Edgar Filing: M&T BANK CORP

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2011


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

Commission File Number 1-9861

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)


New York (State or other jurisdiction of incorporation or organization)		16-0968385 (I.R.S. Employer Identification No.)


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

(716) 842-5445
(Registrant’s telephone number, including area code)

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

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

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


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on July 29, 2011: 125,599,926 shares.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2011


Table of Contents of Information Required in Report	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET - June 30, 2011 and December 31, 2010		3
CONSOLIDATED STATEMENT OF INCOME - Three and six months ended June 30, 2011 and 2010		4
CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2011 and 2010		5
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — Six months ended June 30, 2011 and 2010		6
NOTES TO FINANCIAL STATEMENTS		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		52
Item 3. Quantitative and Qualitative Disclosures About Market Risk		102
Item 4. Controls and Procedures		102
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		102
Item 1A. Risk Factors		102
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		103
Item 3. Defaults Upon Senior Securities		103
Item 4. (Removed and Reserved)		103
Item 5. Other Information		103
Item 6. Exhibits		104
SIGNATURES		104
EXHIBIT INDEX		105
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)


	June 30,			December 31,
Dollars in thousands, except per share	2011			2010

Assets
Cash and due from banks	$	1,297,335			908,755
Interest-bearing deposits at banks		2,275,450			101,222
Federal funds sold		35,580			25,000
Agreement to resell securities		380,000			—
Trading account		502,986			523,834
Investment securities (includes pledged securities that can be sold or repledged of $2,040,940 at June 30, 2011; $1,937,817 at December 31, 2010)
Available for sale (cost: $5,026,881 at June 30, 2011; $5,494,377 at December 31, 2010)		4,890,489			5,413,492
Held to maturity (fair value: $1,143,496 at June 30, 2011; $1,225,253 at December 31, 2010)		1,219,686			1,324,339
Other (fair value: $382,090 at June 30, 2011; $412,709 at December 31, 2010)		382,090			412,709

Total investment securities		6,492,265			7,150,540

Loans and leases		58,844,512			52,315,942
Unearned discount		(303,283	)		(325,560	)

Loans and leases, net of unearned discount		58,541,229			51,990,382
Allowance for credit losses		(907,589	)		(902,941	)

Loans and leases, net		57,633,640			51,087,441

Premises and equipment		567,107			435,837
Goodwill		3,524,625			3,524,625
Core deposit and other intangible assets		275,057			125,917
Accrued interest and other assets		4,743,109			4,138,092

Total assets	$	77,727,154			68,021,263

Liabilities
Noninterest-bearing deposits	$	18,598,828			14,557,568
NOW accounts		1,687,184			1,393,349
Savings deposits		30,712,851			26,431,281
Time deposits		7,678,799			5,817,170
Deposits at Cayman Islands office		551,553			1,605,916

Total deposits		59,229,215			49,805,284

Federal funds purchased and agreements to repurchase securities		452,091			866,555
Other short-term borrowings		115,053			80,877
Accrued interest and other liabilities		1,557,685			1,070,701
Long-term borrowings		7,128,916			7,840,151

Total liabilities		68,482,960			59,663,568

Shareholders’ equity
Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 381,500 shares at June 30, 2011 and 778,000 shares at December 31, 2010; Liquidation preference of $10,000 per share: 50,000 shares at June 30, 2011 and none at December 31, 2010		860,901			740,657
Common stock, $.50 par, 250,000,000 shares authorized, 125,554,637 shares issued at June 30, 2011; 120,396,611 shares issued at December 31, 2010		62,777			60,198
Common stock issuable, 67,634 shares at June 30, 2011; 71,345 shares at December 31, 2010		4,030			4,189
Additional paid-in capital		2,800,002			2,398,615
Retained earnings		5,745,253			5,426,701
Accumulated other comprehensive income (loss), net		(228,769	)		(205,220	)
Treasury stock — common, at cost — none at June 30, 2011; 693,974 shares at December 31, 2010		—			(67,445	)

Total shareholders’ equity		9,244,194			8,357,695

Total liabilities and shareholders’ equity	$	77,727,154			68,021,263

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


		Three months ended June 30						Six months ended June 30
In thousands, except per share		2011			2010			2011			2010

Interest income	Loans and leases, including fees	$	624,247			596,919		$	1,218,279			1,185,046
	Deposits at banks		479			5			515			11
	Federal funds sold		10			9			28			20
	Agreements to resell securities		127			2			128			4
	Trading account		282			110			670			193
	Investment securities
	Fully taxable		60,827			85,232			131,489			170,879
	Exempt from federal taxes		2,281			2,507			4,627			5,017

	Total interest income		688,253			684,784			1,355,736			1,361,170

Interest expense	NOW accounts		274			219			476			419
	Savings deposits		20,757			21,464			39,996			41,913
	Time deposits		19,310			26,254			38,381			55,700
	Deposits at Cayman Islands office		193			376			587			701
	Short-term borrowings		147			726			639			1,613
	Long-term borrowings		61,370			68,518			120,651			137,263

	Total interest expense		102,051			117,557			200,730			237,609

	Net interest income		586,202			567,227			1,155,006			1,123,561
	Provision for credit losses		63,000			85,000			138,000			190,000

	Net interest income after provision for credit losses		523,202			482,227			1,017,006			933,561

Other income	Mortgage banking revenues		42,151			47,084			87,307			88,560
	Service charges on deposit accounts		119,716			128,976			229,447			249,271
	Trust income		75,592			30,169			104,913			61,097
	Brokerage services income		14,926			12,788			29,222			25,894
	Trading account and foreign exchange gains		6,798			3,797			15,077			8,496
	Gain on bank investment securities		110,744			10			150,097			469
	Total other-than-temporary impairment (“OTTI”) losses		(33,211	)		(21,079	)		(42,725	)		(50,566	)
	Portion of OTTI losses recognized in other comprehensive income (before taxes)		6,681			(1,301	)		154			1,384

	Net OTTI losses recognized in earnings		(26,530	)		(22,380	)		(42,571	)		(49,182	)

	Equity in earnings of Bayview Lending Group LLC		(5,223	)		(6,179	)		(11,901	)		(11,893	)
	Other revenues from operations		163,482			79,292			254,485			158,551

	Total other income		501,656			273,557			816,076			531,263

Other expense	Salaries and employee benefits		300,178			245,861			566,268			509,907
	Equipment and net occupancy		59,670			55,431			116,333			110,832
	Printing, postage and supplies		9,723			8,549			18,925			17,592
	Amortization of core deposit and other intangible assets		14,740			14,833			27,054			31,308
	FDIC assessments		26,609			21,608			45,703			42,956
	Other costs of operations		165,975			129,786			302,183			252,835

	Total other expense		576,895			476,068			1,076,466			965,430

	Income before taxes		447,963			279,716			756,616			499,394
	Income taxes		125,605			90,967			227,985			159,690

	Net income	$	322,358			188,749		$	528,631			339,704


	Net income available to common shareholders
	Basic	$	297,164			173,588		$	487,283			310,026
	Diluted		297,179			173,597			487,308			310,037

	Net income per common share
	Basic	$	2.43			1.47		$	4.04			2.63
	Diluted		2.42			1.46			4.02			2.61

	Cash dividends per common share	$	.70			.70		$	1.40			1.40

	Average common shares outstanding
	Basic		122,181			118,054			120,699			117,910
	Diluted		122,796			118,878			121,332			118,569

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Six months ended June 30
In thousands		2011			2010

Cash flows from operating activities	Net income	$	528,631			339,704
	Adjustments to reconcile net income to net cash provided by operating activities
	Provision for credit losses		138,000			190,000
	Depreciation and amortization of premises and equipment		38,370			34,045
	Amortization of capitalized servicing rights		26,742			28,908
	Amortization of core deposit and other intangible assets		27,054			31,308
	Provision for deferred income taxes		(18,201	)		(22,923	)
	Asset write-downs		48,032			51,510
	Net (gain) loss on sales of assets		(181,318	)		1,420
	Net change in accrued interest receivable, payable		4,035			(2,248	)
	Net change in other accrued income and expense		23,766			155,403
	Net change in loans originated for sale		167,857			227,734
	Net change in trading account assets and liabilities		60,210			(6,091	)

	Net cash provided by operating activities		863,178			1,028,770

Cash flows from investing activities	Proceeds from sales of investment securities
	Available for sale		1,909,223			14,870
	Other		71,729			49,463
	Proceeds from maturities of investment securities
	Available for sale		751,314			729,562
	Held to maturity		114,913			77,524
	Purchases of investment securities
	Available for sale		(1,609,272	)		(401,246	)
	Held to maturity		(13,151	)		(987,993	)
	Other		(1,249	)		(6,781	)
	Net (increase) decrease in loans and leases		(454,782	)		757,032
	Net decrease in interest-bearing deposits at banks		432,037			15,509
	Net increase in agreements to resell securities		(365,000	)		—
	Other investments, net		(10,249	)		(21,152	)
	Additions to capitalized servicing rights		(6,935	)		(95	)
	Capital expenditures, net		(13,976	)		(23,403	)
	Acquisitions, net of cash acquired
	Banks and bank holding companies		178,940			—
	Purchase of Wilmington Trust Corporation preferred stock		(330,000	)		—
	Other, net		186,771			40,723

	Net cash provided by investing activities		840,313			244,013

Cash flows from financing activities	Net increase in deposits		566,316			82,464
	Net decrease in short-term borrowings		(528,035	)		(283,616	)
	Payments on long-term borrowings		(1,331,316	)		(1,106,386	)
	Proceeds from issuance of preferred stock		495,000			—
	Redemption of preferred stock		(370,000	)		—
	Dividends paid — common		(173,135	)		(167,090	)
	Dividends paid — preferred		(20,046	)		(20,113	)
	Other, net		56,885			31,502

	Net cash used by financing activities		(1,304,331	)		(1,463,239	)

	Net increase (decrease) in cash and cash equivalents		399,160			(190,456	)
	Cash and cash equivalents at beginning of period		933,755			1,246,342

	Cash and cash equivalents at end of period	$	1,332,915			1,055,886

Supplemental disclosure of cash flow information	Interest received during the period	$	1,366,981			1,382,432
	Interest paid during the period		205,514			248,214
	Income taxes paid during the period		266,240			145,202

Supplemental schedule of noncash investing and financing activities	Real estate acquired in settlement of loans Acquisitions:	$	45,774			141,168
	Fair value of:
	Assets acquired (noncash)		10,666,102			—
	Liabilities assumed		10,044,555			—
	Common stock issued		405,557			—
	Retirement of Wilmington Trust Corporation preferred stock		330,000			—
	Increase (decrease) from consolidation of securitization trusts:
	Loans		—			423,865
	Investment securities — available for sale		—			(360,471	)
	Long-term borrowings		—			65,419
	Accrued interest and other		—			2,025

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


															Accumulated
															other
						Common			Additional						comprehensive
	Preferred			Common		stock			paid-in			Retained			income			Treasury
In thousands, except per share	stock			stock		issuable			capital			earnings			(loss), net			stock			Total

2010
Balance — January 1, 2010	$	730,235			60,198		4,342			2,442,947			5,076,884			(335,997	)		(225,702	)		7,752,907
Comprehensive income:
Net income		—			—		—			—			339,704			—			—			339,704
Other comprehensive income, net of tax and reclassification adjustments:
Unrealized gains on investment securities		—			—		—			—			—			136,766			—			136,766
Defined benefit plans liability adjustment		—			—		—			—			—			2,175			—			2,175
Unrealized gain on terminated cash flow hedge		—			—		—			—			—			(141	)		—			(141	)

																						478,504
Preferred stock cash dividends		—			—		—			—			(20,113	)		—			—			(20,113	)
Amortization of preferred stock discount		5,115			—		—			—			(5,115	)		—			—			—
Repayment of management stock ownership program receivable		—			—		—			1,838			—			—			—			1,838
Stock-based compensation plans:
Compensation expense, net		—			—		—			(13,571	)		—			—			40,886			27,315
Exercises of stock options, net		—			—		—			(21,997	)		—			—			49,400			27,403
Directors’ stock plan		—			—		—			(232	)		—			—			787			555
Deferred compensation plans, net, including dividend equivalents		—			—		(265	)		(292	)		(96	)		—			604			(49	)
Other		—			—		—			914			—			—			—			914
Common stock cash dividends — $1.40 per share		—			—		—			—			(167,430	)		—			—			(167,430	)

Balance — June 30, 2010	$	735,350			60,198		4,077			2,409,607			5,223,834			(197,197	)		(134,025	)		8,101,844

2011
Balance — January 1, 2011	$	740,657			60,198		4,189			2,398,615			5,426,701			(205,220	)		(67,445	)		8,357,695
Comprehensive income:
Net income		—			—		—			—			528,631			—			—			528,631
Other comprehensive income, net of tax and reclassification adjustments:
Unrealized losses on investment securities		—			—		—			—			—			(27,892	)		—			(27,892	)
Defined benefit plans liability adjustment		—			—		—			—			—			4,288			—			4,288
Unrealized gain on terminated cash flow hedge		—			—		—			—			—			(141	)		—			(141	)
Foreign currency translation adjustment		—			—		—			—			—			196			—			196
																						505,082
Acquisition of Wilmington Trust Corporation - common stock issued		—			2,348		—			403,209			—			—			—			405,557
Partial redemption of Series A preferred stock		(370,000	)		—		—			—			—			—			—			(370,000	)
Conversion of Series B preferred stock into 433,144 shares of common stock		(26,500	)		192		—			21,754			—			—			4,554			—
Issuance of Series D preferred stock		500,000			—		—			(5,000	)		—			—			—			495,000
Preferred stock cash dividends		—			—		—			—			(20,046	)		—			—			(20,046	)
Amortization of preferred stock discount		16,744			—		—			—			(16,744	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—			27		—			(10,382	)		—			—			31,666			21,311
Exercises of stock options, net		—			12		—			(8,948	)		—			—			30,106			21,170
Directors’ stock plan		—			—		—			(49	)		—			—			612			563
Deferred compensation plans, net, including dividend equivalents		—			—		(159	)		(219	)		(94	)		—			507			35
Other		—			—		—			1,022			—			—			—			1,022
Common stock cash dividends — $1.40 per share		—			—		—			—			(173,195	)		—			—			(173,195	)

Balance — June 30, 2011	$	860,901			62,777		4,030			2,800,002			5,745,253			(228,769	)		—			9,244,194

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NOTES TO FINANCIAL STATEMENTS

1. Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2010 Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

2. Acquisitions

On May 16, 2011, M&T acquired all of the outstanding common stock of Wilmington Trust Corporation (“Wilmington Trust”), headquartered in Wilmington, Delaware, in a stock-for-stock transaction. Wilmington Trust operated 55 banking offices in Delaware and Pennsylvania at the date of acquisition. The results of operations acquired in the Wilmington Trust transaction have been included in the Company’s financial results since May 16, 2011. Wilmington Trust shareholders received .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock, resulting in M&T issuing a total of 4,694,486 common shares with an acquisition date fair value of $406 million.

The Wilmington Trust transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled approximately $10.8 billion, including $6.4 billion of loans and leases (including approximately $3.2 billion of commercial real estate loans, $1.4 billion of commercial loans and leases, $1.1 billion of consumer loans and $680 million of residential real estate loans). Liabilities assumed aggregated $10.0 billion, including $8.9 billion of deposits. The common stock issued in the transaction added $406 million to M&T’s common shareholders’ equity. Immediately prior to the closing of the Wilmington Trust transaction, M&T redeemed the $330 million of preferred stock issued by Wilmington Trust as part of the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $176 million of core deposit and other intangible assets. The core deposit and other intangible assets are generally being amortized over periods of 5 to 7 years using an accelerated method. There was no goodwill recorded as a result of the transaction; however, a non-taxable gain of $65 million was realized, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust forms one of the largest banks in the Eastern United States, adding to M&T’s market-leading position in the Mid-Atlantic region, including the leading deposit market share in Delaware.

In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of these determinations related to the fair valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Wilmington Trust’s previously established allowance for credit losses. Subsequent decreases in the expected cash flows require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows generally result in the recognition of additional interest income over the then remaining lives of the loans.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

In conjunction with the Wilmington Trust acquisition, the acquired loan portfolio was accounted for at fair value as follows:


	May 16, 2011
	(in thousands)
Contractually required principal and interest at acquisition	$	8,336,755
Contractual cash flows not expected to be collected		(1,209,749	)

Expected cash flows at acquisition		7,127,006
Interest component of expected cash flows		(716, 576	)

Basis in acquired loans at acquisition — estimated fair value	$	6,410,430

Included in the above table is information related to loans for which there was specific evidence of credit deterioration at the acquisition date and for which it was deemed probable that the Company would be unable to collect all contractually required principal and interest payments (“purchased impaired loans”). Specifically, contractually required principal and interest, cash flows expected to be collected and estimated fair value of purchased impaired loans were $1,419,672,000, $747,265,000 and $707,907,000, respectively.

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


	(in thousands)
Purchase price:
Value of:
Common shares issued (4,694,486 shares)	$	405,557
Preferred stock purchased from U.S. Treasury		330,000

Total purchase price		735,557


Identifiable assets:
Cash and due from banks		178,940
Interest-bearing deposits at banks		2,606,265
Other short-term investments		57,817
Investment securities		510,390
Loans and leases		6,410,430
Core deposit and other intangibles		176,194
Other assets		905,006

Total identifiable assets		10,845,042


Liabilities:
Deposits		8,864,161
Short-term borrowings		147,752
Long-term borrowings		600,830
Other liabilities		431,812

Total liabilities		10,044,555


Net gain resulting from acquisition	$	64,930

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

The following table discloses the impact of Wilmington Trust (excluding the impact of the merger-related gain and expenses) since the acquisition on May 16, 2011 through the end of the second quarter of 2011. The table also presents certain pro forma information as if Wilmington Trust had been acquired on January 1, 2010. These results combine the historical results of Wilmington Trust into the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on the indicated date. In particular, no adjustments have been made to eliminate the amount of Wilmington Trust’s provision for credit losses of $42 million in 2011 and $283 million in 2010 or the impact of other-than-temporary impairment losses recognized by Wilmington Trust of $5 million in 2011 and $26 million in 2010 that may not have been necessary had the acquired loans and investment securities been recorded at fair value as of the beginning of 2010. Furthermore, expenses related to preparing for systems conversions and other costs of integration of $41 million and the $65 million gain recorded in connection with the acquisition are included in the 2011 periods in which such costs were incurred and gain recognized. Additionally, the Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts that follow.


	Actual since		Pro forma
	acquisition		Six months ended
	through		June 30,
	June 30, 2011		2011		2010
	(in thousands)
Total revenues (a)	$	79,140		2,208,188		2,002,497
Net income		3,068		480,948		189,246


(a)		Represents net interest income plus other income.

- 9 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Acquisitions, continued

On November 5, 2010, M&T Bank, M&T’s principal banking subsidiary, entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits, except certain brokered deposits, and acquire certain assets of K Bank, based in Randallstown, Maryland. As part of the transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired in the transaction totaled approximately $556 million, including $154 million of loans and $186 million in cash, and liabilities assumed aggregated $528 million, including $491 million of deposits. In accordance with GAAP, M&T Bank recorded an after-tax gain on the transaction of $17 million ($28 million before taxes). The gain reflected the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. There was no goodwill or other intangible assets recorded in connection with this transaction. The operations obtained in the K Bank acquisition transaction did not have a material impact on the Company’s consolidated financial position or results of operations.

