M&T Bank Corp (MTB) 2010 Q1 法說會逐字稿

Ladies and gentlemen thank you for standing by. And welcome to today's first quarter and 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions). Thank you, I would now like to turn the conference over to Mr. Don MacLeod, Director of Investor Relations. Sir, you may begin your conference.

Thank you, Paula, and good morning. This is Don MacLeod, I'd to thank and welcome everybody to M&T Bank Corps first quarter 2010 earnings conference call, both by telephone and through the webcast. If you have not read the earnings release we issued this morning, you my 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 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 Form 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 welcome everyone. Thank you for joining us on the call today. Some of you may have noticed that we've departed from a long tradition today by announcing first quarter earnings on the day before our annual meeting of stockholders, instead of on the same day. Hopefully this change will allow investors to assimilate our results in advance of the meeting instead of during the meeting, so let's get, let's get to the highlights.

The first quarter of 2010, diluted earnings per common share were $1.15, up from $1.04 in the previous quarter, and $0.49 in the first quarter of 2009. Net income for the recent quarter was $151 million, compared with $137 million in the lead quarter and $64 million in last year's first quarter. Included in our GAAP earnings for this year's first quarter, was after tax expense from the amortization of intangible assets $9 to $10 million or $0.08 per common share. This compares with $10 million or $0.09 per common share in the linked quarter and $9 million or $0.09 per common share in the year ago quarter. There were no merger related expenses in the first quarter 2010, but we did incur after tax merger related expenses of $4 million or $0.03 per common share in the fourth quarter of '09, and $1 million or $0.01 per common share in last year's first quarter. Net operating income, which concludes the amortization of intangible as well as merger related items was $161 million or $1.23 per common share for the first quarter of 2010, compared with $151 million or $1.16 per common share in the linked quarter, and $75 million or $0.59 per common share in last year's first quarter. In accordance with SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including tangible assets and equity.

Turning to the balance sheet and the income statement. Tangible equivalent net interest income was $562 million for the first quarter, down from $565 million in the linked quarter, and up 24% from $453 million in the first quarter of 2009. The link quarter decline relates to the lower day count in the first quarter as compared with the fourth. The net interest margin continued to expand for, during the first quarter, rising to 3.78%, from 3.71% in the fourth quarter of '09 and up significantly from 3.19% in last year's first quarter. Taking a simple view, the improvement in the margin from fourth quarter can be attributed to the following factors. Approximately 3 basis points of the margin expansion came from repricing on consumer time deposits. An additional 3 basis points came as a result of the reduced day count compared with last quarter. The remainder of the expansion came from a shift in our funding mix with a higher non-maturity savings and D/B/A balances replacing timed deposits. From a broader perspective, credit spreads on new and renewed commitments remained higher than we've seen over the past several years and as a result despite the drop in funding rates, assets yields have remained relatively stable. Looking forward, our view of the margin remains consistent with our remarks on the January conference call, which is to say we'd expect the margin to be relatively stable with only a slight bias to the upside for the reminder of the year.

As for the balance sheet, average earnings assets declined by $120 million or less than 1% annualized as compared with the fourth quarter of 2009. Earnings assets were not materially impacted by our adoption of the new accounting requirements related to off balance sheet entities at the beginning of 2010. The result was the addition of approximately $416 million of residential mortgage loans, partially offset by a $355 million decline in investment securities. After adjusting for the impact from the adoption of the new accounting rules, average loans for the first quarter declined by an annualized 4% as compared with last year's fourth quarter. The change in average loans for each of the loan categories as compared with the fourth quarter of 2009 were as follows. Commercial and industrial loans declined at annualized 4%. Commercial real estate loans declined an annualized 2%, residential real estate loans after adjusting for the new accounting rules, declined by an annualized 10%, primarily the result of lower mortgage loans held for sale. Consumer loans declined an annualized 7%, driven by lower level of indirect auto loans reflecting both the continued runoff in the auto footprint part of that portfolio, as well as our decision to slow originations within our footprint in response to very aggressive price competition.

