SEC Filing | M&T Bank Corporation

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

		For the quarterly period ended September 30, 2001
		or

o		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

Number of shares of the registrant’s Common Stock, $.50 par value, outstanding as of the close of business on October 31, 2001: 94,480,476 shares.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2001


Table of Contents of Information Required in Report			Page

Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements.

		CONSOLIDATED BALANCE SHEET — September 30, 2001 and December 31, 2000	3

		CONSOLIDATED STATEMENT OF INCOME — Three and nine months ended September 30, 2001 and 2000	4

		CONSOLIDATED STATEMENT OF CASH FLOWS — Nine months ended September 30, 2001 and 2000	5

		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY — Nine months ended September 30, 2001 and 2000	6

		CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES — Nine months ended September 30, 2001 and 2000	6

		NOTES TO FINANCIAL STATEMENTS	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	36

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings.	36

	Item 2.	Changes in Securities and Use of Proceeds.	36

	Item 3.	Defaults Upon Senior Securities.	36

	Item 4.	Submission of Matters to a Vote of Security Holders.	36

	Item 5.	Other Information.	36

	Item 6.	Exhibits and Reports on Form 8-K.	36

SIGNATURES			37

-2-

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)


				September 30,			December 31,
Dollars in thousands, except per share					2001		2000

Assets	Cash and due from banks			$	784,664		750,259
	Money-market assets
		Interest-bearing deposits at banks			4,322		3,102
		Federal funds sold and agreements to resell securities			2,965		17,261
		Trading account			41,936		37,431

			Total money-market assets		49,223		57,794

	Investment securities
		Available for sale (cost: $2,732,290 at September 30, 2001;
			$3,035,031 at December 31, 2000)		2,798,894		3,034,304
		Held to maturity (market value: $115,823 at September 30, 2001;
			$77,959 at December 31, 2000)		114,909		81,025
		Other (market value: $239,445 at September 30, 2001;
			$194,524 at December 31, 2000)		239,445		194,524

			Total investment securities		3,153,248		3,309,853

	Loans and leases				25,155,972		22,970,314
		Unearned discount			(209,553	)	(227,500	)
		Allowance for credit losses			(412,728	)	(374,703	)

			Loans and leases, net		24,533,691		22,368,111

	Premises and equipment				264,257		257,975
	Goodwill and core deposit intangible				1,316,941		1,199,407
	Accrued interest and other assets				1,037,034		1,006,057

			Total assets	$	31,139,058		28,949,456

Liabilities	Noninterest-bearing deposits			$	3,545,722		3,344,913
	NOW accounts				917,671		873,472
	Savings deposits				7,316,608		6,105,689
	Time deposits				8,272,202		9,664,088
	Deposits at foreign office				469,734		244,511

			Total deposits		20,521,937		20,232,673

	Federal funds purchased and agreements to repurchase securities				2,710,439		1,440,887
	Other short-term borrowings				876,808		631,937
	Accrued interest and other liabilities				458,447		528,958
	Long-term borrowings				3,615,845		3,414,516

			Total liabilities		28,183,476		26,248,971

Stockholders’ equity	Preferred stock, $1 par, 1,000,000 shares authorized,
		none outstanding			—		—
	Common stock, $.50 par, 150,000,000 shares authorized,
		97,139,347 shares issued at September 30, 2001;
		93,244,101 shares issued at December 31, 2000			48,570		46,622
	Common stock issuable, 131,400 shares at September 30, 2001;
		88,543 shares at December 31, 2000			6,214		4,077
	Additional paid-in capital				1,105,008		914,575
	Retained earnings				1,939,472		1,735,643
	Accumulated other comprehensive income, net				42,750		(432	)
	Treasury stock — common, at cost — 2,515,202 shares at
		September 30, 2001; none at December 31, 2000			(186,432	)	—

			Total stockholders’ equity		2,955,582		2,700,485

			Total liabilities and stockholders’ equity	$	31,139,058		28,949,456

-3-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


				Three months ended September 30			Nine months ended September 30
In thousands, except per share					2001	2000		2001	2000

Interest income	Loans and leases, including fees			$	472,328	373,743	$	1,446,895	1,094,980
	Money-market assets
		Deposits at banks			29	20		95	44
		Federal funds sold and agreements to resell securities			167	250		1,118	12,671
		Trading account			83	135		267	892
	Investment securities
		Fully taxable			43,663	44,989		143,104	111,710
		Exempt from federal taxes			5,699	2,743		18,693	7,901

			Total interest income		521,969	421,880		1,610,172	1,228,198

Interest expense	NOW accounts				1,896	1,235		7,287	3,795
	Savings deposits				32,515	30,375		105,196	92,868
	Time deposits				104,985	103,107		365,894	301,636
	Deposits at foreign office				3,115	4,075		9,547	10,875
	Short-term borrowings				32,808	49,221		105,603	131,206
	Long-term borrowings				52,355	31,609		163,221	91,679

			Total interest expense		227,674	219,622		756,748	632,059

	Net interest income				294,295	202,258		853,424	596,139
	Provision for credit losses				28,000	9,000		70,500	24,000

	Net interest income after provision for credit losses				266,295	193,258		782,924	572,139

Other income	Mortgage banking revenues				24,789	16,012		75,478	45,543
	Service charges on deposit accounts				37,000	21,764		105,847	63,178
	Trust income				15,589	9,838		47,733	29,579
	Brokerage services income				9,489	7,177		28,969	24,639
	Trading account and foreign exchange gains				223	1,062		2,591	1,575
	Gain on sales of bank investment securities				244	—		1,873	26
	Other revenues from operations				32,833	20,661		87,239	57,354

			Total other income		120,167	76,514		349,730	221,894

Other expense	Salaries and employee benefits				109,250	76,099		324,592	229,738
	Equipment and net occupancy				28,227	18,582		84,112	54,284
	Printing, postage and supplies				5,838	4,479		19,142	13,195
	Amortization of goodwill and core deposit intangible				31,010	13,810		91,970	42,320
	Other costs of operations				61,869	40,989		184,191	120,729

			Total other expense		236,194	153,959		704,007	460,266

	Income before taxes				150,268	115,813		428,647	333,767
	Income taxes				52,401	41,397		152,306	119,578


	Net income			$	97,867	74,416	$	276,341	214,189


	Net income per common share
		Basic		$	1.02	.97	$	2.87	2.79
		Diluted			.98	.94		2.77	2.71

	Cash dividends per common share			$	.25	.125	$	.75	.375

	Average common shares outstanding
		Basic			96,115	76,748		96,225	76,830
		Diluted			99,597	79,417		99,644	79,171

-4-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


				Nine months ended September 30
In thousands					2001		2000

Cash flows from	Net income			$	276,341		214,189
operating activities	Adjustments to reconcile net income to net cash
		provided by operating activities
			Provision for credit losses		70,500		24,000
			Depreciation and amortization of premises and equipment		31,096		20,759
			Amortization of capitalized servicing rights		23,200		17,311
			Amortization of goodwill and core deposit intangible		91,970		42,320
			Provision for deferred income taxes		(20,655	)	(13,714	)
			Asset write-downs		1,010		1,394
			Net (gain) loss on sales of assets		(2,102	)	2,964
			Net change in accrued interest receivable, payable		(7,471	)	(1,438	)
			Net change in other accrued income and expense		(26,688	)	(4,089	)
			Net change in loans held for sale		(265,572	)	(25,809	)
			Net change in trading account assets and liabilities		3,883		(8,129	)

			Net cash provided by operating activities		175,512		269,758

Cash flows from	Proceeds from sales of investment securities
investing activities		Available for sale			380,507		112,288
		Other			—		20,052
	Proceeds from maturities of investment securities
		Available for sale			671,427		281,615
		Held to maturity			49,145		47,988
	Purchases of investment securities
		Available for sale			(326,282	)	(289,758	)
		Held to maturity			(62,630	)	(46,902	)
		Other			(36,190	)	(20,498	)
	Additions to capitalized servicing rights				(29,570	)	(22,709	)
	Net increase in loans and leases				(988,398	)	(947,161	)
	Capital expenditures, net				(16,345	)	(11,290	)
	Acquisitions, net of cash acquired:
	Banks and bank holding companies				(59,247	)	—
	Other companies				—		(4,303	)
	Purchases of bank owned life insurance				—		(35,000	)
	Other, net				(836	)	123

			Net cash used by investing activities		(418,419	)	(915,555	)

Cash flows from	Net decrease in deposits				(1,099,453	)	(691,050	)
financing activities	Net increase (decrease) in short-term borrowings				1,479,112		719,166
	Proceeds from long-term borrowings				475,451		51,246
	Payments on long-term borrowings				(305,186	)	(32,247	)
	Purchases of treasury stock				(242,841	)	(54,947	)
	Dividends paid — common				(72,399	)	(28,746	)
	Other, net				28,332		9,403

			Net cash provided (used) by financing activities		263,016		(27,175	)

	Net increase (decrease) in cash and cash equivalents			$	20,109		(672,972	)
	Cash and cash equivalents at beginning of period				767,520		1,236,310
	Cash and cash equivalents at end of period			$	787,629		563,338

Supplemental	Interest received during the period			$	1,632,665		1,210,934
disclosure of cash	Interest paid during the period				789,798		612,882
flow information	Income taxes paid during the period				147,972		110,767

Supplemental schedule of	Real estate acquired in settlement of loans			$	9,981		9,453
noncash investing and	Aquisition of banks and bank holding companies:
financing activities		Common stock issued			169,270		—
		Fair value of:
			Assets acquired (noncash)		1,674,360		—
			Liabilities assumed		1,461,449		—
			Stock options		6,646		—
	Securitization of residential mortgage loans allocated to:
		Available for sale investment securities			—		1,018,216
		Capitalized servicing rights			—		14,282

-5-

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

2000
	Balance — January 1, 2000				$	—	40,508	3,937	458,729		1,501,530		(26,047	)	(181,611	)	$	1,797,046
	Comprehensive income:
		Net income				—	—	—	—		214,189		—		—			214,189
		Other comprehensive income, net of tax:
			Unrealized losses on
				investment securities, net of
				reclassification adjustment		—	—	—	—		—		(6,329	)	—			(6,329	)

																		207,860
	Purchases of treasury stock					—	—	—	—		—		—		(54,947	)		(54,947	)
	Stock-based compensation plans:
		Exercise of stock options				—	—	—	(23,145	)	—		—		40,758			17,613
		Directors’ stock plan				—	—	—	(17	)	—		—		260			243
		Deferred compensation plans, net,
			including dividend equivalents			—	—	161	(5	)	(33	)	—		377			500
	Common stock cash dividends —
		$.375 per share				—	—	—	—		(28,746	)	—		—			(28,746	)

	Balance — September 30, 2000				$	—	40,508	4,098	435,562		1,686,940		(32,376	)	(195,163	)	$	1,939,569

