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 June 30, 2016

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

Commission File Number 1-9861

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

New York

16-0968385

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


One M & T Plaza
Buffalo, New York		14203
(Address of principal executive offices)		(Zip Code)

(716) 842-5445

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by 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 July 29, 2016: 156,769,164 shares.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2016


Table of Contents of Information Required in Report		Page

Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements.

	CONSOLIDATED BALANCE SHEET - June 30, 2016 and December 31, 2015		3

	CONSOLIDATED STATEMENT OF INCOME - Three and six months ended June 30, 2016 and 2015		4

	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – Three and six months ended June 30, 2016 and 2015		5

	CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2016 and 2015		6

	CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - Six months ended June 30, 2016 and 2015		7

	NOTES TO FINANCIAL STATEMENTS		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		57

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		103

Item 4.	Controls and Procedures.		103

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings.		103

Item 1A.	Risk Factors.		105

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		105

Item 3.	Defaults Upon Senior Securities.		105

Item 4.	Mine Safety Disclosures.		105

Item 5.	Other Information.		105

Item 6.	Exhibits.		106

SIGNATURES			106

EXHIBIT INDEX			107

-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		June 30, 2016			December 31, 2015

Assets	Cash and due from banks	$	1,284,442			1,368,040
	Interest-bearing deposits at banks		8,474,839			7,594,350
	Trading account		506,131			273,783
	Investment securities (includes pledged securities that can be sold or repledged of $2,119,744 at June 30, 2016; $2,136,712 at December 31, 2015)
	Available for sale (cost: $11,578,829 at June 30, 2016; $12,138,636 at December 31, 2015)		11,918,974			12,242,671
	Held to maturity (fair value: $2,623,259 at June 30, 2016; $2,864,147 at December 31, 2015)		2,574,421			2,859,709
	Other (fair value: $469,689 at June 30, 2016; $554,059 at December 31, 2015)		469,689			554,059

	Total investment securities		14,963,084			15,656,439

	Loans and leases		88,754,824			87,719,234
	Unearned discount		(232,826	)		(229,735	)

	Loans and leases, net of unearned discount		88,521,998			87,489,499
	Allowance for credit losses		(970,496	)		(955,992	)

	Loans and leases, net		87,551,502			86,533,507

	Premises and equipment		658,216			666,682
	Goodwill		4,593,112			4,593,112
	Core deposit and other intangible assets		116,531			140,268
	Accrued interest and other assets		5,672,727			5,961,703

	Total assets	$	123,820,584			122,787,884


Liabilities	Noninterest-bearing deposits	$	30,700,066			29,110,635
	Interest-checking deposits		2,672,524			2,939,274
	Savings deposits		48,453,713			46,627,370
	Time deposits		12,630,277			13,110,392
	Deposits at Cayman Islands office		193,523			170,170

	Total deposits		94,650,103			91,957,841

	Federal funds purchased and agreements to repurchase securities		206,943			150,546
	Other short-term borrowings		200,180			1,981,636
	Accrued interest and other liabilities		1,963,093			1,870,714
	Long-term borrowings		10,328,751			10,653,858

	Total liabilities		107,349,070			106,614,595

Shareholders’ equity	Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 731,500 shares at June 30, 2016 and December 31, 2015; Liquidation preference of $10,000 per share: 50,000 shares at June 30, 2016 and December 31, 2015		1,231,500			1,231,500
	Common stock, $.50 par, 250,000,000 shares authorized, 159,957,393 shares issued at June 30, 2016; 159,563,512 shares issued at December 31, 2015		79,979			79,782
	Common stock issuable, 33,546 shares at June 30, 2016; 36,644 shares at December 31, 2015		2,201			2,364
	Additional paid-in capital		6,690,671			6,680,768
	Retained earnings		8,801,305			8,430,502
	Accumulated other comprehensive income (loss), net		(101,021	)		(251,627	)
	Treasury stock - common, at cost - 2,073,692 shares at June 30, 2016		(233,121	)		—

	Total shareholders’ equity		16,471,514			16,173,289

	Total liabilities and shareholders’ equity	$	123,820,584			122,787,884

-3-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


		Three months ended June 30					Six months ended June 30
In thousands, except per share		2016		2015			2016		2015
Interest income	Loans and leases, including fees	$	867,478		662,633		$	1,730,863		1,309,812
	Investment securities
	Fully taxable		91,184		93,144			189,199		179,101
	Exempt from federal taxes		663		1,062			1,458		2,380
	Deposits at banks		10,993		3,351			21,330		6,469
	Other		303		164			605		679

	Total interest income		970,621		760,354			1,943,455		1,498,441

Interest expense	Interest-checking deposits		400		349			814		660
	Savings deposits		20,134		10,361			36,025		20,580
	Time deposits		26,867		3,690			51,189		7,430
	Deposits at Cayman Islands office		181		150			374		297
	Short-term borrowings		1,143		36			3,305		70
	Long-term borrowings		58,077		62,640			115,965		126,688

	Total interest expense		106,802		77,226			207,672		155,725

	Net interest income		863,819		683,128			1,735,783		1,342,716
	Provision for credit losses		32,000		30,000			81,000		68,000

	Net interest income after provision for credit losses		831,819		653,128			1,654,783		1,274,716

Other income	Mortgage banking revenues		89,383		102,602			171,446		204,203
	Service charges on deposit accounts		103,872		105,257			206,277		207,601
	Trust income		120,450		118,598			231,527		242,332
	Brokerage services income		16,272		16,861			32,276		32,322
	Trading account and foreign exchange gains		13,222		6,046			20,680		12,277
	Gain (loss) on bank investment securities		264		(10	)		268		(108	)
	Other revenues from operations		104,791		147,673			206,713		238,603

	Total other income		448,254		497,027			869,187		937,230

Other expense	Salaries and employee benefits		398,675		361,657			830,460		751,550
	Equipment and net occupancy		75,724		66,852			149,902		133,322
	Printing, postage and supplies		9,907		9,305			21,893		18,895
	Amortization of core deposit and other intangible assets		11,418		5,965			23,737		12,758
	FDIC assessments		22,370		10,801			47,595		21,461
	Other costs of operations		231,801		242,048			452,403		445,017

	Total other expense		749,895		696,628			1,525,990		1,383,003

	Income before taxes		530,178		453,527			997,980		828,943
	Income taxes		194,147		166,839			363,421		300,642

	Net income	$	336,031		286,688		$	634,559		528,301


	Net income available to common shareholders
	Basic	$	312,968		263,471		$	588,697		482,295
	Diluted		312,974		263,481			588,707		482,313
	Net income per common share
	Basic	$	1.98		1.99		$	3.72		3.65
	Diluted		1.98		1.98			3.71		3.63
	Cash dividends per common share	$	.70		.70		$	1.40		1.40
	Average common shares outstanding
	Basic		157,802		132,356			158,268		132,203
	Diluted		158,341		133,116			158,761		132,944

