e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9861
M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)
     
New York
(State or other jurisdiction of
incorporation or organization)
  16-0968385
(I.R.S. Employer
Identification No.)
     
One M & T Plaza
Buffalo, New York
(Address of principal
executive offices)
 
14203
(Zip code)
(716) 842-5445
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on July 29, 2011: 125,599,926 shares.
 
 

 


 

M&T BANK CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 2011
         
Table of Contents of Information Required in Report   Page  
       
       
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 EX-31.1
 EX-31.2
 EX-32.1
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 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
                 
    June 30,     December 31,  
Dollars in thousands, except per share   2011     2010  
 
Assets
               
Cash and due from banks
  $ 1,297,335       908,755  
Interest-bearing deposits at banks
    2,275,450       101,222  
Federal funds sold
    35,580       25,000  
Agreement to resell securities
    380,000        
Trading account
    502,986       523,834  
Investment securities (includes pledged securities that can be sold or repledged of $2,040,940 at June 30, 2011; $1,937,817 at December 31, 2010)
               
Available for sale (cost: $5,026,881 at June 30, 2011; $5,494,377 at December 31, 2010)
    4,890,489       5,413,492  
Held to maturity (fair value: $1,143,496 at June 30, 2011; $1,225,253 at December 31, 2010)
    1,219,686       1,324,339  
Other (fair value: $382,090 at June 30, 2011; $412,709 at December 31, 2010)
    382,090       412,709  
 
Total investment securities
    6,492,265       7,150,540  
 
Loans and leases
    58,844,512       52,315,942  
Unearned discount
    (303,283 )     (325,560 )
 
Loans and leases, net of unearned discount
    58,541,229       51,990,382  
Allowance for credit losses
    (907,589 )     (902,941 )
 
Loans and leases, net
    57,633,640       51,087,441  
 
Premises and equipment
    567,107       435,837  
Goodwill
    3,524,625       3,524,625  
Core deposit and other intangible assets
    275,057       125,917  
Accrued interest and other assets
    4,743,109       4,138,092  
 
Total assets
  $ 77,727,154       68,021,263  
 
Liabilities
               
Noninterest-bearing deposits
  $ 18,598,828       14,557,568  
NOW accounts
    1,687,184       1,393,349  
Savings deposits
    30,712,851       26,431,281  
Time deposits
    7,678,799       5,817,170  
Deposits at Cayman Islands office
    551,553       1,605,916  
 
Total deposits
    59,229,215       49,805,284  
 
Federal funds purchased and agreements to repurchase securities
    452,091       866,555  
Other short-term borrowings
    115,053       80,877  
Accrued interest and other liabilities
    1,557,685       1,070,701  
Long-term borrowings
    7,128,916       7,840,151  
 
Total liabilities
    68,482,960       59,663,568  
 
Shareholders’ equity
               
Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 381,500 shares at June 30, 2011 and 778,000 shares at December 31, 2010; Liquidation preference of $10,000 per share: 50,000 shares at June 30, 2011 and none at December 31, 2010
    860,901       740,657  
Common stock, $.50 par, 250,000,000 shares authorized, 125,554,637 shares issued at June 30, 2011; 120,396,611 shares issued at December 31, 2010
    62,777       60,198  
Common stock issuable, 67,634 shares at June 30, 2011; 71,345 shares at December 31, 2010
    4,030       4,189  
Additional paid-in capital
    2,800,002       2,398,615  
Retained earnings
    5,745,253       5,426,701  
Accumulated other comprehensive income (loss), net
    (228,769 )     (205,220 )
Treasury stock — common, at cost — none at June 30, 2011; 693,974 shares at December 31, 2010
          (67,445 )
 
Total shareholders’ equity
    9,244,194       8,357,695  
 
Total liabilities and shareholders’ equity
  $ 77,727,154       68,021,263  
 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
                                         
            Three months ended June 30     Six months ended June 30  
In thousands, except per share         2011     2010     2011     2010  
 
Interest income  
Loans and leases, including fees
  $ 624,247       596,919     $ 1,218,279       1,185,046  
       
Deposits at banks
    479       5       515       11  
       
Federal funds sold
    10       9       28       20  
       
Agreements to resell securities
    127       2       128       4  
       
Trading account
    282       110       670       193  
       
Investment securities
                               
       
Fully taxable
    60,827       85,232       131,489       170,879  
       
Exempt from federal taxes
    2,281       2,507       4,627       5,017  
 
       
Total interest income
    688,253       684,784       1,355,736       1,361,170  
 
Interest expense  
NOW accounts
    274       219       476       419  
       
Savings deposits
    20,757       21,464       39,996       41,913  
       
Time deposits
    19,310       26,254       38,381       55,700  
       
Deposits at Cayman Islands office
    193       376       587       701  
       
Short-term borrowings
    147       726       639       1,613  
       
Long-term borrowings
    61,370       68,518       120,651       137,263  
 
       
Total interest expense
    102,051       117,557       200,730       237,609  
 
       
Net interest income
    586,202       567,227       1,155,006       1,123,561  
       
Provision for credit losses
    63,000       85,000       138,000       190,000  
 
       
Net interest income after provision for credit losses
    523,202       482,227       1,017,006       933,561  
 
Other income  
Mortgage banking revenues
    42,151       47,084       87,307       88,560  
       
Service charges on deposit accounts
    119,716       128,976       229,447       249,271  
       
Trust income
    75,592       30,169       104,913       61,097  
       
Brokerage services income
    14,926       12,788       29,222       25,894  
       
Trading account and foreign exchange gains
    6,798       3,797       15,077       8,496  
       
Gain on bank investment securities
    110,744       10       150,097       469  
       
Total other-than-temporary impairment (“OTTI”) losses
    (33,211 )     (21,079 )     (42,725 )     (50,566 )
       
Portion of OTTI losses recognized in other comprehensive income (before taxes)
    6,681       (1,301 )     154       1,384  
 
       
Net OTTI losses recognized in earnings
    (26,530 )     (22,380 )     (42,571 )     (49,182 )
 
       
Equity in earnings of Bayview Lending Group LLC
    (5,223 )     (6,179 )     (11,901 )     (11,893 )
       
Other revenues from operations
    163,482       79,292       254,485       158,551  
 
       
Total other income
    501,656       273,557       816,076       531,263  
 
Other expense  
Salaries and employee benefits
    300,178       245,861       566,268       509,907  
       
Equipment and net occupancy
    59,670       55,431       116,333       110,832  
       
Printing, postage and supplies
    9,723       8,549       18,925       17,592  
       
Amortization of core deposit and other intangible assets
    14,740       14,833       27,054       31,308  
       
FDIC assessments
    26,609       21,608       45,703       42,956  
       
Other costs of operations
    165,975       129,786       302,183       252,835  
 
       
Total other expense
    576,895       476,068       1,076,466       965,430  
 
       
Income before taxes
    447,963       279,716       756,616       499,394  
       
Income taxes
    125,605       90,967       227,985       159,690  
 
       
Net income
  $ 322,358       188,749     $ 528,631       339,704  
 
       
 
                               
       
Net income available to common shareholders
                               
       
Basic
  $ 297,164       173,588     $ 487,283       310,026  
       
Diluted
    297,179       173,597       487,308       310,037  
       
 
                               
       
Net income per common share
                               
       
Basic
  $ 2.43       1.47     $ 4.04       2.63  
       
Diluted
    2.42       1.46       4.02       2.61  
       
 
                               
       
Cash dividends per common share
  $ .70       .70     $ 1.40       1.40  
       
 
                               
       
Average common shares outstanding
                               
       
Basic
    122,181       118,054       120,699       117,910  
       
Diluted
    122,796       118,878       121,332       118,569  

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M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
                         
            Six months ended June 30  
In thousands         2011     2010  
 
Cash flows from operating activities  
Net income
  $ 528,631       339,704  
   
Adjustments to reconcile net income to net cash provided by operating activities
               
   
Provision for credit losses
    138,000       190,000  
       
Depreciation and amortization of premises and equipment
    38,370       34,045  
       
Amortization of capitalized servicing rights
    26,742       28,908  
       
Amortization of core deposit and other intangible assets
    27,054       31,308  
       
Provision for deferred income taxes
    (18,201 )     (22,923 )
       
Asset write-downs
    48,032       51,510  
       
Net (gain) loss on sales of assets
    (181,318 )     1,420  
       
Net change in accrued interest receivable, payable
    4,035       (2,248 )
       
Net change in other accrued income and expense
    23,766       155,403  
       
Net change in loans originated for sale
    167,857       227,734  
       
Net change in trading account assets and liabilities
    60,210       (6,091 )
 
       
Net cash provided by operating activities
    863,178       1,028,770  
 
Cash flows from investing activities  
Proceeds from sales of investment securities
               
   
Available for sale
    1,909,223       14,870  
       
Other
    71,729       49,463  
       
Proceeds from maturities of investment securities
               
       
Available for sale
    751,314       729,562  
       
Held to maturity
    114,913       77,524  
       
Purchases of investment securities
               
       
Available for sale
    (1,609,272 )     (401,246 )
       
Held to maturity
    (13,151 )     (987,993 )
       
Other
    (1,249 )     (6,781 )
       
Net (increase) decrease in loans and leases
    (454,782 )     757,032  
       
Net decrease in interest-bearing deposits at banks
    432,037       15,509  
       
Net increase in agreements to resell securities
    (365,000 )      
       
Other investments, net
    (10,249 )     (21,152 )
       
Additions to capitalized servicing rights
    (6,935 )     (95 )
       
Capital expenditures, net
    (13,976 )     (23,403 )
       
Acquisitions, net of cash acquired
               
       
Banks and bank holding companies
    178,940        
       
Purchase of Wilmington Trust Corporation preferred stock
    (330,000 )      
       
Other, net
    186,771       40,723  
 
       
Net cash provided by investing activities
    840,313       244,013  
 
Cash flows from financing activities  
Net increase in deposits
    566,316       82,464  
   
Net decrease in short-term borrowings
    (528,035 )     (283,616 )
       
Payments on long-term borrowings
    (1,331,316 )     (1,106,386 )
       
Proceeds from issuance of preferred stock
    495,000        
       
Redemption of preferred stock
    (370,000 )      
       
Dividends paid — common
    (173,135 )     (167,090 )
       
Dividends paid — preferred
    (20,046 )     (20,113 )
       
Other, net
    56,885       31,502  
 
       
Net cash used by financing activities
    (1,304,331 )     (1,463,239 )
 
       
Net increase (decrease) in cash and cash equivalents
    399,160       (190,456 )
       
Cash and cash equivalents at beginning of period
    933,755       1,246,342  
 
       
Cash and cash equivalents at end of period
  $ 1,332,915       1,055,886  
 
Supplemental disclosure of cash flow information  
Interest received during the period
  $ 1,366,981       1,382,432  
 
Interest paid during the period
    205,514       248,214  
 
Income taxes paid during the period
    266,240       145,202  
 
Supplemental schedule of noncash investing and financing activities  
Real estate acquired in settlement of loans
Acquisitions:
  $ 45,774       141,168  
   
Fair value of:
               
       
Assets acquired (noncash)
    10,666,102        
       
Liabilities assumed
    10,044,555        
       
Common stock issued
    405,557        
       
Retirement of Wilmington Trust Corporation preferred stock
    330,000        
       
Increase (decrease) from consolidation of securitization trusts:
               
       
Loans
          423,865  
       
Investment securities — available for sale
          (360,471 )
       
Long-term borrowings
          65,419  
       
Accrued interest and other
          2,025  

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M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
                                                                 
                                            Accumulated              
                                            other              
                    Common     Additional             comprehensive              
    Preferred     Common     stock     paid-in     Retained     income     Treasury        
In thousands, except per share   stock     stock     issuable     capital     earnings     (loss), net     stock     Total  
 
2010
                                                               
Balance — January 1, 2010
  $ 730,235       60,198       4,342       2,442,947       5,076,884       (335,997 )     (225,702 )     7,752,907  
Comprehensive income:
                                                               
Net income
                            339,704                   339,704  
Other comprehensive income, net of tax and reclassification adjustments:
                                                               
Unrealized gains on investment securities
                                  136,766             136,766  
Defined benefit plans liability adjustment
                                  2,175             2,175  
Unrealized gain on terminated cash flow hedge
                                  (141 )           (141 )
                                                               
 
                                                            478,504  
Preferred stock cash dividends
                            (20,113 )                 (20,113 )
Amortization of preferred stock discount
    5,115                         (5,115 )                  
Repayment of management stock ownership program receivable
                      1,838                         1,838  
Stock-based compensation plans:
                                                               
Compensation expense, net
                      (13,571 )                 40,886       27,315  
Exercises of stock options, net
                      (21,997 )                 49,400       27,403  
Directors’ stock plan
                      (232 )                 787       555  
Deferred compensation plans, net, including dividend equivalents
                (265 )     (292 )     (96 )           604       (49 )
Other
                      914                         914  
Common stock cash dividends — $1.40 per share
                            (167,430 )                 (167,430 )
 
Balance — June 30, 2010
  $ 735,350       60,198       4,077       2,409,607       5,223,834       (197,197 )     (134,025 )     8,101,844  
 
2011
                                                               
Balance — January 1, 2011
  $ 740,657       60,198       4,189       2,398,615       5,426,701       (205,220 )     (67,445 )     8,357,695  
Comprehensive income:
                                                               
Net income
                            528,631                   528,631  
Other comprehensive income, net of tax and reclassification adjustments:
                                                               
Unrealized losses on investment securities
                                  (27,892 )           (27,892 )
Defined benefit plans liability adjustment
                                  4,288             4,288  
Unrealized gain on terminated cash flow hedge
                                  (141 )           (141 )
Foreign currency translation adjustment
                                  196             196  
 
                                                            505,082  
Acquisition of Wilmington Trust Corporation - common stock issued
          2,348             403,209                         405,557  
Partial redemption of Series A preferred stock
    (370,000 )                                         (370,000 )
Conversion of Series B preferred stock into 433,144 shares of common stock
    (26,500 )     192             21,754                   4,554        
Issuance of Series D preferred stock
    500,000                   (5,000 )                       495,000  
Preferred stock cash dividends
                            (20,046 )                 (20,046 )
Amortization of preferred stock discount
    16,744                         (16,744 )                  
Stock-based compensation plans:
                                                               
Compensation expense, net
          27             (10,382 )                 31,666       21,311  
Exercises of stock options, net
          12             (8,948 )                 30,106       21,170  
Directors’ stock plan
                      (49 )                 612       563  
Deferred compensation plans, net, including dividend equivalents
                (159 )     (219 )     (94 )           507       35  
Other
                      1,022                         1,022  
Common stock cash dividends — $1.40 per share
                            (173,195 )                 (173,195 )
 
Balance — June 30, 2011
  $ 860,901       62,777       4,030       2,800,002       5,745,253       (228,769 )           9,244,194  
 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2010 Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.
2. Acquisitions
On May 16, 2011, M&T acquired all of the outstanding common stock of Wilmington Trust Corporation (“Wilmington Trust”), headquartered in Wilmington, Delaware, in a stock-for-stock transaction. Wilmington Trust operated 55 banking offices in Delaware and Pennsylvania at the date of acquisition. The results of operations acquired in the Wilmington Trust transaction have been included in the Company’s financial results since May 16, 2011. Wilmington Trust shareholders received .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock, resulting in M&T issuing a total of 4,694,486 common shares with an acquisition date fair value of $406 million.
     The Wilmington Trust transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled approximately $10.8 billion, including $6.4 billion of loans and leases (including approximately $3.2 billion of commercial real estate loans, $1.4 billion of commercial loans and leases, $1.1 billion of consumer loans and $680 million of residential real estate loans). Liabilities assumed aggregated $10.0 billion, including $8.9 billion of deposits. The common stock issued in the transaction added $406 million to M&T’s common shareholders’ equity. Immediately prior to the closing of the Wilmington Trust transaction, M&T redeemed the $330 million of preferred stock issued by Wilmington Trust as part of the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $176 million of core deposit and other intangible assets. The core deposit and other intangible assets are generally being amortized over periods of 5 to 7 years using an accelerated method. There was no goodwill recorded as a result of the transaction; however, a non-taxable gain of $65 million was realized, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust forms one of the largest banks in the Eastern United States, adding to M&T’s market-leading position in the Mid-Atlantic region, including the leading deposit market share in Delaware.
     In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of these determinations related to the fair valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Wilmington Trust’s previously established allowance for credit losses. Subsequent decreases in the expected cash flows require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows generally result in the recognition of additional interest income over the then remaining lives of the loans.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Acquisitions, continued
     In conjunction with the Wilmington Trust acquisition, the acquired loan portfolio was accounted for at fair value as follows:
         
    May 16, 2011  
    (in thousands)  
Contractually required principal and interest at acquisition
  $ 8,336,755  
Contractual cash flows not expected to be collected
    (1,209,749 )
 
     
Expected cash flows at acquisition
    7,127,006  
Interest component of expected cash flows
    (716, 576 )
 
     
Basis in acquired loans at acquisition — estimated fair value
  $ 6,410,430  
 
     
      Included in the above table is information related to loans for which there was specific evidence of credit deterioration at the acquisition date and for which it was deemed probable that the Company would be unable to collect all contractually required principal and interest payments (“purchased impaired loans”). Specifically, contractually required principal and interest, cash flows expected to be collected and estimated fair value of purchased impaired loans were $1,419,672,000, $747,265,000 and $707,907,000, respectively.
     The consideration paid for Wilmington Trust’s common equity and the amounts of acquired identifiable assets and liabilities assumed as of the acquisition date were as follows:
         
    (in thousands)  
Purchase price:
       
Value of:
       
Common shares issued (4,694,486 shares)
  $ 405,557  
Preferred stock purchased from U.S. Treasury
    330,000  
 
     
Total purchase price
    735,557  
 
     
 
       
Identifiable assets:
       
Cash and due from banks
    178,940  
Interest-bearing deposits at banks
    2,606,265  
Other short-term investments
    57,817  
Investment securities
    510,390  
Loans and leases
    6,410,430  
Core deposit and other intangibles
    176,194  
Other assets
    905,006  
 
     
Total identifiable assets
    10,845,042  
 
     
 
       
Liabilities:
       
Deposits
    8,864,161  
Short-term borrowings
    147,752  
Long-term borrowings
    600,830  
Other liabilities
    431,812  
 
     
Total liabilities
    10,044,555  
 
     
 
       
Net gain resulting from acquisition
  $ 64,930  
 
     

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Acquisitions, continued
     The following table discloses the impact of Wilmington Trust (excluding the impact of the merger-related gain and expenses) since the acquisition on May 16, 2011 through the end of the second quarter of 2011. The table also presents certain pro forma information as if Wilmington Trust had been acquired on January 1, 2010. These results combine the historical results of Wilmington Trust into the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on the indicated date. In particular, no adjustments have been made to eliminate the amount of Wilmington Trust’s provision for credit losses of $42 million in 2011 and $283 million in 2010 or the impact of other-than-temporary impairment losses recognized by Wilmington Trust of $5 million in 2011 and $26 million in 2010 that may not have been necessary had the acquired loans and investment securities been recorded at fair value as of the beginning of 2010. Furthermore, expenses related to preparing for systems conversions and other costs of integration of $41 million and the $65 million gain recorded in connection with the acquisition are included in the 2011 periods in which such costs were incurred and gain recognized. Additionally, the Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts that follow.
                         
