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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2004

or

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

Commission File Number 1-9861

M&T BANK CORPORATION

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [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, $0.50 par value, outstanding as of the close of business on April 30, 2004: 118,533,428 shares.

 


M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2004

         
Table of Contents of Information Required in Report
  Page
       
       
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 EX-31.1 302 CERTIFICATION - CEO
 EX-31.2 302 CERTIFICATION - CFO
 EX-32.1 906 CERTIFICATION - CEO
 EX-32.2 906 CERTIFICATION - CFO

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

                 
    March 31,   December 31,
Dollars in thousands, except per share
  2004
  2003
Assets
               
Cash and due from banks
  $ 1,827,401       1,877,494  
Money-market assets
               
Interest-bearing deposits at banks
    13,249       13,194  
Federal funds sold and agreements to resell securities
    90,575       22,288  
Trading account
    212,819       214,833  
 
   
 
     
 
 
Total money-market assets
    316,643       250,315  
 
   
 
     
 
 
Investment securities
               
Available for sale (cost: $7,147,303 at March 31, 2004; $6,800,341 at December 31, 2003)
    7,262,164       6,862,937  
Held to maturity (market value: $110,075 at March 31, 2004; $108,053 at December 31, 2003)
    106,986       104,872  
Other (market value: $286,740 at March 31, 2004; $291,341 at December 31, 2003)
    286,740       291,341  
 
   
 
     
 
 
Total investment securities
    7,655,890       7,259,150  
 
   
 
     
 
 
Loans and leases
    36,763,316       36,037,598  
Unearned discount
    (248,008 )     (265,163 )
Allowance for credit losses
    (615,640 )     (614,058 )
 
   
 
     
 
 
Loans and leases, net
    35,899,668       35,158,377  
 
   
 
     
 
 
Premises and equipment
    387,821       398,971  
Goodwill
    2,904,081       2,904,081  
Core deposit and other intangible assets
    219,683       240,830  
Accrued interest and other assets
    1,621,293       1,736,863  
 
   
 
     
 
 
Total assets
  $ 50,832,480       49,826,081  
 
   
 
     
 
 
Liabilities
               
Noninterest-bearing deposits
  $ 7,959,025       8,411,296  
NOW accounts
    885,885       1,738,427  
Savings deposits
    15,121,243       14,118,521  
Time deposits
    6,836,041       6,637,249  
Deposits at foreign offices
    2,538,686       2,209,451  
 
   
 
     
 
 
Total deposits
    33,340,880       33,114,944  
 
   
 
     
 
 
Federal funds purchased and agreements to repurchase securities
    4,354,877       3,832,182  
Other short-term borrowings
    600,738       610,064  
Accrued interest and other liabilities
    1,053,893       1,016,256  
Long-term borrowings
    5,747,951       5,535,425  
 
   
 
     
 
 
Total liabilities
    45,098,339       44,108,871  
 
   
 
     
 
 
Stockholders’ equity
               
Preferred stock, $1 par, 1,000,000 shares authorized, none outstanding
           
Common stock, $.50 par, 250,000,000 shares authorized, 120,396,611 shares issued at March 31, 2004; 120,106,490 shares issued at December 31, 2003
    60,198       60,053  
Common stock issuable, 122,807 shares at March 31, 2004; 124,303 shares at December 31, 2003
    6,562       6,326  
Additional paid-in capital
    2,898,499       2,888,963  
Retained earnings
    2,848,014       2,736,215  
Accumulated other comprehensive income, net
    57,435       25,653  
Treasury stock - common, at cost - 1,488,239 shares at March 31, 2004; none at December 31, 2003
    (136,567 )      
 
   
 
     
 
 
Total stockholders’ equity
    5,734,141       5,717,210  
 
   
 
     
 
 
Total liabilities and stockholders’ equity
  $ 50,832,480       49,826,081  
 
   
 
     
 
 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

                 
    Three months ended March 31
In thousands, except per share
  2004
  2003
Interest income
               
Loans and leases, including fees
  $ 471,639       387,365  
Money-market assets
               
Deposits at banks
    15       14  
Federal funds sold and agreements to resell securities
    28       1,744  
Trading account
    150       48  
Investment securities
               
Fully taxable
    70,810       42,369  
Exempt from federal taxes
    3,490       4,019  
 
   
 
     
 
 
Total interest income
    546,132       435,559  
 
   
 
     
 
 
Interest expense
               
NOW accounts
    994       708  
Savings deposits
    22,921       22,684  
Time deposits
    36,389       38,111  
Deposits at foreign office
    6,882       3,123  
Short-term borrowings
    12,058       11,152  
Long-term borrowings
    47,585       43,814  
 
   
 
     
 
 
Total interest expense
    126,829       119,592  
 
   
 
     
 
 
Net interest income
    419,303       315,967  
Provision for credit losses
    20,000       33,000  
 
   
 
     
 
 
Net interest income after provision for credit losses
    399,303       282,967  
 
   
 
     
 
 
Other income
               
Mortgage banking revenues
    28,258       34,464  
Service charges on deposit accounts
    88,325       43,349  
Trust income
    33,586       14,199  
Brokerage services income
    13,853       10,048  
Trading account and foreign exchange gains
    5,123       641  
Gain on sales of bank investment securities
    2,512       233  
Other revenues from operations
    56,494       29,913  
 
   
 
     
 
 
Total other income
    228,151       132,847  
 
   
 
     
 
 
Other expense
               
Salaries and employee benefits
    200,750       124,074  
Equipment and net occupancy
    47,372       27,151  
Printing, postage and supplies
    9,892       7,013  
Amortization of core deposit and other intangible assets
    21,148       11,598  
Other costs of operations
    110,805       72,442  
 
   
 
     
 
 
Total other expense
    389,967       242,278  
 
   
 
     
 
 
Income before taxes
    237,487       173,536  
Income taxes
    77,997       56,998  
 
   
 
     
 
 
Net income
  $ 159,490       116,538  
 
   
 
     
 
 
Net income per common share
               
Basic
  $ 1.33       1.26  
Diluted
    1.30       1.23  
Cash dividends per common share
  $ .40       .30  
Average common shares outstanding
               
Basic
    119,738       92,399  
Diluted
    122,316       95,062  

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

                 
    Three months ended March 31
In thousands
  2004
  2003
Cash flows from operating activities
               
Net income
  $ 159,490       116,538  
Adjustments to reconcile net income to net cash provided by operating activities
               
Provision for credit losses
    20,000       33,000  
Depreciation and amortization of premises and equipment
    16,378       9,646  
Amortization of capitalized servicing rights
    14,118       11,449  
Amortization of core deposit and other intangible assets
    21,148       11,598  
Provision for deferred income taxes
    (27,367 )     (12,476 )
Asset write-downs
    186       144  
Net (gain) loss on sales of assets
    (3,040 )     228  
Net change in accrued interest receivable, payable
    (4,880 )     347  
Net change in other accrued income and expense
    91,096       46,306  
Net change in loans held for sale
    (5,377 )     157,332  
Net change in trading account assets and liabilities
    7,138       20  
 
   
 
     
 
 
Net cash provided by operating activities
    288,890       374,132  
 
   
 
     
 
 
Cash flows from investing activities
               
Proceeds from sales of investment securities
               
Available for sale
    212,983       887  
Other
    5,013       19,112  
Proceeds from maturities of investment securities
               
Available for sale
    514,077       805,631  
Held to maturity
    45,074       10,290  
Purchases of investment securities
               
Available for sale
    (1,068,881 )     (992,824 )
Held to maturity
    (47,194 )     (14,329 )
Other
    (412 )     (30,000 )
Additions to capitalized servicing rights
    (14,163 )     (14,500 )
Net increase in loans and leases
    (760,185 )     (684,294 )
Capital expenditures, net
    (4,813 )     (3,044 )
Other, net
    67,223       4,217  
 
   
 
     
 
 
Net cash used by investing activities
    (1,051,278 )     (898,854 )
 
   
 
     
 
 
Cash flows from financing activities
               
Net increase in deposits
    229,488       259,552  
Net increase (decrease) in short-term borrowings
    513,365       (1,042,370 )
Proceeds from long-term borrowings
    300,110       999,568  
Payments on long-term borrowings
    (100,766 )     (101,760 )
Purchases of treasury stock
    (162,178 )      
Dividends paid - common
    (47,644 )     (27,701 )
Other, net
    48,207       (3,806 )
 
   
 
     
 
 
Net cash provided by financing activities
    780,582       83,483  
 
   
 
     
 
 
Net increase (decrease) in cash and cash equivalents
    18,194       (441,239 )
Cash and cash equivalents at beginning of period
    1,899,782       1,284,131  
Cash and cash equivalents at end of period
  $ 1,917,976       842,892  
 
   
 
     
 
 
Supplemental disclosure of cash flow information
               
Interest received during the period
  $ 535,853       431,148  
Interest paid during the period
    131,645       115,746  
Income taxes paid during the period
    9,718       981  
 
   
 
     
 
 
Supplemental schedule of noncash investing and financing activities
               
Real estate acquired in settlement of loans
  $ 4,607       2,308  
 
   
 
     
 
 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

                                                                 
                                            Accumulated        
                    Common   Additional           other        
    Preferred   Common   stock   paid-in   Retained   comprehensive   Treasury    
In thousands, except per share
  stock
  stock
  issuable
  capital
  earnings
  income, net
  stock
  Total
2003
                                                               
Balance - January 1, 2003
  $       48,570       6,190       1,192,998       2,297,848       54,772       (391,899 )     3,208,479  
Comprehensive income:
                                                               
Net income
                            116,538                   116,538  
Other comprehensive income, net of tax:
                                                               
Unrealized losses on investment securities, net of reclassification adjustment
                                  (5,617 )           (5,617 )
Unrealized gains on cash flow hedges, net of reclassification adjustment
                                  201             201  
 
                                                           
 
 
 
                                                            111,122  
Repayment of management stock ownership program receivable
                      22                         22  
Stock-based compensation plans:
                                                               
Stock option and purchase plans:
                                                               
Compensation expense
                      9,968                         9,968  
Exercises
                      (15,059 )                 25,288       10,229  
Directors’ stock plan
                      6                   175       181  
Deferred compensation plans, net, including dividend equivalents
                195       (220 )     (39 )           483       419  
Common stock cash dividends - $.30 per share
                            (27,701 )                 (27,701 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Balance - March 31, 2003
  $       48,570       6,385       1,187,715       2,386,646       49,356       (365,953 )     3,312,719  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
2004
                                                               
Balance - January 1, 2004
  $       60,053       6,326       2,888,963       2,736,215       25,653             5,717,210  
Comprehensive income:
                                                               
Net income
                            159,490                   159,490  
Other comprehensive income, net of tax:
                                                               
Unrealized gains on investment securities, net of reclassification adjustment
                                  31,782             31,782  
 
                                                           
 
 
 
                                                            191,272  
Purchases of treasury stock
                                        (162,178 )     (162,178 )
Stock-based compensation plans:
                                                               
Stock option and purchase plans:
                                                               
Compensation expense
                      11,644                         11,644  
Exercises
          144             (1,909 )                 25,005       23,240  
Directors’ stock plan
          1             165                         166  
Deferred compensation plans, net, including dividend equivalents
                236       (364 )     (47 )           606       431  
Common stock cash dividends - $.40 per share
                            (47,644 )                 (47,644 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Balance - March 31, 2004
  $       60,198       6,562       2,898,499       2,848,014       57,435       (136,567 )     5,734,141  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

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

                 
    Three months ended March 31
In thousands
  2004
  2003
Beginning balance
  $ 614,058       436,472  
Provision for credit losses
    20,000       33,000  
Allowance related to loans sold or securitized
    (501 )      
Net charge-offs
               
Charge-offs
    (29,401 )     (29,684 )
Recoveries
    11,484       4,892  
 
   
 
     
 
 
Total net charge-offs
    (17,917 )     (24,792 )
 
   
 
     
 
 
Ending balance
  $ 615,640       444,680  
 
   
 
     
 
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS

1. Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with the accounting policies set forth in note 1 of Notes to Financial Statements included in the Company’s 2003 Annual Report, except as described below. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

2. Acquisition of Allfirst Financial Inc.

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-month period ended March 31, 2003 of $5 million ($4 million after tax effect). Those merger-related expenses consisted largely of expenses for professional services and other temporary help fees associated with the planning of 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. There were no similar expenses during the quarter ended March 31, 2004.

