M&T BANK CORP - 10-Q Quarterly Report

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

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

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 x No ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ___

Number of shares of the registrant’s Common Stock, $.50 par value, outstanding as of the close of business on October 31, 2003: 120,031,944 shares.


Table of Contents of Information Required in Report			Page

Part I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEET - September 30, 2003 and December 31, 2002		3
		CONSOLIDATED STATEMENT OF INCOME - Three and nine months ended September 30, 2003 and 2002		4
		CONSOLIDATED STATEMENT OF CASH FLOWS - Nine months ended September 30, 2003 and 2002		5
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY — Nine months ended September 30, 2003 and 2002		6
		CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES — Nine months ended September 30, 2003 and 2002		6
		NOTES TO FINANCIAL STATEMENTS		7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			50
	Item 4. Controls and Procedures			50
Part II. OTHER INFORMATION				50
	Item 1. Legal Proceedings			50
	Item 2. Changes in Securities and Use of Proceeds			50
	Item 3. Defaults Upon Senior Securities			50
	Item 4. Submission of Matters to a Vote of Security Holders			50
	Item 5. Other Information			50
	Item 6. Exhibits and Reports on Form 8-K			51
SIGNATURES				52
EXHIBIT INDEX				53


				September 30,			December 31,
Dollars in thousands, except per share				2003			2002

Assets	Cash and due from banks			$	2,242,825			963,772
	Money-market assets
		Interest-bearing deposits at banks			14,616			7,856
		Federal funds sold and agreements to resell securities			38,145			320,359
		Trading account			253,799			51,628

			Total money-market assets		306,560			379,843

	Investment securities
		Available for sale (cost: $5,459,052 at September 30, 2003; $3,508,300 at December 31, 2002)			5,525,909			3,599,135
		Held to maturity (market value: $110,090 at September 30, 2003; $87,893 at December 31, 2002)			107,014			86,397
		Other (market value: $324,483 at September 30, 2003; $269,618 at December 31, 2002)			324,483			269,618

			Total investment securities		5,957,406			3,955,150

	Loans and leases				37,438,815			25,936,942
		Unearned discount			(279,236	)		(209,158	)
		Allowance for credit losses			(621,417	)		(436,472	)

			Loans and leases, net		36,538,162			25,291,312

	Premises and equipment				407,929			238,986
	Goodwill				2,904,081			1,097,553
	Core deposit and other intangible assets				261,548			118,790
	Accrued interest and other assets				1,640,328			1,155,775

			Total assets	$	50,258,839			33,201,181

Liabilities	Noninterest-bearing deposits			$	8,120,990			4,072,085
	NOW accounts				1,568,902			1,029,060
	Savings deposits				13,970,918			9,156,678
	Time deposits				6,423,474			6,246,384
	Deposits at foreign offices				2,330,071			1,160,716

			Total deposits		32,414,355			21,664,923

	Federal funds purchased and agreements to repurchase securities				4,301,977			2,067,834
	Other short-term borrowings				601,272			1,361,580
	Accrued interest and other liabilities				1,169,951			400,991
	Long-term borrowings				6,199,392			4,497,374

			Total liabilities		44,686,947			29,992,702

Stockholders’ equity	Preferred stock, $1 par, 1,000,000 shares authorized, none outstanding				—			—
	Common stock, $.50 par, 250,000,000 shares authorized, 119,733,115 shares issued at September 30, 2003; 97,139,347 shares issued at December 31, 2002				59,867			48,570
	Common stock issuable, 124,239 shares at September 30, 2003; 126,670 shares at December 31, 2002				6,306			6,190
	Additional paid-in capital				2,859,699			1,192,998
	Retained earnings				2,605,372			2,297,848
	Accumulated other comprehensive income, net				40,648			54,772
	Treasury stock — common, at cost — none at September 30, 2003; 5,110,736 shares at December 31, 2002				—			(391,899	)

			Total stockholders’ equity		5,571,892			3,208,479

			Total liabilities and stockholders’ equity	$	50,258,839			33,201,181


				Three months ended					Nine months ended
				September 30					September 30
In thousands, except per share				2003		2002			2003		2002

Interest income	Loans and leases, including fees			$	503,902		421,427		$	1,407,663		1,261,573
	Money-market assets
			Deposits at banks		77		21			132		61
			Federal funds sold and agreements to resell securities		25		458			1,815		2,647
			Trading account		182		43			430		149
	Investment securities
			Fully taxable		56,252		34,822			154,283		104,762
			Exempt from federal taxes		3,699		4,500			11,769		14,691

			Total interest income		564,137		461,271			1,576,092		1,383,883

Interest expense	NOW accounts				1,044		1,024			2,657		2,998
	Savings deposits				25,154		27,797			76,422		81,743
	Time deposits				39,625		54,168			122,561		190,788
	Deposits at foreign offices				3,203		1,793			9,208		5,100
	Short-term borrowings				12,655		14,197			38,388		38,905
	Long-term borrowings				51,858		47,101			149,401		138,622

			Total interest expense		133,539		146,080			398,637		458,156

	Net interest income				430,598		315,191			1,177,455		925,727
	Provision for credit losses				34,000		37,000			103,000		89,000

	Net interest income after provision for credit losses				396,598		278,191			1,074,455		836,727

Other income	Mortgage banking revenues				38,782		30,336			117,161		81,529
	Service charges on deposit accounts				90,927		43,072			220,158		123,408
	Trust income				32,314		14,432			80,153		45,555
	Brokerage services income				13,320		11,055			37,729		34,052
	Trading account and foreign exchange gains				4,666		287			10,996		1,716
	Gain (loss) on sales of bank investment securities				58		(660	)		541		(659	)
	Other revenues from operations				51,527		29,824			130,600		88,152

			Total other income		231,594		128,346			597,338		373,753

Other expense	Salaries and employee benefits				214,118		123,388			543,673		372,543
	Equipment and net occupancy				48,450		28,073			123,497		81,004
	Printing, postage and supplies				9,092		6,988			27,031		18,892
	Amortization of core deposit and other intangible assets				22,538		13,011			56,807		39,696
	Other costs of operations				102,202		72,511			318,817		198,387

			Total other expense		396,400		243,971			1,069,825		710,522

	Income before taxes				231,792		162,566			601,968		499,958
	Income taxes				75,329		52,449			194,927		161,757

	Net income			$	156,463		110,117		$	407,041		338,201

	Net income per common share
		Basic		$	1.31		1.20		$	3.68		3.65
		Diluted			1.28		1.16			3.59		3.53
	Cash dividends per common share			$	.30		.25		$	.90		.75
	Average common shares outstanding
		Basic			119,727		92,017			110,607		92,625
		Diluted			122,593		94,942			113,441		95,714


					Nine months ended September 30
In thousands					2003			2002

Cash flows from	Net income				$	407,041			338,201
operating activities	Adjustments to reconcile net income to net cash provided by operating activities
			Provision for credit losses			103,000			89,000
			Depreciation and amortization of premises and equipment			44,876			29,102
			Amortization of capitalized servicing rights			37,151			28,663
			Amortization of core deposit and other intangible assets			56,807			39,696
			Provision for deferred income taxes			(35,806	)		(36,275	)
			Asset write-downs			376			888
			Net gain on sales of assets			(609	)		(2,333	)
			Net change in accrued interest receivable, payable			(4,797	)		(25,828	)
			Net change in other accrued income and expense			116,740			27,829
			Net change in loans held for sale			201,695			36,511
			Net change in trading account assets and liabilities			(18,995	)		(2,678	)

			Net cash provided by operating activities			907,479			522,776

Cash flows from	Proceeds from sales of investment securities
investing activities		Available for sale				71,146			45,680
		Other				146,573			20,545
	Proceeds from maturities of investment securities
		Available for sale				1,777,298			669,225
		Held to maturity				76,461			84,426
	Purchases of investment securities
		Available for sale				(2,550,587	)		(1,830,418	)
		Held to maturity				(90,727	)		(64,150	)
		Other				(149,327	)		(54,971	)
	Additions to capitalized servicing rights					(46,938	)		(49,807	)
	Net increase in loans and leases					(1,450,204	)		(1,223,305	)
	Acquisitions, net of cash and cash equivalents acquired:
		Banks and bank holding companies				2,134,822			(2,400	)
	Capital expenditures, net					(23,310	)		(11,776	)
	Other, net					86,512			9,472

		Net cash used by investing activities				(18,281	)		(2,407,479	)

Cash flows from	Net increase (decrease) in deposits					(169,614	)		962,900
financing activities	Net increase (decrease) in short-term borrowings					(136,941	)		764,917
	Proceeds from long-term borrowings					1,299,568			1,000,792
	Payments on long-term borrowings					(823,611	)		(153,214	)
	Purchases of treasury stock					—			(240,314	)
	Dividends paid — common					(99,403	)		(69,268	)
	Other, net					37,642			47,850

		Net cash provided by financing activities				107,641			2,313,663

	Net increase in cash and cash equivalents				$	996,839			428,960
	Cash and cash equivalents at beginning of period					1,284,131			1,006,750
	Cash and cash equivalents at end of period				$	2,280,970			1,435,710

Supplemental	Interest received during the period				$	1,590,377			1,384,475
disclosure of cash	Interest paid during the period					432,003			483,526
flow information	Income taxes paid during the period					182,398			205,794

Supplemental schedule of	Real estate acquired in settlement of loans				$	13,755			14,793
noncash investing and	Acquisition of banks and bank holding companies:
financing activities			Common stock issued			1,993,956			—
			Fair value of:
				Assets acquired (noncash)		14,355,837			—
				Liabilities assumed		14,496,703			—



																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

2002
Balance — January 1, 2002, as previously reported			$	—		48,570		6,162			1,096,340			2,017,700			22,819			(252,140	)		2,939,451
Retroactive restatement adjustment for stock-based compensation (see note 4)				—		—		—			98,602			(79,613	)		—			—			18,989

Balance — January 1, 2002, as restated				—		48,570		6,162			1,194,942			1,938,087			22,819			(252,140	)		2,958,440
Comprehensive income:
	Net income			—		—		—			—			338,201			—			—			338,201
	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	)

																							357,160
Purchases of treasury stock				—		—		—			—			—			—			(240,314	)		(240,314	)
Stock-based compensation plans:
	Stock option plans:
		Compensation expense		—		—		—			30,247			—			—			—			30,247
		Exercises		—		—		—			(40,828	)		—			—			86,840			46,012
	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			1,184,089			2,206,924			41,778			(404,228	)		3,083,286

2003
Balance — January 1, 2003, as previously reported			$	—		48,570		6,190			1,058,389			2,405,801			54,772			(391,899	)		3,181,823
Retroactive restatement adjustment for stock-based compensation (see note 4)				—		—		—			134,609			(107,953	)		—			—			26,656

Balance — January 1, 2003, as restated				—		48,570		6,190			1,192,998			2,297,848			54,772			(391,899	)		3,208,479
Comprehensive income:
	Net income			—		—		—			—			407,041			—			—			407,041
	Other comprehensive income, net of tax:
		Unrealized losses on investment securities, net of reclassification adjustment		—		—		—			—			—			(14,746	)		—			(14,746	)
		Unrealized gains on cash flow hedges, net of reclassification adjustment		—		—		—			—			—			622			—			622

																							392,917
Acquisition of Allfirst Financial Inc. - common stock issued				—		10,969		—			1,617,034			—			—			365,953			1,993,956
Repayment of management stock ownership program receivable				—		—		—			22			—			—			—			22
Stock-based compensation plans:
	Stock option and purchase plans:
		Compensation expense		—		—		—			31,658			—			—			—			31,658
		Exercises		—		324		—			17,600			—			—			25,288			43,212
	Directors’ stock plan			—		3		—			485			—			—			175			663
	Deferred compensation plans, net, including dividend equivalents			—		1		116			(98	)		(114	)		—			483			388
Common stock cash dividends - $.90 per share				—		—		—			—			(99,403	)		—			—			(99,403	)

Balance — September 30, 2003			$	—		59,867		6,306			2,859,699			2,605,372			40,648			—			5,571,892

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 2002 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.

On April 1, 2003, M&T completed the acquisition of Allfirst Financial Inc. (“Allfirst”), a bank holding company headquartered in Baltimore, Maryland, from Allied Irish Banks, p.l.c. (“AIB”), Dublin, Ireland. Allfirst was merged with and into M&T on that date. Allfirst Bank, Allfirst’s primary banking subsidiary, was merged into Manufacturers and Traders Trust Company (“M&T Bank”), a wholly owned subsidiary of M&T, on that date. Allfirst Bank operated 269 banking offices in Maryland, Pennsylvania, Virginia and the District of Columbia at the date of acquisition. The results of operations acquired in the Allfirst transaction have been included in the Company’s financial results since April 1, 2003. Acquired assets on April 1, 2003 totaled $16 billion, including $10 billion of loans and leases, liabilities assumed aggregated $14 billion, including $11 billion of deposits, and $2 billion was added to stockholders’ equity. AIB received 26,700,000 shares of M&T common stock valued at $2 billion (based on the market value of M&T common stock at the time the terms of the merger were agreed to and announced by M&T and AIB in September 2002) and $886 million in cash in exchange for all outstanding Allfirst common shares. The Company incurred merger expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company during the three and nine-month periods ended September 30, 2003 of $19 million ($12 million after tax effect) and $58 million ($38 million after tax effect), respectively. Those merger-related expenses consisted largely of expenses for professional services and other temporary help fees associated with the conversion of systems and/or integration of operations; initial marketing and promotion expenses designed to introduce M&T Bank to customers of Allfirst; travel and relocation costs; and printing, supplies and other costs of commencing operations in new markets and offices. Although the Company will incur additional merger-related expenses in the fourth quarter of 2003 as Allfirst’s operations are fully integrated into the Company, such charges are not expected to be material.

