M&T Bank Corp (MTB) 2010 Q3 法說會逐字稿

Greetings, and welcome to the third quarter 2010 Wilmington Trust Corp conference call.

(Operator Instructions).

It is now my pleasure to introduce your host, Ellen Roberts, Vice President of Investor Relations for Wilmington Trust. Thank you, you may begin.

Thanks, Diego. Good morning, everybody. Welcome, and thank you for participating. We have two items to discuss this morning. First, is Wilmington Trust's third quarter earnings, and the second is the definitive merger agreement between Wilmington Trust and M&T Bank. Our agenda this morning features remarks from Don Foley, Wilmington Trust's Chairman and Chief Executive Officer, and Bob Wilmer, M&T's Chairman and Chief Executive Officer, and Rene Jones, M&T's Chief Financial Officer. Also with us this morning, are Wilmington Trust's Chief Financial Officer, Dave Gibson, and M&T's Director of Investor Relations, Don McCloud. We will begin this morning with remarks from Mr. Foley. At the conclusion of his remarks, Mr. Foley will introduce Mr. Wilmers, who will be followed by Mr. Jones. At the conclusion of their remarks, everyone will be available for questions.

I want to remind you that slides and other supporting materials are available on both Wilmington Trust's and M&T's websites. That would be www.wilmingtontrust.com, and MTB.com. I want to remind you that the call is being recorded, and the replay details are in our earnings news release, and on both websites, as well. I want to remind you that news reporters may be on this call, and that all participants are permitted to ask questions. And now I have to give you now the forward-looking disclaimer, which as you might imagine is a little longer than what we usually go through.

So I wanted to let you know that our comments today may contain forward-looking statements that reflect our current expectations about our performance. Our ability to achieve the results reflected in these statements could be affected adversely by changes in national or regional economic conditions, market interest rates, fluctuations in equity or fixed income markets, higher than expected credit losses, changes in the market value of securities in our investment portfolio, and other factors described in the disclosure documents, we file publicly from time to time. Our comments contain forward-looking statements relating to the proposed merger of Wilmington Trust Corporation and M&T Bank Corporation, including the expected date of closing, and potential benefits of the merger.

The actual results of the merger could vary materially as a result of a number of factors, including the possibility that competing offers will be made, and the possibility that various closing conditions for the transaction may not be satisfied or waived. In conjunction with the proposed merger, M&T will file with the US Securities and Exchange Commission, a registration statement on Form S4 that will include a Wilmington Trust proxy statement, that also constitutes the prospectus of M&T. Wilmington Trust will mail the proxy statement prospectus to it's stockholders. Investors and security holders are urged to read the proxy statement prospectus regarding the merger when it becomes available, and any other relevant documents filed with the SEC, and well as any amendments or supplements to those documents, because they will contain important information.

You may obtain a free copy of the proxy statement prospectus when it is available, and other documents related to this transaction filed with the SEC by Wilmington Trust and M&T at the SEC's website at www.SEC.gov. The proxy statement when it's available, and other documents also may be obtained free of charge on our Wilmington Trust's website at www.wilmingtontrust. com, under the tab Investor Relations, and then under the heading, SEC filing, or at M&T's website at MTB. com, under the tab About Us, and then under the heading, Investor Relations, and then under the heading, SEC filings. And now I will now turn it over to Mr. Foley.

Good morning, everyone, and thank you for joining us today. I realize our news this morning, both in terms of our third quarter earnings and the definitive agreement with M&T Bank Corp is not what you were expecting. This is a difficult moment in our Company's history. From a purely personal perspective, the challenges facing us during my first few months on the job here, have often been far more difficult than I'd ever imagined they would be. Especially difficult and painful, is the decision we are announcing today. I certainly recognize that this action touches many, many lives. All I can say, is that we worked hard to evaluate all the facts and circumstances, and meet our obligations to our shareholders, as well as our clients, colleagues and communities. I know there hasn't been much time to digest all details of this transaction, so Bob, Rene, Dave, and I will do our best to walk you through it.

Before I get to that, however, I want to speak to our third quarter performance, and provide some context for what led up to today's event. Our loss for the third quarter was $370 million. That is $4.06 per share. This loss was primarily the result of two factors. First, we continued to see credit deterioration in our loan portfolio, reflecting the extent of our exposure to real estate construction lending, and it's concentration in Delaware. Additional credit quality problems emerged during the quarter, and the provision for loan losses rose to $282 million, which was a 37% increase from the second quarter. This brought us to a pre-tax loss of $265 million for the quarter, making the third quarter, our sixth consecutive quarter of losses.

This trend of losses triggered the need for us to establish a valuation allowance of $189 million against our deferred tax asset. And that caused us to record tax expense of $101 million for the quarter, which was the second factor in our third quarter loss. These two factors, and the loan loss provision and the income tax expense, far exceeded our expectations. In addition, they completely obscured the positive aspect that occurred in the third quarter. In particular, our Corporate Client Services and Wealth Advisory Services businesses continued to show positive momentum. In addition, core deposits remain stable, and the liquidity strengthened at the bank.

Our capital ratios remained above the minimums required to be considered well-capitalized, but we have little assurance that our capital position will not erode further. Regulatory capital ratios all declined in the neighborhood of 300 basis points or more from the second quarter. The tangible common equity ratio fell from 7.25% to 3.51%. And the Tier 1 common ratio fell from 9.05% to 5.65%. These declines reflected the magnitude of our losses, and the lack of additions to capital from retained earnings. In addition, we downstreamed $200 million of capital from the Corporation to Wilmington Trust Company. And our tangible book value declined to $3.84 at the end of the quarter. That gives you a summary of our third quarter results.

