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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on October 23, 2009: 118,091,387 shares.

 

 

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2009

Table of Contents of Information Required in Report		Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET — September 30, 2009 and December 31, 2008			3
CONSOLIDATED STATEMENT OF INCOME — Three and nine months ended September 30, 2009 and 2008			4
CONSOLIDATED STATEMENT OF CASH FLOWS — Nine months ended September 30, 2009 and 2008			5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY — Nine months ended September 30, 2009 and 2008			6
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES — Nine months ended September 30, 2009 and 2008			6
NOTES TO FINANCIAL STATEMENTS			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Item 3. Quantitative and Qualitative Disclosures About Market Risk			93
Item 4. Controls and Procedures			93
Part II. OTHER INFORMATION
Item 1. Legal Proceedings			93
Item 1A. Risk Factors			93
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			94
Item 3. Defaults Upon Senior Securities			94
Item 4. Submission of Matters to a Vote of Security Holders			94
Item 5. Other Information			94
Item 6. Exhibits			95
SIGNATURES			95
EXHIBIT INDEX			96
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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		2009				2008
Assets
Cash and due from banks		$	1,356,508				1,546,804
Interest-bearing deposits at banks			54,443				10,284
Federal funds sold			17,206				21,347
Agreements to resell securities			—				90,000
Trading account			497,064				617,821
Investment securities (includes pledged securities that can be sold or repledged of $1,778,129 at September 30, 2009; $1,870,097 at December 31, 2008)
Available for sale (cost: $6,835,553 at September 30, 2009; $7,656,635 at December 31, 2008)			6,522,856				6,850,193
Held to maturity (fair value: $431,036 at September 30, 2009; $394,752 at December 31, 2008)			598,743				485,838
Other (fair value: $512,663 at September 30, 2009; $583,176 at December 31, 2008)			512,663				583,176
Total investment securities			7,634,262				7,919,207
Loans and leases			52,560,851				49,359,737
Unearned discount			(357,079	)			(359,274	)
Allowance for credit losses			(867,874	)			(787,904	)
Loans and leases, net			51,335,898				48,212,559
Premises and equipment			436,586				388,855
Goodwill			3,524,625				3,192,128
Core deposit and other intangible assets			199,148				183,496
Accrued interest and other assets			3,941,710				3,633,256
Total assets		$	68,997,450				65,815,757
Liabilities
Noninterest-bearing deposits		$	12,730,083				8,856,114
NOW accounts			1,047,824				1,141,308
Savings deposits			23,000,354				19,488,918
Time deposits			8,765,520				9,046,937
Deposits at foreign office			1,318,070				4,047,986
Total deposits			46,861,851				42,581,263
Federal funds purchased and agreements to repurchase securities			2,298,032				970,529
Other short-term borrowings			629,236				2,039,206
Accrued interest and other liabilities			1,241,576				1,364,879
Long-term borrowings			10,354,392				12,075,149
Total liabilities			61,385,087				59,031,026
Stockholders’ equity
Preferred stock, par value $1.00, 1,000,000 shares authorized, 778,000 shares issued and outstanding at September 30, 2009; 600,000 shares issued and outstanding at December 31, 2008 (liquidation preference $1,000 per share)			727,748				567,463
Common stock, $.50 par, 250,000,000 shares authorized, 120,396,611 shares issued			60,198				60,198
Common stock issuable, 74,405 shares at September 30, 2009; 78,447 shares at December 31, 2008			4,291				4,617
Additional paid-in capital			2,448,843				2,897,907
Retained earnings			5,035,808				5,062,754
Accumulated other comprehensive income (loss), net			(419,286	)			(736,881	)
Treasury stock — common, at cost - 2,314,873 shares at September 30, 2009; 10,031,302 shares at December 31, 2008			(245,239	)			(1,071,327	)
Total stockholders’ equity			7,612,363				6,784,731
Total liabilities and stockholders’ equity		$	68,997,450				65,815,757