The acquisition of Allfirst represented a major geographic expansion by M&T and created a strong Mid-Atlantic banking franchise. Following the acquisition, the Company offers a broad range of products and services through its banking offices in six states and the District of Columbia. Management expects that M&T will benefit from greater geographic diversity and the benefits of scale associated with a larger company. As part of the purchase price allocation at April 1, 2003, M&T recorded $1.8 billion of goodwill, $136 million of core deposit intangible and $64 million of other intangible assets. The weighted average amortization periods for newly acquired core deposit intangible and other intangible assets were eight years and seven years, respectively. Information regarding the allocation of goodwill recorded as a result of the Allfirst acquisition to the Company’s reportable segments, as well as the carrying amounts and amortization of core deposit and other intangible assets, is provided in note 3.

Disclosed below is certain pro forma information for 2003 as if Allfirst had been acquired on January 1, 2003 and for 2002 as if Allfirst had been acquired at the beginning of each interim period presented. These results combine the historical results of Allfirst into the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of purchase accounting adjustments and other acquisition-related activity, they are not necessarily indicative of what would have occurred had the acquisition taken place on the indicated dates. In particular, expenses related to systems

conversions and other costs of integration are included in the 2003 periods in which such costs were incurred and, additionally, the Company expects to achieve further operating cost savings as a result of the acquisition which are not reflected in the pro forma amounts presented below. Further, pro forma net income amounts for the nine months ended September 30, 2002 include $13,714,000 of expenses related to the fraudulent foreign exchange trading activities announced by Allfirst on February 6, 2002. Allfirst did not report any similar expenses for 2002’s third quarter.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” the Company ceased amortizing goodwill associated with corporate acquisitions effective January 1, 2002. The Company continues to amortize core deposit and other intangible assets over the estimated life of each respective asset. Total amortizing intangible assets were comprised of the following:

Amortization of core deposit and other intangible assets was generally computed using accelerated methods over original amortization periods of five to ten years. The remaining weighted average amortization period as of September 30, 2003 was approximately six years. Amortization expense for core deposit and other intangible assets was $22,538,000 and $13,011,000 for the three months ended September 30, 2003 and 2002, respectively, and $56,807,000 and $39,696,000 for the nine months ended September 30, 2003 and 2002, respectively. Estimated amortization of intangible assets for the remainder of 2003 and in future years is as follows:

The resulting goodwill from the Allfirst acquisition is not tax deductible. A summary of goodwill assigned to each of the Company’s reportable segments as of September 30, 2003 was as follows:

Effective January 1, 2003, the Company began recognizing expense for stock-based compensation using the fair value based method of accounting described in SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended. As a result, salaries and employee benefits expense in 2003 included $11 million of stock-based compensation in the third quarter and $10 million in each of the first two quarters. After tax effect, stock-based compensation lowered 2003’s net income by $9 million, ($.07 per diluted share) in the third quarter, $7 million ($.06 per diluted share) in the second quarter and $7 million ($.08 per diluted share) in the first quarter. The Company has chosen the retroactive restatement method described in SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which amended SFAS No. 123. As a result, financial information for all prior periods presented have been restated to reflect the salaries and employee benefits expense that would have been recognized had the recognition provisions of SFAS No. 123 been applied to all awards granted to employees after January 1, 1995. The use of the retroactive restatement method resulted in the restatement of previously reported balances of additional paid-in capital, retained earnings and deferred tax assets. As of December 31, 2001, previously reported additional paid-in capital was increased by $99 million, retained earnings was decreased by $80 million, and deferred tax assets were increased by $19 million. As of December 31, 2002, previously reported additional paid-in capital was increased by $135 million, retained earnings was decreased by $108 million, and deferred tax assets were increased by $27 million.

As a result of using the retroactive restatement method for stock-based compensation, salaries and employee benefits expense in each of the quarters of 2002 increased from the amounts previously reported by $10 million. The impact of the Company’s decision to recognize expense for stock-based compensation

on previously reported net income, basic earnings per share and diluted earnings per share for 2002 is as follows:

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

Other short-term borrowings at September 30, 2003 and December 31, 2002 included a $500 million revolving asset-backed structured borrowing with an unaffiliated conduit lender, which was entered into in November 2002. At September 30, 2003 and December 31, 2002, the revolving asset-backed structured borrowing was secured by approximately $560 million of automobile loans and related assets that had been transferred to M&T Auto Receivables I, LLC, a special purpose consolidated subsidiary of M&T Bank. The special purpose subsidiary’s activities are generally restricted to purchasing and owning automobile loans for the purpose of securing this revolving borrowing arrangement. Proceeds from payments on the automobile loans are required to be applied in priority order for fees, principal and interest on the borrowing, and funding the monthly replenishment of automobile loans. Any remaining proceeds are available for distribution to M&T Bank. The secured borrowing is prepayable, in whole or in part, at any time. Although the borrowing is non-recourse to M&T Bank and the Company, 80% of it can be put back to M&T Bank upon demand. The Company’s maximum incremental exposure to loss resulting from the structure of this borrowing arrangement is generally restricted to the amount that such borrowing is overcollateralized. Management currently estimates no material losses as a result of this borrowing arrangement.

In 1997, M&T Capital Trust I (“Trust I”), M&T Capital Trust II (“Trust II”), and M&T Capital Trust III (“Trust III”) issued $310 million of fixed rate preferred capital securities. As a result of the Allfirst acquisition, M&T assumed responsibility for $300 million of similar preferred capital securities previously issued by special-purpose entities formed by Allfirst consisting of $150 million of floating rate preferred capital securities issued by First Maryland Capital I (“Trust IV”) in December 1996 and $150 million of floating rate preferred capital securities issued by First Maryland Capital II (“Trust V”) in January 1997. The distribution rates on the preferred capital securities of Trust IV and Trust V adjust quarterly based on changes in the three-month London Interbank Offered Rate (“LIBOR”). Trust I, Trust II, Trust III, Trust IV and Trust V are referred to herein collectively as the “Trusts.”

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

The common securities of each Trust (“Common Securities”) are wholly owned by M&T and 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 junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of M&T as follows:


	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
Trust IV	$150 million	$4.64 million	$154.64 million aggregate liquidation amount of Floating Rate Junior Subordinated Debentures due January 15, 2027
Trust V	$150 million	$4.64 million	$154.64 million aggregate liquidation amount of Floating Rate 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.

Holders of the Capital Securities receive preferential cumulative cash distributions on each distribution date at the stated distribution rate unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures for up to ten semi-annual periods (in the case of Trust I, Trust II and Trust III) or twenty quarterly periods (in the case of Trust IV and Trust V), in which case payment of distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. The agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T 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.

The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts. 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 (January 15, 2007 in the case of Trust IV, February 1, 2007 in

the case of Trust I, Trust III and Trust V, and June 1, 2007 in the case of Trust II) contemporaneously with the 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 (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 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. In the case of Trust IV and Trust V, the redemption price of the Capital Securities upon early redemption will be equal to 100% of the principal amount of securities to be redeemed plus any accrued but unpaid interest to the redemption date.

As a result of the Allfirst acquisition, M&T also assumed responsibility for $100 million of Floating Rate Non-Cumulative Subordinated Trust Enhanced Securities (“SKATES”) that were issued by Allfirst Preferred Capital Trust (“Allfirst Capital Trust”). Allfirst Capital Trust is a Delaware business trust that was formed in June 1999 for the exclusive purposes of (i) issuing the SKATES and common securities, (ii) purchasing Asset Preferred Securities issued by Allfirst Preferred Asset Trust (“Allfirst Asset Trust”) and (iii) engaging in only those other activities necessary or incidental thereto. M&T holds 100% of the common securities of Allfirst Capital Trust. Allfirst Asset Trust is a Delaware business trust that was formed in June 1999 for the exclusive purposes of (i) issuing Asset Preferred Securities and common securities, (ii) investing the gross proceeds of the Asset Preferred Securities in junior subordinated debentures originally issued by Allfirst (and assumed by M&T as part of its acquisition of Allfirst on April 1, 2003) and other permitted investments and (iii) engaging in only those other activities necessary or incidental thereto. M&T holds 100% of the common securities of Allfirst Asset Trust and Allfirst Capital Trust holds 100% of the Asset Preferred Securities of Allfirst Asset Trust. M&T currently has outstanding $105.3 million aggregate liquidation amount Floating Rate Junior Subordinated Debentures due July 15, 2029 that were originally issued by Allfirst and are payable to Allfirst Asset Trust.

Distributions on the SKATES are non-cumulative. The distribution rate on the SKATES is a rate per annum of three month LIBOR plus 1.50% of the stated liquidation amount of $1,000 per SKATES, reset quarterly two business days prior to the distribution dates of January 15, April 15, July 15, and October 15 in each year. The distributions will be paid if, as and when Allfirst Capital Trust has funds available for payment. The SKATES are subject to mandatory redemption if the Asset Preferred Securities of Allfirst Asset Trust are redeemed. Allfirst Asset Trust will redeem the Asset Preferred Securities if the junior subordinated debentures of M&T held by Allfirst Asset Trust are redeemed. M&T may redeem the junior subordinated debentures, in whole or in part, at any time on or after July 15, 2009 with the prior consent of the Federal Reserve Board. Allfirst Asset Trust will redeem the Asset Preferred Securities at an amount equal to $1,000 plus accrued and unpaid distributions from the last distribution payment date. M&T has guaranteed, on a subordinated basis, the payment in full of all distributions and other payments on the SKATES

and on the Asset Preferred Securities to the extent that Allfirst Capital Trust and Allfirst Asset Trust, respectively, have funds legally available. Under the Federal Reserve Board’s current risk-based capital guidelines, the SKATES are includable in M&T’s Tier I Capital.

Including the unamortized portions of purchase accounting adjustments to reflect estimated fair value at the acquisition dates of the common securities of Trust III, Trust IV, Trust V and Allfirst Capital Trust, the preferred capital securities had financial statement carrying values as follows:

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.

The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 20 to the Company’s consolidated financial statements as of and for the year ended December 31, 2002. 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. Segment financial information for the second and third quarters of 2003 includes the results of operations obtained in the

Allfirst acquisition. Information about the Company’s segments is presented in the following tables.

(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 $4,182,000 and $3,530,000 for the three-month periods ended September 30, 2003 and 2002, respectively, and $12,113,000 and $10,750,000 for the nine-month periods ended September 30, 2003 and 2002, 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.

(b)

During the second quarter of 2003, a strategic business unit which had previously been included in the “All Other” category was moved to the Commercial Banking segment for internal profitability reporting purposes. As a result, approximately $27 million of loans were transferred from the “All Other” category to the Commercial Banking segment. This strategic business unit contributed net interest expense and net losses of less than $1 million in each of the quarters since January 1, 2002, except for the quarter ended September 30, 2002, when a net loss of approximately $11 million resulted from the charge off of $17 million related to two commercial leases to a major airline company that filed for bankruptcy protection. Prior period information has been reclassified to conform to current period presentation.

(c)

During the fourth quarter of 2002, the Company changed the internal funding charge for a limited number of the investment securities types included in the Discretionary Portfolio segment. As a result, total revenues and net income increased in the Discretionary Portfolio segment and decreased in the “All Other” category by approximately $2 million and $1 million, respectively, in the quarter ended March 31, 2002, approximately $3 million and $2 million, respectively, in the quarter ended June 30, 2002, and approximately $4 million and $2 million, respectively, in the quarter ended September 30, 2002.

In the normal course of business, various commitments and contingent liabilities are outstanding. The following table presents the Company’s significant commitments. Certain of these commitments are not included in the Company’s consolidated balance sheet.

Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, whereas commercial letters of credit are issued to facilitate commerce and typically result in the commitment being funded when the underlying transaction is consummated between the customer and third party. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.

Financial guarantees and indemnification contracts are oftentimes similar to standby letters of credit and include mandatory purchase agreements issued to ensure that customer obligations are fulfilled, recourse obligations associated with sold loans, and other guarantees of customer performance or compliance with designated rules and regulations. Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.

The Company utilizes commitments to sell residential real estate loans to hedge exposure to changes in the fair value of residential real estate loans held for sale. Such commitments are considered derivatives in accordance with SFAS No. 133 and along with commitments to originate residential real estate loans to be held for sale and hedged residential real estate loans held for sale are now generally recorded in the consolidated balance sheet at estimated fair market value.

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 the Company’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 the Company’s consolidated results of operations in any future reporting period.