For some time we've been discussing several loan portfolios that we were not looking to grow, and which by design are, are being allowed to runoff. These, these include obviously residential construction, the Alt-A mortgage portfolio, and as I just mentioned our indirect portfolio, particularly the portion outside of our core markets. Excluding these portfolios, as well as the impact from the accounting change I referenced, average loans declined just 1% annualized. This compares quite favorably with the trends experienced nationally as seen through the Fed's H8 releases which indicates that loans industry wide declined about 7% in the first quarter. Thus, it appears that we're outpacing the broader economy and we are likely gaining share within in of our core markets. We continue to see growth in core deposits, but at a somewhat slower pace than last year. Average core, customer deposits in the first quarter, which exclude foreign deposit and CDs over $100,000, increased by an annualized 6% from the fourth quarter and included a very healthy 11% annualized growth in demand deposits.

Turning to non-interest income, non-interest income was $258 million for the recent quarter, and included $26 million of securities losses, this compares with $266 million in the linked quarter, which included $34 million of securities losses. In both periods the securities losses primarily reflected additional other than temporary impairment charges on our available to securities portfolio relating to privately issued residential mortgage backed securities. Mortgage banking fees were $41 million for the quarter compared to $50 million in the link quarter. Origination volumes were lower and at the same time, we experienced a slight decline in the gain on sale margin. That said, gain on sale margins remain wide compared to where they've been historically. Service charges on deposit accounts were $120 million during the quarter, compared with $127 million in the linked quarter, the decline came primarily on the consumer side and was attributable to a seasonal decline in customer transaction volumes as well as fewer processing days in the first quarter as compared to the fourth quarter. M&T share of the operating results of Baby Lending Group, or BLG, was a loss of $5.7 million compared to a loss of $10.6 million in the linked quarter.

Turning to expenses, operating expenses which excludes the amortization of intangible assets and merger related expenses were $473 million, compared with $455 million in the linked quarter. This quarter's results reflect our usually seasonally high salary and benefits cost, which include accelerated recognition of equity compensation expense for certain retirement eligible apply a as well as higher FICA expense, unemployment insurance , expenses related to our 401 K match. In aggregate the expense from these items was some $21 million higher than in the linked quarter. This is consistent with our experience in each of the past four years. The quarters results include no material change in the valuation allowance for capitalized mortgage servicing rights, compared with $4 million reversal of these valuation allowance in last year's fourth quarter. All other categories of expense were well controlled, essentially unchanged from the linked quarter. The operating efficiency ratio, which excluded securities gains or losses as well as merger related items and intangible amortization was 55.9% in the first quarter 2010, compared with 52.7% in the linked quarter. It was improved by 2.8 percentage points from last year's first quarter.

Next, let's turn to credit. Overall credit trends were positive. Non-accrual loans increased to $1.34 billion or 2.6% of total loans at the end of the recent quarter, up just $8 million from $1.33 billion or 2.56% of loans at the end of the previous quarter, an increase of less than 1%. Loans acquired in connection with the Provident and Bradford transactions classified as non-accrual, and which have already been marked to fair value, increased by $35 million. While non accrual loans associated with the Legacy M&T portfolio declined by $26 million. Other non-performing assets, consisting of assets taken in foreclosure or defaulted loans were $95 million as of March 31st, unchanged from December 31st, and down $5 million from last year's first quarter.

Net charge offs for the quarter were $95 million, down from $135 million in the fourth quarter of 2009. Annualized net charge offs as a percentage of total loans were 74 basis points, improved from 1.03% in the linked quarter. Net charge offs for commercial and industrial loans were $18 million in the first quarter, down from $31 million in the linked quarter. Next charge off for residential builder construction loans were $22 million for the recent quarter, compared with $40 million in the previous quarter. Net charge offs for all other commercial real estate loans were $8 million, down from $11 million in the fourth quarter. Net charge offs on residential real estate loans were $15 million in the first quarter, down from $21 million in the linked quarter. And net charge offs on consumer loans were $31 million in the first quarter, compared with $32 million in the linked quarter.

