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 2021 was $495 million, up from $372 million in the corresponding quarter of 2020 and $458 million in the second quarter of 2021. Diluted and basic earnings per common share were $3.69 and $3.70, respectively, in the recent quarter. Diluted and basic earnings per common share in the third quarter of 2020 were each $2.75 and in the second quarter of 2021 were each $3.41. The after-tax impact of merger-related expenses was $7 million ($9 million pre-tax), or $.05 of basic and diluted earnings per common share in the recent quarter and $3 million ($4 million pre-tax), or $.02 of basic and diluted earnings per common share in the second quarter of 2021. Such expenses were associated with M&T’s pending acquisition of People’s United Financial, Inc. (“People’s United”), headquartered in Bridgeport, Connecticut, and consisted predominantly of professional services related to planned integration efforts associated with the merger. Net income aggregated $1.40 billion or $10.43 of diluted earnings per common share and $10.44 of basic earnings per common share in the first nine months of 2021, compared with $882 million or $6.42 of diluted and basic earnings per common share in the year-earlier period. After-tax merger related expenses for the nine-month period ended September 30, 2021 were $17 million ($23 million pre-tax), or $.13 of basic and diluted earnings per common share. There were no merger-related expenses during 2020.

The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the third quarter of 2021 was 1.28%, compared with 1.06 % in the third quarter of 2020 and 1.22% in 2021’s second quarter. The annualized rate of return on average common shareholders’ equity was 12.16% in the recent quarter, 9.53% in the year-earlier quarter and 11.55% in the second quarter of 2021. During the nine-month period ended September 30, 2021, the annualized rates of return on average assets and average common shareholders’ equity were 1.24% and 11.76%, respectively, compared with .89% and 7.57%, respectively, in the similar 2020 period.

On February 22, 2021, M&T announced that it had entered into a definitive agreement with People’s United under which People’s United will be acquired by M&T in an all-stock transaction. Pursuant to the terms of the agreement, People’s United shareholders will receive consideration valued at .118 of an M&T share in the form of M&T common stock. People’s United outstanding preferred stock will be converted to a new series of M&T preferred stock upon completion of the acquisition. The transaction is valued at approximately $7.6 billion (with the price based on M&T’s closing price of $149.34 per share as of September 30, 2021).

As of September 30, 2021, People’s United reported $63.7 billion of assets, including $39.5 billion of loans and $10.5 billion of investment securities, $55.9 billion of liabilities, including $52.9 billion of deposits, and $7.8 billion of stockholders’ equity. The merger has been approved by the common shareholders of M&T and People’s United, but remains subject to approval by the Board of Governors of the Federal Reserve System. The merger is expected to be completed promptly after the parties have obtained that approval and satisfied other customary closing conditions.

Financial results during 2020 and through the third quarter of 2021 were adversely impacted by the Coronavirus Disease 2019 (“COVID-19”) pandemic. Large portions of the U.S. economy were substantially curtailed for extended periods of time and, as a result, many commercial and consumer customers were negatively impacted. Specifically, those adverse economic impacts resulted in the Company recognizing elevated levels of provisions for credit losses during 2020 that reflected projections of credit losses based on macroeconomic forecasts at the end of each quarter of that year. The Company recorded provisions for credit losses of $150 million and $725 million in the three months and nine months ended September 30, 2020. An improvement in economic conditions and forecasts at the end of each of the first three quarters of 2021 as compared with previous forecasts led the Company to recognize provision recaptures of $20 million and $60 million in the three months and nine months ended September 30, 2021, respectively. In response to the pandemic, the Federal Reserve took actions to lower interest rates that have negatively affected the Company’s net interest income since the beginning of the pandemic.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act and applicable extensions provide relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing, and also provided funding opportunities for small businesses under the Paycheck Protection Program (“PPP”) from approved Small Business Administration (“SBA”)

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lenders, including M&T Bank, the principal bank subsidiary of M&T. For commercial and consumer customers, the Company provided a host of relief options, including payment deferrals (including maturity extensions), loan covenant waivers and low interest rate loan products. M&T Bank funded approximately $7.0 billion of PPP loans during 2020 and another $2.9 billion in 2021. PPP loans outstanding at September 30, 2021 and December 31, 2020 totaled $2.2 billion and $5.4 billion, respectively.

Updated economic forecasts at the end of each of the quarters of 2020 resulted in higher estimates of expected credit losses in the Company’s loan portfolio than at January 1, 2020, when the Company adopted amended accounting guidance for the measurement of credit losses on financial instruments, resulting in historically high levels of the provision for credit losses. Specifically, the level of the provision in 2020 reflected the ongoing impacts of the pandemic on economic activity in the hospitality and retail sectors, the uncertainty at December 31, 2020 as to the sufficiency and effectiveness of economic stimulus provided by the U.S. government to the economy, and concerns about ultimate collectability of real estate loans where borrowers requested re-payment forbearance. Improvement in the economic outlook at the end of each of the first three quarters of 2021 resulted in reduced estimates of expected credit losses. Nevertheless, concerns remain about large sectors of the economy, including the hotel, healthcare and office space sectors, and possible threat of resurgence of spread of the COVID-19 virus. The Company expects that certain aspects of its businesses will continue to be negatively impacted by the COVID-19 pandemic after September 30, 2021.

The national effort to mitigate the pandemic resulted in a challenging environment for businesses and their employees. The Company took actions designed to help maintain a safe environment for its customers and employees and to provide relief to customers in a variety of ways. Examples of those actions include:

	•	The deployment of a Pandemic Response Plan to manage the pandemic’s effects on operations, employees and customers, including seeking to ensure employee safety, maintaining continuity of operations and service levels for customers, preserving the Company’s financial strength, and complying with applicable laws and regulations. Actions included placing restrictions on travel, implementing social distancing, health screening, sanitation and other protocols, and mandating for all employees whose jobs could be performed remotely to work from home where possible. In accordance with changes in Federal guidelines (e.g., the Centers for Disease Control and Prevention) and state and local regulations, the Company has begun to roll back certain of these measures;

	•	The vast majority of the Company’s non-branch employees continue to work remotely, and the Company is continuing to develop its future operating model (e.g., onsite, hybrid and remote) in preparation for the eventual return of employees to the office;

	•	M&T Bank branches remain open, with open lobbies and normal access to drive-through windows and ATMs; and

	•	Many loan customers are still receiving COVID-19 related relief in various forms, including modification and forbearance requests as of September 30, 2021 as described herein and in note 4 of Notes to Financial Statements.

Supplemental Reporting of Non-GAAP Results of Operations

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 gains (when realized) and expenses (when incurred) associated with merging acquired operations into the Company, since such items 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 totaled $504 million in the third quarter of 2021, compared with $375 million in the year-earlier quarter and $463 million in the second 2021 quarter. Diluted net operating earnings per common share in the third quarters of 2021 and 2020 were $3.76 and $2.77, respectively, and $3.45 in the second quarter of 2021. For the first nine months of 2021, net operating income and diluted net operating earnings per common share were $1.42

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billion and $10.61, respectively, compared with $891 million and $6.49, respectively, in the corresponding 2020 period.

Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 1.34%, compared with 1.10% in the third quarter of 2020 and 1.27% in the second quarter of 2021. Net operating income represented an annualized return on average tangible common equity of 17.54% in the third quarter of 2021, 13.94% in the year-earlier quarter and 16.68% in the second quarter of 2021. For the first three quarters of 2021, net operating income represented an annualized return on average tangible assets and average tangible common shareholders’ equity of 1.30% and 17.10%, respectively, compared with .93% and 11.15%, respectively, in the corresponding 2020 period.

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 $971 million in the third quarter of 2021, compared with $947 million in the year-earlier quarter. That improvement reflects lower rates paid on deposit accounts offset, in part, by the impact of lower average outstanding loan balances. When compared with the third quarter of 2020, the results for the recent quarter reflected the impact of a $12.7 billion or 10% increase in average earning assets that was partially offset by a 21 basis point (hundredths of one percent) narrowing of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earnings assets, to 2.74% in the recent quarter from 2.95% in the year-earlier quarter. The higher average earning assets reflected growth in low-yielding balances at the Federal Reserve Bank of New York, partially offset by declines in average balances of loans, investment securities and agreements to resell securities. The narrowing of the net interest margin reflects the impact of the low-yielding balances at the Federal Reserve Bank of New York constituting a higher percentage of average earning assets. Those balances add to net interest income, but due to their low yield lower the reported net interest margin. Taxable-equivalent net interest income in the recent quarter increased $25 million, or 3%, from the second quarter of 2021. The higher net interest income was predominantly the result of increased yields on loans, reflecting fees earned from payoffs of PPP loans. The net interest margin in the third quarter of 2021 reflected a three basis point narrowing compared with the second quarter of 2021 that was attributable to $6.9 billion of higher balances of low-yielding deposits held at the Federal Reserve Bank of New York, offset, in part, by the higher loan yields. In aggregate, average earning assets in the recent quarter increased $3.5 billion, or approximately 3%, from the second 2021 quarter.

For the first nine months of 2021, taxable-equivalent net interest income was $2.90 billion, up from $2.89 billion in the corresponding 2020 period. The increase was primarily attributable to a $17.4 billion, or 15% increase in average earning assets, partially offset by a 39 basis point narrowing of the net interest margin to 2.83% in the 2021 period from 3.22% in the year-earlier period.

Average loans and leases totaled $95.3 billion in the third quarter of 2021, down $2.9 billion or 3% from $98.2 billion in the similar quarter of 2020. Commercial loans and leases averaged $23.7 billion in the recent quarter, $4.6 billion or 16% lower than in the year-earlier quarter. That decline was largely the result of decreased average balances of PPP loans, due to loan payoffs, lower dealer floor plan balances, reflecting automobile production and inventory issues experienced by the industry, and subdued loan demand by commercial customers, in general. Average commercial real estate loans were $37.5 billion in the recent quarter, up $304 million, or 1%, from $37.2 billion in the corresponding 2020 quarter. Included in average commercial real estate loans in the third quarters of 2021 and 2020 were loans held for sale of $411 million and $260 million, respectively. Average residential real estate loans declined $179 million, or 1%, to $16.4 billion in the third quarter of 2021 from $16.6 billion in the year-earlier quarter. Included in average residential real estate loans were loans held for sale of $537 million in the recent quarter and $494 million in the third quarter of 2020. Consumer loans averaged $17.7 billion in the third quarter of 2021 up $1.6 billion, or 10%, from $16.1 billion in the year-earlier quarter due to growth in average recreational finance loans (consisting predominantly of loans secured by recreational vehicles and boats) and, to a lesser extent, automobile loans that was partially offset by declines in outstanding balances of home equity loans and lines of credit.

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Average loan and lease balances in the third quarter of 2021 decreased $3.3 billion, or 3%, from $98.6 billion in the second quarter of 2021. Commercial loan and lease average balances in the recent quarter decreased $3.3 billion, or 12%, from the second quarter of 2021, primarily due to PPP loan payoffs and lower dealer floor plan loans. Average commercial real estate loans in the third quarter of 2021 increased $129 million from $37.4 billion in the second quarter of 2021. Commercial real estate loans held for sale averaged $82 million in the second quarter of 2021. Average balances of residential real estate loans in the recently completed quarter declined $643 million, or 4%, from $17.0 billion in 2021’s second quarter, largely reflecting the impact of loan repayments by customers and lower average balances of loans held for sale. Residential real estate loans held for sale averaged $685 million in the second quarter of 2021. Average consumer loans in the recent quarter increased $544 million, or 3%, from $17.1 billion in 2021’s second quarter, reflecting growth in recreational finance and automobile loans. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.

AVERAGE LOANS AND LEASES

(net of unearned discount)

						Percent Increase
						(Decrease) from
		3rd Qtr.				3rd Qtr.				2nd Qtr.
		2021				2020				2021
		(In millions)
Commercial, financial, etc.		$	23,730				(16	)	%		(12	)	%
Real estate — commercial			37,547				1				—
Real estate — consumer			16,379				(1	)			(4	)
Consumer
Recreational finance			7,918				18				5
Automobile			4,566				19				4
Home equity lines and loans			3,660				(12	)			(2	)
Other			1,514				8				6
Total consumer			17,658				10				3
Total		$	95,314				(3	)	%		(3	)	%

For the first nine months of 2021, average loans and leases totaled $97.7 billion, up 2%, from $95.9 billion in the corresponding 2020 period. Contributing to the rise were increases of $1.5 billion in average consumer loans, $900 million in average residential real estate loan balances (reflecting repurchases of government-guaranteed loans) and $782 million in average commercial real estate balances offset, in part, by a $1.3 billion decrease in average commercial loan and lease balances. Loans purchased from Ginnie Mae pools averaged $3.8 billion in the first nine months of 2021, compared with $1.2 billion in the year-earlier period. Loans are purchased to reduce associated servicing costs, namely a requirement to advance principal and interest payments that had not been received from individual mortgagors, including payments deferred under COVID-19 forbearance arrangements.

The investment securities portfolio averaged $6.0 billion in the third quarter of 2021, down $1.9 billion, or 24%, from $7.9 billion in the year-earlier quarter and $192 million lower than the $6.2 billion averaged in the second quarter of 2021. For the first nine months of 2021 and 2020, investment securities averaged $6.3 billion and $8.5 billion, respectively. The lower average balances in the recent periods reflect net reductions of mortgage-backed securities due to paydowns, partially offset by purchases. During the three months and nine months ended September 30, 2021, the Company purchased $782 million and $1.1 billion, respectively, of fixed rate residential mortgage-backed securities. There were no significant purchases of investment securities during the first nine months of 2020. There were no significant sales of investment securities during the first nine months of 2021 or 2020. The Company routinely has increases and decreases in its holdings of capital stock of the Federal Home Loan Bank (“FHLB”) of New York and the Federal Reserve Bank of New York. Those holdings are accounted for at cost and are adjusted based on amounts of outstanding borrowings and available lines of credit with those entities.

The investment securities portfolio is largely comprised of residential mortgage-backed securities and shorter-term U.S. Treasury and federal agency notes. When purchasing investment securities, the Company considers its

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liquidity position and its overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. The Company may occasionally sell investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio in connection with a business combination. The amounts of investment securities held by the Company are influenced by such factors as available yield in comparison with alternative investments, demand for loans, which generally yield more than investment securities, ongoing repayments, the levels of deposits, and management of liquidity and balance sheet size and resulting capital ratios.

Fair value changes in equity securities with readily determinable fair values are recognized in the consolidated statement of income. Net unrealized gains on such securities were less than $1 million in the third quarter of 2021 and $3 million in the year-earlier quarter, compared with net unrealized losses of $11 million in the second quarter of 2021. Net unrealized losses for the first nine months of 2021 and 2020 were $23 million and $11 million, respectively. Those gains and losses were predominantly related to the Company’s holdings of Fannie Mae and Freddie Mac preferred stock.

The Company regularly reviews its debt investment securities for declines in value below amortized cost that might be indicative of credit-related losses. In light of such reviews, there were no credit-related losses on debt investment securities recognized in either of the nine-month periods ended September 30, 2021 or 2020. Based on management’s assessment of future cash flows associated with individual investment securities as of September 30, 2021, the Company did not expect to incur any material credit-related losses in its portfolios of debt investment securities. Additional information about the investment securities portfolio is included in notes 3 and 13 of Notes to Financial Statements.

