Edgar Filing: M&T BANK CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

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

For the quarterly period ended June 30, 2012

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

Commission File Number 1-9861

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)


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

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

(716) 842-5445

(Registrant’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on July 31, 2012: 126,686,762 shares.

EXPLANATORY NOTE

This Amendment No. 1 amends M&T Bank Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, which was filed on August 9, 2012. This Amendment No. 1 is being filed on August 9, 2012 solely for the purpose of correcting typographical errors in the first full sentence on page 73 regarding the amount of lower estimated principal losses on acquired loans and the decrease in the expected principal losses in the acquired commercial real estate portfolios. Except for these corrections, there have been no changes in any of the financial or other information contained in the report. This Amendment No. 1 speaks as of the original filing date of the Form 10-Q and does not reflect events that may have occurred subsequent to the original filing date.

The entire Form 10-Q, as amended, is included herein.

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2012


Table of Contents of Information Required in Report		Page

Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements.

	CONSOLIDATED BALANCE SHEET - June 30, 2012 and December 31, 2011		3

	CONSOLIDATED STATEMENT OF INCOME - Three and six months ended June 30, 2012 and 2011		4

	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – Three and six months ended June 30, 2012 and 2011		5

	CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2012 and 2011		6

	CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - Six months ended June 30, 2012 and 2011		7

	NOTES TO FINANCIAL STATEMENTS		8

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		106

Item 4.	Controls and Procedures.		106

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings.		106

Item 1A.	Risk Factors.		106

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		107

Item 3.	Defaults Upon Senior Securities.		107

Item 4.	Mine Safety Disclosures.		107

Item 5.	Other Information.		107

Item 6.	Exhibits.		108

SIGNATURES			108

EXHIBIT INDEX			109

-2-

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)


Dollars in thousands, except per share		June 30, 2012			December 31, 2011
Assets
	Cash and due from banks	$	1,421,831			1,449,547
	Interest-bearing deposits at banks		1,069,717			154,960
	Federal funds sold		1,000			2,850
	Trading account		544,938			561,834
	Investment securities (includes pledged securities that can be sold or repledged of $1,839,246 at June 30, 2012; $1,826,011 at December 31, 2011)
	Available for sale (cost: $5,510,097 at June 30, 2012; $6,312,423 at December 31, 2011)		5,534,054			6,228,560
	Held to maturity (fair value: $1,131,836 at June 30, 2012; $1,012,562 at December 31, 2011)		1,188,465			1,077,708
	Other (fair value: $334,781 at June 30, 2012; $366,886 at December 31, 2011)		334,781			366,886

	Total investment securities		7,057,300			7,673,154

	Loans and leases		63,095,796			60,377,875
	Unearned discount		(244,524	)		(281,870	)

	Loans and leases, net of unearned discount		62,851,272			60,096,005
	Allowance for credit losses		(917,028	)		(908,290	)

	Loans and leases, net		61,934,244			59,187,715

	Premises and equipment		592,498			581,435
	Goodwill		3,524,625			3,524,625
	Core deposit and other intangible assets		143,713			176,394
	Accrued interest and other assets		4,517,712			4,611,773

	Total assets	$	80,807,578			77,924,287

Liabilities
	Noninterest-bearing deposits	$	22,854,794			20,017,883
	NOW accounts		1,705,198			1,912,226
	Savings deposits		32,292,412			31,001,083
	Time deposits		5,330,239			6,107,530
	Deposits at Cayman Islands office		366,164			355,927

	Total deposits		62,548,807			59,394,649

	Federal funds purchased and agreements to repurchase securities		975,575			732,059
	Other short-term borrowings		—			50,023
	Accrued interest and other liabilities		1,965,421			1,790,121
	Long-term borrowings		5,687,868			6,686,226

	Total liabilities		71,177,671			68,653,078

Shareholders’ equity
	Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 381,500 shares at June 30, 2012 and December 31, 2011; Liquidation preference of $10,000 per share: 50,000 shares at June 30, 2012 and December 31, 2011		868,433			864,585
	Common stock, $.50 par, 250,000,000 shares authorized, 126,587,931 shares issued at June 30, 2012; 125,683,398 shares issued at December 31, 2011		63,294			62,842
	Common stock issuable, 57,231 shares at June 30, 2012; 68,220 shares at December 31, 2011		3,429			4,072
	Additional paid-in capital		2,874,516			2,828,986
	Retained earnings		6,098,084			5,867,165
	Accumulated other comprehensive income (loss), net		(277,849	)		(356,441	)

	Total shareholders’ equity		9,629,907			9,271,209

	Total liabilities and shareholders’ equity	$	80,807,578			77,924,287

-3-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)


		Three months ended June 30						Six months ended June 30
In thousands, except per share		2012			2011			2012			2011
Interest income	Loans and leases, including fees	$	674,549			624,247		$	1,323,063			1,218,279
	Deposits at banks		767			479			980			515
	Federal funds sold		8			10			11			28
	Agreements to resell securities		—			127			—			128
	Trading account		318			282			635			670
	Investment securities
	Fully taxable		59,724			60,827			122,688			131,489
	Exempt from federal taxes		2,020			2,281			4,104			4,627