The provision for credit losses was $105 million for the first quarter, compared with $145 million in the linked quarter. The allowance for loan losses increased to $891 million at the end of, of this, at the end of the first quarter. The ratio of allowance to credit loss, allowance for credit losses to Legacy M&T loans, which excludes acquired loans, against which there is a credit mark was 1.86%, up 3 basis points from 1.83% in the linked quarter. The loan loss allowance as of March 31, 2010, was 2.3 times annualized net charge offs for the recent quarter, up from 1.7 times net charge offs for the full year of 2009. Put another way, the allowance at the end of March was sufficient to absorb more than two years of net charge offs at our current annualized loss rate. We disclosed loans past due 90 days but still accruing separately from non-accrual loans because they are deemed to be well secured and in the process of collections, which is to say, there's minimal risk of principal loss. In our case, that's particularly true. Although loans 90 days past due were $203 million at the end of recent quarter they included $195 million of loans guaranteed by government related entities. Those figures were $208 million and $193 million respectively at the end of last year. M&Ts tangible common equity ratio was 5.43% at the end of the first quarter, an increase of 30-basis points from 5.13% at the end of December. The majority of the improvement was result of earnings well in excess of dividends, combined with a a flattish balance sheet. An additional 10 basis points came from the continued improvement in unrealized losses on our securities portfolio. You'll recall that since unrealized losses on securities are already deducted from capital, the other than temporary impairment charges in our income statement did not result in further reduction in capital.

Turning to our outlook, we've clearly seen a number of signs that the economy is improving across most of our business segments. But the pace of economic recovery is slow, as seen in the decline in loan activity being reported at a national level. We've heard anecdotal evidence that manufacturers are starting to build inventories, but that doesn't appear to be reflected in the numbers yet and we'll need to see a turnaround in the second half of 2010 to realize loan growth for the full year. Our outlook for net interest margins is unchanged, which is to say wider for 2010 than for 2009, and we are pleased with the consistent credit results that we have reported over the past several quarters. And that is particularly true for these first quarter figures. The continued decline in criticized loans is also encouraging. With respect to future quarters, it's important to remind you that credit performance can be lumpy from quarter to quarter. The uptick in the efficiency ratio this quarter as compared with the linked quarter was entirely related to seasonal factors and, in fact, improved nicely from last year's first quarter which contained the same seasonal factors, we remain focused on improving that ratio as we move forward.

Of course, all of these projections are 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 for questions before which Paula will briefly review

(Operator Instructions). Your first question come from Ken Zerbe from Morgan Stanley.

Good morning Ken.

Good morning. I was hoping you could give us a brief update of where you stand with the regulators in your desire to repay TARP? And also if you could make any comments in these discussions, do you feel any indirect or even direct pressure to potentially increase your capital ratios?

Ken, good question. Our position on the TARP hasn't really changed. Our desire is to pay it back, but really there's sort of two things that we're looking to in the future. Obviously, we're very pleased with our first quarter results, but a problem loans and non-performing assets still remain pretty high in the industry, and so we'd like to see a more evidence that there's a turn in the economy. And two, we said for some time that it would be helpful to have some clarity as to where things are going to go on the regulatory front, before we make changes to our capital structure. Why we have that, I think we have that ability to do that is because we actually have growing capital. We're doing it sort of by generating it, right? So as long as we continue to do that, I think that helps us, but our view would be that if we're going to change our capital structure, we'd like to do it once. That's the efficient way to do it, and then to do that, we have to sort of feel a little bit, get a I little more clarity around what some of the pending regulation will be. So I would expect that that, that, not all that far off on the horizon.

That makes sense. The other question I had just on the OTTI, let's say that's been fairly consistent, or at least present, I guess in your income statement for some time, any thoughts there in terms of, what, what's going to turn the quarter there in terms of, you being able to reduce the OTTI going forward?

Yes. I think very specifically, there are a our whole host of assumptions that we have to make. For example if you look at the charges we took this quarter, they were on about 20 private label mortgage backed securities, 20 different issuances, and really the issue there is that to the extent that there's not a lot of improvement in the economy, then as time passes, you get further into it. We've not actually seen a principal write-down on any of those securities. As the housing crisis has stabilized, the thing that really hasn't changed until recently is the roll rates on, a 30-day delinquent roll rate rolling from 30 to 60. But having said that, in the last few days we've begun to see we've seen nice improvement in the 30-day delinquency. So I would guess what needs to happen is to see a change in roll rates in the positive direction and you need to see unemployment, we actually need to see some employment, right, that affects the consumer in a positive way.

All right. Great. Thank you very much.

Yes.

Your next question comes from Jennifer Demba of SunTrust.

Thank you good morning. I was wondering if you can give us some more color around what you're seeing in the commercial real estate portfolio, you're net charge offs in that sector are still really very low, so I was wondering if you could give us some color there?