    Actual since     Pro forma  
    acquisition     Six months ended  
    through     June 30,  
    June 30, 2011     2011     2010  
    (in thousands)  
Total revenues (a)
  $ 79,140       2,208,188       2,002,497  
Net income
    3,068       480,948       189,246  
 
(a)   Represents net interest income plus other income.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Acquisitions, continued
     On November 5, 2010, M&T Bank, M&T’s principal banking subsidiary, entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits, except certain brokered deposits, and acquire certain assets of K Bank, based in Randallstown, Maryland. As part of the transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired in the transaction totaled approximately $556 million, including $154 million of loans and $186 million in cash, and liabilities assumed aggregated $528 million, including $491 million of deposits. In accordance with GAAP, M&T Bank recorded an after-tax gain on the transaction of $17 million ($28 million before taxes). The gain reflected the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. There was no goodwill or other intangible assets recorded in connection with this transaction. The operations obtained in the K Bank acquisition transaction did not have a material impact on the Company’s consolidated financial position or results of operations.
     In connection with the Wilmington Trust and K Bank acquisitions, the Company incurred merger-related expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with preparing for systems conversions and/or integration of operations; costs related to termination of existing contractual arrangements of Wilmington Trust to purchase various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; travel costs; and printing, postage, supplies and other costs of completing the transactions and commencing operations in new markets and offices. There were no merger-related expenses during the three months or six months ended June 30, 2010. The Company expects to incur additional merger-related expenses during the remainder of 2011. As of June 30, 2011, the remaining unpaid portion of incurred merger-related expenses was $24 million. A summary of merger-related expenses included in the consolidated statement of income follows.
                 
    Three months ended     Six months ended  
    June 30, 2011     June 30, 2011  
    (in thousands)  
Salaries and employee benefits
  $ 15,305     $ 15,312  
Equipment and net occupancy
    25       104  
Printing, postage and supplies
    318       465  
Other costs of operations
    21,348       25,410  
 
           
 
  $ 36,996     $ 41,291  
 
           

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities
The amortized cost and estimated fair value of investment securities were as follows:
                                 
            Gross     Gross        
    Amortized     unrealized     unrealized     Estimated  
    cost     gains     losses     fair value  
            (in thousands)          
June 30, 2011
                               
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
  $ 111,836       1,119       2     $ 112,953  
Obligations of states and political subdivisions
    66,709       821       39       67,491  
Mortgage-backed securities:
                               
Government issued or guaranteed
    2,965,034       60,965       2,981       3,023,018  
Privately issued residential
    1,507,748       9,720       211,266       1,306,202  
Privately issued commercial
    21,094             3,861       17,233  
Collateralized debt obligations
    44,268       18,800       1,467       61,601  
Other debt securities
    217,812       5,738       28,014       195,536  
Equity securities
    92,380       14,526       451       106,455  
 
                       
 
    5,026,881       111,689       248,081       4,890,489  
 
                       
Investment securities held to maturity:
                               
Obligations of states and political subdivisions
    184,595       4,239       149       188,685  
Mortgage-backed securities:
                               
Government issued or guaranteed
    730,785       21,978             752,763  
Privately issued
    292,034       357       102,615       189,776  
Other debt securities
    12,272                   12,272  
 
                       
 
    1,219,686       26,574       102,764       1,143,496  
 
                       
Other securities
    382,090                   382,090  
 
                       
Total
  $ 6,628,657       138,263       350,845     $ 6,416,075  
 
                       
 
December 31, 2010
                               
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
  $ 61,772       1,680       18     $ 63,434  
Obligations of states and political subdivisions
    59,921       561       57       60,425  
Mortgage-backed securities:
                               
Government issued or guaranteed
    3,146,054       161,298       1,111       3,306,241  
Privately issued residential
    1,677,064       10,578       252,081       1,435,561  
Privately issued commercial
    25,357             2,950       22,407  
Collateralized debt obligations
    95,080       24,754       9,078       110,756  
Other debt securities
    310,017       26,883       38,000       298,900  
Equity securities
    119,112       5,098       8,442       115,768  
 
                       
 
    5,494,377       230,852       311,737       5,413,492  
 
                       
Investment securities held to maturity:
                               
Obligations of states and political subdivisions
    191,119       1,944       694       192,369  
Mortgage-backed securities:
                               
Government issued or guaranteed
    808,108       14,061             822,169  
Privately issued
    312,537             114,397       198,140  
Other debt securities
    12,575                   12,575  
 
                       
 
    1,324,339       16,005       115,091       1,225,253  
 
                       
Other securities
    412,709                   412,709  
 
                       
Total
  $ 7,231,425       246,857       426,828     $ 7,051,454  
 
                       

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
     Gross realized gains on investment securities were $111 million and $150 million for the three-month and six-month periods ended June 30, 2011. Gross realized losses were not significant in 2011. Gross realized gains and losses on investment securities were not significant during the three- and six-month periods ended June 30, 2010. During the second quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)having an aggregate amortized cost of approximately $1.0 billion which resulted in a gain of $66 million (pre-tax). The Company also sold trust preferred securities and collateralized debt obligations during the second quarter of 2011 having an aggregate amortized cost of $136 million and $100 million, respectively, which resulted in gains of $25 million (pre-tax) and $20 million (pre-tax), respectively. During the first quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac having an aggregate amortized cost of approximately $484 million which resulted in a gain of $39 million (pre-tax).
     The Company recognized $27 million and $43 million of pre-tax other-than-temporary impairment losses during the three- and six-month periods ended June 30, 2011, respectively, related to privately issued mortgage-backed securities. The impairment charges were recognized in light of deterioration of real estate values and continued high levels of delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. Other-than-temporary impairment losses on investment securities of $22 million and $49 million (pre-tax) were recognized by the Company for the three- and six-month periods ended June 30, 2010. Approximately $12 million of the losses recognized in the second quarter of 2010 related to American Depositary Shares of Allied Irish Banks, p.l.c. (“AIB ADSs”) which were obtained in M&T’s acquisition of a subsidiary of AIB in 2003. The remaining losses in 2010 related to certain privately issued residential mortgage-backed securities and collateralized debt obligations backed by pooled trust preferred securities. The impairment charges related to the AIB ADSs were recognized due to mounting credit and other losses incurred by AIB and significant dilution of AIB common shareholders based on the Irish government’s significant ownership position. The impairment charges related to the privately issued residential mortgage-backed securities were recognized in light of deterioration of housing values in the residential real estate market and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The other-than-temporary impairment losses on debt securities represent management’s estimate of credit losses inherent in the securities considering projected cash flows using assumptions of delinquency rates, loss severities, and other estimates of future collateral performance. The following table displays changes in credit losses for debt securities recognized in earnings for the three months and six months ended June 30, 2011 and 2010.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
                 
    Three months ended June 30  
    2011     2010  
    (in thousands)  
Beginning balance
  $ 322,719       308,017  
Additions for credit losses not previously recognized
    26,530       10,387  
Reductions for increases in cash flows
    (4,881 )     (173 )
Reductions for realized losses
    (46,227 )     (3,968 )
 
           
Ending balance
  $ 298,141       314,263  
 
           
                 
    Six months ended June 30  
    2011     2010  
    (in thousands)  
Beginning balance
  $ 327,912       284,513  
Additions for credit losses not previously recognized
    42,571       37,189  
Reductions for increases in cash flows
    (5,020 )     (342 )
Reductions for realized losses
    (67,322 )     (7,097 )
 
           
 
               
Ending balance
  $ 298,141       314,263  
 
           
     At June 30, 2011, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:
                 
            Estimated  
    Amortized cost     fair value  
    (in thousands)  
Debt securities available for sale:
               
Due in one year or less
  $ 26,403       26,521  
Due after one year through five years
    119,212       121,204  
Due after five years through ten years
    16,687       18,081  
Due after ten years
    278,323       271,775  
 
           
 
    440,625       437,581  
Mortgage-backed securities available for sale
    4,493,876       4,346,453  
 
           
 
  $ 4,934,501       4,784,034  
 
           
 
               
Debt securities held to maturity:
               
Due in one year or less
  $ 23,428       23,607  
Due after one year through five years
    20,126       20,775  
Due after five years through ten years
    134,952       138,114  
Due after ten years
    18,361       18,461  
 
           
 
    196,867       200,957  
Mortgage-backed securities held to maturity
    1,022,819       942,539  
 
           
 
  $ 1,219,686       1,143,496  
 
           

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
     A summary of investment securities that as of June 30, 2011 and December 31, 2010 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:
                                 
    Less than 12 months     12 months or more  
            Unrealized             Unrealized  
    Fair value     losses     Fair value     losses  
            (in thousands)          
June 30, 2011
                               
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
  $ 1,903       (2 )            
Obligations of states and political subdivisions
    1,444       (6 )     2,323       (33 )
Mortgage-backed securities:
                               
Government issued or guaranteed
    632,513       (2,937 )     3,010       (44 )
Privately issued residential
    146,893       (1,859 )     859,930       (209,407 )
Privately issued commercial
                17,233       (3,861 )
Collateralized debt obligations
    3,039       (19 )     5,544       (1,448 )
Other debt securities
    51,652       (935 )     101,588       (27,079 )
Equity securities
    3,375       (451 )            
 
                       
 
    840,819       (6,209 )     989,628       (241,872 )
 
                       
 
                               
Investment securities held to maturity:
                               
Obligations of states and political subdivisions
    22,591       (108 )     451       (41 )
Privately issued mortgage-backed securities
    322       (123 )     184,970       (102,492 )
 
                       
 
    22,913       (231 )     185,421       (102,533 )
 
                       
Total
  $ 863,732       (6,440 )     1,175,049       (344,405 )
 
                       
                                 
    Less than 12 months     12 months or more  
            Unrealized             Unrealized  
    Fair value     losses     Fair value     losses  
            (in thousands)          
December 31, 2010
                               
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
  $ 27,289       (18 )            
Obligations of states and political subdivisions
    3,712       (18 )     2,062       (39 )
Mortgage-backed securities:
                               
Government issued or guaranteed
    68,507       (1,079 )     2,965       (32 )
Privately issued residential
    61,192       (1,054 )     1,057,315       (251,027 )
Privately issued commercial
                22,407       (2,950 )
Collateralized debt obligations
    12,462       (6,959 )     6,004       (2,119 )
Other debt securities
    2,134       (10 )     88,969       (37,990 )
Equity securities
    5,326       (3,721 )     673       (4,721 )
 
                       
 
    180,622       (12,859 )     1,180,395       (298,878 )
 
                       
 
                               
Investment securities held to maturity:
                               
Obligations of states and political subdivisions
    76,318       (638 )     467       (56 )
Privately issued mortgage-backed securities
                198,140       (114,397 )
 
                       
 
    76,318       (638 )     198,607       (114,453 )
 
                       
Total
  $ 256,940       (13,497 )     1,379,002       (413,331 )
 
                       

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
     The Company owned 387 individual investment securities with aggregate gross unrealized losses of $351 million at June 30, 2011. Approximately $211 million of the unrealized losses pertained to privately issued residential mortgage-backed securities with a cost basis of $1.2 billion. The Company also had $29 million of unrealized losses on trust preferred securities issued by financial institutions, securities backed by trust preferred securities issued by financial institutions and other entities, and other debt securities having a cost basis of $191 million. Based on a review of each of the remaining securities in the investment securities portfolio at June 30, 2011, with the exception of the aforementioned securities for which other-than-temporary impairment losses were recognized, the Company concluded that it expected to recover the amortized cost basis of its investment. As of June 30, 2011, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At June 30, 2011, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $382 million of cost method investment securities.
4. Loans and leases and the allowance for credit losses
Interest income on acquired loans that were recorded at fair value at the acquisition date for the three months and six months ended June 30, 2011 was approximately $69 million and $110 million, respectively, and for the three months and six months ended June 30, 2010 was approximately $42 million and $86 million, respectively. The outstanding principal balance and the carrying amount of such loans that is included in the consolidated balance sheet at June 30, 2011 was as follows:
         
    (in thousands)  
Outstanding principal balance
  $ 10,445,425  
Carrying amount
    9,268,721  
      Purchased impaired loans totaled $753 million at June 30, 2011, representing less than 1% of the Company’s assets and $97 million at December 31, 2010, representing less than .2% of the Company’s assets. Interest income earned on purchased impaired loans was $5 million and $7 million during the three- and six-month periods ended June 30, 2011, respectively, and $1 million and $2 million during the three- and six-month periods ended June 30, 2010, respectively. Other receivables considered impaired at the time of purchase were also not material to the Company’s financial statements.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     A summary of current, past due and nonaccrual loans as of June 30, 2011 and December 31, 2010 were as follows:
                                                 
            30-89 Days     90 Days or more     Purchased              
    Current     past due     past due and accruing     impaired     Nonaccrual     Total  
June 30, 2011                   (in thousands)                  
Commercial, financial, leasing, etc.
  $ 14,791,110       24,900       23,488       37,773       163,621       15,040,892  
Real estate:
                                               
Commercial
    18,900,107       104,668       85,938       226,083       234,171       19,550,967  
Residential builder and developer
    1,047,647       39,246       28,606       366,879       359,152       1,841,530  
Other commercial construction
    2,635,409       37,360       32,173       51,435       114,852       2,871,229  
Residential
    5,737,580       211,506       199,109       64,327       187,471       6,399,993  
Residential Alt-A
    426,437       37,050                   107,441       570,928  
Consumer:
                                               
Home equity lines and loans
    6,740,046       37,438             5,097       49,941       6,832,522  
Automobile
    2,767,206       49,518                   27,724       2,844,448  
Other
    2,529,971       38,880       3,883       1,384       14,602       2,588,720  
 
                                   
Total
  $ 55,575,513       580,566       373,197       752,978       1,258,975       58,541,229  
 
                                   
                                                 
            30-89 Days     90 Days or more     Purchased              
    Current     past due     past due and accruing     impaired     Nonaccrual     Total  
December 31, 2010                   (in thousands)                  
Commercial, financial, leasing, etc.
  $ 13,088,887       96,087       16,647       2,250       186,739       13,390,610  
Real estate:
                                               
Commercial
    16,589,240       89,906       35,338       8,275       209,031       16,931,790  
Residential builder and developer
    891,764       30,805       9,763       72,710       346,448       1,351,490  
Other commercial construction
    2,723,399       36,420       11,323       2,098       126,641       2,899,881  
Residential
    4,699,711       229,641       192,276       9,320       172,729       5,303,677  
Residential Alt-A
    475,236       42,674                   106,469       624,379  
Consumer:
                                               
Home equity lines and loans
    6,472,563       38,367             2,366       43,055       6,556,351  
Automobile
    2,608,230       44,604                   31,892       2,684,726  
Other
    2,190,353       36,689       4,246             16,190       2,247,478  
 
                                   
Total
  $ 49,739,383       645,193       269,593       97,019       1,239,194       51,990,382  
 
                                   

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     Changes in the allowance for credit losses for the three months ended June 30, 2011 were as follows:
                                                 
    Commercial,                                  
    Financial,     Real Estate                    
    Leasing, etc.     Commercial     Residential     Consumer     Unallocated     Total  
                    (in thousands)                  
Beginning balance
  $ 215,659       391,107       87,526       137,351       72,060       903,703  
Provision for credit losses
    6,870       22,735       13,654       19,852       (111 )     63,000  
Net charge-offs
                                               
Charge-offs
    (14,923 )     (15,915 )     (15,872 )     (24,940 )           (71,650 )
Recoveries
    2,273       3,184       2,033       5,046             12,536  
 
                                   
Net charge-offs
    (12,650 )     (12,731 )     (13,839 )     (19,894 )           (59,114 )
 
                                   
Ending balance
  $ 209,879       401,111       87,341       137,309       71,949       907,589  
 
                                   
     Changes in the allowance for credit losses for the six months ended June 30, 2011 were as follows:
                                                 
    Commercial,                        
    Financial,     Real Estate                    
    Leasing, etc.     Commercial     Residential     Consumer     Unallocated     Total  
                    (in thousands)                  
Beginning balance
  $ 212,579       400,562       86,351       133,067       70,382       902,941  
Provision for credit losses
    21,812       37,510       29,495       47,616       1,567       138,000  
Net charge-offs
                                               
Charge-offs
    (28,950 )     (40,494 )     (32,039 )     (53,261 )           (154,744 )
Recoveries
    4,438       3,533       3,534       9,887             21,392  
 
                                   
Net charge-offs
    (24,512 )     (36,961 )     (28,505 )     (43,374 )           (133,352 )
 
                                   
Ending balance
  $ 209,879       401,111       87,341       137,309       71,949       907,589  
 
                                   
     Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment. Changes in the allowance for credit losses for the three months and six months ended June 30, 2010 were as follows:
                 
    Three months ended     Six months ended  
    June 30, 2010     June 30, 2010  
    (in thousands)  
Beginning balance
  $ 891,265     $ 878,022  
Provision for credit losses
    85,000       190,000  
Consolidation of loan securitization trusts
          2,752  
Net charge-offs
               
Charge-offs
    (105,346 )     (211,385 )
Recoveries
    23,748       35,278  
 
           
Net charge-offs
    (81,598 )     (176,107 )
 
           
Ending balance
  $ 894,667     $ 894,667  
 
           

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified credit review processes and also estimates losses inherent in other loans and leases 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. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan by loan analysis of larger balance commercial and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes a loan grading system which is applied to all commercial and commercial real estate credits. Loan officers are responsible for continually assigning grades to these loans based on standards outlined in the Company’s Credit Policy. Internal loan grades are also monitored by the Company’s loan review department to ensure consistency and strict adherence to the prescribed standards. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, financial condition, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry. Except for consumer and residential mortgage loans that are considered smaller balance homogenous loans and are evaluated collectively and purchased-impaired loans, the Company considers a loan to be impaired for purposes of applying GAAP when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days. Purchase-impaired loans are considered impaired under GAAP when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Regardless of loan type, the Company considers a loan to be impaired if it qualifies as a troubled debt restructuring. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows. The following tables provide information with respect to impaired loans and leases as of June 30, 2011 and December 31, 2010 and for the three months and six months ended June 30, 2011 and June 30, 2010.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
                                                 
    June 30, 2011     December 31, 2010  
    Recorded     Unpaid
principal
    Related     Recorded     Unpaid
principal
    Related  
    investment     balance     allowance     investment     balance     allowance  
                    (in thousands)                  
With an allowance recorded:
                                               
Commercial, financial, leasing, etc.
  $ 94,843       137,532       32,827       121,744       170,888       40,909  
Real estate:
                                               
Commercial
    132,723       169,915       29,670       110,975       140,015       17,393  
Residential builder and developer
    178,636       224,646       79,506       263,545       295,031       78,597  
Other commercial construction
    87,407       94,610       13,073       80,934       85,432       22,067  
Residential
    86,574       105,454       3,044       73,006       85,279       3,375  
Residential Alt-A
    165,539       176,915       32,000       180,665       191,445       36,000  
Consumer:
                                               