As a result of M&T’s acquisition of Allfirst (see note 2), AIB acquired approximately 22.5% of the issued and outstanding shares of M&T common stock on April 1, 2003. While AIB maintains a significant ownership in M&T, the Agreement and Plan of Reorganization by and among M&T, AIB and Allfirst (“Reorganization Agreement”) includes several provisions relating to the corporate governance of M&T that provide AIB with representation on the M&T and M&T Bank boards of directors and key board committees and certain protections of its rights as a substantial M&T shareholder. In addition, AIB has rights that will facilitate its ability to maintain its proportionate ownership position in M&T.

With respect to AIB’s right to have representation on the M&T and M&T Bank boards of directors and key board committees, for as long as AIB holds at least 15% of M&T’s outstanding common stock, AIB is entitled to designate four individuals, reasonably acceptable to M&T, on both the M&T and M&T Bank boards of directors. In addition, one of the AIB designees to the M&T board of directors will serve on each of the Executive, Nomination and Compensation, and Audit Committees. Also, as long as AIB holds at least 15% of M&T’s outstanding common stock, neither the M&T nor the M&T Bank board of directors may consist of more than 28 directors without the consent of the M&T directors designated by AIB. AIB will continue to enjoy these rights if its holdings of M&T common stock drop below 15%, but not below 12%, so long as AIB restores its ownership percentage to 15% within one year. In the event that AIB holds at least 10%, but less than 15%, of M&T’s outstanding common stock, AIB will be entitled to designate at least two individuals on both the M&T and M&T Bank boards of directors and, in the event that AIB holds at least 5%, but less than 10%, of M&T’s outstanding common stock, AIB will be entitled to designate one individual on both the M&T and M&T Bank boards of directors. M&T also has the right to appoint one representative to the AIB board while AIB remains a significant shareholder.

There are several other corporate governance changes that serve to protect AIB’s rights as a substantial M&T shareholder and are embodied in M&T’s certificate of incorporation and bylaws, which were both amended in connection with the Allfirst acquisition to incorporate such changes. These protections include an effective consent right in connection with certain actions by M&T, such as amending M&T’s certificate of incorporation or bylaws in a manner inconsistent with AIB’s rights, engaging in activities not permissible for a bank holding company or adopting any shareholder rights plan or other measures intended to prevent or delay any transaction involving a change in control of M&T. AIB has the right to limit, with the agreement of at least one non-AIB designee on the M&T board of directors, other actions by M&T, such as reducing M&T’s cash dividend policy such that the ratio of cash dividends to net income is less than 15%, acquisitions and dispositions of significant amounts of assets, and the appointment or election of the chairman of the board of directors or the chief executive officer of M&T. The protective provisions described above will cease to be applicable when AIB no longer owns at least 15% of M&T outstanding common stock, calculated as described in the Reorganization Agreement.

M&T assumed from Allfirst two floating rate notes payable to AIB. A $100 million floating rate note payable to AIB was repaid by M&T on June 3, 2003. An additional $200 million floating rate note payable to AIB was repaid by M&T on September 30, 2003. Interest expense related to the notes discussed above aggregated $1.2 million for the second quarter of 2003 and $809 thousand for the third quarter of 2003.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” The FASB’s stated intent in issuing FIN 46 was to clarify the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires an enterprise to consolidate a variable interest entity (as defined in FIN 46) if that enterprise has a variable interest (or combination of variable interests) that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected returns if they occur, or both. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. On October 9, 2003, FASB Staff Position No. FIN 46-6 was issued, which delayed the effective date of FIN 46 until the end of the first interim or annual period ending after December 15, 2003 for variable interest entities created before February 1, 2003. Although still under consideration, implementation of the provisions of FIN 46 to variable interest entities created prior to February 1, 2003 is not expected to have a material effect on the Company’s consolidated results of operations or its consolidated financial position. The following paragraphs describe variable interest entities in which the Company holds a significant variable interest.

In November 2002, the Company transferred approximately $1.1 billion of one-to-four family residential mortgage loans to Manufacturers and Traders Trust Company Mortgage Trust 2002-1 (“M&T Trust”), a qualified special purpose trust, in a non-recourse securitization transaction. The Company received $140 million in cash and retained approximately 88% of the resulting securities in exchange for the loans. The Company realized a $5 million gain on the transaction and allocated $977 million and $7 million of the carrying value of the loans to the retained securities and to capitalized servicing assets, respectively. All of the retained securities were classified as investment securities available for sale. At September 30, 2003 and December 31, 2002 retained securities had an aggregate amortized cost of $566 million and $936 million, respectively, and an aggregate estimated fair value of $585 million and $972 million, respectively. At September 30, 2003 securities included therein rated A or higher had an amortized cost and an estimated fair value of $550 million and $569 million, respectively, and securities rated BBB or lower had an amortized cost and an estimated fair value of $16 million. As a qualified special purpose trust, M&T Trust is not included in the Company’s consolidated financial statements. Because the transaction was non-recourse, the Company’s maximum exposure to loss as a result of its association with M&T Trust is limited to realizing the carrying value of the retained securities and servicing rights.

In November 2003, the Company transferred approximately $838 million of one-to-four family residential mortgage loans to a qualified special purpose trust, in a non-recourse securitization transaction similar to the one discussed in the preceding paragraph. The Company received $112 million in cash and retained approximately 87% of the resulting securities as well as the servicing rights in exchange for the loans. The qualified special purpose trust

to which the loans were transferred will not be included in the Company’s future consolidated financial statements. Because the transaction was non-recourse, the Company’s maximum exposure to loss as a result of its association with the special purpose trust is limited to realizing the carrying value of the retained securities and servicing rights.

The Company is a limited partner in various low-income housing investment partnerships that collectively have approximately $250 million in total assets. These partnerships generally construct or acquire properties to be used to provide housing to low-income families in accordance with government guidelines. Such investments provide certain tax credits and tax deductible losses to the partners. As a limited partner there is no recourse to the Company by creditors of the partnerships. However, the tax credits provided by the partnerships are generally subject to a five to fifteen year recapture period should the partnership fail to comply with the respective government regulations. At September 30, 2003, the Company’s maximum exposure to loss of its investments in such partnerships was $77 million, including $40 million of unfunded commitments. Management currently estimates that no material losses are probable as a result of the Company’s involvement with such entities.

The Company also has various borrowing relationships that utilize variable interest entities. These relationships are described in note 7.

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

M&T Bank Corporation (“M&T”) reported net income in the third quarter of 2003 of $156 million or $1.28 of diluted earnings per common share, increases of 42% and 10%, respectively, from $110 million or $1.16 of diluted earnings per common share in the third quarter of 2002. Net income during the second quarter of 2003 was $134 million or $1.10 of diluted earnings per common share. Basic earnings per common share were $1.31 in the recent quarter, up from $1.20 in the year-earlier quarter and $1.12 in 2003’s second quarter. The after-tax impact of merger-related expenses associated with M&T’s acquisition activity, as discussed below, was $12 million or $.10 each of diluted and basic earnings per share in the third quarter of 2003, compared with $22 million or $.17 of diluted earnings per share and $.18 of basic earnings per share in 2003’s second quarter. There were no merger-related expenses in the third quarter of 2002.

For the nine-month period ended September 30, 2003, net income was $407 million or $3.59 per diluted share, up 20% and 2%, respectively, from $338 million or $3.53 per diluted share during the first nine months of 2002. Basic earnings per share were $3.68 for the first three quarters of 2003, compared with $3.65 in the comparable 2002 period. The after-tax impact of merger-related expenses associated with M&T’s acquisition activity lowered net income during the first nine months of 2003 by approximately $38 million and diluted and basic earnings per share by $.33 and $.34, respectively. There were no merger-related expenses during the similar 2002 period.

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 2003 was 1.24%, compared with 1.37% in the year-earlier quarter and 1.10% in the second quarter of 2003. The annualized rate of return on average common stockholders’ equity was 11.37% in the recent quarter, compared with 14.42% in the third quarter of 2002 and 10.00% in 2003’s second quarter. Excluding the impact of merger-related expenses, the annualized returns on average assets and average common equity were 1.34% and 12.27%, respectively, during 2003’s third quarter and 1.27% and 11.60%, respectively, in the second quarter of 2003. During the first nine months of 2003, the annualized rates of return on average assets and average common stockholders’ equity were 1.23% and 11.55%, respectively, compared with 1.43% and 15.12%, respectively, in the similar 2002 period. Excluding the impact of merger-related expenses, the annualized returns on average assets and average common equity were 1.35% and 12.62%, respectively, during the first nine months of 2003.

On April 1, 2003, M&T completed the acquisition of Allfirst Financial Inc. (“Allfirst”), a bank holding company headquartered in Baltimore, Maryland, from Allied Irish Banks, p.l.c. (“AIB”), Dublin, Ireland. Allfirst Bank, Allfirst’s primary bank subsidiary, was merged into Manufacturers and Traders Trust Company (“M&T Bank”), a wholly owned bank subsidiary of M&T, on that date. Allfirst Bank operated 269 banking offices in Maryland, Pennsylvania, Virginia and the District of Columbia at the date of acquisition. AIB received 26,700,000 shares of M&T common stock and $886 million in cash in exchange for all outstanding Allfirst common shares. Immediately after the completion of the acquisition, AIB owned approximately 22.5% of the outstanding shares of M&T’s common stock. A condensed balance sheet for the Company as of

the opening of business on April 1, 2003, which includes a summary of assets acquired and liabilities assumed from Allfirst, is presented below.


		Opening Balances on April 1, 2003

		M&T			Allfirst			Combined

Assets		(in thousands)
Investment securities		$	4,146,303			1,312,301			5,458,604
Loans and leases, net of unearned discount			26,224,113			10,265,123			36,489,236
Allowance for credit losses			(444,680	)		(146,300	)		(590,980	)

Loans and leases, net			25,779,433			10,118,823			35,898,256
Goodwill			1,097,553			1,806,528			2,904,081
Core deposit and other intangible assets			107,342			199,265			306,607
Other assets			2,313,160			3,053,742			5,366,902

	Total assets	$	33,443,791			16,490,659			49,934,450

Liabilities and stockholders’ equity
Liabilities Deposits		$	21,924,222			10,935,521			32,859,743
Short-term borrowings			2,387,043			1,610,782			3,997,825
Long-term borrowings			5,394,920			1,226,518			6,621,438
Other liabilities			424,887			723,882			1,148,769

	Total liabilities		30,131,072			14,496,703			44,627,775
Stockholders’ equity			3,312,719			1,993,956			5,306,675

	Total liabilities and stockholders’ equity	$	33,443,791			16,490,659			49,934,450

Merger-related expenses associated with the Allfirst acquisition incurred during the quarters ended June 30 and September 30, 2003 totaled $33 million ($22 million after tax effect) and $19 million ($12 million after tax effect), respectively. Such expenses were for professional services and temporary help associated with the conversion of systems and/or integration of operations; initial marketing and promotion expenses designed to introduce M&T Bank to Allfirst’s customers; travel and relocation costs; and printing, supplies and other costs of commencing operations in new markets and offices. Although the Company will incur additional merger-related expenses during the remainder of 2003 as Allfirst’s operations are fully integrated with those of the Company, such charges are not expected to be material. In accordance with generally accepted accounting principles (“GAAP”), included in the determination of goodwill associated with the Allfirst merger were charges totaling $29 million, net of applicable income taxes ($48 million before tax effect), for severance costs for former Allfirst employees; investment banking and other professional fees; and termination of Allfirst contracts for various services. As of September 30, 2003, the remaining unpaid portion of merger-related expenses and charges included in the determination of goodwill were $7 million and $19 million, respectively. The resolution of preacquisition contingencies in future periods could have an impact on the allocation of the purchase price and the amount of goodwill recorded as part of the acquisition, however, management does not presently expect that any such adjustments will be material to the Company’s consolidated balance sheet.

In anticipation of the Allfirst acquisition, M&T Bank issued $400 million of subordinated notes on March 31, 2003 to fund a portion of the cash consideration paid to AIB and to maintain appropriate regulatory capital ratios. The subordinated notes are included in regulatory capital of M&T and M&T Bank. The notes pay interest semi-annually on April 1 and October 1. The interest rate is fixed at 3.85% through March 31, 2008, with a floating rate payable from April 1, 2008 through the maturity date based on the then applicable U.S. dollar three-month London Interbank Offered Rate (“LIBOR”) plus 1.50%. The notes will mature on April 1, 2013. Beginning on April 1, 2008, M&T Bank may,

at its option and subject to prior regulatory approval, redeem some or all of the subordinated notes on any interest payment date at a redemption price equal to 100% of the redeemed principal, plus any accrued but unpaid interest.

Effective January 1, 2003, the Company began recognizing expense for stock-based compensation using the fair value based method of accounting described in Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended. As a result, salaries and employee benefits expense in 2003 included $11 million of stock-based compensation in the third quarter and $10 million in each of the first two quarters. After tax effect, stock-based compensation lowered 2003’s net income by $9 million, or $.07 per diluted share in the recently completed quarter, $7 million, or $.06 per diluted share in the second quarter and $7 million, or $.08 per diluted share in the first quarter. Using the retroactive restatement method described in SFAS No. 148, which amended SFAS No. 123, financial information for all prior periods presented in this quarterly report on Form 10-Q have been restated to reflect the impact of recognizing expense for stock-based compensation. As a result, salaries and employee benefits expense in the third quarter of 2002 has been restated to include $10 million of stock-based compensation, resulting in a reduction of previously reported net income of $7 million. Diluted earnings per share noted herein for the third quarter of 2002 have been reduced by $.07 from the amount previously reported. For the first nine months and full-year 2002, the impact of adopting SFAS No. 123 using the retroactive restatement method was to increase salaries and employee benefits expense by approximately $30 million and $41 million, respectively, resulting in a reduction of previously reported net income of $21 million or $.22 of diluted earnings per share for the nine months ended September 30, 2002 and $28 million or $.29 of diluted earnings per share for the year ended December 31, 2002.