-4-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)


	Three months ended June 30						Six months ended June 30
In thousands	2016			2015			2016			2015

Net income	$	336,031			286,688		$	634,559			528,301
Other comprehensive income (loss), net of tax and reclassification adjustments:
Net unrealized gains (losses) on investment securities		47,270			(72,618	)		144,464			(47,279	)
Cash flow hedges adjustments		(23	)		(24	)		(47	)		847
Foreign currency translation adjustment		(1,565	)		1,866			(1,618	)		(518	)
Defined benefit plans liability adjustments		3,486			5,765			7,807			10,442

Total other comprehensive income (loss)		49,168			(65,011	)		150,606			(36,508	)

Total comprehensive income	$	385,199			221,677		$	785,165			491,793

-5-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Six months ended June 30
In thousands		2016			2015
Cash flows from operating activities	Net income	$	634,559			528,301
	Adjustments to reconcile net income to net cash provided by operating activities
	Provision for credit losses		81,000			68,000
	Depreciation and amortization of premises and equipment		53,514			48,199
	Amortization of capitalized servicing rights		24,648			24,572
	Amortization of core deposit and other intangible assets		23,737			12,758
	Provision for deferred income taxes		94,458			29,884
	Asset write-downs		7,737			4,076
	Net gain on sales of assets		(10,477	)		(48,637	)
	Net change in accrued interest receivable, payable		2,358			7,912
	Net change in other accrued income and expense		(32,180	)		(39,503	)
	Net change in loans originated for sale		(188,771	)		(77,677	)
	Net change in trading account assets and liabilities		(40,552	)		198

	Net cash provided by operating activities		650,031			558,083

Cash flows from investing activities	Proceeds from sales of investment securities
	Available for sale		4,970			2,539
	Other		85,389			254
	Proceeds from maturities of investment securities
	Available for sale		1,067,100			859,904
	Held to maturity		291,917			351,110
	Purchases of investment securities
	Available for sale		(518,203	)		(3,013,384	)
	Held to maturity		(10,456	)		(17,403	)
	Other		(1,019	)		(7,686	)
	Net increase in loans and leases		(930,426	)		(1,465,261	)
	Net (increase) decrease in interest-bearing deposits at banks		(880,489	)		2,425,015
	Capital expenditures, net		(36,619	)		(23,395	)
	Net decrease in loan servicing advances		119,190			317,276
	Other, net		(98,452	)		16,450

	Net cash used by investing activities		(907,098	)		(554,581	)

Cash flows from financing activities	Net increase (decrease) in deposits		2,705,332			(951,347	)
	Net decrease in short-term borrowings		(1,693,603	)		(39,377	)
	Proceeds from long-term borrowings		—			1,500,000
	Payments on long-term borrowings		(322,591	)		(323,025	)
	Purchases of treasury stock		(254,000	)		—
	Dividends paid - common		(223,179	)		(187,278	)
	Dividends paid - preferred		(40,635	)		(40,635	)
	Other, net		2,145			15,661

	Net cash provided (used) by financing activities		173,469			(26,001	)

	Net decrease in cash and cash equivalents		(83,598	)		(22,499	)
	Cash and cash equivalents at beginning of period		1,368,040			1,373,357

	Cash and cash equivalents at end of period	$	1,284,442			1,350,858

Supplemental disclosure of cash flow information	Interest received during the period	$	1,947,027			1,478,848
	Interest paid during the period		257,222			149,255
	Income taxes paid during the period		105,361			225,107

Supplemental schedule of noncash investing and financing activities	Real estate acquired in settlement of loans	$	66,286			23,273
	Securitization of residential mortgage loans allocated to
	Available-for-sale investment securities		13,923			36,645
	Capitalized servicing rights		143			368

-6-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


														Accumulated
														other
					Common			Additional						comprehensive
	Preferred		Common		stock			paid-in			Retained			income			Treasury
In thousands, except per share	stock		stock		issuable			capital			earnings			(loss), net			stock			Total
2015
Balance - January 1, 2015	$	1,231,500		66,157		2,608			3,409,506			7,807,119			(180,994	)		—			12,335,896
Total comprehensive income		—		—		—			—			528,301			(36,508	)		—			491,793
Preferred stock cash dividends		—		—		—			—			(40,635	)		—			—			(40,635	)
Exercise of 2,315 Series A stock warrants into 904 shares of common stock		—		1		—			(1	)		—			—			—			—
Stock-based compensation plans:
Compensation expense, net		—		144		—			20,966			—			—			—			21,110
Exercises of stock options, net		—		179		—			34,937			—			—			—			35,116
Stock purchase plan		—		45		—			10,301			—			—			—			10,346
Directors’ stock plan		—		3		—			827			—			—			—			830
Deferred compensation plans, net, including dividend equivalents		—		2		(276	)		274			(51	)		—			—			(51	)
Other		—		—		—			801			—			—			—			801
Common stock cash dividends - $1.40 per share		—		—		—			—			(187,209	)		—			—			(187,209	)

Balance - June 30, 2015	$	1,231,500		66,531		2,332			3,477,611			8,107,525			(217,502	)		—			12,667,997

2016
Balance - January 1, 2016	$	1,231,500		79,782		2,364			6,680,768			8,430,502			(251,627	)		—			16,173,289
Total comprehensive income		—		—		—			—			634,559			150,606			—			785,165
Preferred stock cash dividends		—		—		—			—			(40,635	)		—			—			(40,635	)
Exercise of 5,320 Series A stock warrants into 1,983 shares of common stock		—		—		—			(223	)		—			—			223			—
Purchases of treasury stock		—		—		—			—			—			—			(254,000	)		(254,000	)
Stock-based compensation plans:
Compensation expense, net		—		175		—			6,746			—			—			5,880			12,801
Exercises of stock options, net		—		18		—			1,642			—			—			3,902			5,562
Stock purchase plan		—		—		—			275			—			—			10,319			10,594
Directors’ stock plan		—		2		—			500			—			—			551			1,053
Deferred compensation plans, net, including dividend equivalents		—		2		(163	)		232			(47	)		—			4			28
Other		—		—		—			731			—			—			—			731
Common stock cash dividends - $1.40 per share		—		—		—			—			(223,074	)		—			—			(223,074	)

Balance - June 30, 2016	$	1,231,500		79,979		2,201			6,690,671			8,801,305			(101,021	)		(233,121	)		16,471,514

-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 Form 10-K for the year ended December 31, 2015 (“2015 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 November 1, 2015, M&T completed the acquisition of Hudson City Bancorp, Inc. (“Hudson City”), headquartered in Paramus, New Jersey. On that date, Hudson City Savings Bank, the banking subsidiary of Hudson City, was merged into M&T Bank, a wholly owned banking subsidiary of M&T. Hudson City Savings Bank operated 135 banking offices in New Jersey, Connecticut and New York at the date of acquisition. The results of operations acquired in the Hudson City transaction have been included in the Company’s financial results since November 1, 2015. After application of the election, allocation and proration procedures contained in the merger agreement with Hudson City, M&T paid $2.1 billion in cash and issued 25,953,950 shares of M&T common stock in exchange for Hudson City shares outstanding at the time of the acquisition. The purchase price was approximately $5.2 billion based on the cash paid to Hudson City shareholders, the fair value of M&T stock exchanged and the estimated fair value of Hudson City stock awards converted into M&T stock awards. The acquisition of Hudson City expanded the Company’s presence in New Jersey, Connecticut and New York, and management expects that the Company will benefit from greater geographic diversity and the advantages of scale associated with a larger company.

