M&T Bank Corp (MTB) 2010 Q2 法說會逐字稿

Good morning, my name is Christy, and I will be your conference operator today. At this time I would like to welcome, everyone to the M&T Bank second quarter 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 will now turn the call over to Don MacLeod, administrative Vice President and director of Investor Relations. Please go ahead, sir.

Thank you, Christine. Good morning, everyone. I'd like to welcome everyone to M&T's second 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 may access it along with the financial tables and schedules from our Web site, 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. Thank you for joining us on the call today. I know we have already been to several earnings calls this morning conducted by our peers, so you'll certainly have a lot to digest. Let me cover the highlights briefly after which I'll take your questions.

For the second quarter of 2010, diluted earnings per common share were $1.46, up from $1.15 in the previous quarter. And $0.36 in the second quarter of 2009. Net income for the recent quarter was $189 million, compared with $151 million in the linked quarter, and $51 million in last year's second quarter. You recall that our GAAP results for the second quarter of 2009 included $40 million of after-tax merger-related expenses arising from the Provident acquisition. There were no merger-related expenses in this year's first or second quarters. Our results for the second quarter of 2010 included after-tax expenses from the amortization of intangible assets amounting to $9 million, or $0.07 per share. This compares with $10 million or $0.08 per common share in the linked quarter and $9 million or $0.08 per common share in the year-ago quarter.

Net operating income, which excludes the amortization of intangibles as well as the merger-related expenses in last year's second quarter, was $198 million for the recent quarter, up from $161 million in the linked quarter, and $101 million in last year's second quarter. Diluted net operating income per share was $1.53 for the second quarter of 2010, up 24% from the $1.23 per share in the prior quarter. And up 94% from the $0.79 per share in the second quarter of 2009. In accordance with the SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP to non-GAAP results including tangible assets and equity.

Turning to the balance sheet and income statement, taxable equivalent net interest income was $573 million for the second quarter, up 2% from $562 million in the linked quarter, and up 13% from $507 million in the second quarter of 2009. The net interest margin expanded slightly during the second quarter, rising to 3.84% from 3.78% in the first quarter of 2010. And was up significantly from 3.43% in last year's second quarter.

In comparing this year's second quarter with the linked quarter, there were a lot of moving parts, but the fixed basis point increase can be simplified down to a few factors. More of our margin expansion came from the assets side this quarter. The higher average one-month LIBOR rate combined with higher prepayment penalties and fees and interest received on pay downs and payoffs of nonaccrual loans all contributed to an eight basis point increase in the loan yields as compared with the linked quarter. This was dampened by higher wholesale funding costs, also primarily driven by higher one and three month LIBOR rates. There was also a modest negative impact from one additional day in the quarter.

Our comments earlier this year indicated a stable outlook for the net interest margin from the first quarter levels, with a small bias to the upside. That outlook was based on the forward curve, which indicated action by the Fed to increase short-term rates in the second half of the year. What we saw during the second quarter was no action by the Fed, but nevertheless, an increase in short-term LIBOR rates in the marketplace, which led to slightly more upside in the margin for the quarter, given our asset-sensitive position.

As for the balance sheet, average earnings assets declined by $520 million or about 3.5% annualized as compared to the first quarter of 2010. A $203 million increase in investment securities was more than offset by a $670 million decline in average loan balances. On an end of period basis, total loans for this year's second quarter declined by $383 million. The majority of that decline resulted from the paydown, payoff, charge-off, or foreclosure of nonaccrual loans during the quarter, which I'll discuss in more detail in a moment. Overall the 3% annualized decline compares slightly favorable to the annualized 3.8% decline for the entire banking sector as indicated by the Fed's HH reports for the second quarter.

On the same basis by category, commercial and industrial loans declined by $203 million or an annualized 6%, commercial real estate loans declined by $111 million or 2%. Consumer loans declined by $134 million or 5%, driven primarily by lower and indirect auto lending. While residential real estate loans grew by $65 million or 5% annualized. Growth in core deposits also continued, but at a slower pace. Average core customer deposits in the second quarter, which exclude foreign deposits and CDs greater than $100,000, increased by an annualized 4% from the first quarter, and included 10% annualized growth in demand deposits.