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.

Disclosed below is certain pro forma information for 2003 as if Allfirst had been acquired on January 1, 2003. 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 date. 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 operating

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisition of Allfirst Financial Inc., continued

cost savings as a result of the acquisition which are not reflected in the pro forma amounts presented below.

         
    Pro forma
    Three months ended
    March 31
    2003
    (in thousands,
    except per share)
Interest income
  $ 576,265  
Other income
    224,807  
Net income
    141,152  
Diluted earnings per common share
    1.16  

3. Earnings per share

The computations of basic earnings per share follow:

                 
    Three months ended
    March 31
    2004
  2003
    (in thousands, except per share)
Income available to common stockholders
               
Net income
  $ 159,490       116,538  
Weighted-average shares outstanding (including common stock issuable)
    119,738       92,399  
Basic earnings per share
  $ 1.33       1.26  

The computations of diluted earnings per share follow:

                 
    Three months ended
    March 31
    2004
  2003
    (in thousands, except per share)
Income available to common stockholders
  $ 159,490       116,538  
Weighted-average shares outstanding
    119,738       92,399  
Plus: incremental shares from assumed conversion of stock options
    2,578       2,663  
 
   
 
     
 
 
Adjusted weighted-average shares outstanding
    122,316       95,062  
Diluted earnings per share
  $ 1.30       1.23  

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Comprehensive income

The following table displays the components of other comprehensive income:

                         
    Three months ended March 31, 2004
    Before-tax   Income    
    amount
  taxes
  Net
    (in thousands)
Unrealized gains on investment securities:
                       
Unrealized holding gains during period
  $ 54,777       (21,463 )     33,314  
Less: reclassification adjustment for gains realized in net income
    2,512       (980 )     1,532  
 
   
 
     
 
     
 
 
Net unrealized gains
  $ 52,265       (20,483 )     31,782  
 
   
 
     
 
     
 
 
                         
    Three months ended March 31, 2003
    Before-tax   Income    
    amount
  taxes
  Net
    (in thousands)
Unrealized losses on investment securities:
                       
Unrealized holding losses during period
  $ (9,304 )     3,830       (5,474 )
Less: reclassification adjustment for gains realized in net income
    233       (90 )     143  
 
   
 
     
 
     
 
 
 
    (9,537 )     3,920       (5,617 )
Unrealized gains on cash flow hedges
    328       (127 )     201  
 
   
 
     
 
     
 
 
Net unrealized losses
  $ (9,209 )     3,793       (5,416 )
 
   
 
     
 
     
 
 

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

                                 
                    Minimum    
                    pension    
    Investment   Cash flow   liability    
    securities
  hedges
  adjustment
  Total
    (in thousands)
Balance - January 1, 2004
  $ 38,111             (12,458 )     25,653  
Net gain (loss) during period
    31,782                   31,782  
 
   
 
     
 
     
 
     
 
 
Balance - March 31, 2004
  $ 69,893             (12,458 )     57,435  
 
   
 
     
 
     
 
     
 
 
Balance - January 1, 2003
  $ 55,394       (622 )           54,772  
Net gain (loss) during period
    (5,617 )     201             (5,416 )
 
   
 
     
 
     
 
     
 
 
Balance at March 31, 2003
  $ 49,777       (421 )           49,356  
 
   
 
     
 
     
 
     
 
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings

In 1997, M&T Capital Trust I (“Trust I”), M&T Capital Trust II (“Trust II”), and M&T Capital Trust III (“Trust III”) 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”) and were 2.12% and 1.98%, respectively, at March 31, 2004 and 2.15% and 2.01%, respectively, at December 31, 2003. 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:

             
    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

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. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 capital.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings, continued

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. The financial statement carrying values of junior subordinated debentures associated with preferred capital securities of Trust III, Trust IV and Trust V at March 31, 2004 and December 31, 2003 include the unamortized portions of purchase accounting adjustments to reflect estimated fair value as of the date of M&T’s acquisition of the common securities of each respective trust. The interest rates payable on the Junior Subordinated Debentures of Trust IV and Trust V were 2.12% and 1.98%, respectively, at March 31, 2004 and 2.15% and 2.01%, respectively, at December 31, 2003.

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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings, continued

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 and the related Junior Subordinated Debentures 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 upon early redemption will be equal to 100% of the principal amount to be redeemed plus any accrued but unpaid distributions 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 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. The interest rates payable on such debentures were 2.55% at March 31, 2004 and 2.58% at December 31, 2003.

Distributions on the SKATES are non-cumulative. The distribution rate on the SKATES and on the Floating Rate Junior Subordinated Debentures is a rate per annum of three month LIBOR plus 1.50% reset quarterly two business days prior

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings, continued

to the distribution dates of January 15, April 15, July 15, and October 15 in each year. Distributions on the SKATES 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 such junior subordinated debentures, in whole or in part, at any time on or after July 15, 2009, subject to regulatory approval. Allfirst Asset Trust will redeem the Asset Preferred Securities at par 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.

Effective December 31, 2003, the Company applied new accounting provisions promulgated by the Financial Accounting Standards Board (“FASB”) and removed the Trusts and Allfirst Asset Trust from the Company’s consolidated balance sheet. Accordingly, at March 31, 2004 and December 31, 2003, the Company included the Junior Subordinated Debentures payable to the Trusts and the Floating Rate Junior Subordinated Debentures payable to the Allfirst Asset Trust as long-term borrowings in its consolidated balance sheet. Prior to December 31, 2003 the Company included the preferred capital securities of the Trusts and the SKATES issued by Allfirst Capital Trust in its consolidated balance sheet as long-term borrowings, with accumulated distributions on such securities included in interest expense. That change in financial statement presentation had no economic impact on the Company and no material or substantive impact on the Company’s consolidated financial statements.

6. Segment information

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

The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 21 to the Company’s consolidated financial statements as of and for the year ended December 31, 2003. 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. As also described in note 21 to the Company’s 2003 consolidated financial statements, neither goodwill nor core deposit and other intangible assets (and the amortization charges associated with such assets) resulting from acquisitions of financial institutions have been allocated to the Company’s reportable segments, but are included in the “All Other” category. The Company has, however, assigned such intangible assets to business units for purposes of

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Segment information, continued

testing for impairment. Information about the Company’s segments is presented in the following table:

                                                 
    Three months ended March 31
    2004
  2003
            Inter-   Net           Inter-   Net
    Total   segment   income   Total   segment   income
    revenues(a)
  revenues
  (loss)
  revenues(a)
  revenues
  (loss)
    (in thousands)
Commercial
                                               
Banking(b)
  $ 124,353       161       53,451       66,081       135       22,473  
Commercial
                                               
Real Estate
    61,976       278       29,374       46,600       334       23,164  
Discretionary
                                               
Portfolio
    45,123       1,335       26,127       23,788       378       13,962  
Residential
                                               
Mortgage Banking
    53,178       9,002       94       72,380       15,081       16,754  
Retail Banking
    290,433       4,935       49,281       191,732       3,460       40,373  
All Other(b)
    72,391       (15,711 )     1,163       48,233       (19,388 )     (188 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total
  $ 647,454             159,490       448,814             116,538  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
                         
    Average total assets
    Three months ended   Year ended
    March 31   December 31
    2004
  2003
  2003
    (in millions)
Commercial Banking(b)
  $ 10,601       6,572       9,693  
Commercial Real Estate
    7,423       6,306       7,191  
Discretionary
                       
Portfolio
    10,454       6,897       8,821  
Residential Mortgage
                       
Banking
    1,669       1,762       1,862  
Retail Banking
    14,551       9,835       13,166  
All Other(b)
    5,217       1,689       4,616  
 
   
 
     
 
     
 
 
Total
  $ 49,915       33,061       45,349  
 
   
 
     
 
     
 
 

(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 owned, interest paid on liabilities owed 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 $4,230,000 and $3,623,000 for the three-month periods ended March 31, 2004 and 2003, respectively, and is eliminated in “All Other” total revenues. Intersegment revenues are included in total revenues of the reportable segments. The elimination of intersegment revenues is included in the determination of “All Other” total revenues.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Segment information, continued

(b)   During the second quarter of 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 a net loss of less than $1 million in the first quarter of 2003. Financial information for the first quarter of 2003 has been reclassified to conform with current presentation.

7. Commitments and contingencies

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.

                 
    March 31   December 31
    2004
  2003
    (in thousands)
Commitments to extend credit
               
Home equity lines of credit
  $ 3,883,320       3,747,663  
Commercial real estate loans to be sold
    179,212       70,747  
Other commercial real estate and construction
    1,119,954       730,485  
Residential real estate loans to be sold
    698,298       458,863  
Other residential real estate
    750,294       639,852  
Commercial and other
    6,698,693       6,786,997  
 
Standby letters of credit
    3,052,266       3,056,611  
 
Commercial letters of credit
    70,911       69,387  
 
Financial guarantees and indemnification contracts
    1,066,245       1,061,691  
 
Commitments to sell real estate loans
    1,232,083       895,808  

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. Included in financial guarantees and indemnification contracts are loan principal amounts sold with recourse which totaled $842 million at March 31, 2004 and December 31, 2003.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

7. Commitments and contingencies, continued

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 real estate loans to hedge exposure to changes in the fair value of real estate loans held for sale. Such commitments are considered derivatives in accordance with SFAS No. 133 and along with commitments to originate real estate loans to be held for sale and hedged real estate loans held for sale are now generally recorded in the consolidated balance sheet at estimated fair market value. However, in accordance with Staff Accounting Bulletin (“SAB”) No. 105, “Application of Accounting Principles to Loan Commitments,” issued by the United States Securities and Exchange Commission, effective April 1, 2004, value ascribable to cash flows that will be realized in connection with loan servicing activities will not be included in the determination of fair value of loans held for sale or commitments to originate loans for sale. Value ascribable to that portion of cash flows will be recognized at the time the underlying mortgage loans are sold. As a result, the Company expects that there will be a one-time deferral of mortgage banking revenues from the second quarter of 2004 to the third quarter of 2004. Had SAB No. 105 been effective at March 31, 2004, recognition of approximately $6 million of mortgage banking revenues would have been deferred from the first quarter to the second quarter of 2004. Moreover, had the provisions of SAB No. 105 been effective as of December 31, 2003, the Company estimates that mortgage banking revenues in the first quarter of 2004 would not have differed significantly from the amount of revenues actually reported in that quarter.

The Company entered an agreement in 2003 with the Baltimore Ravens of the National Football League whereby the Company obtained the naming rights to a football stadium in Baltimore, Maryland for a fifteen year term. Under the agreement, the Company paid $3 million in 2003 and is obligated to pay $3 million in 2004, $5 million per year from 2005 through 2013, and $6 million per year from 2014 through 2017.

The Company also has commitments under long-term operating leases.

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 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.

8. Pension plans and other postretirement benefits

The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. Net periodic benefit cost consisted of the following:

                                 
    Pension   Postretirement
    benefits
  benefits
    Three months ended March 31
    2004
  2003
  2004
  2003
    (in thousands)
Service cost
  $ 7,850       3,820       225       125  
Interest cost on projected benefit obligation
    9,303       5,145       1,225       443  
Expected return on plan assets
    (9,376 )     (6,508 )            
Amortization of prior service cost
          9             42  
Amortization of net actuarial loss
    699       526       175       80  
     
     
     
     
 
Net periodic benefit cost
  $ 8,476       2,992       1,625       690  
     
     
     
     
 

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Table of Contents

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

Overview

M&T Bank Corporation (“M&T”) reported net income in the first quarter of 2004 of $159 million or $1.30 of diluted earnings per common share, increases of 37% and 6%, respectively, from the first quarter of 2003 when net income was $117 million or $1.23 of diluted earnings per common share. During the fourth quarter of 2003, net income was $167 million or $1.35 of diluted earnings per common share. Basic earnings per common share were $1.33 in the recently completed quarter, compared with $1.26 in the first quarter of 2003 and $1.39 in 2003’s final quarter. The after-tax impact of merger-related expenses associated with M&T’s acquisition activity, as discussed below, was $4 million or $.04 of diluted and basic earnings per share in 2003’s initial quarter and $2 million or $.01 of diluted and basic earnings per share in the fourth quarter of 2003. There were no similar expenses in the first quarter of 2004.

