SEC Filing | M&T Bank Corporation

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

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

Commission File Number 1-9861

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

New York

16-0968385

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One M & T Plaza

Buffalo, New York

14203

(Address of principal executive offices)

(Zip Code)

(716) 842-5445

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ 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). x Yes ¨ 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):

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

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on October 31, 2012: 128,005,934 shares.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2012


Table of Contents of Information Required in Report	Page
Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEET - September 30, 2012 and December 31, 2011		3

CONSOLIDATED STATEMENT OF INCOME - Three and nine months ended September 30, 2012 and 2011		4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – Three and nine months ended September 30, 2012 and 2011		5

CONSOLIDATED STATEMENT OF CASH FLOWS - Nine months ended September 30, 2012 and 2011		6

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY – Nine months ended September 30, 2012 and 2011		7

NOTES TO FINANCIAL STATEMENTS		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		60

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		109

Item 4. Controls and Procedures.		109

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.		109

Item 1A. Risk Factors.		109

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		110

Item 3. Defaults Upon Senior Securities.		110

Item 4. Mine Safety Disclosures.		110

Item 5. Other Information.		110

Item 6. Exhibits.		111

SIGNATURES		111

EXHIBIT INDEX		112

- 2 -

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)


	September 30,			December 31,
Dollars in thousands, except per share	2012			2011
Assets
Cash and due from banks	$	1,622,928			1,449,547
Interest-bearing deposits at banks		411,994			154,960
Federal funds sold		—			2,850
Trading account		526,844			561,834
Investment securities (includes pledged securities that can be sold or repledged of $1,826,216 at September 30, 2012; $1,826,011 at December 31, 2011)
Available for sale (cost: $5,091,116 at September 30, 2012; $6,312,423 at December 31, 2011)		5,183,878			6,228,560
Held to maturity (fair value: $1,074,771 at September 30, 2012; $1,012,562 at December 31, 2011)		1,121,325			1,077,708
Other (fair value: $318,801 at September 30, 2012; $366,886 at December 31, 2011)		318,801			366,886

Total investment securities		6,624,004			7,673,154

Loans and leases		64,335,438			60,377,875
Unearned discount		(223,483	)		(281,870	)

Loans and leases, net of unearned discount		64,111,955			60,096,005
Allowance for credit losses		(921,223	)		(908,290	)

Loans and leases, net		63,190,732			59,187,715

Premises and equipment		589,035			581,435
Goodwill		3,524,625			3,524,625
Core deposit and other intangible assets		129,628			176,394
Accrued interest and other assets		4,465,443			4,611,773

Total assets	$	81,085,233			77,924,287

Liabilities
Noninterest-bearing deposits	$	22,968,401			20,017,883
NOW accounts		1,499,915			1,912,226
Savings deposits		33,163,780			31,001,083
Time deposits		4,972,409			6,107,530
Deposits at Cayman Islands office		1,402,753			355,927

Total deposits		64,007,258			59,394,649

Federal funds purchased and agreements to repurchase securities		592,154			732,059
Other short-term borrowings		—			50,023
Accrued interest and other liabilities		1,570,758			1,790,121
Long-term borrowings		4,969,536			6,686,226

Total liabilities		71,139,706			68,653,078

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 September 30, 2012 and December 31, 2011; Liquidation preference of $10,000 per share: 50,000 shares at September 30, 2012 and December 31, 2011		870,416			864,585
Common stock, $.50 par, 250,000,000 shares authorized, 127,403,420 shares issued at September 30, 2012; 125,683,398 shares issued at December 31, 2011		63,702			62,842
Common stock issuable, 57,316 shares at September 30, 2012; 68,220 shares at December 31, 2011		3,451			4,072
Additional paid-in capital		2,951,248			2,828,986
Retained earnings		6,286,785			5,867,165
Accumulated other comprehensive income (loss), net		(230,075	)		(356,441	)

Total shareholders’ equity		9,945,527			9,271,209

Total liabilities and shareholders’ equity	$	81,085,233			77,924,287

- 3 -

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


		Three months ended September 30						Nine months ended September 30
In thousands, except per share		2012			2011			2012			2011
Interest income	Loans and leases, including fees	$	687,466			655,581		$	2,010,529			1,873,860
	Deposits at banks		139			1,164			1,119			1,679
	Federal funds sold		6			23			17			51
	Agreements to resell securities		—			4			—			132
	Trading account		214			312			849			982
	Investment securities
	Fully taxable		54,959			60,880			177,647			192,369
	Exempt from federal taxes		2,067			2,387			6,171			7,014

	Total interest income		744,851			720,351			2,196,332			2,076,087

Interest expense	NOW accounts		327			354			1,034			830
	Savings deposits		16,510			22,664			51,633			62,660
	Time deposits		10,843			17,684			36,706			56,065
	Deposits at Cayman Islands office		336			188			781			775
	Short-term borrowings		365			222			1,016			861
	Long-term borrowings		53,748			62,520			174,068			183,171

