M&T Bank Corp (MTB) 2010 Q4 法說會逐字稿

Good morning, my name is Wes and I will be your conference operator today. At this time I would like to welcome everyone to the M&T Bank fourth-quarter fiscal year 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I'll now turn the conference over to Mr. Don MacLeod, Director of Investor Relations. Please go ahead, sir.

Thank you, Wes, and good morning, everyone. This is Don MacLeod, I'd like to thank everyone for participating in M&T's fourth-quarter 2010 earnings conference call both by telephone and through the webcast. If you have not read our earnings release we issued this morning, you may access it along with the financial tables and schedules from our website, www.MTBE.com and by clicking on the Investor Relations link.

Also before we start I'd like to mention that comments made during this call might contain forward-looking statements relating to the banking industry and to M&T Bank Corporation. M&T encourages participants to refer to our SEC filings, including those found on forms 10-K, 8-K and 10-Q, for a complete discussion of forward-looking statements. Now I'd like to introduce our Chief Financial Officer, Rene Jones.

Thank you, Don, and good morning, everyone. Thank you for joining us on the call today. I understand that both we and our much larger friends down state are reporting our results this morning. Hopefully both of us will set a positive tone for the coming earnings season. I'll quickly review some of the highlights from our results and then we'll take your questions.

As a slight break from the past, I'd like to start by summarizing M&T's performance for 2010. Overall our results for 2010 were driven by steadily improving credit trends that saw charge-offs fall 33% to $346 million or 67 basis points of average loans and provisioning for loan losses fall 39% to $368 million. Losses on investment securities, including other than temporary impairment charges, similarly fell 39% to $84 million. Taken together these two factors contributed significantly to our strong year-over-year performance.

M&T's liquidity position continued to improve in 2010 as the slow pace of economic recovery contributed to balance sheet contraction for much of the year while core deposit growth remained robust. Encouragingly, late fourth-quarter growth in our commercial loan and commercial real estate loan portfolios resulted in a positive linked-quarter loan increase for the first time in several quarters.

Additionally, expansion of the net interest margin coupled with good expense control contributed to improving operating efficiency and higher returns, enabling M&T to offset the reduction in consumer service charges caused by the mid-year implementation of changes to Regulation E.

Turning to the specific numbers, for the full year of 2010 diluted earnings per common share were $5.69, an increase of 97% over $2.89 in 2009. Net income for 2010 was $736 million, which represents a 94% increase over $380 million in 2009. GAAP basis net income for the full year of 2010, expressed as a rate of return on average assets and average common shareholders equity, was 1.08% and 9.3% respectively, up from 0.56% and 5.07% in 2009.

M&T consistently provides supplemental reporting of its results on a net operating or tangible basis from which we exclude the after-tax effect of amortization of intangible assets as well as expenses and gains associated with mergers and acquisitions.

Included in GAAP earnings for 2010 was a net after-tax merger-related gain from the K Bank acquisition of $16 million or $0.14 per common share. This compares to $36 million or $0.31 per common share of net after-tax merger-related expenses in 2009 reflecting costs arising from the Provident and Bradford Bank mergers, partially offset by the gain on the Bradford transaction.

Also included in these earnings for the past year was the after-tax expense from the amortization of intangible assets amounting to $35 million or $0.29 per common share compared to $39 million or $0.34 per common share in 2009.

Net operating income for 2010, which excludes those items I just mentioned, was $755 million or $5.84 per common share for 2010, an increase of 66% from $455 million or $3.54 per common share in 2009.

In ordinance with the SEC guidelines this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including tangible assets and equity. The rate of return on average tangible assets and average tangible common stockholders equity was 1.17% and 18.95% respectively for 2010, up from 0.71% and 13.42% in 2009.

Turning to the most recent quarter, diluted GAAP earnings per common share were $1.59 in the fourth quarter of 2010, improved from $1.48 earned in the third quarter of 2010. Net income for the recent quarter was $204 million, up from $192 million in the linked-quarter. GAAP basis net income for the fourth quarter of 2010 expressed as an annualized rate of return on average assets and average common equity was 1.18% and 10.03% respectively compared with 1.12% and 9.56% respectively in the prior quarter.

As I noted earlier, the net after-tax merger-related gain in the recent quarter arising from the K Bank acquisition was $16 million or $0.14 per common share; there was no merger-related activity in the third quarter of 2010. After-tax expense from the amortization of core deposits and other intangible assets amounted to $8 million or $0.07 per common share in both the third and fourth quarters of 2010.

And M&T's net operating income for the quarter which excludes those items was $196 million compared with $200 million in the linked-quarter. Diluted net operating earnings per common share were $1.52 for the recent quarter compared with $1.55 in the linked-quarter. The annualized rate of return on average tangible assets and average tangible common equity was 1.2% and 18.43% respectively compared with 1.24% and 19.58% in the third quarter of 2010.

