Edgar Filing: M&T BANK CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 March 31, 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark 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 April 30, 2012: 126,558,669 shares.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2012


Table of Contents of Information Required in Report			Page

Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements.

		CONSOLIDATED BALANCE SHEET - March 31, 2012 and December 31, 2011		3

		CONSOLIDATED STATEMENT OF INCOME - Three months ended March 31, 2012 and 2011		4

		CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - Three months ended March 31, 2012 and 2011		5

		CONSOLIDATED STATEMENT OF CASH FLOWS - Three months ended March 31, 2012 and 2011		6

		CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - Three months ended March 31, 2012 and 2011		7

		NOTES TO FINANCIAL STATEMENTS		8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		51

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		95

	Item 4.	Controls and Procedures.		95

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings.		95

	Item 1A.	Risk Factors.		95

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		96

	Item 3.	Defaults Upon Senior Securities.		96

	Item 4.	Mine Safety Disclosures.		96

	Item 5.	Other Information.		96

	Item 6.	Exhibits.		97

SIGNATURES				97

EXHIBIT INDEX				98

- 2 -

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)


Dollars in thousands, except per share		March 31, 2012			December 31, 2011
Assets
	Cash and due from banks	$	1,344,092			1,449,547
	Interest-bearing deposits at banks		1,282,040			154,960
	Federal funds sold		—			2,850
	Trading account		517,620			561,834
	Investment securities (includes pledged securities that can be sold or repledged of $1,816,595 at March 31, 2012; $1,826,011 at December 31, 2011)
	Available for sale (cost: $5,892,799 at March 31, 2012; $6,312,423 at December 31, 2011)		5,838,022			6,228,560
	Held to maturity (fair value: $929,478 at March 31, 2012; $1,012,562 at December 31, 2011)		1,000,294			1,077,708
	Other (fair value: $356,980 at March 31, 2012; $366,886 at December 31, 2011)		356,980			366,886
	Total investment securities		7,195,296			7,673,154
	Loans and leases		61,185,392			60,377,875
	Unearned discount		(263,642	)		(281,870	)
	Loans and leases, net of unearned discount		60,921,750			60,096,005
	Allowance for credit losses		(909,006	)		(908,290	)
	Loans and leases, net		60,012,744			59,187,715
	Premises and equipment		580,033			581,435
	Goodwill		3,524,625			3,524,625
	Core deposit and other intangible assets		159,619			176,394
	Accrued interest and other assets		4,570,818			4,611,773
	Total assets	$	79,186,887			77,924,287
Liabilities
	Noninterest-bearing deposits	$	20,648,970			20,017,883
	NOW accounts		1,875,461			1,912,226
	Savings deposits		32,225,733			31,001,083
	Time deposits		5,767,588			6,107,530
	Deposits at Cayman Islands office		395,191			355,927
	Total deposits		60,912,943			59,394,649
	Federal funds purchased and agreements to repurchase securities		461,977			732,059
	Other short-term borrowings		50,004			50,023
	Accrued interest and other liabilities		1,856,749			1,790,121
	Long-term borrowings		6,476,526			6,686,226
	Total liabilities		69,758,199			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 March 31, 2012 and December 31, 2011; Liquidation preference of $10,000 per share: 50,000 shares at March 31, 2012 and December 31, 2011		866,489			864,585
	Common stock, $.50 par, 250,000,000 shares authorized, 126,476,266 shares issued at March 31, 2012; 125,683,398 shares issued at December 31, 2011		63,238			62,842
	Common stock issuable, 57,385 shares at March 31, 2012; 68,220 shares at December 31, 2011		3,427			4,072
	Additional paid-in capital		2,857,556			2,828,986
	Retained earnings		5,969,236			5,867,165
	Accumulated other comprehensive income (loss), net		(331,258	)		(356,441	)
	Total shareholders’ equity		9,428,688			9,271,209
	Total liabilities and shareholders’ equity	$	79,186,887			77,924,287