	Total interest expense		82,129			103,632			265,238			304,362

	Net interest income		662,722			616,719			1,931,094			1,771,725
	Provision for credit losses		46,000			58,000			155,000			196,000

	Net interest income after provision for credit losses		616,722			558,719			1,776,094			1,575,725

Other income	Mortgage banking revenues		106,812			38,141			232,518			125,448
	Service charges on deposit accounts		114,463			121,577			334,334			351,024
	Trust income		115,709			113,652			354,937			218,565
	Brokerage services income		14,114			13,907			44,187			43,129
	Trading account and foreign exchange gains		8,469			4,176			25,278			19,253
	Gain on bank investment securities		372			89			9			150,186
	Total other-than-temporary impairment (“OTTI”) losses		(2,134	)		(7,649	)		(26,246	)		(50,374	)
	Portion of OTTI losses recognized in other comprehensive income (before taxes)		(3,538	)		(1,993	)		(7,085	)		(1,839	)

	Net OTTI losses recognized in earnings		(5,672	)		(9,642	)		(33,331	)		(52,213	)

	Equity in earnings of Bayview Lending Group LLC		(5,183	)		(6,911	)		(16,570	)		(18,812	)
	Other revenues from operations		96,649			93,393			272,744			347,878

	Total other income		445,733			368,382			1,214,106			1,184,458

Other expense	Salaries and employee benefits		321,746			325,197			991,530			891,465
	Equipment and net occupancy		64,248			68,101			194,667			184,434
	Printing, postage and supplies		8,272			10,593			31,512			29,518
	Amortization of core deposit and other intangible assets		14,085			17,401			46,766			44,455
	FDIC assessments		23,801			26,701			77,712			72,404
	Other costs of operations		183,875			214,026			540,927			516,209

	Total other expense		616,027			662,019			1,883,114			1,738,485

	Income before taxes		446,428			265,082			1,107,086			1,021,698
	Income taxes		152,966			81,974			373,781			309,959

	Net income	$	293,462			183,108		$	733,305			711,739

	Net income available to common shareholders
	Basic	$	273,885			164,668		$	676,821			651,941
	Diluted		273,896			164,671			676,842			651,966

	Net income per common share
	Basic	$	2.18			1.32		$	5.39			5.34
	Diluted		2.17			1.32			5.37			5.32

	Cash dividends per common share	$	.70			.70		$	2.10			2.10

	Average common shares outstanding
	Basic		125,819			124,575			125,510			122,005
	Diluted		126,292			124,860			125,936			122,521

- 4 -

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)


	Three months ended September 30					Nine months ended September 30
In thousands	2012		2011			2012			2011
Net income	$	293,462		183,108		$	733,305			711,739
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized gains on investment securities		42,560		34,862			111,931			6,970

Reclassification to income for amortization of gains on terminated cash flow hedges		—		(70	)		(112	)		(211	)
Foreign currency translation adjustment		482		(699	)		351			(503	)
Defined benefit plans liability adjustment		4,732		2,143			14,196			6,431

Total other comprehensive income		47,774		36,236			126,366			12,687

Total comprehensive income	$	341,236		219,344		$	859,671			724,426

- 5 -

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Nine months ended September 30
In thousands		2012			2011
Cash flows from operating activities	Net income	$	733,305			711,739
	Adjustments to reconcile net income to net cash provided by operating activities
	Provision for credit losses		155,000			196,000
	Depreciation and amortization of premises and equipment		63,344			60,220
	Amortization of capitalized servicing rights		44,678			39,895
	Amortization of core deposit and other intangible assets		46,766			44,455
	Provision for deferred income taxes		108,699			14,530
	Asset write-downs		46,505			64,153
	Net gain on sales of assets		(5,070	)		(183,861	)
	Net change in accrued interest receivable, payable		(10,712	)		(6,206	)
	Net change in other accrued income and expense		(204,876	)		(21,427	)
	Net change in loans originated for sale		(528,606	)		316,623
	Net change in trading account assets and liabilities		24,743			49,376

	Net cash provided by operating activities		473,776			1,285,497

Cash flows from investing activities	Proceeds from sales of investment securities
	Available for sale		49,430			1,909,427
	Other		61,648			106,925
	Proceeds from maturities of investment securities
	Available for sale		1,155,603			1,007,612
	Held to maturity		237,933			180,475
	Purchases of investment securities
	Available for sale		(26,115	)		(2,569,168	)
	Held to maturity		(282,704	)		(19,386	)
	Other		(13,563	)		(30,438	)
	Net increase in loans and leases		(3,572,339	)		(522,571	)
	Net (increase) decrease in interest-bearing deposits at banks		(257,034	)		480,708
	Net decrease in agreements to resell securities		—			15,000
	Other investments, net		(7,447	)		(9,856	)
	Capital expenditures, net		(65,947	)		(38,030	)
	Acquisitions, net of cash acquired Banks and bank holding companies		—			178,940
	Purchase of Wilmington Trust Corporation preferred stock		—			(330,000	)
	Proceeds from sales of real estate acquired in settlement of loans		80,762			181,310
	Other, net		(86,649	)		73,739