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		2009				2008				2009				2008
Interest income
Loans and leases, including fees		$	599,859				684,281			$	1,728,422				2,160,755
Deposits at banks			7				25				20				91
Federal funds sold			17				74				56				211
Agreements to resell securities			—				441				62				1,752
Trading account			135				359				450				761
Investment securities
Fully taxable			97,963				114,146				297,563				331,000
Exempt from federal taxes			2,612				2,028				5,955				8,520
Total interest income			700,593				801,354				2,032,528				2,503,090
Interest expense
NOW accounts			288				655				861				2,302
Savings deposits			22,076				58,917				90,360				185,856
Time deposits			50,678				72,100				166,704				258,210
Deposits at foreign office			481				18,709				2,038				79,157
Short-term borrowings			1,764				28,155				6,127				132,388
Long-term borrowings			77,651				134,579				269,409				391,456
Total interest expense			152,938				313,115				535,499				1,049,369
Net interest income			547,655				488,239				1,497,029				1,453,721
Provision for credit losses			154,000				101,000				459,000				261,000
Net interest income after provision for credit losses			393,655				387,239				1,038,029				1,192,721
Other income
Mortgage banking revenues			48,169				38,002				157,385				116,291
Service charges on deposit accounts			128,502				110,371				342,010				324,165
Trust income			31,586				38,789				98,908				119,519
Brokerage services income			14,329				16,218				43,215				48,902
Trading account and foreign exchange gains			7,478				4,278				16,456				15,627
Gain (loss) on bank investment securities			(56	)			306				811				34,078
Total other-than-temporary impairment (“OTTI”) losses			(64,232	)			(152,579	)			(202,737	)			(158,325	)
Portion of OTTI losses recognized in other comprehensive income (before taxes)			17,199				—				98,736				—
Net OTTI losses recognized in earnings			(47,033	)			(152,579	)			(104,001	)			(158,325	)
Equity in earnings of Bayview Lending Group LLC			(10,912	)			(14,480	)			(15,263	)			(28,766	)
Other revenues from operations			106,163				72,812				242,695				226,071
Total other income			278,226				113,717				782,216				697,562
Other expense
Salaries and employee benefits			255,449				236,678				754,793				724,676
Equipment and net occupancy			58,195				47,033				157,688				141,050
Printing, postage and supplies			8,229				8,443				28,878				27,459
Amortization of core deposit and other intangible assets			16,924				15,840				47,525				50,938
Deposit insurance			21,124				1,522				76,617				4,595
Other costs of operations			140,135				125,247				436,611				331,459
Total other expense			500,056				434,763				1,502,112				1,280,177
Income before taxes			171,825				66,193				318,133				610,106
Income taxes (benefit)			44,161				(24,992	)			75,060				156,460
Net income		$	127,664				91,185			$	243,073				453,646
Net income available to common shareholders		$	113,894				91,185			$	209,062				453,646
Net income per common share
Basic		$	.97				.83			$	1.84				4.12
Diluted			.97				.82				1.84				4.09
Cash dividends per common share		$	.70				.70			$	2.10				2.10
Average common shares outstanding
Basic			117,370				110,265				113,701				110,158
Diluted			117,547				110,807				113,800				111,000