	Total interest income		737,386			688,253			1,451,481			1,355,736

Interest expense	NOW accounts		424			274			707			476
	Savings deposits		16,940			20,757			35,123			39,996
	Time deposits		12,354			19,310			25,863			38,381
	Deposits at Cayman Islands office		232			193			445			587
	Short-term borrowings		348			147			651			639
	Long-term borrowings		59,105			61,370			120,320			120,651

	Total interest expense		89,403			102,051			183,109			200,730

	Net interest income		647,983			586,202			1,268,372			1,155,006
	Provision for credit losses		60,000			63,000			109,000			138,000

	Net interest income after provision for credit losses		587,983			523,202			1,159,372			1,017,006

Other income	Mortgage banking revenues		69,514			42,151			125,706			87,307
	Service charges on deposit accounts		110,982			119,716			219,871			229,447
	Trust income		122,275			75,592			239,228			104,913
	Brokerage services income		16,172			14,926			30,073			29,222
	Trading account and foreign exchange gains		6,238			6,798			16,809			15,077
	Gain (loss) on bank investment securities		(408	)		110,744			(363	)		150,097
	Total other-than-temporary impairment (“OTTI”) losses		(4,072	)		(33,211	)		(24,112	)		(42,725	)
	Portion of OTTI losses recognized in other comprehensive income (before taxes)		(12,101	)		6,681			(3,547	)		154

	Net OTTI losses recognized in earnings		(16,173	)		(26,530	)		(27,659	)		(42,571	)

	Equity in earnings of Bayview Lending Group LLC		(6,635	)		(5,223	)		(11,387	)		(11,901	)
	Other revenues from operations		89,685			163,482			176,095			254,485

	Total other income		391,650			501,656			768,373			816,076

Other expense	Salaries and employee benefits		323,686			300,178			669,784			566,268
	Equipment and net occupancy		65,376			59,670			130,419			116,333
	Printing, postage and supplies		11,368			9,723			23,240			18,925
	Amortization of core deposit and other intangible assets		15,907			14,740			32,681			27,054
	FDIC assessments		24,962			26,609			53,911			45,703
	Other costs of operations		186,093			165,975			357,052			302,183

	Total other expense		627,392			576,895			1,267,087			1,076,466

	Income before taxes		352,241			447,963			660,658			756,616
	Income taxes		118,861			125,605			220,815			227,985

	Net income	$	233,380			322,358		$	439,843			528,631

	Net income available to common shareholders
	Basic	$	214,709			297,164		$	402,947			487,283
	Diluted		214,716			297,179			402,958			487,308
	Net income per common share
	Basic	$	1.71			2.43		$	3.21			4.04
	Diluted		1.71			2.42			3.20			4.02
	Cash dividends per common share	$	.70			.70		$	1.40			1.40
	Average common shares outstanding
	Basic		125,488			122,181			125,354			120,699
	Diluted		125,897			122,796			125,756			121,332

-4-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)


	Three months ended June 30						Six months ended June 30
In thousands	2012			2011			2012			2011
Net income	$	233,380			322,358		$	439,843			528,631
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized gains (losses) on investment securities		49,289			(33,550	)		69,371			(27,892	)
Reclassification to income for amortization of gains on terminated cash flow hedges		(42	)		(71	)		(112	)		(141	)
Foreign currency translation adjustment		(533	)		196			(131	)		196
Defined benefit plans liability adjustment		4,695			2,177			9,464			4,288

Total other comprehensive income		53,409			(31,248	)		78,592			(23,549	)