Next I'd like to cover a few highlights from the balance sheet and the income statement. Taxable equivalent net interest income was $580 million for the fourth quarter of 2010, up an annualized 3% from the $576 million in the linked-quarter and also increased 3% from the $565 million in the fourth quarter of 2009. The net interest margin contracted slightly during the fourth quarter averaging 3.85%, down 2 basis points from 3.87% in the third quarter.

As we discussed on the earnings call in October, we held higher levels of short-term money market investments on the balance sheet during the fourth quarter to collateralize a seasonal surge in municipal deposits. This program negatively impacted the net interest margin by 5 basis points.

Aside from this temporary issue, the net interest margin expanded slightly reflecting a 2 basis point benefit from prepayment penalties and cash basis interest recognized on nonaccrual loans. An additional 1 basis point benefit came from the favorable shift in our funding mix with deposits replacing both long-term and short-term wholesale borrowings combined with a favorable shift on the asset side as loan growth was funded by runoff in lower yielding securities. I'll discuss our outlook for the margins in the few moments.

As for the balance sheet, average loans for the fourth quarter increased by approximately $300 million on annualized 2% to $51.1 billion from $50.8 billion in the third quarter. On an end-of-period basis loans grew by an annualized 9% or approximately $1.2 billion from the linked-quarter.

Compared with this year's third quarter changes in end-of-period loans by category were as follows. Commercial and industrial loans grew by an annualized 19%, loans to auto dealers to finance inventory contributed $258 million of that increase while remaining C&I loans increased by $344 million or an annualized 12%. Commercial real estate loans grew by an annualized 12%.

Residential real estate loans grew by an annualized 12% as well reflecting actions we had taken at the end of the third quarter and which we discussed on the October call. Specifically we began retaining a significant portion of our performing mortgage loan production.

This increase in residential loans was largely offset by a 6% decline in consumer loans driven primarily by lower levels of indirect auto loans reflecting the limited returns available on these loans in the current environment. The acquisition of the K Bank added approximately $93 million of average loans for the quarter and $149 million to the end-of-period loan balances.

While it seems clear that economic activity continues to improve, the strong commercial loan growth we experienced in December was not matched by similar inflows into our current pipeline for new business. In other words, a portion of the growth seems to have reflected a desire on the part of our clients to complete their financing needs near or around the end of the calendar year. That said, adjusting for this we have seen a slow but steady increase in demand for credit over the last six months of 2010.

We continue to see strong growth in core deposits. Average core customer deposits which exclude foreign deposits and CDs over -- greater than $100,000 increased in the fourth quarter by an annualized 17% from the third quarter. Excluding the seasonal surge in municipal deposits that I mentioned previously, core deposits grew at an annualized rate of 13%.

Turning to not interest income, excluding securities gains and losses, and the $28 million pre-tax gain from the K Bank acquisition, non-interest income was $286 million for the recent quarter compared with $298 million in the third quarter. Mortgage banking fees were $35 million for the quarter, down from $61 million in the linked-quarter.

Approximately $11 million of the decline can be attributed to our decision to retain a higher percentage of our mortgage production, while another $5 million can be attributed to the decline in origination activity during the quarter. The remainder of the declines relates to expenses associated with our obligation to repurchase certain mortgage loans previously sold.

Service charges on deposit accounts were $111 million during the quarter compared with $118 million in the linked-quarter. The 6% decline reflected the full quarter impact of the implementation of the new Regulation E which began halfway through the third quarter.

Securities losses in 2010's fourth quarter amounted to $27 million, predominately reflecting additional other than temporary impairment charges on private label mortgage-backed securities held in our securities portfolio. This compares to $8 million of securities in the third quarter.

Turning to expenses, operating expenses continued to be well controlled during the recent quarter. Excluding merger-related expenses and amortization of intangible assets, operating expenses were $455 million, down from $467 million in the third quarter of 2010. The fourth-quarter results included a $6 million reversal of the valuation allowance on capitalized residential mortgage servicing rights. And this compares to an addition of $3 million to the valuation allowance in the third quarter of 2010. As of the end of 2010 we have reversed all of the valuation allowance for capitalized residential mortgage servicing rights.

The efficiency ratio, which excludes securities gains and losses as well as intangible amortization and the net merger-related gain, was 52.5% for the fourth quarter, improved from 53.2% in the third quarter of 2010.

Let's turn to credit. Overall credit trends remain stable, though, consistent with what we've seen over the course of this year, included some volatility. Non-accrual loans increased to $1.24 billion or 2.38% of total loans at the end of 2010 from $1.1 billion or 2.16% of total loans at the end of the previous quarter. The increase is predominately related to an $80 million loan to a residential builder and developer and $66 million of commercial construction loans to an owner operator of retirement and assisted living facilities.

Other non-performing assets consisting of assets taken into foreclosure of defaulted loans were $220 million as of December 31 compared with $193 million as of September 30. The vast majority of the increase came as a result of the K Bank acquisition. Net charge-offs for the fourth quarter were $77 million, improved from $93 million in the third quarter of 2010.

Annualized net charge-offs as a percentage of total loans were just 60 basis points, down from 73 basis points in the linked-quarter. The provision for credit losses was $85 million for the quarter compared with $93 million in the linked-quarter. The provision exceeded net charge-offs by $8 million and, as a result, the allowance for loan losses increased to $903 million as of the end of 2010.