M&T has accounted for substantially all of its business combinations using the purchase method of accounting. As a result, the Company had recorded intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.2 billion at September 30 and June 30, 2003, and $1.2 billion at September 30 and December 31, 2002. Included in such intangible assets at September 30 and June 30, 2003 was goodwill of $2.9 billion, up from $1.1 billion at September 30 and December 31, 2002 due to the Allfirst acquisition. Amortization of core deposit and other intangible assets, after tax effect, was $14 million ($.11 per diluted share) during the second and third quarters of 2003, compared with $8 million ($.08 per diluted share) in the third quarter of 2002. For the nine month periods ended September 30, 2003 and 2002, amortization of core deposit and other intangible assets, after tax effect, totaled $35 million ($.31 per diluted share) and $25 million ($.27 per diluted share), respectively. The higher levels of such amortization during the three and nine-month periods ended September 30, 2003 as compared with the corresponding 2002 periods were due to the impact of core deposit and other intangible assets recorded as part of the Allfirst transaction.

Since 1998, M&T has consistently provided supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and expenses associated with merging acquired operations into the Company, since such expenses are considered by management to be “nonoperating” in nature. Although “net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this information helps investors understand the effect of acquisition activity in reported results.

Net operating income rose 55% to $183 million in the third quarter of 2003 from $118 million in the corresponding quarter of 2002. Diluted net operating earnings per share for the recent quarter were $1.49, up 20% from

$1.24 in the third quarter of 2002. Net operating income and diluted net operating earnings per share were $169 million and $1.38, respectively, in the second quarter of 2003. For the first three quarters of 2003, net operating income and diluted net operating earnings per share were $479 million and $4.23, respectively, compared with $363 million and $3.80 in the similar 2002 period.

A reconciliation of net income and diluted earnings per share with net operating income and diluted net operating earnings per share follows:

Expressed as an annualized return on average tangible assets, net operating income was 1.55% in the recent quarter, compared with 1.52% in the year-earlier quarter and 1.48% in the second quarter of 2003. Net operating income expressed as an annualized return on average tangible common equity was 30.67% in the third quarter of 2003, compared with 25.46% in the third quarter of 2002 and 29.89% in 2003’s second quarter. For the first nine months of 2003, net operating income represented an annualized return on average tangible assets and average tangible common stockholders’ equity of 1.54% and 28.55%, respectively, compared with 1.60% and 27.14%, respectively, in the corresponding 2002 period.

A reconciliation of average assets and equity with average tangible assets and average tangible equity follows:

Taxable-equivalent net interest income rose 36% to $435 million in the third quarter of 2003 from $319 million in the year-earlier quarter. The improvement reflects a 48% increase in average earning assets to $42.9 billion, partially offset by a decline in the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets. Taxable-equivalent net interest income was $435 million in the second quarter of 2003 when average earning assets were $42.4 billion. Average loans and leases rose $11.1 billion, or 43%, to $37.0 billion in the recent quarter from $25.8 billion in the year-earlier quarter and were up $320 million, or 1%, from 2003’s second quarter. The most significant factor for the higher loan balances in 2003’s second and third quarters as compared with the third quarter of 2002 was the impact of the $10.3 billion of loans obtained in the Allfirst acquisition. Such acquired loans were comprised of approximately $4.5 billion of commercial loans and leases (including $314 million of leveraged leases and $230 million of loans to foreign borrowers), $2.5 billion of commercial real estate loans (including $10 million of loans originated for sale), $383 million of residential real estate loans and $2.9 billion of consumer loans and leases. The following table summarizes quarterly changes in the major components of the loan and lease portfolio.

Partially offsetting the growth in loans presented in the immediately preceding table from the third quarter of 2002 to 2003’s third quarter was a securitization of $1.1 billion of residential real estate loans in November 2002. Approximately 88% of the resultant securities were retained by the Company in the investment securities portfolio. In November 2003 the Company securitized an additional $838 million of residential real estate loans and retained approximately 87% of the resultant securities in its investment securities portfolio. The effects of this latest securitization are not reflected in the preceding table as the transaction occurred subsequent to September 30, 2003.

For the first three quarters of 2003 taxable-equivalent net interest income was $1.2 billion, up 27% from $936 million in the year-earlier period. An increase in average loans and leases of $7.8 billion was the leading factor contributing to this improvement. Approximately 80% of such increase was directly attributable to loans and leases obtained in the Allfirst transaction or subsequently originated in market areas associated with Allfirst. Partially offsetting the impact of loan growth was a lower net interest margin.

Investment securities averaged $5.8 billion in the third 2003 quarter, up from $2.9 billion in the corresponding quarter of 2002 and $5.7 billion in the second quarter of 2003. The higher levels of investment securities in the two most recent quarters compared with the third quarter of 2002 include the impact of $1.3 billion of investment securities obtained in the Allfirst acquisition and the November 2002 residential real estate loan securitization

already noted. The investment securities portfolio is largely comprised of residential and commercial mortgage-backed securities and collateralized mortgage obligations, shorter-term U.S. Treasury notes, debt securities issued by municipalities, and debt and preferred equity securities issued by government-sponsored agencies and certain financial institutions. The Company owned $180 million of capital stock of the Federal Home Loan Bank of New York (“FHLBNY”), a government-sponsored agency, at September 30, 2003. During September, the FHLBNY announced that it would suspend its dividend payments in the fourth quarter of 2003. FHLBNY dividends earned and received by the Company were $3 million and $9 million during the three and nine-month periods ended September 30, 2003, respectively, and $2 million and $6 million during the three and nine-month periods ended September 30, 2002, respectively. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to the risks assumed, including prepayments. In managing the investment securities portfolio, the Company occasionally sells investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, or in connection with 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 $95 million in 2003’s third quarter, compared with $121 million in the year-earlier quarter and $100 million in 2003’s second quarter. The size of the Company’s 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, collateral requirements and management of balance sheet size and resulting capital ratios.

As a result of the changes described herein, average earning assets increased $14.0 billion, or 48%, to $42.9 billion in the recent quarter from $28.9 billion in the third quarter of 2002. Average earning assets were $42.4 billion in the second quarter of 2003 and aggregated $38.5 billion and $28.5 billion for the nine-month periods ended September 30, 2003 and 2002, respectively.

Core deposits are the most significant source of funding for 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 $28.9 billion in the recently completed quarter, compared with $17.5 billion in the third quarter of 2002 and $28.0 billion in the second 2003 quarter. Core deposits assumed on April 1, 2003 in conjunction with the Allfirst acquisition totaled approximately $10.7 billion. The following table summarizes quarterly changes in the components of average core deposits.

For the nine month periods ended September 30, 2003 and 2002, core deposits averaged $25.0 billion and $17.5 billion, respectively.

The Company also obtains funding through domestic time deposits of $100,000 or more, deposits originated through M&T Bank’s offshore branch offices, and brokered deposits. Offshore branch deposits and brokered deposits have been used by the Company as an alternative to short-term borrowings. Offshore branch deposits, primarily comprised of balances of $100,000 or more, averaged $1.3 billion, $458 million and $996 million for the three-month periods ended September 30, 2003, September 30, 2002 and June 30, 2003, respectively. M&T Bank acquired an offshore branch from Allfirst which had deposits of $97 million on April 1, 2003 and which had average deposits of $322 million and $432 million during 2003’s second and third quarters, respectively. Brokered time deposits averaged $333 million in the third quarter of 2003, compared with $1.8 billion in the year-earlier quarter and $655 million in the second quarter of 2003. At September 30, 2003, brokered time deposits totaled $232 million and had a weighted average remaining term to maturity of 2.7 years. Certain of the brokered time deposits have provisions that allow for early redemption. In connection with the Company’s management of interest rate risk, interest rate swap agreements 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 $100 million of brokered time deposits. The Company also had brokered money-market deposit accounts which averaged $60 million during the third quarter of 2003, compared with $58 million and $101 million during the third quarter of 2002 and second quarter of 2003, respectively. Additional amounts of brokered deposits may be solicited in the future depending on market conditions and the cost of funds available from alternative sources at the time.

The Company uses borrowings from banks, securities dealers, the Federal Home Loan Banks of New York, Pittsburgh and Atlanta (together, the “FHLB”), and others as sources of funding. Short-term borrowings averaged $4.9 billion in the recent quarter, compared with $3.2 billion in the year-earlier quarter and $4.8 billion in the second quarter of 2003. Amounts borrowed from the FHLB and included in short-term borrowings averaged $598 million in the third quarter of 2003, $1.0 billion in the third quarter of 2002 and $591 million in 2003’s second quarter. Also included in short-term borrowings is a $500 million revolving asset-backed structured borrowing secured by automobile loans that were transferred to M&T Auto Receivables I, LLC, a special purpose subsidiary of M&T Bank formed in November 2002. The subsidiary, the loans and the borrowings are included in the consolidated financial statements of the Company. The remaining short–term borrowings were predominantly comprised of unsecured federal funds borrowings which generally mature daily. Federal funds borrowings averaged $3.4 billion in the recent quarter, compared with $2.1 billion in the third quarter of 2002 and $3.0 billion in the second quarter of 2003. Long-term borrowings averaged $6.6 billion in the third quarter of 2003, compared with $4.3 billion and $6.7 billion in the third quarter of 2002 and the second quarter of 2003, respectively. Included in average long-term borrowings were amounts borrowed from the FHLB totaling $4.0 billion in the third quarter of 2003, compared with $3.1 billion and $4.2 billion in the third quarter of 2002 and the second quarter of 2003, respectively. Average long-term borrowings for the second and third quarters of 2003 included $269 million and $198 million, respectively, of floating rate notes payable to AIB that were assumed in the acquisition of Allfirst (see note 10 of Notes to Financial Statements). The notes payable to AIB have been repaid. Also included in average long-term borrowings were subordinated capital notes of $1.3 billion in the two most recent quarters, and $675 million in the third quarter of 2002. Trust preferred securities included in average long-term borrowings totaled $685 million in the second and third quarters of 2003, and $318 million in the third quarter of 2002. Subordinated capital notes and trust preferred securities obtained in the Allfirst acquisition on April 1, 2003 averaged $334 million and $368 million, respectively, during the recent quarter. Information regarding trust preferred securities is provided in note 7 of Notes to Financial Statements. As described later, certain interest rate swap agreements have been entered into by the Company as part of its management of interest rate risk relating to long-term borrowings and other financial instruments.

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. Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 3.75% in the third quarter of 2003 and 4.04% in the year-earlier quarter. The yield on earning assets during the recent quarter was 5.26%, down 112 basis points (hundredths of one percent) from 6.38% in the third quarter of 2002, while the rate paid on interest-bearing liabilities decreased 83 basis points to 1.51% from 2.34%. The decreases in interest rates earned and paid reflect generally lower market interest rates in 2003 as compared with 2002, including the impact of reductions by the Federal Reserve of its benchmark overnight federal funds target rate of 50 basis points in November 2002 and 25 basis points in June 2003. In the second quarter of 2003, the net interest spread was 3.85%, the yield on earning assets was 5.50% and the rate paid on interest-bearing liabilities was 1.65%. For the first nine months of 2003, the net interest spread was 3.86%, a decrease of 19 basis points from the corresponding 2002 period. The yield on earning assets and the rate paid on interest-bearing liabilities were 5.52% and 1.66%, respectively, in the first nine months of 2003, compared with 6.54% and 2.49%, respectively, in the year-earlier period. Lower yielding portfolios of loans and investment securities obtained in the acquisition of Allfirst contributed to the reduced yields on earning assets in the three and nine-month periods ended September 30, 2003, as compared with the similar 2002 periods.

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 $7.8 billion in the third quarter of 2003, up from $4.1 billion a year earlier and $7.1 billion in the second quarter of 2003. During the first nine months of 2003 and 2002, average net interest-free funds were $6.4 billion and $3.9 billion, respectively. The increase in average net interest-free funds in the second and third quarters of 2003 as compared with 2002’s third quarter was due largely to the impact of the Allfirst acquisition. Goodwill and core deposit and other intangible assets averaged $3.2 billion during the second and third quarters of 2003, and $1.2 billion during the third quarter of 2002. The cash surrender value of bank owned life insurance averaged $932 million and $608 million in the third quarter of 2003 and 2002, respectively, and $918 million in the second quarter of 2003. The cash surrender value of bank owned life insurance obtained on April 1, 2003 in conjunction with the Allfirst acquisition averaged $285 million during the recent quarter. 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 was .27% in the two most recent quarters, compared with .34% in the third quarter of 2002. For the first nine months of the year, the contribution of net interest-free funds to net interest margin was .27% in 2003 and .34% in 2002. The lower contribution to net interest margin of net interest free funds in the 2003 periods as compared with the 2002 periods resulted from the impact of lower interest rates on interest-bearing liabilities used to value such contribution, offset, in part, by higher balances of net interest-free funds.