Total comprehensive income	$	286,789			291,110		$	518,435			505,082

-5-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Six months ended June 30
In thousands		2012			2011
Cash flows from	Net income	$	439,843			528,631
operating activities	Adjustments to reconcile net income to net cash provided by operating activities
	Provision for credit losses		109,000			138,000
	Depreciation and amortization of premises and equipment		41,762			38,370
	Amortization of capitalized servicing rights		28,773			26,742
	Amortization of core deposit and other intangible assets		32,681			27,054
	Provision for deferred income taxes		12,064			(18,201	)
	Asset write-downs		39,676			48,032
	Net gain on sales of assets		(3,786	)		(181,318	)
	Net change in accrued interest receivable, payable		1,731			4,035
	Net change in other accrued income and expense		(35,590	)		23,766
	Net change in loans originated for sale		(33,964	)		167,857
	Net change in trading account assets and liabilities		12,438			60,210
	Net cash provided by operating activities		644,628			863,178
Cash flows from	Proceeds from sales of investment securities
investing activities	Available for sale		48,873			1,909,223
	Other		45,374			71,729
	Proceeds from maturities of investment securities
	Available for sale		741,571			751,314
	Held to maturity		157,849			114,913
	Purchases of investment securities
	Available for sale		(19,808	)		(1,609,272	)
	Held to maturity		(269,854	)		(13,151	)
	Other		(13,269	)		(1,249	)
	Net increase in loans and leases		(2,805,640	)		(454,782	)
	Net (increase) decrease in interest-bearing deposits at banks		(914,757	)		432,037
	Net increase in agreements to resell securities		—			(365,000	)
	Other investments, net		(5,436	)		(10,249	)
	Capital expenditures, net		(46,892	)		(13,976	)
	Acquisitions, net of cash acquired Banks and bank holding companies		—			178,940
	Purchase of Wilmington Trust Corporation preferred stock		—			(330,000	)
	Proceeds from sales of real estate acquired in settlement of loans		64,735			161,514
	Other, net		(38,849	)		18,322
	Net cash (used) provided by investing activities		(3,056,103	)		840,313
Cash flows from	Net increase in deposits		3,162,352			566,316
financing activities	Net increase (decrease) in short-term borrowings		193,515			(528,035	)
	Payments on long-term borrowings		(1,006,539	)		(1,331,316	)
	Proceeds from issuance of preferred stock		—			495,000
	Redemption of preferred stock		—			(370,000	)
	Dividends paid - common		(179,446	)		(173,135	)
	Dividends paid - preferred		(26,725	)		(20,046	)
	Other, net		238,752			56,885
	Net cash provided (used) by financing activities		2,381,909			(1,304,331	)
	Net increase (decrease) in cash and cash equivalents		(29,566	)		399,160
	Cash and cash equivalents at beginning of period		1,452,397			933,755
	Cash and cash equivalents at end of period	$	1,422,831			1,332,915
Supplemental	Interest received during the period	$	1,457,310			1,366,981
disclosure of cash	Interest paid during the period		192,666			205,514
flow information	Income taxes paid during the period		204,249			266,240
Supplemental schedule of noncash investing and	Real estate acquired in settlement of loans	$	26,623			45,774
financing activities	Acquisitions:
	Fair value of:
	Assets acquired (noncash)		—			10,666,102
	Liabilities assumed		—			10,044,555
	Common stock issued		—			405,557
	Retirement of Wilmington Trust Corporation preferred stock		—			330,000

-6-

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


In thousands, except per share	Preferred stock			Common stock		Common stock issuable			Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss), net			Treasury stock			Total
2011
Balance - January 1, 2011	$	740,657			60,198		4,189			2,398,615			5,426,701			(205,220	)		(67,445	)		8,357,695
Total comprehensive income		—			—		—			—			528,631			(23,549	)		—			505,082
Acquisition of Wilmington Trust Corporation - common stock issued		—			2,348		—			403,209			—			—			—			405,557
Partial redemption of Series A preferred stock		(370,000	)		—		—			—			—			—			—			(370,000	)
Conversion of Series B preferred stock into 433,144 shares of common stock		(26,500	)		192		—			21,754			—			—			4,554			—
Issuance of Series D preferred stock		500,000			—		—			(5,000	)		—			—			—			495,000
Preferred stock cash dividends		—			—		—			—			(20,046	)		—			—			(20,046	)
Amortization of preferred stock discount		16,744			—		—			—			(16,744	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—			27		—			(10,382	)		—			—			31,666			21,311
Exercises of stock options, net		—			12		—			(8,948	)		—			—			30,106			21,170
Directors’ stock plan		—			—		—			(49	)		—			—			612			563
Deferred compensation plans, net, including dividend equivalents		—			—		(159	)		(219	)		(94	)		—			507			35
Other		—			—		—			1,022			—			—			—			1,022
Common stock cash dividends - $1.40 per share		—			—		—			—			(173,195	)		—			—			(173,195	)

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

2012
Balance - January 1, 2012	$	864,585			62,842		4,072			2,828,986			5,867,165			(356,441	)		—			9,271,209
Total comprehensive income		—			—		—			—			439,843			78,592			—			518,435
Preferred stock cash dividends		—			—		—			—			(26,725	)		—			—			(26,725	)
Amortization of preferred stock discount		3,848			—		—			—			(3,848	)		—			—			—
Stock-based compensation plans:
Compensation expense, net		—			216		—			18,289			—			—			—			18,505
Exercises of stock options, net		—			227		—			24,912			—			—			—			25,139
Directors’ stock plan		—			4		—			764			—			—			—			768
Deferred compensation plans, net, including dividend equivalents		—			5		(643	)		549			(80	)		—			—			(169	)
Other		—			—		—			1,016			—			—			—			1,016
Common stock cash dividends - $1.40 per share		—			—		—			—			(178,271	)		—			—			(178,271	)

Balance - June 30, 2012	$	868,433			63,294		3,429			2,874,516			6,098,084			(277,849	)		—			9,629,907

-7-

NOTES TO FINANCIAL STATEMENTS

1.	Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2011 Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

2.	Acquisitions

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

The Wilmington Trust transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Assets acquired totaled approximately $10.8 billion, including $6.4 billion of loans and leases (including approximately $3.2 billion of commercial real estate loans, $1.4 billion of commercial loans and leases, $1.1 billion of consumer loans and $680 million of residential real estate loans). Liabilities assumed aggregated $10.0 billion, including $8.9 billion of deposits. The common stock issued in the transaction added $406 million to M&T’s common shareholders’ equity. Immediately prior to the closing of the Wilmington Trust transaction, M&T redeemed the $330 million of preferred stock issued by Wilmington Trust as part of the Troubled Asset Relief Program – Capital Purchase Program of the U.S. Department of Treasury (“U.S. Treasury”). In connection with the acquisition, the Company recorded $112 million of core deposit and other intangible assets. The core deposit and other intangible assets are generally being amortized over periods of 5 to 7 years using an accelerated method. There was no goodwill recorded as a result of the transaction, however, a non-taxable gain of $65 million was realized, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged. The acquisition of Wilmington Trust added to M&T’s market-leading position in the Mid-Atlantic region by giving M&T a leading deposit market share in Delaware.

