M&T Bank
MTB
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$36.60 B
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$234.25
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M&T Bank Corporation is an American bank holding company headquartered in Buffalo, New York, It operates 780 branches in New York, New Jersey, Pennsylvania, Maryland, Delaware, Virginia, West Virginia, Washington, D.C., and Connecticut.

M&T Bank - 10-Q quarterly report FY2010 Q1


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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.
 
 


 


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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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   573,332   562,257 
Less: provision for credit losses
  75,000   85,000   93,000   85,000   105,000 
Other income
  314,420   286,938   289,899   273,557   257,706 
Less: other expense
  499,571   469,274   480,133   476,068   489,362 
 
Income before income taxes
  314,980   312,891   292,499   285,821   225,601 
Applicable income taxes
  102,380   102,319   94,619   90,967   68,723 
Taxable-equivalent adjustment
  6,327   6,130   5,865   6,105   5,923 
 
Net income
 $206,273   204,442   192,015   188,749   150,955 
 
Net income available to common shareholders-diluted
 $190,121   189,678   176,789   173,597   136,431 
Per common share data
                    
Basic earnings
 $1.59   1.59   1.49   1.47   1.16 
Diluted earnings
  1.59   1.59   1.48   1.46   1.15 
Cash dividends
 $.70   .70   .70   .70   .70 
Average common shares outstanding
                    
Basic
  119,201   118,613   118,320   118,054   117,765 
Diluted
  119,852   119,503   119,155   118,878   118,256 
 
Performance ratios, annualized
                    
Return on
                    
Average assets
  1.23%  1.18%  1.12%  1.11%  .89%
Average common shareholders’ equity
  10.16%  10.03%  9.56%  9.67%  7.86%
Net interest margin on average earning assets (taxable-equivalent basis)
  3.92%  3.85%  3.87%  3.84%  3.78%
Nonaccrual loans to total loans and leases, net of unearned discount
  2.32%  2.38%  2.16%  2.13%  2.60%
Efficiency ratio (a)
  57.18%  54.08%  54.95%  54.77%  57.82%
 
Net operating (tangible) results (b)
                    
Net operating income (in thousands)
 $216,360   196,235   200,225   197,752   160,953 
Diluted net operating income per common share
  1.67   1.52   1.55   1.53   1.23 
Annualized return on
                    
Average tangible assets
  1.36%  1.20%  1.24%  1.23%  1.00%
Average tangible common shareholders’ equity
  20.16%  18.43%  19.58%  20.36%  17.34%
Efficiency ratio (a)
  55.75%  52.55%  53.40%  53.06%  55.88%
 
Balance sheet data
                    
In millions, except per share
                    
Average balances
                    
Total assets (c)
 $68,045   68,502   67,811   68,334   68,883 
Total tangible assets (c)
  64,423   64,869   64,167   64,679   65,216 
Earning assets
  59,431   59,737   59,066   59,811   60,331 
Investment securities
  7,219   7,541   7,993   8,376   8,172 
Loans and leases, net of unearned discount
  51,972   51,141   50,835   51,278   51,948 
Deposits
  49,680   49,271   47,530   47,932   47,394 
Common shareholders’ equity (c)
  7,708   7,582   7,444   7,302   7,136 
Tangible common shareholders’ equity (c)
  4,086   3,949   3,800   3,647   3,469 
 
At end of quarter
                    
Total assets (c)
 $67,881   68,021   68,247   68,154   68,439 
Total tangible assets (c)
  64,263   64,393   64,609   64,505   64,778 
Earning assets
  58,822   59,434   59,388   59,368   59,741 
Investment securities
  6,507   7,151   7,663   8,098   8,105 
Loans and leases, net of unearned discount
  52,119   51,990   50,792   51,061   51,444 
Deposits
  50,548   49,805   48,655   47,523   47,538 
Common shareholders’ equity, net of undeclared preferred dividends (c)
  7,758   7,611   7,488   7,360   7,177 
Tangible common shareholders’ equity (c)
  4,140   3,983   3,850   3,711   3,516 
Equity per common share
  64.43   63.54   62.69   61.77   60.40 
Tangible equity per common share
  34.38   33.26   32.23   31.15   29.59 
 
Market price per common share
                    
High
 $91.05   87.87   95.00   96.15   85.00 
Low
  84.63   72.03   81.08   74.11   66.32 
Closing
  88.47   87.05   81.81   84.95   79.38 
 
 
(a) Excludes impact of merger-related gains and expenses and net securities transactions.
 
(b) Excludes amortization and balances related to goodwill and core deposit and other intangible assets and merger-related gains and expenses which, except in the calculation of the efficiency ratio, are net of applicable income tax effects. A reconciliation of net income and net operating income appears in Table 2.
 