Credit quality clearly remains the big story. So, let me say a few more things on that subject. The negative affects of the protracted recessionary environment in Delaware, and how these pressures are challenging the financial health of many of our borrowers, simply cannot be over stated. In the third quarter, evidence mounted that had things were getting worse for some of our borrowers. And even some of our strongest clients began to feel the pressure. The financial conditions of more of our borrowers weakened, their cash flows tightened, and appraisals continued to show significant declines in collateral valuations. These issues manifested themselves in our credit metrics, to a significantly greater degree than in the second quarter.

Geographically, the highest concentration of problem loans remained in southern Delaware. But there was also an increase in the percentage of problem loans in northern Delaware. Most of our credit problems continued to be in the Commercial Real Estate/Construction portfolio, but we started to see problems spread to the commercial, financial and agriculture portfolio in the third quarter. There is much more detail on credit quality in our press release. We have been working diligently over the past year to de-risk the portfolio. By the end of the third quarter, we had evaluated more than 92% of our Commercial Real Estate/Construction and mortgage loans, and the trend line is not encouraging. It appears to us, that there is no significant economic or real estate recovery on the horizon.

This gives us little assurance that our loan portfolio will strengthen significantly in the near term, and our capital position will not erode further. These risks increased the possibility of downgrades by the credit rating agencies and adverse regulatory actions, either or both of which, could compromise the value of our franchise. particularly in our two fee-based businesses which continue to perform well. They are established leaders in their markets, and they have solid growth prospects. For all these reason, our Board and management carefully studied Wilmington Trust's strategic options, and we reviewed a wide range of alternatives.

Ultimately, the Board determined that the best option for our shareholders, as well as our clients and employees of Wilmington Trust, was a merger with M&T. M&T is one of the strongest banks in the country, and they have a history of superior earnings and credit performance across economic cycles. In M&T, we found a strong and stable partner for Wilmington Trust. Our respective operations and geographic footprints are highly complimentary, and both have cultures that are committed to serving the communities in which we live and work. And I believe our two companies are an excellent strategic fit. I look forward to working with the people at Wilmington Trust and M&T Bank Corp, to leverage the combined advantage of both companies, on the behalf of the shareholders, customers and staff. And with that, I would like to turn things over to M&T's Chairman and CEO, Bob Wilmers. Bob?

Thank you, Don. Now, we would like to discuss why we believe the merger that we announced this morning makes sense to us. We believe the strategic fit between the two firms is unusually compelling. Both firms operate customer-focused, community banking models, with a focus on relationships, rather than transactions. Both firms maintain large market share in the geographies in which they operate, offering the advantage of scale, or what we call density.

Wilmington Trust has the largest of market share -- largest deposit market share in it's home state of Delaware, and a leading position in middle market lending. M&T Bank Corp is a leading bank in Maryland, with a very high deposit market share, and the leading position in middle market and small business lending. But, what makes this merger special, almost unique, are the complimentary strengths that each partner brings to the table. Wilmington Trust brings a comprehensive and well-regarded suit of trust, investment and Corporate Client Services that are order-of-magnitude beyond what is offered by most community or even super regional banks, including M&T. These product offerings are national, and in some cases, global in scope.

We will retain the Wilmington Trust name for these businesses, and will look to their current senior management for continued leadership, in delivering these capabilities across the M&T customer base. And that is what M&T brings to the partnership. As I noted earlier, M&T is, perhaps more than anything else, a bank that is successful in it's focus on serving middle market and business banking customers across our fingerprint. We engage a research firm to serve a middle market companies in the cities and markets where we operate. And in all our communities, more companies identified M&T as their lead or most important bank than any of our competitors. This includes Buffalo, Rochester, Syracuse, Binghamton, Harrisburg, Baltimore, and the state of Maryland overall. This shows the strength and breadth of our relationships within our communities. Plus, we believe the confidence our customers have in M&T.

The critical factor in this merger will be levering -- leveraging those most important or lead bank relationships by introducing middle market owner operators, across the fingerprint to the high quality Wealth Management product set that Wilmington Trust offers. Based on this morning's financial results, which Don Foley just spoke to, what Wilmington Trust also needs in the current environment is a strong and stable partner. This is the other element that M&T brings into the partnership. M&T's disciplined approach to capital allocation, credit and risk management, combined with our focus on returns to our shareholders, has resulted in what has arguably been the best performance by a large bank through the financial crisis.

M&T's already strong earnings momentum and tangible capital generation will be enhanced by it's combination with Wilmington Trust. In the end, Wilmington Trust shareholders will receive M&T's stock when the merger is consummated. We believe there is no better bank stock to own. In the slide deck we'll go through shortly, you will see M&T's superior long term earnings and dividend growth, trends and our best-in-class return to the shareholders over the past decade.

Finally, we believe the two banks share a common set of values. These include respect for our experienced and long tenured employees, and a common commitment to being the best corporate citizen in the markets where we operate. Over the past 23 years, we have completed more than 20 mergers and acquisitions. Over that time, we've become convinced that had a combination with a partner who shares a common philosophy towards employees, customers, and communities offers the best chance for that combination to create value for our shareholders. We believe we found such a partner again, in Wilmington Trust. To the further acknowledgement of this partnership, I've asked Don Foley to join M&T Bank Corporation's Board of directors, and he has accepted. Now, I will ask Rene Jones to review the terms of today's transactions.

Thanks, Bob. And for those of you following along on the website, or who have printed out copies of our Investor's Relations deck, I will begin my comments around slide five. M&T's merger with Wilmington Trust has been structured as an all-stock transaction. Wilmington Trust shareholders will receive 0.051372 shares of M&T common stock for each share of Wilmington Trust stock. Based on M&T's closing price last Friday, this values Wilmington Trust at $3.84 per share, equal to the September 30 book value -- tangible book value. The exchange ratio is fixed, so that Wilmington Trust shareholders will share in the economics of M&T's stock from day one. The aggregate value of the transaction is $351 million.