Turning to non-interest income, non-interest income was $274 million for the recent quarter, up from $258 million in the linked quarter. The recent quarters results included $22 million of securities losses, compared to $26 million in the prior quarter. The securities losses for the recent quarter included $12 million of other than temporary impairment charges related to the American Depository Shares or ADSs of Allied Irish Banks.

Prior to it's acquisition by M&T in 2003, Allfirst granted equity compensation to certain employees, which was linked to the USA ADS for Allied Irish Banks. As hedge against this obligation, Allfirst owned the ADSs directly at the time of the acquisition by M&T. So the securities are held in M&T's available for sale securities portfolio, and had previously been marked to fair value in accordance with GAAP. This quarter's action recognizes the other than temporary nature of the loss and value.

Mortgage banking fees were $47 million for the quarter, compared with $41 million in the linked quarter. Origination volumes were up 12% during the quarter reflecting, in part, the near-record low interest rates. Gain on sale margins remained relatively wide. Service charges on deposit accounts were $129 million during the recent quarter, compared with $120 million in the linked quarter. The increase reflected a return to normal levels of activity following seasonally low levels we experienced in the first quarter. M&T's share of operating results in Bayview Lending Group, or BLG, was a loss of $6 million, unchanged from the linked quarter.

Turning to expenses, operating expenses, which exclude the amortization of intangible assets and merger-related expenses, were $461 million, compared with $473 million in the linked quarter. Recall that the first quarter results included seasonally high compensation and benefit expenses, which declined over the remainder of the year. Operating expenses for the second quarter of 2009 were $482 million, and included a $33 million special one time FDIC assessment.

This year's second quarter results included a $2 million addition to the impairment allowance for capitalized mortgage servicing rights, compared with no charge to the valuation allowance in the first quarter. Last year's second quarter results included a $13 million reversal of the impairment allowance. Excluding the impact of changes to the impairment allowance, as well as the special FDIC assessment from operating expenses in the second quarter of 2009, operating expenses actually declined by $3 million or 1% on a year-over-year basis.

The efficiency ratio, which excludes securities, gains, or losses, as well as merger-related items and intangible amortization, was 53.06% in the second quarter of 2010, improved from 55.8% in the linked quarter, which included the seasonally high compensation and benefit expenses that I mentioned earlier.

Next, let's turn to credit. Overall, credit trends continue to be positive. Nonaccrual loans declined to $1.09 billion or 2.13% of total loans at the end of the recent quarter, down $250 million from $1.34 billion or 2.60% of total loans at the end of the previous quarter.

During the second quarter, our largest nonperforming loan was reclassified to foreclosed assets. The net result of this action was $104 million reduction in nonaccrual loans, and then a $98 million increase in the foreclosed property. The difference, of course, is charge-off reflecting the appraised value less the cost of disposition of that property.

The nonperforming asset ratio, which is nonperforming assets divided by total loans plus real estate and other foreclosed assets, was 2.50% as of June 30th , 2010, improved from 2.78% at March 31st. Net charge-offs for the second quarter were $82 million, down from $95 million in the first quarter of 2010.

Annualized net charge-offs, as a percentage of total loans, were 64 basis points, improved from 74 basis points in the linked quarter. Net charge-offs for commercial industrial loans were $13 million in the second quarter, down from $18 million in the linked quarter. Net charge-offs for residential builder construction loans were $17 million for the recent quarter, compared with $22 million in the prior quarter. Charge-offs for all other commercial real estate were $15 million including $7 million charge related to the property that I mentioned earlier, and that all compares with $8 million of charge-offs in the first quarter for all other (inaudible) real estate. Net charge-offs on residential real estate loans were $13 million in the second quarter, down from $15 million in the linked quarter. And net charge-offs on consumer loans were $24 million in the second quarter, compared with $31 million in the linked quarter.

The provision for credit losses was $85 million for the second quarter, compared with $105 million in the linked quarter. The allowance for loan losses increased to $895 million as of the end of the second quarter. The ratio of allowance to credit losses to legacy loans, which excludes acquired loans which were marked to fair value at acquisition, was end changed at 1.86% as compared with the linked quarter.