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

		Nine months ended September 30
In thousands		2009				2008
Cash flows from operating activities
Net income		$	243,073				453,646
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses			459,000				261,000
Depreciation and amortization of premises and equipment			43,050				39,918
Amortization of capitalized servicing rights			46,997				49,322
Amortization of core deposit and other intangible assets			47,525				50,938
Provision for deferred income taxes			82,904				(56,157	)
Asset write-downs			131,822				161,763
Net gain on sales of assets			(249	)			(26,202	)
Net change in accrued interest receivable, payable			(5,154	)			1,302
Net change in other accrued income and expense			34,206				(1,111	)
Net change in loans originated for sale			8,144				433,929
Net change in trading account assets and liabilities			(15,797	)			(74,583	)
Net cash provided by operating activities			1,075,521				1,293,765
Cash flows from investing activities
Proceeds from sales of investment securities
Available for sale			7,159				57,350
Other			115,336				87,782
Proceeds from maturities of investment securities
Available for sale			1,803,946				1,608,085
Held to maturity			76,084				60,922
Purchases of investment securities
Available for sale			(68,724	)			(761,381	)
Held to maturity			(25,289	)			(176,673	)
Other			(2,886	)			(173,994	)
Net (increase) decrease in agreements to resell securities			90,000				(90,000	)
Net (increase) decrease in loans and leases			513,519				(2,350,539	)
Other investments, net			(23,496	)			(13,557	)
Additions to capitalized servicing rights			(320	)			(22,261	)
Capital expenditures, net			(27,664	)			(43,854	)
Acquisitions, net of cash acquired
Banks and bank holding companies			202,993				—
Other, net			19,115				(141,409	)
Net cash provided (used) by investing activities			2,679,773				(1,959,529	)
Cash flows from financing activities
Net increase (decrease) in deposits			(1,125,110	)			1,239,933
Net decrease in short-term borrowings			(260,488	)			(2,892,263	)
Proceeds from long-term borrowings			—				3,850,010
Payments on long-term borrowings			(2,301,894	)			(1,676,725	)
Dividends paid — common			(242,551	)			(231,269	)
Dividends paid — preferred			(21,890	)			—
Other, net			2,202				(3,952	)
Net cash provided (used) by financing activities			(3,949,731	)			285,734
Net decrease in cash and cash equivalents			(194,437	)			(380,030	)
Cash and cash equivalents at beginning of period			1,568,151				1,767,547
Cash and cash equivalents at end of period		$	1,373,714				1,387,517
Supplemental disclosure of cash flow information
Interest received during the period		$	2,042,092				2,570,574
Interest paid during the period			525,657				1,071,672
Income taxes paid (refunded) during the period			(8,157	)			200,749
Supplemental schedule of noncash investing and financing activities
Securitization of residential mortgage loans allocated to
Available for sale investment securities		$	140,942				869,115
Capitalized servicing rights			788				8,455
Real estate acquired in settlement of loans			69,518				92,814
Investment securities available for sale transferred to held to maturity			—				298,108
Acquisitions
Fair value of
Assets acquired (noncash)			6,581,433				—
Liabilities assumed			6,318,998				—
Preferred stock issued			155,779				—
Common stock issued			272,824				—
Common stock options			1,367				—
Common stock warrants			6,467				—

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
2008
Balance — January 1, 2008		$	—				60,198				4,776				2,848,752				4,815,585				(114,822	)			(1,129,233	)			6,485,256
Comprehensive income:
Net income			—				—				—				—				453,646				—				—				453,646
Other comprehensive income, net of tax and reclassification adjustments:
Unrealized losses on investment securities			—				—				—				—				—				(345,758	)			—				(345,758	)
Unrealized losses on terminated cash flow hedges			—				—				—				—				—				(459	)			—				(459	)
Defined benefit plans liablity adjustment			—				—				—				—				—				(1,011	)			—				(1,011	)
																															106,418
Repayment of management stock ownership program receivable			—				—				—				72				—				—				—				72
Stock-based compensation plans:
Stock option and purchase plans:
Compensation expense			—				—				—				35,356				—				—				3,913				39,269
Exercises			—				—				—				(21,893	)			—				—				37,756				15,863
Directors’ stock plan			—				—				—				(384	)			—				—				1,393				1,009
Deferred compensation plans, net, including dividend equivalents			—				—				(150	)			(408	)			(163	)			—				787				66
Common stock cash dividends - $2.10 per share			—				—				—				—				(231,269	)			—				—				(231,269	)
Balance — September 30, 2008		$	—				60,198				4,626				2,861,495				5,037,799				(462,050	)			(1,085,384	)			6,416,684
2009
Balance — January 1, 2009		$	567,463				60,198				4,617				2,897,907				5,062,754				(736,881	)			(1,071,327	)			6,784,731
Comprehensive income:
Net income			—				—				—				—				243,073				—				—				243,073
Other comprehensive income, net of tax and reclassification adjustments:
Unrealized gains on investment securities			—				—				—				—				—				309,150				—				309,150
Unrealized gains on terminated cash flow hedges			—				—				—				—				—				6,627				—				6,627
Defined benefit plans liability adjustment			—				—				—				—				—				1,818				—				1,818
																															560,668
Acquisition of Provident Bankshares Corporation:
Preferred stock issued			155,779				—				—				—				—				—				—				155,779
Common stock issued			—				—				—				(348,080	)			—				—				620,904				272,824
Common stock options			—				—				—				1,367				—				—				—				1,367
Common stock warrants			—				—				—				6,467				—				—				—				6,467
Issuance of common stock to defined benefit pension plan			—				—				—				(51,417	)			—				—				95,706				44,289
Preferred stock cash dividends			—				—				—				—				(21,890	)			—				—				(21,890	)
Amortization of preferred stock discount			4,506				—				—				—				(4,506	)			—				—				—
Repayment of management stock ownership program receivable			—				—				—				195				—				—				—				195
Stock-based compensation plans:
Stock option and purchase plans:
Compensation expense			—				—				—				(31,677	)			—				—				74,642				42,965
Exercises			—				—				—				(24,335	)			—				—				31,751				7,416
Directors’ stock plan			—				—				—				(1,082	)			—				—				2,050				968
Deferred compensation plans, net, including dividend equivalents			—				—				(326	)			(502	)			(152	)			—				1,035				55
Common stock cash dividends - $2.10 per share			—				—				—				—				(243,471	)			—				—				(243,471	)
Balance — September 30, 2009		$	727,748				60,198				4,291				2,448,843				5,035,808				(419,286	)			(245,239	)			7,612,363