In connection with the Wilmington Trust and K Bank acquisitions, the Company incurred merger-related expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with preparing for systems conversions and/or integration of operations; costs related to termination of existing contractual arrangements of Wilmington Trust to purchase various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; travel costs; and printing, postage, supplies and other costs of completing the transactions and commencing operations in new markets and offices. There were no merger-related expenses during the three months or six months ended June 30, 2010. The Company expects to incur additional merger-related expenses during the remainder of 2011. As of June 30, 2011, the remaining unpaid portion of incurred merger-related expenses was $24 million. A summary of merger-related expenses included in the consolidated statement of income follows.


	Three months ended		Six months ended
	June 30, 2011		June 30, 2011
	(in thousands)
Salaries and employee benefits	$	15,305	$	15,312
Equipment and net occupancy		25		104
Printing, postage and supplies		318		465
Other costs of operations		21,348		25,410

	$	36,996	$	41,291

- 10 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities

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


			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
			(in thousands)
June 30, 2011
Investment securities available for sale:
U.S. Treasury and federal agencies	$	111,836		1,119		2	$	112,953
Obligations of states and political subdivisions		66,709		821		39		67,491
Mortgage-backed securities:
Government issued or guaranteed		2,965,034		60,965		2,981		3,023,018
Privately issued residential		1,507,748		9,720		211,266		1,306,202
Privately issued commercial		21,094		—		3,861		17,233
Collateralized debt obligations		44,268		18,800		1,467		61,601
Other debt securities		217,812		5,738		28,014		195,536
Equity securities		92,380		14,526		451		106,455

		5,026,881		111,689		248,081		4,890,489

Investment securities held to maturity:
Obligations of states and political subdivisions		184,595		4,239		149		188,685
Mortgage-backed securities:
Government issued or guaranteed		730,785		21,978		—		752,763
Privately issued		292,034		357		102,615		189,776
Other debt securities		12,272		—		—		12,272

		1,219,686		26,574		102,764		1,143,496

Other securities		382,090		—		—		382,090

Total	$	6,628,657		138,263		350,845	$	6,416,075


December 31, 2010
Investment securities available for sale:
U.S. Treasury and federal agencies	$	61,772		1,680		18	$	63,434
Obligations of states and political subdivisions		59,921		561		57		60,425
Mortgage-backed securities:
Government issued or guaranteed		3,146,054		161,298		1,111		3,306,241
Privately issued residential		1,677,064		10,578		252,081		1,435,561
Privately issued commercial		25,357		—		2,950		22,407
Collateralized debt obligations		95,080		24,754		9,078		110,756
Other debt securities		310,017		26,883		38,000		298,900
Equity securities		119,112		5,098		8,442		115,768

		5,494,377		230,852		311,737		5,413,492

Investment securities held to maturity:
Obligations of states and political subdivisions		191,119		1,944		694		192,369
Mortgage-backed securities:
Government issued or guaranteed		808,108		14,061		—		822,169
Privately issued		312,537		—		114,397		198,140
Other debt securities		12,575		—		—		12,575

		1,324,339		16,005		115,091		1,225,253

Other securities		412,709		—		—		412,709

Total	$	7,231,425		246,857		426,828	$	7,051,454

- 11 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

Gross realized gains on investment securities were $111 million and $150 million for the three-month and six-month periods ended June 30, 2011. Gross realized losses were not significant in 2011. Gross realized gains and losses on investment securities were not significant during the three- and six-month periods ended June 30, 2010. During the second quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)having an aggregate amortized cost of approximately $1.0 billion which resulted in a gain of $66 million (pre-tax). The Company also sold trust preferred securities and collateralized debt obligations during the second quarter of 2011 having an aggregate amortized cost of $136 million and $100 million, respectively, which resulted in gains of $25 million (pre-tax) and $20 million (pre-tax), respectively. During the first quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac having an aggregate amortized cost of approximately $484 million which resulted in a gain of $39 million (pre-tax).

The Company recognized $27 million and $43 million of pre-tax other-than-temporary impairment losses during the three- and six-month periods ended June 30, 2011, respectively, related to privately issued mortgage-backed securities. The impairment charges were recognized in light of deterioration of real estate values and continued high levels of delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. Other-than-temporary impairment losses on investment securities of $22 million and $49 million (pre-tax) were recognized by the Company for the three- and six-month periods ended June 30, 2010. Approximately $12 million of the losses recognized in the second quarter of 2010 related to American Depositary Shares of Allied Irish Banks, p.l.c. (“AIB ADSs”) which were obtained in M&T’s acquisition of a subsidiary of AIB in 2003. The remaining losses in 2010 related to certain privately issued residential mortgage-backed securities and collateralized debt obligations backed by pooled trust preferred securities. The impairment charges related to the AIB ADSs were recognized due to mounting credit and other losses incurred by AIB and significant dilution of AIB common shareholders based on the Irish government’s significant ownership position. The impairment charges related to the privately issued residential mortgage-backed securities were recognized in light of deterioration of housing values in the residential real estate market and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The other-than-temporary impairment losses on debt securities represent management’s estimate of credit losses inherent in the securities considering projected cash flows using assumptions of delinquency rates, loss severities, and other estimates of future collateral performance. The following table displays changes in credit losses for debt securities recognized in earnings for the three months and six months ended June 30, 2011 and 2010.

- 12 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued


	Three months ended June 30
	2011			2010
	(in thousands)
Beginning balance	$	322,719			308,017
Additions for credit losses not previously recognized		26,530			10,387
Reductions for increases in cash flows		(4,881	)		(173	)
Reductions for realized losses		(46,227	)		(3,968	)

Ending balance	$	298,141			314,263


	Six months ended June 30
	2011			2010
	(in thousands)
Beginning balance	$	327,912			284,513
Additions for credit losses not previously recognized		42,571			37,189
Reductions for increases in cash flows		(5,020	)		(342	)
Reductions for realized losses		(67,322	)		(7,097	)


Ending balance	$	298,141			314,263

At June 30, 2011, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:


			Estimated
	Amortized cost		fair value
	(in thousands)
Debt securities available for sale:
Due in one year or less	$	26,403		26,521
Due after one year through five years		119,212		121,204
Due after five years through ten years		16,687		18,081
Due after ten years		278,323		271,775

		440,625		437,581
Mortgage-backed securities available for sale		4,493,876		4,346,453

	$	4,934,501		4,784,034


Debt securities held to maturity:
Due in one year or less	$	23,428		23,607
Due after one year through five years		20,126		20,775
Due after five years through ten years		134,952		138,114
Due after ten years		18,361		18,461

		196,867		200,957
Mortgage-backed securities held to maturity		1,022,819		942,539

	$	1,219,686		1,143,496

- 13 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

A summary of investment securities that as of June 30, 2011 and December 31, 2010 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:


	Less than 12 months					12 months or more
			Unrealized					Unrealized
	Fair value		losses			Fair value		losses
			(in thousands)
June 30, 2011
Investment securities available for sale:
U.S. Treasury and federal agencies	$	1,903		(2	)		—		—
Obligations of states and political subdivisions		1,444		(6	)		2,323		(33	)
Mortgage-backed securities:
Government issued or guaranteed		632,513		(2,937	)		3,010		(44	)
Privately issued residential		146,893		(1,859	)		859,930		(209,407	)
Privately issued commercial		—		—			17,233		(3,861	)
Collateralized debt obligations		3,039		(19	)		5,544		(1,448	)
Other debt securities		51,652		(935	)		101,588		(27,079	)
Equity securities		3,375		(451	)		—		—

		840,819		(6,209	)		989,628		(241,872	)


Investment securities held to maturity:
Obligations of states and political subdivisions		22,591		(108	)		451		(41	)
Privately issued mortgage-backed securities		322		(123	)		184,970		(102,492	)

		22,913		(231	)		185,421		(102,533	)

Total	$	863,732		(6,440	)		1,175,049		(344,405	)


	Less than 12 months					12 months or more
			Unrealized					Unrealized
	Fair value		losses			Fair value		losses
			(in thousands)
December 31, 2010
Investment securities available for sale:
U.S. Treasury and federal agencies	$	27,289		(18	)		—		—
Obligations of states and political subdivisions		3,712		(18	)		2,062		(39	)
Mortgage-backed securities:
Government issued or guaranteed		68,507		(1,079	)		2,965		(32	)
Privately issued residential		61,192		(1,054	)		1,057,315		(251,027	)
Privately issued commercial		—		—			22,407		(2,950	)
Collateralized debt obligations		12,462		(6,959	)		6,004		(2,119	)
Other debt securities		2,134		(10	)		88,969		(37,990	)
Equity securities		5,326		(3,721	)		673		(4,721	)

		180,622		(12,859	)		1,180,395		(298,878	)


Investment securities held to maturity:
Obligations of states and political subdivisions		76,318		(638	)		467		(56	)
Privately issued mortgage-backed securities		—		—			198,140		(114,397	)

		76,318		(638	)		198,607		(114,453	)

Total	$	256,940		(13,497	)		1,379,002		(413,331	)

- 14 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

The Company owned 387 individual investment securities with aggregate gross unrealized losses of $351 million at June 30, 2011. Approximately $211 million of the unrealized losses pertained to privately issued residential mortgage-backed securities with a cost basis of $1.2 billion. The Company also had $29 million of unrealized losses on trust preferred securities issued by financial institutions, securities backed by trust preferred securities issued by financial institutions and other entities, and other debt securities having a cost basis of $191 million. Based on a review of each of the remaining securities in the investment securities portfolio at June 30, 2011, with the exception of the aforementioned securities for which other-than-temporary impairment losses were recognized, the Company concluded that it expected to recover the amortized cost basis of its investment. As of June 30, 2011, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At June 30, 2011, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $382 million of cost method investment securities.

4. Loans and leases and the allowance for credit losses

Interest income on acquired loans that were recorded at fair value at the acquisition date for the three months and six months ended June 30, 2011 was approximately $69 million and $110 million, respectively, and for the three months and six months ended June 30, 2010 was approximately $42 million and $86 million, respectively. The outstanding principal balance and the carrying amount of such loans that is included in the consolidated balance sheet at June 30, 2011 was as follows:


	(in thousands)
Outstanding principal balance	$	10,445,425
Carrying amount		9,268,721

Purchased impaired loans totaled $753 million at June 30, 2011, representing less than 1% of the Company’s assets and $97 million at December 31, 2010, representing less than .2% of the Company’s assets. Interest income earned on purchased impaired loans was $5 million and $7 million during the three- and six-month periods ended June 30, 2011, respectively, and $1 million and $2 million during the three- and six-month periods ended June 30, 2010, respectively. Other receivables considered impaired at the time of purchase were also not material to the Company’s financial statements.

- 15 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

A summary of current, past due and nonaccrual loans as of June 30, 2011 and December 31, 2010 were as follows:


			30-89 Days		90 Days or more		Purchased
	Current		past due		past due and accruing		impaired		Nonaccrual		Total
June 30, 2011					(in thousands)
Commercial, financial, leasing, etc.	$	14,791,110		24,900		23,488		37,773		163,621		15,040,892
Real estate:
Commercial		18,900,107		104,668		85,938		226,083		234,171		19,550,967
Residential builder and developer		1,047,647		39,246		28,606		366,879		359,152		1,841,530
Other commercial construction		2,635,409		37,360		32,173		51,435		114,852		2,871,229
Residential		5,737,580		211,506		199,109		64,327		187,471		6,399,993
Residential Alt-A		426,437		37,050		—		—		107,441		570,928
Consumer:
Home equity lines and loans		6,740,046		37,438		—		5,097		49,941		6,832,522
Automobile		2,767,206		49,518		—		—		27,724		2,844,448
Other		2,529,971		38,880		3,883		1,384		14,602		2,588,720

Total	$	55,575,513		580,566		373,197		752,978		1,258,975		58,541,229


			30-89 Days		90 Days or more		Purchased
	Current		past due		past due and accruing		impaired		Nonaccrual		Total
December 31, 2010					(in thousands)
Commercial, financial, leasing, etc.	$	13,088,887		96,087		16,647		2,250		186,739		13,390,610
Real estate:
Commercial		16,589,240		89,906		35,338		8,275		209,031		16,931,790
Residential builder and developer		891,764		30,805		9,763		72,710		346,448		1,351,490
Other commercial construction		2,723,399		36,420		11,323		2,098		126,641		2,899,881
Residential		4,699,711		229,641		192,276		9,320		172,729		5,303,677
Residential Alt-A		475,236		42,674		—		—		106,469		624,379
Consumer:
Home equity lines and loans		6,472,563		38,367		—		2,366		43,055		6,556,351
Automobile		2,608,230		44,604		—		—		31,892		2,684,726
Other		2,190,353		36,689		4,246		—		16,190		2,247,478

Total	$	49,739,383		645,193		269,593		97,019		1,239,194		51,990,382

- 16 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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


	Commercial,
	Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated			Total
							(in thousands)
Beginning balance	$	215,659			391,107			87,526			137,351			72,060			903,703
Provision for credit losses		6,870			22,735			13,654			19,852			(111	)		63,000
Net charge-offs
Charge-offs		(14,923	)		(15,915	)		(15,872	)		(24,940	)		—			(71,650	)
Recoveries		2,273			3,184			2,033			5,046			—			12,536

Net charge-offs		(12,650	)		(12,731	)		(13,839	)		(19,894	)		—			(59,114	)

Ending balance	$	209,879			401,111			87,341			137,309			71,949			907,589

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


	Commercial,
	Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
							(in thousands)
Beginning balance	$	212,579			400,562			86,351			133,067			70,382		902,941
Provision for credit losses		21,812			37,510			29,495			47,616			1,567		138,000
Net charge-offs
Charge-offs		(28,950	)		(40,494	)		(32,039	)		(53,261	)		—		(154,744	)
Recoveries		4,438			3,533			3,534			9,887			—		21,392

Net charge-offs		(24,512	)		(36,961	)		(28,505	)		(43,374	)		—		(133,352	)

Ending balance	$	209,879			401,111			87,341			137,309			71,949		907,589

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment. Changes in the allowance for credit losses for the three months and six months ended June 30, 2010 were as follows:


	Three months ended			Six months ended
	June 30, 2010			June 30, 2010
	(in thousands)
Beginning balance	$	891,265		$	878,022
Provision for credit losses		85,000			190,000
Consolidation of loan securitization trusts		—			2,752
Net charge-offs
Charge-offs		(105,346	)		(211,385	)
Recoveries		23,748			35,278

Net charge-offs		(81,598	)		(176,107	)

Ending balance	$	894,667		$	894,667

- 17 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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

- 18 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	June 30, 2011						December 31, 2010
	Recorded		Unpaid principal		Related		Recorded		Unpaid principal		Related
	investment		balance		allowance		investment		balance		allowance
					(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	94,843		137,532		32,827		121,744		170,888		40,909
Real estate:
Commercial		132,723		169,915		29,670		110,975		140,015		17,393
Residential builder and developer		178,636		224,646		79,506		263,545		295,031		78,597
Other commercial construction		87,407		94,610		13,073		80,934		85,432		22,067
Residential		86,574		105,454		3,044		73,006		85,279		3,375
Residential Alt-A		165,539		176,915		32,000		180,665		191,445		36,000
Consumer:
Home equity lines and loans		12,050		13,497		2,547		11,799		13,378		2,227
Automobile		57,827		57,827		12,351		58,858		58,858		12,597
Other		4,209		4,209		998		2,978		2,978		768

		819,808		984,605		206,016		904,504		1,043,304		213,933

With no related allowance recorded:
Commercial, financial, leasing, etc.		75,477		100,760		—		65,827		86,332		—
Real estate:
Commercial		105,755		122,637		—		101,939		116,316		—
Residential builder and developer		207,803		259,984		—		100,799		124,383		—
Other commercial construction		27,989		31,712		—		46,656		50,496		—
Residential		15,483		21,383		—		5,035		7,723		—
Residential Alt-A		30,607		52,986		—		28,967		47,879		—

		463,114		589,462		—		349,223		433,129		—


Total:
Commercial, financial, leasing, etc.		170,320		238,292		32,827		187,571		257,220		40,909
Real estate:
Commercial		238,478		292,552		29,670		212,914		256,331		17,393
Residential builder and developer		386,439		484,630		79,506		364,344		419,414		78,597
Other commercial construction		115,396		126,322		13,073		127,590		135,928		22,067
Residential		102,057		126,837		3,044		78,041		93,002		3,375
Residential Alt-A		196,146		229,901		32,000		209,632		239,324		36,000
Consumer:
Home equity lines and loans		12,050		13,497		2,547		11,799		13,378		2,227
Automobile		57,827		57,827		12,351		58,858		58,858		12,597
Other		4,209		4,209		998		2,978		2,978		768

Total	$	1,282,922		1,574,067		206,016		1,253,727		1,476,433		213,933

- 19 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Three months ended						Three months ended
	June 30, 2011						June 30, 2010
			Interest income						Interest income
			recognized						recognized
	Average						Average
	recorded				Cash		recorded				Cash
	investment		Total		basis		investment		Total		basis
					(in thousands)
Commercial, financial, leasing, etc.	$	180,000		767		754		297,364		775		765
Real estate:
Commercial		233,931		513		483		237,121		139		121
Residential builder and developer		358,421		312		110		307,857		671		406
Other commercial construction		107,494		142		105		49,894		17		17
Residential		97,317		1,035		551		60,593		681		432
Residential Alt-A		199,056		1,991		409		223,430		2,144		447
Consumer:
Home equity lines and loans		12,069		190		24		11,993		167		25
Automobile		58,650		984		293		53,497		910		318
Other		3,544		55		10		3,221		63		15

Total	$	1,250,482		5,989		2,739		1,244,970		5,567		2,546


	Six months ended						Six months ended
	June 30, 2011						June 30, 2010
			Interest income						Interest income
			recognized						recognized
	Average						Average
	recorded				Cash		recorded				Cash
	investment		Total		basis		investment		Total		basis
					(in thousands)
Commercial, financial, leasing, etc.	$	183,482		1,774		1,755		307,404		1,230		1,220
Real estate:
Commercial		227,019		897		825		251,607		510		492
Residential builder and developer		360,429		839		240		309,642		715		450
Other commercial construction		117,669		652		426		51,970		401		401
Residential		90,813		2,069		1,147		52,932		1,213		781
Residential Alt-A		202,339		3,986		960		225,391		4,327		885
Consumer:
Home equity lines and loans		12,098		351		50		12,268		359		63
Automobile		58,655		1,968		589		51,732		1,771		666
Other		3,304		112		16		3,232		129		31

Total	$	1,255,808		12,648		6,008		1,266,178		10,655		4,989

- 20 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger balance criticized commercial and commercial real estate loans are individually reviewed by centralized loan review personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. Smaller balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance. The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans as of June 30, 2011 and December 31, 2010.


			Real Estate
	Commercial,				Residential		Other
	Financial,				Builder and		Commercial
	Leasing, etc.		Commercial		Developer		Construction
			(in thousands)
June 30, 2011
Pass	$	14,154,538		18,403,985		1,255,712		2,329,099
Criticized accrual		722,733		912,811		226,666		427,278
Criticized nonaccrual		163,621		234,171		359,152		114,852

Total	$	15,040,892		19,550,967		1,841,530		2,871,229


December 31, 2010
Pass	$	12,371,138		15,831,104		693,110		2,253,589
Criticized accrual		832,733		891,655		311,932		519,651
Criticized nonaccrual		186,739		209,031		346,448		126,641

Total	$	13,390,610		16,931,790		1,351,490		2,899,881

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance, recent loss experience and trends related thereto. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values.

