M&T Bank Corp (MTB) 2009 Q1 法說會逐字稿

Good afternoon. I will be your conference operator for today. At this time, I would like to welcome everyone to the M&T Bank first-quarter 2009 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Mr. Don MacLeod, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Julianne. Good afternoon. This is Don MacLeod. I would like to thank everybody for participating in M&T's first quarter 2009 Earnings Conference Call both by telephone and through the web cast. If you have not read the earnings release we issued earlier this morning, you may access it along with the financial tables and schedules from our web site at www.MTB.com and by clicking on the Investor Relations link.

Also before we start, I would like to mention that comments made during this call might 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 would like to introduce our Chief Financial Officer, Rene Jones.

Thank you, Don, and welcome everyone. I would like to thank all of you for joining us today on the call. I know it has been a busy day for everybody, but for M&T at least, it is difficult for us to break from the tradition of having our earnings release on the day of our annual shareholder's meeting. So I thank you for your patience.

There are a few items from this morning's press release that I would like to discuss before I respond to questions. Diluted earnings per share were $0.49 in the first quarter of 2009 compared with $0.92 earned in the fourth quarter of 2008. Net income in the recent quarter was $64 million, compared to $102 million in the linked quarter. The amortization of core deposits and other intangible assets amounted to $0.09 per share in the first quarter of 2009 compared with $0.08 per share in the linked quarter. There were after tax merger-related cost of $1 million or $0.01 per share in the recent quarter. There were no merger related costs in the linked quarter.

Net operating earnings per share which exclude the amortization of core deposits and other intangible assets as well as merger related charges were $0.59 for the recent quarter compared with $1 in the linked quarter. Net operating income for the quarter was $75 million compared to $112 million in the linked quarter.

The recent quarter results included $20 million or $0.18 per share of after tax other than temporary impairment charges on nonagency mortgages -- mortgage securities. This reflects our determination that the bonds are unlikely to pay their full contractual level of interest and principal over the remaining life. Because of previous unrealized losses taken on the bonds through other comprehensive income, the charge taken through the income statement this quarter had no impact on tangible common equity.

I would like to cover a few highlights from the balance sheet and the income statement. Taxable equivalent net interest income was $453 million for the first quarter compared with $491 million in the linked quarter and $485 million in the first quarter of 2008. Net interest margin was 3.19% compared with 3.37% we reported in the fourth quarter of 2008. As we noted on the January conference call, this came as a result of a very sharp reduction in short term interest rates in December. In addition to the 75 basis point reduction in the Feds fund target, there was almost 150 basis points reduction in the one month LIBOR to Fed fund spread. These two factors combined to put sharp but short term pressure on the margins early in the quarter.

The margin widened again in February and March, as our interest bearing liabilities began to reprice in conformity with the lower prevailing market interest rates. So, for example, net interest income earned in March was $12 million higher than earned in January, even though both months had 31 days.

Average loans for the first quarter were $48.8 billion, flat compared with the linked quarter. Average commercial and industrial loans excluding automobile floor plan loans declined an annualized 4%. Auto floor plan loans declined an annualized 19% compared to the linked quarter reflecting the slow auto sales environment to which dealers have responded by reducing inventories.

Commercial real estate loans grew an annualized 3% and consumer loans declined an annualized 2%. Residential real estate loans grew an annualized 11% reflecting an increase in the level of mortgage originations primarily driven by refinancing activity.

As we discussed through most of last year, we remained focus on relationship lending within our community bank footprint and have limited appetite for transaction type business -- transactional type business such as indirect to consumer, and pretty much anything else outside of our core markets. In essence, we want to be there for our core customers when they need us. We're now seeing, as a result of this community bank focus -- we are now seeing the results of this community bank focus in comparison to last year's first quarter and we believe that it is an indication that we're growing share within our branch footprint.

For example, average commercial industrial loans, again excluding automobile floor plan loans, are up 8% compared to last year's first quarter. Commercial real estate loans are up 4% year over year and home equity lines of credit are up 10%. On the other hand, categories that are either transactional or which reflect the deliberate exit from certain lending activities beyond our footprint are declining. Some examples are indirect auto loans that are down 13% from last year's first quarter, automobile floor plan loans that declined 15% from the same period. And our portfolio of Alt-A mortgages is down 18% from last year's first quarter, and down 23% from the first quarter of 2007 when we made the decision to hold and work out the entire Alt-A portfolio.

Average investments for the first quarter of 2009 were down 5% compared to last year's first quarter. On the deposit side, we experienced our sixth executive quarter of core deposit growth. We believe customers continue to see M&T as somewhat of a safe harbor amidst the volatility in the marketplace. The numbers are impressive.

Average core deposits which excluded wholesale and foreign deposits were $34.7 billion for the first quarter, up an annualized 20% from the linked quarter and up 13% from a year ago. We experienced balanced annualized link quarter deposit growth across all of our entire geographic footprint, including 17% in upstate New York, 17% growth in New York City -- in the New York City metro area, 13% in Pennsylvania and 19% in the Mid-Atlantic. Noninterest bearing checking accounts were up an annualized 28% compared with the linked quarter and up 15% compared with last year's first quarter.