The Hudson City 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. The consideration paid for Hudson City’s common equity and the amounts of identifiable assets acquired and liabilities assumed as of the acquisition date were as follows:


	(in thousands)
Identifiable assets:
Cash and due from banks	$	131,688
Interest-bearing deposits at banks		7,568,934
Investment securities		7,929,014
Loans		19,015,013
Goodwill		1,079,787
Core deposit intangible		131,665
Other assets		843,219

Total identifiable assets		36,699,320


Liabilities:
Deposits		17,879,589
Borrowings		13,211,598
Other liabilities		405,025

Total liabilities		31,496,212

Total consideration	$	5,203,108


Cash paid	$	2,064,284
Common stock issued (25,953,950 shares)		3,110,581
Common stock awards converted		28,243

Total consideration	$	5,203,108

-8-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.	Acquisitions, continued

In early November 2015, the Company sold $5.8 billion of investment securities obtained in the acquisition and repaid $10.6 billion of borrowings assumed in the transaction. In connection with the acquisition, the Company recorded approximately $1.1 billion of goodwill and $132 million of core deposit intangible. The core deposit intangible asset is being amortized over a period of 7 years using an accelerated method.

The following table presents certain pro forma information as if Hudson City had been included in the Company’s results of operations in the three-month and six-month periods ended June 30, 2015. These results combine the historical results of Hudson City 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 impact of gains on securities transactions of $67 million during the three months ended June 30, 2015 and $74 million during the six months ended June 30, 2015 that may not have been recognized had the investment securities been recorded at fair value. 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 June 30, 2015		Pro forma Six months ended June 30, 2015
	(in thousands)

Total revenues(a)	$	1,370,594		2,624,039
Net income		357,654		642,891

(a)

Represents net interest income plus other income.

In connection with the Hudson City 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 preparing for systems conversions and/or integration of operations; costs related to termination of existing contractual arrangements for various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; severance (for former Hudson City employees); travel costs; and other costs of completing the transaction and commencing operations in new markets and offices. The Company does not expect additional merger-related expenses in 2016.

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


	Three months ended June 30, 2016		Six months ended June 30, 2016
	(in thousands)

Salaries and employee benefits	$	60		5,334
Equipment and net occupancy		339		1,278
Printing, postage and supplies		545		1,482
Other costs of operations		11,649		27,661

Total	$	12,593		35,755

There were no merger-related expenses during the three-month and six-month periods ended June 30, 2015.

-9-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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)
June 30, 2016
Investment securities available for sale:
U.S. Treasury and federal agencies	$	397,825		2,537		14	$	400,348
Obligations of states and political subdivisions		5,158		131		48		5,241
Mortgage-backed securities:
Government issued or guaranteed		10,944,676		323,828		1,226		11,267,278
Privately issued		58		—		1		57
Collateralized debt obligations		28,255		17,466		2,416		43,305
Other debt securities		135,170		1,271		21,670		114,771
Equity securities		67,687		20,448		161		87,974

		11,578,829		365,681		25,536		11,918,974

Investment securities held to maturity:
Obligations of states and political subdivisions		84,614		712		240		85,086
Mortgage-backed securities:
Government issued or guaranteed		2,315,012		88,526		350		2,403,188
Privately issued		168,784		927		40,737		128,974
Other debt securities		6,011		—		—		6,011

		2,574,421		90,165		41,327		2,623,259

Other securities		469,689		—		—		469,689

Total	$	14,622,939		455,846		66,863	$	15,011,922


December 31, 2015
Investment securities available for sale:
U.S. Treasury and federal agencies	$	299,890		294		187	$	299,997
Obligations of states and political subdivisions		5,924		146		42		6,028
Mortgage-backed securities:
Government issued or guaranteed		11,592,959		142,370		48,701		11,686,628
Privately issued		74		2		2		74
Collateralized debt obligations		28,438		20,143		1,188		47,393
Other debt securities		137,556		1,514		20,190		118,880
Equity securities		73,795		10,230		354		83,671

		12,138,636		174,699		70,664		12,242,671

Investment securities held to maturity:
Obligations of states and political subdivisions		118,431		1,003		421		119,013
Mortgage-backed securities:
Government issued or guaranteed		2,553,612		50,936		7,817		2,596,731
Privately issued		181,091		2,104		41,367		141,828
Other debt securities		6,575		—		—		6,575

		2,859,709		54,043		49,605		2,864,147

Other securities		554,059		—		—		554,059

Total	$	15,552,404		228,742		120,269	$	15,660,877

-10-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

There were no significant gross realized gains or losses from sales of investment securities for the three-month and six-month periods ended June 30, 2016 and 2015, respectively.

At June 30, 2016, 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	$	6,147		6,176
Due after one year through five years		399,312		402,100
Due after five years through ten years		3,425		3,822
Due after ten years		157,524		151,567

		566,408		563,665
Mortgage-backed securities available for sale		10,944,734		11,267,335

	$	11,511,142		11,831,000


Debt securities held to maturity:
Due in one year or less	$	28,259		28,430
Due after one year through five years		51,414		51,611
Due after five years through ten years		4,941		5,045
Due after ten years		6,011		6,011

		90,625		91,097
Mortgage-backed securities held to maturity		2,483,796		2,532,162

	$	2,574,421		2,623,259

-11-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

A summary of investment securities that as of June 30, 2016 and December 31, 2015 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)
June 30, 2016
Investment securities available for sale:
U.S. Treasury and federal agencies	$	7,831		(14	)		—		—
Obligations of states and political subdivisions		—		—			1,703		(48	)
Mortgage-backed securities:
Government issued or guaranteed		245,977		(1,123	)		7,590		(103	)
Privately issued		—		—			40		(1	)
Collateralized debt obligations		2,883		(1,078	)		4,285		(1,338	)
Other debt securities		11,275		(409	)		91,997		(21,261	)
Equity securities		—		—			140		(161	)