Yes. Sure Jennifer. I would say on the whole, there was not much new news this quarter as we've talked about, we continue to manage that portfolio very closely doing numerous reviews, and I think what you see is that, when we look at the quarter, we did have a couple of, beyond what I've mentioned, a couple of few more loans that rolled into our criticized loan catalog, and that catalog remember is on a scale of 1 to 15 is our loan grade, so when something goes from 10 to 11, it rolls into the catalog. So there were a few, but at the end of the day, I think what the broader issue seems to be is that the number of things that are, dare I say, sort of being tee-d up and actually be cured on the C&I side is really a much greater issue than the number, than the weakness, any weakness we might see in CRE. In fact, it seems to be dwarfing the issue. One of the things that we did do this quarter is we finished -- our credit guys finished a work, base work for our stress testing work, in which we can kind of see in the portfolio when you look at all of our real estate across all of our footprints, so take out the owner occupied, which is really C&I. Take out the construction, which we kind of look at a little bit separately, and you've got just under $10 billion there. And I would say the loan to values of that book are in the low 60s. And I would say that debt service coverage is somewhere almost as high as 2.5%, right? So at the end of the day, the way we under wrote that portfolio has a lot to do with sort of why it's performing pretty well. And even as we see problems that sort of roll into the portfolio in terms of payment problems, we continue to see the loss content is, is, on a lower side. So not a lot of new news.

Thank you very much.

You're welcome.

Your next question comes from Craig Siegenthaler from Credit Suisse.

Thanks, good morning.

Good morning.

First just on restructured loans trend saw a big drop in the quarter. Wondering, how much of this was kind of from year-end clean up of accruing loans had been accruing for six months or so and how much of it was from newer activity? If that was a factor there too?

Craig, you may have to restate your question, in restructured loans declined a lot.

Let me see, it's, I believe it was down 220 from over 300. Yes, I believe it was 301 and the prior quarter, down to 221 and the first quarter.

I'm, I'm, my numbers are that it was 213 in the fourth quarter, at the end of the year, at the end of 2009, and it's 221 now.

Got it. Okay. So, so -- alright so in your view there's no decline there, no year-end clean up.

No.

And so if there's no year-end clean up, I guess was new activity pretty slow there too.

Yes, that's true.

And what was the driver of that?

Of, of the activity that was there?

Yes. The, of the less activity quarter over quarter?

I think you think about how long it's kind of funny. How long we've been working on that all day book that started off at $1.3 billion, that's down to $800 million maybe under that. I think we've sort of gotten through, a lot of the more difficult credit there and we've done a lower number of modifications of recent, versus what were we were doing early on. I this I we sort of got on that issue very early. I want to say May of 2008 and so we're just doing less.

Got it. And then Rene, just a follow up on compensation expenses. The first quarter includes a bunch of seasonal items. You said, it netted to about $21 million, should we expect that sort of decline into the second quarter and is $20 million, would you say it's a pretty average step up when we think about fourth quarter to first quarter going forward?

I think for all the expenses in total, they seem to perform very similar to what we've seen, in over the last the first quarter of last four years, so I didn't see anything unusual there.

The only addition would be the two addition of the two acquisitions, in terms of how they impact.

Yes that's a good point. But much of that was in place in the fourth quarter, so I think going forward, we've probably have some room left to go on synergies from these deals, but I think the trends are pretty normalized at this point.

Got it. Great. Rene, thanks for taking my questions.

You're welcome.

Your next questions comes center Steven Alexopoulos from JPMorgan.

Good morning Steven.

Hey Rene, good morning. We've some of your peer banks recording provisions for repurchase of mortgage loans they originated and sold back in '06 and '08 that time frame and they're now being put back to them for rep and warranty violations, you don't seem to talk about this anywhere. Is this just not a factor for you guys?

Let me review. You've said a couple things there. Your talking about provisions for mortgage re-purchases?

Exactly.

