortization of goodwill
          15,753             46,262  
 
   
     
     
     
 
Pro forma net income
    117,215       113,620       359,273       322,603  
Amortization of core deposit and other intangible assets(1)
    7,956       9,903       25,282       28,366  
Nonrecurring merger-related expenses(1)
                      4,844  
 
   
     
     
     
 
Cash net income
  $ 125,171       123,523       384,555       355,813  
 
   
     
     
     
 
Diluted earnings per share
  $ 1.23       .98       3.75       2.77  
Amortization of goodwill
          .16             .47  
 
   
     
     
     
 
Pro forma diluted earnings per share
    1.23       1.14       3.75       3.24  
Amortization of core deposit and other intangible assets(1)
    .09       .10       .26       .28  
Nonrecurring merger-related expenses(1)
                      .05  
 
   
     
     
     
 
Diluted cash earnings per share
  $ 1.32       1.24       4.01       3.57  
 
   
     
     
     
 


(1)   After any related tax effect

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Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income increased 7% to $319 million in the third quarter of 2002 from $299 million in the year-earlier quarter. Higher average loan balances outstanding and a widening of the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, contributed to the improvement in net interest income. Average loans and leases increased $1.0 billion, or 4%, to $25.8 billion in the third quarter of 2002 from $24.8 billion in the year-earlier quarter. Average balances of consumer loans, predominately automobile loans and home equity lines of credit, rose $1.4 billion from the third quarter of 2001 to the recent quarter, while commercial loans and leases decreased $159 million, due in part to sluggish economic conditions in the Company’s core markets, and residential real estate loans decreased $456 million, largely the result of customer repayments of loans. Taxable-equivalent net interest income was $313 million in the second quarter of 2002, when average loans and leases were $25.2 billion. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.

AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions

                               
                  Percent increase
                  (decrease)from
                 
          3rd Qtr.   3rd Qtr.   2nd Qtr.
          2002.   2001   2002
         
 
 
Commercial, financial, etc.
  $ 5,181       (3 )%     2 %
Real estate — commercial
    9,536       2       1  
Real estate — consumer
    4,880       (9 )      
Consumer
                       
 
Automobile
    2,953       35       10  
 
Home equity
    1,881       45       8  
 
Other
    1,397       4       1  
 
   
     
     
 
   
Total consumer
    6,231       29       7  
 
   
     
     
 
     
Total
  $ 25,828       4 %     2 %
 
   
     
     
 

         For the first nine months of 2002, taxable-equivalent net interest income was $936 million, up 8% from $867 million in the corresponding 2001 period. An increase in average loans and leases of $1.2 billion, predominantly consumer loans, was the leading factor contributing to this improvement.

         Investment securities averaged $2.9 billion in the third and second quarters of 2002, compared with $3.2 billion in the third quarter of 2001. 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. In September 2002, the Company also temporarily invested approximately $1 billion in short-term commercial paper that matured in October and November 2002 and was classified in investment securities at September 30, 2002. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing its investment securities portfolio, the Company occasionally sells investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, or credit risk associated with a particular security. Investment securities may also be sold following completion of a business combination.

         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 $121 million in 2002’s third quarter, compared with $34 million in the year-earlier quarter and $273

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million in the second quarter of 2002. The size of the investment securities and money-market assets portfolios are influenced by such factors as demand for loans, which generally yield more than investment securities and money-market assets, ongoing repayments, the levels of deposits, and management of balance sheet size and resulting capital ratios.

         As a result of the changes described herein, average earning assets increased 3% to $28.9 billion in the recent quarter from $28.1 billion in the third quarter of 2001. Average earning assets were $28.4 billion in the second quarter of 2002 and aggregated $28.5 billion and $27.7 billion for the nine months ended September 30, 2002 and 2001, respectively.

         Core deposits are the most significant source of funding to the Company and are comprised of noninterest-bearing deposits, interest-bearing transaction accounts, nonbrokered savings deposits and nonbrokered domestic time deposits under $100,000. The Company’s branch network is the principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Core deposits include certificates of deposit under $100,000 generated on a nationwide basis by M&T Bank, National Association (“M&T Bank, N.A.”), a wholly owned subsidiary of M&T. Average core deposits were $17.5 billion in the third quarter of 2002 and 2001, and $17.6 billion in the second quarter of 2002. The Company has experienced a shift in the composition of core deposits throughout 2001 and the first nine months of 2002, largely as a result of the lower interest rate environment. Reflecting a change in customer savings trends, average core savings deposits rose to $8.9 billion in the third quarter of 2002 from $7.4 billion in the comparable 2001 quarter and $8.8 billion in the second quarter of 2002. In contrast, average time deposits under $100,000 decreased to $4.2 billion in the recently completed quarter from $5.9 billion a year earlier and $4.5 billion in the second quarter of 2002. The accompanying table provides an analysis of quarterly changes in the components of average core deposits. For the nine months ended September 30, 2002 and 2001, core deposits averaged $17.5 billion and $17.6 billion, respectively.

AVERAGE CORE DEPOSITS
Dollars in millions

                           
              Percent increase
              (decrease) from
             
      3rd Qtr.   3rd Qtr.   2nd Qtr.
      2002   2001   2002
     
 
 
NOW accounts
  $ 753       6 %     (1 )%
Savings deposits
    8,892       19       1  
Time deposits less than $100,000
    4,178       (30 )     (7 )
Noninterest-bearing deposits
    3,676       9       3  
 
   
     
     
 
 
Total
  $ 17,499       %     (1 )%
 
   
     
     
 

         The Company also obtains funding through domestic time deposits of $100,000 or more, deposits originated through M&T Bank’s offshore branch office, and brokered deposits. Brokered time deposits, which have been used as an alternative to short-term borrowings to lengthen the average maturity of interest-bearing liabilities, averaged $1.8 billion during the recent quarter, compared with $789 million and $1.9 billion in the third quarter of 2001 and the second quarter of 2002, respectively. At September 30, 2002, brokered time deposits totaled $1.9 billion and had a weighted average remaining term to maturity of .7 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 substantially similar to the amounts and terms of $130 million of brokered time deposits. The Company also had brokered money-market deposit accounts which averaged $58 million during the third and second quarters of 2002. 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.

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         In addition to deposits, the Company 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 $3.2 billion in the recent quarter, compared with $3.6 billion in the year-earlier quarter and $2.7 billion in the second quarter of 2002. Amounts borrowed from the FHLB and included in short-term borrowings averaged $1.0 billion in the third quarter of 2002, $856 million in the third quarter of 2001 and $964 million in the second quarter of 2002. The remaining short-term borrowings were predominately comprised of unsecured federal funds borrowings which generally mature daily. Long-term borrowings averaged $4.3 billion in the third quarter of 2002, compared with $3.7 billion and $4.1 billion in the third quarter of 2001 and the second quarter of 2002, respectively. Included in average long-term borrowings were amounts borrowed from the FHLB totaling $3.1 billion in the third quarter of 2002, compared with $2.5 billion and $3.0 billion in the third quarter of 2001 and the second quarter of 2002, respectively. Also included in average long-term borrowings were $675 million of subordinated capital notes and trust preferred securities with a carrying value of $318 million. Information regarding the trust preferred securities is provided in note 5 of Notes to Financial Statements.