-8-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.	Acquisitions, continued

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


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

Total purchase price		735,557

Identifiable assets:
Cash and due from banks		178,940
Interest-bearing deposits at banks		2,606,265
Other short-term investments		57,817
Investment securities		510,390
Loans and leases		6,410,430
Core deposit and other intangibles		112,094
Other assets		969,106

Total identifiable assets		10,845,042

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

Total liabilities		10,044,555

Net gain resulting from acquisition	$	64,930

The following table presents certain pro forma information as if Wilmington Trust had been included in the Company’s results of operations for the three months and six months ended June 30, 2011 rather than since the acquisition date on May 16, 2011. These results combine the historical results of Wilmington Trust into the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place as indicated. In particular, no adjustments have been made to eliminate the amount of Wilmington Trust’s provision for credit losses of $41 million or the impact of other-than-temporary impairment losses of $5 million recognized by Wilmington Trust during the first quarter of 2011 that may not have been necessary had the acquired loans and investment securities been recorded at fair value as of the beginning of 2011. Additionally, the Company expects to achieve operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts that follow.

-9-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

2.	Acquisitions, continued


	Pro forma Three months ended June 30, 2011		Pro forma Six months ended June 30, 2011
	(in thousands)
Total revenues (a)	$	1,166,694		2,208,188
Net income		309,527		480,948

(a)

Represents net interest income plus other income.

In connection with the 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 systems conversions and/or integration of operations; costs related to termination of existing contractual arrangements of Wilmington Trust to purchase various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; severance for former employees; travel costs; and printing, postage, supplies and other costs of completing the transaction and commencing operations in new markets and offices. The Company does not expect to incur any significant additional merger-related expenses during the remainder of 2012.

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


	Three months ended				Six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
	(in thousands)
Salaries and employee benefits	$	3,024		15,305		4,997		15,312
Equipment and net occupancy		—		25		15		104
Printing, postage and supplies		—		318		—		465
Other costs of operations		4,127		21,348		4,867		25,410

	$	7,151		36,996		9,879		41,291

-10-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities

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


	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
	(in thousands)
June 30, 2012
Investment securities available for sale:
U.S. Treasury and federal agencies	$	55,484		1,115		—	$	56,599
Obligations of states and political subdivisions		34,007		569		8		34,568
Mortgage-backed securities:
Government issued or guaranteed		3,840,610		218,117		227		4,058,500
Privately issued residential		1,252,709		5,254		189,571		1,068,392
Privately issued commercial		13,048		—		921		12,127
Collateralized debt obligations		43,749		13,079		1,730		55,098
Other debt securities		158,153		2,034		31,258		128,929
Equity securities		112,337		10,926		3,422		119,841

		5,510,097		251,094		227,137		5,534,054

Investment securities held to maturity:
Obligations of states and political subdivisions		187,936		8,375		30		196,281
Mortgage-backed securities:
Government issued or guaranteed		733,912		31,929		—		765,841
Privately issued		255,291		317		97,220		158,388
Other debt securities		11,326		—		—		11,326

		1,188,465		40,621		97,250		1,131,836

Other securities		334,781		—		—		334,781

Total	$	7,033,343		291,715		324,387	$	7,000,671

December 31, 2011
Investment securities available for sale:
U.S. Treasury and federal agencies	$	69,468		1,255		—	$	70,723
Obligations of states and political subdivisions		39,518		771		20		40,269
Mortgage-backed securities:
Government issued or guaranteed		4,344,116		177,392		275		4,521,233
Privately issued residential		1,369,371		6,373		239,488		1,136,256
Privately issued commercial		17,679		—		2,650		15,029
Collateralized debt obligations		43,834		11,154		2,488		52,500
Other debt securities		216,700		4,588		44,443		176,845
Equity securities		211,737		8,468		4,500		215,705

		6,312,423		210,001		293,864		6,228,560

Investment securities held to maturity:
Obligations of states and political subdivisions		188,680		9,141		28		197,793
Mortgage-backed securities:
Government issued or guaranteed		608,533		24,881		—		633,414
Privately issued		268,642		—		99,140		169,502
Other debt securities		11,853		—		—		11,853

		1,077,708		34,022		99,168		1,012,562

Other securities		366,886		—		—		366,886

Total	$	7,757,017		244,023		393,032	$	7,608,008

-11-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

Gross realized gains on investment securities were $111 million and $150 million for the three-month and six-month periods ended June 30, 2011. Gross realized gains were not significant in 2012. Gross realized losses on investment securities were not significant during the three-month and six-month periods ended June 30, 2012 or 2011. During the second quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) having an aggregate amortized cost of approximately $1.0 billion which resulted in a gain of $66 million (pre-tax). The Company also sold trust preferred securities and collateralized debt obligations during the second quarter of 2011 having an aggregate amortized cost of $136 million and $100 million, respectively, which resulted in gains of $25 million (pre-tax) and $20 million (pre-tax), respectively. During the first quarter of 2011, the Company sold residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac having an aggregate amortized cost of approximately $484 million which resulted in a gain of $39 million (pre-tax).

