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

Form 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, 2013

¨	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, 2013: 129,008,896 shares.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2013


Table of Contents of Information Required in Report		Page

Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements.

	CONSOLIDATED BALANCE SHEET—March 31, 2013 and December 31, 2012		3

	CONSOLIDATED STATEMENT OF INCOME—Three months ended March 31, 2013 and 2012		4

	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME—Three months ended March 31, 2013 and 2012		5

	CONSOLIDATED STATEMENT OF CASH FLOWS—Three months ended March 31, 2013 and 2012		6

	CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY—Three months ended March 31, 2013 and 2012		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.		92

Item 4.	Controls and Procedures.		92

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings.		92

Item 1A.	Risk Factors.		92

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		93

Item 3.	Defaults Upon Senior Securities.		93

Item 4.	Mine Safety Disclosures.		93

Item 5.	Other Information.		93

Item 6.	Exhibits.		94

SIGNATURES			95

EXHIBIT INDEX			95

- 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, 2013			December 31, 2012
Assets	Cash and due from banks	$	1,231,091			1,983,615
	Interest-bearing deposits at banks		1,304,770			129,945
	Federal funds sold		594,976			3,000
	Trading account		420,144			488,966
	Investment securities (includes pledged securities that can be sold or repledged of $1,761,978 at March 31, 2013; $1,801,842 at December 31, 2012)
	Available for sale (cost: $4,288,994 at March 31, 2013; $4,643,070 at December 31, 2012)		4,400,742			4,739,437
	Held to maturity (fair value: $910,783 at March 31, 2013; $976,883 at December 31, 2012)		959,199			1,032,276
	Other (fair value: $300,890 at March 31, 2013; $302,648 at December 31, 2012)		300,890			302,648

	Total investment securities		5,660,831			6,074,361

	Loans and leases		66,139,206			66,790,186
	Unearned discount		(214,939	)		(219,229	)

	Loans and leases, net of unearned discount		65,924,267			66,570,957
	Allowance for credit losses		(927,117	)		(925,860	)

	Loans and leases, net		64,997,150			65,645,097

	Premises and equipment		589,570			594,652
	Goodwill		3,524,625			3,524,625
	Core deposit and other intangible assets		102,420			115,763
	Accrued interest and other assets		4,386,380			4,448,779

	Total assets	$	82,811,957			83,008,803

Liabilities	Noninterest-bearing deposits	$	23,603,971			24,240,802
	NOW accounts		1,891,621			1,979,619
	Savings deposits		35,024,025			33,783,947
	Time deposits		4,304,033			4,562,366
	Deposits at Cayman Islands office		266,076			1,044,519

	Total deposits		65,089,726			65,611,253

	Federal funds purchased and agreements to repurchase securities		374,593			1,074,482
	Accrued interest and other liabilities		1,530,118			1,512,717
	Long-term borrowings		5,394,563			4,607,758

	Total liabilities		72,389,000			72,806,210

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, 2013 and December 31, 2012; Liquidation preference of $10,000 per share: 50,000 shares at March 31, 2013 and December 31, 2012		874,627			872,500
	Common stock, $.50 par, 250,000,000 shares authorized, 128,952,578 shares issued at March 31, 2013; 128,176,912 shares issued at December 31, 2012		64,476			64,088
	Common stock issuable, 46,552 shares at March 31, 2013; 57,409 shares at December 31, 2012		2,829			3,473
	Additional paid-in capital		3,061,783			3,025,520
	Retained earnings		6,645,195			6,477,276
	Accumulated other comprehensive income (loss), net		(225,953	)		(240,264	)

	Total shareholders’ equity		10,422,957			10,202,593

	Total liabilities and shareholders’ equity	$	82,811,957			83,008,803

- 3 -

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


		Three months ended March 31
In thousands, except per share		2013			2012
Interest income	Loans and leases, including fees	$	682,455			648,514
	Deposits at banks		267			213
	Federal funds sold		17			3
	Agreements to resell securities		9			—
	Trading account		638			317
	Investment securities
	Fully taxable		44,760			62,964
	Exempt from federal taxes		1,829			2,084

	Total interest income		729,975			714,095

Interest expense	NOW accounts		322			283
	Savings deposits		14,037			18,183
	Time deposits		8,196			13,509
	Deposits at Cayman Islands office		388			213
	Short-term borrowings		231			303
	Long-term borrowings		50,751			61,215

	Total interest expense		73,925			93,706

	Net interest income		656,050			620,389
	Provision for credit losses		38,000			49,000