The loan loss allowance as of June 30th was 2.7 times annualized net charge-offs for the recent quarter, and 2.5 times annualized net charge-offs for the first half of 2010. Put another way, the allowance at the end of June was sufficient to absorb more than two and a half years of net charge-offs at our annualized loss rate.

We disclosed loans past due 90 days, but still accruing separately from nonaccrual loans because they're deemed to be well secured and in the process of collection. Which is to say there's minimal risk of principle loss. In our case that's particularly true. The loan is 90 days past due. We're $203 million at the end of the recent quarter. Of these loans $188 million, or 93%, are guaranteed by government related entities. Those figures were $203 million and $195 million, respectively, at the end of March. M&T's tangible common equity ratio was 5.75% at the end of the second quarter, an increase of 32 basis points from 5.43% at the end of March.

Turning to our outlook. While we continue to see improvement across most of our business segments, the pace of economic recovery remains slow, and customers are managing their financial position conservatively. This is reflected in the modest demand for loans, and the continued growth in deposits. Our outlook regarding the full year net interest margin for 2010 is still consistent with the view we expressed on the January earnings call. That seems to be holding up, which is to say we'd be surprised if the full year margin was much higher than 380 to 385. We've seen signs of improvement on the credit side in virtually all of our portfolios. One is tempted to be optimistic regarding the charge-offs and nonperforming asset formation, however, the economy is turning around slowly, unemployment remains very high, and we're still at a point where a single large credit relationship can cause an increase in the net charge-offs despite generally improving trends.

I know many of you are also wondering how the new overdraft rules will impact us. Since we haven't reached the changeover date for most customers, it's still too soon to say exactly what the impact on our revenues will be. We've been engaged in a fairly robust outreach program to our customers, particularly those who are frequent users of overdraft services. And generally, of those who we've spoken to, more customers are opting in than not, with slightly higher opt in rates for frequent users. However, I wouldn't be surprised if we saw a decline in our service charge revenue of 10% to 15% in the third quarter.

As to the longer term, we continue to have a positive view on the deposit business and are continuing to spend and invest to enhance our product offerings around deposits and payment services. The combination of these last two factors make it difficult to see near-term improvement in our efficiency ratio. That said, we'll continue to manage the bank as we always have. Scrutinizing discretionary spending closely and seeking opportunities to transform our processes so as to improve efficiency ratio over time. 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, Christy, will briefly review the

Thank, you. (Operator Instructions). Your first question comes from the line of Steven Alexopoulos with JPMorgan.

Good morning, Steven.

Hey, good morning, Rene. The other topic that's been in the press recently. I guess we typically don't hear one company comment publicly. That they're just in the merger with another company, but I'm sure that you saw that the Vice Chairman [of Etendair] appeared to comment directly on interest in a merger with you guys. Just curious. Can you comment on this and indicate your interest level, and what it is you might look for in a potential transaction with them?

Steve, from time to time, and I guess sometimes frequently over the last couple of years we've seen speculation in the media as to what M&T may or may not do. And as you well know, as a result, we maintain a long standing policy of not commenting on media reports. So that's not going to change today. If your questions about how we think about M&T -- M&A I mean, it's pretty well documented. Our thought process is that we tend to not do anything that doesn't put the preexisting M&T share holders first. And we focus on trying to be big in the markets that we serve. A lot of times that means we want to be in an adjacent market, but in no way shape or form to want to be in a market in a small way. But other than that, other than general comments, not much more I can expand on your question.

I know you typically wouldn't comment on rumors. This seems to be a little more direct than just a media report. But maybe changing direction, looking at the AIB stake, Rene, would you guys disclose if you did refuse the sale of a stock to a single buyer. I'm just curious if you did see them sell any stock in the quarter?

Well the shares would have to be registered. So we've addressed that before. So, I think generally most of the questions related to AIB are best directed towards AIB, especially since they said they're going to do something by the end of the year. There's still six months left. But one technical step in the process is that the shares would have to be registered. It's not as if you would see something dribbled out without seeing a registration statement.