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

		Nine months ended September 30
In thousands		2009				2008
Beginning balance		$	787,904				759,439
Provision for credit losses			459,000				261,000
Allowance related to loans sold or securitized			—				(525	)
Net charge-offs
Charge-offs			(409,169	)			(267,912	)
Recoveries			30,139				28,681
Total net charge-offs			(379,030	)			(239,231	)
Ending balance		$	867,874				780,683

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 generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2008 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. Subsequent events have been evaluated for their potential impact on the financial statements through November 4, 2009, which is the date the financial statements were issued.

2. Acquisitions

On August 28, 2009, M&T Bank, M&T’s principal banking subsidiary, entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits and acquire certain assets of Bradford Bank (“Bradford”), Baltimore, Maryland. As part of the transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired totaled approximately $469 million, including $302 million of loans, and liabilities assumed aggregated $440 million, including $361 million of deposits. In accordance with GAAP, M&T Bank recorded an after-tax gain on the transaction of $18 million ($29 million before taxes) during the recent quarter. There was no goodwill or other intangible assets recorded in connection with this transaction. The Bradford acquisition transaction did not have a material impact on the Company’s statement of condition nor is it expected to have a material impact on the Company’s results of operations.

          On May 23, 2009, M&T acquired all of the outstanding common stock of Provident Bankshares Corporation (“Provident”), a bank holding company based in Baltimore, Maryland, in a stock-for-stock transaction. Provident Bank, Provident’s banking subsidiary, was merged into M&T Bank on that date. The results of operations acquired in the Provident transaction have been included in the Company’s financial results since May 23, 2009. Provident common shareholders received .171625 shares of M&T common stock in exchange for each share of Provident common stock, resulting in M&T issuing a total of 5,838,308 common shares with an acquisition date fair value of $273 million. In addition, based on the merger agreement, outstanding and unexercised options to purchase Provident common stock were converted into options to purchase the common stock of M&T. Those options had an estimated fair value of $1 million. In total, the purchase price was approximately $274 million based on the fair value on the acquisition date of M&T common stock exchanged and the options to purchase M&T common stock. Holders of Provident’s preferred stock were issued shares of new Series B and Series C Preferred Stock of M&T having substantially identical terms. That preferred stock and warrants to purchase common stock associated with the Series C Preferred Stock added $162 million to M&T’s stockholders’ equity.

          The Provident transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled $6.3 billion, including $4.0 billion of loans and leases (including approximately $1.7 billion of commercial real estate loans, $1.4 billion of consumer loans, $700 million of commercial loans and leases and $300 million of residential real estate loans) and $1.0 billion of investment securities.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

Liabilities assumed were $5.9 billion, including $5.1 billion of deposits. The transaction added $436 million to M&T’s stockholders’ equity, including $280 million of common equity and $156 million of preferred equity. In connection with the acquisition, the Company recorded $332 million of goodwill and $63 million of core deposit intangible. The core deposit intangible is being amortized over seven years using an accelerated method. The acquisition of Provident expanded the Company’s presence in the Mid-Atlantic area, gave the Company the second largest deposit share in Maryland, and tripled the Company’s presence in Virginia.