		267,966		(2,624	)		105,755		(22,912	)


Investment securities held to maturity:
Obligations of states and political subdivisions		15,813		(89	)		12,057		(151	)
Mortgage-backed securities:
Government issued or guaranteed		—		—			125,116		(350	)
Privately issued		17,436		(3,075	)		94,454		(37,662	)


		33,249		(3,164	)		231,627		(38,163	)

Total	$	301,215		(5,788	)		337,382		(61,075	)


December 31, 2015
Investment securities available for sale:
U.S. Treasury and federal agencies	$	147,508		(187	)		—		—
Obligations of states and political subdivisions		865		(2	)		1,335		(40	)
Mortgage-backed securities:
Government issued or guaranteed		4,061,899		(48,534	)		7,216		(167	)
Privately issued		—		—			43		(2	)
Collateralized debt obligations		5,711		(335	)		2,063		(853	)
Other debt securities		12,935		(462	)		93,344		(19,728	)
Equity securities		18,073		(207	)		153		(147	)

		4,246,991		(49,727	)		104,154		(20,937	)


Investment securities held to maturity:
Obligations of states and political subdivisions		42,913		(335	)		5,853		(86	)
Mortgage-backed securities:
Government issued or guaranteed		459,983		(1,801	)		228,867		(6,016	)
Privately issued		—		—			112,155		(41,367	)

		502,896		(2,136	)		346,875		(47,469	)

Total	$	4,749,887		(51,863	)		451,029		(68,406	)

-12-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

The Company owned 428 individual investment securities with aggregate gross unrealized losses of $67 million at June 30, 2016. Based on a review of each of the securities in the investment securities portfolio at June 30, 2016, the Company concluded that it expected to recover the amortized cost basis of its investment. As of June 30, 2016, 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 a loss. At June 30, 2016, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $470 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 loans acquired at a discount that were recorded at fair value at the acquisition date that is included in the consolidated balance sheet were as follows:


	June 30, 2016		December 31, 2015
	(in thousands)

Outstanding principal balance	$	2,735,024		3,122,935
Carrying amount:
Commercial, financial, leasing, etc.		68,648		78,847
Commercial real estate		548,485		644,284
Residential real estate		903,891		1,016,129
Consumer		650,456		725,807

	$	2,171,480		2,465,067

Purchased impaired loans included in the table above totaled $662 million at June 30, 2016 and $768 million at December 31, 2015, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for loans acquired at a discount for the three months and six months ended June 30, 2016 and 2015 follows:


	Three months ended June 30
	2016						2015
	Purchased impaired			Other acquired			Purchased impaired			Other acquired
	(in thousands)

Balance at beginning of period	$	171,185			269,017		$	71,422			357,895
Interest income		(14,060	)		(32,898	)		(5,772	)		(40,024	)
Reclassifications from nonaccretable balance, net		4,898			2,933			11,974			26,840
Other (a)		—			6,143			—			278

Balance at end of period	$	162,023			245,195		$	77,624			344,989

-13-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Six months ended June 30
	2016						2015
	Purchased impaired			Other acquired			Purchased impaired			Other acquired
	(in thousands)

Balance at beginning of period	$	184,618			296,434		$	76,518			397,379
Interest income		(28,122	)		(70,760	)		(10,978	)		(81,301	)
Reclassifications from nonaccretable balance, net		5,527			8,597			12,084			27,023
Other (a)		—			10,924			—			1,888

Balance at end of period	$	162,023			245,195		$	77,624			344,989

(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 June 30, 2016 and December 31, 2015 follows:


	Current		30-89 Days past due		Accruing loans past due 90 days or more(a)		Accruing loans acquired at a discount past due 90 days or more(b)		Purchased impaired(c)		Nonaccrual		Total
June 30, 2016	(in thousands)
Commercial, financial, leasing, etc.	$	21,157,606		63,069		6,665		452		766		240,684	$	21,469,242
Real estate:
Commercial		23,390,039		125,657		16,487		13,935		36,111		172,670		23,754,899
Residential builder and developer		1,819,984		14,892		—		4,847		19,972		24,263		1,883,958
Other commercial construction		4,993,493		41,297		—		280		16,009		21,294		5,072,373
Residential		19,208,724		470,646		270,845		13,087		433,192		202,949		20,599,443
Residential-limited documentation		3,584,715		112,743		—		—		154,320		79,028		3,930,806
Consumer:
Home equity lines and loans		5,658,417		34,735		—		14,608		1,689		86,870		5,796,319
Automobile		2,669,708		39,139		—		1		—		12,390		2,721,238
Other		3,232,679		26,501		4,452		21,381		—		8,707		3,293,720

Total	$	85,715,365		928,679		298,449		68,591		662,059		848,855	$	88,521,998

-14-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Current		30-89 Days past due		Accruing loans past due 90 days or more(a)		Accruing loans acquired at a discount past due 90 days or more(b)		Purchased impaired(c)		Nonaccrual		Total
December 31, 2015					(in thousands)
Commercial, financial, leasing, etc.	$	20,122,648		52,868		2,310		693		1,902		241,917	$	20,422,338
Real estate:
Commercial (d)		23,111,673		172,439		12,963		8,790		46,790		179,606		23,532,261
Residential builder and developer		1,507,856		7,969		5,760		6,925		28,734		28,429		1,585,673
Other commercial construction (d)		3,962,620		65,932		7,936		2,001		24,525		16,363		4,079,377
Residential		20,507,551		560,312		284,451		16,079		488,599		153,281		22,010,273
Residential-limited documentation		3,885,073		137,289		—		—		175,518		61,950		4,259,830
Consumer:
Home equity lines and loans		5,805,222		45,604		—		15,222		2,261		84,467		5,952,776
Automobile		2,446,473		56,181		—		6		—		16,597		2,519,257
Other		3,051,435		36,702		4,021		18,757		—		16,799		3,127,714

Total	$	84,400,551		1,135,296		317,441		68,473		768,329		799,409	$	87,489,499

(a)

Excludes loans acquired at a discount.

(b)

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

(c)

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

(d)

The Company expanded its definition of construction loans in 2016 and, as a result, re-characterized certain commercial real estate loans as other commercial construction loans. The December 31, 2015 balances reflect such changes.

One-to-four family residential mortgage loans held for sale were $374 million and $353 million at June 30, 2016 and December 31, 2015, respectively. Commercial mortgage loans held for sale were $228 million at June 30, 2016 and $39 million at December 31, 2015.