	Net cash (used) provided by investing activities		(2,726,422	)		614,687

Cash flows from financing activities	Net increase in deposits		4,624,134			825,434
	Net decrease in short-term borrowings		(189,906	)		(400,752	)
	Payments on long-term borrowings		(1,727,313	)		(1,750,195	)
	Proceeds from issuance of preferred stock		—			495,000
	Redemption of preferred stock		—			(370,000	)
	Dividends paid - common		(267,481	)		(261,589	)
	Dividends paid - preferred		(31,494	)		(24,815	)
	Other, net		15,237			7,035

	Net cash provided (used) by financing activities		2,423,177			(1,479,882	)

	Net increase in cash and cash equivalents		170,531			420,302
	Cash and cash equivalents at beginning of period		1,452,397			933,755

	Cash and cash equivalents at end of period	$	1,622,928			1,354,057

Supplemental disclosure of cash flow information	Interest received during the period	$	2,187,027			2,087,083
	Interest paid during the period		280,983			320,758
	Income taxes paid during the period		272,502			308,057

Supplemental schedule of noncash investing and financing activities	Real estate acquired in settlement of loans	$	36,881			51,046
	Acquisitions:
	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

- 6 -

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
2011
Balance—January 1, 2011	$	740,657			60,198		4,189			2,398,615			5,426,701			(205,220	)		(67,445	)		8,357,695
Total comprehensive income		—			—		—			—			711,739			12,687			—			724,426
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		—			—		—			—			(34,125	)		—			—			(34,125	)
Amortization of preferred stock discount		18,560			—		—			—			(18,560	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—			36		—			650			—			—			31,666			32,352
Exercises of stock options, net		—			29		—			(6,691	)		—			—			30,106			23,444
Directors’ stock plan		—			2		—			414			—			—			612			1,028
Deferred compensation plans, net, including dividend equivalents		—			—		(123	)		(203	)		(141	)		—			507			40
Other		—			—		—			1,395			—			—			—			1,395
Common stock cash dividends—$2.10 per share		—			—		—			—			(261,686	)		—			—			(261,686	)

Balance—September 30, 2011	$	862,717			62,805		4,066			2,814,143			5,823,928			(192,533	)		—			9,375,126

2012
Balance—January 1, 2012	$	864,585			62,842		4,072			2,828,986			5,867,165			(356,441	)		—			9,271,209
Total comprehensive income		—			—		—			—			733,305			126,366			—			859,671
Preferred stock cash dividends		—			—		—			—			(40,088	)		—			—			(40,088	)
Amortization of preferred stock discount		5,831			—		—			—			(5,831	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—			228		—			37,655			—			—			—			37,883
Exercises of stock options, net		—			545		—			71,939			—			—			—			72,484
Stock purchase plan		—			75		—			10,026			—			—			—			10,101
Directors’ stock plan		—			7		—			1,114			—			—			—			1,121
Deferred compensation plans, net, including dividend equivalents		—			5		(621	)		576			(120	)		—			—			(160	)
Other		—			—		—			952			—			—			—			952
Common stock cash dividends—$2.10 per share		—			—		—			—			(267,646	)		—			—			(267,646	)

Balance—September 30, 2012	$	870,416			63,702		3,451			2,951,248			6,286,785			(230,075	)		—			9,945,527

- 7 -

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 2011 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 August 27, 2012, M&T announced that it had entered into a definitive agreement with Hudson City Bancorp, Inc. (“Hudson City”), headquartered in Paramus, New Jersey, under which Hudson City will be acquired by M&T. Pursuant to the terms of the agreement, Hudson City shareholders will receive consideration valued at .08403 of an M&T share in the form of either M&T common stock or cash, based on the election of each Hudson City shareholder, subject to proration as specified in the merger agreement (which provides for an aggregate split of total consideration of 60% common stock of M&T and 40% cash).

At September 30, 2012, Hudson City had $41.9 billion of assets, including $27.8 billion of loans and $12.5 billion of investment securities, and $37.2 billion of liabilities, including $24.0 billion of deposits. After the merger is completed, M&T expects to repay approximately $13 billion of Hudson City’s long-term borrowings by liquidating its comparably-sized investment securities portfolio. The merger is subject to a number of conditions, including regulatory approvals and approval by common shareholders of M&T and Hudson City, and is expected to be completed by mid-year 2013.

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 (“TARP”) of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $112 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

- 8 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust added to M&T’s market-leading position in the Mid-Atlantic region by giving M&T the leading deposit market share in Delaware.