	Net interest income after provision for credit losses		618,050			571,389

Other income	Mortgage banking revenues		93,103			56,192
	Service charges on deposit accounts		110,949			108,889
	Trust income		121,603			116,953
	Brokerage services income		15,711			13,901
	Trading account and foreign exchange gains		8,927			10,571
	Gain on bank investment securities		—			45
	Total other-than-temporary impairment (“OTTI”) losses		(1,884	)		(20,040	)
	Portion of OTTI losses recognized in other comprehensive income (before taxes)		(7,916	)		8,554

	Net OTTI losses recognized in earnings		(9,800	)		(11,486	)

	Equity in earnings of Bayview Lending Group LLC		(3,656	)		(4,752	)
	Other revenues from operations		96,045			86,410

	Total other income		432,882			376,723

Other expense	Salaries and employee benefits		356,551			346,098
	Equipment and net occupancy		65,159			65,043
	Printing, postage and supplies		10,699			11,872
	Amortization of core deposit and other intangible assets		13,343			16,774
	FDIC assessments		19,438			28,949
	Other costs of operations		170,406			170,959

	Total other expense		635,596			639,695

	Income before taxes		415,336			308,417
	Income taxes		141,223			101,954

	Net income	$	274,113			206,463


	Net income available to common shareholders
	Basic	$	255,079			188,236
	Diluted		255,096			188,241

	Net income per common share
	Basic	$	2.00			1.50
	Diluted		1.98			1.50
	Cash dividends per common share	$	.70			.70

	Average common shares outstanding
	Basic		127,669			125,220
	Diluted		128,636			125,616

- 4 -

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)


	Three months ended March 31
In thousands	2013			2012
Net income	$	274,113			206,463
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized gains on investment securities		10,079			20,082
Reclassification to income for amortization of gains on terminated cash flow hedges		—			(70	)
Foreign currency translation adjustment		(932	)		402
Defined benefit plans liability adjustment		5,164			4,769

Total other comprehensive income		14,311			25,183

Total comprehensive income	$	288,424			231,646

- 5 -

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Three months ended March 31
In thousands		2013			2012
Cash flows from operating activities	Net income	$	274,113			206,463
	Adjustments to reconcile net income to net cash provided by operating activities
	Provision for credit losses		38,000			49,000
	Depreciation and amortization of premises and equipment		22,027			21,022
	Amortization of capitalized servicing rights		15,208			14,476
	Amortization of core deposit and other intangible assets		13,343			16,774
	Provision for deferred income taxes		19,253			15,225
	Asset write-downs		13,558			16,388
	Net gain on sales of assets		(2,676	)		(2,471	)
	Net change in accrued interest receivable, payable		(2,872	)		7,725
	Net change in other accrued income and expense		80,645			32,134
	Net change in loans originated for sale		205,643			154,436
	Net change in trading account assets and liabilities		22,156			7,840

	Net cash provided by operating activities		698,398			539,012

Cash flows from investing activities	Proceeds from sales of investment securities
	Available for sale		—			1,045
	Other		2,032			10,224
	Proceeds from maturities of investment securities
	Available for sale		353,305			417,348
	Held to maturity		79,164			82,670
	Purchases of investment securities
	Available for sale		(14,597	)		(10,286	)
	Held to maturity		(6,010	)		(6,287	)
	Other		(274	)		(318	)
	Net (increase) decrease in loans and leases		404,142			(1,042,144	)
	Net increase in interest-bearing deposits at banks		(1,174,825	)		(1,127,080	)
	Other investments, net		698			2,416
	Capital expenditures, net		(16,671	)		(19,377	)
	Proceeds from sales of real estate acquired in settlement of loans		15,500			33,775
	Other, net		(14,237	)		(25,840	)

	Net cash used by investing activities		(371,773	)		(1,683,854	)

Cash flows from financing activities	Net increase (decrease) in deposits		(519,555	)		1,522,583
	Net decrease in short-term borrowings		(699,889	)		(270,081	)
	Proceeds from long-term borrowings		799,760			—
	Payments on long-term borrowings		(3,460	)		(202,352	)
	Dividends paid—common		(90,788	)		(89,041	)
	Dividends paid—preferred		(4,769	)		(4,769	)
	Other, net		31,528			80,197

	Net cash provided (used) by financing activities		(487,173	)		1,036,537

	Net decrease in cash and cash equivalents		(160,548	)		(108,305	)
	Cash and cash equivalents at beginning of period		1,986,615			1,452,397