In addition, we are assuming Wilmington Trust's $330 million of TARP preferred stock. Our internal rate of return on the transaction exceeds 20%, and we anticipate the merger will be accretive to our earnings per share by 2012. On a GAAP basis, we expect that accretion to be in the high single digit range for what we call our net operating earnings, which excludes the amortization of intangibles and any merger-related expenses, we'd expect accretion in 2012 to be in the low double-digit range. Included in these projections, is an estimate of our cost to retire TARP preferred stock in the future. Also, these projections include our assumptions for expense savings equal to 15% of Wilmington Trust non-interest operating expenses, to be achieved by combining the two organizations, and to be fully phased in by the end of 2012.

I will discuss this more in a few moments, but we had an opportunity to complete a fairly comprehensive due diligence review, including their loan and securities portfolios. Following that due diligence, we estimated a fair value mark for Wilmington Trust loan portfolio of a $1 billion, or about 13% of loans. I will have more details on this in a few moments, as well. Our estimate of merger-related expenses, which excludes systems inte -- which includes systems integration costs, as well as lease and contract buy outs, amounts to $159 million pre-tax. And as Bob noted, Wilmington Trust has a tremendous brand equity it's Wealth Management and Corporate Client Service segment, and will continue to operate those businesses as Wilmington Trust. The regional banking business for the combined firm, will operate as M&T Bank Corp.

Turning to slide six, the transaction is subject to approval by the shareholders of Wilmington Trust, and will require the customary approval from the regulators. We expect to close by mid year 2011. The terms of transaction include a $30 million break-up fee under a specified set of conditions. And as Bob noted, Don Foley has agreed to join the M&T Bank Board of Directors. Slide eight discusses our due diligence review from the Wilmington Trust loan portfolio. As you know, we had engaged a -- they had been engaged in a portfolio review which included a third party, to make their recommendations regarding risk ratings and loss content.

Subsequently, in early October, a 40-person team of M&T Corp credit line and work out personnel examined the loan document for some 450 borrowers, with outstandings amounting to some $3 billion, or about 50% of the overall commercial portfolio. The review included all borrowers with outstandings greater than $10 million, all non-accrual loans greater than $2.5 million, all criticized loans greater than $5 million in outstandings, plus a sample of past criticized loans below those thresholds were selected, to insure that a representative sample was taken within each asset category.

By category, we examined 43% of the C&I portfolio, 45% of the commercial mortgage portfolio, and 64% of the commercial construction portfolio. At the same time, our consumer lending team examined consumer and residential mortgage portfolios, assessing documentation standards, underwriting quality, and compliance with the regulatory requirements. Following this analysis, M&T developed it's own estimate of lifetime credit losses in the Wilmington Trust loan portfolio. Our estimate for the remaining future credit losses in the Wilmington Trust loan portfolio is shown on slide nine. Our estimate aggregates are just over $1 billion, or 13% of Wilmington Trust's loan portfolio. After deducting the current Wilmington Trust loan loss allowance, M&T's credit mark comes to just under -- excuse me -- just over $500 million.

As a part of our analysis, we thought it would be useful to take a look at the losses already taken on the portfolio by Wilmington Trust, looking back to the beginning of 2008. On that basis, our estimate of through-the-cycle losses comes to just under $1.5 billion, or 17% of the loans. Much of our mark is attributed to the construction and development portfolio. As some of you know, we had a few issues of our own on the eastern shore of Delaware and Maryland, and this helped inform our analysis.

While much of this is behind us, for comparison purposes our estimate of through-the-cycle losses in M&T's mid Atlantic residential construction and development portfolio approximates 35.9%, slightly lower than the 40% shown here for Wilmington Trust. Turning to slide 10, following the consummation of the merger and the de-risking of Wilmington Trust's balance sheet as required by the accounting rules, we expect M&T's capital metrics to be comparable or slightly better than those at the end of the recent quarter, where our tangible common equity ratio was 5.96%. We have estimated this ratio will fall between that 5.96% to 6.4%, by the time we consummate the transaction in mid year 2011.

Similar to our recent Provident transaction, the de-risking of Wilmington Trust's balance sheet implies a minimal level of net chargeoffs for the next several years, the outcome being that Wilmington Trust income stream will accelerate the M&T's tangible capital generation rate beyond our current level. As noted, our financial analysis includes an estimate of the cost required to -- required to retire our TARP preferred stock at some point in the near future. And we have assumed no change to the M&T common stock dividend, which is currently paid at an annual rate of $2.80 per share.

These next several slides relate to Bob's comments about M&T's long term performance, and our performance in the financial crisis. There will be very familiar to those of you who already know our story. For those Wilmington Trust shareholders who are less familiar with M&T, we thought some information about our financial performance might be helpful. Slide 11 illustrates our best-in-class performance credit-wise, versus our peer group of 15 of the largest regional and super regional banks. The figures reflect June year-to-date performance, as these are calculated from the regulatory filings, which have yet not been available for the third quarter.

Slide 12 represents M&T Bank Corp long term earnings and dividend growth. The earnings stream included here, is what we call our net operating earnings, which excludes the amortization of intangibles and merger-related charges in the years that were -- where they occurred. We were certainly impacted by the financial crisis, but have remained solidly profitable throughout the financial crisis. In fact, last quarter was our 137th consecutive quarter without a loss. In addition, M&T Bank Corp has maintained it's dividends throughout the financial crisis, one of only two commercial banks in the S&P to do so.

Slide 13 presents the tangible capital generation through the operating earnings over the past 27 years. The key component of M&T's philosophy has been to return capital to the shareholders, when it can't be deployed efficiently, 67% of the capital we've generated over the past 27 years has been returned to the shareholders through dividends or through share repurchase. Slide 14 presents 10 years of annual total return to shareholders of the top 50 banks by market cap as of January 1, 2000.