The ratio of allowance for credit losses to legacy loans, which excludes acquired loans against which there was a credit mark, was 1.82%, down slightly from 1.86% in the linked-quarter. The loan-loss allowance as of December 31 was 2.6 times net charge-offs for the past year.

We disclosed loans past due 90 days but still accruing separately from non-accrual loans because they're deemed to be well secured and in the process of collection, which is to say that there is low risk of principal loss. Loans 90 days past due were $270 million at the end of the quarter, of these $214 million or 79% are guaranteed by government-related entities. Those figures were $215 million and $194 million respectively at the end of September.

M&T's tangible common equity ratio was 6.19% at the end of the fourth quarter, an increase of 23 basis points from 5.96% at the end of the third quarter and a 106 basis point increase from 5.13% at the end of December 31, 2009.

Unrealized pre-tax losses on our available-for-sale investment portfolio were $81 million as of the end of 2010 compared with $69 million at the end of the third quarter, largely reflecting the backup in interest rates late in the quarter. Our estimate of Tier 1 common ratio as of December 31 is 6.52%, up 10 basis points from 6.42% at September 30.

Turning to our outlook, as most of you know, we don't offer much in the way of earnings guidance, but we'll share our thoughts on some general trends. While the rate of recovery is slow, the level of economic activity certainly appears to be improving. As I noted earlier, loan demand seems to be firming, but as we look out over 2011 we're not expecting anything dramatic.

As a result our outlook is for modest single-digit year-over-year loan growth prior to any impact from our pending acquisition of Wilmington Trust. We expect the net interest margin for 2011 to be relatively consistent with the [3.84]% that we reported for the full year 2010. At this point it is our expectation that Wilmington Trust could have a slight downward impact on the net interest margin for the combined company, but we'll talk more about that as we get closer to a closing date.

As we have suggested for some time, we would expect our non-performing loan trends to be a bit lumpy as evidenced by this quarter's results. Our net charge-off experienced in 2010 improved by 34 basis points from 2009 while unemployment remains very high. Overall our outlook for credit cost is to only improve marginally relative to 2010 unless there's a noticeable improvement in unemployment and the overall economy.

Given the headwinds from Dodd-Frank and other pending regulations, we remain cautious regarding top-line growth. And so as we've always done, we'll continue to place a priority on operating efficiency and discipline around discretionary spending. Overall our goal for 2011 on this front is to sustain the improvement that we gained in our efficiency ratio during 2010.

Finally, we will remind you that normalized for unusual items, the first-quarter's results have tended to be seasonal low for us, reflecting fewer days and higher expenses associated with the FICO resets, accelerated recognition of equity compensation and on the 401(k) match.

As always 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 to questions before which Wes will briefly review the instructions.

(Operator Instructions). John Pancari, Evercore Partners.

Good morning. On the credit side, despite what you saw this quarter you still seem somewhat cautious, particularly in terms of the lumpiness. What do you see in terms of potential inflows in the non-performers? And can you give us some color in terms of what your early stage delinquencies and watch list is telling you?

Yes, I guess I'll start by saying that we did see the increase in non-performers, we mentioned two credits moved in -- actually both in some way housing related. But when you look at the whole -- I tend to look at the whole criticized loan book, which is sort of in our system is everything 11 and above -- and that didn't change materially. In fact, the criticized loans on our balance sheet probably declined slightly during the quarter.

So when we say we expect credit to be lumpy, there are going to be things that move either way from time to time. I think probably the best example is to look at the two credits that we mentioned. The first is one in our residential development portfolio that we've been looking at for some time and we have been working with to sort of make improvements.

But at the end of the day we felt, that based on the valuation of the properties and so forth, that it was warranted to move to non-accrual. And in that particular loan there will be some loss content that we've provided for. You flip that around to the other credit, which is assisted living, and quite frankly there it's much more of a technical issue.

We don't see much loss content there, but technically the client wasn't able to extend even though we're in the process of putting an extension in. So at the end of the day we just sort of followed the letter of the law and it tripped over. So I don't really look necessarily at just the non-performing number. What I look at, as you kind of stated, the overall criticized book, it's pretty stable and this particular quarter it was down slightly.

Okay, so is that why -- just given that outlook, is why you pretty much kept the reserve relatively stable relative to loans and despite the over provisioning of charge-offs? So you didn't really up the reserve in any way despite this lumpiness that you're seeing and the surprising jump in non-performers that we saw this quarter?

Yes, John, that's a good description and I think you obviously will have to consider that we added $1.2 billion to the commercial loan book as well, right. But I think that your description is fair.

Okay, all right. And then one other question. In terms of -- I know you're probably evaluating this combined with the merger here, but in terms of a potential TARP repayment, can you just give us an update in terms of the dialogue you may have had during the quarter with the regulators and the government in terms of the timing of TARP repayment and the potential capital raised to do so?