(c) The difference between total assets and total tangible assets, and common shareholders’ equity and tangible common shareholders’ equity, represents goodwill, core deposit and other intangible assets, net of applicable deferred tax balances. A reconciliation of such balances appears in Table 2.

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M&T BANK CORPORATION AND SUBSIDIARIES
 
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
                     
  2011     2010 Quarters  
   
  First Quarter Fourth Third Second First
 
Income statement data
                    
In thousands, except per share
                    
Net income
                    
Net income
 $206,273   204,442   192,015   188,749   150,955 
Amortization of core deposit and other intangible assets (a)
  7,478   8,054   8,210   9,003   9,998 
Merger-related gain (a)
     (16,730)         
Merger-related expenses (a)
  2,609   469          
 
Net operating income
 $216,360   196,235   200,225   197,752   160,953 
 
Earnings per common share
                    
Diluted earnings per common share
 $1.59   1.59   1.48   1.46   1.15 
Amortization of core deposit and other intangible assets (a)
  .06   .07   .07   .07   .08 
Merger-related gain (a)
     (.14)         
Merger-related expenses (a)
  .02             
 
Diluted net operating earnings per common share
 $1.67   1.52   1.55   1.53   1.23 
 
Other expense
                    
Other expense
 $499,571   469,274   480,133   476,068   489,362 
Amortization of core deposit and other intangible assets
  (12,314)  (13,269)  (13,526)  (14,833)  (16,475)
Merger-related expenses
  (4,295)  (771)         
 
Noninterest operating expense
 $482,962   455,234   466,607   461,235   472,887 
 
Merger-related expenses
                    
Salaries and employee benefits
 $7   7          
Equipment and net occupancy
  79   44          
Printing, postage and supplies
  147   74          
Other costs of operations
  4,062   646          
 
Total
 $4,295   771          
 
Balance sheet data
                    
In millions
                    
Average assets
                    
Average assets
 $68,045   68,502   67,811   68,334   68,883 
Goodwill
  (3,525)  (3,525)  (3,525)  (3,525)  (3,525)
Core deposit and other intangible assets
  (119)  (132)  (146)  (160)  (176)
Deferred taxes
  22   24   27   30   34 
 
Average tangible assets
 $64,423   64,869   64,167   64,679   65,216 
 
Average common equity
                    
Average total equity
 $8,451   8,322   8,181   8,036   7,868 
Preferred stock
  (743)  (740)  (737)  (734)  (732)
 
Average common equity
  7,708   7,582   7,444   7,302   7,136 
 
Goodwill
  (3,525)  (3,525)  (3,525)  (3,525)  (3,525)
Core deposit and other intangible assets
  (119)  (132)  (146)  (160)  (176)
Deferred taxes
  22   24   27   30   34 
 
Average tangible common equity
 $4,086   3,949   3,800   3,647   3,469 
 
At end of quarter
                    
Total assets
                    
Total assets
 $67,881   68,021   68,247   68,154   68,439 
Goodwill
  (3,525)  (3,525)  (3,525)  (3,525)  (3,525)
Core deposit and other intangible assets
  (113)  (126)  (139)  (152)  (167)
Deferred taxes
  20   23   26   28   31 
 
Total tangible assets
 $64,263   64,393   64,609   64,505   64,778 
 
Total common equity
                    
Total equity
 $8,508   8,358   8,232   8,102   7,916 
Preferred stock
  (743)  (741)  (738)  (735)  (733)
Undeclared dividends — preferred stock
  (7)  (6)  (6)  (7)  (6)
 
Common equity, net of undeclared preferred dividends
   7,758   7,611   7,488   7,360   7,177 
 
Goodwill
  (3,525)  (3,525)  (3,525)  (3,525)  (3,525)
Core deposit and other intangible assets
  (113)  (126)  (139)  (152)  (167)
Deferred taxes
  20   23   26   28   31 
 
Total tangible common equity
 $4,140   3,983   3,850   3,711   3,516 
 
 
(a) After any related tax effect.

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M&T BANK CORPORATION AND SUBSIDIARIES
 
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
                                     
  2011 First Quarter 2010 Fourth Quarter 2010 Third Quarter
  Average     Average Average     Average Average     Average
Average balance in millions; interest in thousands Balance Interest Rate Balance Interest Rate Balance Interest Rate
 
Assets
                                    
Earning assets
                                    
Loans and leases, net of unearned discount*
                                    
Commercial, financial, etc.
 $13,573  $131,619   3.93%  13,013   133,562   4.07%  12,856   128,578   3.97%
Real estate — commercial
  21,003   247,276   4.71   20,624   249,720   4.84   20,612   250,038   4.85 
Real estate — consumer
  6,054   76,642   5.06   5,910   76,024   5.15   5,680   75,312   5.30 
Consumer
  11,342   143,519   5.13   11,594   151,300   5.18   11,687   153,763   5.22 
 
