M&T Bank Corporation
M&T BANK CORP (Form: 10-Q, Received: 04/29/2011 15:32:16)
Table of Contents

 
 
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 March 31, 2011
or
     
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   16-0968385
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
One M & T Plaza    
Buffalo, New York   14203
(Address of principal   (Zip Code)
executive offices)    
(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 the 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   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark 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 April 22, 2011: 120,789,167 shares.
 
 


 

M&T BANK CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 2011
     
Table of Contents of Information Required in Report   Page
   
 
   
   
 
   
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  EX-31.1
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  EX-32.1
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  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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Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
                 
        March 31,   December 31,
Dollars in thousands, except per share   2011   2010
 
Assets  
 
           
   
Cash and due from banks
  $972,005     908,755  
   
Interest-bearing deposits at banks
  100,101     101,222  
   
Federal funds sold
  10,300     25,000  
   
Trading account
  413,737     523,834  
   
Investment securities (includes pledged securities that can be sold or repledged of $1,901,174 at March 31, 2011; $1,937,817 at December 31, 2010)
           
   
Available for sale (cost: $4,932,460 at March 31, 2011; $5,494,377 at December 31, 2010)
  4,854,984     5,413,492  
   
Held to maturity (fair value: $1,173,836 at March 31, 2011; $1,225,253 at December 31, 2010)
  1,262,089     1,324,339  
   
Other (fair value: $390,092 at March 31, 2011; $412,709 at December 31, 2010)
  390,092     412,709  
     
   
Total investment securities
  6,507,165     7,150,540  
     
   
Loans and leases
  52,435,574     52,315,942  
   
Unearned discount
  (316,893 )   (325,560 )
     
   
Loans and leases, net of unearned discount
  52,118,681     51,990,382  
   
Allowance for credit losses
  (903,703 )   (902,941 )
     
   
Loans and leases, net
  51,214,978     51,087,441  
     
   
Premises and equipment
  431,292     435,837  
   
Goodwill
  3,524,625     3,524,625  
   
Core deposit and other intangible assets
  113,603     125,917  
   
Accrued interest and other assets
  4,593,402     4,138,092  
     
   
Total assets
  $67,881,208     68,021,263  
 
Liabilities  
 
           
   
Noninterest-bearing deposits
  $15,219,562     14,557,568  
   
NOW accounts
  1,424,848     1,393,349  
   
Savings deposits
  27,331,587     26,431,281  
   
Time deposits
  5,508,432     5,817,170  
   
Deposits at Cayman Islands office
  1,063,670     1,605,916  
     
   
Total deposits
  50,548,099     49,805,284  
     
   
Federal funds purchased and agreements to repurchase securities
  441,196     866,555  
   
Other short-term borrowings
  63,480     80,877  
   
Accrued interest and other liabilities
  1,015,495     1,070,701  
   
Long-term borrowings
  7,305,420     7,840,151  
     
   
Total liabilities
  59,373,690     59,663,568  
 
Shareholders’ equity      
 
       
   
Preferred stock, $1.00 par, 1,000,000 shares authorized, 778,000 shares issued and outstanding (liquidation preference $1,000 per share)
  743,385     740,657  
   
Common stock, $.50 par, 250,000,000 shares authorized, 120,396,611 shares issued
  60,198     60,198  
   
Common stock issuable, 66,015 shares at March 31, 2011; 71,345 shares at December 31, 2010
  3,889     4,189  
   
Additional paid-in capital
  2,367,556     2,398,615  
   
Retained earnings
  5,534,909     5,426,701  
   
Accumulated other comprehensive income (loss), net
  (197,521 )   (205,220 )
   
Treasury stock — common, at cost - 52,284 shares at March 31, 2011; 693,974 shares at December 31, 2010
  (4,898 )   (67,445 )
     
   
Total shareholders’ equity
  8,507,518     8,357,695  
     
   
Total liabilities and shareholders’ equity
  $67,881,208     68,021,263  
 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
                     
        Three months ended March 31
In thousands, except per share   2011   2010
 
Interest income  
Loans and leases, including fees
  $ 594,032       588,127  
   
Deposits at banks
    36       6  
   
Federal funds sold
    18       11  
   
Agreements to resell securities
    1       2  
   
Trading account
    388       83  
   
Investment securities
               
   
Fully taxable
    70,662       85,647  
   
Exempt from federal taxes
    2,346       2,510  
     
   
Total interest income
    667,483       676,386  
 
Interest expense  
NOW accounts
    202       200  
   
Savings deposits
    19,239       20,449  
   
Time deposits
    19,071       29,446  
   
Deposits at Cayman Islands office
    394       325  
   
Short-term borrowings
    492       887  
   
Long-term borrowings
    59,281       68,745  
     
   
Total interest expense
    98,679       120,052  
     
   
Net interest income
    568,804       556,334  
   
Provision for credit losses
    75,000       105,000  
     
   
Net interest income after provision for credit losses
    493,804       451,334  
 
Other income  
Mortgage banking revenues
    45,156       41,476  
   
Service charges on deposit accounts
    109,731       120,295  
   
Trust income
    29,321       30,928  
   
Brokerage services income
    14,296       13,106  
   
Trading account and foreign exchange gains
    8,279       4,699  
   
Gain on bank investment securities
    39,353       459  
   
Total other-than-temporary impairment (“OTTI”) losses
    (9,514 )     (29,487 )
   
Portion of OTTI losses recognized in other comprehensive income (before taxes)
    (6,527 )     2,685  
     
   
Net OTTI losses recognized in earnings
    (16,041 )     (26,802 )
     
   
Equity in earnings of Bayview Lending Group LLC
    (6,678 )     (5,714 )
   
Other revenues from operations
    91,003       79,259  
     
   
Total other income
    314,420       257,706  
 
Other expense  
Salaries and employee benefits
    266,090       264,046  
   
Equipment and net occupancy
    56,663       55,401  
   
Printing, postage and supplies
    9,202       9,043  
   
Amortization of core deposit and other intangible assets
    12,314       16,475  
   
FDIC assessments
    19,094       21,348  
   
Other costs of operations
    136,208       123,049  
     
   
Total other expense
    499,571       489,362  
     
   
Income before taxes
    308,653       219,678  
   
Income taxes
    102,380       68,723  
     
   
Net income
  $ 206,273       150,955  
 
   
 
               
   
Net income available to common shareholders
               
   
Basic
  $ 190,113       136,428  
   
Diluted
    190,121       136,431  
   
 
               
   
Net income per common share
               
   
Basic
  $ 1.59       1.16  
   
Diluted
    1.59       1.15  
   
 
               
   
Cash dividends per common share
  $ .70       .70  
   
 
               
   
Average common shares outstanding
               
   
Basic
    119,201       117,765  
   
Diluted
    119,852       118,256  

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M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
                     
        Three months ended March 31
In thousands       2011   2010
 
Cash flows
from
 
Net income
  $ 206,273       150,955  
operating activities  
Adjustments to reconcile net income to net cash provided by operating activities
               
 
Provision for credit losses
    75,000       105,000  
 
Depreciation and amortization of premises and equipment
    17,978       17,207  
   
Amortization of capitalized servicing rights
    13,478       14,645  
   
Amortization of core deposit and other intangible assets
    12,314       16,475  
   
Provision for deferred income taxes
    11,438       (10,163 )
   
Asset write-downs
    17,720       27,821  
   
Net (gain) loss on sales of assets
    (44,504 )     1,461  
   
Net change in accrued interest receivable, payable
    5,068       98  
   
Net change in other accrued income and expense
    2,063       80,537  
   
Net change in loans originated for sale
    373,020       252,227  
   
Net change in trading account assets and liabilities
    80,805       (2,664 )
     
   
Net cash provided by operating activities
    770,653       653,599  
 
Cash flows
from
 
Proceeds from sales of investment securities
               
investing activities  
Available for sale
    13,380       14,759  
 
Other
    22,969       11,478  
 
Proceeds from maturities of investment securities
               
   
Available for sale
    408,574       369,136  
   
Held to maturity
    66,465       29,828  
   
Purchases of investment securities
               
   
Available for sale
    (353,508 )     (34,084 )
   
Held to maturity
    (7,796 )     (969,953 )
   
Other
    (352 )     (428 )
   
Net (increase) decrease in loans and leases
    (579,845 )     546,709  
   
Net decrease in interest-bearing deposits at banks
    1,121       12,030  
   
Other investments, net
    (8,769 )     (6,198 )
   
Additions to capitalized servicing rights
    (1,195 )     (57 )
   
Capital expenditures, net
    (8,854 )     (10,570 )
   
Other, net
    35,231       (10,305 )
     
   
Net cash used by investing activities
    (412,579 )     (47,655 )
 
Cash flows
from
 
Net increase in deposits
    745,021       93,998  
financing activities  
Net decrease in short-term borrowings
    (442,751 )     (571,827 )
 
Payments on long-term borrowings
    (528,511 )     (252,880 )
   
Dividends paid — common
    (84,718 )     (83,303 )
   
Dividends paid — preferred
    (10,056 )     (10,056 )
   
Other, net
    11,491       15,451  
     
   
Net cash used by financing activities
    (309,524 )     (808,617 )
     
   
Net increase (decrease) in cash and cash equivalents
    48,550       (202,673 )
   
Cash and cash equivalents at beginning of period
    933,755       1,246,342  
     
   
Cash and cash equivalents at end of period
  $ 982,305       1,043,669  
 
Supplemental
disclosure of
 
Interest received during the period
  $ 665,490       684,212  
cash flow  
Interest paid during the period
    88,658       121,445  
information  
Income taxes paid during the period
    77,169       14,250  
 
Supplemental schedule of  
Real estate acquired in settlement of loans
  $ 18,168       20,749  
noncash  
Increase (decrease) from consolidation of securitization trusts:
               
investing and  
Loans
          423,865  
financing  
Investment securities — available for sale
          (360,471 )
activities   
Long-term borrowings
          65,419  
   
Accrued interest and other
          2,025  
                     

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Table of Contents

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
                            150,955                   150,955  
Other comprehensive income, net of tax and reclassification adjustments:
                                                               
Unrealized gains on investment securities
                                  79,856             79,856  
Defined benefit plans liability adjustment
                                  1,030             1,030  
Unrealized gains on terminated cash flow hedge
                                  (70 )           (70 )
 
                                                             
 
                                                            231,771  
Preferred stock cash dividends
                            (10,056 )                 (10,056 )
Amortization of preferred stock discount
    2,534                         (2,534 )                  
Repayment of management stock ownership program receivable
                      155                         155  
Stock-based compensation plans:
                                                               
Compensation expense, net
                      (23,297 )                 39,426       16,129  
Exercises of stock options, net
                      (8,471 )                 16,169       7,698  
Directors’ stock plan
                      (145 )                 408       263  
Deferred compensation plans, net, including dividend equivalents
                (269 )     (258 )     (48 )           525       (50 )
Other
                      471                         471  
Common stock cash dividends — $0.70 per share
                            (83,601 )                 (83,601 )
 
Balance — March 31, 2010
  $ 732,769       60,198       4,073       2,411,402       5,131,600       (255,181 )     (169,174 )     7,915,687  
 
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
                            206,273                   206,273  
Other comprehensive income, net of tax and reclassification adjustments:
                                                               
Unrealized gains on investment securities
                                  5,658             5,658  
Defined benefit plans liability adjustment
                                  2,111             2,111  
Unrealized gains on terminated cash flow hedge
                                  (70 )           (70 )
 
                                                             
 
                                                            213,972  
Preferred stock cash dividends
                            (10,498 )                 (10,498 )
Amortization of preferred stock discount
    2,728                         (2,728 )                  
Stock-based compensation plans:
                                                               
Compensation expense, net
                      (20,796 )                 31,664       10,868  
Exercises of stock options, net
                      (10,524 )                 30,072       19,548  
Directors’ stock plan
                      (32 )                 304       272  
Deferred compensation plans, net, including dividend equivalents
                (300 )     (220 )     (47 )           507       (60 )
Other
                      513                         513  
Common stock cash dividends — $0.70 per share
                            (84,792 )                 (84,792 )
 
Balance — March 31, 2011
  $ 743,385       60,198       3,889       2,367,556       5,534,909       (197,521 )     (4,898 )     8,507,518  
 

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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 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 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.
     On November 1, 2010, M&T announced that it had entered into a definitive agreement with Wilmington Trust Corporation (“Wilmington Trust”), headquartered in Wilmington, Delaware, under which Wilmington Trust will be acquired by M&T. Pursuant to the terms of the agreement, Wilmington Trust common shareholders will receive .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock in a stock-for-stock transaction valued at $351 million (with the price based on M&T’s closing price of $74.75 per share as of October 29, 2010), plus the assumption of $330 million in 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”).
     At December 31, 2010, Wilmington Trust had approximately $10.9 billion of assets, including $7.5 billion of loans, $10.1 billion of liabilities, including $9.0 billion of deposits, and $60.1 billion of combined assets under management, including $43.6 billion managed by Wilmington Trust and $16.5 billion managed by affiliates. At a special shareholder meeting held on March 22, 2011, Wilmington Trust’s common shareholders approved the merger transaction. M&T announced on April 26, 2011 that it had received the approval of the Board of Governors of the Federal Reserve System to acquire Wilmington Trust. Additional regulatory approvals, including those from the New York State Banking Superintendent and the Delaware Banking Commissioner, are still pending. Subject to the terms and conditions of the merger agreement, M&T expects to close the merger with Wilmington Trust promptly after receiving the remaining regulatory approvals and after the 15-day waiting period associated with the Federal Reserve Board’s approval order has expired.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Acquisitions, continued
     In connection with the K Bank acquisition transaction and the pending Wilmington Trust acquisition, the Company incurred merger-related expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with the conversion of systems and/or integration of operations; costs related to branch and office consolidations; 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 ended March 31, 2010. A summary of merger-related expenses associated with the acquisition transactions included in the consolidated statement of income for the three months ended March 31, 2011 follows:
         
    (in thousands)  
Salaries and employee benefits
  $ 7  
Equipment and net occupancy
    79  
Printing, postage and supplies
    147  
Other costs of operations
    4,062  
 
     
 
  $ 4,295  
 
     
3. Investment securities
The amortized cost and estimated fair value of investment securities were as follows:
                                 
                    Gross        
    Amortized     Gross     unrealized     Estimated  
    cost     unrealized gains     losses     fair value  
    (in thousands)  
March 31, 2011
                               
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
  $ 38,531       758       150     $ 39,139  
Obligations of states and political subdivisions
    59,010       442       62       59,390  
Mortgage-backed securities:
                               
Government issued or guaranteed
    2,732,299       108,911       1,349       2,839,861  
Privately issued residential
    1,600,110       14,006       222,238       1,391,878  
Privately issued commercial
    23,232             2,765       20,467  
Collateralized debt obligations
    94,290       27,734       7,759       114,265  
Other debt securities
    306,870       29,980       30,301       306,549  
Equity securities
    78,118       7,121       1,804       83,435  
 
                       
 
    4,932,460       188,952       266,428       4,854,984  
 
                       
 
                               
Investment securities held to maturity:
                               
Obligations of states and political subdivisions
    191,251       1,916       1,166       192,001  
Mortgage-backed securities:
                               
Government issued or guaranteed
    758,611       11,743             770,354  
Privately issued
    299,780             100,746       199,034  
Other debt securities
    12,447                   12,447  
 
                       
 
    1,262,089       13,659       101,912       1,173,836  
 
                       
Other securities
    390,092                   390,092  
 
                       
Total
  $ 6,584,641       202,611       368,340     $ 6,418,912  
 
                       

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
                                 
            Gross     Gross        
    Amortized     unrealized     unrealized     Estimated  
    cost     gains     losses     fair value  
    (in thousands)  
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  
 
                       
     Gross realized gains on investment securities were $39.4 million and $1.2 million for the quarters ended March 31, 2011 and 2010, respectively. Gross realized losses on investment securities were $36 thousand and $777 thousand for the quarters ended March 31, 2011 and 2010, respectively. During the three-month period ended March 31, 2011, the Company sold residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) having an aggregate amortized cost of approximately $484 million which resulted in a gain of $39 million (pre-tax). The Company recognized $16 million (pre-tax) and $27 million (pre-tax) of other-than-temporary impairment losses during the quarters ended March 31, 2011 and 2010, 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. The other-than-temporary losses represent management’s estimate of credit losses inherent in the securities considering projected cash flows using assumptions for delinquency rates, loss severities, and other estimates of future

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
collateral performance. The following table displays changes in credit losses for debt securities recognized in earnings for the three months ended March 31, 2011 and March 31, 2010.
                 