Other earning assets include interest-bearing deposits at the Federal Reserve Bank of New York and other banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged $39.1 billion in the third quarter of 2021, compared with $21.6 billion in the year-earlier quarter and $32.1 billion in the second quarter of 2021. Interest-bearing deposits at banks averaged $39.0 billion, $16.4 billion and $32.1 billion for the three months ended September 30, 2021, September 30, 2020 and June 30, 2021, respectively. The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at the Federal Reserve Bank of New York. The levels of those deposits often fluctuate due to changes in trust-related deposits of commercial entities, purchases or maturities of investment securities, or borrowings to manage the Company’s liquidity. The higher balances in the two most recent quarters compared with the year-earlier period reflect increased commercial and consumer deposit balances. Agreements to resell securities averaged $5.1 billion during the quarter ended September 30, 2020. There were no agreements to resell securities outstanding during the quarters ended September 30, 2021 or June 30, 2021.

As a result of the changes described herein, average earning assets totaled $140.4 billion in the most recent quarter, compared with $127.7 billion in the third quarter of 2020 and $137.0 billion in the second quarter of 2021. Average earning assets totaled $137.3 billion and $119.8 billion during the first nine months of 2021 and 2020, respectively.

The most significant source of funding for the Company is core deposits. The Company considers noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and time deposits of $250,000 or less as core deposits. The Company’s branch network is its principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Average core deposits totaled $127.1 billion in the third quarter of 2021, compared with $110.6 billion in the similar 2020 quarter and $124.2 billion in the second quarter of 2021. The increase in average core deposits in the two most recent quarters as compared with the third quarter of 2020 reflected higher balances of noninterest-bearing deposits and savings and interest-checking deposits. Average balances of savings and interest-checking core deposits rose $5.5 billion or 9% to $67.1 billion in the third 2021 quarter from $61.7 billion in the year-earlier quarter. Average noninterest-bearing deposits increased $12.4 billion or 28% to $57.2 billion in the recent quarter from $44.8 billion in the third 2020 quarter. Those increases reflected higher average deposits of commercial, consumer and trust customers. Average core deposits were $124.2 billion in the second quarter of 2021. Average savings and interest-checking core deposits decreased $710 million or 1% in the third 2021 quarter from $67.9 billion in the immediately preceding quarter. Average noninterest-bearing deposits in the recent

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quarter were $3.8 billion or 7% higher than the second quarter 2021 average of $53.4 billion, reflecting higher levels of trust deposits. The following table provides an analysis of quarterly changes in the components of average core deposits.

AVERAGE CORE DEPOSITS

						Percent Increase
						(Decrease) from
		3rd Qtr.				3rd Qtr.				2nd Qtr.
		2021				2020				2021
		(In millions)
Savings and interest-checking deposits		$	67,145				9		%		(1	)	%
Time deposits			2,704				(34	)			(8	)
Noninterest-bearing deposits			57,218				28				7
Total		$	127,067				15		%		2		%

The Company also receives funding from other deposit sources, including branch-related time deposits over $250,000, brokered deposits and, prior to June 30, 2021, deposits associated with the Company’s Cayman Islands office. Cayman Islands office deposits consisted predominantly of balances swept from lower-yielding commercial customer accounts. Time deposits over $250,000, excluding brokered deposits, averaged $357 million in the recent quarter, compared with $612 million in the third quarter of 2020 and $411 million in the second 2021 quarter. The decreases in such deposits since the third quarter of 2020 were predominantly the result of maturities of higher-rate time deposits. Cayman Islands office deposits averaged $50 million for the quarter ended June 30, 2021 and $1.0 billion for the quarter ended September 30, 2020. During the second quarter of 2021, the Company introduced a new interest-bearing sweep product (included in savings and interest-bearing deposits) that replaced the Eurodollar sweep product previously recorded as Cayman Islands office deposits. As a result, there were no outstanding deposits at the Cayman Islands office during the third quarter of 2021 and the office is closed. The Company had brokered savings and interest-bearing transaction accounts, which in the aggregate averaged $3.8 billion, $4.2 billion and $3.7 billion during the quarters ended September 30, 2021, September 30, 2020 and June 30, 2021, respectively.

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The following table summarizes average total deposits for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020.

AVERAGE DEPOSITS

		Retail				Trust				Commercial and Other				Total
		(In millions)
Three Months Ended September 30, 2021
Savings and interest-checking deposits		$	34,344			$	5,934			$	30,698			$	70,976
Time deposits			2,892				12				157				3,061
Noninterest-bearing deposits			8,557				12,022				36,639				57,218
Deposits at Cayman Islands office			—				—				—				—
Total		$	45,793			$	17,968			$	67,494			$	131,255
Three Months Ended June 30, 2021
Savings and interest-checking deposits		$	34,087			$	6,023			$	31,451			$	71,561
Time deposits			3,156				33				169				3,358
Noninterest-bearing deposits			8,573				9,318				35,553				53,444
Deposits at Cayman Islands office			—				—				50				50
Total		$	45,816			$	15,374			$	67,223			$	128,413
Three Months Ended September 30, 2020
Savings and interest-checking deposits		$	29,902			$	5,323			$	30,623			$	65,848
Time deposits			4,452				49				214				4,715
Noninterest-bearing deposits			6,977				5,408				32,401				44,786
Deposits at Cayman Islands office			—				—				957				957
Total		$	41,331			$	10,780			$	64,195			$	116,306

The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the Federal Reserve Bank of New York and others as sources of funding. Short-term borrowings represent borrowing arrangements that at the time they were entered into had a contractual maturity of one year or less. Average short-term borrowings totaled $91 million in the third quarter of 2021, compared with $62 million in the year-earlier quarter and $61 million in the second quarter of 2021.

Long-term borrowings averaged $3.4 billion in the recent quarter and the second quarter of 2021, compared with $5.5 billion in the third quarter of 2020. Average balances of outstanding senior notes were $2.4 billion during each of the three-month periods ended September 30, 2021 and June 30, 2021 and $3.5 billion during the three-month period ended September 30, 2020. In January 2021, $350 million of variable rate senior notes of M&T Bank matured. In July 2020, M&T Bank redeemed $750 million of fixed rate senior notes and in December 2020 redeemed $650 million of fixed rate senior notes that were due to mature on January 25, 2021. Subordinated capital notes included in long-term borrowings averaged $500 million in the third and second quarters of 2021 and $1.4 billion in the third quarter of 2020. In March 2021, M&T Bank redeemed $500 million of subordinated capital notes that were due to mature on December 1, 2021, and during December 2020, $409 million of subordinated capital notes of M&T Bank matured. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $530 million, $527 million and $529 million during the quarters ended September 30, 2021, September 30, 2020 and June 30, 2021. Additional information regarding junior subordinated debentures is provided in note 5 of Notes to Financial Statements.

The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of its loans and long-term debt. As of September 30, 2021, interest rate swap agreements were used as fair value hedges of approximately $1.65 billion of outstanding fixed rate long-term borrowings. Additionally, interest rate swap agreements with a notional amount of $17.35 billion were used as cash flow hedges of interest payments associated with variable rate commercial real estate loans. Further information on interest rate swap agreements is provided herein and in note 11 of Notes to Financial Statements.

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Changes in the composition of the Company’s earning assets and interest-bearing liabilities, as discussed herein, as well as changes in interest rates and spreads, can impact net interest income. Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 2.68% in the recent quarter, compared with 2.83% in the third quarter of 2020. The yield on earning assets during the third quarter of 2021 was 2.82%, down 31 basis points from 3.13% in the similar 2020 period, while the rate paid on interest-bearing liabilities declined 16 basis points to .14% in the recent quarter from .30% in the year-earlier period. In the second quarter of 2021, the net interest spread was 2.71%, the yield on earning assets was 2.85% and the rate paid on interest-bearing liabilities was .14%. The narrowing of the net interest spread in the two most recent quarters as compared with the third quarter of 2020 reflects the impact of a higher proportion of low-yielding balances at the Federal Reserve Bank of New York to total average earning assets. For the first nine months of 2021, the net interest spread was 2.76%, down 27 basis points from 3.03% in the year-earlier period. The yield on earning assets and the rate paid on interest-bearing liabilities for the first nine months of 2021 were 2.91% and .15%, respectively, compared with 3.53% and .50%, respectively, in the initial nine months of 2020.

Net interest-free funds consist largely of noninterest-bearing demand deposits and shareholders’ equity, partially offset by bank owned life insurance and non-earning assets, including goodwill and core deposit and other intangible assets. Net interest-free funds averaged $62.9 billion in the third quarter of 2021, compared with $50.6 billion in the year-earlier quarter and $58.5 billion in the second 2021 quarter. The increase in average net interest-free funds in the recent quarter as compared with those prior quarters reflects higher average balances of noninterest-bearing deposits. During the first nine months of 2021 and 2020, average net interest-free funds aggregated $59.0 billion and $45.6 billion, respectively. Shareholders’ equity averaged $17.1 billion during the three-month period ended September 30, 2021, $16.1 billion during the year-earlier period and $16.6 billion during the second 2021 quarter. Goodwill and core deposit and other intangible assets averaged $4.6 billion during each of those quarters. The cash surrender value of bank owned life insurance averaged $1.86 billion in each of the two most recent quarters of 2021, compared with $1.84 billion in the third quarter of 2020. Increases in the cash surrender value of bank owned life insurance and benefits received are not included in interest income, but rather are recorded in “other revenues from operations.” The contribution of net interest-free funds to net interest margin was .06% in each of the third and second quarters of 2021, compared with .12% in the third quarter of 2020. The reduced contribution of net interest-free funds to net interest margin in the two most recent quarters as compared with the third quarter of 2020 reflects the lower rates on interest-bearing liabilities used to value net interest-free funds. The contribution of net interest-free funds in the first nine months of 2021 and 2020 was .07% and .19%, respectively.

Reflecting the changes to the net interest spread and the contribution of net interest-free funds as described herein, the Company’s net interest margin was 2.74% in the third quarter of 2021, compared with 2.95% in the year-earlier period and 2.77% in the second quarter of 2021. During the first nine months of 2021 and 2020, the net interest margin was 2.83% and 3.22%, respectively. Future changes in market interest rates or spreads, as well as changes in the composition of the Company’s portfolios of earning assets and interest-bearing liabilities that result in reductions in spreads, could adversely impact the Company’s net interest income and net interest margin.

Management assesses the potential impact of future changes in interest rates and spreads by projecting net interest income under several interest rate scenarios. In managing interest rate risk, the Company has utilized interest rate swap agreements to modify the repricing characteristics of certain portions of its earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are reflected in either the yields on earning assets or the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was $19.00 billion (excluding $8.35 billion of forward-starting swap agreements) at September 30, 2021, $15.65 billion (excluding $38.90 billion of forward-starting swap agreements) at September 30, 2020 and $19.00 billion (excluding $32.05 billion of forward-starting swap agreements) at December 31, 2020. Under the terms of those interest rate swap agreements, the Company received payments based on the outstanding notional amount at fixed rates and made payments at variable rates. At each of September 30, 2021 and December 31, 2020, interest rate swap agreements with notional amounts of $17.35 billion were serving as cash flow hedges of interest payments associated with variable rate commercial real estate loans, compared with $13.35 billion at September 30, 2020. Interest rate swap agreements with notional amounts of $1.65 billion at each of September 30, 2021 and December 31, 2020 and $2.30 billion at September 30, 2020 were serving as fair value hedges

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of fixed rate long-term borrowings. The Company has entered into forward-starting interest rate swap agreements predominantly to extend the term of its interest rate swap agreements serving as cash flow hedges, and provide a hedge against changing interest rates on certain of its variable rate loans.

In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded as an adjustment to the interest income or interest expense of the respective hedged item. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the derivative’s gain or loss on cash flow hedges is accounted for similar to that associated with fair value hedges. The amounts of hedge ineffectiveness recognized during each of the quarters ended September 30, 2021, September 30, 2020 and June 30, 2021 were not material to the Company’s consolidated results of operations. Information regarding the fair value of interest rate swap agreements and hedge ineffectiveness is presented in note 11 of Notes to Financial Statements. Information regarding the effective portion of cash flow hedges is presented in note 10 of Notes to Financial Statements. The changes in the fair values of the interest rate swap agreements and the hedged items primarily result from the effects of changing interest rates and spreads.

The weighted-average rates to be received and paid under interest rate swap agreements currently in effect were 1.38% and .12%, respectively, at September 30, 2021. The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average interest rates paid or received on those swap agreements are presented in the accompanying table. Additional information about the Company’s use of interest rate swap agreements and other derivatives is included in note 11 of Notes to Financial Statements.

INTEREST RATE SWAP AGREEMENTS

		Three Months Ended September 30
.		2021								2020
		Amount				Rate(a)				Amount				Rate(a)
		(Dollars in thousands)
Increase (decrease) in:
Interest income		$	58,058				.16		%	$	82,404				.26		%
Interest expense			(8,731	)			(.04	)			(12,312	)			(.06	)
Net interest income/margin		$	66,789				.19		%	$	94,716				.29		%
Average notional amount (c)		$	18,923,913							$	15,780,436
Rate received (b)							1.53		%						2.60		%
Rate paid (b)							.15		%						.25		%

		Nine Months Ended September 30
		2021								2020
		Amount				Rate(a)				Amount				Rate(a)
		(Dollars in thousands)
Increase (decrease) in:
Interest income		$	206,713				.20		%	$	183,598				.20		%
Interest expense			(26,084	)			(.04	)			(28,258	)			(.05	)
Net interest income/margin		$	232,797				.23		%	$	211,856				.23		%
Average notional amount (c)		$	18,915,751							$	16,275,182
Rate received (b)							1.79		%						2.55		%
Rate paid (b)							.17		%						.84		%

(a)	Computed as an annualized percentage of average earning assets or interest-bearing liabilities.

(b)	Weighted-average rate paid or received on interest rate swap agreements in effect during the period.

(c)	Excludes forward-starting interest rate swap agreements not in effect during the period.

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As a financial intermediary, the Company is exposed to various risks, including liquidity and market risk. Liquidity refers to the Company’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future obligations, including demands for loans and deposit withdrawals, funding operating costs, and other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ.

The most significant source of funding for the Company is core deposits, which are generated from a large base of consumer, corporate and institutional customers. That customer base has, over the past several years, become more geographically diverse as a result of expansion of the Company’s businesses. Nevertheless, the Company faces competition in offering products and services from a large array of financial market participants, including banks, thrifts, mutual funds, securities dealers and others. The Company supplements funding provided through deposits with various short-term and long-term wholesale borrowings, including overnight federal funds purchased, short-term advances from the FHLB of New York, brokered deposits, and longer-term borrowings. M&T Bank has access to additional funding sources through borrowings from the FHLB of New York, lines of credit with the Federal Reserve Bank of New York, M&T Bank’s Bank Note Program, and other available borrowing facilities. The Bank Note Program enables M&T Bank to offer unsecured senior and subordinated notes. The Company has, from time to time, also issued subordinated capital notes and junior subordinated debentures associated with trust preferred securities to provide liquidity and enhance regulatory capital ratios. The Company’s junior subordinated debentures associated with trust preferred securities and other subordinated capital notes are considered Tier 2 capital and are includable in total regulatory capital. At September 30, 2021 and December 31, 2020, long-term borrowings aggregated $3.5 billion and $4.4 billion, respectively.