         In addition to changes in the composition of the Company’s earning assets and interest-bearing liabilities, changes in interest rates and spreads can impact net interest income. Throughout 2001, the Federal Reserve took numerous actions to lower the level of interest rates by reducing its benchmark overnight federal funds target rate by 475 basis points (hundredths of one percent). In general, such actions contributed to a greater decline in short-term rates on deposits and borrowings as compared with the decline in yields on loans and other earning assets. The impact of changing interest rates had a positive effect on the Company’s net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, in 2001 and the first nine months of 2002. The yield on the Company’s earning assets during the recent quarter was 6.38%, down 105 basis points from 7.43% in the third quarter of 2001, while the rate paid on interest-bearing liabilities decreased 137 basis points to 2.34% from 3.71% in the third quarter of 2001. The impact of the more rapid repricing of interest-bearing liabilities than earning assets combined with the magnitude of the interest rate reductions contributed to a 32 basis point increase in the net interest spread, from 3.72% in the third quarter of 2001 to 4.04% in 2002’s third quarter. In the second quarter of 2002, the net interest spread was 4.07%, the yield on earning assets was 6.57% and the rate paid on interest-bearing liabilities was 2.50%. For the first nine months of 2002, the net interest spread was 4.05%, an increase of 42 basis points from 3.63% in the corresponding 2001 period. The yield on earning assets and the rate paid on interest-bearing liabilities were 6.54% and 2.49%, respectively, in the first nine months of 2002, compared with 7.84% and 4.21%, respectively, in the year-earlier period.

         Net interest-free funds consist largely of noninterest-bearing demand deposits and stockholders’ equity, partially offset by bank owned life insurance and non-earning assets, including goodwill and core deposit and other intangible assets. Average net interest-free funds totaled $4.1 billion in the third quarter of 2002, up from $3.8 billion a year earlier and $4.0 billion in the second quarter of 2002. During the first nine months of 2002 and 2001, average net interest-free funds were $3.9 billion and $3.6 billion, respectively. Goodwill and core deposit and other intangible assets averaged $1.2 billion during the third and second quarters of 2002, and $1.3 billion during the third quarter of 2001. The cash surrender value of bank owned life insurance averaged $608 million and $576 million in the third quarter of 2002 and 2001, respectively, and $600 million in the second quarter of 2002. Tax-exempt income earned from increases in the cash surrender value of bank owned life insurance is not included in interest income, but rather is recorded in “other revenues from operations.”

         The contribution of net interest-free funds to net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, was .34% in the third quarter of 2002, compared with      .50% in the corresponding 2001 quarter and .36% in the second quarter of 2002. For

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the first nine months of the year, such contribution was .34% in 2002 and      .56% in 2001. The lower contribution to net interest margin of net interest-free funds in the first three quarters of 2002 resulted primarily from the impact of lower interest rates on interest-bearing liabilities used to value such contribution.

         Reflecting the changes described herein, the Company’s net interest margin was 4.38% in 2002’s third quarter, 16 basis points higher than 4.22% in the third quarter of 2001 but 5 basis points lower than 4.43% in the second quarter of 2002. During the first nine months of 2002 and 2001, the net interest margin was 4.39% and 4.19%, respectively.

         In managing interest rate risk, the Company utilizes interest rate swap agreements to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are generally reflected in either the yields earned on assets or, as appropriate, the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes as of September 30, 2002 and 2001 was $872 million and $561 million, respectively, $869 million as of June 30, 2002 and $576 million as of December 31, 2001. Under the terms of $755 million of interest rate swaps agreements in effect at September 30, 2002, the Company receives payments based on the outstanding notional amount of the swaps at fixed rates of interest and makes payments at variable rates. Under the terms of the remaining $117 million of swap agreements, the Company pays a fixed rate and receives a variable rate.

         As of September 30, 2002, $772 million of the Company’s interest rate swap agreements entered into for risk management purposes had been designated as fair value hedges and $100 million had been designated as cash flow hedges. In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded in “other revenues from operations” in the Company’s consolidated statement of income. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in “other revenues from operations” immediately. The amount of hedge ineffectiveness of both fair value and cash flow hedges was not material to the Company’s results of operations in 2002 or 2001. The estimated fair value of interest rate swap agreements designated as fair value hedges was a gain of approximately $9 million at September 30, 2002 and 2001, compared with a gain of $5 million at December 31, 2001. The fair values of such swap agreements were substantially offset by unrealized losses on the fair values of the hedged items. The estimated fair value of the interest rate swap agreements designated as cash flow hedges was a loss of approximately $1.2 million at September 30, 2002. Net of applicable income taxes, such loss was approximately $724 thousand and has been included in “accumulated other comprehensive income, net” in the Company’s consolidated balance sheet. The estimated fair value of the interest rate swap agreement designated as a cash flow hedge at December 31, 2001 was a loss of $461 thousand ($298 thousand after taxes), while the estimated fair value of the interest rate swap agreement designated as a cash flow hedge at September 30, 2001 was a loss of $628 thousand ($407 thousand after taxes). The changes in the fair values of the interest rate swap agreements and the hedged items resulted from the effects of changing interest rates.

         The weighted average rates to be received and paid under interest rate swap agreements currently in effect were 2.92% and 1.99%, respectively, at September 30, 2002. The average notional amounts of interest rate swaps and the related effect on net interest income and margin are presented in the accompanying table.

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INTEREST RATE SWAPS
Dollars in thousands

                                     
        Three months ended September 30
       
        2002   2001
       
 
        Amount   Rate*   Amount   Rate *
       
 
 
 
Increase (decrease) in:
                               
 
Interest income
  $ (194 )     %   $ (111 )     %
 
Interest expense
    (2,580 )     (.04 )     (2,220 )     (.04 )
       
         
   
 
Net interest income/margin
  $ 2,386       .04 %   $ 2,109       .03 %
 
   
     
     
     
 
Average notional Amount **
  $ 871,793             $ 518,380          
 
   
             
         
                                     
        Nine months ended September 30
       
        2002   2001
       
 
        Amount   Rate*   Amount   Rate *
       
 
 
 
Increase (decrease) in:
                               
 
Interest income
  $ (576 )     %   $ (206 )     %
 
Interest expense
    (7,367 )     (.04 )     (4,288 )     (.02 )
       
     
   
 
Net interest income/margin
  $ 6,791       .03 %   $ 4,082       .02 %
 
   
     
     
     
 
Average notional Amount **
  $ 722,507             $ 508,152          
 
   
             
         


*   Computed as an annualized percentage of average earning assets or interest-bearing liabilities.
**   Excludes forward-starting interest rate swaps.

         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. Deposits and borrowings, 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, provide the Company with sources of liquidity. M&T’s banking subsidiaries have access to additional funding sources through FHLB borrowings, as well as other available borrowing facilities. M&T Bank has also obtained funding through issuances of subordinated capital notes. Informal and sometimes reciprocal sources of funding are also available to M&T Bank through various arrangements for unsecured short-term borrowings from a wide group of banks and other financial institutions. Short-term federal funds borrowings aggregated $2.6 billion, $2.1 billion and $2.7 billion at September 30, 2002, December 31, 2001 and September 30, 2001, respectively. Should the Company experience a substantial deterioration in its financial condition or its debt rating, however, or should the availability of short-term funding become restricted, M&T Bank’s ability to obtain funding from these sources could be negatively impacted.

         M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases is the receipt of dividends from its banking subsidiaries, which are subject to various regulatory limitations. Dividends from any banking subsidiary to M&T are limited by the amount of earnings of the banking subsidiary in the current year and the two preceding years. For purposes of this test, at September 30, 2002 approximately $276 million was available for payment of dividends to M&T from banking subsidiaries without prior regulatory approval. This source of cash flows has been supplemented in the past by the issuance of trust preferred securities. Information regarding trust preferred securities is included in note 5 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 September 30, 2002 or December 31, 2001.