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


		Three months ended March 31
In thousands, except per share		2012			2011
Interest income	Loans and leases, including fees	$	648,514			594,032
	Deposits at banks		213			36
	Federal funds sold		3			18
	Agreements to resell securities		—			1
	Trading account		317			388
	Investment securities
	Fully taxable		62,964			70,662
	Exempt from federal taxes		2,084			2,346
	Total interest income		714,095			667,483
Interest expense	NOW accounts		283			202
	Savings deposits		18,183			19,239
	Time deposits		13,509			19,071
	Deposits at Cayman Islands office		213			394
	Short-term borrowings		303			492
	Long-term borrowings		61,215			59,281
	Total interest expense		93,706			98,679
	Net interest income		620,389			568,804
	Provision for credit losses		49,000			75,000
	Net interest income after provision for credit losses		571,389			493,804
Other income	Mortgage banking revenues		56,192			45,156
	Service charges on deposit accounts		108,889			109,731
	Trust income		116,953			29,321
	Brokerage services income		13,901			14,296
	Trading account and foreign exchange gains		10,571			8,279
	Gain on bank investment securities		45			39,353
	Total other-than-temporary impairment ("OTTI") losses		(20,040	)		(9,514	)
	Portion of OTTI losses recognized in other comprehensive income (before taxes)		8,554			(6,527	)
	Net OTTI losses recognized in earnings		(11,486	)		(16,041	)
	Equity in earnings of Bayview Lending Group LLC		(4,752	)		(6,678	)
	Other revenues from operations		86,410			91,003
	Total other income		376,723			314,420
Other expense	Salaries and employee benefits		346,098			266,090
	Equipment and net occupancy		65,043			56,663
	Printing, postage and supplies		11,872			9,202
	Amortization of core deposit and other intangible assets		16,774			12,314
	FDIC assessments		28,949			19,094
	Other costs of operations		170,959			136,208
	Total other expense		639,695			499,571
	Income before taxes		308,417			308,653
	Income taxes		101,954			102,380
	Net income	$	206,463			206,273

	Net income available to common shareholders
	Basic	$	188,236			190,113
	Diluted		188,241			190,121

	Net income per common share
	Basic	$	1.50			1.59
	Diluted		1.50			1.59

	Cash dividends per common share	$	.70			.70

	Average common shares outstanding
	Basic		125,220			119,201
	Diluted		125,616			119,852

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)


	Three months ended March 31
In thousands	2012			2011

Net income	$	206,463			206,273
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized gains on investment securities		20,082			5,658
Reclassification to income for amortization of gains on terminated cash flow hedges		(70	)		(70	)
Foreign currency translation adjustment		402			—
Defined benefit plans liability adjustment		4,769			2,111
Total other comprehensive income		25,183			7,699
Total comprehensive income	$	231,646			213,972

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Three months ended March 31
In thousands			2012		2011
Cash flows from operating activities	Net income	$	206,463		206,273
	Adjustments to reconcile net income to net cash provided by operating activities
	Provision for credit losses		49,000		75,000
	Depreciation and amortization of premises and equipment		21,022		17,978
	Amortization of capitalized servicing rights		14,476		13,478
	Amortization of core deposit and other intangible assets		16,774		12,314
	Provision for deferred income taxes		15,225		11,438
	Asset write-downs		16,388		17,720
	Net gain on sales of assets		(2,471	)	(44,504	)
	Net change in accrued interest receivable, payable		7,725		5,068
	Net change in other accrued income and expense		32,134		2,063
	Net change in loans originated for sale		154,436		373,020
	Net change in trading account assets and liabilities		7,840		80,805
	Net cash provided by operating activities		539,012		770,653
Cash flows from investing activities	Proceeds from sales of investment securities
	Available for sale		1,045		13,380
	Other		10,224		22,969
	Proceeds from maturities of investment securities
	Available for sale		417,348		408,574
	Held to maturity		82,670		66,465
	Purchases of investment securities
	Available for sale		(10,286	)	(353,508	)
	Held to maturity		(6,287	)	(7,796	)
	Other		(318	)	(352	)
	Net increase in loans and leases		(1,042,144	)	(579,845	)
	Net (increase) decrease in interest-bearing deposits at banks		(1,127,080	)	1,121
	Other investments, net		2,416		(8,769	)
	Capital expenditures, net		(19,377	)	(8,854	)
	Proceeds from sales of real estate acquired in settlement of loans		33,775		17,757
	Other, net		(25,840	)	16,279
	Net cash used by investing activities		(1,683,854	)	(412,579	)
Cash flows from financing activities	Net increase in deposits		1,522,583		745,021
	Net decrease in short-term borrowings		(270,081	)	(442,751	)
	Payments on long-term borrowings		(202,352	)	(528,511	)
	Dividends paid - common		(89,041	)	(84,718	)
	Dividends paid - preferred		(4,769	)	(10,056	)
	Other, net		80,197		11,491
	Net cash provided (used) by financing activities		1,036,537		(309,524	)
	Net increase (decrease) in cash and cash equivalents		(108,305	)	48,550
	Cash and cash equivalents at beginning of period		1,452,397		933,755
	Cash and cash equivalents at end of period	$	1,344,092		982,305
Supplemental disclosure of cash flow information	Interest received during the period	$	721,159		665,490
	Interest paid during the period		89,241		88,658
	Income taxes paid during the period		8,416		77,169
Supplemental schedule of noncash investing and financing activities	Real estate acquired in settlement of loans	$	17,123		18,168