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		112,094
Other assets		969,106

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

- 9 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

The following table presents certain pro forma information as if Wilmington Trust had been included in the Company’s results of operations for the nine months ended September 30, 2011 rather than since the acquisition date on May 16, 2011. 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 as indicated. In particular, no adjustments have been made to eliminate the amount of Wilmington Trust’s provision for credit losses of $41 million or the impact of other-than-temporary impairment losses of $5 million recognized by Wilmington Trust during the first quarter of 2011 that may not have been necessary had the acquired loans and investment securities been recorded at fair value as of the beginning of 2011. Additionally, the Company expects to achieve operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts that follow:


	Pro forma Nine months ended
	September 30, 2011
	(in thousands)
Total revenues (a)	$	3,190,437
Net income		663,048

(a)

Represents net interest income plus other income.

In connection with the acquisition, 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 the conversion of systems 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; severance for former employees; travel costs; and printing, postage, supplies and other costs of completing the transactions and commencing operations in new markets and offices.

A summary of merger-related expenses included in the consolidated statement of income follows:


	Three months ended				Nine months ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
	(in thousands)
Salaries and employee benefits	$	—		285	$	4,997		15,597
Equipment and net occupancy		—		119		15		223
Printing, postage and supplies		—		723		—		1,188
Other costs of operations		—		24,876		4,867		50,286

	$	—		26,003	$	9,879		67,294

- 10 -

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)
September 30, 2012
Investment securities available for sale:
U.S. Treasury and federal agencies	$	55,288		1,057		—	$	56,345
Obligations of states and political subdivisions		33,402		588		10		33,980
Mortgage-backed securities:
Government issued or guaranteed		3,502,237		246,190		175		3,748,252
Privately issued residential		1,198,896		4,929		148,757		1,055,068
Privately issued commercial		10,837		—		269		10,568
Collateralized debt obligations		43,294		15,147		1,240		57,201
Other debt securities		136,418		2,146		29,159		109,405
Equity securities		110,744		9,636		7,321		113,059

		5,091,116		279,693		186,931		5,183,878

Investment securities held to maturity:
Obligations of states and political subdivisions		192,621		8,848		29		201,440
Mortgage-backed securities:
Government issued or guaranteed		669,169		37,259		—		706,428
Privately issued		248,441		334		92,966		155,809
Other debt securities		11,094		—		—		11,094

		1,121,325		46,441		92,995		1,074,771

Other securities		318,801		—		—		318,801

Total	$	6,531,242		326,134		279,926	$	6,577,450

December 31, 2011
Investment securities available for sale:
U.S. Treasury and federal agencies	$	69,468		1,255		—	$	70,723
Obligations of states and political subdivisions		39,518		771		20		40,269
Mortgage-backed securities:
Government issued or guaranteed		4,344,116		177,392		275		4,521,233
Privately issued residential		1,369,371		6,373		239,488		1,136,256
Privately issued commercial		17,679		—		2,650		15,029
Collateralized debt obligations		43,834		11,154		2,488		52,500
Other debt securities		216,700		4,588		44,443		176,845
Equity securities		211,737		8,468		4,500		215,705

		6,312,423		210,001		293,864		6,228,560

Investment securities held to maturity:
Obligations of states and political subdivisions		188,680		9,141		28		197,793
Mortgage-backed securities:
Government issued or guaranteed		608,533		24,881		—		633,414
Privately issued		268,642		—		99,140		169,502
Other debt securities		11,853		—		—		11,853

		1,077,708		34,022		99,168		1,012,562

Other securities		366,886		—		—		366,886

Total	$	7,757,017		244,023		393,032	$	7,608,008

- 11 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

Gross realized gains on investment securities were $90 thousand and $150 million for the three-month and nine-month periods ended September 30, 2011, respectively. Gross realized gains were not significant in 2012. Gross realized losses on investment securities were not significant during the three-month and nine-month periods ended September 30, 2012 and 2011. During the second quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and 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 pre-tax other-than-temporary impairment losses of $6 million and $33 million during the three months and nine months ended September 30, 2012, respectively, and $10 million and $52 million during the three months and nine months ended September 30, 2011, respectively, related to privately issued mortgage-backed securities. The impairment charges were recognized in light of deterioration of real estate values and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The other-than-temporary losses represent management’s estimate of credit losses inherent in the debt securities considering projected cash flows using assumptions of delinquency rates, loss severities, and other estimates for future collateral performance.