Okay. If you guys refused the sale to a single party, would that be disclosed or not -- by you guys, or not necessarily?

I've never even thought about it.

Okay. Maybe just one final one. Could you size the debit interchange fees at risk from this new regulation?

Well, we haven't disclosed our debit interchange fees per se. I guess part of the debt was, I'm sorry, new topic. I don't know -- do we have that out there? No.

Because we're really still waiting for rule making and we don't know what the rules will be, it's virtually impossible to quantify --

Yes, it --

it at this time.

and it's just too far away. I was getting confused with the NSF thing but that -- no, that's just too far away and we'll probably have more on that as we get closer. But, that could be as much as a year out before we find something out.

Fair enough. Thanks.

Sure.

Thank, you. Your next question comes from the line of Ken Zerbe with Morgan Stanley.

Okay, thanks. Just actually going back to your comments on the NSF OD, the 10% to 15% decline in deposits, service charges that you mentioned, just to be very clear on that. I'm assuming that you've not pre opted in all of your existing customers as of July 1 st . I know some banks have. And then if that's the case, should we expect sort of a 20% to 30%, two quarter decline in fourth

Okay, so good question, Ken. I think -- well, no we're going through a -- I don't know about pre opted in. So the way I understand it is that unless a customer opts in, they're out. And so what you've got is on July 1st, for new customers, the new rule kicks in, and then you go for the remaining customers, that occurs on August 15th . So if you think about what the process is, is it's really for us anyway, a massive outreach program where we're calling customers, asking that they understand the services. And what you've seen is we're pretty pleased with the percentage of customers who we actually get ahold of, who actually opt -in. And then, you're right, you get a normalizing effect as you get to the fourth quarter.

But remember because the customer opts if you don't contact them, they actually opt out. There's probably only upside, as you move beyond the fourth quarter, right? So it's so hard to tell. Because what will likely happen is somebody who we tried to contact and couldn't get ahold of, will not have noticed the change in payment behavior. And because what we're finding is that the majority of people who we do speak to understand the service, and are saying, Yes, okay, I'll opt in. I think you get some sort of normalizing effect starting post August 15th , which is a positive factor.

So it's really, really hard to tell. Technically, you're right. You're going to get more of an effect in the fourth quarter. But you're not necessarily considering everything. So it's hard to say. I also point out that the transaction volume was up when you look at second to third, and when you look at year-over-year second quarter. So that's the other piece that's pretty hard

Okay. Yes, I guess I was referring to CBSH that basically opted out everyone as of July 1 st , unless you explicitly opted in. They weren't waiting until August 15th . But I understand, it's hard to tell right now. The other question I had, just maybe you can provide some comments on your capital position, given that the rules are changing on how regulators view trust-preferreds. I know we got a few years to go before we see any big changes. But I think that doesn't impact you guys a little more materially than some of the

Yes, Ken, a couple of things on capital. I think, one, we're very pleased with where our capital is and where it's headed. And we often get labeled as being on the lower end of the peer group. But if you look at the Texas Ratio, which compares to nonperforming loans, or you look at charge-offs because of our secured nature, we're very well capitalized.

And then as you get to the new regulations, which we've been all waiting to hear about. What we really heard doesn't help us much because what it told us is one form of capital that we use, which is regulatory capital, is now going to be disallowed in the future. But what we don't know is how much core common equity we need. And as you know, if you follow the bank for a long time, every decision we make is on tangible equity. So, we don't really know more than we knew before. But what we're very pleased with is that just the capital generation rate of M&T is really never stopped, right? And so we're generating capital very quickly, and as you start to think the time that it will take to actually change the regulations, I'd be surprised if capital is just not one of the things we're not overly worried about today.

All right great. Thank, you.

Thank, you. Your next question comes from the line of Bob Ramsey with FBR Capital Market.

Thank, you.

Hey, Bob.

Hey, good morning. I appreciate the color on the improvement in nonperforming loans or particularly in that one large loan. Could you just maybe tell us what type of loan that was and talk about some of the other improvements you're seeing, given that was less than half of the overall improvement in NPAs or nonperforming loans.

