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 2009 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. 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 third quarter of 2009. 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 consolidated statement of position or 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. 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 first quarter of 2010 was approximately $39 million. The outstanding principal balance and the carrying amount of these loans that is included in the consolidated balance sheet at March 31, 2010 is as follows:

		(in thousands)
Outstanding principal balance		$	3,729,361
Carrying amount			3,508,231

     Receivables (including loans and investment securities) obtained in the acquisition of Provident for which there was specific evidence of credit deterioration as of the acquisition date 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.

     The following table presents certain pro forma information for the quarter ended March 31, 2009 as if Provident had been acquired on January 1, 2009. 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 January 1, 2009. In particular, no adjustments have been made to eliminate the amount of Provident’s provision for credit losses of $36 million in the quarter ended March 31, 2009 or the impact of other-than-temporary impairment losses recognized by Provident of $87 million in the quarter ended March 31, 2009 that would not have been necessary had the acquired loans and investment securities been recorded at fair value as of the beginning of 2009. Furthermore, expenses related to systems conversions and other costs of integration are only included to the extent they were incurred during the first quarter of 2009.

     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.

		Pro forma
		Three months ended
		March 31, 2009
		(in thousands)
Total revenues		$	886,968
Net income			(8,498	)

     Merger-related expenses associated with the then pending acquisition of Provident for systems conversions and other costs of integrating and conforming acquired operations with and into the Company were $2 million during the three-month period ended March 31, 2009. There were no similar expenses in 2010’s initial quarter.

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)
March 31, 2010
Investment securities available for sale:
U.S. Treasury and federal agencies		$	98,431				1,713				39			$	100,105
Obligations of states and political subdivisions			70,888				922				90				71,720
Mortgage-backed securities:
Government issued or guaranteed			3,545,040				145,435				1,565				3,688,910
Privately issued residential			1,958,635				11,111				305,405				1,664,341
Privately issued commercial			31,356				—				6,231				25,125
Collateralized debt obligations			102,282				32,241				8,768				125,755
Other debt securities			310,996				22,965				48,270				285,691
Equity securities			143,430				6,685				14,496				135,619
			6,261,058				221,072				384,864				6,097,266
Investment securities held to maturity:
Obligations of states and political subdivisions			205,054				1,448				1,457				205,045
Mortgage-backed securities:
Government issued or guaranteed			951,007				2,439				1,121				952,325
Privately issued mortgage-backed securities			341,618				—				137,442				204,176
Other debt securities			12,126				—				—				12,126
			1,509,805				3,887				140,020				1,373,672
Other securities			497,575				—				—				497,575
Total		$	8,268,438				224,959				524,884			$	7,968,513
December 31, 2009
Investment securities available for sale:
U.S. Treasury and federal agencies		$	102,755				1,988				57			$	104,686
Obligations of states and political subdivisions			61,468				1,583				128				62,923
Mortgage-backed securities:
Government issued or guaranteed			3,777,642				131,407				6,767				3,902,282
Privately issued residential			2,438,353				9,630				383,079				2,064,904
Privately issued commercial			33,133				—				7,967				25,166
Collateralized debt obligations			103,159				23,389				11,202				115,346
Other debt securities			309,514				16,851				58,164				268,201
Equity securities			170,985				5,590				15,705				160,870
			6,997,009				190,438				483,069				6,704,378
Investment securities held to maturity:
Obligations of states and political subdivisions			203,825				1,419				1,550				203,694
Privately issued mortgage-backed securities			352,195				—				150,993				201,202
Other debt securities			11,587				—				—				11,587
			567,607				1,419				152,543				416,483
Other securities			508,624				—				—				508,624
Total		$	8,073,240				191,857				635,612			$	7,629,485

     Gross realized gains on investment securities were $1.2 million and $854 thousand for the quarters ended March 31, 2010 and 2009, respectively. Gross realized losses on investment securities were $777 thousand and $279 thousand for the quarters ended March 31, 2010 and 2009, respectively. The Company recognized $27 million (pre-tax) of other-than-temporary impairment losses during the quarter ended March 31, 2010 related to twenty privately issued residential mortgage-backed securities with an amortized cost basis (before impairment charge) of $423 million. The impairment charges were recognized in light of deterioration of housing values in the residential real estate market and continued high levels of delinquencies and charge-offs of underlying mortgage loans collateralizing these securities. The other-than-temporary impairment losses recognized in the consolidated statement of income were net of $3 million (pre-tax) of unrealized losses classified in accumulated other comprehensive income for the same securities. The $27 million loss represents 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. During the first quarter of 2009, the Company recognized $32 million (pre-tax) of other-than-temporary impairment losses related to seven privately issued residential mortgage-backed securities with a cost basis of $91 million. The following table displays changes in credit losses for debt securities recognized in earnings for the quarters ended March 31, 2010 and March 31, 2009.