Nothing really has changed. I mean again, we kind of go through our risk management practices and every January when we get to that point we go to our Board and we talk about what our stress tests are and what we think for the outlook of the plan and capital and all that. So we'll get through that governance and then sometime post that we'll, as we always do, share it with the regulators; they have privy to all of that.

But I think what we said still stands -- as we evaluate Wilmington Trust, in the long run we're not looking to be a TARP accumulator. And in the near-term we'll sort of come up with some plan to sort of how we want to pay that back. From our perspective our capital ratios, again, continue to grow very, very strong. And I think really the sooner you move the TARP out it actually increases your tangible generation. But no real update on it, but when we have one we'll let you know.

Okay. All right, thank you.

Todd Hagerman, Collins Stewart.

Good morning, everybody. Rene, I just wanted to ask you a little bit more about the mortgage retention strategy, particularly in light of the pending Wilmington Trust deal. This quarter, I mean from my perspective what you added to the balance sheet was a little bit less than what I was expecting. And similarly, the drop in the flow sale gain on the mortgage side was a little bit more than what I was expecting.

But in light of Wilmington, how should we, in your outlook for the margin and interest rate sensitivity, if you will -- have things kind of materially changed in the course of the last couple months? Meaning that are you now a little bit more optimistic in terms of the rate environment going into 2011 and thinking that your margin is going to be relatively stable year over year? How should we think about that mortgage retention strategy in light of the coming year and kind of that modest loan growth outlook and stable margin?

Sure, Todd. So let's just take them in order. So, jokingly I think I estimated it might be $10 million, it was $11 million. So it was kind of what we expected in terms of volume and in terms of the margin that we lost. But remember, we don't deliver those; those loans don't get delivered to our balance sheet until late in the quarter and in fact this sort of first-half of January.

So what you saw was the -- all you saw was the impact to the gain on sale, which is upfront. And in fact, remember the way the mortgage revenue works is you get it when you lock the loan, you book the revenue. So once that's delivered you'll begin to see the positive impact in the first quarter of 2011.

I don't know, we thought about it. We didn't see anything that changed during the quarter that would suggest that it was a flip back. So right now our plan is to continue to portfolio those mortgages. As you know, we don't have a large residential mortgage portfolio, particularly relative to our peer group. So there's no problem there.

And what you'll see when we put out our K is that we sort of marginally were able to -- we definitely were able to slow that migration to the -- we're asset sensitive and so we need those fixed-rate assets. I don't know, I think loan growth will continue. I obviously don't expect to have $1 billion a quarter. But I think we'll wait and see for another quarter whether or not that makes sense to continue doing that.

With respect to the margin, if you do have some loan growth and you offset that with securities -- what otherwise would be securities purchases, it probably does to a lot to offset any natural decline that you might have in your [margin].

So when we kind of put everything together and we look at where we are we don't really expect rates to move for about three quarters, it just kind of gives us a flat to stable margin. I was actually a little surprised to see that normalized we're probably up 1 basis point this quarter and that was all driven by the type of loan growth that we had.

Right. Yes, I mean I was just thinking of it in terms of that the bond portfolio continues to run off at a pretty healthy clip and again it did this quarter. But as you think about just, again as you mentioned adding some of that fixed-rate product to the balance sheet, I would have expected or, again as I think about my 2011 impact and the consolidation of Wilmington Trust, that there might be a little bit more compression within that margin and kind of the mix of assets, if you will.

We don't see it.

Okay.

And I -- it's a good question, I'm not quite sure why, but I think our yields are pretty stable on the asset side. So -- yes, remember, when we say we're asset sensitive, right, we're kind of mismatched and we don't like to be. So for us putting those assets on this quarter they were all funded probably with core deposits, which is great. And if they're not we probably would put on some additional wholesale funding. That spread is still going to be pretty wide relative to our 3.84 margin, right?

Right. What's your outlook in terms of the rate environment for 2011 embedded in your forecast?

We used a forward, so I think --

Okay.

-- it comes somewhere late, in 2010 there's a fed increase embedded in the forwards or something.

Okay, thanks very much, Rene.

I'm sorry, in 2011 if I didn't say that right.

Right.

Matt O'Connor, Deutsche Bank.

Hi, Rene. As we think about Basel III and what that means to M&T, have you run through some of the numbers on the RWAs? Because I think it's possible your RWAs would go down given your historical losses are so low and I was just wondering how meaningful that decline might be if that is the case.

That would be wonderful. I've done a little bit of work on that and I kind of hear the theories about it and sort of vetted in the idea that in Basel II you got credit for your actual performance. I just personally find it hard to believe that in the current environment that that's going to be the case in Basel III. I know a few people are talking about it, but we're not counting on any of that. But I would agree with you -- I think what we tend to do is we tend to look at the risk of our portfolio, how well it's collateralized against the capital. But my guess is I don't expect much relief from that.

Okay. I know there's some upward pressure on the securities book, but I thought the loan book could help there and then some. So I guess the question comes back then to the capital ratios. In the past you've probably been able to run a little less capital than other folks just because the credit is so good, the earnings power is so good. But it seems like with Basel III they're trying to standardize it, right.