Prior to June 2021, Cayman Islands office deposits were used by some customers of the Company as an alternative to other deposit and investment products. Cayman Islands office deposits totaled $900 million at September 30, 2020 and $652 million at December 31, 2020. The Company no longer offers deposits at the Cayman Islands office but, as previously noted, now offers an interest-bearing sweep product to commercial customers through its domestic branches. The Company has also benefited from the placement of brokered deposits. The Company had brokered savings and interest-bearing checking deposit accounts which aggregated approximately $3.4 billion at September 30, 2021, $4.2 billion at September 30, 2020 and $4.5 billion at December 31, 2020. Brokered time deposits were not a significant source of funding as of those dates.

The Company’s ability to obtain funding from these sources could be negatively impacted should the Company experience a substantial deterioration in its financial condition or its debt ratings, or should the availability of funding become restricted due to a disruption in the financial markets. The Company attempts to quantify such credit-event risk by modeling scenarios that estimate the liquidity impact resulting from a short-term ratings downgrade over various grading levels. Such impact is estimated by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets. In addition to deposits and borrowings, other sources of liquidity include maturities of investment securities and other earning assets, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services.

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Certain customers of the Company obtain financing through the issuance of variable rate demand bonds (“VRDBs”). The VRDBs are generally enhanced by letters of credit provided by M&T Bank. M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion, may from time-to-time own some of the VRDBs while such instruments are remarketed. When this occurs, the VRDBs are classified as trading account assets in the Company’s consolidated balance sheet. Nevertheless, M&T Bank is not contractually obligated to purchase the VRDBs. The value of VRDBs in the Company’s trading account was not material at September 30, 2021 or December 31, 2020. The total amount of VRDBs outstanding backed by M&T Bank letters of credit was $683 million at September 30, 2021, compared with $831 million at September, 30, 2020 and $725 million at December 31, 2020. M&T Bank also serves as remarketing agent for most of those bonds.

The Company enters into contractual obligations in the normal course of business that require future cash payments. Such obligations include, among others, payments related to deposits, borrowings, leases and other contractual commitments. Off-balance sheet commitments to customers may impact liquidity, including commitments to extend credit, standby letters of credit, commercial letters of credit, financial guarantees and indemnification contracts, and commitments to sell real estate loans. Because many of these commitments or contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. Further discussion of these commitments is provided in note 14 of Notes to Financial Statements.

M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been the receipt of dividends from its bank subsidiaries, which are subject to various regulatory limitations. Dividends from any bank subsidiary to M&T are limited by the amount of earnings of the subsidiary in the current year and the two preceding years. For purposes of that test, at September 30, 2021 approximately $1.4 billion was available for payment of dividends to M&T from bank subsidiaries. M&T also may obtain funding through long-term borrowings. Outstanding senior notes of M&T at September 30, 2021 and December 31, 2020 were $772 million and $783 million, respectively. Junior subordinated debentures of M&T associated with trust preferred securities outstanding at September 30, 2021 and December 31, 2020 totaled $531 million and $528 million, respectively.

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

Market risk is the risk of loss from adverse changes in the market prices and/or interest rates of the Company’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. Interest rate risk arises from the Company’s core banking activities of lending and deposit-taking because assets and liabilities reprice at different times and by different amounts as interest rates change. As a result, net interest income earned by the Company is subject to the effects of changing interest rates. The Company measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to manage interest rate risk. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and investment securities, and expected maturities of investment securities, loans and deposits. Management uses a “value of equity” model to supplement the modeling technique described above. Those supplemental analyses are based on discounted cash flows associated with on- and off-balance sheet financial instruments. Such analyses are modeled to reflect changes in interest rates and provide management with a long-term interest rate risk metric. The Company has entered into interest rate swap agreements to help manage exposure to interest rate risk. At September 30, 2021, the aggregate notional amount of interest rate swap agreements entered into for risk management purposes that were currently in effect was $19.0 billion. In addition, the Company has entered into $8.35 billion of forward-starting interest rate swap agreements.

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The Company’s Asset-Liability Committee, which includes members of senior management, monitors the sensitivity of the Company’s net interest income to changes in interest rates with the aid of a computer model that forecasts net interest income under different interest rate scenarios. In modeling changing interest rates, the Company considers different yield curve shapes that consider both parallel (that is, simultaneous changes in interest rates at each point on the yield curve) and non-parallel (that is, allowing interest rates at points on the yield curve to vary by different amounts) shifts in the yield curve. In utilizing the model, market-implied forward interest rates over the subsequent twelve months are generally used to determine a base interest rate scenario for the net interest income simulation. That calculated base net interest income is then compared to the income calculated under the varying interest rate scenarios. The model considers the impact of ongoing lending and deposit-gathering activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

The accompanying table as of September 30, 2021 and December 31, 2020 displays the estimated impact on net interest income in the base scenario described above resulting from parallel changes in interest rates across repricing categories during the first modeling year.

SENSITIVITY OF NET INTEREST INCOME

TO CHANGES IN INTEREST RATES

		Calculated Increase (Decrease) in Projected Net Interest Income
Changes in interest rates		September 30, 2021				December 31, 2020
		(In thousands)
+200 basis points		$	531,480				324,684
+100 basis points			294,060				182,661
-100 basis points			(101,798	)			(61,792	)

The Company utilized many assumptions to calculate the impact that changes in interest rates may have on net interest income. The more significant of those assumptions included the rate of prepayments of mortgage-related assets, cash flows from derivative and other financial instruments held for non-trading purposes, loan and deposit volumes and pricing, and deposit maturities. In the scenarios presented, the Company also assumed gradual changes in interest rates during a twelve-month period as compared with the base scenario. In the declining rate scenario, the rate changes may be limited to lesser amounts such that interest rates remain at or above zero on all points of the yield curve. The assumptions used in interest rate sensitivity modeling are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly from those presented due to the timing, magnitude and frequency of changes in interest rates and changes in market conditions and interest rate differentials (spreads) between maturity/repricing categories, as well as any actions, such as those previously described, which management may take to counter such changes.

Changes in fair value of the Company’s financial instruments can also result from a lack of trading activity for similar instruments in the financial markets. That impact is most notable on the values assigned to some of the Company’s investment securities. Information about the fair valuation of investment securities is presented in notes 3 and 13 of Notes to Financial Statements.

The Company engages in limited trading account activities to meet the financial needs of customers and to fund the Company’s obligations under certain deferred compensation plans. Financial instruments utilized for trading account activities consist predominantly of interest rate contracts, such as interest rate swap agreements, and forward and futures contracts related to foreign currencies. The Company generally mitigates the foreign currency and interest rate risk associated with trading account activities by entering into offsetting trading positions that are also included in the trading account. The fair values of trading account positions associated with interest rate contracts and foreign

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currency and other option and futures contracts are presented in note 11 of Notes to Financial Statements. The amounts of gross and net trading account positions, as well as the type of trading account activities conducted by the Company, are subject to a well-defined series of potential loss exposure limits established by management and approved by M&T’s Board of Directors. However, as with any non-government guaranteed financial instrument, the Company is exposed to credit risk associated with counterparties to the Company’s trading account activities.

The notional amounts of interest rate contracts entered into for trading account purposes totaled $34.5 billion at September 30, 2021, $36.6 billion at September 30, 2020 and $37.8 billion at December 31, 2020. The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes were $815 million at September 30, 2021, compared with $877 million at September 30, 2020 and $776 million at December 31, 2020. Although the notional amounts of these contracts are not recorded in the consolidated balance sheet, the unsettled fair values of all financial instruments used for trading account activities are recorded in the consolidated balance sheet. The fair values of all trading account assets and liabilities recognized on the balance sheet were $625 million and $93 million, respectively, at September 30, 2021 and $1.1 billion and $117 million, respectively, at December 31, 2020. The fair value asset and liability amounts at September 30, 2021 have been reduced by contractual settlements of $42 million and $433 million, respectively, and at December 31, 2020 have been reduced by contractual settlements of $6 million and $806 million, respectively. The lower balance of trading account assets at September 30, 2021 as compared with December 31, 2020 was largely the result of decreased values associated with interest rate swap agreements entered into with commercial customers that are not subject to periodic variation margin settlement payments. Included in trading account assets were assets related to deferred compensation plans aggregating $21 million at each of September 30, 2021, September 30, 2020 and December 31, 2020. Changes in the fair values of such assets are recorded as “trading account and foreign exchange gains” in the consolidated statement of income. Included in “other liabilities” in the consolidated balance sheet at September 30, 2021 were $25 million of liabilities related to deferred compensation plans, compared with $24 million at each of September 30, 2020 and December 31, 2020. Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed are recorded in “other costs of operations” in the consolidated statement of income. Also included in trading account assets were investments in mutual funds and other assets that the Company was required to hold under terms of certain non-qualified supplemental retirement and other benefit plans that were assumed by the Company in various acquisitions. Those assets totaled $29 million at each of September 30, 2021, September 30, 2020 and December 31, 2020.

Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading account activities was not material, however, as previously noted, the Company is exposed to credit risk associated with counterparties to transactions related to the Company’s trading account activities. Additional information about the Company’s use of derivative financial instruments in its trading account activities is included in note 11 of Notes to Financial Statements.

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Provision for Credit Losses

A provision for (or recapture of) credit losses is recorded to adjust the level of the allowance to reflect expected credit losses that are based on economic forecasts as of each reporting date. Provision for credit loss recaptures were recorded in the third and second quarters of 2021 for $20 million and $15 million, respectively, compared with a provision for credit losses of $150 million that was recorded in the third quarter of 2020. The provision (or recapture) in each quarter adjusts the allowance for credit losses to reflect expected losses that are based on macroeconomic forecasts as of each quarter-end date. Net charge-offs of loans were $40 million in the recent quarter, $30 million in the third quarter of 2020 and $46 million in the second quarter of 2021. Net charge-offs as an annualized percentage of average loans and leases were .17% in the third quarter of 2021, .12% in the year-earlier quarter and .19% in the second quarter of 2021. Net charge-offs for the nine-month periods ended September 30, 2021 and 2020 were $161 million and $150 million, respectively, representing an annualized .22% and .21%, respectively, of average loans and leases. A summary of net charge-offs by loan type is presented in the table that follows.

NET CHARGE-OFFS (RECOVERIES)

BY LOAN/LEASE TYPE

		2021
		First Quarter				Second Quarter				Third Quarter				Year- to-date
		(In thousands)
Commercial, financial, leasing, etc.		$	4,434				29,242				22,813				56,489
Real estate:
Commercial			54,092				11,330				11,880				77,302
Residential			366				(149	)			22				239
Consumer			16,289				5,655				5,389				27,333
		$	75,181				46,078				40,104				161,363

		2020
		First Quarter				Second Quarter				Third Quarter				Year- to-date
		(In thousands)
Commercial, financial, leasing, etc.		$	13,122				29,235				9,959				52,316
Real estate:
Commercial			834				16,458				1,944				19,236
Residential			3,428				(279	)			556				3,705
Consumer			31,778				25,716				17,272				74,766
		$	49,162				71,130				29,731				150,023

The levels of net charge-offs of commercial loans and commercial real estate loans reflect the impact of the pandemic on borrowers’ abilities to repay loans. In the commercial real estate portfolio, those loans are mostly associated with the retail, office building and hospitality sectors.

Nonaccrual loans aggregated $2.24 billion or 2.40% of total loans and leases outstanding at September 30, 2021, compared with $1.24 billion or 1.26% at September 30, 2020, $1.89 billion or 1.92% at December 31, 2020 and $2.24 billion or 2.31% at June 30, 2021. The higher level of nonaccrual loans since September 30, 2020 reflects the continuing impact of the pandemic on borrowers’ ability to make contractual payments on their loans, most notably loans in the hospitality sector.

Accruing loans past due 90 days or more were $1.03 billion or 1.10% of loans and leases at September 30, 2021, compared with $527 million or .54% at September 30, 2020, $859 million or .87% at December 31, 2020 and $1.08 billion or 1.11% at June 30, 2021. Accruing loans past due 90 days or more included loans guaranteed by government-related entities of $947 million, $505 million, $798 million, $1.03 billion at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021, respectively. Guaranteed loans included one-to-four family residential mortgage loans serviced by the Company that were purchased to reduce associated servicing costs, including a

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requirement to advance principal and interest payments that had not been received from individual mortgagors. Despite the loans being purchased by the Company, the insurance or guarantee by the applicable government-related entity remains in force. The outstanding principal balances of those purchased loans that are guaranteed by government-related entities totaled $919 million at September 30, 2021, $480 million a year earlier, $764 million at December 31, 2020 and $1.00 billion at June 30, 2021. The remaining accruing loans past due 90 days or more not guaranteed by government-related entities were loans considered to be with creditworthy borrowers that were in the process of collection or renewal. In addition to the past due loans, the Company also has $1.6 billion of government-guaranteed residential mortgage loans that are not considered delinquent because the borrower has requested and received a COVID-19 related payment deferral. In general, those loans were also purchased to reduce associated servicing costs as described above and also remain covered by the insurance or guarantee of the applicable government-related entity, but are not considered to be past due in accordance with the accounting treatment afforded under the CARES Act and related regulatory and financial accounting guidance as described below and in note 1 of Notes to Financial Statements in M&T’s 2020 Annual Report.

Loans that were 30-89 days past due were $837 million at September 30, 2021, compared with $874 million at September 30, 2020, $662 million at December 31, 2020 and $640 million at June 30, 2021. COVID-19 related payment deferral modifications of loans are classified as current in accordance with regulatory guidance and, as a result, did not contribute in incremental additions to loans categorized as 30-89 days past due.

The United States has been operating under a state of emergency related to the COVID-19 pandemic since March 13, 2020. The direct and indirect effects of the COVID-19 pandemic resulted in a dramatic reduction in economic activity that severely hampered the ability of some businesses and consumers to meet their repayment obligations. The CARES Act, in addition to providing financial assistance to both businesses and consumers, created a forbearance program for federally-backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board and provisions of the CARES Act, allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as delinquent or as troubled debt restructurings. Modifications may include payment deferrals (including extensions of maturity dates), covenant waivers and fee waivers. The Company has worked with its customers affected by COVID-19 and has granted modifications across many of its loan portfolios. To the extent that such modifications met the criteria previously described, such modifications have not been classified as delinquent or as troubled debt restructurings. A summary of loans for which COVID-19 forbearances have been granted and which are not considered impaired or past due is presented herein and in note 4 of Notes to Financial Statements.

The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic or that did not meet the criteria for a COVID-19 modification under the CARES Act. If the borrower was experiencing financial difficulty and a concession was granted, the Company considered such modifications as troubled debt restructurings. Loan modifications included such actions as the extension of loan maturity dates and the lowering of interest rates and monthly payments. The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs. Information about modifications of loans that are considered troubled debt restructurings is included in note 4 of Notes to Financial Statements.

Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors that were not related to the COVID-19 pandemic have not been included in renegotiated loans because the loan guarantee remains in full force and, accordingly, the Company has not granted a concession with respect to the ultimate collection of the original loan balance. Such loans aggregated $425 million, $267 million, $342 million and $525 million at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021, respectively.

Commercial loans and leases classified as nonaccrual totaled $280 million, $351 million, $307 million and $330 million at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021, respectively. Commercial

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real estate loans in nonaccrual status aggregated $1.31 billion, $292 million, $891 million and $1.23 billion at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021, respectively. The increases in commercial real estate loans in nonaccrual status since September 30, 2020 were largely due to the additions of hotel-related loans to that category. Hotel-related commercial real estate loans (including construction) in nonaccrual status at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021 were $819 million, $77 million, $607 million and $815 million, respectively.