The Company recognized pre-tax other-than-temporary impairment losses of $16 million and $28 million during the three months and six months ended June 30, 2012, respectively, and $27 million and $43 million during the three months and six months ended June 30, 2011, respectively, related to privately issued mortgage-backed securities. The impairment charges were recognized in light of deterioration of real estate values and a rise in 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 debt securities considering projected cash flows using assumptions of delinquency rates, loss severities, and other estimates for future collateral performance.

The following table displays changes in credit losses associated with debt securities for which other-than-temporary impairment losses have been previously recognized in earnings for the three months and six months ended June 30, 2012 and 2011:


	Three months ended June 30
	2012			2011
	(in thousands)
Beginning balance	$	267,473			322,719
Additions for credit losses not previously recognized		16,173			26,530
Reductions for increases in cash flows		—			(4,881	)
Reductions for realized losses		(19,449	)		(46,227	)

Ending balance	$	264,197			298,141


	Six months ended June 30
	2012			2011
	(in thousands)
Beginning balance	$	285,399			327,912
Additions for credit losses not previously recognized		27,659			42,571
Reductions for increases in cash flows		—			(5,020	)
Reductions for realized losses		(48,861	)		(67,322	)

Ending balance	$	264,197			298,141

-12-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

At June 30, 2012, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:


	Amortized cost		Estimated fair value
	(in thousands)
Debt securities available for sale:
Due in one year or less	$	33,314		33,367
Due after one year through five years		40,715		42,082
Due after five years through ten years		11,098		11,886
Due after ten years		206,266		187,859

		291,393		275,194
Mortgage-backed securities available for sale		5,106,367		5,139,019

	$	5,397,760		5,414,213

Debt securities held to maturity:
Due in one year or less	$	30,983		31,166
Due after one year through five years		40,576		42,599
Due after five years through ten years		114,797		120,839
Due after ten years		12,906		13,003

		199,262		207,607
Mortgage-backed securities held to maturity		989,203		924,229

	$	1,188,465		1,131,836

-13-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

A summary of investment securities that as of June 30, 2012 and December 31, 2011 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:


	Less than 12 months					12 months or more
	Fair value		Unrealized losses			Fair value		Unrealized losses
	(in thousands)
June 30, 2012
Investment securities available for sale:
Obligations of states and political subdivisions	$	171		(1	)		678		(7	)
Mortgage-backed securities:
Government issued or guaranteed		15,936		(70	)		9,951		(157	)
Privately issued residential		126,139		(1,861	)		841,748		(187,710	)
Privately issued commercial		—		—			12,127		(921	)
Collateralized debt obligations		3,106		(39	)		5,349		(1,691	)
Other debt securities		16,858		(2,053	)		74,206		(29,205	)
Equity securities		8,118		(1,389	)		2,193		(2,033	)

		170,328		(5,413	)		946,252		(221,724	)

Investment securities held to maturity:
Obligations of states and political subdivisions		5,598		(23	)		169		(7	)
Privately issued mortgage-backed securities		—		—			157,659		(97,220	)

		5,598		(23	)		157,828		(97,227	)

Total	$	175,926		(5,436	)		1,104,080		(318,951	)

December 31, 2011
Investment securities available for sale:
Obligations of states and political subdivisions	$	—		—			1,228		(20	)
Mortgage-backed securities:
Government issued or guaranteed		38,492		(190	)		6,017		(85	)
Privately issued residential		297,133		(14,188	)		751,077		(225,300	)
Privately issued commercial		—		—			15,029		(2,650	)
Collateralized debt obligations		2,871		(335	)		4,863		(2,153	)
Other debt securities		72,637		(9,883	)		73,635		(34,560	)
Equity securities		9,883		(4,500	)		—		—

		421,016		(29,096	)		851,849		(264,768	)

Investment securities held to maturity:
Obligations of states and political subdivisions		3,084		(4	)		1,430		(24	)
Privately issued mortgage-backed securities		1,883		(592	)		167,139		(98,548	)

		4,967		(596	)		168,569		(98,572	)

Total	$	425,983		(29,692	)		1,020,418		(363,340	)

-14-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

3.	Investment securities, continued

The Company owned 290 individual investment securities with aggregate gross unrealized losses of $324 million at June 30, 2012. Approximately $288 million of the unrealized losses pertained to privately issued mortgage-backed securities with a cost basis of $1.4 billion. The Company also had $33 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 $133 million. Based on a review of each of the remaining securities in the investment securities portfolio at June 30, 2012, with the exception of the aforementioned securities for which other-than-temporary impairment losses were recognized, the Company concluded that it expected to recover the amortized cost basis of its investment. As of June 30, 2012, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At June 30, 2012, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $335 million of cost method investment securities.