Reflecting the changes described herein, the Company’s net interest margin was 4.02% in 2003’s third quarter, 36 basis points lower than 4.38% in the third quarter of 2002 and down 10 basis points from 4.12% in the second 2003 quarter. During the first nine months of 2003 and 2002, the net interest margin was 4.13% and 4.39%, respectively. As mentioned earlier, lower yielding portfolios of loans and investment securities obtained in the Allfirst acquisition contributed to the lower net interest margins in the 2003 periods as compared with the similar 2002 periods.

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, 2003 and 2002 was $675 million and $872 million, respectively, $845 million as of June 30, 2003 and $495 million as of December 31, 2002. In general, under the terms of these agreements, the Company receives payments based on the outstanding notional amount of the swap agreements at fixed rates of interest and makes payments at variable rates. However, under the terms of a $100 million swap agreement that had been in effect as of September 30 and December 31, 2002 and June 30, 2003, and that had been designated as a cash flow hedge, the Company paid a fixed rate of interest and received a variable rate.

As of September 30, 2003, all of the Company’s interest rate swap agreements entered into for risk management purposes had been designated as fair value 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 amounts of hedge ineffectiveness of both fair value and cash flow hedges used for interest rate risk management purposes recognized during 2003 and 2002 were not material to the Company’s results of operations in any reporting period. The estimated fair values of interest rate swap agreements designated as fair value hedges was a gain of approximately $11 million at September 30, 2003, compared with gains of $9 million, $8 million and $27 million at September 30 and December 31, 2002 and June 30, 2003, respectively. The fair values of such swap agreements were substantially offset by unrealized losses on the fair values of the hedged items. The estimated fair values of the interest rate swap agreements designated as cash flow hedges were losses of approximately $280 thousand at June 30, 2003, and $1 million at September 30 and December 31, 2002. Net of applicable income taxes, such losses at June 30, 2003, September 30, 2002 and December 31, 2002 were approximately $171 thousand, $724 thousand and $622 thousand, respectively, and have been included in “accumulated other comprehensive income, net” in the Company’s consolidated balance sheet. 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 at September 30, 2003 were 6.98% and 4.01%, respectively. The average notional amounts of interest rate swaps and the related effect on net interest income and margin are presented in the accompanying table.

Computed as an annualized percentage of average earning assets or interest-bearing liabilities.

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, lines of credit with the Federal Reserve Bank of New York, and other available borrowing facilities. M&T Bank has also obtained funding through issuances of subordinated capital notes and through the $500 million revolving asset-backed borrowing discussed earlier. 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 $3.9 billion, $2.1 billion and $2.6 billion at September 30, 2003, December 31, 2002 and September 30, 2002, respectively. In general, these borrowings were unsecured and matured on the following business day. However, should the Company experience a substantial deterioration in its financial condition or its debt rating, 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, 2003 approximately $522

million was available for payment of dividends to M&T from banking subsidiaries without prior regulatory approval. These historic sources of cash flow have been augmented in the past by the issuance of trust preferred securities. Information regarding trust preferred securities is included in note 7 of Notes to Financial Statements. In connection with the Allfirst acquisition, M&T assumed responsibility for trust preferred securities and other long-term borrowings totaling $1.2 billion. As described in note 10 of Notes to Financial Statements, $300 million of the notes had been payable to AIB, but were subsequently repaid. 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, 2003 or at December 31, 2002.

As already discussed, in connection with M&T’s acquisition of Allfirst, M&T Bank issued $400 million of subordinated capital notes on March 31, 2003 to fund a portion of the cash consideration and to supplement regulatory capital. The Company had access to sufficient liquid assets to fund the remaining cash portion of the purchase price. 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 anticipated in the normal course of business. Management does not currently anticipate engaging in any activities, either currently or in the long-term, for which adequate funding would not be available and that would cause a significant strain on liquidity at either M&T or its subsidiary banks.

Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Company’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Company to interest rate risk, which occurs when assets and liabilities reprice at different times 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 loans and investment securities 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 and changes to such market values given changes in interest rates.

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, 2003 and December 31, 2002 displays the estimated impact on net interest income from non-trading financial instruments resulting from parallel changes in interest rates across repricing categories during the first modeling year.

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 rates during a twelve-month period, including incremental 100 and 200 basis point rate changes. In the event that a 100 or 200 basis point rate change cannot be achieved, the applicable rate changes are limited to lesser amounts such that interest rates cannot be less than zero. These assumptions are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly due to the timing, magnitude and frequency of interest rate changes and changes in 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 presented in the table and changes in such amounts are not considered significant to the Company’s past or projected net interest income.

The Company has historically engaged in trading activities to meet the financial needs of customers and, to a limited extent, to fund the Company’s obligations under certain deferred compensation plans 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 counterparties to the Company’s trading activities.

The notional amounts of interest rate contracts entered into for trading purposes totaled $5.4 billion at September 30, 2003 and $1.3 billion at September 30 and December 31, 2002. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes were $541 million, $260 million and $290 million at September 30, 2003, September 30, 2002 and December 31, 2002, 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 $254 million and $157 million, respectively, at September 30, 2003, $51 million and $36 million, respectively, at September 30, 2002, and $52 million and $36 million, respectively, at December 31, 2002. The higher amounts of trading account assets and liabilities at September 30, 2003 reflect the fair values of interest rate swap agreements executed with customers associated with Allfirst and the

related offsetting trading positions. 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.

The Company maintains an allowance for credit losses that in management’s judgment is adequate to absorb losses inherent in the loan and lease portfolio. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. The provision for credit losses in the third quarter of 2003 was $34 million, compared with $37 million in the year-earlier quarter and $36 million in the second quarter of 2003. Net loan charge-offs were $16 million and $36 million in the third quarter of 2003 and 2002, respectively, and $23 million in the second quarter of 2003. Net charge-offs as an annualized percentage of average loans and leases were .17% in the recent quarter, compared with .55% in the third quarter of 2002 and .26% in the second quarter of 2003. During the third quarter of 2002, the Company charged off the entire $17 million carrying value of two commercial leases with a major airline company that filed for bankruptcy protection. For the nine months ended September 30, 2003 and 2002, the provision for credit losses was $103 million and $89 million, respectively. Through September 30, net charge-offs were $64 million in 2003 and $77 million in 2002, representing an annualized .26% and .40%, respectively, of average loans and leases. Net charge-offs of loans acquired from Allfirst during the two most recent quarters have not been significant. A summary of net charge–offs by loan type follows.

Nonperforming loans consist of nonaccrual and restructured loans and aggregated $285 million or .77% of total loans and leases outstanding at September 30, 2003, compared with $227 million or .86% at September 30, 2002, $215 million or .84% at December 31, 2002, and $319 million or .86% at June 30, 2003. The increase in the amount of loans classified as nonperforming at June 30 and September 30, 2003 as compared with the 2002 dates noted reflects the inclusion of approximately $109 million and $82 million, respectively, of nonperforming loans obtained in the Allfirst acquisition on April 1, 2003. During the recent quarter, three large commercial loans obtained in the Allfirst transaction totaling $26 million that had been classified as nonperforming at June 30, 2003 were either paid in full or sold.

Accruing loans past due 90 days or more were $174 million or .47% of total loans and leases at September 30, 2003, compared with $148 million or .56% a year earlier, $154 million or .60% at December 31, 2002 and $170 million or .46% at June 30, 2003. The increase in accruing loans past due 90 days or more at June 30 and September 30, 2003 as compared with the 2002 dates noted reflects the addition of $33 million and $29 million, respectively, of such loans obtained in the Allfirst transaction, including approximately $16 million and $11 million, respectively, of foreign commercial loans supported by the Export-Import Bank of the United States, for which the principal balances are fully guaranteed. Accruing loans past due 90 days or more also 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 $117 million at September 30, 2003, $109 million a year earlier, $115 million at June 30, 2003 and $123 million at December 31, 2002. The outstanding principal balances of the repurchased loans are fully guaranteed by government agencies. The loans were repurchased to reduce costs associated with servicing 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 totaled $140 million at September 30, 2003, $124 million at September 30, 2002, $102 million at December 31, 2002 and $179 million at June 30, 2003. Commercial loans and leases obtained in the Allfirst transaction classified as nonperforming at September 30 and June 30, 2003 totaled $57 million and $86 million, respectively. Commercial loans and leases past due 90 days or more and accruing interest totaled $21 million at September 30, 2003, compared with $2 million at September 30 and December 31, 2002, and $22 million at June 30, 2003. The higher level of such loans at the two most recent quarter-ends was due largely to the foreign commercial loans supported by the Export-Import Bank, as previously noted.

Nonperforming commercial real estate loans aggregated $60 million at September 30, 2003, $42 million a year earlier, $49 million at December 31, 2002 and $58 million at June 30, 2003. Commercial real estate loans obtained in the acquisition of Allfirst classified as nonperforming were $8 million at each of June 30 and September 30, 2003.

Nonperforming residential real estate loans totaled $52 million and $36 million at September 30, 2003 and 2002, respectively, $37 million at December 31, 2002, and $58 million at June 30, 2003. Residential real estate loans past due 90 days or more and accruing interest totaled $138 million at September 30, 2003, compared with $130 million at September 30, 2002, and $142 million and $135 million at December 31, 2002 and June 30, 2003, respectively. As previously discussed, such loans include loans repurchased from GNMA that are fully guaranteed by government agencies. Residential real estate loans obtained in the Allfirst acquisition classified as nonperforming and past due 90 days or more and accruing interest aggregated $12 million and $6 million, respectively, at September 30, 2003 and $14 million and $5 million, respectively, at June 30, 2003.

Nonperforming consumer loans and leases totaled $33 million at the recent quarter-end, compared with $25 million at September 30, 2002, $27 million at December 31, 2002, and $24 million at June 30, 2003. As a percentage of consumer loan balances outstanding, nonperforming consumer loans and leases were .30% at September 30, 2003, .35% a year earlier, .37% at December 31, 2002 and .22% at June 30, 2003. Consumer loans acquired in the Allfirst transaction that were classified as nonperforming totaled $5 million at September 30, 2003 and $1 million at June 30, 2003. Accruing consumer loans and leases past due 90 days or more were $5 million at September 30, 2003, $4 million a year earlier, $3 million at December 31, 2002 and $8 million at June 30, 2003.

Assets acquired in settlement of defaulted loans were $20 million at September 30, 2003 and 2002, $17 million at December 31, 2002 and $23 million at June 30, 2003.

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


		2003 Quarters									2002 Quarters

		Third			Second			First			Fourth			Third

Nonaccrual loans		$	278,300			311,881			222,334			207,038			218,617
Renegotiated loans			6,888			6,985			7,630			8,252			8,402

Total nonperforming loans			285,188			318,866			229,964			215,290			227,019
Real estate and other assets owned			20,158			23,028			16,976			17,380			20,458

Total nonperforming assets		$	305,346			341,894			246,940			232,670			247,477

Accruing loans past due 90 days or more*		$	174,224			169,753			146,355			153,803			147,867

Government guaranteed loans included in totals above
	Nonperforming loans	$	19,225			16,243			12,513			11,885			10,373
	Accruing loans past due 90 days or more	$	133,045			135,545			123,697			129,114			114,432

Nonperforming loans to total loans and leases, net of unearned discount			.77	%		.86	%		.88	%		.84	%		.86	%
Nonperforming assets to total net loans and leases and real estate and other assets owned			.82	%		.92	%		.94	%		.90	%		.94	%
Accruing loans past due 90 days or more to total loans and leases, net of unearned discount			.47	%		.46	%		.56	%		.60	%		.56	%

Management regularly assesses the adequacy of the allowance for credit losses 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, the value of any collateral and, where applicable, the existence of any guarantees or indemnifications. Significant loans are individually analyzed, while other smaller balance loans are evaluated by loan category. Management evaluated the impact of changes in 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, 2003. Factors considered by management when performing its assessment, in addition to general economic conditions and other general and borrower-specific factors described above, included, but were not limited to: (i) the concentration of commercial real estate loans in the Company’s loan portfolio, particularly the large concentration of loans secured by properties in New York State, in general, and in the New York City metropolitan area, in particular; (ii) the amount of commercial and industrial loans to businesses in areas of New York State outside of the New York City metropolitan area 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. The allowance for credit losses was $621 million, or 1.67% of total loans and

leases at September 30, 2003, compared with $437 million or 1.66% a year earlier, $436 million or 1.70% at December 31, 2002, and $604 million or 1.63% at June 30, 2003. On the April 1, 2003 acquisition date, Allfirst had an allowance for credit losses of $146 million, or 1.43% of Allfirst’s loans then outstanding. Immediately following the merger on April 1, the combined balance sheet of Allfirst and the Company included an allowance for credit losses of $591 million that was equal to 1.62% of loans outstanding. Management continues to evaluate the acquired portfolio, but nevertheless believes that the allowance for credit losses at September 30, 2003 was reasonably stated, in all material respects, and was adequate to absorb credit losses inherent in the portfolio as of that date. The ratio of the allowance for credit losses to nonperforming loans was 218% at the most recent quarter-end, compared with 193% a year earlier, 203% at December 31, 2002 and 189% at June 30, 2003.