2001
	Balance — January 1, 2001				$	—	46,622	4,077	914,575		1,735,643		(432	)	—		$	2,700,485
	Comprehensive income:
		Net income				—	—	—	—		276,341		—		—			276,341
		Other comprehensive income, net of tax:
			Unrealized gains on
				investment securities, net of
				reclassification adjustment		—	—	—	—		—		43,589		—			43,589
			Unrealized losses on
				cash flow hedge, net of
				reclassification adjustment		—	—	—	—		—		(407	)	—			(407	)

																		319,523
	Purchases of treasury stock					—	—	—	—		—		—		(242,841	)		(242,841	)
	Acquisition of Premier National Bancorp, Inc.:
		Common stock issued				—	1,220	—	168,050		—		—		—			169,270
		Fair value of stock options				—	—	—	6,646		—		—		—			6,646
	Repayment of management stock
		ownership program receivable				—	—	—	112		—		—		—			112
	Stock-based compensation plans:
		Exercise of stock options				—	722	—	15,189		—		—		55,960			71,871
		Directors’ stock plan				—	2	—	225		—		—		179			406
		Deferred compensation plans, net,
			including dividend equivalents			—	4	2,137	211		(113	)	—		270			2,509
	Common stock cash dividends —
		$.75 per share				—	—	—	—		(72,399	)	—		—			(72,399	)

	Balance — September 30, 2001				$	—	48,570	6,214	1,105,008		1,939,472		42,750		(186,432	)	$	2,955,582

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



				Nine months ended September 30
In thousands				2001		2000

Beginning balance			$	374,703		316,165
Provision for credit losses				70,500		24,000
Allowance obtained through acquisitions				22,112		—
Net charge-offs
	Charge-offs			(69,228	)	(27,886	)
	Recoveries			14,641		11,034

		Total net charge-offs		(54,587	)	(16,852	)

Ending balance			$	412,728		323,313

-6-

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 2000 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. Accounting for derivative instruments and hedging activities

On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 established accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available for sale security, or a foreign currency denominated forecasted transaction.

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

The Company utilizes derivatives, as defined in SFAS No. 133, to hedge the exposure to changes in the fair value of a recognized asset or liability or an unrecognized commitment. The January 1, 2001 transition adjustment prescribed by SFAS No. 133 was not material to the Company’s consolidated financial position or its results of operations. As a result of adopting the provisions of SFAS No. 133, hedged residential real estate loans held for sale, commitments to originate loans for sale, and commitments to sell loans are now generally recorded in the consolidated balance sheet at estimated fair market value, rather than at the lower of aggregate cost or fair market value, which was the Company’s policy prior to January 1, 2001. As a result, included in mortgage banking revenues for the three-month and nine-month periods ended September 30, 2001 were increases in net unrealized pre-tax gains related to loans held for sale, commitments to originate loans for sale, and commitments to sell loans of approximately $34 thousand ($22 thousand net of applicable income taxes) and $7.3 million ($4.7 million net of applicable income taxes), respectively.

The Company utilizes interest rate swap agreements as part of the management of interest-rate risk to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. Of the Company’s $561 million of currently existing interest rate swap agreements, $461 million have been designated as fair value hedges and $100 million have been designated as cash flow hedges. In a fair value hedge, the fair value of the derivative (the interest rate swap) and changes in the fair value of the hedged item are recorded in the Company’s balance sheet with the corresponding gain or loss being recognized in current earnings. The difference between changes in the fair value of interest rate swaps 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 recorded as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in “Other revenues from operations” immediately. The amount of

-7-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Accounting for derivative instruments and hedging activities, continued

hedge ineffectiveness of both fair value and cash flow hedges recognized during the three and nine-month periods ended September 30, 2001 was not material to the Company’s results of operations. The estimated fair value of interest rate swaps designated as fair value hedges was approximately $8.7 million at September 30, 2001. The fair value of such swaps was substantially offset by unrealized losses on the fair value of the hedged items. The estimated fair value of the interest rate swaps designated as cash flow hedges was a loss of approximately $628 thousand at September 30, 2001. Net of applicable income taxes, such loss was approximately $407 thousand and has been included in “Accumulated other comprehensive income, net” in the Company’s consolidated balance sheet.

3. Earnings per share

The computations of basic earnings per share follow:


		Three months ended				Nine months ended
		September 30				September 30

		2001		2000		2001		2000

		(in thousands, except per share)
Income available to common stockholders:
	Net income	$	97,867		74,416		276,341		214,189
Weighted-average shares outstanding (including common stock issuable)			96,115		76,748		96,225		76,830
Basic earnings per share		$	1.02		.97		2.87		2.79

The computations of diluted earnings per share follow:


	Three months ended				Nine months ended
	September 30				September 30

	2001		2000		2001		2000

	(in thousands, except per share)
Income available to common stockholders	$	97,867		74,416		276,341		214,189
Weighted-average shares outstanding		96,115		76,748		96,225		76,830
Plus: incremental shares from assumed conversion of stock options		3,482		2,669		3,419		2,341

Adjusted weighted-average shares outstanding		99,597		79,417		99,644		79,171
Diluted earnings per share	$	.98		.94		2.77		2.71

-8-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Comprehensive income

The following tables display the components of other comprehensive income:


			Nine months ended September 30, 2001

			Before-tax			Income
			amount			taxes			Net

			(in thousands)
Unrealized gains on investment securities:
	Unrealized holding gains during period		$	69,204			24,466			44,738
	Less: reclassification adjustment for gains realized in net income			1,873			724			1,149
Unrealized losses on cash flow hedge				(628	)		(221	)		(407	)

		Net unrealized gains	$	67,703			23,521			43,182


		Nine months ended September 30, 2000

		Before-tax			Income
		amount			taxes			Net

		(in thousands)
Unrealized losses on investment securities:
	Unrealized holding losses during period	$	(10,670	)		(4,357	)		(6,313	)
	Less: reclassification adjustment for gains realized in net income		26			10			16

	Net unrealized losses	$	(10,696	)		(4,367	)		(6,329	)

5. Acquisition

On February 9, 2001, M&T acquired Premier National Bancorp, Inc. (“Premier”), a bank holding company headquartered in Lagrangeville, New York. Following the merger, Premier National Bank, Premier’s bank subsidiary, was merged into Manufacturers and Traders Trust Company (“M&T Bank”), M&T’s principal bank subsidiary. Premier National Bank operated 34 banking offices in the mid-Hudson Valley region of New York State. After application of the election, allocation, and proration procedures contained in the merger agreement with Premier, M&T paid $171 million in cash and issued 2,440,812 shares of M&T common stock in exchange for the Premier shares outstanding at the time of acquisition. In addition, based on the merger agreement and the exchange ratio provided therein, M&T converted outstanding and unexercised stock options granted by Premier into options to purchase 224,734 shares of M&T common stock. The purchase price was approximately $347 million.

Acquired assets, loans and deposits of Premier on February 9, 2001 totaled approximately $1.8 billion, $1.0 billion and $1.4 billion, respectively. The transaction has been accounted for using the purchase method of accounting and, accordingly, operations acquired from Premier have been included in the Company’s financial results since the acquisition date. In connection with the acquisition, the Company recorded approximately $179 million of goodwill and $31 million of core deposit intangible. The goodwill is being amortized over twenty years using the straight-line method and the core deposit intangible is being amortized over seven years using an accelerated method.

The Company incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company of

-9-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Acquisition, continued

approximately $8.0 million ($4.8 million net of applicable income taxes) during the first quarter and first nine months of 2001. Nonrecurring merger-related expenses incurred by the Company in connection with another acquisition during the three-month and nine-month periods ended September 30, 2000 were $3.6 million ($2.1 million net of applicable income taxes).

6. Borrowings

In 1997, M&T Capital Trust I (“Trust I”), M&T Capital Trust II (“Trust II”), and M&T Capital Trust III (“Trust III” and, together with Trust I and Trust II, the “Trusts”) issued $310 million of preferred capital securities. Including the unamortized portion of a purchase accounting adjustment to reflect estimated fair value at the April 1, 1998 acquisition of the common securities of Trust III, the preferred capital securities had a financial statement carrying value of approximately $318 million at September 30, 2001 and December 31, 2000.

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


	Distribution		Distribution
Trust	Rate		Dates

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

The common securities of Trust I and Trust II are wholly owned by M&T and the common securities of Trust III are wholly owned by Olympia Financial Corp. (“Olympia”), a wholly owned subsidiary of M&T. The common securities of each Trust (“Common Securities”) are the only class of each Trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding Trust and are classified in the Company’s consolidated balance sheet as long-term borrowings, with accumulated distributions on such securities included in interest expense. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in the Company’s Tier 1 capital.

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


	Capital	Common	Junior Subordinated
Trust	Securities	Securities	Debentures

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

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Borrowing, continued

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

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

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

7. 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 19 to the Company’s consolidated financial statements as of and for the year ended December 31, 2000. The management accounting policies and processes utilized in compiling segment financial

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

7. Segment information, continued

information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to generally accepted accounting principles. As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions. Information about the Company’s segments is presented in the following tables.


	Three months ended September 30

	2001								2000

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

	(in thousands)
Commercial Banking	$	70,287		145			25,560			55,703		50			24,684
Commercial Real Estate		41,943		278			21,554			33,551		196			17,263
Discretionary Portfolio		21,526		1046			13,182			16,132		(55	)		9,017
Residential Mortgage Banking		54,004		11,817			9,693			28,246		5,684			2,929
Retail Banking		205,927		3,068			50,905			141,913		2,080			43,238
All Other		20,775		(16,354	)		(23,027	)		3,227		(7,955	)		(22,715	)

Total	$	414,462		—			97,867			278,772		—			74,416


	Nine months ended September 30

	2001								2000

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

	(in thousands)
Commercial Banking	$	210,763		461			83,695			160,391		236			69,656
Commercial Real Estate		120,209		701			61,964			100,982		586			52,363
Discretionary Portfolio		63,775		3,071			37,948			46,128		(223	)		25,059
Residential Mortgage Banking		149,648		33,865			29,352			79,314		16,688			6,022
Retail Banking		613,344		9,018			156,156			402,984		6,799			114,160
All Other		45,415		(47,116	)		(92,774	)		28,234		(24,086	)		(53,071	)

Total	$	1,203,154		—			276,341			818,033		—			214,189

(a)

Total revenues are comprised of net interest income and other income. Net interest income is the difference between taxable-equivalent interest earned on assets and interest paid on liabilities owned by a segment and a funding charge (credit) based on the Company’s internal funds transfer pricing methodology. Segments are charged a cost to fund any assets (e.g.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

7. Segment information, continued

loans) and are paid a funding credit for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated $4,257,000 and $2,332,000 for the three-month periods ended September 2001 and 2000, respectively, and $13,443,000 and $6,788,000 for the nine-month periods ended September 2001 and 2000, 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.


