UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

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

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No þ

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on October 22, 2007: 106,751,607 shares.

 

 

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2007

Table of Contents of Information Required in Report		Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEET - September 30, 2007 and December 31, 2006			3
CONSOLIDATED STATEMENT OF INCOME - Three and nine months ended September 30, 2007 and 2006			4
CONSOLIDATED STATEMENT OF CASH FLOWS - Nine months ended September 30, 2007 and 2006			5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - Nine months ended September 30, 2007 and 2006			6
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES - Nine months ended September 30, 2007 and 2006			6
NOTES TO FINANCIAL STATEMENTS			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			53
Item 4. Controls and Procedures.			53
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.			53
Item 1A. Risk Factors.			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			54
Item 3. Defaults Upon Senior Securities.			54
Item 4. Submission of Matters to a Vote of Security Holders.			54
Item 5. Other Information.			54
Item 6. Exhibits.			55
SIGNATURES			55
EXHIBIT INDEX			56
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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				2007				2006
Assets		Cash and due from banks		$	1,295,377				1,605,506
		Interest-bearing deposits at banks			8,503				6,639
		Federal funds sold			32,200				19,458
		Agreements to resell securities			367,797				100,000
		Trading account			180,019				136,752
		Investment securities
		Available for sale (cost: $7,571,023 at September 30, 2007; $6,878,332 at December 31, 2006)			7,470,946				6,829,848
		Held to maturity (market value: $61,332 at September 30, 2007; $66,729 at December 31, 2006)			60,090				64,899
		Other (market value: $471,979 at September 30, 2007; $356,851 at December 31, 2006)			471,979				356,851
		Total investment securities			8,003,015				7,251,598
		Loans and leases			45,104,046				43,206,954
		Unearned discount			(325,574	)			(259,657	)
		Allowance for credit losses			(680,498	)			(649,948	)
		Loans and leases, net			44,097,974				42,297,349
		Premises and equipment			332,197				335,008
		Goodwill			2,908,849				2,908,849
		Core deposit and other intangible assets			200,195				250,233
		Accrued interest and other assets			2,581,997				2,153,513
		Total assets		$	60,008,123				57,064,905
Liabilities		Noninterest-bearing deposits		$	7,565,762				7,879,977
		NOW accounts			849,060				940,439
		Savings deposits			14,247,433				14,169,790
		Time deposits			9,622,798				11,490,629
		Deposits at foreign office			6,188,126				5,429,668
		Total deposits			38,473,179				39,910,503
		Federal funds purchased and agreements to repurchase securities			4,273,464				2,531,684
		Other short-term borrowings			647,437				562,530
		Accrued interest and other liabilities			859,847				888,352
		Long-term borrowings			9,516,192				6,890,741
		Total liabilities			53,770,119				50,783,810
Stockholders’ equity		Preferred stock, $1 par, 1,000,000 shares authorized, none outstanding			—				—
		Common stock, $.50 par, 250,000,000 shares authorized, 120,396,611 shares issued at September 30, 2007 and at December 31, 2006			60,198				60,198
		Common stock issuable, 83,793 shares at September 30, 2007; 90,949 shares at December 31, 2006			4,810				5,060
		Additional paid-in capital			2,897,499				2,889,449
		Retained earnings			4,827,583				4,443,441
		Accumulated other comprehensive income (loss), net			(86,665	)			(53,574	)
		Treasury stock — common, at cost - 13,673,244 shares at September 30, 2007; 10,179,802 shares at December 31, 2006			(1,465,421	)			(1,063,479	)
		Total stockholders’ equity			6,238,004				6,281,095
		Total liabilities and stockholders’ equity		$	60,008,123				57,064,905

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

				Three months ended								Nine months ended
				September 30								September 30
In thousands, except per share				2007				2006				2007				2006
Interest income		Loans and leases, including fees		$	798,572				755,543			$	2,353,114				2,150,076
		Deposits at banks			64				121				197				304
		Federal funds sold			180				545				710				1,328
		Agreements to resell securities			3,249				1,942				14,254				1,942
		Trading account			145				680				491				2,104
		Investment securities
		Fully taxable			88,280				90,320				255,083				276,100
		Exempt from federal taxes			2,524				3,685				8,390				11,165
		Total interest income			893,014				852,836				2,632,239				2,443,019
Interest expense		NOW accounts			982				960				3,173				2,398
		Savings deposits			62,883				51,816				184,678				142,952
		Time deposits			117,064				152,571				377,766				409,661
		Deposits at foreign office			55,666				48,244				151,316				128,845
		Short-term borrowings			68,376				59,487				205,440				163,677
		Long-term borrowings			120,355				82,574				329,839				244,663
		Total interest expense			425,326				395,652				1,252,212				1,092,196
		Net interest income			467,688				457,184				1,380,027				1,350,823
		Provision for credit losses			34,000				17,000				91,000				52,000
		Net interest income after provision for credit losses			433,688				440,184				1,289,027				1,298,823
Other income		Mortgage banking revenues			31,643				36,806				81,062				112,882
		Service charges on deposit accounts			104,402				100,314				303,615				284,739
		Trust income			38,168				35,224				112,691				103,777
		Brokerage services income			14,978				14,794				46,844				43,999
		Trading account and foreign exchange gains			7,279				5,082				20,465				17,756
		Gain (loss) on bank investment securities			(138	)			1,133				1,185				1,427
		Equity in earnings of Bayview Lending Group LLC			(11,294	)			—				(5,594	)			—
		Other revenues from operations			67,861				80,549				212,231				224,855
		Total other income			252,899				273,902				772,499				789,435
Other expense		Salaries and employee benefits			220,750				218,980				682,204				660,224
		Equipment and net occupancy			42,091				41,683				126,036				127,612
		Printing, postage and supplies			7,996				8,294				25,886				24,933
		Amortization of core deposit and other intangible assets			15,702				19,936				50,515				44,321
		Other costs of operations			103,989				120,048				297,575				310,851
		Total other expense			390,528				408,941				1,182,216				1,167,941
		Income before taxes			296,059				305,145				879,310				920,317
		Income taxes			96,872				94,775				289,981				294,457
		Net income		$	199,187				210,370			$	589,329				625,860
		Net income per common share
		Basic		$	1.86				1.89			$	5.45				5.62
		Diluted			1.83				1.85				5.34				5.49
		Cash dividends per common share		$	.70				.60			$	1.90				1.65
		Average common shares outstanding
		Basic			107,056				111,047				108,220				111,331
		Diluted			108,957				113,897				110,342				114,069