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Given the inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. The determination of the allocated

- 21 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

portion of the allowance for credit losses is very subjective. Factors that influence the precision in developing loss estimates for the allocated allowance impact the level of the unallocated portion of the allowance. Such factors might include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

At June 30, 2011 and December 31, 2010, the allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:


	Commercial,
	Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
					(in thousands)
June 30, 2011
Individually evaluated for impairment	$	32,656		118,545		34,000		15,473	$	200,674
Collectively evaluated for impairment		177,052		278,862		52,297		121,413		629,624
Purchased impaired		171		3,704		1,044		423		5,342

Allocated	$	209,879		401,111		87,341		137,309		835,640

Unallocated										71,949


Total									$	907,589


December 31, 2010
Individually evaluated for impairment	$	40,459		114,082		39,000		15,492	$	209,033
Collectively evaluated for impairment		171,670		282,505		46,976		117,475		618,626
Purchased impaired		450		3,975		375		100		4,900

Allocated	$	212,579		400,562		86,351		133,067		832,559

Unallocated										70,382


Total									$	902,941

- 22 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of June 30, 2011 and December 31, 2010 was as follows:


	Commercial,
	Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
					(in thousands)
June 30, 2011
Individually evaluated for impairment	$	169,797		717,317		293,257		72,042	$	1,252,413
Collectively evaluated for impairment		14,833,322		22,902,012		6,613,337		12,187,167		56,535,838
Purchased impaired		37,773		644,397		64,327		6,481		752,978


Total	$	15,040,892		24,263,726		6,970,921		12,265,690	$	58,541,229


December 31, 2010
Individually evaluated for impairment	$	186,739		682,120		286,612		72,082	$	1,227,553
Collectively evaluated for impairment		13,201,621		20,417,958		5,632,124		11,414,107		50,665,810
Purchased impaired		2,250		83,083		9,320		2,366		97,019


Total	$	13,390,610		21,183,161		5,928,056		11,488,555	$	51,990,382

5. Borrowings

M&T had $1.2 billion of fixed and floating rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) outstanding at June 30, 2011 which are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities (“Capital Securities”) and common securities (“Common Securities”). The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures. The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding trust.

Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 capital. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law on July 21, 2010. One of its provisions is for a three-year phase-in related to the exclusion of trust preferred capital securities from Tier 1 capital for large financial institutions, including M&T. That phase-in period begins on January 1, 2013.

Holders of the Capital Securities receive preferential cumulative cash distributions unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures as allowed by the terms of each such debenture, in which case payment of distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. In the event of an extended interest period exceeding twenty quarterly periods for $350 million of Junior Subordinated Debentures due January 31, 2068, M&T must fund the payment of accrued and unpaid interest through an alternative payment mechanism, which requires M&T to issue common stock, non-cumulative perpetual preferred stock or warrants to purchase common stock until M&T has raised an amount of eligible

- 23 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings, continued

proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest on the Junior Subordinated Debentures due January 31, 2068. In general, the agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T of the payment of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital Securities are subordinate and junior in right of payment to all senior indebtedness of M&T.

The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates (ranging from 2027 to 2068) of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval. In connection with the issuance of 8.50% Enhanced Trust Preferred Securities associated with $350 million of Junior Subordinated Debentures maturing in 2068, M&T entered into a replacement capital covenant that provides that neither M&T nor any of its subsidiaries will repay, redeem or purchase any of the Junior Subordinated Debentures due January 31, 2068 or the 8.50% Enhanced Trust Preferred Securities prior to January 31, 2048, with certain limited exceptions, except to the extent that, during the 180 days prior to the date of that repayment, redemption or purchase, M&T and its subsidiaries have received proceeds from the sale of qualifying securities that (i) have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the 8.50% Enhanced Trust Preferred Securities or the Junior Subordinated Debentures due January 31, 2068, as applicable, at the time of repayment, redemption or purchase, and (ii) M&T has obtained the prior approval of the Federal Reserve Board, if required.

Including the unamortized portions of purchase accounting adjustments to reflect estimated fair value at the acquisition dates of the Common Securities of various trusts, the Junior Subordinated Debentures associated with Capital Securities had financial statement carrying values of $1.2 billion at each of June 30, 2011 and December 31, 2010.

- 24 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Shareholders’ equity

M&T is authorized to issue 1,000,000 shares of preferred stock with a $1.00 par value per share. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference, but have no general voting rights.

Issued and outstanding preferred stock of M&T is presented below:


	Carrying		Carrying
	value		value
	June 30, 2011		December 31, 2010
	(dollars in thousands)
Series A (a)(d)
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share, 230,000 shares issued and outstanding at June 30, 2011; 600,000 shares issued and outstanding at December 31, 2010	$	223,037	$	578,630

Series B (b)
Series B Mandatory Convertible Non-cumulative Preferred Stock, $1,000 liquidation preference per share, 26,500 shares issued and outstanding at December 31, 2010		—		26,500

Series C (a)(c)
Fixed Rate Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share, 151,500 shares issued and outstanding at June 30, 2011 and December 31, 2010		137,864		135,527

Series D (e)
Fixed Rate Non-cumulative Perpetual Preferred Stock, Series D, $10,000 liquidation preference per share, 50,000 shares issued and outstanding at June 30, 2011		500,000		—


(a)		Shares were issued as part of the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Treasury. Cash proceeds were allocated between the preferred stock and a ten-year warrant to purchase M&T common stock (Series A — 1,218,522 common shares at $73.86 per share, Series C — 407,542 common shares at $55.76 per share). Dividends, if declared, will accrue and be paid quarterly at a rate of 5% per year for the first five years following the original 2008 issuance dates and thereafter at a rate of 9% per year. The agreement with the U.S. Treasury contains limitations on certain actions of M&T, including the payment of quarterly cash dividends on M&T’s common stock in excess of $.70 per share, the repurchase of its common stock during the first three years of the agreement, and the amount and nature of compensation arrangements for certain of the Company’s officers.



(b)		Shares were assumed in an acquisition and a new Series B Preferred Stock was designated. Pursuant to their terms, the shares of Series B Preferred Stock were converted into 433,144 shares of M&T common stock on April 1, 2011. The preferred stock had a stated dividend rate of 10% per year.

- 25 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

6. Shareholders’ equity, continued

(c)

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

(d)

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

(e)

Shares were issued on May 31, 2011. Dividends, if declared, will be paid semi-annually at a rate of 6.875% per year. The shares are redeemable in whole or in part on or after June 15, 2016. Notwithstanding M&T’s option to redeem the shares, if an event occurs such that the shares no longer qualify as Tier 1 Capital, M&T may redeem all of the shares within 90 days following that occurrence.

7. Pension plans and other postretirement benefits

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


							Other
	Pension						postretirement
	benefits						benefits
	Three months ended June 30
	2011			2010			2011		2010
				(in thousands)
Service cost	$	6,413			4,960			115		102
Interest cost on projected benefit obligation		14,086			12,032			909		785
Expected return on plan assets		(14,563	)		(12,655	)		—		—
Amortization of prior service cost		(1,629	)		(1,629	)		29		63
Amortization of net actuarial loss		5,165			3,455			18		(5	)


Net periodic benefit cost	$	9,472			6,163			1,071		945


							Other
	Pension						postretirement
	benefits						benefits
				Six months ended June 30
	2011			2010			2011		2010
				(in thousands)
Service cost	$	11,713			9,835			240		202
Interest cost on projected benefit obligation		26,236			24,061			1,684		1,565
Expected return on plan assets		(27,263	)		(25,443	)		—		—
Amortization of prior service cost		(3,279	)		(3,279	)		54		88
Amortization of net actuarial loss		10,265			6,776			18		(5	)


Net periodic benefit cost	$	17,672			11,950			1,996		1,850

Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $9,890,000 and $8,775,000 for the three months ended June 30, 2011 and 2010, respectively, and $20,066,000 and $20,465,000 for the six months ended June 30, 2011 and 2010, respectively.

- 26 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8. Earnings per common share

The computations of basic earnings per common share follow:


	Three months ended						Six months ended
	June 30						June 30
	2011			2010			2011			2010
	(in thousands, except per share)
Income available to common shareholders:

Net income	$	322,358			188,749			528,631			339,704
Less: Preferred stock dividends (a)		(7,184	)		(10,056	)		(17,682	)		(20,113	)
Amortization of preferred stock discount (a)		(13,531	)		(2,605	)		(16,284	)		(5,162	)

Net income available to common equity		301,643			176,088			494,665			314,429
Less: Income attributable to unvested stock-based compensation awards		(4,479	)		(2,500	)		(7,382	)		(4,403	)


Net income available to common shareholders	$	297,164			173,588			487,283			310,026

Weighted-average shares outstanding:

Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards		124,035			119,756			122,522			119,550
Less: Unvested stock-based compensation awards		(1,854	)		(1,702	)		(1,823	)		(1,640	)


Weighted-average shares outstanding		122,181			118,054			120,699			117,910

Basic earnings per common share	$	2.43			1.47			4.04			2.63


(a)		Including impact of not as yet declared cumulative dividends.

- 27 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

8. Earnings per common share, continued

The computations of diluted earnings per common share follow:


	Three months ended						Six months ended
	June 30						June 30
	2011			2010			2011			2010
				(in thousands, except per share)
Net income available to common equity	$	301,643			176,088			494,665			314,429

Less: Income attributable to unvested stock-based compensation awards		(4,464	)		(2,491	)		(7,357	)		(4,392	)


Net income available to common shareholders	$	297,179			173,597			487,308			310,037

Adjusted weighted-average shares outstanding:

Common and unvested stock-based compensation awards		124,035			119,756			122,522			119,550
Less: Unvested stock-based compensation awards		(1,854	)		(1,702	)		(1,823	)		(1,640	)
Plus: Incremental shares from assumed conversion of stock-based compensation awards and convertible preferred stock		615			824			633			659


Adjusted weighted-average shares outstanding		122,796			118,878			121,332			118,569

Diluted earnings per common share	$	2.42			1.46			4.02			2.61

GAAP defines unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities that shall be included in the computation of earnings per common share pursuant to the two-class method. During the six-month periods ended June 30, 2011 and 2010, the Company issued stock-based compensation awards in the form of restricted stock and restricted stock units, which, in accordance with GAAP, are considered participating securities.

Stock-based compensation awards, warrants to purchase common stock of M&T and preferred stock convertible into shares of M&T stock representing approximately 10.1 million and 10.7 million common shares during the three-month periods ended June 30, 2011 and 2010, respectively, and 10.3 million and 11.3 million common shares during the six-month periods ended June 30, 2011 and 2010, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

- 28 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Comprehensive income

The following table displays the components of other comprehensive income (loss):


	Six months ended June 30, 2011
	Before-tax			Income
	amount			taxes			Net
				(in thousands)
Unrealized gains (losses) on investment securities:

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

Unrealized holding losses, net	$	(11,227	)		4,501			(6,726	)
Less: reclassification adjustment for gains realized in net income		3,814			(1,497	)		2,317
Less: OTTI charges recognized in net income		(32,071	)		12,587			(19,484	)

Net change for AFS investment securities with OTTI		17,030			(6,589	)		10,441


AFS investment securities — all other:

Unrealized holding gains, net		77,869			(30,368	)		47,501
Less: reclassification adjustment for gains realized in net income		146,115			(57,257	)		88,858

Net change for AFS investment securities — all other		(68,246	)		26,889			(41,357	)


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

Unrealized holding losses, net		(8,500	)		3,336			(5,164	)
Less: reclassification to income of unrealized holding losses		(12	)		5			(7	)
Less: OTTI charges recognized in net income		(10,500	)		4,121			(6,379	)

Net change for HTM investment securities with OTTI		2,012			(790	)		1,222


Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM		2,967			(1,165	)		1,802


Net unrealized losses on investment securities		(46,237	)		18,345			(27,892	)

Reclassification to income for amortization of gains on terminated cash flow hedges		(224	)		83			(141	)

Foreign currency translation adjustment		313			(117	)		196

Defined benefit plans liability adjustment		7,058			(2,770	)		4,288

	$	(39,090	)		15,541			(23,549	)

- 29 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Comprehensive income, continued


	Six months ended June 30, 2010
	Before-tax			Income
	amount			taxes			Net
				(in thousands)
Unrealized gains (losses) on investment securities:

AFS investment securities with OTTI:

Unrealized holding losses, net	$	(50,566	)		19,603			(30,963	)
Less: OTTI charges recognized in net income		(49,182	)		19,017			(30,165	)

Net change for AFS investment securities with OTTI		(1,384	)		586			(798	)


AFS investment securities — all other:

Unrealized holding gains, net		221,196			(86,386	)		134,810
Less: reclassification adjustment for losses recognized in net income		(135	)		39			(96	)

Net change for AFS investment securities — all other		221,331			(86,425	)		134,906


Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM		4,374			(1,716	)		2,658


Net unrealized gains on investment securities		224,321			(87,555	)		136,766

Reclassification to income for amortization of gains on terminated cash flow hedges		(224	)		83			(141	)

Defined benefit plans liability adjustment		3,580			(1,405	)		2,175

	$	227,677			(88,877	)		138,800

- 30 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Comprehensive income, continued


										Foreign
							Cash			currency		Defined
	Investment securities						flow			translation		benefit
	With OTTI			All other			hedges			adjustment		plans			Total
							(in thousands)
Balance — January 1, 2011	$	(87,053	)		2,332			393			—		(120,892	)		(205,220	)

Net gain (loss) during period		11,663			(39,555	)		(141	)		196		4,288			(23,549	)


Balance — June 30, 2011	$	(75,390	)		(37,223	)		252			196		(116,604	)		(228,769	)


Balance — January 1, 2010	$	(76,772	)		(142,853	)		674			—		(117,046	)		(335,997	)

Net gain (loss) during period		(798	)		137,564			(141	)		—		2,175			138,800


Balance — June 30, 2010	$	(77,570	)		(5,289	)		533			—		(114,871	)		(197,197	)

10. Derivative financial instruments

As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting and collateral provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts is not significant as of June 30, 2011.

The net effect of interest rate swap agreements was to increase net interest income by $9 million and $11 million for the three months ended June 30, 2011 and 2010, respectively, and $19 million and $22 million for the six months ended June 30, 2011 and 2010, respectively. Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:


					Weighted-
	Notional		Average		average rate
	amount		maturity		Fixed			Variable
	(in thousands)		(in years)
June 30, 2011
Fair value hedges:
Fixed rate long-term borrowings (a)	$	900,000		5.9		6.07	%		1.79	%


December 31, 2010
Fair value hedges:
Fixed rate long-term borrowings (a)	$	900,000		6.4		6.07	%		1.84	%


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

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

10. Derivative financial instruments, continued

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

Derivative financial instruments used for trading purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading purposes had notional values of $13.4 billion and $12.8 billion at June 30, 2011 and December 31, 2010, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes aggregated $1.0 billion and $769 million at June 30, 2011 and December 31, 2010, respectively.

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


	Asset derivatives				Liability derivatives
	Fair value				Fair value
	June 30,		December 31,		June 30,		December 31,
	2011		2010		2011		2010
			(in thousands)
Derivatives designated and qualifying as hedging instruments
Fair value hedges:
Interest rate swap agreements (a)	$	106,177		96,637	$	—		—
Commitments to sell real estate loans (a)		912		4,880		1,270		1,062

		107,089		101,517		1,270		1,062

Derivatives not designated and qualifying as hedging instruments
Mortgage-related commitments to originate real estate loans for sale (a)		13,558		2,827		387		583
Commitments to sell real estate loans (a)		1,583		10,322		5,364		1,962
Trading:
Interest rate contracts (b)		364,064		345,632		339,440		321,461
Foreign exchange and other option and futures contracts (b)		26,920		11,267		27,043		11,761

		406,125		370,048		372,234		335,767


Total derivatives	$	513,214		471,565	$	373,504		336,829


(a)		Asset derivatives are reported in other assets and liability derivatives are reported in other liabilities.

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

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

10. Derivative financial instruments, continued


	Amount of unrealized gain (loss) recognized
	Three months ended						Three months ended
	June 30, 2011						June 30, 2010
	Derivative			Hedged item			Derivative			Hedged item
				(in thousands)
Derivatives in fair value hedging relationships

Interest rate swap agreements:
Fixed rate time deposits (a)	$	—			—		$	(304	)		304
Fixed rate long-term borrowings (a)		21,945			(21,145	)		43,957			(41,680	)


Total	$	21,945			(21,145	)	$	43,653			(41,376	)


Derivatives not designated as hedging instruments

Trading:
Interest rate contracts (b)	$	1,001					$	(504	)
Foreign exchange and other option and futures contracts (b)		(743	)					615


Total	$	258					$	111


	Amount of unrealized gain (loss) recognized
	Six months ended						Six months ended
	June 30, 2011						June 30, 2010
	Derivative			Hedged item			Derivative			Hedged item
				(in thousands)
Derivatives in fair value hedging relationships

Interest rate swap agreements:
Fixed rate time deposits (a)	$	—			—		$	(503	)		503
Fixed rate long-term borrowings (a)		9,540			(9,097	)		56,427			(53,661	)


Total	$	9,540			(9,097	)	$	55,924			(53,158	)


Derivatives not designated as hedging instruments

Trading:
Interest rate contracts (b)	$	1,476					$	(1,118	)
Foreign exchange and other option and futures contracts (b)		(1,291	)					957


Total	$	185					$	(161	)


(a)		Reported as other revenues from operations.

(b)		Reported as trading account and foreign exchange gains.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

10. Derivative financial instruments, continued

In addition, the Company also has commitments to sell and commitments to originate residential and commercial real estate loans that are considered derivatives. The Company designates certain of the commitments to sell real estate loans as fair value hedges of real estate loans held for sale. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in the fair value of certain commitments to originate real estate loans for sale. As a result of these activities, net unrealized pre-tax gains related to hedged loans held for sale, commitments to originate loans for sale and commitments to sell loans were approximately $20 million and $17 million at June 30, 2011 and December 31, 2010, respectively. Changes in unrealized gains and losses are included in mortgage banking revenues and, in general, are realized in subsequent periods as the related loans are sold and commitments satisfied.

The aggregate fair value of derivative financial instruments in a net liability position at June 30, 2011 for which the Company was required to post collateral was $248 million. The fair value of collateral posted for such instruments was $219 million. Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid lower collateral posting thresholds. If the Company’s debt rating were to fall below specified ratings, the counterparties to the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position. The aggregate fair value of all derivative financial instruments with such credit-risk-related contingent features in a net liability position on June 30, 2011 was $93 million, for which the Company had posted collateral of $58 million in the normal course of business. If the credit-risk-related contingent features were triggered on June 30, 2011, the maximum amount of additional collateral the Company would have been required to post to counterparties was $35 million.

The Company’s credit exposure with respect to the estimated fair value as of June 30, 2011 of interest rate swap agreements used for managing interest rate risk has been substantially mitigated through master netting agreements with trading account interest rate contracts with the same counterparties as well as counterparty postings of $61 million of collateral with the Company. Trading account interest rate swap agreements entered into with customers are subject to the Company’s credit standards and often contain collateral provisions.

11. Variable interest entities and asset securitizations

In accordance with GAAP, the Company determined that it was the primary beneficiary of a residential mortgage loan securitization trust considering its role as servicer and its retained subordinated interests in the trust. As a result, the Company has included the one-to-four family residential mortgage loans that were included in the trust in its consolidated financial statements. At June 30, 2011 and December 31, 2010, the carrying values of the loans in the securitization trust were $225 million and $265 million, respectively. The outstanding principal amount of mortgage-backed securities issued by the qualified special purpose trust that was held by parties unrelated to M&T at June 30, 2011 and December 31, 2010 was $36 million and $40 million, respectively. Because the transaction was non-recourse, the Company’s maximum exposure to loss as a result of its association with the trust at June 30, 2011 is limited to realizing the carrying value of the loans less the amount of the mortgage-backed securities held by third parties.