    Three months ended  
    March 31  
    2011     2010  
    (in thousands)  
Beginning balance
  $ 327,912       284,513  
Additions for credit losses not previously recognized
    16,041       26,802  
Reductions for increases in cash flows
    (139 )     (169 )
Reductions for realized losses
    (21,095 )     (3,129 )
 
           
Ending balance
  $ 322,719       308,017  
 
           
     At March 31, 2011, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:
                 
    Amortized     Estimated  
    cost     fair value  
    (in thousands)  
Debt securities available for sale:
               
Due in one year or less
  $ 7,437       7,532  
Due after one year through five years
    64,615       65,828  
Due after five years through ten years
    19,518       21,162  
Due after ten years
    407,131       424,821  
 
           
 
    498,701       519,343  
Mortgage-backed securities available for sale
    4,355,641       4,252,206  
 
           
 
  $ 4,854,342       4,771,549  
 
           
 
               
Debt securities held to maturity:
               
Due in one year or less
  $ 28,334       28,496  
Due after one year through five years
    14,306       14,719  
Due after five years through ten years
    140,556       140,782  
Due after ten years
    20,502       20,451  
 
           
 
    203,698       204,448  
Mortgage-backed securities held to maturity
    1,058,391       969,388  
 
           
 
  $ 1,262,089       1,173,836  
 
           

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
     A summary of investment securities that as of March 31, 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  
    Fair     Unrealized     Fair     Unrealized  
    value     losses     value     losses  
            (in thousands)          
March 31, 2011
                               
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
  $ 23,884       (150 )            
Obligations of states and political subdivisions
    3,488       (26 )     2,062       (36 )
Mortgage-backed securities:
                               
Government issued or guaranteed
    69,731       (1,311 )     3,212       (38 )
Privately issued residential
    7,675       (523 )     1,014,944       (221,715 )
Privately issued commercial
                20,467       (2,765 )
Collateralized debt obligations
    15,011       (5,567 )     8,156       (2,192 )
Other debt securities
    3,767       (68 )     96,364       (30,233 )
Equity securities
    2,652       (510 )     1,254       (1,294 )
 
                       
 
    126,208       (8,155 )     1,146,459       (258,273 )
 
                       
 
                               
Investment securities held to maturity:
                               
Obligations of states and political subdivisions
    86,929       (1,128 )     470       (38 )
Privately issued mortgage-backed securities
                193,752       (100,746 )
 
                       
 
    86,929       (1,128 )     194,222       (100,784 )
 
                       
Total
  $ 213,137       (9,283 )     1,340,681       (359,057 )
 
                       
 
                               
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 )
 
                       

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
     The Company owned 562 individual investment securities with aggregate gross unrealized losses of $368 million at March 31, 2011. Approximately $323 million of the unrealized losses pertain to privately issued mortgage-backed securities with a cost basis of $1.5 billion. The Company also had $38 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 $161 million. Based on a review of each of the remaining securities in the investment securities portfolio at March 31, 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 March 31, 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 March 31, 2011, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $390 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 ended March 31, 2011 and 2010 was $41 million and $43 million, respectively. The outstanding principal balance and the carrying amount of such loans that is included in the consolidated balance sheet at March 31, 2011 is as follows:
         
    (in thousands)  
Outstanding principal balance
    $3,509,711  
Carrying amount
    3,184,469  
     Receivables obtained in acquisitions 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 were not material.
     A summary of current, past due and nonaccrual loans as of March 31, 2011 and December 31, 2010 were as follows:
                                                 
            30-89                        
            Days     90 Days     Purchased              
    Current     past due     past due     impaired     Nonaccrual     Total  
            (in thousands)          
March 31, 2011
                                               
Commercial, financial, leasing, etc.
  $ 13,605,508       24,626       21,055       1,922       173,188       13,826,299  
Real estate:
                                               
Commercial
    16,606,831       75,829       22,765       7,115       229,630       16,942,170  
Residential builder and developer
    886,832       21,859       4,493       68,442       320,295       1,301,921  
Other commercial construction
    2,421,823       97,824       17,327       2,013       108,537       2,647,524  
Residential
    4,983,032       194,594       195,241       6,897       178,109       5,557,873  
Residential Alt-A
    450,829       35,469                   110,789       597,087  
Consumer:
                                               
Home equity lines and loans
    6,340,612       34,338             2,200       44,350       6,421,500  
Automobile
    2,545,546       33,784                   29,839       2,609,169  
Other
    2,167,697       27,468       3,599             16,374       2,215,138  
 
                                   
Total
  $ 50,008,710       545,791       264,480       88,589       1,211,111       52,118,681  
 
                                   

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
                                                 
            30-89                          
            Days     90 Days     Purchased              
    Current     past due     past due     impaired     Nonaccrual     Total  
    (in thousands)  
December 31, 2010
                                               
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  
 
                                   
     Changes in the allowance for credit losses for the three months ended March 31, 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
    14,942       14,775       15,841       27,764       1,678       75,000  
Net charge-offs
                                               
Charge-offs
    (14,027 )     (24,579 )     (16,167 )     (28,321 )           (83,094 )
Recoveries
    2,165       349       1,501       4,841             8,856  
 
                                   
Net charge-offs
    (11,862 )     (24,230 )     (14,666 )     (23,480 )           (74,238 )
 
                                   
Ending balance
  $ 215,659       391,107       87,526       137,351       72,060       903,703  
 
                                   
     Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment. Changes in the allowance for credit losses for the three months ended March 31, 2010 were as follows:
         
    (in thousands)  
Beginning balance
  $ 878,022  
Provision for credit losses
    105,000  
Consolidation of loan securitization trusts
    2,752  
Net charge-offs
       
Charge-offs
    (106,039 )
Recoveries
    11,530  
 
     
Net charge-offs
    (94,509 )
 
     
Ending balance
  $ 891,265  
 
     

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     In ascertaining the adequacy of the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified credit review processes and also estimates losses inherent in other loans and leases on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan by loan analysis of larger balance commercial and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes an extensive loan grading system which is applied to all commercial and commercial real estate credits. 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 extensively 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. 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 March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and March 31, 2010.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
                                                 
    March 31, 2011     December 31, 2010  
            Unpaid                     Unpaid        
    Recorded     principal     Related     Recorded     principal     Related  
    investment     balance     allowance     investment     balance     allowance  
    (in thousands)  
With an allowance recorded:
                                               
Commercial, financial, leasing, etc.
  $ 102,977       153,773       33,363       121,744       170,888       40,909  
Real estate:
                                               
Commercial
    131,923       162,211       26,629       110,975       140,015       17,393  
Residential builder and developer
    250,433       304,636       65,578       263,545       295,031       78,597  
Other commercial construction
    84,617       110,488       12,839       80,934       85,432       22,067  
Residential
    83,405       101,223       3,945       73,006       85,279       3,375  
Residential Alt-A
    173,091       184,022       35,000       180,665       191,445       36,000  
Consumer:
                                               
Home equity lines and loans
    11,895       13,544       2,423       11,799       13,378       2,227  
Automobile
    59,465       59,465       12,774       58,858       58,858       12,597  
Other
    3,170       3,170       786       2,978       2,978       768  
 
                                   
 
    900,976       1,092,532       193,337       904,504       1,043,304       213,933  
 
                                   
 
                                               
With no related allowance recorded:
                                               
Commercial, financial, leasing, etc.
    70,829       92,904             65,827       86,332        
Real estate:
                                               
Commercial
    101,076       120,472             101,939       116,316        
Residential builder and developer
    108,764       150,480             100,799       124,383        
Other commercial construction
    25,893       31,865             46,656       50,496        
Residential
    4,276       6,443             5,035       7,723        
Residential Alt-A
    29,285       50,272             28,967       47,879        
 
                                   
 
    340,123       452,436             349,223       433,129        
 
                                   
 
                                               
Total:
                                               
Commercial, financial, leasing, etc.
    173,806       246,677       33,363       187,571       257,220       40,909  
Real estate:
                                               
Commercial
    232,999       282,683       26,629       212,914       256,331       17,393  
Residential builder and developer
    359,197       455,116       65,578       364,344       419,414       78,597  
Other commercial construction
    110,510       142,353       12,839       127,590       135,928       22,067  
Residential
    87,681       107,666       3,945       78,041       93,002       3,375  
Residential Alt-A
    202,376       234,294       35,000       209,632       239,324       36,000  
Consumer:
                                               
Home equity lines and loans
    11,895       13,544       2,423       11,799       13,378       2,227  
Automobile
    59,465       59,465       12,774       58,858       58,858       12,597  
Other
    3,170       3,170       786       2,978       2,978       768  
 
                                   
Total
  $ 1,241,099       1,544,968       193,337       1,253,727       1,476,433       213,933  
 
                                   

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
                                                 
    Three months ended     Three months ended  
    March 31, 2011     March 31, 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.
  $ 184,546       1,007       1,001       331,564       455       455  
Real estate:
                                               
Commercial
    221,601       384       342       289,470       371       371  
Residential builder and developer
    362,129       527       130       321,822       44       44  
Other commercial construction
    126,054       510       321       55,297       384       384  
Residential
    83,527       1,034       596       45,822       532       349  
Residential Alt-A
    205,632       1,995       551       226,878       2,183       438  
Consumer:
                                               
Home equity lines and loans
    12,076       161       26       12,491       192       38  
Automobile
    58,863       984       296       50,253       861       348  
Other
    3,031       57       6       3,236       66       16  
 
                                   
Total
  $ 1,257,459       6,659       3,269       1,336,833       5,088       2,443  
 
                                   
     The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans as of March 31, 2011 and December 31, 2010.
                                 
            Real Estate  
    Commercial,             Residential     Other  
    Financial,             Builder and     Commercial  
    Leasing, etc.     Commercial     Developer     Construction  
            (in thousands)          
March 31, 2011
                               
Pass
  $ 12,909,951       15,752,006       676,164       2,090,831  
Criticized accrual
    743,160       960,534       305,462       448,156  
Criticized nonaccrual
    173,188       229,630       320,295       108,537  
 
                       
Total
  $ 13,826,299       16,942,170       1,301,921       2,647,524  
 
                       
 
                               
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 assessing the adequacy of the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance, collateral values 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. In addition, the Company also provides an inherent unallocated portion of the allowance that 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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
     At March 31, 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)  
March 31, 2011
                                       
Individually evaluated for impairment
  $ 33,211       101,993       38,000       15,686     $ 188,890  
Collectively evaluated for impairment
    182,296       286,061       48,581       121,368       638,306  
Purchased impaired
    152       3,053       945       297       4,447  
 
                             
Allocated
  $ 215,659       391,107       87,526       137,351       831,643  
 
                               
Unallocated
                                    72,060  
 
                                     
 
                                       
Total
                                  $ 903,703  
 
                                     
 
                                       
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  
 
                                     
     The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of March 31, 2011 and December 31, 2010 was as follows:
                                         
    Commercial,                    
    Financial,     Real Estate              
    Leasing, etc.     Commercial     Residential     Consumer     Total  
    (in thousands)  
March 31, 2011
                                       
Individually evaluated for impairment
  $ 173,188       658,462       285,106       72,330     $ 1,189,086  
Collectively evaluated for impairment
    13,651,189       20,155,583       5,862,957       11,171,277       50,841,006  
Purchased impaired
    1,922       77,570       6,897       2,200       88,589  
 
                             
 
                                       
Total
  $ 13,826,299       20,891,615       6,154,960       11,245,807     $ 52,118,681  
 
                             
 
                                       
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  
 
                             

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Borrowings
The Company had $1.2 billion of fixed and floating rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) outstanding at March 31, 2011 that are held by various trusts and were issued in connection with the issuance by those trusts of preferred capital securities (“Capital Securities”) and common securities (“Common Securities”). The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures. The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust’s securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding trust. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in M&T’s Tier 1 capital. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that was signed into law on July 21, 2010 provides for a three-year phase-in related to the exclusion of trust preferred capital securities from Tier 1 capital for large financial institutions, including M&T. That phase-in period begins on January 1, 2013.
     Holders of the Capital Securities receive preferential cumulative cash distributions unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures as allowed by the terms of each such debenture, in which case payment of distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. In the event of an extended interest period exceeding twenty quarterly periods for $350 million of Junior Subordinated Debentures due January 31, 2068, M&T must fund the payment of accrued and unpaid interest through an alternative payment mechanism, which requires M&T to issue common stock, non-cumulative perpetual preferred stock or warrants to purchase common stock until M&T has raised an amount of eligible proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest on the Junior Subordinated Debentures due January 31, 2068. In general, the agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T of the payment of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital Securities are subordinate and junior in right of payment to all senior indebtedness of M&T.
     The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the Trusts. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates (ranging from 2027 to 2068) of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval. In connection with the issuance of 8.50% Enhanced Trust Preferred Securities associated with $350 million of Junior Subordinated Debentures maturing in 2068, M&T entered into a replacement capital covenant that provides that neither M&T nor any of its subsidiaries will repay, redeem or purchase any of the Junior Subordinated Debentures due January 31, 2068 or the 8.50% Enhanced Trust Preferred Securities prior to January 31, 2048, with certain limited exceptions, except to the extent that, during the 180 days prior to the date of that repayment, redemption or purchase, M&T and its subsidiaries have received proceeds from the sale of qualifying securities that (i) have equity-like characteristics that are the same as, or more equity-like

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Borrowings, continued
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.
6. Shareholders’ equity
M&T is authorized to issue 1,000,000 shares of preferred stock with a $1.00 par value per share. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference, but have no general voting rights.
     Issued and outstanding preferred stock of M&T is presented below:
                         
    Shares   Carrying   Carrying
    issued and   value   value
    outstanding   March 31, 2011   December 31, 2010
            (dollars in thousands)
Series A (a)
                       
Fixed Rate Cumulative Perpetual
    600,000     $ 580,203     $ 578,630  
Preferred Stock, Series A, $1,000 liquidation preference per share, 600,000 shares authorized
                       
 
                       
Series B (b)
                       
Series B Mandatory Convertible
    26,500       26,500       26,500  
Non-cumulative Preferred Stock, $1,000 liquidation preference per share, 26,500 shares authorized
                       
 
                       
Series C (a)(c)
                       
Fixed Rate Cumulative Perpetual
    151,500       136,682       135,527  
Preferred Stock, Series C, $1,000 liquidation preference per share, 151,500 shares authorized
                       
 
(a)   Shares were issued as part of the Troubled Asset Relief Program — Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). Cash proceeds were allocated between the preferred stock and a ten-year warrant to purchase M&T common stock (Series A — 1,218,522 common shares at $73.86 per share, Series C — 407,542 common shares at $55.76 per share). Dividends, if declared, will accrue and be paid quarterly at a rate of 5% per year for the first five years following the original 2008 issuance dates and thereafter at a rate of 9% per year. The agreement with the U.S. Treasury contains limitations on certain actions of M&T, including the payment of quarterly cash dividends on M&T’s common stock in excess of $.70 per share, the repurchase of its common stock during the first three years of the agreement, and the amount and nature of compensation arrangements for certain of the Company’s officers.
 
(b)   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.
 