Okay. Yes. Well, I mean, the topic came up for us first I think it was the first quarter 2007, when we did a little pre-announcement and we started, we provided for that, and anytime that we've seen there are two sort of components. We had a reserve, there are two components, any time we've seen someone, you know, make a request to us, we've estimated an amount, and, and set that aside and accrual for specific re-purchase. We've a whole process around that. But somewhere in the mid 2007, what we also did is we said, you know what, we learned something about the structure of the mortgage business, every time we are originate a mortgage, we're going to set aside a reserve, a small reserve on the chance that could be re-purchased. So we have those two components. So for example in the quarter, as we originated loans, we set aside an amount for those loans that we originated in this quarter in the event that they'd be put back. When you look for example at the our results from the fourth quarter to, to the first quarter, I don't know, maybe that sort of standard accrual went up $2 million, but nothing significant. I don't think you see much there, because we've been doing it now for almost three years.

That's actually real helpful.

Yes.

And are there any updates you can share in terms of where in the process AIB might be in terms of selling their stake?

Well, I mean, you all know the issues in AIB's been very public about what their intentions are. You know, due to the difficulties they're having on the capital front, they've announced their intention to sell assets, intention to sell assets and one of those assets is M&T and from our perspective nothing has really changed said there. We've said publicly that we stand ready to help them execute a transaction in the most efficient and orderly way to the extent that they want to do that. But all of that, and the timing is all up to them.

Have you seen them move forward with this at all yet, Rene?

There are steps that have to take place out there. Shares have to be registered and those types of things, so I think it's pretty transparent.

Okay. Thanks.

Your next question comes from Ken Usdin from Bank of America Merrill Lynch.

Good morning.

Good morning. Rene, could you touch on what you're seeing the early stage delinquency trends? You mentioned the early '90s are pretty darn good without the government guarantee. Can you touch on the early stage?

Yes, I can. I'm looking at something, overall early stage delinquencies were down, maybe by, I'll give you an estimate, I think when we release our FR Y-9C we'll go from 92 basis points down to 86, something like that and if you look at it by, I kind of give it to you by area, if you give me one second somewhere. On the consumer side, consumer improved a fair amount. Let me just see here. Let me give you for example if we start with our core mortgages. Our 30-day and our core mortgages was 3.2%, it dropped, I'm sorry. It was 3.6% at the end of the year, it dropped to 2.8% so pretty significant drop. On our total consumer book, which is indirect auto, home equity, all that, we went from 1.74% in the fourth quarter, down to 1.60%. And that 1.60% was about five percentage point higher than last year. This time last year. All right so pretty stable in slight improvement into the first quarter.

Okay. Great. And then the follow-on to that is then, as you start to see both of the buckets of delinquencies improve, maybe there's a little bit of mixing and matching in the criticized classified, are you pretty much at the point where reserve build is going to be pretty much a thing of the past. When you are improved of delinquency what you're outlook for what you had might have to do as far as reserve build or even match your release?

I think a couple things, if you look at we've talked now two quarters of an improvement in the classified or criticized book but it's still at historical highs, right? And I just think we'll have to wait and see. I mean you can't really answer that question, right, it takes, you've got to look at it every month as you move forward, but we still remain pretty cautious with unemployment where it is I'm not sure the economy's fully out the woods yet, so I think we remain relatively cautious.

Okay. And then last quick one on just on service charges and mortgage banking, do you have any thoughts about how much you might be impacted by regulation on the service charges and on the mortgage side, what you're outlook is for that business?

The service charges, I'll apologize out of the gate, I really don't. I mean, I think we'll have an impact, but my ability to quantify it just isn't that great. And we're now running pilot programs, and what I mean by that, is we're contacting people and we're looking at how easy or difficult it is to get a response from them. And I think by the time I I get to this call next quarter, we'll start to have some sense of what that impact might be. But, but, Ken, I don't have more than that today on that front. On the mortgage, I mean, really much of the decline in our mortgage was driven by, was driven by lower volume. And take a look at like applications went from $2 billion down to $1.7 billion in the quarter. Closed volumes went from $1.25 billion to less than $1 billion, right, so 25% or so -- actually what is that. 22% drop, so I think that is going to just move along with what happens with rates and volume. I will say the gain on sale margin is still very, very wide compared to where they would be historically.

Great. Thanks a lot, Rene.

Yes.

Your next question comes from Bob Ramsey of FBR Capital Markets.

Hi, good morning guys. First question with AIB shares I know you all talked about it earlier. If AIB does decide to publicly place the shares would you all consider placing enough extra to repay TARP. Or do you you really want to wait until you've got better clarity on Basel III and future regulatory requirements?