		Three months ended March 31,
		2010				2009
		(in thousands)
Beginning balance		$	284,513				155,967
Additions for credit losses not previously recognized			26,802				32,199
Reductions for increases in cash flows			(169	)			(548	)
Reductions for realized losses			(3,129	)			—
Ending balance		$	308,017				187,618

     At March 31, 2010, 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		$	73,255				73,970
Due after one year through five years			58,498				60,176
Due after five years through ten years			33,697				35,292
Due after ten years			417,147				413,833
			582,597				583,271
Mortgage-backed securities available for sale			5,535,031				5,378,376
		$	6,117,628				5,961,647
Debt securities held to maturity:
Due in one year or less		$	38,355				38,581
Due after one year through five years			8,394				8,752
Due after five years through ten years			123,439				123,181
Due after ten years			46,992				46,657
			217,180				217,171
Mortgage-backed securities held to maturity			1,292,625				1,156,501
		$	1,509,805				1,373,672

     A summary of investment securities that as of March 31, 2010 and December 31, 2009 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)
March 31, 2010
U.S. Treasury and federal agencies		$	3,881				(36	)			573				(3	)
Obligations of states and political subdivisions			134,590				(1,447	)			3,977				(100	)
Mortgage-backed securities:
Government issued or guaranteed			829,778				(2,653	)			5,620				(33	)
Privately issued residential			75,195				(1,900	)			1,500,335				(440,947	)
Privately issued commercial			—				—				25,125				(6,231	)
Collateralized debt obligations			12,199				(8,419	)			3,669				(349	)
Other debt securities			1,763				(2	)			102,428				(48,268	)
Equity securities			4,900				(1,561	)			7,037				(12,935	)
Total		$	1,062,306				(16,018	)			1,648,764				(508,866	)

		Less than 12 months								12 months or more
						Unrealized								Unrealized
		Fair value				losses				Fair value				losses
		(in thousands)
December 31, 2009
U.S. Treasury and federal agencies		$	6,265				(53	)			572				(4	)
Obligations of states and political subdivisions			145,572				(1,575	)			4,204				(103	)
Mortgage-backed securities:
Government issued or guaranteed			685,319				(6,460	)			19,379				(307	)
Privately issued residential			98,312				(2,871	)			1,705,222				(531,201	)
Privately issued commercial			—				—				25,166				(7,967	)
Collateralized debt obligations			13,046				(10,218	)			3,598				(984	)
Other debt securities			5,786				(174	)			138,705				(57,990	)
Equity securities			7,449				(1,728	)			23,159				(13,977	)
Total		$	961,749				(23,079	)			1,920,005				(612,533	)

     The Company owned 748 individual investment securities with aggregate gross unrealized losses of $525 million at March 31, 2010. Approximately $443 million of the unrealized losses pertain to privately issued residential mortgage-backed securities with a cost basis of $2.0 billion. The Company also had $56 million of unrealized losses on trust preferred securities issued by financial institutions and securities backed by trust preferred securities issued by financial institutions having a cost basis of $171 million. Based on a review of each of the remaining securities in the investment securities portfolio at March 31, 2010, 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 March 31, 2010, 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 March 31, 2010, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $498 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 March 31, 2010 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 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.

     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.

     Including the unamortized portions of purchase accounting adjustments to reflect estimated fair value at the acquisition dates of the Common Securities of various trusts the Junior Subordinated Debentures associated with Capital Securities had financial statement carrying values of $1.2 billion at each of March 31, 2010 and December 31, 2009.

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

March 31, 2010

December 31, 2009

(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

$

574,057

572,580

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

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

132,212

131,155

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 benefit cost for defined benefit plans consisted of the following:

										Other
		Pension								postretirement
		benefits								benefits
		Three months ended March 31,
		2010				2009				2010				2009
		(in thousands)
Service cost		$	4,875				4,875				100				150
Interest cost on projected benefit obligation			12,029				11,015				780				900
Expected return on plan assets			(12,788	)			(11,475	)			—				—
Amortization of prior service cost			(1,650	)			(1,650	)			25				75
Amortization of net actuarial loss			3,321				2,350				—				—
Net periodic benefit cost		$	5,787				5,115				905				1,125

     Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $11,690,000 and $10,774,000 for the three months ended March 31, 2010 and 2009, respectively.