Interestingly, M&T's relative returns are the highest versus the peer group, in what were arguably the two worst years economy-wise, 2000 and 2009. For other years, including during the bubble, we were solidly in the middle. But looking at the column all the way to the right, M&T's total return over the last decade was the highest. And we were with only bank to more than double their shareholder investment over that 10 year time frame.

With slide 16, we get into the heart of the rationale for this merger. As Bob noted, M&T and Wilmington Trust have very different, but complementary business models. The combined Company will seek to leverage Wilmington Trust's position as a premier provider of Wealth Management and Corporate Services -- Corporate Client Services. As indicated, the Company will retain the highly regarded Wilmington Trust name in leadership for trust, investment ,and corporate service businesses. We believe that the Wealth Advisory Services that Wilmington Trust offers is a natural fit with M&T's deep relationships, and with middle market owner operators across our footprint.

Customers of the Corporate Client Service business should value the fact, that M&T like Wilmington Trust, is not part of a global investment bank, and will continue in an unique position as a leading independent conflict service provider. From the M&T perspective, we expect the combined company will leverage M&T's position as the premier super community bank in upstate New York, central Pennsylvania, and the mid Atlantic. We will look to leverage our strengths in mass market investment products and commercial insurance lines through Wilmington Trust branches -- branch network.

Turning to slide 17, also from M&T's perspective, one appealing aspect of this merger is the fact we'll garner scale and relevance in the trust and investment arena. Consummation of the merger will more than double M&T's trust revenues as a percentage of total fee revenues, from 15% to 34%. At the same time, some of the fee categories that are more volatile, or which are facing headwinds from regulatory reform or both, will now be a smaller piece of the combined pie. For example, mortgage banking as a percentage of fee revenues declines from 17% to 13%. And deposit service charges, declined from 42% of fee revenues to 33%. Overall, fee revenues as a percentage of total revenues increases from 34% to 39%, putting us right in -- at the median among our large regional bank peers.

From the retail banking perspective, Wilmington Trust compliments M&T's already large mid Atlantic presence, and you will see this on slide 18. As many of you know who follow us, a part of the business philosophy is to make ourselves relevant in the markets where we choose to operate by seeking and retaining large market share density. The combination with Wilmington Trust brings us leading deposit share, in a market contiguous to our existing markets.

In summary, as Bob noted, this transaction brings together two complimentary financial institutions, with similar community-focused business models and culture. For the combined organization, the increased proportion of fee income will diversify our revenue stream, while offering transformational opportunity to grow the trust, investment, and Corporate Client Service business. We have further enhanced our scale in the mid Atlantic region. We completed a comprehensive due diligence of Wilmington Trust's balance sheet.

Following the required purchase accounting marks, the earnings streams coming from this de-risked balance sheet should enhance M&T's rate of capital generation. And finally, attractive economics arising from the transaction through high single digit GAAP earnings accretion, and low double digit accretion on a net operating basis by 2012, should benefit the shareholders, and offer upside potential for Wilmington Trust shareholders through the ownership of M&T stock. I don't intend to cover the remainder of the slide deck. But for those of you who are not familiar with one or the other of our two firm, these pages offer more information about both the M&T story, our commitment to our communities , our tenured employees, and our superior returns that we've generated over the past 27 or so years. And about Wilmington Trust, and their committment to their customers, communities, employees, and their storied history. We will now turn the call over to the operator to open it up, and to provide instructions for questions.

Thank you, sir.

(Operator Instructions).

Our first question comes from Steven Alexopoulos with JPMorgan. Please state your question.

Hi, good morning, everyone.

Morning, Steve.

Hi, good morning, everyone. Looking at the 2012 earnings accretion, is that over current street estimates, or is that over your estimate? And then what do you assume is the capital needed to exit TARP based on this footnote here?

Steve, you know us well. And w tend to focus internally, so we don't really focus on street estimates, and make forward earnings projections. So, they are based on our internal expectations. Over periods of time, rather than focus on any quarter, we talk about the fact that our business has never been impaired throughout the cycle. As that we kind of look back, we feel pretty confident over time we can get back to a good normalized rate of earnings. So our estimates are over those.

With respect to the TARP, essentially, what we have done there, if you understand how we run our models, we assume that we recapitalize the Company, and include all the equity that's necessary to sort of recapitalize, in this case Wilmington Trust, without using any of M&T's equity. At the end of the day when we look at those ratios, we don't necessarily think we need to do anything in terms of a public capital raise. But by keeping that it embedded in the analysis, which you end up getting is -- basically some excess cost that we believe is necessary to think about as we as we begin to think about paying back the TARP over time. We have not yet approached the regulators, so it is very hard to answer your question. But we just think now, given that we got a larger amount of the TARP, and also given that as we get our way towards the second quarter of 2011, we will get more clarity from the Federal Reserve on the exact rules around capital, it is probably a good time to begin to think about setting out a plan to move forward there.

Maybe could I ask Don Foley a question? Could you give us a sense as to how many parties you explored a potential sale to? Just curious if this was exclusive to M&T Bank Corp, or was this a auction to the highest bidder?

As I indicated in my own presentation, there were numerous people that we had played over our alternatives with them. And that is probably as far as I can go at this time.

Maybe just a follow-up, then. Looking at where your stock is trading relative to M&T's offer price, it seems the market thinks there might be some odds of another bidder coming in. Rene, I know it is a hard question, but is there a sense you can address the flexibility you might have to raise your bid here, and still meet your financial hurdles? Or is this a case like Trustmark where this is your final bid based on your accretion hurdles? Thanks?