So if everyone is going to be running, I don't know if it's 7% or 8% and it seems like when it comes time to repay TARP they don't really care about the 7% number because a lot of banks are in the 9% range, just how to we reconcile that with you guys?

I'll give you my thoughts. I mean, if you kind of sum up everything we've heard, the capital ratios are going to be higher than they were in the past. But there's nothing that's ever been said that there shouldn't be different capital ratios among different banks based on the risk and the quality of your portfolio. And I would be hard-pressed to think that anybody would suggest otherwise.

So I tend to take a practical safety and soundness view. And if we change the mix of our portfolio, then that would mean that we probably need to be well above 7%. But if we're not changing the risk profile of our portfolio maybe we don't have to be as high as some.

You can see the change already. I mean, when you think about -- just go back quickly, if you go back a year, go to Provident, we bought Provident, we took our tangible down to 4.49% and then we grew it back. And then in 2002, I think it was, or 2003, we bought Allfirst, and I think then we took it down to 4.68% or something like that and then we built it back over time.

When we announced the Wilmington deal and we kind of gave you a general target range, that range, the numbers didn't come down at all. So, our view of capital internally has changed as well and we're just more conservative about it. But I don't think that that means that all banks will have the same capital ratio down the road, it just doesn't make sense.

Yes, I would agree with that. And then just separately, as we think about the size of your securities book and then just call it from the other liquidity that you have on the balance sheet, the securities book has been coming down a little bit -- it came down a little bit further with the actions this quarter. How should we think about that roughly $7 billion of securities going forward?

We look at the mortgage repurchase program as -- I mean, retaining the mortgages as a direct substitute for the securities purchase. So if you were to look internally, our reports don't say securities and residential loans internally, they say discretionary portfolio. And if we were to stop doing something on the -- retaining the residential mortgages we'd probably have to start buying securities, right, because we're -- overall on discretionary assets we're historically low.

I would agree on that. And then from a liquidity point of view, is it okay if it's in the loans versus the securities? That's not an issue from a --?

Well, they're very [securitizable], right?

Yes.

So we just haven't taken the second step. Your point is really good, I mean over the course of the year and the years to come we're going to have to start thinking about dealing with the new liquidity rules. So even though we're much more liquid than we were over the last several years, that's sort of one of the outcomes that you might have to hold more securities. But it's too early to say, those rules aren't out and we feel pretty comfortable where we are now.

Okay, all right. That's all helpful. Thanks, Rene.

Sure.

Matthew Clark, KBW.

Good morning, guys. Just on interchange, I think based on the numbers we've seen in the Nielsen report which are a little stale, would you mind maybe quantifying how much in the way of interchange revenues you guys had in 2010 that might be at risk in 2011 and plans to mitigate it? Obviously you have Wilmington Trust coming through -- the wealth management and corporate trust business I'm sure will help out. But just any other plans to help mitigate the impact there mid-year?

Yes, we have to date avoided talking about or speculating about what the impact of that legislation will be, just because we can't get our hands around what's likely to happen. So we haven't disclosed any of that and we probably won't change that until we get clear guidance on what the actual rule is -- which I hear is April timeframe.

But what I will say is the proposal that was out there in our minds is probably the worst case scenario for the banking industry and we're part of it. I would also say that the debit interchange revenues under the proposed rule that's out there would probably well below cost. And what that means is that the business model would have to take a dramatic change in some new direction.

So you're talking about a big event for the industry. And if you sort of legislated away the profitability of all of those activities the whole industry would have to change. I can't tell you -- we'll be part of that but I can't tell you what the impact is. I think I would say that, kind of off your question, but the sad part about it is that there's really no clear win for the consumer either. So too much uncertainty for us, but as we get to April we'll be happy to talk about what it means to us.

Okay. And then just in terms of the repurchase request on mortgage, I think you said the balance, but I -- in terms of the impact this quarter. If you don't mind quantifying it, I just didn't hear the whole thing.

Yes, I think we had an impact on the -- they increase quarter over quarter was like $10 million.

Okay. Okay, that's it, thanks.

Bob Ramsey, FBR Capital Markets.

Hey, good morning. I appreciated the color about the loan pipeline heading into the first quarter, so I understand there is some seasonality in the growth you all saw maybe this quarter. But could you just talk a little bit about maybe line utilization trends or how the pipeline into the first compares to what you saw coming into the fourth? And more generally is what's in the pipeline today? Is it still C&I and CRE? And with the fourth quarter do you think you all saw the same benefits as peers or was some of that picking up market share? Just kind of broader thoughts on loan growth.

Yes, let me just give you the line utilization percentage, I have the number I just can't see where it is. So what I do is I look at the pipeline and then I go back to February and I drew a line right across to normalize it. And what you see is that the pipeline is steadily growing, there's a little bit of lumpiness from time to time, a fair amount toward the end of the quarter. But when you sort of normalize for it you see a steady increase.