The following table displays changes in credit losses associated with debt securities for which other-than-temporary impairment losses have been previously recognized in earnings for the three months and nine months ended September 30, 2012 and 2011:

- 12 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued


	Three months ended September 30
	2012			2011
	(in thousands)
Beginning balance	$	264,197			298,141
Additions for credit losses not previously recognized		5,672			9,642
Reductions for increases in cash flows		—			(90	)
Reductions for realized losses		(67,926	)		(23,127	)

Ending balance	$	201,943			284,566


	Nine months ended September 30
	2012			2011
	(in thousands)
Beginning balance	$	285,399			327,912
Additions for credit losses not previously recognized		33,331			52,213
Reductions for increases in cash flows		—			(5,110	)
Reductions for realized losses		(116,787	)		(90,449	)

Ending balance	$	201,943			284,566

At September 30, 2012, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:


	Amortized cost		Estimated fair value
	(in thousands)
Debt securities available for sale:
Due in one year or less	$	33,460		33,496
Due after one year through five years		42,405		43,791
Due after five years through ten years		8,611		9,409
Due after ten years		183,926		170,235

		268,402		256,931
Mortgage-backed securities available for sale		4,711,970		4,813,888

	$	4,980,372		5,070,819

Debt securities held to maturity:
Due in one year or less	$	36,459		36,660
Due after one year through five years		45,054		47,410
Due after five years through ten years		110,731		116,979
Due after ten years		11,471		11,485

		203,715		212,534
Mortgage-backed securities held to maturity		917,610		862,237

	$	1,121,325		1,074,771

- 13 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

A summary of investment securities that as of September 30, 2012 and December 31, 2011 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:


	Less than 12 months					12 months or more
			Unrealized					Unrealized
	Fair value		losses			Fair value		losses
			(in thousands)
September 30, 2012
Investment securities available for sale:
Obligations of states and political subdivisions	$	979		(6	)		685		(4	)
Mortgage-backed securities:
Government issued or guaranteed		5,838		(28	)		9,319		(147	)
Privately issued residential		81,620		(454	)		828,916		(148,303	)
Privately issued commercial		—		—			9,744		(269	)
Collateralized debt obligations		3,136		(30	)		5,842		(1,210	)
Other debt securities		—		—			93,266		(29,159	)
Equity securities		5,486		(3,820	)		1,580		(3,501	)

		97,059		(4,338	)		949,352		(182,593	)

Investment securities held to maturity:
Obligations of states and political subdivisions		2,839		(6	)		2,522		(23	)
Privately issued mortgage-backed securities		—		—			155,189		(92,966	)

		2,839		(6	)		157,711		(92,989	)

Total	$	99,898		(4,344	)		1,107,063		(275,582	)

December 31, 2011
Investment securities available for sale:
Obligations of states and political subdivisions	$	—		—			1,228		(20	)
Mortgage-backed securities:
Government issued or guaranteed		38,492		(190	)		6,017		(85	)
Privately issued residential		297,133		(14,188	)		751,077		(225,300	)
Privately issued commercial		—		—			15,029		(2,650	)
Collateralized debt obligations		2,871		(335	)		4,863		(2,153	)
Other debt securities		72,637		(9,883	)		73,635		(34,560	)
Equity securities		9,883		(4,500	)		—		—

		421,016		(29,096	)		851,849		(264,768	)

Investment securities held to maturity:
Obligations of states and political subdivisions		3,084		(4	)		1,430		(24	)
Privately issued mortgage-backed securities		1,883		(592	)		167,139		(98,548	)

		4,967		(596	)		168,569		(98,572	)

Total	$	425,983		(29,692	)		1,020,418		(363,340	)

- 14 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

The Company owned 250 individual investment securities with aggregate gross unrealized losses of $280 million at September 30, 2012. Approximately $242 million of the unrealized losses pertained to privately issued mortgage-backed securities with a cost basis of $1.3 billion. The Company also had $30 million of unrealized losses on available-for-sale trust preferred securities issued by financial institutions and securities backed by trust preferred securities having a cost basis of $133 million. Based on a review of each of the securities in the investment securities portfolio at September 30, 2012, with the exception of the aforementioned securities for which other-than-temporary impairment losses were recognized, the Company concluded that it expected to recover the amortized cost basis of its investment. As of September 30, 2012, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At September 30, 2012, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $319 million of cost method investment securities.

4. Loans and leases and the allowance for credit losses

The outstanding principal balance and the carrying amount of acquired loans that were recorded at fair value at the acquisition date that is included in the consolidated balance sheet is as follows:


	September 30,		December 31,
	2012		2011
	(in thousands)
Outstanding principal balance	$	7,338,476		9,203,366
Carrying amount:
Commercial, financial, leasing, etc.		977,430		1,331,198
Commercial real estate		2,962,899		3,879,518
Residential real estate		742,977		915,371
Consumer		1,700,161		2,033,700

	$	6,383,467		8,159,787

Purchased impaired loans included in the table above totaled $528 million at September 30, 2012 and $653 million at December 31, 2011, representing less than 1% of the Company’s assets as of each date.