As described in note 5, M&T has issued junior subordinated debentures payable to various trusts that have issued Capital Securities. M&T owns the common securities of those trust entities. The Company is not considered to be the primary beneficiary of those entities and, accordingly, the trusts are not included in the Company’s consolidated financial statements. At June 30, 2011

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

11. Variable interest entities and asset securitizations, continued

and December 31, 2010, the Company included the junior subordinated debentures as “long-term borrowings” in its consolidated balance sheet. The Company has recognized $34 million in other assets for its “investment” in the common securities of the trusts that will be concomitantly repaid to M&T by the respective trust from the proceeds of M&T’s repayment of the junior subordinated debentures associated with preferred capital securities described in note 5.

The Company has invested as a limited partner in various real estate partnerships that collectively had total assets of approximately $1.5 billion and $1.1 billion at June 30, 2011 and December 31, 2010, respectively. Those partnerships generally construct or acquire properties for which the investing partners are eligible to receive certain federal income tax credits in accordance with government guidelines. Such investments may also provide tax deductible losses to the partners. The partnership investments also assist the Company in achieving its community reinvestment initiatives. As a limited partner, there is no recourse to the Company by creditors of the partnerships. However, the tax credits that result from the Company’s investments in such partnerships are generally subject to recapture should a partnership fail to comply with the respective government regulations. The Company’s maximum exposure to loss of its investments in such partnerships was $246 million, including $63 million of unfunded commitments, at June 30, 2011 and $258 million, including $81 million of unfunded commitments, at December 31, 2010. The Company has not provided financial or other support to the partnerships that was not contractually required. Management currently estimates that no material losses are probable as a result of the Company’s involvement with such entities. In accordance with the accounting provisions for variable interest entities, the Company, in its position as limited partner, does not direct the activities that most significantly impact the economic performance of the partnerships and, therefore, the partnership entities are not included in the Company’s consolidated financial statements.

12. Fair value measurements

GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has not made any fair value elections at June 30, 2011.

Pursuant to GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy exists in GAAP for fair value measurements based upon the inputs to the valuation of an asset or liability.

	•		Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.

	•		Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

	•		Level 3 — Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and

- 35 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.

Trading account assets and liabilities

Trading account assets and liabilities consist primarily of interest rate swap agreements and foreign exchange contracts with customers who require such services with offsetting positions with third parties to minimize the Company’s risk with respect to such transactions. The Company generally determines the fair value of its derivative trading account assets and liabilities using externally developed pricing models based on market observable inputs and therefore classifies such valuations as Level 2. Mutual funds held in connection with deferred compensation arrangements have been classified as Level 1 valuations. Valuations of investments in municipal and other bonds can generally be obtained through reference to quoted prices in less active markets for the same or similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.

Investment securities available for sale

The majority of the Company’s available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments in mutual funds and equity securities are actively traded and therefore have been classified as Level 1 valuations.

Trading activity in privately issued mortgage-backed securities has been limited. The markets for such securities were generally characterized by a sharp reduction of non-agency mortgage-backed securities issuances, a significant reduction in trading volumes and wide bid-ask spreads. Although estimated prices were generally obtained for such securities, the Company was significantly restricted in the level of market observable assumptions used in the valuation of its privately issued mortgage-backed securities portfolio. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs, the Company has classified the valuation of privately issued mortgage-backed securities as Level 3.

GAAP provides guidance for estimating fair value when the volume and level of trading activity for an asset or liability have significantly decreased. The Company has concluded that there has been a significant decline in the volume and level of activity in the market for privately issued mortgage-backed securities. Therefore, the Company supplemented its determination of fair value for many of its privately issued mortgage-backed securities by obtaining pricing indications from two independent sources at June 30, 2011 and December 31, 2010. However, the Company could not readily ascertain that the basis of such valuations could be ascribed to orderly and observable trades in the market for privately issued residential mortgage-backed securities. As a result, the Company also performed internal modeling to estimate the cash flows and fair value of privately issued residential mortgage-backed securities with an amortized cost basis of $1.4 billion at June 30, 2011 and $1.5 billion at December 31, 2010. The Company’s internal modeling techniques included discounting estimated bond-specific cash flows using assumptions about cash flows associated with loans underlying each of the bonds, including estimates about the timing and amount of credit losses and prepayments. In estimating those cash flows, the Company used assumptions as to future delinquency, defaults, further home price depreciation and loss rates. Differences between internal model valuations and external pricing indications were generally

- 36 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

considered to be reflective of the lack of liquidity in the market for privately issued mortgage-backed securities given the nature of the cash flow modeling performed in the Company’s assessment of value. To determine the point within the range of potential values that was most representative of fair value under current market conditions for each of the bonds, the Company computed values based on judgmentally applied weightings of the internal model valuations and the indications obtained from the average of the two independent pricing sources. Weightings applied to internal model valuations generally ranged from zero to 40% depending on bond structure and collateral type, with prices for bonds in non-senior tranches generally receiving lower weightings on the internal model results and senior bonds receiving a higher model weighting. At June 30, 2011, weighted-average reliance on internal model pricing for the bonds modeled was 34% with a 66% average weighting placed on the values provided by the independent sources. The Company concluded its estimate of fair value for the $1.4 billion of privately issued residential mortgage-backed securities to approximate $1.2 billion, which implies a weighted-average market yield based on reasonably likely cash flows of 7.6%. Other valuations of privately issued residential mortgage-backed securities were determined by reference to independent pricing sources without adjustment.

Included in collateralized debt obligations are securities backed by trust preferred securities issued by financial institutions and other entities. Given the severe disruption in the credit markets and the wide disparity in observable trade information, the Company could not obtain pricing indications for many of these securities from its two primary independent pricing sources. The Company, therefore, performed internal modeling to estimate the cash flows and fair value of its portfolio of securities backed by trust preferred securities at June 30, 2011 and December 31, 2010. The modeling techniques included discounting estimated cash flows using bond-specific assumptions about defaults, deferrals and prepayments of the trust preferred securities underlying each bond. The estimation of cash flows included assumptions as to future collateral defaults and related loss severities. The resulting cash flows were then discounted by reference to market yields observed in the single-name trust preferred securities market. At June 30, 2011, the total amortized cost and fair value of securities backed by trust preferred securities issued by financial institutions and other entities was $44 million and $62 million, respectively, and at December 31, 2010 were $95 million and $111 million, respectively. Privately issued mortgage-backed securities and securities backed by trust preferred securities issued by financial institutions and other entities constituted all of the available-for-sale investment securities classified as Level 3 valuations as of June 30, 2011 and December 31, 2010.

Real estate loans held for sale

The Company utilizes commitments to sell real estate loans to hedge the exposure to changes in fair value of real estate loans held for sale. The carrying value of hedged real estate loans held for sale includes changes in estimated fair value during the hedge period. Typically, the Company attempts to hedge real estate loans held for sale from the date of close through the sale date. The fair value of hedged real estate loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans with similar characteristics and, accordingly, such loans have been classified as a Level 2 valuation.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

Commitments to originate real estate loans for sale and commitments to sell real estate loans

The Company enters into various commitments to originate real estate loans for sale and commitments to sell real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value on the consolidated balance sheet. The estimated fair values of such commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans to certain government-sponsored entities and other parties. The fair valuations of commitments to sell real estate loans generally result in a Level 2 classification. The estimated fair value of commitments to originate real estate loans for sale are adjusted to reflect the Company’s anticipated commitment expirations. Estimated commitment expirations are considered a significant unobservable input, which results in a Level 3 classification. The Company includes the expected net future cash flows related to the associated servicing of the loan in the fair value measurement of a derivative loan commitment. The estimated value ascribed to the expected net future servicing cash flows is also considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale.

Interest rate swap agreements used for interest rate risk management

The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. The Company generally determines the fair value of its interest rate swap agreements using externally developed pricing models based on market observable inputs and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

The following tables present assets and liabilities at June 30, 2011 and December 31, 2010 measured at estimated fair value on a recurring basis:


	Fair value
	measurements at
	June 30,
	2011		Level 1 (a)		Level 2 (a)		Level 3
			(in thousands)
Trading account assets	$	502,986		57,523		445,463		—
Investment securities available for sale:
U.S. Treasury and federal agencies		112,953		—		112,953		—
Obligations of states and political subdivisions		67,491		—		67,491		—
Mortgage-backed securities:
Government issued or guaranteed		3,023,018		—		3,023,018		—
Privately issued residential		1,306,202		—		—		1,306,202
Privately issued commercial		17,233		—		—		17,233
Collateralized debt obligations		61,601		—		—		61,601
Other debt securities		195,536		—		195,536		—
Equity securities		106,455		84,676		21,779		—

		4,890,489		84,676		3,420,777		1,385,036


Real estate loans held for sale		414,643		—		414,643		—
Other assets (b)		122,230		—		108,672		13,558

Total assets	$	5,930,348		142,199		4,389,555		1,398,594


Trading account liabilities	$	366,483		—		366,483		—
Other liabilities (b)		7,021		—		6,634		387

Total liabilities	$	373,504		—		373,117		387

- 38 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued


	Fair value
	measurements at
	December 31,
	2010		Level 1 (a)		Level 2 (a)		Level 3
			(in thousands)
Trading account assets	$	523,834		53,032		470,802		—
Investment securities available for sale:
U.S. Treasury and federal agencies		63,434		—		63,434		—
Obligations of states and political subdivisions		60,425		—		60,425		—
Mortgage-backed securities:
Government issued or guaranteed		3,306,241		—		3,306,241		—
Privately issued residential		1,435,561		—		—		1,435,561
Privately issued commercial		22,407		—		—		22,407
Collateralized debt obligations		110,756		—		—		110,756
Other debt securities		298,900		—		298,900		—
Equity securities		115,768		106,872		8,896		—

		5,413,492		106,872		3,737,896		1,568,724


Real estate loans held for sale		544,567		—		544,567		—
Other assets (b)		114,666		—		111,839		2,827

Total assets	$	6,596,559		159,904		4,865,104		1,571,551


Trading account liabilities	$	333,222		—		333,222		—
Other liabilities (b)		3,607		—		3,024		583

Total liabilities	$	336,829		—		336,246		583


(a)		There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy during the three months and six months ended June 30, 2011 and 2010.

(b)		Comprised predominantly of interest rate swap agreements used for interest rate risk management (Level 2), commitments to sell real estate loans (Level 2) and commitments to originate real estate loans to be held for sale (Level 3).

- 39 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended June 30, 2011 were as follows:


	Investment securities available for sale
	Privately issued			Privately issued
	residential			commercial			Collateralized			Other assets
	mortgage-backed			mortgage-backed			debt			and other
	securities			securities			obligations			liabilities
				(in thousands)
Balance — March 31, 2011	$	1,391,878		$	20,467		$	114,265		$	16,147

Total gains (losses) realized/unrealized:
Included in earnings		(24,530	)(a)		—			—			22,800	(b)
Included in other comprehensive income		38,471			(1,400	)		3,372			—
Purchases		—			—			50,790			—
Sales		—			—			(105,643	)		—
Settlements		(99,617	)		(1,834	)		(1,183	)		—
Transfers in and/or out of Level 3 (c)		—			—			—			(25,776	)


Balance — June 30, 2011	$	1,306,202		$	17,233		$	61,601		$	13,171


Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2011	$	(24,530	)(a)	$	—		$	—		$	10,252	(b)

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended June 30, 2010 were as follows:


	Investment securities available for sale
	Privately issued			Privately issued
	residential			commercial			Collateralized			Other			Other assets
	mortgage-backed			mortgage-backed			debt			debt			and other
	securities			securities			obligations			securities			liabilities
				(in thousands)
Balance — March 31, 2010	$	1,664,341		$	25,125		$	125,755		$	455		$	8,171

Total gains (losses) realized/unrealized:
Included in earnings		(7,896	)(a)		—			(2,491	)(a)		—			29,828	(b)
Included in other comprehensive income		40,794			4,021			(5,088	)		—			—
Settlements		(99,206	)		(2,503	)		(136	)		—			—
Transfers in and/or out of Level 3 (c)		—			—			—			(455	)		(17,156	)


Balance — June 30, 2010	$	1,598,033		$	26,643		$	118,040		$	—		$	20,843


Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2010	$	(7,896	)(a)	$	—		$	(2,491	)(a)	$	—		$	20,097	(b)

- 40 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the six months ended June 30, 2011 were as follows:


	Investment securities available for sale
	Privately issued			Privately issued
	residential			commercial			Collateralized			Other assets
	mortgage-backed			mortgage-backed			debt			and other
	securities			securities			obligations			liabilities
				(in thousands)
Balance — January 1, 2011	$	1,435,561		$	22,407		$	110,756		$	2,244

Total gains (losses) realized/unrealized:
Included in earnings		(32,071	)(a)		—			—			43,244	(b)
Included in other comprehensive income		99,556			(1,482	)		7,206			—
Purchases		—			—			50,790			—
Sales		—			—			(105,643	)		—
Settlements		(196,844	)		(3,692	)		(1,508	)		—
Transfers in and/or out of Level 3 (c)		—			—			—			(32,317	)


Balance — June 30, 2011	$	1,306,202		$	17,233		$	61,601		$	13,171


Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2011	$	(32,071	)(a)	$	—		$	—		$	13,139	(b)

- 41 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the six months ended June 30, 2010 were as follows:


	Investment securities available for sale
	Privately issued			Privately issued
	residential			commercial			Collateralized						Other assets
	mortgage-backed			mortgage-backed			debt			Other			and other
	securities			securities			obligations			debt securities			liabilities
	(in thousands)
Balance – January 1, 2010	$	2,064,904		$	25,166		$	115,346		$	420		$	(80	)

Total gains (losses) realized/unrealized:
Included in earnings		(34,343	)(a)		—			(2,846	)(a)		—			47,850	(b)
Included in other comprehensive income		115,248			6,094			5,807			35			—
Settlements		(192,528	)		(4,617	)		(267	)		—			—
Transfers in and/or out of Level 3 (c)		(355,248	)(d)		—			—			(455	)		(26,927	)


Balance – June 30, 2010	$	1,598,033		$	26,643		$	118,040		$	—		$	20,843


Changes in unrealized gains (losses) included in earnings related to assets still held at June 30, 2010	$	(34,343	)(a)	$	—		$	(2,846	)(a)	$	—		$	20,598	(b)


(a)		Reported as an other-than-temporary impairment loss in the consolidated statement of income or as gain (loss) on bank investment securities.

(b)		Reported as mortgage banking revenues in the consolidated statement of income and includes the fair value of commitment issuances and expirations.

(c)		The Company’s policy for transfers between fair value levels is to recognize the transfer as of the actual date of the event or change in circumstances that caused the transfer.

(d)		As a result of the Company’s adoption of new accounting rules governing the consolidation of variable interest entities, effective January 1, 2010 the Company derecognized $355 million of available-for-sale investment securities previously classified as Level 3 measurements.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements. The more significant of those assets follow.

Loans

Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2, unless significant adjustments have been made to the valuation that are not readily observable by market participants. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. Loans subject to nonrecurring fair value measurement were $478 million at June 30, 2011 ($324 million and $154 million of which were classified as Level 2 and Level 3, respectively) and $664 million at June 30, 2010 ($378 million and $286 million of which were classified as Level 2 and Level 3, respectively). Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on June 30, 2011 were decreases of $61 million and $91 million for the three- and six-month periods ended June 30, 2011, respectively. Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on June 30, 2010 were decreases of $64 million and $125 million for the three- and six-month periods ended June 30, 2010, respectively.

Assets taken in foreclosure of defaulted loans

Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and are generally measured at the lower of cost or fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2. Assets taken in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $50 million and $127 million at June 30, 2011 and June 30, 2010, respectively. Reflecting further declines in residential real estate and residential development projects subsequent to foreclosure, changes in fair value recognized for those foreclosed assets held by the Company at June 30, 2011 were $13 million and $15 million for the three months and six months ended June 30, 2011, respectively. Changes in fair value recognized for those foreclosed assets held by the Company at June 30, 2010 were $16 million and $21 million for the three months and six months ended June 30, 2010, respectively.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

Disclosures of fair value of financial instruments

With the exception of marketable securities, certain off-balance sheet financial instruments and one-to-four family residential mortgage loans originated for sale, the Company’s financial instruments are not readily marketable and market prices do not exist. The Company, in attempting to comply with the provisions of GAAP that require disclosures of fair value of financial instruments, has not attempted to market its financial instruments to potential buyers, if any exist. Since negotiated prices in illiquid markets depend greatly upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Additional information about the assumptions and calculations utilized follows.

The carrying amounts and estimated fair value for financial instrument assets (liabilities) are presented in the following table:


	June 30, 2011						December 31, 2010
	Carrying			Calculated			Carrying			Calculated
	amount			estimate			amount			estimate
	(in thousands)
Financial assets:
Cash and cash equivalents	$	1,332,915		$	1,332,915		$	933,755		$	933,755
Interest-bearing deposits at banks		2,275,450			2,275,450			101,222			101,222
Trading account assets		502,986			502,986			523,834			523,834
Agreements to resell securities		380,000			380,000			—			—
Investment securities		6,492,265			6,416,075			7,150,540			7,051,454
Loans and leases:
Commercial loans and leases		15,040,892			14,827,062			13,390,610			13,135,569
Commercial real estate loans		24,263,726			23,979,139			21,183,161			20,840,346
Residential real estate loans		6,970,921			6,809,347			5,928,056			5,699,028
Consumer loans		12,265,690			11,962,056			11,488,555			11,178,583
Allowance for credit losses		(907,589	)		—			(902,941	)		—

Loans and leases, net		57,633,640			57,577,604			51,087,441			50,853,526
Accrued interest receivable		212,357			212,357			202,182			202,182

Financial liabilities:
Noninterest-bearing deposits	$	(18,598,828	)	$	(18,598,828	)	$	(14,557,568	)	$	(14,557,568	)
Savings deposits and NOW accounts		(32,400,035	)		(32,400,035	)		(27,824,630	)		(27,824,630	)
Time deposits		(7,678,799	)		(7,713,421	)		(5,817,170	)		(5,865,779	)
Deposits at Cayman Islands office		(551,553	)		(551,553	)		(1,605,916	)		(1,605,916	)
Short-term borrowings		(567,144	)		(567,144	)		(947,432	)		(947,432	)
Long-term borrowings		(7,128,916	)		(7,280,296	)		(7,840,151	)		(7,937,397	)
Accrued interest payable		(89,182	)		(89,182	)		(71,954	)		(71,954	)
Trading account liabilities		(366,483	)		(366,483	)		(333,222	)		(333,222	)

Other financial instruments:
Commitments to originate real estate loans for sale	$	13,171		$	13,171		$	2,244		$	2,244
Commitments to sell real estate loans		(4,139	)		(4,139	)		12,178			12,178
Other credit-related commitments		(99,959	)		(99,959	)		(74,426	)		(74,426	)
Interest rate swap agreements used for interest rate risk management		106,177			106,177			96,637			96,637

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

The following assumptions, methods and calculations were used in determining the estimated fair value of financial instruments.

Cash and cash equivalents, interest-bearing deposits at banks, agreements to resell securities, short-term borrowings, accrued interest receivable and accrued interest payable

Due to the nature of cash and cash equivalents and the near maturity of interest-bearing deposits at banks, agreements to resell securities, short-term borrowings, accrued interest receivable and accrued interest payable, the Company estimated that the carrying amount of such instruments approximated estimated fair value.