Bob, in our view the situation with AIB, one, is unfortunate, I think for them, but it really has no impact on us and doesn't influence our thinking really on any other topic of running M&T, right? So they're separate issues for us.

Okay. In terms of non-accrual loans they were pretty flat in total, were there any significant movements between the different buckets?

There were a few credits that moved in. I think we had a real estate development credit, residential development credit move in, but then we had a whole host of things cure. I think we sort of eluded to this in my comments, but if for example, you look, just give me one second here -- at, I don't really have, oh, yes, I do. If you were to look at, just remove Provident and Bradford, the non-accrual loans were down $3 million in C&I, $16 million in commercial real estate, down $4 million in residential real estate, down $3 million in consumer, right, so down everywhere. So, nothing big and nothing that really surprised us, but we did have what you're seeing is still a migration of credit actually into the non-performing, into the classified loan book but you're having a much greater volume of cures.

All right. That's helpful. Last question I've got for you guys, do you have the dollar amount of the preferred dividend expense in the first quarter?

We probably get it for you. As long as somebody else has another question.

Okay. That's great. Thank you.

The next question comes from Matthew Clark from KBW.

Hi, good morning.

Good morning. Can you talk about whether or not you're appetite for Fed assisted deals has changed given the change in loss share arrangement and then maybe any update on your view of maybe non-Fed assisted deals and whether or not you think those might start to pick up at some point?

I've noticed we haven't played around with them much. I have noticed a series of changes which they've made, which I think from an industry standpoint probably makes sense. And it does change the economics to us. I think, all I would say is really for us the focus on anything in that space is going to have to be somebody in our footprint that, that kind of makes sense to us, strategically as opposed to just sort of chasing cheap assets, but other than that, not a lot of new news there. Do you have a second part of that question Matt?

Just on traditional M&A, whether or not you think that, that related activity might pick whether or not you have any interest?

It's sort of same old thing at M&T, if somebody calls us, we always answer the phone and we're through much of the integrated stuff related to the past two deals so we're available to do that it, but we're always interested. At the end of the day, for us, to do something, it has to be attractive to our pre-existing shareholders and has to makes sense in the franchise.

Okay.

If I could just go back and answer Bob Ramsey's question, if you take a look at page 10 of the press release, you will see that there's $12.614 million of of the preferred stock dividend.

Okay. And then just lastly on that, the classified assets, is there any way you could quantify in dollars or percent, how much that is, and how much it might have been down for the last two quarters?

Well, it's not, it's something like, I'm just going to do this roughly. Last quarter I think maybe we were done 200, $200 million, this quarter we were down $100 million, right? So I think the issue in my mind and this tells you a lot about that provision question, that it's, it's more that is actually not growing and it's coming down slightly more so than the magnitude right and we're still in a place in the economy where, on the whole, those levels are high.

Okay. Great, all my other questions have been answered. Thank you.

Thank you.

Your next question comes from Collyn Gilbert of Stifle Nicolaus.

Thanks, good morning, guys.

Good morning.

Excuse me. Rene just a couple follow-ups on some of the things that you had said. You guys have done a really good job of offering kind of color and comfort as to what the loss content is in that in your MPA book, and you've touched on now that you're starting to see some loans cure. Any color at all, can you give give on potential time line of resolution of that, of your MPA book or maybe what a catalyst - - what kind of catalyst we he need to see to shorten that time line or any color there from that standpoint?

No. You know Collyn when I think of your question, I think of (inaudible) and sort of what he tells me about his experience with these types of things, and starting, let's go in reverse order this time start opening commercial real estate. From the time you identify a problem, to the time it actually gets cured is pretty long. I mean nine months would not be unusual maybe longer, right? So and I think on the C&I side, that's probably true too. So these things take their time, right. I, I think it's just the normal work out process makes it very difficult to be making it prediction of a turn. I think it takes time from my past experience, several years to sort of work those books back in the other direction.

Okay. Okay. That's helpful. And then also on the, on the AIB front, I know you just said you look at it separately from the business, but is there any, kind of in an ideal world, do you all have a preference to where that ownership stake would go? I mean in terms of another whole bank or private ownership, I mean, because, well, I'll leave it at that?

Yes, no. I mean, I is say again, I think we're pretty plain vanilla. What we say is we always try to do things that are in the interest of our pre-existing shareholders, and sometimes we can. Sometimes we can't but that's how we think, and I'll leave it at that.