     The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the first quarter of 2004 was 1.29%, compared with 1.43% in the year-earlier quarter and 1.35% in the fourth quarter of 2003. The annualized rate of return on average common stockholders’ equity was 11.19% in the recent quarter, compared with 14.46% and 11.77% in the first and fourth quarters of 2003, respectively. Excluding the impact of merger-related expenses, the annualized returns on average assets and average common equity were 1.47% and 14.91%, respectively, for 2003’s first quarter and 1.36% and 11.89%, respectively, in the final 2003 quarter.

     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 banking 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 herein.

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Table of Contents

                         
    Opening Balances on April 1, 2003
    M&T
  Allfirst
  Combined
    (in thousands)
Assets
                       
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 March 31 and December 31, 2003 totaled $5 million ($4 million after tax effect) and $3 million ($2 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. There were no unpaid merger-related expenses as of March 31, 2004. 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 March 31, 2004, the remaining unpaid portion of such charges totaled $8 million and related largely to severance payments yet to be paid to former employees.

     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.

Supplemental Reporting of Non-GAAP Results of Operations

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 $3.1 billion at March 31, 2004 and December 31, 2003, and $1.2

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billion at March 31, 2003. Included in such intangible assets at March 31, 2004 and December 31, 2003 was goodwill of $2.9 billion, up from $1.1 billion at March 31, 2003 due to the Allfirst acquisition. Amortization of core deposit and other intangible assets, after tax effect, was $13 million ($.11 per diluted share) during each of the first quarter of 2004 and fourth quarter of 2003, compared with $7 million ($.07 per diluted share) in the first quarter of 2003. The higher levels of such amortization when compared with 2003’s first quarter 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 36% to $172 million in the first quarter of 2004 from $127 million in the corresponding quarter of 2003. Diluted net operating earnings per share for the recent quarter were $1.41, an increase of 5% from $1.34 in the first quarter of 2003. Net operating income and diluted net operating earnings per share were $182 million and $1.47, respectively, in the fourth quarter of 2003.

     Net operating income in 2004’s first quarter represented an annualized rate of return on average tangible assets of 1.48%, compared with 1.62% and 1.57% in the first and fourth quarters of 2003, respectively. Net operating income expressed as an annualized return on average tangible common equity was 26.02% in the first quarter of 2004, compared with 24.68% in the year-earlier quarter and 28.33% in the fourth quarter of 2003. Including the effect of merger-related expenses, the annualized net operating returns on average tangible assets and average tangible common stockholders’ equity for the first quarter of 2003 were 1.57% and 23.99%, respectively, and for the final 2003 quarter were 1.55% and 28.07%, respectively.

     Reconciliations of GAAP results with non-GAAP results are provided in table 2.

Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income increased 33% to $424 million in the first quarter of 2004 from $320 million in the corresponding quarter of 2003. Taxable-equivalent net interest income was $426 million in the fourth quarter of 2003. The improvement in the recent quarter as compared with 2003’s first quarter reflects a $13.4 billion, or 45%, rise in average earning assets, offset, in part, by a narrowing of the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets. Average loans and leases increased $10.1 billion, or 39%, to $35.8 billion in the initial 2004 quarter from $25.8 billion in the corresponding quarter of 2003, but were down 1% from the $36.4 billion average in 2003’s final quarter. The most significant factor for the higher loan balances in the recently completed quarter as compared with the first quarter of 2003 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, $383 million of residential real estate loans and $2.9 billion of consumer loans and leases. Excluding loans attributable to the Allfirst franchise, average outstanding commercial loans and commercial real estate loans in the recent quarter were higher by 5% and 3%, respectively, as compared with the first quarter of 2003. Although corporate profits have been

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reported at high levels, demand for commercial and industrial loans has remained lower than expected. Consumer loans in the non-Allfirst regions in the first quarter of 2004 grew at a 17% rate over the year-earlier period, largely due to increases in the automobile loan portfolio. The consumer real estate loan portfolio decreased 12% from the first quarter of 2003, due largely to the impact of two fourth quarter 2003 transactions in which M&T converted $1.3 billion of such loans into mortgage-backed securities. The decrease in average loans outstanding from the fourth quarter of 2003 was also largely attributable to the impact of those securitization transactions. Excluding loans associated with the Allfirst franchise, the Company experienced modest growth in the commercial loan and commercial real estate loan portfolios in the recent quarter as compared with 2003’s final quarter, while consumer loans grew at an annualized rate of 9%. More than offsetting these portfolio increases was the full-period impact of the fourth quarter securitization transactions. In the portfolios acquired from Allfirst, average loans continued to decline, largely due to the Company’s decision to de-emphasize certain specialized lending businesses and due to prepayment activity in a discontinued home equity loan product. The rate of decline in the acquired portfolios has, however, slowed from earlier quarters. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.

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

                         
            Percent increase
            (decrease) from
    1st Qtr.   1st Qtr. 4th Qtr.
    2004
  2003
2003
Commercial, financial, etc.
  $ 9,100       70 %     (1 )%
Real estate – commercial
    12,521       29       1  
Real estate – consumer
    3,083       (3 )     (18 )
Consumer
                       
Automobile
    4,476       30       1  
Home equity lines
    3,284       54       4  
Home equity loans
    1,683       170       (6 )
Other
    1,696       22        
 
   
 
     
 
     
 
 
Total consumer
    11,139       47       1  
 
   
 
     
 
     
 
 
Total
  $ 35,843       39 %     (1 )%
 
   
 
     
 
     
 
 

     Investment securities averaged $7.5 billion during the first quarter of 2004, compared with $3.6 billion in the year-earlier quarter and $6.2 billion in the fourth quarter of 2003. The higher level of investment securities in the recently completed quarter included the impact of investment securities obtained in the Allfirst acquisition, the fourth quarter 2003 residential real estate loan securitizations already noted, and net purchases of securities in 2003 and 2004. The investment securities portfolio is largely comprised of residential and commercial mortgage-backed securities and collateralized mortgage obligations, debt securities issued by municipalities, debt and preferred equity securities issued by government-sponsored agencies and certain financial institutions, and shorter-term U.S. Treasury notes. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing its investment securities portfolio, the Company occasionally sells investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, or credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio following completion of a business combination.

     Money-market assets, which are comprised of interest-earning deposits at banks, interest-earning trading account assets, federal funds sold and agreements to resell securities, averaged $85 million in the recently completed quarter, compared with $577 million and $99 million in the first and fourth quarters of 2003, respectively. The amount of investment securities and money-market assets held by the Company are influenced by such factors as demand for loans, which generally yield more than investment securities and money-market assets, ongoing repayments, the levels of deposits, and management of balance sheet size and resulting capital ratios.

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     As a result of the changes described herein, average earning assets increased 45% to $43.4 billion in the first quarter of 2004 from $30.0 billion in the year-earlier quarter. Average earning assets were $42.7 billion in the fourth quarter of 2003.

     Core deposits represent 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 its 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 bank subsidiary of M&T. Average core deposits were $27.9 billion in the first quarter of 2004, compared with $17.8 billion in the year earlier quarter and $28.3 billion in 2003’s fourth quarter. Core deposits assumed in connection with the Allfirst acquisition totaled $10.7 billion on April 1, 2003. The following table provides an analysis of quarterly changes in the components of average core deposits.

AVERAGE CORE DEPOSITS

                         
            Percent increase
            (decrease) from
    1st Qtr.   1st Qtr.   4th Qtr.
Dollars in millions
  2004
  2003
  2003
NOW accounts
  $ 1,114       41 %     (4 )%
Savings deposits
    14,696       54       1  
Time deposits less than $100,000
    4,564       24       (5 )
Noninterest-bearing deposits
    7,563       102       (2 )
 
   
 
     
 
     
 
 
Total
  $ 27,937       57 %     (1 )%
 
   
 
     
 
     
 
 

     The Company also obtains funding through domestic time deposits of $100,000 or more, deposits originated through the Company’s offshore branch office, and brokered deposits. Domestic time deposits over $100,000, excluding brokered certificates of deposit, averaged $1.2 billion in the initial 2004 quarter and fourth quarter of 2003, compared with $1.0 billion during the first quarter of 2003. Offshore branch deposits, primarily comprised of accounts with balances of $100,000 or more, averaged $2.8 billion, $1.1 billion and $2.4 billion for the three-month periods ended March 31, 2004, March 31, 2003 and December 31, 2003, respectively. Brokered time deposits averaged $854 million during the first quarter of 2004, compared with $1.2 billion and $412 million in the first and fourth quarters of 2003, respectively. At March 31, 2004, brokered time deposits totaled $1.3 billion and had a weighted-average remaining term to maturity of 18 months. Certain of these brokered time deposits have provisions that allow 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 $59 million during the first quarters of 2004 and 2003, and $60 million in the fourth quarter of 2003. Offshore branch deposits and brokered deposits have been used by the Company as an alternative to short-term borrowings. Additional amounts of offshore branch deposits or brokered deposits may be solicited in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.

     The Company also uses borrowings from banks, securities dealers, the Federal Home Loan Bank of New York, Pittsburgh and Atlanta (together, the “FHLB”), and others as sources of funding. Short-term borrowings averaged $4.8 billion in the recent quarter, compared with $3.5 billion and $4.2 billion in the first and fourth quarters of 2003, respectively. Amounts borrowed from the FHLB and included in short-term borrowings averaged $572 million in the first quarter of 2003, while there were no such short-term borrowings in the fourth quarter of 2003 or in the initial 2004 quarter. Also

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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 $3.9 billion in the recent quarter, compared with $2.4 billion and $3.3 billion in the first and fourth quarter of 2003, respectively.

     The average balance of long-term borrowings was $5.6 billion in the first quarter of 2004, compared with $4.8 billion in the year-earlier quarter and $5.9 billion in the fourth quarter of 2003. Included in average long-term borrowings were amounts borrowed from the FHLB of $3.1 billion in the initial quarter of 2004, and $3.8 billion and $3.6 billion in the first and fourth quarters of 2003, respectively, and subordinated capital notes of $1.3 billion in the two most recent quarters and $604 million in the first quarter 2003. Subordinated capital notes obtained in the Allfirst acquisition on April 1, 2003 averaged $330 million in the first quarter of 2004 and $332 million in the final 2003 quarter. As described in note 5 of Notes to Financial Statements, as of December 31, 2003 the Company applied new accounting provisions promulgated by the Financial Accounting Standards Board (“FASB”) and removed from its consolidated balance sheet the trusts that had issued trust preferred securities. That change had no economic impact on the Company and no material or substantive impact on the Company’s financial statements. Trust preferred securities included in average long-term borrowings totaled $318 million in the first quarter of 2003 and $686 million in the fourth quarter of 2003. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings in 2004’s initial quarter were $710 million. Junior subordinated debentures associated with trust preferred securities assumed in the Allfirst acquisition averaged $383 million in the recent quarter. Trust preferred securities assumed in the acquisition of Allfirst averaged $372 million in the fourth quarter of 2003. Information regarding trust preferred securities and the related junior subordinated debentures is provided in note 5 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.

     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 3.67% in the first quarter of 2004 and 4.05% in the year-earlier quarter. The yield on earning assets during the recent quarter decreased 84 basis points (hundredths of one percent) to 5.10% from 5.94%, while the rate paid on interest-bearing liabilities decreased 46 basis points to 1.43% from 1.89%. In the final quarter of 2003, the net interest spread was 3.68%, the yield on earning assets was 5.16% and the rate paid on interest-bearing liabilities was 1.48%. Lower yielding portfolios of loans and investment securities obtained in the Allfirst merger contributed to the reduced yields on earning assets in the two most recent quarters as compared with the first quarter of 2003 and were the leading cause for the lower net interest spread in those quarters. The declines in interest rates earned and paid also reflect generally lower market interest rates.