- 15 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Loans and leases and the allowance for credit losses, continued

Interest income on acquired loans that were recorded at fair value at the acquisition date was $87 million and $259 million for the three months and nine months ended September 30, 2012 and $97 million and $207 million for the three months and nine months ended September 30, 2011, respectively. At December 31, 2010 and September 30, 2011, the accretable yield on acquired loans was $457 million and $944 million, respectively. A summary of changes in the accretable yield for acquired loans for the three months and nine months ended September 30, 2012 follows:


	Three months ended September 30, 2012
	Purchased			Other
	impaired			acquired			Total
	(in thousands)
Balance at beginning of period	$	55,599			733,161			788,760
Interest income		(12,436	)		(74,936	)		(87,372	)
Reclassifications from (to) nonaccretable balance, net		542			—			542
Other (a)		—			1,382			1,382

Balance at end of period	$	43,705			659,607			703,312


	Nine months ended September 30, 2012
	Purchased			Other
	impaired			acquired			Total
	(in thousands)
Balance at beginning of period	$	30,805			807,960			838,765
Interest income		(29,721	)		(228,908	)		(258,629	)
Reclassifications from (to) nonaccretable balance, net		42,621			98,165			140,786
Other (a)		—			(17,610	)		(17,610	)

Balance at end of period	$	43,705			659,607			703,312

(a)

Other changes in expected cash flows including changes in interest rates and prepayments.

- 16 -

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 September 30, 2012 and December 31, 2011 were as follows:


			30-89 Days past due		90 Days or more past due and accruing				Purchased impaired (b)		Nonaccrual		Total
	Current		30-89 Days past due		Non- acquired		Acquired (a)		Purchased impaired (b)		Nonaccrual		Total
					(in thousands)
September 30, 2012
Commercial, financial, leasing, etc.	$	16,496,862		50,980		2,574		14,919		17,434		121,806		16,704,575
Real estate:
Commercial		20,926,702		142,780		12,479		54,329		151,685		172,246		21,460,221
Residential builder and developer		781,007		26,920		5,009		23,870		244,017		225,529		1,306,352
Other commercial construction		2,056,594		36,738		8,077		6,388		69,337		26,709		2,203,843
Residential		9,534,751		270,560		276,314		41,577		41,297		182,217		10,346,716
Residential Alt-A		340,568		25,203		—		—		—		95,733		461,504
Consumer:
Home equity lines and loans		6,300,811		44,791		—		17,799		4,231		56,300		6,423,932
Automobile		2,429,579		40,813		—		345		—		25,537		2,496,274
Other		2,647,950		34,270		4,967		2,197		—		19,154		2,708,538

Total	$	61,514,824		673,055		309,420		161,424		528,001		925,231		64,111,955


December 31, 2011
Commercial, financial, leasing, etc.	$	15,493,803		37,112		7,601		8,560		23,762		163,598		15,734,436
Real estate:
Commercial		19,658,761		172,641		9,983		54,148		192,804		171,111		20,259,448
Residential builder and developer		845,680		49,353		13,603		21,116		297,005		281,576		1,508,333
Other commercial construction		2,393,304		41,049		968		23,582		78,105		106,325		2,643,333
Residential		6,626,182		256,017		250,472		37,982		56,741		172,681		7,400,075
Residential Alt-A		383,834		34,077		—		—		—		105,179		523,090
Consumer:
Home equity lines and loans		6,570,675		43,516		—		15,409		4,635		47,150		6,681,385
Automobile		2,644,330		48,342		—		601		—		26,835		2,720,108
Other		2,551,225		43,547		5,249		2,340		310		23,126		2,625,797

Total	$	57,167,794		725,654		287,876		163,738		653,362		1,097,581		60,096,005

(a)

Acquired loans that were recorded at fair value at acquisition date. This category does not include purchased impaired loans that are presented separately.

(b)

Accruing loans that were impaired at acquisition date and were recorded at fair value.

- 17 -

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 September 30, 2012 were as follows:


	Commercial, Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
Beginning balance	$	244,728			341,521			93,269			164,352			73,158		917,028
Provision for credit losses		439			9,891			8,247			26,962			461		46,000
Net charge-offs
Charge-offs		(8,874	)		(7,982	)		(8,687	)		(24,553	)		—		(50,096	)
Recoveries		1,174			1,421			1,139			4,557			—		8,291

Net charge-offs		(7,700	)		(6,561	)		(7,548	)		(19,996	)		—		(41,805	)

Ending balance	$	237,467			344,851			93,968			171,318			73,619		921,223

Changes in the allowance for credit losses for the three months ended September 30, 2011 were as follows:


	Commercial, Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated			Total
	(in thousands)
Beginning balance	$	209,879			401,111			87,341			137,309			71,949			907,589
Provision for credit losses		23,145			(545	)		8,264			27,231			(95	)		58,000
Net charge-offs
Charge-offs		(12,073	)		(13,712	)		(12,135	)		(28,576	)		—			(66,496	)
Recoveries		2,613			839			1,750			4,230			—			9,432