Nonaccrual residential real estate loans totaled $480 million at September 30, 2021, compared with $413 million at September 30, 2020, $513 million at December 31, 2020 and $509 million at June 30, 2021. The increases since September 30, 2020 were largely reflective of the effect of recent economic conditions on borrowers. Included in residential real estate loans classified as nonaccrual were limited documentation first mortgage loans of $127 million at September 30, 2021, compared with $116 million at September 30, 2020, $147 million at December 31, 2020, and $137 million at June 30, 2021. Limited documentation first mortgage loans represent loans secured by residential real estate that at origination typically included some form of limited borrower documentation requirements as compared with more traditional loans. The Company no longer originates limited documentation loans. Residential real estate loans past due 90 days or more and accruing interest aggregated $945 million at September 30, 2021, compared with $503 million at September 30, 2020, $793 million at December 31, 2020 and $1.03 billion at June 30, 2021. Those amounts related to government-guaranteed loans as previously noted. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended September 30, 2021 is presented in the accompanying table.

Nonaccrual consumer loans were $170 million at September 30, 2021, compared with $184 million at September 30, 2020, $183 million at December 31, 2020 and $173 million at June 30, 2021. Included in nonaccrual consumer loans at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021 were: automobile loans of $31 million, $42 million, $39 million and $31 million, respectively; recreational finance loans of $24 million, $24 million, $26 million and $23 million, respectively; and outstanding balances of home equity loans and lines of credit of $71 million, $79 million, $79 million and $77 million, respectively. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended September 30, 2021 is presented in the accompanying table.

Information about past due and nonaccrual loans as of September 30, 2021 and December 31, 2020 is also included in note 4 of Notes to Financial Statements.

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SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA

															Quarter Ended
		September 30, 2021													September 30, 2021
						Nonaccrual									Net Charge-offs (Recoveries)
																			Percent of
										Percent of									Average
		Outstanding								Outstanding									Outstanding
		Balances				Balances				Balances					Balances				Balances
		(Dollars in thousands)
Residential mortgages:
New York		$	5,011,523			$	137,156				2.74	%			$	(780	)			(.06	%)
Pennsylvania			1,029,349				13,680				1.33					166				.06
Maryland			1,419,112				14,707				1.04					414				.12
New Jersey			2,404,854				88,448				3.68					(25	)			—
Other Mid-Atlantic (a)			1,196,526				18,871				1.58					68				.02
Other			3,742,785				80,345				2.15					282				.03
Total		$	14,804,149			$	353,207				2.39	%			$	125				—	%
Residential construction loans:
New York		$	20,554			$	146				.71	%			$	—				—	%
Pennsylvania			6,898				73				1.06					—				—
Maryland			7,300				—				—					—				—
New Jersey			10,247				—				—					—				—
Other Mid-Atlantic (a)			14,704				—				—					—				—
Other			4,111				—				—					—				—
Total		$	63,814			$	219				.34	%			$	—				—	%
Limited documentation first mortgages:
New York		$	614,648			$	57,045				9.28	%			$	19				.01	%
Pennsylvania			26,266				5,089				19.37					—				—
Maryland			15,284				2,359				15.43					—				—
New Jersey			493,561				38,045				7.71					—				—
Other Mid-Atlantic (a)			12,320				1,437				11.66					—				—
Other			179,312				22,554				12.58					(122	)			(.26	)
Total		$	1,341,391			$	126,529				9.43	%			$	(103	)			(.03	%)
First lien home equity loans and lines of credit:
New York		$	930,675			$	15,804				1.70	%			$	(117	)			(.05	%)
Pennsylvania			566,156				9,476				1.67					99				.07
Maryland			457,118				9,507				2.08					50				.04
New Jersey			68,588				1,190				1.73					(2	)			(.01	)
Other Mid-Atlantic (a)			161,683				2,638				1.63					(25	)			(.06	)
Other			28,052				1,192				4.25					(1	)			(.01	)
Total		$	2,212,272			$	39,807				1.80	%			$	4				—	%
Junior lien home equity loans and lines of credit:
New York		$	557,238			$	13,866				2.49	%			$	(92	)			(.07	%)
Pennsylvania			190,297				2,295				1.21					(53	)			(.11	)
Maryland			361,894				9,897				2.73					(688	)			(.74	)
New Jersey			94,078				1,019				1.08					(257	)			(1.10	)
Other Mid-Atlantic (a)			176,988				3,609				2.04					136				.31
Other			39,078				796				2.04					(147	)			(1.49	)
Total		$	1,419,573			$	31,482				2.22	%			$	(1,101	)			(.31	%)
Limited documentation junior lien:
New York		$	377			$	21				5.57	%			$	(2	)			(1.86	%)
Pennsylvania			152				24				15.79					—				—
Maryland			518				25				4.83					—				—
New Jersey			116				—				—					—				—
Other Mid-Atlantic (a)			250				32				12.80					—				—
Other			1,748				83				4.75					(81	)			(16.86	)
Total		$	3,161			$	185				5.85	%			$	(83	)			(9.25	%)

(a)Includes Delaware, Virginia, West Virginia and the District of Columbia.

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Real estate and other foreclosed assets totaled $25 million at September 30, 2021, compared with $50 million at September 30, 2020, $35 million at December 31, 2020 and $28 million at June 30, 2021. The declines since September 30, 2020 are largely reflective of foreclosure moratoriums imposed by government authorities in numerous jurisdictions. Net gains or losses associated with real estate and other foreclosed assets were not material during the three-months ended September 30, 2021, September 30, 2020 and June 30, 2021. At September 30, 2021, foreclosed assets are comprised entirely of residential real estate-related properties.

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

NONPERFORMING ASSET AND PAST DUE, RENEGOTIATED AND IMPAIRED LOAN DATA

		2021 Quarters												2020 Quarters
		Third				Second				First				Fourth				Third
		(Dollars in thousands)
Nonaccrual loans		$	2,242,263				2,242,057				1,957,106				1,893,299				1,239,972
Real estate and other foreclosed assets			24,786				27,902				29,797				34,668				49,872
Total nonperforming assets		$	2,267,049				2,269,959				1,986,903				1,927,967				1,289,844
Accruing loans past due 90 days or more(a)		$	1,026,080				1,077,227				1,084,553				859,208				527,258
Government guaranteed loans included in totals above:
Nonaccrual loans		$	47,358				49,796				51,668				48,820				45,975
Accruing loans past due 90 days or more(a)			947,091				1,029,331				1,044,599				798,121				505,446
Renegotiated loans		$	242,955				236,377				242,121				238,994				242,581
Nonaccrual loans to total loans and leases, net of unearned discount			2.40	%			2.31	%			1.97	%			1.92	%			1.26	%
Nonperforming assets to total net loans and leases and real estate and other foreclosed assets			2.42	%			2.34	%			2.00	%			1.96	%			1.31	%
Accruing loans past due 90 days or more(a) to total loans and leases, net of unearned discount			1.10	%			1.11	%			1.09	%			.87	%			.54	%

*(a)*Predominantly residential real estate loans.

Management determines the allowance for credit losses under accounting guidance that requires estimating the amount of current expected credit losses over the remaining contractual term of the loan and lease portfolio. A description of the methodologies used by the Company to estimate its allowance for credit losses can be found in note 4 of Notes to Financial Statements.

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and also estimates losses for other loans and leases with similar risk characteristics on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. Despite recent improvements in macroeconomic forecasts, at the time of the Company’s analysis regarding the determination of the allowance for credit losses as of September 30, 2021, concerns existed about the somewhat uneven and incomplete recovery evident in the economy, the ultimate effectiveness of economic stimulus being provided by the U.S. government that has contributed to increased deficit spending and raised inflation concerns; disruptions to supply chains and the related impacts to businesses and consumers; the volatile nature of global markets, including the impact international economic conditions could have on the U.S. economy; Federal Reserve positioning of monetary policy; the extent to which borrowers, in particular commercial real estate borrowers may continue to be negatively affected by pandemic-related and general economic conditions; and continued stagnant population and economic growth in the upstate New York and central Pennsylvania regions (approximately 49% of the Company’s loans and leases are to customers in New York State and Pennsylvania) that could see lingering effects of the economic downturn. The Company utilizes

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a loan grading system to differentiate risk amongst its commercial loans and commercial real estate loans. Loans with a lower expectation of default are typically assigned one of ten possible “pass” loan grades while specific loans determined to have an elevated level of credit risk are classified as “criticized.” A criticized loan may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. During the latter half of 2020 and the first nine months of 2021, the Company re-graded significant portions of its commercial loans and commercial real estate loans based on financial results and projections of specific borrowers, particularly those that were affected by COVID-19 impacts. Criticized commercial loans and commercial real estate loans totaled $9.6 billion at September 30, 2021, compared with $6.9 billion at September 30, 2020, $7.2 billion at December 31, 2020, and $9.7 billion at June 30, 2021. The rise in criticized loans at the two most recent quarter-ends as compared with December 31, 2020 reflects the impact of the pandemic on borrowers’ financial condition and the continuing re-grading of loans by the Company, and is reflective of the provision for credit losses recorded by the Company in 2020 as the pandemic unfolded. The increases in such loans since December 31, 2020 were largely attributable to investor-owned permanent commercial real estate loans in the hotel, office and healthcare sectors and commercial real estate construction loans in the hotel and healthcare sectors. On an overall basis, weighted-average loan-to-stabilized value (“LTV”) ratios for investor-owned commercial real estate properties do not vary significantly by asset class or sector, and at September 30, 2021 were generally within a range of 55% to 65% with an overall weighted-average LTV ratio of approximately 58%. Investor-owned commercial real estate loans comprised $7.7 billion of total criticized loans of $9.6 billion at September 30, 2021.

The COVID-19 pandemic and related governmental responses led to a significant reduction in economic activity that was detrimental to many borrowers across the Company’s geographic regions, particularly borrowers in the hotel, healthcare-related, and office sectors. Many of those borrowers have been and will likely continue to be adversely impacted by the economic effects of the COVID-19 pandemic. Summaries of loans outstanding as of September 30, 2021 for which borrowers have been granted a COVID-19 related forbearance and loans extended under the PPP are provided in the accompanying table. Of the COVID-19 related modifications with payment deferrals at September 30, 2021, the vast majority are scheduled to expire during 2021.

As commercial loans and commercial real estate loans were approved for modifications related to COVID-19, the Company assessed loans considering the creditworthiness of the borrower, collateral values, the financial condition of any guarantors, and the expected collectability of contractual principal and interest payments. Loan-to-collateral values on investor-owned loans are generally relatively low and oftentimes the loans include some form of recourse. Loans secured by residential real estate with a COVID-19 payment forbearance were evaluated for collectability based on the borrower’s ability to repay considering past performance and estimated collateral values. If collectability was considered doubtful, loans were classified as nonaccrual.

Loan officers in different geographic locations with the support of the Company’s credit department personnel review and reassign loan grades based on their detailed knowledge of individual borrowers and their judgment of the impact on such borrowers resulting from changing conditions in their respective regions. The Company re-assessed its loan grades for those borrowers most impacted by COVID-19 and expects that loans will continue to be regraded in subsequent periods as more information becomes available. The Company’s policy is that, at least annually, updated financial information be obtained from commercial borrowers associated with pass grade loans and additional analysis performed. On a quarterly basis, the Company’s centralized credit department reviews all criticized commercial loans and commercial real estate loans greater than $1 million to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. For criticized nonaccrual loans, additional meetings are held with loan officers and their managers, workout specialists and senior management to discuss each of the relationships. In analyzing criticized loans, borrower-specific information is reviewed, including operating results, future cash flows, recent developments and the borrower’s outlook, and other pertinent data. The timing and extent of potential losses, considering collateral valuation and other factors, and the Company’s potential courses of action are contemplated.

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COVID-19 RELATED LOANS AND LEASES DATA

		September 30, 2021
										COVID-19 Forbearance
Commercial, financial, leasing, etc.		Total				PPP				Payment Deferrals(a)				Other Forbearances(b)				Total
		(Dollars in millions)
Industry
Services		$	4,381			$	737			$	—			$	29			$	29
Manufacturing			3,393				194				—				—				—
Motor vehicle and recreational finance dealers			2,310				65				—				—				—
Wholesale			2,048				102				—				—				—
Financial and insurance			2,022				23				—				—				—
Real estate investors			1,578				82				—				—				—
Health services			1,556				240				—				—				—
Construction			1,543				369				—				—				—
Retail			1,469				260				—				—				—
Transportation, communications, utilities			1,449				101				—				—				—
Other			766				69				—				25				25
Total commercial, financial, leasing, etc.			22,515				2,242				—				54				54
Commercial real estate
Investor-owned
Permanent finance by property type
Retail/Service			4,477				—				—				64				64
Apartments/Multifamily			4,202				—				—				—				—
Office			4,163				—				—				—				—
Health facilities			2,766				—				—				—				—
Hotel			2,696				—				—				118				118
Industrial/Warehouse			1,444				—				—				—				—
Other			244				—				—				37				37
Total permanent			19,992				—				—				219				219
Total construction/development			9,602				—				—				21				21
Total investor-owned			29,594				—				—				240				240
Owner-occupied by industry
Other services			1,487				—				—				—				—
Motor vehicle and recreational finance dealers			1,406				—				—				—				—
Retail			1,218				—				—				—				—
Wholesale			784				—				—				—				—
Health services			655				—				—				7				7
Manufacturing			572				—				—				—				—
Other			1,308				—				—				—				—
Total owner-occupied			7,430				—				—				7				7
Total commercial real estate			37,024				—				—				247				247
Residential real estate			16,209				—				2,103		(c)		—				2,103
Consumer
Recreational finance			8,026				—				2				—				2
Automobile			4,619				—				4				—				4
Homes equity lines and loans			3,635				—				6				—				6
Other			1,555				—				1				—				1
Total consumer			17,835				—				13				—				13
Total		$	93,583			$	2,242			$	2,116			$	301			$	2,417

	(a)	Represents accruing loans at September 30, 2021 for which a COVID-19 related payment deferral (including maturity extensions) has been granted.

	(b)	Consists predominantly of accruing loans for which a COVID-19 related covenant waiver has been granted.

	(c)	Includes $1.6 billion of government-guaranteed loans.

With regard to residential real estate loans, the Company’s loss identification and estimation techniques make reference to loan performance and house price data in specific areas of the country where collateral securing the Company’s residential real estate loans is located. For residential real estate-related loans, including home equity loans and lines of credit, the excess of the loan balance over the net realizable value of the property collateralizing the loan is charged-off when the loan becomes 150 days delinquent. That charge-off is based on recent indications of value

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from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged off to estimated net collateral value shortly after the Company is notified of such filings. At September 30, 2021, approximately 61% of the Company’s home equity portfolio consisted of first lien loans and lines of credit. Of the remaining junior lien loans in the portfolio, approximately 58% (or approximately 22% of the aggregate home equity portfolio) consisted of junior lien loans that were behind a first lien mortgage loan that was not owned or serviced by the Company. To the extent known by the Company, if a senior lien loan would be on nonaccrual status because of payment delinquency, even if such senior lien loan was not owned by the Company, the junior lien loan or line that is owned by the Company is placed on nonaccrual status. In monitoring the credit quality of its home equity portfolio for purposes of determining the allowance for credit losses, the Company reviews delinquency and nonaccrual information and considers recent charge-off experience. When evaluating individual home equity loans and lines of credit for charge off and for purposes of determining the allowance for credit losses, the Company gives consideration to the required repayment of any first lien positions related to collateral property. Home equity line of credit terms vary but such lines are generally originated with an open draw period of ten years followed by an amortization period of up to twenty years. At September 30, 2021 approximately 85% of all outstanding balances of home equity lines of credit related to lines that were still in the draw period, the weighted-average remaining draw periods were approximately five years, and approximately 10% were making contractually allowed payments that do not include any repayment of principal.