     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 first quarter of 2004, compared with $4.3 billion and $7.9 billion in the first and fourth quarters of 2003, respectively. The increases in average net interest-free funds in the first 2004 quarter and the fourth quarter of 2003 as compared with the initial 2003 quarter were due largely to the impact of the Allfirst acquisition. Goodwill and core deposit and other intangible assets averaged $3.1 billion during the first quarter of 2004, $3.2 billion in

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the fourth quarter of 2003 and $1.2 billion in the first quarter of 2003. Average goodwill and core deposit and other intangible assets resulting from the Allfirst transaction totaled $2 billion in the recently completed quarter and in the fourth quarter of 2003. The cash surrender value of bank owned life insurance averaged $956 million and $624 million in the first quarter of 2004 and 2003, respectively, and $944 million in the fourth quarter of 2003. The cash surrender value of bank owned life insurance obtained on April 1, 2003 in conjunction with the Allfirst acquisition averaged $294 million and $290 million in the two most recent quarters. Tax-exempt income earned from increases in the cash surrender value of bank owned life insurance and benefits received are not included in interest income, but rather are recorded in “other revenues from operations.”

     The contribution of net interest-free funds to net interest margin was ..25% in the recent quarter, compared with .27% in the year-earlier quarter and .28% in 2003’s fourth quarter. The decline in the contribution to net interest margin ascribed to net interest-free funds in the recent quarter as compared with the first quarter of 2003 resulted largely from the impact of lower interest rates on interest-bearing liabilities used to value such contribution, while the decreased contribution from the fourth quarter of 2003 was largely due to a $121 million decline in net interest-free funds.

     Reflecting the changes described herein, the Company’s net interest margin was 3.92% in 2004’s initial quarter, down from 4.32% in the comparable quarter of 2003 and 3.96% in the fourth quarter of 2003. As noted earlier, lower yielding portfolios of loans and investment securities obtained in the Allfirst acquisition contributed to the lower net interest margin in the two most recent quarters as compared with the first quarter of 2003. The continuing low interest rate environment has resulted in a narrowing of the net interest margin in recent quarters, as the yields on earning assets (particularly loan yields due to repricing) have declined more than rates paid on interest-bearing liabilities. The net interest margin has declined in each quarter subsequent to the first quarter of 2003, and the recent quarter’s net interest margin was the lowest earned by the Company since the fourth quarter of 1998.

     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 was $675 million as of March 31, 2004, $685 million as of December 31, 2003 and $355 million as of March 31, 2003. In general, under the terms of these swap agreements, the Company receives payments based on the outstanding notional amount of the swaps 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 at March 31, 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 March 31, 2004, 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

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purposes recognized during the quarters ended March 31, 2004 and 2003 and the quarter ended December 31, 2003 were not material to the Company’s results of operations. The estimated fair values of interest rate swap agreements designated as fair value hedges was a gain of approximately $15 million at March 31, 2004, compared with a gain of $7 million at March 31, 2003 and a loss of $1 million at December 31, 2003. The fair values of such swap agreements were substantially offset by changes in the fair values of the hedged items. The estimated fair value of the interest rate swap agreement designated as a cash flow hedge at March 31, 2003 was a loss of approximately $690 thousand. Net of applicable income taxes, such loss was approximately $421 thousand and was included in “accumulated other comprehensive income, net” in the Company’s consolidated balance sheet as of March 31, 2003. The changes in the fair values of the interest rate swap agreements and the hedged items result from the effects of changing interest rates.

     The weighted average rates to be received and paid under interest rate swap agreements currently in effect were 6.99% and 4.04%, respectively, at March 31, 2004. The average notional amounts of interest rate swap agreements and the related effect on net interest income and margin, and the weighted-average rate paid or received on those swaps are presented in the accompanying table.

INTEREST RATE SWAP AGREEMENTS

                                 
    Three months ended March 31
    2004
  2003
Dollars in thousands   Amount
  Rate*
  Amount
  Rate*
Increase (decrease) in:
                               
Interest income
  $       %   $       %
Interest expense
    (5,241 )     (.06 )     (1,979 )     (.03 )
 
   
 
             
 
         
Net interest income/margin
  $ 5,241       .05 %   $ 1,979       .03 %
 
   
 
     
 
     
 
     
 
 
Average notional amount **
  $ 675,659             $ 457,222          
 
   
 
             
 
         

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

     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 current and future obligations, including demands for loans and deposit withdrawals, operating costs, and 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 noted 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 $4.0 billion, $3.5 billion and $1.9 billion at March 31, 2004, December 31, 2003 and March 31, 2003, respectively. In general, these borrowings were unsecured and matured on the following business day.

     Should the Company experience a substantial deterioration in its financial condition or its debt ratings, or should the availability of short-term funding become restricted due to a disruption in the financial markets, the Company’s ability to obtain funding from these or other sources could be negatively impacted. The Company attempts to quantify such credit-event risk by modeling scenarios that estimate the liquidity impact resulting from a

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short-term ratings downgrade over various grading levels. The Company estimates such impact by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets.

     The Company serves in the capacity of remarketing agent for variable rate demand bonds (“VRDBs”), in a line of business obtained in the Allfirst acquisition. The VRDBs are enhanced by a direct-pay letter of credit provided by M&T Bank. Holders of the VRDBs generally have the right to sell the bonds to the remarketing agent with seven days notice, which could result in M&T Bank owning the VRDBs for some period of time until such instruments are remarketed. When this occurs, the VRDBs are classified as trading assets in the Company’s consolidated balance sheet. The value of VRDBs in the Company’s trading account totaled $10 million at March 31, 2004 and $22 million at December 31, 2003. As of March 31, 2004 and December 31, 2003, the total amount of VRDBs outstanding backed by an M&T Bank letter of credit was $1.6 billion and $1.7 billion, respectively. M&T Bank also serves as remarketing agent for most of those bonds.

     The Company enters into contractual obligations in the normal course of business which require future cash payments. The Company also has off-balance sheet commitments to customers that may impact liquidity, including commitments to extend credit, standby letters of credit, commercial letters of credit, financial guarantees and indemnification contracts, and commitments to sell real estate loans. Since many of these commitments or contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. Further discussion of these commitments is provided in note 7 of Notes to Financial Statements.

     M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been 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 the test, at March 31, 2004 approximately $701 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 and the related junior subordinated debentures is included in note 5 of Notes to Financial Statements. M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, of which there were no borrowings outstanding at March 31, 2004 or at December 31, 2003.

     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 would therefore result in a significant strain on liquidity at either M&T or its subsidiary banks.

     Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Company’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Company to interest rate risk, which occurs when assets and liabilities reprice at different times and by different amounts as interest rates change. As a result, net interest income earned by the Company is subject to the effects of changing interest rates. The Company measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to hedge interest rate risk. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and

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investment securities, and expected maturities of investment securities, loans and deposits. Management uses a “value of equity” model to supplement the modeling technique described above. Those supplemental analyses are based on discounted cash flows associated with on- and off-balance sheet financial instruments. Such analyses are modeled to reflect changes in interest rates and non-parallel shifts in the maturity curve of interest rates and provide management with a long-term interest rate risk metric.

     The Company’s Asset-Liability Committee, which includes members of senior management, monitors interest rate sensitivity with the aid of a computer model that considers the impact of ongoing lending and deposit-gathering activities, as well as 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 March 31, 2004 and December 31, 2003 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.

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
  March 31, 2004
  December 31, 2003
+200 basis points
  $ (26,383 )     4,504  
+100 basis points
    (9,861 )     (190 )
-100 basis points
    4,999       (12,945 )
-200 basis points
    4,657       (13,064 )

     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 from those presented 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, to fund the Company’s obligations under certain deferred compensation plans and, to a limited extent, 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, mutual funds and interest rate contracts, such as swap agreements. The Company generally mitigates the foreign currency and

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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 $5.3 billion at March 31, 2004 and December 31, 2003, compared with $1.4 billion at March 31, 2003. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes were $605 million, $216 million and $548 million at March 31, 2004, March 31, 2003 and December 31, 2003, 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 $213 million and $144 million, respectively, at March 31, 2004, $49 million and $34 million, respectively, at March 31, 2003, and $215 million and $139 million, respectively, at December 31, 2003. The higher amounts of trading account assets and liabilities at March 31, 2004 and December 31, 2003 reflect the fair values of interest rate swap agreements and foreign exchange contracts executed with customers associated with Allfirst and the related offsetting trading positions. Included in trading account assets at March 31, 2004, December 31, 2003 and March 31, 2003 were $43 million, $39 million and $13 million, respectively, related to deferred compensation plans. Changes in the fair value of such assets are recorded as trading account and foreign exchange gains in the consolidated statement of income. Included in other liabilities in the consolidated balance sheet at March 31, 2004, December 31, 2003 and March 31, 2003 were $51 million, $49 million and $22 million respectively, of liabilities related to deferred compensation plans. Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed are recorded in “other costs of operations” in the consolidated statement of income. Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading activities was not material.

Provision for Credit Losses

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 first quarter of 2004 was $20 million, down from $33 million in the year-earlier quarter and $28 million in 2003’s fourth quarter. Net loan charge-offs declined to $18 million in the recent quarter, compared with $25 million during the first quarter of 2003 and $32 million during the fourth quarter of 2003. Net charge-offs as an annualized percentage of average loans and leases were .20% in the recent quarter, significantly lower than .39% and .35% in the first and fourth quarters of 2003, respectively. Net charge-offs of loans acquired from Allfirst have not been significant. A summary of net charge-offs by loan type follows:

NET CHARGE-OFFS
BY LOAN/LEASE TYPE

                         
    First Quarter   First Quarter   Fourth Quarter
In thousands
  2004
  2003
  2003
Commercial, financial, etc.
  $ 3,450       12,237       11,476  
Real estate:
                       
Commercial
    (878 )     1,358       1,571  
Residential
    1,241       530       1,941  
Consumer
    14,104       10,667       17,173  
 
   
 
     
 
     
 
 
 
  $ 17,917       24,792       32,161  
 
   
 
     
 
     
 
 

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     Nonperforming loans consist of nonaccrual and restructured loans, and totaled $256 million or .70% of total loans and leases outstanding at March 31, 2004, compared with $230 million or .88% a year earlier and $240 million or .67% at December 31, 2003. Included in nonperforming loans at March 31, 2004 and December 31, 2003 were $64 million and $67 million, respectively, of nonperforming loans obtained in the Allfirst acquisition.

     Accruing loans past due 90 days or more totaled $144 million or .40% of total loans and leases at March 31, 2004, compared with $146 million or .56% at March 31, 2003 and $155 million or .43% at December 31, 2003. Such loans at March 31, 2004 and December 31, 2003 include $15 and $17 million, respectively, of accruing loans past due 90 days or more obtained in the Allfirst transaction. Accruing loans past due 90 days or more also included one-to-four family residential mortgage loans serviced by the Company and repurchased from the Government National Mortgage Association (“GNMA”). The repurchased loans totaled $110 million and $120 million as of March 31, 2004 and 2003, respectively, and $118 million at December 31, 2003. The outstanding principal balances of the repurchased loans are fully guaranteed by government agencies. The loans were repurchased to reduce servicing costs associated with them, including a requirement to advance principal and interest payments that had not been received from individual mortgagors.

     Commercial loans and leases classified as nonperforming aggregated $128 million at March 31, 2004, $105 million at December 31, 2003 and $110 million at March 31, 2003. The recent quarter’s total includes one large commercial loan of approximately $30 million classified as nonperforming near the end of the quarter. Commercial loans and leases obtained in the Allfirst transaction classified as nonperforming at March 31, 2004 and December 31, 2003 totaled $44 million and $45 million, respectively.

     Nonperforming commercial real estate loans totaled $44 million at March 31, 2004, $53 million at March 31, 2003 and $48 million at December 31, 2003. Commercial real estate loans obtained in the acquisition of Allfirst classified as nonperforming at March 31, 2004 and December 31, 2003 were $3 million and $4 million, respectively.