First, Steven, you are really good at asking hard questions. I will give you that. No. I think we have got a firm, committed deal. Both parties are headed down this road. And from my perspective, that is the way it should work out.

Okay. Fair enough. Thanks.

Our next question comes from the line of Joe Fenech with Sander O'Neill. Please state your question.

Good morning. Steve asked my question on capital, but just a couple others here if I could. Rene, on the DTA, can you refresh my memory on how the accounting works for that? Wilmington established the valuation allowance we saw in the earnings release this morning. How does the acquisition, or does the acquisition impact your ability to utilize the DTA now going forward?

I mean the short is, when we look at our analysis, we cannot use all of the deferred tax asset, but we can use a fair portion of it when it come to our tangible common equity. And then, we have assumed, although we haven't done all of the work there, that we would use none of it for our regulatory ratios. Of course, over time you would get that, because the regulatory rules will require you to look only one year forward. And we have a fair amount of DTA ourselves. So, that is what we assumed.

Okay. Then for Don. Okay, and then for Don, Don, the Company obviously had credit issues, but the decline in TC, book value, et c., the magnitude of increase of non-performers still was pretty surprising. Can you talk at all about whether or not a specific event drove this quarter's results? Was there a regulatory exam, if not, what changed so dramatically in the last 90 days?

Well, what we saw an acceleration in the deterioration of the credit quality of many of our customers over this quarter. We receive a lot in, terms of the appraisal information that we gathered. all indicating that both the magnitude and velocity of this credit deterioration was -- was very significant for us.

When was your last exam?

We are -- our soundness exam started some time at the end of June, beginning of July. And we are still going through the exit process at this point.

Okay. Thank you.

Our next question comes from the line of Matthew Clark with KBW. Please state your question.

HI. Good morning, guys. Any mark on the securities portfolio here, that we should know about?

There was nothing really unusual. I think it was pretty plain vanilla. You have got in Wilmington's book, I want to say, about 78% of the book is agency, securities. So there is nothing unusual there. There is a very small amount of pool trust preferred securities, which, in fact -- there was a lot of overlap with the ones that we've inherited in past transactions. So we were able to sort of sink up mark, and there really wasn't anything material there. But any adjustments we made, we included in our mark, but nothing material.

Okay. And then, why might this be a taxable transaction, on -- maybe to Dave to answer?

From my perspective, both parties tried to think about what was best for the shareholders, and came to that conclusion. I don't know, Dave, do you want to --

I think it allows some of the shareholders to take a loss on -- if they have a higher basis in stock.

Okay. Thank you.

Our next question comes from the line of Matt O'Connor with Deutsche Bank. Please state your question.

Hi, guys.

Hi, Matt.

I was wondering if you can talk about the size of the balance sheet, because your combined Company will be after, obviously the marks, and some de-risking, and there is always some opportunities, both sides to shrink some less productive assets?

Yes. It is a good question. I thought about that. I think on the slide deck, it gives you the pro forma balance sheet and the pro forma loans. I do think that as you look at some of M&T's portfolio, we probably have $1 billion, $1.1 billion of nonperforming, and you have got another set here, really what is going to happen, you are going to see the whole set of non earnings assets essentially will run down over time. It is funny. A lot of people keep asking, where is your loan growth? What is happening? Well really what's happening is we have got underlying loan growth, but it's being offset by the run off on these portfolios. And I would expect the same here. But I think it actually helps you with your lift, because you are taking off over time non earnings assets and putting on earnings assets.

So initially when the deal closes, it will be somewhere around the $78 billion to $79 billion range, and then less a $1 billion in mark is the way to think about it? There is nothing more meaningful up front?

Yes -- oh, in terms of deleveraging?

Yes.

We have to think about that, but, no. Remember, in our last call, we talked about the fact we needed some fixed rate assets. We started retaining mortgages, and we were going to retain a fair amount. So we have a lot of flexibility with discretionary assets, which gives us leeway in terms of capital, and our capital levels.

Okay, and then a bit little related, and I'm sorry for such a detailed question, but if you have a preliminary estimate of good will created, as well as the intangible assets that, would be appreciated.

I don't, but I will be in Boston on Thursday, and I will say it then.

Okay, and I'll see you there. And then a separate question, for the Wilmington Trust side. I am actually not as familiar with your Company, and so I apologize in advance here. But just on the allowance evaluation that you took to GAAP capital, I was just wondering if you could go through a little more details on that. It seems like it's -- there is a lot of uncertainty on kind of what drives these disallowance evaluations among investors and analysts out there. And some color would be helpful.

Well, I think there are a couple of large items in the evaluation allowance. Essentially it is the significant loss that we had in the third quarter, increased the DTA itself by over $71 million to $72 million. So, just the loss itself, that is now disallowed added to the number. Our current year taxes were just a little over $65 million. So, essentially, because of the loss and the continuous over 36 months, the -- our ability to have positive indicators of future earnings, essentially are not there given the continuous credit issue that is we have. We are essentially, reversing all of that current year. And in addition to that, some of our previous estimates in terms of monetization were -- as we have gone through all the reconciliations and tax return work, those were off about $38 million to $39 million.

Okay. All right. Thank you.

Our next question comes from the line of Bob Ramsey with FBR Capital Markets. Please state your question.

Hi. Good morning. Thanks for taking the question. First question, will there be much of an impact on net interest margin from the acquisition or do the purchase accounting marks make it relatively neutral?

I wouldn't expect a significant change in the margin. We are still kind of working our way through tha, as we get familiar with the book. But I think you got it. I mean you look at the margins are a little lower today at Wilmington Trust, but when you put in place the sizable mark, I think you will see it move up. And then it represents maybe 1/7 or 1/6th of the book. So, I don't expect a big change. I think we will have to talk about that as we get somewhere around January, and lay our thinking out.