	Cash and cash equivalents at end of period	$	1,826,067			1,344,092

Supplemental disclosure of cash flow information	Interest received during the period	$	718,296			721,159
	Interest paid during the period		72,106			89,241
	Income taxes paid during the period		9,545			8,416

Supplemental schedule of noncash investing and financing activities	Real estate acquired in settlement of loans	$	8,244			17,123

- 6 -

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			Total
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

2013
Balance—January 1, 2013	$	872,500		64,088		3,473			3,025,520			6,477,276			(240,264	)		10,202,593
Total comprehensive income		—		—		—			—			274,113			14,311			288,424
Preferred stock cash dividends		—		—		—			—			(13,363	)		—			(13,363	)
Amortization of preferred stock discount		2,127		—		—			—			(2,127	)		—			—
Exercise of 407,542 Series C stock warrants into 186,589 shares of common stock		—		93		—			(93	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—		160		—			12,911			—			—			13,071
Exercises of stock options, net		—		126		—			21,444			—			—			21,570
Directors’ stock plan		—		4		—			772			—			—			776
Deferred compensation plans, net, including dividend equivalents		—		5		(644	)		563			(32	)		—			(108	)
Other		—		—		—			666			—			—			666
Common stock cash dividends—$.70 per share		—		—		—			—			(90,672	)		—			(90,672	)

Balance—March 31, 2013	$	874,627		64,476		2,829			3,061,783			6,645,195			(225,953	)		10,422,957

- 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 2012 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 would be acquired by M&T. Pursuant to the terms of the agreement, Hudson City shareholders will receive consideration for each common share of Hudson City in an amount 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). As of March 31, 2013 total consideration to be paid was valued at approximately $4.4 billion.

At March 31, 2013, Hudson City had $40.3 billion of assets, including $26.2 billion of loans and $10.6 billion of investment securities, and $35.6 billion of liabilities, including $23.2 billion of deposits. After the merger is completed, M&T forecasts that it will likely repay approximately $12 billion of Hudson City’s long-term borrowings and sell investment securities. The merger has received the approval of the common shareholders of M&T and Hudson City. However, the merger is subject to a number of other conditions, including regulatory approvals. On April 12, 2013, M&T announced that additional time would be required to obtain a regulatory determination on the applications for the proposed merger with Hudson City. M&T has learned that the Federal Reserve has identified certain regulatory concerns with the Company’s procedures, systems and processes related to the Company’s Bank Secrecy Act and anti-money-laundering compliance program. M&T has commenced a major initiative, including the hiring of an outside consulting firm, intended to fully address the Federal Reserve’s concerns. In view of the potential timeframe required to implement this initiative, demonstrate its efficacy to the satisfaction of the Federal Reserve and otherwise meet any other regulatory requirements that may be imposed in connection with these matters, M&T and Hudson City extended the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed from August 27, 2013 to January 31, 2014. There can be no assurances that the merger will be completed by that date. M&T and Hudson City intend to close the merger as soon as possible following the receipt of all necessary regulatory approvals and satisfaction of all other conditions to closing.

In connection with the pending 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 planning for the conversion of systems and/or integration of operations; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; travel costs; and printing, postage, supplies and other costs of planning for the transaction and commencing operations in new markets and offices. The Company expects to incur additional merger-related expenses during the remainder of 2013.

- 8 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

A summary of merger-related expenses in the first quarter of 2013 associated with the pending Hudson City acquisition and in the first quarter of 2012 associated with the May 16, 2011 acquisition of Wilmington Trust Corporation (“Wilmington Trust”) included in the consolidated statement of income follows:


	Three months ended
	March 31, 2013		March 31, 2012
	(in thousands)
Salaries and employee benefits	$	536	$	1,973
Equipment and net occupancy		201		15
Printing, postage and supplies		827		—
Other cost of operations		3,168		740

	$	4,732	$	2,728

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, 2013
Investment securities available for sale:
U.S. Treasury and federal agencies	$	38,907		793		—	$	39,700
Obligations of states and political subdivisions		19,545		503		7		20,041
Mortgage-backed securities:
Government issued or guaranteed		2,855,716		174,372		178		3,029,910
Privately issued residential		1,077,879		5,799		97,989		985,689
Privately issued commercial		6,414		1,144		—		7,558
Collateralized debt obligations		42,957		19,799		1,038		61,718
Other debt securities		136,645		2,371		21,505		117,511
Equity securities		110,931		27,691		7		138,615

