M&T Bank Corp (MTB) 2008 Q1 法說會逐字稿

Good afternoon, I will be your conference operator today. At this time, I would like to welcome everyone to the M&T Bank first quarter 2008 earnings conference call. After the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS). Thank you. It is now my pleasure to turn the floor over to your host, Don MacLeod, Director of IR. Sir, you may begin.

Thank you and good afternoon, everyone. This is Don MacLeod. I'd like to thank everyone for participating in M&T's first quarter 2008 conference call, both by telephone and through the Webcast. I hope everyone has had an opportunity to read our earnings release issued this morning. If you have not read our earnings release, you may access it along with the financial tables and schedules from our Website, www.mtb.com and by clicking on the Investor Relations link. Also before we start, I'd like to mention that comments made during this call may contain forward-looking statements relating to the banking industry and to M&T Bank Corporation. M&T encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-K and 10-Q for a complete discussion of forward-looking statements. Now, I'd like to introduce our Chief Financial Officer, Rene Jones.

Thank you, Don and good afternoon, everyone. As Don mentioned, I'm sure you had a chance to review this morning's press release. I'd like to highlight and expand upon a few items from that release before I respond to questions. Diluted earnings per share, which include the amortization of core deposits and other intangible assets, were $1.82 in the first quarter of 2008, compared with $1.57 in the first quarter of 2007 and $0.60 earned in the linked quarter. Net income for the first quarter of 2008 was $202 million, compared with $176 million a year earlier and $65 million earned in the sequential quarter.

The Company's results in the recent quarter were aided by its membership interest in Visa. M&T Bank and many other large banks received shares of stock in Visa in connection with Visa's initial public offering. Member banks were required to redeem a portion of their shares in the recent quarter, which in M&T's case resulted in an after tax gain of $20 million or $0.18 of diluted earnings per share. Visa also established an escrow account to cover the pending litigation costs prior to distributing shares to its members. As a result, the Company was able to reverse a portion of the accrual that dampened our results in the fourth quarter of 2007, equal to our estimated share of those escrow balances. That amounted to $9 million after tax or $0.08 of diluted earnings per share. All told, the Visa event added $29 million to the Company's first quarter net income, or $0.26 per share of diluted earnings per share.

Amortization of core deposit and other intangible assets amounted to $0.10 per share in the first quarters of 2008 and 2007 and $0.09 per share in the fourth quarter of 2007. In addition, the first quarter's results included after tax merger related costs of $2 million or $0.02 per share, which relate to the Partners Trust acquisition and the First Horizon branch transactions. There were after tax merger related costs of $9 million or $0.08 per share in the fourth quarter of 2007. No such costs were recorded in 2007's first quarter. Diluted net operating earnings per share, which exclude the amortization of core deposit and other intangible assets, as well merger related costs that I mentioned were $1.94, up 16% from $1.67 in the first quarter of 2007 and up from $0.77 in the linked quarter. This morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including tangible assets and equity. Net operating income for the first quarter was $216 million, up from $187 million in the first quarter of 2007, and $84 million in the linked quarter.

Now, turning to the income statement. Taxable equivalent net interest income rose to $485 million for the first quarter, up from $476 million in the linked quarter, giving an annualized increase of 7%. The net interest margin declined 7 basis points in the first quarter of 2008, to 3.38%, compared with 3.45% in the linked quarter. Some of the items contributing to that decline are as follows. 3 basis points of decline relates to the full quarter of run rate impact on the margin from Partners Trust and First Horizon branch acquisitions completed late in the fourth quarter. Another 4 basis points of the decline related to the issuance of $400 million of subordinated debt at the end of November 2007, and the issuance of $350 million of trust preferred securities, which qualify as tier one capital in this year's first quarter. Excluding the acquisitions, while loan growth remained robust, its overall impact on earnings assets and margin pressure was muted by a decline in short term money market assets and investment securities.