Other income grew 80% to $232 million in the third quarter of 2003 from $128 million in the corresponding quarter of 2002, but was little changed from $233 million in the second 2003 quarter. Approximately $90 million of the increase in the recent quarter’s other income from the year-earlier quarter was attributable to revenues related to operations and/or market areas associated with the Allfirst transaction.

Mortgage banking revenues totaled $39 million in the recent quarter, up from $30 million in the third quarter of 2002 but below the $44 million recorded in the second quarter of 2003. The recent quarter’s revenues include $32 million related to the Company’s residential mortgage banking activities, compared with $37 million in the second quarter of 2003. The remaining mortgage banking revenues in the third and second quarters of 2003 relate to commercial mortgage banking and servicing activities which were largely comprised of the origination, sales and servicing of loans in conjunction with the Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) program. The Company’s involvement with the FNMA DUS program resulted from the Allfirst acquisition.

Residential mortgage loans originated for sale to other investors totaled approximately $1.6 billion during the third quarter of 2003, compared with $1.4 billion in 2002’s third quarter and $1.8 billion in the second quarter of 2003. 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 $17 million in the third quarter of 2003, compared with $14 million in the year-earlier quarter and $21 million in the second quarter of 2003. Revenues from servicing residential mortgage loans for others were $13 million in each of the quarters ended September 30, 2003, September 30, 2002 and June 30, 2003. Included in each quarter’s servicing revenues were amounts related to purchased servicing rights associated with small balance commercial mortgage loans of $1 million. Residential mortgage loans serviced for others were $12.0 billion at September 30, 2003, $12.3 billion a year earlier, and $12.6 billion at December 31, 2002, including the small balance commercial mortgage loans noted above of approximately $800 million and $650 million at September 30, 2003 and 2002, respectively, and $600 million at December 31, 2002. Capitalized residential mortgage servicing assets, net of a valuation allowance for impairment, totaled $106 million at September 30, 2003, compared with $109 million at September 30, 2002 and $103 million at December 31, 2002. Included in capitalized residential mortgage servicing assets were $7 million at September 30, 2003 and 2002, and $6 million at December 31, 2002 of purchased servicing rights associated with the small balance commercial mortgage loans noted above. Residential mortgage loans held for sale were $880 million and $1.0 billion at September 30, 2003 and 2002, respectively, and $1.1 billion at December 31, 2002. Commitments to sell residential mortgage loans and commitments to originate residential mortgage loans for sale at pre-determined rates were $1.1 billion and $687 million, respectively, at September 30, 2003, $1.6 billion and $1.2 billion, respectively, at September 30, 2002 and $1.5

billion and $825 million, respectively, at December 31, 2002. Net unrealized gains on residential mortgage loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $7 million and $16 million at September 30, 2003 and 2002, respectively, and $15 million at December 31, 2002. Changes in net unrealized gains are recorded in mortgage banking revenues and resulted in a net increase in revenues of $10 million during the third quarter of 2002 and $2 million during the second quarter of 2003. Changes in net unrealized gains resulted in a decrease in mortgage banking revenues of $10 million during 2003’s third quarter.

Commercial mortgage banking revenues in the third and second quarters of 2003 were $6 million and $7 million, respectively, including $4 million and $5 million, respectively, of revenues from loan origination and sales activities. Commercial mortgage loan servicing revenues were $2 million in each of the two most recent quarters. Commercial mortgage banking revenues were predominantly related to the FNMA DUS business obtained in the Allfirst acquisition. Capitalized commercial mortgage servicing assets totaled $22 million and $21 million, respectively, at September 30 and June 30, 2003. Commercial mortgage loans held for sale at September 30 and June 30, 2003 were $2 million and $65 million, respectively.

Service charges on deposit accounts rose to $91 million in the third quarter of 2003 from $43 million in the year-earlier quarter and $86 million in the second quarter of 2003. Fees for deposit services provided to customers in areas formerly served by Allfirst contributed $43 million and $41 million, respectively, to such revenue in the third and second quarters of 2003. Reflecting $17 million of revenues associated with the acquired Allfirst operations, trust income totaled $32 million in the recent quarter, compared with $14 million in last year’s third quarter and $34 million in this year’s second quarter. Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, totaled $13 million in the third quarter of 2003, up from $11 million in the year-earlier quarter, but lower than the $14 million earned in the second quarter of 2003. Trading account and foreign exchange activity resulted in gains of $5 million during the third quarter of 2003, $287 thousand in 2002’s third quarter and $6 million in the second quarter of 2003. Contributing to the rise in such gains from 2002’s third quarter were market value increases in trading assets held in connection with deferred compensation plans. Other revenues from operations were $52 million in the third quarter of 2003, compared with $30 million in the third quarter of 2002 and $49 million in 2003’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 $13 million in the recent quarter, up from $8 million and $12 million in the quarters ended September 30, 2002 and June 30, 2003, respectively. Other revenues from operations also included letter of credit and other credit-related fees of $15 million in the third and second quarters of 2003, and $7 million in the third quarter of 2002. Other revenues associated with operations acquired from Allfirst were $19 million in each of 2003’s third and second quarters. Included in each quarter’s Allfirst-related revenues were credit-related fees of $7 million and income from bank owned life insurance of $4 million.

Other income totaled $597 million in the first nine months of 2003, up 60% from $374 million in the corresponding 2002 period. Included in other income in the first nine months of 2003 were revenues relating to operations obtained in the Allfirst acquisition of approximately $180 million.

For the first nine months of 2003, mortgage banking revenues totaled $117 million, up from $82 million in the year-earlier period. Reflecting the April 1, 2003 acquisition of Allfirst, mortgage banking revenues in 2003 include $13 million related to the Company’s commercial mortgage banking and servicing activities. The remaining mortgage banking revenues in the first nine months of 2003 and 2002 were generated by the Company’s residential mortgage banking operations. 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 $56 million and $36 million during the nine-month periods ended September 30, 2003 and 2002, respectively. Revenues from servicing residential mortgage loans for others were $40 million and $39 million for the first nine months of 2003 and 2002, respectively. Included in such amounts were revenues related to purchased servicing rights associated with the previously noted small balance commercial mortgage loans of $3 million for each of the first nine months of 2003 and 2002.

Due largely to the previously noted impact of the Allfirst transaction, service charges on deposit accounts grew to $220 million during the first nine months of 2003 from $123 million in the comparable 2002 period and trust income rose to $80 million from $46 million a year earlier. Brokerage services income increased 11% to $38 million during the first nine months of 2003 from $34 million in the similar 2002 period. Trading account and foreign exchange activity resulted in gains of $11 million and $2 million for the nine-month periods ended September 30, 2003 and 2002, respectively. Other revenues from operations increased to $131 million in the first nine months of 2003 from $88 million in the comparable 2002 period. The increase was predominately due to $37 million of revenues from activities formerly associated with Allfirst, including credit-related fees of $15 million and income from bank owned life insurance of $8 million.

Other expense totaled $396 million in the third quarter of 2003, 62% higher than $244 million in the year-earlier period, but down 8% from $431 million in 2003’s second quarter. Expenses related to the acquired operations of Allfirst significantly contributed to the higher level of expenses in the second and third quarters of 2003 compared with the third quarter of 2002. Included in the amounts noted above are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $23 million in each of the third and second quarters of 2003, and $13 million in the third 2002 quarter, and merger-related expenses of $19 million and $33 million for the quarters ended September 30 and June 30, 2003, respectively. There were no merger-related expenses in the third quarter of 2002. Exclusive of these nonoperating expenses, noninterest operating expenses aggregated $355 million in the third quarter of 2003, compared with $231 million in the third quarter of 2002 and $375 million in the second quarter of 2003. Expenses associated with operations acquired from Allfirst were the predominant factors for the higher expense levels in the 2003 quarters as compared with the third quarter of 2002.

Other expense for the first nine months of 2003 aggregated $1.1 billion, up 51% from $711 million in the similar 2002 period. Included in these amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $57 million in 2003 and $40 million in 2002 and merger-related expenses of $58 million in 2003. There were no merger-related expenses during the corresponding period of 2002. Exclusive of these nonoperating expenses, noninterest operating expenses through the first nine months of 2003 increased to $955 million from $671 million in the comparable 2002 period. The April 1, 2003 acquisition of Allfirst was the predominant factor contributing to the higher expense level

in 2003. The following tables provide a reconciliation of other expense to noninterest operating expense.

Salaries and employee benefits expense totaled $214 million in the third quarter of 2003, compared with $123 million in the year-earlier quarter and $205 million in the second quarter of 2003. For the first nine months of 2003, salaries and employee benefits expense increased to $544 million from $373 million in the corresponding 2002 period. As already discussed, the Company began recognizing expense for stock-based compensation effective January 1, 2003. As a result, salaries and employee benefits expense in 2003’s first two quarters each included $10 million of stock-based compensation, while the third 2003 quarter included $11 million of such compensation. Using the retroactive restatement method prescribed by SFAS No. 148, salaries and employee benefits expense for the three and nine-month periods ended September 30, 2002 were restated to include $10 and $30 million, respectively, of stock-based compensation. Salaries and benefits related to the acquired operations of Allfirst were the primary contributor to the rise in salaries in both the three and nine-month periods ended September 30, 2003 from the like-2002 periods. The higher level of expenses in the third quarter of 2003 when compared with 2003’s second quarter was largely the result of increased expenses associated with variable compensation plans that include incentive programs, commissions and stock-based compensation.

Excluding the nonoperating expense items previously noted, nonpersonnel expense totaled $145 million in the third quarter of 2003, compared with $108 million in the third quarter of 2002 and $173 million in the second quarter of 2003. On the same basis, such expenses were $420 million during the first nine months of 2003 and $298 million during the corresponding 2002 period. The impact of the Allfirst acquisition was a significant contributor to the higher expense levels in the 2003 periods as compared with the 2002 periods. Partially offsetting these higher expenses in the third quarter of 2003 as compared with the year-earlier quarter was a $12 million partial reversal of a valuation allowance for possible impairment of capitalized residential mortgage servicing rights. The partial reduction of the valuation allowance reflects the increase in value of capitalized mortgage servicing rights resulting from higher residential mortgage loan interest rates at the end of the recent quarter as compared with such rates at June 30, 2003. The higher interest rates resulted in significant decreases in the expected rate of residential mortgage loan prepayments used in calculating the estimated fair value of capitalized servicing rights. Included in 2002’s third quarter expenses was a provision that added $16 million to the valuation allowance for impairment of capitalized residential mortgage loan servicing rights. A similar provision of $18 million during the second quarter of 2003 contributed to the higher level of operating expenses in that quarter when compared with 2003’s third quarter. The higher levels of such provisions in the third quarter of 2002 and second 2003 quarter reflected the impact of declining interest rates during each of those quarters on the estimated value of capitalized servicing rights.

The efficiency ratio, or noninterest operating expenses (as defined above) divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from sales of bank investment securities), measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio was 53.2% during the recent quarter, compared with 51.6% during the third quarter of 2002 and 56.2% in 2003’s second quarter. The efficiency ratios for the nine-month periods ended September 30, 2003 and 2002 were 53.5% and 51.2%, respectively. The higher ratios in 2003 reflect the impact of the acquired Allfirst operations. Noninterest operating expenses used in calculating the efficiency ratio do not include the merger-related expenses or amortization of core deposit and other intangible assets noted earlier. If charges for amortization of core deposit and other intangible assets were included, the ratio for the three-month periods ended September 30, 2003, September 30, 2002 and June 30, 2003 would have been 56.6%, 54.5% and 59.6%, respectively, and for the nine-month periods ended September 30, 2003 and 2002 would have been 56.6% and 54.2%, respectively.

Merger-related expenses consist largely of expenses for professional services and temporary help associated with the conversion of systems and/or integration of operations; initial marketing and promotion expenses designed to introduce M&T Bank to Allfirst’s customers; travel and relocation costs; and printing, supplies and other costs of commencing operations in new markets and offices. Although the Company will incur additional merger-related expenses during the remainder of 2003 as Allfirst’s operations are fully integrated with those of the Company, such charges are not expected to be material.

Stockholders’ equity at September 30, 2003 was $5.6 billion and represented 11.09% of total assets, compared with $3.1 billion or 9.02% of total assets a year earlier and $3.2 billion or 9.66% at December 31, 2002. On a per share basis, stockholders’ equity was $46.49 at September 30, 2003, up from $33.52 and $34.82 at September 30 and December 31, 2002, respectively. Tangible equity per common share was $20.71 at September 30, 2003, compared with $20.63 at September 30, 2002 and $22.04 at December 31, 2002. In the calculation of tangible equity per common share, stockholders’ equity is reduced by the carrying values of goodwill and core deposit and other intangible assets, net of applicable deferred tax balances, which aggregated $3.1 billion at September 30, 2003 and $1.2 billion at both September 30 and December 31, 2002.

To complete the acquisition of Allfirst on April 1, 2003, M&T issued 26,700,000 shares of common stock to AIB resulting in an addition to stockholders’ equity of $2.0 billion. The value ascribed to the common shares issued to AIB was based on the market value of M&T common stock at the time the terms of the merger were agreed to and announced by M&T and AIB. 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. However, M&T discontinued purchases of its common stock during the third quarter of 2002, determining instead that it would use the Company’s internal generation of capital to support the Allfirst acquisition. Prior thereto, a total of 3,632,098 shares of common stock had been repurchased pursuant to the authorization at an average cost of $78.49 per share.