(c)   Shares were assumed in an acquisition and a new Series C Preferred Stock was designated.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Shareholders’ equity, continued
          As noted by M&T at the time the merger with Wilmington Trust was announced on November 1, 2010, following completion of the merger, M&T expects its capital ratios at the end of the second quarter of 2011 to be comparable to what they were as of September 30, 2010. Pursuant to its capital plan, M&T intends to undertake a series of actions during the second quarter of 2011:
    Simultaneous with the closing of the merger, M&T intends to redeem the $330 million of preferred stock that was issued to the U.S. Treasury by Wilmington Trust pursuant to the Troubled Asset Relief Program — Capital Purchase Program;
 
    By the end of the second quarter of 2011, M&T intends to repay an additional $370 million of the preferred stock issued to the U.S. Treasury pursuant to the Troubled Asset Relief Program — Capital Purchase Program by Provident Bankshares Corporation and by M&T; and
 
    To supplement its Tier 1 capital, M&T will issue $500 million of new perpetual preferred stock prior to the end of the second quarter of 2011.
7. Pension plans and other postretirement benefits
The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. Net periodic benefit cost for defined benefit plans consisted of the following:
                                 
                    Other  
    Pension     postretirement  
    benefits     benefits  
    Three months ended March 31  
    2011     2010     2011     2010  
    (in thousands)  
Service cost
  $ 5,300       4,875       125       100  
Interest cost on projected benefit obligation
    12,150       12,029       775       780  
Expected return on plan assets
    (12,700 )     (12,788 )            
Amortization of prior service cost
    (1,650 )     (1,650 )     25       25  
Amortization of net actuarial loss
    5,100       3,321              
 
                       
 
                               
Net periodic benefit cost
  $ 8,200       5,787       925       905  
 
                       
     Expense incurred in connection with the Company’s defined contribution pension and retirement savings plans totaled $10,176,000 and $11,690,000 for the three months ended March 31, 2011 and 2010, respectively.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Earnings per common share
The computations of basic earnings per common share follow:
                 
    Three months ended  
    March 31  
    2011     2010  
    (in thousands,  
    except per share)  
Income available to common shareholders:
               
 
               
Net income
  $ 206,273       150,955  
Less: Preferred stock dividends (a)
    (10,498 )     (10,056 )
Amortization of preferred stock discount (a)
    (2,753 )     (2,558 )
 
           
Net income available to common equity
    193,022       138,341  
Less: Income attributable to unvested stock-based compensation awards
    (2,909 )     (1,913 )
 
           
 
               
Net income available to common shareholders
  $ 190,113       136,428  
 
               
Weighted-average shares outstanding:
               
 
               
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards
    120,992       119,324  
Less: Unvested stock-based compensation awards
    (1,791 )     (1,559 )
 
           
 
               
Weighted-average shares outstanding
    119,201       117,765  
 
               
Basic earnings per common share
  $ 1.59       1.16  
 
(a)   Including impact of not as yet declared cumulative dividends.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Earnings per common share, continued
     The computations of diluted earnings per common share follow:
                 
    Three months ended  
    March 31  
    2011     2010  
    (in thousands,  
    except per share)  
 
               
Net income available to common equity
  $ 193,022       138,341  
Less: Income attributable to unvested stock-based compensation awards
    (2,901 )     (1,910 )
 
           
 
               
Net income available to common shareholders
    190,121       136,431  
 
               
Adjusted weighted-average shares outstanding:
               
 
               
Common and unvested stock-based compensation awards
    120,992       119,324  
Less: Unvested stock-based compensation awards
    (1,791 )     (1,559 )
Plus: Incremental shares from assumed conversion of stock-based compensation awards and convertible preferred stock
    651       491  
 
           
 
               
Adjusted weighted-average shares outstanding
    119,852       118,256  
 
               
Diluted earnings per common share
  $ 1.59       1.15  
          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 first quarters of 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 common stock representing approximately 10.5 million and 11.9 million common shares during the three-month periods ended March 31, 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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Comprehensive income
The following table displays the components of other comprehensive income:
                         
    Three months ended March 31, 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 gains, net
  $ 7,930       (3,108 )     4,822  
Less: OTTI charges recognized in net income
    (7,541 )     2,949       (4,592 )
 
                 
Net change for AFS investment securities with OTTI
    15,471       (6,057 )     9,414  
 
                 
 
                       
AFS investment securities — all other:
                       
 
                       
Unrealized holding gains, net
    31,577       (12,372 )     19,205  
Less: reclassification adjustment for gains realized in net income
    39,353       (15,413 )     23,940  
 
                 
Net change for AFS investment securities — all other
    (7,776 )     3,041       (4,735 )
 
                 
 
                       
Held-to-maturity (“HTM”) investment securities with OTTI:
                       
 
                       
Unrealized holding losses, net
    (8,355 )     3,279       (5,076 )
Less: reclassification to income of unrealized holding losses
    230       (90 )     140  
Less: OTTI charges recognized in net income
    (8,500 )     3,336       (5,164 )
 
                 
Net change for HTM investment securities with OTTI
    (85 )     33       (52 )
 
                 
 
                       
Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM
    1,698       (667 )     1,031  
 
                 
 
                       
Net unrealized gains on investment securities
    9,308       (3,650 )     5,658  
 
                       
Reclassification to income for amortization of gains on terminated cash flow hedges
    (112 )     42       (70 )
 
                       
Defined benefit plans liability adjustment
    3,475       (1,364 )     2,111  
 
                 
 
  $ 12,671       (4,972 )     7,699  
 
                 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Comprehensive income, continued
                         
    Three months ended March 31, 2010  
    Before-tax     Income        
    amount     taxes     Net  
    (in thousands)  
Unrealized gains (losses) on investment securities:
                       
 
                       
AFS investment securities with OTTI:
                       
 
                       
Unrealized holding losses, net
  $ (29,487 )     11,574       (17,913 )
Less: OTTI charges recognized in net income
    (26,802 )     10,483       (16,319 )
 
                 
Net change for AFS investment securities with OTTI
    (2,685 )     1,091       (1,594 )
 
                 
 
                       
AFS investment securities — all other:
                       
 
                       
Unrealized holding gains, net
    131,379       (51,456 )     79,923  
Less: reclassification adjustment for losses realized in net income
    (145 )     44       (101 )
 
                 
Net change for AFS investment securities — all other
    131,524       (51,500 )     80,024  
 
                 
 
                       
Reclassification to income of unrealized holding losses on investment securities previously transferred from AFS to HTM
    2,347       (921 )     1,426  
 
                 
 
                       
Net unrealized gains on investment securities
    131,186       (51,330 )     79,856  
 
                       
Reclassification to income for amortization of gains on terminated cash flow hedges
    (112 )     42       (70 )
 
                       
Defined benefit plans liability adjustment
    1,696       (666 )     1,030  
 
                 
 
  $ 132,770       (51,954 )     80,816  
 
                 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Comprehensive income, continued
          Accumulated other comprehensive income (loss), net consisted of unrealized gains (losses) as follows:
                                         
                    Cash     Defined        
    Investment securities     flow     benefit        
    With OTTI     All other     hedges     plans     Total  
    (in thousands)  
Balance — January 1, 2011
  $ (87,053 )     2,332       393       (120,892 )     (205,220 )
 
                                       
Net gain (loss) during period
    9,362       (3,704 )     (70 )     2,111       7,699  
 
                             
 
                                       
Balance — March 31, 2011
  $ (77,691 )     (1,372 )     323       (118,781 )     (197,521 )
 
                             
 
                                       
Balance — January 1, 2010
  $ (76,772 )     (142,853 )     674       (117,046 )     (335,997 )
 
                                       
Net gain (loss) during period
    (1,594 )     81,450       (70 )     1,030       80,816  
 
                             
 
                                       
Balance — March 31, 2010
  $ (78,366 )     (61,403 )     604       (116,016 )     (255,181 )
 
                             
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 March 31, 2011.
          The net effect of interest rate swap agreements was to increase net interest income by $10 million and $11 million for the three months ended March 31, 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)                  
March 31, 2011
                               
Fair value hedges:
                               
Fixed rate long-term borrowings (a)
  $ 900,000       6.1       6.07 %     1.85 %
 
                       
 
                               
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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Table of Contents

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 $12.3 billion and $12.8 billion at March 31, 2011 and December 31, 2010, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes aggregated $982 million and $769 million at March 31, 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  
    March 31,     December 31,     March 31,     December 31,  
    2011     2010     2011     2010  
    (in thousands)  
Derivatives designated and qualifying as hedging instruments
                               
Fair value hedges:
                               
Interest rate swap agreements (a)
  $ 84,232       96,637     $        
Commitments to sell real estate loans (a)
    213       4,880       858       1,062  
 
                       
 
    84,445       101,517       858       1,062  
 
                               
Derivatives not designated and qualifying as hedging instruments
                               
Mortgage-related commitments to originate real estate loans for sale (a)
    16,267       2,827       120       583  
Commitments to sell real estate loans (a)
    1,281       10,322       3,135       1,962  
Trading:
                               
Interest rate contracts (b)
    306,305       345,632       282,387       321,461  
Foreign exchange and other option and futures contracts (b)
    21,327       11,267       21,543       11,761  
 
                       
 
    345,180       370,048       307,185       335,767  
 
                       
 
                               
Total derivatives
  $ 429,625       471,565     $ 308,043       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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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
                                 
    Amount of unrealized gain (loss) recognized  
    Three months ended     Three months ended  
    March 31, 2011     March 31, 2010  
    Derivative     Hedged item     Derivative     Hedged item  
    (in thousands)  
Derivatives in fair value hedging relationships
                               
 
                               
Interest rate swap agreements:
                               
Fixed rate time deposits (a)
  $           $ (199 )     199  
Fixed rate long-term borrowings (a)
    (12,405 )     12,048       12,470       (11,981 )
 
                       
 
                               
Total
  $ (12,405 )     12,048     $ 12,271       (11,782 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
 
                               
Trading:
                               
Interest rate contracts (b)
  $ 475             $ (614 )        
Foreign exchange and other option and futures contracts (b)
    (548 )             342          
 
                           
 
                               
Total
  $ (73 )           $ (272 )        
 
                           
 
(a)   Reported as other revenues from operations.
 
(b)   Reported as trading account and foreign exchange gains.
          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 $19 million and $17 million at March 31, 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 March 31, 2011 for which the Company was required to post collateral was $174 million. The fair value of collateral posted for such instruments was $159 million.
          The Company’s credit exposure with respect to the estimated fair value as of March 31, 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 $60 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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 March 31, 2011 and December 31, 2010, the carrying values of the loans in the securitization trust were $236 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 March 31, 2011 and December 31, 2010 was $37 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 March 31, 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 March 31, 2011 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 $1.2 billion and $1.1 billion at March 31, 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 $249 million, including $71 million of unfunded commitments, at March 31, 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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 March 31, 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 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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
          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, all driven by the lack of market participants. 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 March 31, 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 March 31, 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 and loss rates; including assumptions for further home price depreciation. Differences between internal model valuations and external pricing indications were generally 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 March 31, 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 $1.3 billion, which implies a weighted-average market yield based on reasonably likely cash flows of 8.3%. Other valuations of privately issued residential mortgage-backed securities were determined by reference to independent pricing sources without adjustment.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
          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 lack of 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 March 31, 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 March 31, 2011, the total amortized cost and fair value of securities backed by trust preferred securities issued by financial institutions and other entities was $94 million and $114 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 March 31, 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.
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.

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Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
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 March 31, 2011 and December 31, 2010 measured at estimated fair value on a recurring basis:
                                 
    Fair value                    
    measurements at                    
    March 31,                    
    2011     Level 1 (a)     Level 2 (a)     Level 3  
    (in thousands)  
Trading account assets
  $ 413,737       54,843       358,894        
Investment securities available for sale:
                               
U.S. Treasury and federal agencies
    39,139             39,139        
Obligations of states and political subdivisions
    59,390             59,390        
Mortgage-backed securities:
                               
Government issued or guaranteed
    2,839,861             2,839,861        
Privately issued residential
    1,391,878                   1,391,878  
Privately issued commercial
    20,467                   20,467  
Collateralized debt obligations
    114,265                   114,265  
Other debt securities
    306,549             306,549        
Equity securities
    83,435       71,324       12,111        
 
                       
 
    4,854,984       71,324       3,257,050       1,526,610  
 
                       
 
                               
Real estate loans held for sale
    188,573             188,573        
Other assets (b)
    101,993             85,726       16,267  
 
                       
Total assets
  $ 5,559,287       126,167       3,890,243       1,542,877  
 
                       
 
                               
Trading account liabilities
  $ 303,930             303,930        
Other liabilities (b)
    4,113             3,993       120  
 
                       
Total liabilities
  $ 308,043             307,923       120  
 
                       

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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 ended March 31, 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).

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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 March 31, 2011 were as follows:
                                                         
                                                    Changes in  
                                                    unrealized  
            Total gains (losses)                             gains (losses)  
            realized/unrealized                             included in  
                                                    earnings  
                    Included in                             related to  
    Balance-             other             Transfer in     Balance-     assets still  
    January 1,     Included     comprehensive             and/or out of     March 31,     held at  
    2011     in earnings     income     Settlements     Level 3 (c)     2011     March 31, 2011  
(in thousands)
Investment securities available for sale:
                                                       
Privately issued residential mortgage-backed securities
  $ 1,435,561       (7,541 )(a)     61,085       (97,227 )           1,391,878       (7,541 )(a)
Privately issued commercial mortgage-backed securities
    22,407             (82 )     (1,858 )           20,467        
Collateralized debt obligations
    110,756             3,834       (325 )           114,265        
 
                                         
 
    1,568,724       (7,541 )     64,837       (99,410 )           1,526,610       (7,541 )
Other assets and other liabilities
    2,244       20,444 (b)                 (6,541 )     16,147       16,036 (b)

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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 March 31, 2010 were as follows:
                                                         
                                                    Changes in  
                                                    unrealized  
            Total gains (losses)                             gains (losses)  
            realized/unrealized                             included in  
                                                    earnings  
                    Included in                             related to  
    Balance-             other             Transfer in     Balance-     assets still  
    January 1,     Included     comprehensive             and/or out of     March 31,     held at  
    2010     in earnings     income     Settlements     Level 3 (c)     2010     March 31, 2010  
(in thousands)
Investment securities available for sale:
                                                       
Privately issued residential mortgage-backed securities
  $ 2,064,904       (26,447 )(a)     74,454       (93,322 )     (355,248 )(d)     1,664,341       (26,447 )(a)
Privately issued commercial mortgage-backed securities
    25,166             2,073       (2,114 )           25,125        
Collateralized debt obligations
    115,346       (355 )(a)     10,895       (131 )           125,755       (355 )(a)
Other debt securities
    420             35                   455        
 
                                         
 
    2,205,836       (26,802 )     87,457       (95,567 )     (355,248 )     1,815,676       (26,802 )
 
                                                       
Other assets and other liabilities
    (80 )     18,022 (b)                 (9,771 )     8,171       7,630 (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 $550 million at March 31, 2011 ($267 million and $283 million of which were classified as Level 2 and Level 3, respectively) and $793 million at March 31, 2010 ($471 million and $322 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 March 31, 2011 and 2010 were decreases of $48 million and $58 million for the three-month periods ended March 31, 2011 and 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 $34 million and $17 million at March 31, 2011 and March 31, 2010, respectively. Changes in fair value recognized for those foreclosed assets held by the Company at March 31, 2011 were $9 million for the three months ended March 31, 2011. Changes in fair value recognized for those foreclosed assets held by the Company at March 31, 2010 were $10 million for the three months ended March 31, 2010.
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.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
          The carrying amounts and estimated fair value for financial instrument assets (liabilities) are presented in the following table:
                                 
    March 31, 2011     December 31, 2010  
    Carrying     Calculated     Carrying     Calculated  
    amount     estimate     amount     estimate  
    (in thousands)  
Financial assets:
                               
Cash and cash equivalents
  $ 982,305     $ 982,305     $ 933,755     $ 933,755  
Interest-bearing deposits at banks
    100,101       100,101       101,222       101,222  
Trading account assets
    413,737       413,737       523,834       523,834  
Investment securities
    6,507,165       6,418,912       7,150,540       7,051,454  
Loans and leases:
                               
Commercial loans and leases
    13,826,299       13,566,686       13,390,610       13,135,569  
Commercial real estate loans
    20,891,615       20,563,422       21,183,161       20,840,346  
Residential real estate loans
    6,154,960       5,876,173       5,928,056       5,699,028  
Consumer loans
    11,245,807       10,949,858       11,488,555       11,178,583  
Allowance for credit losses
    (903,703 )           (902,941 )      
 
                       
Loans and leases, net
    51,214,978       50,956,139       51,087,441       50,853,526  
Accrued interest receivable
    220,922       220,922       202,182       202,182  
 
                               
Financial liabilities:
                               
Noninterest-bearing deposits
  $ (15,219,562 )   $ (15,219,562 )   $ (14,557,568 )   $ (14,557,568 )
Savings deposits and NOW accounts
    (28,756,435 )     (28,756,435 )     (27,824,630 )     (27,824,630 )
Time deposits
    (5,508,432 )     (5,548,229 )     (5,817,170 )     (5,865,779 )
Deposits at Cayman Islands office
    (1,063,670 )     (1,063,670 )     (1,605,916 )     (1,605,916 )
Short-term borrowings
    (504,676 )     (504,676 )     (947,432 )     (947,432 )
Long-term borrowings
    (7,305,420 )     (7,442,997 )     (7,840,151 )     (7,937,397 )
Accrued interest payable
    (95,762 )     (95,762 )     (71,954 )     (71,954 )
Trading account liabilities
    (303,930 )     (303,930 )     (333,222 )     (333,222 )
 
                               
Other financial instruments:
                               
Commitments to originate real estate loans for sale
  $ 16,147     $ 16,147     $ 2,244     $ 2,244  
Commitments to sell real estate loans
    (2,499 )     (2,499 )     12,178       12,178  
Other credit-related commitments
    (68,108 )     (68,108 )     (74,426 )     (74,426 )
Interest rate swap agreements used for interest rate risk management
    84,232       84,232       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 not measured at fair value in the consolidated balance sheet.
Cash and cash equivalents, interest-bearing deposits at banks, 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, 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
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 market prices for commitments to sell real estate loans to certain government-sponsored entities and other parties.