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

				Nine months ended September 30
In thousands				2007				2006
Cash flows from operating activities		Net income		$	589,329				625,860
		Adjustments to reconcile net income to net cash provided by operating activities
		Provision for credit losses			91,000				52,000
		Depreciation and amortization of premises and equipment			37,053				39,202
		Amortization of capitalized servicing rights			46,731				45,660
		Amortization of core deposit and other intangible assets			50,515				44,321
		Provision for deferred income taxes			(15,351	)			(58,107	)
		Asset write-downs			12,227				241
		Net gain on sales of assets			(5,416	)			(11,086	)
		Net change in accrued interest receivable, payable			5,184				46,556
		Net change in other accrued income and expense			(23,185	)			145,724
		Net change in loans originated for sale			136,517				(5,009	)
		Net change in trading account assets and liabilities			(26,865	)			5,572
		Net cash provided by operating activities			897,739				930,934
Cash flows from investing activities		Proceeds from sales of investment securities
		Available for sale			39,374				98,365
		Other			1,881				40,960
		Proceeds from maturities of investment securities
		Available for sale			1,357,036				1,242,416
		Held to maturity			34,568				78,900
		Purchases of investment securities
		Available for sale			(2,087,581	)			(596,108	)
		Held to maturity			(29,769	)			(45,228	)
		Other			(117,009	)			(30,371	)
		Net increase in agreements to resell securities			(267,797	)			(100,000	)
		Net increase in loans and leases			(2,077,630	)			(1,541,817	)
		Other investments, net			(305,975	)			(12,299	)
		Additions to capitalized servicing rights			(45,159	)			(44,450	)
		Capital expenditures, net			(35,119	)			(26,627	)
		Acquisitions, net of cash acquired
		Deposits and banking offices			—				494,990
		Other			—				(12,172	)
		Other, net			(27,319	)			60,546
		Net cash used by investing activities			(3,560,499	)			(392,895	)
Cash flows from financing activities		Net increase (decrease) in deposits			(1,438,598	)			1,015,347
		Net increase (decrease) in short-term borrowings			1,826,687				(806,767	)
		Proceeds from long-term borrowings			2,849,895				500,000
		Payments on long-term borrowings			(228,086	)			(969,595	)
		Purchases of treasury stock			(496,057	)			(298,896	)
		Dividends paid — common			(205,028	)			(183,328	)
		Other, net			56,560				74,723
		Net cash provided (used) by financing activities			2,365,373				(668,516	)
		Net decrease in cash and cash equivalents			(297,387	)			(130,477	)
		Cash and cash equivalents at beginning of period			1,624,964				1,490,459
		Cash and cash equivalents at end of period		$	1,327,577				1,359,982
Supplemental disclosure of cash flow information		Interest received during the period		$	2,643,940				2,435,470
		Interest paid during the period			1,243,915				1,024,465
		Income taxes paid during the period			279,045				254,759
Supplemental schedule of noncash investing and financing activities		Loans held for sale transferred to loans held for investment		$	870,759				—
		Real estate acquired in settlement of loans			25,347				13,505
		Acquisitions :
		Fair value of :
		Assets acquired (noncash)			—				514,055
		Liabilities assumed			—				999,022

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

																						Accumulated
																						other
										Common				Additional								comprehensive
		Preferred				Common				stock				paid-in				Retained				income (loss),				Treasury
In thousands, except per share		stock				stock				issuable				capital				earnings				net				stock				Total
2006
Balance — January 1, 2006		$	—				60,198				5,363				2,886,153				3,854,275				(97,930	)			(831,673	)			5,876,386
Comprehensive income:
Net income			—				—				—				—				625,860				—				—				625,860
Other comprehensive income, net of tax and reclassification adjustments:
Unrealized gains on investment securities			—				—				—				—				—				10,990				—				10,990
																															636,850
Purchases of treasury stock			—				—				—				—				—				—				(298,896	)			(298,896	)
Repayment of management stock ownership program receivable			—				—				—				225				—				—				—				225
Stock-based compensation plans:
Stock option and purchase plans:
Compensation expense			—				—				—				40,059				—				—				—				40,059
Exercises			—				—				—				(36,419	)			—				—				115,636				79,217
Directors’ stock plan			—				—				—				87				—				—				694				781
Deferred compensation plans, net, including dividend equivalents			—				—				(283	)			(474	)			(152	)			—				858				(51	)
Common stock cash dividends - $1.65 per share			—				—				—				—				(183,328	)			—				—				(183,328	)
Balance — September 30, 2006		$	—				60,198				5,080				2,889,631				4,296,655				(86,940	)			(1,013,381	)			6,151,243
2007
Balance — January 1, 2007		$	—				60,198				5,060				2,889,449				4,443,441				(53,574	)			(1,063,479	)			6,281,095
Comprehensive income:
Net income			—				—				—				—				589,329				—				—				589,329
Other comprehensive income, net of tax and reclassification adjustments:
Unrealized losses on investment securities			—				—				—				—				—				(32,684	)			—				(32,684	)
Defined benefit plan liability adjustment			—				—				—				—				—				(17	)			—				(17	)
Unrealized losses on cash flow hedges			—				—				—				—				—				(390	)			—				(390	)
																															556,238
Purchases of treasury stock			—				—				—				—				—				—				(496,057	)			(496,057	)
Stock-based compensation plans:
Stock option and purchase plans:
Compensation expense			—				—				—				39,095				—				—				1,605				40,700
Exercises			—				—				—				(30,640	)			—				—				90,742				60,102
Directors’ stock plan			—				—				—				75				—				—				932				1,007
Deferred compensation plans, net, including dividend equivalents			—				—				(250	)			(480	)			(159	)			—				836				(53	)
Common stock cash dividends - $1.90 per share			—				—				—				—				(205,028	)			—				—				(205,028	)
Balance — September 30, 2007		$	—				60,198				4,810				2,897,499				4,827,583				(86,665	)			(1,465,421	)			6,238,004

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

		Nine months ended September 30
In thousands		2007				2006
Beginning balance		$	649,948				637,663
Provision for credit losses			91,000				52,000
Net charge-offs
Charge-offs			(82,459	)			(65,683	)
Recoveries			22,009				22,339
Total net charge-offs			(60,450	)			(43,344	)
Ending balance		$	680,498				646,319

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 2006 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. Earnings per share

The computations of basic earnings per share follow:

		Three months ended								Nine months ended
		September 30								September 30
		2007				2006				2007				2006
		(in thousands, except per share)
Income available to common stockholders
Net income		$	199,187				210,370				589,329				625,860
Weighted-average shares outstanding (including common stock issuable)			107,056				111,047				108,220				111,331
Basic earnings per share		$	1.86				1.89				5.45				5.62