Turning to loans. The high level of growth in average loans for the quarter represents in part the carry-over effect of a strong end of period growth that we experienced in last year's fourth quarter. Average loans for the first quarter were $48.6 billion, an increase of $2.5 billion from the linked quarter. The acquisitions accounted for $600 million of that linked quarter growth. Excluding acquisitions, average loans grew at annualized rate of 17% from last year's fourth quarter.

By category, annualized loan growth compared with the linked quarter and excluding the impact of acquisitions is as follows. Average commercial and industrial loans grew at an annualized rate of 20%. Average commercial real estate loans, including owner occupied, grew at a rate of 33%. Average residential real estate loans declined at an annualized rate of 14%. The decline was seen in both mortgages held for investment as well as mortgages held for sale. The average consumer loans grew by 6%. Home equity loans and lines of credit essentially remained flat during the quarter.

We remain focused on lending to our core banking relationships within our footprint, with less of an appetite for transactional type business. For example, we have slowed origination in auto loans and consumer goods and services. At the -- end of period loans, as of March 31, 2008, were $49.3 billion, up an annualized 11%. And this reflects the trend toward mid-to high single digit growth anticipated for the remainder of 2008. Excluding acquisitions, core deposits grew at an annualized rate of 7%, as compared with the linked quarter, with most of that increase in money market savings products, partially offset by run-off and time accounts. Through the past two quarters, we have lowered deposit rates more slowly than the overall decline in the marketplace.

In terms of credit, the provision for credit loss in the first quarter of 2008 was $60 million and exceeded charge-offs by $14 million. Non-performing loans totaled $495 million at the end of the recent quarter, compared with $447 million at the end of the previous quarter and $273 million at the end of the first quarter of 2007. The increase in non-performing loans from the linked quarter includes $11 million of floor plan credits, $11 million of REIT residential home builder credits and $17 million of residential mortgages. The non-performing loan ratio was exactly 1% at the end of the first quarter, compared with 93 basis points at the end of the linked quarter and 63 basis points at the end of the first quarter of 2007. Net charge-offs for the quarter were $46 million, representing an annualized rate of 38 basis points of total loans. This compares to 46 basis points in the linked quarter, or 33 basis points after adjusting for last quarter's change in charge-off policy.

Allowance for credit losses increased to $774 million and was 1.57% of total loans as of March 31, 2008. This compares with an allowance ratio of 1.58 at the end of the linked quarter and 1.52 at the end of last year's first quarter. Loans past due 90 days but still accruing were $81 million at the end of the recent quarter, compared with $77 million at the end of 2007. This includes $77 million and $73 million respectively of loans that are guaranteed by government related entities.

Turning to noninterest income. Noninterest income for the first quarter of 2007 was $313 million, compared with $236 million in the first quarter of 2007, and $160 million in the fourth quarter of 2007. The recent quarter includes $33 million gain from the sale of stock arising from the Visa IPO noted earlier. Service charges on deposit accounts were $103 million during the recent quarter, reflecting a seasonal decline from $106 million in the fourth quarter of 2007. Service charges increased by $9 million from last year's first quarter. $3 million of that increase relates to the Partners Trust and First Horizon acquisitions. Service charges for commercial customers were higher, reflecting reduced earnings credit being offered in today's lower interest rate environment.

Mortgage banking fees were $40 million for the first quarter, compared with $31 million in the linked quarter and $14 million in the first quarter of 2007. Recall that last year's first quarter results included $18 million of charges arising from Alt A mortgages. As we've previously discussed in our 10-K, mortgage banking revenues in the first quarter of 2008 include a $7 million acceleration of income, resulting from the implementation of Staff Accounting Bulletin 109. The quarter's results also include a $1 million loss from our investment in Bayview Lending Group. As most of you are aware, the commercial mortgage backed securities market essentially came to a halt during the quarter.

Spreads have widened to the point that securities -- securitizations are not economically viable in the current environment. While BLG securitized $664 million of loans during the quarter, there were not sufficient amount of securities sold to recognize the sale treatment, thus no gain on sale revenue from those securitizations was recorded. As part of their contingency liquidity plan, BLG restructured some forward securities contracts and sold out of those contracts and recorded a gain on the transaction. The BLG results in the first quarter include M&T's pro rata share of that gain, approximately $9 million. Going forward, while the dislocation in the CMBS markets persist, we would expect our results to reflect M&T's 20% share of any operating losses from BLG.