Okay. Okay. And then finally on the M&A front, I think you had said after the Partners Trust deal, that was a type of acquisition that you all would be interested in perhaps making again. Kind of this over capitalized lifts that didn't have a lot of assets issues, it had good funding base that you guys could lever into, would that type of transaction still be of interest to you or given the change in the market, has your view of that type of deal changed as well?

I don't know. I mean, I think that we think about mergers in the way that we think about the running the bank in terms of the sense of the community nature of it, right? And to the extent that institutions have a good customer base and a market that we know, either where we're already at or where we had share, then that's something that, that we would consider. It's not necessarily the nature or the form of the entity that matters. It's its health, and history has said to us that we tend to do partnerships than we buy institutions, right? So I think in the case that you mentioned, that was somebody who wanted to continue to own M&T shares as a group of shareholders when they joined us. Those are more the characteristics, so I'd say, nothing's really off the table.

Okay. Okay. That's very helpful. That's all I had .

Yes.

Your next question comes from Heather Wolf of UBS.

Hi Heather.

Hi. Good morning. Two questions on the margin was there any impact on purchase accounting on the margins.

I don't believe we've changed. Well let me say this, nothing new, there's always a purchase out of accounting accretion, but we didn't change anything with respect to our marks.

And that accretion is pretty small?

Yes. I mean, relative to size of M&T, yes definitely, relatively small.

And then - -

I think we disclosed, I think we reference it in our K and Q.

Okay. And then just on commercial real estate, you mentioned debt service coverage of 2.5 times, can you tell us what portion of that portfolio is floating rate and what kind of stress test you've done for arriving rate environment?

Well let me see if we can shift around and figure out the, I don't know if I have that on my fingertips. In terms of the second part of your question, particularly in, in New York city, we had origination we do we've always done stress tests and look at what the credit can absorb in terms of rate shocks and we do that during the underwriting. What we've most recently done, think of it this way. We've got a very robust process that is all geared toward identifying problem quickly. It's based on an RM coming to us, saying geez something doesn't seem quite right or I'm a little bit concerned here, tied to our grading system. What we've done with our stress test is we've, on top of all of that process, we've said, let's stress for drop in values by each community. Let's do, I'm not sure if we did rate. We did repayment risk, maturity risk, and, and valuation drops, and oh, I'm sorry. We also did revenue drops at the property, and then what we do is we see, if anything, falls through the cracks in those screens and then we go back and look if we've already seen it or not. In the case, cases where new things crop up, then we'll go into a specific dive on that property. We're always doing a fair amount of stress test, but think of it as a risk management tool that back up our overall risk capture process. With respect to the portfolio, I mean, that's a tough, that's a tough question. I have it on total loans but I don't think that's what you're looking for.

Yes. I was looking just for the commercial real estate book.

I just don't have it at any fingertips.

Okay.

But I would guess the majority of our commercial real estate book I would be surprised, let me just say the majority of it is a fixed rate book and the portion that has, that is variable, a large percentage of that has a swap against it, so in essence it was fixed. That was sort of one of the clear things that you saw when we were running the stress test that our exposure to movements in interest rates was relatively low, probably even lower than I thought.

Got it. That's very helpful. Thank you.

Your next question comes from Amanda Larson of Raymond James.

Hi Rene.

Hi Amanda, how are you?

Good thank you. You mentioned loan balances were down quarter compare due to more competitive prices, but that your footprint still compares favorably with the national average. Can you comment on competition, I mean, is are some of your competitor that are ailing in 2008, 2009, stepping back up to the plate? And can you comment on demand and how you expect to position yourself in the future for growth?