The computations of diluted earnings per share follow:

		Three months ended								Nine months ended
		September 30								September 30
		2007				2006				2007				2006
		(in thousands, except per share)
Income available to common stockholders		$	199,187				210,370				589,329				625,860
Weighted-average shares outstanding			107,056				111,047				108,220				111,331
Plus: incremental shares from assumed conversion of stock-based compensation awards			1,901				2,850				2,122				2,738
Adjusted weighted-average shares outstanding			108,957				113,897				110,342				114,069
Diluted earnings per share		$	1.83				1.85				5.34				5.49

Options to purchase approximately 3.3 million and 1.8 million common shares during the three-month periods ended September 30, 2007 and 2006, respectively, and 3.3 million and 1.2 million common shares during the nine-month periods ended September 30, 2007 and 2006, respectively, were not included in the computations of diluted earnings per share because the effect on those periods would be antidilutive.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Comprehensive income

The following table displays the components of other comprehensive income (loss):

		Nine months ended September 30, 2007
		Before-tax				Income
		amount				taxes				Net
		(in thousands)
Unrealized losses on investment securities:
Unrealized holding losses during period		$	(50,408	)			18,451				(31,957	)
Less: reclassification adjustment for gains realized in net income			1,185				(458	)			727
			(51,593	)			18,909				(32,684	)
Unrealized losses on cash flow hedges			(698	)			308				(390	)
Defined benefit plan liability adjustment			(28	)			11				(17	)
Net unrealized losses		$	(52,319	)			19,228				(33,091	)

		Nine months ended September 30, 2006
		Before-tax				Income
		amount				taxes				Net
		(in thousands)
Unrealized gains on investment securities:
Unrealized holding gains during period		$	15,092				(3,211	)			11,881
Less: reclassification adjustment for gains realized in net income			1,427				(536	)			891
Net unrealized gains		$	13,665				(2,675	)			10,990

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

						Cash				Defined
		Investment				flow				benefit
		securities				hedges				plans				Total
		(in thousands)
Balance — January 1, 2007		$	(25,311	)			—				(28,263	)			(53,574	)
Net gain (loss) during period			(32,684	)			(390	)			(17	)			(33,091	)
Balance — September 30, 2007		$	(57,995	)			(390	)			(28,280	)			(86,665	)
Balance — January 1, 2006		$	(48,576	)			—				(49,354	)			(97,930	)
Net gain (loss) during period			10,990				—				—				10,990
Balance — September 30, 2006		$	(37,586	)			—				(49,354	)			(86,940	)

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Borrowings

M&T Capital Trust I (“Trust I”), M&T Capital Trust II (“Trust II”) and M&T Capital Trust III (“Trust III”) have issued fixed rate preferred capital securities aggregating $310 million. First Maryland Capital I (“Trust IV”) and First Maryland Capital II (“Trust V”) have issued floating rate preferred capital securities aggregating $300 million. The distribution rates on the preferred capital securities of Trust IV and Trust V adjust quarterly based on changes in the three-month London Interbank Offered Rate (“LIBOR”) and were 6.36% and 6.21%, respectively, at September 30, 2007 and 6.37% and 6.22%, respectively, at December 31, 2006. Trust I, Trust II, Trust III, Trust IV and Trust V are referred to herein collectively as the “Trusts.”

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

		Distribution				Distribution
Trust		rate				dates
Trust I			8.234	%		February 1 and August 1
Trust II			8.277	%		June 1 and December 1
Trust III			9.25	%		February 1 and August 1
Trust IV		LIBOR plus 1.00%				January 15, April 15, July 15 and October 15
Trust V		LIBOR plus .85%				February 1, May 1, August 1 and November 1

The common securities of each Trust (“Common Securities”) are wholly owned by M&T and are the only class of each Trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding Trust. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 (core) capital.

The proceeds from the issuances of the Capital Securities and Common Securities were used by the Trusts to purchase junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of M&T as follows:

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

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Borrowings, continued

		Capital		Common		Junior Subordinated
Trust		Securities		Securities		Debentures
Trust IV		$150 million		$4.64 million		$154.64 million aggregate liquidation amount of floating rate Junior Subordinated Debentures due January 15, 2027.
Trust V		$150 million		$4.64 million		$154.64 million aggregate liquidation amount of floating rate Junior Subordinated Debentures due February 1, 2027.

The Junior Subordinated Debentures represent the sole assets of each Trust and payments under the Junior Subordinated Debentures are the sole source of cash flow for each Trust. The financial statement carrying values of junior subordinated debentures associated with preferred capital securities of Trust III, Trust IV and Trust V at September 30, 2007 and December 31, 2006 include the unamortized portions of purchase accounting adjustments to reflect estimated fair value as of the date of M&T’s acquisition of the common securities of each respective trust. The interest rates payable on the Junior Subordinated Debentures of Trust IV and Trust V were 6.36% and 6.21%, respectively, at September 30, 2007 and 6.37% and 6.22%, respectively, at December 31, 2006.

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

The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events (“Events”) set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part. The Junior Subordinated Debentures are redeemable prior to their stated maturity dates at M&T’s option (i) in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and during the continuation of one or more of the Events, in each case subject to possible regulatory approval. The redemption price of the Capital Securities and the related Junior Subordinated Debentures upon early redemption will be expressed as a percentage of the liquidation amount plus accumulated but

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Borrowings, continued

unpaid distributions. In the case of Trust I, such percentage adjusts annually and ranges from 104.117% as of February 1, 2007 to 100.412% for the annual period ending January 31, 2017, after which the percentage is 100%. In the case of Trust II, such percentage adjusts annually and ranges from 104.139% as of June 1, 2007 to 100.414% for the annual period ending May 31, 2017, after which the percentage is 100%. In the case of Trust III, such percentage adjusts annually and ranges from 104.625% as of February 1, 2007 to 100.463% for the annual period ending January 31, 2017, after which the percentage is 100%. In the case of Trust IV and Trust V, the redemption price upon early redemption will be equal to 100% of the principal amount to be redeemed plus any accrued but unpaid distributions to the redemption date.