Investment securities

Estimated fair values of investments in readily marketable securities were generally based on quoted market prices. Investment securities that were not readily marketable were assigned amounts based on estimates provided by outside parties or modeling techniques that relied upon discounted calculations of projected cash flows or, in the case of other investment securities, which include capital stock of the Federal Reserve Bank of New York and the Federal Home Loan Bank of New York, at an amount equal to the carrying amount.

Loans and leases

In general, discount rates used to calculate values for loan products were based on the Company’s pricing at the respective period end. A higher discount rate was assumed with respect to estimated cash flows associated with nonaccrual loans. Projected loan cash flows were adjusted for estimated credit losses. However, such estimates made by the Company may not be indicative of assumptions and adjustments that a purchaser of the Company’s loans and leases would seek.

Deposits

Pursuant to GAAP, the estimated fair value ascribed to noninterest-bearing deposits, savings deposits and NOW accounts must be established at carrying value because of the customers’ ability to withdraw funds immediately. Time deposit accounts are required to be revalued based upon prevailing market interest rates for similar maturity instruments. As a result, amounts assigned to time deposits were based on discounted cash flow calculations using prevailing market interest rates based on the Company’s pricing at the respective date for deposits with comparable remaining terms to maturity.

The Company believes that deposit accounts have a value greater than that prescribed by GAAP. The Company feels, however, that the value associated with these deposits is greatly influenced by characteristics of the buyer, such as the ability to reduce the costs of servicing the deposits and deposit attrition which often occurs following an acquisition.

Long-term borrowings

The amounts assigned to long-term borrowings were based on quoted market prices, when available, or were based on discounted cash flow calculations using prevailing market interest rates for borrowings of similar terms and credit risk.

Commitments to originate real estate loans for sale and commitments to sell real estate loans

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

Interest rate swap agreements used for interest rate risk management

The estimated fair value of interest rate swap agreements used for interest rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements.

Other commitments and contingencies

As described in note 13, in the normal course of business, various commitments and contingent liabilities are outstanding, such as loan commitments, credit guarantees and letters of credit. The Company’s pricing of such financial instruments is based largely on credit quality and relationship, probability of funding and other requirements. Loan commitments often have fixed expiration dates and contain termination and other clauses which provide for relief from funding in the event of significant deterioration in the credit quality of the customer. The rates and terms of the Company’s loan commitments, credit guarantees and letters of credit are competitive with other financial institutions operating in markets served by the Company. The Company believes that the carrying amounts, which are included in other liabilities, are reasonable estimates of the fair value of these financial instruments.

The Company does not believe that the estimated information presented herein is representative of the earnings power or value of the Company. The preceding analysis, which is inherently limited in depicting fair value, also does not consider any value associated with existing customer relationships nor the ability of the Company to create value through loan origination, deposit gathering or fee generating activities.

Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

13. Commitments and contingencies

In the normal course of business, various commitments and contingent liabilities are outstanding. The following table presents the Company’s significant commitments. Certain of these commitments are not included in the Company’s consolidated balance sheet.


	June 30,		December 31,
	2011		2010
	(in thousands)
Commitments to extend credit
Home equity lines of credit	$	6,534,722		6,281,366
Commercial real estate loans to be sold		181,180		72,930
Other commercial real estate and construction		2,746,493		1,672,006
Residential real estate loans to be sold		482,774		161,583
Other residential real estate		113,738		151,111
Commercial and other		10,787,826		8,332,199
Standby letters of credit		3,963,575		3,917,318
Commercial letters of credit		65,766		76,962
Financial guarantees and indemnification contracts		1,790,502		1,609,944
Commitments to sell real estate loans		903,582		734,696

Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, whereas commercial letters of credit are issued to facilitate commerce and typically result in the commitment being funded when the underlying transaction is consummated between the customer and a third party. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.

Financial guarantees and indemnification contracts are oftentimes similar to standby letters of credit and include mandatory purchase agreements issued to ensure that customer obligations are fulfilled, recourse obligations associated with sold loans, and other guarantees of customer performance or compliance with designated rules and regulations. Included in financial guarantees and indemnification contracts are loan principal amounts sold with recourse in conjunction with the Company’s involvement in the Fannie Mae Delegated Underwriting and Servicing program. The Company’s maximum credit risk for recourse associated with loans sold under this program totaled approximately $1.7 billion and $1.6 billion at June 30, 2011 and December 31, 2010, respectively.

Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.

- 47 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

13. Commitments and contingencies, continued

The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the fair value of real estate loans held for sale. Such commitments are considered derivatives and along with commitments to originate real estate loans to be held for sale are generally recorded in the consolidated balance sheet at estimated fair market value.

The Company has an agreement with the Baltimore Ravens of the National Football League whereby the Company obtained the naming rights to a football stadium in Baltimore, Maryland. Under the agreement, the Company is obligated to pay $5 million per year through 2013 and $6 million per year from 2014 through 2017.

The Company also has commitments under long-term operating leases.

The Company reinsures credit life and accident and health insurance purchased by consumer loan customers. The Company also enters into reinsurance contracts with third party insurance companies who insure against the risk of a mortgage borrower’s payment default in connection with certain mortgage loans originated by the Company. When providing reinsurance coverage, the Company receives a premium in exchange for accepting a portion of the insurer’s risk of loss. The outstanding loan principal balances reinsured by the Company were approximately $78 million at June 30, 2011. Assets of subsidiaries providing reinsurance that are available to satisfy claims totaled approximately $51 million at June 30, 2011. The amounts noted above are not necessarily indicative of losses which may ultimately be incurred. Such losses are expected to be substantially less because most loans are repaid by borrowers in accordance with the original loan terms. Management believes any reinsurance losses that may be payable by the Company will not be material to the Company’s consolidated financial position.

The Company is contractually obligated to repurchase previously sold residential real estate loans that do not ultimately meet investor sale criteria related to underwriting procedures or loan documentation. When required to do so, the Company may reimburse loan purchasers for losses incurred or may repurchase certain loans. The Company reduces residential mortgage banking revenues by an estimate for losses related to its obligations to loan purchasers. The amount of those charges is based on the volume of loans sold, the level of reimbursement requests received from loan purchasers and estimates of losses that may be associated with previously sold loans. At June 30, 2011, management believes that any remaining liability arising out of the Company’s obligation to loan purchasers is not material to the Company’s consolidated financial position.

M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against M&T or its subsidiaries will be material to the Company’s consolidated financial position. On an on-going basis the Company assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $40 million. Although the Company does not believe that the outcome of pending litigations will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

14. Segment information

Reportable segments have been determined based upon the Company’s internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 22 to the Company’s consolidated financial statements as of and for the year ended December 31, 2010. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions. As also described in note 22 to the Company’s 2010 consolidated financial statements, neither goodwill nor core deposit and other intangible assets (and the amortization charges associated with such assets) resulting from acquisitions of financial institutions have been allocated to the Company’s reportable segments, but are included in the “All Other” category. The Company does, however, assign such intangible assets to business units for purposes of testing for impairment.

Information about the Company’s segments is presented in the following table:


	Three months ended June 30
	2011							2010
	Total		Inter- segment			Net		Total		Inter- segment			Net
	revenues(a)		revenues			income (loss)		revenues(a)		revenues			income (loss)
	(in thousands)
Business Banking	$	104,012		971			26,584		102,610		—			26,552
Commercial Banking		228,564		1,190			95,111		194,575		—			81,612
Commercial Real Estate		134,066		448			65,058		109,487		39			43,667
Discretionary Portfolio		112,383		(4,419	)		58,362		5,580		(2,500	)		(4,073	)
Residential Mortgage Banking		58,305		8,699			5,966		65,766		8,876			(467	)
Retail Banking		311,484		2,967			54,645		315,638		2,690			67,080
All Other		139,044		(9,856	)		16,632		47,128		(9,105	)		(25,622	)

Total	$	1,087,858		—			322,358		840,784		—			188,749

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

14. Segment information, continued


	Six months ended June 30
	2011									2010
	Total			Inter- segment			Net			Total			Inter- segment			Net
	revenues		(a)	revenues			income (loss)			revenues		(a)	revenues			income (loss)
	(in thousands)
Business Banking	$	203,789			1,933			52,884			204,406			—			51,896
Commercial Banking		442,176			2,356			183,442			386,981			—			158,480
Commercial Real Estate		259,372			804			114,068			219,900			57			87,420
Discretionary Portfolio		154,866			(12,206	)		74,489			(6,653	)		(5,247	)		(20,235	)
Residential Mortgage Banking		116,153			19,006			10,751			128,883			17,073			128
Retail Banking		606,532			5,954			107,371			623,113			5,377			126,117
All Other		188,194			(17,847	)		(14,374	)		98,194			(17,260	)		(64,102	)

Total	$	1,971,082			—			528,631			1,654,824			—			339,704


	Average total assets
	Six months ended				Year ended
	June 30				December 31
	2011		2010		2010
	(in millions)
Business Banking	$	4,861		4,884		4,843
Commercial Banking		16,856		15,504		15,461
Commercial Real Estate		14,227		13,255		13,194
Discretionary Portfolio		14,012		14,699		14,690
Residential Mortgage Banking		1,940		2,188		2,217
Retail Banking		11,776		12,191		12,079
All Other		6,590		5,886		5,896

Total	$	70,262		68,607		68,380


(a)		Total revenues are comprised of net interest income and other income. Net interest income is the difference between taxable-equivalent interest earned on assets and interest paid on liabilities by a segment and a funding charge (credit) based on the Company’s internal funds transfer and allocation methodology. Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated $6,468,000 and

- 50 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

14. Segment information, continued

$6,105,000 for the three-month periods ended June 30, 2011 and 2010, respectively, and $12,795,000 and $12,028,000 for the six-month periods ended June 30, 2011 and 2010, respectively, and is eliminated in “All Other” total revenues. Intersegment revenues are included in total revenues of the reportable segments. The elimination of intersegment revenues is included in the determination of “All Other” total revenues.

15. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings, L.P.

M&T holds a 20% interest in Bayview Lending Group LLC (“BLG”), a privately-held commercial mortgage lender. M&T recognizes income or loss from BLG using the equity method of accounting. The carrying value of that investment was $206 million at June 30, 2011.

Bayview Financial Holdings, L.P. (together with its affiliates, “Bayview Financial”), a privately-held specialty mortgage finance company, is BLG’s majority investor. In addition to their common investment in BLG, the Company and Bayview Financial conduct other business activities with each other. The Company has obtained loan servicing rights for small-balance commercial mortgage loans from BLG and Bayview Financial having outstanding principal balances of $4.8 billion and $5.2 billion at June 30, 2011 and December 31, 2010, respectively. Amounts recorded as capitalized servicing assets for such loans totaled $21 million at June 30, 2011 and $26 million at December 31, 2010. In addition, capitalized servicing rights at June 30, 2011 and December 31, 2010 also included $7 million and $9 million, respectively, for servicing rights that were obtained from Bayview Financial related to residential mortgage loans with outstanding principal balances of $3.4 billion at June 30, 2011 and $3.6 billion at December 31, 2010. Revenues from servicing residential and small-balance commercial mortgage loans obtained from BLG and Bayview Financial were $10 million and $12 million for the three months ended June 30, 2011 and 2010, respectively, and $21 million and $24 million for the six months ended June 30, 2011 and 2010, respectively. In addition, at June 30, 2011 and December 31, 2010, the Company held $17 million and $22 million, respectively, of collateralized mortgage obligations in its available-for-sale investment securities portfolio that were securitized by Bayview Financial. Finally, the Company held $292 million and $313 million of similar investment securities in its held-to-maturity portfolio at June 30, 2011 and December 31, 2010, respectively.

- 51 -

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

Overview

Net income for M&T Bank Corporation (“M&T”) in the second quarter of 2011 was $322 million or $2.42 of diluted earnings per common share, compared with $189 million or $1.46 of diluted earnings per common share in the year-earlier quarter. During the first quarter of 2011, net income totaled $206 million or $1.59 of diluted earnings per common share. Basic earnings per common share were $2.43 in the recent quarter, compared with $1.47 in the second quarter of 2010 and $1.59 in the initial 2011 quarter. The after-tax impact of net acquisition and integration-related gains and expenses (included herein as merger-related expenses) resulted in income of $42 million ($28 million pre-tax) or $.33 of basic and diluted earnings per common share in the second quarter of 2011, compared with expenses of $3 million ($4 million pre-tax) or $.02 of basic and diluted earnings per common share in the first quarter of 2011. Such gains and expenses were associated with M&T’s May 16, 2011 acquisition of Wilmington Trust Corporation (“Wilmington Trust”), headquartered in Wilmington, Delaware, and the November 5, 2010 purchase and assumption agreement between M&T Bank, M&T’s principal banking subsidiary, and the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits (except certain brokered deposits) and acquire certain assets of K Bank, based in Randallstown, Maryland, in an assisted transaction with the FDIC. There were no merger-related expenses in the first or second quarters of 2010. For the first half of 2011, net income totaled $529 million or $4.02 of diluted earnings per common share, compared with $340 million or $2.61 of diluted earnings per common share in the corresponding 2010 period. Basic earnings per common share for the six-month periods ended June 30, 2011 and 2010 were $4.04 and $2.63, respectively. The after-tax impact of merger-related gains and expenses associated with Wilmington Trust and K Bank was income of $39 million ($24 million pre-tax) or $.32 of basic and diluted earnings per common share during the six-month period ended June 30, 2011.

The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the recent quarter was 1.78%, compared with 1.11% in the second quarter of 2010 and 1.23% in the first quarter of 2011. The annualized rate of return on average common shareholders’ equity was 14.94% in the second quarter of 2011, compared with 9.67% in the year-earlier quarter and 10.16% in the first three months of 2011. During the six-month period ended June 30, 2011, the annualized rates of return on average assets and average common shareholders’ equity were 1.52% and 12.62%, respectively, compared with 1.00% and 8.78%, respectively, in the first six months of 2010.

On May 16, 2011, M&T acquired all of the outstanding common stock of Wilmington Trust in a stock-for-stock transaction. Wilmington Trust operated 55 banking offices in Delaware and Pennsylvania at the date of acquisition. The results of operations acquired in the Wilmington Trust transaction have been included in the Company’s financial results since the acquisition date. Wilmington Trust shareholders received .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock, resulting in M&T issuing a total of 4,694,486 common shares with an acquisition date fair value of $406 million.

- 52 -

billion of deposits. The transaction added $406 million to M&T’s common shareholders’ equity. Immediately prior to the closing of the Wilmington Trust transaction, M&T purchased the $330 million of preferred stock issued by Wilmington Trust as part of the Troubled Asset Relief Program – Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $176 million of core deposit and other intangible assets. The core deposit and other intangible assets are being amortized over periods of 5 to 7 years using an accelerated method. There was no goodwill recorded as a result of the transaction; however, a non-taxable gain of $65 million was realized, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust forms one of the largest banks in the Eastern United States, adding to M&T’s market-leading position in the Mid-Atlantic region, including the leading deposit market share in Delaware.

Pursuant to its capital plan, M&T undertook the following actions during the recent quarter:

	•		Redeemed $370 million of its Series A Preferred Stock issued pursuant to the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Treasury; and

	•		Issued $500 million of perpetual 6.875% non-cumulative preferred stock in order to supplement Tier 1 Capital.

As part of the K Bank transaction, M&T Bank entered into a loss-share arrangement with the FDIC whereby M&T Bank will be reimbursed by the FDIC for most losses it incurs on the acquired loan portfolio. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Assets acquired in the transaction totaled approximately $556 million, including $154 million of loans and $186 million in cash, and liabilities assumed aggregated $528 million, including $491 million of deposits. In accordance with generally accepted accounting principles (“GAAP”), M&T Bank recorded an after-tax gain on the transaction of $17 million ($28 million before taxes). The gain reflects the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. There was no goodwill or other intangible assets recorded in connection with this transaction. The operations obtained in the K Bank acquisition transaction did not have a material impact on the Company’s consolidated financial position or results of operations.

The condition of the domestic and global economy over the last several years has significantly impacted the financial services industry as a whole, and specifically, the financial results of the Company. In particular, high unemployment levels and significantly depressed residential real estate valuations have led to increased loan charge-offs experienced by financial institutions throughout that time period. Since the official end of the recession in the United States sometime in the latter half of 2009, the recovery of the economy has been very slow. The Company has experienced charge-offs at higher than historical levels since 2008, including in the first half of 2011. In addition, many financial institutions have continued to experience unrealized losses related to investment securities backed by residential and commercial real estate due to a lack of liquidity in the financial markets and anticipated credit losses. Many financial institutions, including the Company, have taken charges for those unrealized losses that were deemed to be other than temporary.

Reflected in the Company’s results for the three months ended June 30, 2011 were gains from the sale of investment securities available for sale, predominantly residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), collateralized debt obligations

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(“CDOs”) and capital preferred securities. Such gains increased net income in the recent quarter by $67 million ($111 million before taxes), or $.54 of diluted earnings per common share. The Company sold the securities in response to the Wilmington Trust acquisition in order to manage its balance sheet size and composition and resultant capital ratios. The recent quarter’s results were also impacted by $16 million of after-tax other-than-temporary impairment charges ($27 million before taxes) on certain privately issued collateralized mortgage obligations (“CMOs”), reducing diluted earnings per common share by $.13.

Reflected in the Company’s second quarter 2010 results were $14 million of after-tax other-than-temporary impairment charges ($22 million before taxes) on certain available-for-sale investment securities, reducing diluted earnings per common share by $.11. Specifically, $12 million (pre-tax) of such charges related to American Depositary Shares (“ADSs”) of Allied Irish Banks, p.l.c. (“AIB”) obtained in M&T’s 2003 acquisition of a subsidiary of AIB and $10 million (pre-tax) related to certain privately issued CMOs backed by residential real estate loans and CDOs backed by pooled trust preferred securities.

Reflected in the Company’s first quarter 2011 results were gains from the sale of investment securities, predominantly residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Such gains increased net income in that quarter by $24 million ($39 million before taxes), or $.20 of diluted earnings per common share. In response to strong growth in average loans in that quarter and in anticipation of the acquisition of Wilmington Trust, the Company sold the securities in order to manage its forecasted balance sheet size and resultant capital ratios. Also impacting first quarter 2011 results were $10 million of after-tax other-than-temporary impairment charges ($16 million before taxes) on certain investment securities, reducing diluted earnings per common share by $.08. Specifically, such charges related to certain privately issued CMOs.

Recent Legislative Developments

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law on July 21, 2010. This new law has and will continue to significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, and will fundamentally change the system of regulatory oversight of the Company, including through the creation of the Financial Stability Oversight Council. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The Dodd-Frank Act could have a material adverse impact on the financial services industry as a whole, as well as on M&T’s business, results of operations, financial condition and liquidity.

The Dodd-Frank Act broadens the base for FDIC insurance assessments. Beginning in the second quarter of 2011, assessments are based on average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and noninterest-bearing transaction accounts have unlimited deposit insurance through December 31, 2013.

The legislation also requires that publicly traded companies give shareholders a non-binding vote on executive compensation and “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials. The Dodd-Frank Act also directs the Federal Reserve Board to promulgate rules prohibiting excessive

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compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

The Dodd-Frank Act established a new Bureau of Consumer Financial Protection with broad powers to supervise and enforce consumer protection laws. The Bureau of Consumer Financial Protection has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Bureau of Consumer Financial Protection has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets.