Included in stockholders’ equity at September 30, 2003 was accumulated other comprehensive income of $41 million, compared with $42 million a year earlier and $55 million at December 31, 2002. Other comprehensive income includes net unrealized gains and losses, net of applicable tax effect, on investment securities classified as available for sale and unrealized fair value losses, also net of applicable tax effect, associated with interest rate swap agreements designated as cash flow hedges. Net unrealized gains on investment securities classified as available for sale were $41 million at September 30, 2003, compared with net unrealized gains of $43 million at September 30, 2002 and $55 million at December 31, 2002. Such unrealized gains are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available for sale. Unrealized fair value losses associated with interest rate swap agreements designated as cash flow hedges, net of applicable tax effect, were $724 thousand and $622 thousand at September 30 and December 31, 2002, respectively. There were no outstanding interest rate swap agreements designated as cash flow hedges at September 30, 2003.

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 $685 million carrying value of trust preferred securities as described in note 7 of Notes to Financial Statements. As of September 30, 2003, total capital also included $1.2 billion of subordinated notes payable.

The Company generates significant amounts of regulatory capital. The rate of regulatory core capital generation, or net operating income (as previously defined) less the sum of dividends paid and the after-tax effect of merger-related expenses expressed as an annualized percentage of regulatory “core capital” at the beginning of each period was 20.33% during the third quarter of 2003, compared with 18.51% in the third quarter of 2002 and 22.62% in the second quarter of 2003.

The regulatory capital ratios of the Company, M&T Bank and M&T Bank, N.A., as of September 30, 2003 are presented in the accompanying table.

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 8 of Notes to Financial Statements.

Net income for the Commercial Banking segment was $52 million in the third quarter of 2003, $36 million higher than the $16 million earned in the third quarter of 2002, but unchanged from the second quarter of 2003. On a year-to-date basis, this segment contributed $127 million to net income in 2003, compared with $68 million in 2002. The favorable performance from the prior year periods was predominately the result of the Allfirst acquisition that contributed to increases in net interest income on loans, deposit service charges and credit-related fees, partially offset by an increase in salaries and benefits expenses. In addition, net charge-offs were higher in the 2002 periods, the result of a $17 million loss related to two commercial leases to a major airline company that filed for bankruptcy protection.

The Commercial Real Estate segment contributed $31 million to the Company’s net income in the third quarter of 2003, compared with $22 million in the year-earlier period and $33 million in the second quarter of 2003. For the first nine months of 2003 and 2002, net income for the Commercial Real Estate segment was $87 million and $68 million, respectively. The decline in the recent quarter’s net income from the immediately preceding quarter was due to a $2 million increase in the provision for credit losses that reflected higher net charge-offs. The higher contribution during the three and nine-month periods ended September 30, 2003 as compared with the corresponding 2002 periods was due to higher net interest income, the result of loans acquired in the Allfirst transaction and a higher net interest margin on loans in the non-Allfirst regions, and commercial mortgage banking revenues, the result of the FNMA DUS business acquired from Allfirst. Partially offsetting these revenue increases were higher salaries and benefits and other operating expenses resulting from the Allfirst acquisition.

The Discretionary Portfolio segment’s net income totaled $27 million in the third quarter of 2003, up 79% from $15 million in the third quarter of 2002, and 21% higher than $23 million earned in the second quarter of 2003. On a year-to-date basis, net income contribution for this segment was $64 million in 2003 and $46 million in 2002. The increase in net income from the second to the third quarter of 2003 was primarily the result of higher net interest income, due to higher investment securities and loan balances outstanding of 4% and 11%, respectively. In addition, net interest margin on investment securities and loans improved by 2 basis points and 26 basis points, respectively. Higher net interest income from investment securities acquired in the Allfirst transaction contributed to the improved net income during the three and nine-month periods ended September 30, 2003 from the similar 2002 periods.

The Residential Mortgage Banking segment recorded net income for the third quarter of 2003 of $27 million, which was significantly higher than the $10 million earned in the immediately preceding quarter and the $7 million contributed in the third quarter of 2002. The improvement from the second quarter of 2003 was primarily due to an $11 million partial reversal of a valuation allowance for possible impairment of capitalized mortgage servicing rights during the recent quarter, while an addition of $16 million to such valuation allowance was made during 2003’s second quarter. In the third quarter of 2002, a similar $14 million addition to the valuation allowance was recognized. Also contributing to the improvement in the recent quarter’s net income as compared with the third quarter of 2002 were a $13 million increase in revenues from loan origination and sales activities, including gains from sales of loans to the Company’s Discretionary Portfolio segment, and an $8 million increase in net interest income, due to higher loan and deposit balances outstanding. Partially offsetting these revenue increases was a $12 million increase in salaries and employee benefits and other operating

expenses. On a year-to-date basis, the Residential Mortgage segment contributed $54 million and $28 million to net income in 2003 and 2002, respectively. The 2003 results include a $44 million increase in revenues from loan origination and sales activities, including gains from sales of loans to the Company’s Discretionary Portfolio segment, and a $13 million increase in net interest income, due largely to higher loan and deposit balances outstanding. In addition, through September, the provision for the impairment of capitalized mortgage servicing rights was $11 million lower in 2003 than in 2002. Partially offsetting these improvements was a $28 million increase in salaries and employee benefits and other operating expenses.

Net income contributed by the Retail Banking segment was $56 million in the third quarter of 2003, virtually unchanged from the second quarter of 2003, but up from $42 million the third quarter of 2002. This segment earned $151 million and $123 million in the first nine months of 2003 and 2002, respectively. The favorable variances from the 2002 periods were largely the result of higher net interest income and service charges on deposit accounts, largely attributable to the impact of the acquisition of Allfirst. Higher operating expenses partially offset these revenue increases.

The “All Other” category reflects other activities of the Company that are not directly attributable to the reported segments as determined in accordance with SFAS No. 131. Included in this category are amortization of core deposit and other intangible assets, 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. The various components comprising the “All Other” category resulted in net losses of $37 million and $39 million in the third and second quarters of 2003, respectively, and net income of $8 million in the third quarter of 2002. This segment contributed a net loss of $76 million in the first nine months of 2003 and net income of $6 million in the similar 2002 period. The net losses in 2003 were largely the result of merger-related costs, core deposit intangible amortization, and other expenses related to the Allfirst acquisition. Also contributing to the net losses were the Company’s allocation methodologies for internal funds transfer pricing and higher provisions for credit losses.

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.

Future Factors include changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; credit losses; sources of liquidity; common shares outstanding; common stock price volatility; fair value and number of stock options to be issued in future periods; legislation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively; 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 with 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 and political conditions, including interest rate and currency exchange rate fluctuations, and other Future Factors.


			2003 Third Quarter								2003 Second Quarter								2003 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.		$	9,514		$	97,290		4.06	%		9,985			108,018		4.34	%		5,340			60,441		4.59	%
	Real estate — commercial			12,165			181,060		5.95			12,059			185,169		6.14			9,687			159,101		6.57
	Real estate — consumer			4,303			64,439		5.99			3,853			59,563		6.18			3,181			51,476		6.47
	Consumer			10,971			163,037		5.90			10,735			165,541		6.19			7,581			117,839		6.30

		Total loans and leases, net		36,953			505,826		5.43			36,632			518,291		5.67			25,789			388,857		6.11

Money-market assets
	Interest-bearing deposits at banks			14			77		2.24			21			41		.80			8			14		.72
	Federal funds sold and agreements to resell securities			9			25		1.15			13			46		1.40			554			1,744		1.28
	Trading account			72			197		1.09			66			214		1.29			15			62		1.62

		Total money-market assets		95			299		1.25			100			301		1.21			577			1,820		1.28

Investment securities**
	U.S. Treasury and federal agencies			3,086			29,790		3.83			3,056			30,665		4.03			1,147			16,213		5.73
	Obligations of states and political subdivisions			262			4,045		6.18			261			4,206		6.44			242			3,775		6.25
	Other			2,489			28,359		4.52			2,337			27,241		4.68			2,249			28,517		5.14

		Total investment securities		5,837			62,194		4.23			5,654			62,112		4.41			3,638			48,505		5.41

		Total earning assets		42,885			568,319		5.26			42,386			580,704		5.50			30,004			439,182		5.94

Allowance for credit losses				(618	)							(603	)							(445	)
Cash and due from banks				1,979								1,769								729
Other assets				5,778								5,458								2,773

		Total assets	$	50,024								49,010								33,061

Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits
	NOW accounts		$	1,227			1,044		.34			903			905		.40			789			708		.36
	Savings deposits			14,320			25,154		.70			14,428			28,584		.79			9,623			22,684		.96
	Time deposits			6,739			39,625		2.33			7,489			44,825		2.40			5,877			38,111		2.63
	Deposits at foreign offices			1,340			3,203		.95			996			2,882		1.16			1,052			3,123		1.20

		Total interest-bearing deposits		23,626			69,026		1.16			23,816			77,196		1.30			17,341			64,626		1.51

Short-term borrowings				4,870			12,655		1.03			4,789			14,581		1.22			3,490			11,152		1.30
Long-term borrowings				6,595			51,858		3.12			6,698			53,729		3.22			4,838			43,814		3.67

		Total interest-bearing liabilities		35,091			133,539		1.51			35,303			145,506		1.65			25,669			119,592		1.89

Noninterest-bearing deposits				8,328								7,373								3,737
Other liabilities				1,144								957								388

		Total liabilities		44,563								43,633								29,794

Stockholders’ equity				5,461								5,377								3,267

		Total liabilities and stockholders’ equity	$	50,024								49,010								33,061

Net interest spread									3.75								3.85								4.05
Contribution of interest-free funds									.27								.27								.27

Net interest income/margin on earning assets						$	434,780		4.02	%					435,198		4.12	%					319,590		4.32	%

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


			2002 Fourth Quarter								2002 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.		$	5,273		$	64,190		4.83	%		5,181			66,239		5.07	%
	Real estate — commercial			9,650			163,064		6.76			9,536			164,406		6.90
	Real estate — consumer			3,638			60,952		6.70			4,147			72,318		6.98
	Consumer			7,303			122,029		6.63			6,964			119,805		6.83

		Total loans and leases, net		25,864			410,235		6.29			25,828			422,768		6.49

Money-market assets
	Interest-bearing deposits at banks			7			15		.83			6			21		1.43
	Federal funds sold and agreements to resell securities			487			1,808		1.47			103			458		1.77
	Trading account			15			67		1.71			12			51		1.68

		Total money-market assets		509			1,890		1.47			121			530		1.74

Investment securities**
	U.S. Treasury and federal agencies			1,163			17,893		6.10			1,327			21,461		6.42
	Obligations of states and political subdivisions			252			4,025		6.39			278			4,332		6.24
	Other			2,330			27,472		4.68			1,337			15,710		4.66

		Total investment securities		3,745			49,390		5.23			2,942			41,503		5.60

		Total earning assets		30,118			461,515		6.08			28,891			464,801		6.38

Allowance for credit losses				(442	)							(440	)
Cash and due from banks				757								738
Other assets				2,741								2,719

		Total assets	$	33,174								31,908

Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits
	NOW accounts		$	794			902		.45			753			1,024		.54
	Savings deposits			9,355			25,538		1.08			8,950			27,797		1.23
	Time deposits			6,673			46,213		2.75			7,154			54,168		3.00
	Deposits at foreign offices			934			3,360		1.43			458			1,793		1.55

		Total interest-bearing deposits		17,756			76,013		1.70			17,315			84,782		1.94

Short-term borrowings				3,651			13,818		1.50			3,199			14,197		1.76
Long-term borrowings				4,486			46,527		4.11			4,306			47,101		4.34

		Total interest-bearing liabilities		25,893			136,358		2.09			24,820			146,080		2.34

Noninterest-bearing deposits				3,752								3,676
Other liabilities				394								382

		Total liabilities		30,039								28,878

Stockholders’ equity				3,135								3,030

		Total liabilities and stockholders’ equity	$	33,174								31,908

Net interest spread									3.99								4.04
Contribution of interest-free funds									.29								.34

Net interest income/margin on earning assets						$	325,157		4.28	%					318,721		4.38	%

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


		2003 Quarters									2002 Quarters

		Third			Second			First			Fourth			Third			Second			First

Earnings and dividends
Amounts in thousands, except per share
Interest income (taxable-equivalent basis)		$	568,319			580,704			439,182			461,515			464,801			465,046			464,786
Interest expense			133,539			145,506			119,592			136,358			146,080			151,949			160,127

Net interest income			434,780			435,198			319,590			325,157			318,721			313,097			304,659
Less: provision for credit losses			34,000			36,000			33,000			33,000			37,000			28,000			24,000
Other income			231,594			232,897			132,847			138,178			128,346			121,179			124,228
Less: other expense			396,400			431,147			242,278			251,089			243,971			233,267			233,284

Income before income taxes			235,974			200,948			177,159			179,246			166,096			173,009			171,603
Applicable income taxes			75,329			62,600			56,998			57,396			52,449			54,881			54,427
Taxable-equivalent adjustment			4,182			4,308			3,623			3,299			3,530			3,621			3,599