Turning to noninterest income, excluding securities gains and losses, noninterest income was $264 million for the recent quarter. This compares with $265 million in the linked quarter and $279 million in the first quarter of 2008. Mortgage banking fees were a record $56 million for the quarter compared with $40 million in both the linked quarter and the first quarter of 2008 as the current low rate environment drove refinancing activity. Prior gain on sale volumes and margins boosted the fees for the quarter.

Service charges on deposit accounts were $101 million during the recent quarter reflecting the seasonal decline from $106 million in the linked quarter. Service charges decreased by $2 million from last year's first quarter. In addition to the expected seasonal impact, there also appears to be some impact from the general slowdown in consumer spending.

Turning to expenses, operating expenses which exclude the merger related charges and amortization of intangible assets were $421 million compared with $404 million in the first quarter of 2008 and $431 million in the fourth quarter of 2008. You'll recall that last year's first-quarter results include a $15 million partial reversal of Visa-related litigation accrual.

The quarter's results also reflect our usual seasonably high salaries and benefits expense, which excludes the accelerated recognition of equity compensation expense for certain retirement eligible employees, as well as higher FICA expense, unemployment insurance expense, and expenses related to our 401(k) match. In aggregate, these expenses were some $24 million higher than in the linked quarter. This is consistent with our experience in each of the past three years. The first-quarter results include a $5 million partial reversal of the evaluation allowance for capitalized residential mortgage servicing rights compared with a $19 million addition in the fourth quarter of 2008 and a $5 million addition to the evaluation allowance for the first quarter of 2008. Excluding the Visa-related reversal in last year's first quarter, the $10 million year over year change -- and the $10 million year over year change from the MSR evaluation allowance, operating expenses increased only $12 million or 2.9% from last year's first quarter.

Next, let's turn to credit. Nonaccrual loans increased to $1 billion or 2.05% of loans at the end of the recent quarter compared with $755 million or 1.54% at the end of the previous quarter. The increase includes $62 million of loans to builders and developers of residential real estate and $41 million of residential mortgage loans. Also contributing to the increase was the transfer to nonaccrual status of our largest unsecured commercial loan amounting to $95 million.

The first -- through the first quarter and continued efforts to assist borrowers, M&T modified an additional $60 million of residential real estate loans. This brings our modified loan totals to $216 million. The modifications continue to be primarily attributable to our portfolio of Alt-A mortgages. And of that total, 106 were included in nonaccrual loans -- $106 million were included in nonaccrual loans as of March 31st, 2009. After a period of demonstrated performance, they may return to accrual status. The remaining $110 million of modified loans were classified as renegotiated loans and were accruing interest as of March 31st.

M&T's six month redefault rate is currently 25%. Considerably better than the 40% rate published by the OCC on April 3rd. Our nonperforming assets consisting of assets taken in foreclosure or defaulted loans were $100 million, unchanged from the linked quarter. Net chargeoffs for the quarter were $100 million, improved from $144 million in the fourth quarter of 2008. This is an annualized chargeoff rate of 83 base points of total loans compared with 117 basis points in the linked quarter.

Residential construction and development loans accounted for $22 million of the chargeoffs for the quarter. Down from $25 million in the link quarter. Consumer loans accounted for $36 million of net chargeoffs in the recent quarter. Unchanged from the link quarter. Alt-A loans, both first and second liens, accounted for $16 million of net chargeoffs compared to $12 million in the linked quarter. Net chargeoffs for total residential mortgage -- for the total residential mortgage portfolio were $19 million. Also unchanged from the fourth quarter. Net chargeoffs for the commercial and industrial portfolio were $23 million compared to $61 million in the linked quarter.

The provision for credit losses was $158 million and exceeded chargeoffs by $58 million. This compares with $151 million in the linked quarter and $60 million in the year earlier quarter. The provision in excess of chargeoffs included a large, specific reserve for the unsecured commercial loan that I mentioned earlier. The allowance from credit losses at the end of the quarter was $846 million, an increase to 1.73% of total loans at the end of March 31st, 2009, up 12 basis points from the linked quarter, and up 16 basis points from last year's first quarter. The allowance as of March 31st, 2009, covered the first quarter annualized net chargeoffs by more than 2 times. We would expect this measure to continue to compare favorably to the average of our peer group of large regional banks.

Loans past due 90 days but still accruing were $143 million at the end of the recent quarter compared with $159 million at the end of the sequential quarter. This includes $127 million and $114 million, respectively, of loans that are guaranteed by government-related entities.

M&T's tangible common ratio was 4.86% at the end of the first quarter, improved from 4.59% at the end of last year. Our preliminary estimate for tier one capital ratio as of March 31st, 2009, was approximately 8.76%. Excluding the other than temporary impairment charges which were already reflected in our tangible capital ratio as of year end 2008, net operating earnings again exceeded our quarterly dividend.