     Residential real estate loans classified as nonperforming were $48 million at March 31, 2004, compared with $39 million at March 31, 2003 and $51 million at December 31, 2003. Residential real estate loans past due 90 days or more and accruing interest totaled $130 million at March 31, 2004, compared with $139 million a year earlier and $141 million at December 31, 2003. As already discussed, a substantial portion of such amounts relate to loans repurchased from GNMA which 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 March 31, 2004 and $13 million and $7 million, respectively at December 31, 2003.

     Nonperforming consumer loans and leases totaled $36 million at March 31, 2004 and December 31, 2003, compared with $28 million at March 31, 2003. As a percentage of consumer loan balances outstanding, nonperforming consumer loans and leases were .32% at March 31, 2004, compared with .36% at March 31, 2003 and .33% at December 31, 2003.

     Assets acquired in settlement of defaulted loans were $19 million at March 31, 2004, compared with $17 million at March 31, 2003 and $20 million at December 31, 2003.

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     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.

NONPERFORMING ASSET AND PAST DUE LOAN DATA

                                         
    2004           2003 Quarters
   
Dollars in thousands
  First Quarter
  Fourth
  Third
  Second
  First
Nonaccrual loans
  $ 248,188       232,983       278,300       311,881       222,334  
Renegotiated loans
    7,637       7,309       6,888       6,985       7,630  
 
   
 
     
 
     
 
     
 
     
 
 
Total nonperforming loans
    255,825       240,292       285,188       318,866       229,964  
Real estate and other assets owned
    19,189       19,629       20,158       23,028       16,976  
 
   
 
     
 
     
 
     
 
     
 
 
Total nonperforming assets
  $ 275,014       259,921       305,346       341,894       246,940  
 
   
 
     
 
     
 
     
 
     
 
 
Accruing loans past due 90 days or more*
  $ 144,345       154,759       174,224       169,753       146,355  
 
   
 
     
 
     
 
     
 
     
 
 
Government guaranteed loans included in totals above
                                       
Nonperforming loans
  $ 19,044       19,355       19,225       16,243       12,513  
Accruing loans past due 90 days or more
    116,826       124,585       133,045       135,545       123,697  
 
   
 
     
 
     
 
     
 
     
 
 
Nonperforming loans to total loans and leases, net of unearned discount
    .70 %     .67 %     .77 %     .86 %     .88 %
Nonperforming assets to total net loans and leases and real estate and other assets owned
    .75 %     .73 %     .82 %     .92 %     .94 %
Accruing loans past due 90 days or more to total loans and leases, net of unearned discounts
    .40 %     .43 %     .47 %     .46 %     .56 %
 
   
 
     
 
     
 
     
 
     
 
 

*   Predominately residential mortgage loans.

     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 and the value of any collateral and, where applicable, the existence of any guarantees or indemnifications. 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 each reporting date. Factors also considered by management when performing its assessment, in addition to general economic conditions and the other 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 and vitality than the vast majority of other regions of the country; (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; and (iv) the large portfolios of loans obtained in the acquisition of Allfirst which management continues to evaluate in accordance

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with the Company’s policies and procedures for credit underwriting, loan classification, and measurement of exposure to loss. The level of the allowance is adjusted based on the results of management’s analysis.

     Management cautiously and conservatively evaluated the allowance for credit losses as of March 31, 2004 in light of (i) the uncertain status of the overall economic recovery; (ii) the mixed economic indicators being proffered by government economists and others; and (iii) given the relative size of the acquired Allfirst loan portfolios, the status of management’s ongoing detailed credit reviews of such portfolios. Although there are indications that the national economy has improved and optimism about its future outlook is growing, concerns remain about stagnant job growth, which could cause consumer spending to slow; higher interest rates, which, among other things, could adversely impact the housing market; continued stagnant population growth in the upstate New York and central Pennsylvania regions; and sluggish commercial loan demand.

     Management believes that the allowance for credit losses at March 31, 2004 was adequate to absorb credit losses inherent in the portfolio as of that date. The allowance for credit losses was $616 million, or 1.69% of total loans and leases at March 31, 2004, compared with $445 million or 1.70% a year earlier and $614 million or 1.72% at December 31, 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 acquisition, the combined balance sheet of M&T and Allfirst included an allowance for credit losses of $591 million, or 1.62% of the $36.5 billion of then outstanding loans. The ratio of the allowance for credit losses to nonperforming loans was 241% at the most recent quarter-end, compared with 193% a year earlier and 256% at December 31, 2003. The level of the allowance reflects management’s evaluation of the loan and lease portfolio as of each respective date.

Other Income

Other income was $228 million in the first quarter of 2004, 72% higher than $133 million in the year-earlier quarter, but down 2% from $234 million in the fourth quarter of 2003. Approximately $92 million of the increase from 2003’s initial quarter was attributable to revenues related to operations or market areas associated with the former Allfirst franchise. The decline in other income in the recent quarter as compared with 2003’s final quarter reflects a $4 million quarter-to-quarter decrease in mortgage banking revenues.

     Mortgage banking revenues totaled $28 million in 2004’s initial quarter, down from $34 million in the first quarter of 2003 and $32 million in the final quarter of 2003. Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company’s involvement in commercial mortgage banking activities is 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, which was a business line acquired in the Allfirst transaction.

     Residential mortgage banking revenues, which include gains from sales of residential mortgage loans and loan servicing rights, residential mortgage loan servicing fees, and other residential mortgage loan-related fees and income, decreased to $24 million in the recent quarter from $34 million in the year-earlier period and $25 million in 2003’s final quarter. The significant decrease in such revenues in the first quarter of 2004 as compared with the corresponding 2003 quarter was largely due to lower levels of loan originations. Higher origination activity in the 2003 quarter reflected the impact of historically low levels of interest rates that produced an extremely favorable environment for loan origination and refinancing activities by consumers. Residential mortgage loans originated for sale to other investors were approximately $1.0 billion during the first quarter of 2004, compared with $1.5 billion in 2003’s first quarter and $1.1 billion in the fourth

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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 $8 million in the first quarter of 2004, compared with $18 million in the first quarter of 2003 and $9 million in the final 2003 quarter. Revenues from servicing residential mortgage loans for others were $14 million in the quarters ended March 31, 2004 and 2003, and $13 million in the fourth quarter of 2003. Included in each quarter’s servicing revenues were amounts related to purchased servicing rights associated with small balance commercial real estate loans of $1 million. Residential mortgage loans serviced for others totaled $13.7 billion at March 31, 2004, compared with $12.6 billion at March 31, 2003 and $13.6 billion at December 31, 2003, including the small balance commercial real estate loans noted above of approximately $977 million and $690 million at March 31, 2004 and 2003, respectively, and $1.0 billion at December 31, 2003. Capitalized residential mortgage servicing assets, net of a valuation allowance for impairment, were $119 million at March 31, 2004, compared with $106 million at March 31, 2003 and $129 million at December 31, 2003. Included in capitalized residential mortgage servicing assets were $7 million at March 31, 2004 and 2003, and $8 million at December 31, 2003 of purchased servicing rights associated with the small balance commercial mortgage loans noted above. Residential mortgage loans held for sale totaled $707 million and $897 million at March 31, 2004 and 2003, respectively, and $723 million at December 31, 2003. Commitments to sell loans and commitments to originate loans for sale at pre-determined rates were $1.0 billion and $698 million, respectively, at March 31, 2004, $1.4 billion and $984 million, respectively, at March 31, 2003, and $824 million and $459 million, respectively, at December 31, 2003. Net unrealized gains on residential mortgage loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $9 million and $14 million at March 31, 2004 and 2003, respectively, and $7 million at December 31, 2003. Changes in net unrealized gains are recorded in mortgage banking revenues and resulted in a net increase in revenues of $2 million in the first quarter of 2004 and $166 thousand in the 2003’s fourth quarter. Changes in net unrealized gains resulted in a decrease in mortgage banking revenues of $1 million in the first quarter of 2003.

     As further explained in “Recent Accounting Developments” included herein, in March 2004 the Securities and Exchange Commission (“SEC”) issued SEC Staff Accounting Bulletin (“SAB”) No. 105, “Application of Accounting Principles to Loan Commitments,” which provides guidance regarding the accounting for loans held for sale and loan commitments accounted for as derivative instruments. Effective April 1, 2004, value ascribable to loan cash flows that will ultimately be realized in connection with mortgage servicing activities should not be included in the determination of fair value of loans held for sale or commitments to originate loans for sale, but rather should only be recognized at the time the underlying mortgage loans are sold. As a result, the Company expects that there will be a one-time deferral of mortgage banking revenues from the second quarter of 2004 to the third quarter of 2004. Had SAB No. 105 been effective at March 31, 2004, recognition of approximately $6 million of mortgage banking revenues would have been deferred from the first quarter to the second quarter of 2004.

     Commercial mortgage banking revenues in the first quarter of 2004 and the fourth quarter of 2003 were $4 million and $7 million, respectively, including $1 million and $4 million, respectively, of revenues from loan origination and sales activities. Commercial mortgage loan servicing revenues were $2 million in each of the first quarter of 2004 and the fourth quarter of 2003. Capitalized commercial mortgage servicing assets totaled $22 million at March 31, 2004 and December 31, 2003. Commercial mortgage loans held for sale at March 31, 2004 and December 31, 2003 were $21 million and $1 million, respectively.

     Service charges on deposit accounts were $88 million in the initial quarter of 2004, up from $43 million in the corresponding quarter of the previous year, but down slightly from $90 million in the fourth quarter of 2003 due to traditional fourth quarter seasonality. Fees for deposit services

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provided to customers in areas formerly served by Allfirst contributed $42 million and $43 million, respectively, to such revenue in the first quarter of 2004 and the fourth quarter of 2003. Reflecting $19 million of revenues associated with the acquired Allfirst operations in each of the two most recent quarters, trust income totaled $34 million in the initial 2004 quarter, up from $14 million in last year’s first quarter, but little changed from the fourth quarter of 2003. Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, totaled $14 million in the first quarter of 2004, compared with $10 million and $13 million in the first and fourth quarters of 2003, respectively. The improvement in the two most recent quarters as compared with 2003’s first quarter was the result of revenues from the former Allfirst regions. Trading account and foreign exchange activity resulted in gains of $5 million during the quarters ended March 31, 2004 and December 31, 2003, compared with gains of $641 thousand in 2003’s first quarter. The increased gains in the recent quarter and 2003’s fourth quarter as compared with the first quarter of 2003 were due in part to higher volumes of trading assets and liabilities relating to contracts executed with customers formerly associated with Allfirst. Also contributing to the rise in such gains were market value increases in trading assets held in connection with deferred compensation plans. Other revenues from operations totaled $56 million in the recent quarter, compared with $30 million in the corresponding quarter of 2003 and $57 million in the fourth quarter of 2003. Other revenues from operations included letter of credit and other credit-related fees of $18 million in the first quarter of 2004, compared with $7 million and $16 million in the first and fourth quarters of 2003, respectively. Also 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 during the first 2004 quarter, $8 million in the year-earlier quarter and $12 million in 2003’s final quarter. Other revenues from operations associated with the Allfirst franchise were $22 million and $20 million in the first quarter of 2004 and the fourth quarter of 2003, respectively, including credit-related fees of $10 million and $9 million, respectively, and income from bank owned life insurance of $4 million in each quarter.

Other Expense

Other expense totaled $390 million in the initial quarter of 2004, 61% higher than $242 million in the year-earlier period and up 3% from $378 million in 2003’s final quarter. Expenses related to the acquired operations of Allfirst significantly contributed to the higher level of expenses in the first quarter of 2004 and the final 2003 quarter compared with the first quarter of 2003. 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 $21 million in the first quarter of 2004 and in the fourth quarter of 2003, and $12 million in the first quarter of 2003, and merger-related expenses of $5 million and $3 million in the first and fourth quarters of 2003. There were no merger-related expenses in the first quarter of 2004. Exclusive of these nonoperating expenses, noninterest operating expenses aggregated $369 million in the initial 2004 quarter, compared with $225 million and $354 million in the first and fourth quarters of 2003, respectively. Expenses associated with operations acquired from Allfirst were the predominant factors for the higher expense levels in the two most recent quarters as compared with the first quarter of 2003. However, because the acquired operations of Allfirst have been integrated with the operations the Company previously had, the Company’s higher operating expenses cannot be precisely divided between or attributed directly to the acquired operations of Allfirst or to the Company as it existed prior to the transaction. Also contributing to the higher expense level in the recent quarter was an $11 million provision for impairment of capitalized residential mortgage servicing rights, reflecting changes in the estimated fair value of such rights. There was no similar provision in the first quarter of 2003, while there was an impairment reversal that resulted in an expense reduction of $4 million in 2003’s fourth quarter. Table 2 provides a reconciliation of other expense to noninterest operating expense, as well as a summary of merger-related expenses.