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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.
                 
    March 31,   December 31,
    2011   2010
    (in thousands)
Commitments to extend credit
Home equity lines of credit
  $ 6,274,649       6,281,366  
Commercial real estate loans to be sold
    422,511       72,930  
Other commercial real estate and construction
    1,779,514       1,672,006  
Residential real estate loans to be sold
    438,283       161,583  
Other residential real estate
    112,328       151,111  
Commercial and other
    8,816,887       8,332,199  
 
               
Standby letters of credit
    3,852,506       3,917,318  
 
               
Commercial letters of credit
    58,805       76,962  
 
               
Financial guarantees and indemnification contracts
    1,707,670       1,609,944  
 
               
Commitments to sell real estate loans
    889,631       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 $1.6 billion at each of March 31, 2011 and December 31, 2010.
     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.

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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 $82 million at March 31, 2011. Assets of subsidiaries providing reinsurance that are available to satisfy claims totaled approximately $53 million at March 31, 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 March 31, 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 against M&T or its subsidiaries will be material to the Company’s consolidated financial position, but at the present time is not in a position to determine whether such litigation will have a material adverse effect on the Company’s consolidated results of operations in any future reporting period.

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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.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
     Information about the Company’s segments is presented in the following table:
                                                 
    Three months ended March 31  
    2011     2010  
            Inter-     Net             Inter-     Net  
    Total     segment     income     Total     segment     income  
    revenues(a)     revenues     (loss)     revenues(a)     revenues     (loss)  
    (in thousands)  
Business Banking
  $ 99,777       962       26,300       101,796             25,344  
Commercial Banking
    213,612       1,166       88,331       192,406             76,868  
Commercial Real Estate
    125,306       356       49,010       110,413       18       43,753  
Discretionary Portfolio
    42,483       (7,787 )     16,127       (12,233 )     (2,747 )     (16,162 )
Residential Mortgage Banking
    57,848       10,307       4,785       63,117       8,197       595  
Retail Banking
    295,048       2,987       52,726       307,475       2,687       59,037  
All Other
    49,150       (7,991 )     (31,006 )     51,066       (8,155 )     (38,480 )
 
                                   
Total
  $ 883,224             206,273       814,040             150,955  
 
                                   
                         
    Average total assets  
    Three months ended     Year ended  
    March 31     December 31  
    2011     2010     2010  
    (in millions)  
Business Banking
  $ 4,754       4,959       4,843  
Commercial Banking
    16,114       15,509       15,461  
Commercial Real Estate
    13,635       13,368       13,194  
Discretionary Portfolio
    13,931       14,571       14,690  
Residential Mortgage Banking
    2,045       2,222       2,217  
Retail Banking
    11,653       12,272       12,079  
All Other
    5,913       5,982       5,896  
 
                 
Total
  $ 68,045       68,883       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 owed by a segment and a funding charge (credit) based on the Company’s internal funds transfer pricing 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

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NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
    (e.g. deposits). The taxable-equivalent adjustment aggregated $6,327,000 and $5,923,000 for the three-month periods ended March 31, 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% minority 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 $212 million at March 31, 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 $5.1 billion and $5.2 billion at March 31, 2011 and December 31, 2010, respectively. Amounts recorded as capitalized servicing assets for such loans totaled $23 million at March 31, 2011 and $26 million at December 31, 2010. In addition, capitalized servicing rights at March 31, 2011 and December 31, 2010 also included $8 million and $9 million, respectively, for servicing rights that were obtained from Bayview Financial related to residential mortgage loans with outstanding principal balances of $3.5 billion at March 31, 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 $11 million and $12 million during the quarters ended March 31, 2011 and 2010, respectively. In addition, at March 31, 2011 and December 31, 2010, the Company held $20 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 $300 million and $313 million of similar investment securities in its held-to-maturity portfolio at March 31, 2011 and December 31, 2010, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
M&T Bank Corporation (“M&T”) recorded net income in the first quarter of 2011 of $206 million or $1.59 of diluted earnings per common share, compared with $151 million or $1.15 of diluted earnings per common share in the initial quarter of 2010. During the fourth quarter of 2010, net income aggregated $204 million or $1.59 of diluted earnings per common share. Basic earnings per common share were $1.59 in each of the first 2011 quarter and the fourth quarter of 2010, compared with $1.16 in the first quarter of 2010. The after-tax impact of acquisition and integration-related expenses (included herein as merger-related expenses) was $3 million ($4 million pre-tax), or $.02 of basic and diluted earnings per common share in the recent quarter. Such expenses were associated with M&T’s pending 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 most of the deposits and acquire certain assets of K Bank, based in Randallstown, Maryland, in an assisted transaction with the FDIC. The net after-tax impact of merger-related expenses and the gain associated with the K Bank acquisition transaction totaled to a net gain of $16 million ($27 million pre-tax) or $.14 of basic and diluted earnings per common share in the fourth quarter of 2010. There were no merger-related expenses in 2010’s initial quarter.
     The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the first three months of 2011 was 1.23%, compared with .89% in the year-earlier quarter and 1.18% in the fourth quarter of 2010. The annualized rate of return on average common shareholders’ equity was 10.16% in the first quarter of 2011, compared with 7.86% and 10.03% in the first and fourth quarters of 2010, respectively.
     On November 1, 2010, M&T announced that it had entered into a definitive agreement with Wilmington Trust, under which Wilmington Trust will be acquired by M&T. Pursuant to the terms of the agreement, Wilmington Trust common shareholders will receive .051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock in a stock-for-stock transaction valued at $351 million (with the price based on M&T’s closing price of $74.75 per share as of October 29, 2010), plus the assumption of $330 million in 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”).
     At December 31, 2010, Wilmington Trust had approximately $10.9 billion of assets, including $7.5 billion of loans, $10.1 billion of liabilities, including $9.0 billion of deposits, and $60.1 billion of combined assets under management, including $43.6 billion managed by Wilmington Trust and $16.5 billion managed by affiliates. At a special shareholder meeting held on March 22, 2011, Wilmington Trust’s common shareholders approved the merger transaction. M&T announced on April 26, 2011 that it had received the approval of the Board of Governors of the Federal Reserve System to acquire Wilmington Trust. Additional regulatory approvals, including those from the New York State Banking Superintendent and the Delaware Banking Commissioner, are still pending. Subject to the terms and conditions of the merger agreement, M&T expects to close the merger with Wilmington Trust promptly after receiving the remaining regulatory approvals and after the 15-day waiting period associated with the Federal Reserve Board’s approval order has expired.

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     As noted by M&T at the time the merger with Wilmington Trust was announced on November 1, 2010, following completion of the merger, M&T expects its capital ratios at the end of the second quarter of 2011 to be comparable to what they were as of September 30, 2010. Pursuant to its capital plan, M&T intends to undertake a series of actions during the second quarter of 2011:
    Simultaneous with the closing of the merger, M&T intends to redeem the $330 million of preferred stock that was issued to the U.S. Treasury by Wilmington Trust pursuant to the Troubled Asset Relief Program — Capital Purchase Program;
 
    By the end of the second quarter of 2011, M&T intends to repay an additional $370 million of the preferred stock issued to the U.S. Treasury pursuant to the Troubled Asset Relief Program — Capital Purchase Program by Provident Bankshares Corporation and by M&T; and
 
    To supplement its Tier 1 capital, M&T will issue $500 million of new perpetual preferred stock prior to the end of the second quarter of 2011.
     Assets acquired in the K Bank transaction totaled approximately $556 million, including $154 million in loans and $186 million in cash, and liabilities assumed aggregated $528 million, including $491 million in deposits. The $28 million (pre-tax) gain associated with the transaction reflects the amount of financial support and indemnification against loan losses that M&T Bank obtained from the FDIC. The transaction did not have a material effect on the Company’s results of operations in 2011.
     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 quarter 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 first quarter 2011 results were gains from the sale of investment securities, predominantly residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Such gains increased net income in the recent quarter by $24 million ($39 million before taxes), or $.20 of diluted earning per common share. In response to strong growth in average loans in the recent quarter and in anticipation of the impending acquisition of Wilmington Trust, the Company sold the securities in order to manage its forecasted balance sheet size and resultant capital ratios. Also impacting the recent quarter’s 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 collateralized mortgage obligations (“CMOs”).
     The Company recorded after-tax other-than-temporary impairment charges of $16 million ($27 million before taxes), or $.14 of diluted earnings per common share, in the first quarter of 2010 related to certain privately issued CMOs.

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During the fourth quarter of 2010, similar impairment charges of $17 million ($28 million before taxes) were recorded, or $.14 of diluted earnings per common share, related to certain of the Company’s privately-issued CMOs. Also reflected in the Company’s fourth quarter 2010 results was the gain associated with the K Bank acquisition transaction as previously noted.
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 federal agencies are given significant discretion in drafting and implementing rules and regulations, and, as a result, many of the details and much of the impact of the Dodd-Frank Act is not yet known. The Dodd-Frank Act, however, 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 will be 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 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;

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    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 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 is included 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 goodwill and core deposit and other intangible assets totaling $3.6 billion at March 31, 2011 and $3.7 billion at each of March 31, 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 $7 million ($.06 per diluted common share) during the first quarter of 2011, $10 million ($.08 per diluted common share) during the

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year-earlier quarter and $8 million ($.07 per diluted common share) in the final quarter of 2010.
     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 totaled $216 million in the recently completed quarter, compared with $161 million in the first quarter of 2010. Diluted net operating earnings per common share for the recent quarter were $1.67, compared with $1.23 in the initial 2010 quarter. Net operating income and diluted net operating earnings per common share were $196 million and $1.52, respectively, in the fourth quarter of 2010.
     Net operating income in the first quarter of 2011 represented an annualized rate of return on average tangible assets of 1.36%, compared with 1.00% and 1.20% in the first and fourth quarters of 2010, respectively. Net operating income expressed as an annualized return on average tangible common equity was 20.16% in the recently completed quarter, compared with 17.34% in the year-earlier quarter and 18.43% in the last quarter of 2010.
     Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in table 2.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income aggregated $575 million in the first quarter of 2011, up 2% from $562 million in the year-earlier quarter, but down slightly from $580 million in the fourth quarter of 2010. The improvement in the recent quarter’s total as compared with the first quarter of 2010 reflects a 14 basis point (hundredths of one percent) widening of the Company’s net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, partially offset by lower average earning assets, which declined $900 million, or 1%, to $59.4 billion from $60.3 billion in the first quarter of 2010. The decline in net interest income from the fourth quarter of 2010 reflects the impact of fewer days in the recent quarter, offset, in part, by a 7 basis point widening of the net interest margin. The net interest margin was 3.92% in the initial 2011 quarter, compared with 3.78% in the year-earlier period and 3.85% in the fourth quarter of 2010.
     Average loans and leases were $52.0 billion in the first quarter of 2011, compared with $51.9 billion in the initial quarter of 2010. Commercial loans and leases averaged $13.6 billion in the first 2011 quarter, up 1% from $13.4 billion in the year-earlier quarter. Average commercial real estate loans increased to $21.0 billion in the recent quarter from $20.9 billion in the first quarter of 2010. The Company’s residential real estate loan portfolio averaged $6.1 billion in the first quarter of 2011, up $313 million or 5% from $5.7 billion in the corresponding quarter of 2010. Included in that portfolio were loans held for sale, which averaged $192 million in the recently completed quarter, compared with $404 million in the first quarter of 2010. Excluding loans held for sale, average residential real estate loans increased $525 million or 10% from the first quarter of 2010 to the first quarter of 2011. The rise in average residential real estate loans

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reflects the Company’s decision to retain for portfolio during the fourth quarter of 2010 and a portion of the first quarter of 2011 a higher proportion of originated loans rather than selling them. Average consumer loans and leases totaled $11.3 billion in the recent quarter, down $590 million or 5% from $11.9 billion in the year-earlier period due largely to lower average balances of automobile loans and home equity loans.
     Average loan balances in the recent quarter rose $830 million, or 2%, from the fourth quarter of 2010. Average balances of commercial loans and leases rose $559 million, or 4%, in the recent quarter, while average commercial real estate balances increased $379 million, or 2%, from the fourth quarter of 2010. Average residential real estate loan balances increased $144 million, or 2% and average consumer loans declined $253 million or 2%, as compared with 2010’s final quarter. The Company experienced growth due to improved demand for commercial loans and commercial real estate loans, while certain of the other loan portfolios have been allowed to decline where the Company has decided it does not want to pursue growth. Examples of those portfolios include residential real estate construction loans, Alt-A residential mortgage loans, indirect automobile loans outside of the Company’s footprint and out-of-footprint home equity loans. 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  
    1st Qtr.     1st Qtr.     4th Qtr.  
    2011     2010     2010  
Commercial, financial, etc.
  $ 13,573       1 %     4 %
Real estate — commercial
    21,003       1       2  
Real estate — consumer
    6,054       5       2  
Consumer
                       
Automobile
    2,638       (9 )     (3 )
Home equity lines
    5,744       (2 )     (2 )
Home equity loans
    734       (23 )     (7 )
Other
    2,226             (1 )
 
                 
Total consumer
    11,342       (5 )     (2 )
 
                 
Total
  $ 51,972       %     2 %
 
                 
     The investment securities portfolio averaged $7.2 billion during the first quarter of 2011, down from $8.2 billion in the year-earlier quarter and $321 million below the $7.5 billion average in 2010’s final quarter. The decline in such securities from the initial quarter of 2010 largely reflects maturities and paydowns of mortgage-backed securities and maturities of federal agency notes. As compared with the fourth quarter of 2010, recent quarter maturities and paydowns of mortgage-backed securities were the most significant contributors to the lower average investment security balances. 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 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 recent quarter, the Company sold residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac that were held in the available-for-sale portfolio. Those securities had an amortized cost of approximately $484 million, but because the transactions occurred near the end of the recent quarter they did not have a significant effect on average balances.