7. Earnings per common share

The computations of basic earnings per common share follow:

		Three months ended
		March 31,
		2010				2009
		(in thousands, except per share)
Income available to common stockholders:
Net income		$	150,955				64,221
Less: Preferred stock dividends (a)			(10,056	)			(7,500	)
Amortization of preferred stock discount (a)			(2,558	)			(1,399	)
Net income available to common equity			138,341				55,322
Less: Income attributable to unvested stock-based compensation awards			(1,913	)			(704	)
Net income available to common stockholders		$	136,428				54,618
Weighted-average shares outstanding:
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards			119,324				111,298
Less: Unvested stock-based compensation awards			(1,559	)			(859	)
Weighted-average shares outstanding			117,765				110,439
Basic earnings per common share		$	1.16				.49

     The computations of diluted earnings per common share follow:

		Three months ended
		March 31,
		2010				2009
		(in thousands, except per share)
Net income available to common equity		$	138,341				55,322
Less: Income attributable to unvested stock-based compensation awards			(1,910	)			(704	)
Net income available to common stockholders			136,431				54,618
Adjusted weighted-average shares outstanding:
Common and unvested stock-based compensation awards			119,324				111,298
Less: Unvested stock-based compensation awards			(1,559	)			(859	)
Plus: Incremental shares from assumed conversion of stock-based compensation awards and convertible preferred stock			491				—
Adjusted weighted-average shares outstanding			118,256				110,439
Diluted earnings per common share		$	1.15				.49

     GAAP defines unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities that shall be included in the computation of earnings per common share pursuant to the two-class method. During the first quarters of 2010 and 2009, the Company issued stock-based compensation awards in the form of restricted stock and restricted stock units, which, in accordance with GAAP, are considered participating securities.

     Stock-based compensation awards, warrants to purchase common stock of M&T and preferred stock convertible into shares of M&T common stock representing approximately 11.9 million and 15.0 million common shares during the three-month periods ended March 31, 2010 and 2009, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

8. Comprehensive income

The following table displays the components of other comprehensive income:

		Three months ended March 31, 2010
		Before-tax				Income
		amount				taxes				Net
		(in thousands)
Unrealized gains (losses) on investment securities:
Available for sale (“AFS”) investment securities with other-than-temporary impairment (“OTTI”):
Securities with OTTI charges during the period		$	(29,487	)			11,574				(17,913	)
Less: OTTI charges recognized in net income			(26,802	)			10,483				(16,319	)
Net unrealized losses on investment securities with OTTI			(2,685	)			1,091				(1,594	)
AFS investment securities – all other:
Unrealized holding gains during period			101,892				(39,882	)			62,010
Less: reclassification adjustment for gains realized in net income			(145	)			44				(101	)
Less: securities with OTTI charges during the period			(29,487	)			11,574				(17,913	)
			131,524				(51,500	)			80,024
Reclassification of unrealized holding losses to income during period on investment securities previously transferred from AFS to held to maturity (“HTM”)			2,347				(921	)			1,426
Net unrealized gains on investment securities			131,186				(51,330	)			79,856
Reclassification of gain on terminated cash flow hedge to income			(112	)			42				(70	)
Defined benefit plans liability adjustment			1,696				(666	)			1,030
		$	132,770				(51,954	)			80,816

		Three months ended March 31, 2009
		Before-tax				Income
		amount				taxes				Net
		(in thousands)
Unrealized gains (losses) on investment securities:
AFS investment securities with OTTI:
Securities with OTTI charges during the period		$	(62,808	)			24,566				(38,242	)
Less: OTTI charges recognized in net income			(32,199	)			12,590				(19,609	)
Net unrealized losses on investment securities with OTTI			(30,609	)			11,976				(18,633	)
AFS investment securities – all other:
Unrealized holding gains during period			147,229				(58,559	)			88,670
Less: reclassification adjustment for gains realized in net income			27				(10	)			17
Less: securities with OTTI charges during the period			(62,808	)			24,566				(38,242	)
			210,010				(83,115	)			126,895
Reclassification of unrealized holding losses to income during period on investment securities previously transferred from AFS to HTM			3,456				(879	)			2,577
Net unrealized gains on investment securities			182,857				(72,018	)			110,839
Reclassification of losses on terminated cash flow hedges to income			5,185				(2,024	)			3,161
Defined benefit plans liability adjustment			775				(303	)			472
		$	188,817				(74,345	)			114,472