4.	Loans and leases and the allowance for credit losses

The outstanding principal balance and the carrying amount of acquired loans that were recorded at fair value at the acquisition date that is included in the consolidated balance sheet is as follows:


	June 30, 2012		December 31, 2011
	(in thousands)
Outstanding principal balance	$	8,097,216		9,203,366
Carrying amount:
Commercial, financial, leasing, etc.		1,216,711		1,331,198
Commercial real estate		3,222,688		3,879,518
Residential real estate		814,288		915,371
Consumer		1,834,751		2,033,700

	$	7,088,438		8,159,787

Purchased impaired loans included in the table above totaled $561 million at June 30, 2012 and $653 million at December 31, 2011, representing less than 1% of the Company’s assets as of each date.

Interest income on acquired loans that were recorded at fair value at the acquisition date was $90 million and $171 million for the three months and six months ended June 30, 2012 and $69 million and $110 million for the three months and six months ended June 30, 2011, respectively. Reflecting an improvement in estimated cash flows on acquired loans, the Company transferred $140 million from nonaccretable balance to accretable yield during the quarter ended June 30, 2012. At December 31, 2010 and June 30, 2011, the accretable yield on acquired loans was $457 million and $1.04 billion, respectively. A summary of changes in the accretable yield for acquired loans for the three months and six months ended June 30, 2012 follows:


	Three months ended June 30, 2012
	Purchased impaired			Other acquired			Total
	(in thousands)
Balance at beginning of period	$	22,565			747,466			770,031
Interest income		(9,621	)		(80,249	)		(89,870	)
Reclassifications from (to) nonaccretable balance, net		42,655			97,165			139,820
Other (a)		—			(31,221	)		(31,221	)

Balance at end of period	$	55,599			733,161			788,760

-15-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Six months ended June 30, 2012
	Purchased impaired			Other acquired			Total
	(in thousands)
Balance at beginning of period	$	30,805			807,960			838,765
Interest income		(17,285	)		(153,972	)		(171,257	)
Reclassifications from (to) nonaccretable balance, net		42,079			98,165			140,244
Other (a)		—			(18,992	)		(18,992	)

Balance at end of period	$	55,599			733,161			788,760

(a)

Other changes in expected cash flows including changes in interest rates and prepayments.

A summary of current, past due and nonaccrual loans as of June 30, 2012 and December 31, 2011 were as follows:


	Current		30-89 Days past due		90 Days or more past due and accruing				Purchased impaired (b)		Nonaccrual		Total
	Current		30-89 Days past due		Non- acquired		Acquired (a)		Purchased impaired (b)		Nonaccrual		Total
	(in thousands)
June 30, 2012
Commercial, financial, leasing, etc.	$	16,138,169		73,581		1,455		12,402		16,424		153,556		16,395,587
Real estate:
Commercial		20,854,618		128,489		10,128		49,038		164,855		173,278		21,380,406
Residential builder and developer		761,655		47,065		2,213		18,330		264,163		240,248		1,333,674
Other commercial construction		2,051,194		16,174		4,352		23,158		63,446		26,303		2,184,627
Residential		8,563,870		252,076		251,750		41,047		47,135		174,937		9,330,815
Residential Alt-A		355,574		24,221		—		—		—		100,915		480,710
Consumer:
Home equity lines and loans		6,384,785		41,795		—		15,263		4,381		54,509		6,500,733
Automobile		2,490,590		34,961		—		261		—		24,482		2,550,294
Other		2,628,257		38,085		4,700		2,988		296		20,100		2,694,426

Total	$	60,228,712		656,447		274,598		162,487		560,700		968,328		62,851,272

-16-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Current		30-89 Days past due		90 Days or more past due and accruing				Purchased impaired (b)		Nonaccrual		Total
	Current		30-89 Days past due		Non- acquired		Acquired (a)		Purchased impaired (b)		Nonaccrual		Total
	(in thousands)
December 31, 2011
Commercial, financial, leasing, etc.	$	15,493,803		37,112		7,601		8,560		23,762		163,598		15,734,436
Real estate:
Commercial		19,658,761		172,641		9,983		54,148		192,804		171,111		20,259,448
Residential builder and developer		845,680		49,353		13,603		21,116		297,005		281,576		1,508,333
Other commercial construction		2,393,304		41,049		968		23,582		78,105		106,325		2,643,333
Residential		6,626,182		256,017		250,472		37,982		56,741		172,681		7,400,075
Residential Alt-A		383,834		34,077		—		—		—		105,179		523,090
Consumer:
Home equity lines and loans		6,570,675		43,516		—		15,409		4,635		47,150		6,681,385
Automobile		2,644,330		48,342		—		601		—		26,835		2,720,108
Other		2,551,225		43,547		5,249		2,340		310		23,126		2,625,797

Total	$	57,167,794		725,654		287,876		163,738		653,362		1,097,581		60,096,005

(a)

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

(b)

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

Changes in the allowance for credit losses for the three months ended June 30, 2012 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
Beginning balance	$	239,273			356,554			97,301			142,912			72,966		909,006
Provision for credit losses		19,103			(3,309	)		5,587			38,427			192		60,000
Net charge-offs
Charge-offs		(16,078	)		(13,056	)		(11,407	)		(23,621	)		—		(64,162	)
Recoveries		2,430			1,332			1,788			6,634			—		12,184