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         In connection with the pending acquisition of Allfirst, the Company expects to issue approximately $500 million of subordinated capital notes and, as a result, expects to have sufficient liquid assets to fund the cash portion of the consideration to be paid in connection with the acquisition. On an ongoing basis, management closely monitors the Company’s liquidity position for compliance with internal policies and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business. Management does not anticipate engaging in any activities for which adequate funding would not be available and would therefore result in 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 and by different amounts 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 periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to hedge interest rate risk. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of 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’s Asset-Liability Committee, which includes members of senior management, monitors the Company’s interest rate sensitivity with the aid of a computer model that considers the impact of ongoing lending and deposit gathering activities, as well as 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 actions, 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 other financial instruments used for interest rate risk management purposes.

         The accompanying table as of September 30, 2002 and December 31, 2001 displays the estimated impact on projected net interest income from non-trading financial instruments resulting from parallel changes in interest rates across repricing categories during the first modeling year.

SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
Dollars in thousands

                 
    Calculated increase (decrease)
    in projected net interest income
   
Changes in interest rates   September 30, 2002   December 31, 2001

 
 
+200 basis points
  $ 22,232       (1,090 )
+100 basis points
    13,788       (3,960 )
-100 basis points
    685       298  
-200 basis points
    5,990       2,364  

         Many assumptions were utilized by the Company to calculate the impact that changes in interest rates may have on 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 interest rates across repricing categories 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

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precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly due to the timing, magnitude and frequency of changes in interest rates, market conditions, and interest rate differentials (spreads) between maturity/ repricing categories, as well as any actions, such as those previously described, which management may take to counter such changes. In light of the uncertainties and assumptions associated with the process, the amounts and changes in such amounts presented in the table are not considered significant to the Company’s past or projected net interest income.

         The Company engages in trading activities to meet the financial needs of customers and to profit from perceived market opportunities. Financial instruments utilized in trading activities have included 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 swap agreements. 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, however, as with any non-government guaranteed financial instrument, the Company is exposed to credit risk associated with counter parties to the Company’s trading activities.

         The notional amounts of interest rate contracts totaled $1.3 billion at September 30, 2002, $1.1 billion at September 30, 2001, and $1.4 billion at December 31, 2001. The notional amounts of foreign currency and other option and futures contracts were $260 million, $269 million and $242 million at September 30, 2002, September 30, 2001 and December 31, 2001, respectively. 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 $51 million and $36 million, respectively, at September 30, 2002, $42 million and $31 million, respectively, at September 30, 2001, and $39 million and $27 million, respectively, at December 31, 2001. 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.

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 in the third quarter of 2002 was $37 million, up from $28 million in both the third quarter of 2001 and the second quarter of 2002. Net loan charge-offs were $36 million in the recently completed quarter, compared with $24 million in the year-earlier period and $25 million in the second quarter of 2002. Net charge-offs as an annualized percentage of average loans and leases were .55% in the recent quarter, compared with .38% in the third quarter of 2001 and .39% in 2002’s second quarter. During 2002’s third quarter, the Company charged off the entire outstanding balances ($17 million) of two commercial leases to a major airline company that filed for bankruptcy protection in the quarter. For the nine month periods ended September 30, 2002 and 2001, the provision for credit losses was $89 million and $71 million, respectively. Net charge-offs through September 30 were $77 million in 2002 and $55 million in 2001, representing .40% and .30%, respectively, of average loans and leases. A summary of net charge-offs by loan type is presented in the accompanying table.

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NET CHARGE-OFFS (RECOVERIES)
BY LOAN/LEASE TYPE
In thousands

                                   
      2002        
     
       
                              Year-
      1st Qtr.   2nd Qtr.   3rd Qtr.   to-date
     
 
 
 
Commercial, financial, etc.
  $ 3,422       13,312       22,530       39,264  
Real estate:
                               
 
Commercial
    591       531       2,283       3,405  
 
Residential
    1,796       1,983       2,109       5,888  
Consumer
    10,170       8,808       9,133       28,111  
 
   
     
     
     
 
 
  $ 15,979       24,634       36,055       76,668  
 
   
     
     
     
 
                                   
      2001        
     
       
                              Year-
      1st Qtr.   2nd Qtr.   3rd Qtr.   to-date
     
 
 
 
Commercial, financial, etc.
  $ 2,135       6,004       14,025       22,164  
Real estate:
                               
 
Commercial
    4,066       132       43       4,241  
 
Residential
    1,505       1,874       1,513       4,892  
Consumer
    8,197       6,896       8,197       23,290  
 
   
     
     
     
 
 
  $ 15,903       14,906       23,778       54,587  
 
   
     
     
     
 

         Nonperforming loans, consisting of nonaccrual and restructured loans, aggregated $227 million or .86% of total loans and leases outstanding at September 30, 2002, compared with $197 million or .79% at September 30, 2001, $190 million or .76% at December 31, 2001, and $168 million or .66% at June 30, 2002. The higher level of nonperforming loans since June 30, 2002 was largely due to the inclusion of three commercial loans having aggregate outstanding balances of $53 million at the most recent quarter-end. Accruing loans past due 90 days or more were $148 million or .56% of total loans and leases at September 30, 2002, compared with $138 million or .55% a year earlier, $147 million or .58% at December 31, 2001 and $128 million or .50% at June 30, 2002. Such loans include one-to-four family residential mortgage loans serviced by the Company and repurchased from the Government National Mortgage Association (“GNMA”). The repurchased loans totaled $109 million at September 30, 2002, $104 million at September 30, 2001 and June 30, 2002, and $108 million at December 31, 2001. The outstanding principal balances of the repurchased loans are fully guaranteed by government agencies. The loans were repurchased to reduce servicing costs associated with them, including a requirement to advance principal and interest payments that had not been received from individual mortgagors. In general, the remaining portion of accruing loans past due 90 days or more were either also guaranteed by government agencies or well-secured by collateral.

         Commercial loans and leases classified as nonperforming aggregated $124 million at September 30, 2002, $88 million at September 30, 2001, $85 million at December 31, 2001 and $69 million at June 30, 2002. The higher levels of such nonperforming loans since June 30, 2002 were primarily due to the previously noted addition of three commercial loans to the nonperforming classification. Nonperforming commercial real estate loans were $42 million at September 30, 2002, $39 million at September 30, 2001 and December 31, 2001, and $38 million at June 30, 2002. Nonperforming residential real estate loans totaled $40 million at September 30, 2002 and December 31, 2001, $45 million at September 30, 2001 and $41 million at June 30, 2002. Residential real estate loans past due 90 days or more and accruing interest totaled $130 million at September 30, 2002, compared with $125 million at September 30, 2001, $135 million at December 31, 2001 and $120 million at June 30, 2002. As previously discussed, such loans include loans repurchased from GNMA that are fully guaranteed by government agencies. Nonperforming consumer loans and leases totaled $21 million at September 30, 2002, compared with $25 million at September 30, 2001, $26 million at December 31, 2001, and $20 million at June 30, 2002. As a percentage of consumer loan balances outstanding, nonperforming consumer loans and leases were .33% at September 30, 2002, .49% at September 30, 2001, .50% at December 31, 2001 and .32% at June 30, 2002. The decline in the percentage of consumer loans considered to be nonperforming in 2002 as compared with 2001 reflects the previously described recent growth of such portfolio.

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Accruing consumer loans and leases past due 90 days or more were $4 million at September 30, 2002, compared with $7 million a year earlier and $5 million at December 31, 2001 and June 30, 2002.

         Assets acquired in settlement of defaulted loans were $20 million at September 30, 2002, $12 million at September 30, 2001, $16 million at December 31, 2001 and $22 million at June 30, 2002.

         A comparative summary of nonperforming assets and certain past due loan data and credit quality ratios is presented in the accompanying table.