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     Salaries and employee benefits expense totaled $201 million in the most recent quarter, compared with $124 million in the first quarter of 2003 and $197 million in the fourth quarter of 2003. Salaries and benefits related to the acquired operations of Allfirst were the leading contributor to the rise in salaries and employee benefits expense from the first quarter of 2003. Salaries and benefits expense included stock-based compensation of $12 million in the two most recent quarters and $10 million in the first quarter of 2003.

     Excluding the nonoperating expense items previously noted, nonpersonnel operating expenses totaled $168 million in the recent quarter, compared with $101 million in the first quarter of 2003 and $158 million in 2003’s fourth quarter. The impact of the Allfirst acquisition was a significant contributor to the higher expense levels in the two most recent quarters. Also contributing to the higher expense level in 2004’s first quarter was the already noted $11 million provision for impairment of capitalized residential mortgage servicing rights. Such servicing rights were valued at quarter-end when mortgage interest rates had dropped to their lowest levels since the second quarter of 2003. As a result, the quarter-end valuation reflects the impact on customer refinancings of outstanding mortgage loans that the lower interest rates were expected to have on residential mortgage prepayment speeds. There was no provision for impairment of capitalized residential mortgage servicing rights in the first quarter of 2003, while there was a reduction of expense of $4 million in the fourth quarter of 2003 resulting from a partial reversal of the valuation allowance for possible impairment of capitalized mortgage servicing rights. That partial reduction reflected the increase in value of capitalized servicing rights resulting from higher residential mortgage loan interest rates at the end of 2003.

     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 56.8% in the first quarter of 2004, compared with 49.8% in the year-earlier period and 53.9% in the fourth quarter of 2003. The higher ratios in the first quarter of 2004 and the final 2003 quarter as compared with 2003’s initial quarter reflect the impact of acquired Allfirst operations. The provision for capitalized servicing rights impairment in the recent quarter adversely impacted that quarter’s efficiency ratio as compared with the immediately preceding quarter. 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 efficiency ratio for the three-month periods ended March 31, 2004, March 31, 2003 and December 31, 2003 would have been 60.1%, 52.4% and 57.2%, respectively.

Capital

Stockholders’ equity at March 31, 2004 was $5.7 billion and represented 11.28% of total assets, compared with $3.3 billion or 9.91% a year earlier and $5.7 billion or 11.47% at December 31, 2003. Stockholders’ equity per share was $48.17 at March 31, 2004, up from $35.81 and $47.55 at March 31 and December 31, 2003, respectively. Tangible equity per share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $22.47 at March 31, 2004, compared with $23.13 a year earlier and $21.97 at December 31, 2003.

     During the first quarter of 2004, M&T resumed repurchasing its common stock under authorized repurchase programs. In February 2004, 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. Through March 31, 2004, M&T had repurchased 400,000 shares of common stock pursuant to such plan at an average cost of $91.73 per share. Also in February, M&T completed the stock repurchase program it had announced in November 2001 by repurchasing 1,367,900 shares at an average cost of $91.74 per share. In total, M&T repurchased

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4,999,998 shares pursuant to the November 2001 program at an average cost of $82.11 per share. During 2004’s first quarter, in the aggregate M&T repurchased 1,767,900 shares of its common stock at an average cost per share of $91.73.

     Included in stockholders’ equity was accumulated other comprehensive income which reflects the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale; unrealized fair value gains or losses associated with interest rate swap agreements designated as cash flow hedges; and minimum pension liability adjustments. Net unrealized gains on available for sale investment securities were $70 million, or $.59 per common share, at March 31, 2004, compared with unrealized gains of $50 million, or $.54 per share, at March 31, 2003 and $38 million, or $.32 per share, at December 31, 2003. 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. Net unrealized fair value losses associated with interest rate swap agreements designated as cash flow hedges, were $421 thousand at March 31, 2003, representing less than $.01 per share. There were no outstanding interest rate swap agreements designated as cash flow hedges at March 31, 2004 or December 31, 2003. The minimum pension liability adjustment, net of applicable tax effect, reduced accumulated other comprehensive income by $12 million at March 31, 2004 and December 31, 2003, or $.10 per share at each of those dates. There was no similar adjustment required at March 31, 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 $686 million of trust preferred securities as described in note 5 of Notes to Financial Statements. As of March 31, 2004, total capital further included $1.2 billion of subordinated notes.

     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 15.65% during the first quarter of 2004, compared with 18.15% and 19.00% in the first and fourth quarters of 2003, respectively.

     The regulatory capital ratios of the Company, M&T Bank and M&T Bank, N.A. as of March 31, 2004 are presented in the accompanying table.

REGULATORY CAPITAL RATIOS
March 31, 2004

                         
    M&T   M&T   M&T
    (Consolidated)
  Bank
  Bank, N.A.
Core capital
    7.27 %     7.26 %     31.80 %
Total capital
    11.15 %     10.98 %     32.83 %
Leverage
    6.88 %     6.88 %     19.56 %

Segment Information

In accordance with the provisions of SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Financial information about the Company’s segments is presented in note 6 of Notes to Financial Statements.

     The Commercial Banking segment contributed net income of $53 million in the first quarter of 2004, up 138% from $22 million in the first quarter of 2003 and 11% higher than the $48 million earned in the fourth quarter of 2003.

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The favorable performance as compared with the previous year’s first quarter was predominantly attributable to the Allfirst acquisition, which resulted in increases in net interest income on loans of $16 million, service charges on deposit accounts of $12 million and credit-related fees of $7 million, partially offset by higher operating expenses of $13 million. In the non-Allfirst regions, net interest income on loans increased by $5 million, mainly the result of a 7% increase in balances outstanding, and credit-related fees and deposit service charges grew in the aggregate by $3 million. A decline in net charge-offs of $9 million also contributed to the higher net income. The increase from the fourth quarter of 2003 was largely due to a $5 million decrease in net charge-offs, as well as higher credit-related fees and deposit service charges.

     Net income earned by the Commercial Real Estate segment totaled $29 million in the first quarter of 2004, compared with $23 million and $31 million in the first and fourth quarters of 2003, respectively. The increase from the initial quarter of 2003 was due to higher net interest income of $11 million, the result of loans acquired in the Allfirst regions and, in the non-Allfirst regions, higher net interest margin on loans of 17 basis points combined with a 2% increase in average loan balances outstanding. Also contributing to the first quarter year-over-year increase were higher commercial mortgage banking revenues of $4 million, the result of the FNMA DUS business acquired from Allfirst, offset by higher salaries, benefits and other operating expenses in the Allfirst regions. Lower mortgage banking revenues of $3 million and a higher provision for credit losses of $1 million were the major factors contributing to the decrease in net income in the recent quarter from the fourth quarter of 2003.

     The Discretionary Portfolio segment’s net income for the first three months of 2004 was $26 million, up 87% from $14 million in the year-earlier quarter and 15% higher than the $23 million earned in final quarter of 2003. The favorable variance over the first quarter of last year was predominantly due to a $14 million increase in net interest income from investment securities, including securities acquired in the Allfirst transaction, and higher tax-exempt income earned from bank owned life insurance. The increase in net income from the fourth quarter of 2003 was largely due to higher net interest income from investment securities and residential mortgage loans totaling $4 million, the result of a 9% increase in balances outstanding and a 7 basis point increase in net interest margin.

     Reflecting lower revenues from loan origination and sales activities and an increase in the capitalized mortgage servicing rights valuation allowance, net income for the Residential Mortgage Banking segment in 2004’s initial quarter decreased to $.1 million from $17 million and $12 million in the first and fourth quarters of 2003, respectively. Revenues from origination and sales activities in the recent quarter, including sales of loans to the Company’s Discretionary Portfolio, were down $16 million from the year-earlier quarter and $5 million from the final quarter of 2003. The decreased revenues reflect the generally higher interest rate environment during much of 2004’s first quarter as compared with 2003, when loan origination and refinancing activities were at higher levels. As a result of a decline in mortgage loan interest rates near the end of the first quarter of 2004, a $9 million provision for impairment of capitalized mortgage servicing rights was recorded in this segment to reflect changes in the estimated fair value of such rights. In the fourth quarter of 2003, a $6 million partial reversal of the capitalized servicing valuation allowance was recorded, while in the first quarter of 2003, no such provision or reversal was recorded.

     The Retail Banking segment contributed $49 million to the Company’s net income in the first quarter of 2004, up 22% from $40 million in the first quarter of 2003 and 8% higher than the $46 million earned in the fourth quarter of 2003. The increase from the first quarter of last year was the result of higher net interest income of $60 million and increased service charges on deposit accounts and other fee income of $38 million, partially offset by higher operating expenses of $82 million, all largely attributable to the impact of the acquisition of Allfirst. The recent quarter’s higher net

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income as compared with the fourth quarter of 2003 was primarily the result of a $9 million decrease in net charge-offs and a $6 million reduction in advertising and other operating expenses. These favorable factors were offset, in part, by a $5 million decline in net interest income, due mostly to an 8 basis point decrease in the net interest margin on deposit accounts, and lower deposit service charges of $3 million. During the fourth quarter of 2003 certain Allfirst franchise-related indirect expenses incurred by centralized support areas were allocated to the Retail Segment, retroactive to the third quarter of 2003. As a result, previously reported noninterest expense, for the three- and nine-month periods ended September 30, 2003, were increased in the Retail Segment and decreased in the “All Other” category by $9 million. Likewise, net income was decreased in the Retail Segment and increased in the “All Other” category by $5 million for the similar 2003 periods.

     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, such as the M&T Investment Group, which includes the Company’s trust, brokerage and insurance businesses. Also reflected in this category are the 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.

Recent Accounting Developments

In March 2004, the FASB issued a Proposed Statement of Financial Accounting Standards (“Proposed Statement”), “Share-Based Payment.” The Proposed Statement addresses the accounting for transactions in which an enterprise exchanges its equity instruments for employee services or incurs liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The Proposed Statement would eliminate the ability to account for share-based compensation transactions using Accounting Principals Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally would require instead that such transactions be accounted for using a fair value-based method. Effective January 1, 2003, the Company began recognizing expense for stock-based compensation using the fair value method of accounting described in SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended. As a result, the Proposed Statement, if ultimately adopted by the FASB as proposed, is not expected to have a material impact on the Company’s consolidated financial statements.