Allfirst Preferred Capital Trust (“Allfirst Capital Trust”) has issued $100 million of Floating Rate Non-Cumulative Subordinated Trust Enhanced Securities (“SKATES”). Allfirst Capital Trust is a Delaware business trust that was formed for the exclusive purposes of (i) issuing the SKATES and common securities, (ii) purchasing Asset Preferred Securities issued by Allfirst Preferred Asset Trust (“Allfirst Asset Trust”) and (iii) engaging in only those other activities necessary or incidental thereto. M&T holds 100% of the common securities of Allfirst Capital Trust. Allfirst Asset Trust is a Delaware business trust that was formed for the exclusive purposes of (i) issuing Asset Preferred Securities and common securities, (ii) investing the gross proceeds of the Asset Preferred Securities in junior subordinated debentures that were assumed by M&T in an acquisition and other permitted investments and (iii) engaging in only those other activities necessary or incidental thereto. M&T holds 100% of the common securities of Allfirst Asset Trust and Allfirst Capital Trust holds 100% of the Asset Preferred Securities of Allfirst Asset Trust. M&T currently has outstanding $105.3 million aggregate liquidation amount floating rate Junior Subordinated Debentures due July 15, 2029 that are payable to Allfirst Asset Trust. The interest rates payable on such debentures were 6.79% at September 30, 2007 and 6.80% at December 31, 2006.

Distributions on the SKATES are non-cumulative. The distribution rate on the SKATES and on the floating rate Junior Subordinated Debentures is a rate per annum of three-month LIBOR plus 1.50% and three-month LIBOR plus 1.43%, respectively, reset quarterly two business days prior to the distribution dates of January 15, April 15, July 15 and October 15 in each year. Distributions on the SKATES will be paid if, as and when Allfirst Capital Trust has funds available for payment. The SKATES are subject to mandatory redemption if the Asset Preferred Securities of Allfirst Asset Trust are redeemed. Allfirst Asset Trust will redeem the Asset Preferred Securities if the junior subordinated debentures of M&T held by Allfirst Asset Trust are redeemed. M&T may redeem such junior subordinated debentures, in whole or in part, at any time on or after July 15, 2009, subject to regulatory approval. Allfirst Asset Trust will redeem the Asset Preferred Securities at par plus accrued and unpaid distributions from the last distribution payment date. M&T has guaranteed, on a subordinated basis, the payment in full of all distributions and other payments on the SKATES and on the Asset Preferred Securities to the extent that Allfirst Capital Trust and Allfirst Asset Trust, respectively, have funds legally available. Under the Federal Reserve Board’s current risk-based capital guidelines, the SKATES are includable in M&T’s Tier 1 capital.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Borrowings, continued

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

		September 30,				December 31,
		2007				2006
		(in thousands)
Trust I		$	154,640				154,640
Trust II			103,093				103,093
Trust III			68,140				68,384
Trust IV			144,064				143,652
Trust V			141,820				141,322
Allfirst Asset Trust			101,913				101,796
		$	713,670				712,887

5. Segment information

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

The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 21 to the Company’s consolidated financial statements as of and for the year ended December 31, 2006. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to generally accepted accounting principles. As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions. As also described in note 21 to the Company’s 2006 consolidated financial statements, neither goodwill nor core deposit and other intangible assets (and the amortization charges associated with such assets) resulting from acquisitions of financial institutions have been allocated to the Company’s reportable segments, but are included in the “All Other” category. The Company has, however,

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Segment information, continued

assigned such intangible assets to business units for purposes of testing for impairment. Information about the Company’s segments is presented in the following table:

		Three months ended September 30
		2007												2006
						Inter-				Net								Inter-				Net
		Total				segment				income				Total				segment				income
		revenues(a)				revenues				(loss)				revenues(a)				revenues				(loss)
		(in thousands)
Commercial Banking		$	141,097				90				56,273				137,976				110				55,276
Commercial Real Estate			69,277				205				34,913				64,805				198				31,583
Discretionary Portfolio			34,104				(3,079	)			21,055				44,811				(500	)			27,251
Residential Mortgage Banking			62,249				12,324				6,431				72,525				14,350				10,088
Retail Banking			395,623				2,996				115,972				381,064				3,026				109,878
All Other			18,237				(12,536	)			(35,457	)			29,905				(17,184	)			(23,706	)
Total		$	720,587				—				199,187				731,086				—				210,370

		Nine months ended September 30
		2007												2006
						Inter-				Net								Inter-				Net
		Total				segment				income				Total				segment				income
		revenues(a)				revenues				(loss)				revenues(a)				revenues				(loss)
		(in thousands)
Commercial Banking		$	429,262				310				171,192				407,401				400				168,960
Commercial Real Estate			205,791				580				101,850				198,326				650				97,687
Discretionary Portfolio			96,885				(8,621	)			60,717				119,561				(668	)			73,276
Residential Mortgage Banking			173,093				35,771				14,317				216,739				42,423				44,105
Retail Banking			1,165,794				9,453				343,109				1,087,157				8,872				304,926
All Other			81,701				(37,493	)			(101,856	)			111,074				(51,677	)			(63,094	)
Total		$	2,152,526				—				589,329				2,140,258				—				625,860

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Segment information, continued

(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 owed by a segment and a funding charge (credit) based on the Company’s internal funds transfer methodology. Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated $5,112,000 and $5,172,000 for the three-month periods ended September 30, 2007 and 2006, respectively, and $15,207,000 and $14,544,000 for the nine-month periods ended September 30, 2007 and 2006, 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								Year ended
		September 30								December 31
		2007				2006				2006
		(in millions)
Commercial Banking		$	13,443				12,562				12,688
Commercial Real Estate			8,740				8,398				8,448
Discretionary Portfolio			12,475				12,185				12,136
Residential Mortgage Banking			2,957				3,393				3,462
Retail Banking			14,332				14,096				14,107
All Other			5,586				4,957				4,998
Total		$	57,533				55,591				55,839

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Commitments and contingencies

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

		September 30,				December 31,
		2007				2006
		(in thousands)
Commitments to extend credit
Home equity lines of credit		$	5,698,086				5,450,382
Commercial real estate loans to be sold			154,277				65,784
Other commercial real estate and construction			3,032,609				3,008,353
Residential real estate loans to be sold			578,525				679,591
Other residential real estate			483,973				493,122
Commercial and other			6,957,454				7,344,263
Standby letters of credit			3,578,640				3,622,860
Commercial letters of credit			41,368				30,209
Financial guarantees and indemnification contracts			1,216,051				1,036,117
Commitments to sell real estate loans			1,181,700				1,932,306

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

Financial guarantees and indemnification contracts are oftentimes similar to standby letters of credit and include mandatory purchase agreements issued to ensure that customer obligations are fulfilled, recourse obligations associated with sold loans, and other guarantees of customer performance or compliance with designated rules and regulations. Included in financial guarantees and indemnification contracts are loan principal amounts sold with recourse in conjunction with the Company’s involvement in the Federal National Mortgage Association Delegated Underwriting and Servicing program. The Company’s maximum credit risk for recourse associated with loans sold under this program totaled $1.0 billion and $939 million at September 30, 2007 and December 31, 2006, respectively.

Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Commitments and contingencies, continued

The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the fair value of real estate loans held for sale. Such commitments are considered derivatives in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and along with commitments to originate real estate loans to be held for sale are generally recorded in the consolidated balance sheet at estimated fair market value. However, in estimating that fair value for commitments to originate loans for sale, value ascribable to cash flows that will be realized in connection with loan servicing activities has not been included. Value ascribable to that portion of cash flows is recognized at the time the underlying mortgage loans are sold.

The Company has an agreement with the Baltimore Ravens of the National Football League whereby the Company obtained the naming rights to a football stadium in Baltimore, Maryland. Under the agreement, the Company is obligated to pay $5 million per year from 2007 through 2013 and $6 million per year from 2014 through 2017.

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

The Company reinsures credit life and accident and health insurance purchased by consumer loan customers. The maximum loss associated with providing that reinsurance amounted to $51 million and $58 million at September 30, 2007 and December 31, 2006, respectively. The Company also enters into reinsurance contracts with third party insurance companies who insure against the risk of a mortgage borrower’s payment default in connection with mortgage loans originated by the Company. The maximum loss associated with providing such reinsurance amounted to $21 million and $19 million at September 30, 2007 and December 31, 2006, respectively. When providing reinsurance coverage, the Company receives a premium in exchange for accepting a portion of the insurer’s risk of borrower default. The maximum loss exposures noted above are not necessarily indicative of losses which may ultimately be incurred. Such losses are expected to be substantially less because most loans are repaid by borrowers in accordance with the original loan terms. The amount of the Company’s recorded liability for reported reinsurance losses as well as estimated losses incurred but not yet reported was not significant at either September 30, 2007 or December 31, 2006.

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

7. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings, L.P.

On February 5, 2007 M&T invested $300 million to acquire a minority interest in Bayview Lending Group LLC (“BLG”), a privately-held commercial mortgage lender that specializes in originating, securitizing and servicing small balance commercial real estate loans in the United States, and to a lesser extent, in Canada and the United Kingdom. M&T recognizes income from BLG using the equity method of accounting.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

7. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings, L.P., continued

Bayview Financial Holdings, L.P. (together with its affiliates, “Bayview Financial”), a privately-held specialty mortgage finance company, is BLG’s majority investor. In addition to their common investment in BLG, the Company and Bayview Financial conduct other business activities with each other. The Company has purchased loan servicing rights for small balance commercial mortgage loans from BLG and Bayview Financial having outstanding principal balances of $4.5 billion and $3.3 billion at September 30, 2007 and December 31, 2006, respectively. Amounts recorded as capitalized servicing assets for such loans totaled $55 million at September 30, 2007 and $36 million at December 31, 2006. In addition, capitalized servicing rights at September 30, 2007 and December 31, 2006 also included $43 million and $44 million, respectively, for servicing rights that were purchased from Bayview Financial related to residential mortgage loans with outstanding principal balances of $5.0 billion at September 30, 2007 and $4.5 billion at December 31, 2006. Revenues from servicing residential and small balance commercial mortgage loans purchased from BLG and Bayview Financial were $12 million for the quarter ended September 30, 2007 and $10 million for the quarter ended September 30, 2006. Those revenues totaled $35 million and $28 million for the nine months ended September 30, 2007 and 2006, respectively. M&T Bank provided a $120 million revolving line of credit facility to Bayview Financial at September 30, 2007, of which $31 million was outstanding. There were no outstanding borrowings at December 31, 2006 on a similar revolving line of credit facility which aggregated $100 million. Finally, at September 30, 2007 and December 31, 2006, the Company held $490 million and $198 million, respectively, of private collateralized mortgage obligations in its available for sale investment securities portfolio that were securitized by Bayview Financial.

8. Pension plans and other postretirement benefits

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

										Other
		Pension								postretirement
		benefits								benefits
		Three months ended September 30
		2007				2006				2007				2006
		(in thousands)
Service cost		$	5,060				5,537				148				137
Interest cost on projected benefit obligation			9,674				8,482				980				1,035
Expected return on plan assets			(10,051	)			(9,767	)			—				—
Amortization of prior service cost			(1,629	)			(1,504	)			35				35
Amortization of net actuarial loss			1,536				1,772				71				110
Net periodic benefit cost		$	4,590				4,520				1,234				1,317

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8. Pension plans and other postretirement benefits, continued

										Other
		Pension								postretirement
		benefits								benefits
		Nine months ended September 30
		2007				2006				2007				2006
		(in thousands)
Service cost		$	16,077				16,687				448				437
Interest cost on projected benefit obligation			28,424				26,832				2,830				2,735
Expected return on plan assets			(30,101	)			(29,017	)			—				—
Amortization of prior service cost			(4,929	)			(5,054	)			135				135
Amortization of net actuarial loss			4,478				6,272				289				160
Net periodic benefit cost		$	13,949				15,720				3,702				3,467

Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $6,993,000 and $6,071,000 for the three months ended September 30, 2007 and 2006, respectively, and $23,410,000 and $20,308,000 for the nine months ended September 30, 2007 and 2006, respectively. The Company contributed $66 million to the qualified defined benefit pension plan during the third quarter of 2007. It is not anticipated that any further contributions will be made in 2007.

9. Income taxes

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 prescribes the accounting method to be applied to measure uncertainty in income taxes recognized under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN No. 48 established a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return.

The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should determinations rendered by tax authorities ultimately indicate that management’s assumptions were inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations. The Company’s federal income tax returns for 2004 through 2006 are subject to examination by the Internal Revenue Service. The Company also files income tax returns in over thirty state and local jurisdictions. Substantially all material state and local tax matters have been concluded for years through 1998. Some tax returns for years after 1998 are presently under examination. As of January 1, 2007, the Company had accrued approximately $67 million, net of available benefits of approximately $36 million, for various unrecognized tax benefits in various federal, state and local tax jurisdictions within which the Company operates. If recognized, those benefits would affect the Company’s effective tax rate. If any tax return examination by federal, state or local tax authorities is concluded during the next twelve months, it is possible that the amount of the accrued liability for uncertain tax positions could change. It is not possible to estimate the amount of any such change. The Company recognizes interest and penalties related to unrecognized tax benefits in income taxes in the Consolidated Statement of Income. Included in the accrual noted herein was $9 million for such item. The adoption of FIN No. 48 did not result in any change to the Company’s liability for uncertain tax positions as of January 1, 2007.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

10. Acquisitions

On June 30, 2006, M&T Bank, M&T’s principal banking subsidiary, acquired 21 branch offices in Buffalo and Rochester, New York from Citibank, N.A. in a cash transaction. The branches had approximately $269 million in loans, mostly to consumers, small businesses and middle market customers, and approximately $1.0 billion of deposits. Expenses associated with systems conversions and other costs of integrating and introducing Citibank, N.A.’s former customers to M&T Bank’s products and services aggregated $1 million ($704 thousand net of applicable income taxes) in the third quarter of 2006 and $5 million ($3 million net of applicable income taxes) for the nine-month period ended September 30, 2006.