NONPERFORMING ASSET AND PAST DUE LOAN DATA
Dollars in thousands

                                               
          2002 Quarters   2001 Quarters
         
 
          Third   Second   First   Fourth   Third
         
 
 
 
 
Nonaccrual loans
  $ 218,617       159,468       173,197       180,344       187,851  
Renegotiated loans
    8,402       8,463       9,057       10,128       9,641  
         
 
 
 
 
Total nonperforming loans
    227,019       167,931       182,254       190,472       197,492  
Real estate and other assets owned
    20,458       22,198       21,594       16,387       11,755  
         
 
 
 
 
Total nonperforming assets
  $ 247,477       190,129       203,848       206,859       209,247  
 
   
     
     
     
     
 
Accruing loans past due 90 days or more*
  $ 147,867       128,127       148,038       146,899       137,501  
 
   
     
     
     
     
 
Government guaranteed loans included in totals above
                                       
   
Nonperforming loans
  $ 10,373       10,693       10,351       10,196       11,165  
   
Accruing loans past due 90 days or more
      114,432       109,189       115,097       113,600       110,369  
 
   
     
     
     
     
 
Nonperforming loans to total loans and leases, net of unearned discount
    .86 %     .66 %     .73 %     .76 %     .79 %
Nonperforming assets to total net loans and leases and real estate and other assets owned
    .94 %     .74 %     .81 %     .82 %     .84 %
Accruing loans past due 90 days or more to total loans and leases, net of unearned discount
    .56 %     .50 %     .59 %     .58 %     .55 %
 
   
     
     
     
     
 


*   Primarily residential mortgage loans and consumer loans.

         The Company maintains an allowance for credit losses that it believes is adequate to absorb losses inherent in the loan and lease portfolio as of each respective balance sheet date. Management regularly assesses the adequacy of the allowance by performing ongoing evaluations 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 collateral. Significant loans are individually analyzed, while other smaller balance loans are evaluated by loan category. Management cautiously evaluated the impact of interest rates and overall economic conditions on the ability of borrowers to meet repayment obligations when quantifying the Company’s exposure to credit losses and assessing the adequacy of the Company’s allowance for such losses at September 30, 2002. In addition to general economic conditions, factors considered by management when performing its assessment included, but were not limited to: (i) the concentration of commercial real estate loans in the Company’s loan

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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 and in central Pennsylvania that have historically experienced less economic growth than the vast majority of other regions of the country; and (iii) significant growth in loans to individual consumers, which historically have experienced higher net charge-offs as a percentage of loans outstanding than other loan types. The level of the allowance is adjusted based on the results of management’s analysis. Management believes that the allowance for credit losses at September 30, 2002 was adequate to absorb credit losses inherent in the portfolio as of that date. The allowance for credit losses was $437 million, or 1.66% of total loans and leases at September 30, 2002, compared with $413 million or 1.65% a year earlier, $425 million or 1.69% at December 31, 2001 and $436 million or 1.70% at June 30, 2002. The ratio of the allowance for credit losses to nonperforming loans was 193% at the most recent quarter-end, compared with 209% a year earlier, 223% at December 31, 2001 and 260% at June 30, 2002.

Other Income

Other income totaled $128 million in the third quarter of 2002, compared with $120 million in the corresponding quarter of 2001 and $121 million in the second quarter of 2002.

         Mortgage banking revenues totaled $30 million in the recent quarter, compared with $25 million in the third quarter of 2001 and $23 million in the second quarter of 2002. The low interest rate environment continued to produce a favorable climate for loan origination and refinancing activities. Residential mortgage loans originated for sale to other investors remained at historically high levels, totaling approximately $1.4 billion during the third quarter of 2002, compared with $1.2 billion in 2001’s third quarter and $1.1 billion in the second quarter of 2002. Realized gains from sales of residential mortgage loans and loan servicing rights and unrealized gains from recording residential mortgage loans held for sale, commitments to originate loans for sale and commitments to sell loans at fair market value aggregated $14 million in the third quarter of 2002, compared with $12 million in the year-earlier quarter and $8 million in the second quarter of 2002. Revenues from servicing residential mortgage loans for others were $13 million in the third and second quarters of 2002, compared with $11 million in the third quarter of 2001. Residential mortgage loans serviced for others were $12.3 billion at September 30, 2002, $11.6 billion a year earlier, $11.0 billion at December 31, 2001 and $12.0 billion at June 30, 2002. Capitalized servicing assets, net of applicable valuation allowances for possible impairment, totaled $109 million at September 30, 2002, compared with $106 million at September 30, 2001, $107 million at December 31, 2001 and $123 million at June 30, 2002. Residential mortgage loans held for sale were $1.0 billion at September 30, 2002 and December 31, 2001, $832 million at September 30, 2001 and $668 million at June 30, 2002. Commitments to sell loans and commitments to originate loans for sale at pre-determined rates were $1.6 billion and $1.2 billion, respectively, at September 30, 2002, $1.1 billion and $644 million, respectively, at September 30, 2001, $1.3 billion and $714 million, respectively, at December 31, 2001 and $923 million and $638 million, respectively, at June 30, 2002. Net unrealized gains on loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $16 million and $8 million at September 30, 2002 and 2001, respectively, $9 million at December 31, 2001 and $6 million at June 30, 2002.

         Service charges on deposit accounts rose to $43 million in the third quarter of 2002, 16% higher than $37 million in the year-earlier quarter and up 6% from $41 million in the second quarter of 2002. Higher transactional deposit account balances, which generate higher levels of service charges than non-transactional accounts, contributed to the higher service charge income in the two most recent quarters as compared with the third quarter of 2001. Trust income totaled $14 million in the recent quarter, $16 million in last year’s third quarter and $15 million in this year’s second quarter. Brokerage services income, which includes revenues from the sale of mutual

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funds and annuities and securities brokerage fees, totaled $11 million in the third quarter of 2002, compared with $9 million in the year-earlier quarter and $12 million in the second quarter of 2002. Trading account and foreign exchange activity resulted in gains of $287 thousand during the third quarter of 2002, $223 thousand in 2001’s third quarter and $386 thousand in the second quarter of 2002. Other revenues from operations were $30 million in the third quarter of 2002, compared with $33 million in the year-earlier period and $29 million in 2002’s second quarter. Included in other revenues from operations is tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received. Such income totaled $8 million in the quarters ended September 30, 2002 and June 30, 2002, and $9 million during the quarter ended September 30, 2001.

         Other income totaled $374 million in the first nine months of 2002, up 7% from $350 million in the corresponding 2001 period. For the first nine months of 2002, mortgage banking revenues totaled $82 million, up 8% from $75 million during the year-earlier period. Realized gains from sales of residential mortgage loans and loan servicing rights and unrealized gains from recording residential mortgage loans held for sale, commitments to originate loans for sale and commitments to sell loans at fair market value aggregated $36 million and $37 million during the nine-month periods ended September 30, 2002 and 2001, respectively. Revenues from servicing residential mortgage loans for others were $39 million and $32 million for the first nine months of 2002 and 2001, respectively. The higher servicing fees in 2002 were largely the result of residential mortgage loan servicing rights purchased during the second half of 2001 and in March 2002. Reflecting higher transactional deposit account balances, service charges on deposit accounts rose 17% to $123 million through the first three quarters of 2002 from $106 million in the comparable 2001 period. Reflecting general declines in the stock market, trust income totaled $46 million in the first nine months of 2002, down from $48 million in the corresponding 2001 period. Brokerage services income increased 18% to $34 million during the nine-month period ended September 30, 2002 from $29 million in the similar 2001 period, largely due to higher revenues earned from sales of annuity products. Trading account and foreign exchange activity resulted in gains of $2 million and $3 million for the nine-month periods ended September 30, 2002 and 2001, respectively. Other revenues from operations were $88 million in the first nine months of 2002, compared with $87 million in the comparable 2001 period. Higher commissions from sales of insurance products resulted in the increase.