Changes in the allowance for credit losses for the three months ended June 30, 2016 were as follows:


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

Beginning balance	$	323,866			331,985			68,371			160,819			77,711	$	962,752
Provision for credit losses		(10,919	)		15,823			4,404			22,681			11		32,000
Net charge-offs
Charge-offs		(7,487	)		(733	)		(5,090	)		(33,560	)		—		(46,870	)
Recoveries		10,619			2,599			1,975			7,421			—		22,614

Net charge-offs		3,132			1,866			(3,115	)		(26,139	)		—		(24,256	)

Ending balance	$	316,079			349,674			69,660			157,361			77,722	$	970,496

-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 June 30, 2015 were as follows:


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

Beginning balance	$	281,069			317,375			60,741			186,052			76,136	$	921,373
Provision for credit losses		9,737			(3,652	)		1,624			21,016			1,275		30,000
Net charge-offs
Charge-offs		(7,728	)		(3,470	)		(3,309	)		(18,455	)		—		(32,962	)
Recoveries		3,672			1,041			1,238			5,625			—		11,576

Net charge-offs		(4,056	)		(2,429	)		(2,071	)		(12,830	)		—		(21,386	)

Ending balance	$	286,750			311,294			60,294			194,238			77,411	$	929,987

Changes in the allowance for credit losses for the six months ended June 30, 2016 were as follows:


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

Beginning balance	$	300,404			326,831			72,238			178,320			78,199		$	955,992
Provision for credit losses		13,445			19,836			5,622			42,574			(477	)		81,000
Net charge-offs
Charge-offs		(13,636	)		(2,005	)		(12,062	)		(77,879	)		—			(105,582	)
Recoveries		15,866			5,012			3,862			14,346			—			39,086

Net charge-offs		2,230			3,007			(8,200	)		(63,533	)		—			(66,496	)

Ending balance	$	316,079			349,674			69,660			157,361			77,722		$	970,496

Changes in the allowance for credit losses for the six months ended June 30, 2015 were as follows:


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

Beginning balance	$	288,038			307,927			61,910			186,033			75,654	$	919,562
Provision for credit losses		11,179			11,890			2,584			40,590			1,757		68,000
Net charge-offs
Charge-offs		(20,078	)		(10,149	)		(6,427	)		(43,784	)		—		(80,438	)
Recoveries		7,611			1,626			2,227			11,399			—		22,863

Net charge-offs		(12,467	)		(8,523	)		(4,200	)		(32,385	)		—		(57,575	)

Ending balance	$	286,750			311,294			60,294			194,238			77,411	$	929,987

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.

-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 loans 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 real estate 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.

-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 loans and leases that were considered impaired as of June 30, 2016 and December 31, 2015 and for the three-month and six-month periods ended June 30, 2016 and 2015:


	June 30, 2016						December 31, 2015
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	196,990		219,662		50,010		179,037		195,821		44,752
Real estate:
Commercial		79,748		89,051		16,562		85,974		95,855		18,764
Residential builder and developer		6,854		7,788		581		3,316		5,101		196
Other commercial construction		3,312		3,731		1,223		3,548		3,843		348
Residential		77,975		96,157		3,337		79,558		96,751		4,727
Residential-limited documentation		85,201		98,607		6,700		90,356		104,251		8,000
Consumer:
Home equity lines and loans		40,004		40,914		7,421		25,220		26,195		3,777
Automobile		19,137		19,137		4,022		22,525		22,525		4,709
Other		4,426		4,426		940		17,620		17,620		4,820

		513,647		579,473		90,796		507,154		567,962		90,093

With no related allowance recorded:
Commercial, financial, leasing, etc.		74,409		83,632		—		93,190		110,735		—
Real estate:
Commercial		101,949		118,540		—		101,340		116,230		—
Residential builder and developer		21,619		30,837		—		27,651		47,246		—
Other commercial construction		18,334		37,278		—		13,221		31,477		—
Residential		18,945		27,933		—		19,621		30,940		—
Residential-limited documentation		17,790		29,972		—		18,414		31,113		—

		253,046		328,192		—		273,437		367,741		—


Total:
Commercial, financial, leasing, etc.		271,399		303,294		50,010		272,227		306,556		44,752
Real estate:
Commercial		181,697		207,591		16,562		187,314		212,085		18,764
Residential builder and developer		28,473		38,625		581		30,967		52,347		196
Other commercial construction		21,646		41,009		1,223		16,769		35,320		348
Residential		96,920		124,090		3,337		99,179		127,691		4,727
Residential-limited documentation		102,991		128,579		6,700		108,770		135,364		8,000
Consumer:
Home equity lines and loans		40,004		40,914		7,421		25,220		26,195		3,777
Automobile		19,137		19,137		4,022		22,525		22,525		4,709
Other		4,426		4,426		940		17,620		17,620		4,820

Total	$	766,693		907,665		90,796		780,591		935,703		90,093

-18-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Three months ended June 30, 2016						Three months ended June 30, 2015
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	291,970		5,700		5,700		221,952		502		502
Real estate:
Commercial		175,028		611		611		153,105		1,004		1,004
Residential builder and developer		31,751		41		41		66,334		131		131
Other commercial construction		20,955		335		335		23,614		168		168
Residential		97,936		1,834		1,139		101,560		1,358		785
Residential-limited documentation		103,795		1,607		640		120,286		1,650		697
Consumer:
Home equity lines and loans		34,234		323		98		20,221		224		65
Automobile		20,542		322		28		26,123		416		43
Other		11,169		121		36		19,058		185		30

Total	$	787,380		10,894		8,628		752,253		5,638		3,425


	Six months ended June 30, 2016						Six months ended June 30, 2015
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash Basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	294,277		6,311		6,311		218,285		1,106		1,106
Real estate:
Commercial		178,741		2,085		2,085		153,088		2,106		2,106
Residential builder and developer		32,750		83		83		69,742		194		194
Other commercial construction		18,911		373		373		24,577		223		223
Residential		97,362		3,206		2,021		103,025		2,804		1,695
Residential-limited documentation		105,634		3,079		1,270		122,970		3,260		1,344
Consumer:
Home equity lines and loans		30,127		569		183		19,952		425		113
Automobile		21,252		661		64		27,568		866		97
Other		14,443		299		63		18,960		359		63

Total	$	793,497		16,666		12,453		758,167		11,343		6,941

-19-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

In accordance with the previously described policies, the Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger balance criticized commercial loans 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 loans and commercial real estate loans.


			Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
June 30, 2016
Pass	$	20,409,928		22,785,132		1,704,457		4,847,810
Criticized accrual		818,630		797,097		155,238		203,269
Criticized nonaccrual		240,684		172,670		24,263		21,294

Total	$	21,469,242		23,754,899		1,883,958		5,072,373


December 31, 2015
Pass	$	19,442,183		22,697,398		1,497,465		3,834,137
Criticized accrual		738,238		655,257		59,779		228,877
Criticized nonaccrual		241,917		179,606		28,429		16,363

Total	$	20,422,338		23,532,261		1,585,673		4,079,377

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 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 carrying value of residential real estate loans and home equity loans and lines of credit for which a partial charge-off has been recognized aggregated $52 million and $31 million, respectively, at June 30, 2016 and $55 million and $21 million,

-20-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

respectively, at December 31, 2015. Residential real estate loans and home equity loans and lines of credit that were more than 150 days past due but did not require a partial charge-off because the net realizable value of the collateral exceeded the outstanding customer balance totaled $18 million and $39 million, respectively, at June 30, 2016 and $20 million and $28 million, respectively, at December 31, 2015.