	Average total assets

	Nine months ended
	September 30				Year ended
					December 31,
	2001		2000		2000

	(in millions)
Commercial Banking	$	6,598		4,933		5,274
Commercial Real Estate		5,657		4,671		4,839
Discretionary Portfolio		7,393		6,180		6,431
Residential Mortgage Banking		1,292		570		662
Retail Banking		7,891		4,603		5,186
All Other		1,844		1,080		1,266

Total	$	30,675		22,037		23,658

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

Overview

Net income of M&T Bank Corporation (“M&T”) was $97.9 million or $.98 of diluted earnings per common share in the third quarter of 2001, increases of 32% and 4%, respectively, from the third quarter of 2000 when net income was $74.4 million or $.94 of diluted earnings per common share. During the second quarter of 2001, M&T’s net income was $94.8 million or $.94 of diluted earnings per common share. Basic earnings per common share rose 5% to $1.02 in the recent quarter from $.97 in the year-earlier quarter and 4% from $.98 earned in the second quarter of 2001. The after-tax impact of nonrecurring merger-related expenses associated with M&T’s merger and acquisition activity described below was $2.1 million or $.03 of diluted and basic earnings per share in last year’s third quarter. There were no similar expenses in the second or third quarters of 2001.

For the nine months ended September 30, 2001, net income totaled $276.3 million or $2.77 per diluted share, up 29% and 2%, respectively, from $214.2 million or $2.71 per diluted share during the first nine months of 2000. Basic earnings per share rose to $2.87 in the first nine months of 2001 from $2.79 in the corresponding 2000 period. Nonrecurring merger-related expenses reduced net income during this year’s first three quarters by $4.8 million (after tax-effect) and diluted and basic earnings per share by $.05. Similar expenses during the corresponding period in 2000 lowered net income by $2.1 million and diluted and basic earnings per share by $.03.

Net income expressed as an annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the third quarter of 2001 was 1.25%, compared with 1.36% in the similar quarter of 2000 and 1.23% in 2001’s second quarter. The annualized rate of return on average common stockholders’ equity was 12.93% in the recent quarter, compared with 15.64% in the year-earlier quarter and 12.61% in the second quarter of 2001. During the first nine months of 2001, the annualized rates of return on average assets and average common stockholders’ equity were 1.20% and 12.47%, respectively, compared with 1.30% and 15.51%, respectively, in the corresponding 2000 period. Excluding the impact of merger-related expenses incurred in the first quarter of 2001, the annualized returns on average assets and average common equity were 1.23% and 12.69%, respectively, during the first nine months of 2001. On the same basis, the annualized returns on average assets and average common equity during the third quarter of 2000 were 1.40% and 16.09%, respectively, and during the first nine months of 2000 were 1.31% and 15.67%, respectively.

The tragic events of September 11, 2001 have had an impact on many individuals and businesses, and on specific real estate properties and industries. The Company’s results of operations are affected by overall economic conditions, in general, and by economic conditions in market areas served by the Company, specifically. Approximately 15% of the Company’s total loan portfolio as of September 30, 2001 was secured by commercial real estate properties in the New York City metropolitan area. However, less than 1% of total loans outstanding as of September 30, 2001 were secured by properties located in lower Manhattan. In connection with the events of September 11, 2001, the Company did not experience any significant losses or delinquencies in its portfolio of commercial real estate loans secured by properties in the New York City metropolitan area. The airline, hotel/leisure and insurance industries have also been significantly affected by the events of September 11, 2001. Loans and leases to these industries totaled approximately 3% of total loans outstanding at September 30, 2001. Additional information regarding loan losses incurred by the Company is included herein under the heading “Provision for Credit Losses.”

On February 9, 2001, M&T acquired Premier National Bancorp, Inc. (“Premier”), a bank holding company headquartered in Lagrangeville, New York. Premier National Bank, Premier’s bank subsidiary, was merged into

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Manufacturers and Traders Trust Company (“M&T Bank”), M&T’s principal bank subsidiary, on that date. Premier National Bank operated 34 banking offices in the mid-Hudson Valley region of New York State. As of the merger date, assets acquired totaled approximately $1.8 billion, including approximately $1.0 billion of loans and leases, and liabilities assumed were approximately $1.5 billion, including approximately $1.4 billion of deposits. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the operations acquired from Premier have been included in M&T’s financial results subsequent to the acquisition date. Premier’s stockholders received $171 million in cash and 2,440,812 shares of M&T common stock in exchange for the Premier shares outstanding at the time of the acquisition. In connection with the acquisition, the Company recorded approximately $210 million of goodwill and core deposit intangible.

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

In connection with the acquisitions described above, the Company incurred nonrecurring expenses related to systems conversions and other costs of integrating and conforming the acquired operations with and into the operations of M&T Bank. Nonrecurring expenses associated with the Premier and Keystone acquisitions totaled approximately $8.0 million ($4.8 million after-tax) during the first quarter and first nine months of 2001. Similar expenses during the third quarter and first nine months of 2000 totaled approximately $3.6 million ($2.1 million after-tax).

The January 1, 2001 transition adjustment prescribed by SFAS No. 133 was not material to the Company’s consolidated financial position or its results of operations. As a result of adopting the provisions of SFAS No. 133, hedged residential real estate loans held for sale, commitments to originate loans for sale, and commitments to sell loans are now generally recorded in the consolidated balance sheet at estimated fair market value, rather than at the lower of aggregate cost or fair market value, which was

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the Company’s policy prior to January 1, 2001. As a result, included in mortgage banking revenues in the third quarter of 2001 were increases in net unrealized pre-tax gains related to loans held for sale, commitments to originate loans for sale, and commitments to sell loans of approximately $34 thousand ($22 thousand after-tax), compared with $1.4 million ($.9 million after-tax) in the second quarter of 2001. For the nine months ended September 30, 2001, the net impact of SFAS No. 133 on mortgage banking revenues was approximately $7.3 million ($4.7 million after-tax). In general, such unrealized gains are reversed and subsequently recognized as realized gains as the loans are sold. The impact on the Company’s results of operations resulting from the adoption of SFAS No. 133 as related to the Company’s use of interest rate swaps to manage interest rate risk associated with other earning assets and interest-bearing liabilities was not significant.

Cash Operating Results

M&T has accounted for substantially all of its business combinations using the purchase method of accounting, unlike many other banking companies. As a result, the Company had recorded intangible assets consisting predominately of goodwill and core deposit intangible totaling $1.32 billion at September 30, 2001, $1.20 billion at December 31, 2000 and $611 million at September 30, 2000. Included in such intangible assets at September 30, 2001, December 31, 2000 and September 30, 2000 was goodwill of $1.15 billion, $1.02 billion and $544 million, respectively. Charges for amortization of goodwill and core deposit intangible, after tax effect, were $16.9 million ($.17 per diluted share) and $8.7 million ($.09 per diluted share), respectively, during the third quarter of 2001, $16.9 million ($.17 per diluted share) and $8.2 million ($.08 per diluted share), respectively, during the second quarter of 2001, and $49.6 million ($.50 per diluted share) and $25.0 million ($.25 per diluted share), respectively, during 2001’s first nine months. Similar charges were $8.5 million ($.11 per diluted share) and $2.7 million ($.03 per diluted share), respectively, during 2000’s third quarter and $25.8 million ($.32 per diluted share) and $8.4 million ($.10 per diluted share), respectively, during the first nine months of 2000. Since the amortization of goodwill and core deposit intangible does not result in a cash expense, M&T believes that supplemental reporting of its operating results on a “cash” or “tangible” basis (which excludes the after-tax effect of amortization of goodwill and core deposit intangible and the related asset balances) represents a relevant measure of financial performance. The supplemental cash basis data presented herein do not exclude the effect of other non-cash operating expenses such as depreciation, provision for credit losses, or deferred income taxes associated with the results of operations. Unless noted otherwise, cash basis data do, however, exclude the after-tax impact of nonrecurring merger-related expenses associated with acquisitions.

Cash net income for the third quarter of 2001 was $123.5 million, up 41% from $87.8 million in the year-earlier quarter. Diluted cash earnings per share for the recent quarter were $1.24, an increase of 12% from $1.11 in the third quarter of 2000. Cash net income and diluted cash earnings per share were $119.9 million and $1.19, respectively, in the second 2001 quarter. For the first nine months of 2001, cash net income and diluted cash earnings per share were $355.8 million and $3.57, respectively, up 42% and 13%, respectively, from $250.5 million and $3.16 in the similar period of 2000.

Cash net income in 2001’s third quarter represented an annualized rate of return on average tangible assets of 1.64%, equal to the year-earlier quarter and up from 1.62% in the second quarter of 2001. Cash return on average tangible common equity was an annualized 28.39% in the recently completed quarter, improved from 26.98% in the year-earlier quarter and 27.99% in the second quarter of 2001. Through the first three quarters of 2001, the annualized cash return on average tangible assets and average tangible common stockholders’ equity was 1.62% and 28.19%, respectively, up from 1.56% and 27.13%, respectively, in the comparable 2000 period. Including the effect of nonrecurring merger-related expenses, the annualized cash returns on average tangible assets and average tangible common

-16-

stockholders’ equity for the first nine months of 2001 were 1.60% and 27.80%, respectively. On the same basis, the annualized cash returns on average tangible assets for the third quarter and first nine months of 2000 were 1.60% and 1.55%, respectively, and the annualized cash returns on average tangible common stockholders’ equity were 26.32% and 26.90%, respectively.

Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income rose 46% to $298.6 million in the third quarter of 2001 from $204.6 million in the year-earlier quarter. The improvement resulted from higher average loan balances outstanding and a widening of the Company’s net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities. Including the impact of loans obtained at the time of the acquisitions of Keystone and Premier, average loans and leases increased $7.7 billion, or 45%, to $24.8 billion in the third quarter of 2001 from $17.2 billion in the corresponding quarter of 2000. Taxable-equivalent net interest income was $291.9 million in the second quarter of 2001 when average loans and leases were $24.5 billion. The rate of loan growth slowed from the second quarter to the third quarter of 2001 compared with prior quarters’ growth, largely due to lower commercial loans outstanding. However, consumer loans and leases in the recent quarter were up 5% from the second quarter of 2001. Loans and leases obtained in the Keystone merger were $4.8 billion on October 6, 2000 and included approximately $1.2 billion of commercial loans, $1.3 billion of commercial real estate loans, $1.1 billion of residential real estate loans, and $1.2 billion of consumer loans and leases. Loans obtained through the acquisition of Premier totaled $994 million on February 9, 2001 and included $127 million of commercial loans, $317 million of commercial real estate loans, $356 million of residential real estate loans, and $194 million of consumer loans. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.