Home equity lines and loans
    12,050       13,497       2,547       11,799       13,378       2,227  
Automobile
    57,827       57,827       12,351       58,858       58,858       12,597  
Other
    4,209       4,209       998       2,978       2,978       768  
 
                                   
 
    819,808       984,605       206,016       904,504       1,043,304       213,933  
 
                                   
With no related allowance recorded:
                                               
Commercial, financial, leasing, etc.
    75,477       100,760             65,827       86,332        
Real estate:
                                               
Commercial
    105,755       122,637             101,939       116,316        
Residential builder and developer
    207,803       259,984             100,799       124,383        
Other commercial construction
    27,989       31,712             46,656       50,496        
Residential
    15,483       21,383             5,035       7,723        
Residential Alt-A
    30,607       52,986             28,967       47,879        
 
                                   
 
    463,114       589,462             349,223       433,129        
 
                                   
 
                                               
Total:
                                               
Commercial, financial, leasing, etc.
    170,320       238,292       32,827       187,571       257,220       40,909  
Real estate:
                                               
Commercial
    238,478       292,552       29,670       212,914       256,331       17,393  
Residential builder and developer
    386,439       484,630       79,506       364,344       419,414       78,597  
Other commercial construction
    115,396       126,322       13,073       127,590       135,928       22,067  
Residential
    102,057       126,837       3,044       78,041       93,002       3,375  
Residential Alt-A
    196,146       229,901       32,000       209,632       239,324       36,000  
Consumer:
                                               
Home equity lines and loans
    12,050       13,497       2,547       11,799       13,378       2,227  
Automobile
    57,827       57,827       12,351       58,858       58,858       12,597  
Other
    4,209       4,209       998       2,978       2,978       768  
 
                                   
Total
  $ 1,282,922       1,574,067       206,016       1,253,727       1,476,433       213,933  
 
                                   

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
                                                 
    Three months ended     Three months ended  
    June 30, 2011     June 30, 2010  
            Interest income             Interest income  
            recognized             recognized  
    Average                     Average                
    recorded             Cash     recorded             Cash  
    investment     Total     basis     investment     Total     basis  
                    (in thousands)                  
Commercial, financial, leasing, etc.
  $ 180,000       767       754       297,364       775       765  
Real estate:
                                               
Commercial
    233,931       513       483       237,121       139       121  
Residential builder and developer
    358,421       312       110       307,857       671       406  
Other commercial construction
    107,494       142       105       49,894       17       17  
Residential
    97,317       1,035       551       60,593       681       432  
Residential Alt-A
    199,056       1,991       409       223,430       2,144       447  
Consumer:
                                               
Home equity lines and loans
    12,069       190       24       11,993       167       25  
Automobile
    58,650       984       293       53,497       910       318  
Other
    3,544       55       10       3,221       63       15  
 
                                   
Total
  $ 1,250,482       5,989       2,739       1,244,970       5,567       2,546  
 
                                   
                                                 
    Six months ended     Six months ended  
    June 30, 2011     June 30, 2010  
            Interest income             Interest income  
            recognized             recognized  
    Average                     Average                
    recorded             Cash     recorded             Cash  
    investment     Total     basis     investment     Total     basis  
                    (in thousands)                  
Commercial, financial, leasing, etc.
  $ 183,482       1,774       1,755       307,404       1,230       1,220  
Real estate:
                                               
Commercial
    227,019       897       825       251,607       510       492  
Residential builder and developer
    360,429       839       240       309,642       715       450  
Other commercial construction
    117,669       652       426       51,970       401       401  
Residential
    90,813       2,069       1,147       52,932       1,213       781  
Residential Alt-A
    202,339       3,986       960       225,391       4,327       885  
Consumer:
                                               
Home equity lines and loans
    12,098       351       50       12,268       359       63  
Automobile
    58,655       1,968       589       51,732       1,771       666  
Other
    3,304       112       16       3,232       129       31  
 
                                   
Total
  $ 1,255,808       12,648       6,008       1,266,178       10,655       4,989  
 
                                   

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     The Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans 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. All larger balance criticized commercial and commercial real estate loans are individually reviewed by centralized loan review personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. Smaller balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance. The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans as of June 30, 2011 and December 31, 2010.
                                 
            Real Estate  
    Commercial,             Residential     Other  
    Financial,             Builder and     Commercial  
    Leasing, etc.     Commercial     Developer     Construction  
            (in thousands)          
June 30, 2011
                               
Pass
  $ 14,154,538       18,403,985       1,255,712       2,329,099  
Criticized accrual
    722,733       912,811       226,666       427,278  
Criticized nonaccrual
    163,621       234,171       359,152       114,852  
 
                       
Total
  $ 15,040,892       19,550,967       1,841,530       2,871,229  
 
                       
 
                               
December 31, 2010
                               
Pass
  $ 12,371,138       15,831,104       693,110       2,253,589  
Criticized accrual
    832,733       891,655       311,932       519,651  
Criticized nonaccrual
    186,739       209,031       346,448       126,641  
 
                       
Total
  $ 13,390,610       16,931,790       1,351,490       2,899,881  
 
                       
     In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance, recent loss experience and trends related thereto. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values.
     The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Given the inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. The determination of the allocated

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
portion of the allowance for credit losses is very subjective. Factors that influence the precision in developing loss estimates for the allocated allowance impact the level of the unallocated portion of the allowance. Such factors might include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.
     At June 30, 2011 and December 31, 2010, the allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:
                                         
    Commercial,                    
    Financial,     Real Estate              
    Leasing, etc.     Commercial     Residential     Consumer     Total  
                    (in thousands)                  
June 30, 2011
                                       
Individually evaluated for impairment
  $ 32,656       118,545       34,000       15,473     $ 200,674  
Collectively evaluated for impairment
    177,052       278,862       52,297       121,413       629,624  
Purchased impaired
    171       3,704       1,044       423       5,342  
 
                             
Allocated
  $ 209,879       401,111       87,341       137,309       835,640  
 
                               
Unallocated
                                    71,949  
 
                                     
 
                                       
Total
                                  $ 907,589  
 
                                     
 
                                       
December 31, 2010
                                       
Individually evaluated for impairment
  $ 40,459       114,082       39,000       15,492     $ 209,033  
Collectively evaluated for impairment
    171,670       282,505       46,976       117,475       618,626  
Purchased impaired
    450       3,975       375       100       4,900  
 
                             
Allocated
  $ 212,579       400,562       86,351       133,067       832,559  
 
                               
Unallocated
                                    70,382  
 
                                     
 
                                       
Total
                                  $ 902,941  
 
                                     

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of June 30, 2011 and December 31, 2010 was as follows:
                                         
    Commercial,                    
    Financial,     Real Estate              
    Leasing, etc.     Commercial     Residential     Consumer     Total  
                    (in thousands)                  
June 30, 2011
                                       
Individually evaluated for impairment
  $ 169,797       717,317       293,257       72,042     $ 1,252,413  
Collectively evaluated for impairment
    14,833,322       22,902,012       6,613,337       12,187,167       56,535,838  
Purchased impaired
    37,773       644,397       64,327       6,481       752,978  
 
                             
 
                                       
Total
  $ 15,040,892       24,263,726       6,970,921       12,265,690     $ 58,541,229  
 
                             
 
                                       
December 31, 2010
                                       
Individually evaluated for impairment
  $ 186,739       682,120       286,612       72,082     $ 1,227,553  
Collectively evaluated for impairment
    13,201,621       20,417,958       5,632,124       11,414,107       50,665,810  
Purchased impaired
    2,250       83,083       9,320       2,366       97,019  
 
                             
 
                                       
Total
  $ 13,390,610       21,183,161       5,928,056       11,488,555     $ 51,990,382  
 
                             
5. Borrowings
M&T had $1.2 billion of fixed and floating rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) outstanding at June 30, 2011 which are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities (“Capital Securities”) and common securities (“Common Securities”). The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures. The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding trust.
     Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 capital. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law on July 21, 2010. One of its provisions is for a three-year phase-in related to the exclusion of trust preferred capital securities from Tier 1 capital for large financial institutions, including M&T. That phase-in period begins on January 1, 2013.
     Holders of the Capital Securities receive preferential cumulative cash distributions unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures as allowed by the terms of each such debenture, in which case payment of distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. In the event of an extended interest period exceeding twenty quarterly periods for $350 million of Junior Subordinated Debentures due January 31, 2068, M&T must fund the payment of accrued and unpaid interest through an alternative payment mechanism, which requires M&T to issue common stock, non-cumulative perpetual preferred stock or warrants to purchase common stock until M&T has raised an amount of eligible

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Borrowings, continued
proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest on the Junior Subordinated Debentures due January 31, 2068. In general, the agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T of the payment of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital Securities are subordinate and junior in right of payment to all senior indebtedness of M&T.
     The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates (ranging from 2027 to 2068) of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval. In connection with the issuance of 8.50% Enhanced Trust Preferred Securities associated with $350 million of Junior Subordinated Debentures maturing in 2068, M&T entered into a replacement capital covenant that provides that neither M&T nor any of its subsidiaries will repay, redeem or purchase any of the Junior Subordinated Debentures due January 31, 2068 or the 8.50% Enhanced Trust Preferred Securities prior to January 31, 2048, with certain limited exceptions, except to the extent that, during the 180 days prior to the date of that repayment, redemption or purchase, M&T and its subsidiaries have received proceeds from the sale of qualifying securities that (i) have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the 8.50% Enhanced Trust Preferred Securities or the Junior Subordinated Debentures due January 31, 2068, as applicable, at the time of repayment, redemption or purchase, and (ii) M&T has obtained the prior approval of the Federal Reserve Board, if required.
     Including the unamortized portions of purchase accounting adjustments to reflect estimated fair value at the acquisition dates of the Common Securities of various trusts, the Junior Subordinated Debentures associated with Capital Securities had financial statement carrying values of $1.2 billion at each of June 30, 2011 and December 31, 2010.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Shareholders’ equity
M&T is authorized to issue 1,000,000 shares of preferred stock with a $1.00 par value per share. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference, but have no general voting rights.
     Issued and outstanding preferred stock of M&T is presented below:
                 
    Carrying     Carrying  
    value     value  
    June 30, 2011     December 31, 2010  
    (dollars in thousands)  
Series A (a)(d)
               
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share, 230,000 shares issued and outstanding at June 30, 2011; 600,000 shares issued and outstanding at December 31, 2010
  $ 223,037     $ 578,630  
 
               
Series B (b)
               
Series B Mandatory Convertible Non-cumulative Preferred Stock, $1,000 liquidation preference per share, 26,500 shares issued and outstanding at December 31, 2010
          26,500  
 
               
Series C (a)(c)
               
Fixed Rate Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share, 151,500 shares issued and outstanding at June 30, 2011 and December 31, 2010
    137,864       135,527  
 
               
Series D (e)
               
Fixed Rate Non-cumulative Perpetual Preferred Stock, Series D, $10,000 liquidation preference per share, 50,000 shares issued and outstanding at June 30, 2011
    500,000        
 
(a)   Shares were issued as part of the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Treasury. Cash proceeds were allocated between the preferred stock and a ten-year warrant to purchase M&T common stock (Series A — 1,218,522 common shares at $73.86 per share, Series C — 407,542 common shares at $55.76 per share). Dividends, if declared, will accrue and be paid quarterly at a rate of 5% per year for the first five years following the original 2008 issuance dates and thereafter at a rate of 9% per year. The agreement with the U.S. Treasury contains limitations on certain actions of M&T, including the payment of quarterly cash dividends on M&T’s common stock in excess of $.70 per share, the repurchase of its common stock during the first three years of the agreement, and the amount and nature of compensation arrangements for certain of the Company’s officers.
 
   
 
(b)   Shares were assumed in an acquisition and a new Series B Preferred Stock was designated. Pursuant to their terms, the shares of Series B Preferred Stock were converted into 433,144 shares of M&T common stock on April 1, 2011. The preferred stock had a stated dividend rate of 10% per year.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Shareholders’ equity, continued
(c)   Shares were assumed in an acquisition and a new Series C Preferred Stock was designated.
(d)   On May 18, 2011, M&T redeemed and retired 370,000 shares of the Series A Preferred Stock. Accelerated amortization of preferred stock discount associated with the redemption was $11.2 million.
(e)   Shares were issued on May 31, 2011. Dividends, if declared, will be paid semi-annually at a rate of 6.875% per year. The shares are redeemable in whole or in part on or after June 15, 2016. Notwithstanding M&T’s option to redeem the shares, if an event occurs such that the shares no longer qualify as Tier 1 Capital, M&T may redeem all of the shares within 90 days following that occurrence.
7. Pension plans and other postretirement benefits
The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. Net periodic defined benefit cost for defined benefit plans consisted of the following:
                                 
                    Other  
    Pension     postretirement  
    benefits     benefits  
    Three months ended June 30  
    2011     2010     2011     2010  
            (in thousands)          
Service cost
  $ 6,413       4,960       115       102  
Interest cost on projected benefit obligation
    14,086       12,032       909       785  
Expected return on plan assets
    (14,563 )     (12,655 )            
Amortization of prior service cost
    (1,629 )     (1,629 )     29       63  
Amortization of net actuarial loss
    5,165       3,455       18       (5 )
 
                       
 
                               
Net periodic benefit cost
  $ 9,472       6,163       1,071       945  
 
                       
                                 
                    Other  
    Pension     postretirement  
    benefits     benefits  
            Six months ended June 30        
    2011     2010     2011     2010  
            (in thousands)          
Service cost
  $ 11,713       9,835       240       202  
Interest cost on projected benefit obligation
    26,236       24,061       1,684       1,565  
Expected return on plan assets
    (27,263 )     (25,443 )            
Amortization of prior service cost
    (3,279 )     (3,279 )     54       88  
Amortization of net actuarial loss
    10,265       6,776       18       (5 )
 
                       
 
                               
Net periodic benefit cost
  $ 17,672       11,950       1,996       1,850  
 
                       
     Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $9,890,000 and $8,775,000 for the three months ended June 30, 2011 and 2010, respectively, and $20,066,000 and $20,465,000 for the six months ended June 30, 2011 and 2010, respectively.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Earnings per common share
The computations of basic earnings per common share follow:
                                 
    Three months ended     Six months ended  
    June 30     June 30  
    2011     2010     2011     2010  
    (in thousands, except per share)  
Income available to common shareholders:
                               
 
                               
Net income
  $ 322,358       188,749       528,631       339,704  
Less: Preferred stock dividends (a)
    (7,184 )     (10,056 )     (17,682 )     (20,113 )
Amortization of preferred stock discount (a)
    (13,531 )     (2,605 )     (16,284 )     (5,162 )
 
                       
Net income available to common equity
    301,643       176,088       494,665       314,429  
Less: Income attributable to unvested stock-based compensation awards
    (4,479 )     (2,500 )     (7,382 )     (4,403 )
 
                       
 
                               
Net income available to common shareholders
  $ 297,164       173,588       487,283       310,026  
 
                               
Weighted-average shares outstanding:
                               
 
                               
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards
    124,035       119,756       122,522       119,550  
Less: Unvested stock-based compensation awards
    (1,854 )     (1,702 )     (1,823 )     (1,640 )
 
                       
 
                               
Weighted-average shares outstanding
    122,181       118,054       120,699       117,910  
 
                               
Basic earnings per common share
  $ 2.43       1.47       4.04       2.63  
 
(a)   Including impact of not as yet declared cumulative dividends.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Earnings per common share, continued
The computations of diluted earnings per common share follow:
                                 
    Three months ended     Six months ended  
    June 30     June 30  
    2011     2010     2011     2010  
            (in thousands, except per share)          
Net income available to common equity
  $ 301,643       176,088       494,665       314,429  
 
                               
Less: Income attributable to unvested stock-based compensation awards
    (4,464 )     (2,491 )     (7,357 )     (4,392 )
 
                       
 
                               
Net income available to common shareholders
  $ 297,179       173,597       487,308       310,037  
 
                               
Adjusted weighted-average shares outstanding:
                               
 
                               
Common and unvested stock-based compensation awards
    124,035       119,756       122,522       119,550  
Less: Unvested stock-based compensation awards
    (1,854 )     (1,702 )     (1,823 )     (1,640 )
Plus: Incremental shares from assumed conversion of stock-based compensation awards and convertible preferred stock
    615       824       633       659  
 
                       
 
                               
Adjusted weighted-average shares outstanding
    122,796       118,878       121,332       118,569  
 
                               
Diluted earnings per common share
  $ 2.42       1.46       4.02       2.61  
     GAAP defines unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities that shall be included in the computation of earnings per common share pursuant to the two-class method. During the six-month periods ended June 30, 2011 and 2010, the Company issued stock-based compensation awards in the form of restricted stock and restricted stock units, which, in accordance with GAAP, are considered participating securities.
     Stock-based compensation awards, warrants to purchase common stock of M&T and preferred stock convertible into shares of M&T stock representing approximately 10.1 million and 10.7 million common shares during the three-month periods ended June 30, 2011 and 2010, respectively, and 10.3 million and 11.3 million common shares during the six-month periods ended June 30, 2011 and 2010, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Comprehensive income
The following table displays the components of other comprehensive income (loss):
                         
    Six months ended June 30, 2011  
    Before-tax     Income        
    amount     taxes     Net  
            (in thousands)          
Unrealized gains (losses) on investment securities:
                       
 
                       
Available-for-sale (“AFS”) investment securities with other-than-temporary impairment (“OTTI”):
                       
 
                       
Unrealized holding losses, net
  $ (11,227 )     4,501       (6,726 )
Less: reclassification adjustment for gains realized in net income
    3,814       (1,497 )     2,317  
Less: OTTI charges recognized in net income
    (32,071 )     12,587       (19,484 )
 
                 
Net change for AFS investment securities with OTTI
    17,030       (6,589 )     10,441  
 
                 
 
                       
AFS investment securities — all other:
                       
 
                       
Unrealized holding gains, net
    77,869       (30,368 )     47,501  
Less: reclassification adjustment for gains realized in net income
    146,115       (57,257 )     88,858  
 
                 
Net change for AFS investment securities — all other
    (68,246 )     26,889       (41,357 )
 
                 
 
                       
Held-to-maturity (“HTM”) investment securities with OTTI:
                       
 
                       
Unrealized holding losses, net
    (8,500 )     3,336       (5,164 )
Less: reclassification to income of unrealized holding losses
    (12 )     5       (7 )
Less: OTTI charges recognized in net income
    (10,500 )     4,121       (6,379 )
 
                 
Net change for HTM investment securities with OTTI
    2,012       (790 )     1,222  
 
                 
 
                       
Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM
    2,967       (1,165 )     1,802  
 
                 
 
                       
Net unrealized losses on investment securities
    (46,237 )     18,345       (27,892 )
 
                       
Reclassification to income for amortization of gains on terminated cash flow hedges
    (224 )     83       (141 )
 
                       
Foreign currency translation adjustment
    313       (117 )     196  
 
                       
Defined benefit plans liability adjustment
    7,058       (2,770 )     4,288  
 
                 
 
  $ (39,090 )     15,541       (23,549 )
 
                 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Comprehensive income, continued
                         
    Six months ended June 30, 2010  
    Before-tax     Income        
    amount     taxes     Net  
            (in thousands)          
Unrealized gains (losses) on investment securities:
                       