          In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of these determinations related to the fair valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry over of Provident’s previously established allowance for credit losses. Subsequent decreases in the expected cash flows will require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows will result in the recognition of additional interest income over the then remaining lives of the loans.

          In conjunction with the Provident acquisition, the acquired loan portfolio was accounted for at fair value as follows:

		May 23, 2009
		(in thousands)
Contractually required principal and interest at acquisition		$	5,465,167
Contractual cash flows not expected to be collected			(832,115	)
Expected cash flows at acquisition			4,633,052
Interest component of expected cash flows			(595,685	)
Basis in acquired loans at acquisition — estimated fair value		$	4,037,367

          Interest income on acquired loans for the third quarter of 2009 and for the period from date of acquisition to September 30, 2009 was approximately $44 million and $63 million, respectively. The outstanding principal balance and the carrying amount of these loans that is included in the consolidated balance sheet at September 30, 2009 is as follows:

		(in thousands)
Outstanding principal balance		$	4,073,669
Carrying amount			3,826,534

          Receivables (including loans and investment securities) obtained in the acquisition of Provident for which there is specific evidence of credit deterioration and for which it was probable that the Company would be unable to collect all contractually required principal and interest payments represent less than .25% of the Company’s assets and, accordingly, are not considered material.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

          In connection with the acquisition of Provident, goodwill of $332 million was calculated after recording all other acquired assets and liabilities at estimated fair value. In management’s opinion, that goodwill represents the inherent long-term value expected from the business opportunities and synergies created from combining Provident with the Company.

          The consideration paid for Provident’s common equity and the amounts of acquired identifiable assets and liabilities and preferred equity assumed as of the acquisition date was as follows:

		(in thousands)
Purchase price:
Value of:
Common shares issued (5,838,308 shares)		$	272,824
Stock options			1,367
Fractional common shares paid in cash			117
Total purchase price			274,308
Identifiable assets:
Cash and due from banks			144,126
Investment securities			1,039,350
Loans and leases			4,037,367
Core deposit intangible			63,177
Other assets			698,860
Total			5,982,880
Liabilities and equity:
Deposits			5,060,546
Short-term borrowings			176,515
Long-term borrowings			580,740
Other liabilities			61,022
Total liabilities			5,878,823
Preferred stock and common stock warrants			162,246
Total			6,041,069
Net liabilities and preferred equity assumed			58,189
Goodwill resulting from acquisition		$	332,497

          None of the goodwill recognized will be deductible for income tax purposes. Changes in goodwill in the Company’s consolidated balance sheet from December 31, 2008 to September 30, 2009 were attributable to the acquisition of Provident. As described in note 12, the Company does not allocate goodwill to its reportable segments when compiling the assets associated with those segments. The Company does, however, allocate goodwill to segments for purposes of periodically testing

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

goodwill for impairment. That allocation of goodwill to the Company’s segments is as follows:

						Provident
		December 31, 2008				acquisition				September 30, 2009
		(in thousands)
Business Banking		$	683,137				65,770				748,907
Commercial Banking			885,290				22,234				907,524
Commercial Real Estate			274,506				74,691				349,197
Discretionary Portfolio			—				—				—
Residential Mortgage Banking			—				—				—
Retail Banking			974,602				169,802				1,144,404
All Other			374,593				—				374,593
Total		$	3,192,128				332,497				3,524,625

          The following table discloses the impact of Provident (excluding the impact of merger-related expenses noted below) since the acquisition on May 23, 2009 through the end of the third quarter of 2009. The table also presents certain pro forma information for 2009 as if Provident had been acquired on January 1, 2009 and for 2008 as if Provident had been acquired on January 1, 2008. These results combine the historical results of Provident into the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on the indicated dates. In particular, no adjustments have been made to eliminate the amount of Provident’s provision for credit losses of $42 million in 2009 and $16 million in 2008 or the impact of other-than-temporary impairment losses recognized by Provident of $87 million in 2009 and $88 million in 2008 that would not have been necessary had the acquired loans and investment securities been recorded at fair value as of the beginning of each year. Furthermore, expenses related to systems conversions and other costs of integration are included in the 2009 periods in which such costs were incurred. Additionally, the Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts that follow.