Total loans and leases, net
  51,972   599,056   4.67   51,141   610,606   4.74   50,835   607,691   4.74 
 
Interest-bearing deposits at banks
  115   36   .13   110   43   .15   92   34   .15 
Federal funds sold and agreements to resell securities
  15   19   .53   780   381   .19   64   41   .26 
Trading account
  110   442   1.61   165   375   .91   82   134   .65 
Investment securities**
                                    
U.S. Treasury and federal agencies
  4,089   42,078   4.17   4,237   43,246   4.05   4,541   48,018   4.20 
Obligations of states and political subdivisions
  250   3,479   5.64   256   3,663   5.69   271   3,740   5.48 
Other
  2,880   28,700   4.04   3,048   30,541   3.98   3,181   32,107   4.00 
 
Total investment securities
  7,219   74,257   4.17   7,541   77,450   4.07   7,993   83,865   4.16 
 
Total earning assets
  59,431   673,810   4.60   59,737   688,855   4.58   59,066   691,765   4.65 
 
Allowance for credit losses
  (914)          (910)          (908)        
Cash and due from banks
  1,091           1,111           1,081         
Other assets
  8,437           8,564           8,572         
 
Total assets
 $68,045           68,502           67,811         
 
Liabilities and shareholders’ equity
                                    
Interest-bearing liabilities
                                    
Interest-bearing deposits
                                    
NOW accounts
 $628   202   .13   608   212   .14   592   219   .15 
Savings deposits
  27,669   19,239   .28   27,545   21,860   .31   26,177   21,453   .33 
Time deposits
  5,700   19,071   1.36   6,034   21,232   1.40   6,312   23,309   1.46 
Deposits at Cayman Islands office
  1,182   394   .14   809   352   .17   802   315   .16 
 
Total interest-bearing deposits
  35,179   38,906   .45   34,996   43,656   .49   33,883   45,296   .53 
 
Short-term borrowings
  1,344   492   .15   1,439   633   .17   1,858   760   .16 
Long-term borrowings
  7,368   59,281   3.26   8,141   64,339   3.14   8,948   69,976   3.10 
 
Total interest-bearing liabilities
  43,891   98,679   .91   44,576   108,628   .97   44,689   116,032   1.03 
 
Noninterest-bearing deposits
  14,501           14,275           13,647         
Other liabilities
  1,202           1,329           1,294         
 
Total liabilities
  59,594           60,180           59,630         
 
Shareholders’ equity
  8,451           8,322           8,181         
 
Total liabilities and shareholders’ equity
 $ 68,045           68,502           67,811         
 
Net interest spread
          3.69           3.61           3.62 
Contribution of interest-free funds
          .23           .24           .25 
 
Net interest income/margin on earning assets
     $575,131   3.92%      580,227   3.85%      575,733   3.87%
 
(continued)
 
* Includes nonaccrual loans.
 
** Includes available for sale securities at amortized cost.

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M&T BANK CORPORATION AND SUBSIDIARIES
 
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
                         
  2010 Second Quarter  2010 First Quarter 
  Average      Average  Average      Average 
Average balance in millions; interest in thousands Balance  Interest  Rate  Balance  Interest  Rate 
 
Assets
                        
Earning assets
                        
Loans and leases, net of unearned discount*
                        
Commercial, financial, etc.
 $13,096  $131,460   4.03%  13,408   128,147   3.88%
Real estate — commercial
  20,759   240,728   4.64   20,867   233,561   4.48 
Real estate — consumer
  5,653   75,643   5.35   5,742   76,283   5.31 
Consumer
  11,770   153,728   5.24   11,931   154,688   5.26 
 
Total loans and leases, net
  51,278   601,559   4.71   51,948   592,679   4.63 
 
Interest-bearing deposits at banks
  81   5   .02   127   6   .02 
Federal funds sold and agreements to resell securities
  10   11   .41   24   13   .22 
Trading account
  66   159   .96   60   121   .80 
Investment securities**
                        
U.S. Treasury and federal agencies
  4,758   51,282   4.32   4,396   49,131   4.53 
Obligations of states and political subdivisions
  272   3,963   5.85   268   3,741   5.66 
Other
  3,346   33,910   4.07   3,508   36,618   4.23 
 
Total investment securities
  8,376   89,155   4.27   8,172   89,490   4.44 
 
Total earning assets
  59,811   690,889   4.63   60,331   682,309   4.59 
 
Allowance for credit losses
  (905)          (900)        
Cash and due from banks
  1,068           1,136         
Other assets
  8,360           8,316         
 