     As already noted herein and in note 7 of Notes to Financial Statements, in March 2004 the SEC issued SAB No. 105 which summarizes the views of the SEC’s staff regarding the application of GAAP to loans held for sale and to loan commitments accounted for as derivative instruments. Those views are that, in general, when valuing mortgage loans held for sale and commitments to originate mortgage loans to be sold under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, value ascribable to loan cash flows that will ultimately be realized in connection with mortgage servicing activities should only be recognized at the time the underlying mortgage loans are sold and should not be considered when determining the fair value of loans held for sale or commitments to originate loans for sale. The SEC expects registrants to apply the accounting described in SAB No. 105 for loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004. In accordance with the new guidance, the Company has adopted the provisions of SAB No. 105 effective April 1, 2004. As of March 31, 2004, the value ascribed to the now excluded cash flows already recognized in mortgage banking revenues was $6 million. Had SAB No. 105 been in effect as of March 31, 2004, such amount would not have been recognized until the mortgage loans were sold which, in general, would be in the following quarter. As a result of adopting SAB No. 105 on April 1, 2004, the Company expects that there will be a one-time deferral of income from the second quarter to the third quarter of 2004. Had the provisions of SAB No. 105 been effective as of December 31, 2003, the Company estimates that

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mortgage banking revenues in the first quarter of 2004 would not have differed significantly from the amount of revenues actually reported in that quarter.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report contain forward-looking statements that are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

     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 of and number of stock options to be issued in future periods; legislation affecting the financial services industry as a whole, and/or 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 to the Company’s 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.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 1

QUARTERLY TRENDS

                                         
    2004
          2003 Quarters
   
    First Quarter
  Fourth
  Third
  Second
  First
Earnings and dividends
                                       
Amounts in thousands, except per share
                                       
Interest income (taxable-equivalent basis)
  $ 550,362       554,673       568,319       580,704       439,182  
Interest expense
    126,829       129,173       133,539       145,506       119,592  
 
   
 
     
 
     
 
     
 
     
 
 
Net interest income
    423,533       425,500       434,780       435,198       319,590  
Less: provision for credit losses
    20,000       28,000       34,000       36,000       33,000  
Other income
    228,151       233,757       231,594       232,897       132,847  
Less: other expense
    389,967       378,355       396,400       431,147       242,278  
 
   
 
     
 
     
 
     
 
     
 
 
Income before income taxes
    241,717       252,902       235,974       200,948       177,159  
Applicable income taxes
    77,997       81,801       75,329       62,600       56,998  
Taxable-equivalent adjustment
    4,230       4,200       4,182       4,308       3,623  
 
   
 
     
 
     
 
     
 
     
 
 
Net income
  $ 159,490       166,901       156,463       134,040       116,538  
 
   
 
     
 
     
 
     
 
     
 
 
Per common share data
                                       
Basic earnings
  $ 1.33       1.39       1.31       1.12       1.26  
Diluted earnings
    1.30       1.35       1.28       1.10       1.23  
Cash dividends
  $ .40       .30       .30       .30       .30  
Average common shares outstanding
                                       
Basic
    119,738       120,141       119,727       119,393       92,399  
Diluted
    122,316       123,328       122,593       122,366       95,062  
 
   
 
     
 
     
 
     
 
     
 
 
Performance ratios, annualized
                                       
Return on
                                       
Average assets
    1.29 %     1.35 %     1.24 %     1.10 %     1.43 %
Average common stockholders’ equity
    11.19 %     11.77 %     11.37 %     10.00 %     14.46 %
Net interest margin on average earning assets (taxable-equivalent basis)
    3.92 %     3.96 %     4.02 %     4.12 %     4.32 %
Nonperforming loans to total loans and leases, net of unearned discount
    .70 %     .67 %     .77 %     .86 %     .88 %
Efficiency ratio (a)
    60.07 %     57.18 %     56.60 %     59.59 %     52.37 %
 
   
 
     
 
     
 
     
 
     
 
 
Net operating (tangible) results (b)
                                       
Net income (in thousands)
  $ 172,423       181,594       182,670       169,436       127,231  
Diluted net income per common share
    1.41       1.47       1.49       1.38       1.34  
Annualized return on
                                       
Average tangible assets
    1.48 %     1.57 %     1.55 %     1.48 %     1.62 %
Average tangible common stockholders’ equity
    26.02 %     28.33 %     30.67 %     29.89 %     24.68 %
Efficiency ratio (a)
    56.81 %     53.93 %     53.22 %     56.20 %     49.81 %
 
   
 
     
 
     
 
     
 
     
 
 
Balance sheet data
                                       
In millions, except per share
                                       
Average balances
                                       
Total assets (c)
  $ 49,915       49,123       50,024       49,010       33,061  
Total tangible assets (c)
    46,781       45,968       46,848       45,822       31,884  
Earning assets
    43,444       42,672       42,885       42,386       30,004  
Investment securities
    7,516       6,212       5,837       5,654       3,638  
Loans and leases, net of unearned discount
    35,843       36,361       36,953       36,632       25,789  
Deposits
    32,856       32,357       31,954       31,189       21,078  
Stockholders’ equity (c)
    5,732       5,625       5,461       5,377       3,267  
Tangible stockholders’ equity (c)
    2,665       2,543       2,363       2,274       2,090  
 
   
 
     
 
     
 
     
 
     
 
 
At end of quarter
                                       
Total assets (c)
  $ 50,832       49,826       50,259       50,399       33,444  
Total tangible assets (c)
    47,708       46,681       47,093       47,211       32,271  
Earning assets
    44,335       43,134       43,257       43,038       30,396  
Investment securities
    7,656       7,259       5,957       5,946       4,146  
Loans and leases, net of unearned discount
    36,515       35,772       37,160       37,002       26,224  
Deposits
    33,341       33,115       32,414       32,539       21,924  
Stockholders’ equity (c)
    5,734       5,717       5,572       5,433       3,313  
Tangible stockholders’ equity (c)
    2,674       2,642       2,482       2,327       2,140  
Equity per common share
    48.17       48.55       46.49       45.46       35.81  
Tangible equity per common share
    22.47       21.97       20.71       19.47       23.13  
 
   
 
     
 
     
 
     
 
     
 
 
Market price per common share
                                       
High
  $ 98.65       98.98       90.93       90.91       84.48  
Low
    88.08       87.50       83.65       79.00       74.71  
Closing
    89.85       98.30       87.30       84.22       78.58  
 
   
 
     
 
     
 
     
 
     
 
 

(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 table 2.
 
(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 table 2.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 2

RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES

                                         
    2004
          2003 Quarters
   
    First Quarter
  Fourth
  Third
  Second
  First
Income statement data
                                       
In thousands, except per share
                                       
Net income
                                       
Net income
  $ 159,490       166,901       156,463       134,040       116,538  
Amortization of core deposit and other intangible assets (1)
    12,933       13,059       13,790       13,883       7,094  
Merger-related expenses (1)
          1,634       12,417       21,513       3,599  
 
   
 
     
 
     
 
     
 
     
 
 
Net operating income
  $ 172,423       181,594       182,670       169,436       127,231  
 
   
 
     
 
     
 
     
 
     
 
 
Earnings per share
                                       
Diluted earnings per common share
  $ 1.30       1.35       1.28       1.10       1.23  
Amortization of core deposit and other intangible assets (1)
    .11       .11       .11       .11       .07  
Merger-related expenses (1)
          .01       .10       .17       .04  
 
   
 
     
 
     
 
     
 
     
 
 
Diluted net operating earnings per share
  $ 1.41       1.47       1.49       1.38       1.34  
 
   
 
     
 
     
 
     
 
     
 
 
Other expense
                                       
Other expense
  $ 389,967       378,355       396,400       431,147       242,278  
Amortization of core deposit and other intangible assets
    (21,148 )     (21,345 )     (22,538 )     (22,671 )     (11,598 )
Merger-related expenses
          (2,533 )     (19,251 )     (33,158 )     (5,445 )
 
   
 
     
 
     
 
     
 
     
 
 
Noninterest operating expense
  $ 368,819       354,477       354,611       375,318       225,235  
 
   
 
     
 
     
 
     
 
     
 
 
Merger-related expenses
                                       
Salaries and employee benefits
  $       426       4,278       3,553       285  
Equipment and net occupancy
          472       758       800       96  
Printing, postage and supplies
          241       614       2,319       42  
Other costs of operations
          1,394       13,601       26,486       5,022  
 
   
 
     
 
     
 
     
 
     
 
 
Total
  $       2,533       19,251       33,158       5,445  
 
   
 
     
 
     
 
     
 
     
 
 
Balance sheet data
                                       
In millions
                                       
Average assets
                                       
Average assets
  $ 49,915       49,123       50,024       49,010       33,061  
Goodwill
    (2,904 )     (2,904 )     (2,904 )     (2,893 )     (1,098 )
Core deposit and other intangible assets
    (230 )     (251 )     (272 )     (295 )     (112 )
Deferred taxes
                            33  
 
   
 
     
 
     
 
     
 
     
 
 
Average tangible assets
  $ 46,781       45,968       46,848       45,822       31,884  
 
   
 
     
 
     
 
     
 
     
 
 
Average equity
                                       
Average equity
  $ 5,732       5,625       5,461       5,377       3,267  
Goodwill
    (2,904 )     (2,904 )     (2,904 )     (2,893 )     (1,098 )
Core deposit and other intangible assets
    (230 )     (251 )     (272 )     (295 )     (112 )
Deferred taxes
    67       73       78       85       33  
 
   
 
     
 
     
 
     
 
     
 
 
Average tangible equity
  $ 2,665       2,543       2,363       2,274       2,090  
 
   
 
     
 
     
 
     
 
     
 
 
At end of quarter
                                       
Total assets
                                       
Total assets
  $ 50,832       49,826       50,259       50,399       33,444  
Goodwill
    (2,904 )     (2,904 )     (2,904 )     (2,904 )     (1,098 )
Core deposit and other intangible assets
    (220 )     (241 )     (262 )     (284 )     (107 )
Deferred taxes
                            32  
 
   
 
     
 
     
 
     
 
     
 
 
Total tangible assets
  $ 47,708       46,681       47,093       47,211       32,271  
 
   
 
     
 
     
 
     
 
     
 
 
Total equity
                                       
Total equity
  $ 5,734       5,717       5,572       5,433       3,313  
Goodwill
    (2,904 )     (2,904 )     (2,904 )     (2,904 )     (1,098 )
Core deposit and other intangible assets
    (220 )     (241 )     (262 )     (284 )     (107 )
Deferred taxes
    64       70       76       82       32  
 
   
 
     
 
     
 
     
 
     
 
 
Total tangible equity
  $ 2,674       2,642       2,482       2,327       2,140  
 
   
 
     
 
     
 
     
 
     
 
 

(1)   After any related tax effect.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 3

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES

                                                 
    2004 First Quarter   2003 Fourth 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.
  $ 9,100     $ 92,190       4.07 %     9,202       92,880       4.04 %
Real estate – commercial
    12,521       178,845       5.71       12,344       180,692       5.86  
Real estate – consumer
    3,083       45,892       5.95       3,758       56,976       6.06  
Consumer
    11,139       156,838       5.66       11,057       161,492       5.79  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total loans and leases, net
    35,843       473,765       5.32       36,361       492,040       5.37  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Money-market assets
                                               
Interest-bearing deposits at banks
    15       15       .41       15       15       .42  
Federal funds sold and agreements to resell securities
    9       28       1.27       19       60       1.28  
Trading account
    61       164       1.07       65       174       1.07  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total money-market assets
    85       207       .98       99       249       1.00  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Investment securities**
                                               
U.S. Treasury and federal agencies
    3,640       34,042       3.76       3,079       29,541       3.81  
Obligations of states and political subdivisions
    240       3,554       5.92       239       3,801       6.35  
Other
    3,636       38,794       4.29       2,894       29,042       3.98  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total investment securities
    7,516       76,390       4.09       6,212       62,384       3.98  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total earning assets
    43,444       550,362       5.10       42,672       554,673       5.16  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Allowance for credit losses
    (620 )                     (627 )                
Cash and due from banks
    1,610                       1,675                  
Other assets
    5,481                       5,403                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total assets
  $ 49,915                       49,123                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Liabilities and stockholders’ equity
                                               
Interest-bearing liabilities
                                               
Interest-bearing deposits
                                               
NOW accounts
  $ 1,114       994       .36       1,160       956       .33  
Savings deposits
    14,755       22,921       .62       14,674       25,768       .70  
Time deposits
    6,591       36,389       2.22       6,440       37,139       2.29  
Deposits at foreign offices
    2,833       6,882       .98       2,378       5,783       .96  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total interest-bearing deposits
    25,293       67,186       1.07       24,652       69,646       1.12  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Short-term borrowings
    4,771       12,058       1.02       4,162       10,676       1.02  
Long-term borrowings
    5,566       47,585       3.44       5,922       48,851       3.27  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total interest-bearing liabilities
    35,630       126,829       1.43       34,736       129,173       1.48  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Noninterest-bearing deposits
    7,563                       7,705                  
Other liabilities
    990                       1,057                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total liabilities
    44,183                       43,498                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Stockholders’ equity
    5,732                       5,625                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total liabilities and stockholders’ equity
  $ 49,915                       49,123                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Net interest spread
                    3.67                       3.68  
Contribution of interest-free funds
                    .25                       .28  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Net interest income/margin on earning assets
          $ 423,533       3.92 %             425,500       3.96 %
 
   
 
     
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

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

                         
    2003 Third Quarter
    Average           Average
Average balance in millions; interest in thousands
  balance
  Interest
  rate
Assets
                       