		4,288,994		232,472		120,724		4,400,742

Investment securities held to maturity:
Obligations of states and political subdivisions		180,458		7,003		31		187,430
Mortgage-backed securities:
Government issued or guaranteed		532,074		26,003		—		558,077
Privately issued		236,632		47		81,438		155,241
Other debt securities		10,035		—		—		10,035

		959,199		33,053		81,469		910,783

Other securities		300,890		—		—		300,890

Total	$	5,549,083		265,525		202,193	$	5,612,415

- 9 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued


	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
	(in thousands)
December 31, 2012
Investment securities available for sale:
U.S. Treasury and federal agencies	$	38,422		922		—	$	39,344
Obligations of states and political subdivisions		20,375		534		8		20,901
Mortgage-backed securities:
Government issued or guaranteed		3,163,210		208,060		229		3,371,041
Privately issued residential		1,133,639		4,894		125,647		1,012,886
Privately issued commercial		8,648		2,378		26		11,000
Collateralized debt obligations		43,228		19,663		1,022		61,869
Other debt securities		136,603		2,247		26,900		111,950
Equity securities		98,945		14,921		3,420		110,446

		4,643,070		253,619		157,252		4,739,437

Investment securities held to maturity:
Obligations of states and political subdivisions		182,103		7,647		27		189,723
Mortgage-backed securities:
Government issued or guaranteed		597,340		31,727		—		629,067
Privately issued		242,378		160		94,900		147,638
Other debt securities		10,455		—		—		10,455

		1,032,276		39,534		94,927		976,883

Other securities		302,648		—		—		302,648

Total	$	5,977,994		293,153		252,179	$	6,018,968

Gross realized gains and losses from sales of investment securities were not significant for the quarters ended March 31, 2013 and 2012. The Company recognized $10 million and $11 million of pre-tax other-than-temporary impairment (“OTTI”) losses during the quarters ended March 31, 2013 and 2012, 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 OTTI 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.

Changes in credit losses associated with debt securities for which OTTI losses have been recognized in earnings for the three months ended March 31, 2013 and 2012 follows:


	Three months ended March 31
	2013			2012
	(in thousands)
Beginning balance	$	197,809			285,399
Additions for credit losses not previously recognized		9,800			11,486
Reductions for realized losses		(20,495	)		(29,412	)

Ending balance	$	187,114			267,473

- 10 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

At March 31, 2013, 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	$	24,442		24,602
Due after one year through five years		22,459		23,522
Due after five years through ten years		9,221		9,843
Due after ten years		181,932		181,003

		238,054		238,970
Mortgage-backed securities available for sale		3,940,009		4,023,157

	$	4,178,063		4,262,127

Debt securities held to maturity:
Due in one year or less	$	25,558		25,691
Due after one year through five years		55,547		57,974
Due after five years through ten years		99,177		103,589
Due after ten years		10,211		10,211

		190,493		197,465
Mortgage-backed securities held to maturity		768,706		713,318

	$	959,199		910,783

- 11 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

A summary of investment securities that as of March 31, 2013 and December 31, 2012 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, 2013
Investment securities available for sale:
Obligations of states and political subdivisions	$	572		(3	)		680		(4	)
Mortgage-backed securities:
Government issued or guaranteed		7,966		(41	)		7,450		(137	)
Privately issued		89,046		(401	)		695,871		(97,588	)
Collateralized debt obligations		—		—			6,039		(1,038	)
Other debt securities		—		—			101,198		(21,505	)
Equity securities		7		(7	)		—		—

		97,591		(452	)		811,238		(120,272	)

Investment securities held to maturity:
Obligations of states and political subdivisions		1,065		(7	)		1,794		(24	)
Privately issued mortgage-backed securities		—		—			155,050		(81,438	)

		1,065		(7	)		156,844		(81,462	)

Total	$	98,656		(459	)		968,082		(201,734	)

December 31, 2012
Investment securities available for sale:
Obligations of states and political subdivisions	$	166		(1	)		683		(7	)
Mortgage-backed securities:
Government issued or guaranteed		12,107		(65	)		8,804		(164	)
Privately issued residential		121,487		(692	)		773,409		(124,955	)
Privately issued commercial		—		—			919		(26	)
Collateralized debt obligations		—		—			6,043		(1,022	)
Other debt securities		—		—			95,685		(26,900	)
Equity securities		5,535		(1,295	)		2,956		(2,125	)

		139,295		(2,053	)		888,499		(155,199	)

Investment securities held to maturity:
Obligations of states and political subdivisions		1,026		(5	)		3,558		(22	)
Privately issued mortgage-backed securities		—		—			147,273		(94,900	)