Net income		$	156,463			134,040			116,538			118,551			110,117			114,507			113,577

Per common share data
	Basic earnings	$	1.31			1.12			1.26			1.29			1.20			1.23			1.22
	Diluted earnings		1.28			1.10			1.23			1.25			1.16			1.19			1.18
	Cash dividends	$	.30			.30			.30			.30			.25			.25			.25
Average common shares outstanding
	Basic		119,727			119,393			92,399			92,060			92,017			92,608			93,265
	Diluted		122,593			122,366			95,062			94,950			94,942			95,917			96,300

Performance ratios, annualized
Return on
	Average assets		1.24	%		1.10	%		1.43	%		1.42	%		1.37	%		1.47	%		1.47	%
	Average common stockholders’ equity		11.37	%		10.00	%		14.46	%		15.00	%		14.42	%		15.43	%		15.56	%
Net interest margin on average earning assets (taxable-equivalent basis)			4.02	%		4.12	%		4.32	%		4.28	%		4.38	%		4.43	%		4.37	%
Nonperforming loans to total loans and leases, net of unearned discounts			.77	%		.86	%		.88	%		.84	%		.86	%		.66	%		.73	%
Efficiency ratio (a)			56.60	%		59.59	%		52.37	%		54.20	%		54.49	%		53.69	%		54.41	%

Net operating (tangible) results (b)
Net income (in thousands)		$	182,670			169,436			127,231			125,760			118,073			123,040			122,370
Diluted net income per common share			1.49			1.38			1.34			1.32			1.24			1.28			1.27
Annualized return on
	Average tangible assets		1.55	%		1.48	%		1.62	%		1.56	%		1.52	%		1.64	%		1.65	%
	Average tangible common stockholders’ equity		30.67	%		29.89	%		24.68	%		25.54	%		25.46	%		27.75	%		28.41	%
Efficiency ratio (a)			53.22	%		56.20	%		49.81	%		51.65	%		51.59	%		50.67	%		51.26	%

Balance sheet data
In millions, except per share
Average balances
	Total assets (c)	$	50,024			49,010			33,061			33,174			31,908			31,349			31,290
	Total tangible assets (c)		46,848			45,822			31,884			31,992			30,718			30,150			30,077
	Earning assets		42,885			42,386			30,004			30,118			28,891			28,375			28,281
	Investment securities		5,837			5,654			3,638			3,745			2,942			2,888			2,910
	Loans and leases, net of unearned discount		36,953			36,632			25,789			25,864			25,828			25,214			25,109
	Deposits		31,954			31,189			21,078			21,508			20,991			21,210			21,272
	Stockholders’ equity (c)		5,461			5,377			3,267			3,135			3,030			2,978			2,960
	Tangible stockholders’ equity (c)		2,363			2,274			2,090			1,953			1,840			1,779			1,747

At end of quarter
	Total assets (c)	$	50,259			50,399			33,444			33,201			34,173			31,708			31,317
	Total tangible assets (c)		47,093			47,211			32,271			32,024			32,987			30,513			30,108
	Earning assets		43,257			43,038			30,396			30,027			30,749			28,627			28,337
	Investment securities		5,957			5,946			4,146			3,955			4,181			2,961			2,861
	Loans and leases, net of unearned discount		37,160			37,002			26,224			25,728			26,309			25,604			25,138
	Deposits		32,414			32,539			21,924			21,665			22,540			21,858			21,624
	Stockholders’ equity (c)		5,572			5,433			3,313			3,208			3,083			3,000			2,968
	Tangible stockholders’ equity (c)		2,482			2,327			2,140			2,031			1,897			1,805			1,759
	Equity per common share		46.49			45.46			35.81			34.82			33.52			32.54			31.89
	Tangible equity per common share		20.71			19.47			23.13			22.04			20.63			19.58			18.90

Market price per common share
	High	$	90.93			90.91			84.48			85.08			86.50			90.05			82.24
	Low		83.65			79.00			74.71			67.70			70.09			79.80			71.19
	Closing		87.30			84.22			78.58			79.35			78.81			85.76			80.37

(a)		Excludes impact of merger-related expenses and net securities transactions.

(b)		Excludes amortization and balances related to goodwill and core deposit and other intangible assets and merger-related expenses which, except in the calculation of the efficiency ratio, are net of applicable income tax effects. A reconciliation of net income and net operating income appears on page 25.

(c)		The difference between total assets and total tangible assets, and stockholders’ equity and tangible stockholders’ equity, represents goodwill, core deposit and other intangible assets, net of applicable deferred tax balances. A reconciliation of such balances appears on page 26.

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.”

(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, 2003.

(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, 2003 through the date of this Quarterly Report on Form 10-Q, including any corrective actions with regard to significant deficiencies and material weaknesses.

(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, 2003:

On July 14, 2003, M&T filed a Current Report on Form 8-K dated July 14, 2003 to disclose that M&T had announced its results of operations for the fiscal quarter ended June 30, 2003.

On July 17, 2003, M&T filed a Current Report on Form 8-K dated July 15, 2003 to disclose that the Boards of Directors of M&T and M&T Bank had taken actions to elect several new directors and to make various organizational changes.

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.


New York		16-0968385
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


One M & T Plaza
Buffalo, New York		14203
(Address of principal		(Zip Code)
executive offices)


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.
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.
EX-31.1 302 Certifictaion for CEO
EX-31.2 302 Certifictaion for CFO
EX-32.1 906 Certifictaion for CEO
EX-32.2 906 Certifictaion for CFO



			Nine months ended September 30
In thousands			2003			2002

Beginning balance			$	436,472			425,008
Provision for credit losses				103,000			89,000
Allowance obtained through acquisition				146,300			—
Net charge-offs
	Charge-offs			(87,120	)		(88,853	)
	Recoveries			22,765			12,185

		Total net charge-offs		(64,355	)		(76,668	)

Ending balance			$	621,417			437,340


	Pro forma
	Three months ended		Nine months ended
	September 30		September 30
	2002		2003		2002

	(in thousands, except per share)
Interest income	$	639,321		1,716,798		1,941,588
Other income		223,313		689,298		619,740
Net income		120,696		431,655		379,597
Diluted earnings per common share	$	.99		3.54		3.10


		Gross carrying		Accumulated		Net carrying
		amount		amortization		amount

				(in thousands)
September 30, 2003
	Core deposit	$	385,725		186,976		198,749
	Other		98,816		36,017		62,799

	Total	$	484,541		222,993		261,548

December 31, 2002
	Core deposit	$	249,960		143,272		106,688
	Other		35,016		22,914		12,102

	Total	$	284,976		166,186		118,790


	(in thousands)
2003	$	21,345
2004		75,410
2005		56,684
2006		42,768
2007		29,311
2008		17,707
Later years		18,323

	$	261,548


			Prior
	Allfirst		acquisitions		Total

			(in thousands)
Commercial Banking	$	602,153		236,012		838,165
Commercial Real Estate		140,283		114,883		255,166
Discretionary Portfolio		—		—		—
Residential Mortgage Banking		—		—		—
Retail Banking		813,361		627,564		1,440,925
All Other		250,731		119,094		369,825

Total	$	1,806,528		1,097,553		2,904,081


		Three months ended
										Year ended
		March 31		June 30		September 30		December 31		December 31
		2002		2002		2002		2002		2002

		(in thousands, except per share)
Net income:
	As previously reported	$	120,564		121,494		117,215		125,819		485,092
	As restated		113,577		114,507		110,117		118,551		456,752
Basic earnings per share:
	As previously reported	$	1.29		1.31		1.27		1.37		5.25
	As restated		1.22		1.23		1.20		1.29		4.94
Diluted earnings per share:
	As previously reported	$	1.25		1.26		1.23		1.33		5.07
	As restated		1.18		1.19		1.16		1.25		4.78


		Nine months ended September 30, 2003

		Before-tax			Income
		amount			taxes			Net

		(in thousands)
Unrealized losses on investment securities:
	Unrealized holding losses during period	$	(23,437	)		9,021			(14,416	)
	Less: reclassification adjustment for gains realized in net income		541			(211	)		330

			(23,978	)		9,232			(14,746	)
Unrealized gains on cash flow hedges			1,019			(397	)		622

	Net unrealized losses	$	(22,959	)		8,835			(14,124	)


		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


	Investment			Cash flow
	securities			hedges			Total

	(in thousands)
Balance – January 1, 2003	$	55,394			(622	)		54,772
Net gain (loss) during period		(14,746	)		622			(14,124	)

Balance – September 30, 2003	$	40,648			—			40,648

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


	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
Trust IV		LIBOR plus 1.00	%	January 15, April 15, July 15 and October 15
Trust V		LIBOR plus .85	%	February 1, May 1, August 1 and November 1


	Three months ended September 30

	2003								2002

			Inter-			Net					Inter-			Net
	Total		segment			income			Total		segment			income
	revenues(a)		revenues			(loss)			revenues(a)		revenues			(loss)

	(in thousands)
Commercial Banking(b)	$	117,108		150			52,200			65,996		80			16,006
Commercial Real Estate		65,579		395			31,326			44,414		254			22,215
Discretionary Portfolio(c)		43,196		(909	)		27,213			27,278		1,238			15,197
Residential Mortgage Banking		84,916		22,977			26,949			63,350		12,008			6,624
Retail Banking		298,967		3,463			55,632			201,035		3,733			41,687
All Other(b)(c)		52,426		(26,076	)		(36,857	)		41,464		(17,313	)		8,388

Total	$	662,192		—			156,463			443,537		—			110,117


	Average total assets

	Nine months ended				Year ended
	September 30				December 31
	2003		2002		2002

	(in millions)
Commercial Banking(b)	$	9,403		6,265		6,314
Commercial Real Estate		7,115		6,191		6,234
Discretionary Portfolio		8,556		6,988		7,072
Residential Mortgage Banking		1,901		1,547		1,618
Retail Banking		12,733		8,897		9,059
All Other(b)		4,369		1,630		1,638

Total	$	44,077		31,518		31,935


INTEREST RATE SWAPS
Dollars in thousands

		Three months ended September 30

		2003						2002

		Amount			Rate*			Amount			Rate*

Increase (decrease) in:
	Interest income	$	—			—	%	$	(194	)		—	%
	Interest expense		(5,178	)		(.06	)		(2,580	)		(.04	)

	Net interest income/margin	$	5,178			.04	%	$	2,386			.04	%

Average notional amount		$	763,261					$	871,793


							Nine
	Three months ended						months ended

	March 31		June 30		September 30		September 30
	2003		2003		2003		2003

	(in thousands, except per share)
Net income	$	116,538		134,040		156,463		407,041
Amortization of core deposit and other intangible assets(1)		7,094		13,883		13,790		34,767
Merger-related expenses(1)		3,599		21,513		12,417		37,529

Net operating income	$	127,231		169,436		182,670		479,337

Diluted earnings per share	$	1.23		1.10		1.28		3.59
Amortization of core
deposit and other intangible assets(1)		.07		.11		.11		.31
Merger-related expenses(1)		.04		.17		.10		.33

Diluted net operating earnings per share	$	1.34		1.38		1.49		4.23


AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions						Percent increase
						(decrease) from
				3rd Qtr.		3rd Qtr.			2nd Qtr.
				2003		2002			2003

Commercial, financial, etc.				$	9,514		84	%		(5	)%
Real estate – commercial					12,165		28			1
Real estate – consumer					4,303		4			12
Consumer
	Automobile				4,285		45			7
	Home equity lines				3,062		63			4
	Home equity loans				1,939		165			(8	)
	Other				1,685		21			2

		Total consumer			10,971		58			2

			Total	$	36,953		43	%		1	%


AVERAGE CORE DEPOSITS
Dollars in millions				Percent increase from
		3rd Qtr.		3rd Qtr.			2nd Qtr.
		2003		2002			2003

NOW accounts		$	1,227		63	%		36	%
Savings deposits			14,261		60			—
Time deposits less than $100,000			5,126		23			(6	)
Noninterest-bearing deposits			8,328		127			13

	Total	$	28,942		65	%		3	%


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, 2003			December 31, 2002

+200 basis points	$	2,861			12,223
+100 basis points		1,268			5,311
-100 basis points		(6,300	)		12,507
-200 basis points		(1,193	)		13,055


NET CHARGE-OFFS
BY LOAN/LEASE TYPE
In thousands
		2003

								Year-
		1st Qtr.		2nd Qtr.		3rd Qtr.		to-date

Commercial, financial, etc		$	12,237		7,420		1,132		20,789
Real estate:
	Commercial		1,358		1,180		2,163		4,701
	Residential		530		1,107		711		2,348
Consumer			10,667		13,772		12,078		36,517

		$	24,792		23,479		16,084		64,355


	M&T			M&T			M&T
	(Consolidated)			Bank			Bank, N.A.

Core capital		6.91	%		6.72	%		25.73	%
Total capital		10.82	%		10.55	%		26.73	%
Leverage		6.49	%		6.33	%		15.87	%


Exhibit
No.

31.1		Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		M&T BANK CORPORATION

Date: November 12, 2003	By:	/s/ Michael P. Pinto
		Michael P. Pinto Executive Vice President and Chief Financial Officer