Earning assets
                       
Loans and leases, net of unearned discount*
                       
Commercial, financial, etc.
    9,514       97,290       4.06 %
Real estate – commercial
    12,165       181,060       5.95  
Real estate — consumer
    4,303       64,439       5.99  
Consumer
    10,971       163,037       5.90  
 
   
 
     
 
     
 
 
Total loans and leases, net
    36,953       505,826       5.43  
 
   
 
     
 
     
 
 
Money-market assets
                       
Interest-bearing deposits at banks
    14       77       2.24  
Federal funds sold and agreements to resell securities
    9       25       1.15  
Trading account
    72       197       1.09  
 
   
 
     
 
     
 
 
Total money-market assets
    95       299       1.25  
 
   
 
     
 
     
 
 
Investment securities**
                       
U.S. Treasury and federal agencies
    3,086       29,790       3.83  
Obligations of states and political subdivisions
    262       4,045       6.18  
Other
    2,489       28,359       4.52  
 
   
 
     
 
     
 
 
Total investment securities
    5,837       62,194       4.23  
 
   
 
     
 
     
 
 
Total earning assets
    42,885       568,319       5.26  
 
   
 
     
 
     
 
 
Allowance for credit losses
    (618 )                
Cash and due from banks
    1,979                  
Other assets
    5,778                  
 
   
 
     
 
     
 
 
Total assets
    50,024                  
 
   
 
     
 
     
 
 
Liabilities and stockholders’ equity
                       
Interest-bearing liabilities
                       
Interest-bearing deposits
                       
NOW accounts
    1,227       1,044       .34  
Savings deposits
    14,320       25,154       .70  
Time deposits
    6,739       39,625       2.33  
Deposits at foreign offices
    1,340       3,203       .95  
 
   
 
     
 
     
 
 
Total interest-bearing deposits
    23,626       69,026       1.16  
 
   
 
     
 
     
 
 
Short-term borrowings
    4,870       12,655       1.03  
Long-term borrowings
    6,595       51,858       3.12  
 
   
 
     
 
     
 
 
Total interest-bearing liabilities
    35,091       133,539       1.51  
 
   
 
     
 
     
 
 
Noninterest-bearing deposits
    8,328                  
Other liabilities
    1,144                  
 
   
 
     
 
     
 
 
Total liabilities
    44,563                  
 
   
 
     
 
     
 
 
Stockholders’ equity
    5,461                  
 
   
 
     
 
     
 
 
Total liabilities and stockholders’ equity
    50,024                  
 
   
 
     
 
     
 
 
Net interest spread
                    3.75  
Contribution of interest-free funds
                    .27  
 
   
 
     
 
     
 
 
Net interest income/margin on earning assets
            434,780       4.02 %
 
   
 
     
 
     
 
 

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

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

Table 3 (continued)

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

                                                 
    2003 Second Quarter   2003 First 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.
  $ 9,985     $ 108,018       4.34 %     5,340       60,441       4.59 %
Real estate – commercial
    12,059       185,169       6.14       9,687       159,101       6.57  
Real estate – consumer
    3,853       59,563       6.18       3,181       51,476       6.47  
Consumer
    10,735       165,541       6.19       7,581       117,839       6.30  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total loans and leases, net
    36,632       518,291       5.67       25,789       388,857       6.11  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Money-market assets
                                               
Interest-bearing deposits at banks
    21       41       .80       8       14       .72  
Federal funds sold and agreements to resell securities
    13       46       1.40       554       1,744       1.28  
Trading account
    66       214       1.29       15       62       1.62  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total money-market assets
    100       301       1.21       577       1,820       1.28  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Investment securities**
                                               
U.S. Treasury and federal agencies
    3,056       30,665       4.03       1,147       16,213       5.73  
Obligations of states and political subdivisions
    261       4,206       6.44       242       3,775       6.25  
Other
    2,337       27,241       4.68       2,249       28,517       5.14  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total investment securities
    5,654       62,112       4.41       3,638       48,505       5.41  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total earning assets
    42,386       580,704       5.50       30,004       439,182       5.94  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Allowance for credit losses
    (603 )                     (445 )                
Cash and due from banks
    1,769                       729                  
Other assets
    5,458                       2,773                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total assets
  $ 49,010                       33,061                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Liabilities and stockholders’ equity
                                               
Interest-bearing liabilities
                                               
Interest-bearing deposits
                                               
NOW accounts
  $ 903       905       .40       789       708       .36  
Savings deposits
    14,428       28,584       .79       9,623       22,684       .96  
Time deposits
    7,489       44,825       2.40       5,877       38,111       2.63  
Deposits at foreign offices
    996       2,882       1.16       1,052       3,123       1.20  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total interest-bearing deposits
    23,816       77,196       1.30       17,341       64,626       1.51  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Short-term borrowings
    4,789       14,581       1.22       3,490       11,152       1.30  
Long-term borrowings
    6,698       53,729       3.22       4,838       43,814       3.67  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total interest-bearing liabilities
    35,303       145,506       1.65       25,669       119,592       1.89  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Noninterest-bearing deposits
    7,373                       3,737                  
Other liabilities
    957                       388                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total liabilities
    43,633                       29,794                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Stockholders’ equity
    5,377                       3,267                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total liabilities and stockholders’ equity
  $ 49,010                       33,061                  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Net interest spread
                    3.85                       4.05  
Contribution of interest-free funds
                    .27                       .27  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Net interest income/margin on earning assets
          $ 435,198       4.12 %             319,590       4.32 %
 
   
 
     
 
     
 
     
 
     
 
     
 
 

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

     (a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules 13a-14(c) and 15d-14(c)), Robert G. Wilmers, Chairman of the Board, President and Chief Executive Officer, and Michael P. Pinto, Executive Vice President and Chief Financial Officer, believe that M&T’s disclosure controls and procedures were effective as of March 31, 2004.

     (b) Changes in internal controls. There were no significant changes in M&T’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to March 31, 2004 through the date of this Quarterly Report on Form 10-Q, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

     (a) - (d) Not applicable

     (e)

Issuer Purchases of Equity Securities


                                 
                            (d)Maximum
                    (c) Total   Number (or
                    Number of   Approximate
                    Shares   Dollar Value)
                    (or Units)   of Shares
                    Purchased   (or Units)
    (a) Total           as Part of   that may yet
    Number   (b) Average   Publicly   be Purchased
    of Shares   Price Paid   Announced   Under the
    (or Units)   per Share   Plans or   Plans or
Period
  Purchased
  (or Unit)
  Programs
  Programs (1)
January 1 - January 31, 2004
    250,000     $ 92.42       250,000       1,117,902  
February 1 - February 29, 2004
    1,217,900       91.73       1,217,900       4,900,000  
March 1 - March 31, 2004
    300,000       91.18       300,000       4,600,000  
 
   
 
     
 
     
 
     
 
 
Total
    1,767,900     $ 91.73       1,767,900          
 
   
 
     
 
     
 
         

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Table of Contents

(1)   On November 8, 2001, M&T announced a program to purchase up to 5 million of its common shares. That program was deemed completed on February 19, 2004. On February 18, 2004, M&T announced another program to purchase up to 5 million of its common shares. M&T did not make any purchases other than through these publicly announced programs during the quarter covered by this report.

Item 3. Defaults Upon Senior Securities.

            (Not applicable.)

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

     The 2004 Annual Meeting of Stockholders of M&T was held on April 20, 2004. At the 2004 Annual Meeting, stockholders elected twenty-six (26) directors, all of whom were then serving as directors of M&T, for terms of one (1) year and until their successors are elected and qualified. The following table reflects the tabulation of the votes with respect to each director who was elected at the 2004 Annual Meeting.

                 
    Number of Votes
Nominee
  For
  Withheld
William F. Allyn
    107,946,374       2,334,421  
Brent D. Baird
    108,267,155       2,013,640  
Robert J. Bennett
    108,186,717       2,094,078  
C. Angela Bontempo
    107,877,671       2,403,124  
Robert T. Brady
    108,147,054       2,133,741  
Emerson L. Brumback
    108,170,288       2,110,507  
Michael D. Buckley
    107,403,286       2,877,509  
Patrick J. Callan
    108,297,465       1,983,330  
R. Carlos Carballada
    107,746,570       2,534,225  
T. Jefferson Cunningham III
    108,117,111       2,163,684  
Donald Devorris
    108,062,852       2,217,943  
Richard E. Garman
    96,267,747       14,013,048  
James V. Glynn
    107,959,424       2,321,371  
Derek C. Hathaway
    107,930,649       2,350,146  
Daniel R. Hawbaker
    108,376,689       1,904,106  
Patrick W.E. Hodgson
    107,954,882       2,325,913  
Gary Kennedy
    108,187,973       2,092,822  
Richard G. King
    108,304,022       1,976,773  
Reginald B. Newman, II
    108,192,124       2,088,671  
Jorge G. Pereira
    107,615,576       2,665,219  
Michael P. Pinto
    107,538,636       2,742,159  
Robert E. Sadler, Jr.
    108,177,229       2,103,566  
Eugene J. Sheehy
    108,150,728       2,130,067  
Stephen G. Sheetz
    108,379,082       1,901,713  
Herbert L. Washington
    108,368,222       1,912,573  
Robert G. Wilmers
    108,197,215       2,083,580  

     At the 2004 Annual Meeting, stockholders also ratified the appointment of PricewaterhouseCoopers LLP as the independent public accountant of M&T Bank Corporation for the year ending December 31, 2004. The following table presents the tabulation of the votes with respect to such ratification.

                 
Number of Votes
For
  Against
  Abstain
107,118,007
    3,043,708       119,080  

Item 5. Other Information.
             (None)

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Table of Contents

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

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

     
Exhibit    
No.
   
31.1
  Certificate of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
   
31.2
  Certificate of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
   
32.1
  Certification of Chief Executive Officer Under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
   
32.2
  Certification of Chief Financial Officer Under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

     (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 March 31, 2004:

     On January 12, 2004, M&T filed a Current Report on Form 8-K dated January 12, 2004 to disclose that M&T had announced its results of operations for the fiscal year ended December 31, 2003 by means of a news release.

     On January 13, 2004, M&T filed a Current Report on Form 8-K dated January 13, 2004 to disclose that it had sent notice to its directors and executive officers informing them of a blackout period in the M&T Bank Corporation Retirement Savings Plan and Trust (the “RSP”) to complete the transition of the recordkeeping and administrative services to T. Rowe Price effective March 1, 2004, to eliminate and add certain investment options and to merge the Allfirst Financial Inc. Capital Accumulation Retirement Plan and Trust into the RSP. The blackout period was to begin on February 10, 2004, 4:00 p.m. Eastern Time, and end during the week of March 14, 2004, during which participants in the RSP generally would be unable to engage in transactions in M&T Bank Corporation common stock in their individual accounts.

     On February 18, 2004, M&T filed a Current Report on Form 8-K dated February 18, 2004 to disclose that it had announced in a news release that its Board of Directors had authorized M&T to repurchase up to 5,000,000 additional shares of its common stock, and that a previously reported 5,000,000 share repurchase program had been completed. In addition, M&T disclosed that it had also announced in the news release that its quarterly cash dividend for the first quarter of 2004 had been increased to $.40 per share from $.30 per share.

     On March 11, 2004, M&T filed a Current Report on Form 8-K dated March 11, 2004 to disclose that it had sent a notice to its directors and executive officers informing them of a change in the ending date of the blackout period in the RSP which M&T Bank Corporation originally notified such persons of on January 13, 2004. The blackout period ended at 10:00 a.m. Eastern Time on March 11, 2004 because the transition to T. Rowe Price was completed earlier than originally anticipated.

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Table of Contents

SIGNATURES

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

         
      M&T BANK CORPORATION
 
       
Date: May 7, 2004
  By:   /s/ Michael P. Pinto
     
 
      Michael P. Pinto
      Executive Vice President
      and Chief Financial Officer

EXHIBIT INDEX

     
Exhibit    
No.
   
31.1
  Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
   
31.2
  Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
   
32.1
  Certification of Chief Executive Officer Under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
   
32.2
  Certification of Chief Financial Officer Under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

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