		1,026		(5	)		150,831		(94,922	)

Total	$	140,321		(2,058	)		1,039,330		(250,121	)

- 12 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

The Company owned 241 individual investment securities with aggregate gross unrealized losses of $202 million at March 31, 2013. Approximately $179 million of the unrealized losses pertain to privately issued mortgage-backed securities with a cost basis of $1.1 billion. The Company also had $23 million of unrealized losses on trust preferred securities issued by financial institutions and securities backed by trust preferred securities having a cost basis of $130 million. Based on a review of each of the remaining securities in the investment securities portfolio at March 31, 2013, with the exception of the aforementioned securities for which OTTI losses were recognized, the Company concluded that it expected to recover the amortized cost basis of its investment. As of March 31, 2013, 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, 2013, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $301 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 were as follows:


	March 31, 2013		December 31, 2012
	(in thousands)
Outstanding principal balance	$	6,148,875		6,705,120
Carrying amount:
Commercial, financial, leasing, etc.		754,913		928,107
Commercial real estate		2,322,317		2,567,050
Residential real estate		677,306		707,309
Consumer		1,560,598		1,637,887

	$	5,315,134		5,840,353

Purchased impaired loans included in the table above totaled $425 million at March 31, 2013 and $447 million at December 31, 2012, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for acquired loans for the three months ended March 31, 2013 and 2012 follows:


	Three months ended March 31, 2013
	Purchased impaired			Other acquired			Total
	(in thousands)
Balance at beginning of period	$	42,252			638,272			680,524
Interest income		(8,704	)		(61,747	)		(70,451	)
Reclassifications from (to) nonaccretable balance, net		180			10,817			10,997
Other (a)		—			(9,733	)		(9,733	)

Balance at end of period	$	33,728			577,609			611,337

- 13 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Three months ended March 31, 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 prepayment assumptions.

A summary of current, past due and nonaccrual loans as of March 31, 2013 and December 31, 2012 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, 2013
Commercial, financial, leasing, etc.	$	17,144,615		90,708		3,669		9,206		16,741		204,199		17,469,138
Real estate:
Commercial		21,513,598		185,101		11,444		41,268		121,090		186,239		22,058,740
Residential builder and developer		781,748		30,019		513		20,365		167,207		166,796		1,166,648
Other commercial construction		2,541,578		42,849		2,279		14,301		78,254		40,170		2,719,431
Residential		9,742,192		279,879		309,366		43,050		38,709		252,799		10,665,995
Residential Alt-A		315,500		24,779		—		—		—		88,303		428,582
Consumer:
Home equity lines and loans		6,068,137		33,433		—		27,359		3,231		72,021		6,204,181
Automobile		2,466,577		30,363		—		158		—		20,095		2,517,193
Other		2,634,775		32,039		4,012		1,361		—		22,172		2,694,359

Total	$	63,208,720		749,170		331,283		157,068		425,232		1,052,794		65,924,267

- 14 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	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)
December 31, 2012
Commercial, financial, leasing, etc.	$	17,511,052		62,479		23,490		10,587		17,437		151,908		17,776,953
Real estate:
Commercial		21,759,997		118,249		13,111		54,995		132,962		193,859		22,273,173
Residential builder and developer		757,311		35,419		3,258		23,909		187,764		181,865		1,189,526
Other commercial construction		2,379,953		35,274		509		9,572		68,971		36,812		2,531,091
Residential		9,811,956		337,969		313,184		45,124		36,769		249,314		10,794,316
Residential Alt-A		331,021		19,692		—		—		—		95,808		446,521
Consumer:
Home equity lines and loans		6,199,591		40,759		—		20,318		3,211		58,071		6,321,950
Automobile		2,442,502		40,461		—		251		—		25,107		2,508,321
Other		2,661,432		40,599		4,845		1,798		—		20,432		2,729,106

Total	$	63,854,815		730,901		358,397		166,554		447,114		1,013,176		66,570,957

(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.

Changes in the allowance for credit losses for the three months ended March 31, 2013 and 2012 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
2013
Beginning balance	$	246,759			337,101			88,807			179,418			73,775		925,860
Provision for credit losses		17,880			(312	)		5,036			14,836			560		38,000
Net charge-offs
Charge-offs		(9,544	)		(9,588	)		(8,171	)		(21,645	)		—		(48,948	)
Recoveries		2,756			815			4,450			4,184			—		12,205

Net charge-offs		(6,788	)		(8,773	)		(3,721	)		(17,461	)		—		(36,743	)

Ending balance	$	257,851			328,016			90,122			176,793			74,335		927,117

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

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.