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


In thousands, except per share	Preferred stock		Common stock		Common stock issuable			Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss), net			Treasury 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		—		—		—			—			206,273			7,699			—			213,972
Preferred stock cash dividends		—		—		—			—			(10,498	)		—			—			(10,498	)
Amortization of preferred stock discount		2,728		—		—			—			(2,728	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—		—		—			(20,796	)		—			—			31,664			10,868
Exercises of stock options, net		—		—		—			(10,524	)		—			—			30,072			19,548
Directors’ stock plan		—		—		—			(32	)		—			—			304			272
Deferred compensation plans, net, including dividend equivalents		—		—		(300	)		(220	)		(47	)		—			507			(60	)
Other		—		—		—			513			—			—			—			513
Common stock cash dividends - $.70 per share		—		—		—			—			(84,792	)		—			—			(84,792	)
Balance - March 31, 2011	$	743,385		60,198		3,889			2,367,556			5,534,909			(197,521	)		(4,898	)		8,507,518
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		—		—		—			—			206,463			25,183			—			231,646
Preferred stock cash dividends		—		—		—			—			(13,363	)		—			—			(13,363	)
Amortization of preferred stock discount		1,904		—		—			—			(1,904	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—		207		—			7,783			—			—						7,990
Exercises of stock options, net		—		183		—			19,429			—			—						19,612
Directors’ stock plan		—		2		—			370			—			—						372
Deferred compensation plans, net, including dividend equivalents		—		4		(645	)		507			(40	)		—						(174	)
Other		—		—		—			481			—			—			—			481
Common stock cash dividends - $.70 per share		—		—		—			—			(89,085	)		—			—			(89,085	)
Balance - March 31, 2012	$	866,489		63,238		3,427			2,857,556			5,969,236			(331,258	)		—			9,428,688

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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 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 $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 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 a leading deposit market share in Delaware.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.	Acquisitions, continued

The consideration paid for Wilmington Trust’s 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

The following table presents certain pro forma information as if Wilmington Trust had been included in the Company’s results of operations in the first quarter of 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 in the three months ended March 31, 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 Three months ended
	March 31, 2011
	(in thousands)

Total revenues (a)	$	1,041,494
Net income		171,421

(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; initial marketing and

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.	Acquisitions, continued

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 transaction and commencing operations in new markets and offices. The Company expects to incur additional merger-related expenses during the remainder of 2012.

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


	Three months ended March 31, 2012		Three months ended March 31, 2011
	(in thousands)

Salaries and employee benefits	$	1,973	$	7
Equipment and net occupancy		15		79
Printing, postage and supplies		—		147
Other cost of operations		740		4,062

	$	2,728	$	4,295

3.	Investment securities

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


	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
	(in thousands)
March 31, 2012
Investment securities available for sale:
U.S. Treasury and federal agencies	$	52,010		1,130		—	$	53,140
Obligations of states and political subdivisions		37,431		630		21		38,040
Mortgage-backed securities:
Government issued or guaranteed		4,101,717		171,479		241		4,272,955
Privately issued residential		1,318,040		5,358		212,703		1,110,695
Privately issued commercial		15,193		—		1,758		13,435
Collateralized debt obligations		43,708		15,907		1,431		58,184
Other debt securities		206,661		3,397		41,133		168,925
Equity securities		118,039		9,672		5,063		122,648

		5,892,799		207,573		262,350		5,838,022

Investment securities held to maturity:
Obligations of states and political subdivisions		185,859		7,776		32		193,603
Mortgage-backed securities:
Government issued or guaranteed		541,140		25,089		—		566,229
Privately issued		261,851		—		103,649		158,202
Other debt securities		11,444		—		—		11,444