Consistent with our comments on the January's conference call -- actually, I'm now turning to our outlook -- consistent with our comments on the January conference call, we would expect a rebound in the net interest margin over the remainder of 2009. And a full year margin not materially different than that for -- that which we had for the full year of 2008. We continue to expect credit costs to remain elevated throughout the year and to expect a certain level of variability in chargeoffs in any single quarter. Put another way, it would be incorrect to annualize any single quarter's chargeoffs for use as a projection for future loss experience.

With the difficult credit environment M&T remains very focused on expenses. This is particularly important as we're having to absorb an increase in FDIC assessment for 2009 of over $40 million.

Finally, the Provident transaction is progressing well. The merger has received the approval of the Provident shareholders and we're waiting for the remaining of regulatory approvals. As we get closer to completing the transaction and integrating the two banks, in typical M&T fashion, we're finding that we may well exceed the initial assumptions that were made following our due diligence review. As a result, we now expect to realize modest earnings accretion in 2009, as opposed to our beliefs, our earlier belief, that the deal would not be accretive until 2010.

All of these projections are, of course, subject to a number of uncertainties and various assumptions regarding national and regional economic growth, changes in interest rates, political events and other macroeconomic factors which may differ materially from what actually unfolds in the future.

We'll now open up the call to questions before which Julianne will briefly review the instructions.

Thank you. (Operator instructions). Your first question is from the line of Steven Alexopoulos with JPMorgan.

Hi, Steven.

The $95 million commercial loan, is that a shared national credit?

Yes, it is.

I take it you're not the lead bank.

No.

Rene, do you have the total size of that loan?

Yes. That's it. We've got -- what we have is a large commercial loan, $95 million that we transferred to nonaccrual status. And it is an unsecured loan that we've had -- the relationship comes from our acquired Allfirst portfolio. And prior to that -- the company -- Allfirst client did business with this company before -- since 1968, I believe. And then the company was acquired and we stayed into the merged entity in this -- in the shared national credit. So, it is a company that has some -- that is real estate based but not sort of in our real estate portfolio in the classic real estate sense of M&T.

The total size of the credit is much larger than the $95 million, because you (multiple speakers) a portion of that.

Oh, I'm sorry. I don't know that number.

Okay. And what was the specific reserve on the credit today?

We reserved a healthy amount. Let me say that.

Okay. I just want to change topics for one second. Looking at the other revenue line, which was down to $59 million, it was off quite a bit from where it has been. Anything going on there or is that a new run rate for that line item?

I know that answer, but just give me a second. It sort of slipped my mind a little bit.

It largely has to do with the state of commercial activity, Steve. Included in there are loan fees, syndication fees, letter of credit fees, all of which are sort of running at a reduced level in this environment.

Yes, I think what you're seeing is with the slowdown in the economy, there's some -- some people are being very cautious. So, a lot of the investment has slowed down. That's why you see a little bit slower loan growth from us. But having said that when I am talking with commercial folks, they tend to be relatively optimistic about that not being a permanent thing.

Thanks, guys.

Your next question is from the line of Ken Zerbe with Morgan Stanley.

Hi, Ken.

Hi, how are you guys. First question, just on NIM I want to make sure my math is correct on this. If I heard you correctly, full year NIM should be roughly equal to 2008 level, so 3.38%. I guess given the 3.19% this quarter, that would imply 3.45% for the next three quarters. Is that -- is that -- which is higher than obviously any of the quarters back in 2008. Is that something you guys can achieve just through deposit repricing or are you relying on increases in Fed funds or some other factors?

No, I think when you get done with the earnings season, you're going to see that the magnitude of our drop in margin is probably not different from anybody else in terms of basis points. But let me explain to you what's going on. At least at M&T, remember at the end of the year, we had taken our Fed funds position down to less than $1 billion and our overall overnight position down pretty substantially to improve our liquidity profile when there was a lot of turbulence.

We termed out a lot of money and quite frankly, the money that was -- for term money was fairly cheap. But that sort of changed our profile. And we kind of talked about that in January. So, what has to happen now is with the sharp decline in interest rate, it is going to take a little bit longer to reprice but it is more timing than anything else.

Now, the other thing to think about is that this sort of -- I can't describe it any way. I mean, we had $1.7 billion of core customer deposit growth this quarter on the heels of $1.6 billion last quarter. In effect, from a financial standpoint, you're not seeing the impact of that in our earnings until we -- until some of the term debt rolls off. Right? And then you'll actually see the benefit of all of that. So it is a bit of timing issue.

I can't expect us to jump to the number you mentioned in one quarter. But I would expect we get a rebound from where we are -- a nice rebound from where we are here and then a steady build over the course of the year.

Understood. Okay. And then the other question I had, just on Bayview, it looks like your equity loss was just over $4 million this quarter. I guess you're going on, what, a year and a half or so of consistent losses? At what point would you might need to consider a write-down of Bayview?

Well, Ken a couple of things just to revisit. This is kind of what we said would happen. We said that they needed to get through the right sizing of that original -- origination business that we invested in. So, that's actually coming along fairly nicely and has dropped, I don't know, for the last three or four quarters in a row. That's what we've seen in terms of the loss they were posting.