Okay. Great. Then, just a question for Wilmington Trust. But were any of the loan marks, charge-offs or provisioning that took place this quarter, was that affected by the decision to sell, or was that -- would it have been the same if M&T was not involved today?

I think they would have been very consistent with our process. We didn't adjust any marks because of the transaction.

Okay. And then last question, I guess, back to Rene. Is there any sort of provision for a adjustment or protection in the event there is greater deterioration of the Wilmington Trust portfolio from now until the time of close?

No. We wanted to have a very clean transaction. So, I think the most important part of -- about the work we did, is that we had 11 days to do it. And you think about the -- what we end up doing, is essentially our credit team -- if you think about those samples, think about 64% of the construction loans. We do that sample, so we can then take it back, and match that through our grading system. And then we run the whole book through our process to come up with -- what the charge-offs and loss projections would be under M&T. So we've done a fairly extensive review, and we felt fairly comfortable with the work that we did.

Great. Thank you.

Our next question comes from the line of Patrick O'Brien with Brown Advisory. Please state your question.

Rene, congratulations.

Thank you.

Question. The 20% return on investment, do I just take the purchase price, $351 million, and add 330 of TARP and multiply the 2 by 20%?

(Laughter). That seems awfully simplistic for the amount of time that we spend on our internal finance. I mean I guess had way I think about the internal rate of return, you kind of maybe look at the modest expenses that we've got in there. And you look at the earnings power of the two Wealth Management institutions, right, which are generating a fair amount of capital, that does not need to be retained for your regulatory capital ratios. And we just run a cash flow model, and it is pretty straight forward. So your up font things would be the purchase price, and your cost of the TARP would be in there over time, right? Pretty standard.

Yes.

Pretty standard.

Okay. Another question, with the loans -- the construction loans -- the deterioration is no big surprise. But C&I, or CF&A, I guess as you guys put it, what is going on there? How come -- and this is awfully late in the cycle to suddenly discover problems in that portfolio?

Well, I think some of the problems are --and companies that are -- have some touch to the construction business. I think there are companies that have to date been able to withstand and manage through this crisis, and had enough cash flow to weather the storm. And I think the duration of that, has begun to hurt more and more companies. Some of our related companies to the construction sides, so if they had an operating companies, that would have been an CF&A. If they had and holding company, we had companies that are in different kinds of heavy construction. We also -- the largest move was in the -- actually not related to construction was about $26 million related to the poultry business, which sounds unusual, but it is a very regional Company that we have done businesses for years, that is suffering from commodity prices. So we have taken that for nonperforming.

Okay. I hope that is not Frank Purdue.

You aren't expecting that comment, are you?

(Laughter).Thanks, guys.

Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please state your question.

Great, thanks. The 50% expense savings you guys expect, just to be clear the base, does that include the OREO costs, or is that sort of just the non -- the core operating expenses?

No. We just took -- I think number is somewhere around $80 million. We just took the noninterest expense. There is no adjustments to it. So it's just a percentage of the non-interest expense.

Okay. Thanks. And also just to be clear, going back to the original DTA question. The ability -- is it possible for MTB to utilize or to use its own profit to recognize or to sort of write back, so to speak, the DTA that Wilmington took? Or does it have to be generated by Wilmington before you can utilize the DTA?

Well, they combine them, but there are rules that limit the amount that you can use. And so, there is a rule which actually basically allows to you take a certain amount as a percentage of the purchase price, and then to take it over 20 years, right? So, it does matter how much you make, but there are certain limitations. So you can't necessarily use all of it. You can use most of it, but you have to use it over time.

All right. Got it. Okay. All right. Thank you.

Our next question comes from Sachin Shah with Capstone Global Markets. Please state your question.

Thanks for taking my question. A couple questions on what approvals are needed to complete the transaction, which states approvals are needed?

This is Dave Gibson. I think the normal approvals would be -- obviously the shareholders would have to approve the transaction, and we would need regulatory approval in a normal course.

So --

M&T's would be -- their state banking is -- state -- we're regulated by the New York State Banking Department and the Federal Reserve.

So you don't need Delaware, Maryland or any of these specific states?

We would -- we are -- we have a state charter bank in Delaware, and we would need a state bank commissioner and banking officer to approve it, as well.

Okay. It was speculated, just maybe a couple weeks back that there were conversations with Canadian banks interested in Wilmington. Just want to find out -- can you maybe elaborate on those discussions? You mentioned earlier there were numerous alternatives. Were they alternative to the transaction that was agreed to today?

I am sorry. We can't comment on that.

Okay. Thank you very much.

Our next question comes from the line of John Pancari with Evercore Partners. Please state your question.

Good morning.

Hi, John.

Rene, those percentages on slide eight of the percentage of the loan category reviews, are they based on the number of loans, on the number of credits, or the credit balances?

Balances.

Okay.

Pro-rated balances, yes

Okay. Good. Then the 8% mark on slide nine on the commercial and commercial real estate -- can you talk a little about how you came to that number, and your confidence in that number, and just some of the details that you looked at?

Yes, sure. Again, I kind of talked about where we started. And then what we end up doing, is we sort of map -- we review the files from that -- the percentages that you see on the previous slide. And essentially that we do, is we map the grade. So, first thing we do is we take, we take all of the loans that are substandard or FAS 114 loans that are impaired. And we review the file to see how we feel about the marks that have been taken already on the FAS 114 and get comfortable with those. And then, what we do is we use our sample to map over, and on the pools of loans that we -- that are not already FAS 114, we kind of come up with an estimate. So, to give you some sense -- if you look at the C&I book at M&T, over time, the average loss that we have -- that we experience when we have a default is about 28%. So for this portfolio, it came out to about 35%.