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


						Percent increase
						(decrease) from

				3rd Qtr.		3rd Qtr.			2nd Qtr.
				2001		2000			2001

Commercial, financial, etc.				$	5,340		34	%		(1	)%
Real estate — commercial					9,322		36			1
Real estate — consumer					5,336		74			1
Consumer
	Automobile				2,190		62			7
	Home equity				1,296		33			6
	Other				1,347		45			3

		Total consumer			4,833		48			5

			Total	$	24,831		45	%		2	%

For the first three quarters of 2001, taxable-equivalent net interest income totaled $866.9 million, an increase of 44% from $602.9 million in the corresponding 2000 period. A 40% rise in average loans and leases of $7.0 billion was the leading factor contributing to this improvement.

Investment securities averaged $3.2 billion in the recent quarter, compared with $2.9 billion and $3.5 billion in the third quarter of 2000 and second quarter of 2001, respectively. The investment securities portfolio is largely comprised of residential mortgage-backed securities and collateralized mortgage obligations, commercial real estate mortgage-backed securities, and shorter-term U.S. Treasury notes. The Company has also invested in debt securities issued by municipalities and debt and preferred equity securities issued by government-sponsored agencies and certain financial institutions. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to prepayment and other risks assumed. The Company

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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.

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 $34 million in 2001’s third quarter, little changed from $32 million in the year-earlier quarter and $31 million in the second quarter of 2001. In general, the size of the investment securities and money-market assets portfolios are influenced by such factors as demand for loans, which generally yield more than investment securities and money-market assets, ongoing repayments, the levels of deposits, and management of balance sheet size and resulting capital ratios.

As a result of the changes described herein, average earning assets increased 40% to $28.1 billion in the third quarter of 2001 from $20.1 billion in the corresponding 2000 quarter. Average earning assets were $28.0 billion in the second 2001 quarter and aggregated $27.7 billion and $20.1 billion for the nine month periods ended September 30, 2001 and 2000, respectively.

The most significant source of funding to the Company is core deposits, which consist of noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and nonbrokered domestic time deposits under $100,000. The Company’s branch network is the principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Core deposits include certificates of deposit under $100,000 generated on a nationwide basis by M&T Bank, National Association (“M&T Bank, N.A.”), a wholly owned subsidiary of M&T. Average core deposits totaled $17.5 billion in the recent quarter, up from $12.5 billion in the similar quarter of 2000, but down slightly from $17.7 billion in the second quarter of 2001. Core deposits obtained in the Keystone and Premier transactions as of the respective acquisition dates were $4.7 billion and $1.2 billion, respectively. The accompanying table provides an analysis of quarterly changes in the components of average core deposits. The lower interest rate environment during the third quarter compared with the second quarter of this year has adversely impacted average time deposits less than $100,000, which decreased 8%. For the nine months ended September 30, 2001 and 2000, core deposits averaged $17.6 billion and $12.5 billion, respectively.

AVERAGE CORE DEPOSITS
Dollars in millions


				Percent increase
				(decrease) from

		3rd Qtr.		3rd Qtr.			2nd Qtr.
		2001		2000			2001

NOW accounts		$	708		76	%		—	%
Savings deposits			7,444		43			2
Time deposits less than $100,000			5,938		28			(8	)
Noninterest-bearing deposits			3,384		52			4

	Total	$	17,474		40	%		(1	)%

The Company also obtains funding through domestic time deposits of $100,000 or more, deposits originated through M&T Bank’s offshore branch office, and brokered certificates of deposit. Brokered deposits have been used as an alternative to short-term borrowings to lengthen the average maturity of interest-bearing liabilities. Brokered deposits averaged $789 million during the recent quarter, compared with $597 million and $463 million in the third quarter of 2000 and the second quarter of 2001, respectively. At September 30, 2001, brokered deposits totaled $978 million and had a weighted average remaining term to maturity of .78 years. Certain of the brokered deposits have provisions that allow early redemption. In connection with the Company’s management of interest rate risk, interest rate swaps have been entered into under which the Company receives a fixed rate of interest and pays a variable rate and that have notional amounts and terms

-18-

substantially similar to the amounts and terms of certain of the brokered deposits. Additional amounts of brokered deposits may be solicited in the future depending on market conditions and the cost of funds available from alternative sources at the time.

In addition to deposits, the Company uses borrowings from banks, securities dealers, the Federal Home Loan Bank of New York and the Federal Home Loan Bank of Pittsburgh (together, the “FHLB”), and others as sources of funding. Short-term borrowings averaged $3.6 billion in the recently completed quarter, $3.0 billion in the third quarter of 2000 and $3.5 billion in the second quarter of 2001. Long-term borrowings averaged $3.7 billion in the third quarter of 2001, compared with $1.8 billion and $3.5 billion in the third quarter of 2000 and the second quarter of 2001, respectively. Included in average long-term borrowings were amounts borrowed from the FHLB totaling $2.5 billion in the third quarter of 2001, compared with $1.3 billion in the year-earlier quarter and $2.3 billion in the second quarter of 2001. Also included in long-term borrowings were $318 million of trust preferred securities issued in 1997. Further information regarding the trust preferred securities is provided in note 6 of Notes to Financial Statements. Average long-term borrowings also included subordinated capital notes of $674 million in the third and second quarters of 2001, compared with $175 million in the third quarter of 2000. In connection with the acquisitions of Keystone and Premier, M&T Bank issued $500 million of 8% subordinated capital notes on October 5, 2000.

In addition to changes in the composition of the Company’s earning assets and interest-bearing liabilities, net interest income can be impacted by changes in interest rates and spreads. During 2001, the Federal Reserve has taken actions to lower the level of interest rates. In general, such actions have resulted in a greater decline in short-term rates as compared with the decline in longer-term rates. The decline in short-term interest rates and the general steeping of the yield curve have had a positive effect on the Company’s net interest spread. The rate paid on interest-bearing liabilities during the third quarter of 2001 was 3.71%, down from 5.00% in the corresponding quarter of 2000 and 4.16% during 2001’s second quarter. In comparison, the yield on the Company’s earning assets decreased to 7.43% in the recent quarter, from 8.40% in the year-earlier quarter and 7.80% in the second quarter of 2001. The impact of the more rapid repricing of interest-bearing liabilities than earning assets led to an increase in the net interest spread to 3.72% in 2001’s third quarter from 3.40% in the corresponding 2000 quarter and 3.64% in the second quarter of 2001. For the first nine months of 2001, the net interest spread was 3.63%, up 22 basis points (hundredths of one percent) from 3.41% in the similar 2000 period. The yield on earning assets and the rate paid on interest-bearing liabilities was 7.84% and 4.21%, respectively, during the first nine months of 2001, compared with 8.22% and 4.81%, respectively, during the first nine months of 2000.

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 intangible. Average interest-free funds totaled $3.8 billion in the recent quarter, up from $2.6 billion a year earlier and $3.6 billion in the second quarter of 2001. During the first nine months of 2001 and 2000, average net interest-free funds were $3.6 billion and $2.5 billion, respectively. Goodwill and core deposit intangible averaged $1.3 billion and $618 million during the third quarter of 2001 and 2000, respectively, and $1.4 billion during the second quarter of 2001. The cash surrender value of bank owned life insurance averaged $576 million and $439 million in the third quarter of 2001 and 2000, respectively, and $569 million in the second quarter of 2001. Tax-exempt income earned from increases in the cash surrender value of bank owned life insurance is not included in interest income, but rather is recorded in “other revenues from operations.”

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

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with .65% in the corresponding 2000 quarter and .54% in the second quarter of 2001. The lower contribution to net interest margin of net interest-free funds in the recent quarter was due largely to the continuing decline in the average rates paid on interest-bearing liabilities that were used to compute the value of such contribution. For the first nine months of the year, the contribution of net interest-free funds to net interest margin was .56% in 2001 and .60% in 2000.

Reflecting the changes described herein, the Company’s net interest margin was 4.22% in 2001’s third quarter, up 17 basis points from 4.05% in the third quarter of 2000 and 4 basis points higher than 4.18% in the second 2001 quarter. During the first nine months of 2001 and 2000, the net interest margin was 4.19% and 4.01%, respectively.

As part of the management of interest rate risk, the Company utilizes interest rate swap agreements to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are generally reflected in either the yields earned on assets or, as appropriate, the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes as of September 30, 2001 and 2000 was $561 million and $532 million, respectively, $456 million as of June 30, 2001 and $534 million as of December 31, 2000. In general, under the terms of these swaps, the Company receives payments based on the outstanding notional amount of the swaps at fixed rates and makes payments at variable rates. However, under the terms of $117 million of swaps, the Company pays a fixed rate of interest and receives a variable rate. In anticipation of the previously noted issuance of $500 million of fixed-rate subordinated notes in October 2000, the Company terminated certain interest rate swap agreements in September 2000, including forward-starting swaps, with an aggregate notional amount of approximately $421 million. Under the terms of the terminated swaps, the Company would have made fixed-rate payments and received variable-rate payments.

As previously discussed, the Company adopted SFAS No. 133 on January 1, 2001. As a result, $461 million of the Company’s interest rate swap agreements as of September 30, 2001 had been designated as fair value hedges and $100 million have been designated as cash flow hedges. In a fair value hedge, the fair value of the derivative (the interest rate swap) and changes in the fair value of the hedged item are recorded in the Company’s balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swaps and the hedged items represents hedge ineffectiveness and is recorded in “Other revenues from operations” in the Company’s consolidated statement of income. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in “Other revenues from operations” immediately. The amount of hedge ineffectiveness of both fair value and cash flow hedges recognized in 2001 was not material to the Company’s results of operations. The estimated fair value of interest rate swaps designated as fair value hedges was approximately $9 million at September 30, 2001. The fair value of such swaps was substantially offset by unrealized losses on the fair value of the hedged items. The estimated fair value of the interest rate swaps designated as cash flow hedges was a loss of approximately $628 thousand at September 30, 2001. Net of applicable income taxes, such loss was approximately $407 thousand and has been included in “Accumulated other comprehensive income, net” in the Company’s consolidated balance sheet. The changes in the fair values of the interest rate swaps and the hedged items result from the effects of changing interest rates. Prior to the adoption of SFAS No. 133, the fair value of interest rate swaps entered into for interest rate risk management purposes was not recorded in the Company’s consolidated balance sheet. The unrecognized fair value associated with such interest rate swaps was a pre-tax loss of approximately $4 million at September 30, 2000 and a pre-tax gain of approximately $1 million at December 31, 2000.

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The weighted average rates to be received and paid under interest rate swap agreements were 5.11% and 3.68%, respectively, at September 30, 2001. The average notional amounts of interest rate swaps and the related effect on net interest income and margin are presented in the accompanying table.