There's no difference in -- how do I say this? You see it everywhere so I'll give you some feel. But if you look at our middle-market business, right, we had growth in the portfolio and the pipeline in Buffalo, Albany, Rochester, Southern New York, Northern PA, Central PA, Philadelphia, the Hudson Valley, Washington, DC. In our commercial real estate book it was in Buffalo, Albany, Central New York, New York City had good growth, Philadelphia, Hudson Valley, and a little bit in Washington, DC.

So you can kind of see it across the board. And then when you look at overall what we saw in terms of the big increase in the pipeline during the fourth quarter and then some of which extended over to our loan growth, you had some 30% of it was in the real estate and rental space. And remember for us that would be a lot of owner occupied. And then you probably had another 10% in healthcare, another 10% in manufacturing and then retail trade was probably a close second.

So it's kind of much what you saw in the fed report actually in that manufacturing in a number of different sectors actually saw the increase. So I kind of look at it if you sort of normalize away the $1.2 billion for a minute, that generally most of the sectors are seeing an increase. The one that's not, as you can see by our charge on our private label mortgage-backed securities and the two real estate related loans that went to non-performing is that it's the same story. If projects are having trouble in housing that really hasn't improved in any way, shape or form.

Great.

The utilization went from 51.7% up to 52.12%.

Okay. And then maybe could you talk about some of the opportunities you all are thinking about in terms of the Wilmington Trust wealth product set and sort of plans and early actions that you are taking to capitalize on that?

Well, I mean at this point we're kind of heavily into the integration process. I think what we thought and had sort of proven out is that as we meet the clients on the Wealth Management side and the trust business we continue to see that the customers sort of fit into our wheel house and there's a lot of opportunity for us, particularly as we look to the M&T footprint.

We've already seen responses and inquiries from our own customer base asking us about Wilmington and what the prospects for business and opportunities are there. I think when you kind of look at our basic business, which is where the lender to middle-market and small-business companies, which means that you have -- a lot of the people that we're doing business with are owner operators or have a lot invested in their business.

It kind of dovetails nicely. Sort of at the end of the day we see a lot of places where we'll be able to add that sort of higher service wealth management capability to that group. And when you think about it, they operated in Delaware and some other places on the wealth side, but really our distribution in Baltimore was the number one distribution there and quite frankly our market share in the other places we do business creates a lot of opportunity.

The challenge is going to be just what you saw, it's on the credit side. So there's a lot of work that we have to do there and we'll continue to work at that with our partners. But I guess what I would say is that the one bright spot on the credit side is that if there was any concern about lending that had gone on in the year passed before we showed up we would suggest that that's probably abating because Wilmington now has sort of the strength of M&T behind it, and that's also very positive for their customers on the commercial side. So we see a lot of positives, but I would also say that we had a lot of work to do.

Okay, great. Thank you Rene.

Steve Alexopoulos, JPMorgan.

Good morning, Rene.

Good morning, Steven.

Could you just clarify the comments you made on the smaller of the two credits that moved into nonaccrual? Just wondering is this a renewal issue that should be corrected here in the first quarter and take it out of nonaccrual or is this a distressed loan modification issue?

Well, we'll find out I guess. That is a wonderful question. Today, based on all the facts, it looks like more of a technical issue, but until you actually go out and secure it you don't know that. And so that is why we put into nonperforming. We sort of tend to err on the cautious side of things.

But you are right in the space, right? So it would be a credit where we are hoping that the renewal takes place, but there is some probability that it might not. But again, as we look at it, we don't see much loss content there so technically I guess it could go either way.

And do you own these outright, these two credits or are these participations?

Do we own them out right?

In other words, are you participating with other banks with either of these credits?

I don't recall these being participations. The one -- I am just trying to think. Actually, one potentially -- the larger one potentially could be with some smaller institutions, but the second one I don't recall that it is. If that changes, I will get something to you in a few minutes here though.

Are any given -- maybe I will shift gears. Given the improvement you are seeing in commercial loan growth, does this change your outlook for Bayview at all for 2011 and you expect that to be less of a financial drag for the year?

No, we don't have any change. Again, I think about it from a valuation standpoint. The engine behind much of the valuation that we have in Bayview has to do with Bayview Asset Management and its prospects.

And then we were relying very, very little on the idea -- or if any, on the idea that the securitization market would come back. So we haven't changed our view there at all and I wouldn't expect in the near term much change in the income statement impact.

Okay. And just final, do you have an estimated date at this point where you will close the Wilmington deal?

No, we do not.

No. Still second or third quarter?

Yes, we have got to go through the application process. Oh -- well, there was never any discussion of the third quarter.

Okay, so second quarter.

But we had targeted somewhere midyear, which we were thinking probably somewhere in the second quarter. But you got to go through your process so you don't really know.

Okay, thanks.

And the two loans are all us.

Ken Usdin, Jefferies.

Thanks. Rene, how are you?

Good, good. Happy New Year.

Question, big picture about just loans versus deposit growth. I am just wondering if you can characterize what part of the business are the deposit growth coming in. And, generally, how would you expect, as commercial loan growth does start to come back, are you starting to see any behavioral changes as far as the commercial deposits and how you expect one side of the balance sheet to act versus the other as we do start to see some loan growth come back?