So we get a very good sense of, based on mix, industry and the review of the files, that the loss given to defaults is probably a little slightly higher. And then when you flip over to the real estate side, the first thing that you notice is that about 52% of the real estate here is owner occupied. And in the real estate space, you are always focused on maturity risks. When you kind of look at the layout of where the loans sort of map, you actually see that the maturity risk is a little further out. So, for example, on the owner-occupied, more than 50% of the portfolio comes up for maturity or refinance in 2014 and beyond. About -- and in the investor real estate side, about a third is coming up in 2011 and 2012. So, we will look at take that into consideration, as we kind of map through the process. So, I think overall, we felt very comfortable with it. It was a pretty detailed process.

Okay. All right. Then on that same line, you have got to assume that the third party that was tasked to look at this previously had also taken into accountability some of those factors. Can you talk about how your mark that you took on this portfolio, compares in magnitude to what was recommended by the third party?

I don't know how to say this. We started there as a base, and then we modified what we saw, depending on the credit -- and the particular credit. I guess the certainly more important point is that, when you are coming in from the outside, and you don't necessarily have all the knowledge that, in this case Wilmington Trust would have, we tend to actually lump credits together, so they are associated credit with some thing that is nonperforming, our analysis would have lumped them in. And we have been relatively conservative on that. So, to really compare, I think is kind of difficult.

Okay. Thanks for taking my question.

Our next question comes from the line of comes from Blaine Marder with Loeb Capital Management. Please state your question.

Hi, guys. Just to reiterate, you said you are comfortable in your due diligence, and therefore there was no other delinquency tests or walk-aways in the merger agreement? I just want to clarify that.

Yes, that is true.

Okay.Terrific. Thanks so much.

Our next question comes from the line of Peter MacArthur with WDEO. Please state your question.

I was looking to find out if you could lend any insight into the future of the Wilmington Trust name and the Wilmington Trust work force under this deal?

Could you say it again, just the first part of it?

Yes, I was looking to see if you could lend any insight into the future of both the Wilmington Trust name and the Wilmington Trust work force here in Delaware?

I will start out by saying a couple of things. Fist of all, we are very impressed with, and we have long been impressed with the Wilmington Trust brand, name and reputation. And when we got here and met them, this was one of the first things we thought, that these -- the professionals, and the wealth and trust and advisory businesses were first rate. And it is why we sort of concluded the two things, that it would be a great partnership if they could help us sort of upgrade, and then prove and accelerate the progress we have been making in our own trust and investment portfolio. And the other thing, what is unique about the transaction, is that there is no overlap in the branch networks. Right? So it really minimizes the amount of overlap in the job situation. If you would look at our cost base in this transaction, it probably would be the lowest of what we have seen in any of the transactions we have done.

We have also been very impressed with the people that run the Wealth Management operation.

Okay. Thank you.

Our next question comes from the line of Collyn Gilbert with Stifel Nicolaus. Please state your question.

Hi, Collyn.

Hi, good morning, Rene. I am going to start by directing my question, Don, to you if you don't mind. I am less familiar with Wilmington Trust in recent years. I am just trying to understand sort of the dynamics of your lending business. Obviously, I know the region is seeing pressure, but it doesn't seem to be at the magnitude that you all are seeing, within your portfolios. I know construction obviously has been a big driver. But, can you talk a little about kind of the underwriting process within Wilmington Trust, and kind of what was missing or what went wrong? I am just trying to sort of ascertain the magnitude of marks and losses that we are seeing here.

One of the -- the problem that we have been contending with for the last several quarters is the idea that we have a tremendous concentration of our loan portfolio, particularly the construction portfolio down in southern Delaware. We were trying to meet the needs of building contractors who were building single family homes for those people who were thinking of retirement, before they actually migrated further south. There were certain advantage to that community to build housing in the Delaware market and are attracted to it.

We became major lenders to that particular class of investors, to that particular class of builders. And unfortunately, in the 2008, 2009 time frame, the Delaware market for that particular type of housing dried up completely. And what we are seeing here is, for a long time a lot of those contractors tried to maintain their positions. They had -- they were working off of strong cash flows and so forth. I think at this particular point in time, since the recession seem to be dragging out as long as it is, that we are not seeing sparks we expected to see by now in the commercial real estate area. We are seeing increased stress in the portfolios, that we did not anticipate back when we were involved in that underwriting process originally.

Okay. And the geographies within the commercial real estate, is that all in market, or did you go out of market or did you go in market?

No, its all in market. I think our major problem relates to the fact that we are so highly concentrated particularly down in our portfolio in southern Delaware.

Okay, so commercial real estate outside of the construction. You mean just traditional owner occupied is still highly concentrated in southern Delaware where there is stresses.

That is correct.

Okay, that is all I had. Thanks.

Our next question comes from Sachin Shah with Capstone Global Markets. Please state your question.

I just want to follow-up. I was curious why the termination fee was $30 million, it equates to approximately just under 9% or 8.25%.

I think --

And how you came up with that? Is it both sides? Is it just the reverse termination fee is $30 million as well?

I think you need to recall that, that in addition to the share exchange that M&T is absorbing the TARP of $330 million for one --.

Okay. So, in addition to the $350 --351, it is the 330 TARP?

That's correct. That's correct. So the number is closer to the 4% as opposed to the 9% you had me for.

Okay, and just one last question. Any timing on the proxy?

No. We have not set the time line for all those things. Obviously we are going have to file shortly. And we will have the schedules that lay that out.

Okay, thank you very much. Have a good day.

Our next question comes from the line of Andrea Jao with Cowen.