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.

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)
June 30, 2016
Individually evaluated for impairment	$	50,010		18,292		10,037		12,383	$	90,722
Collectively evaluated for impairment		266,069		328,919		57,666		143,891		796,545
Purchased impaired		—		2,463		1,957		1,087		5,507

Allocated	$	316,079		349,674		69,660		157,361		892,774

Unallocated										77,722


Total									$	970,496


December 31, 2015
Individually evaluated for impairment	$	44,752		19,175		12,727		13,306	$	89,960
Collectively evaluated for impairment		255,615		307,000		57,624		163,511		783,750
Purchased impaired		37		656		1,887		1,503		4,083

Allocated	$	300,404		326,831		72,238		178,320		877,793

Unallocated										78,199


Total									$	955,992

-21-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:


	Commercial, Financial, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
June 30, 2016
Individually evaluated for impairment	$	271,399		230,960		199,911		63,567	$	765,837
Collectively evaluated for impairment		21,197,077		30,408,178		23,742,826		11,746,021		87,094,102
Purchased impaired		766		72,092		587,512		1,689		662,059


Total	$	21,469,242		30,711,230		24,530,249		11,811,277	$	88,521,998


December 31, 2015
Individually evaluated for impairment	$	272,227		234,132		207,949		65,365	$	779,673
Collectively evaluated for impairment		20,148,209		28,863,130		25,398,037		11,532,121		85,941,497
Purchased impaired		1,902		100,049		664,117		2,261		768,329


Total	$	20,422,338		29,197,311		26,270,103		11,599,747	$	87,489,499

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

-22-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The tables that follow summarize the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended June 30, 2016 and 2015:


			Recorded investment				Financial effects of modification
Three months ended June 30, 2016	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		33	$	45,733	$	45,657	$	(76	)	$	—
Combination of concession types		5		15,257		14,217		(1,040	)		—
Real estate:
Commercial
Principal deferral		10		2,726		2,710		(16	)		—
Interest rate reduction		1		129		129		—			(25	)
Other		1		4,723		4,447		(276	)		—
Combination of concession types		4		7,065		7,008		(57	)		(31	)
Residential builder and developer
Principal deferral		3		23,905		22,958		(947	)		—
Other commercial construction
Principal deferral		1		250		250		—			—
Combination of concession types		1		124		124		—			—
Residential
Principal deferral		8		963		1,040		77			—
Combination of concession types		8		1,043		1,122		79			—
Residential-limited documentation
Principal deferral		2		151		195		44			—
Consumer:
Home equity lines and loans
Principal deferral		1		69		69		—			—
Combination of concession types		31		3,737		3,737		—			(280	)
Automobile
Principal deferral		44		158		158		—			—
Other		22		17		17		—			—
Other
Principal deferral		29		551		551		—			—
Other		3		20		20		—			—
Combination of concession types		9		49		49		—			(5	)

Total		216	$	106,670	$	104,458	$	(2,212	)	$	(341	)

(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.

-23-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


			Recorded investment				Financial effects of modification
Three months ended June 30, 2015	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		30	$	16,018	$	15,355	$	(663	)	$	—
Other		2		8,991		8,883		(108	)		—
Combination of concession types		2		15,889		17,864		1,975			(239	)
Real estate:
Commercial
Principal deferral		15		38,983		37,585		(1,398	)		—
Combination of concession types		1		436		436		—			(53	)
Residential builder and developer
Principal deferral		1		9,252		9,200		(52	)		—
Residential
Principal deferral		12		693		754		61			—
Combination of concession types		9		961		1,066		105			(144	)
Residential-limited documentation
Principal deferral		1		161		161		—			—
Combination of concession types		2		424		426		2			(26	)
Consumer:
Home equity lines and loans
Principal deferral		1		1,198		1,198		—			—
Combination of concession types		14		1,356		1,356		—			(212	)
Automobile
Principal deferral		63		615		615		—			—
Interest rate reduction		4		95		95		—			(7	)
Other		13		21		21		—			—
Combination of concession types		9		138		138		—			(4	)
Other
Principal deferral		27		770		770		—			—
Other		2		21		21		—			—
Combination of concession types		10		43		43		—			(7	)

Total		218	$	96,065	$	95,987	$	(78	)	$	(692	)

(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.

-24-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The tables below summarize the Company’s loan modification activities that were considered troubled debt restructurings for the six months ended June 30, 2016 and 2015:


			Recorded investment				Financial effects of modification
Six months ended June 30, 2016	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		57	$	57,304	$	58,378	$	1,074		$	—
Combination of concession types		12		21,414		20,169		(1,245	)		—
Real estate:
Commercial
Principal deferral		26		6,209		6,158		(51	)		—
Interest rate reduction		1		129		129		—			(25	)
Other		1		4,723		4,447		(276	)		—
Combination of concession types		9		10,998		10,932		(66	)		(66	)
Residential builder and developer
Principal deferral		3		23,905		22,958		(947	)		—
Other commercial construction
Principal deferral		1		250		250		—			—
Combination of concession types		1		124		124		—			—
Residential
Principal deferral		25		2,944		3,231		287			—
Combination of concession types		18		3,364		3,491		127			—
Residential-limited documentation
Principal deferral		3		276		333		57			—
Combination of concession types		5		1,312		1,379		67			(339	)
Consumer:
Home equity lines and loans
Principal deferral		4		404		404		—			—
Combination of concession types		54		6,233		6,233		—			(563	)
Automobile
Principal deferral		92		679		679		—			—
Other		38		55		55		—			—
Combination of concession types		8		85		85		—			(3	)
Other
Principal deferral		55		925		925		—			—
Other		5		45		45		—			—
Combination of concession types		17		196		196		—			(32	)

Total		435	$	141,574	$	140,601	$	(973	)	$	(1,028	)

(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.