- 15 -

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 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 any time. 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.

- 16 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The following tables provide information with respect to loans and leases that were considered impaired as of March 31, 2013 and December 31, 2012 and for the three month periods ended March 31, 2013 and 2012.


	March 31, 2013						December 31, 2012
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	165,867		186,405		45,277		127,282		149,534		33,829
Real estate:
Commercial		116,111		142,349		19,859		121,542		143,846		23,641
Residential builder and developer		106,510		202,139		19,956		115,306		216,218		25,661
Other commercial construction		73,622		77,164		6,533		73,544		76,869		6,836
Residential		104,096		123,244		5,464		103,451		121,819		3,521
Residential Alt-A		125,781		139,779		17,000		128,891		141,940		17,000
Consumer:
Home equity lines and loans		12,457		13,805		2,315		12,360		13,567		2,254
Automobile		45,876		45,876		12,916		49,210		49,210		14,273
Other		15,280		15,280		5,519		14,408		14,408		5,667

		765,600		946,041		134,839		745,994		927,411		132,682

With no related allowance recorded:
Commercial, financial, leasing, etc.		46,187		58,422		—		32,631		42,199		—
Real estate:
Commercial		76,396		98,494		—		78,380		100,337		—
Residential builder and developer		67,685		93,936		—		74,307		105,438		—
Other commercial construction		26,298		27,170		—		23,018		23,532		—
Residential		86,240		96,741		—		86,342		96,448		—
Residential Alt-A		28,083		53,057		—		31,354		58,768		—

		330,889		427,820		—		326,032		426,722		—

Total:
Commercial, financial, leasing, etc.		212,054		244,827		45,277		159,913		191,733		33,829
Real estate:
Commercial		192,507		240,843		19,859		199,922		244,183		23,641
Residential builder and developer		174,195		296,075		19,956		189,613		321,656		25,661
Other commercial construction		99,920		104,334		6,533		96,562		100,401		6,836
Residential		190,336		219,985		5,464		189,793		218,267		3,521
Residential Alt-A		153,864		192,836		17,000		160,245		200,708		17,000
Consumer:
Home equity lines and loans		12,457		13,805		2,315		12,360		13,567		2,254
Automobile		45,876		45,876		12,916		49,210		49,210		14,273
Other		15,280		15,280		5,519		14,408		14,408		5,667

Total	$	1,096,489		1,373,861		134,839		1,072,026		1,354,133		132,682

- 17 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Three months ended March 31, 2013						Three months ended March 31, 2012
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	167,793		2,434		2,434		167,724		409		409
Real estate:
Commercial		194,446		303		303		178,315		318		318
Residential builder and developer		183,853		140		65		282,495		341		179
Other commercial construction		98,318		635		635		104,105		170		170
Residential		188,075		1,470		922		126,376		1,342		878
Residential Alt-A		156,971		1,740		591		181,018		1,843		546
Consumer:
Home equity lines and loans		12,454		167		39		9,998		166		42
Automobile		47,606		776		146		53,289		898		178
Other		14,930		151		54		8,302		93		39

Total	$	1,064,446		7,816		5,189		1,111,622		5,580		2,759

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.

- 18 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Commercial, Financial, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
March 31, 2013
Pass	$	16,590,137		21,086,718		929,857		2,533,617
Criticized accrual		674,802		785,783		69,995		145,644
Criticized nonaccrual		204,199		186,239		166,796		40,170

Total	$	17,469,138		22,058,740		1,166,648		2,719,431

December 31, 2012
Pass	$	16,889,753		21,275,182		922,141		2,307,436
Criticized accrual		735,292		804,132		85,520		186,843
Criticized nonaccrual		151,908		193,859		181,865		36,812

Total	$	17,776,953		22,273,173		1,189,526		2,531,091

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 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 the Company’s Credit Department. In arriving at such forecasts, the Company 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 the original balance 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.