 
                       
AFS investment securities with OTTI:
                       
 
                       
Unrealized holding losses, net
  $ (50,566 )     19,603       (30,963 )
Less: OTTI charges recognized in net income
    (49,182 )     19,017       (30,165 )
 
                 
Net change for AFS investment securities with OTTI
    (1,384 )     586       (798 )
 
                 
 
                       
AFS investment securities — all other:
                       
 
                       
Unrealized holding gains, net
    221,196       (86,386 )     134,810  
Less: reclassification adjustment for losses recognized in net income
    (135 )     39       (96 )
 
                 
Net change for AFS investment securities — all other
    221,331       (86,425 )     134,906  
 
                 
 
                       
Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM
    4,374       (1,716 )     2,658  
 
                 
 
                       
Net unrealized gains on investment securities
    224,321       (87,555 )     136,766  
 
                       
Reclassification to income for amortization of gains on terminated cash flow hedges
    (224 )     83       (141 )
 
                       
Defined benefit plans liability adjustment
    3,580       (1,405 )     2,175  
 
                 
 
  $ 227,677       (88,877 )     138,800  
 
                 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Comprehensive income, continued
                                                 
                            Foreign              
        Cash     currency     Defined        
    Investment securities     flow     translation     benefit        
    With OTTI     All other     hedges     adjustment     plans     Total  
                    (in thousands)                  
Balance — January 1, 2011
  $ (87,053 )     2,332       393             (120,892 )     (205,220 )
 
                                               
Net gain (loss) during period
    11,663       (39,555 )     (141 )     196       4,288       (23,549 )
 
                                   
 
                                               
Balance — June 30, 2011
  $ (75,390 )     (37,223 )     252       196       (116,604 )     (228,769 )
 
                                   
 
                                               
Balance — January 1, 2010
  $ (76,772 )     (142,853 )     674             (117,046 )     (335,997 )
 
                                               
Net gain (loss) during period
    (798 )     137,564       (141 )           2,175       138,800  
 
                                   
 
                                               
Balance — June 30, 2010
  $ (77,570 )     (5,289 )     533             (114,871 )     (197,197 )
 
                                   
10. Derivative financial instruments
As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting and collateral provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts is not significant as of June 30, 2011.
     The net effect of interest rate swap agreements was to increase net interest income by $9 million and $11 million for the three months ended June 30, 2011 and 2010, respectively, and $19 million and $22 million for the six months ended June 30, 2011 and 2010, respectively. Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:
                                 
                    Weighted-  
    Notional     Average     average rate  
    amount     maturity     Fixed     Variable  
    (in thousands)     (in years)                  
June 30, 2011
                               
Fair value hedges:
                               
Fixed rate long-term borrowings (a)
  $ 900,000       5.9       6.07 %     1.79 %
 
                       
 
                               
December 31, 2010
                               
Fair value hedges:
                               
Fixed rate long-term borrowings (a)
  $ 900,000       6.4       6.07 %     1.84 %
 
                       
 
(a)   Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
     The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale. Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in fair value of certain commitments to originate real estate loans for sale.
     Derivative financial instruments used for trading purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading purposes had notional values of $13.4 billion and $12.8 billion at June 30, 2011 and December 31, 2010, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes aggregated $1.0 billion and $769 million at June 30, 2011 and December 31, 2010, respectively.
     Information about the fair values of derivative instruments in the Company’s consolidated balance sheet and consolidated statement of income follows:
                                 
    Asset derivatives     Liability derivatives  
    Fair value     Fair value  
    June 30,     December 31,     June 30,     December 31,  
    2011     2010     2011     2010  
            (in thousands)          
Derivatives designated and qualifying as hedging instruments
                               
Fair value hedges:
                               
Interest rate swap agreements (a)
  $ 106,177       96,637     $        
Commitments to sell real estate loans (a)
    912       4,880       1,270       1,062  
 
                       
 
    107,089       101,517       1,270       1,062  
 
                               
Derivatives not designated and qualifying as hedging instruments
                               
Mortgage-related commitments to originate real estate loans for sale (a)
    13,558       2,827       387       583  
Commitments to sell real estate loans (a)
    1,583       10,322       5,364       1,962  
Trading:
                               
Interest rate contracts (b)
    364,064       345,632       339,440       321,461  
Foreign exchange and other option and futures contracts (b)
    26,920       11,267       27,043       11,761  
 
                       
 
    406,125       370,048       372,234       335,767  
 
                       
 
                               
Total derivatives
  $ 513,214       471,565     $ 373,504       336,829  
 
                       
 
(a)   Asset derivatives are reported in other assets and liability derivatives are reported in other liabilities.
 
(b)   Asset derivatives are reported in trading account assets and liability derivatives are reported in other liabilities.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
                                 
    Amount of unrealized gain (loss) recognized  
    Three months ended     Three months ended  
    June 30, 2011     June 30, 2010  
    Derivative     Hedged item     Derivative     Hedged item  
            (in thousands)          
Derivatives in fair value hedging relationships
                               
 
                               
Interest rate swap agreements:
                               
Fixed rate time deposits (a)
  $           $ (304 )     304  
Fixed rate long-term borrowings (a)
    21,945       (21,145 )     43,957       (41,680 )
 
                       
 
                               
Total
  $ 21,945       (21,145 )   $ 43,653       (41,376 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
 
                               
Trading:
                               
Interest rate contracts (b)
  $ 1,001             $ (504 )        
Foreign exchange and other option and futures contracts (b)
    (743 )             615          
 
                           
 
                               
Total
  $ 258             $ 111          
 
                           
                                 
    Amount of unrealized gain (loss) recognized  
    Six months ended     Six months ended  
    June 30, 2011     June 30, 2010  
    Derivative     Hedged item     Derivative     Hedged item  
            (in thousands)          
Derivatives in fair value hedging relationships
                               
 
                               
Interest rate swap agreements:
                               
Fixed rate time deposits (a)
  $           $ (503 )     503  
Fixed rate long-term borrowings (a)
    9,540       (9,097 )     56,427       (53,661 )
 
                       
 
                               
Total
  $ 9,540       (9,097 )   $ 55,924       (53,158 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
 
                               
Trading:
                               
Interest rate contracts (b)
  $ 1,476             $ (1,118 )        
Foreign exchange and other option and futures contracts (b)
    (1,291 )             957          
 
                           
 
                               
Total
  $ 185             $ (161 )        
 
                           
 
(a)   Reported as other revenues from operations.
 
(b)   Reported as trading account and foreign exchange gains.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
     In addition, the Company also has commitments to sell and commitments to originate residential and commercial real estate loans that are considered derivatives. The Company designates certain of the commitments to sell real estate loans as fair value hedges of real estate loans held for sale. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in the fair value of certain commitments to originate real estate loans for sale. As a result of these activities, net unrealized pre-tax gains related to hedged loans held for sale, commitments to originate loans for sale and commitments to sell loans were approximately $20 million and $17 million at June 30, 2011 and December 31, 2010, respectively. Changes in unrealized gains and losses are included in mortgage banking revenues and, in general, are realized in subsequent periods as the related loans are sold and commitments satisfied.
     The aggregate fair value of derivative financial instruments in a net liability position at June 30, 2011 for which the Company was required to post collateral was $248 million. The fair value of collateral posted for such instruments was $219 million. Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid lower collateral posting thresholds. If the Company’s debt rating were to fall below specified ratings, the counterparties to the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position. The aggregate fair value of all derivative financial instruments with such credit-risk-related contingent features in a net liability position on June 30, 2011 was $93 million, for which the Company had posted collateral of $58 million in the normal course of business. If the credit-risk-related contingent features were triggered on June 30, 2011, the maximum amount of additional collateral the Company would have been required to post to counterparties was $35 million.
     The Company’s credit exposure with respect to the estimated fair value as of June 30, 2011 of interest rate swap agreements used for managing interest rate risk has been substantially mitigated through master netting agreements with trading account interest rate contracts with the same counterparties as well as counterparty postings of $61 million of collateral with the Company. Trading account interest rate swap agreements entered into with customers are subject to the Company’s credit standards and often contain collateral provisions.
11. Variable interest entities and asset securitizations
In accordance with GAAP, the Company determined that it was the primary beneficiary of a residential mortgage loan securitization trust considering its role as servicer and its retained subordinated interests in the trust. As a result, the Company has included the one-to-four family residential mortgage loans that were included in the trust in its consolidated financial statements. At June 30, 2011 and December 31, 2010, the carrying values of the loans in the securitization trust were $225 million and $265 million, respectively. The outstanding principal amount of mortgage-backed securities issued by the qualified special purpose trust that was held by parties unrelated to M&T at June 30, 2011 and December 31, 2010 was $36 million and $40 million, respectively. Because the transaction was non-recourse, the Company’s maximum exposure to loss as a result of its association with the trust at June 30, 2011 is limited to realizing the carrying value of the loans less the amount of the mortgage-backed securities held by third parties.
     As described in note 5, M&T has issued junior subordinated debentures payable to various trusts that have issued Capital Securities. M&T owns the common securities of those trust entities. The Company is not considered to be the primary beneficiary of those entities and, accordingly, the trusts are not included in the Company’s consolidated financial statements. At June 30, 2011

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. Variable interest entities and asset securitizations, continued
and December 31, 2010, the Company included the junior subordinated debentures as “long-term borrowings” in its consolidated balance sheet. The Company has recognized $34 million in other assets for its “investment” in the common securities of the trusts that will be concomitantly repaid to M&T by the respective trust from the proceeds of M&T’s repayment of the junior subordinated debentures associated with preferred capital securities described in note 5.
     The Company has invested as a limited partner in various real estate partnerships that collectively had total assets of approximately $1.5 billion and $1.1 billion at June 30, 2011 and December 31, 2010, respectively. Those partnerships generally construct or acquire properties for which the investing partners are eligible to receive certain federal income tax credits in accordance with government guidelines. Such investments may also provide tax deductible losses to the partners. The partnership investments also assist the Company in achieving its community reinvestment initiatives. As a limited partner, there is no recourse to the Company by creditors of the partnerships. However, the tax credits that result from the Company’s investments in such partnerships are generally subject to recapture should a partnership fail to comply with the respective government regulations. The Company’s maximum exposure to loss of its investments in such partnerships was $246 million, including $63 million of unfunded commitments, at June 30, 2011 and $258 million, including $81 million of unfunded commitments, at December 31, 2010. The Company has not provided financial or other support to the partnerships that was not contractually required. Management currently estimates that no material losses are probable as a result of the Company’s involvement with such entities. In accordance with the accounting provisions for variable interest entities, the Company, in its position as limited partner, does not direct the activities that most significantly impact the economic performance of the partnerships and, therefore, the partnership entities are not included in the Company’s consolidated financial statements.
12. Fair value measurements
GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has not made any fair value elections at June 30, 2011.
     Pursuant to GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy exists in GAAP for fair value measurements based upon the inputs to the valuation of an asset or liability.
    Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.
 
    Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
 
    Level 3 — Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.
     When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.
Trading account assets and liabilities
Trading account assets and liabilities consist primarily of interest rate swap agreements and foreign exchange contracts with customers who require such services with offsetting positions with third parties to minimize the Company’s risk with respect to such transactions. The Company generally determines the fair value of its derivative trading account assets and liabilities using externally developed pricing models based on market observable inputs and therefore classifies such valuations as Level 2. Mutual funds held in connection with deferred compensation arrangements have been classified as Level 1 valuations. Valuations of investments in municipal and other bonds can generally be obtained through reference to quoted prices in less active markets for the same or similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.
Investment securities available for sale
The majority of the Company’s available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments in mutual funds and equity securities are actively traded and therefore have been classified as Level 1 valuations.
     Trading activity in privately issued mortgage-backed securities has been limited. The markets for such securities were generally characterized by a sharp reduction of non-agency mortgage-backed securities issuances, a significant reduction in trading volumes and wide bid-ask spreads. Although estimated prices were generally obtained for such securities, the Company was significantly restricted in the level of market observable assumptions used in the valuation of its privately issued mortgage-backed securities portfolio. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs, the Company has classified the valuation of privately issued mortgage-backed securities as Level 3.
     GAAP provides guidance for estimating fair value when the volume and level of trading activity for an asset or liability have significantly decreased. The Company has concluded that there has been a significant decline in the volume and level of activity in the market for privately issued mortgage-backed securities. Therefore, the Company supplemented its determination of fair value for many of its privately issued mortgage-backed securities by obtaining pricing indications from two independent sources at June 30, 2011 and December 31, 2010. However, the Company could not readily ascertain that the basis of such valuations could be ascribed to orderly and observable trades in the market for privately issued residential mortgage-backed securities. As a result, the Company also performed internal modeling to estimate the cash flows and fair value of privately issued residential mortgage-backed securities with an amortized cost basis of $1.4 billion at June 30, 2011 and $1.5 billion at December 31, 2010. The Company’s internal modeling techniques included discounting estimated bond-specific cash flows using assumptions about cash flows associated with loans underlying each of the bonds, including estimates about the timing and amount of credit losses and prepayments. In estimating those cash flows, the Company used assumptions as to future delinquency, defaults, further home price depreciation and loss rates. Differences between internal model valuations and external pricing indications were generally

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
considered to be reflective of the lack of liquidity in the market for privately issued mortgage-backed securities given the nature of the cash flow modeling performed in the Company’s assessment of value. To determine the point within the range of potential values that was most representative of fair value under current market conditions for each of the bonds, the Company computed values based on judgmentally applied weightings of the internal model valuations and the indications obtained from the average of the two independent pricing sources. Weightings applied to internal model valuations generally ranged from zero to 40% depending on bond structure and collateral type, with prices for bonds in non-senior tranches generally receiving lower weightings on the internal model results and senior bonds receiving a higher model weighting. At June 30, 2011, weighted-average reliance on internal model pricing for the bonds modeled was 34% with a 66% average weighting placed on the values provided by the independent sources. The Company concluded its estimate of fair value for the $1.4 billion of privately issued residential mortgage-backed securities to approximate $1.2 billion, which implies a weighted-average market yield based on reasonably likely cash flows of 7.6%. Other valuations of privately issued residential mortgage-backed securities were determined by reference to independent pricing sources without adjustment.
     Included in collateralized debt obligations are securities backed by trust preferred securities issued by financial institutions and other entities. Given the severe disruption in the credit markets and the wide disparity in observable trade information, the Company could not obtain pricing indications for many of these securities from its two primary independent pricing sources. The Company, therefore, performed internal modeling to estimate the cash flows and fair value of its portfolio of securities backed by trust preferred securities at June 30, 2011 and December 31, 2010. The modeling techniques included discounting estimated cash flows using bond-specific assumptions about defaults, deferrals and prepayments of the trust preferred securities underlying each bond. The estimation of cash flows included assumptions as to future collateral defaults and related loss severities. The resulting cash flows were then discounted by reference to market yields observed in the single-name trust preferred securities market. At June 30, 2011, the total amortized cost and fair value of securities backed by trust preferred securities issued by financial institutions and other entities was $44 million and $62 million, respectively, and at December 31, 2010 were $95 million and $111 million, respectively. Privately issued mortgage-backed securities and securities backed by trust preferred securities issued by financial institutions and other entities constituted all of the available-for-sale investment securities classified as Level 3 valuations as of June 30, 2011 and December 31, 2010.
Real estate loans held for sale
The Company utilizes commitments to sell real estate loans to hedge the exposure to changes in fair value of real estate loans held for sale. The carrying value of hedged real estate loans held for sale includes changes in estimated fair value during the hedge period. Typically, the Company attempts to hedge real estate loans held for sale from the date of close through the sale date. The fair value of hedged real estate loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans with similar characteristics and, accordingly, such loans have been classified as a Level 2 valuation.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
Commitments to originate real estate loans for sale and commitments to sell real estate loans
The Company enters into various commitments to originate real estate loans for sale and commitments to sell real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value on the consolidated balance sheet. The estimated fair values of such commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans to certain government-sponsored entities and other parties. The fair valuations of commitments to sell real estate loans generally result in a Level 2 classification. The estimated fair value of commitments to originate real estate loans for sale are adjusted to reflect the Company’s anticipated commitment expirations. Estimated commitment expirations are considered a significant unobservable input, which results in a Level 3 classification. The Company includes the expected net future cash flows related to the associated servicing of the loan in the fair value measurement of a derivative loan commitment. The estimated value ascribed to the expected net future servicing cash flows is also considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale.
Interest rate swap agreements used for interest rate risk management
The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. The Company generally determines the fair value of its interest rate swap agreements using externally developed pricing models based on market observable inputs and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.
     The following tables present assets and liabilities at June 30, 2011 and December 31, 2010 measured at estimated fair value on a recurring basis:
                                 
    Fair value                    
    measurements at                    
    June 30,                    
    2011     Level 1 (a)     Level 2 (a)     Level 3  
            (in thousands)          
Trading account assets
  $ 502,986       57,523       445,463        
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
    112,953             112,953        
Obligations of states and political subdivisions
    67,491             67,491        
Mortgage-backed securities:
                               
Government issued or guaranteed
    3,023,018             3,023,018        
Privately issued residential
    1,306,202                   1,306,202  
Privately issued commercial
    17,233                   17,233  
Collateralized debt obligations
    61,601                   61,601  
Other debt securities
    195,536             195,536        
Equity securities
    106,455       84,676       21,779        
 
                       
 
    4,890,489       84,676       3,420,777       1,385,036  
 
                       
 
                               
Real estate loans held for sale
    414,643             414,643        
Other assets (b)
    122,230             108,672       13,558  
 
                       
Total assets
  $ 5,930,348       142,199       4,389,555       1,398,594  
 
                       
 
                               
Trading account liabilities
  $ 366,483             366,483        
Other liabilities (b)
    7,021             6,634       387  
 
                       
Total liabilities
  $ 373,504             373,117       387  
 
                       

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
                                 
    Fair value                    
    measurements at                    
    December 31,                    
    2010     Level 1 (a)     Level 2 (a)     Level 3  
            (in thousands)          
Trading account assets
  $ 523,834       53,032       470,802        
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
    63,434             63,434        
Obligations of states and political subdivisions
    60,425             60,425        
Mortgage-backed securities:
                               
Government issued or guaranteed
    3,306,241             3,306,241        
Privately issued residential
    1,435,561                   1,435,561  
Privately issued commercial
    22,407                   22,407  
Collateralized debt obligations
    110,756                   110,756  
Other debt securities
    298,900             298,900        
Equity securities
    115,768       106,872       8,896        
 
                       
 
    5,413,492       106,872       3,737,896       1,568,724  
 
                       
 
                               
Real estate loans held for sale
    544,567             544,567        
Other assets (b)
    114,666             111,839       2,827  
 
                       
Total assets
  $ 6,596,559       159,904       4,865,104       1,571,551  
 
                       
 
                               
Trading account liabilities
  $ 333,222             333,222        
Other liabilities (b)
    3,607             3,024       583  
 
                       
Total liabilities
  $ 336,829             336,246       583  
 
                       
 
(a)   There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy during the three months and six months ended June 30, 2011 and 2010.
 
(b)   Comprised predominantly of interest rate swap agreements used for interest rate risk management (Level 2), commitments to sell real estate loans (Level 2) and commitments to originate real estate loans to be held for sale (Level 3).

