Investment securities

6 Months Ended

Jun. 30, 2011

3. Investment securities

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


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

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

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

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

Other securities		382,090		—		—		382,090

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


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

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

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

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

Other securities		412,709		—		—		412,709

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

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

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


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

Ending balance	$	298,141			314,263


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


Ending balance	$	298,141			314,263

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


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

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

	$	4,934,501		4,784,034


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

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

	$	1,219,686		1,143,496

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


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

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


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

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

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


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

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


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

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

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

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

- Definition

This item represents the entire disclosure related to Investments in Certain Debt and Equity Securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

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