INTEREST RATE SWAPS
Dollars in thousands


		Three months ended September 30

		2001						2000

		Amount			Rate *			Amount			Rate *

Increase (decrease) in:
	Interest income	$	(111	)		—	%	$	45			—	%
	Interest expense		(2,220	)		(.04	)		605			.01

	Net interest income/margin	$	2,109			.03	%	$	(560	)		(.01	)%

Average notional amount **		$	518,380					$	658,275


		Nine months ended September 30

		2001						2000

		Amount			Rate *			Amount		Rate *

Increase (decrease) in:
	Interest income	$	(206	)		—	%	$	787		.01	%
	Interest expense		(4,288	)		(.02	)		265		—

	Net interest income/margin	$	4,082			.02	%	$	522		—	%

Average notional amount **		$	508,152					$	993,927

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



**		Excludes forward-starting interest rate swaps.

As a financial intermediary, the Company is exposed to various risks, including liquidity and market risk. Liquidity refers to the Company’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy demands for loans and deposit withdrawals, to fund operating costs, and to be used for other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ. Deposits and borrowings, maturities of money-market assets and investment securities, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services, provide the Company with sources of liquidity. M&T’s banking subsidiaries have access to additional funding sources through FHLB borrowings, as well as other available borrowing facilities. M&T Bank’s issuance of $500 million of 8% subordinated capital notes in October 2000 provided liquidity and facilitated the acquisitions of Keystone and Premier. 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 this test, at September 30, 2001 approximately $479 million was available for payment of dividends to M&T from banking subsidiaries without prior regulatory approval. These historic sources of cash flows were augmented in 1997 by proceeds from the issuance of trust preferred securities. M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, all of which had been borrowed at September 30, 2001.

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

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

The Company’s Asset-Liability Committee, which includes members of senior management, monitors the Company’s interest rate sensitivity with the aid of a computer model that considers the impact of ongoing lending and deposit gathering activities, as well as statistically derived interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken 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 entering into, modifying or terminating interest rate swap agreements.

The accompanying table as of September 30, 2001 and December 31, 2000 displays the estimated impact on projected net interest income from non-trading financial instruments resulting from changes in interest rates during the first modeling year.

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


	Calculated increase (decrease)
	in projected net interest income

Changes in Interest Rates	September 30, 2001			December 31, 2000

+200 basis points	$	4,765			6,040
+100 basis points		509			(5,471	)
-100 basis points		(7,123	)		(12,494	)
-200 basis points		(6,701	)		(14,878	)

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

The Company engages in trading activities to meet the financial needs of customers and to profit from perceived market opportunities. Financial instruments utilized in trading activities have included forward and futures contracts related to foreign currencies and mortgage-backed securities, U.S. Treasury and other government securities, mortgage-backed securities and

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interest rate contracts, such as swaps. The Company generally mitigates the foreign currency and interest rate risk associated with trading activities by entering into offsetting trading positions. The amounts of gross and net trading positions as well as the type of trading activities conducted by the Company are subject to a well-defined series of potential loss exposure limits established by the Asset-Liability Committee.

The notional amounts of interest rate and foreign currency and other option and futures contracts totaled $1.1 billion and $269 million, respectively, at September 30, 2001, $770 million and $379 million, respectively, at September 30, 2000, and $769 million and $293 million, respectively, at December 31, 2000. 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 $42 million and $31 million, respectively, at September 30, 2001, $41 million and $25 million, respectively, at September 30, 2000, and $37 million and $22 million, respectively, at December 31, 2000. Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading activities was not material.

Provision for Credit Losses

A provision for credit losses is recorded to adjust the Company’s allowance for credit losses to a level that is adequate to absorb losses inherent in the loan and lease portfolio. The provision for credit losses in the third quarter of 2001 was $28.0 million, up from $9.0 million in the corresponding quarter of 2000 and $24.0 million in the second quarter of 2001. Reflecting general weakness in the U.S. economy, net loan charge-offs rose to $23.8 million in the recent quarter from $5.9 million in the year-earlier quarter and $14.9 million in the second quarter of 2001. Net charge-offs as an annualized percentage of average loans and leases were .38% in the third quarter of 2001, compared with .14% in the corresponding 2000 quarter and .24% in the second 2001 quarter. For the nine months ended September 30, 2001 and 2000, the provision for credit losses was $70.5 million and $24.0 million, respectively. Through September 30, net charge-offs were $54.6 million in 2001 and $16.9 million in 2000, representing an annualized .30% and .13%, respectively, of average loans and leases. As previously noted, the Company did not experience any charge-offs or delinquencies in its portfolio of commercial real estate loans secured by properties in the New York City metropolitan area that were directly related to the events of September 11, 2001. A summary of net charge-offs by loan type is presented below.

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


		2001

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

Commercial, financial, etc.		$	2,135		6,004		14,025		22,164
Real estate:
	Commercial		4,066		132		43		4,241
	Residential		1,505		1,874		1,513		4,892
Consumer			8,197		6,896		8,197		23,290

		$	15,903		14,906		23,778		54,587


		2000

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

Commercial, financial, etc.		$	1,419			195			1,650			3,264
Real estate:
	Commercial		(412	)		(778	)		(405	)		(1,595	)
	Residential		1,046			1,426			847			3,319
Consumer			4,517			3,587			3,760			11,864

		$	6,570			4,430			5,852			16,852

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Nonperforming loans, which consist of nonaccrual and restructured loans, rose to $197.5 million or .79% of total loans and leases outstanding at September 30, 2001 from $61.8 million or .36% at September 30, 2000, $110.6 million or .49% at December 31, 2000, and $161.6 million or .65% at June 30, 2001. The higher levels of nonperforming loans in 2001 provide further evidence of a weakened economy, nationally and in the markets directly served by the Company. The increase in nonperforming loans during the third quarter of 2001 resulted largely from the addition of one commercial loan for $26 million. Nonperforming loans obtained in the acquisition of Keystone were $59 million at September 30, 2001 and June 30, 2001, and $43 million at December 31, 2000. Nonperforming loans obtained in the acquisition of Premier were $7 million and $5 million at September 30 and June 30, 2001, respectively. No loans were reported as nonperforming at the recent quarter-end as a direct result of the events of September 11, 2001.

Commercial loans and leases classified as nonperforming aggregated $88.1 million at September 30, 2001, $19.1 million at September 30, 2000, $25.5 million at December 31, 2000 and $60.6 million at June 30, 2001. Commercial loans acquired in the Keystone merger that were classified as nonperforming at September 30, 2001 totaled $12.2 million, compared with $10.3 million and $12.7 million at June 30, 2001 and December 31, 2000, respectively.

Nonperforming commercial real estate loans totaled $39.4 million at September 30, 2001, $10.6 million at September 30, 2000, $37.0 million at December 31, 2000, and $40.7 million at June 30, 2001. Commercial real estate loans acquired in the Keystone merger that were classified as nonperforming at September 30, 2001 totaled $29.7 million, compared with $28.7 million and $23.0 million at June 30, 2001 and December 31, 2000, respectively. Nonperforming commercial real estate loans obtained in the Premier transaction totaled $2.2 million and $1.9 million at September 30 and June 30, 2001, respectively.

Nonperforming residential real estate loans totaled $45.4 million and $23.4 million at September 30, 2001 and 2000, respectively, $36.0 million at December 31, 2000, and $39.2 million at June 30, 2001.

Nonperforming consumer loans and leases totaled $24.6 million at September 30, 2001, compared with $8.7 million at September 30, 2000, $12.1 million at December 31, 2000, and $21.1 million at June 30, 2001. As a percentage of consumer loan balances outstanding, nonperforming consumer loans and leases were .49% at September 30, 2001, .26% at September 30, 2000, .29% at December 31, 2000 and .45% at June 30, 2001. During the first quarter of 2001, the Company began classifying non-guaranteed consumer loans and leases past due 90 days or more as nonaccrual. Previously, such loans accrued interest until the loan balances were charged off. The change in classification did not have a material effect on the Company’s results of operations or its financial condition.

Accruing loans past due 90 days or more, largely comprised of residential real estate loans, aggregated $137.5 million or .55% of total loans and leases at September 30, 2001, compared with $30.4 million or .18% a year earlier, $141.8 million or .62% at December 31, 2000 and $139.1 million or .56% at June 30, 2001. The higher level of such loans at the dates mentioned compared with September 30, 2000 resulted predominately from the inclusion at those respective dates of one-to-four family residential mortgage loans serviced by the Company and repurchased since November 2000 from the Government National Mortgage Association (“GNMA”). The repurchased loans totaled $99 million, $100 million and $87 million as of September 30, 2001, June 30, 2001 and December 31, 2000, respectively. The outstanding principal balances of such loans are fully guaranteed by government agencies. The loans were repurchased to reduce servicing costs associated with these loans, including a requirement to advance to GNMA principal and interest payments that had not been received from individual mortgagors.

Assets acquired in settlement of defaulted loans were $11.8 million at September 30, 2001, $8.6 million at September 30, 2000, $13.6 million at December 31, 2000 and $11.1 million at June 30, 2001.

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

NONPERFORMING ASSET AND PAST DUE LOAN DATA
Dollars in thousands


		2001 Quarters									2000 Quarters

		Third			Second			First			Fourth			Third

Nonaccrual loans		$	187,851			152,885			151,927			100,951			52,640
Renegotiated loans			9,641			8,739			8,864			9,688			9,159

Total nonperforming loans			197,492			161,624			160,791			110,639			61,799
Real estate and other assets owned			11,755			11,106			13,099			13,619			8,631

Total nonperforming assets		$	209,247			172,730			173,890			124,258			70,430

Accruing loans past due 90 days or more*		$	137,501			139,062			141,355			141,843			30,430

Government guaranteed loans included in totals above
	Nonperforming loans	$	11,165			11,181			9,757			8,625			7,265
	Accruing loans past due 90 days or more		110,369			111,788			112,224			102,505			11,911

Nonperforming loans to total loans and leases, net of unearned discount			.79	%		.65	%		.67	%		.49	%		.36	%
Nonperforming assets to total net loans and leases and real estate and other assets owned			.84	%		.70	%		.72	%		.55	%		.41	%
Accruing loans past due 90 days or more to total loans and leases, net of unearned discount			.55	%		.56	%		.58	%		.62	%		.18	%

Primarily residential mortgage loans and consumer loans.