Yes. Sure. Let me just -- I'll grab some data, but then I'll first just describe the loan that we took to OREO was the one we mentioned in a recent quarter. I can't remember if it was last quarter or two quarters ago, but it was our Manhattan property, and we had talked a fair amount about that property. And, so we're just moving it through the process, right? Nothing new really there.

Right.

Other than the fact that as we talked about, when you charge that down and move it, you can kind of see that the loss content is low, and it's probably characteristic of what we have in the portfolio. And then much of the rest were actually paydowns. So we had $100-plus million of loans that were nonperforming previously that just paid down. They fell in several categories. Give me one second. I have a sheet here. Somewhere. Yes. If you look through C&I accounted for maybe $77 million of the drop, quarter-over-quarter. Commercial real estate was $170 million of which $100 million was that one credit. And we also saw on the consumer side was down as well, with no change really in residential real estate, maybe $3 million up, some small number. So generally, we saw positives across the board. And a lot of the improvement came from payoffs and paydowns. Why that's important to me is that the drop that we're seeing in our loan balance is on loans that aren't paying us. So it's a factor that's also contributing to the higher margin right there. It's a net positive.

Great. And could you also touch on what you're seeing in terms of loan demand out there. Obviously, to say the payoffs contributed to the loan contraction this quarter. Just net-net do you think about performing loans. Are you seeing much, if any, demand out there?

Most of the trends on -- like let's start with C&I. We see a lot of people that are not utilizing much of their lines. We had in the mid-Atlantic a number of customers who have low-cost lines. They went unutilized in the quarter. It's not as if actually we see much of a drop in demand or change. But it just hasn't gotten any better. I would say that's pretty much across the board.

Which is interesting because you know we tend to get a lot of questions on our capital, and what we're thinking about capital. The reality is that the market is really flushed with capital from all of the issuances. The market is also flush with liquidity, relative to the past, but customers just are not necessarily having great demand for borrowing. So probably more important than the volume of loans, which we really can't do much about, is that you're beginning to see competitive pressure on pricing, right? And so I think that's probably the bigger story out there. But no change in demand I guess is probably the way I would put the loan side.

Okay. Great. Thank, you, very much.

Yep.

Thank you. Your next question comes from the line of Matt O'Connor with Deutsche bank.

Hi, Matt.

Hi, Rene. If I could just follow up on the charge-offs coming down so much they're at very impressive low levels here, and obviously with the decline in nonperformers. It doesn't seem like there's a lot of lost content, maybe from what you can see. But I did just want to try and get a sense what your outlook is on the charge-offs. I can appreciate things can be lumpy. But just based on what you're seeing in your portfolio right now, is this going to be a reasonable starting point going forward?

I don't know. In my mind somehow, I'm thinking of using rolling averages. The positive is that almost every category improved on a linked quarter basis. The ones that didn't were flat. And I would say that I'm not surprised on the consumer side.

We've been talking a fairly long time about the fact that we got in front of losses on the residential mortgages and the fact that the way our vintages fall on indirect auto and those types of paper that we would have expected to see improvement over time. I think the trend generally is positive. I just think that you could still get a fair amount of lumpiness. So I don't know that I would pick any one quarter as a starting point. But I might look at the general trend over several quarters and think about it from that perspective.

Okay. That's fair. And then just separately. The OTTI or the securities losses, those continue to trend down. How should we think about that going forward?

Yes. If you move out the AIB shares out of that discussion, the OTTI charges were down this quarter, maybe $10 million. Last quarter they were $26 million. And the thing that we saw in March/April time frame was a big improvement in the roll rates in the 30-day plus roll rates.

So people were migrating in the right direction, and more people were paying. So that was a positive trend, and I think that's what we're going to have to watch. I think that to the extent that that holds up, it will be great. But as you know, you just don't hear a lot of great news around the consumer improving. They're not getting worse.

But if that were to happen, maybe we continue to have some charges. But if things were to stay down in terms of people continuing their payment patterns being on a positive basis, in terms of delinquencies, I think we're pretty pleased. In that respect, we think the overall risk is kind of low.