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
     The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended June 30, 2011 were as follows:
                                 
    Investment securities available for sale        
    Privately issued     Privately issued              
    residential     commercial     Collateralized     Other assets  
    mortgage-backed     mortgage-backed     debt     and other  
    securities     securities     obligations     liabilities  
            (in thousands)          
Balance — March 31, 2011
  $ 1,391,878     $ 20,467     $ 114,265     $ 16,147  
 
                               
Total gains (losses) realized/unrealized:
                               
Included in earnings
    (24,530 )(a)                 22,800 (b)
Included in other comprehensive income
    38,471       (1,400 )     3,372        
Purchases
                50,790        
Sales
                (105,643 )      
Settlements
    (99,617 )     (1,834 )     (1,183 )      
Transfers in and/or out of Level 3 (c)
                      (25,776 )
 
                       
 
                               
Balance — June 30, 2011
  $ 1,306,202     $ 17,233     $ 61,601     $ 13,171  
 
                       
 
                               
Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2011
  $ (24,530 )(a)   $     $     $ 10,252 (b)
 
                       
     The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended June 30, 2010 were as follows:
                                         
    Investment securities available for sale        
    Privately issued     Privately issued                    
    residential     commercial     Collateralized     Other     Other assets  
    mortgage-backed     mortgage-backed     debt     debt     and other  
    securities     securities     obligations     securities     liabilities  
            (in thousands)                  
Balance — March 31, 2010
  $ 1,664,341     $ 25,125     $ 125,755     $ 455     $ 8,171  
 
                                       
Total gains (losses) realized/unrealized:
                                       
Included in earnings
    (7,896 )(a)           (2,491 )(a)           29,828 (b)
Included in other comprehensive income
    40,794       4,021       (5,088 )            
Settlements
    (99,206 )     (2,503 )     (136 )            
Transfers in and/or out of Level 3 (c)
                      (455 )     (17,156 )
 
                             
 
                                       
Balance — June 30, 2010
  $ 1,598,033     $ 26,643     $ 118,040     $     $ 20,843  
 
                             
 
                                       
Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2010
  $ (7,896 )(a)   $     $ (2,491 )(a)   $     $ 20,097 (b)
 
                             

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
     The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the six months ended June 30, 2011 were as follows:
                                 
    Investment securities available for sale        
    Privately issued     Privately issued              
    residential     commercial     Collateralized     Other assets  
    mortgage-backed     mortgage-backed     debt     and other  
    securities     securities     obligations     liabilities  
            (in thousands)          
Balance — January 1, 2011
  $ 1,435,561     $ 22,407     $ 110,756     $ 2,244  
 
                               
Total gains (losses) realized/unrealized:
                               
Included in earnings
    (32,071 )(a)                 43,244 (b)
Included in other comprehensive income
    99,556       (1,482 )     7,206        
Purchases
                50,790        
Sales
                (105,643 )      
Settlements
    (196,844 )     (3,692 )     (1,508 )      
Transfers in and/or out of Level 3 (c)
                      (32,317 )
 
                       
 
                               
Balance — June 30, 2011
  $ 1,306,202     $ 17,233     $ 61,601     $ 13,171  
 
                       
 
                               
Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2011
  $ (32,071 )(a)   $     $     $ 13,139 (b)
 
                       
 
                               

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
     The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the six months ended June 30, 2010 were as follows:
                                         
    Investment securities available for sale          
    Privately issued     Privately issued                      
    residential     commercial     Collateralized             Other assets  
    mortgage-backed     mortgage-backed     debt     Other     and other  
    securities     securities     obligations     debt securities     liabilities  
    (in thousands)  
Balance – January 1, 2010
  $ 2,064,904     $ 25,166     $ 115,346     $ 420     $ (80 )
 
Total gains (losses) realized/unrealized:
                                       
Included in earnings
    (34,343 )(a)           (2,846 )(a)           47,850 (b)
Included in other comprehensive income
    115,248       6,094       5,807       35        
Settlements
    (192,528 )     (4,617 )     (267 )            
Transfers in and/or out of Level 3 (c)
    (355,248 )(d)                 (455 )     (26,927 )
 
                             
 
                                       
Balance – June 30, 2010
  $ 1,598,033     $ 26,643     $ 118,040     $     $ 20,843  
 
                             
 
                                       
Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2010
  $ (34,343 )(a)   $     $ (2,846 )(a)   $     $ 20,598 (b)
 
                             
 
(a)   Reported as an other-than-temporary impairment loss in the consolidated statement of income or as gain (loss) on bank investment securities.
 
(b)   Reported as mortgage banking revenues in the consolidated statement of income and includes the fair value of commitment issuances and expirations.
 
(c)   The Company’s policy for transfers between fair value levels is to recognize the transfer as of the actual date of the event or change in circumstances that caused the transfer.
 
(d)   As a result of the Company’s adoption of new accounting rules governing the consolidation of variable interest entities, effective January 1, 2010 the Company derecognized $355 million of available-for-sale investment securities previously classified as Level 3 measurements.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
     The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements. The more significant of those assets follow.
Loans
Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2, unless significant adjustments have been made to the valuation that are not readily observable by market participants. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. Loans subject to nonrecurring fair value measurement were $478 million at June 30, 2011 ($324 million and $154 million of which were classified as Level 2 and Level 3, respectively) and $664 million at June 30, 2010 ($378 million and $286 million of which were classified as Level 2 and Level 3, respectively). Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on June 30, 2011 were decreases of $61 million and $91 million for the three- and six-month periods ended June 30, 2011, respectively. Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on June 30, 2010 were decreases of $64 million and $125 million for the three- and six-month periods ended June 30, 2010, respectively.
Assets taken in foreclosure of defaulted loans
Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and are generally measured at the lower of cost or fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2. Assets taken in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $50 million and $127 million at June 30, 2011 and June 30, 2010, respectively. Reflecting further declines in residential real estate and residential development projects subsequent to foreclosure, changes in fair value recognized for those foreclosed assets held by the Company at June 30, 2011 were $13 million and $15 million for the three months and six months ended June 30, 2011, respectively. Changes in fair value recognized for those foreclosed assets held by the Company at June 30, 2010 were $16 million and $21 million for the three months and six months ended June 30, 2010, respectively.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
Disclosures of fair value of financial instruments
With the exception of marketable securities, certain off-balance sheet financial instruments and one-to-four family residential mortgage loans originated for sale, the Company’s financial instruments are not readily marketable and market prices do not exist. The Company, in attempting to comply with the provisions of GAAP that require disclosures of fair value of financial instruments, has not attempted to market its financial instruments to potential buyers, if any exist. Since negotiated prices in illiquid markets depend greatly upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Additional information about the assumptions and calculations utilized follows.
     The carrying amounts and estimated fair value for financial instrument assets (liabilities) are presented in the following table:
                                 
    June 30, 2011     December 31, 2010  
    Carrying     Calculated     Carrying     Calculated  
    amount     estimate     amount     estimate  
    (in thousands)  
Financial assets:
                               
Cash and cash equivalents
  $ 1,332,915     $ 1,332,915     $ 933,755     $ 933,755  
Interest-bearing deposits at banks
    2,275,450       2,275,450       101,222       101,222  
Trading account assets
    502,986       502,986       523,834       523,834  
Agreements to resell securities
    380,000       380,000              
Investment securities
    6,492,265       6,416,075       7,150,540       7,051,454  
Loans and leases:
                               
Commercial loans and leases
    15,040,892       14,827,062       13,390,610       13,135,569  
Commercial real estate loans
    24,263,726       23,979,139       21,183,161       20,840,346  
Residential real estate loans
    6,970,921       6,809,347       5,928,056       5,699,028  
Consumer loans
    12,265,690       11,962,056       11,488,555       11,178,583  
Allowance for credit losses
    (907,589 )           (902,941 )      
 
                       
Loans and leases, net
    57,633,640       57,577,604       51,087,441       50,853,526  
Accrued interest receivable
    212,357       212,357       202,182       202,182  
 
                               
Financial liabilities:
                               
Noninterest-bearing deposits
  $ (18,598,828 )   $ (18,598,828 )   $ (14,557,568 )   $ (14,557,568 )
Savings deposits and NOW accounts
    (32,400,035 )     (32,400,035 )     (27,824,630 )     (27,824,630 )
Time deposits
    (7,678,799 )     (7,713,421 )     (5,817,170 )     (5,865,779 )
Deposits at Cayman Islands office
    (551,553 )     (551,553 )     (1,605,916 )     (1,605,916 )
Short-term borrowings
    (567,144 )     (567,144 )     (947,432 )     (947,432 )
Long-term borrowings
    (7,128,916 )     (7,280,296 )     (7,840,151 )     (7,937,397 )
Accrued interest payable
    (89,182 )     (89,182 )     (71,954 )     (71,954 )
Trading account liabilities
    (366,483 )     (366,483 )     (333,222 )     (333,222 )
 
                               
Other financial instruments:
                               
Commitments to originate real estate loans for sale
  $ 13,171     $ 13,171     $ 2,244     $ 2,244  
Commitments to sell real estate loans
    (4,139 )     (4,139 )     12,178       12,178  
Other credit-related commitments
    (99,959 )     (99,959 )     (74,426 )     (74,426 )
Interest rate swap agreements used for interest rate risk management
    106,177       106,177       96,637       96,637  

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
     The following assumptions, methods and calculations were used in determining the estimated fair value of financial instruments.
Cash and cash equivalents, interest-bearing deposits at banks, agreements to resell securities, short-term borrowings, accrued interest receivable and accrued interest payable
Due to the nature of cash and cash equivalents and the near maturity of interest-bearing deposits at banks, agreements to resell securities, short-term borrowings, accrued interest receivable and accrued interest payable, the Company estimated that the carrying amount of such instruments approximated estimated fair value.
Investment securities
Estimated fair values of investments in readily marketable securities were generally based on quoted market prices. Investment securities that were not readily marketable were assigned amounts based on estimates provided by outside parties or modeling techniques that relied upon discounted calculations of projected cash flows or, in the case of other investment securities, which include capital stock of the Federal Reserve Bank of New York and the Federal Home Loan Bank of New York, at an amount equal to the carrying amount.
Loans and leases
In general, discount rates used to calculate values for loan products were based on the Company’s pricing at the respective period end. A higher discount rate was assumed with respect to estimated cash flows associated with nonaccrual loans. Projected loan cash flows were adjusted for estimated credit losses. However, such estimates made by the Company may not be indicative of assumptions and adjustments that a purchaser of the Company’s loans and leases would seek.
Deposits
Pursuant to GAAP, the estimated fair value ascribed to noninterest-bearing deposits, savings deposits and NOW accounts must be established at carrying value because of the customers’ ability to withdraw funds immediately. Time deposit accounts are required to be revalued based upon prevailing market interest rates for similar maturity instruments. As a result, amounts assigned to time deposits were based on discounted cash flow calculations using prevailing market interest rates based on the Company’s pricing at the respective date for deposits with comparable remaining terms to maturity.
     The Company believes that deposit accounts have a value greater than that prescribed by GAAP. The Company feels, however, that the value associated with these deposits is greatly influenced by characteristics of the buyer, such as the ability to reduce the costs of servicing the deposits and deposit attrition which often occurs following an acquisition.
Long-term borrowings
The amounts assigned to long-term borrowings were based on quoted market prices, when available, or were based on discounted cash flow calculations using prevailing market interest rates for borrowings of similar terms and credit risk.
Commitments to originate real estate loans for sale and commitments to sell real estate loans
The Company enters into various commitments to originate real estate loans for sale and commitments to sell real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value on the consolidated balance sheet. The estimated fair values of such commitments were generally calculated by reference to quoted market prices for commitments to sell real estate loans to certain government-sponsored entities and other parties.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
Interest rate swap agreements used for interest rate risk management
The estimated fair value of interest rate swap agreements used for interest rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements.
Other commitments and contingencies
As described in note 13, in the normal course of business, various commitments and contingent liabilities are outstanding, such as loan commitments, credit guarantees and letters of credit. The Company’s pricing of such financial instruments is based largely on credit quality and relationship, probability of funding and other requirements. Loan commitments often have fixed expiration dates and contain termination and other clauses which provide for relief from funding in the event of significant deterioration in the credit quality of the customer. The rates and terms of the Company’s loan commitments, credit guarantees and letters of credit are competitive with other financial institutions operating in markets served by the Company. The Company believes that the carrying amounts, which are included in other liabilities, are reasonable estimates of the fair value of these financial instruments.
     The Company does not believe that the estimated information presented herein is representative of the earnings power or value of the Company. The preceding analysis, which is inherently limited in depicting fair value, also does not consider any value associated with existing customer relationships nor the ability of the Company to create value through loan origination, deposit gathering or fee generating activities.
     Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. Commitments and contingencies
In the normal course of business, various commitments and contingent liabilities are outstanding. The following table presents the Company’s significant commitments. Certain of these commitments are not included in the Company’s consolidated balance sheet.
                 
    June 30,     December 31,  
    2011     2010  
    (in thousands)  
Commitments to extend credit
               
Home equity lines of credit
  $ 6,534,722       6,281,366  
Commercial real estate loans to be sold
    181,180       72,930  
Other commercial real estate and construction
    2,746,493       1,672,006  
Residential real estate loans to be sold
    482,774       161,583  
Other residential real estate
    113,738       151,111  
Commercial and other
    10,787,826       8,332,199  
Standby letters of credit
    3,963,575       3,917,318  
Commercial letters of credit
    65,766       76,962  
Financial guarantees and indemnification contracts
    1,790,502       1,609,944  
Commitments to sell real estate loans
    903,582       734,696  
     Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, whereas commercial letters of credit are issued to facilitate commerce and typically result in the commitment being funded when the underlying transaction is consummated between the customer and a third party. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.
     Financial guarantees and indemnification contracts are oftentimes similar to standby letters of credit and include mandatory purchase agreements issued to ensure that customer obligations are fulfilled, recourse obligations associated with sold loans, and other guarantees of customer performance or compliance with designated rules and regulations. Included in financial guarantees and indemnification contracts are loan principal amounts sold with recourse in conjunction with the Company’s involvement in the Fannie Mae Delegated Underwriting and Servicing program. The Company’s maximum credit risk for recourse associated with loans sold under this program totaled approximately $1.7 billion and $1.6 billion at June 30, 2011 and December 31, 2010, respectively.
     Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. Commitments and contingencies, continued
     The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the fair value of real estate loans held for sale. Such commitments are considered derivatives and along with commitments to originate real estate loans to be held for sale are generally recorded in the consolidated balance sheet at estimated fair market value.
     The Company has an agreement with the Baltimore Ravens of the National Football League whereby the Company obtained the naming rights to a football stadium in Baltimore, Maryland. Under the agreement, the Company is obligated to pay $5 million per year through 2013 and $6 million per year from 2014 through 2017.
     The Company also has commitments under long-term operating leases.
     The Company reinsures credit life and accident and health insurance purchased by consumer loan customers. The Company also enters into reinsurance contracts with third party insurance companies who insure against the risk of a mortgage borrower’s payment default in connection with certain mortgage loans originated by the Company. When providing reinsurance coverage, the Company receives a premium in exchange for accepting a portion of the insurer’s risk of loss. The outstanding loan principal balances reinsured by the Company were approximately $78 million at June 30, 2011. Assets of subsidiaries providing reinsurance that are available to satisfy claims totaled approximately $51 million at June 30, 2011. The amounts noted above are not necessarily indicative of losses which may ultimately be incurred. Such losses are expected to be substantially less because most loans are repaid by borrowers in accordance with the original loan terms. Management believes any reinsurance losses that may be payable by the Company will not be material to the Company’s consolidated financial position.
     The Company is contractually obligated to repurchase previously sold residential real estate loans that do not ultimately meet investor sale criteria related to underwriting procedures or loan documentation. When required to do so, the Company may reimburse loan purchasers for losses incurred or may repurchase certain loans. The Company reduces residential mortgage banking revenues by an estimate for losses related to its obligations to loan purchasers. The amount of those charges is based on the volume of loans sold, the level of reimbursement requests received from loan purchasers and estimates of losses that may be associated with previously sold loans. At June 30, 2011, management believes that any remaining liability arising out of the Company’s obligation to loan purchasers is not material to the Company’s consolidated financial position.
     M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against M&T or its subsidiaries will be material to the Company’s consolidated financial position. On an on-going basis the Company assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $40 million. Although the Company does not believe that the outcome of pending litigations will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information
Reportable segments have been determined based upon the Company’s internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.
     The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 22 to the Company’s consolidated financial statements as of and for the year ended December 31, 2010. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions. As also described in note 22 to the Company’s 2010 consolidated financial statements, neither goodwill nor core deposit and other intangible assets (and the amortization charges associated with such assets) resulting from acquisitions of financial institutions have been allocated to the Company’s reportable segments, but are included in the “All Other” category. The Company does, however, assign such intangible assets to business units for purposes of testing for impairment.
     Information about the Company’s segments is presented in the following table:
                                                 
    Three months ended June 30  
    2011     2010  
    Total     Inter-
segment
    Net     Total     Inter-
segment
    Net  
    revenues(a)     revenues     income (loss)     revenues(a)     revenues     income (loss)  
    (in thousands)  
Business Banking
  $ 104,012       971       26,584       102,610             26,552  
Commercial Banking
    228,564       1,190       95,111       194,575             81,612  
Commercial Real Estate
    134,066       448       65,058       109,487       39       43,667  
Discretionary Portfolio
    112,383       (4,419 )     58,362       5,580       (2,500 )     (4,073 )
Residential Mortgage Banking
    58,305       8,699       5,966       65,766       8,876       (467 )
Retail Banking
    311,484       2,967       54,645       315,638       2,690       67,080  
All Other
    139,044       (9,856 )     16,632       47,128       (9,105 )     (25,622 )
 
                                   
Total
  $ 1,087,858             322,358       840,784             188,749  
 
                                   

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
                                                 
    Six months ended June 30  
    2011     2010  
    Total     Inter-
segment
    Net     Total     Inter-
segment
    Net  
    revenues (a)   revenues     income (loss)     revenues (a)   revenues     income (loss)  
    (in thousands)  
Business Banking
  $ 203,789       1,933       52,884       204,406             51,896  
Commercial Banking
    442,176       2,356       183,442       386,981             158,480  
Commercial Real Estate
    259,372       804       114,068       219,900       57       87,420  
Discretionary Portfolio
    154,866       (12,206 )     74,489       (6,653 )     (5,247 )     (20,235 )
Residential Mortgage Banking
    116,153       19,006       10,751       128,883       17,073       128  
Retail Banking
    606,532       5,954       107,371       623,113       5,377       126,117  
All Other
    188,194       (17,847 )     (14,374 )     98,194       (17,260 )     (64,102 )
 
                                   
Total
  $ 1,971,082             528,631       1,654,824             339,704  
 
                                   
                         
    Average total assets  
    Six months ended     Year ended  
    June 30     December 31  
    2011     2010     2010  
    (in millions)  
Business Banking
  $ 4,861       4,884       4,843  
Commercial Banking
    16,856       15,504       15,461  
Commercial Real Estate
    14,227       13,255       13,194  
Discretionary Portfolio
    14,012       14,699       14,690  
Residential Mortgage Banking
    1,940       2,188       2,217  
Retail Banking
    11,776       12,191       12,079  
All Other
    6,590       5,886       5,896  
 
                 
Total
  $ 70,262       68,607       68,380  
 
                 
 
(a)   Total revenues are comprised of net interest income and other income. Net interest income is the difference between taxable-equivalent interest earned on assets and interest paid on liabilities by a segment and a funding charge (credit) based on the Company’s internal funds transfer and allocation methodology. Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated $6,468,000 and

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
$6,105,000 for the three-month periods ended June 30, 2011 and 2010, respectively, and $12,795,000 and $12,028,000 for the six-month periods ended June 30, 2011 and 2010, respectively, and is eliminated in “All Other” total revenues. Intersegment revenues are included in total revenues of the reportable segments. The elimination of intersegment revenues is included in the determination of “All Other” total revenues.
15. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings, L.P.
M&T holds a 20% interest in Bayview Lending Group LLC (“BLG”), a privately-held commercial mortgage lender. M&T recognizes income or loss from BLG using the equity method of accounting. The carrying value of that investment was $206 million at June 30, 2011.
     Bayview Financial Holdings, L.P. (together with its affiliates, “Bayview Financial”), a privately-held specialty mortgage finance company, is BLG’s majority investor. In addition to their common investment in BLG, the Company and Bayview Financial conduct other business activities with each other. The Company has obtained loan servicing rights for small-balance commercial mortgage loans from BLG and Bayview Financial having outstanding principal balances of $4.8 billion and $5.2 billion at June 30, 2011 and December 31, 2010, respectively. Amounts recorded as capitalized servicing assets for such loans totaled $21 million at June 30, 2011 and $26 million at December 31, 2010. In addition, capitalized servicing rights at June 30, 2011 and December 31, 2010 also included $7 million and $9 million, respectively, for servicing rights that were obtained from Bayview Financial related to residential mortgage loans with outstanding principal balances of $3.4 billion at June 30, 2011 and $3.6 billion at December 31, 2010. Revenues from servicing residential and small-balance commercial mortgage loans obtained from BLG and Bayview Financial were $10 million and $12 million for the three months ended June 30, 2011 and 2010, respectively, and $21 million and $24 million for the six months ended June 30, 2011 and 2010, respectively. In addition, at June 30, 2011 and December 31, 2010, the Company held $17 million and $22 million, respectively, of collateralized mortgage obligations in its available-for-sale investment securities portfolio that were securitized by Bayview Financial. Finally, the Company held $292 million and $313 million of similar investment securities in its held-to-maturity portfolio at June 30, 2011 and December 31, 2010, respectively.