-25-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


			Recorded investment				Financial effects of modification
Six months ended June 30, 2015	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
	(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		51	$	17,590	$	16,912	$	(678	)	$	—
Interest rate reduction		1		99		99		—			(19	)
Other		2		8,991		8,883		(108	)		—
Combination of concession types		5		25,044		24,853		(191	)		(239	)
Real estate:
Commercial
Principal deferral		22		42,775		41,361		(1,414	)		—
Combination of concession types		5		2,082		2,073		(9	)		(105	)
Residential builder and developer
Principal deferral		2		10,650		10,598		(52	)		—
Residential
Principal deferral		19		1,414		1,496		82			—
Combination of concession types		12		1,255		1,415		160			(178	)
Residential-limited documentation
Principal deferral		1		161		161		—			—
Combination of concession types		3		634		636		2			(30	)
Consumer:
Home equity lines and loans
Principal deferral		2		1,219		1,219		—			—
Combination of concession types		19		1,552		1,552		—			(225	)
Automobile
Principal deferral		98		918		918		—			—
Interest rate reduction		7		137		137		—			(10	)
Other		23		41		41		—			—
Combination of concession types		17		222		222		—			(11	)
Other
Principal deferral		49		1,066		1,066		—			—
Other		7		80		80		—			—
Combination of concession types		23		267		267		—			(32	)

Total		368	$	116,197	$	113,989	$	(2,208	)	$	(849	)

(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 June 30, 2016 and 2015 and for which there was a subsequent payment default during the six-month periods ended June 30, 2016 and 2015, respectively, were not material.

The amount of foreclosed residential real estate property held by the Company was $158 million and $172 million at June 30, 2016 and December 31, 2015, respectively. There were $305 million and $315 million at June 30, 2016 and December 31, 2015, respectively, in loans secured by residential real estate that were in the process of foreclosure.

-26-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5.	Borrowings

M&T had $515 million of fixed and variable rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) outstanding at June 30, 2016 that are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities (“Capital Securities”) and common securities (“Common Securities”). The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures. The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding trust. Under the Federal Reserve Board’s risk-based capital guidelines, beginning in 2016 none of the securities are includable in M&T’s Tier 1 regulatory capital, but do qualify for inclusion in Tier 2 regulatory capital.

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 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 2033) 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.

Also included in long-term borrowings are agreements to repurchase securities of $1.9 billion at each of June 30, 2016 and December 31, 2015. The agreements reflect various repurchase dates through 2020, however, the contractual maturities of the underlying investment securities extend beyond such repurchase dates. The agreements are subject to legally enforceable master netting arrangements, however, the Company has not offset any amounts related to these agreements in its consolidated financial statements. The Company posted collateral consisting primarily of government guaranteed mortgage-backed securities of $2.0 billion at each of June 30, 2016 and December 31, 2015.

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.

-27-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6.	Shareholders’ equity, continued

Issued and outstanding preferred stock of M&T as of June 30, 2016 and December 31, 2015 is presented below:


	Shares issued and outstanding		Carrying value
	(dollars in thousands)
Series A (a)
Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation preference per share		230,000	$	230,000

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

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

Series E (c)
Fixed-to-Floating Rate Non-cumulative Perpetual Preferred Stock $1,000 liquidation preference per share		350,000	$	350,000

(a)

Dividends, if declared, are paid at 6.375%. Warrants to purchase M&T common stock at $73.86 per share issued in connection with the Series A preferred stock expire in 2018 and totaled 713,855 at June 30, 2016 and 719,175 at December 31, 2015.

(b)

Dividends, if declared, are paid semi-annually at a rate of 6.875% per year. The shares became redeemable in whole or in part on June 15, 2016.

(c)

Dividends, if declared, are paid semi-annually at a rate of 6.45% through February 14, 2024 and thereafter will be paid quarterly at a rate of the three-month LIBOR plus 361 basis points (hundredths of one percent). The shares are redeemable in whole or in part on or after February 15, 2024. 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 warrants mentioned in (a) above, a warrant to purchase 95,383 shares of M&T common stock at $518.96 per share was outstanding at June 30, 2016 and December 31, 2015. The obligation under that warrant was assumed by M&T in an acquisition.

-28-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

7.	Pension plans and other postretirement benefits

The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. Net periodic defined benefit cost for defined benefit plans consisted of the following:


	Pension benefits						Other postretirement benefits
	Three months ended June 30
	2016			2015			2016			2015
	(in thousands)

Service cost	$	6,137			5,832			340			174
Interest cost on projected benefit obligation		20,822			17,732			1,281			652
Expected return on plan assets		(26,423	)		(23,476	)		—			—
Amortization of prior service credit		(789	)		(1,478	)		(330	)		(329	)
Amortization of net actuarial loss		6,773			11,237			30			28


Net periodic benefit cost	$	6,520			9,847			1,321			525


	Pension benefits						Other postretirement benefits
	Six months ended June 30
	2016			2015			2016			2015
	(in thousands)

Service cost	$	12,519			11,832			798			374
Interest cost on projected benefit obligation		41,705			35,507			2,486			1,302
Expected return on plan assets		(54,237	)		(47,051	)		—			—
Amortization of prior service credit		(1,614	)		(3,003	)		(680	)		(679	)
Amortization of net actuarial loss		15,073			22,412			30			53


Net periodic benefit cost	$	13,446			19,697			2,634			1,050

Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $15,274,000 and $13,346,000 for the three months ended June 30, 2016 and 2015, respectively, and $32,964,000 and $30,096,000 for the six months ended June 30, 2016 and 2015, respectively.

-29-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8.	Earnings per common share

The computations of basic earnings per common share follow:


	Three months ended June 30						Six months ended June 30
	2016			2015			2016			2015
	(in thousands, except per share)
Income available to common shareholders:

Net income	$	336,031			286,688			634,559			528,301
Less: Preferred stock dividends (a)		(20,317	)		(20,317	)		(40,635	)		(40,635	)

Net income available to common equity		315,714			266,371			593,924			487,666
Less: Income attributable to unvested stock-based compensation awards		(2,746	)		(2,900	)		(5,227	)		(5,371	)


Net income available to common shareholders	$	312,968			263,471			588,697			482,295

Weighted-average shares outstanding:

Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards		159,164			133,818			159,692			133,680
Less: Unvested stock-based compensation awards		(1,362	)		(1,462	)		(1,424	)		(1,477	)


Weighted-average shares outstanding		157,802			132,356			158,268			132,203

Basic earnings per common share	$	1.98			1.99			3.72			3.65

(a)

Including impact of not as yet declared cumulative dividends.