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     The Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” An other-than-temporary impairment charge of $16 million (pre-tax) was recognized in the first quarter of 2011 related to certain privately issued CMOs. Other-than-temporary impairment charges of $27 million (pre-tax) and $28 million (pre-tax) were recognized during the first and the fourth quarters of 2010, respectively. Those charges were also predominantly related to the Company’s portfolio of 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. 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 $240 million in the recently completed quarter, compared with $211 million and $1.1 billion in the first and fourth quarters of 2010, respectively. Reflected in those balances were purchases of investment securities under agreements to resell, which averaged $2 million, $15 million and $772 million during the three-month periods ended March 31, 2011, March 31, 2010 and December 31, 2010, respectively. The higher level of resell agreements in the fourth quarter of 2010 as compared with the first quarters of 2011 and 2010 was due to the need to fulfill collateral requirements associated with certain seasonal municipal deposits. Agreements to resell securities, of which there were none outstanding at March 31, 2011 or December 31, 2010, are accounted for similar to collateralized loans, with changes in market value of the collateral monitored by the Company to ensure sufficient coverage. 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 aggregated $59.4 billion in the first quarter of 2011, compared with $60.3 billion in the year-earlier period. Average earning assets totaled $59.7 billion in the fourth quarter of 2010.
     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 under $250,000 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 under $250,000 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. Core deposits averaged $46.2 billion in the first quarter of 2011, up 8% from $42.9 billion in the similar 2010 quarter and 3% higher than $45.0 billion in the fourth quarter of 2010. The change in the Company’s definition of core deposits to include time deposits from $100,000 to $250,000 resulted in an increase in average core deposits in the first quarter of 2011 of approximately $970 million. The growth in core deposits since the first 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

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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.
AVERAGE CORE DEPOSITS
Dollars in millions
                         
            Percent increase from  
    1st Qtr.     1st Qtr.     4th Qtr.  
    2011     2010     2010  
NOW accounts
  $ 600       4 %     3 %
Savings deposits
    26,367       8       1  
Time deposits (a)
    4,698       1       19  
Noninterest-bearing deposits
    14,501       9       2  
 
                 
Total
  $ 46,166       8 %     3 %
 
                 
 
(a)   Average time deposits considered core deposits in the first quarter of 2011 represented time deposits less than $250,000. In the prior periods presented, average time deposits considered core deposits were those with balances less than $100,000.
     In addition to core deposits, domestic time deposits of $250,000 or more, deposits originated through the Company’s Cayman Islands branch office, and brokered deposits provide sources of funding for the Company. Domestic time deposits over $250,000, excluding brokered certificates of deposit, averaged $520 million during the first quarter of 2011. Similar time deposits over $100,000 averaged $1.8 billion and $1.6 billion in the first and fourth quarters of 2010, respectively. Cayman Islands branch deposits averaged $1.2 billion for each of the quarters ended March 31, 2011 and 2010, and $809 million during the quarter ended December 31, 2010. Average brokered time deposits totaled $482 million during the recently completed quarter, compared with $785 million and $508 million in the first and fourth quarters of 2010, respectively. The Company also had brokered NOW and brokered money-market deposit accounts, which in the aggregate averaged $1.3 billion during the first quarter of 2011, compared with $678 million in the year-earlier quarter and $1.4 billion in the fourth quarter of 2010. The significant increases in such average brokered deposit balances since the first quarter of 2010 reflect continued uncertain economic markets and the desire of brokerage firms to earn reasonable yields while ensuring that customer deposits were 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 $1.3 billion in the first quarter of 2011, compared with $2.4 billion in the year-earlier quarter and $1.4 billion in the final quarter of 2010. Included in short-term borrowings were unsecured federal funds borrowings, which generally mature on the next business day, which averaged $1.2 billion in the recent quarter, compared with $2.1 billion and $1.3 billion in the first and fourth quarters of 2010, respectively. Overnight federal funds borrowings represented the largest component of short-term borrowings and were obtained from a wide variety of banks and other financial institutions. Overnight federal funds borrowings totaled $407 million and $1.7 billion at March 31, 2011 and 2010, respectively, and $826 million at December 31, 2010. Average short-term borrowings included borrowings from the Federal Home Loan Bank (“FHLB”) of New York and the FHLB of Atlanta, which totaled $19 million during the recent quarter, compared with $100 million and $16 million in the first and fourth quarters of 2010, respectively.

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     Long-term borrowings averaged $7.4 billion in the first quarter of 2011, compared with $10.2 billion in the similar 2010 quarter and $8.1 billion in the fourth quarter of 2010. Included in average long-term borrowings were amounts borrowed from the FHLBs of $2.5 billion in the recent quarter, and $5.1 billion and $3.3 billion in the first and fourth quarters of 2010, respectively, and subordinated capital notes of $1.7 billion in each of the two most recent quarters and $1.9 billion in the three-month period ended March 31, 2010. The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of long-term debt. As of March 31, 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 March 31, 2011, March 31, 2010 and December 31, 2010. 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 first quarters of 2011 and 2010 and the fourth quarter of 2010. The agreements have various repurchase dates through 2017, however, the contractual maturities of the underlying securities extend 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 3.69% in the first quarter of 2011 and 3.55% in the year-earlier quarter. The yield on earning assets during the recent quarter was 4.60%, up 1 basis point from 4.59% in the first quarter of 2010, while the rate paid on interest-bearing liabilities decreased 13 basis points to .91% from 1.04%. In the fourth quarter of 2010, the net interest spread was 3.61%, the yield on earning assets was 4.58% and the rate paid on interest-bearing liabilities was .97%. The improvement in the net interest spread in the recent quarter as compared with the first and fourth quarters of 2010 was due largely to declines in the rates paid on deposits. Those lower rates reflect the impact of the Federal Reserve’s monetary policies on both short-term and long-term interest rates. The Federal Open Market Committee has noted that economic conditions continue to warrant low levels for the federal funds rate.
     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 $15.5 billion in the first quarter of 2011, compared with $13.7 billion and $15.2 billion in the first and fourth quarters of 2010, respectively. The rise in net interest free funds in the two most recent quarters as compared with the first quarter of 2010 was largely the result of higher average balances of noninterest-bearing deposits. Such deposits averaged $14.5 billion in the recent quarter, compared with $13.3 billion and $14.3 billion in the first and fourth quarters of 2010, respectively. Goodwill and core deposit and other intangible assets averaged $3.6 billion during the quarter ended March 31, 2011, compared with $3.7 billion during each of the quarters ended March 31, 2010 and December 31, 2010. The cash surrender value of bank owned life insurance averaged $1.5 billion in each of the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010. Increases in the cash surrender value of bank owned life insurance and benefits received 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 .23% in each of the quarters ended March 31, 2011 and 2010, compared with .24% in the fourth quarter of 2010.
     Reflecting the changes to the net interest spread and the contribution of interest-free funds as described herein, the Company’s net interest margin

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was 3.92% in the first quarter of 2011, compared with 3.78% in the year-earlier quarter and 3.85% in the final quarter of 2010. 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.
     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 March 31, 2011 and December 31, 2010, and $1.1 billion at March 31, 2010. Under the terms of those swap agreements, the Company received payments based on the outstanding notional amount 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 March 31, 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 March 31, 2011 and 2010 and the quarter ended December 31, 2010 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 $84 million at March 31, 2011, $67 million at March 31, 2010 and $97 million at December 31, 2010. 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 March 31, 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 $60 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 1.85%, respectively, at March 31, 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 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 March 31  
    2011     2010  
    Amount     Rate(a)     Amount     Rate(a)  
Increase (decrease) in:
                               
Interest income
  $          
Interest expense
    (9,514 )     (.09 )     (11,252 )     (.10 )
 
                       
Net interest income/margin
  $ 9,514       .06 %   $ 11,252       .08 %
 
                       
Average notional amount
  $ 900,000             $ 1,062,241          
 
                       
Rate received (b)
            6.16 %             6.39 %
Rate paid (b)
            1.87 %             2.10 %
 
                       
 
(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 $407 million at March 31, 2011, $1.7 billion at March 31, 2010 and $826 million at December 31, 2010. In general, those borrowings were unsecured and matured on the next business day. As previously noted, Cayman Islands branch deposits and brokered certificates of deposit 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 $1.1 billion, $790 million and $1.6 billion at March 31, 2011, March 31, 2010 and December 31, 2010, respectively. Outstanding brokered time deposits at March 31, 2011, March 31, 2010 and December 31, 2010 were $478 million, $732 million and $485 million, respectively. At March 31, 2011, the weighted-average remaining term to maturity of brokered time deposits was 17 months. Certain of those brokered time deposits have provisions that allow for early redemption. The Company also had brokered NOW and brokered money-market deposit accounts which aggregated $1.3 billion at each of March 31, 2011 and December 31, 2010, and $942 million at March 31, 2010. The higher level of such deposits at the two most recent quarter-ends resulted from higher demand for these deposits due to the unsettled economy and the need for brokerage firms to ensure that customer deposits are fully insured while earning a yield on such deposits.
     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

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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 direct-pay 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 $23 million at March 31, 2011, $20 million at March 31, 2010 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 March 31, 2011 and 2010, compared with $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 the test, approximately $849 million at March 31, 2011 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. M&T also maintains a $30 million line of credit with an unaffiliated commercial bank, of which there were no borrowings outstanding at March 31, 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.
     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

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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 March 31, 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   March 31, 2011     December 31, 2010  
+200 basis points
  $ 79,794       67,255  
+100 basis points
    42,133       35,594  
-100 basis points
    (45,808 )     (40,760 )
-200 basis points
    (67,196 )     (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 and deposit volumes and pricing, and deposit maturities. In the scenarios presented, the Company also assumed gradual changes in 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

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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. 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 fair values of the offsetting trading positions associated with interest rate contracts and foreign currency and other option and futures contracts are presented in note 10 of Notes to Financial Statements. 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 aggregated $12.3 billion at March 31, 2011, compared with $12.8 billion at each of March 31, 2010 and December 31, 2010. The notional amounts of foreign currency and other option and futures contracts entered into for trading purposes totaled $982 million at March 31, 2011, compared with $701 million and $769 million at March 31, 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 were $414 million and $304 million, respectively, at March 31, 2011, $403 million and $316 million, respectively, at March 31, 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 and $34 million at March 31, 2011 and 2010, respectively, 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 March 31, 2011 were $35 million of liabilities related to deferred compensation plans, compared with $36 million at each of March 31, 2010 and December 31, 2010. Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed

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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 associated with 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 is adequate to absorb 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 first quarter of 2011 was $75 million, compared with $105 million in the year-earlier quarter and $85 million in the fourth quarter of 2010. While the levels of the provision subsequent to 2007 have been higher than historical levels, the Company has experienced some improvement in its credit quality metrics over the past five quarters. 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 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. 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. Although nonperforming and criticized loans remain at historically high levels, the Company has seen some early signs of improving economic conditions within the market areas in which it operates.
     Net loan charge-offs were $74 million in the first quarter of 2011, compared with $95 million and $77 million during the three-month periods ended March 31, 2010 and December 31, 2010, respectively. Net charge-offs as an annualized percentage of average loans and leases were .58% in the first quarter of 2011, compared with .74% and .60% in the first and fourth quarters of 2010, respectively. A summary of net charge-offs by loan type follows.
NET CHARGE-OFFS
BY LOAN/LEASE TYPE
In thousands
                         
    First Quarter     First Quarter     Fourth Quarter  
    2011     2010     2010  
Commercial, financial, leasing, etc.
  $ 11,862       17,994       4,722  
Real estate:
                       
Commercial
    24,230       30,226       34,719  
Residential
    14,666       15,280       15,001  
Consumer
    23,480       31,009       22,337  
 
                 
 
  $ 74,238       94,509       76,779  
 
                 
     Included in net charge-offs of commercial real estate loans were charge-offs of loans to residential homebuilders and developers of $18 million in the quarter ended March 31, 2011 compared with $22 million for each of the quarters ended March 31, 2010 and December 31, 2010. Reflected 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 quarters ended March 31, 2011, March 31, 2010 and December 31, 2010. Included in net charge-offs of consumer loans and leases were net charge-offs during the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010, respectively, of: indirect automobile loans of $6

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million, $10 million and $7 million; recreational vehicle loans of $6 million, $7 million and $5 million; and home equity loans and lines of credit, including Alt-A second lien loans, of $8 million, $9 million and $7 million. Including both first and second lien mortgages, net charge-offs of Alt-A loans totaled $9 million for each of the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010.
     Nonaccrual loans totaled $1.21 billion or 2.32% of total loans and leases outstanding at March 31, 2011, compared with $1.34 billion or 2.60% a year earlier and $1.24 billion or 2.38% at December 31, 2010. The decline in nonaccrual loans from March 31, 2010 to the two most recent quarter-ends was largely due to the impact of charge-offs, individually significant payments made in 2010’s second and third quarters by a borrower that operates retirement communities and by a borrower that is a consumer finance and credit insurance company, and the transfer to real estate and other foreclosed assets of $98 million of collateral related to a commercial real estate loan that was placed in nonaccrual status during the fourth quarter of 2009. Those reductions were partially offset by additional loans being transferred to nonaccrual status. In particular, in the fourth quarter of 2010 such transfers included an $80 million relationship with a residential builder and developer and $66 million of commercial construction loans to an owner/operator of retirement and assisted living facilities. 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, 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 $264 million or .51% of total loans and leases at March 31, 2011, compared with $203 million or .40% at March 31, 2010 and $270 million or .52% at December 31, 2010. Those loans included loans guaranteed by government-related entities of $215 million, $195 million and $214 million at March 31, 2011, March 31, 2010 and December 31, 2010, respectively. 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 and $179 million as of March 31, 2011 and 2010, respectively, and $191 million at December 31, 2010. 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 March 31, 2011, March 31, 2010 and December 31, 2010.
     Loans obtained in the 2009 and 2010 acquisition transactions that were impaired at the date of acquisition were recorded at estimated fair value and are 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 $89 million at March 31, 2011, or less than .2% of total loans.
     In an effort to assist borrowers, the Company 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 March 31, 2011 were $305 million of modified loans, of which $126 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 March 31, 2011. Loan

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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 $296 million at March 31, 2010, of which $109 million were in nonaccrual status, and $308 million as of December 31, 2010, of which $117 million were classified as nonaccrual.
     Nonaccrual commercial loans and leases aggregated $173 million at March 31, 2011, $325 million at March 31, 2010 and $187 million at December 31, 2010. The decline in such loans at the two most recent quarter-ends as compared with March 31, 2010 reflects 2010 activity consisting of $62 million of payments related to a single borrower that operates retirement communities and the payoffs of a $37 million loan to a consumer finance and credit insurance company and a $36 million loan to a borrower in the commercial real estate sector.
     Commercial real estate loans classified as nonaccrual totaled $658 million at March 31, 2011, $641 million at March 31, 2010 and $682 million at December 31, 2010. Reflected in such nonaccrual loans were loans to residential homebuilders and developers aggregating $320 million and $307 million at March 31, 2011 and 2010, respectively, and $346 million at December 31, 2010. 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 March 31, 2011 is presented in the accompanying table.
RESIDENTIAL BUILDER AND DEVELOPER LOANS, NET OF UNEARNED DISCOUNT
                                         
                            Quarter ended  
        March 31, 2011  
                Net charge-offs  
    March 31, 2011             Annualized  
            Nonaccrual             percent of  
                    Percent of             average  
    Outstanding             outstanding             outstanding  
    balances(a)     Balances     balances     Balances     balances  
    (dollars in thousands)  
New York
  $ 260,817     $ 32,457       12.44 %   $       %
Pennsylvania
    179,262       85,243       47.55       10,912       23.51  
Mid-Atlantic
    709,536       176,243       24.84       3,678       2.06  
Other
    205,045       43,708       21.32       3,464       6.34  
 
                             
 
Total
  $ 1,354,660     $ 337,651       24.93 %   $ 18,054       5.31 %
 
                             
 
(a)   Includes approximately $53 million of loans not secured by real estate, of which approximately $17 million are in nonaccrual status.
     Residential real estate loans classified as nonaccrual were $289 million at March 31, 2011, compared with $282 million at March 31, 2010 and $279 million at December 31, 2010. Depressed real estate values and high levels of delinquencies have contributed to the 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 of $111 million, $114 million and $106 million at March 31, 2011, March 31, 2010 and December 31, 2010, respectively. Residential real estate loans past due 90 days or more and accruing interest totaled $195 million at March 31, 2011, compared with $181 million a year earlier and $192 million at December 31, 2010. A substantial portion of such amounts related to guaranteed loans

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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 March 31, 2011 is presented in the accompanying table.
     Nonaccrual consumer loans and leases aggregated $91 million at each of March 31, 2011 and December 31, 2010, compared with $92 million at March 31, 2010. As a percentage of consumer loan balances outstanding, nonaccrual consumer loans and leases were .81% at March 31, 2011, compared with .78% and .79% at March 31, 2010 and December 31, 2010, respectively. Included in nonaccrual consumer loans and leases at March 31, 2011, March 31, 2010 and December 31, 2010 were indirect automobile loans of $30 million, $35 million and $32 million, respectively; recreational vehicle loans of $13 million, $16 million and $13 million, respectively; and outstanding balances of home equity loans and lines of credit, including second lien, Alt-A loans, of $44 million, $37 million and $43 million, respectively. Consumer loans delinquent 30-89 days at March 31, 2011 totaled $96 million, compared with $108 million and $120 million at March 31, 2010 and December 31, 2010, respectively. Consumer loans past due 90 days or more and accruing interest totaled $4 million at each of March 31, 2011 and December 31, 2010, compared with $3 million at March 31, 2010. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter-ended March 31, 2011 is presented in the accompanying table.