Okay. All right. Thanks, Rene.

Yep.

Thank you. Your next question comes from the line of Matthew Clark with KBW.

Good morning.

Hey, Matt.

Hey, good morning. Can you update us on your classified assets, I think last quarter you had mentioned that you saw $100 million improvement sequentially. Just curious as to the migration there, and then if you could update us on that 30 to 89-day bucket as well.

Yes, they improved again by maybe, I don't know, $150 million. So to me, it looks like this is the third consecutive quarter of improvement in our classified assets. Very positive trend there. I'm going to give you some numbers, but recall there is not much change in the level of delinquencies. I can run through some numbers, but when I look at the total consumer book, 30-day plus was around 160, 1.6% this quarter, same as last quarter. A year ago that was probably 1.59%, so almost no change there.

And then I guess overall are we up slightly? We're up slightly overall, which means that we've got a little bit more on the commercial side, which much of which, is driven by a number of residential development projects. And you remember on the residential development projects, you're going to get stuff from the portfolios that we purchased, right? So they're already marked to full value. So much of the stuff that was originally M&T, we've dealt with. And things that we acquired from Provident and from Bradford we've marked to fair value. But they still come through the delinquency reports as the property is going to move through the process. So it seems pretty quiet to me, I guess is what I'd say.

Okay. Great. And then as an extension to the question on capital, with the [accounts amendment], as it relates to TARP, can you update us there on your view of the timing of repayment and if you feel any increasing need to do it?

There's no change. I mean we would be happy to pay the TARP back. We don't think we necessarily need it. But especially with what just happened in terms of the new regulation, it just changes frequently, and changes the thought process on what you might do and when you might deal with the TARP. We think our capital ratios are flush, and I think we'll probably just wait and see.

Great. Thanks.

Yes.

Thank you. Your next question comes from the line of Ken Usdin with Bank of America.

Hey, Rene and Don. Two quick questions. Rene, following on the more positive comments about credit quality and delinquencies, continuation of multiple trends. When do we start actually seeing the reserve come down? You actually did add to the reserve a little bit, but that seemingly is in contrast to all that positive news underlying. And how much is that -- I'll just let you answer that first, sorry.

Yes, sure, Ken.I guess when you think about it over a historical perspective, there is a whole bunch of factors that you look at. I guess it depends on what happens typically if you're getting loan growth. That doesn't mean that you're necessarily releasing reserves, because the portfolio you have is -- you got new loans in it, and got to eat some of your allowance to cover that.

So I think in my mind, we're traditionally pretty conservative there. We'll watch the trends. And I guess you'd have to see something like no return of loan growth or declines in loans, and big improvements in classified assets. But my sense is that we'll be pretty consistent with what we've been doing recently.

Okay. Any additional information for what the model says, to not release reserves connected to at all, to a wait and see where capital has to be?

No. I mean our allowance is specifically related to the loss content that we see in our loan book. Nothing else.

Right. Okay. My second question is just a quick one on expenses. So you typically, second quarter expenses are (inaudible audio) (audio difficulties)-- [versus] the first, as they were this quarter. You typically do see a second to third increase as I look back over the history. Do you expect that again this quarter, or was there anything in the second quarter that was abnormal at all?

I can't think of anything in the second -- go ahead.

I specifically meant on the salaries line, sorry.

Oh. Yes. No. Well there's more days in the third quarter, so you should see an uptick in salaries simply because of that fact. But there was nothing I can think of that was unusual in the second quarter in the salary lines, so I would expect a small uptick in the salaries, just given the number of days, and the paydays, and so forth.

Okay. Great. Thanks a lot.

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

Hey, Collyn.

Thanks. Good morning, Rene. How are you?

Great.

Good. Just to take a step back and maybe ask two kind of big picture questions. You talk about loan demand and admittedly there is not a whole lot you all can do about that. As you think about the kind of the revenue drivers of your business, and the pressures obviously [delivered down the pipe] from the regulatory stand point, where is the focus of the organization? I mean, where do you think the opportunity is to really build out the revenue base, either in the near-term or long-term?