What you've got now is we are -- our evaluation is heavily reliant on the other two businesses, I'll call them, that they have when we restructured that contract back mid last year. And so just recall that the Company has something in the neighborhood of $1.5 billion of residuals which go first to support some loans that probably have another year in duration. And then second, those cash flows, as they pay off, 20% goes to M&T and the 80% goes to the 80% partner.

The second thing that they've got is their Bayview Asset Management, which is a fund which essentially brings them back to their core competency, which the environment is ripe for, which is buying discounted scratch and dent loans in this environment. So, everything we've seen there in that business has been running as expected. And we think that there is fairly favorable outlook from the perspective that we sit in. Right now, we don't see any issue today with Bayview.

All right. Okay. Thank you, much.

Sure.

Your next question is from the line of Matthew Clark with KBW Asset Management.

Hi, Matt.

Good morning. I guess I'm now in asset management. Can you give us the 30 to 89 day past due bucket?

30 to 90 day past due bucket for consumer loans?

I won't ask you for the entire breakdown. Just the overall bucket. I think it was $487 million last quarter.

Give us a second. We'll get you that answer in a minute.

Okay.

I think what we're seeing though is we look at it, there is not a big change in the consumer book. I would say the delinquencies probably ticked up a bit. But for us, from the lows that they're at they're performing pretty well. But you can clearly see the weakness. But you also see that our performance -- our portfolio which is performing probably well better than the industry average, that's not changed, right?

So, I would expect that you'll see that on the consumer side, maybe we'll be up link quarter, maybe 6 basis points or something like that on 30 -- 30 plus delinquencies, but nothing more than that. If these guys come up with a number, I'll mention it again later on the call.

Okay. And then can you talk a bit about the transition portfolio that I think we discussed up in Buffalo? Obviously you have had some follow-up questions on that. I would like to discuss it here given Reg FD. So, I think at the time it was talked about as being about a $2 billion portfolio. Can you just better address that book in terms of size and type and even geography? And then what kind of issues might you be witnessing from a slowdown in the pace of condo conversions?

I don't have the New York City breakout in front of me, but let me just give you some sense. When you talk about the transition portfolio, it is a bit of a label to sort of -- which what I would characterize is the first step as we review the portfolio. It doesn't really indicate a problem. But for the group, in the industry apparently they used the term transitional in real estate to mean something like that you're relying on a turnover of the rents and a change or renovation in the nature of the building over time.

So, while we have credits in our portfolio that fit that description, what's probably most important is when you sort of compare our portfolio and the decisions we made to the underwriting standards that were out there in the conduit market, which you see now in CMBX, they're vastly different.

So, for example, whenever we're looking at projecting future rents, we had a cap on 3% per year growth in rents. We never went higher. When we look at -- when we looked at turnover rates for portfolios like that, we actually never allowed a turnover rate in the apartment greater than 3%. So, that was our standard all through the 1990s. We never changed that standard when we got into sort of the frothy markets.

Then finally, I think what you would see is that while people will characterize each of their portfolios as transition, what really matters is what were you doing with the cap rates, right? And clearly, again we didn't change our cap rates as dramatically as everybody so we probably had a 2 to 3 point advantage there. So, I mean that's the description of transitional.

When we look at the portfolio, we've kind of broken down the portfolio between office -- hang on one second. I'll give you some numbers. I'll give you some numbers. In the portfolio that we have for example in New York City is $5.9 billion. There is -- 36% is retail, 22% is multifamily, 17% is office, 11% is hotel. I'm kind of looking for our construction portfolio. I know it is relatively small, maybe a total construction portfolio or condo portfolio was $400 million in total. So that gives you a profile.

But as you get into that, we're reviewing those portfolios, and when we review the portfolios, we kind of get that narrowed down into specific credits that we're looking at. What you basically see for M&T is not different from what you hear about from other long-term investors or balance sheet lenders, right? That much of the portfolio that we have in commercial real estate particularly in New York City, is not a portfolio that reprices in 2009. In fact, we have very little that reprices in 2010. But more of our repricing risk, if you will, comes out in 2010, 2011, 2012, right? Whereas if you were to look at the CMBX, and particularly variable rate CMBX, there is a fair amount of that that comes due in 2009 and 2010.

So, the big risk that we see out there in commercial real estate is a refinancing risk. And we're fortunate enough that while we're watching a number of credits, most of those credits that we have under our watch are trying to figure out solutions for our clients when they reprice, sometime between 2010 and 2012, right?

So, what it does is it allows us to be relatively proactive. We assume that the financing market today doesn't really change and we've been trying to work on credits to work out solutions there. To give you some view of that, today in New York City, I knock on wood because numbers can't get better than this. But out of that $5.9 billion portfolio, we only have $5 million of delinquent loans, right?

So, I think a lot of the commercial real estate story depends on the refinancing issues that come out and some of the programs that come into play. But for us, it is not necessarily an 2009 issue. It is actually much further out. I think that gives us time to sort of work through the credit.