-30-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8.	Earnings per common share, continued

The computations of diluted earnings per common share follow:


	Three months ended June 30						Six months ended June 30
	2016			2015			2016			2015
	(in thousands, except per share)

Net income available to common equity	$	315,714			266,371			593,924			487,666

Less: Income attributable to unvested stock-based compensation awards		(2,740	)		(2,890	)		(5,217	)		(5,353	)


Net income available to common shareholders	$	312,974			263,481			588,707			482,313

Adjusted weighted-average shares outstanding:

Common and unvested stock-based compensation awards		159,164			133,818			159,692			133,680
Less: Unvested stock-based compensation awards		(1,362	)		(1,462	)		(1,424	)		(1,477	)
Plus: Incremental shares from assumed conversion of stock-based compensation awards and warrants to purchase common stock		539			760			493			741


Adjusted weighted-average shares outstanding		158,341			133,116			158,761			132,944

Diluted earnings per common share	$	1.98			1.98			3.71			3.63

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 2.7 million and 1.6 million common shares during the three-month periods ended June 30, 2016 and 2015, respectively, and 2.8 million and 2.1 million common shares during the six-month periods ended June 30, 2016 and 2015, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

-31-

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 (a)		All other			Defined benefit plans			Other			Total amount before tax			Income tax			Net
	(in thousands)

Balance – January 1, 2016	$	16,359		62,849			(489,660	)		(4,093	)	$	(414,545	)		162,918		$	(251,627	)

Other comprehensive income before reclassifications:
Unrealized holding gains, net		9,260		227,118			—			—			236,378			(93,010	)		143,368
Foreign currency translation adjustment		—		—			—			(2,489	)		(2,489	)		871			(1,618	)

Total other comprehensive income (loss) before reclassifications		9,260		227,118			—			(2,489	)		233,889			(92,139	)		141,750


Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income:

Accretion of unrealized holding losses on held-to-maturity (“HTM”) securities		—		2,081			—			—			2,081	(b)		(819	)		1,262
Gains realized in net income		—		(268	)		—			—			(268	)(c)		102			(166	)
Accretion of net gain on terminated cash flow hedges		—		—			—			(77	)		(77	)(d)		30			(47	)
Amortization of prior service credit		—		—			(2,294	)		—			(2,294	)(e)		902			(1,392	)
Amortization of actuarial losses		—		—			15,103			—			15,103	(e)		(5,904	)		9,199

Total reclassifications		—		1,813			12,809			(77	)		14,545			(5,689	)		8,856


Total gain (loss) during the period		9,260		228,931			12,809			(2,566	)		248,434			(97,828	)		150,606


Balance – June 30, 2016	$	25,619		291,780			(476,851	)		(6,659	)	$	(166,111	)		65,090		$	(101,021	)

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

9.	Comprehensive income, continued


	Investment securities
	With OTTI (a)		All other			Defined benefit plans			Other			Total amount before tax			Income tax			Net
	(in thousands)

Balance – January 1, 2015	$	7,438		201,828			(503,027	)		(4,082	)	$	(297,843	)		116,849		$	(180,994	)

Other comprehensive income before reclassifications:
Unrealized holding gains (losses), net		5,670		(85,602	)		—			—			(79,932	)		31,617			(48,315	)
Foreign currency translation adjustment		—		—			—			(779	)		(779	)		261			(518	)
Gains on cash flow hedges		—		—			—			1,453			1,453			(568	)		885

Total other comprehensive income (loss) before reclassifications		5,670		(85,602	)		—			674			(79,258	)		31,310			(47,948	)


Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income:

Accretion of unrealized holding losses on HTM securities		—		1,589			—			—			1,589	(b)		(621	)		968
Losses realized in net income		—		108			—			—			108	(c)		(40	)		68
Accretion of net gain on terminated cash flow hedges		—		—			—			(63	)		(63	)(d)		25			(38	)
Amortization of prior service credit		—		—			(3,682	)		—			(3,682	)(e)		1,640			(2,042	)
Amortization of actuarial losses		—		—			22,465			—			22,465	(e)		(9,981	)		12,484

Total reclassifications		—		1,697			18,783			(63	)		20,417			(8,977	)		11,440


Total gain (loss) during the period		5,670		(83,905	)		18,783			611			(58,841	)		22,333			(36,508	)


Balance – June 30, 2015	$	13,108		117,923			(484,244	)		(3,471	)	$	(356,684	)		139,182		$	(217,502	)

(a)

Other-than-temporary impairment

(b)

Included in interest income

(c)

Included in gain (loss) on bank investment securities

(d)

Included in interest expense

(e)

Included in salaries and employee benefits expense

Accumulated other comprehensive income (loss), net consisted of the following:


					Defined
	Investment securities				benefit
	With OTTI		All other		plans			Other			Total
	(in thousands)

Balance – December 31, 2015	$	9,921		38,166		(296,979	)		(2,735	)	$	(251,627	)

Net gain (loss) during period		5,616		138,848		7,807			(1,665	)		150,606


Balance – June 30, 2016	$	15,537		177,014		(289,172	)		(4,400	)	$	(101,021	)

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

10.

Derivative financial instruments

As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting and collateral provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not material as of June 30, 2016.

The net effect of interest rate swap agreements was to increase net interest income by $10 million and $11 million for the three-month periods ended June 30, 2016 and 2015, respectively, and $20 million and $22 million for the six-month periods ended June 30, 2016 and 2015, respectively.

Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:


	Notional		Average		Weighted- average rate
	amount		maturity		Fixed			Variable
	(in thousands)		(in years)
June 30, 2016
Fair value hedges:
Fixed rate long-term borrowings (a)	$	1,400,000		1.2		4.42	%		1.63	%


December 31, 2015
Fair value hedges:
Fixed rate long-term borrowings (a)	$	1,400,000		1.7		4.42	%		1.39	%

(a)

Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate.

The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale. Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in fair value of certain commitments to originate real estate loans for sale.

Derivative financial instruments used for trading account purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading account purposes had notional values of $20.1 billion and $18.4 billion at June 30, 2016 and December 31, 2015, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes aggregated $826 million and $1.6 billion at June 30, 2016 and December 31, 2015, respectively.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

10.

Derivative financial instruments, continued

Information about the fair values of derivative instruments in the Company’s consolidated balance sheet and consolidated statement of income follows:


	Asset derivatives				Liability derivatives
	Fair value				Fair value
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
	(in thousands)
Derivatives designated and qualifying as hedging instruments
Fair value hedges:
Interest rate swap agreements (a)	$	33,648		43,892		—		—
Commitments to sell real estate loans (a)		71		1,844		8,545		656

		33,719		45,736		8,545		656

Derivatives not designated and qualifying as hedging instruments
Mortgage-related commitments to originate real estate loans for sale (a)		21,431		10,282		48		403
Commitments to sell real estate loans (a)		292		533		7,720		846
Trading:
Interest rate contracts (b)		401,512		203,517		345,681		153,723
Foreign exchange and other option and futures contracts (b)		7,975		8,569		6,860		7,022

		431,210		222,901		360,309		161,994


Total derivatives	$	464,929		268,637		368,854		162,650

(a)

Asset derivatives are reported in other assets and liability derivatives are reported in other liabilities.

(b)

Asset derivatives are reported in trading account assets and liability derivatives are reported in other liabilities.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

10.

Derivative financial instruments, continued

Amount of gain (loss) recognized

Three months ended
June 30, 2016

Three months ended
June 30, 2015

Derivative

Hedged item

Derivative

Hedged item

(in thousands)