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SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA
                                         
        Quarter ended  
                            March 31, 2011  
                            Net charge-offs  
                (recoveries)  
    March 31, 2011             Annualized  
            Nonaccrual             percent of  
                    Percent of             average  
    Outstanding             outstanding             outstanding  
    balances     Balances     balances     Balances     balances  
    (dollars in thousands)  
Residential mortgages:
                                       
New York
  $ 2,422,411     $ 49,694       2.05 %   $ 426       0.07 %
Pennsylvania
    797,504       18,228       2.29       535       0.28  
Mid-Atlantic
    1,164,031       41,985       3.61       1,200       0.43  
Other
    1,111,204       59,099       5.32       3,255       1.19  
 
                             
Total
  $ 5,495,150     $ 169,006       3.08 %   $ 5,416       0.41 %
 
                             
Residential construction loans:
                                       
New York
  $ 9,700     $ 822       8.47 %   $ 68       2.92 %
Pennsylvania
    3,314       788       23.78       56       6.90  
Mid-Atlantic
    16,892       3,283       19.44       (2 )     (0.05 )
Other
    32,817       4,210       12.83       759       8.67  
 
                             
Total
  $ 62,723     $ 9,103       14.51 %   $ 881       5.33 %
 
                             
Alt-A first mortgages:
                                       
New York
  $ 90,725     $ 17,698       19.51 %   $ 525       2.31 %
Pennsylvania
    21,796       3,279       15.04       117       2.14  
Mid-Atlantic
    110,357       17,588       15.94       1,641       5.90  
Other
    374,209       72,224       19.30       6,086       6.44  
 
                             
Total
  $ 597,087     $ 110,789       18.55 %   $ 8,369       5.56 %
 
                             
Alt-A junior lien:
                                       
New York
  $ 2,825     $ 50       1.77 %   $       %
Pennsylvania
    676       36       5.33              
Mid-Atlantic
    4,243       206       4.86       326       29.85  
Other
    14,413       1,062       7.37       704       19.20  
 
                             
Total
  $ 22,157     $ 1,354       6.11 %   $ 1,030       18.32 %
 
                             
First lien home equity loans:
                                       
New York
  $ 32,458     $ 348       1.07 %   $ 45       0.54 %
Pennsylvania
    181,228       2,496       1.38       224       0.48  
Mid-Atlantic
    144,485       2,104       1.46       7       0.02  
Other
    1,510       202       13.38              
 
                             
Total
  $ 359,681     $ 5,150       1.43 %   $ 276       0.30 %
 
                             
First lien home equity lines:
                                       
New York
  $ 863,562     $ 2,413       0.28 %   $ 152       0.07 %
Pennsylvania
    558,095       1,049       0.19       182       0.13  
Mid-Atlantic
    534,828       997       0.19       59       0.04  
Other
    15,988       468       2.93       (1 )     (0.03 )
 
                             
Total
  $ 1,972,473     $ 4,927       0.25 %   $ 392       0.08 %
 
                             
Junior lien home equity loans:
                                       
New York
  $ 78,887     $ 972       1.23 %   $ 163       0.80 %
Pennsylvania
    83,104       1,192       1.43       124       0.57  
Mid-Atlantic
    147,473       2,572       1.74       55       0.15  
Other
    16,158       940       5.82       (137 )     (3.33 )
 
                             
Total
  $ 325,622     $ 5,676       1.74 %   $ 205       0.24 %
 
                             
Junior lien home equity lines:
                                       
New York
  $ 1,630,946     $ 16,912       1.04 %   $ 3,172       0.78 %
Pennsylvania
    551,133       1,456       0.26       435       0.31  
Mid-Atlantic
    1,486,008       6,683       0.45       1,605       0.44  
Other
    73,480       2,192       2.98       648       3.50  
 
                             
Total
  $ 3,741,567     $ 27,243       0.73 %   $ 5,860       0.63 %
 
                             

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     Real estate and other foreclosed assets were $218 million and $95 million at March 31, 2011 and March 31, 2010, and $220 million at December 31, 2010. The increase at the two most recent quarter-ends as compared with March 31, 2010 reflects the $98 million addition in the second quarter of 2010 of a commercial real estate property located in New York City. Excluding that property, at March 31, 2011, the Company’s holding of residential real estate-related properties comprised 74% of the remaining foreclosed assets.
     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     2010 Quarters  
    First Quarter     Fourth     Third     Second     First  
Nonaccrual loans
  $ 1,211,111       1,239,194       1,099,560       1,090,135       1,339,992  
Real estate and other foreclosed assets
    218,203       220,049       192,600       192,631       95,362  
 
                             
Total nonperforming assets
  $ 1,429,314       1,459,243       1,292,160       1,282,766       1,435,354  
 
                             
 
                                       
Accruing loans past due 90 days or more(a)
  $ 264,480       269,593       214,769       203,081       203,443  
 
                             
 
                                       
Renegotiated loans
  $ 241,190       233,342       233,671       228,847       220,885  
 
                             
 
                                       
Government guaranteed loans included in totals above:
                                       
Nonaccrual loans
  $ 69,353       56,787       38,232       40,271       37,048  
Accruing loans past due 90 days or more
    214,505       214,111       194,223       187,682       194,523  
 
                             
 
                                       
Purchased impaired loans(b):
                                       
Outstanding customer balance
  $ 206,253       219,477       113,964       130,808       148,686  
Carrying amount
    88,589       97,019       52,728       61,524       73,890  
 
                             
 
                                       
Nonaccrual loans to total loans and leases, net of unearned discount
    2.32 %     2.38 %     2.16 %     2.13 %     2.60 %
Nonperforming assets to total net loans and leases and real estate and other foreclosed assets
    2.73 %     2.79 %     2.53 %     2.50 %     2.78 %
Accruing loans past due 90 days or more to total loans and leases, net of unearned discount
    .51 %     .52 %     .42 %     .40 %     .40 %
 
                             
 
(a)   Predominantly residential mortgage loans.
 
(b)   Accruing loans that were impaired at acquisition date and recorded at fair value.
     Management regularly assesses the adequacy of 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

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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 assessing the adequacy of the Company’s 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 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 March 31, 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 continue to 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 upstate New York and Pennsylvania. Home prices in upstate New York and central Pennsylvania were largely unchanged in 2009 and 2010, in contrast to 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 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 foreclosure.
     The Company utilizes an extensive loan grading system which is applied to all commercial and commercial real estate loans. On a quarterly basis, the Company’s loan review department reviews commercial and commercial real estate loans that are classified as “Special Mention” or worse. Meetings are held with loan officers and their managers, workout specialists and senior management to discuss each of the relationships. Borrower-specific information is reviewed, including operating results, future cash flows, recent developments and the borrower’s outlook, and other pertinent data. The timing and extent of potential losses, considering collateral valuation, and the Company’s potential courses of action are reviewed. To the extent that these

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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 “Special Mention,” 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 work-out 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.
     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 Company’s 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 residential 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 2009 and 2010 acquisition transactions were recorded at fair value with no carry-over of any previously recorded allowance for credit losses. Determining the fair value of the acquired loans required estimating cash flows expected to be collected on the loans and discounting those cash flows at then current interest rates. The excess of cash flows expected at acquisition over the estimated fair value is being recognized as interest income over the lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects estimated future credit losses and other contractually required payments that the Company does not expect to collect. The Company regularly evaluates the reasonableness of its cash flow projections. Any decreases to the expected cash flows require the Company to evaluate the need for an additional allowance for credit losses and could lead to charge-offs of acquired loan balances. Any significant increases in expected cash flows result in additional interest income to be recognized over the then-remaining lives of the loans.

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     Management believes that the allowance for credit losses at March 31, 2011 was adequate to absorb credit losses inherent in the portfolio as of that date. The allowance for credit losses was $904 million, or 1.73% of total loans and leases at March 31, 2011, compared with $891 million or 1.73% at the end of the first quarter of 2010 and $903 million or 1.74% at December 31, 2010. The ratio of the allowance to total loans and leases reflects the impact of loans obtained in 2009 and 2010 acquisition transactions that have been recorded at estimated fair value based on estimated cash flows expected to be received on those loans. Those cash flows reflect the impact of expected defaults on customer repayment performance. Excluding the effect of such loans, the allowance for credit losses related to the Company’s legacy loans (that is, total loans excluding loans acquired during 2009 and 2010) expressed as a percentage of such legacy loans was 1.81% at March 31, 2011, compared with 1.82% at December 31, 2010 and 1.86% at March 31, 2010. The level of the allowance reflects management’s evaluation of the loan and lease portfolio using the methodology and considering the factors as described herein. Should the various credit factors considered by management in establishing the allowance for credit losses change and should management’s assessment of losses inherent in the loan portfolio also change, the level of the allowance as a percentage of loans could increase or decrease in future periods. The ratio of the allowance for credit losses to nonaccrual loans was 75% at March 31, 2011, compared with 67% a year earlier and 73% at December 31, 2010. Given the Company’s general position as a secured lender and its practice of charging off loan balances when collection is deemed doubtful, that ratio and changes in that ratio are generally not an indicative measure of the adequacy of the Company’s allowance for credit losses, nor does management rely upon that ratio in assessing the adequacy of the allowance. The level of the allowance reflects management’s evaluation of the loan and lease portfolio as of each respective date.
Other Income
Other income totaled $314 million in the first quarter of 2011, compared with $258 million in the corresponding 2010 quarter and $287 million in the fourth quarter of 2010. Reflected in those amounts were net gains on investment securities of $23 million in the recent quarter, compared with net losses on investment securities of $26 million in the first quarter of 2010 and $27 million in the last 2010 quarter. During the initial 2011 quarter, the Company sold residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac held in its available-for-sale investment securities portfolio having an amortized cost of $484 million, resulting in a gain of $39 million. Included in net securities gains and losses in each of the quarters were other-than-temporary impairment charges of $16 million in the recent quarter, $27 million in the year-earlier quarter and $28 million in the fourth quarter of 2010. Those other-than-temporary impairment charges were predominantly related to the Company’s holdings of privately issued CMOs and reflect the impact of lower real estate values and higher delinquencies on real estate loans underlying those impaired securities. Also reflected in noninterest income during the fourth quarter of 2010 was the $28 million gain related to the K Bank acquisition transaction.
     Excluding gains and losses from bank investment securities (including other-than-temporary impairment losses) and the acquisition-related gain, other income aggregated $291 million, $284 million and $286 million in the three-month periods ended March 31, 2011, March 31, 2010 and December 31, 2010, respectively. Contributing to the improvement of such income in the recent quarter as compared with the first quarter of 2010 were higher commercial mortgage banking revenues, letter of credit and other credit-related fees, trading account and foreign exchange gains, and other operating revenues. Partially offsetting those improvements were lower consumer service charges on deposit accounts. The lower level of such revenues was attributable to new regulations that went into effect during the third quarter of 2010. As compared with the final quarter of 2010,

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higher residential mortgage banking revenues during the recent quarter were partially offset by lower trading account and foreign exchange gains.
     Mortgage banking revenues totaled $45 million in the recently completed quarter, up from $41 million in the year-earlier quarter and $35 million in the fourth quarter of 2010. Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company’s involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multifamily loan programs of Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development.
     Residential mortgage banking revenues, consisting of realized gains from sales of residential mortgage loans and loan servicing rights, unrealized gains and losses on residential mortgage loans held for sale and related commitments, residential mortgage loan servicing fees, and other residential mortgage loan-related fees and income, were $29 million in each of the first quarters of 2011 and 2010, compared with $16 million in 2010’s fourth quarter. The increase in residential mortgage banking revenues in the recent quarter as compared with the final quarter of 2010 reflects an $11 million decline in costs related to obligations to repurchase previously sold loans.
     New commitments to originate residential mortgage loans to be sold were approximately $468 million in the recent quarter, compared with $1.0 billion in the first quarter of 2010 and $553 million in the final 2010 quarter. Similarly, closed residential mortgage loans originated for sale to other investors were approximately $371 million in the recent quarter, compared with $1.0 billion and $1.1 billion during the three-month periods ended March 31, 2010 and December 31, 2010, respectively. Realized gains from sales of residential mortgage loans and loan servicing rights (net of the impact of costs associated with obligations to repurchase mortgage loans originated for sale) and recognized net unrealized gains and losses attributable to residential mortgage loans held for sale, commitments to originate loans for sale and commitments to sell loans totaled to a gain of $9 million in the first quarter of 2011, compared with a gain of $8 million in the first quarter of 2010 and a loss of $4 million in the fourth quarter of 2010.
     The Company is contractually obligated to repurchase previously sold 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. Since early 2007 when the Company recognized a $6 million charge related to declines in market values of previously sold residential real estate loans that the Company could have been required to repurchase, the Company has regularly reduced residential mortgage banking revenues by an estimate for losses related to its obligations to loan purchasers. The amount of those charges varies 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. Residential mortgage banking revenues during the three-month periods ended March 31, 2011, March 31, 2010 and December 31, 2010 were reduced by $3 million, $8 million and $14 million, respectively, related to actual and anticipated settlements of repurchase obligations.
     Late in the third quarter of 2010, the Company began to originate certain residential real estate loans to be held in its loan portfolio, rather than continuing to sell such loans. During the fourth quarter of 2010 and the first quarter of 2011, the Company added approximately $700 million of loans to its portfolio of residential real estate loans. In general, the loans conformed to Fannie Mae and Freddie Mac underwriting guidelines. Retaining those residential real estate loans offset the impact of the declining investment securities portfolio resulting from maturities and paydowns of residential mortgage-backed securities while providing high quality assets earning a reasonable yield. In March 2011, the Company resumed originating for sale the majority of new residential real estate loans.

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     Loans held for sale that are secured by residential real estate aggregated $143 million and $353 million at March 31, 2011 and 2010, respectively, and $341 million at December 31, 2010. Commitments to sell residential mortgage loans and commitments to originate residential mortgage loans for sale at pre-determined rates were $422 million and $438 million, respectively, at March 31, 2011, compared with $785 million and $640 million at March 31, 2010, and $458 million and $162 million, respectively, at December 31, 2010. Net unrealized gains on residential mortgage loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $10 million and $14 million at March 31, 2011 and March 31, 2010, respectively, and $11 million at December 31, 2010. Changes in such net unrealized gains and losses are recorded in mortgage banking revenues and resulted in net decreases in revenue of $237 thousand in the first quarter of 2011, $1 million in the year-earlier quarter and $16 million in the final quarter of 2010.
     Revenues from servicing residential mortgage loans for others were $20 million during each of the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010. Included in such servicing revenues were amounts related to purchased servicing rights associated with small balance commercial mortgage loans, which totaled $6 million in each of the first quarter of 2011 and the fourth quarter of 2010, and $7 million in the initial 2010 quarter. Residential mortgage loans serviced for others were $21.4 billion at March 31, 2011, $21.7 billion at March 31, 2010 and $21.1 billion at December 31, 2010, including the small balance commercial mortgage loans noted above of approximately $5.1 billion at March 31, 2011, $5.8 billion at March 31, 2010 and $5.2 billion at December 31, 2010. Capitalized residential mortgage servicing assets, net of any applicable valuation allowance for impairment, totaled $112 million at March 31, 2011, compared with $133 million at March 31, 2010 and $118 million at December 31, 2010. There was no valuation allowance for possible impairment of capitalized residential mortgage servicing assets on those respective dates. Included in capitalized residential mortgage servicing assets were $23 million at March 31, 2011, $36 million at March 31, 2010 and $26 million at December 31, 2010 of purchased servicing rights associated with the small balance commercial mortgage loans noted above. Servicing rights for the small balance commercial mortgage loans were purchased from Bayview Lending Group, LLC (“BLG”) or its affiliates. In addition, at March 31, 2011, capitalized servicing rights included $8 million for servicing rights for $3.5 billion of residential real estate loans that were purchased from affiliates of BLG. Additional information about the Company’s relationship with BLG and its affiliates is provided in note 15 of Notes to Financial Statements.
     Commercial mortgage banking revenues totaled $16 million in the recent quarter, $12 million in the first quarter of 2010 and $19 million in the final 2010 quarter. Included in such amounts were revenues from loan origination and sales activities of $11 million and $8 million in the quarters ended March 31, 2011 and 2010, respectively, and $14 million in the last quarter of 2010. Commercial mortgage loan servicing revenues were $5 million in each of the two most recent quarters and $4 million in the initial quarter of 2010. Capitalized commercial mortgage servicing assets totaled $45 million at March 31, 2011, compared with $37 million and $43 million at March 31 and December 31, 2010, respectively. Commercial mortgage loans serviced for other investors totaled $8.3 billion, $7.5 billion and $8.1 billion at March 31, 2011, March 31, 2010 and December 31, 2010, respectively, and included $1.6 billion, $1.4 billion and $1.6 billion, respectively, of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectible. Commitments to sell commercial mortgage loans and commitments to originate commercial mortgage loans for sale were $468 million and $423 million, respectively, at March 31, 2011, $131 million and $61 million, respectively, at March 31, 2010 and $276 million and $73 million, respectively, at December 31, 2010. Commercial mortgage loans held for sale at March 31, 2011 and 2010 were $45 million and $70 million, respectively, and $204 million at December 31, 2010.