In addition, the Dodd-Frank Act, among other things:

	•		Weakens the federal preemption rules that have been applicable for national banks and gives state attorneys general the ability to enforce federal consumer protection laws;

	•		Amends the Electronic Fund Transfer Act (“EFTA”) which has resulted in, among other things, the Federal Reserve Board issuing rules aimed at limiting debit card-interchange fees;

	•		Applies the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies which, among other things, will, after a three-year phase-in period which begins January 1, 2013, remove trust preferred securities as a permitted component of a holding company’s Tier 1 capital;

	•		Provides for an increase in the FDIC assessment for depository institutions with assets of $10 billion or more and increases the minimum reserve ratio for the deposit insurance fund from 1.15% to 1.35%;

	•		Imposes comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself;

	•		Repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

	•		Provides mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions; and

	•		Creates the Financial Stability Oversight Council, which will recommend to the Federal Reserve Board increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

The environment in which banking organizations will operate after the financial crisis, including legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and compensation, changes in fiscal policy and steps to eliminate government support for banking organizations, may have long-term effects on the business model and profitability of banking organizations, the full extent of which

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cannot now be foreseen. Many aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on M&T, its customers or the financial industry more generally. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees could increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate. Provisions in the legislation that revoke the Tier 1 capital treatment of trust preferred securities and otherwise require revisions to the capital requirements of M&T and M&T Bank could require M&T and M&T Bank to seek other sources of capital in the future. The impact of new rules relating to overdraft fee practices and debit card-interchange fees are discussed herein under the heading “Other Income.”

Supplemental Reporting of Non-GAAP Results of Operations

As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.8 billion at June 30, 2011 and $3.7 billion at each of June 30, 2010 and December 31, 2010. Included in such intangible assets was goodwill of $3.5 billion at each of those respective dates. Amortization of core deposit and other intangible assets, after tax effect, was $9 million ($.07 per diluted common share) during each of the second quarters of 2011 and 2010 and $7 million ($.06 per diluted common share) during the initial 2011 quarter. For the six-month periods ended June 30, 2011 and 2010, amortization of core deposit and other intangible assets, after tax effect, totaled $16 million ($.13 per diluted common share) and $19 million ($.16 per diluted common share), respectively.

M&T consistently provides supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains and expenses associated with merging acquired operations into the Company, since such items are considered by management to be “nonoperating” in nature. Although “net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this information helps investors understand the effect of acquisition activity in reported results.

Net operating income aggregated $289 million in the second quarter of 2011, compared with $198 million in the corresponding quarter of 2010. Diluted net operating earnings per common share for the recent quarter were $2.16, compared with $1.53 in the second quarter of 2010. Net operating income and diluted net operating earnings per common share were $216 million and $1.67, respectively, in the initial quarter of 2011. For the first six months of 2011, net operating income and diluted net operating earnings per common share were $506 million and $3.83, respectively, compared with $359 million and $2.77, respectively, in the similar 2010 period.

Net operating income in the second quarter of 2011 represented an annualized rate of return on average tangible assets of 1.69%, compared with 1.23% and 1.36% in the second quarter of 2010 and first quarter of 2011, respectively. Net operating income expressed as an annualized return on average tangible common equity was 24.40% in the recently completed quarter, compared with 20.36% and 20.16% in the quarters ended June 30, 2010 and March 31, 2011, respectively. For the first half of 2011, net operating income represented an annualized return on average tangible assets and average tangible common shareholders’ equity of 1.53% and 22.37%, respectively, compared with 1.11% and 18.89%, respectively, in the six-month period ended June 30, 2010.

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Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.

Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income increased 3% to $593 million in the second quarter of 2011 from $573 million in the year-earlier quarter. That improvement was the result of a $3.6 billion rise in average earning assets, partially offset by a 9 basis point (hundredths of one percent) narrowing of the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets. Taxable-equivalent net interest income totaled $575 million in the first quarter of 2011. The recent quarter’s improvement from the initial 2011 quarter resulted from a $4.0 billion, or 7%, increase in average earning assets, partially offset by a 17 basis point narrowing of the net interest margin. The increase in average earning assets in the recent quarter as compared with the second quarter of 2010 and the initial 2011 quarter was predominantly the result of earning assets obtained in the acquisition of Wilmington Trust, which at the May 16, 2011 acquisition date totaled approximately $9.6 billion. The recent quarter’s narrowing of the net interest margin as compared with the second quarter of 2010 and the initial 2011 quarter was partially attributable to the Wilmington Trust acquisition. Also contributing to the narrowing were significantly higher earning balances on deposit with the Federal Reserve Bank of New York and higher amounts of resale agreements.

For the first half of 2011, taxable-equivalent net interest income was $1.17 billion, 3% higher than $1.14 billion in the corresponding 2010 period. That increase was largely attributable to a rise in average earning assets, which rose $1.3 billion or 2% from $60.1 billion in the first six months of 2010 to $61.4 billion in the first half of 2011. Also contributing to the higher net interest income in 2011 was a 2 basis point increase in the Company’s net interest margin. The growth in average earning assets was largely the result of earning assets obtained in the acquisition of Wilmington Trust on May 16, 2011.

Average loans and leases rose $4.2 billion, or 8%, to $55.5 billion in the second quarter of 2011 from $51.3 billion in the year-earlier quarter. Included in average loans and leases in the recent quarter were loans obtained in the Wilmington Trust acquisition. Loans associated with Wilmington Trust totaled $6.4 billion on the May 16, 2011 acquisition date, consisting of approximately $1.4 billion of commercial loans and leases, $3.2 billion of commercial real estate loans, $680 million of residential real estate loans and $1.1 billion of consumer loans. Including the impact of the acquired loan balances, commercial loans and leases averaged $14.6 billion in the second quarter of 2011, up $1.5 billion or 12% from $13.1 billion in the year-earlier quarter. Average commercial real estate loans rose $1.7 billion, or 8%, to $22.5 billion in the recent quarter from $20.8 billion in the second quarter of 2010. That increase was predominantly due to the impact of loans obtained in the acquisition of Wilmington Trust. Average residential real estate loans outstanding increased $906 million, or 16%, to $6.6 billion in the second quarter of 2011 from the $5.7 billion averaged in the year-earlier quarter. Included in that portfolio were loans held for sale, which averaged $229 million in the recent quarter, compared with $363 million in the second quarter of 2010. Excluding loans held for sale, average residential real estate loans increased $1.0 billion from the second quarter of 2010 to the second quarter of 2011. That growth was largely due to the Company’s decision to retain for portfolio during the fourth quarter of 2010 and a portion of the initial 2011 quarter a higher proportion of originated loans rather than selling them. Loans obtained in the Wilmington Trust transaction also contributed to the increase. Average consumer loans totaled $11.8 billion in each of the recent quarter and the second quarter of 2010. The positive impact from consumer loans obtained in the Wilmington

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Trust acquisition was offset by lower average balances of automobile and home equity loans (excluding Wilmington Trust loans).

Average loan balances in the recent quarter rose $3.5 billion, or 7%, from the first quarter of 2011. Average outstanding commercial loan and lease balances increased $1.1 billion, or 8%, from 2011’s initial quarter. Average outstanding balances of commercial real estate loans rose $1.5 billion, or 7%, in 2011’s second quarter as compared with the immediately preceding quarter. Residential real estate loans averaged $6.6 billion in the recent quarter, up $504 million, or 8%, as compared with the first quarter of 2011. Average consumer loans increased $467 million, or 4%, from 2011’s first quarter. The majority of the growth in the respective loan categories resulted from the loans obtained in the acquisition of Wilmington Trust. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.


AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions			Percent increase
			( decrease) from
	2nd Qtr.		2nd Qtr.			1st Qtr.
	2011		2010			2011
Commercial, financial, etc.	$	14,623		12	%		8	%
Real estate — commercial		22,471		8			7
Real estate — consumer		6,559		16			8
Consumer
Automobile		2,730		(3	)		3
Home equity lines		5,902		1			3
Home equity loans		732		(19	)		—
Other		2,444		11			10

Total consumer		11,808		—			4

Total	$	55,461		8	%		7	%

For the first half of 2011, average loans and leases totaled $53.7 billion, $2.1 billion or 4% above $51.6 billion in the similar period of 2010. Loans obtained in the Wilmington Trust acquisition were the predominant factor for that increase.

The investment securities portfolio averaged $6.4 billion in the second quarter of 2011, compared with $8.4 billion and $7.2 billion in the year-earlier quarter and first quarter of 2011, respectively. The declines from the second quarter of 2010 and the initial 2011 quarter reflect the impact of sales of securities late in the first quarter of 2011 and in the recent quarter, as well as maturities and paydowns of mortgage-backed securities, partially offset by second quarter 2011 purchases of residential mortgage-backed securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). For the first six months of 2011 and 2010, investment securities averaged $6.8 billion and $8.3 billion, respectively. The Wilmington Trust acquisition added approximately $510 million to the investment securities portfolio on the May 16, 2011 acquisition date. The investment securities portfolio is largely comprised of residential mortgage-backed securities and CMOs, debt securities issued by municipalities, capital preferred securities issued by certain financial institutions, and shorter-term U.S. Treasury and federal agency notes. When purchasing investment securities, the Company considers its overall interest-rate risk profile as well as the adequacy of expected returns relative to the risks assumed, including prepayments. In managing its investment securities portfolio, the Company occasionally sells investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio in connection with a business combination. Near the end of the first quarter, the Company sold certain residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac that were

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held in the available-for-sale portfolio. Those securities had an amortized cost of approximately $484 million, but because the transaction occurred near the end of the first quarter they did not have a significant effect on that quarter’s average balances. During the recent quarter, the Company sold certain residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, collateralized debt obligations and capital preferred securities, all held in the available-for-sale portfolio, with an amortized cost of $1.21 billion. The Company sold the securities in connection with the acquisition of Wilmington Trust in order to manage its balance sheet size and composition and resultant capital ratios. The recent quarter purchase of $1.2 billion of residential mortgage-backed securities guaranteed by Ginnie Mae provided a replenishment of the investment securities portfolio at an improved risk-weighting. Those purchases added approximately $500 million to the average balance of investment securities in 2011’s second quarter.

The Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” During the recent quarter, an other-than-temporary impairment charge of $27 million (pre-tax) was recognized related to the Company’s portfolio of privately issued residential CMOs. An other-than-temporary impairment charge of $22 million (pre-tax) was recognized in the second quarter of 2010. Approximately $12 million of that charge related to AIB ADSs and $10 million related to certain privately issued CMOs and CDOs held in the Company’s available-for-sale investment securities portfolio. The AIB ADSs were obtained in the 2003 acquisition of a subsidiary of AIB and were held to satisfy options to purchase such shares granted by that subsidiary to certain employees. Factors contributing to that impairment charge included mounting credit and other losses incurred by AIB, the issuance of AIB common stock in lieu of dividend payments on certain preferred stock issuances held by the Irish government resulting in significant dilution of AIB common shareholders, and public announcements by Irish government officials suggesting that increased government support, which could further dilute AIB common shareholders, may be necessary. During the initial 2011 quarter, other-than-temporary impairment charges of $16 million (pre-tax) were recognized related to certain privately issued CMOs. Poor economic conditions, high unemployment and depressed real estate values are significant factors contributing to the recognition of the other-than-temporary impairment charges related to the CMOs and CDOs. Based on management’s assessment of future cash flows associated with individual investment securities, as of June 30, 2011 the Company concluded that the remaining declines associated with the rest of the investment securities portfolio were temporary in nature. A further discussion of fair values of investment securities is included herein under the heading “Capital.” Additional information about the investment securities portfolio is included in notes 3 and 12 of Notes to Financial Statements.

Other earning assets include interest-earning deposits at the Federal Reserve Bank of New York and other banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged $1.5 billion in the recent quarter, compared with $157 million and $240 million in the second quarter of 2010 and the first quarter of 2011, respectively. Interest-bearing deposits at banks averaged $804 million in the second quarter of 2011, up from $81 million in the year- earlier period and $115 million in the initial 2011 quarter. The significantly higher balances in the recent quarter were due to increased deposits at the Federal Reserve Bank of New York resulting from the Wilmington Trust acquisition. Also reflected in other earning assets were purchases of investment securities under agreements to resell, which averaged $613 million, $5 million and $2 million in the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively. The higher level of resell agreements in the recent quarter as compared with the second quarter of 2010 and the first quarter of 2011 was due to the need to fulfill collateral requirements associated with certain municipal deposits. Agreements to resell securities, which totaled $380 million at June 30, 2011, are accounted

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for similar to collateralized loans, with changes in market value of the collateral monitored by the Company to ensure sufficient coverage. There were no such agreements outstanding at June 30, 2010 or December 31, 2010. The amounts of investment securities and other earning assets held by the Company are influenced by such factors as demand for loans, which generally yield more than investment securities and other earning assets, ongoing repayments, the level of deposits, and management of balance sheet size and resulting capital ratios.

As a result of the changes described herein, average earning assets totaled $63.4 billion in the recent quarter, compared with $59.8 billion in the similar quarter of 2010 and $59.4 billion in the first quarter of 2011. Average earning assets totaled $61.4 billion and $60.1 billion during the six-month periods ended June 30, 2011 and 2010, respectively.

The most significant source of funding for the Company is core deposits. During 2010 and prior years, the Company considered noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and domestic time deposits under $100,000 as core deposits. A provision of the Dodd-Frank Act permanently increased the maximum amount of FDIC deposit insurance for financial institutions to $250,000 per depositor. That maximum was $100,000 per depositor until 2009, when it was raised to $250,000 temporarily through December 31, 2013. As a result of the permanently increased deposit insurance coverage, effective December 31, 2010 the Company considers time deposits of $250,000 or less as core deposits. The Company’s branch network is its principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Certificates of deposit of $250,000 or less generated on a nationwide basis by M&T Bank, National Association (“M&T Bank, N.A.”), a wholly owned bank subsidiary of M&T, are also included in core deposits. Average core deposits aggregated $50.5 billion in the second quarter of 2011, compared with $43.4 billion in the year-earlier quarter and $46.2 billion in the initial 2011 quarter. The change in the Company’s definition of core deposits to include time deposits from $100,000 to $250,000 increased average core deposits by approximately $970 million and $1.0 billion in the first and second quarters of 2011, respectively. The Wilmington acquisition added approximately $6.6 billion of core deposits on May 16, 2011. Excluding deposits obtained in that transaction, the growth in core deposits since the second quarter of 2010 was due, in part, to the lack of attractive alternative investments available to the Company’s customers resulting from lower interest rates and from the economic environment in the U.S. The low interest rate environment has resulted in a shift in customer savings trends, as average time deposits have continued to decline, while average noninterest-bearing deposits and savings deposits have increased. The following table provides an analysis of quarterly changes in the components of average core deposits. For the six-month periods ended June 30, 2011 and 2010, core deposits averaged $48.4 billion and $43.2 billion, respectively.


AVERAGE CORE DEPOSITS
Dollars in millions			Percent increase from
	2nd Qtr.		2nd Qtr.			1st Qtr.
	2011		2010			2011
NOW accounts	$	712		19	%		19	%
Savings deposits		28,641		16			9
Time deposits (a)		4,971		13			6
Noninterest-bearing deposits		16,195		19			12

Total	$	50,519		16	%		9	%

(a)

Average time deposits considered core deposits in the first and second quarters of 2011 represented time deposits of $250,000 or less. In the second quarter of 2010, average time deposits considered core deposits were those with balances less than $100,000.

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In addition to core deposits, time deposits over $250,000, deposits originated through the Company’s Cayman Islands branch office, and brokered deposits provide sources of funding for the Company. Time deposits over $250,000, excluding brokered certificates of deposit, averaged $484 million in the second quarter of 2011, compared with $520 million in the initial quarter of 2011. Similar time deposits over $100,000 averaged $1.7 billion in the second quarter of 2010. Cayman Islands branch deposits averaged $819 million, $972 million and $1.2 billion for the three-month periods ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively. Average brokered time deposits totaled $1.2 billion in the recently completed quarter, compared with $709 million in the year-earlier quarter and $482 million in the first quarter of 2011. Brokered time deposits obtained in the acquisition of Wilmington Trust totaled $1.4 billion on May 16, 2011. The Company also had brokered NOW and brokered money-market deposit accounts which in the aggregate averaged $1.4 billion during the second quarter of 2011, compared with $1.2 billion and $1.3 billion during the year-earlier quarter and the first quarter of 2011, respectively. The levels of brokered NOW and brokered money-market deposits reflect the demand for such deposits, largely resulting from continued uncertain economic markets and the desire of brokerage firms to earn reasonable yields while ensuring that customer deposits are fully insured. Cayman Islands branch deposits and brokered deposits have been used by the Company as alternatives to short-term borrowings. Additional amounts of Cayman Islands branch deposits or brokered deposits may be added in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.

The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the Federal Reserve and others as sources of funding. Short-term borrowings averaged $707 million in the recent quarter, compared with $1.8 billion in the second quarter of 2010 and $1.3 billion in the initial quarter of 2011. Included in short-term borrowings were unsecured federal funds borrowings, which generally mature on the next business day, which averaged $548 million and $1.6 billion in the second quarters of 2011 and 2010, respectively, compared with $1.2 billion in the first quarter of 2011. Overnight federal funds borrowings represented the largest component of short-term borrowings and totaled $290 million at June 30, 2011, $2.0 billion at June 30, 2010 and $826 million at December 31, 2010.

Long-term borrowings averaged $7.1 billion in the second quarter of 2011, compared with $9.5 billion in the corresponding quarter of 2010 and $7.4 billion in the first quarter of 2011. Included in average long-term borrowings were amounts borrowed from the Federal Home Loan Bank (“FHLB”) of New York, the FHLB of Atlanta and the FHLB of Pittsburgh of $2.0 billion and $4.4 billion in the second quarters of 2011 and 2010, respectively, and $2.5 billion in the first quarter of 2011, and subordinated capital notes of $2.0 billion in the recent quarter, $1.9 billion in the year-earlier quarter and $1.7 billion in the initial 2011 quarter. Subordinated capital notes assumed in connection with the Wilmington Trust acquisition totaled $450 million at May 16, 2011. The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of long-term debt. As of June 30, 2011, swap agreements were used to hedge approximately $900 million of fixed rate subordinated notes. Further information on interest rate swap agreements is provided in note 10 of Notes to Financial Statements. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $1.2 billion in each of the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011. Additional information regarding junior subordinated debentures is provided in note 5 of Notes to Financial Statements. Also included in long-term borrowings were agreements to repurchase securities, which averaged $1.6 billion during each of the second quarters of 2011 and 2010 and the first quarter of 2011. The agreements have various repurchase dates through 2017, however, the contractual maturities of the underlying securities extend

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beyond such repurchase dates.

Changes in the composition of the Company’s earning assets and interest-bearing liabilities, as described herein, as well as changes in interest rates and spreads, can impact net interest income. Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 3.51% in the second quarter of 2011, compared with 3.59% in the year-earlier quarter. The yield on earning assets during the recent quarter was 4.40%, down 23 basis points from 4.63% in the second quarter of 2010, while the rate paid on interest-bearing liabilities declined 15 basis points to .89% from 1.04% in the second quarter of 2010. In the first quarter of 2011, the net interest spread was 3.69%, the yield on earning assets was 4.60% and the rate paid on interest-bearing liabilities was .91%. The 8 basis point narrowing in spread from the second quarter of 2010 to the recent quarter and the 18 basis point narrowing in spread from the initial 2011 quarter to the second quarter of 2011 were each partially attributable to the acquisition of Wilmington Trust. Also contributing to the narrowing of the spread were significantly higher earning balances in the recent quarter on lower-yielding deposits with the Federal Reserve Bank of New York and resale agreements. For the first half of 2011, the net interest spread was 3.59%, an increase of 2 basis points from the similar 2010 period. The yield on earning assets and the rate paid on interest-bearing liabilities were 4.49% and .90%, respectively, during the first six months of 2011, compared with 4.61% and 1.04%, respectively, in the corresponding period of 2010.