Other Expense

Operating expenses, which exclude nonrecurring merger-related expenses as well as amortization of goodwill and core deposit and other intangible assets, aggregated $221 million in the third quarter of 2002, compared with $205 million in the third quarter of 2001 and $210 million in the second quarter of 2002. Components of other expense considered to be nonoperating in nature and therefore excluded from the operating expense totals noted above were amortization of core deposit and other intangible assets of $13 million in the third and second quarters of 2002 and $15 million in the third 2001 quarter, and amortization of goodwill of $16 million in the third quarter of 2001. On the same basis and also exclusive of merger-related expenses, through the first nine months of 2002, operating expenses increased to $641 million from $604 million in the comparable 2001 period. Amortization of core deposit and other intangible assets totaled $40 million during the first nine months of 2002, down from $46 million in the corresponding 2001 period. Amortization of goodwill was $46 million during the first nine months of 2001, while merger-related expenses were $8 million in that same period. There were no merger-related expenses during the nine-month period ended September 30, 2002.

         Salaries and employee benefits expense totaled $113 million in the third quarter of 2002, compared with $109 million in the year-earlier quarter and $116 million in the second quarter of 2002. Merit salary increases and higher incentive compensation costs contributed to the third quarter year-over-year increase, while lower employee benefit costs resulted in the decrease from the

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second quarter of 2002. For the first nine months of 2002, salaries and employee benefits expense increased to $342 million from $325 million in the corresponding 2001 period, largely the result of merit salary increases and higher commissions and incentive compensation costs.

         Excluding the nonoperating expense items previously noted, nonpersonnel expense totaled $108 million in the third quarter of 2002, compared with $96 million in the third quarter of 2001 and $94 million in the second quarter of 2002. On the same basis, such expenses were $298 million during the first nine months of 2002, compared with $280 million during the corresponding 2001 period. The most significant factor contributing to the rise in such expenses were provisions for impairment of capitalized residential mortgage servicing rights. Reflecting declines in mortgage interest rates during the third and second quarters of 2002 and the resulting expected impact on customer prepayments of outstanding mortgage loans, the Company recorded provisions of $16 million and $3 million in those respective periods for impairment of certain strata of residential mortgage loan servicing rights. A similar provision of $2 million was recognized during the third quarter and first nine months of 2001. Higher amortization of residential mortgage servicing rights also contributed to the higher expense levels in 2002. Such amortization was $10 million during the third and second quarters of 2002, $8 million in the third quarter of 2001, and $29 million and $23 million during the first nine months of 2002 and 2001, respectively.

         The Company’s efficiency ratio, or noninterest operating expenses divided by the sum of taxable-equivalent net interest income and other income, measures how much of a company’s revenue is consumed by operating expenses. The Company’s efficiency ratio, calculated using the operating expense totals noted above and excluding gains (losses) from sales of bank investment securities from other income, was 49.3% during the recent quarter, compared with 49.0% during the third quarter of 2001 and 48.4% in 2002’s second quarter. The efficiency ratios for the nine-month periods ended September 30, 2002 and 2001 were 48.9% and 49.7%, respectively.

Capital

Stockholders’ equity at September 30, 2002 was $3.1 billion or 8.96% of total assets, compared with $3.0 billion or 9.49% of total assets a year earlier, and $2.9 billion or 9.35% at December 31, 2001. On a per share basis, stockholders’ equity was $33.25 at September 30, 2002, up from $31.19 and $31.33 at September 30 and December 31, 2001, respectively. Tangible equity per share, which excludes goodwill and core deposit and other intangible assets (and applicable deferred tax balances), was $20.36 at September 30, 2002, compared with $17.85 a year earlier and $18.34 at December 31, 2001.

         To complete the acquisition of Premier on February 9, 2001, M&T issued 2,440,812 shares of common stock to former holders of Premier common stock and assumed employee stock options to purchase 224,734 shares of M&T common stock, resulting in an addition to stockholders’ equity of $176 million. In November 2001, M&T announced that it had been authorized by its Board of Directors to purchase up to 5,000,000 shares of its common stock. During the third quarter and first nine months of 2002, M&T repurchased 408,000 shares and 3,007,585 shares, respectively, of common stock pursuant to such plan at an average cost per share of $77.40 and $79.90, respectively. From the announcement date of the plan through September 30, 2002, M&T had repurchased a total of 3,632,098 shares of common stock at an average cost of $78.49 per share. M&T discontinued purchases of its common stock during the third quarter of 2002, determining instead that going forward it would use the Company’s internal generation of capital to support the pending acquisition of Allfirst.

         Included in stockholders’ equity at September 30, 2002 and 2001 was accumulated other comprehensive income, which reflected gains of $43 million, or $.46 per common share, representing the net after-tax impact of unrealized gains on investment securities classified as available for sale, compared with unrealized gains of $23 million, or $.25 per share, at December 31, 2001. Such unrealized gains are generally due to changes in interest rates

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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. Accumulated other comprehensive income also reflects unrealized losses of $.7 million at September 30, 2002 and $.3 million at December 31, 2001, representing the after-tax estimated fair values of interest rate swap agreements designated as cash flow hedges.

         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 described in note 5 of Notes to Financial Statements. As of September 30, 2002, total capital also included $539 million of the $675 million of subordinated notes issued by M&T Bank in prior years.

         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 an annualized percentage of regulatory “core capital” at the beginning of each period, was 20.12% during the third quarter of 2002, compared with 20.31% in the corresponding quarter of 2001 and 21.53% in the second quarter of 2002.

         The regulatory capital ratios of the Company, Olympia Financial Corporation (“Olympia”), a wholly owned, second-tier bank holding company subsidiary of M&T, M&T Bank and M&T Bank, N.A., as of September 30, 2002 are presented in the accompanying table.

         REGULATORY CAPITAL RATIOS
         September 30, 2002

                                 
    M&T           M&T   M&T
    (Consolidated)   Olympia   Bank   Bank, N.A.
   
 
 
 
Core capital
    7.31 %     6.74 %     6.96 %     17.82 %
Total capital
    10.44 %     9.90 %     10.12 %     18.77 %
Leverage
    6.87 %     6.35 %     6.56 %     10.79 %

Segment Information

In accordance with 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. Financial information about the Company’s segments is presented in note 6 of Notes to Financial Statements.

         In the third quarter of 2002, the Commercial Banking segment recorded net income of $27 million, up from $24 million in both the second quarter of 2002 and the third quarter of 2001. The major factors contributing to the higher net income in 2002’s third quarter was a lower provision for credit losses offset, in part, by a decrease in net interest income, due to a narrowing of the net interest margin. Net income for this segment for each of the nine-month periods ended September 30, 2002 and 2001 was $81 million. A decrease in net interest income of $10 million in the 2002 period, due to a 25 basis point narrowing of the net interest margin, was largely offset by a $8 million decrease in the provision for credit losses when compared with the similar 2001 period.

         The Commercial Real Estate segment’s earnings were $22 million in the recent quarter, down from $23 million in the year-earlier period and $24 million in the second quarter of 2002. The decreases from the prior quarters were largely the result of higher provisions for credit losses and lower fees for providing origination services to other parties. During the nine-month period ended September 30, 2002, this segment’s net income increased to $69

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million from $65 million in the corresponding 2001 period. The improvement in net income in the first nine months of 2002 was attributable to a $7 million increase in net interest income, the result of a 5% increase in average loan balances outstanding and a 10 basis point widening of the net interest margin on outstanding loan balances.