Having said that, not changing our underwriting standards through this -- through the sort of frothy periods, I think is going to make our portfolio stand out better than average. None of us can predict what's going to happen to New York City but I just think that -- I just feel that we'll perform a little bit better.

Okay. Great. And then on the pending Provident deal, is there anything that relates to the change in the T.A.R.P. related agreement that would make it more difficult to close this deal or is that not an issue?

We've not heard anything like that.

Okay. Great. Thank you.

You're welcome.

Your next question is from the line of [Carrie Ronge] with Merrill Lynch.

Hi, Carrie. Hello?

Carrie, your line is open. There is no response from that line. Your next question is from the line of Collyn Gilbert with Stifel Nicolaus. Good afternoon.

Hi, Rene, how are you?

Great.

Good. Just first a follow-up to Matt's question. When you're talking about you're seeing the repricing risk of the CRE portfolio in New York City, 2010, 2011, 2012, were those originated at ten-year terms? Or at what point were the origination buckets of some of the credits?

Yes, it is great, great question, Collyn. I don't have specific numbers for you but I think that's the essence of the issue which is that typically what we -- I think typically what we book is ten-year notes with a five-year reprice, right? So, the logic behind what I'm saying is that as things got very heated up in 2005 and 2006 -- it looks like '06 and '07 let's say -- 2006 and 2007, because we tend to focus so much on profitability, we couldn't make the numbers work so we stopped booking the loans, right?

So, that means that a lot of our vintages are -- of these loans -- the loans per se are probably earlier than 2005 but more important, the relationships are early 1990s. So, the individuals that were banking, are people who have been with us for the last 18 years, and they're the people that survived the last real estate crisis, right? So, we have a fairly astute group. They're the people that were doing a lot of their projects prior to the frothiness of the high prices in real estate.

Okay. That's helpful. One thing that was surprising to me was the yield that you guys are posting on your commercial portfolio. I don't have it right in front of me. But are you not putting floors in some of the pricing on some of your commercial relationships?

Well, we tend to price to LIBOR. And it is pretty simple and it is very consistent, right? So you can't change your terms with your customers if you're going to be a relationship lender. And LIBOR is very low. I would say you're simply seeing the fact that spreads actually are very much -- are much wider. I would say spread to LIBOR probably well in excess of 3%, where in the past they were south of 2%. But what you're seeing there is just the simple fact that LIBOR -- a lot of them are priced off of one month LIBOR as well. So, what's one month LIBOR? Probably 50 base points, somewhere in that range?

Okay. Okay, okay. And do you -- what did the loss severities look like for the quarter? And then have you been tracking that to see how that maybe compares to the fourth quarter or even the first quarter of last year?

When you say loss severities, which asset type are you talking about? What are you thinking?

Well, I mean to provide a range of your different -- within the loan book, if you want to provide a range in the different segments of the loan -- of the loan book would be helpful.

Okay. I mean first, let me just give you a bit of an overview. We've continued to see the performance of the Alt-A book is kind of the same over last year, delinquencies have been trending slowly down. And you can't declare a victory there but what you do know is those losses are relatively stable. And I would say that -- and I'm sort of doing this off the top of my head because I don't have the sheet in front of me.

But I would say that on those portfolios, we've seen severities of anywhere from 35% to 40% depending on the state in which the properties are located. But that's sort of been the case for some time. I would say they're slightly higher now than they were before. But the good news is that we got through $400 million of that $1.3 billion book before that happened.

So, this is why we were moving so fast. We changed our policies. We just felt that we didn't want to take the risk that the severities would get greater. So, they are in that range. I don't expect to see much change in that portfolio in our residential mortgage chargeoffs going forward.

In the builder construction portfolio, the best summary I can give you is that $100 million of losses last year. I can't see any reason why it would be any different this year. If you look at that book, I think almost $80 million of it came from the build -- from the Mid-Atlantic portfolio. In this quarter, we had about $22 million of chargeoffs in builder. All but $2 million of it came from that same portfolio. So, we've talked about that before.

We're not seeing a big change at this point in appraisal values. There is actually some activity but nothing really to speak of in terms of people being able to sell homes. And so it hasn't changed. Raw land is probably still $0.40 on the dollar. Anything with homes on it is probably looking like $0.70 to $0.60 on the dollar.

Okay. So, if we were to look at the kind of loss trends going forward, do you think then it is going to be more a frequency issue than necessarily a severity issue in your overall loan book?

I think -- I think in the things you've been seeing now, I think what we've been talking about is a frequency issue and timing of each individual projects. Remember, we talked about the builder being lumpy, right? And so I think that will continue to happen.

Then as you look at C&I, the C&I losses, but for the fourth quarter, have actually been relatively light, I think. As we look into that portfolio we kind of see a continued migration. First and foremost, anything related to housing in any way, shape or form is weak and has been weakening. So, I wouldn't expect -- I would expect if you don't take any one quarter, the trend in C&I to continue to go up.