The allowance for credit losses was $412.7 million, or 1.65% of total loans and leases at September 30, 2001, compared with $323.3 million or 1.87% a year earlier, $374.7 million or 1.65% at December 31, 2000 and $408.5 million or 1.65% at June 30, 2001. The ratio of the allowance for credit losses to nonperforming loans was 209% at the most recent quarter-end, compared with 523% a year earlier, 339% at December 31, 2000 and 253% at June 30, 2001. The level of the allowance reflects management’s evaluation of the loan and lease portfolio as of each respective date. Management regularly assesses the adequacy of the allowance by performing an ongoing evaluation of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the current financial condition of specific borrowers, the economic environment in which borrowers operate, the level of delinquent loans and the value of any collateral. Significant loans are individually analyzed, while other smaller balance loans are evaluated by loan category. Management cautiously evaluated the impact of overall economic conditions on the ability of borrowers to meet repayment obligations when assessing the adequacy of the Company’s allowance for credit losses as of September 30, 2001. In addition to the impact of acquisitions, factors considered by management when performing such assessment included, but were not limited to: (i) the concentration of commercial real estate loans in the Company’s loan portfolio, particularly the large concentration of loans secured by properties in New York State, in general, and in the New York City metropolitan area, in particular; (ii) the amount of commercial and industrial loans to businesses in areas of New York State outside of the New York City metropolitan area and in Pennsylvania that have historically experienced economic growth rates lower than those experienced by the vast majority of other regions of the country; and (iii) significant growth in loans and leases

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to individual consumers. As mentioned earlier, the events of September 11, 2001 did not have a significant direct impact on the Company’s financial condition or the results of its operations as of and for the quarter ended September 30, 2001. As previously noted, while a significant portion of the Company’s commercial real estate loan portfolio is secured by properties in the New York City metropolitan area, less than 1% of the Company’s total loans are secured by properties located in lower Manhattan. In addition, approximately 40% of the metropolitan New York City commercial real estate loans are secured by multi-family residential properties, which have historically been less volatile in value through changing economic conditions. Based upon the results of such review, management believes that the allowance for credit losses at September 30, 2001 was adequate to absorb credit losses inherent in the Company’s portfolio as of that date.

Other Income

Other income totaled $120.2 million in the third quarter of 2001, up from $76.5 million in the year-earlier quarter and $117.8 million in the second quarter of 2001. Approximately 60% of the increase from the third quarter of 2000 to the recent quarter was attributable to revenues related to operations and/or market areas associated with the Keystone and Premier acquisitions.

Mortgage banking revenues totaled $24.8 million in the recent quarter, compared with $16.0 million in the year-earlier quarter and $25.0 million in the second quarter of 2001. The higher revenues as compared with the year-earlier quarter were due largely to the impact of lower interest rates on residential mortgage loan origination volume. In particular, mortgage banking revenues in the third quarter of 2001 reflected a generally favorable interest rate environment for borrowers, whereas higher interest rates initiated by the Federal Reserve in the second half of 1999 and first half of 2000 negatively impacted mortgage loan origination volume in the third quarter of 2000. Residential mortgage loans originated for sale to other investors totaled $1.2 billion during the third quarter of 2001, compared with $637 million in the year-earlier quarter and $1.3 billion in the second 2001 quarter. Realized gains from sales of residential mortgage loans and loan servicing rights and unrealized gains from recording residential mortgage loans and related commitments to originate and commitments to sell such loans at fair market value aggregated $11.8 million in the recently completed quarter, compared with $12.5 million in the second quarter of 2001. Realized gains from the sale of residential mortgage loans and loan servicing rights were $6.0 million in the third quarter of 2000. As noted earlier, the Company adopted SFAS No. 133 as of January 1, 2001. SFAS No. 133 requires that changes in the fair value of hedged residential mortgage loans originated for sale and related commitments to sell and commitments to originate residential mortgage loans for sale be recorded in the Company’s results of operations. Such unrealized gains totaled approximately $7.3 million (pre-tax) at September 30, 2001. Similar unrealized gains were approximately $7.2 million (pre-tax) at June 30, 2001 and, as a result, the net effect of recognizing unrealized gains on 2001’s third quarter mortgage banking revenues was not significant. The net effect of SFAS No. 133 on 2001’s second quarter mortgage banking revenues was $1.4 million. Prior to the adoption of SFAS No. 133, residential mortgage loans originated for sale and related commitments to sell loans and to originate loans for sale were recorded in the consolidated balance sheet at the lower of aggregate cost or fair market value. Residential mortgage loan servicing fees were $11.3 million in the recently completed quarter, up from $8.4 million in the year-earlier period and $10.7 million in 2001’s second quarter. Residential mortgage loans serviced for others totaled $9.6 billion at September 30, 2001, $9.7 billion at each of June 30, 2001 and December 31, 2000, and $8.9 billion at September 30, 2000. Capitalized servicing assets were $106 million and $81 million at September 30, 2001 and 2000, respectively, $101 million at December 31, 2000 and $103 million at June 30, 2001. Residential mortgage loans held for sale totaled $832 million at September 30, 2001, compared with $264 million at September 30, 2000, $525 million at December 31, 2000, and $871 million at June 30, 2001.

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Service charges on deposit accounts rose 70% to $37.0 million in the third quarter of 2001 from $21.8 million in the similar 2000 period. Fees for services provided to customers in areas formerly served by Keystone contributed approximately 50% of the increase. Service charges on deposit accounts were $36.3 million in the second quarter of 2001. Trust income totaled $15.6 million in the recently completed quarter and $16.3 million in the second quarter of 2001, up from $9.8 million in 2000’s third quarter, largely the result of the Keystone acquisition. Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, totaled $9.5 million in both the second and third quarters of 2001, up from $7.2 million in the third quarter of 2000. Trading account and foreign exchange activity resulted in gains of $223 thousand in the recent quarter, compared with gains of $1.1 million in the corresponding quarter of 2000 and $1.6 million in 2001’s second quarter. Other revenues from operations totaled $32.8 million in the third quarter of 2001, compared with $20.7 million in the similar quarter of 2000 and $27.6 million in the second quarter of 2001. Approximately 60% of the increase from the third quarter of 2000 resulted from activities and/or market areas associated with the Keystone and Premier acquisitions. Included in other revenues from operations is tax-exempt income from bank owned life insurance, which represents increases in the cash surrender value of life insurance policies and benefits received. Such income totaled $8.6 million in 2001’s third quarter, compared with $6.2 million in the year-earlier quarter and $8.5 million in 2001’s second quarter. The remaining increase in other revenues from operations during the recent quarter was related to merchant discount, credit card and miscellaneous credit-related fees.

Other income totaled $349.7 million during the first nine months of 2001, up 58% from $221.9 million in the corresponding 2000 period. Approximately 60% of the increase was attributable to the impact of the acquisitions of Keystone and Premier.

For the nine-month period ended September 30, 2001, mortgage banking revenues aggregated $75.5 million, up 66% from $45.5 million in the corresponding 2000 period. The increase in such revenues reflects the lower interest rate environment and the implementation of SFAS No. 133, as mentioned earlier. Realized gains from sales of residential mortgage loans and loan servicing rights and unrealized gains from recording residential mortgage loans and related commitments to originate and commitments to sell such loans at fair market value aggregated $37.0 million for the first three quarters of 2001. Realized gains from the sale of residential mortgage loans and loan servicing rights were $18.5 million for the first nine months of 2000. Residential mortgage loan servicing fees were $32.3 million and $22.6 million during the first nine months of 2001 and 2000, respectively. Reflecting the impact of the Keystone and Premier acquisitions, service charges on deposit accounts increased to $105.8 million during the first nine months of 2001, 68% higher than $63.2 million in the comparable 2000 period. Largely the result of the Keystone acquisition, Trust income rose 61% to $47.7 million in the first nine months of 2001 from $29.6 million in the corresponding 2000 period. Brokerage services income increased 18% to $29.0 million in the first nine months of 2001 from $24.6 million in the similar 2000 period. Trading account and foreign exchange activity resulted in gains of $2.6 million and $1.6 million during the first nine months of 2001 and 2000, respectively. Other revenues from operations increased 52% to $87.2 million in the first nine months of 2001 from $57.4 million in the corresponding 2000 period. The higher levels of brokerage services income and other revenues from operations during the first nine months of 2001 compared with the similar 2000 period were largely due to the impact of the Company’s recent acquisitions.

Other Expense

Operating expenses, which exclude amortization of goodwill and core deposit intangible as well as non-recurring merger-related expenses, totaled $205.2 million in the third quarter of 2001, up from $136.5 million in the third quarter of 2000 and $201.9 million in the second quarter of 2001. On the same basis, through the first nine months of 2001, operating expenses totaled $604.0 million, an increase of 46% from $414.3 million in the comparable 2000

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period. Expenses related to acquired operations significantly contributed to the higher expense levels in the 2001 periods compared with the 2000 periods. However, since the operating systems and support operations related to Keystone and Premier have been combined with those of the Company, the Company’s operating expenses cannot be precisely divided between or attributed directly to the acquired operations or to the Company as it existed prior to each transaction. Components of other expense considered to be non-operating in nature and therefore excluded from the operating expense totals noted above were amortization of goodwill and core deposit intangible of $31.0 million in the third quarter of 2001, $13.8 million in the year-earlier quarter and $31.1 million in the second quarter of 2001; and merger-related expenses of $3.6 million in 2000’s third quarter. There were no merger-related expenses in the second and third quarters of 2001. Amortization of goodwill and core deposit intangible totaled $92.0 million in the first nine months of 2001, up from $42.3 million in the similar period of 2000. Merger-related expenses were $8.0 million in the first three quarters of 2001, compared with $3.6 million in the corresponding 2000 period.

Salaries and employee benefits expense totaled $109.3 million in the third quarter of 2001, 44% higher than the $76.1 million incurred in the corresponding 2000 quarter and little changed from $109.5 million in the second quarter of 2001. For the first nine months of 2001, salaries and employee benefits expense increased 41% to $324.6 million from $229.7 million in the similar 2000 period. Excluding the non-operating expense items previously noted, nonpersonnel expense totaled $95.9 million in the recent quarter, up from $60.7 million in the third quarter of 2000 and $92.4 million in the second quarter of 2001. On the same basis, such expenses were $279.7 million during the first nine months of 2001, an increase of 51% from $184.8 million during the corresponding 2000 period. The most significant factor contributing to the higher expense levels in 2001 compared with 2000 were expenses associated with the acquired operations of Keystone and Premier.

The Company’s cash efficiency ratio, or operating expense (excluding amortization of goodwill and core deposit intangible and merger-related expenses) divided by the sum of taxable-equivalent net interest income and other income (excluding gains from sales of bank investment securities) was 49.0% during the recent quarter, 48.6% during the year-earlier quarter and 49.5% in 2001’s second quarter. The cash efficiency ratios for the nine-month periods ended September 30, 2001 and 2000 were 49.7% and 50.2%, respectively.