There's two spaces. The first one is we're really bullish on deposits. So, today there's a lot of discussion about intersess and legislation and all of that. But at the end of the day, what I think we've learned, especially from the crisis, is that the strength of the franchise is all about your deposit base. And I think that's probably also true when it comes to thinking about, over long-term period, what your revenue growth looks like. So we've been spending, and will begin even more so, to spend a lot on things that are related to deposit services, payment services, because we think that it's hard to grow much more than your deposit base. Without actually taking outsized risks, right, on your loan portfolio. So if you keep your deposit base fine, and nothing is happening there on the revenue side, I guess the economy can come back and you can lend more. I guess you could get more aggressive and risky in the types of loans you're lending and put more yield on or more volume. But as you see, that doesn't work, right? So, from our perspective it's all about deposits. The second thing is we don't look at revenue growth, we look at revenue growth per share. And so, it's why we're very conservative and thoughtful around how we treat our capital base, And you see that today. If you think of the fact that we've been growing our capital over time organically, had we done a big capital raise, now that there's no demand for loans, that would be more of a hit to revenue growth per share, than the actual loan issue. Right? But today, when it comes back we'll deal with it. And if we need capital because we need growth for some reason, acquisitions, we'll do that.

Okay. That's helpful. Just on the M&A front in terms of the market that you're seeing around you, are you seeing any change in the viewpoint of the sellers. Maybe give also your overarching view on consolidation and where we are in that cycle.

I don't know that I have any specific evidence of change in the views of the sellers. But I got to imagine that if the current environment stays the way it is today, unless you've got really talented employees and you're very thoughtful about the way you've built your business, it's just going to be harder. Think about the idea again, people are flush with capital and flush with liquidity. If demand doesn't come back over the course of a year or so, it doesn't really matter to us. We'll keep building our franchise, but to a lot of people, that's a pretty tough environment when you compound that with the new regulations, and so forth. I have got to believe over time there will be an acceleration of consolidation in the industry.

Does that change the way you're behaving now or thinking about consolidation today, given what you might see 12 months out?

Nope. I don't think so.

Okay. That's all I had. Thanks.

Yes. Sure.

Thank, you. Your next question comes from the line of Al Savastano with Mcquarie.

Good morning, guys.

Hi, how are you.

Hi. Morning.

Just checking to see if you change your loan growth or earning asset growth assumptions for 2010 versus what you said in the beginning of the year?

If I say nothing, is that an answer? I don't know. I would say that the decline we saw in the second quarter was lower than what we saw in the first. It seems to be trending in that direction. But timing, who knows, right? Who knows. Not much change in our overall outlook there I guess.

Okay. Then can you talk about pipelines from your commercial customers in terms of discussions, in terms if it's going to start lending -- or borrowing again?

Yes. When I answered your first question, it sort of comes from there. We don't see big changes in our pipeline. I think we would start to -- if we were going to see it in the third quarter, we would probably be able to tell you that we'd see changes in our pipeline. But there hasn't been much. It's very quiet. And it makes me think that could be sometime before we get a noticeable turn in loan demand.

All right. Thank you.

Thank you. Your final question comes from the line of Amanda Larsen with Raymond James.

Hey, Rene.

Hey, Amanda. How are you?

Very good. Thanks. I was wondering about your Canada branch and how that's going? Is it ahead of schedule for loan and deposit gathering, and what you expect for origination volumes on the loan side there?

I don't have the volumes that we expect, but I think the first feat is we actually got it done and we're very pleased with that. It's something that we wanted to do for a long time. We have a number of Canadian customers that we service over time. But this is the first time, based on the change in the rules and the appetite over there, that we were actually able to set up an office. Everything is on track. I think, quite frankly, when you take that and then you add in the fact that this quarter we launched our credit card offering, which is a return to the credit card business from 12 years ago, you can kind of get a sense for the types of things that we're doing at M&T, which is all normal business. And we're making decisions that will help us grow the franchise over time.

All right. Thanks so much.

Thank you. I'll now turn the call back over to Mr. MacLeod for closing remarks.

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