I don't -- I haven't heard or seen anything that suggests there has been a big change, particularly this quarter. It's the growth that we had been seeing. I would say first, second, and third quarters seemed to be slowing a bit on the deposit side. Obviously that wasn't the case this quarter, but I haven't seen anything that suggested that.

I don't have really more there. I would expect that deposit balances are elevated first because of the low interest rates, which this is pretty typical that happens. And because of the severity of the low interest rates you've got a lot of money that would otherwise be parked in the money fund.

One of the things I think is kind of interesting is that as that will happen we'll see some maybe run off, natural runoff on the deposit side. But it is interesting that the business that will benefit from that would be our trust and investment group and the Wilmington Trust business, right. So -- but no evidence.

Well, I guess the question is so then where is incremental deposit growth coming from today given that rates have been low for such a long time? And as you start to think about rates eventually going higher, how do you expect your deposit pricing to act versus rate increases? Understanding your point that the Company is inherently asset sensitive, do you expect any different change as far as this cycle versus previous cycles?

No, I don't. I mean again, which is evidenced by -- I haven't seen much, so I think things kind of probably will move textbook. If I look out next year, if we have modest loan growth, right, which is a change organically from the past several quarters, then I would guess that we do not have a lot of deposit growth, right? But I don't see -- which is classic, right.

Yes. And then my second question is just a couple of specific line items -- just can you talk through the strength in trading revenues and the -- even X the K Bank gain other income was kind of above a run rate. Was there anything going on in either of those two areas from either just business activity or one-time stuff?

Yes, no, all business activity, I mean let me answer the other income first. The other income in one way shape or form can all be classified as commercial fees. So, we had an increase in loan syndication fees syndicating credit out. We had an increase in advisory fees where we're helping someone with a liquidity event during the quarter.

We had an increase in general loan fees. We had end of term leases. And then if you go up to trading, the increase in trading was people doing swaps -- swapping their fixed-rate loans to floating, I believe. So, all of that activity was really commercial activity this quarter.

So is it fair to say as we would see a general improvement in commercial activity, those two areas should continue to do fairly well or grow along the lines with the commercial book?

Yes, the trading is very rate-sensitive and depending on what's moving with rates. So you see that coming in and out as the rates change. But the other business I think that's pretty fair to say. Our syndication fees had been relatively low just because the pipeline was low in the first half of the year, right. And now you've seen a change there. So I would agree with that.

Okay, great. Thanks a lot.

John Fox, Fenimore Asset Management.

Good morning. My main question was on the residential mortgages which you answered. A second question is, Rene, when you have the expense for the mortgage put backs, which I think you said increased about $10 million, where is that accounted for? Is that run through the mortgage line or is it in the other expense or where do we see that in the income statement?

It runs through revenue, so that's the other part of the decline from the $61 million to the $35 million.

Right. So it's netted in revenue?

Yes.

In mortgage?

Mortgage banking revenues, yes.

All right, thank you.

Andrea Jao, Cowan.

Good morning, a couple of quick questions. First is if you're portfolio'ing more mortgages are you also open to buying loans from other financial institutions? And if so, kind of what are you looking for?

Well, actually that's the point. We just think that it makes more sense to retain those, the mortgages that we have, rather than buy mortgages or securities from somebody else because you give up the transaction fee. So we just think it's efficient to keep our own, so we haven't been buying mortgages and we typically don't. Sometimes we'll buy servicing.

Got you. The second question is about unrealized losses on securities versus the market interest rates that everyone can easily observe. Are there some details or color you can give us so that we can better relate the two?

No, I think the unrealized loss would have been greater probably towards the end of November, (technical difficulty) a swing back in the rates, right. So I don't know, Don, is there anything you could think of that would have caused it to be --?

No, no, there's nothing there.

Okay, thank you so much.

Sure. You're welcome, Andrea.

Collyn Gilbert, Stifel Nicolaus.

Thanks, good morning, guys. Rene, just kind of a big picture for you. As you look at kind of your potential growth opportunities within the business, what do you think, given where we are in the economic cycle and rates and everything, where do you think your best opportunities are for putting on growth with the best risk-adjusted returns?

Oh, I mean we think it's sort of -- it's kind of an easy answer for me and it's right in our wheelhouse, it's the business banking and middle market clients. And when I say that, obviously some of them are doing some real estate lending with us. But that type of client we think has got great prospects.

We've never seen a big fall off, as you can see, in our rankings in the small business side, right. But having said that, all those customers have been relatively cautious. So, I don't view us as having really lost any share or not being well-positioned when they start to actually make investment. And I think that is a real positive.

I do think -- and I can't say it enough, I am very encouraged by having the idea of having a new product set in the Wilmington Trust side to sort of help with that process. I think, as was the case for our small investment banking and our advisory business and a few other businesses that we got from Allfirst, I would think that if we do that well that is going to provide additional opportunity. But the customer will be the same customer, right.