Factors that influence the Company’s credit loss experience include overall economic conditions affecting businesses and consumers, generally, but also residential and commercial real estate valuations, in particular, given the size of the Company’s real estate loan portfolios. Commercial real estate valuations can be highly subjective, as they are based upon many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, interest rates and, in many cases, the results of operations of businesses and other occupants of the real property. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing at reasonable interest rates, and general economic conditions affecting consumers.

The Company generally estimates current expected credit losses on loans with similar risk characteristics on a collective basis. To estimate expected losses, the Company utilizes statistically developed models to project principal balances over the remaining contractual lives of the loan portfolios and determine estimated credit losses through a reasonable and supportable forecast period. The Company’s approach for estimating current expected credit losses for loans and leases at September 30, 2021, September 30, 2020 and June 30, 2021 included utilizing macroeconomic assumptions to project losses over a two-year reasonable and supportable forecast period. Subsequent to the forecast period, the Company reverted to longer-term historical loss experience, over a period of one year, to estimate expected credit losses over the remaining contractual life. Forward-looking estimates of certain macroeconomic variables are determined by the M&T Scenario Development Group, which is comprised of senior management business leaders and economists. Among the assumptions utilized as of September 30, 2021 was that the national unemployment rate continues to be at elevated levels, on average 4.6%, through the remainder of 2021, followed by a gradual improvement reaching 3.5% within the reasonable and supportable forecast period. The forecast assumed that GDP grows at an average annualized rate of 3.3% during the eight-quarter forecast period. The commercial real estate price index was assumed to be down modestly in 2021, but improving in 2022 and 2023. Residential real estate prices were not assumed to fluctuate significantly. The assumptions utilized as of June 30, 2021 included the national unemployment rate continuing at elevated levels, on average 5.4%, through 2021, followed by a gradual improvement reaching 3.5% by mid-2023. That forecast assumed that GDP would grow at a 7.4% annual rate during 2021 resulting in GDP returning to pre-pandemic levels during 2021. The commercial real estate price index was assumed to be down modestly in 2021, but improving in 2022 and 2023. Residential real estate prices were not assumed to fluctuate significantly. The assumptions utilized as of December 31, 2020 included the national unemployment rate continuing at elevated levels, on average 6.9% through 2021, followed by a gradual return to long-term historical averages by the end of 2022. The forecast also assumed gross domestic product to grow at a 4.1% annual rate during 2021 resulting in a return to pre-pandemic levels by the end of 2022. Commercial real estate prices were assumed to decline by 6.8% in 2021, followed by improvement. Residential real estate prices were not assumed to fluctuate significantly. The assumptions utilized as of September 30, 2020 included an increase in the unemployment rate in the fourth quarter of 2020 to approximately

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10% from 8% at the end of the third quarter of 2020, followed by a sustained high single-digit unemployment rate through 2022. The forecast also assumed gross domestic product to contract nearly 5.1% in 2020 and to then recover to pre-pandemic levels by the third quarter of 2022. Commercial real estate prices were assumed to decline by 17% in 2020, followed by improvement. Residential real estate prices were not assumed to fluctuate significantly. The assumptions utilized were based on information available to the Company at or near September 30, 2021, June 30, 2021, December 31, 2020 and September 30, 2020 at the time it was preparing its estimate of expected credit losses as of those dates.

In establishing the allowance for credit losses the Company also considers the impact of portfolio concentrations, changes in underwriting practices, product expansions into new markets, imprecision in its economic forecasts and other risk factors that influence its loss estimation process. With respect to economic forecasts the Company assessed the likelihood of alternative economic scenarios during the two-year reasonable and supportable time period. Economic forecasts have changed rapidly in the recent past due to the uncertain impacts of COVID-19. Generally, an increase in unemployment rate or a decrease in any of the rate of change in gross domestic product, commercial real estate prices or home prices would have an adverse impact on expected credit losses and would likely result in an increase to the allowance for credit losses. The Company’s process for determining the allowance for credit losses undergoes quarterly and periodic evaluations by independent risk management personnel, which among many other considerations, evaluate the reasonableness of management’s methodology and significant assumptions. Further information about the Company’s methodology to estimate expected credit losses is included in note 4 of Notes to Financial Statements.

Management believes that the allowance for credit losses at September 30, 2021 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled $1.52 billion at September 30, 2021, $1.76 billion at September 30, 2020, $1.74 billion at December 31, 2020 and $1.58 billion at June 30, 2021. As a percentage of loans outstanding, the allowance was 1.62% at each of September 30 and June 30, 2021, 1.76% at December 31, 2020 and 1.79% at September 30, 2020. The level of the allowance reflects management’s evaluation of the loan and lease portfolio using the methodology and considering the factors as described herein. Should the various economic forecasts and credit factors considered by management in establishing the allowance for credit losses change and should management’s assessment of losses in the loan portfolio also change, the level of the allowance as a percentage of loans could increase or decrease in future periods. The reported level of the allowance reflects management’s evaluation of the loan and lease portfolio as of each respective date.

Other Income

Other income totaled $569 million in the third quarter of 2021, up from $521 million in the year-earlier quarter and $514 million in the second quarter of 2021. The higher level of other income in the recent quarter as compared with the year-earlier quarter resulted from higher service charges on deposit accounts, merchant discount and credit card fees, mortgage banking revenues, income from the Company’s trust and brokerage services businesses, and credit-related fees. As compared with the second quarter of 2021, the recent quarter’s improvement reflected higher mortgage banking revenues, service charges on deposit accounts, brokerage services income, credit-related fees, and lower unrealized losses on investment securities.

Mortgage banking revenues were $160 million in the recent quarter, up from $153 million in the third quarter of 2020 and $133 million in the second 2021 quarter. Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company’s involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multi-family loan programs of Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development.

Residential mortgage banking revenues, consisting of realized gains from sales of residential real estate loans and loan servicing rights, unrealized gains and losses on residential real estate loans held for sale and related commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were $110 million in the third quarter of 2021, $119 million in the corresponding quarter of 2020 and $98 million in 2021’s second quarter. As compared with the third quarter of 2020, the lower residential mortgage banking revenues

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in the recent quarter resulted largely from decreased gains associated with loans held for sale and related commitments due largely to narrower margins. The increase from 2021’s second quarter reflected higher gains associated with loans held for sale and related commitments, reflecting wider margins.

New commitments to originate residential real estate loans to be sold were approximately $1.1 billion in the third quarter of 2021, compared with $1.2 billion in the each of the year-earlier quarter and the second quarter of 2021. Realized gains from sales of residential real estate loans and loan servicing rights and recognized net unrealized gains or losses attributable to residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans totaled to gains of $49 million in the third quarter of 2021, $64 million in the corresponding period of 2020 and $40 million in the second quarter of 2021. Beginning in late September 2021, the Company began to originate the majority of its residential real estate loans to retain in its loan portfolio rather than for sale. That decision did not have a material impact on residential mortgage banking revenues in the third quarter of 2021.

Loans held for sale that were secured by residential real estate aggregated $279 million at September 30, 2021, $571 million at September 30, 2020 and $777 million at December 31, 2020. Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled $795 million and $751 million, respectively, at September 30, 2021, compared with $1.34 billion and $1.13 billion, respectively, at September 30, 2020 and $1.47 billion and $1.03 billion, respectively, at December 31, 2020. Net recognized unrealized gains on residential real estate loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $22 million at September 30, 2021, $59 million at September 30, 2020 and $52 million at December 31, 2020. Changes in net unrealized gains or losses are recorded in mortgage banking revenues and resulted in net increases in revenues of $10 million in the third quarter of 2021 and $15 million in the third quarter of 2020, compared with a net decrease in revenues of $9 million in the second quarter of 2021.

Revenues from servicing residential real estate loans for others were $61 million, $55 million, and $59 million during the quarters ended September 30, 2021, September 30, 2020, and June 30, 2021, respectively. Residential real estate loans serviced for others totaled $97.1 billion at each of September 30, 2021 and June 30, 2021, $94.9 billion at September 30, 2020 and $94.4 billion at December 31, 2020. Reflected in residential real estate loans serviced for others were loans sub-serviced for others of $73.2 billion, $67.0 billion, $68.1 billion and $72.6 billion at September 30, 2021, September 30, 2020, December 31, 2020 and June 30, 2021, respectively. Revenues earned for sub-servicing loans totaled $39 million during the recent quarter, $30 million in the third quarter of 2020 and $37 million in the second quarter of 2021. The contractual servicing rights associated with loans sub-serviced by the Company were predominantly held by affiliates of Bayview Lending Group (“BLG”). Information about the Company’s relationship with BLG and its affiliates is included in note 16 of Notes to Financial Statements.

Capitalized residential mortgage servicing assets totaled $218 million at September 30, 2021 (net of a $29 million valuation allowance), $202 million at September 30, 2020 (net of a $27 million valuation allowance), $201 million at December 31, 2020 (net of a $30 million valuation allowance) and $221 million at June 30, 2021 (net of a $29 million valuation allowance). During the second quarter of 2021, the valuation allowance for capitalized residential mortgage servicing rights was increased by $8 million. There was no similar provision in the third quarters of 2021 or 2020. The increase in the valuation allowance resulted from changes in the estimated fair value of capitalized mortgage servicing rights that reflected the impact of changes in interest rates on expected prepayments of serviced residential mortgage loans.

Commercial mortgage banking revenues totaled $50 million in the third quarter of 2021, up from $34 million in the third quarter of 2020 and $35 million in the second quarter of 2021. Included in such amounts were revenues from loan origination and sales activities of $24 million for the quarter ended September 30, 2021, compared with $19 million in each of the quarters ended September 30, 2020 and June 30, 2021. Commercial real estate loans originated for sale to other investors were approximately $1.7 billion in the recent quarter, compared with $785 million in the third quarter of 2020 and $411 million in the second quarter of 2021. Loan servicing revenues totaled $26 million in the third quarter of 2021, compared with $15 million in the third quarter of 2020 and $16 million in the second quarter of 2021. The higher servicing revenues in the recent quarter were reflective of fees received from customers who repaid loans prior to contractual maturity. Capitalized commercial mortgage servicing assets were $131 million and $129 million at September 30, 2021 and 2020, respectively, and $133 million at December 31, 2020. Commercial real

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estate loans serviced for other investors totaled $23.1 billion at September 30, 2021, $21.7 billion at September 30, 2020 and $22.2 billion at December 31, 2020. Those servicing amounts included $3.9 billion at each of September 30, 2021 and September 30, 2020 and $4.0 billion at December 31, 2020 of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectable. Included in commercial real estate loans serviced for others were loans sub-serviced for others of $3.4 billion at September 30, 2021 and $3.3 billion at each of September 30, 2020 and December 31, 2020. Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale were $993 million and $434 million, respectively, at September 30, 2021, $552 million and $216 million, respectively, at September 30, 2020 and $641 million and $364 million, respectively, at December 31, 2020. Commercial real estate loans held for sale at September 30, 2021, September 30, 2020 and December 31, 2020 were $559 million, $336 million and $278 million, respectively.

Service charges on deposit accounts were $105 million and $91 million in the third quarters of 2021 and 2020, respectively, and $99 million in the second quarter of 2021. The increase in such service charges during the recent quarter as compared with the third quarter of 2020 was due to higher consumer and commercial service charges reflecting increased customer activity. The higher consumer fees included increased debit card, overdraft-related and other customer transactions. The rise in service charges on deposit accounts in the recent quarter as compared with the immediately preceding quarter was largely due to higher consumer-related service charges, reflecting increased overdraft-related fees.

Trust income includes fees related to two significant businesses. The Institutional Client Services (“ICS”) business provides a variety of trustee, agency, investment management and administrative services for corporations and institutions, investment bankers, corporate tax, finance and legal executives, and other institutional clients who: (i) use capital markets financing structures; (ii) use independent trustees to hold retirement plan and other assets; and (iii) need investment and cash management services. The Wealth Advisory Services (“WAS”) business offers personal trust, planning, fiduciary, asset management, family office and other services designed to help high net worth individuals and families grow, preserve and transfer wealth. Trust income aggregated $157 million in the third quarter of 2021, compared with $150 million in the year-earlier quarter and $163 million in the second quarter of 2021. Revenues associated with the ICS business were approximately $94 million during the quarter ended September 30, 2021, compared with $87 million and $91 million during the quarters ended September 30, 2020 and June 30, 2021, respectively. The higher revenues in the recent quarter as compared with the previous quarters were largely attributable to increased retirement services income resulting from growth in collective fund balances. Revenues attributable to WAS totaled approximately $63 million during the quarter ended September 30, 2021, compared with $57 million and $65 million during the quarters ended September 30, 2020 and June 30, 2021, respectively. The higher revenues in the recent quarter as compared with the year-earlier quarter were largely attributable to favorable equity market performance. The slightly higher revenues in the second quarter of 2021 as compared with the recent quarter reflected annual tax service fees earned in the second quarter for assisting customers with their tax filings. Trust assets under management were $152.2 billion, $123.4 billion, $149.8 billion and $135.8 billion at September 30, 2021, September 30, 2020, June 30, 2021 and December 31, 2020, respectively. Trust assets under management include the Company’s proprietary mutual funds’ assets of $13.0 billion, $12.5 billion, $12.7 billion and $12.9 billion at September 30, 2021, September 30, 2020, June 30, 2021 and December 31, 2020, respectively. Additional trust income from investment management activities was less than $1 million in the third quarter of 2021, compared with $6 million and $7 million in the third quarter of 2020 and the second 2021 quarter, respectively, and was predominantly comprised of fees earned from retail customer investment accounts. Approximately $10 million of revenues associated with the sale of select investment products of LPL Financial, an independent financial services broker, were reported as brokerage services income during the third quarter of 2021. Prior to the transition of M&T’s retail brokerage and certain trust customer business to LPL Financial in mid-June 2021, those customers were provided proprietary trust products managed by the Company and revenues related thereto were reported as trust income.

Brokerage services income, which includes revenues from the sale of mutual funds and annuities, securities brokerage fees and, since mid-June 2021, select investment products of LPL Financial, totaled $20 million in the third quarter of 2021, up from $12 million in the corresponding 2020 quarter and $10 million in the second quarter of 2021. The recent quarter increase compared with the prior periods reflects the change in product delivery to retail brokerage and certain trust customers related to the LPL Financial relationship noted above. Trading account and foreign

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exchange activity resulted in gains of $6 million, $4 million and $7 million during the quarters ended September 30, 2021, September 30, 2020 and June 30, 2021, respectively. Information about the notional amount of interest rate, foreign exchange and other contracts entered into by the Company for trading account purposes is included in note 11 of Notes to Financial Statements and herein under the heading “Taxable-equivalent Net Interest Income.”

The Company recognized net gains on investment securities of less than $1 million in the recent quarter and $3 million in the year-earlier quarter, compared with net losses of $11 million in the second quarter of 2021. The gains and losses represented unrealized gains and losses on investments in Fannie Mae and Freddie Mac preferred stock.