On July 18, 2007, M&T entered into a definitive agreement with Partners Trust Financial Group, Inc. (“Partners Trust”), Utica, New York, providing for a merger between the two companies. Upon completion of the merger, it is anticipated that Partners Trust Bank, Partners Trust’s bank subsidiary, will be merged into M&T Bank. Partners Trust Bank operates 33 banking offices in Upstate New York. At September 30, 2007, Partners Trust had approximately $3.6 billion of assets, including $2.3 billion of loans, and $3.1 billion of liabilities, including $2.2 billion of deposits. The merger is subject to a number of conditions, including the approval of state and Federal regulators and Partners Trust’s stockholders, and is expected to be completed in the fourth quarter of 2007. Under the terms of the merger agreement, stockholders of Partners Trust will receive $12.50 for each outstanding share of Partners Trust common stock, which they may elect to receive in cash or in M&T common stock, although, in the aggregate, 50% of the shares of Partners Trust common stock outstanding must be exchanged for M&T common stock and 50% for cash. As a result, the elections made by stockholders of Partners Trust will be subject to allocation and proration if the election for common stock would be more or less than 50%. In total, the transaction is valued at approximately $555 million.

On September 21, 2007, M&T Bank entered into a definitive agreement with First Horizon National Corp. (“First Horizon”) to acquire 13 First Horizon branches in the Mid-Atlantic region. M&T Bank will acquire approximately $250 million in loans, $230 million in deposits and $140 million in trust and investment assets under management. The transaction is subject to various regulatory approvals and is expected to close in the fourth quarter of 2007.

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

Overview

Net income for M&T Bank Corporation (“M&T”) in the third quarter of 2007 was $199 million or $1.83 of diluted earnings per common share, representing decreases of 5% and 1%, respectively, from $210 million or $1.85 of diluted earnings per common share in the third quarter of 2006. During the second quarter of 2007, net income was $214 million or $1.95 of diluted earnings per common share. Basic earnings per common share were $1.86 in the recent quarter, compared with $1.89 in the year-earlier quarter and $1.98 in the second quarter of 2007.

     For the nine months ended September 30, 2007, net income was $589 million or $5.34 per diluted share, down 6% and 3%, respectively, from $626 million or $5.49 per diluted share during the corresponding period of 2006. Basic earnings per share were $5.45 for the first nine months of 2007, compared with $5.62 in the similar nine-month period of 2006.

     The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the third quarter of 2007 was 1.37%, compared with 1.49% in each of the year-earlier quarter and the second quarter of 2007. The annualized rate of return on average common stockholders’ equity was 12.78% in the recently completed quarter, compared with 13.72% in the third quarter of 2006 and 13.92% in 2007’s second quarter. During the first nine months of 2007, the annualized rates of return on average assets and average common stockholders’ equity were 1.37% and 12.69%, respectively, compared with 1.51% and 14.01%, respectively, in the corresponding 2006 period.

     Reflecting credit conditions that have contributed to higher net charge-offs, delinquencies and nonperforming loans at the Company and throughout the banking industry, the provision for credit losses increased to $34 million in the recent quarter, up from $17 million in the third quarter of 2006 and $30 million in the second quarter of 2007. Net charge-offs were $22 million in 2007’s third quarter, unchanged from the immediately preceding quarter but up $5 million from the year-earlier quarter. Nonperforming loans were $371 million, or .83% of outstanding loans at September 30, 2007, compared with $296 million or .68% three months earlier and $180 million or ..43% at September 30, 2006. The increase since June 30, 2007 reflects additional loans to residential home builders and developers of approximately $42 million and a $26 million increase in residential real estate loans classified as nonperforming.

     In addition, M&T’s pro-rata portion of the results of operations of Bayview Lending Group LLC (“BLG”), in which M&T invested $300 million in February 2007 to acquire a minority interest, was a pre-tax loss of $11 million for the recent quarter. That loss compares to pre-tax income of $8 million recognized in the three-month period ended June 30, 2007. BLG’s results in the recent quarter were impacted by the timing of the recognition of gains from loan sales and securitizations. For the nine-month period ended September 30, 2007, M&T’s share of BLG’s operating results were a pre-tax loss of $6 million. Those amounts have been recorded as a component of Other Income in the Consolidated Statement of Income. Including expenses associated with M&T’s investment in BLG, most notably interest expense, that investment reduced M&T’s net income by $9 million or $.09 per diluted share (after tax effect) in the third quarter of 2007, compared with an addition to net income of approximately $2 million or $.02 per diluted share in the second quarter of 2007. The aggregate impact of M&T’s investment in BLG was a reduction in net income of $10 million (after tax effect) or $.09 per diluted share in the nine-month period ended September 30, 2007. BLG is a privately-held commercial mortgage lender that specializes in originating, securitizing

and servicing small balance commercial real estate loans in the United States, and to a lesser extent, in Canada and the United Kingdom. The investment is being accounted for using the equity method of accounting. BLG was a going-concern when M&T made its investment, but started out with a minimal amount of loans in its portfolio. As a result, BLG incurred modest operating losses until a sufficiently significant volume of loans were originated and securitized during 2007’s second quarter.

     The Company’s financial results for the first nine months of 2007 were also adversely impacted by changing market conditions in the residential mortgage lending sector experienced in 2007’s first quarter. Well-publicized problems in the subprime residential mortgage lending market had a negative effect on the rest of the residential mortgage marketplace, specifically with regard to alternative (“Alt-A”) residential mortgage loans that the Company originated for sale in the secondary market. Alt-A loans originated by the Company typically include some form of limited documentation requirements, as compared with more traditional residential mortgage loans. Unfavorable market conditions and lack of market liquidity impacted the Company’s willingness to sell Alt-A loans in the first quarter. During March 2007, an auction of such loans received fewer bids than normal and the pricing of those bids was lower than expected. As a result, $883 million of Alt-A loans previously held for sale (including $808 million of first mortgage loans and $75 million of second mortgage loans) were transferred in March to the Company’s held-for-investment residential mortgage loan portfolio. In accordance with generally accepted accounting principles (“GAAP”), loans held for sale must be recorded at the lower of cost or market value. Accordingly, prior to reclassifying the Alt-A mortgage loans to held for investment, the carrying value of such loans was reduced by $12 million in the first quarter of 2007, which resulted in an after-tax reduction of net income of $7 million, or $.07 per diluted share. The loans were reclassified to the held-for-investment portfolio because management of the Company believed at the time of the reclassification that the value of those Alt-A residential mortgage loans was greater than the amount implied by the few bidders active in the market at that time. The higher level of nonperforming residential real estate loans already referred to substantially resulted from delinquencies in the portfolio of Alt-A mortgage loans now held for investment.