Operating expenses, which include the merger related charges and amortization of intangible assets, were at $404 million, compared with $381 million in the first quarter of 2007 and $415 million in the fourth quarter of 2007. Last year's fourth quarter results include the $23 million pretax charge relating to the Visa litigation. As I just mentioned, the recent quarter's expenses include a $15 million partial reversal of the VISA related litigation accrual. The quarter's results also include seasonally high salaries and benefits expense, which includes accelerated recognition of equity compensation expense for certain retirement eligible employees, as well as higher FICA expense, higher unemployment insurance expense and other expenses that related to salaries. In aggregate, these expenses were some $20 million higher in the linked quarter. This is consistent with our experience in each of the past two years. Expenses also reflect the full quarter impact of the aforementioned acquisitions. The first quarter's results include a $5 million addition to the valuation allowance for capitalized residential mortgage servicing rights, compared with a $2 million addition in the allowance in the fourth quarter of 2007 and a $1 million reversal in that valuation allowance in the first quarter of 2007.

This brings us to our outlook. The ongoing disarray in the financial markets and the continued weakening of the economy make forecasting essentially a fool's game. It is very important to remember that at its core, M&T is a traditional community bank. Every day, M&T bankers help their customers by making loans, taking deposits and providing a variety of banking services across our seven state banking footprint. We are optimistic with regard to all of those activities. We expect overall loan -- growth in loans to be tempered somewhat from the robust levels experienced over the past two quarters. Our goal is for a percentage growth in the mid- to upper single digits. With strength in commercial and commercial real estate loans likely offset by little or no growth in consumer loans and residential mortgages.

Similarly, we expect to remain focused on growing our deposit book, as evidenced by our results this quarter. We expect net interest margin for the full year of 2008 to remain under modest pressure. As always, expenses will be carefully managed, particularly through realizing the merger synergies arising from the Partners Trust acquisition. As we usually do, we're planning on delivering a positive revenue expense spread in the coming year. Charge-offs, while manageable, are likely to continue to trend higher in 2008 as evidenced by the increase in non-performing loans.

We remain very proactive with regard to our Alt A mortgage and residential construction portfolio. With respect to capital, at present, we have no plans to repurchase stock until our tangible capital ration is rebuilt to our target range of 5.2 to 5.6 of tangible assets. And all of these projections are of course, subject to a number of uncertainties, various assumptions regarding national and the regional economic growth, changes in interest rates, political events and other economic factors, which may differ materially from what actually unfolds in the future. We'll now open up the call to questions. Before which, Natasha will briefly review the instructions.

Thank you.

(OPERATOR INSTRUCTIONS). Your first question comes from Ken Zerbe of Morgan Stanley.

Great. Thanks. I was a little surprised to see that your reserve ratio actually declined on a sequential basis, even though it was 1 basis point. Given that most other banks we're seeing are increasing their reserve ratios this quarter. Can you just talk a little bit sort of your philosophy or your methodology in terms of what led to the 157, flat sequentially?

Sure. We always -- I always start off with an answer to that question that we have a very, very consistent, conservative approach that we've used and not changed over time. And so essentially, if you -- what we're trying to measure are the losses that are inherent in the portfolio. And so -- and then from period to period, as we look at the classified loan book and in this environment as it migrates up the grading scale, we continue to provide more for those individual loans. And to the extent that we are seeing trends in our book that we already knew existed and already provided for, we wouldn't provide again. So essentially, we'll continue to overprovide because we think the credit environment continues to deteriorate. At times, you'll see that it's not the ratio necessarily that matters, it's really what you have underlying your book and how much coverage you have.

Okay. Great. And maybe you could provide a brief update where you stand with the -- I think it's the $1.2 billion Alt A portfolio, in terms of how much reserves you have set up against this still or at this point and the balance that is remaining on this? And your plans going forward for it?