Net charge-offs		(9,460	)		(12,873	)		(10,385	)		(24,346	)		—			(57,064	)

Ending balance	$	223,564			387,693			85,220			140,194			71,854			908,525

Changes in the allowance for credit losses for the nine months ended September 30, 2012 were as follows:


	Commercial, Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
Beginning balance	$	234,022			367,637			91,915			143,121			71,595		908,290
Provision for credit losses		29,663			4,322			30,064			88,927			2,024		155,000
Net charge-offs
Charge-offs		(32,989	)		(31,578	)		(32,812	)		(77,155	)		—		(174,534	)
Recoveries		6,771			4,470			4,801			16,425			—		32,467

Net charge-offs		(26,218	)		(27,108	)		(28,011	)		(60,730	)		—		(142,067	)

Ending balance	$	237,467			344,851			93,968			171,318			73,619		921,223

- 18 -

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 nine months ended September 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		44,957			36,965			37,759			74,847			1,472		196,000
Net charge-offs
Charge-offs		(41,023	)		(54,206	)		(44,174	)		(81,837	)		—		(221,240	)
Recoveries		7,051			4,372			5,284			14,117			—		30,824

Net charge-offs		(33,972	)		(49,834	)		(38,890	)		(67,720	)		—		(190,416	)

Ending balance	$	223,564			387,693			85,220			140,194			71,854		908,525

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment.

- 19 -

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 on an individual loan basis. 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, geographic location, financial condition and performance, 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. As updated appraisals are obtained on individual loans or other events in the market place indicate that collateral values have significantly changed, individual loan grades are adjusted as appropriate. Changes in other factors cited may also lead to loan grade changes at anytime. Except for consumer and residential mortgage loans that are considered smaller balance homogenous loans and acquired loans that are evaluated on an aggregated basis, 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. 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 loans and leases that were considered impaired as of September 30, 2012 and December 31, 2011 and for the three months and nine months ended September 30, 2012 and September 30, 2011.

- 20 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Loans and leases and the allowance for credit losses, continued


	September 30, 2012						December 31, 2011
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	106,448		126,156		29,911		118,538		145,510		48,674
Real estate:
Commercial		107,669		135,663		18,734		102,886		128,456		17,651
Residential builder and developer		134,298		260,010		34,228		159,293		280,869		52,562
Other commercial construction		74,306		77,938		7,749		20,234		24,639		3,836
Residential		103,184		121,141		5,027		101,882		119,498		4,420
Residential Alt-A		131,043		143,670		19,000		150,396		162,978		25,000
Consumer:
Home equity lines and loans		12,362		13,635		2,187		9,385		10,670		2,306
Automobile		50,886		50,886		15,012		53,710		53,710		11,468
Other		13,387		13,387		5,254		8,401		8,401		2,084

		733,583		942,486		137,102		724,725		934,731		168,001

With no related allowance recorded:
Commercial, financial, leasing, etc.		23,641		32,211		—		53,104		60,778		—
Real estate:
Commercial		70,667		92,453		—		71,636		91,118		—
Residential builder and developer		95,202		117,478		—		133,156		177,277		—
Other commercial construction		12,153		12,727		—		86,652		89,862		—
Residential		22,752		31,352		—		19,686		25,625		—
Residential Alt-A		34,533		63,703		—		34,356		60,942		—

		258,948		349,924		—		398,590		505,602		—

Total:
Commercial, financial, leasing, etc.		130,089		158,367		29,911		171,642		206,288		48,674
Real estate:
Commercial		178,336		228,116		18,734		174,522		219,574		17,651
Residential builder and developer		229,500		377,488		34,228		292,449		458,146		52,562
Other commercial construction		86,459		90,665		7,749		106,886		114,501		3,836
Residential		125,936		152,493		5,027		121,568		145,123		4,420
Residential Alt-A		165,576		207,373		19,000		184,752		223,920		25,000
Consumer:
Home equity lines and loans		12,362		13,635		2,187		9,385		10,670		2,306
Automobile		50,886		50,886		15,012		53,710		53,710		11,468
Other		13,387		13,387		5,254		8,401		8,401		2,084

Total	$	992,531		1,292,410		137,102		1,123,315		1,440,333		168,001

- 21 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Loans and leases and the allowance for credit losses, continued


	Three months ended September 30, 2012						Three months ended September 30, 2011
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	141,166		1,507		1,507		152,368		1,172		1,166
Real estate:
Commercial		180,009		531		531		195,832		810		808
Residential builder and developer		237,847		476		370		338,897		422		98
Other commercial construction		84,604		9		9		96,482		62		51
Residential		131,114		1,269		765		98,885		1,183		630
Residential Alt-A		167,780		1,836		593		192,609		1,872		494
Consumer:
Home equity lines and loans		11,949		172		48		11,814		174		26
Automobile		51,138		863		185		56,071		957		262
Other		11,996		121		52		5,579		75		32