And I -- on the real estate side, as I said, I think a lot of people are worried about 2009 and maybe early 2010. While I think you can't say that you won't have a few chargeoffs here and there from time to time, you never know what's going to happen. We think more of that issue, if the environment does not change from the sort of mess we're in today, we think then that starts to rear its head out in 2010 and so forth. But again, it is hard to predict that far out, right?

Sure. Okay. Just two final quick questions. What's the size of your overall [SNIC] portfolio?

Don, do you have that number? I want to say 7%.

It is about 7% of outstanding.

Okay. Do you have a delinquency rate on it?

That I do not.

Okay.

A large portion of that is where we're the lead.

Okay. And then Rene, you had mentioned that Provident is sort of exceeding your initial targets. You're expecting now earnings accretion in 2009. What's driving that? Is there any one particular item or business that's driving that?

No as you go into these things, there is a fair amount of uncertainty. You do due diligence and you try to do -- in this case, we did I think a fairly extensive due diligence. But as you begin to work with the actual people and you, so to speak, get under the hood as you are starting to convert the bank, you begin to see a little bit more of the opportunity. You also begin to sort of get confident with your estimates. So, you've been in the loan portfolio. You've looked at that. The biggest issue is my head of corporate finances is a very conservative guy. I think the synergies are greater than we had expected.

Okay. All right. That's great. That's helpful. Thanks.

Yes.

Your next question is from the line of James Abbott with FBR Capital.

Yes, hi. Good afternoon.

Hi, James, how are you doing?

Doing well, thanks. Quick question to follow up on some of the construction questions is I am trying to understand a little bit about the process for which you reappraise these loans. What -- how much of that -- I think it is about a $4.7 billion portfolio or so?

I think now it is down to -- $4.7 billion, what is that? Yes, we don't think about it that way, but we (multiple speakers).

Yes, sorry that's regulatory. I was just going to ask how much of that do you -- how much of that has been reappraised within the last six months or some sort of frequency there?

Yes, we've -- $1.8 billion of residential builder construction. And obviously we've been at that for quite a bit. And so we're very frequently getting appraisals. Then in particularly on the Mid-Atlantic portfolio, those appraisals in many cases are updated several times a year. So, I think we feel like we're very much on top of that.

As we look at the other construction books, I think about $1 billion of that is in the Mid-Atlantic. And is in our traditional commercial real estate space. And in that portfolio, I don't know, Don, do you have that number? I'm sure we're doing appraisals -- in a typical fashion we would probably get at least each year. But as we begin to look at commercial real estate, we're doing more and more around that front. But I would say relative to an average bank, we're at least as frequent if not more frequent especially in this environment.

Okay. And the question related to interest reserves on that is if sales continue at the pace -- maybe we'll use the $1.8 billion figure, if sales continue at the same pace for the next six to 12 months, how much of those loans will hit -- become nonaccrual? In other words, they'll exhaust the interest reserves and not be -- the capacity to continue to pay will diminish.

Yes, I mean I think the way to answer that is each loan is on a case-by-case basis. So as I've looked at the classified loan book and things that might move into the classified loan book, in some cases, it is because the interest reserve is running down and there is an issue. But in other cases they're interest reserves but we're really focused on the wherewithal of the underlying operator. Right? And just because you have interest reserves doesn't necessarily mean that the project or the loan is not impaired.

I'm trying to think if there's anything else I can give you. We do have a chart somewhere. But I don't see it in front of me. That gives you some sense of the portfolio. Yes. I think -- the best way to say it is overall, we think that -- we really look at that book and we say we think chargeoffs would be consistent with 2008, not materially different.

Okay. And there has been an acceleration in the delinquent loans or the nonaccrual -- actually we don't have delinquent loans I don't on that but we have nonaccrual loans on that from the text in the press release. So there was an acceleration there in each of the last couple of quarters. So, even despite that, you're comfortable without -- with still the chargeoffs number being the same?

Well, yes, the two -- I think in the number we mentioned in the press release, there are two loans in particular, both are in the Mid-Atlantic portfolio that we've been talking about for a long time. Right? So, that portfolio is now down to about $447 million in balances. And so the fact that we have -- that more has migrated to nonperforming there is not a surprise to us. They're credits we've been watching for some time.

Okay. And just to clarify a question on the appraisals, those are actual field appraisals as opposed to just kind of a desk review of the property and an estimated value?

Absolutely. Absolutely field appraisals, yes.

One last question if I can indulge just shifting gears to the dealer floor plan loans, what are you -- where are you seeing stress there versus which dealerships are not showing stress and what additional color can you give us on the dealer floor plan?

Well when we talked about this -- actually now several years ago, we talked about our focus being on domestic dealers with a monoline operation. So they didn't have multiple brands. And we did a fair amount of work to clean that -- to clean -- how do I say this -- to prepare that portfolio for the environment we have now. A number of those dealers are no longer with us.

So, as we kind of look at it, it is not really different. I mean we've seen anybody who doesn't have the cash flows because they're single line monoline domestic dealer is having difficulty. If you look at our book there, and this is -- this is not done by dealer this is done by the inventories. One -- about 30% is domestic in our portfolio and the rest is foreign. Right?