Net charge-offs		(13,648	)		(11,724	)		(9,619	)		(16,987	)		—		(51,978	)

Ending balance	$	244,728			341,521			93,269			164,352			73,158		917,028

-17-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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


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

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

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

Changes in the allowance for credit losses for the six months ended June 30, 2012 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
Beginning balance	$	234,022			367,637			91,915			143,121			71,595		908,290
Provision for credit losses		29,224			(5,569	)		21,817			61,965			1,563		109,000
Net charge-offs
Charge-offs		(24,115	)		(23,596	)		(24,125	)		(52,602	)		—		(124,438	)
Recoveries		5,597			3,049			3,662			11,868			—		24,176

Net charge-offs		(18,518	)		(20,547	)		(20,463	)		(40,734	)		—		(100,262	)

Ending balance	$	244,728			341,521			93,269			164,352			73,158		917,028

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


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

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

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

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment.

-18-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified credit review processes and also estimates losses inherent in other loans and leases on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan by loan analysis of larger balance commercial and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes an extensive loan grading system which is applied to all commercial and commercial real estate credits on an individual loan basis. Loan officers are responsible for continually assigning grades to these loans based on standards outlined in the Company’s Credit Policy. Internal loan grades are also monitored by the Company’s loan review department to ensure consistency and strict adherence to the prescribed standards. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry. As updated appraisals are obtained on individual loans or other events in the market place indicate that collateral values have significantly changed, individual loan grades are adjusted as appropriate. Changes in other factors cited may also lead to loan grade changes at anytime. Except for consumer and residential mortgage loans that are considered smaller balance homogenous loans and acquired loans that are evaluated on an aggregated basis, the Company considers a loan to be impaired for purposes of applying GAAP when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days. Regardless of loan type, the Company considers a loan to be impaired if it qualifies as a troubled debt restructuring. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.

-19-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The following tables provide information with respect to impaired loans and leases as of June 30, 2012 and December 31, 2011 and for the three months and six months ended June 30, 2012 and June 30, 2011:


	June 30, 2012						December 31, 2011
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	118,670		139,477		39,134		118,538		145,510		48,674
Real estate:
Commercial		116,765		148,232		19,323		102,886		128,456		17,651
Residential builder and developer		135,172		243,663		33,490		159,293		280,869		52,562
Other commercial construction		81,077		89,410		12,404		20,234		24,639		3,836
Residential		108,167		127,032		4,332		101,882		119,498		4,420
Residential Alt-A		136,995		150,849		23,000		150,396		162,978		25,000
Consumer:
Home equity lines and loans		11,707		13,327		2,986		9,385		10,670		2,306
Automobile		51,649		51,649		15,324		53,710		53,710		11,468
Other		10,578		10,578		4,403		8,401		8,401		2,084

		770,780		974,217		154,396		724,725		934,731		168,001

With no related allowance recorded:
Commercial, financial, leasing, etc.		43,179		52,473		—		53,104		60,778		—
Real estate:
Commercial		62,529		79,604		—		71,636		91,118		—
Residential builder and developer		110,954		128,880		—		133,156		177,277		—
Other commercial construction		4,976		9,386		—		86,652		89,862		—
Residential		17,990		24,930		—		19,686		25,625		—
Residential Alt-A		33,588		62,379		—		34,356		60,942		—

		273,216		357,652		—		398,590		505,602		—

Total:
Commercial, financial, leasing, etc.		161,849		191,950		39,134		171,642		206,288		48,674
Real estate:
Commercial		179,294		227,836		19,323		174,522		219,574		17,651
Residential builder and developer		246,126		372,543		33,490		292,449		458,146		52,562
Other commercial construction		86,053		98,796		12,404		106,886		114,501		3,836
Residential		126,157		151,962		4,332		121,568		145,123		4,420
Residential Alt-A		170,583		213,228		23,000		184,752		223,920		25,000
Consumer:
Home equity lines and loans		11,707		13,327		2,986		9,385		10,670		2,306
Automobile		51,649		51,649		15,324		53,710		53,710		11,468
Other		10,578		10,578		4,403		8,401		8,401		2,084

Total	$	1,043,996		1,331,869		154,396		1,123,315		1,440,333		168,001

-20-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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


	Three months ended June 30, 2012						Three months ended June 30, 2011
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	161,311		743		743		162,827		679		666
Real estate:
Commercial		180,199		1,238		1,238		194,508		513		483
Residential builder and developer		262,254		385		252		308,709		314		112
Other commercial construction		109,037		4,840		4,840		93,980		187		150
Residential		127,258		1,315		810		97,317		1,029		565
Residential Alt-A		174,181		1,753		527		199,056		1,991		410
Consumer:
Home equity lines and loans		11,237		164		46		12,069		189		23
Automobile		52,200		871		190		58,650		984		292
Other		9,877		106		47		3,544		55		13