- 19 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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, 2013
Individually evaluated for impairment	$	45,277		45,503		22,444		20,750	$	133,974
Collectively evaluated for impairment		212,574		281,492		66,145		155,480		715,691
Purchased impaired		—		1,021		1,533		563		3,117

Allocated	$	257,851		328,016		90,122		176,793		852,782

Unallocated										74,335

Total									$	927,117

December 31, 2012
Individually evaluated for impairment	$	33,669		55,291		20,502		22,194	$	131,656
Collectively evaluated for impairment		212,930		280,789		66,684		156,661		717,064
Purchased impaired		160		1,021		1,621		563		3,365

Allocated	$	246,759		337,101		88,807		179,418		852,085

Unallocated										73,775

Total									$	925,860

The recorded investment in loans and leases 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, 2013
Individually evaluated for impairment	$	212,054		461,084		343,642		73,611	$	1,090,391
Collectively evaluated for impairment		17,240,343		25,117,184		10,712,226		11,338,891		64,408,644
Purchased impaired		16,741		366,551		38,709		3,231		425,232

Total	$	17,469,138		25,944,819		11,094,577		11,415,733	$	65,924,267

December 31, 2012
Individually evaluated for impairment	$	159,761		480,335		349,477		75,978	$	1,065,551
Collectively evaluated for impairment		17,599,755		25,123,758		10,854,591		11,480,188		65,058,292
Purchased impaired		17,437		389,697		36,769		3,211		447,114

Total	$	17,776,953		25,993,790		11,240,837		11,559,377	$	66,570,957

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

- 20 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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, 2013:


			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		24	$	2,006	$	1,982	$	(24	)	$	—
Other		1		47,200		47,200		—			—
Combination of concession types		1		342		342		—			—
Real estate:
Commercial
Principal deferral		8		18,478		18,363		(115	)		—
Combination of concession types		2		582		581		(1	)		(56	)
Residential builder and developer
Principal deferral		8		1,357		1,340		(17	)		—
Combination of concession types		1		1,701		1,691		(10	)		—
Residential
Principal deferral		7		566		607		41			—
Other		1		195		195		—			—
Combination of concession types		20		2,449		2,536		87			(371	)
Residential Alt-A
Combination of concession types		5		907		925		18			(110	)
Consumer:
Home equity lines and loans
Principal deferral		2		79		79		—			—
Combination of concession types		2		211		211		—			(33	)
Automobile
Principal deferral		121		1,586		1,586		—			—
Interest rate reduction		2		36		36		—			(5	)
Other		17		159		159		—			—
Combination of concession types		61		553		553		—			(42	)
Other
Principal deferral		6		45		45		—			—
Other		1		12		12		—			—
Combination of concession types		42		1,217		1,217		—			(267	)

Total		332	$	79,681	$	79,660	$	(21	)	$	(884	)

(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, 2012:


			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.

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. Charge-offs may also be recognized on troubled debt restructurings that have subsequently defaulted. Loans that were modified as troubled debt restructurings during the twelve months ended March 31, 2013 and 2012 and for which there was a subsequent payment default during the three-month periods ended March 31, 2013 and 2012, 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, 2013 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 began on January 1, 2013. However, specific rules related to that phase-in period have not yet been finalized.

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.

During the first quarter of 2013, M&T Bank, the principal bank subsidiary of M&T, finalized a Bank Note Program whereby M&T Bank may offer up to $5 billion of unsecured senior and subordinated notes, which will mature 270 days or more from their date of issue. During March 2013, three-year floating rate senior notes due March 2016 were issued for $300 million and five-year 1.45% fixed rate senior notes due March 2018 were issued for $500 million.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings, continued

Also included in long-term borrowings are agreements to repurchase securities of $1.4 billion at each of March 31, 2013 and December 31, 2012. The agreements are subject to master netting arrangements and are fully collateralized.

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, 2013		Carrying value December 31, 2012
			(dollars in thousands)
Series A (a)
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share		230,000	$	227,711	$	226,965

Series C (a)(b)
Fixed Rate Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share		151,500		146,916		145,535

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

(a)

Shares were originally issued as part of the Troubled Asset Relief Program – Capital Purchase Program (“TARP”) 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). The U.S. Treasury sold all of the shares of M&T preferred stock that it held in August 2012. In connection with that sale, the terms of the preferred stock were modified such that dividends, if declared, will accrue and be paid quarterly at a rate of 5% per year through November 14, 2013 and at 6.375% thereafter, and that M&T will not redeem the preferred shares until on or after November 15, 2018. In December 2012, the U.S. Treasury sold to other investors the Series A warrants for $26.50 per warrant. In March 2013, the U.S. Treasury exercised the Series C warrants in a “cashless” exercise, resulting in the issuance of 186,589 common shares.

(b)

Shares were assumed in an acquisition and a new Series C Preferred Stock was designated.

(c)

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.

- 24 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Shareholders’ equity, continued

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, 2013 and December 31, 2012.