		1,000,294		32,865		103,681		929,478

Other securities		356,980		—		—		356,980

Total	$	7,250,073		240,438		366,031	$	7,124,480

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued


	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
	(in thousands)
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

Gross realized gains on investment securities were $39.4 million for the quarter ended March 31, 2011. Similar gross realized gains for the quarter ended March 31, 2012 were not significant. Gross realized losses on investment securities for the quarters ended March 31, 2012 and 2011 were not significant. During the three-month period ended March 31, 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 $484 million, which resulted in a gain of $39 million (pre-tax). The Company recognized $11 million and $16 million of pre-tax other-than-temporary impairment losses during the quarters ended March 31, 2012 and 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 for delinquency rates, loss severities, and other estimates of future collateral performance.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

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 ended March 31, 2012 and March 31, 2011:


	Three months ended March 31
	2012			2011
	(in thousands)
Beginning balance	$	285,399			327,912
Additions for credit losses not previously recognized		11,486			16,041
Reductions for increases in cash flows		—			(139	)
Reductions for realized losses		(29,412	)		(21,095	)


Ending balance	$	267,473			322,719

At March 31, 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	$	35,769		35,852
Due after one year through five years		41,748		43,230
Due after five years through ten years		7,927		8,610
Due after ten years		254,366		230,597

		339,810		318,289
Mortgage-backed securities available for sale		5,434,950		5,397,085

	$	5,774,760		5,715,374


Debt securities held to maturity:
Due in one year or less	$	27,704		27,882
Due after one year through five years		30,801		32,541
Due after five years through ten years		125,439		131,161
Due after ten years		13,359		13,463

		197,303		205,047
Mortgage-backed securities held to maturity		802,991		724,431

	$	1,000,294		929,478

- 12 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

A summary of investment securities that as of March 31, 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
	Fair value		Unrealized losses			Fair value		Unrealized losses
	(in thousands)
March 31, 2012
Investment securities available for sale:
Obligations of states and political subdivisions	$	863		(5	)		1,026		(16	)
Mortgage-backed securities:
Government issued or guaranteed		21,424		(157	)		6,098		(84	)
Privately issued residential		289,068		(10,826	)		744,430		(201,877	)
Privately issued commercial		—		—			13,435		(1,758	)
Collateralized debt obligations		—		—			5,597		(1,431	)
Other debt securities		73,498		(6,406	)		73,019		(34,727	)
Equity securities		5,225		(5,063	)		—		—

		390,078		(22,457	)		843,605		(239,893	)


Investment securities held to maturity:
Obligations of states and political subdivisions		4,850		(16	)		482		(16	)
Privately issued mortgage-backed securities		—		—			157,077		(103,649	)

		4,850		(16	)		157,559		(103,665	)

Total	$	394,928		(22,473	)		1,001,164		(343,558	)


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	)

- 13 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

The Company owned 313 individual investment securities with aggregate gross unrealized losses of $366 million at March 31, 2012. Approximately $318 million of the unrealized losses pertain to privately issued mortgage-backed securities with a cost basis of $1.5 billion. The Company also had $43 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 $195 million. Based on a review of each of the remaining securities in the investment securities portfolio at March 31, 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 March 31, 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 March 31, 2012, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $357 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:


	March 31, 2012		December 31, 2011
	(in thousands)

Outstanding principal balance	$	8,850,525		9,203,366
Carrying amount:
Commercial, financial, leasing, etc.		1,259,609		1,331,198
Commercial real estate		3,701,591		3,879,518
Residential real estate		875,088		915,371
Consumer		1,919,740		2,033,700

	$	7,756,028		8,159,787

Purchased impaired loans totaled $605 million at March 31, 2012 and $653 million at December 31, 2011, representing less than 1% of the Company’s assets as of each date. Interest income on acquired loans that were recorded at fair value at the acquisition date was $81 million and $41 million for the three months ended March 31, 2012 and 2011, respectively. At December 31, 2010 and March 31, 2011, the accretable yield on acquired loans was $457 million and $416 million, respectively. A summary of changes in the accretable yield for acquired loans for the three months ended March 31, 2012 follows:


	2012
	Purchased impaired			Other acquired			Total
	(in thousands)

Balance at beginning of period	$	30,805			807,960			838,765
Interest income		(7,664	)		(73,723	)		(81,387	)
Reclassifications from (to) nonaccretable balance, net		(576	)		1,000			424
Other (a)		—			12,229			12,229

Balance at end of period	$	22,565			747,466			770,031

(a)

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

- 14 -

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 March 31, 2012 and December 31, 2011 were as follows:


	Current		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)
March 31, 2012
Commercial, financial, leasing, etc.	$	15,676,591		76,842		1,506		10,982		18,114		154,637		15,938,672
Real estate:
Commercial		20,386,440		139,148		14,436		62,745		185,736		173,443		20,961,948
Residential builder and developer		844,400		41,976		292		17,274		274,814		267,065		1,445,821
Other commercial construction		1,837,187		54,663		2,453		12,096		70,438		101,949		2,078,786
Residential		7,463,049		218,639		249,292		37,609		51,038		175,117		8,194,744
Residential Alt-A		374,450		25,475		—		—		—		101,925		501,850
Consumer:
Home equity lines and loans		6,440,601		45,068		—		14,986		4,344		47,608		6,552,607
Automobile		2,571,414		35,372		—		303		—		23,011		2,630,100
Other		2,543,948		38,235		5,102		9,168		295		20,474		2,617,222

Total	$	58,138,080		675,418		273,081		165,163		604,779		1,065,229		60,921,750


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 recorded at fair value.

- 15 -

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 March 31, 2012 and 2011 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate						Consumer			Unallocated		Total
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)

2012
Beginning balance	$	234,022			367,637			91,915			143,121			71,595		908,290
Provision for credit losses		10,121			(2,260	)		16,230			23,538			1,371		49,000
Net charge-offs
Charge-offs		(8,037	)		(10,540	)		(12,718	)		(28,981	)		—		(60,276	)
Recoveries		3,167			1,717			1,874			5,234			—		11,992

Net charge-offs		(4,870	)		(8,823	)		(10,844	)		(23,747	)		—		(48,284	)

Ending balance	$	239,273			356,554			97,301			142,912			72,966		909,006


2011
Beginning balance	$	212,579			400,562			86,351			133,067			70,382		902,941
Provision for credit losses		14,942			14,775			15,841			27,764			1,678		75,000
Net charge-offs
Charge-offs		(14,027	)		(24,579	)		(16,167	)		(28,321	)		—		(83,094	)
Recoveries		2,165			349			1,501			4,841			—		8,856

Net charge-offs		(11,862	)		(24,230	)		(14,666	)		(23,480	)		—		(74,238	)

Ending balance	$	215,659			391,107			87,526			137,351			72,060		903,703

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

- 16 -

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 an extensive 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 aggregate 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.

- 17 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The following tables provide information with respect to impaired loans and leases as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and March 31, 2011.


	March 31, 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.	$	124,792		150,354		47,303		118,538		145,510		48,674
Real estate:
Commercial		113,600		143,180		19,854		102,886		128,456		17,651
Residential builder and developer		190,289		319,845		44,597		159,293		280,869		52,562
Other commercial construction		17,252		21,467		2,924		20,234		24,639		3,836
Residential		107,537		126,082		4,389		101,882		119,498		4,420
Residential Alt-A		140,126		152,157		23,000		150,396		162,978		25,000
Consumer:
Home equity lines and loans		10,790		12,047		2,709		9,385		10,670		2,306
Automobile		52,363		52,363		10,983		53,710		53,710		11,468
Other		9,155		9,155		2,375		8,401		8,401		2,084

		765,904		986,650		158,134		724,725		934,731		168,001

With no related allowance recorded:
Commercial, financial, leasing, etc.		37,892		45,608		—		53,104		60,778		—
Real estate:
Commercial		65,961		83,706		—		71,636		91,118		—
Residential builder and developer		85,389		100,099		—		133,156		177,277		—
Other commercial construction		85,258		89,439		—		86,652		89,862		—
Residential		18,840		25,511		—		19,686		25,625		—
Residential Alt-A		37,310		65,861		—		34,356		60,942		—