Other revenues from operations were $120 million in the third quarter of 2021, compared with $108 million in the corresponding 2020 period and $113 million in the second quarter of 2021. The primary factor for the rise in such revenues in the recent quarter as compared with the third quarter of 2020 and 2021’s second quarter was the impact of increased customer activity, predominantly related to merchant discount and credit card fees and credit-related fees. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees aggregated $36 million in the recent quarter, $27 million in the year-earlier quarter and $28 million in the second quarter of 2021. The higher level of such revenues in the recent quarter as compared with the prior quarters resulted from increased loan syndication fees. Revenues from merchant discount and credit card fees were $39 million in the third quarter of 2021, compared with $28 million in the year-earlier quarter and $36 million in the second quarter of 2021. Increased customer activity in the two most recent quarters resulted in the improvement as compared with the third quarter of 2020. Tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received, totaled $11 million in the third quarter of 2021, $12 million in the third quarter of 2020 and $13 million in the second quarter of 2021. Insurance-related sales commissions and other revenues totaled $10 million in the recent quarter and $11 million in each of the quarters ended September 30, 2020 and June 30, 2021.

Other income totaled $1.59 billion and $1.54 billion during the first nine months of 2021 and 2020, respectively. Higher trust income, service charges on deposit accounts, brokerage services income, merchant discount and credit card fees, and credit-related fees in 2021 were the predominant factors for the improvement, partially offset by lower trading account and foreign exchange gains and unrealized losses on investment securities.

Mortgage banking revenues totaled $432 million during the first nine months of 2021, compared with $426 million during the similar period in 2020. Residential mortgage banking revenues aggregated $315 million and $329 million during the nine-month periods ended September 30, 2021 and 2020, respectively. New commitments to originate residential real estate loans to be sold aggregated $3.7 billion and $3.3 billion in the initial nine months of 2021 and 2020, respectively. Realized gains from sales of residential real estate loans and loan servicing rights and recognized unrealized gains and losses on residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans aggregated to gains of $138 million and $148 million in the nine-month periods ended September 30, 2021 and 2020, respectively. Revenues from servicing residential real estate loans for others were $177 million in the first nine months of 2021 and $181 million in the corresponding 2020 period. Included in servicing revenues were sub-servicing revenues aggregating $110 million and $101 million in the first nine months of 2021 and 2020, respectively. For the nine months ended September 30, commercial mortgage banking revenues were $117 million and $98 million in 2021 and 2020, respectively. Commercial real estate loans originated for sale to other investors totaled $2.7 billion and $2.2 billion during the nine-month periods ended September 30, 2021 and 2020, respectively.

Service charges on deposit accounts aggregated $297 million during the first nine months of 2021, compared with $275 million in the year-earlier period. That increase was predominantly due to depressed levels of consumer service charges in 2020 resulting from the impact of the pandemic, reflecting waived fees and lower customer transaction activity in that year. Trust income totaled $476 million and $451 million during the first nine months of 2021 and 2020, respectively. The increase in trust income in 2021 as compared with 2020 was largely due to higher revenues from the ICS business, reflecting both sales activities and higher retirement services income from growth in collective fund balances, and in the WAS business, reflecting favorable equity market performance. Brokerage services income totaled $44 million in the first nine months of 2021, compared with $35 million in the nine-month period ended September 30, 2020. That rise reflects the impact associated with certain trust customer business that was transferred

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to LPL Financial. Trading account and foreign exchange activity resulted in gains of $18 million and $33 million in the nine-months ended September 30, 2021 and 2020, respectively. The lower gains in 2021 were predominantly due to decreased activity related to interest rate swap agreements executed on behalf of commercial customers. The Company enters into interest rate and foreign exchange contracts with customers who need such services and concomitantly enters into offsetting trading positions with third parties to minimize the risks involved with these types of transactions. Net unrealized losses on investment securities totaling $23 million were recognized during the first nine months of 2021, compared with net unrealized losses of $11 million in the corresponding 2020 period.

Other revenues from operations totaled $344 million during the first nine months of 2021, compared with $328 million in the year-earlier period. Other revenues from operations include the following significant components. Letter of credit and other credit-related fees aggregated $96 million and $83 million in 2021 and 2020, respectively. That increase resulted from higher loan syndication fees. Income from bank owned life insurance totaled $34 million in the first nine months of 2021, compared with $37 million in the corresponding 2020 period. Merchant discount and credit card fees were $101 million and $80 million in the first nine months of 2021 and 2020, respectively. Increased customer activity, predominantly related to debit card and ATM usage, led to the improvement in 2021. Insurance-related commissions and other revenues aggregated $35 million and $36 million in the first nine months of 2021 and 2020, respectively. M&T’s investment in BLG resulted in income of $23 million in the first nine months of 2020; there was no similar income in the first nine months of 2021.

Other Expense

Other expense totaled $899 million in the third quarter of 2021, compared with $827 million in the year-earlier quarter and $865 million in the second quarter of 2021. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $3 million in each of the two most recent quarters and $4 million in the third quarter of 2020 and merger-related expenses of $9 million in third quarter of 2021 and $4 million in the second 2021 quarter. The merger-related expenses in the recent quarter largely reflected professional and other outside services, reflecting technology-related efforts to prepare for the integration of People’s United’s systems with those of the Company, and in the second quarter of 2021 were primarily comprised of printing costs associated with the production of the joint proxy statement/prospectus distributed to the shareholders of M&T and People’s United. Exclusive of those nonoperating expenses, noninterest operating expenses were $888 million in the recent quarter, compared with $823 million in the year-earlier quarter and $859 million in the second 2021 quarter. Factors contributing to the increased noninterest operating expenses in the recent quarter as compared with the third quarter of 2020 were higher costs for salaries and employee benefits, outside data processing and software, and professional services. When compared with the second quarter of 2021, the rise in noninterest operating expenses in the recent quarter resulted from increased costs for salaries and employee benefits. Table 2 provides a reconciliation of other expense to noninterest operating expense.

Other expense for the first nine months of 2021 totaled $2.68 billion, compared with $2.54 billion in the year-earlier period. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $8 million and $12 million in the nine-month periods ended September 30, 2021 and 2020, respectively, and merger-related expenses of $23 million during the first nine months of 2021. Exclusive of those nonoperating expenses, noninterest operating expenses for the first nine months of 2021 were $2.65 billion, compared with $2.53 billion in the similar 2020 period. The increase in noninterest operating expenses in the 2021 period was largely attributable higher costs for salaries and employee benefits, outside data processing and software, professional services and charitable contributions. Partially offsetting those factors was a $1 million decrease of the valuation allowance for capitalized residential mortgage servicing rights that was recorded in the first nine months of 2021, compared with an addition to that valuation allowance of $20 million in the similar 2020 period.

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Salaries and employee benefits expense totaled $510 million in the third quarter of 2021, compared with $479 million in each of the year-earlier quarter and the second quarter of 2021. The increased expenses in the recent quarter were predominantly the result of higher incentive compensation, including commissions. During the first nine months of 2021 and 2020, salaries and employee benefits expense aggregated $1.53 billion and $1.47 billion, respectively. The higher expense level in 2021 reflects increased costs for incentive compensation including commissions, and stock-based compensation. The Company, in accordance with GAAP, has accelerated the recognition of compensation costs for stock-based awards granted to retirement-eligible employees and employees who will become retirement-eligible prior to full vesting of the award. Salaries and employee benefits expense included stock-based compensation of $12 million in each of the three-month periods ended September 30, 2021 and 2020, $13 million in the three-month period ended June 30, 2021, and $74 million and $69 million during the nine-month periods ended September 30, 2021 and September 30, 2020, respectively. The number of full-time equivalent employees was 17,103 at September 30, 2021, compared with 16,980, and 16,978 at September 30, 2020 and June 30, 2021, respectively.

Excluding the nonoperating expense items described earlier from each quarter, nonpersonnel operating expenses were $377 million in the quarter ended September 30, 2021, $344 million in the quarter ended September 30, 2020 and $380 million in the second quarter of 2021. On that same basis, such expenses were $1.12 billion and $1.05 billion in the nine-month periods ended September 30, 2021 and 2020, respectively. The increase in nonpersonnel operating expenses in the recent quarter as compared with the third quarter of 2020 resulted largely from higher costs for professional services, outside data processing and software. The rise in nonpersonnel operating expenses in the first nine months of 2021 as compared with the same period in 2020 was largely the result of increased costs for professional services, outside data processing and software, and charitable contributions offset, in part, by the impact of a $1 million reduction of the valuation allowance for capitalized servicing rights in 2021 contrasted with an addition to that valuation allowance in the 2020 period of $20 million.

The efficiency ratio measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio was 57.7% during the recent quarter, compared with 56.2% and 58.4% in the third quarter of 2020 and second quarter of 2021, respectively. The efficiency ratios for the nine-month periods ended September 30, 2021 and 2020 were 58.8% and 57.0%, respectively.The calculation of the efficiency ratio is presented in table 2.

Income Taxes

The provision for income taxes was $162 million in the third quarter of 2021, compared with $115 million in the year-earlier quarter and $148 million in the second quarter of 2021. For the nine-month periods ended September 30, 2021 and 2020, the provisions for income taxes were $454 million and $267 million, respectively The effective tax rates were 24.6%, 23.6% and 24.4% for the quarters ended September 30, 2021, September 30, 2020 and June 30, 2021, respectively, and 24.5% and 23.2% for the nine-month periods ended September 30, 2021 and 2020, respectively.

The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income, the level of income allocated to the various state and local jurisdictions where the Company operates, because tax rates differ among such jurisdictions, and the impact of any large discrete or infrequently occurring items. The Company’s effective tax rate in future periods will also be affected by any change in income tax laws or regulations and interpretations of income tax regulations that differ from the Company’s interpretations by any of various tax authorities that may examine tax returns filed by M&T or any of its subsidiaries.

Capital

Shareholders’ equity was $17.5 billion at September 30, 2021, representing 11.54% of total assets, compared with $16.1 billion or 11.61% a year earlier and $16.2 billion or 11.35% at December 31, 2020.

Included in shareholders’ equity was preferred stock with financial statement carrying values of $1.75 billion at September 30, 2021 and $1.25 billion at each of September 30, 2020 and December 31, 2020. On August 17, 2021, M&T issued 50,000 shares of Series I Perpetual Fixed-Rate Reset Non-cumulative Preferred stock, par value $1.00 and liquidation preference of $10,000 per share. Through August 31, 2026 holders of the Series I preferred stock are entitled to receive, only when, as and if declared by M&T’s Board of Directors, non-cumulative cash dividends at an annual rate of 3.5%, payable semiannually in arrears. Subsequent to August 31, 2026 holders will be entitled to

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receive, only when, as and if declared by M&T’s Board of Directors, non-cumulative cash dividends at an annual rate of the five-year U.S. Treasury Rate plus 2.679%, payable semiannually in arrears. The Series I preferred stock may be redeemed at M&T’s option, in whole or in part, on any dividend payment date on or after September 1, 2026 or, in whole but not in part, at any time within 90 days following a regulatory capital treatment event whereby the full liquidation value of the shares no longer qualifies as “additional Tier 1 capital”.

Common shareholders’ equity was $15.8 billion or $122.60 per share, at September 30, 2021, compared with $14.9 billion or $115.75 per share, a year earlier and $14.9 billion or $116.39 per share at December 31, 2020. Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $86.88 at the end of the recent quarter, compared with $79.85 at September 30, 2020 and $80.52 at December 31, 2020. The Company’s ratio of tangible common equity to tangible assets was 7.59% at September 30, 2021, compared with 7.64% a year earlier and 7.49% at December 31, 2020. Reconciliations of total common shareholders’ equity and tangible common equity and total assets and tangible assets as of each of those respective dates are presented in table 2.

Shareholders’ equity reflects accumulated other comprehensive income or loss, which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, remaining unrealized losses on held-to-maturity securities transferred from available for sale that have not yet been amortized, gains or losses associated with interest rate swap agreements designated as cash flow hedges, foreign currency translation adjustments and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. Net unrealized gains on investment securities reflected in shareholders’ equity, net of applicable tax effect, were $105 million or $.81 per common share, at September 30, 2021, $152 million, or $1.18 per common share, at September 30, 2020 and $145 million, or $1.13 per common share, at December 31, 2020. Changes in unrealized gains and losses on investment securities are predominantly reflective of the impact of changes in interest rates on the values of such securities. Information about unrealized gains and losses as of September 30, 2021 and December 31, 2020 is included in note 3 of Notes to Financial Statements.

Reflected in the carrying amount of available-for-sale investment securities at September 30, 2021 were pre-tax effect unrealized gains of $151 million on securities with an amortized cost of $3.4 billion and pre-tax effect unrealized losses of $7 million on securities with an amortized cost of $100 million. Information concerning the Company’s fair valuations of investment securities is provided in notes 3 and 13 of Notes to Financial Statements.

Each reporting period the Company reviews its available-for-sale investment securities for declines in value that might be indicative of credit-related losses through an analysis of the creditworthiness of the issuer or the credit performance of the underlying collateral supporting the bond. If the Company does not expect to recover the entire amortized cost basis of a debt security a credit loss is recognized in the consolidated statement of income. A loss is also recognized if the Company intends to sell a bond or it more likely than not will be required to sell a bond before recovery of the amortized cost basis.

As of September 30, 2021, based on a review of each of the securities in the available-for-sale investment securities portfolio, the Company concluded that it expected to realize the amortized cost basis of each security. As of September 30, 2021, the Company did not intend to sell nor is it anticipated that it would be required to sell any securities for which fair value was less than the amortized cost basis of the security. The Company intends to continue to closely monitor the performance of its securities because changes in their underlying credit performance or other events could cause the amortized cost basis of those securities to become uncollectable.

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Accounting guidance requires investment securities held to maturity to be presented at their net carrying value that is expected to be collected over their contractual term. The Company estimated no material allowance for credit losses for its investment securities classified as held-to-maturity at September 30, 2021 and December 31, 2020 as the substantial majority of such investment securities were obligations backed by the U.S. government or its agencies. The Company assessed the potential for expected credit losses on privately issued mortgage-backed securities in the held-to-maturity portfolio by performing internal modeling to estimate bond-specific cash flows considering recent performance of the mortgage loan collateral and utilizing assumptions about future defaults and loss severity. These bond-specific cash flows also reflect the placement of the bond in the overall securitization structure and the remaining subordination levels. In total, at September 30, 2021 and December 31, 2020, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of $65 million and $77 million, respectively, and a fair value of $62 million and $70 million, respectively. At September 30, 2021, 82% of the mortgage-backed securities were in the most senior tranche of the securitization structure. The mortgage-backed securities are generally collateralized by residential and small-balance commercial real estate loans originated between 2004 and 2008. After considering the repayment structure and estimated future collateral cash flows of each individual bond, the Company has concluded that as of September 30, 2021, it expected to recover the amortized cost basis of those privately issued mortgage-backed securities. Nevertheless, it is possible that adverse changes in the estimated future performance of mortgage loan collateral underlying such securities could impact the Company’s conclusions.

Adjustments to reflect the funded status of defined benefit pension and other postretirement plans, net of applicable tax effect, reduced accumulated other comprehensive income by $436 million, or $3.38 per common share, at September 30, 2021, $315 million or $2.46 per common share, at September 30, 2020 and $481 million or $3.75 per common share, at December 31, 2020.