Good morning, everyone. I have a two part question about how the merger will impact Wilmington -- the legacy Wilmington client base. The first part of my question is, Wilmington has been able to offer some tax benefits to their clients because of Delaware regulations. I was wondering what would happen to that. The second part of my question is that Wilmington has a lot of problem markets focused, niche businesses, in it's CCS segment. That segment requires some focus, because those businesses constantly evolve. So, I was wondering what kind of commitment M&T has to Corporate Client Services at Wilmington? I know that you didn't assume any revenue synergies, but did you assume some attrition because of these two factors? Thanks.

Do you want to start, Don, then I will follow?

Sure. One of the primary drivers we had was to protect the value of the franchise that we have built up here over the last 107 years. Delaware is a very attractive investment market. And it has driven a lot of people, particularly the high net worth individuals, and certain clients looking for the Delaware advantage to basically seek out someone who is an excellent service provider, and offers enough product so that they can keep their cash in this particular market. And I believe that what we are talking about with M&T is the idea that we can expand that. It goes, where we will have a broader distribution capability. We will have -- taps into a larger client base. But we do not expect anything with regards to diminution of these particular areas, Wealth and CCS. We believe that they have a strong franchise, they are the best in their field. And we believe that is one of the very attractive elements that is attracted M&T to Wilmington Trust.

We are proud to become such an integral part of the Wilmington community, and we hope that we merit the confidence that Wilmington Trust has put in us. We also hoped that with the talented group of people that they have in these areas, that we would -- that this business would be expanded.

And finally, this is Rene, directly to your question on the unique status of having a bank domiciled in Delaware, we understand that value. We are very aware of it. And it is our intention that we would not do anything to change the legal structure that would affect the clients. So all of that structure should remain -- all that tax -- all that advantage structure should remain in place.

Great. Thank you.

Thank you. Our next question comes from the line of Mike Mayo with CLSA.

Good morning. A question for M&T. Can you give us some thoughts on how you valued Wilmington's $58 billion of assets under management. How do you think of the value you are getting in that part of the franchise?

Yes, I mean I think we, first of all -- that's a good way to put it, $58 billion under management, but we looked at it in it's individual businesses. We can't get away from our ability to look at cash flows. We map out an expectations for the earnings. We think we have been relatively conservative. As you know particular in the money management business with the rates so low that, the earnings in those businesses are very low. I mean, we have -- we do not have anywhere near is breadth that Wilmington Trust has, in terms of assets and experience.

But we have all the businesses. And we do have an understanding of sort of where, I would guess, how they have been a bit challenged by the overall level of the economy, and where interest rates are. So, the first thing that we did, Mike, is we used basic cash flow estimates based on what we thought would happen over the next five years. At M&T, we are not really big at putting revenue synergies in our models, okay? But -- so we believe they are there, but we didn't really use too many of them. And the next thing we did is just looked at comps and multiples that are available, either on our own, or through the help of investment bankers, to get a sense of where the business have traded in the past.

So the comps on sales under asset management could be what 2%, 3%, 4% or 5%? So I guess leading to my second question. if you value the assets under management that you are getting, I guess that could be worth a good $1 billion if not more than that, implying that you are getting this franchise well below kind of adjusted tangible book, which mean there is the a lot worse loan quality than anybody expected. So, what I am leading to is back to slide nine. I know you kind of answer this had question already. That the magnitude and velocity with the problem with borrowers was picking up. And also you did a lot of due diligence that gave you more conservative remarks. But when you look at slide nine, and see another $1 billion dollars of write-downs, or another one-third write-down of construction loans, how can you have such a big write-down at this stage in the cycle for a regulated bank? Part of my question is to know about the specific transaction, but part of it is, to understand if there are other banks out there, that similarly have not taken down these write downs?

Mike, one, we have not met, but what I will is start off by saying is, it is hard for me to answer that. We come in, and we do our work, and we look at the relative side of the mark. I think the thing that strikes me, is that when we look at the construction portfolio, I think Don got this right. Is that, I guess when we came in, our impressions would be that we expected to find more loans outside of the footprint and different places, as you would see has been typical of where people got into trouble.

But at the end of day, their loan experience in that class, in those counties, is not all that different from ours. Right? They just had a lot more of it. And I mean, it is very evident. I gave you our numbers. We think we were 35.9 in our book. It is much smaller relative to our size in that space. And we have got -- we've got Wilmington Trust as 40. I don't think that is much different. Of course, we are trying to be a bit conservative here, because it is not our book. So, it is hard for me to answer questions in the migration and how it has happened. I can just kind of just tell you what came out of our 11 days of work.

Great. Yes, we come at it from the Wilmington side. We look forward to catching up with you.

Sure. Same.

Thank you. Ladies and gentlemen, there are no further questions at this time. I will turn the conference back over to management for closing remarks. Thank you.

Thank you very much. Well, as we have indicated in this call, management and the Board of Wilmington Trust carefully studied our strategic options, and we reviewed a wide range of alternatives. We are impressed with M&T's knowledge of the local market, of their underwriting capabilities, and the opportunity they are affording us to lead in the Wealth in the CCS businesses. There is either no or very limited overlap, with regards to geography, product, distribution, different channels.

They are going to use the Wilmington Trust name, particularly in the Wealth and CCS businesses, and we believe there is a good cultural fit. The financial strength that they afford us, the risk management techniques that they will be bringing, will only strengthen Wilmington Trust in this market that we serve. Given where we are, we believe the best course of action for our shareholders, clients, people of Wilmington, is to move along on this particular transaction with Wilmington -- with M&T. Thank you very much. Bob?

We are very excited about this transaction. At the end of the day, Wilmington Trust is a community bank. We are a community bank, and I think our culture -- our cultures meld very well together. We are very excited about their talent and expertise in Wealth Management, and their CCS operation. It 's something that can add a lot to what we already have in the markets that we are already in. And, they have a got lot of very talented people. And we all -- on behalf of all my colleagues at M&T, we are very excited about getting together. Thank you.

Thank you.

Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.