		330,650		410,224		—		398,590		505,602		—

Total:
Commercial, financial, leasing, etc.		162,684		195,962		47,303		171,642		206,288		48,674
Real estate:
Commercial		179,561		226,886		19,854		174,522		219,574		17,651
Residential builder and developer		275,678		419,944		44,597		292,449		458,146		52,562
Other commercial construction		102,510		110,906		2,924		106,886		114,501		3,836
Residential		126,377		151,593		4,389		121,568		145,123		4,420
Residential Alt-A		177,436		218,018		23,000		184,752		223,920		25,000
Consumer:
Home equity lines and loans		10,790		12,047		2,709		9,385		10,670		2,306
Automobile		52,363		52,363		10,983		53,710		53,710		11,468
Other		9,155		9,155		2,375		8,401		8,401		2,084

Total	$	1,096,554		1,396,874		158,134		1,123,315		1,440,333		168,001

- 18 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Three months ended March 31, 2012						Three months ended March 31, 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.	$	167,724		409		409		170,337		993		988
Real estate:
Commercial		178,315		318		318		189,779		382		339
Residential builder and developer		282,495		341		179		326,815		525		128
Other commercial construction		104,105		170		170		111,232		510		321
Residential		126,376		1,342		878		83,527		997		575
Residential Alt-A		181,018		1,843		546		205,632		1,995		551
Consumer:
Home equity lines and loans		9,998		166		42		12,076		160		25
Automobile		53,289		898		178		58,863		984		296
Other		8,302		93		39		3,031		57		6

Total	$	1,111,622		5,580		2,759		1,161,292		6,603		3,229

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. In general, acquired loans that were recorded at estimated fair value on the acquisition date are assigned a “pass” loan grade because their net financial statement value is based on the present value of expected cash flows. 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 March 31, 2012 and December 31, 2011.

- 19 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


			Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
March 31, 2012
Pass	$	14,981,173		19,901,115		1,051,018		1,728,343
Criticized accrual		802,862		887,390		127,738		248,494
Criticized nonaccrual		154,637		173,443		267,065		101,949

Total	$	15,938,672		20,961,948		1,445,821		2,078,786


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 by loan type after considering such factors as payment performance and 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.

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.

- 20 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

At March 31, 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, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential		Consumer		Total
					(in thousands)
March 31, 2012
Individually evaluated for impairment	$	47,127		66,344		27,389		16,067	$	156,927
Collectively evaluated for impairment		191,970		288,770		68,261		126,348		675,349
Purchased impaired		176		1,440		1,651		497		3,764

Allocated	$	239,273		356,554		97,301		142,912		836,040

Unallocated										72,966


Total									$	909,006


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

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of March 31, 2012 and December 31, 2011 was as follows:


	Commercial, Financial, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
March 31, 2012
Individually evaluated for impairment	$	162,494		547,011		303,813		72,308	$	1,085,626
Collectively evaluated for impairment		15,758,064		23,408,556		8,341,743		11,722,982		59,231,345
Purchased impaired		18,114		530,988		51,038		4,639		604,779


Total	$	15,938,672		24,486,555		8,696,594		11,799,929	$	60,921,750


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

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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.

The table below summarizes the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended March 31, 2012:


	Number		Recorded investment				Financial effects of modification
	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
	(dollars in thousands)

Commercial, financial, leasing, etc.
Principal deferral		9	$	2,812	$	2,954	$	142		$	—
Other		1		972		1,098		126			—
Combination of concession types		1		45		44		(1	)		(33	)
Real estate:
Commercial
Principal deferral		2		2,425		2,405		(20	)		—
Residential builder and developer
Principal deferral		5		6,822		6,034		(788	)		—
Combination of concession types		2		2,350		2,726		376			—
Residential
Principal deferral		15		1,505		1,588		83			—
Combination of concession types		18		2,936		3,007		71			(200	)
Residential Alt-A
Principal deferral		3		397		407		10			—
Combination of concession types		8		1,360		1,394		34			(5	)
Consumer:
Home equity lines and loans
Principal deferral		1		117		117		—			—
Interest rate reduction		1		144		144		—			(6	)
Combination of concession types		2		235		235		—			(24	)
Automobile
Principal deferral		153		1,885		1,885		—			—
Interest rate reduction		4		57		57		—			(4	)
Other		10		19		19		—			—
Combination of concession types		112		1,609		1,609		—			(172	)
Other
Principal deferral		52		647		647		—			—
Interest rate reduction		3		23		23		—			(3	)
Other		9		49		49		—			—
Combination of concession types		34		219		219		—			(36	)

Total		445	$	26,628	$	26,661	$	33		$	(483	)

(a)

Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.