     In addition, in certain circumstances the Company may be obligated to repurchase previously sold Alt-A loans that do not ultimately meet investor sale criteria, including instances when mortgagors failed to make timely payments during the first 90 days subsequent to the sale date. As a result, during the first quarter of 2007, the Company accrued $6 million to provide for declines in market value of previously sold Alt-A mortgage loans that the Company may be required to repurchase. That loss reduced the Company’s net income by $4 million or $.03 per diluted share during 2007’s first quarter.

     The results of the third quarter of 2006 reflect certain notable events that in total had no significant effect on net income. The Company recorded a $13 million gain resulting from the accelerated recognition of a purchase accounting premium related to the call of a $200 million Federal Home Loan Bank of Atlanta borrowing assumed in a previous acquisition. After applicable taxes, that gain added $8 million to net income. Also reflected in the 2006 third quarter results was a $3 million reduction of income tax expense related to the favorable settlement of refund claims originally filed by Allfirst Financial Inc. (“Allfirst”) prior to its acquisition by M&T on April 1, 2003. The refunds received, consisting of income taxes and taxable interest, exceeded the amounts previously accrued for such items by $5 million (pre-tax). Finally, an $18 million tax deductible contribution was made by M&T Bank, M&T’s principal banking subsidiary, to The M&T Charitable Foundation, a tax-exempt private charitable foundation, which increased “other expense” by the amount of the contribution and, after applicable tax effect, reduced net

income by $11 million. As noted above, the aggregate impact of those events had no significant effect on the Company’s net income or diluted earnings per share in the third quarter of 2006.

     On June 30, 2006, M&T Bank completed the acquisition of 21 banking offices in Buffalo and Rochester, New York from Citibank, N.A., including approximately $269 million in loans, mostly to consumers, small businesses and middle market customers, and approximately $1.0 billion of deposits. Expenses associated with integrating the acquired banking offices into M&T Bank and introducing the customers associated with those offices to M&T Bank’s products and services aggregated $1 million, after applicable tax effect, or $.01 of diluted earnings per share during the third quarter of 2006 and $3 million, or $.03 of diluted earnings per share during the nine-month period ended September 30, 2006. There were no acquisition-related expenses during 2007.

     On July 18, 2007, M&T entered into a definitive agreement with Partners Trust Financial Group, Inc. (“Partners Trust”), Utica, New York, providing for a merger between the two companies. Upon completion of the merger, it is anticipated that Partners Trust Bank, Partners Trust’s bank subsidiary, will be merged into M&T Bank. Partners Trust Bank operates 33 banking offices in Upstate New York. At September 30, 2007, Partners Trust had approximately $3.6 billion of assets, including $2.3 billion of loans, and $3.1 billion of liabilities, including $2.2 billion of deposits. The merger is subject to a number of conditions, including the approval of state and Federal regulators and Partners Trust’s stockholders, and is expected to be completed in the fourth quarter of 2007. Under the terms of the merger agreement, stockholders of Partners Trust will receive $12.50 for each outstanding share of Partners Trust common stock, which they may elect to receive in cash or in M&T common stock. Nevertheless, in the aggregate, 50% of the shares of Partners Trust common stock outstanding must be exchanged for M&T common stock. As a result, Partners Trust stockholder elections will be subject to allocation and proration if the aggregate election for common stock would be more or less than 50%. In total, the transaction is valued at approximately $555 million.

     On September 21, 2007, M&T Bank entered into a definitive agreement with First Horizon National Corp. (“First Horizon”) to acquire 13 First Horizon branches in the Mid-Atlantic region. Ten of the branches are located in the Greater Washington region and three are in the Greater Baltimore area. M&T Bank will acquire approximately $250 million in loans, $230 million in deposits and $140 million in trust and investment assets under management. The transaction is subject to various regulatory approvals and is expected to close in the fourth quarter of 2007.

Supplemental Reporting of Non-GAAP Results of Operations

As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.1 billion at September 30, 2007 and $3.2 billion at each of September 30 and December 31, 2006. Included in such intangible assets at each of those dates was goodwill of $2.9 billion. Amortization of core deposit and other intangible assets, after tax effect, totaled $10 million ($.09 per diluted share) during each of the third quarter and second quarter of 2007, compared with $12 million ($.10 per diluted share) in the third quarter of 2006. For the nine-month periods ended September 30, 2007 and 2006, amortization of core deposit and other intangible assets, after tax effect, totaled $31 million ($.28 per diluted share) and $27 million ($.23 per diluted share), respectively.

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

     Net operating income was $209 million in the recent quarter, compared with $223 million in the third quarter of 2006. Diluted net operating earnings per share for 2007’s third quarter were $1.92, down 2% from $1.96 in the year-earlier quarter. Net operating income and diluted net operating earnings per share were $224 million and $2.04, respectively, in the second quarter of 2007. For the first three quarters of 2007, net operating income and diluted net operating earnings per share were $620 million and $5.62, respectively, compared with $656 million and $5.75 in the similar 2006 period.

     Net operating income expressed as an annualized rate of return on average tangible assets was 1.51% in the recent quarter, compared with 1.67% in the year-earlier quarter and 1.65% in the second quarter of 2007. Net operating income expressed as an annualized return on average tangible common equity was 26.80% in 2007’s third quarter, compared with 30.22% in the similar quarter of 2006 and 29.35% in 2007’s second quarter. For the nine-month period ended September 30, 2007, net operating income represented an annualized return on average tangible assets and average tangible common stockholders’ equity of 1.52% and 26.74%, respectively, compared with 1.67% and 29.86%, respectively, in the first nine months of 2006.

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

Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income was $473 million in the third quarter of 2007, up 2% from $462 million in the year-earlier quarter and was 1% higher than $467 million in the second quarter of 2007. The improvement from the year-earlier period resulted from a $2.0 billion, or 5% increase in average loan balances outstanding, to $43.8 billion from $41.7 billion in the third quarter of 2006, partially offset by the impact of lower average investment securities balances of $638 million and a decline in the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets. As compared with the second quarter of 2007, higher average earning assets, largely investment securities and loans, were partially offset by a decline in the net interest margin. The Company’s net interest margin was 3.65% in the third quarter of 2007, compared with 3.68% in the third quarter of 2006 and 3.67% in the second quarter of 2007.