		Actual since				Pro forma
		acquisition				Nine months ended
		through				September 30,
		September 30, 2009				2009				2008
		(in thousands)
Total revenues		$	116,016				2,864,760				3,449,661
Net income			18,583				157,653				440,657

          Merger-related expenses associated with the acquisition of Provident and with the Bradford transaction were $14 million and $83 million during the three- and nine-month periods ended September 30, 2009, respectively. Such expenses were for professional services and other temporary help fees associated with the conversion of systems and/or integration of operations; costs related to branch and office consolidations; costs related to termination of existing Provident contractual arrangements for various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; severance and incentive compensation costs; travel costs; and printing, supplies and other costs of commencing operations in new markets and offices. The Company expects to incur additional merger-related expenses. As of September 30, 2009, the remaining unpaid portion of merger-related expenses was $26 million.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

          A summary of merger-related expenses associated with the Bradford and Provident acquisitions included in the consolidated statement of income follows:

		Three months ended				Nine months ended
		September 30, 2009				September 30, 2009
		(in thousands)
Salaries and employee benefits		$	870				9,649
Equipment and net occupancy			1,845				2,430
Printing, postage and supplies			629				3,444
Other costs of operations			10,666				67,370
		$	14,010				82,893

3. Investment securities

The amortized cost and estimated fair value of investment securities were as follows:

						Gross				Gross
		Amortized				unrealized				unrealized				Estimated
		cost				gains				losses				fair value
						(in thousands)
September 30, 2009
Investment securities available for sale:
U.S. Treasury and federal agencies		$	112,718				2,084				19			$	114,783
Obligations of states and political subdivisions			66,633				1,864				45				68,452
Mortgage-backed securities:
Government issued or guaranteed			3,475,366				148,308				682				3,622,992
Privately issued residential			2,596,799				10,086				422,648				2,184,237
Privately issued commercial			34,825				—				11,284				23,541
Collateralized debt obligations			109,547				26,875				5,085				131,337
Other debt securities			298,740				13,416				70,990				241,166
Equity securities			140,925				6,776				11,353				136,348
			6,835,553				209,409				522,106				6,522,856
Investment securities held to maturity:
Obligations of states and political subdivisions			213,380				3,926				113				217,193
Privately issued residential mortgage-backed securities			374,190				—				171,520				202,670
Other debt securities			11,173				—				—				11,173
			598,743				3,926				171,633				431,036
Other securities			512,663				—				—				512,663
Total		$	7,946,959				213,335				693,739			$	7,466,555

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

						Gross				Gross
		Amortized				unrealized				unrealized				Estimated
		cost				gains				losses				fair value
						(in thousands)
December 31, 2008
Investment securities available for sale:
U.S. Treasury and federal agencies		$	290,893				6,203				383			$	296,713
Obligations of states and political subdivisions			70,425				1,641				303				71,763
Mortgage-backed securities:
Government issued or guaranteed			3,525,196				93,578				5,994				3,612,780
Privately issued residential			3,104,209				484				778,139				2,326,554
Privately issued commercial			49,231				—				8,185				41,046
Collateralized debt obligations			18,088				—				15,592				2,496
Other debt securities			245,685				18				77,601				168,102
Equity securities			352,908				581				22,750				330,739
			7,656,635				102,505				908,947				6,850,193
Investment securities held to maturity:
Obligations of states and political subdivisions			63,822				1,715				71				65,466
Privately issued residential mortgage-backed securities			411,847				—				92,730				319,117
Other debt securities			10,169				—				—				10,169
			485,838				1,715				92,801				394,752
Other securities			583,176				—				—				583,176
Total		$	8,725,649				104,220				1,001,748			$	7,828,121