(b)

Represents the present value of interest rate concessions discounted at the effective rate of the original loan.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The table below summarizes the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended March 31, 2011:


	Number		Recorded investment				Financial effects of modification
	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		13	$	1,349	$	1,334	$	(15	)	$	—
Real estate:
Commercial
Principal deferral		9		6,625		6,597		(28	)		—
Residential builder and developer
Principal deferral		1		3,424		3,424		—			—
Other		4		116,002		108,394		(7,608	)		—
Combination of concession types		1		798		790		(8	)		—
Other commercial construction
Principal deferral		1		2,275		2,269		(6	)		—
Residential
Principal deferral		3		124		138		14			—
Interest rate reduction		8		1,059		1,079		20			(50	)
Combination of concession types		30		7,907		7,999		92			(757	)
Residential Alt-A
Combination of concession types		9		1,602		1,638		36			(210	)
Consumer:
Home equity lines and loans
Combination of concession types		2		70		71		1			(36	)
Automobile
Principal deferral		204		3,493		3,493		—			—
Interest rate reduction		4		44		44		—			(3	)
Other		26		107		107		—			—
Combination of concession types		122		2,861		2,861		—			(436	)
Other											—
Principal deferral		10		74		74		—			—
Other		1		11		11		—			—
Combination of concession types		37		126		126		—			(20	)

Total		485	$	147,951	$	140,449	$	(7,502	)	$	(1,512	)

(a)

Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.

(b)

Represents the present value of interest rate concessions discounted at the effective rate of the original loan.

Troubled debt restructurings are considered to be impaired loans and for purposes of establishing the allowance for credit losses 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. Impairment of troubled debt restructurings that have subsequently defaulted may also be measured based on the loan’s observable market price or the fair value of collateral if the loan is collateral-dependent. Loans that were modified as troubled debt restructurings during the twelve months ended March 31, 2012 and 2011 and for which there was a subsequent payment default during the three-month periods ended March 31, 2012 and 2011, respectively, were not material.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.	Borrowings

M&T had $1.2 billion of fixed and floating rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) outstanding at March 31, 2012 that are held by various trusts and 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. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that was signed into law on July 21, 2010 provides 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 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

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.	Borrowings, continued

(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 acquisition accounting adjustments to reflect estimated fair value at the acquisition dates of the Common Securities of various trusts, the Junior Subordinated Debentures associated with Capital Securities had financial statement carrying values of $1.2 billion at each of March 31, 2012 and December 31, 2011.

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:


	Shares issued and outstanding		Carrying value March 31, 2012		Carrying value December 31, 2011
			(dollars in thousands)
Series A (a)(b)
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share		230,000	$	224,919	$	224,277

Series C (a)(c)
Fixed Rate Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share		151,500		141,570		140,308

Series D (d)
Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D, $10,000 liquidation preference per share		50,000		500,000		500,000

(a)

Shares were issued as part of the Troubled Asset Relief Program – Capital Purchase Program of the U.S. Department of Treasury (“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)

On May 18, 2011, M&T redeemed and retired 370,000 shares of Series A Preferred Stock. Accelerated amortization of preferred stock discount associated with the redemption was $11.2 million.

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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)

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.

In addition to the Series A and Series C warrants mentioned in (a) above, a ten-year warrant to purchase 95,383 shares of M&T common stock at $518.96 per share was outstanding at March 31, 2012 and December 31, 2011. This warrant was issued by Wilmington Trust in December 2008 as part of the Troubled Asset Relief Program – Capital Purchase Program of the U.S. Treasury along with $330 million of fixed rate cumulative perpetual preferred stock, which was redeemed by M&T immediately prior to the May 16, 2011 acquisition of Wilmington Trust.