Net interest-free funds consist largely of noninterest-bearing demand deposits and shareholders’ equity, partially offset by bank owned life insurance and non-earning assets, including goodwill and core deposit and other intangible assets. Net interest-free funds averaged $17.3 billion in the recent quarter, compared with $14.3 billion in the second quarter of 2010 and $15.5 billion in the first quarter of 2011. The rise in net interest-free funds in the two most recent quarters as compared with the second quarter of 2010 was largely the result of higher average balances of noninterest-bearing deposits. Such deposits averaged $16.2 billion, $13.6 billion and $14.5 billion in the quarters ended June 30, 2011, June 30, 2010 and March 31,2011, respectively. In connection with the Wilmington Trust acquisition, the Company added noninterest-bearing deposits totaling $2.0 billion at the acquisition date. During the first six months of 2011 and 2010, average net interest-free funds aggregated $16.4 billion and $14.0 billion, respectively. Goodwill and core deposit and other intangible assets averaged $3.7 billion during each of the quarters ended June 30, 2011 and June 30, 2010, compared with $3.6 billion during the quarter ended March 31, 2011. Core deposit and other intangible assets added from the Wilmington Trust acquisition were $176 million on May 16, 2011. There was no goodwill recorded as a result of the acquisition. The cash surrender value of bank owned life insurance averaged $1.5 billion in each of the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011. Increases in the cash surrender value of bank owned life insurance are not included in interest income, but rather are recorded in “other revenues from operations.” The contribution of net interest-free funds to net interest margin was .24% in the recent quarter, compared with .25% and .23% in the second quarter of 2010 and the initial 2011 quarter, respectively. That contribution for each of the first six months of 2011 and 2010 was .24%.

Reflecting the changes to the net interest spread and the contribution of interest-free funds as described herein, the Company’s net interest margin was 3.75% in the recent quarter, compared with 3.84% in the year-earlier quarter and 3.92% in the first quarter of 2011. During the first six months of 2011 and 2010, the net interest margin was 3.83% and 3.81%, respectively. Future changes in market interest rates or spreads, as well as changes in the composition of the Company’s portfolios of earning assets and interest-bearing liabilities that result in reductions in spreads, could adversely impact the Company’s net interest income and net interest margin.

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Management assesses the potential impact of future changes in interest rates and spreads by projecting net interest income under several interest rate scenarios. In managing interest rate risk, the Company has utilized interest rate swap agreements to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are generally reflected in either the yields earned on assets or the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was $900 million at each of June 30, 2011, December 31, 2010 and March 31, 2011, and was $1.0 billion at June 30, 2010. Under the terms of those swap agreements, the Company received payments based on the outstanding notional amount of the swap agreements at fixed rates and made payments at variable rates. Those swap agreements were designated as fair value hedges of certain fixed rate long-term borrowings and, to a lesser extent at June 30, 2010, certain fixed rate time deposits. There were no interest rate swap agreements designated as cash flow hedges at those respective dates.

In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded in “other revenues from operations” in the Company’s consolidated statement of income. In a cash flow hedge, unlike in a fair value hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in “other revenues from operations” immediately. The amounts of hedge ineffectiveness recognized during the quarters ended June 30, 2011 and 2010 and the quarter ended March 31, 2011 were not material to the Company’s results of operations. The estimated aggregate fair value of interest rate swap agreements designated as fair value hedges represented gains of approximately $106 million, $111 million, $84 million and $97 million at June 30, 2011, June 30, 2010, March 31, 2011 and December 31, 2010, respectively. The fair values of such swap agreements were substantially offset by changes in the fair values of the hedged items. The changes in the fair values of the interest rate swap agreements and the hedged items primarily result from the effects of changing interest rates and spreads. The Company’s credit exposure as of June 30, 2011 with respect to the estimated fair value of interest rate swap agreements used for managing interest rate risk has been substantially mitigated through master netting arrangements with trading account interest rate contracts with the same counterparty as well as counterparty postings of $61 million of collateral with the Company.

The weighted-average rates to be received and paid under interest rate swap agreements currently in effect were 6.07% and 1.79%, respectively, at June 30, 2011. The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average interest rates paid or received on those swap agreements are presented in the accompanying table. Additional information about the Company’s use of interest rate swap agreements and other derivatives is included in note 10 of Notes to Financial Statements.

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INTEREST RATE SWAP AGREEMENTS
Dollars in thousands

	Three months ended June 30
	2011						2010
	Amount			Rate(a)			Amount			Rate(a)
Increase (decrease) in:
Interest income	$	—			—	%	$	—			—	%
Interest expense		(9,491	)		(.08	)		(10,967	)		(.10	)

Net interest income/margin	$	9,491			.06	%	$	10,967			.07	%

Average notional amount	$	900,000					$	1,053,175

Rate received(b)					6.09	%					6.37	%
Rate paid(b)					1.86	%					2.19	%


	Six months ended June 30
	2011						2010
	Amount			Rate(a)			Amount			Rate(a)
Increase (decrease) in:
Interest income	$	—			—	%	$	—			—	%
Interest expense		(19,005	)		(.09	)		(22,219	)		(.10	)

Net interest income/margin	$	19,005			.06	%	$	22,219			.07	%

Average notional amount	$	900,000					$	1,057,683

Rate received(b)					6.12	%					6.38	%
Rate paid(b)					1.86	%					2.15	%

(a)

Computed as an annualized percentage of average earning assets or interest-bearing liabilities.

(b)

Weighted-average rate paid or received on interest rate swap agreements in effect during the period.

As a financial intermediary, the Company is exposed to various risks, including liquidity and market risk. Liquidity refers to the Company’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future obligations, including demands for loans and deposit withdrawals, funding operating costs, and other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ. M&T’s banking subsidiaries have access to additional funding sources through borrowings from the FHLB of New York, lines of credit with the Federal Reserve Bank of New York, and other available borrowing facilities. The Company has, from time to time, issued subordinated capital notes to provide liquidity and enhance regulatory capital ratios. Such notes qualify for inclusion in the Company’s total capital as defined by Federal regulators.

The Company has informal and sometimes reciprocal sources of funding available through various arrangements for unsecured short-term borrowings from a wide group of banks and other financial institutions. Short-term federal funds borrowings were $290 million, $2.0 billion and $826 million at June 30, 2011, June 30, 2010 and December 31, 2010, respectively. In general, these borrowings were unsecured and matured on the following business day. As previously noted, Cayman Islands branch deposits and brokered certificates of deposits have been used by the Company as an alternative to short-term borrowings. Cayman Islands branch deposits also generally mature on the next business day and totaled $552 million at June 30, 2011, $551 million at June 30, 2010 and $1.6 billion at December 31, 2010. Outstanding brokered time deposits at June 30, 2011, June 30, 2010 and December 31, 2010 were $1.9 billion, $662 million and $485 million, respectively. Brokered time deposits assumed in the Wilmington Trust transaction totaled $1.4 billion at the acquisition date. At June 30, 2011, the weighted-average remaining term to maturity of brokered time deposits was 11 months. Certain of these brokered time deposits have provisions that allow for early redemption. The Company also has brokered NOW and brokered money-market deposit accounts which aggregated $1.4

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billion, $1.5 billion and $1.3 billion at June 30, 2011, June 30, 2010 and December 31, 2010, respectively.

The Company’s ability to obtain funding from these or other sources could be negatively impacted should the Company experience a substantial deterioration in its financial condition or its debt ratings, or should the availability of short-term funding become restricted due to a disruption in the financial markets. The Company attempts to quantify such credit-event risk by modeling scenarios that estimate the liquidity impact resulting from a short-term ratings downgrade over various grading levels. Such impact is estimated by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets. In addition to deposits and borrowings, other sources of liquidity include maturities of investment securities and other earning assets, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services.

Certain customers of the Company obtain financing through the issuance of variable rate demand bonds (“VRDBs”). The VRDBs are generally enhanced by letters of credit provided by M&T Bank. M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion, may from time-to-time own some of the VRDBs while such instruments are remarketed. When this occurs, the VRDBs are classified as trading assets in the Company’s consolidated balance sheet. Nevertheless, M&T Bank is not contractually obligated to purchase the VRDBs. The value of VRDBs in the Company’s trading account totaled $29 million and $22 million at June 30, 2011 and 2010, respectively, and $107 million at December 31, 2010. The total amount of VRDBs outstanding backed by M&T Bank letters of credit was $1.9 billion at each of June 30, 2011 and June 30, 2010 and $2.0 billion at December 31, 2010. M&T Bank also serves as remarketing agent for most of those bonds.

The Company enters into contractual obligations in the normal course of business which require future cash payments. Such obligations include, among others, payments related to deposits, borrowings, leases and other contractual commitments. Off-balance sheet commitments to customers may impact liquidity, including commitments to extend credit, standby letters of credit, commercial letters of credit, financial guarantees and indemnification contracts, and commitments to sell real estate loans. Because many of these commitments or contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. Further discussion of these commitments is provided in note 13 of Notes to Financial Statements.

M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been the receipt of dividends from its banking subsidiaries, which are subject to various regulatory limitations. Dividends from any banking subsidiary to M&T are limited by the amount of earnings of the banking subsidiary in the current year and the two preceding years. For purposes of that test, at June 30, 2011 approximately $939 million was available for payment of dividends to M&T from banking subsidiaries. These historic sources of cash flow have been augmented in the past by the issuance of trust preferred securities and senior notes payable. Information regarding trust preferred securities and the related junior subordinated debentures is included in note 5 of Notes to Financial Statements. The $300 million 5.375% senior notes of M&T that were issued in 2007 mature in May 2012. M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, of which there were no borrowings outstanding at June 30, 2011 or at December 31, 2010.

Management closely monitors the Company’s liquidity position on an ongoing basis for compliance with internal policies and believes that available sources of liquidity are adequate to meet funding needs anticipated in the normal course of business. Management does not anticipate engaging in any activities, either currently or in the long-term, for which adequate funding would not be available and would therefore result in a significant strain on liquidity at either M&T or its subsidiary banks.

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Market risk is the risk of loss from adverse changes in the market prices and/or interest rates of the Company’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. Interest rate risk arises from the Company’s core banking activities of lending and deposit-taking, because assets and liabilities reprice at different times and by different amounts as interest rates change. As a result, net interest income earned by the Company is subject to the effects of changing interest rates. The Company measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to hedge interest rate risk. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and investment securities, and expected maturities of investment securities, loans and deposits. Management uses a “value of equity” model to supplement the modeling technique described above. Those supplemental analyses are based on discounted cash flows associated with on- and off-balance sheet financial instruments. Such analyses are modeled to reflect changes in interest rates and provide management with a long-term interest rate risk metric.

The Company’s Risk Management Committee, which includes members of senior management, monitors the sensitivity of the Company’s net interest income to changes in interest rates with the aid of a computer model that forecasts net interest income under different interest rate scenarios. In modeling changing interest rates, the Company considers different yield curve shapes that consider both parallel (that is, simultaneous changes in interest rates at each point on the yield curve) and non-parallel (that is, allowing interest rates at points on the yield curve to vary by different amounts) shifts in the yield curve. In utilizing the model, market-implied forward interest rates over the subsequent twelve months are generally used to determine a base interest rate scenario for the net interest income simulation. That calculated base net interest income is then compared to the income calculated under the varying interest rate scenarios. The model considers the impact of ongoing lending and deposit-gathering activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

The accompanying table as of June 30, 2011 and December 31, 2010 displays the estimated impact on net interest income from non-trading financial instruments in the base scenario described above resulting from parallel changes in interest rates across repricing categories during the first modeling year.


SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES Dollars in thousands

	Calculated increase (decrease)
	in projected net interest income
Changes in interest rates	June 30, 2011			December 31, 2010
+200 basis points	$	127,468			67,255
+100 basis points		67,999			35,594
-100 basis points		(50,197	)		(40,760	)
-200 basis points		(72,360	)		(61,720	)

The Company utilized many assumptions to calculate the impact that changes in interest rates may have on net interest income. The more significant of those assumptions included the rate of prepayments of mortgage-related assets, cash flows from derivative and other financial instruments held for non-trading purposes, loan

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and deposit volumes and pricing, and deposit maturities. In the scenarios presented, the Company also assumed gradual changes in interest rates during a twelve-month period of 100 and 200 basis points, as compared with the assumed base scenario. In the event that a 100 or 200 basis point rate change cannot be achieved, the applicable rate changes are limited to lesser amounts such that interest rates cannot be less than zero. The assumptions used in interest rate sensitivity modeling are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly from those presented due to the timing, magnitude and frequency of changes in interest rates and changes in market conditions and interest rate differentials (spreads) between maturity/repricing categories, as well as any actions, such as those previously described, which management may take to counter such changes. The changes to projected net interest income at June 30, 2011 as compared with December 31, 2010 were predominantly due to the acquisition of Wilmington Trust. The most significant of those changes related to the rising interest rate scenarios and were largely due to the addition of variable rate commercial loans and commercial real estate loans that had been funded by Wilmington Trust using core deposits and fixed rate brokered time deposits. In addition, higher cash balances obtained in the acquisition allowed the Company to reduce its reliance on variable rate federal funds purchased. In light of the uncertainties and assumptions associated with the process, the amounts presented in the table are not considered significant to the Company’s past or projected net interest income.

Changes in fair value of the Company’s financial instruments can also result from a lack of trading activity for similar instruments in the financial markets. That impact is most notable on the values assigned to the Company’s investment securities. Information about the fair valuation of such securities is presented herein under the heading “Capital” and in notes 3 and 12 of Notes to Financial Statements.

The Company engages in trading activities to meet the financial needs of customers, to fund the Company’s obligations under certain deferred compensation plans and, to a limited extent, to profit from perceived market opportunities. Financial instruments utilized in trading activities consist predominantly of interest rate contracts, such as swap agreements, and forward and futures contracts related to foreign currencies, but have also included forward and futures contracts related to mortgage-backed securities and investments in U.S. Treasury and other government securities, mortgage-backed securities and mutual funds, and as previously described, a limited number of VRDBs. The Company generally mitigates the foreign currency and interest rate risk associated with trading activities by entering into offsetting trading positions. The amounts of gross and net trading positions, as well as the type of trading activities conducted by the Company, are subject to a well-defined series of potential loss exposure limits established by management and approved by M&T’s Board of Directors. However, as with any non-government guaranteed financial instrument, the Company is exposed to credit risk associated with counterparties to the Company’s trading activities.

The notional amounts of interest rate contracts entered into for trading purposes totaled $13.4 billion at June 30, 2011, compared with $12.4 billion and $12.8 billion at June 30, 2010 and December 31, 2010, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes aggregated $1.0 billion, $680 million and $769 million at June 30, 2011, June 30, 2010 and December 31, 2010, respectively. Although the notional amounts of these trading contracts are not recorded in the consolidated balance sheet, the fair values of all financial instruments used for trading activities are recorded in the consolidated balance sheet. The fair values of all trading account assets and liabilities totaled $503 million and $366 million, respectively, at June 30, 2011, $488 million and $380 million, respectively, at June 30, 2010, and $524 million and $333 million, respectively, at December 31, 2010. Included in trading account assets were assets related to deferred compensation plans totaling $36 million at June 30, 2011, $33 million at June 30, 2010 and $35 million at December 31, 2010. Changes in the fair value of such assets are recorded as “trading account and foreign exchange gains” in the consolidated statement of income. Included in “other liabilities” in the consolidated balance sheet at June 30, 2011 and 2010 were

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$34 million and $35 million, respectively, of liabilities related to deferred compensation plans, while at December 31, 2010 such liabilities related to deferred compensation plans totaled $36 million. Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed are recorded in “other costs of operations” in the consolidated statement of income.

Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading activities was not material, however, as previously noted, the Company is exposed to credit risk associated with counterparties to transactions related to the Company’s trading activities. Additional information about the Company’s use of derivative financial instruments in its trading activities is included in note 10 of Notes to Financial Statements.

Provision for Credit Losses

The Company maintains an allowance for credit losses that in management’s judgment appropriately reflects losses inherent in the loan and lease portfolio. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. The provision for credit losses in the second quarter of 2011 was $63 million, compared with $85 million in the year-earlier quarter and $75 million in the first quarter of 2011. For the six-month periods ended June 30, 2011 and 2010, the provision for credit losses was $138 million and $190 million, respectively. While the levels of the provision subsequent to 2007 have been higher than historical levels, the Company has recently experienced improvement in some of its credit quality metrics. Nevertheless, generally declining real estate valuations and higher than normal levels of delinquencies and charge-offs have significantly affected the quality of the Company’s residential real estate-related loan portfolios. Specifically, the Company’s alternative (“Alt-A”) residential real estate loan portfolio and its residential real estate builder and developer loan portfolio experienced the majority of the credit problems related to the turmoil in the residential real estate market place. Alt-A loans represent residential real estate loans that at origination typically included some form of limited borrower documentation requirements as compared with more traditional residential real estate loans. Loans in the Company’s Alt-A portfolio were originated by the Company prior to 2008. The Company also experienced increased levels of commercial and consumer loan charge-offs over the past three years due to, among other things, higher unemployment levels and the recessionary economy.

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Net loan charge-offs were $59 million in the recent quarter, compared with $82 million in the year-earlier quarter and $74 million in the initial quarter of 2011. Net charge-offs as an annualized percentage of average loans and leases were .43% in the second quarter of 2011, compared with .64% and .58% in the quarters ended June 30, 2010 and March 31, 2011, respectively. Net charge-offs for the six-month period ended June 30 aggregated $133 million in 2011 and $176 million in 2010, representing .50% and .69%, respectively, of average loans and leases. A summary of net charge-offs by loan type follows:

NET CHARGE-OFFS
BY LOAN/LEASE TYPE

In thousands


	2011
					Year
	1st Qtr.		2nd Qtr.		to-date

Commercial, financial, etc.	$11,862		12,650		24,512
Real estate:
Commercial		24,230		12,731		36,961
Residential		14,666		13,839		28,505
Consumer		23,480		19,894		43,374

	$	74,238		59,114		133,352


	2010
					Year
	1st Qtr.		2nd Qtr.		to-date
Commercial, financial, etc.	$	17,994		9,166		27,160
Real estate:
Commercial		30,226		35,449		65,675
Residential		15,280		13,182		28,462
Consumer		31,009		23,801		54,810

	$	94,509		81,598		176,107

Included in net charge-offs of commercial real estate loans were net charge-offs of loans to residential homebuilders and developers of $6 million and $17 million for the quarters ended June 30, 2011 and June 30, 2010, and $18 million for the quarter ended March 31, 2011. Included in net charge-offs of residential real estate loans were net charge-offs of Alt-A first mortgage loans of $8 million in each of the two most recent quarters, compared with $9 million during the quarter ended June 30, 2010. Included in net charge-offs of consumer loans and leases were net charge-offs during the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively, of: indirect automobile loans of $5 million, $7 million and $6 million; recreational vehicle loans of $5 million, $6 million and $6 million; and home equity loans and lines of credit, including Alt-A second lien loans, of $8 million during each respective period. Including both first and second lien mortgages, net charge-offs of Alt-A loans totaled $9 million, $10 million and $9 million for the quarters ended June 30, 2011, June 30, 2010 and March 31, 2011, respectively.