         Net income contributed by the Discretionary Portfolio segment in the third quarter of 2002 of $13 million was unchanged from the year-earlier quarter and the second quarter of 2002. Higher net interest income, the result of an improved net interest margin, was largely offset by a $2 million provision for impairment of capitalized residential mortgage loan servicing rights attributable to securitized residential mortgage loans held by this segment. Net income for the nine months ended September 30, 2002 and 2001 was $41 million and $38 million, respectively. The increase in net income from the prior year was due, in part, to increased net interest income of $7 million, largely the result of a 4 basis point rise in the segment’s net interest margin.

         The Residential Mortgage Banking segment’s earnings of $7 million in the recent quarter were $1 million below the previous quarter and $3 million lower than the corresponding quarter of 2001. The decrease in net income in the recent quarter compared with the similar 2001 period was largely attributable to a $12 million increase in the provision for impairment of capitalized residential mortgage loan servicing rights offset, in part, by higher net interest income, due to an increase in loan net interest margin, and higher servicing revenues, largely the result of servicing rights purchased in the second half of 2001 and in March of 2002. Further offsetting the higher impairment provision was an increase in income from loan origination and sales activities. When compared with the second quarter of 2002, higher income from loan origination and sales activities and higher net interest income, caused by an increase in loan balances, partially offset an $11 million increase in the impairment provision. Net income for the first nine months of 2002 and 2001 was $28 million and $29 million, respectively. The servicing rights impairment provision of $17 million in 2002 and $2 million in 2001, along with higher commissions, salaries and other operating expenses in 2002, were largely offset by increases in net interest income, the result of higher loan net interest margin and balances outstanding, and in servicing revenues.

         The Retail Banking segment contributed net income of $43 million in the third quarter of 2002, unchanged from the immediately preceding quarter, but down from $51 million a year earlier. Lower net interest income of $8 million, the result of a lower deposit net interest margin of 41 basis points, and higher costs related to the automobile lending and leasing business, contributed to the decrease in net income from the third quarter of 2001. For the nine months ended September 30, 2002, earnings for the Retail Banking segment totaled $126 million, down from $156 million in the corresponding 2001 period. A reduction in net interest income of $39 million, the result of a lower deposit net interest margin of 45 basis points, was the leading factor for the year-over-year decrease in net income.

         The “All Other” category consists largely of other activities of the Company that are not directly attributable to the reported segments as determined in accordance with SFAS No. 131, amortization of goodwill (prior to 2002) and core deposit and other intangible assets, nonrecurring merger-related expenses resulting from acquisitions, and the net impact of the Company’s allocation methodologies for internal funds transfer pricing and the provision for credit losses. This category also includes the previously described loss of $17 million during the recent quarter related to two commercial leases to a major airline company that filed for bankruptcy protection. The “All Other” category contributed net income of $5 million in the third quarter of 2002, compared with a net loss of $23 million in the third quarter of 2001 and net income of $10 million in the second quarter of 2002. Net income for this segment was $14 million during the first nine months in 2002, compared with a $93 million loss during the similar 2001 period. The improvement from the comparative periods in 2001 was predominantly the net result of the Company’s allocation methodologies for

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internal funds transfer pricing and the provision for credit losses, and the cessation of amortization of goodwill resulting from the January 1, 2002 adoption of SFAS No. 142, offset, in part, by the lease charge-offs. The decrease in this segment’s third quarter 2002 net income when compared with the second quarter of 2002 was largely the result of the lease charge-offs.

Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The provisions of SFAS No. 143 are not expected to have a material impact on the Company’s consolidated financial statements.

         In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and the provisions for the disposal of a segment of a business in Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. For long-lived assets to be held and used, SFAS No. 144 requires recognition of an impairment loss if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows and exceeds its fair value. The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no effect on the Company’s consolidated financial statements in 2002.

         In June 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 addresses a number of different issues and is effective at various dates in 2002 and 2003, with earlier application encouraged. The provisions of SFAS No. 145 are not expected to have a material impact on the Company’s consolidated financial statements.

         In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Fair value is the objective for initial measurement of the liability related to exit or disposal activities. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not believe that adopting SFAS No. 146 will have a material impact on the Company’s consolidated financial position, but could affect the timing of when certain costs associated with exit or disposal activities are recognized.

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         In October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions.” SFAS No. 147 amends SFAS No. 72, SFAS No.144 and FASB Interpretation No. 9 and clarifies that acquisitions of all or part of financial institutions, including branch acquisitions that meet the definition of a business combination, should be accounted for in accordance with SFAS No. 141, “Business Combinations” and SFAS No. 142. If the acquisition is not a business combination because the transferred net assets and activities do not constitute a business, that transaction shall be accounted for as an acquisition of net assets that does not result in the recognition of non-amortizing goodwill, in accordance with paragraphs 4-8 of SFAS No. 141. The provisions of SFAS No. 147 relating to the application of the purchase method of accounting are effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer relationship intangible assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted. The adoption of SFAS No. 147 will not have a material impact on the Company’s consolidated financial statements.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly 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 /or M&T and its subsidiaries 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

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES

                                                                             
        2002 Third quarter   2002 Second quarter   2002 First quarter
       
 
 
        Average           Average   Average           Average   Average           Average
Average balance in millions; interest in thousands   balance   Interest   rate   balance   Interest   rate   balance   Interest   rate

 
 
 
 
 
 
 
 
 
Assets
                                                                       
Earning assets
                                                                       
Loans and leases, net of unearned discount*
                                                                       
 
Commercial, financial, etc.
  $ 5,181     $ 66,239       5.07 %     5,070       66,255       5.24 %     5,059       65,183       5.23 %
 
Real estate — commercial
    9,536       164,406       6.90       9,432       167,227       7.09       9,371       166,685       7.11  
 
Real estate — consumer
    4,880       88,197       7.23       4,901       89,701       7.32       5,240       96,092       7.33  
 
Consumer
    6,231       103,926       6.62       5,811       98,195       6.78       5,439       93,130       6.94  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total loans and leases, net
    25,828       422,768       6.49       25,214       421,378       6.70       25,109       421,090       6.80  
 
 
   
     
     
     
     
     
     
     
     
 
Money-market assets
                                                                       
 
Interest-bearing deposits at banks
    6       21       1.43       5       22       1.63       5       18       1.61  
 
Federal funds sold and agreements to resell securities
    103       458       1.77       255       1,119       1.76       245       1,070       1.77  
 
Trading account
    12       51       1.68       13       57       1.79       12       72       2.30  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total money-market assets
    121       530       1.74       273       1,198       1.76       262       1,160       1.80  
 
 
   
     
     
     
     
     
     
     
     
 
Investment securities**
                                                                       
 
U.S. Treasury and federal agencies
    1,327       21,461       6.42       1,319       20,933       6.36       1,360       21,125       6.30  
 
Obligations of states and political subdivisions
    278       4,332       6.24       289       4,754       6.58       296       4,717       6.37  
 
Other
    1,337       15,710       4.66       1,280       16,783       5.26       1,254       16,694       5.40  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total investment securities
    2,942       41,503       5.60       2,888       42,470       5.90       2,910       42,536       5.93  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total earning assets
    28,891       464,801       6.38       28,375       465,046       6.57       28,281       464,786       6.67  
 
 
   
     
     
     
     
     
     
     
     
 
Allowance for credit losses
    (440 )                     (439 )                     (433 )                
Cash and due from banks
    738                       709                       724                  
Other assets
    2,696                       2,682                       2,698                  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total assets
  $ 31,885                       31,327                       31,270                  
 
 
   
     
     
     
     
     
     
     
     
 
Liabilities and stockholders’ equity
                                                                       
Interest-bearing liabilities
                                                                       
Interest-bearing deposits
                                                                       
 
NOW accounts
  $ 753       1,024       .54       757       1,055       .56       738       919       .51  
 
Savings deposits
    8,950       27,797       1.23       8,822       26,973       1.23       8,459       26,973       1.29  
 