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
	2013			2012			2013			2012
	(in thousands)
Service cost	$	6,050			7,900			200			175
Interest cost on projected benefit obligation		15,126			15,600			675			950
Expected return on plan assets		(21,875	)		(17,675	)		—			—
Amortization of prior service credit		(1,650	)		(1,650	)		(350	)		—
Amortization of net actuarial loss		10,400			9,400			100			100

Net periodic benefit cost	$	8,051			13,575			625			1,225

Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $15,755,000 and $14,625,000 for the three months ended March 31, 2013 and 2012, respectively.

- 25 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8. Earnings per common share

The computations of basic earnings per common share follow:


	Three months ended March 31
	2013			2012
	(in thousands, except per share)
Income available to common shareholders:
Net income	$	274,113			206,463
Less: Preferred stock dividends (a)		(13,363	)		(13,363	)
Amortization of preferred stock discount (a)		(2,147	)		(1,924	)

Net income available to common equity		258,603			191,176
Less: Income attributable to unvested stock-based compensation awards		(3,524	)		(2,940	)

Net income available to common shareholders	$	255,079			188,236
Weighted-average shares outstanding:
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards		129,449			127,157
Less: Unvested stock-based compensation awards		(1,780	)		(1,937	)

Weighted-average shares outstanding		127,669			125,220
Basic earnings per common share	$	2.00			1.50

(a)

Including impact of not as yet declared cumulative dividends.

- 26 -

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
	2013			2012
	(in thousands, except per share)
Net income available to common equity	$	258,603			191,176
Less: Income attributable to unvested stock-based compensation awards		(3,507	)		(2,935	)

Net income available to common shareholders	$	255,096			188,241
Adjusted weighted-average shares outstanding:
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards		129,449			127,157
Less: Unvested stock-based compensation awards		(1,780	)		(1,937	)
Plus: Incremental shares from assumed conversion of stock-based compensation awards and convertible preferred stock		967			396

Adjusted weighted-average shares outstanding		128,636			125,616
Diluted earnings per common share	$	1.98			1.50

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 and warrants to purchase common stock of M&T representing approximately 4.7 million and 10.0 million common shares during the three-month periods ended March 31, 2013 and 2012, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

- 27 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Comprehensive income

The following tables display the components of other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) to net income:


	Investment Securities
	With OTTI			All other			Defined benefit plans			Other			Total amount before tax			Income tax			Net
	(in thousands)
Balance – January 1, 2013	$	(91,835	)		152,199			(455,590	)		(431	)	$	(395,657	)		155,393		$	(240,264	)
Other comprehensive income before reclassifications:
Unrealized holding gains (losses), net		24,540			(18,959	)		—			—			5,581			(2,181	)		3,400
Foreign currency translation adjustment		—			—			—			(1,452	)		(1,452	)		520			(932	)

Total other comprehensive income before reclassifications		24,540			(18,959	)		—			(1,452	)		4,129			(1,661	)		2,468

Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income:
Accretion of unrealized holding losses on held-to-maturity (“HTM”) securities		49			1,146			—			—			1,195	(a)		(469	)		726
OTTI charges recognized in net income		9,800			—			—			—			9,800	(b)		(3,847	)		5,953
Amortization of prior service credit		—			—			(2,000	)		—			(2,000	)(e)		785			(1,215	)
Amortization of actuarial losses		—			—			10,500			—			10,500	(e)		(4,121	)		6,379

Total reclassifications		9,849			1,146			8,500			—			19,495			(7,652	)		11,843

Total gain (loss) during the period		34,389			(17,813	)		8,500			(1,452	)		23,624			(9,313	)		14,311

Balance – March 31, 2013	$	(57,446	)		134,386			(447,090	)		(1,883	)	$	(372,033	)		146,080		$	(225,953	)

- 28 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Comprehensive income, continued


	Investment Securities
	With OTTI			All other		Defined benefit plan			Other			Total amount before tax			Income tax			Net
	(in thousands)
Balance – January 1, 2012	$	(138,319	)		9,757		(457,145	)		(1,062	)	$	(586,769	)		230,328		$	(356,441	)
Other comprehensive income before reclassifications:
Unrealized holding gains (losses), net		(10,085	)		29,696		—			—			19,611			(7,657	)		11,954
Foreign currency translation adjustment		—			—		—			622			622			(220	)		402

Total other comprehensive income before reclassifications		(10,085	)		29,696		—			622			20,233			(7,877	)		12,356

Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income:
Accretion of unrealized holding losses on HTM securities		819			1,123		—			—			1,942	(a)		(762	)		1,180
OTTI charges recognized in net income		11,486