The Alt A portfolio still rounds to $1.2 billion. If you -- in our numbers, I believe in total residential mortgages, we had about $18 million of charge-offs in the quarter. The lion's share, if not -- almost all of that is related to that Alt A portfolio. We've not specifically talked about the reserve we have there but we do have in our 10-K the level of reserve on overall real estate and you can get a sense for that -- the place where we have actually added to our reserves over the course of the year. That's probably been one of the more significant areas that we've added to the reserve on.

So in our outlook there, is that we would continue to expect to see the level of losses that we saw in the first quarter. I think what's probably most important about the charge-offs and thinking about the fact that we think they will continue to trend up, there's really two factors. If you think -- if you look into our charge-off book, which I said, I think was $46 million of charge-offs, there were only two large commercial loans in that. There was a $2 million charge-off related to a commercial builder and then there was $1 million charge-off related to a commercial loan. And that's pretty low, I think, given the current operating environment.

If you flip back to the residentials, recall what we did in the fourth quarter. Essentially, going into the fourth quarter, we had a policy that said that we would take a charge-off at disposition essentially, a foreclosure or disposition of the housing asset or the mortgage. And what we did is we changed that policy and moved it back to 150 days, which essentially means you're making an estimate of a partial charge-off and what you think will actually happen at disposition. And when you do that, you're actually accelerating your charge-offs quite a bit. So as we look at the book, we think the performance really hasn't changed dramatically from what we thought -- what our assumptions were at December. But having said that, our objective, if you sort of pick a lifetime loss number on that pool of $1.2 billion, our objective is to work through it as fast as possible. So, to the extent that losses are higher than they were in the fourth quarter on that book, it's simply because we're working through that book and trying to get through that static pool of loans.

Okay. And then just the last question I had, maybe talk about the credit performance of your floor plan portfolio. If I heard correctly, I think you said you had another $11 million going to NPL this quarter?

Yes, we had one credit -- give me one second here. We had one credit for about $12.5 -- call it $13 million. And it was a position, which was out of trust and I don't know much more to say about that. The rest of the book has continued to actually pay down or the non-performers have actually come down. I think the way to think about that portfolio is as the economy weakens and as the auto sector in particular does -- has trouble, you might see one or two more. But as we said on the last call, we did a pretty thorough scrubbing of that portfolio over the last two years and we've been able to take out most of the weaker sort of links and credits in that portfolio. So, I think we're not overly concerned there.

Great. Thank you very much.

Thank you. Your next question comes from Steven Alexopoulos of JP Morgan.

Hi, how's it going?

Hi, Steven.

Just a couple of questions. Rene, first, in terms of the margin guidance you gave, are you saying full year modest pressure from the 338 from this quarter? Is that what you're saying?

Yes, that's what I'm saying. If you look at our profile, we kind of have a very similar profile, we're asset-sensitive. So at a 200 rate down, our -- we lose $17 million over the course of a year. But if you -- and then on a 200, up, it's almost neutral, it's a negative $1.5 million. But if you think about that, the idea that you would actually have a 200 down from where rates are today is pretty nil, right? So I think that our position is sort of a modest down. I think we're tempering the loan growth a bit and so that should take a bit of pressure off. And then the other sort of factor that you have out there is that when rates have dropped as fast as they have in the last three months, it's very difficult for your sort of time deposit pricing to catch up. Right? So it's locked in. So I think until rates stop dropping, we'll be in that sort of modest downward pressure. I don't think -- I wouldn't expect to see big, significant drops but modest downward pressure.

Maybe to follow up on that, looking at your cost of CD's across the quarters, I think this was the biggest drop we've seen on a quarter-to-quarter basis. How much do you think is left there in terms of the ability to lower your CD rates from here?

Well, this will apply to most banks but if you think back 1.5 year ago, consumers would not go longer than a year. So most people have time account books that are about a year in duration, not much more, probably less. Right? So, I think for some time now, you're going to begin to see those books run off. And then the question really becomes; What length of maturity do you start to put back on the books? And we've seen some appetite for longer than a year in this environment. If that helps.