So, I think we're in a position now where we're going to continue to see some losses. I think we had $9 million of chargeoffs in the first quarter. This quarter, the losses were -- we had $9 million -- I'm sorry, we had $9 million this quarter. We had $11 million last quarter. I think we'll see more. And I think though that I don't expect that to be a place where I'm overly concerned but I do think that we'll see a loss here or two.

We've seen a couple of credits migrate into what we call [high trophic] situations. I think we had four of those during the quarter. One of which actually corrected itself. So, dealers are having a difficult time.

Okay. So, do you expect the chargeoff trend there to move up modestly, maybe $2 million, $3 million a quarter or how would you look for trends there?

You kind of just said it. I think for -- given the weakness we're seeing in auto sales, to see a quarter like we just saw is not going to be a surprise. It is the best way to do it. We can have some where there are a little less and maybe a little more.

Okay. Thank you, again, for your time.

Sure, any time.

Your next question is from the line of Ken Usdin with Banc of America Securities.

Thank you. Good afternoon, Rene and Don. Just quick questions about capital. Rene, I think you made the point in your comments about if you back out the securities gains and amortization that you did out earn the dividend. I just wanted to ask you to update us with your thought process and the Board's thoughts on keeping the dividend where it is relative to your kind of earnings expectations? And also if you could elaborate on your current thoughts about T.A.R.P. and potential pay back and what your process might need to be in order to get that done? Thanks.

Thanks, Ken. I can't -- the Board gives us their opinion once a quarter and we'll sit with them next month. But I can give you my thoughts. First thing to understand is a really simple technical thing. One is that your tangible -- your regulatory capital ratios and your tangible ratio are unaffected by goodwill. So, goodwill is not in it. So, it is not GAAP earnings that matter. It is operating earnings that matter. Remember, M&T has a difference between GAAP and operating because all those years we were doing purchase accounting and we probably have a little bit higher intangible amortization than most.

So, if you look at -- if you look at our operating earnings and you, for example, if you look at consensus estimates and you put them on an operating basis, take out the $50 million some odd of one-time expenses and take out the goodwill amort, you see that we comfortably cover the dividend even with the Street's own estimates, right? So, I think that's important.

I also think that when I look at this quarter, this is a bit anecdotal. But remember, this is a quarter where the days are fewer. It's the lowest number of days in this quarter. We tend to see seasonably lower fees. We know we have seasonably higher expenses from the salaries space. And we saw the margin compression which we feel that we're comfortably on. I mean as I sit there back in January, my number would have been within a basis point of what actually happened.

So, as we look at where we're going from the simple issue of covering the dividend we just sort of feel comfortable today based on what we see out there. So we don't have any change. Nothing we've seen in this quarter changes our outlook.

Having said that in this environment, you just take it one quarter at a time. And you kind of sit down and look at the facts when you get ready to make that decision every quarter. I don't know if there is anymore I can give you.

No, that's a good assessment. I mean essentially you're saying you had a lot of one-time issues this quarter and that -- not one-time issues but an amalgamation that makes you feel a little bit even better about some of the alleviation of some of those items as you move forward. At least as far as your eye can see.

Yes, and a big one for me is that you can't double count. So when I gave my guidance on where I thought we would be, when we announced the deal of our tangible, that obviously considers that we're going to have one-time expenses in mars. You can't then throw that in your number and take it again. We look at -- your dividend policy is a long-term policy. It is the reason our dividend payout was low. It was appropriate in hindsight given what we've now seen. And as we think about it, we'll be very, very conservative. But we are very thoughtful in thinking about that payment.

Rene, that said, is there any way you can give us an update of where you expect TCE to be post Provident versus the first quarter so that we don't double count meaning -- so we don't double count?

No, but I don't have any change to what I initially said back in December. I don't have any -- maybe I'm off here or there 5 or 10 basis points or whatever. But back in December I think we said 4.4 we would be around. There's nothing that changes our opinion of that.

Right. Your perspective was that 4.4 was inclusive of earnings, balance sheet changes, et cetera, all things getting to the point of closing?

Yes.

Okay. And then could you just elaborate on my second part of my question, which is T.A.R.P., how you're feeling about it, what you may need to do as far as your decision tree and paying it back and how you'll evaluate that going forward?

Yes. How I feel about the T.A.R.P. Look, I tell you. I'm very happy that -- you know, we decided to take the T.A.R.P., but I'm happy that we only took 1%.

In terms of paying it back, there is a lot of talk out there about people paying back the T.A.R.P. We tend not to be a first mover. Again, we'll be very thoughtful about it. I think we along with everybody would like to be able to do that. But you can see that there is a fair amount of uncertainty about people -- I don't want to use the wrong word, whether that will be allowed to happen as we kind of move forward. You saw at least today in the prints, that there was some statement made that the requirement for paying the back-up T.A.R.P. is not to just be a healthy bank. There would be additional requirements.