On January 20, 2021, M&T’s Board of Directors authorized a stock repurchase plan to repurchase up to $800 million of shares of M&T’s common stock during the twelve-month period from January 1, 2021 to December 31, 2021 subject to all applicable regulatory limitations. There were no repurchases pursuant to that repurchase plan during the first nine months of 2021, and M&T does not expect any repurchases while the acquisition of People’s United is pending. Pursuant to previously approved capital plans and authorizations by M&T’s Board of Directors, M&T repurchased 2,577,000 shares of its common stock for $374 million in the first quarter of 2020. There were no repurchases of M&T common stock in either of the second or third quarters of 2020.

Cash dividends declared on M&T’s common stock totaled $143 million in each of the two most recent quarters, compared with $142 million in the third quarter of 2020. Cash dividends declared on preferred stock aggregated $17 million in each of the third and second quarters of 2021 and in the third quarter of 2020.

M&T and its subsidiary banks are required to comply with applicable capital adequacy standards established by the federal banking agencies. Pursuant to those regulations, the minimum capital ratios are as follows:

	•	4.5% Common Equity Tier 1 (“CET1”) to risk-weighted assets (each as defined in the capital regulations);

	•	6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets (each as defined in the capital regulations);

	•	8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets (each as defined in the capital regulations); and

	•	4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”), as defined in the capital regulations.

In addition, capital regulations require a “capital conservation buffer” of 2.5% composed entirely of CET1 on top of the minimum risk-weighted asset ratios.

The federal bank regulatory agencies have issued rules that allow banks and bank holding companies to phase-in the impact of adopting the expected credit loss accounting model on regulatory capital. Those rules allow banks and bank holding companies to delay for two years the day one impact on retained earnings of adopting the expected loss accounting standard and 25% of the cumulative change in the reported allowance for credit losses subsequent to the

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initial adoption, followed by a three-year transition period. M&T and its subsidiary banks adopted these rules and the impact is reflected in the regulatory capital ratios presented herein.

The regulatory capital ratios of the Company and its bank subsidiaries, M&T Bank and Wilmington Trust, N.A., as of September 30, 2021 are presented in the accompanying table.

REGULATORY CAPITAL RATIOS

September 30, 2021

		M&T				M&T				Wilmington
		(Consolidated)				Bank				Trust, N.A.
Common equity Tier 1			11.15%				11.78%				34.43%
Tier 1 capital			12.83%				11.78%				34.43%
Total capital			15.06%				13.52%				34.50%
Tier 1 leverage			8.91%				8.18%				6.27%

The Company is subject to the comprehensive regulatory framework applicable to bank and financial holding companies and their subsidiaries, which includes examinations by a number of regulators. Regulation of financial institutions such as M&T and its subsidiaries is intended primarily for the protection of depositors, the Deposit Insurance Fund of the FDIC and the banking and financial system as a whole, and generally is not intended for the protection of shareholders, investors or creditors other than insured depositors. Changes in laws, regulations and regulatory policies applicable to the Company’s operations can increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive environment in which the Company operates, all of which could have a material effect on the business, financial condition or results of operations of the Company and in M&T’s ability to pay dividends. For additional information concerning this comprehensive regulatory framework, refer to Part I, Item 1 of M&T’s Form 10-K for the year ended December 31, 2020.

Segment Information

The Company's reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Financial information about the Company's segments is presented in note 15 of Notes to Financial Statements. The reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

The Business Banking segment contributed net income of $72 million during the quarter ended September 30, 2021, compared with $36 million in the year-earlier quarter and $42 million in the second quarter of 2021. As compared with the third quarter of 2020, a $42 million increase in net interest income resulting from a 278 basis point widening of the net interest margin on loans and higher average outstanding deposit balances of $2.6 billion were partially offset by a 33 basis point narrowing of the net interest margin on deposits and a $1.4 billion decline in average outstanding loan balances. The recent quarter’s higher net income as compared with 2021’s second quarter reflected a $34 million increase in net interest income resulting from a 200 basis point widening of the net interest margin on loans, partially offset by lower average outstanding loan balances of $929 million. The wider net interest margin on loans and the decline in outstanding loan balances in the recent quarter as compared with the prior quarters resulted from payoffs of PPP loans, and the related recognition of previously deferred fees associated with those payoffs. Net income earned by the Business Banking segment totaled $160 million during the first nine months of 2021, compared with $106 million in the year-earlier period. That 51% increase was attributable to a $62 million rise in net interest income, a $13 million decrease in the provision for credit losses, and higher merchant discount and credit card fees of $9 million offset, in part, by higher personnel-related costs of $9 million due largely to increased incentive compensation. The improvement in net interest income reflected a 145 basis point widening of the net interest margin on loans (due predominantly to fees from PPP loan payoffs) and higher average outstanding deposit balances of $3.5 billion, partially offset by a 68 basis point narrowing of the net interest margin on deposits.

Net income of the Commercial Banking segment was $144 million in the recent quarter, compared with $131 million in 2020’s third quarter and $111 million in the second quarter of 2021. The 10% increase in the third quarter of 2021 as compared with the year-earlier quarter reflected an $11 million increase in letter of credit and other credit-

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related fees (largely loan syndication fees), a $5 million increase in net interest income and higher merchant discount and credit card fees of $4 million. The higher net interest income resulted from a 31 basis point widening of the net interest margin on loans and higher average outstanding deposit balances of $3.1 billion, partially offset by a decline in average outstanding loan balances of $2.6 billion and a 25 basis point narrowing of the net interest margin on deposits, Partially offsetting those favorable factors was a $5 million decline in gains on the sale of previously leased equipment. The 30% rise in net income in the recent quarter as compared with the second quarter of 2021 was largely due to a $34 million decrease in the provision for credit losses and an $8 million increase in letter of credit and other credit-related fees (largely loan syndication fees). Year-to-date net income for the Commercial Banking segment totaled $378 million in 2021, compared with $386 million in 2020. The main factors contributing to that decrease were a $19 million increase in the provision for credit losses, primarily due to higher net charge-offs and lower net interest income of $11 million. The decline in net interest income reflected a 67 basis point narrowing of the net interest margin on deposits and lower average outstanding loan balances of $1.3 billion, partially offset by the impact of a $6.8 billion increase in average deposit balances and an 18 basis point widening of the net interest margin on loans. Partially offsetting those unfavorable factors were a $17 million increase in letter of credit and other credit-related fees (largely loan syndication fees) and an $11 million increase in merchant discount and credit card fees.

The Commercial Real Estate segment recorded net income of $85 million in the third quarter of 2021, compared with $87 million in each of the year-earlier period and the second quarter of 2021. As compared with the third quarter of 2020, an $11 million increase in the provision for credit losses, due to higher net charge-offs, and a $7 million increase in expenses associated with servicing loans, were predominantly offset by higher mortgage banking revenues of $16 million, due to increased origination activities and higher servicing income. The slight decline in net income in the third quarter of 2021 as compared with the immediately preceding quarter was largely attributable to a $15 million increase in the provision for credit losses, due to higher net charge-offs, a $7 million increase in expenses associated with servicing loans, and higher personnel-related costs of $6 million that reflected higher incentive compensation, offset by higher mortgage banking revenues of $17 million and a $10 million rise in net interest income, reflecting a 12 basis point widening of the net interest margin on loans. The rise in mortgage banking revenues reflects increases in origination and servicing income. Net income for the Commercial Real Estate segment totaled $243 million during the first three quarters of 2021, compared with $312 million in the similar 2020 period. That 22% year-over-year decline resulted from a $39 million increase in the provision for credit losses, due to higher net charge-offs, a $30 million decrease in net interest income that reflected narrowing of the net interest margin on deposits and loans of 69 basis points and 8 basis points, respectively, lower trading account and foreign exchange gains of $12 million resulting from reduced activity related to interest rate swap agreements executed on behalf of commercial customers, and higher costs for salaries and employee benefits of $7 million due to increased incentive compensation. Partially offsetting those unfavorable factors was a $17 million rise in mortgage banking revenues that reflected increases in origination and servicing income.

Net income earned by the Discretionary Portfolio segment aggregated $75 million during the three-month period ended September 30, 2021, compared with $97 million in the year-earlier period and $79 million in the second quarter of 2021. The decline in the recent quarter’s results as compared with the third quarter of 2020 was driven by a $21 million decrease in net interest income, reflecting lower loan and investment securities balances, a 56 basis point narrowing of the net interest margin on loans, and lower valuation gains associated with marketable equity securities of $2 million. The lower net income in 2021’s third quarter as compared with the immediately preceding quarter resulted from lower net interest income of $12 million, also reflecting lower loan and investment securities balances, a 22 basis point narrowing of the net interest margin on loans, partially offset by an $11 million improvement in the valuation of marketable equity securities. For the first nine months, net income for this segment totaled $244 million in 2021 and $219 million in 2020. The main favorable factor contributing to that improvement was a $52 million increase in net interest income, reflecting a widening of the net interest margin on deposits and loans of 38 basis points and 30 basis points, respectively, partially offset by lower average outstanding loan balances of $930 million. Reducing the favorable impact of the higher net interest income were increased valuation losses associated with marketable equity securities of $12 million and additional centrally-allocated costs associated with data processing, risk management and other support services provided to the Discretionary Portfolio segment of $6 million.

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Net income recorded by the Residential Mortgage Banking segment aggregated $46 million during the three-month period ended September 30, 2021, compared with $45 million in the year-earlier period and $30 million in the second quarter of 2021. The slight improvement in the recent quarter as compared with the similar 2020 period was predominantly attributable to a $9 million decrease in servicing-related costs (including intersegment costs and changes to the valuation allowance for capitalized residential mortgage servicing rights) and higher revenues of $7 million associated with servicing residential real estate loans. Almost entirely offsetting those favorable factors were lower revenues associated with mortgage origination and sales activities (including intersegment revenues) of $15 million. As compared with the second quarter of 2021, the recent quarter improvement was attributable to a $10 million increase in revenues associated with mortgage origination and sales activities (including intersegment revenues) and lower servicing-related costs (including intersegment costs and changes to the valuation allowance for capitalized residential mortgage servicing rights) of $9 million. Year-to-date net income for this segment totaled $126 million in 2021 and $107 million in 2020. Contributing to that year-over-year increase were a $38 million increase in net interest income, reflecting higher outstanding loan balances of $1.8 billion and a 13 basis point widening of the net interest margin on deposits, and a $30 million decrease in servicing-related costs (including intersegment costs and changes to the valuation allowance for capitalized residential mortgage servicing rights). Those favorable factors were partially offset by a $23 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Residential Mortgage Banking segment, higher personnel-related costs of $11 million, and lower revenues of $10 million associated with mortgage origination and sales activities (including intersegment revenues).

Net income for the Retail Banking segment totaled $88 million in the recent quarter, compared with $85 million in the third quarter of 2020 and $89 million in the second quarter of 2021. The increase from the third quarter of 2020 was largely attributable to a $13 million decline in the provision for credit losses, an $8 million decrease in personnel-related costs, and higher service charges on deposit accounts of $8 million. Those favorable factors were offset, in part, by a $25 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Retail Banking segment. Net income in the recent quarter as compared with the second quarter of 2021 declined slightly, driven by a $15 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Retail Banking segment, largely offset by a $6 million decrease in personnel-related costs and a $5 million increase in service charges on deposit accounts. The Retail Banking segment recorded net income of $263 million and $282 million in the first nine months of 2021 and 2020, respectively. That decrease was predominantly due to a $76 million decline in net interest income, reflecting a 57 basis point narrowing of the net interest margin on deposits, partially offset by higher average outstanding deposit and loan balances of $5.4 billion and $1.5 billion, respectively, and a $47 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Retail Banking segment. Those unfavorable factors were offset, in part, by a $42 million decrease in the provision for credit losses, due to lower net charge-offs, lower personnel-related costs of $26 million, a $15 million increase in service charges on deposit accounts, a $6 million rise in merchant discount and credit card fees, and a $6 million reduction in outside data processing and software expenses.

The “All Other” category reflects other activities of the Company that are not directly attributable to the reported segments. Reflected in this category are the amortization of core deposit and other intangible assets resulting from the acquisitions of financial institutions, distributions from BLG, merger-related expenses resulting from acquisitions, and the net impact of the Company’s allocation methodologies for internal transfers for funding charges and credits associated with the earning assets and interest-bearing liabilities of the Company’s reportable segments and the provision for credit losses. The “All Other” category also includes trust income of the Company that reflects the ICS and WAS business activities. The various components of the “All Other” category resulted in net losses of $14 million in the third quarter of 2021 and $110 million in the third 2020 quarter, compared with net income of $21 million in the second quarter of 2021. The lower net loss in the recent quarter as compared with the third quarter of 2020 resulted from a decrease in the provision for credit losses of $162 million and higher trust and brokerage services income of $16 million, partially offset by a $33 million increase in personnel-related costs (reflecting higher incentive compensation) and higher professional services costs of $31 million. The net loss in the recent quarter as compared with the second 2021 quarter’s net income reflected higher personnel-related costs of $32 million (reflecting higher

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incentive compensation) and an increase in the provision for credit losses of $18 million. Offsetting those factors was the favorable impact from the Company’s allocation methodologies for internal transfers for funding charges and credits associated with earning assets and interest-bearing liabilities of the Company’s reportable segments. The “All Other” category had net losses of $12 million and $530 million for the nine-month periods ended September 30, 2021 and 2020, respectively. The primary factor contributing to the decreased net loss in the 2021 period was a lower provision for credit losses of $785 million. That favorable factor was partially offset by higher professional services costs of $65 million, higher personnel-related costs of $57 million and increased outside data processing and software costs of $26 million.

Recent Accounting Developments

A discussion of recent accounting developments is included in note 16 of Notes to Financial Statements.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement, including statements that are based on current expectations, estimates and projections about the Company’s business, and management’s beliefs and assumptions.

Statements regarding the potential effects of the COVID-19 pandemic on the Company's business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Company's control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on customers, clients, third parties and the Company.

Statements regarding the Company’s expectations or predictions regarding the proposed transaction between M&T and People’s United also are forward-looking statements, including statements regarding the expected timing, completion and effects of the proposed transaction as well as M&T’s and People’s United’s expected financial results, prospects, targets, goals and outlook. M&T provides further detail regarding the risks and uncertainties related to the proposed transaction in its public filings, including in the “Risk Factors” section of this quarterly report.

Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could,” or “may,” or by variations of such words or by similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“future factors”) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

Future factors include risks, predictions and uncertainties relating to: the proposed transaction between M&T and People’s United, including the factors that are described in the “Risk Factors” section of this quarterly report; the impact of the COVID-19 pandemic; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; the impact of changes in market values on trust-related revenues; legislation and regulations affecting the financial services industry, and/or M&T and its subsidiaries individually or collectively, including tax policy; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board, regulatory agencies or legislation; increasing price, product and service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products and services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year

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contracts; the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support M&T and its subsidiaries' future businesses; and material differences in the actual financial results of merger, acquisition and investment activities compared with M&T's initial expectations, including the full realization of anticipated cost savings and revenue enhancements.

These are representative of the future factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other future factors.