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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 second quarter of 2011 was $322 million or $2.42 of diluted earnings per common share, compared with $189 million or $1.46 of diluted earnings per common share in the year-earlier quarter. During the first quarter of 2011, net income totaled $206 million or $1.59 of diluted earnings per common share. Basic earnings per common share were $2.43 in the recent quarter, compared with $1.47 in the second quarter of 2010 and $1.59 in the initial 2011 quarter. The after-tax impact of net acquisition and integration-related gains and expenses (included herein as merger-related expenses) resulted in income of $42 million ($28 million pre-tax) or $.33 of basic and diluted earnings per common share in the second quarter of 2011, compared with expenses of $3 million ($4 million pre-tax) or $.02 of basic and diluted earnings per common share in the first quarter of 2011. Such gains and expenses were associated with M&T’s May 16, 2011 acquisition of Wilmington Trust Corporation (“Wilmington Trust”), headquartered in Wilmington, Delaware, and the November 5, 2010 purchase and assumption agreement between M&T Bank, M&T’s principal banking subsidiary, and the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits (except certain brokered deposits) and acquire certain assets of K Bank, based in Randallstown, Maryland, in an assisted transaction with the FDIC. There were no merger-related expenses in the first or second quarters of 2010. For the first half of 2011, net income totaled $529 million or $4.02 of diluted earnings per common share, compared with $340 million or $2.61 of diluted earnings per common share in the corresponding 2010 period. Basic earnings per common share for the six-month periods ended June 30, 2011 and 2010 were $4.04 and $2.63, respectively. The after-tax impact of merger-related gains and expenses associated with Wilmington Trust and K Bank was income of $39 million ($24 million pre-tax) or $.32 of basic and diluted earnings per common share during the six-month period ended June 30, 2011.
     The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the recent quarter was 1.78%, compared with 1.11% in the second quarter of 2010 and 1.23% in the first quarter of 2011. The annualized rate of return on average common shareholders’ equity was 14.94% in the second quarter of 2011, compared with 9.67% in the year-earlier quarter and 10.16% in the first three months of 2011. During the six-month period ended June 30, 2011, the annualized rates of return on average assets and average common shareholders’ equity were 1.52% and 12.62%, respectively, compared with 1.00% and 8.78%, respectively, in the first six months of 2010.
     On May 16, 2011, M&T acquired all of the outstanding common stock of Wilmington Trust in a stock-for-stock transaction. Wilmington Trust operated 55 banking offices in Delaware and Pennsylvania at the date of acquisition. The results of operations acquired in the Wilmington Trust transaction have been included in the Company’s financial results since the acquisition date. Wilmington Trust shareholders received .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock, resulting in M&T issuing a total of 4,694,486 common shares with an acquisition date fair value of $406 million.
     The Wilmington Trust transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled $10.8 billion, including $6.4 billion of loans and leases (including approximately $3.2 billion of commercial real estate loans, $1.4 billion of commercial loans and leases, $1.1 billion of consumer loans and $680 million of residential real estate loans). Liabilities assumed aggregated $10.0 billion, including $8.9

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billion of deposits. The transaction added $406 million to M&T’s common shareholders’ equity. Immediately prior to the closing of the Wilmington Trust transaction, M&T purchased the $330 million of preferred stock issued by Wilmington Trust as part of the Troubled Asset Relief Program – Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $176 million of core deposit and other intangible assets. The core deposit and other intangible assets are being amortized over periods of 5 to 7 years using an accelerated method. There was no goodwill recorded as a result of the transaction; however, a non-taxable gain of $65 million was realized, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust forms one of the largest banks in the Eastern United States, adding to M&T’s market-leading position in the Mid-Atlantic region, including the leading deposit market share in Delaware.
     Pursuant to its capital plan, M&T undertook the following actions during the recent quarter:
    Redeemed $370 million of its Series A Preferred Stock issued pursuant to the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Treasury; and
 
    Issued $500 million of perpetual 6.875% non-cumulative preferred stock in order to supplement Tier 1 Capital.
     As part of the K Bank transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired in the transaction totaled approximately $556 million, including $154 million of loans and $186 million in cash, and liabilities assumed aggregated $528 million, including $491 million of deposits. In accordance with generally accepted accounting principles (“GAAP”), M&T Bank recorded an after-tax gain on the transaction of $17 million ($28 million before taxes). The gain reflects the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. There was no goodwill or other intangible assets recorded in connection with this transaction. The operations obtained in the K Bank acquisition transaction did not have a material impact on the Company’s consolidated financial position or results of operations.
     The condition of the domestic and global economy over the last several years has significantly impacted the financial services industry as a whole, and specifically, the financial results of the Company. In particular, high unemployment levels and significantly depressed residential real estate valuations have led to increased loan charge-offs experienced by financial institutions throughout that time period. Since the official end of the recession in the United States sometime in the latter half of 2009, the recovery of the economy has been very slow. The Company has experienced charge-offs at higher than historical levels since 2008, including in the first half of 2011. In addition, many financial institutions have continued to experience unrealized losses related to investment securities backed by residential and commercial real estate due to a lack of liquidity in the financial markets and anticipated credit losses. Many financial institutions, including the Company, have taken charges for those unrealized losses that were deemed to be other than temporary.
     Reflected in the Company’s results for the three months ended June 30, 2011 were gains from the sale of investment securities available for sale, predominantly residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), collateralized debt obligations

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(“CDOs”) and capital preferred securities. Such gains increased net income in the recent quarter by $67 million ($111 million before taxes), or $.54 of diluted earnings per common share. The Company sold the securities in response to the Wilmington Trust acquisition in order to manage its balance sheet size and composition and resultant capital ratios. The recent quarter’s results were also impacted by $16 million of after-tax other-than-temporary impairment charges ($27 million before taxes) on certain privately issued collateralized mortgage obligations (“CMOs”), reducing diluted earnings per common share by $.13.
     Reflected in the Company’s second quarter 2010 results were $14 million of after-tax other-than-temporary impairment charges ($22 million before taxes) on certain available-for-sale investment securities, reducing diluted earnings per common share by $.11. Specifically, $12 million (pre-tax) of such charges related to American Depositary Shares (“ADSs”) of Allied Irish Banks, p.l.c. (“AIB”) obtained in M&T’s 2003 acquisition of a subsidiary of AIB and $10 million (pre-tax) related to certain privately issued CMOs backed by residential real estate loans and CDOs backed by pooled trust preferred securities.
     Reflected in the Company’s first quarter 2011 results were gains from the sale of investment securities, predominantly residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Such gains increased net income in that quarter by $24 million ($39 million before taxes), or $.20 of diluted earnings per common share. In response to strong growth in average loans in that quarter and in anticipation of the acquisition of Wilmington Trust, the Company sold the securities in order to manage its forecasted balance sheet size and resultant capital ratios. Also impacting first quarter 2011 results were $10 million of after-tax other-than-temporary impairment charges ($16 million before taxes) on certain investment securities, reducing diluted earnings per common share by $.08. Specifically, such charges related to certain privately issued CMOs.
Recent Legislative Developments
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law on July 21, 2010. This new law has and will continue to significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, and will fundamentally change the system of regulatory oversight of the Company, including through the creation of the Financial Stability Oversight Council. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The Dodd-Frank Act could have a material adverse impact on the financial services industry as a whole, as well as on M&T’s business, results of operations, financial condition and liquidity.
     The Dodd-Frank Act broadens the base for FDIC insurance assessments. Beginning in the second quarter of 2011, assessments are based on average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and noninterest-bearing transaction accounts have unlimited deposit insurance through December 31, 2013.
     The legislation also requires that publicly traded companies give shareholders a non-binding vote on executive compensation and “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials. The Dodd-Frank Act also directs the Federal Reserve Board to promulgate rules prohibiting excessive

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compensation paid to bank holding company executives, regardless of whether the company is publicly traded.
     The Dodd-Frank Act established a new Bureau of Consumer Financial Protection with broad powers to supervise and enforce consumer protection laws. The Bureau of Consumer Financial Protection has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Bureau of Consumer Financial Protection has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets.
     In addition, the Dodd-Frank Act, among other things:
    Weakens the federal preemption rules that have been applicable for national banks and gives state attorneys general the ability to enforce federal consumer protection laws;
 
    Amends the Electronic Fund Transfer Act (“EFTA”) which has resulted in, among other things, the Federal Reserve Board issuing rules aimed at limiting debit card-interchange fees;
 
    Applies the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies which, among other things, will, after a three-year phase-in period which begins January 1, 2013, remove trust preferred securities as a permitted component of a holding company’s Tier 1 capital;
 
    Provides for an increase in the FDIC assessment for depository institutions with assets of $10 billion or more and increases the minimum reserve ratio for the deposit insurance fund from 1.15% to 1.35%;
 
    Imposes comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself;
 
    Repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;
 
    Provides mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions; and
 
    Creates the Financial Stability Oversight Council, which will recommend to the Federal Reserve Board increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.
     The environment in which banking organizations will operate after the financial crisis, including legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and compensation, changes in fiscal policy and steps to eliminate government support for banking organizations, may have long-term effects on the business model and profitability of banking organizations, the full extent of which

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cannot now be foreseen. Many aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on M&T, its customers or the financial industry more generally. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees could increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate. Provisions in the legislation that revoke the Tier 1 capital treatment of trust preferred securities and otherwise require revisions to the capital requirements of M&T and M&T Bank could require M&T and M&T Bank to seek other sources of capital in the future. The impact of new rules relating to overdraft fee practices and debit card-interchange fees are discussed herein under the heading “Other Income.”
Supplemental Reporting of Non-GAAP Results of Operations
As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.8 billion at June 30, 2011 and $3.7 billion at each of June 30, 2010 and December 31, 2010. Included in such intangible assets was goodwill of $3.5 billion at each of those respective dates. Amortization of core deposit and other intangible assets, after tax effect, was $9 million ($.07 per diluted common share) during each of the second quarters of 2011 and 2010 and $7 million ($.06 per diluted common share) during the initial 2011 quarter. For the six-month periods ended June 30, 2011 and 2010, amortization of core deposit and other intangible assets, after tax effect, totaled $16 million ($.13 per diluted common share) and $19 million ($.16 per diluted common share), respectively.
     M&T consistently provides supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains and expenses 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 aggregated $289 million in the second quarter of 2011, compared with $198 million in the corresponding quarter of 2010. Diluted net operating earnings per common share for the recent quarter were $2.16, compared with $1.53 in the second quarter of 2010. Net operating income and diluted net operating earnings per common share were $216 million and $1.67, respectively, in the initial quarter of 2011. For the first six months of 2011, net operating income and diluted net operating earnings per common share were $506 million and $3.83, respectively, compared with $359 million and $2.77, respectively, in the similar 2010 period.
     Net operating income in the second quarter of 2011 represented an annualized rate of return on average tangible assets of 1.69%, compared with 1.23% and 1.36% in the second quarter of 2010 and first quarter of 2011, respectively. Net operating income expressed as an annualized return on average tangible common equity was 24.40% in the recently completed quarter, compared with 20.36% and 20.16% in the quarters ended June 30, 2010 and March 31, 2011, respectively. For the first half of 2011, net operating income represented an annualized return on average tangible assets and average tangible common shareholders’ equity of 1.53% and 22.37%, respectively, compared with 1.11% and 18.89%, respectively, in the six-month period ended June 30, 2010.

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     Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income increased 3% to $593 million in the second quarter of 2011 from $573 million in the year-earlier quarter. That improvement was the result of a $3.6 billion rise in average earning assets, partially offset by a 9 basis point (hundredths of one percent) narrowing of the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets. Taxable-equivalent net interest income totaled $575 million in the first quarter of 2011. The recent quarter’s improvement from the initial 2011 quarter resulted from a $4.0 billion, or 7%, increase in average earning assets, partially offset by a 17 basis point narrowing of the net interest margin. The increase in average earning assets in the recent quarter as compared with the second quarter of 2010 and the initial 2011 quarter was predominantly the result of earning assets obtained in the acquisition of Wilmington Trust, which at the May 16, 2011 acquisition date totaled approximately $9.6 billion. The recent quarter’s narrowing of the net interest margin as compared with the second quarter of 2010 and the initial 2011 quarter was partially attributable to the Wilmington Trust acquisition. Also contributing to the narrowing were significantly higher earning balances on deposit with the Federal Reserve Bank of New York and higher amounts of resale agreements.
     For the first half of 2011, taxable-equivalent net interest income was $1.17 billion, 3% higher than $1.14 billion in the corresponding 2010 period. That increase was largely attributable to a rise in average earning assets, which rose $1.3 billion or 2% from $60.1 billion in the first six months of 2010 to $61.4 billion in the first half of 2011. Also contributing to the higher net interest income in 2011 was a 2 basis point increase in the Company’s net interest margin. The growth in average earning assets was largely the result of earning assets obtained in the acquisition of Wilmington Trust on May 16, 2011.
     Average loans and leases rose $4.2 billion, or 8%, to $55.5 billion in the second quarter of 2011 from $51.3 billion in the year-earlier quarter. Included in average loans and leases in the recent quarter were loans obtained in the Wilmington Trust acquisition. Loans associated with Wilmington Trust totaled $6.4 billion on the May 16, 2011 acquisition date, consisting of approximately $1.4 billion of commercial loans and leases, $3.2 billion of commercial real estate loans, $680 million of residential real estate loans and $1.1 billion of consumer loans. Including the impact of the acquired loan balances, commercial loans and leases averaged $14.6 billion in the second quarter of 2011, up $1.5 billion or 12% from $13.1 billion in the year-earlier quarter. Average commercial real estate loans rose $1.7 billion, or 8%, to $22.5 billion in the recent quarter from $20.8 billion in the second quarter of 2010. That increase was predominantly due to the impact of loans obtained in the acquisition of Wilmington Trust. Average residential real estate loans outstanding increased $906 million, or 16%, to $6.6 billion in the second quarter of 2011 from the $5.7 billion averaged in the year-earlier quarter. Included in that portfolio were loans held for sale, which averaged $229 million in the recent quarter, compared with $363 million in the second quarter of 2010. Excluding loans held for sale, average residential real estate loans increased $1.0 billion from the second quarter of 2010 to the second quarter of 2011. That growth was largely due to the Company’s decision to retain for portfolio during the fourth quarter of 2010 and a portion of the initial 2011 quarter a higher proportion of originated loans rather than selling them. Loans obtained in the Wilmington Trust transaction also contributed to the increase. Average consumer loans totaled $11.8 billion in each of the recent quarter and the second quarter of 2010. The positive impact from consumer loans obtained in the Wilmington

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Trust acquisition was offset by lower average balances of automobile and home equity loans (excluding Wilmington Trust loans).
     Average loan balances in the recent quarter rose $3.5 billion, or 7%, from the first quarter of 2011. Average outstanding commercial loan and lease balances increased $1.1 billion, or 8%, from 2011’s initial quarter. Average outstanding balances of commercial real estate loans rose $1.5 billion, or 7%, in 2011’s second quarter as compared with the immediately preceding quarter. Residential real estate loans averaged $6.6 billion in the recent quarter, up $504 million, or 8%, as compared with the first quarter of 2011. Average consumer loans increased $467 million, or 4%, from 2011’s first quarter. The majority of the growth in the respective loan categories resulted from the loans obtained in the acquisition of Wilmington Trust. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.
                         