Total	$	1,087,554		11,415		8,693		1,130,660		5,941		2,714


	Six months ended June 30, 2012						Six months ended June 30, 2011
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	164,779		1,152		1,152		167,456		1,672		1,654
Real estate:
Commercial		179,213		1,556		1,556		191,472		895		822
Residential builder and developer		271,903		726		431		317,054		839		240
Other commercial construction		107,151		5,010		5,010		103,751		697		471
Residential		126,880		2,657		1,688		90,813		2,026		1,140
Residential Alt-A		177,623		3,596		1,073		202,339		3,986		961
Consumer:
Home equity lines and loans		10,593		330		88		12,098		349		48
Automobile		52,799		1,769		368		58,655		1,968		588
Other		9,080		199		86		3,304		112		19

Total	$	1,100,021		16,995		11,452		1,146,942		12,544		5,943

-21-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

In accordance with the previously described policies, the Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. In general, acquired loans that were recorded at estimated fair value on the acquisition date are assigned a “pass” loan grade because their net financial statement value is based on the present value of expected cash flows. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger balance criticized commercial and commercial real estate loans are individually reviewed by centralized loan review personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. Smaller balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance. The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans as of June 30, 2012 and December 31, 2011.


			Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
June 30, 2012
Pass	$	15,499,951		20,403,488		989,903		1,903,981
Criticized accrual		742,080		803,640		103,523		254,343
Criticized nonaccrual		153,556		173,278		240,248		26,303

Total	$	16,395,587		21,380,406		1,333,674		2,184,627

December 31, 2011
Pass	$	14,869,636		19,089,252		1,085,970		2,254,609
Criticized accrual		701,202		999,085		140,787		282,399
Criticized nonaccrual		163,598		171,111		281,576		106,325

Total	$	15,734,436		20,259,448		1,508,333		2,643,333

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance, recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by M&T’s Credit Department. In arriving at such forecasts, M&T considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of any first lien position prior to recovering amounts on a second lien position. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values.

-22-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. The determination of the allocated portion of the allowance for credit losses is very subjective. Given that inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses. Other factors that could also lead to changes in the unallocated portion include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

At June 30, 2012 and December 31, 2011, the allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:


	Commercial, Financial, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
June 30, 2012
Individually evaluated for impairment	$	38,961		64,143		27,258		22,713	$	153,075
Collectively evaluated for impairment		205,594		275,671		62,182		141,159		684,606
Purchased impaired		173		1,707		3,829		480		6,189

Allocated	$	244,728		341,521		93,269		164,352		843,870

Unallocated										73,158

Total									$	917,028

December 31, 2011
Individually evaluated for impairment	$	48,517		71,784		29,420		15,858	$	165,579
Collectively evaluated for impairment		185,048		291,271		60,742		126,613		663,674
Purchased impaired		457		4,582		1,753		650		7,442

Allocated	$	234,022		367,637		91,915		143,121		836,695

Unallocated										71,595

Total									$	908,290

-23-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of June 30, 2012 and December 31, 2011 was as follows:


	Commercial, Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
June 30, 2012
Individually evaluated for impairment	$	161,669		504,281		295,314		73,934	$	1,035,198
Collectively evaluated for impairment		16,217,494		23,901,962		9,469,076		11,666,842		61,255,374
Purchased impaired		16,424		492,464		47,135		4,677		560,700

Total	$	16,395,587		24,898,707		9,811,525		11,745,453	$	62,851,272

December 31, 2011
Individually evaluated for impairment	$	171,442		561,615		306,320		71,496	$	1,110,873
Collectively evaluated for impairment		15,539,232		23,281,585		7,560,104		11,950,849		58,331,770
Purchased impaired		23,762		567,914		56,741		4,945		653,362

Total	$	15,734,436		24,411,114		7,923,165		12,027,290	$	60,096,005

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

-24-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

The tables below summarize the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended June 30, 2012 and 2011:


			Recorded investment				Financial effects of modification
Three months ended June 30, 2012	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
	(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		9	$	10,392	$	9,061	$	(1,331	)	$	—
Other		2		1,995		1,954		(41	)		—
Real estate:
Commercial
Principal deferral		1		2,011		1,999		(12	)		—
Interest rate reduction		1		383		430		47			(89	)
Combination of concession types		4		1,210		1,231		21			(256	)
Residential builder and developer
Principal deferral		3		2,503		2,503		—			—
Other commercial construction
Principal deferral		3		60,888		60,898		10			—
Residential
Principal deferral		7		1,059		1,087		28			—
Combination of concession types		11		2,049		2,098		49			(65	)
Residential Alt-A
Principal deferral		1		153		158		5			—
Combination of concession types		7		1,509		1,543		34			(44	)
Consumer:
Home equity lines and loans
Principal deferral		9		734		734		—			—
Combination of concession types		4		480		480		—			(123	)
Automobile
Principal deferral		196		2,700		2,700		—			—
Interest rate reduction		3		20		20		—			(1	)
Other		21		152		152		—			—
Combination of concession types		77		1,170		1,170		—			(110	)
Other
Principal deferral		7		134		134		—			—
Combination of concession types		18		142		142		—			(22	)

Total		384	$	89,684	$	88,494	$	(1,190	)	$	(710	)

(a)

Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.

(b)

Represents the present value of interest rate concessions discounted at the effective rate of the original loan.

-25-

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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