M&T provides further detail regarding these risks, uncertainties and other factors elsewhere in this quarterly report and in other public filings, including the risk factors described in Form 10-K for the year ended December 31, 2020 and this quarterly report. Forward-looking statements speak only as of the date they are made, and the Company assumes no duty, and does not undertake, to update forward-looking statements.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 1

QUARTERLY TRENDS

		2021 Quarters												2020 Quarters
		Third				Second				First				Fourth				Third				Second				First
Earnings and dividends
Amounts in thousands, except per share
Interest income (taxable-equivalent basis)		$	996,649				974,090				1,020,695				1,042,862				1,005,180				1,036,476				1,125,482
Interest expense			25,696				28,018				35,567				49,610				58,066				75,105				143,614
Net interest income			970,953				946,072				985,128				993,252				947,114				961,371				981,868
Less: provision for credit losses			(20,000	)			(15,000	)			(25,000	)			75,000				150,000				325,000				250,000
Other income			569,126				513,633				505,598				551,250				520,561				487,273				529,360
Less: other expense			899,334				865,345				919,444				845,008				826,774				807,042				906,416
Income before income taxes			660,745				609,360				596,282				624,494				490,901				316,602				354,812
Applicable income taxes			161,582				147,559				145,300				149,382				114,746				71,314				80,927
Taxable-equivalent adjustment			3,703				3,732				3,733				3,972				4,019				4,234				5,063
Net income		$	495,460				458,069				447,249				471,140				372,136				241,054				268,822
Net income available to common shareholders-diluted		$	475,961				438,759				428,093				451,869				353,400				223,099				250,701
Per common share data
Basic earnings		$	3.70				3.41				3.33				3.52				2.75				1.74				1.93
Diluted earnings			3.69				3.41				3.33				3.52				2.75				1.74				1.93
Cash dividends		$	1.10				1.10				1.10				1.10				1.10				1.10				1.10
Average common shares outstanding
Basic			128,689				128,671				128,537				128,303				128,285				128,275				129,696
Diluted			128,844				128,842				128,669				128,379				128,355				128,333				129,755
Performance ratios, annualized
Return on
Average assets			1.28		%		1.22		%		1.22		%		1.30		%		1.06		%		.71		%		.90		%
Average common shareholders’ equity			12.16		%		11.55		%		11.57		%		12.07		%		9.53		%		6.13		%		7.00		%
Net interest margin on average earning assets (taxable-equivalent basis)			2.74		%		2.77		%		2.97		%		3.00		%		2.95		%		3.13		%		3.65		%
Nonaccrual loans to total loans and leases, net of unearned discount			2.40		%		2.31		%		1.97		%		1.92		%		1.26		%		1.18		%		1.13		%
Net operating (tangible) results (a)
Net operating income (in thousands)		$	504,030				462,959				457,372				473,453				375,029				243,958				271,705
Diluted net operating income per common share		$	3.76				3.45				3.41				3.54				2.77				1.76				1.95
Annualized return on
Average tangible assets			1.34		%		1.27		%		1.29		%		1.35		%		1.10		%		.74		%		.94		%
Average tangible common shareholders’ equity			17.54		%		16.68		%		17.05		%		17.53		%		13.94		%		9.04		%		10.39		%
Efficiency ratio (b)			57.7		%		58.4		%		60.3		%		54.6		%		56.2		%		55.7		%		58.9		%
Balance sheet data
In millions, except per share
Average balances
Total assets (c)		$	154,037				150,641				148,157				144,563				140,181				136,446				120,585
Total tangible assets (c)			149,439				146,041				143,554				139,958				135,574				131,836				115,972
Earning assets			140,420				136,951				134,355				131,916				127,689				123,492				108,226
Investment securities			6,019				6,211				6,605				7,195				7,876				8,500				9,102
Loans and leases, net of unearned discount			95,314				98,610				99,356				98,666				98,210				97,797				91,706
Deposits			131,255				128,413				125,733				120,976				116,306				111,795				96,166
Common shareholders’ equity (c)			15,614				15,321				15,077				14,963				14,823				14,703				14,470
Tangible common shareholders’ equity (c)			11,016				10,721				10,474				10,358				10,216				10,093				9,857
At end of quarter
Total assets (c)		$	151,901				150,623				150,481				142,601				138,627				139,537				124,578
Total tangible assets (c)			147,304				146,023				145,879				137,998				134,021				134,928				119,966
Earning assets			138,257				137,171				137,367				129,295				126,418				127,149				112,046
Investment securities			6,448				6,143				6,611				7,046				7,723				8,454				8,957
Loans and leases, net of unearned discount			93,583				97,113				99,299				98,536				98,447				97,758				94,142
Deposits			128,701				128,269				128,476				119,806				115,163				114,968				100,183
Common shareholders’ equity (c)			15,779				15,470				15,197				14,937				14,851				14,695				14,566
Tangible common shareholders’ equity (c)			11,182				10,870				10,595				10,334				10,245				10,086				9,954
Equity per common share			122.60				120.22				118.12				116.39				115.75				114.54				113.54
Tangible equity per common share			86.88				84.47				82.35				80.52				79.85				78.62				77.60

(a)	Excludes amortization and balances related to goodwill and core deposit and other intangible assets and merger-related expenses which, except in the calculation of the efficiency ratio, are net of applicable income tax effects. A reconciliation of net income and net operating income appears in table 2.

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

(c)	The difference between total assets and total tangible assets, and common shareholders’ equity and tangible common shareholders’ equity, represents goodwill, core deposit and other intangible assets, net of applicable deferred tax balances. A reconciliation of such balances appears in table 2.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 2

RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES

		2021												2020 Quarters
		Third				Second				First				Fourth				Third				Second				First
Income statement data (in thousands, except per share)
Net income
Net income		$	495,460			$	458,069				447,249				471,140				372,136				241,054				268,822
Amortization of core deposit and other intangible assets (a)			2,028				2,023				2,034				2,313				2,893				2,904				2,883
Merger-related expenses (a)			6,542				2,867				8,089				—				—				—				—
Net operating income		$	504,030			$	462,959				457,372				473,453				375,029				243,958				271,705
Earnings per common share
Diluted earnings per common share		$	3.69			$	3.41				3.33				3.52				2.75				1.74				1.93
Amortization of core deposit and other intangible assets (a)			.02				.02				.02				.02				.02				.02				.02
Merger-related expenses (a)			.05				.02				.06				—				—				—				—
Diluted net operating earnings per common share		$	3.76			$	3.45				3.41				3.54				2.77				1.76				1.95
Other expense
Other expense		$	899,334			$	865,345				919,444				845,008				826,774				807,042				906,416
Amortization of core deposit and other intangible assets			(2,738	)			(2,737	)			(2,738	)			(3,129	)			(3,914	)			(3,913	)			(3,913	)
Merger-related expenses			(8,826	)			(3,893	)			(9,951	)			—				—				—				—
Noninterest operating expense		$	887,770			$	858,715				906,755				841,879				822,860				803,129				902,503
Merger-related expenses
Salaries and employee benefits		$	60			$	4				—				—				—				—				—
Equipment and net occupancy			1				—				—				—				—				—				—
Outside data processing and software			625				244				—				—				—				—				—
Advertising and marketing			505				24				—				—				—				—				—
Printing, postage and supplies			730				2,049				—				—				—				—				—
Other costs of operations			6,905				1,572				9,951				—				—				—				—
Other expense		$	8,826			$	3,893				9,951				—				—				—				—
Efficiency ratio
Noninterest operating expense (numerator)		$	887,770			$	858,715				906,755				841,879				822,860				803,129				902,503
Taxable-equivalent net interest income		$	970,953			$	946,072				985,128				993,252				947,114				961,371				981,868
Other income			569,126				513,633				505,598				551,250				520,561				487,273				529,360
Less: Gain (loss) on bank investment securities			291				(10,655	)			(12,282	)			1,619				2,773				6,969				(20,782	)
Denominator		$	1,539,788			$	1,470,360				1,503,008				1,542,883				1,464,902				1,441,675				1,532,010
Efficiency ratio			57.7	%			58.4	%			60.3	%			54.6	%			56.2	%			55.7	%			58.9	%
Balance sheet data (in millions)
Average assets
Average assets		$	154,037			$	150,641				148,157				144,563				140,181				136,446				120,585
Goodwill			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)
Core deposit and other intangible assets			(7	)			(10	)			(13	)			(16	)			(19	)			(23	)			(27	)
Deferred taxes			2				3				3				4				5				6				7
Average tangible assets		$	149,439			$	146,041				143,554				139,958				135,574				131,836				115,972
Average common equity
Average total equity		$	17,109			$	16,571				16,327				16,213				16,073				15,953				15,720
Preferred stock			(1,495	)			(1,250	)			(1,250	)			(1,250	)			(1,250	)			(1,250	)			(1,250	)
Average common equity			15,614				15,321				15,077				14,963				14,823				14,703				14,470
Goodwill			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)
Core deposit and other intangible assets			(7	)			(10	)			(13	)			(16	)			(19	)			(23	)			(27	)
Deferred taxes			2				3				3				4				5				6				7
Average tangible common equity		$	11,016			$	10,721				10,474				10,358				10,216				10,093				9,857
At end of quarter
Total assets
Total assets		$	151,901			$	150,623				150,481				142,601				138,627				139,537				124,578
Goodwill			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)
Core deposit and other intangible assets			(6	)			(9	)			(12	)			(14	)			(17	)			(21	)			(25	)
Deferred taxes			2				2				3				4				4				5				6
Total tangible assets		$	147,304			$	146,023				145,879				137,998				134,021				134,928				119,966
Total common equity
Total equity		$	17,529			$	16,720				16,447				16,187				16,101				15,945				15,816
Preferred stock			(1,750	)			(1,250	)			(1,250	)			(1,250	)			(1,250	)			(1,250	)			(1,250	)
Common equity			15,779				15,470				15,197				14,937				14,851				14,695				14,566
Goodwill			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)			(4,593	)
Core deposit and other intangible assets			(6	)			(9	)			(12	)			(14	)			(17	)			(21	)			(25	)
Deferred taxes			2				2				3				4				4				5				6
Total tangible common equity		$	11,182			$	10,870				10,595				10,334				10,245				10,086				9,954

*(*a)	After any related tax effect.

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 3

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES

		2021 Third Quarter												2021 Second Quarter												2021 First Quarter
		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
Average balance in millions; interest in thousands
Assets
Earning assets
Loans and leases, net of unearned discount (a)
Commercial, financial, etc.		$	23,730			$	236,820				3.96		%		27,055				219,686				3.26		%		27,723				240,961				3.53		%
Real estate – commercial			37,547				371,150				3.87				37,419				371,050				3.92				37,609				391,094				4.16
Real estate – consumer			16,379				146,898				3.59				17,022				150,704				3.54				17,404				154,219				3.54
Consumer			17,658				193,256				4.34				17,114				189,254				4.44				16,620				190,038				4.64
Total loans and leases, net			95,314				948,124				3.95				98,610				930,694				3.79				99,356				976,312				3.99
Interest-bearing deposits at banks			39,036				14,922				.15				32,081				8,711				.11				27,666				6,874				.10
Federal funds sold and agreements to resell securities			—				—				—				—				—				—				678				202				.12
Trading account			51				345				2.71				49				216				1.76				50				178				1.44
Investment securities (b)
U.S. Treasury and federal agencies			5,352				30,362				2.25				5,525				31,621				2.30				5,920				34,094				2.34
Obligations of states and political subdivisions			—				3				6.44				1				10				5.77				1				14				5.66
Other			667				2,893				1.72				685				2,838				1.66				684				3,021				1.79
Total investment securities			6,019				33,258				2.19				6,211				34,469				2.23				6,605				37,129				2.28
Total earning assets			140,420				996,649				2.82				136,951				974,090				2.85				134,355				1,020,695				3.08
Allowance for credit losses			(1,577	)											(1,642	)											(1,744	)
Cash and due from banks			1,480												1,409												1,408
Other assets			13,714												13,923												14,138
Total assets		$	154,037												150,641												148,157
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits
Savings and interest-checking deposits		$	70,976				7,000				.04				71,561				8,052				.05				70,458				11,504				.07
Time deposits			3,061				3,573				.46				3,358				5,085				.61				3,732				7,010				.76
Deposits at Cayman Islands office			—				—				—				50				15				.12				683				185				.11
Total interest-bearing deposits			74,037				10,573				.06				74,969				13,152				.07				74,873				18,699				.10
Short-term borrowings			91				2				.01				61				2				.01				62				2				.01
Long-term borrowings			3,431				15,121				1.75				3,429				14,864				1.74				3,851				16,866				1.78
Total interest-bearing liabilities			77,559				25,696				.14				78,459				28,018				.14				78,786				35,567				.18
Noninterest-bearing deposits			57,218												53,444												50,860
Other liabilities			2,151												2,167												2,184
Total liabilities			136,928												134,070												131,830
Shareholders’ equity			17,109												16,571												16,327
Total liabilities and shareholders’ equity		$	154,037												150,641												148,157
Net interest spread											2.68												2.71												2.90
Contribution of interest-free funds											.06												.06												.07
Net interest income/margin on earning assets						$	970,953				2.74		%						946,072				2.77		%						985,128				2.97		%

(a)	Includes nonaccrual loans.

(b)	Includes available-for-sale securities at amortized cost.

(continued)

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M&T BANK CORPORATION AND SUBSIDIARIES

Table 3 (continued)

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

		2020 Fourth Quarter												2020 Third Quarter
		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
Average balance in millions; interest in thousands
Assets
Earning assets
Loans and leases, net of unearned discount (a)
Commercial, financial, etc.			27,713				247,847				3.56		%	$	28,333			$	217,171				3.05		%
Real estate – commercial			37,707				400,176				4.15				37,243				398,619				4.19
Real estate – consumer			16,761				149,218				3.56				16,558				152,594				3.69
Consumer			16,485				197,992				4.78				16,076				192,223				4.76
Total loans and leases, net			98,666				995,233				4.01				98,210				960,607				3.89
Interest-bearing deposits at banks			22,206				5,648				.10				16,440				4,163				.10
Federal funds sold and agreements to resell securities			3,799				1,101				.12				5,113				1,615				.13
Trading account			50				243				1.97				50				201				1.62
Investment securities (b)
U.S. Treasury and federal agencies			6,497				37,768				2.31				7,177				37,157				2.06
Obligations of states and political subdivisions			2				24				5.25				2				23				4.51
Other			696				2,845				1.63				697				1,414				.81
Total investment securities			7,195				40,637				2.25				7,876				38,594				1.95
Total earning assets			131,916				1,042,862				3.15				127,689				1,005,180				3.13
Allowance for credit losses			(1,768	)											(1,649	)
Cash and due from banks			1,372												1,390
Other assets			13,043												12,751
Total assets			144,563											$	140,181
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits
Savings and interest-checking deposits			69,133				19,841				.11			$	65,848				22,403				.14
Time deposits			4,113				10,006				.97				4,715				14,519				1.22
Deposits at Cayman Islands office			826				233				.11				957				241				.10
Total interest-bearing deposits			74,072				30,080				.16				71,520				37,163				.21
Short-term borrowings			64				2				.01				62				1				.01
Long-term borrowings			5,294				19,528				1.47				5,499				20,902				1.51
Total interest-bearing liabilities			79,430				49,610				.25				77,081				58,066				.30
Noninterest-bearing deposits			46,904												44,786
Other liabilities			2,016												2,241
Total liabilities			128,350												124,108
Shareholders’ equity			16,213												16,073
Total liabilities and shareholders’ equity			144,563											$	140,181
Net interest spread											2.90												2.83
Contribution of interest-free funds											.10												.12
Net interest income/margin on earning assets							993,252				3.00		%					$	947,114				2.95		%

(a)	Includes nonaccrual loans.

(b)	Includes available-for-sale securities at amortized cost.

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