AVERAGE LOANS AND LEASES              
(net of unearned discount)              
Dollars in millions           Percent increase  
            ( decrease) from  
    2nd Qtr.     2nd Qtr.     1st Qtr.  
    2011     2010     2011  
Commercial, financial, etc.
  $ 14,623       12 %     8 %
Real estate — commercial
    22,471       8       7  
Real estate — consumer
    6,559       16       8  
Consumer
                       
Automobile
    2,730       (3 )     3  
Home equity lines
    5,902       1       3  
Home equity loans
    732       (19 )      
Other
    2,444       11       10  
 
                 
Total consumer
    11,808             4  
 
                 
Total
  $ 55,461       8 %     7 %
 
                 
     For the first half of 2011, average loans and leases totaled $53.7 billion, $2.1 billion or 4% above $51.6 billion in the similar period of 2010. Loans obtained in the Wilmington Trust acquisition were the predominant factor for that increase.
     The investment securities portfolio averaged $6.4 billion in the second quarter of 2011, compared with $8.4 billion and $7.2 billion in the year-earlier quarter and first quarter of 2011, respectively. The declines from the second quarter of 2010 and the initial 2011 quarter reflect the impact of sales of securities late in the first quarter of 2011 and in the recent quarter, as well as maturities and paydowns of mortgage-backed securities, partially offset by second quarter 2011 purchases of residential mortgage-backed securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). For the first six months of 2011 and 2010, investment securities averaged $6.8 billion and $8.3 billion, respectively. The Wilmington Trust acquisition added approximately $510 million to the investment securities portfolio on the May 16, 2011 acquisition date. The investment securities portfolio is largely comprised of residential mortgage-backed securities and CMOs, debt securities issued by municipalities, capital preferred securities issued by certain financial institutions, and shorter-term U.S. Treasury and federal agency notes. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to the risks assumed, including prepayments. In managing its investment securities portfolio, the Company occasionally sells 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. Near the end of the first quarter, the Company sold certain residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac that were

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held in the available-for-sale portfolio. Those securities had an amortized cost of approximately $484 million, but because the transaction occurred near the end of the first quarter they did not have a significant effect on that quarter’s average balances. During the recent quarter, the Company sold certain residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, collateralized debt obligations and capital preferred securities, all held in the available-for-sale portfolio, with an amortized cost of $1.21 billion. The Company sold the securities in connection with the acquisition of Wilmington Trust in order to manage its balance sheet size and composition and resultant capital ratios. The recent quarter purchase of $1.2 billion of residential mortgage-backed securities guaranteed by Ginnie Mae provided a replenishment of the investment securities portfolio at an improved risk-weighting. Those purchases added approximately $500 million to the average balance of investment securities in 2011’s second quarter.
     The Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” During the recent quarter, an other-than-temporary impairment charge of $27 million (pre-tax) was recognized related to the Company’s portfolio of privately issued residential CMOs. An other-than-temporary impairment charge of $22 million (pre-tax) was recognized in the second quarter of 2010. Approximately $12 million of that charge related to AIB ADSs and $10 million related to certain privately issued CMOs and CDOs held in the Company’s available-for-sale investment securities portfolio. The AIB ADSs were obtained in the 2003 acquisition of a subsidiary of AIB and were held to satisfy options to purchase such shares granted by that subsidiary to certain employees. Factors contributing to that impairment charge included mounting credit and other losses incurred by AIB, the issuance of AIB common stock in lieu of dividend payments on certain preferred stock issuances held by the Irish government resulting in significant dilution of AIB common shareholders, and public announcements by Irish government officials suggesting that increased government support, which could further dilute AIB common shareholders, may be necessary. During the initial 2011 quarter, other-than-temporary impairment charges of $16 million (pre-tax) were recognized related to certain privately issued CMOs. Poor economic conditions, high unemployment and depressed real estate values are significant factors contributing to the recognition of the other-than-temporary impairment charges related to the CMOs and CDOs. Based on management’s assessment of future cash flows associated with individual investment securities, as of June 30, 2011 the Company concluded that the remaining declines associated with the rest of the investment securities portfolio were temporary in nature. A further discussion of fair values of investment securities is included herein under the heading “Capital.” Additional information about the investment securities portfolio is included in notes 3 and 12 of Notes to Financial Statements.
     Other earning assets include interest-earning 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 $1.5 billion in the recent quarter, compared with $157 million and $240 million in the second quarter of 2010 and the first quarter of 2011, respectively. Interest-bearing deposits at banks averaged $804 million in the second quarter of 2011, up from $81 million in the year- earlier period and $115 million in the initial 2011 quarter. The significantly higher balances in the recent quarter were due to increased deposits at the Federal Reserve Bank of New York resulting from the Wilmington Trust acquisition. Also reflected in other earning assets were purchases of investment securities under agreements to resell, which averaged $613 million, $5 million and $2 million in the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively. The higher level of resell agreements in the recent quarter as compared with the second quarter of 2010 and the first quarter of 2011 was due to the need to fulfill collateral requirements associated with certain municipal deposits. Agreements to resell securities, which totaled $380 million at June 30, 2011, are accounted

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for similar to collateralized loans, with changes in market value of the collateral monitored by the Company to ensure sufficient coverage. There were no such agreements outstanding at June 30, 2010 or December 31, 2010. The amounts of investment securities and other earning assets held by the Company are influenced by such factors as demand for loans, which generally yield more than investment securities and other earning assets, ongoing repayments, the level of deposits, and management of balance sheet size and resulting capital ratios.
     As a result of the changes described herein, average earning assets totaled $63.4 billion in the recent quarter, compared with $59.8 billion in the similar quarter of 2010 and $59.4 billion in the first quarter of 2011. Average earning assets totaled $61.4 billion and $60.1 billion during the six-month periods ended June 30, 2011 and 2010, respectively.
     The most significant source of funding for the Company is core deposits. During 2010 and prior years, the Company considered noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and domestic time deposits under $100,000 as core deposits. A provision of the Dodd-Frank Act permanently increased the maximum amount of FDIC deposit insurance for financial institutions to $250,000 per depositor. That maximum was $100,000 per depositor until 2009, when it was raised to $250,000 temporarily through December 31, 2013. As a result of the permanently increased deposit insurance coverage, effective December 31, 2010 the Company considers 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. Certificates of deposit of $250,000 or less generated on a nationwide basis by M&T Bank, National Association (“M&T Bank, N.A.”), a wholly owned bank subsidiary of M&T, are also included in core deposits. Average core deposits aggregated $50.5 billion in the second quarter of 2011, compared with $43.4 billion in the year-earlier quarter and $46.2 billion in the initial 2011 quarter. The change in the Company’s definition of core deposits to include time deposits from $100,000 to $250,000 increased average core deposits by approximately $970 million and $1.0 billion in the first and second quarters of 2011, respectively. The Wilmington acquisition added approximately $6.6 billion of core deposits on May 16, 2011. Excluding deposits obtained in that transaction, the growth in core deposits since the second quarter of 2010 was due, in part, to the lack of attractive alternative investments available to the Company’s customers resulting from lower interest rates and from the economic environment in the U.S. The low interest rate environment has resulted in a shift in customer savings trends, as average time deposits have continued to decline, while average noninterest-bearing deposits and savings deposits have increased. The following table provides an analysis of quarterly changes in the components of average core deposits. For the six-month periods ended June 30, 2011 and 2010, core deposits averaged $48.4 billion and $43.2 billion, respectively.
                         
AVERAGE CORE DEPOSITS              
Dollars in millions           Percent increase from  
    2nd Qtr.     2nd Qtr.     1st Qtr.  
    2011     2010     2011  
NOW accounts
  $ 712       19 %     19 %
Savings deposits
    28,641       16       9  
Time deposits (a)
    4,971       13       6  
Noninterest-bearing deposits
    16,195       19       12  
 
                 
Total
  $ 50,519       16 %     9 %
 
                 
 
(a)   Average time deposits considered core deposits in the first and second quarters of 2011 represented time deposits of $250,000 or less. In the second quarter of 2010, average time deposits considered core deposits were those with balances less than $100,000.

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     In addition to core deposits, time deposits over $250,000, deposits originated through the Company’s Cayman Islands branch office, and brokered deposits provide sources of funding for the Company. Time deposits over $250,000, excluding brokered certificates of deposit, averaged $484 million in the second quarter of 2011, compared with $520 million in the initial quarter of 2011. Similar time deposits over $100,000 averaged $1.7 billion in the second quarter of 2010. Cayman Islands branch deposits averaged $819 million, $972 million and $1.2 billion for the three-month periods ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively. Average brokered time deposits totaled $1.2 billion in the recently completed quarter, compared with $709 million in the year-earlier quarter and $482 million in the first quarter of 2011. Brokered time deposits obtained in the acquisition of Wilmington Trust totaled $1.4 billion on May 16, 2011. The Company also had brokered NOW and brokered money-market deposit accounts which in the aggregate averaged $1.4 billion during the second quarter of 2011, compared with $1.2 billion and $1.3 billion during the year-earlier quarter and the first quarter of 2011, respectively. The levels of brokered NOW and brokered money-market deposits reflect the demand for such deposits, largely resulting from continued uncertain economic markets and the desire of brokerage firms to earn reasonable yields while ensuring that customer deposits are fully insured. Cayman Islands branch deposits and brokered deposits have been used by the Company as alternatives to short-term borrowings. Additional amounts of Cayman Islands branch deposits or brokered deposits may be added in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.
     The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the Federal Reserve and others as sources of funding. Short-term borrowings averaged $707 million in the recent quarter, compared with $1.8 billion in the second quarter of 2010 and $1.3 billion in the initial quarter of 2011. Included in short-term borrowings were unsecured federal funds borrowings, which generally mature on the next business day, which averaged $548 million and $1.6 billion in the second quarters of 2011 and 2010, respectively, compared with $1.2 billion in the first quarter of 2011. Overnight federal funds borrowings represented the largest component of short-term borrowings and totaled $290 million at June 30, 2011, $2.0 billion at June 30, 2010 and $826 million at December 31, 2010.
     Long-term borrowings averaged $7.1 billion in the second quarter of 2011, compared with $9.5 billion in the corresponding quarter of 2010 and $7.4 billion in the first quarter of 2011. Included in average long-term borrowings were amounts borrowed from the Federal Home Loan Bank (“FHLB”) of New York, the FHLB of Atlanta and the FHLB of Pittsburgh of $2.0 billion and $4.4 billion in the second quarters of 2011 and 2010, respectively, and $2.5 billion in the first quarter of 2011, and subordinated capital notes of $2.0 billion in the recent quarter, $1.9 billion in the year-earlier quarter and $1.7 billion in the initial 2011 quarter. Subordinated capital notes assumed in connection with the Wilmington Trust acquisition totaled $450 million at May 16, 2011. The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of long-term debt. As of June 30, 2011, swap agreements were used to hedge approximately $900 million of fixed rate subordinated notes. Further information on interest rate swap agreements is provided in note 10 of Notes to Financial Statements. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $1.2 billion in each of the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011. Additional information regarding junior subordinated debentures is provided in note 5 of Notes to Financial Statements. Also included in long-term borrowings were agreements to repurchase securities, which averaged $1.6 billion during each of the second quarters of 2011 and 2010 and the first quarter of 2011. The agreements have various repurchase dates through 2017, however, the contractual maturities of the underlying securities extend

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beyond such repurchase dates.
     Changes in the composition of the Company’s earning assets and interest-bearing liabilities, as described 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 3.51% in the second quarter of 2011, compared with 3.59% in the year-earlier quarter. The yield on earning assets during the recent quarter was 4.40%, down 23 basis points from 4.63% in the second quarter of 2010, while the rate paid on interest-bearing liabilities declined 15 basis points to .89% from 1.04% in the second quarter of 2010. In the first quarter of 2011, the net interest spread was 3.69%, the yield on earning assets was 4.60% and the rate paid on interest-bearing liabilities was .91%. The 8 basis point narrowing in spread from the second quarter of 2010 to the recent quarter and the 18 basis point narrowing in spread from the initial 2011 quarter to the second quarter of 2011 were each partially attributable to the acquisition of Wilmington Trust. Also contributing to the narrowing of the spread were significantly higher earning balances in the recent quarter on lower-yielding deposits with the Federal Reserve Bank of New York and resale agreements. For the first half of 2011, the net interest spread was 3.59%, an increase of 2 basis points from the similar 2010 period. The yield on earning assets and the rate paid on interest-bearing liabilities were 4.49% and .90%, respectively, during the first six months of 2011, compared with 4.61% and 1.04%, respectively, in the corresponding period of 2010.
     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 $17.3 billion in the recent quarter, compared with $14.3 billion in the second quarter of 2010 and $15.5 billion in the first quarter of 2011. The rise in net interest-free funds in the two most recent quarters as compared with the second quarter of 2010 was largely the result of higher average balances of noninterest-bearing deposits. Such deposits averaged $16.2 billion, $13.6 billion and $14.5 billion in the quarters ended June 30, 2011, June 30, 2010 and March 31,2011, respectively. In connection with the Wilmington Trust acquisition, the Company added noninterest-bearing deposits totaling $2.0 billion at the acquisition date. During the first six months of 2011 and 2010, average net interest-free funds aggregated $16.4 billion and $14.0 billion, respectively. Goodwill and core deposit and other intangible assets averaged $3.7 billion during each of the quarters ended June 30, 2011 and June 30, 2010, compared with $3.6 billion during the quarter ended March 31, 2011. Core deposit and other intangible assets added from the Wilmington Trust acquisition were $176 million on May 16, 2011. There was no goodwill recorded as a result of the acquisition. The cash surrender value of bank owned life insurance averaged $1.5 billion in each of the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011. Increases in the cash surrender value of bank owned life insurance 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 .24% in the recent quarter, compared with .25% and .23% in the second quarter of 2010 and the initial 2011 quarter, respectively. That contribution for each of the first six months of 2011 and 2010 was .24%.
     Reflecting the changes to the net interest spread and the contribution of interest-free funds as described herein, the Company’s net interest margin was 3.75% in the recent quarter, compared with 3.84% in the year-earlier quarter and 3.92% in the first quarter of 2011. During the first six months of 2011 and 2010, the net interest margin was 3.83% and 3.81%, 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.

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     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 portfolios of earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are generally reflected in either the yields earned on assets or the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was $900 million at each of June 30, 2011, December 31, 2010 and March 31, 2011, and was $1.0 billion at June 30, 2010. Under the terms of those swap agreements, the Company received payments based on the outstanding notional amount of the swap agreements at fixed rates and made payments at variable rates. Those swap agreements were designated as fair value hedges of certain fixed rate long-term borrowings and, to a lesser extent at June 30, 2010, certain fixed rate time deposits. There were no interest rate swap agreements designated as cash flow hedges at those respective dates.
     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 in “other revenues from operations” in the Company’s consolidated statement of income. In a cash flow hedge, unlike in a fair value hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in “other revenues from operations” immediately. The amounts of hedge ineffectiveness recognized during the quarters ended June 30, 2011 and 2010 and the quarter ended March 31, 2011 were not material to the Company’s results of operations. The estimated aggregate fair value of interest rate swap agreements designated as fair value hedges represented gains of approximately $106 million, $111 million, $84 million and $97 million at June 30, 2011, June 30, 2010, March 31, 2011 and December 31, 2010, respectively. The fair values of such swap agreements were substantially offset by changes in the fair values of the hedged items. 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 Company’s credit exposure as of June 30, 2011 with respect to the estimated fair value of interest rate swap agreements used for managing interest rate risk has been substantially mitigated through master netting arrangements with trading account interest rate contracts with the same counterparty as well as counterparty postings of $61 million of collateral with the Company.
     The weighted-average rates to be received and paid under interest rate swap agreements currently in effect were 6.07% and 1.79%, respectively, at June 30, 2011. 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 10 of Notes to Financial Statements.

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INTEREST RATE SWAP AGREEMENTS                          
Dollars in thousands      
 
    Three months ended June 30  
    2011     2010  
    Amount     Rate(a)     Amount     Rate(a)  
Increase (decrease) in:
                               
Interest income
  $       %   $       %
Interest expense
    (9,491 )     (.08 )     (10,967 )     (.10 )
 
                           
Net interest income/margin
  $ 9,491       .06 %   $ 10,967       .07 %
 
                       
Average notional amount
  $ 900,000             $ 1,053,175          
 
                           
Rate received(b)
            6.09 %             6.37 %
Rate paid(b)
            1.86 %             2.19 %
 
                           
                                 
    Six months ended June 30  
    2011     2010  
    Amount     Rate(a)     Amount     Rate(a)  
Increase (decrease) in:
                               
Interest income
  $       %   $       %
Interest expense
    (19,005 )     (.09 )     (22,219 )     (.10 )
 
                           
Net interest income/margin
  $ 19,005       .06 %   $ 22,219       .07 %
 
                       
Average notional amount
  $ 900,000             $ 1,057,683          
 
                           
Rate received(b)
            6.12 %             6.38 %
Rate paid(b)
            1.86 %             2.15 %
 
                           
 
(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.
     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. M&T’s banking subsidiaries have access to additional funding sources through borrowings from the FHLB of New York, lines of credit with the Federal Reserve Bank of New York, and other available borrowing facilities. The Company has, from time to time, issued subordinated capital notes to provide liquidity and enhance regulatory capital ratios. Such notes qualify for inclusion in the Company’s total capital as defined by Federal regulators.
     The Company has informal and sometimes reciprocal sources of funding available through various arrangements for unsecured short-term borrowings from a wide group of banks and other financial institutions. Short-term federal funds borrowings were $290 million, $2.0 billion and $826 million at June 30, 2011, June 30, 2010 and December 31, 2010, respectively. In general, these borrowings were unsecured and matured on the following business day. As previously noted, Cayman Islands branch deposits and brokered certificates of deposits have been used by the Company as an alternative to short-term borrowings. Cayman Islands branch deposits also generally mature on the next business day and totaled $552 million at June 30, 2011, $551 million at June 30, 2010 and $1.6 billion at December 31, 2010. Outstanding brokered time deposits at June 30, 2011, June 30, 2010 and December 31, 2010 were $1.9 billion, $662 million and $485 million, respectively. Brokered time deposits assumed in the Wilmington Trust transaction totaled $1.4 billion at the acquisition date. At June 30, 2011, the weighted-average remaining term to maturity of brokered time deposits was 11 months. Certain of these brokered time deposits have provisions that allow for early redemption. The Company also has brokered NOW and brokered money-market deposit accounts which aggregated $1.4 

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billion, $1.5 billion and $1.3 billion at June 30, 2011, June 30, 2010 and December 31, 2010, respectively.
     The Company’s ability to obtain funding from these or other 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 short-term 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.
     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 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 totaled $29 million and $22 million at June 30, 2011 and 2010, respectively, and $107 million at December 31, 2010. The total amount of VRDBs outstanding backed by M&T Bank letters of credit was $1.9 billion at each of June 30, 2011 and June 30, 2010 and $2.0 billion at December 31, 2010. 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 which 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 13 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 banking subsidiaries, which are subject to various regulatory limitations. Dividends from any banking subsidiary to M&T are limited by the amount of earnings of the banking subsidiary in the current year and the two preceding years. For purposes of that test, at June 30, 2011 approximately $939 million was available for payment of dividends to M&T from banking subsidiaries. These historic sources of cash flow have been augmented in the past by the issuance of trust preferred securities and senior notes payable. Information regarding trust preferred securities and the related junior subordinated debentures is included in note 5 of Notes to Financial Statements. The $300 million 5.375% senior notes of M&T that were issued in 2007 mature in May 2012. M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, of which there were no borrowings outstanding at June 30, 2011 or at December 31, 2010.
     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 normal 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.