Total	$	1,017,603		6,784		4,060		1,148,537		6,727		3,567


	Nine months ended September 30, 2012						Nine months ended September 30, 2011
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	155,627		2,659		2,659		163,005		2,844		2,820
Real estate:
Commercial		179,524		2,087		2,087		191,818		1,705		1,630
Residential builder and developer		260,858		1,202		801		321,386		1,261		338
Other commercial construction		100,242		5,019		5,019		102,978		759		522
Residential		128,646		3,926		2,453		92,918		3,209		1,770
Residential Alt-A		174,390		5,432		1,666		199,066		5,858		1,455
Consumer:
Home equity lines and loans		11,024		502		136		11,989		523		74
Automobile		52,249		2,632		553		57,704		2,925		850
Other		10,097		320		138		4,124		187		51

Total	$	1,072,657		23,779		15,512		1,144,988		19,271		9,510

- 22 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Loans and leases and the allowance for credit losses, continued

In accordance with the previously described policies, 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 September 30, 2012 and December 31, 2011.


			Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
September 30, 2012
Pass	$	15,823,813		20,373,273		976,233		1,966,097
Criticized accrual		758,956		914,702		104,590		211,037
Criticized nonaccrual		121,806		172,246		225,529		26,709

Total	$	16,704,575		21,460,221		1,306,352		2,203,843

December 31, 2011
Pass	$	14,869,636		19,089,252		1,085,970		2,254,609
Criticized accrual		701,202		999,085		140,787		282,399
Criticized nonaccrual		163,598		171,111		281,576		106,325

Total	$	15,734,436		20,259,448		1,508,333		2,643,333

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, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by M&T’s Credit Department. In arriving at such forecasts, M&T considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of any first lien position prior to recovering amounts on a second lien position. 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.

- 23 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Loans and leases and the allowance for credit losses, continued

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. The determination of the allocated portion of the allowance for credit losses is very subjective. Given that 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. Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses. Other factors that could also lead to changes in the unallocated portion 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 September 30, 2012 and December 31, 2011, 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)
September 30, 2012
Individually evaluated for impairment	$	29,738		59,794		23,953		22,453	$	135,938
Collectively evaluated for impairment		207,556		283,547		66,724		148,479		706,306
Purchased impaired		173		1,510		3,291		386		5,360

Allocated	$	237,467		344,851		93,968		171,318		847,604

Unallocated										73,619

Total									$	921,223

December 31, 2011
Individually evaluated for impairment	$	48,517		71,784		29,420		15,858	$	165,579
Collectively evaluated for impairment		185,048		291,271		60,742		126,613		663,674
Purchased impaired		457		4,582		1,753		650		7,442

Allocated	$	234,022		367,637		91,915		143,121		836,695

Unallocated										71,595

Total									$	908,290

- 24 -

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 September 30, 2012 and December 31, 2011 was as follows:


	Commercial, Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
September 30, 2012
Individually evaluated for impairment	$	129,916		488,493		290,023		76,676	$	985,108
Collectively evaluated for impairment		16,557,225		24,016,884		10,476,900		11,547,837		62,598,846
Purchased impaired		17,434		465,039		41,297		4,231		528,001

Total	$	16,704,575		24,970,416		10,808,220		11,628,744	$	64,111,955

December 31, 2011
Individually evaluated for impairment	$	171,442		561,615		306,320		71,496	$	1,110,873
Collectively evaluated for impairment		15,539,232		23,281,585		7,560,104		11,950,849		58,331,770
Purchased impaired		23,762		567,914		56,741		4,945		653,362

Total	$	15,734,436		24,411,114		7,923,165		12,027,290	$	60,096,005

During the normal course of business, the Company modifies loans to maximize recovery efforts. If the borrower is experiencing financial difficulty and a concession is granted, the Company considers such modifications as troubled debt restructurings and classifies those loans as either nonaccrual loans or renegotiated loans. The types of concessions that the Company grants typically include principal deferrals and interest rate concessions, but may also include other types of concessions.

- 25 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Loans and leases and the allowance for credit losses, continued

The tables below summarize the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended September 30, 2012 and 2011:


			Recorded investment				Financial effects of modification
Three months ended September 30, 2012	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		21	$	7,823	$	7,653	$	(170	)	$	—
Combination of concession types		2		327		322		(5	)		(39	)
Real estate:
Commercial
Principal deferral		8		5,951		6,238		287			—
Combination of concession types		1		214		214		—			(49	)
Residential builder and developer
Principal deferral		11		17,383		16,275		(1,108	)		—
Combination of concession types		1		2,486		2,486		—			—
Other commercial construction
Principal deferral		2		5,429		4,702		(727	)