And a final question, there was news out during the quarter that Bayview, I think it was their subsidiary was cutting staff. Can you talk about what the outlook is there in the next couple quarters and do you think they'll at least be able to cover their expenses?

Yes, I think I covered it a bit, but the way I would describe it is that through the fall, they were selling securities as the market got worse, when nobody else was. And we got to January, they were able to -- they sort of entered the market with two securitizations in a 30-day period and they were able to sell probably 1/2 of that book. But as you get to February, the markets have frozen up quite a bit so they're clearly into their backup plan. Part of that plan, it's a fairly robust plan, using sources to fund any inventory that they have and then forward sales contracts, which they have out there that they could use to place securities. The first place to start is that there's very little inventory overhang. And the primary reason is that they've been slowing their volume by tightening credit standards, probably since December. So the volume there has come down a fair amount. And they seem to be doing a pretty good job. So, with any of these businesses, a lot depends on how -- whether we're out here a year from now and we're still in an environment where you can securitize. But today they seem to be doing all the right things to manage the business.

Okay. Thanks, guys.

Thank you. Your next question comes from Matt O'Conner of UBS.

Hi, Matt.

Sorry to harp on Bayview, the one question I'd have would be your investment of I think it's $300 million, just remind us how that's valued and at what point would you test it for permanent impairment and might have to take a write-down?

We paid $300 million for an interest in Bayview and I think our view of that investment is that we were trying to put ourselves into a place where we could learn the securitization market and it would position ourselves for a very long time. Clearly, when you have the kind of disruption that you've seen in the last 60 days, that -- you can't make an investment like that without planning for the fact that that might happen for some short period of time. So in essence, it's really been too short to tell and we think that the franchise value of Bayview is all still there and we need to let it work through their process, as clearly they're doing.

Okay. And then, I think we're all hoping the securitization markets open up to some extent but if we just fast forward a year from now and they haven't, there's a lot of issues we would have to deal with but one of them might be to have to write-down that $300 million?

They would have to have -- if the market's are not open a year from now, they would have to have an alternative business plan.

Okay. And then just off to a different topic, you mentioned you raised some trust preferreds this quarter and I was trying to reconcile what your tier one is right now. Is it about the 7.5% range?

Yes, that's probably near there, yes. Between 7.5% and 7.6%, I would guess. I don't have that in front of me.

How should we think about your capital ratios? You obviously generate very high returns on your capital and your loan portfolio's a little more granular but it seems like there's pressure everywhere to increase the capital ratios.

I think our regulatory capital ratios are strong. I think that what we want to do is get our tangible ratios back into the range and I think that's sort of our mission as we go forward. From a practical standpoint, think about where we were two years ago. We weren't buying investment securities because they didn't make sense. We were running off our loan book in indirect auto and in New York City real estate because the spreads were too thin. Today, that's not the case at all. And the idea that we would be buying back shares as opposed to using it for the opportunities to book loans when they're back in high return doesn't make much sense. Right? So our view is, is that we'll be opportunistic and we'll probably shy away from share buybacks, at least in the near term and we'll continue to build capital for opportunities.

Okay. That's actually a good segue into my last question. When I think about banks out there, that have navigated this downturn well so far, you guys come to mind. My guess is you'd have access to additional capital if you would need to do something opportunistic. So just talk about how you think about acquisitions out there. And specifically the question I think everyone's wondering is when there's distressed assets for sale, who is going to be stepping up and should we expect M&T to be in a position to step up?

It's interesting you asked the question that way. Because in my comments, I said we're a core community bank. And to the extent that there are opportunities out there that have to do with strengthening our core -- our community bank profile, then we'll be very focused on them. But to the extent that, there are issues out there where you're able to buy distressed assets that are in a -- and just through a transaction, it's really not the business that we're in. So nothing has really changed for us. We tend to look for partners that fit our profile, that are interested in staying in the banking business and that typically are in and around our footprint. So no change in the way we think of things and we are more than capable of doing something if it should arise.

All right. And some of the bigger names, some of the bigger banks have obviously been in the headlines as potentially seeking partners but I think a lot of smaller community banks that might be on your radar screen are not on the rest of ours. Are you seeing similar pressures there or interest there for bank managements to partner up?