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     Service charges on deposit accounts aggregated $110 million in the first quarter of 2011, compared with $120 million in the year-earlier quarter and $111 million in the fourth quarter of 2010. The decline in such fees in the two most recent quarters as compared with the first quarter of 2010 was due predominantly to the new regulations that went into effect during the third quarter of 2010. The Federal Reserve and other bank regulators have adopted regulations requiring expanded disclosure of overdraft and other fees assessed to consumers and have issued guidance that requires consumers to elect to be subject to fees for certain deposit account transactions.
     Trust income aggregated $29 million in the initial 2011 quarter, compared with $31 million in each of the first and fourth quarters of 2010. The Company waived certain fees in order to continue to pay customers a yield on their investments in proprietary money-market mutual funds. Those waived fees totaled approximately $5 million during each of the three-month periods ended March 31, 2011 and March 31, 2010, compared with $4 million during the three-month period ended December 31, 2010. Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, totaled $14 million and $13 million in the first quarters of 2011 and 2010, respectively, and $12 million in the final quarter of 2010. Trading account and foreign exchange activity resulted in gains of $8 million during the quarter ended March 31, 2011, $5 million in the year-earlier quarter and $13 million in the fourth quarter of 2010. Contributing to the higher level of such revenues in the recent quarter as compared with the initial quarter of 2010 were net increases in the market values of trading account assets held in connection with deferred compensation plans. The higher level of trading account and foreign exchange gains in the fourth quarter of 2010 as compared with the recent quarter was due to higher new volumes of interest rate swap agreement transactions executed on behalf of commercial customers. The Company enters into interest rate and foreign exchange contracts with customers who need such services and concomitantly enters into offsetting trading positions with third parties to minimize the risks involved with these types of transactions. Information about the notional amount of interest rate, foreign exchange and other contracts entered into by the Company for trading account purposes is included in note 10 of Notes to Financial Statements and herein under the heading “Taxable-equivalent Net Interest Income.” Trading account revenues related to interest rate and foreign exchange contracts totaled $4 million in the first quarter of 2011, compared with $2 million and $7 million in the first and fourth quarters of 2010, respectively.
     Including other-than-temporary impairment losses, during the first quarter of 2011 the Company recognized net gains on investment securities of $23 million, compared with net losses of $26 million in the year-earlier quarter and $27 million in the fourth quarter of 2010. During the recent quarter, the Company realized gains of $39 million from the sale of residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac held in the available-for-sale investment securities portfolio. Such securities had an amortized cost of approximately $484 million. Other-than-temporary impairment charges of $16 million, $27 million and $28 million were recorded in the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010, respectively. The impairment charges were predominantly related to certain privately issued CMOs backed by real estate loans. Each reporting period, the Company reviews its investment securities for other-than-temporary impairment. For equity securities, the Company considers various factors to determine if the decline in value is other than temporary, including the duration and extent of the decline in value, the factors contributing to the decline in fair value, including the financial condition of the issuer as well as the conditions of the industry in which it operates, and the prospects for a recovery in fair value of the equity security. For debt securities, the Company analyzes the creditworthiness of the issuer or reviews the credit performance of the underlying collateral supporting the bond. For debt securities backed by pools of loans, such as privately issued mortgage-backed securities, the Company estimates the cash flows of the

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underlying loan collateral using forward-looking assumptions of default rates, loss severities and prepayment speeds. Estimated collateral cash flows are then utilized to estimate bond-specific cash flows to determine the ultimate collectibility of the bond. If the present value of the cash flows indicates that the Company should not expect to recover the entire amortized cost basis of a bond or if the Company intends to sell the bond or it more likely than not will be required to sell the bond before recovery of its amortized cost basis, an other-than-temporary impairment loss is recognized. If an other-than-temporary impairment loss is deemed to have occurred, the investment security’s cost basis is adjusted, as appropriate for the circumstances. Additional information about other-than-temporary impairment losses is included herein under the heading “Capital.”
     M&T’s share of the operating losses of BLG in each the two most recent quarters was a loss of $7 million, compared with a loss of $6 million in the first quarter of 2010. The operating losses of BLG in the respective quarters resulted from higher provisions for losses associated with securitized loans and other loans held by BLG. Despite the credit and liquidity disruptions that began in 2007, BLG had been successfully securitizing and selling significant volumes of small-balance commercial real estate loans until the first quarter of 2008. However, in response to the illiquidity in the marketplace since that time, BLG has ceased its originations activities. As a result of past securitization activities, BLG is still entitled to cash flows from mortgage assets that it owns or that are owned by its affiliates and is also entitled to receive distributions from affiliates that provide asset management and other services. Accordingly, the Company believes that BLG is capable of realizing positive cash flows that could be available for distribution to its owners, including M&T, despite a lack of positive GAAP-earnings. In assessing M&T’s investment in BLG for other-than-temporary impairment at March 31, 2011, the Company projected no further commercial mortgage origination and securitization activities by BLG. With respect to mortgage assets held by BLG and its affiliates, M&T estimated future cash flows from those assets using various assumptions for future defaults and loss severities to arrive at an expected amount of cash flows that could be available for BLG to distribute to M&T. As of March 31, 2011, the weighted-average assumption of projected default percentage on the underlying mortgage loan collateral supporting those mortgage assets was 33% and the weighted-average loss severity assumption was 70%. Lastly, M&T considered different scenarios of projected cash flows that could be generated by the asset management and servicing operations of BLG’s affiliates. M&T is contractually entitled to participate in distributions from those affiliates. Such estimates were derived from company-provided forecasts of financial results and through discussions with their senior management with respect to longer-term projections of growth in assets under management and asset servicing portfolios. M&T then discounted the various projections using discount rates that ranged from 8% to 17%. Upon evaluation of those results, management concluded that M&T’s investment in BLG was not other-than-temporarily impaired at March 31, 2011. Nevertheless, if BLG is not able to realize sufficient cash flows for the benefit of M&T, the Company may be required to recognize an other-than-temporary impairment charge in a future period for some portion of the $212 million book value of its investment in BLG. Information about the Company’s relationship with BLG and its affiliates is included in note 15 of Notes to Financial Statements.
     Other revenues from operations totaled $91 million in the first quarter of 2011, compared with $79 million in the corresponding 2010 period and $119 million in the fourth quarter of 2010. Reflected in such revenues in the fourth quarter of 2010 was the $28 million gain recorded on the K Bank acquisition transaction. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees totaled $33 million in the recent quarter, $29 million in the first quarter of 2010 and $32 million in 2010’s final quarter. Tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life

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insurance policies and benefits received, totaled $13 million during each of the two most recent quarters, compared with $12 million in the first quarter of 2010. Revenues from merchant discount and credit card fees were $13 million and $11 million in the quarters ended March 31, 2011 and 2010, and $12 million in the quarter ended December 31, 2010. Insurance-related sales commissions and other revenues totaled $12 million, $11 million and $10 million in the first quarters of 2011 and 2010 and the fourth quarter of 2010, respectively. No other revenue source contributed more than $5 million to “other revenues from operations” in any of the quarterly periods discussed herein.
Other Expense
Other expense totaled $500 million in the first quarter of 2011, 2% higher than $489 million in the year-earlier quarter and 6% above $469 million in the fourth quarter of 2010. Included in the amounts noted above are expenses considered by management to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $12 million and $16 million in the first quarters of 2011 and 2010, respectively, and $13 million in the final 2010 quarter, and merger-related expenses of $4 million and $771 thousand in the three-month periods ended March 31, 2011 and December 31, 2010, respectively. There were no merger-related expenses in the first quarter of 2010. Exclusive of these nonoperating expenses, noninterest operating expenses totaled $483 million in the first three months of 2011, compared with $473 million and $455 million in the first and fourth quarters of 2010, respectively. The higher level of such expenses in the recent quarter as compared with the year-earlier quarter was due largely to increased costs for advertising, processing and other professional services. The rise in expenses from the fourth quarter of 2010 was predominantly the result of seasonally higher stock-based compensation, payroll-related taxes and benefits costs. Table 2 provides a reconciliation of other expense to noninterest operating expense.
     Salaries and employee benefits expense aggregated $266 million in the recent quarter, compared with $264 million in the first quarter of 2010 and $243 million in 2010’s fourth quarter. Contributing to the increase in salaries and employee benefits expense in the recent quarter as compared with the fourth quarter of 2010 were higher stock-based compensation and payroll-related taxes and the Company’s contributions for retirement savings plan benefits related to annual incentive compensation payments. The Company, in accordance with GAAP, has accelerated the recognition of compensation costs for stock-based awards granted to retirement-eligible employees and employees who will become retirement-eligible prior to full vesting of the award. As a result, stock-based compensation expense during the first quarters of 2011 and 2010 included $8 million and $7 million, respectively, that would have been recognized over the normal four-year vesting period if not for the accelerated expense recognition provisions of GAAP. That acceleration had no effect on the value of stock-based compensation awarded to employees. Salaries and benefits expense included stock-based compensation of $20 million in each of the quarters ended March 31, 2011 and March 31, 2010 and $11 million in the quarter ended December 31, 2010. The number of full-time equivalent employees was 12,715 at March 31, 2011, compared with 13,226 and 12,802 at March 31, 2010 and December 31, 2010, respectively.
     Excluding the nonoperating expenses described earlier from each quarter, nonpersonnel operating expenses were $217 million and $209 million in the quarters ended March 31, 2011 and March 31, 2010, respectively, and $212 million in the fourth quarter of 2010. The rise in such expenses in the recent quarter as compared with the year-earlier quarter was due, in part, to higher costs for advertising, processing and other professional services. Nonpersonnel operating expenses in 2010’s fourth quarter reflected a $6 million reversal of the valuation allowance for impairment of capitalized residential mortgage servicing rights.

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     The efficiency ratio, or noninterest operating expenses (as defined above) divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from bank investment securities and gains on merger transactions), measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio was 55.8% in the first quarter of 2011, compared with 55.9% in the year-earlier period and 52.5% in the fourth quarter of 2010. Noninterest operating expenses used in calculating the efficiency ratio exclude the amortization of core deposit and other intangible assets and the merger-related expenses noted earlier. If charges for amortization of core deposit and other intangible assets were included, the efficiency ratio for the three-month periods ended March 31, 2011, March 31, 2010 and December 31, 2010 would have been 57.2%, 57.8% and 54.1%, respectively.
Income Taxes
The provision for income taxes for each of the quarters ended March 31, 2011 and December 31, 2010 was $102 million, compared with $69 million in the first quarter of 2010. The effective tax rates were 33.2%, 31.3% and 33.4% for the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010, respectively. The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income, the level of income allocated to the various state and local jurisdictions where the Company operates, because tax rates differ among such jurisdictions, and the impact of any large but infrequently occurring items.
     The Company’s effective tax rate in future periods will be affected by the results of operations allocated to the various tax jurisdictions within which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company’s interpretations by any of various tax authorities that may examine tax returns filed by M&T or any of its subsidiaries.
Capital
Shareholders’ equity was $8.5 billion at March 31, 2011, representing 12.53% of total assets, compared with $7.9 billion or 11.57% at March 31, 2010 and $8.4 billion or 12.29% at December 31, 2010. Included in shareholders’ equity at those dates was $751.5 million of Series A and Series C Fixed Rate Cumulative Perpetual Preferred Stock and warrants to purchase M&T common stock issued as part of the U.S. Treasury Capital Purchase Program. The Series A preferred stock totaling $600 million was issued by M&T in the fourth quarter of 2008 and the Series C preferred stock totaling $151.5 million was assumed by M&T in a 2009 acquisition. The financial statement value of the Series A and Series C preferred stock was $717 million at March 31, 2011, $706 million at March 31, 2010 and $714 million at December 31, 2010. The Series A and Series C preferred stock pays quarterly cumulative cash dividends of 5% per annum for five years after the initial 2008 issuance dates and 9% per annum thereafter. That preferred stock is redeemable at the option of M&T, subject to regulatory approval. M&T also obtained another series of preferred stock as part of a 2009 acquisition that was converted to $26.5 million of M&T Series B Mandatory Convertible Non-Cumulative Preferred Stock, liquidation preference of $1,000 per share. The Series B Preferred Stock paid quarterly dividends at a rate of 10% per annum. In accordance with their terms, on April 1, 2011, the 26,500 shares of the Series B Preferred Stock converted into 433,144 shares of M&T common stock.

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     Common shareholders’ equity was $7.8 billion, or $64.43 per share, at March 31, 2011, compared with $7.2 billion, or $60.40 per share, at March 31, 2010 and $7.6 billion, or $63.54 per share, at December 31, 2010. Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $34.38 at March 31, 2011, $29.59 at March 31, 2010 and $33.26 at December 31, 2010. The Company’s ratio of tangible common equity to tangible assets was 6.44% at March 31, 2011, compared with 5.43% a year earlier and 6.19% at December 31, 2010. Reconciliations of total common shareholders’ equity and tangible common equity and total assets and tangible assets as of each of those respective dates are presented in table 2.
     Shareholders’ equity reflects accumulated other comprehensive income or loss, which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available-for-sale, unrealized losses on held-to-maturity securities for which an other-than-temporary impairment charge has been recognized, gains or losses associated with interest rate swap agreements designated as cash flow hedges, and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. Net unrealized losses on investment securities, net of applicable tax effect, were $79 million, or $.66 per common share, at March 31, 2011, compared with similar losses of $140 million, or $1.18 per common share, at March 31, 2010 and $85 million, or $.71 per common share, at December 31, 2010. Such unrealized losses represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available for sale, including the remaining unamortized unrealized losses on investment securities that have been transferred to held-to-maturity classification, and the remaining unrealized losses on held-to-maturity securities for which an other-than-temporary impairment charge has been recognized. Information about unrealized gains and losses as of March 31, 2011 and December 31, 2010 is included in note 3 of Notes to Financial Statements.
     Reflected in net unrealized losses at March 31, 2011 were pre tax-effect unrealized losses of $266 million on available-for-sale investment securities with an amortized cost of $1.5 billion and pre tax-effect unrealized gains of $189 million on securities with an amortized cost of $3.4 billion. The pre tax-effect unrealized losses reflect $222 million of losses on privately issued residential mortgage-backed securities with an amortized cost of $1.2 billion and an estimated fair value of $1.0 billion (considered Level 3 valuations) and $38 million of 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 an amortized cost of $161 million and an estimated fair value of $123 million (generally considered Level 2 valuations).
     The Company’s privately issued residential mortgage-backed securities classified as available for sale are generally collateralized by prime and Alt-A residential mortgage loans as depicted in the accompanying table. Information in the table is as of March 31, 2011. As with any accounting estimate or other data, changes in fair values and investment ratings may occur at any time.