          Gross realized gains on investment securities were $4 thousand and $365 thousand during the three months ended September 30, 2009 and 2008, respectively, and $1 million and $34 million during the nine-month periods ended September 30, 2009 and 2008, respectively. Gross realized losses on investment securities were $60 thousand and $59 thousand during the third quarters of 2009 and 2008, respectively, and $462 thousand and $257 thousand during the nine-month periods ended September 30, 2009 and 2008, respectively. Effective January 1, 2009, the Company adopted new GAAP related to the recognition and presentation of other-than-temporary impairments of investment securities. In accordance with GAAP, the Company recognized $47 million and $104 million of pre-tax other-than-temporary impairment losses during the three and nine months ended September 30, 2009, respectively, related primarily to certain privately issued residential mortgage-backed securities. The impairment charges were recognized in light of deterioration of housing values in the residential real estate market and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. Approximately $3 million of impairment charges recognized in the third quarter of 2009 related to securities backed by trust preferred securities issued by financial institutions. The other-than-temporary impairment losses recognized were net of $17 million and $99 million of unrealized losses classified in accumulated other comprehensive income for the same securities for the three and nine months ended September 30, 2009, respectively. The other-than-temporary impairment losses represent management’s estimate of credit losses inherent in the securities considering projected cash flows using assumptions of delinquency rates, loss severities, and other estimates of future collateral performance. Other-than-temporary impairment losses on investment securities of $153 million and $158 million were recognized by the Company for the three and nine months ended September 30, 2008, primarily related to its preferred stock holdings of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. The effect of the adoption of the new accounting requirements on debt securities previously reported as other-than-temporarily impaired was not material

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

and, therefore, the Company did not record a transition adjustment as of January 1, 2009. Changes in credit losses during the three and nine months ended September 30, 2009 associated with debt securities for which other-than-temporary impairment losses have been previously recognized in earnings follows:

		Debt securities
		(in thousands)
Estimated credit losses as of June 30, 2009		$	205,918
Additions for credit losses not previously recognized			47,033
Reductions for increases in cash flows			(254	)
Reductions for realized losses			(425	)
Estimated credit losses as of September 30, 2009		$	252,272
Estimated credit losses as of January 1, 2009		$	155,967
Additions for credit losses not previously recognized			104,001
Reductions for increases in cash flows			(1,201	)
Reductions for realized losses			(6,495	)
Estimated credit losses as of September 30, 2009		$	252,272

          At September 30, 2009, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:

		Amortized				Estimated
		cost				fair value
		(in thousands)
Debt securities available for sale:
Due in one year or less		$	44,391				44,872
Due after one year through five years			90,344				92,599
Due after five years through ten years			41,956				43,309
Due after ten years			410,947				374,958
			587,638				555,738
Mortgage-backed securities available for sale			6,106,990				5,830,770
		$	6,694,628				6,386,508
Debt securities held to maturity:
Due in one year or less		$	44,206				44,441
Due after one year through five years			7,559				7,957
Due after five years through ten years			103,665				105,813
Due after ten years			69,123				70,155
			224,553				228,366
Mortgage-backed securities held to maturity			374,190				202,670
		$	598,743				431,036

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

          A summary of investment securities that as of September 30, 2009 and December 31, 2008 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:

		Less than 12 months								12 months or more
						Unrealized								Unrealized
		Fair value				losses				Fair value				losses
		(in thousands)
September 30, 2009
U.S. Treasury and federal agencies		$	2,302				(13	)			568				(6	)
Obligations of states and political subdivisions			4,792				(65	)			4,640				(93	)
Mortgage-backed securities:
Government issued or guaranteed			37,865				(197	)			24,771				(485	)
Privately issued residential			62,998				(40,268	)			1,928,822				(553,900	)
Privately issued commercial			—				—				23,541				(11,284	)
Collateralized debt obligations			4,374				(575	)			4,581				(4,510	)
Other debt securities			10,363				(458	)			151,112				(70,532	)
Equity securities			4,148				(1,489	)			23,037				(9,864	)
Total		$	126,842				(43,065	)			2,161,072				(650,674	)
December 31, 2008
U.S. Treasury and federal agencies		$	6,660				(383	)			—				—
Obligations of states and political subdivisions			26,456				(315	)			2,182				(59	)
Mortgage-backed securities:
Government issued or guaranteed			392,780				(4,962	)			175,943				(1,032	)
Privately issued residential			2,173,593				(629,321	)			460,355				(241,548	)
Privately issued commercial			—				—				41,046				(8,185	)
Collateralized debt obligations			—				(2,221	)			1,520				(13,397	)
Other debt securities			102,882				(15,563	)			60,902				(62,012	)
Equity securities			37,905				(22,720	)			9				(30	)
Total		$	2,740,276				(675,485	)			741,957				(326,263	)