I think that as we get more clarity we're strong enough to do it. But I think we'll be patient and think that through. I'm going to let you know when we decide. But other than that, we haven't made any commitments.

Okay, thanks.

You're welcome.

Your next question is from the line of Kevin St. Pierre with Bernstein.

Hi, Kevin.

No questions, thanks very much.

Your next question is from the line of Matthew Clark with KBW.

I think I'm all set unless you guys have that 30 to 89 day bucket.

Do you guys have that? We don't. I apologize. We'll have to publish that somewhere but I don't have it with me. Again, I would say that I would expect maybe it is up 6 basis points.

Your next question is from the line of [Gary Paul], a private investor.

Hi, Rene.

Hi, Gary, how are?

Fine. Yourself?

I'm fine.

I have two questions related to T.A.R.P. and a couple related to Allied Irish. I promise not to ask you are you negotiating to buy back the stake.

The only question is, of those two questions, how many parts are there?

Only about two each. The first, on the T.A.R.P., the day after JPMorgan cut their dividend and announced they weren't required to, having previously said they weren't going to cut, CNBC reported that all banks that received T.A.R.P. money had gotten a letter saying they couldn't declare a dividend without permission of the Fed. And with a tone that almost everybody would have to cut. And indeed, the big banks I follow, the unhealthy ones have all cut to about $0.01 a quarter and the healthy ones to $0.05 a quarter. Is the declaring of your next dividend within M&T's control so to speak?

That's a great question. I believe so.

Okay. You did not get such a letter and have not had Fed pressure?

No, I'm not aware of that story at all.

Okay. And you're not one of the 19 banks undergoing the stress test, correct?

That is correct. Remember, Gary, given our size --

Yeah.

Our regulator's on site. So, we would know.

Fine. That's encouraging. I'm shocked, but I'm encouraged. On Allied Irish, I believe you had indicated that if they failed to meet well capitalized, you had an option to require them to sell back, is that accurate?

I don't know that that is true or not. I don't think that's really the point. I mean I think right now things are going well with Allied Irish. We have an outstanding relationship with them. We haven't heard anything from them about their -- the announcement or their intention to do anything.

So, you don't know if they failed to reach well capitalized given how banks tend to be able to account that? Reach that even when they're failing.

That I do know. I do know that AIB is well capitalized.

Okay. That's where I wanted to get to. The second question is today's "Wall Street Journal" says that they have to sell $1.5 billion in assets and identified one other investment and you as the most likely. We'll forget what reporters say. And they said the current value of the Allied Irish stock is about $6 billion. I won't ask you to confirm that. My mere question is if Allied Irish wanted to sell and you have said that you have right of first refusal, do you believe you could raise the capital to buy?

First, I think it is really important. I wouldn't speculate on that kind of thing. I think that at the end of the day, we've got a great working relationship. And we would know if they had any intention to do anything and there's really been no communication on that front.

Okay, well that tells me something.

But having said that, Gary, I think you raise a point which is we both, AIB and M&T Bank have an agreement to cover this type of thing that dates back to 2003. It's a public agreement. And I think it is an agreement that gives us a lot of rights. In some circumstances, it gives us the notification requirements, the right of first refusal. But the most important thing is that if they were ever to go down that road, it calls for an orderly disposition. So we don't know anything. And I would hate to speculate. It is not something that's on my top ten list.

Okay, thank you.

Okay.

Your next question is from the line of Al Savastano with Fox-Pitt Kelton.

Good afternoon, guys.

Good afternoon.

Just wondering if -- how you're planning to set the M&T balance sheet and the Provident balance sheet predeal? And specifically what I'm asking is if you're going to downsize the balance sheet of either company before the deal?

Downsize -- well, I think I know what you're asking. I mean I think in that fashion, other than the marked in the portfolio, which we intent to -- we tend to use conservative marks, particularly on the investment securities book. From times when our corporate finance group puts together assumptions on what we'll do when we integrate a transaction, there is sometimes looking at security books and those types of things and delevering. But we never made such an assumption in this environment simply because there's no liquidity available out there. So, all of our assumptions were based around taking assets we thought were risky, marking them down appropriately and holding the community-based bank assets to term.

M&T's balance sheet?

That would be a M&T event. We would never merge all of that stuff together. One of the things you would see as an investor in M&T is we would tell you that was an M&T event. But we have no plans to do that in any way.

Thank you.

You're welcome.

Your next question is from the line of Joe Fenech with Sandler O'Neill.

Hi, Joe.

How you doing, guys, my questions were answered. Thanks.

Your next question is from the line of James Abbott with FBR Capital.

Yes, hi my follow-up question was already asked. Thank you again.

Your next question is from the line of Barry Cohen with Knott Partners.

Thank you for your help.

Hello?

Asked and answered. Thank you for your help.

There are no further questions. Are there any closing remarks?

I would like to thank everybody for joining us on the call today and as usual, if you have any further questions or any clarification of the items on the call or in the news release, please contact our Investor Relations department at 716-842-5138.

Thank you, all, for participating in today's M&T Bank first-quarter 2009 earnings conference call. You may now disconnect.