Time deposits
    7,154       54,168       3.00       7,642       63,722       3.34       8,141       72,898       3.63  
 
Deposits at foreign office
    458       1,793       1.55       404       1,516       1.51       479       1,791       1.52  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total interest-bearing deposits
    17,315       84,782       1.94       17,625       93,266       2.12       17,817       102,581       2.33  
 
 
   
     
     
     
     
     
     
     
     
 
Short-term borrowings
    3,199       14,197       1.76       2,677       11,825       1.77       2,963       12,883       1.76  
Long-term borrowings
    4,306       47,101       4.34       4,121       46,858       4.56       3,725       44,663       4.86  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total interest-bearing liabilities
    24,820       146,080       2.34       24,423       151,949       2.50       24,505       160,127       2.65  
 
 
   
     
     
     
     
     
     
     
     
 
Noninterest-bearing deposits
    3,676                       3,585                       3,455                  
Other liabilities
    382                       363                       370                  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total liabilities
    28,878                       28,371                       28,330                  
 
 
   
     
     
     
     
     
     
     
     
 
Stockholders’ equity
    3,007                       2,956                       2,940                  
 
 
   
     
     
     
     
     
     
     
     
 
   
Total liabilities and stockholders’ equity
  $ 31,885                       31,327                       31,270                  
 
 
   
     
     
     
     
     
     
     
     
 
Net interest spread
                    4.04                       4.07                       4.02  
Contribution of interest-free funds
                    .34                       .36                       .35  
 
 
   
     
     
     
     
     
     
     
     
 
Net interest income/margin on earning assets
          $ 318,721       4.38 %             313,097       4.43 %             304,659       4.37 %
 
 
   
     
     
     
     
     
     
     
     
 


*   Includes nonaccrual loans.
**   Includes available for sale securities at amortized cost.                                                                                                                     (continued)

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M&T BANK CORPORATION AND SUBSIDIARIES

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)

                                                     
        2001 Fourth quarter   2001 Third quarter
       
 
        Average           Average   Average           Average
Average balance in millions; interest in thousands   balance   Interest   rate   balance   Interest   rate

 
 
 
 
 
 
Assets
                                               
Earning assets
                                               
Loans and leases, net of unearned discount*
                                               
 
Commercial, financial, etc.
  $ 5,181     $ 74,088       5.67 %     5,340       90,615       6.73 %
 
Real estate — commercial
    9,401       173,920       7.40       9,322       183,790       7.89  
 
Real estate — consumer
    5,317       101,077       7.60       5,336       103,709       7.77  
 
Consumer
    5,117       97,708       7.58       4,833       95,543       7.84  
 
 
   
     
     
     
     
     
 
   
Total loans and leases, net
    25,016       446,793       7.09       24,831       473,657       7.57  
 
 
   
     
     
     
     
     
 
Money-market assets
                                               
 
Interest-bearing deposits at banks
    4       21       1.93       4       29       2.96  
 
Federal funds sold and agreements to resell securities
    162       909       2.23       17       167       3.88  
 
Trading account
    13       97       3.13       13       105       3.17  
 
 
   
     
     
     
     
     
 
   
Total money-market assets
    179       1,027       2.28       34       301       3.49  
 
 
   
     
     
     
     
     
 
Investment securities**
                                               
 
U.S. Treasury and federal agencies
    1,480       24,223       6.49       1,624       26,703       6.52  
 
Obligations of states and political subdivisions
    299       5,307       7.09       319       5,597       7.01  
 
Other
    1,250       18,433       5.85       1,291       19,968       6.14  
 
 
   
     
     
     
     
     
 
   
Total investment securities
    3,029       47,963       6.28       3,234       52,268       6.41  
 
 
   
     
     
     
     
     
 
   
Total earning assets
    28,224       495,783       6.97       28,099       526,226       7.43  
 
 
   
     
     
     
     
     
 
Allowance for credit losses
    (421 )                     (416 )                
Cash and due from banks
    734                       720                  
Other assets
    2,739                       2,716                  
 
 
   
     
     
     
     
     
 
   
Total assets
  $ 31,276                       31,119                  
 
 
   
     
     
     
     
     
 
Liabilities and stockholders’ equity
                                               
Interest-bearing liabilities
                                               
Interest-bearing deposits
                                               
 
NOW accounts
  $ 753       1,261       .66       708       1,896       1.06  
 
Savings deposits
    8,009       29,258       1.45       7,444       32,515       1.73  
 
Time deposits
    8,307       88,046       4.21       8,506       104,985       4.90  
 
Deposits at foreign office
    363       1,717       1.89       378       3,115       3.27  
 
 
   
     
     
     
     
     
 
   
Total interest-bearing deposits
    17,432       120,282       2.74       17,036       142,511       3.32  
 
 
   
     
     
     
     
     
 
Short-term borrowings
    3,488       19,207       2.18       3,621       32,808       3.59  
Long-term borrowings
    3,533       47,360       5.32       3,689       52,355       5.63  
 
 
   
     
     
     
     
     
 
   
Total interest-bearing liabilities
    24,453       186,849       3.03       24,346       227,674       3.71  
 
 
   
     
     
     
     
     
 
Noninterest-bearing deposits
    3,466                       3,384                  
Other liabilities
    410                       386                  
 
 
   
     
     
     
     
     
 
   
Total liabilities
    28,329                       28,116                  
 
 
   
     
     
     
     
     
 
Stockholders’ equity
    2,947                       3,003                  
 
 
   
     
     
     
     
     
 
   
Total liabilities and stockholders’ equity
  $ 31,276                       31,119                  
 
 
   
     
     
     
     
     
 
Net interest spread
                    3.94                       3.72  
Contribution of interest-free funds
                    .40                       .50  
 
 
   
     
     
     
     
     
 
Net interest income/margin on earning assets
          $ 308,934       4.34 %             298,552       4.22 %
 
 
   
     
     
     
     
     
 


*   Includes nonaccrual loans.
**   Includes available for sale securities at amortized cost.

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M&T BANK CORPORATION AND SUBSIDIARIES

QUARTERLY TRENDS

                                                           
      2002 Quarters   2001 Quarters
     
 
      Third   Second   First   Fourth   Third   Second   First
     
 
 
 
 
 
 
Earnings and dividends
                                                       
Amounts in thousands, except per share
                                                       
Interest income (taxable-equivalent basis)
  $ 464,801       465,046       464,786       495,783       526,226       544,424       552,965  
Interest expense
    146,080       151,949       160,127       186,849       227,674       252,477       276,597  
 
   
     
     
     
     
     
     
 
Net interest income
    318,721       313,097       304,659       308,934       298,552       291,947       276,368  
Less: provision for credit losses
    37,000       28,000       24,000       33,000       28,000       24,000       18,500  
Other income
    128,346       121,179       124,228       127,696       120,167       117,836       111,727  
Less: other expense
    233,826       223,216       223,233       244,311       236,194       233,012       234,801  
 
   
     
     
     
     
     
     
 
Income before income taxes
    176,241       183,060       181,654       159,319       154,525       152,771       134,794  
Applicable income taxes
    55,496       57,945       57,491       53,515       52,401       53,164       46,741  
Taxable-equivalent adjustment
    3,530       3,621       3,599       4,070       4,257       4,799       4,387  
 
   
     
     
     
     
     
     
 
Net income
  $ 117,215       121,494       120,564       101,734       97,867       94,808       83,666  
 
   
     
     
     
     
     
     
 
Per common share data
                                                       
 
Basic earnings
  $ 1.27       1.31       1.29       1.08       1.02       .98       .88  
 
Diluted earnings
    1.23       1.26       1.25       1.05       .98       .94       .85  
 