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     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 hedge 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’s Risk Management 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 June 30, 2011 and December 31, 2010 displays the estimated impact on net interest income from non-trading financial instruments 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
Dollars in thousands
     
 
    Calculated increase (decrease)  
    in projected net interest income  
Changes in interest rates   June 30, 2011     December 31, 2010  
+200 basis points
  $ 127,468       67,255  
+100 basis points
    67,999       35,594  
-100 basis points
    (50,197 )     (40,760 )
-200 basis points
    (72,360 )     (61,720 )
     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

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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 of 100 and 200 basis points, as compared with the assumed base scenario. In the event that a 100 or 200 basis point rate change cannot be achieved, the applicable rate changes are limited to lesser amounts such that interest rates cannot be less than zero. 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. The changes to projected net interest income at June 30, 2011 as compared with December 31, 2010 were predominantly due to the acquisition of Wilmington Trust. The most significant of those changes related to the rising interest rate scenarios and were largely due to the addition of variable rate commercial loans and commercial real estate loans that had been funded by Wilmington Trust using core deposits and fixed rate brokered time deposits. In addition, higher cash balances obtained in the acquisition allowed the Company to reduce its reliance on variable rate federal funds purchased. In light of the uncertainties and assumptions associated with the process, the amounts presented in the table are not considered significant to the Company’s past or projected net interest income.
     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 the Company’s investment securities. Information about the fair valuation of such securities is presented herein under the heading “Capital” and in notes 3 and 12 of Notes to Financial Statements.
     The Company engages in trading activities to meet the financial needs of customers, to fund the Company’s obligations under certain deferred compensation plans and, to a limited extent, to profit from perceived market opportunities. Financial instruments utilized in trading activities consist predominantly of interest rate contracts, such as swap agreements, and forward and futures contracts related to foreign currencies, but have also included forward and futures contracts related to mortgage-backed securities and investments in U.S. Treasury and other government securities, mortgage-backed securities and mutual funds, and as previously described, a limited number of VRDBs. The Company generally mitigates the foreign currency and interest rate risk associated with trading activities by entering into offsetting trading positions. The amounts of gross and net trading positions, as well as the type of trading activities conducted by the Company, are subject to a well-defined series of potential loss exposure limits established by 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 activities.
     The notional amounts of interest rate contracts entered into for trading purposes totaled $13.4 billion at June 30, 2011, compared with $12.4 billion and $12.8 billion at June 30, 2010 and December 31, 2010, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes aggregated $1.0 billion, $680 million and $769 million at June 30, 2011, June 30, 2010 and December 31, 2010, respectively. Although the notional amounts of these trading contracts are not recorded in the consolidated balance sheet, the fair values of all financial instruments used for trading activities are recorded in the consolidated balance sheet. The fair values of all trading account assets and liabilities totaled $503 million and $366 million, respectively, at June 30, 2011, $488 million and $380 million, respectively, at June 30, 2010, and $524 million and $333 million, respectively, at December 31, 2010. Included in trading account assets were assets related to deferred compensation plans totaling $36 million at June 30, 2011, $33 million at June 30, 2010 and $35 million at December 31, 2010. Changes in the fair value 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 June 30, 2011 and 2010 were

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$34 million and $35 million, respectively, of liabilities related to deferred compensation plans, while at December 31, 2010 such liabilities related to deferred compensation plans totaled $36 million. 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.
     Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading activities was not material, however, as previously noted, the Company is exposed to credit risk associated with counterparties to transactions related to the Company’s trading activities. Additional information about the Company’s use of derivative financial instruments in its trading activities is included in note 10 of Notes to Financial Statements.
Provision for Credit Losses
The Company maintains an allowance for credit losses that in management’s judgment appropriately reflects losses inherent in the loan and lease portfolio. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. The provision for credit losses in the second quarter of 2011 was $63 million, compared with $85 million in the year-earlier quarter and $75 million in the first quarter of 2011. For the six-month periods ended June 30, 2011 and 2010, the provision for credit losses was $138 million and $190 million, respectively. While the levels of the provision subsequent to 2007 have been higher than historical levels, the Company has recently experienced improvement in some of its credit quality metrics. Nevertheless, generally declining real estate valuations and higher than normal levels of delinquencies and charge-offs have significantly affected the quality of the Company’s residential real estate-related loan portfolios. Specifically, the Company’s alternative (“Alt-A”) residential real estate loan portfolio and its residential real estate builder and developer loan portfolio experienced the majority of the credit problems related to the turmoil in the residential real estate market place. Alt-A loans represent residential real estate loans that at origination typically included some form of limited borrower documentation requirements as compared with more traditional residential real estate loans. Loans in the Company’s Alt-A portfolio were originated by the Company prior to 2008. The Company also experienced increased levels of commercial and consumer loan charge-offs over the past three years due to, among other things, higher unemployment levels and the recessionary economy.

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     Net loan charge-offs were $59 million in the recent quarter, compared with $82 million in the year-earlier quarter and $74 million in the initial quarter of 2011. Net charge-offs as an annualized percentage of average loans and leases were .43% in the second quarter of 2011, compared with .64% and .58% in the quarters ended June 30, 2010 and March 31, 2011, respectively. Net charge-offs for the six-month period ended June 30 aggregated $133 million in 2011 and $176 million in 2010, representing .50% and .69%, respectively, of average loans and leases. A summary of net charge-offs by loan type follows:
NET CHARGE-OFFS
BY LOAN/LEASE TYPE
In thousands
                         
    2011  
                    Year  
    1st Qtr.     2nd Qtr.     to-date  
                   
Commercial, financial, etc.   $11,862     12,650     24,512  
Real estate:
                       
Commercial
    24,230       12,731       36,961  
Residential
    14,666       13,839       28,505  
Consumer
    23,480       19,894       43,374  
 
                 
 
  $ 74,238       59,114       133,352  
 
                 
                         
    2010  
                    Year  
    1st Qtr.     2nd Qtr.     to-date  
Commercial, financial, etc.
  $ 17,994       9,166       27,160  
Real estate:
                       
Commercial
    30,226       35,449       65,675  
Residential
    15,280       13,182       28,462  
Consumer
    31,009       23,801       54,810  
 
                 
 
  $ 94,509       81,598       176,107  
 
                 
     Included in net charge-offs of commercial real estate loans were net charge-offs of loans to residential homebuilders and developers of $6 million and $17 million for the quarters ended June 30, 2011 and June 30, 2010, and $18 million for the quarter ended March 31, 2011. Included in net charge-offs of residential real estate loans were net charge-offs of Alt-A first mortgage loans of $8 million in each of the two most recent quarters, compared with $9 million during the quarter ended June 30, 2010. Included in net charge-offs of consumer loans and leases were net charge-offs during the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively, of: indirect automobile loans of $5 million, $7 million and $6 million; recreational vehicle loans of $5 million, $6 million and $6 million; and home equity loans and lines of credit, including Alt-A second lien loans, of $8 million during each respective period. Including both first and second lien mortgages, net charge-offs of Alt-A loans totaled $9 million, $10 million and $9 million for the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively.
     Nonaccrual loans totaled $1.26 billion or 2.15% of total loans and leases outstanding at June 30, 2011, compared with $1.09 billion or 2.13% at June 30, 2010, $1.24 billion or 2.38% at December 31, 2010, and $1.21 billion or 2.32% at March 31, 2011. Reflected in nonaccrual loans at June 30, 2011 were $77 million of loans obtained in the Wilmington Trust acquisition, which predominantly represented commercial revolving lines of credit that GAAP specifically excludes from the scope of accounting for purchased impaired loans. The majority of such lines of credit were to builders and developers of residential real estate properties and remained available for use to allow the real estate projects to progress. Also contributing to the increase in nonaccrual loans from June 30, 2010 were loans transferred to nonaccrual status, including fourth quarter 2010 transfers of a $66 million relationship with a residential builder and developer and commercial construction

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loans to an owner/operator of retirement and assisted living facilities which totaled $66 million at June 30, 2011, and a recent quarter transfer of $21 million related to a residential builder and developer. Partially offsetting the transfers to nonaccrual status were charge-offs and payments, including the fourth quarter 2010 payoff of a $36 million relationship with a borrower in the commercial real estate sector. The continuing softness in the residential real estate marketplace has resulted in depressed real estate values and high levels of delinquencies, both for loans to consumers and loans to builders and developers of residential real estate. Despite the recent quarter’s decline in nonaccrual loans (exclusive of the impact of the Wilmington Trust acquisition), conditions in the U.S. economy have resulted in generally higher levels of nonaccrual loans than historically experienced by the Company.
     Accruing loans past due 90 days or more were $373 million or .64% of total loans and leases at June 30, 2011, compared with $203 million or .40% at June 30, 2010, $270 million or .52% at December 31, 2010 and $264 million or .51% at March 31, 2011. Reflected in those loans at June 30, 2011 were $130 million of loans obtained in the Wilmington Trust acquisition that were past their renewal date. For each of those loans, borrowers continued to currently make periodic payments as required by their maturing loan agreements while new agreements between the borrowers and the Company were being developed. Loans past due 90 days or more and accruing interest included $207 million, $188 million, $214 million and $215 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively, of loans guaranteed by government-related entities. Such guaranteed loans included one-to-four family residential mortgage loans serviced by the Company that were repurchased to reduce associated servicing costs, including a 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 the repurchased loans are fully guaranteed by government-related entities and totaled $195 million, $171 million, $191 million and $195 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively. Loans past due 90 days or more and accruing interest that were guaranteed by government-related entities also included foreign commercial and industrial loans supported by the Export-Import Bank of the United States that totaled $11 million at each of June 30, 2011, December 31, 2010 and March 31, 2011, compared with $12 million at June 30, 2010.
     Purchased impaired loans are loans obtained in acquisition transactions subsequent to 2008 that as of the acquisition date were specifically identified as displaying signs of credit deterioration and for which the Company did not expect to collect all outstanding principal and contractually required interest payments. Those loans were impaired at the date of acquisition, were recorded at estimated fair value and were generally delinquent in payments, but, in accordance with GAAP, the Company continues to accrue interest income on such loans based on the estimated expected cash flows associated with the loans. The carrying amount of such loans was $753 million at June 30, 2011, or approximately 1.3% of total loans. Of that amount, $672 million was related to the Wilmington Trust acquisition.
     In an effort to assist borrowers, the Company has modified the terms of select loans secured by residential real estate, largely from the Company’s portfolio of Alt-A loans. Included in loans outstanding at June 30, 2011 were $303 million of modified loans, of which $129 million were classified as nonaccrual. The remaining modified loans have demonstrated payment capability consistent with the modified terms and, accordingly, were classified as renegotiated loans and were accruing interest at June 30, 2011. Loan modifications included such actions as the extension of loan maturity dates (generally from thirty to forty years) 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. In accordance with GAAP, the modified loans are included in impaired loans for purposes of determining the allowance for credit losses. Modified residential real estate loans totaled $307 million as of June 30, 2010, of which $118 million were in nonaccrual status, and $308 million as of December 31, 2010, of which $117 million were in nonaccrual status.

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     Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors have not been included in renegotiated loans because the loan guarantee remains in full force and, accordingly, M&T has not granted a concession with respect to the ultimate collection of the original loan balance. Such loans aggregated $129 million and $106 million at June 30, 2011 and December 31, 2010, respectively.
     Commercial loans and leases classified as nonaccrual totaled $164 million at June 30, 2011, $248 million at June 30, 2010, $187 million at December 31, 2010 and $173 million at March 31, 2011. The decline in such loans since June 30, 2010 reflects payments/payoffs, including a fourth quarter 2010 payoff of a $36 million relationship with a borrower in the commercial real estate sector.
     Nonaccrual commercial real estate loans totaled $708 million at June 30, 2011, $471 million at June 30, 2010, $682 million at December 31, 2010 and $658 million at March 31, 2011. Reflected in such nonaccrual loans were loans to residential homebuilders and developers totaling $359 million, $265 million, $346 million and $320 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively. The higher levels of commercial real estate loans classified as nonaccrual at June 30, 2011, March 31, 2011 and December 31, 2010 as compared with June 30, 2010 were largely due to the increases in such loans to residential real estate builders and developers, which reflect loans of $42 million at June 30, 2011 obtained in the Wilmington Trust acquisition. Also contributing to the increases from June 30, 2010 was the fourth quarter 2010 addition to nonaccrual loans of $66 million of commercial construction loans to an owner/operator of retirement and assisted living facilities. Information about the location of nonaccrual and charged-off loans to residential real estate builders and developers as of and for the three-month period ended June 30, 2011 is presented in the accompanying table.
RESIDENTIAL BUILDER AND DEVELOPER LOANS, NET OF UNEARNED DISCOUNT
                                         
                            Quarter ended  
    June 30, 2011     June 30, 2011  
                            Net charge-offs  
            Nonaccrual     (recoveries)  
                                    Annualized  
                                    percent of  
                    Percent of             average  
    Outstanding             outstanding             outstanding  
    balances(a)     Balances     balances     Balances     balances  
            (dollars in thousands)          
New York
  $ 261,283     $ 27,117       10.38 %   $ 766       1.19 %
Pennsylvania
    363,097       90,529       24.93       231       .30  
Mid-Atlantic
    1,182,063       225,229       19.05       3,750       1.67  
Other
    206,665       36,245       17.54       979       1.92  
 
                             
 
Total
  $ 2,013,108     $ 379,120       18.83 %   $ 5,726       1.37 %
 
                             
 
(a)   Includes approximately $172 million of loans not secured by real estate, of which approximately $20 million are in nonaccrual status.
     Residential real estate loans classified as nonaccrual were $295 million at June 30, 2011, $285 million at June 30, 2010, $279 million at December 31, 2010 and $289 million at March 31, 2011. Depressed real estate values and high levels of delinquencies have contributed to higher than historical levels of residential real estate loans classified as nonaccrual and to the elevated level of charge-offs, largely in the Company’s Alt-A portfolio. Included in residential real estate loans classified as nonaccrual were Alt-A loans, totaling $107 million, $112 million, $106 million and $111 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively. Residential real estate loans past due

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90 days or more and accruing interest totaled $199 million at June 30, 2011, compared with $172 million a year earlier, and $192 million and $195 million at December 31, 2010 and March 31, 2011, respectively. A substantial portion of such amounts related to guaranteed loans repurchased from government-related entities. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended June 30, 2011 is presented in the accompanying table.
     Nonaccrual consumer loans totaled $92 million and $86 million at June 30, 2011 and 2010, respectively, compared with $91 million at each of December 31, 2010 and March 31, 2011. As a percentage of consumer loan balances outstanding, nonaccrual consumer loans were .75% at June 30, 2011, compared with .73% a year earlier, .79% at December 31, 2010 and .81% at March 31, 2011. Included in nonaccrual consumer loans at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011 were indirect automobile loans of $27 million, $30 million, $32 million and $30 million, respectively; recreational vehicle loans of $11 million, $13 million, $13 million and $13 million, respectively; and outstanding balances of home equity loans and lines of credit, including second lien Alt-A loans, of $50 million, $38 million, $43 million and $44 million, respectively. Consumer loans delinquent 30-89 days at June 30, 2011 totaled $126 million, compared with $114 million a year earlier, $120 million at December 31, 2010 and $96 million at March 31, 2011. Consumer loans past due 90 days or more and accruing interest totaled $4 million at each of June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended June 30, 2011 is presented in the accompanying table.
     Real estate and other foreclosed assets were $159 million at June 30, 2011, compared with $193 million at June 30, 2010, $220 million at December 31, 2010 and $218 million at March 31, 2011. The decrease at the recent quarter-end as compared with the other respective quarter-ends resulted from the sale during the recent quarter of a commercial real estate property located in New York City with a carrying value of $99 million. The Company’s holding of residential real estate-related properties comprised 72% of foreclosed assets at June 30, 2011. Reflected in real estate and other foreclosed assets at June 30, 2011 were $57 million of such assets obtained in the Wilmington Trust acquisition that were recorded at fair value on the acquisition date. Proceeds from the sales of foreclosed assets were the most significant factor in the increase in other net cash flows from investing activities during the six months ended June 30, 2011.

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SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA
                                         
        Quarter ended  
    June 30, 2011     June 30, 2011  
                            Net charge-offs  
            Nonaccrual     (recoveries)  
                                    Annualized  
                                    percent of  
                    Percent of             average  
    Outstanding             outstanding             outstanding  
    balances     Balances     balances     Balances     balances  
            (dollars in thousands)        
Residential mortgages:
                                       
New York
  $ 2,612,474     $ 51,984       1.99 %   $ 727       0.12 %
Pennsylvania
    908,800       18,731       2.06       494       0.23  
Mid-Atlantic
    1,573,116       45,769       2.91       1,137       0.34  
Other
    1,249,354       63,090       5.05       2,973       1.01  
 
                             
Total
  $ 6,343,744     $ 179,574       2.83 %   $ 5,331       0.36 %
 
                             
Residential construction loans:
                                       
New York
  $ 9,423     $ 882       9.36 %   $       %
Pennsylvania
    3,020       414       13.71       (31 )     (3.87 )
Mid-Atlantic
    15,689       2,982       19.01       20       0.48  
Other
    28,117       3,619       12.87       394       5.24  
 
                             
Total
  $ 56,249     $ 7,897       14.04 %   $ 383       2.59 %
 
                             
Alt-A first mortgages:
                                       
New York
  $ 87,536     $ 17,095       19.53 %   $ 1,022       4.59 %
Pennsylvania
    20,223       2,801       13.85       400       7.67  
Mid-Atlantic
    105,862       17,718       16.74       1,718       6.38  
Other
    357,307       69,827       19.54       4,985       5.47  
 
                             
Total
  $ 570,928     $ 107,441       18.82 %   $ 8,125       5.58 %
 
                             
Alt-A junior lien:
                                       
New York
  $ 2,858     $ 288       10.08 %   $ 49       6.82 %
Pennsylvania
    640       33       5.16              
Mid-Atlantic
    4,174       164       3.93       204       19.40  
Other
    14,162       547       3.86       637       17.73  
 
                             
Total
  $ 21,834     $ 1,032       4.73 %   $ 890       16.09 %
 
                             
First lien home equity loans:
                                       
New York
  $ 30,414     $ 576       1.89 %   $ 45       0.58 %
Pennsylvania
    170,328       2,979       1.75       34       0.08  
Mid-Atlantic
    173,302       2,772       1.60       44       0.11  
Other
    4,916       194       3.95              
 
                             
Total
  $ 378,960     $ 6,521       1.72 %   $ 123       0.13 %
 
                             
First lien home equity lines:
                                       
New York
  $ 873,329     $ 2,675       0.31 %   $ 74       0.03 %
Pennsylvania
    593,468       1,084       0.18       (50 )     (0.04 )
Mid-Atlantic
    639,584       1,211       0.19       80       0.05  
Other
    40,161       517       1.29              
 
                             
Total
  $ 2,146,542     $ 5,487       0.26 %   $ 104       0.02 %
 
                             
Junior lien home equity loans:
                                       
New York
  $ 72,903     $ 1,245       1.71 %   $ (3 )     (0.01 )%
Pennsylvania
    84,364       2,386       2.83       70       0.33  
Mid-Atlantic
    180,539       2,927       1.62       219       0.53  
Other
    16,242       634       3.90       34       0.84  
 
                             
Total
  $ 354,048     $ 7,192       2.03 %   $ 320       0.38 %
 
                             
Junior lien home equity lines:
                                       
New York
  $ 1,629,613     $ 17,907       1.10 %   $ 4,075       1.01 %
Pennsylvania
    608,020       1,954       0.32       396       0.28  
Mid-Atlantic
    1,594,795       6,612       0.41       1,372       0.36  
Other
    98,710       3,236       3.28       273       1.27  
 
                             
Total
  $ 3,931,138     $ 29,709       0.76 %   $ 6,116       0.64 %
 
                             

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     A comparative summary of nonperforming assets and certain past due loan data and credit quality ratios as of the end of the periods indicated is presented in the accompanying table.
NONPERFORMING ASSET AND PAST DUE, RENEGOTIATED AND IMPAIRED LOAN DATA
Dollars in thousands