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PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES CLASSIFIED AS AVAILABLE FOR SALE (a)
                                                 
                             
                            As a percentage of  
                    Net     carrying value  
    Amortized     Fair     unrealized     AAA     Investment     Senior  
Collateral type    cost     value     gains (losses)     rated     grade     tranche  
  (in thousands)  
Residential mortgage loans
                                               
Prime — Fixed
  $ 81,534       86,728       5,194       66 %     68 %     98 %
Prime — Hybrid ARMs
    1,339,862       1,182,372       (157,490 )     11       50       95  
Prime — Other
    1,720       1,548       (172 )                 100  
Alt-A — Fixed
    7,371       8,677       1,306       12       12       99  
Alt-A — Hybrid ARMs
    164,235       109,254       (54,981 )           37       84  
Alt-A — Option ARMs
    181       208       27                    
Other
    5,207       3,091       (2,116 )                 7  
 
                                         
 
                                               
Subtotal
    1,600,110       1,391,878       (208,232 )     14       50       94  
 
                                         
 
                                               
Commercial mortgage loans
    23,232       20,467       (2,765 )     100       100       100  
 
                                         
 
                                               
Total
  $ 1,623,342       1,412,345       (210,997 )     15 %     50 %     94 %
 
                                   
 
(a)   All information is as of March 31, 2011.
     Reflecting the credit stress associated with residential mortgage loans, trading activity for privately issued mortgage-backed securities has been reduced. In estimating values 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. Because of the reduced activity and lack of observable valuation inputs, the Company considers the estimated fair value associated with its holdings of privately issued mortgage-backed securities to be Level 3 valuations. To assist in the determination of fair value for its privately issued mortgage-backed securities, the Company engaged two independent pricing sources at March 31, 2011 and December 31, 2010. GAAP provides guidance for estimating fair value when the volume and level of trading activity for an asset or liability have significantly decreased. In consideration of that guidance, the Company 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 March 31, 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. In estimating those cash flows, the Company used conservative assumptions as to future delinquency, default and loss rates in order to mitigate exposure that might be attributable to the risk that actual future credit losses could exceed assumed credit losses. Differences between internal model valuations and external pricing indications were generally considered to be reflective of the lack of liquidity in the market for privately issued mortgage-backed securities. To determine the most representative fair value for those bonds under current market conditions, 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 were generally dependent on bond structure and collateral type, with prices for bonds in non-senior tranches generally receiving lower weightings on the internal model results and greater weightings of the valuation data provided by the independent pricing sources. As a result, certain valuations of privately issued residential mortgage-backed securities were determined by reference to independent pricing sources without adjustment. The average weight placed on internal model valuations at March 31, 2011 was 34%, compared with a 66% weighting on valuations provided by the independent sources. Generally, the range of weights placed on internal valuations were between 0%

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and 40%. Further information concerning the Company’s valuations of privately issued mortgage-backed securities can be found in note 12 of Notes to Financial Statements.
     During the quarter ended March 31, 2011, the Company recognized $16 million (pre-tax) of other-than-temporary impairment losses related to privately issued mortgage-backed securities with an amortized cost basis (before impairment charge) of $196 million. Approximately $8 million of such losses related to mortgage-backed securities in the Company’s held-to-maturity portfolio. In assessing impairment losses for debt securities, the Company performed internal modeling to estimate bond-specific cash flows, which considered the placement of the bond in the overall securitization structure and the remaining levels of subordination.
     For privately issued residential mortgage-backed securities in the Company’s available-for-sale portfolio, the model utilized assumptions about the underlying performance of the mortgage loan collateral considering recent collateral performance and future assumptions regarding default and loss severity. At March 31, 2011, projected model default percentages on the underlying mortgage loan collateral ranged from 1% to 44% and loss severities ranged from 28% to 72%. For bonds in which the Company has recognized an other-than-temporary impairment charge, the weighted-average percentage of default collateral was 24% and the weighted-average loss severity was 50%. For bonds without other-than-temporary impairment losses, the weighted-average default percentage and loss severity were 11% and 40%, respectively. Underlying mortgage loan collateral cash flows, after considering the impact of estimated credit losses, were distributed by the model to the various securities within the securitization structure to determine the timing and extent of losses at the bond level, if any. Despite continuing high levels of delinquencies and losses in the underlying residential mortgage loan collateral, given credit enhancements resulting from the structures of individual bonds, the Company has concluded that as of March 31, 2011 its remaining privately issued mortgage-backed securities were not other-than-temporarily impaired. Nevertheless, given recent market conditions, it is possible that adverse changes in repayment performance and fair value could occur in the remainder of 2011 and later years that could impact the Company’s conclusions. Management has modeled cash flows from privately issued mortgage-backed securities under various scenarios and has concluded that even if home price depreciation and current delinquency trends persist for an extended period of time, the Company’s principal losses on its privately issued mortgage-backed securities would be substantially less than their current fair valuation losses.
     During the first quarter of 2011, the Company recognized an $8 million (pre-tax) other-than-temporary impairment charge related to CMOs in the held-to-maturity portfolio having an amortized cost (before impairment charge) of $14 million. Similar to its evaluation of available-for-sale privately issued mortgage-backed securities, the Company assessed impairment losses on those CMOs by performing internal modeling to estimate bond-specific cash flows, which considered the placement of the bond in the overall securitization structure and the remaining subordination levels. In total, at March 31, 2011 and December 31, 2010, the Company had in its held-to-maturity portfolio CMOs with an amortized cost basis of $300 million and $313 million (after impairment charges), respectively, and a fair value of $199 million and $198 million, respectively.
     At March 31, 2011, the Company also had pre-tax unrealized losses of $38 million on $161 million of trust preferred securities issued by financial institutions, securities backed by trust preferred securities issued by financial institutions and other entities, and other debt securities (reflecting $8 million of unrealized losses on $29 million of securities using a Level 3 valuation). After evaluating the expected repayment performance of financial institutions where trust preferred securities were held directly by the Company or were within CDOs backed by trust preferred securities obtained

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in acquisitions, the Company did not recognize any other-than-temporary impairment losses related to those securities during the quarter ended March 31, 2011.
     Information comparing the amortized cost and fair value of investment securities is included in note 3 of Notes to Financial Statements.
     As of March 31, 2011, based on a review of each of the remaining securities in the investment securities portfolio, the Company concluded that the declines in the values of those securities were temporary and that any additional other-than-temporary impairment charges were not appropriate. As of that date, the Company did not intend to sell nor is it anticipated that it would be required to sell any of its impaired securities, that is, where fair value is less than the cost basis of the security. The Company intends to closely monitor the performance of the privately issued mortgage-backed securities and other securities because changes in their underlying credit performance or other events could cause the cost basis of those securities to become other-than-temporarily impaired. However, because the unrealized losses on available-for-sale investment securities have generally already been reflected in the financial statement values for investment securities and shareholders’ equity, any recognition of an other-than-temporary decline in value of those investment securities would not have a material effect on the Company’s consolidated financial condition. Any additional other-than-temporary impairment charge related to held-to-maturity securities could result in reductions in the financial statement values for investment securities and shareholders’ equity. Additional information concerning fair value measurements and the Company’s approach to the classification of such measurements is included in note 12 of Notes to Financial Statements.
     Adjustments to reflect the funded status of defined benefit pension and other postretirement plans, net of applicable tax effect, reduced accumulated other comprehensive income by $119 million or $.99 per common share, at March 31, 2011, $121 million, or $1.01 per common share, at December 31, 2010, and $116 million, or $.98 per common share, at March 31, 2010.
     Cash dividends declared on M&T’s common stock during the quarter ended March 31, 2011 totaled $85 million, compared with $84 million in each of the quarters ended March 31, 2010 and December 31, 2010, and represented a quarterly dividend payment of $.70 per common share in each of those three quarters. A cash dividend of $7.5 million, or $12.50 per share, was paid in each of the first quarters of 2011 and 2010 in and the fourth quarter of 2010 to the U.S. Treasury on M&T’s Series A Preferred Stock, issued on December 23, 2008. Cash dividends of $663 thousand and $2 million ($25.00 per share and $12.50 per share) were paid on M&T’s Series B and Series C Preferred Stock, respectively, during each of the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010.
     The Company did not repurchase any shares of its common stock during 2010 or the first quarter of 2011.
     Federal regulators generally require banking institutions to maintain “Tier 1 capital” and “total capital” ratios of at least 4% and 8%, respectively, of risk-adjusted total assets. In addition to the risk-based measures, Federal bank regulators have also implemented a minimum “leverage” ratio guideline of 3% of the quarterly average of total assets. As of March 31, 2011, Tier 1 capital included trust preferred securities of $1.1 billion as described in note 5 of Notes to Financial Statements and total capital further included subordinated capital notes of $1.5 billion. Pursuant to the Dodd-Frank Act, trust preferred securities will be phased-out of the definition of Tier 1 capital of bank holding companies.

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     The regulatory capital ratios of the Company, M&T Bank and M&T Bank, N.A. as of March 31, 2011 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
March 31, 2011
                         
    M&T     M&T     M&T  
    (Consolidated)     Bank     Bank, N.A.  
Tier 1 capital
    9.76 %     8.81 %     29.24 %
Total capital
    13.38 %     12.46 %     30.17 %
Tier 1 leverage
    9.63 %     8.68 %     23.47 %
Segment Information
As required by GAAP, the Company’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Financial information about the Company’s segments is presented in note 14 of Notes to Financial Statements.
     Net income earned by the Business Banking segment totaled $26 million in the first three months of 2011, up 4% from $25 million recorded in the first quarter of 2010 and 18% above $22 million in 2010’s fourth quarter. A $5 million decline in the provision for credit losses, resulting from lower net charge-offs of loans, was the most significant factor contributing to the increased net income as compared with the year-earlier quarter. The rise in net income from fourth quarter of 2010 was primarily attributable to a $7 million decrease in the provision for credit losses, due to a decline in net charge-offs of loans.
     The Commercial Banking segment recorded net income of $88 million in 2011’s initial quarter, a 15% improvement from the $77 million earned in the similar 2010 quarter and 5% higher than $84 million of net income recorded in the three months ended December 31, 2010. The increase in net income as compared with 2010’s first quarter reflects higher net interest income of $12 million and a $5 million rise in credit-related fees, including fees earned for providing loan syndication services. The improvement in net interest income was due to a 12 basis point widening of the net interest margin on loans, higher average outstanding loan balances of $579 million, and a $1.2 billion increase in average deposit balances. A $6 million decrease in the provision for credit losses, due to lower net charge-offs of loans, was the primary factor contributing to the higher net income earned in the recent quarter as compared with the immediately preceding quarter.
     The Commercial Real Estate segment’s net income aggregated $49 million in 2011’s initial quarter, as compared with $44 million in the year-earlier quarter and $62 million in the fourth quarter of 2010. A $10 million improvement in net interest income, the result of a 32 basis point expansion of the net interest margin on loans, was the most significant contributor to the increase in net income as compared with the year-earlier quarter. The main factor contributing to the recent quarter’s decline in net income as compared with 2010’s fourth quarter was an $18 million rise in the provision for credit losses, resulting from higher net charge-offs of loans.
     Net income in the Discretionary Portfolio segment totaled $16 million in the recent quarter, compared with net losses of $16 million in each of the first and fourth quarters of 2010. Included in this segment’s recent quarter results were $39 million of gains realized on the sale of investment securities, predominantly comprised of residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Also reflected in this segment’s results were other-than-temporary impairment charges totaling $16 million, $27 million and $28 million recorded in the quarters ended March 31, 2011, March 31, 2010 and December 31, 2010, respectively. Such impairment charges were primarily related to privately issued CMOs. Excluding the impact in each

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of the periods of securities gains and impairment charges, the improvement in the recent quarter’s performance as compared with the two earlier quarters was largely attributable to higher net interest income that reflects a widening of the net interest margin on investment securities.
     The Residential Mortgage Banking segment’s net income was $5 million in the first quarter of 2011, compared with $595 thousand and $2 million earned in the first and fourth quarters of 2010, respectively. The improvement from the year-earlier quarter reflects an $8 million decrease in the provision for credit losses due largely to lower net charge-offs of loans to builders and developers of residential real estate. The main factors for this segment’s increase in net income in the recent quarter as compared with the immediately preceding quarter include a $9 million decline in the provision for credit losses, the result of lower net charge-offs of loans, and a $3 million reduction in personnel costs. Partially offsetting those favorable factors were a partial reversal of the capitalized mortgage servicing rights valuation allowance in the fourth quarter of 2010 (as compared with no change in such allowance in the recent quarter) and a decrease in net interest income in the first quarter of 2011. The impact of each of those two factors was $3 million. The lower net interest income was predominantly due to a $222 million decrease in average outstanding loan balances and a 22 basis point narrowing of the net interest margin on loans.
     Net contribution from the Retail Banking segment totaled $53 million in the recent quarter, down 11% from the $59 million earned in last year’s first quarter, but 21% improved from $44 million recorded during the quarter ended December 31, 2010. A $9 million decline in fees earned for providing deposit account services and a $4 million decrease in net interest income, the result of a 9 basis point narrowing of the net interest margin on deposits and a $610 million decline in average outstanding loan balances, contributed to the recent quarter’s lower net income as compared with the first quarter of 2010. Factors contributing to the rise in net income in the first quarter of 2011 as compared with the fourth quarter of 2010 included: a $5 million increase in net interest income, due to a 13 basis point widening of the net interest margin on deposits and a $330 million rise in average deposit balances, partly offset by a $256 million decrease in average outstanding loan balances; a decline in the provision for credit losses of $4 million, mainly resulting from a decrease in net loan charge-offs; and lower costs for advertising and promotion ($3 million) and professional services ($2 million).
     The “All Other” category reflects other activities of the Company that are not directly attributable to the reported segments. Reflected in this category are the amortization of core deposit and other intangible assets resulting from the acquisitions of financial institutions, M&T’s share of the operating losses of BLG, merger-related gains and expenses resulting from acquisitions of financial institutions and the net impact of the Company’s allocation methodologies for internal transfers for funding charges and credits associated with the earning assets and interest-bearing liabilities of the Company’s reportable segments and the provision for credit losses. The various components of the “All Other” category resulted in net losses of $31 million and $38 million in the quarters ended March 31, 2011 and 2010, respectively, compared with net income of $6 million recorded in the fourth quarter of 2010. The favorable impact from the Company’s allocation methodologies for internal transfers for funding charges and credits associated with the earning assets and interest-bearing liabilities of the Company’s reportable segments and the provision for credit losses were the main factors contributing to the recent quarter’s lower net loss as compared with the corresponding 2010 quarter. Those factors were partially offset by $4 million of merger-related expenses recorded in the recent quarter. There were no merger-related expenses in the initial 2010 quarter. The decline in net contribution in the first quarter of 2011 as compared with 2010’s final quarter can be attributed to a $32 million increase in personnel costs associated with the business and support units included in the “All Other”

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category and a $27 million net merger-related gain recorded in the fourth quarter of 2010 (compared with the recent quarter’s $4 million of merger-related expenses). The higher personnel costs were largely related to seasonally higher stock-based compensation, payroll-related taxes and employer contributions for retirement savings plan benefits related to incentive compensation payments, and unemployment insurance.
Recent Accounting Developments
In April 2011, the FASB issued amended accounting and disclosure guidance relating to a creditor’s determination of whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. The amendments are effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. As a result of the application of the amendments, receivables previously measured under loss contingency guidance that are newly considered impaired should be disclosed, along with the related allowance for credit losses, as of the end of the period of adoption. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The deferred credit risk disclosure guidance issued in July 2010 relating to troubled debt restructurings will now be effective for interim and annual periods beginning on or after June 15, 2011. The Company intends to comply with the new accounting and disclosure requirements.
     In December 2010, the FASB issued amended disclosure guidance relating to the pro forma information for business combinations that occurred in the current reporting period. The amended disclosure states that if an entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company intends to comply with the disclosure requirements.
     In October 2010, the FASB issued amended accounting guidance relating to the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units with zero or negative carrying amounts, an entity is required to perform “Step Two” of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not anticipate that the adoption of this guidance will have a significant impact on the reporting of its financial position or results of its operations.
Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report contain forward-looking statements that are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects” or “potential,” by

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future conditional verbs such as “will,” “would,” “should,” “could,” or “may,” or by variations of such words or by similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Forward-looking statements speak only as of the date they are made and we assume no duty to update forward-looking statements.
     Future Factors include changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; legislation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively, including tax legislation; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the FASB or other regulatory agencies; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support M&T and its subsidiaries’ future businesses; and material differences in the actual financial results of merger, acquisition and investment activities compared with M&T’s initial expectations, including the full realization of anticipated cost savings and revenue enhancements.
     These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other Future Factors.

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M&T BANK CORPORATION AND SUBSIDIARIES
 
Table 1
QUARTERLY TRENDS
                                         
    2011           2010 Quarters    
     
    First Quarter   Fourth   Third   Second   First
 
Earnings and dividends
                                       
Amounts in thousands, except per share
                                       
Interest income (taxable-equivalent basis)
  $ 673,810       688,855       691,765       690,889       682,309  
Interest expense
    98,679       108,628       116,032       117,557       120,052  
 
Net interest income
    575,131       580,227       575,733