Total assets
 $68,334           68,883         
 
Liabilities and shareholders’ equity
                        
Interest-bearing liabilities
                        
Interest-bearing deposits
                        
NOW accounts
 $619   219   .14   585   200   .14 
Savings deposits
  25,942   21,464   .33   25,068   20,449   .33 
Time deposits
  6,789   26,254   1.55   7,210   29,446   1.66 
Deposits at Cayman Islands office
  972   376   .16   1,237   325   .11 
 
Total interest-bearing deposits
  34,322   48,313   .56   34,100   50,420   .60 
 
Short-term borrowings
  1,763   726   .17   2,367   887   .15 
Long-term borrowings
  9,454   68,518   2.91   10,160   68,745   2.74 
 
Total interest-bearing liabilities
  45,539   117,557   1.04   46,627   120,052   1.04 
 
Noninterest-bearing deposits
  13,610           13,294         
Other liabilities
  1,149           1,094         
 
Total liabilities
  60,298           61,015         
 
Shareholders’ equity
  8,036           7,868         
 
Total liabilities and shareholders’ equity
 $68,334           68,883         
 
Net interest spread
          3.59           3.55 
Contribution of interest-free funds
          .25           .23 
 
Net interest income/margin on earning assets
     $573,332   3.84%      562,257   3.78%
 
 
* Includes nonaccrual loans.
 
** Includes available for sale securities at amortized cost.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     Incorporated by reference to the discussion contained under the caption “Taxable-equivalent Net Interest Income” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 4. Controls and Procedures.
     (a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), Robert G. Wilmers, Chairman of the Board and Chief Executive Officer, and René F. Jones, Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure controls and procedures were effective as of March 31, 2011.
     (b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, M&T’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
     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 M&T’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 M&T’s consolidated results of operations in any future reporting period.
Item 1A. Risk Factors.
     There have been no material changes in risk factors relating to M&T to those disclosed in response to Item 1A. to Part I of Form 10-K for the year ended December 31, 2010.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
     (a) – (b) Not applicable.
     (c)
Issuer Purchases of Equity Securities
                 
              (d)Maximum 
          (c)Total  Number (or 
          Number of  Approximate 
          Shares  Dollar Value) 
          (or Units)  of Shares 
          Purchased  (or Units) 
  (a)Total      as Part of  that may yet 
  Number  (b)Average  Publicly  be Purchased 
  of Shares  Price Paid  Announced  Under the 
  (or Units)  per Share  Plans or  Plans or 
Period Purchased (1)  (or Unit)  Programs  Programs (2) 
 
January 1 — January 31, 2011
  85,279  $86.74      2,181,500 
 
                
February 1 - February 28, 2011
  10,170   89.83      2,181,500 
 
                
March 1 — March 31, 2011
           2,181,500 
 
            
 
                
Total
  95,449  $87.07        
 
            
 
(1) The total number of shares purchased during the periods indicated includes shares deemed to have been received from employees who exercised stock options by attesting to previously acquired common shares in satisfaction of the exercise price or shares received from employees upon the vesting of restricted stock awards in satisfaction of applicable tax withholding obligations, as is permitted under M&T’s stock-based compensation plans.
 
(2) On February 22, 2007, M&T announced a program to purchase up to 5,000,000 shares of its common stock. No shares were purchased under such program during the periods indicated.
Item 3. Defaults Upon Senior Securities.
(Not applicable.)
Item 4. (Removed and Reserved).
Item 5. Other Information.
(None.)

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Item 6. Exhibits.
  The following exhibits are filed as a part of this report.
   
Exhibit  
No.  
31.1
 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
31.2
 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
32.1
 Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
32.2
 Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
101.INS*
 XBRL Instance Document.
 
  
101.SCH*
 XBRL Taxonomy Extension Schema.
 
  
101.CAL*
 XBRL Taxonomy Extension Calculation Linkbase.
 
  
101.LAB*
 XBRL Taxonomy Extension Label Linkbase.
 
  
101.PRE*
 XBRL Taxonomy Extension Presentation Linkbase.
 
  
101.DEF*
 XBRL Taxonomy Definition Linkbase.
 
* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
         M&T BANK CORPORATION
 
 
Date: April 29, 2011 By:  /s/ René F. Jones   
  René F. Jones   
  Executive Vice President
and Chief Financial Officer 
 

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EXHIBIT INDEX
   
Exhibit  
No.  
31.1
 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
31.2
 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
32.1
 Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
32.2
 Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
 
  
101.INS*
 XBRL Instance Document.
 
  
101.SCH*
 XBRL Taxonomy Extension Schema.
 
  
101.CAL*
 XBRL Taxonomy Extension Calculation Linkbase.
 
  
101.LAB*
 XBRL Taxonomy Extension Label Linkbase.
 
  
101.PRE*
 XBRL Taxonomy Extension Presentation Linkbase.
 
  
101.DEF*
 XBRL Taxonomy Definition Linkbase.
 
* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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