I think -- I don't know. This is all anecdote but I think that people are focused on risk management and making sure that they have good capital and are monitoring their credit portfolios. And they're not spending a ton of time -- I think they're spending a ton of time focusing internally. That's just what we see.

Okay. Thank you very much.

Thank you. Your next question comes from Bill Rubin of the Boston Company.

Hi, there. Back on the topic of credit, specifically traditional CNI lending credit. I'm just wondering whether you're seeing any early signs of deterioration there and if so, which end markets or which industries, if any, are showing weakness? Can you talk to that?

We've talked about auto for some time now. Right? And I think that even though we've been talking about it for two years, that market continues to weaken, that industry continues to weaken. So, I think we've got to be careful and look out there. Anything related to housing is weaker. Whether you're talking about suppliers of lumber or any of those types of things, there's clearly been a slowdown in those markets. I think overall, when we've talked about, particularly things like residential mortgages or builder construction, all along our conversations have been that it's a credit cycle and that's because we've seen migrations across all of our loan products, slight migrations. And none of that has really slowed. I think that -- no specifics, but I would expect us to have to remain very cautious across all of our portfolios. Nothing that jumps out that's any different than the trend that we've actually been seeing in the past year.

So, you wouldn't argue there's any acceleration going on at this juncture?

It's hard to say an acceleration but clearly there's an increasing rate of weakness across all portfolios.

Okay, fair enough. Thanks.

Thank you. Your next question comes from [Garaf Patankar] of Sinova Capital.

Hi guys. Congratulations on the quarter. Real quick. In terms of the spread widening on the commercial loans or the incremental commercial production, can you comment a little bit about the trends that you're seeing, especially the New York City commercial real estate, assuming that now most of your clients will be shut out of the securitization market and how much of that could be -- could translate into an upside surprise for the NIM in the rest of the year?

I think that one thing to watch for us is if you skip the net interest margin and you look at the net interest spread that we report, clearly you will see, to the extent that loans are being put on at a wider spread, you'll see it in the net -- in the spread. And one of the things that obviously dampens the margin is just simply the lower cost of refunds. So clearly, across our book, one of the ways that the loan growth will be slower is by having appropriate market prices in there. And I don't know how to say it. They're wider but to mention how much wider, I don't know that makes much sense.

Got you. Thanks.

Thank you. Your next question comes from Collyn Gilbert of Stifel Nicolaus.

Good afternoon, Rene.

Good afternoon.

First, let me ask you a couple questions on some comments you made specifically. When you were talking at one point about credit, you had referred to a static pool of loans that you want to work through as fast as possible. Is that the roughly and by my calculations of what you had said on last quarter call, $95 to $96 million in the -- actually, no that would have been resi. What was the static pool of loans to which you were referring?

I was referring to the pool of Alt A loans, mortgages that were $1.2 billion. And then, in particular, what we said in the past is that there's about $150 million of those that really has a higher loss content. $60 to $70 million of that $150 million is related to second mortgages. And another -- the remainder of that $150 million is really scratch and dent or early delinquent loans that we had originated and weren't salable a year ago. So, it's very concentrated. And remember, we're not in the business of sort of originating Alt A paper. For lack of a better term, we got stuck holding the bag when we were securitizing that and we decided to hold that on our balance sheet. So, at this point, it's just a matter of working through that defined pool of loans.

Okay. Because you guys - you've identified that $150 million now for a while but it doesn't seem as if it's really migrated into significant loss rates. And I'm just trying to gauge what the potential loss rate really is on that or if you think it's fairly controlled?

For a long time we've said that our losses are manageable. And the way to think about it is -- from your perspective, that's absolutely the right way to think about it. It's a mild percentage of our portfolio and that's -- the reason for it is that it's only $1 billion out of a $50 billion loan book. Right? But if you flip it around and look at the absolute loss numbers, losing $18 million in a quarter on a $1 billion loan book, in our minds, is something that is a pretty troubled portfolio. The good news is that we don't have very much of it.