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 benefit cost for defined benefit plans consisted of the following:


	Pension benefits						Other postretirement benefits
	Three months ended March 31
	2012			2011			2012		2011
	(in thousands)

Service cost	$	7,900			5,300			175		125
Interest cost on projected benefit obligation		15,600			12,150			950		775
Expected return on plan assets		(17,675	)		(12,700	)		—		—
Amortization of prior service cost		(1,650	)		(1,650	)		—		25
Amortization of net actuarial loss		9,400			5,100			100		—


Net periodic benefit cost	$	13,575			8,200			1,225		925

Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $14,625,000 and $10,176,000 for the three months ended March 31, 2012 and 2011, 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 March 31
	2012			2011
	(in thousands, except per share)
Income available to common shareholders:

Net income	$	206,463			206,273
Less: Preferred stock dividends (a)		(13,363	)		(10,498	)
Amortization of preferred stock discount (a)		(1,924	)		(2,753	)


Net income available to common equity		191,176			193,022

Less: Income attributable to unvested stock-based compensation awards		(2,940	)		(2,909	)


Net income available to common shareholders	$	188,236			190,113

Weighted-average shares outstanding:

Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards		127,157			120,992
Less: Unvested stock-based compensation awards		(1,937	)		(1,791	)


Weighted-average shares outstanding		125,220			119,201

Basic earnings per common share	$	1.50			1.59

(a)

Including impact of not as yet declared cumulative dividends.

- 27 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8.	Earnings per common share, continued

The computations of diluted earnings per common share follow:


	Three months ended March 31
	2012			2011
	(in thousands, except per share)
Net income available to common equity	$	191,176			193,022
Less: Income attributable to unvested stock-based compensation awards		(2,935	)		(2,901	)


Net income available to common shareholders	$	188,241			190,121

Adjusted weighted-average shares outstanding:

Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards		127,157			120,992
Less: Unvested stock-based compensation awards		(1,937	)		(1,791	)
Plus: Incremental shares from assumed conversion of stock-based compensation awards and convertible preferred stock		396			651


Adjusted weighted-average shares outstanding		125,616			119,852

Diluted earnings per common share	$	1.50			1.59

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. The Company has issued stock-based compensation awards in the form of restricted stock and restricted stock units, which, in accordance with GAAP, are considered participating securities.

Stock-based compensation awards, warrants to purchase common stock of M&T and preferred stock convertible into shares of M&T common stock representing approximately 10.0 million and 10.5 million common shares during the three-month periods ended March 31, 2012 and 2011, 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):


	Before-tax amount			Income taxes			Net
	(in thousands)
For the three months ended March 31, 2012
Unrealized gains (losses) on investment securities:

Available-for-sale (“AFS”) investment securities with other-than-temporary impairment (“OTTI”):

Unrealized holding losses, net	$	(8,242	)	$	3,235		$	(5,007	)
Less: OTTI charges recognized in net income		(7,676	)		3,013			(4,663	)

Net change for AFS investment securities with OTTI		(566	)		222			(344	)

AFS investment securities – all other:

Unrealized holding gains, net		29,695			(11,614	)		18,081
Less: reclassification adjustment for gains realized in net income		45			(15	)		30

Net change for AFS investment securities – all other		29,650			(11,599	)		18,051

Held-to-maturity (“HTM”) investment securities with OTTI:

Unrealized holding losses, net		(1,843	)		723			(1,120	)
Less: reclassification to income of unrealized holding losses		(819	)		321			(498	)
Less: OTTI charges recognized in net income		(3,810	)		1,495			(2,315	)

Net change for HTM investment securities with OTTI		2,786			(1,093	)		1,693


Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM		1,123			(441	)		682


Net unrealized gains on investment securities		32,993			(12,911	)		20,082

Reclassification to income for amortization of gains on terminated cash flow hedges		(112	)		42			(70	)

Foreign currency translation adjustment		622			(220	)		402

Defined benefit plans liability adjustment		7,850			(3,081	)		4,769

	$	41,353		$	(16,170	)	$	25,183

For the three months ended March 31, 2011
Unrealized gains (losses) on investment securities:

AFS investment securities with OTTI:

Unrealized holding gains, net	$	7,930		$	(3,108	)	$	4,822
Less: OTTI charges recognized in net income		(7,541	)		2,949			(4,592	)

Net change for AFS investment securities with OTTI		15,471			(6,057	)		9,414

AFS investment securities – all other:

Unrealized holding gains, net		31,577			(12,372	)		19,205
Less: reclassification adjustment for gains realized in net income		39,353			(15,413	)		23,940

Net change for AFS investment securities – all other		(7,776	)		3,041			(4,735	)

HTM investment securities with OTTI:

Unrealized holding losses, net		(8,355	)		3,279			(5,076	)
Less: reclassification to income of unrealized holding losses		230			(90	)		140
Less: OTTI charges recognized in net income		(8,500	)		3,336			(5,164	)

Net change for HTM investment securities with OTTI		(85	)		33