Nonaccrual loans totaled $1.26 billion or 2.15% of total loans and leases outstanding at June 30, 2011, compared with $1.09 billion or 2.13% at June 30, 2010, $1.24 billion or 2.38% at December 31, 2010, and $1.21 billion or 2.32% at March 31, 2011. Reflected in nonaccrual loans at June 30, 2011 were $77 million of loans obtained in the Wilmington Trust acquisition, which predominantly represented commercial revolving lines of credit that GAAP specifically excludes from the scope of accounting for purchased impaired loans. The majority of such lines of credit were to builders and developers of residential real estate properties and remained available for use to allow the real estate projects to progress. Also contributing to the increase in nonaccrual loans from June 30, 2010 were loans transferred to nonaccrual status, including fourth quarter 2010 transfers of a $66 million relationship with a residential builder and developer and commercial construction

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loans to an owner/operator of retirement and assisted living facilities which totaled $66 million at June 30, 2011, and a recent quarter transfer of $21 million related to a residential builder and developer. Partially offsetting the transfers to nonaccrual status were charge-offs and payments, including the fourth quarter 2010 payoff of a $36 million relationship with a borrower in the commercial real estate sector. The continuing softness in the residential real estate marketplace has resulted in depressed real estate values and high levels of delinquencies, both for loans to consumers and loans to builders and developers of residential real estate. Despite the recent quarter’s decline in nonaccrual loans (exclusive of the impact of the Wilmington Trust acquisition), conditions in the U.S. economy have resulted in generally higher levels of nonaccrual loans than historically experienced by the Company.

Accruing loans past due 90 days or more were $373 million or .64% of total loans and leases at June 30, 2011, compared with $203 million or .40% at June 30, 2010, $270 million or .52% at December 31, 2010 and $264 million or .51% at March 31, 2011. Reflected in those loans at June 30, 2011 were $130 million of loans obtained in the Wilmington Trust acquisition that were past their renewal date. For each of those loans, borrowers continued to currently make periodic payments as required by their maturing loan agreements while new agreements between the borrowers and the Company were being developed. Loans past due 90 days or more and accruing interest included $207 million, $188 million, $214 million and $215 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively, of loans guaranteed by government-related entities. Such guaranteed loans included one-to-four family residential mortgage loans serviced by the Company that were repurchased to reduce associated servicing costs, including a requirement to advance principal and interest payments that had not been received from individual mortgagors. Despite the loans being purchased by the Company, the insurance or guarantee by the applicable government-related entity remains in force. The outstanding principal balances of the repurchased loans are fully guaranteed by government-related entities and totaled $195 million, $171 million, $191 million and $195 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively. Loans past due 90 days or more and accruing interest that were guaranteed by government-related entities also included foreign commercial and industrial loans supported by the Export-Import Bank of the United States that totaled $11 million at each of June 30, 2011, December 31, 2010 and March 31, 2011, compared with $12 million at June 30, 2010.

Purchased impaired loans are loans obtained in acquisition transactions subsequent to 2008 that as of the acquisition date were specifically identified as displaying signs of credit deterioration and for which the Company did not expect to collect all outstanding principal and contractually required interest payments. Those loans were impaired at the date of acquisition, were recorded at estimated fair value and were generally delinquent in payments, but, in accordance with GAAP, the Company continues to accrue interest income on such loans based on the estimated expected cash flows associated with the loans. The carrying amount of such loans was $753 million at June 30, 2011, or approximately 1.3% of total loans. Of that amount, $672 million was related to the Wilmington Trust acquisition.

In an effort to assist borrowers, the Company has modified the terms of select loans secured by residential real estate, largely from the Company’s portfolio of Alt-A loans. Included in loans outstanding at June 30, 2011 were $303 million of modified loans, of which $129 million were classified as nonaccrual. The remaining modified loans have demonstrated payment capability consistent with the modified terms and, accordingly, were classified as renegotiated loans and were accruing interest at June 30, 2011. Loan modifications included such actions as the extension of loan maturity dates (generally from thirty to forty years) and the lowering of interest rates and monthly payments. The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs. In accordance with GAAP, the modified loans are included in impaired loans for purposes of determining the allowance for credit losses. Modified residential real estate loans totaled $307 million as of June 30, 2010, of which $118 million were in nonaccrual status, and $308 million as of December 31, 2010, of which $117 million were in nonaccrual status.

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Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors have not been included in renegotiated loans because the loan guarantee remains in full force and, accordingly, M&T has not granted a concession with respect to the ultimate collection of the original loan balance. Such loans aggregated $129 million and $106 million at June 30, 2011 and December 31, 2010, respectively.

Commercial loans and leases classified as nonaccrual totaled $164 million at June 30, 2011, $248 million at June 30, 2010, $187 million at December 31, 2010 and $173 million at March 31, 2011. The decline in such loans since June 30, 2010 reflects payments/payoffs, including a fourth quarter 2010 payoff of a $36 million relationship with a borrower in the commercial real estate sector.

Nonaccrual commercial real estate loans totaled $708 million at June 30, 2011, $471 million at June 30, 2010, $682 million at December 31, 2010 and $658 million at March 31, 2011. Reflected in such nonaccrual loans were loans to residential homebuilders and developers totaling $359 million, $265 million, $346 million and $320 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively. The higher levels of commercial real estate loans classified as nonaccrual at June 30, 2011, March 31, 2011 and December 31, 2010 as compared with June 30, 2010 were largely due to the increases in such loans to residential real estate builders and developers, which reflect loans of $42 million at June 30, 2011 obtained in the Wilmington Trust acquisition. Also contributing to the increases from June 30, 2010 was the fourth quarter 2010 addition to nonaccrual loans of $66 million of commercial construction loans to an owner/operator of retirement and assisted living facilities. Information about the location of nonaccrual and charged-off loans to residential real estate builders and developers as of and for the three-month period ended June 30, 2011 is presented in the accompanying table.

RESIDENTIAL BUILDER AND DEVELOPER LOANS, NET OF UNEARNED DISCOUNT


								Quarter ended
	June 30, 2011							June 30, 2011
								Net charge-offs
			Nonaccrual					(recoveries)
										Annualized
										percent of
					Percent of					average
	Outstanding				outstanding					outstanding
	balances(a)		Balances		balances			Balances		balances
			(dollars in thousands)
New York	$	261,283	$	27,117		10.38	%	$	766		1.19	%
Pennsylvania		363,097		90,529		24.93			231		.30
Mid-Atlantic		1,182,063		225,229		19.05			3,750		1.67
Other		206,665		36,245		17.54			979		1.92


Total	$	2,013,108	$	379,120		18.83	%	$	5,726		1.37	%


*(a)*		*Includes approximately $172 million of loans not secured by real estate, of which approximately $20 million are in nonaccrual status.*

Residential real estate loans classified as nonaccrual were $295 million at June 30, 2011, $285 million at June 30, 2010, $279 million at December 31, 2010 and $289 million at March 31, 2011. Depressed real estate values and high levels of delinquencies have contributed to higher than historical levels of residential real estate loans classified as nonaccrual and to the elevated level of charge-offs, largely in the Company’s Alt-A portfolio. Included in residential real estate loans classified as nonaccrual were Alt-A loans, totaling $107 million, $112 million, $106 million and $111 million at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011, respectively. Residential real estate loans past due

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90 days or more and accruing interest totaled $199 million at June 30, 2011, compared with $172 million a year earlier, and $192 million and $195 million at December 31, 2010 and March 31, 2011, respectively. A substantial portion of such amounts related to guaranteed loans repurchased from government-related entities. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended June 30, 2011 is presented in the accompanying table.

Nonaccrual consumer loans totaled $92 million and $86 million at June 30, 2011 and 2010, respectively, compared with $91 million at each of December 31, 2010 and March 31, 2011. As a percentage of consumer loan balances outstanding, nonaccrual consumer loans were .75% at June 30, 2011, compared with .73% a year earlier, .79% at December 31, 2010 and .81% at March 31, 2011. Included in nonaccrual consumer loans at June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011 were indirect automobile loans of $27 million, $30 million, $32 million and $30 million, respectively; recreational vehicle loans of $11 million, $13 million, $13 million and $13 million, respectively; and outstanding balances of home equity loans and lines of credit, including second lien Alt-A loans, of $50 million, $38 million, $43 million and $44 million, respectively. Consumer loans delinquent 30-89 days at June 30, 2011 totaled $126 million, compared with $114 million a year earlier, $120 million at December 31, 2010 and $96 million at March 31, 2011. Consumer loans past due 90 days or more and accruing interest totaled $4 million at each of June 30, 2011, June 30, 2010, December 31, 2010 and March 31, 2011. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended June 30, 2011 is presented in the accompanying table.

Real estate and other foreclosed assets were $159 million at June 30, 2011, compared with $193 million at June 30, 2010, $220 million at December 31, 2010 and $218 million at March 31, 2011. The decrease at the recent quarter-end as compared with the other respective quarter-ends resulted from the sale during the recent quarter of a commercial real estate property located in New York City with a carrying value of $99 million. The Company’s holding of residential real estate-related properties comprised 72% of foreclosed assets at June 30, 2011. Reflected in real estate and other foreclosed assets at June 30, 2011 were $57 million of such assets obtained in the Wilmington Trust acquisition that were recorded at fair value on the acquisition date. Proceeds from the sales of foreclosed assets were the most significant factor in the increase in other net cash flows from investing activities during the six months ended June 30, 2011.

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SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA


								Quarter ended
	June 30, 2011							June 30, 2011
								Net charge-offs
			Nonaccrual					(recoveries)
											Annualized
											percent of
					Percent of						average
	Outstanding				outstanding						outstanding
	balances		Balances		balances			Balances			balances
			(dollars in thousands)
Residential mortgages:
New York	$	2,612,474	$	51,984		1.99	%	$	727			0.12	%
Pennsylvania		908,800		18,731		2.06			494			0.23
Mid-Atlantic		1,573,116		45,769		2.91			1,137			0.34
Other		1,249,354		63,090		5.05			2,973			1.01

Total	$	6,343,744	$	179,574		2.83	%	$	5,331			0.36	%

Residential construction loans:
New York	$	9,423	$	882		9.36	%	$	—			—	%
Pennsylvania		3,020		414		13.71			(31	)		(3.87	)
Mid-Atlantic		15,689		2,982		19.01			20			0.48
Other		28,117		3,619		12.87			394			5.24

Total	$	56,249	$	7,897		14.04	%	$	383			2.59	%

Alt-A first mortgages:
New York	$	87,536	$	17,095		19.53	%	$	1,022			4.59	%
Pennsylvania		20,223		2,801		13.85			400			7.67
Mid-Atlantic		105,862		17,718		16.74			1,718			6.38
Other		357,307		69,827		19.54			4,985			5.47

Total	$	570,928	$	107,441		18.82	%	$	8,125			5.58	%

Alt-A junior lien:
New York	$	2,858	$	288		10.08	%	$	49			6.82	%
Pennsylvania		640		33		5.16			—			—
Mid-Atlantic		4,174		164		3.93			204			19.40
Other		14,162		547		3.86			637			17.73

Total	$	21,834	$	1,032		4.73	%	$	890			16.09	%

First lien home equity loans:
New York	$	30,414	$	576		1.89	%	$	45			0.58	%
Pennsylvania		170,328		2,979		1.75			34			0.08
Mid-Atlantic		173,302		2,772		1.60			44			0.11
Other		4,916		194		3.95			—			—

Total	$	378,960	$	6,521		1.72	%	$	123			0.13	%

First lien home equity lines:
New York	$	873,329	$	2,675		0.31	%	$	74			0.03	%
Pennsylvania		593,468		1,084		0.18			(50	)		(0.04	)
Mid-Atlantic		639,584		1,211		0.19			80			0.05
Other		40,161		517		1.29			—			—

Total	$	2,146,542	$	5,487		0.26	%	$	104			0.02	%

Junior lien home equity loans:
New York	$	72,903	$	1,245		1.71	%	$	(3	)		(0.01	)%
Pennsylvania		84,364		2,386		2.83			70			0.33
Mid-Atlantic		180,539		2,927		1.62			219			0.53
Other		16,242		634		3.90			34			0.84

Total	$	354,048	$	7,192		2.03	%	$	320			0.38	%

Junior lien home equity lines:
New York	$	1,629,613	$	17,907		1.10	%	$	4,075			1.01	%
Pennsylvania		608,020		1,954		0.32			396			0.28
Mid-Atlantic		1,594,795		6,612		0.41			1,372			0.36
Other		98,710		3,236		3.28			273			1.27

Total	$	3,931,138	$	29,709		0.76	%	$	6,116			0.64	%

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A comparative summary of nonperforming assets and certain past due loan data and credit quality ratios as of the end of the periods indicated is presented in the accompanying table.

NONPERFORMING ASSET AND PAST DUE, RENEGOTIATED AND IMPAIRED LOAN DATA
Dollars in thousands


	2011 Quarters									2010 Quarters
	Second			First			Fourth			Third			Second
Nonaccrual loans	$	1,258,975			1,211,111			1,239,194			1,099,560			1,090,135
Real estate and other foreclosed assets		158,873			218,203			220,049			192,600			192,631

Total nonperforming assets	$	1,417,848			1,429,314			1,459,243			1,292,160			1,282,766


Accruing loans past due 90 days or more(a)	$	373,197			264,480			269,593			214,769			203,081

Renegotiated loans	$	234,726			241,190			233,342			233,671			228,847

Government guaranteed loans included in totals above:
Nonaccrual loans	$	78,732			69,353			56,787			38,232			40,271
Accruing loans past due 90 days or more		207,135			214,505			214,111			194,223			187,682


Purchased impaired loans(b):
Outstanding customer balance	$	1,473,237			206,253			219,477			113,964			130,808
Carrying amount		752,978			88,589			97,019			52,728			61,524

Nonaccrual loans to total loans and leases, net of unearned discount		2.15	%		2.32	%		2.38	%		2.16	%		2.13	%
Nonperforming assets to total net loans and leases and real estate and other foreclosed assets		2.42	%		2.73	%		2.79	%		2.53	%		2.50	%
Accruing loans past due 90 days or more to total loans and leases, net of unearned discount		.64	%		.51	%		.52	%		.42	%		.40	%


*(a)*		*Predominately residential mortgage loans.*

*(b)*		*Accruing loans that were impaired at acquisition date and recorded at fair value.*

Management determined the allowance for credit losses by performing ongoing evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the economic environment in which borrowers operate, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or indemnifications. Management evaluated the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet repayment obligations when quantifying the Company’s exposure to credit losses and the allowance for such losses as of each reporting date. Factors also considered by management when performing its assessment, in addition to general economic conditions and the other factors described above, included, but were not limited to: (i) the impact of declining residential real estate values in the Company’s portfolio of loans to residential real estate builders and developers; (ii) the repayment performance associated with the Company’s portfolio of Alt-A residential mortgage loans; (iii) the concentrations of

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commercial real estate loans in the Company’s loan portfolio; (iv) the amount of commercial and industrial loans to businesses in areas of New York State outside of the New York City metropolitan area and in central Pennsylvania that have historically experienced less economic growth and vitality than the vast majority of other regions of the country; and (v) the size of the Company’s portfolio of loans to individual consumers, which historically have experienced higher net charge-offs as a percentage of loans outstanding than other loan types. The level of the allowance is adjusted based on the results of management’s analysis.

Management cautiously and conservatively evaluated the allowance for credit losses as of June 30, 2011 in light of (i) residential real estate values and the level of delinquencies of residential real estate loans; (ii) economic conditions in the markets served by the Company; (iii) continuing weakness in industrial employment in upstate New York and central Pennsylvania; (iv) the significant subjectivity involved in commercial real estate valuations for properties located in areas with stagnant or low growth economies; and (v) the amount of loan growth experienced by the Company. Considerable concerns exist about economic conditions in both national and international markets; the level and volatility of energy prices; a weakened housing market; the troubled state of financial and credit markets; Federal Reserve positioning of monetary policy; high levels of unemployment; the impact of economic conditions on businesses’ operations and abilities to repay loans; continued stagnant population growth in the upstate New York and central Pennsylvania regions; and continued uncertainty about possible responses to state and local government budget deficits. Although the U.S. economy experienced recession and weak economic conditions during recent years, the impact of those conditions was not as pronounced on borrowers in the traditionally slower growth or stagnant regions of upstate New York and central Pennsylvania. Approximately one-half of the Company’s loans are to customers in New York State and Pennsylvania. Home prices in upstate New York and central Pennsylvania were relatively stable in recent years, in contrast to sharper declines in values in many other regions of the country. Therefore, despite the conditions, as previously described, the most severe credit issues experienced by the Company have been centered around residential real estate, including loans to builders and developers of residential real estate, in areas other than New York State and Pennsylvania. In response, the Company has expanded its normal loan review process to conduct detailed reviews of all loans to residential real estate builders and developers that exceeded $2.5 million. Those credit reviews often resulted in commencement of intensified collection efforts, including instances of foreclosure.

The Company utilizes a loan grading system which is applied to all commercial 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. On a quarterly basis, the Company’s centralized loan review department reviews all criticized commercial and commercial real estate loans greater than $1 million to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. For criticized nonaccrual loans, additional meetings are held with loan officers and their managers, workout specialists and senior management to discuss each of the relationships. In analyzing criticized loans, borrower-specific information is reviewed, including operating results, future cash flows, recent developments and the

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borrower’s outlook, and other pertinent data. The timing and extent of potential losses, considering collateral valuation and other factors, and the Company’s potential courses of action are reviewed. To the extent that these loans are collateral-dependent, they are evaluated based on the fair value of the loan’s collateral as estimated at or near the financial statement date. As the quality of a loan deteriorates to the point of classifying the loan as “criticized,” the process of obtaining updated collateral valuation information is usually initiated, unless it is not considered warranted given factors such as the relative size of the loan, the characteristics of the collateral or the age of the last valuation. In those cases where current appraisals may not yet be available, prior appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in value as determined by line of business and/or loan workout personnel in the respective geographic regions. Those adjustments are reviewed and assessed for reasonableness by the Company’s loan review department. Accordingly, for real estate collateral securing larger commercial and commercial real estate loans, estimated collateral values are based on current appraisals and estimates of value. For non-real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs. With regard to residential real estate loans, the Company expanded its collections and loan workout staff and further refined its loss identification and estimation techniques by reference to loan performance and house price depreciation data in specific areas of the country where collateral that was securing the Company’s residential real estate loans was located. For residential real estate-related loans, including home equity loans and lines of credit, the excess of the loan balance over the net realizable value of the property collateralizing the loan is charged-off when the loan becomes 150 days delinquent. That charge-off is based on recent indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual.

Factors that influence the Company’s credit loss experience include overall economic conditions affecting businesses and consumers generally, but also residential and commercial real estate valuations, in particular, given the size of the real estate loan portfolios. Reflecting the factors and conditions as described herein, the Company has experienced historically high levels of nonaccrual loans and net charge-offs of real estate-related loans, including first and second lien Alt-A mortgage loans and loans to builders and developers of residential real estate. The Company has also experienced higher than historical levels of nonaccrual commercial real estate loans since 2009. Commercial real estate valuations can be highly subjective, as they are based upon many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, interest rates and, in many cases, the results of operations of businesses and other occupants of the real property. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing at reasonable interest rates, and general economic conditions affecting consumers.

Loans acquired in connection with acquisition transactions subsequent to 2008 were recorded at fair value with no carry-over of any previously recorded allowance for credit losse