Okay. And then just quickly back to Bayview, I just wanted some clarification. When you spoke about -- you said a $9 million gain came through this quarter. Can you just repeat that again and how that then spend factors into -- if we netted that out what that means for what the loss would have been for the quarter?

If you go back -- to understand, you've got to go back to August of '07 and there was all of that disruption and then we didn't -- we weren't able to securitize, at least initially -- they weren't able to securitize initially -- complete the transaction. Well, as they -- as you looked at that market at that point in time, one of the things they did to beef up their liquidity plan was to enter a number of forward contracts to make sure they could deliver securities going forward. And as you think about it, essentially what they did is they provided a sort of a back stop in the case that the economic environment would turn worse. And it turned worse and so that they exercised that -- those contracts to provide themselves with liquidity. So, they've been very good at doing that. I think you've got the numbers right. If you kind of back out that gain, our quarter looks a lot like the third quarter of last year when we had no revenue. And you heard from a previous caller that Bayview is actually doing a number of things to manage their expenses and volume down to a manageable level so that they can continue at that sort of steady state level. So maybe there's some modest pressure in reducing that run rate loss, in a scenario where no revenue could be garnered.

Got you. Okay. And then just finally, as you look at your markets, which are fairly diverse, is there -- are there certain markets that are providing you with better growth opportunities than others? And if so, what is it that would be driving that growth?

I don't think so. I think our growth has been very strong across the board. We had adjusted for acquisitions. In Pennsylvania, for example, we had 7% annualized loan growth and that was the lowest we had anywhere. The way we think about it though is a little bit different. As you think about, for example, New York City and the places that are much closer to the capital markets, even clients that are used to using the capital markets, as the capital markets have shut down, those folks are looking for a home. And to the extent that their traditional M&T relationships where we've done business before, a lot of those individuals are coming back to us. I think that is not necessarily region-specific. Across the board volumes are very high.

Okay. Great. Thanks very much.

Thank you. (OPERATOR INSTRUCTIONS). Your next question comes from Sal DiMartino of Bear Stearns.

Hi, Sal.

Good afternoon. Collyn asked most of my questions but if I can just follow up on one on the loan growth and then an additional one. Can you just provide us a little bit of color on sort of pricing and structure during the quarter and are you seeing any changes there? And then also, could you tell us what you're hearing from some of your commercial borrowers regarding their outlook for their businesses? Are you seeing any retrenchment on their part?

I think what we saw in the fourth quarter were a number of borrowers looking to take out a lot of short-term variable debt. And that would imply that they were going to sort of take on the debt and when the capital markets cleared up, they were going to go and refinance it. As we move ourselves into the first quarter, there's still -- much of the focus is on variable rates but I think a number of people are more and more willing to go out a little bit longer. Because as the uncertainty in the market exists, people are trying to be prudent and it's sort of a changing view on how long this cycle will last. And as we kind of work through, again, month by month, structures continue to improve. And I think that is in part because some of the larger, particularly larger nation institutions and then maybe some of the small community banks have taken awhile to sort of react to the slowing -- the change in the structures in the way business is done. But all of those things have tightened up dramatically from the last year. I don't know if that's what you were looking for, Sal.

That's fine. Thanks, Rene.

Thank you. Your next question comes from Bob Hughes of KBW.

Hi, good afternoon, guys. I had one follow-up on Bayview. Rene, has there been any change to your relationship with the parent Bayview Financial or have you had any additional draws on your liquidity commitment to the parent? I think you have a warehouse line to Bayview Financial; is that correct?

Yes, we do. I don't believe as we sit here today that there's any material difference in the level of that line from where we were at year-end. I don't know. If you give me a minute, we'll have someone take a look at that.

Okay. Maybe we can come back to that in a second. With respect to the Metro New York and multi-family lending in particular, have you sensed any change in appetite from the GSE's for this product at all or is that sort of continuing unabated?