Cash dividends
  $ .25       .25       .25       .25       .25       .25       .25  
Average common shares outstanding
                                                       
 
Basic
    92,017       92,608       93,265       94,269       96,115       97,125       95,427  
 
Diluted
    95,036       96,188       96,494       97,179       99,597       100,722       98,605  
 
   
     
     
     
     
     
     
 
Performance ratios, annualized
                                                       
Return on
                                                       
 
Average assets
    1.46 %     1.56 %     1.56 %     1.29 %     1.25 %     1.23 %     1.14 %
 
Average common stockholders’ equity
    15.47 %     16.49 %     16.63 %     13.70 %     12.93 %     12.61 %     11.84 %
Net interest margin on average earning assets (taxable-equivalent basis)
    4.38 %     4.43 %     4.37 %     4.34 %     4.22 %     4.18 %     4.16 %
Nonperforming loans to total loans and leases, net of unearned discounts
    .86 %     .66 %     .73 %     .76 %     .79 %     .65 %     .67 %
Efficiency ratio (a)
    52.23 %     51.38 %     52.07 %     55.95 %     56.44 %     57.08 %     58.45 %
 
   
     
     
     
     
     
     
 
Cash (tangible) operating results (b)
                                                       
Net income (in thousands)
  $ 125,171       130,027       129,357       126,451       123,523       119,899       112,391  
Diluted net income per common share
    1.32       1.35       1.34       1.30       1.24       1.19       1.14  
Annualized return on
                                                       
 
Average tangible assets
    1.62 %     1.73 %     1.75 %     1.67 %     1.64 %     1.62 %     1.59 %
 
Average tangible common stockholders’ equity
    27.34 %     29.69 %     30.38 %     29.43 %     28.39 %     27.99 %     27.93 %
Efficiency ratio (a)
    49.32 %     48.35 %     48.91 %     49.16 %     49.03 %     49.45 %     50.77 %
 
   
     
     
     
     
     
     
 
Balance sheet data
                                                       
In millions, except per share
                                                       
Average balances
                                                       
 
Total assets
  $ 31,885       31,327       31,270       31,276       31,119       31,017       29,878  
 
Earning assets
    28,891       28,375       28,281       28,224       28,099       27,933       26,937  
 
Investment securities
    2,942       2,888       2,910       3,029       3,234       3,502       3,470  
 
Loans and leases, net of unearned discount
    25,828       25,214       25,109       25,016       24,831       24,460       23,392  
 
Deposits
    20,991       21,210       21,272       20,897       20,420       20,590       20,734  
 
Stockholders’ equity
    3,007       2,956       2,940       2,947       3,003       3,015       2,866  
 
   
     
     
     
     
     
     
 
At end of quarter
                                                       
 
Total assets
  $ 34,148       31,686       31,296       31,450       31,139       31,202       30,925  
 
Earning assets
    30,749       28,627       28,337       28,270       28,118       28,200       27,895  
 
Investment securities
    4,181       2,961       2,861       3,024       3,153       3,377       3,705  
 
Loans and leases, net of unearned discount
    26,309       25,604       25,138       25,188       24,946       24,774       24,168  
 
Deposits
    22,540       21,858       21,624       21,580       20,522       20,041       20,978  
 
Stockholders’ equity
    3,059       2,977       2,947       2,939       2,956       2,987       2,992  
 
Equity per common share
    33.25       32.29       31.67       31.33       31.19       31.00       30.84  
 
Tangible equity per common share
    20.36       19.34       18.68       18.34       17.85       17.68       17.33  
 
   
     
     
     
     
     
     
 
Market price per common share
                                                       
 
High
  $ 86.50       90.05       82.24       74.50       82.11       79.00       69.99  
 
Low
    72.26       79.80       71.19       65.08       63.70       66.55       59.80  
 
Closing
    78.81       85.76       80.37       72.85       74.00       75.50       69.90  
 
   
     
     
     
     
     
     
 


(a)   Excludes impact of nonrecurring merger-related expenses and net securities transactions.
(b)   Excludes amortization and balances related to goodwill and core deposit intangible and nonrecurring merger-related expenses which, except in the calculation of the efficiency ratio, are net of applicable income tax effects.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

         Incorporated by reference to the discussion contained under the caption “Taxable-equivalent Net Interest Income” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures.

         (a)  Evaluation of disclosure controls and procedures. Based upon their evaluation of the effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules 13a-14(c) and 15d-14(c)), Robert G. Wilmers, Chairman of the Board, President and Chief Executive Officer, and Michael P. Pinto, Executive Vice President and Chief Financial Officer, believe that M&T’s disclosure controls and procedures were effective as of September 30, 2002.

         (b)  Changes in internal controls. There were no significant changes in M&T’s internal controls or in other factors that could significantly affect these controls subsequent to September 30, 2002 through the date of this Quarterly Report on Form 10-Q, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

         M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability, if any, arising out of litigation pending against M&T or its subsidiaries will be material to M&T’s consolidated financial position, but at the present time is not in a position to determine whether such litigation will have a material adverse effect on M&T’s consolidated results of operations in any future reporting period.

Item 2. Changes in Securities and Use of Proceeds.

         (Not applicable.)

Item 3. Defaults Upon Senior Securities.

         (Not applicable.)

Item 4. Submission of Matters to a Vote of Security Holders.

         (None)

Item 5. Other Information.

         See Note 7 of Notes to Financial Statements for a discussion of M&T’s pending merger with Allfirst.

Item 6. Exhibits and Reports on Form 8-K.

         (a)  The following exhibits are filed as a part of this report.

     
Exhibit    
No.    

   
10.28   M&T Bank Corporation Employee Stock Purchase Plan.
99.1   Certification of Chief Executive Officer Under 18 U.S.C. §1350.
99.2   Certification of Chief Financial Officer Under 18 U.S.C. §1350.

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         (b)  Reports on Form 8-K. The following Current Reports on Form 8-K were filed with the Securities and Exchange Commission during the quarterly period ended September 30, 2002:

         On August 2, 2002, M&T filed a Current Report on Form 8-K dated August 2, 2002 to disclose that Robert G. Wilmers, Chairman of the Board, President and Chief Executive Officer of M&T, and Michael P. Pinto, Executive Vice President and Chief Financial Officer of M&T, had filed their sworn written statements as required by the Order issued by the Securities and Exchange Commission on June 27, 2002 (“Order Requiring the Filing of Sworn Statements pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934”).

         On September 20, 2002, M&T filed a Current Report on Form 8-K dated September 19, 2002 to disclose that beginning January 2003, M&T would recognize stock-based compensation expense in accordance with the fair value-based method of accounting described in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

         
        M&T BANK CORPORATION
         
Date: November 14, 2002   By:   /s/ Michael P. Pinto
       
        Michael P. Pinto
Executive Vice President and Chief
Financial Officer

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CERTIFICATIONS

I, Robert G. Wilmers, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of M&T Bank Corporation;
 
2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

  a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
  c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.   The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

       
By:   /s/ Robert G. Wilmers
Robert G. Wilmers
Chairman of the Board, President
and Chief Executive Officer
 

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CERTIFICATIONS

I, Michael P. Pinto, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of M&T Bank Corporation;
 
2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

  a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
  c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.   The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

       
By:   /s/ Michael P. Pinto
Michael P. Pinto
Executive Vice President
and Chief Financial Officer
 

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EXHIBIT INDEX

     
Exhibit    
No.    

   
10.28   M&T Bank Corporation Employee Stock Purchase Plan. Filed herewith.
99.1   Certification of Chief Executive Officer Under 18 U.S.C. §1350. Filed herewith.
99.2   Certification of Chief Financial Officer Under 18 U.S.C. §1350. Filed herewith.

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