Yes. Sure. I think those start off, if you look at the Federal Reserve data, I mean, it's pretty telling. Both in terms of the decline in loan demand, the fact that, the cross off categories and the fact that it's consistent almost every single week, right? So start there with that knowledge. What we've referred to is, particularly is in the commodity like spaces with indirect auto, where how do I say, people aren't coming to us because the M&T name it's more of the price when they go to the dealer that's where we've actually seen the most competitiveness. I think because it's a two-year relatively very credit worthy asset, and it's easy for people to go after. So we've seen price competition there. I will point out that what I noticed this quarter in our commercial book, we keep pretty robust data on a summary of everything that goes to the committee in the quarter, and when you look at it, the number of deals that went to our credit committee this quarter versus last really didn't change much, it was down a couple of deals. The total commitments that went to the committee was maybe up 5%, so even though are fewer borrowers, they were borrowing a little bit more and if you were to look at the margin on those, it did drop about 11 basis points, the sort of new origination margin. But what struck me we also look based on the grade and the structure and the collateral content of the deal, we have a risk adjusted measure, and the risk adjust the return on those deals went up. So what that means is that the people that we were extending credit to this quarter were structurely more sound and better rated credit on the whole, and that's probably why the margin was a little bit lighter. And I think you're seeing that because, my guess is that they are very few people borrowing and everybody's changing those same individuals. But, its a bit anecdotal, but that's my guess.

Alright, thank you.

Your next question comes from Todd Hagerman of Collins Stewart.

Good morning everybody. Rene, I just want to follow-up on your comments previously on the regulatory issue and the deposit service charges. The core deposit growth again this quarter was quite good. I was just wondering if you could give us a better sense in terms of where M&T is in terms of that kind of household growth and how that is factored in the number? And then importantly, just remind us of the split between commercial deposits versus consumer deposits and whether or not there was any either pricing changes made in the current quarter or planned in the coming quarters as it relates to the pending regulatory changes?

Well, with respect to the deposits, I think the most robust sort of percentage growth was in the DDA and what struck me this quarter was that I think we participated both on the consumer side as well as the commercial side. The past several quarters have been largely driven, sort of outweighed by the commercial side, but when I look -- let me find this somewhere. On the DDA, our consumer DDA was up an annualized 17%, and our commercial DDA was up an annualized 6.8%, so that combined for the 11% that we had talked about for both spaces. And then, could you just reask your question again on the second part?

Right, and just thinking about that, again very positive growth coming from both segments but M&T kind of traditionally has been overweight on the commercial segment versus its consumer franchise in terms of deposits. Because I am just thinking about in the regulatory and the change, how potential pricing changes may kind of role through given the growth? And whether or not there was anything in the first quarter above and beyond the core growth that you continue to see? And how we should be thinking about in the coming quarters whether there is any pricing changes?

Well, first of all, let's start off with the regulation is a consumer element, as I think you were pointing out.

Correct.

And so, all of the sort of business side of things are not affected by that in any way, shape or form. That part of the business, the commercial part of the business, is much more a factor of what's happening with rates, in my mind. I think people because they've not yet started investing, they're holding onto a lot of cash, but on top of that, much of the money that at one point of time was housed in the money fund have actually moved back into the bank because people are not able to sort of get more than one basis point in the money fund. So, I think we'll see as part of the overall turn, if the economy turns, we'll begin to see, that's where you'll begin to see it. You'll begin to see it in behavior on commercial balances, and movements there. On the other side again, there's nothing really all that unusual in what we've seen so far on the consumer side. And its just too early to tell what the impact will be on the NSF thing, because it depends on the behavior of the consumer and whether they decide to opt in or opt out. Over the long term, its not something that I worry about because I mean in a sense its an industry wide thing, our job is to over the next two quarters is to educate the workforce so that they can educate the consumer and that we can have good customer service through this pretty big change in the industry. At the end of the day, people need banking services, we provide pretty good ones, pretty good service, so I think we'll come out fine.

Okay, thanks very much.

Your next question comes from (inaudible).

Hi, good morning.

Hi.

Quick question on Bayview earnings, the loss this quarter was down relative to the prior two quarters, can you give a little color around that, please?

Yes, I think if you look at the components of the loss, the thing that struck me was the provisioning was the majority of our portion of the net loss. But, not much else is going on there in terms of -- there weren't any other big writedowns or anything like that.

Okay, so should we, looking forward, for Bayview sort of assume a $6 million loss run rate going forward? Or less? Or - -

You can assume what you'd like, Chris. No, I don't -- Think about it this way, to the extent that you've got a balance sheet there, and to the extent that you take provisions and those types of things, it could bounce around from time to time. I think past performance is what I tend to look to. Its been a little volatile, and pretty lumpy because of the nature of what they do, the securitization and the securities that are on their books.

Great, thank you very much.

This concludes the question and answer portion of today's conference. I'll now turn the conference back over to management for closing remarks.

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Thank you. This concludes your conference. You may now disconnect.