          The Company owned 473 individual investment securities with aggregate gross unrealized losses of $694 million at September 30, 2009. Approximately $594 million of the unrealized losses pertain to privately issued residential mortgage-backed securities with a cost basis of $2.6 billion. The Company also had $73 million of unrealized losses on trust preferred securities issued by financial institutions and securities backed by trust preferred securities issued by financial institutions and other entities having a cost basis of $239 million. Based on a review of each of the securities in the investment securities portfolio at September 30, 2009, with the exception of the aforementioned securities for which other-than-temporary impairment losses were recognized, the Company concluded that it expected to recover the amortized cost basis of its investment. As of September 30, 2009, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At September 30, 2009, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $513 million of cost method investment securities.

4. Borrowings

The Company had $1.2 billion of fixed and floating rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) outstanding at September 30, 2009 which are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities (“Capital Securities”) and common securities (“Common Securities”). The proceeds

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Borrowings, continued

from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures. The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding trust. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 capital. As a result of the acquisition of Provident, M&T assumed $133 million of Junior Subordinated Debentures that mature at various dates from 2028 to 2033.

          Holders of the Capital Securities receive preferential cumulative cash distributions unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures as allowed by the terms of each such debenture, 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. In the event of an extended interest period exceeding twenty quarterly periods for $350 million of Junior Subordinated Debentures due January 31, 2068, M&T must fund the payment of accrued and unpaid interest through an alternative payment mechanism, which requires M&T to issue common stock, non-cumulative perpetual preferred stock or warrants to purchase common stock until M&T has raised an amount of eligible proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest on the Junior Subordinated Debentures due January 31, 2068. In general, 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 (ranging from 2027 to 2068) of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval. In connection with the issuance of 8.50% Enhanced Trust Preferred Securities associated with $350 million of Junior Subordinated Debentures maturing in 2068, M&T entered into a replacement capital covenant that provides that neither M&T nor any of its subsidiaries will repay, redeem or purchase any of the Junior Subordinated Debentures due January 31, 2068 or the 8.50% Enhanced Trust Preferred Securities prior to January 31, 2048, with certain limited exceptions, except to the extent that, during the 180 days prior to the date of that repayment, redemption or purchase, M&T and its subsidiaries have received proceeds from the sale of qualifying securities that (i) have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the 8.50% Enhanced Trust Preferred Securities or the Junior Subordinated Debentures due January 31, 2068, as applicable, at the time of repayment, redemption or purchase, and (ii) M&T has obtained the prior approval of the Federal Reserve Board, if required.

          On June 30, 2009, M&T retired $12 million of Junior Subordinated Debentures for which Provident had been the owner of the related Capital Securities.

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 various trusts and reflecting the noted cancellation of Junior Subordinated Debentures on June 30, 2009, the Junior Subordinated Debentures associated with Capital Securities had financial statement carrying values of $1.2 billion and $1.1 billion as of September 30, 2009 and December 31, 2008, respectively.

5. Stockholders’ equity

M&T is authorized to issue 1,000,000 shares of preferred stock with a $1.00 par value per share. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference, but have no general voting rights.

          Issued and outstanding preferred stock of M&T is presented below:

Shares

Carrying

Carrying

issued and

value

value

outstanding

September 30, 2009

December 31, 2008

(dollars in thousands)

Series A (a)

Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share, 600,000 shares authorized

600,000

$

571,125

567,463

Series B (b)

Series B Mandatory Convertible Non-cumulative Preferred Stock, $1,000 liquidation preference per share, 26,500 shares authorized

26,500

26,500

—

Series C (a)(c)

Fixed Rate Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share, 151,500 shares authorized

151,500

130,123

—

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. 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 defined benefit cost for defined benefit plans consisted of the following:

										Other
		Pension								postretirement
		benefits								benefits
		Three months ended September 30
		2009				2008				2009				2008
		(in thousands)
Service cost		$	4,935				4,852				88				140
Interest cost on projected benefit obligation			11,910				10,636				828				1,008
Expected return on plan assets			(11,963	)			(11,523	)			—				—
Amortization of prior service cost			(1,640	)			(1,640	)			61				69
Amortization of net actuarial loss			2,424				986				(5	)			10
Net periodic benefit cost		$	5,666				3,311				972				1,227