     For the first three quarters of 2007, taxable-equivalent net interest income was $1.40 billion, up 2% from $1.37 billion in the corresponding 2006 period. Growth in average loans and leases of $2.4 billion, or 6%, was the leading factor in that improvement, partially offset by a decline of $1.1 billion, or 13%, in average balances of investment securities and the impact of a lower net interest margin, which declined 3 basis points (hundredths of one percent) to 3.66% during the first nine months of 2007 from 3.69% in the corresponding 2006 period.

     While growth in average loan balances was experienced in all categories, the most significant contributors to the recent quarter’s increase in average loans outstanding as compared with the third quarter of 2006 were commercial

loans and residential real estate loans. Average commercial loan balances grew $803 million, or 7%, to $12.2 billion, while average balances of residential real estate loans increased $862 million, or 17%, to $5.9 billion. Included in the residential real estate portfolio were loans held for sale, which averaged $912 million in the recent quarter, compared with $1.5 billion in the year-earlier period. Excluding such loans, average residential real estate loans rose $1.4 billion from 2006’s third quarter to the third quarter of 2007. That increase was partially the result of the previously noted March 2007 transfer of $808 million of residential mortgage loans previously held for sale by the Company to its held-for-investment portfolio. Average commercial real estate loan balances increased $219 million, or 1%, from the third quarter of 2006, while average consumer loan balances grew $156 million, or 2%, from 2006’s third quarter to the recent quarter.

     Average outstanding loan balances increased $179 million from the second to the third quarter of 2007, largely due to a $158 million increase in average consumer loans outstanding, the result of a $125 million rise in average outstanding automobile loans and leases. Average commercial loans and residential real estate loans each increased 1% from 2007’s second quarter to the third quarter, while average commercial real estate loans declined 1% during that period. The following 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.
		2007				2006				2007
Commercial, financial, etc.		$	12,239				7	%			1	%
Real estate – commercial			15,474				1				(1	)
Real estate – consumer			5,915				17				1
Consumer
Automobile			3,041				10				4
Home equity lines			4,135				(4	)			—
Home equity loans			1,108				(10	)			(3	)
Other			1,838				9				4
Total consumer			10,122				2				2
Total		$	43,750				5	%			—	%

     For the nine months ended September 30, 2007, average loans and leases totaled $43.5 billion, up 6% from $41.1 billion in the corresponding 2006 period. Growth of 7% in commercial loans, 4% in commercial real estate loans and 22% in consumer real estate loans were significant factors in that increase.

     The investment securities portfolio averaged $7.3 billion in the recent quarter, down 8% from $7.9 billion in the year-earlier quarter, largely the result of net paydowns and maturities of collateralized residential mortgage obligations and U.S. federal agency securities. Average investment securities balances in the third quarter of 2007 were up 5% from $6.9 billion during 2007’s second quarter due to purchases of collateralized residential mortgage obligations and asset-backed commercial paper. For the first nine months of 2007 and 2006, average investment securities were $7.1 billion and $8.2 billion, respectively. The decline was largely due to net paydowns and maturities of collateralized residential mortgage obligations and U.S. federal agency securities. Until the recent quarter, the Company had allowed the investment securities portfolio to decline as the opportunity to purchase securities at favorable spreads, that is, the difference between the yield earned on a security and the rate paid on funds used to purchase it, had been limited. The investment securities portfolio is largely comprised of residential and commercial mortgage-backed securities and collateralized mortgage obligations, debt securities issued by municipalities, debt and

preferred equity securities issued by government-sponsored agencies and certain financial institutions, collateralized debt obligations, and shorter-term U.S. Treasury and federal agency notes and asset-backed commercial paper. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to the risks assumed, including prepayments. In managing the investment securities portfolio, the Company occasionally sells investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, or credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio following completion of a business combination. The Company regularly reviews its investment securities for declines in value below amortized cost that might be other than temporary. As of September 30, 2007 and December 31, 2006, the Company concluded that such declines were temporary in nature. A further discussion of market values of investment securities is included herein under the heading “Capital.”

     Other earning assets include deposits at banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged $315 million, $241 million and $524 million for the quarters ended September 30, 2007, September 30, 2006 and June 30, 2007, respectively. Reflected in those balances were purchases of investment securities under agreements to resell which averaged $236 million, $98 million and $429 million during the three-month periods ended September 30, 2007, September 30, 2006 and June 30, 2007, respectively. Resell agreements, which aggregated $368 million and had a weighted-average term to maturity of approximately 1 year at September 30, 2007, are accounted for similar to collateralized loans, with changes in the market value of the collateral monitored by the Company to ensure sufficient coverage. For the nine-month periods ended September 30, 2007 and 2006, other earning assets averaged $401 million and $176 million, respectively, up due to higher average balances of resell agreements. The amounts of investment securities and other earning assets held by the Company are influenced by such factors as demand for loans, which generally yield more than investment securities and other earning assets, ongoing repayments, the levels of deposits, and management of balance sheet size and resulting capital ratios.

     The changes described herein resulted in a rise in average earning assets of $1.5 billion, or 3%, to $51.3 billion in the recent quarter from $49.8 billion in the third quarter of 2006. Average earning assets were $51.0 billion in the second quarter of 2007 and totaled $51.0 billion and $49.5 billion for the nine-month periods ended September 30, 2007 and 2006, respectively.

     The most significant source of funding for the Company is core deposits, which are comprised of noninterest-bearing deposits, interest-bearing transaction accounts, nonbrokered savings deposits and nonbrokered domestic time deposits under $100,000. The Company’s branch network is the principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. 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, are also included in core deposits. Average core deposits totaled $28.3 billion in the third quarter of 2007, compared with $28.7 billion in the year-earlier quarter and $28.5 billion in the second quarter of 2007. The previously discussed June 30, 2006 branch acquisition added approximately $900 million of average core deposits on that date. The following table provides an analysis of quarterly changes in the components of average core deposits. For the nine-month periods ended September 30, 2007 and 2006, core deposits averaged $28.4 billion and $28.2 billion, respectively.

AVERAGE CORE DEPOSITS
Dollars in millions

						Percent increase
						(decrease) from
		3rd Qtr.				3rd Qtr.				2nd Qtr.
		2007				2006				2007 .
NOW accounts		$	464				7	%			2	%
Savings deposits			14,821				3				(1	)
Time deposits less than $100,000			5,632				(10	)			(3	)
Noninterest-bearing deposits			7,360				(3	)			—
Total		$	28,277				(1	)%			(1	)%