Capital

Stockholders’ equity at September 30, 2001 was $3.0 billion or 9.49% of total assets, compared with $1.9 billion or 8.81% of total assets a year earlier and $2.7 billion or 9.33% at December 31, 2000. On a per share basis, stockholders’ equity was $31.19 at September 30, 2001, up from $25.22 a year earlier and $28.93 at December 31, 2000. Excluding goodwill and core deposit intangible, net of applicable tax effect, tangible equity per share was $17.85 at September 30, 2001, compared with $17.52 at September 30, 2000 and $16.74 at December 31, 2000. To complete the acquisitions of Premier on February 9, 2001 and Keystone on October 6, 2000, M&T issued 2,440,812 and 15,900,292 shares of common stock, respectively, and assumed employee stock options to purchase 224,734 and 1,259,493 shares of M&T common stock, respectively. As a result, at the respective acquisition date, stockholders’ equity increased by $176 million in connection with the Premier acquisition and by $664 million in connection with the Keystone acquisition.

Included in stockholders’ equity at September 30, 2001 was accumulated other comprehensive income, which reflected $43.2 million, or $.46 per share, for the net after-tax impact of unrealized gains on investment securities classified as available for sale, compared with unrealized losses of $32.4 million or $.42 per share at September 30, 2000 and $432 thousand or $.01 per share at December 31, 2000. Such unrealized gains or losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available for sale. Accumulated comprehensive income at September 30, 2001 also reflected an unrealized loss

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of $407 thousand representing the after-tax effect of the estimated fair value of interest rate swaps designated as cash flow hedges.

Federal regulators generally require banking institutions to maintain “core capital” and “total capital” ratios of at least 4% and 8%, respectively, of risk-adjusted total assets. In addition to the risk-based measures, Federal bank regulators have also implemented a minimum “leverage” ratio guideline of 3% of the quarterly average of total assets. Core capital includes the $318 million carrying value of trust preferred securities as described in note 6 of Notes to Financial Statements. As of September 30, 2001, total capital also included $574 million of subordinated notes issued by M&T Bank in prior years.

The Company’s rate of regulatory capital generation, or cash net income (reduced by the impact of nonrecurring merger-related expenses) less dividends paid expressed as an annualized percentage of regulatory “core capital” at the beginning of the period, was 20.31% during the third quarter of 2001, compared with 19.03% in the year-earlier quarter and 20.09% in the second quarter of 2001.

The regulatory capital ratios of the Company and its banking subsidiaries, M&T Bank and M&T Bank, N.A., as of September 30, 2001 are presented in the accompanying table.

REGULATORY CAPITAL RATIOS
September 30, 2001


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

Core capital		7.27	%		7.36	%		12.52	%
Total capital		10.71	%		10.84	%		13.37	%
Leverage		6.43	%		6.54	%		7.52	%

On June 25, 2001, M&T announced that it had been authorized by its Board of Directors to purchase up to 3,500,000 of its common shares to be used in connection with the possible future exercise of outstanding stock options. Through September 30, 2001, M&T had repurchased 2,978,302 shares of common stock pursuant to this program at an average cost of $74.73 per share. During November 2001, M&T completed the program described above, and the repurchases of 3,500,000 common shares were completed at an average cost of $73.91. A previous stock repurchase program announced in November 1999 was completed during the second quarter of 2001. M&T repurchased 271,790 shares during 2001 pursuant to such program at an average cost of $74.60 per share. On November 8, 2001, M&T announced that it had been authorized by its Board of Directors to purchase up to 5,000,000 additional common shares.

Segment Information

Net income contributed by the Commercial Banking segment in the third quarter of 2001 totaled $25.6 million up from $24.7 million in the year-earlier quarter, but down from $29.0 million in the second quarter of 2001. The major factor for the increase from the year-earlier period was a $12.1 million increase in net interest income, due to a 31% increase in average loans outstanding, partially offset by a $10.5 million increase in the provision for credit losses, largely the result of higher net charge-offs. Approximately two-thirds of the increase in loans outstanding was attributable to the Keystone acquisition. A $5.5 million increase in the provision for credit losses, largely the result of an increase in net charge-offs, offset, in part, by an increase in deposit service charges and credit-related and other fee income contributed to the decrease in net income from the second quarter of 2001. Net income for the nine months ended September 30, 2001 and 2000 was $83.7 million and $69.7 million, respectively. The higher net income in 2001 resulted largely from a $41.4 million increase in net interest income, due to a 33% increase in average loans outstanding. Approximately one-half of the increase in net interest income was attributable to the Keystone acquisition.

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Partially offsetting the higher net interest income was a $19.2 million increase in the provision for credit losses, the result of higher net charge-offs.

The Commercial Real Estate segment earned $21.6 million in the recent quarter, compared with $17.3 million in the corresponding quarter of 2000 and $20.7 million in the second quarter of 2001. The major factor in the improved earnings when compared with the third quarter of 2000 was a $7.5 million rise in net interest income, the result of a 21% increase in average loan balances. Approximately one-quarter of the increase in this segment’s net interest income was attributable to the Keystone acquisition. The increase in net income from the second quarter was also largely due to higher net interest income, the result of higher net interest margin on loan balances outstanding. Net income in the first nine months of 2001 and 2000 was $62.0 million and $52.4 million, respectively. Higher net interest income of $19.0 million, the result of a 21% increase in average loan balances outstanding, was the major factor for the rise in net income. Approximately one-third of the $19.0 million increase in net interest income was attributable to the Keystone acquisition.

The Discretionary Portfolio segment contributed net income of $13.2 million in the third quarter of 2001, up from $9.0 million a year-earlier, but below the $13.7 million earned in the immediately preceding quarter. The increase in net income from the third quarter of 2000 was the result of higher net interest income from loans, culminating from a higher net interest margin and increased balances outstanding, and tax-exempt income earned from bank owned life insurance. The decrease in net income from the second quarter of 2001 was due to lower gains from sales of bank investment securities. Through September 30, 2001, earnings for the Discretionary Portfolio segment totaled $37.9 million, up from $25.1 million in the corresponding 2000 period. The increase from 2000 was due, in part, to a $7.1 million increase in tax-exempt income earned from bank owned life insurance and an $8.7 million increase in net interest income, the result of a higher net interest margin and increased balances outstanding.

In the third quarter of 2001, the Residential Mortgage Banking segment recorded net income of $9.7 million, compared with $2.9 million in the similar 2000 period and $10.7 million in the second quarter of 2001. Net income for this segment for the nine months ended September 30, 2001 and 2000 was $29.4 million and $6.0 million, respectively. The higher levels of earnings in 2001 when compared with the corresponding periods of 2000 were largely due to the effects of higher residential mortgage loan origination volume and loan servicing fees. The previously described adoption of SFAS No. 133 also contributed approximately $4 million, after applicable income taxes, during the first nine months of 2001. The decrease in the recent quarter's net income as compared with the second quarter of 2001 was due to a $2.3 million increase to the valuation allowance for capitalized residential mortgage servicing rights.

The Retail Banking segment’s earnings were $50.9 million in the recent quarter, up 18% from $43.2 million in 2000’s comparable period, but down from $52.6 million in the second quarter of 2001. The leading factors contributing to the increase in net income from the third quarter of 2000 were higher net interest income of $42.1 million, the result of increases in average loan and deposit balances, and higher deposit service charges of $11.5 million, offset in part by higher operating expenses of $45.5 million. The higher deposit and loan balances, deposit service charges, and operating expenses were largely the result of the Keystone and Premier acquisitions. Lower net interest income in the third quarter of 2001 was the primary factor for the decreased earnings compared with the second 2001 quarter. The net contribution of money market savings balances decreased in the third quarter due to market rates dropping more rapidly than the rates the Company pays on these products. During the nine-month period ended September 30, 2001, this segment’s net income increased 37% to $156.2 million from $114.2 million in the corresponding 2000 period. Higher net interest income and deposit service charges of $156.2 million and $33.6 million, respectively, partially offset by higher operating expenses of $118.2 million, were the leading factors contributing to the significant improvement in net income from 2000. Such

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increases in income and expenses were largely the result of the Keystone and Premier acquisitions.

Recently Issued Accounting Standards Not Yet Adopted

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS Nos. 141 and 142. SFAS No. 141, “Business Combinations,” revised accounting standards and disclosure requirements for business combinations. All business combinations are now required to be accounted for using the purchase method of accounting; use of the pooling-of-interests (“pooling”) method of accounting is prohibited. SFAS No. 141 requires that goodwill be initially recognized as an asset in the financial statements and measured as the excess of the cost of an acquired entity over the net difference between amounts assigned to assets acquired and liabilities assumed. The statement also requires that an acquired intangible asset be recognized apart from goodwill if that asset arises from contractual or other legal rights. SFAS No. 141 stipulates that the pooling method of accounting may not be used for business combinations initiated after June 30, 2001. However, prior business combinations accounted for by the pooling method will be “grandfathered.” The provisions of SFAS No. 141 related to the application of the purchase method of accounting (including the separate recognition of identifiable intangible assets) are effective for any business combination completed after June 30, 2001.

SFAS No. 142 “Goodwill and Other Intangible Assets,” revises accounting standards for all purchased intangible assets but not the accounting for internally developed intangible assets. SFAS No. 142 requires that goodwill not be amortized, but rather that it be tested for impairment at the reporting unit level, which is either at the same level or one level below an operating segment. All acquired goodwill should be assigned to reporting units, then tested for impairment no less frequently than annually. Acquired intangible assets (other than goodwill) should be amortized over their useful economic lives and reviewed for impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” However, an acquired intangible asset (other than goodwill) with an indefinite useful economic life should not be amortized until its life is determined to be finite. SFAS No. 142 also stipulates various disclosures and financial statement presentation requirements relating to goodwill and intangible assets. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is not permitted for companies with fiscal years beginning prior to March 15, 2001, and the statement must be adopted as of the beginning of a fiscal year. Companies should perform the first impairment test on all goodwill within six months of initially applying the provisions of the statement. The useful economic life of previously recognized intangible assets should be reassessed upon adoption of the statement, remaining amortization periods should be adjusted accordingly, and intangible assets deemed to have an indefinite life should no longer be amortized. Once SFAS No. 142 is adopted by the Company, it is expected that the Company’s results of operations will be significantly impacted due to changes in the accounting for amortization and impairment of goodwill. Information about the Company’s amortization of goodwill is presented herein under the heading “Cash Operating Results.”

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged.

On October 3, 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 replaces SFAS No.

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121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of Accounting Principles Board Opinion No. 30, “Reporting Results of Operations — Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. Early application is encouraged.

The provisions of SFAS Nos. 143 and 144 are not expected to have a material impact on the Company’s consolidated financial statements.