No, actually, it's interesting, we have not seen much change in pace. That business that we have -- obviously, we have two businesses where we sell, we're in the Fannie Mae DUS program and then we have a program with Freddie Mac. And the volumes have been relatively steady. They haven't accelerated as much as some of our other businesses but they're relatively steady. So I assume that there's no disruption there and the appetite is what it was a quarter ago.

Okay. And then in the home equity book, have you guys been cutting lines at all to mitigate risk as we've read about in some of the national press?

Not in any large way and I think -- Bob, you've got to go back to our portfolio. While the losses are rising, it's from very low levels and it just continues to seem to perform very well on a relative basis. So no, I'm not aware that we're doing that.

The basis of my question wasn't so much about the credit performance of the portfolio but just --?

Well, they're connected --.

Available liquidity to consumers as well?

I see. Well, we're lending. They're available. The volumes are low, not because of our pricing or tightening, just the volumes just seem to be low in the home equity line of credit product. I garner -- I gather the -- what we're hearing about people canceling lines has a lot to do with the quality of the book.

Understood.

But no change. We just haven't seen an uptick in borrowing on a line of credit basis.

And so, no meaningful change to the Bayview Financial relationship?

I just got it, it's written right down in front of me, the available line has not changed materially.

Okay. Thanks, guys.

You're welcome, Bob.

Thank you. Your next question comes from Gary Paul, a private investor.

Hi, Gary.

I have three questions. The first is a very simple one. You don't intend to repurchase until you get your capital to tangible asset ratio from 5.2% to 5.6%. What is it now?

At the end of the quarter, it was 4.94%.

Thank you. The operations are obviously going very well. The only two areas of concern I have are the construction portfolio and Alt A. You may tell me the same limitation on answer as on -- you gave to someone earlier on Alt A. But do you have a specific amount of allocated reserves to the commercial construction portfolio? The annual get's you for total commercial real estate but not for construction.

Gary, the way to think about that is that at year end we had in non-performing -- actually, give me one second. We had -- at the end of the quarter, in that category, builder construction, we had non-performing loans of $95 million. And by the time they get to that category of non-performing, we have specific reserves on each of those credits.

But you don't have them before that time?

No, and through that process we would -- well, how do I say this? It's not a specific reserve, they go through the grading, we're increasing the amount of a specific provision we put on them.

Okay. And my --?

So if you think about -- we've actually talked about the amount of specific reserve we have on the two credits and at the end of the year, those made up the lion's share, almost 90 some odd percent of the total non-performing that we had in that book. And now we've added another for about $12 million for that book, so it would be heavily provided for.

And my third question relates to the Alt A, when you announced the problem in the first quarter of last year, there was $800 some odd million. The increase to $1.2 billion or I think the annual had $1.3 billion, was that from stuff in the pipeline that hadn't hit the books yet or was that from having to repurchase things that went delinquent in that early time period where you guarantee repurchase?

No, the big difference was that we had in our discretionary portfolio that we had -- that the -- our discretionary portfolio had purchased, we had roughly $400 million, just in the normal securities book. And when you -- in the discretionary portfolio and then you add the $880 million.

Okay.

It brought it up to $1.3 billion now it is down to $1.15 billion.

So that other $400 million was stuff you intended to hold?

Exactly.

Okay. I thank you.

You're welcome, Gary.

Thank you. Your next question comes from Tom Lamb of Weybosset Research.

Our question was answered.

Thanks, Tom.

Thank you. Your next question is a follow-up from Collyn Gilbert of Stifel Nicolaus.

Just a quick -- two quick housekeeping things. Number one is the $7 million in the mortgage banking accelerated revenue recognition, that's non-recurring; correct?

Yes, that's the way I would think of it.

Okay. And then what was the actual -- the pre-tax merger charge number for the fourth quarter -- I'm sorry, for the first quarter?

For the first quarter, I believe it was $3.5 million.

$3.5 million.

And I wouldn't expect to see more of that.

Okay. Okay. Great. Thanks.

Thank you. There are no further questions at this time.

Again, we'd like to thank all of your for participating today. And as always if there's any questions or clarification of any of the items in the call or news release is necessary, please contact our Investor Relations department at area code 716-842-5138. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.