Forward-Looking Statements

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

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

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M&T BANK CORPORATION AND SUBSIDIARIES

QUARTERLY TRENDS


		2001 Quarters									2000 Quarters

		Third			Second			First			Fourth			Third			Second			First

Earnings and dividends
Amounts in thousands, except per share
Interest income (taxable-equivalent basis)		$	526,226			544,424			552,965			548,345			424,212			409,710			401,064
Interest expense			227,674			252,477			276,597			286,538			219,622			208,706			203,731

Net interest income			298,552			291,947			276,368			261,807			204,590			201,004			197,333
Less: provision for credit losses			28,000			24,000			18,500			14,000			9,000			6,000			9,000
Other income			120,167			117,836			111,727			102,778			76,514			73,382			71,998
Less: other expense			236,194			233,012			234,801			234,187			153,959			155,710			150,597

Income before income taxes			154,525			152,771			134,794			116,398			118,145			112,676			109,734
Applicable income taxes			52,401			53,164			46,741			40,672			41,397			38,888			39,293
Taxable-equivalent adjustment			4,257			4,799			4,387			3,759			2,332			2,250			2,206

Net income		$	97,867			94,808			83,666			71,967			74,416			71,538			68,235

Per common share data
	Basic earnings	$	1.02			.98			.88			.78			.97			.93			.89
	Diluted earnings		.98			.94			.85			.76			.94			.91			.86
	Cash dividends	$	.25			.25			.25			.25			.125			.125			.125
Average common shares outstanding
	Basic		96,115			97,125			95,427			91,987			76,748			76,631			77,112
	Diluted		99,597			100,722			98,605			95,088			79,417			78,876			79,222

Performance ratios, annualized
Return on
	Average assets		1.25	%		1.23	%		1.14	%		1.01	%		1.36	%		1.32	%		1.22	%
	Average common stockholders’ equity		12.93	%		12.61	%		11.84	%		11.03	%		15.64	%		15.75	%		15.14	%
Net interest margin on average earning assets (taxable-equivalent basis)			4.22	%		4.18	%		4.16	%		4.05	%		4.05	%		4.05	%		3.94	%
Nonperforming assets to total assets, at end of quarter			.67	%		.55	%		.56	%		.43	%		.32	%		.33	%		.33	%
Efficiency ratio (a)			56.44	%		57.08	%		58.45	%		57.61	%		53.49	%		56.75	%		55.92	%

Cash (tangible) operating results (b)
Net income (in thousands)		$	123,523			119,899			112,391			108,100			87,758			82,937			79,844
Diluted net income per common share			1.24			1.19			1.14			1.14			1.11			1.05			1.00
Annualized return on
	Average tangible assets		1.64	%		1.62	%		1.59	%		1.57	%		1.64	%		1.57	%		1.47	%
	Average tangible common stockholders’ equity		28.39	%		27.99	%		27.93	%		28.93	%		26.98	%		27.46	%		26.95	%
Efficiency ratio (a)			49.03	%		49.45	%		50.77	%		50.20	%		48.57	%		51.61	%		50.57	%

Balance sheet data
In millions, except per share
Average balances
	Total assets	$	31,119			31,017			29,878			28,487			21,823			21,851			22,438
	Earning assets		28,099			27,993			26,937			25,746			20,098			19,976			20,147
	Investment securities		3,234			3,502			3,470			3,559			2,904			2,582			1,977
	Loans and leases, net of unearned discount		24,831			24,460			23,392			22,141			17,163			17,181			17,501
	Deposits		20,420			20,590			20,734			19,900			14,980			15,206			15,257
	Stockholders’ equity		3,003			3,015			2,866			2,596			1,893			1,826			1,813

At end of quarter
	Total assets	$	31,139			31,202			30,925			28,949			22,009			21,746			22,762
	Earning assets		28,118			28,200			27,895			26,089			20,143			19,893			20,389
	Investment securities		3,153			3,377			3,705			3,310			2,799			2,865			2,079
	Loans and leases, net of unearned discount		24,946			24,774			24,168			22,743			17,324			16,949			17,703
	Deposits		20,522			20,041			20,978			20,233			14,682			15,223			15,151
	Stockholders’ equity		2,956			2,987			2,992			2,700			1,940			1,852			1,832
	Equity per common share		31.19			31.00			30.84			28.93			25.22			24.18			23.83
	Tangible equity per common share		17.85			17.68			17.33			16.74			17.52			16.28			15.79

Market price per common share
	High	$	82.11			79.00			69.99			68.42			52.29			47.50			45.81
	Low		63.70			66.55			59.80			46.67			44.50			39.95			35.70
	Closing		74.00			75.50			69.90			68.00			51.00			45.00			44.65

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

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

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M&T BANK CORPORATION AND SUBSIDIARIES

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES


			2001 Third quarter								2001 Second quarter								2001 First quarter

			Average					Average			Average					Average			Average					Average
Average balance in millions; interest in thousands			balance			Interest		rate			balance			Interest		rate			balance			Interest		rate

Assets
Earning assets
Loans and leases, net of unearned discount*
	Commercial, financial, etc.		$	5,340		$	90,615		6.73	%		5,383			99,701		7.43	%		5,178			107,830		8.45	%
	Real estate — commercial			9,322			183,790		7.89			9,232			186,385		8.08			8,935			188,067		8.42
	Real estate — consumer			5,336			103,709		7.77			5,263			103,686		7.88			4,991			99,295		7.96
	Consumer			4,833			95,543		7.84			4,582			95,509		8.36			4,288			96,603		9.14

		Total loans and leases, net		24,831			473,657		7.57			24,460			485,281		7.96			23,392			491,795		8.53

Money-market assets
	Interest-bearing deposits at banks			4			29		2.96			4			29		3.34			3			37		4.59
	Federal funds sold and agreements to resell securities			17			167		3.88			14			164		4.56			59			787		5.48
	Trading account			13			105		3.17			13			95		2.86			13			116		3.54

		Total money-market assets		34			301		3.49			31			288		3.69			75			940		5.11

Investment securities**
	U.S. Treasury and federal agencies			1,624			26,703		6.52			1,781			29,285		6.60			1,955			33,697		6.99
	Obligations of states and political subdivisions			319			5,597		7.01			380			7,161		7.54			332			6,418		7.75
	Other			1,291			19,968		6.14			1,341			22,409		6.70			1,183			20,115		6.89

		Total investment securities		3,234			52,268		6.41			3,502			58,855		6.74			3,470			60,230		7.04

		Total earning assets		28,099			526,226		7.43			27,993			544,424		7.80			26,937			552,965		8.33

Allowance for credit losses				(416	)							(406	)							(391	)
Cash and due from banks				720								683								685
Other assets				2,716								2,747								2,647

		Total assets	$	31,119								31,017								29,878

Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits
	NOW accounts		$	708			1,896		1.06			708			2,206		1.25			717			3,185		1.80
	Savings deposits			7,444			32,515		1.73			7,280			34,529		1.90			6,765			38,152		2.29
	Time deposits			8,506			104,985		4.90			9,029			120,721		5.36			9,803			140,188		5.80
	Deposits at foreign office			378			3,115		3.27			304			3,027		3.99			263			3,405		5.25

		Total interest-bearing deposits		17,036			142,511		3.32			17,321			160,483		3.72			17,548			184,930		4.27

Short-term borrowings				3,621			32,808		3.59			3,543			38,526		4.36			2,452			34,269		5.67
Long-term borrowings				3,689			52,355		5.63			3,485			53,468		6.15			3,443			57,398		6.76

		Total interest-bearing liabilities		24,346			227,674		3.71			24,349			252,477		4.16			23,443			276,597		4.78

Noninterest-bearing deposits				3,384								3,269								3,186
Other liabilities				386								384								383

		Total liabilities		28,116								28,002								27,012

Stockholders’ equity				3,003								3,015								2,866

		Total liabilities and stockholders’ equity	$	31,119								31,017								29,878

Net interest spread									3.72								3.64								3.55
Contribution of interest-free funds									.50								.54								.61

Net interest income/margin on earning assets						$	298,552		4.22	%					291,947		4.18	%					276,368		4.16	%

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

(continued)

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M&T BANK CORPORATION AND SUBSIDIARIES

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


				2000 Fourth quarter								2000 Third quarter

				Average					Average			Average					Average
Average balance in millions; interest in thousands				balance			Interest		rate			balance			Interest		rate

Assets
Earning assets
	Loans and leases, net of unearned discount*
		Commercial, financial, etc.		$	4,926		$	111,700		9.02	%		3,978			90,407		9.04	%
		Real estate — commercial			8,572			186,371		8.70			6,867			147,932		8.62
		Real estate — consumer			4,604			93,660		8.14			3,061			61,053		7.98
		Consumer			4,039			93,905		9.25			3,257			75,087		9.17

			Total loans and leases, net		22,141			485,636		8.73			17,163			374,479		8.68

Money-market assets
		Interest-bearing deposits at banks			18			264		5.75			1			20		4.64
		Federal funds sold and agreements to resell securities			13			220		6.76			15			250		6.74
		Trading account			15			125		3.34			15			155		4.05

			Total money-market assets		46			609		5.25			31			425		5.32

Investment securities**
		U.S. Treasury and federal agencies			2,272			38,540		6.75			1,865			30,936		6.60
		Obligations of states and political subdivisions			240			4,819		8.02			80			1,360		6.82
		Other			1,047			18,741		7.12			959			17,012		7.05

			Total investment securities		3,559			62,100		6.94			2,904			49,308		6.76

			Total earning assets		25,746			548,345		8.47			20,098			424,212		8.40

Allowance for credit losses					(374	)							(322	)
Cash and due from banks					694								494
Other assets					2,421								1,553

			Total assets	$	28,487								21,823

Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits
		NOW accounts		$	695			3,692		2.11			402			1,235		1.22
		Savings deposits			6,200			39,357		2.53			5,194			30,375		2.33
		Time deposits			9,568			144,030		5.99			6,893			103,107		5.95
		Deposits at foreign office			265			4,040		6.06			259			4,075		6.28

			Total interest-bearing deposits		16,728			191,119		4.55			12,748			138,792		4.33

Short-term borrowings					2,486			41,260		6.60			2,952			49,221		6.63
Long-term borrowings					3,025			54,159		7.12			1,763			31,609		7.13

			Total interest-bearing liabilities		22,239			286,538		5.12			17,463			219,622		5.00

Noninterest-bearing deposits					3,172								2,232
Other liabilities					480								235

			Total liabilities		25,891								19,930

Stockholders’ equity					2,596								1,893

			Total liabilities and stockholders’ equity	$	28,487								21,823

Net interest spread										3.35								3.40
Contribution of interest-free funds										.70								.65

Net interest income/margin on earning assets							$	261,807		4.05	%					204,590		4.05	%

*		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.”

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Changes in Securities and Use of Proceeds.

(Not applicable.)

Item 3. Defaults Upon Senior Securities.

(Not applicable.)

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

(None)

Item 5. Other Information.

(None)

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

(a) There are no exhibits filed as a part of this report.

(b) Reports on Form 8-K. M&T did not file any Current Reports on Form 8-K during the fiscal quarter ended September 30, 2001.

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SIGNATURES

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


		M&T BANK CORPORATION

Date: November 14, 2001		By: /s/ Michael P. Pinto Michael P. Pinto Executive Vice President and Chief Financial Officer

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