Okay, so that doesn't change at all, okay. And then just -- can you just give us an update on what some of the larger credits might be right now on your watch list?

The two I just told you about.

That are not yet in nonperformers.

Let me see, let me see, let me see. I don't want to give you that short of an answer so let me -- give us a second here. I mean I will say generally when we look at credit, I mean, there is not a lot of large loans that we haven't talked about in some way shape or form. The two largest are the two that we just talked about, so we don't have anything larger than that in our nonperforming book. And as you go to the third largest and (multiple speakers).

I don't mean to interrupt you, but I don't mean that is currently in the nonperforming book, but that is not. That is currently performing that you are keeping an eye on. Because neither of these -- I mean they may be, well --.

Yes, I mean I -- specific credits. I mean there's just not a lot that if you look from a year ago when you have credits of large size, you just don't see a lot of that. There's still probably stuff in the resi space or the construction space which would be anything tied to housing which would be lingering in there, but they're not large credits. I mean these credits you saw here would be the exception.

Okay, okay. I guess I'm just a little surprised that given where we are in this housing cycle, that we're still seeing large-size credits move to non-performers. Now granted you said you've had an eye on them for a while, but I guess I'm just trying to dig into that. How much longer into this cycle do we need to go that we're going to still see large credits migrate into there? And you're saying that not many.

I would say not many. I mean those are not typical. Hang on one second. Yes, I mean, we're just kind of looking at, for example, in the fourth quarter the catalog additions, right. I mean there's nothing above $25 million, they just tend to be smaller. Whereas that would not have been the case a year or more ago.

Yes, okay. Okay, that's helpful. That's all I had, thanks.

[Gary Paul], private investor.

Hi, Rene. I have two topics, one relates to allowance and the other relates to capital. As people have asked questions and others have done on the repayment of TARP and whether you need to raise capital, and since you have not shown a concern of over involvement of government the way the big banks did for your having TARP. Since the dividend on that is 5% now and doesn't go to 9% until 2013, if the economy doesn't become robust and absent acquisitions, which probably won't materially alter your capital needs because almost any active -- any untroubled one will be all stock at present.

I'm not asking you if this is your strategy, but it looks to me like you could hold the TARP, which Dodd-Frank allows as capital, until the rate goes up to 9% in 2013. And with your capital generation need to issue little or no new capital as some people are concerned about, is that a viable potential? I'm not asking if it's the strategy.

I will say, Gary, that I don't like the idea because TARP does not absorb any losses. All it does is drain your tangible common. So, the idea that you think you're getting something by having some cheap rate out there, it doesn't make much sense because you're not really using it for actual loss absorbing capacity, right.

But your cost of common capital has got to be above 5%, not cash flow.

Yes, I'm with you but it's all about risk management and that doesn't absorb any losses, it just takes my tangible generation away.

Okay.

So that's how I think about it.

And the second question, the government in its usual "let's forget the consequences" has caused any bank doing meaningful acquisitions to have allowance ratios that don't really give you enough on adequacy because you no longer have an allowance related to the acquiree. Can you, with respect to deals already completed, give any time of ballpark as to how much mark for allowance is in your acquired banks marks?

You give them, for example, $500 million when you start Wilmington Trust, but two years down the road you don't know how much of the loans are there and you don't know how much of the mark is there.

Can I give you an estimate if I don't have it in front of me? But I would say that if you look at the mark that we did for Provident -- first of all, just in terms of -- I think you understand this, but you'd have to take a look at your disclosure -- really would have to change and instead of allowance of loans you have to take allowance to mark the loans. And when you do that for M&T, although I don't have it in from me, they're very, very high, right. Because you have to add in the equivalent of the $320 million that we had of credit estimates in our mark for Provident.

We have probably had charge-offs of maybe $120 million out of the Provident portfolio. And the last time I looked, which is not this recent quarter, but we were more than $100 million ahead on that. And so that probably gives you some sort of sense.

We did assess it last June and what we said is we didn't think that 100% of that $100 million is necessarily something that we could reverse because we said well maybe some of it actually is going to be pushed out, right, and maybe the cycle just takes a little longer. But if you take those numbers you can kind of get yourself to what we have as a rough remaining mark that's out there.

So would it be -- am I interpreting your statement accurately to say that in a sense there's $100 million to $200 million of unrecorded reserves that are sort of reserves for losses?

I hate to think -- we haven't disclosed that particular number and if we would we just put it in the K. But there's a substantial amount of the mark remaining. And as you get to Wilmington it will look the same way with the number that we put out there, right. So if you think about it, I mean just go to Wilmington, the bank is five times -- one-fifth our size and the mark is bigger than our allowance.

Yes.

Right? So the old ratios just don't work.

No, no, I agree with that. And I'm just trying to sort of bust through and see what order of magnitude is really there and it does sound like there's $100 million or $200 million that I should view as additional allowance unofficially.

Our controller is sitting here saying no, that's not the case. I appreciate the question. We'll consider how much more we should be disclosing about that amount (multiple speakers).

I thank you.

Because it's probably helpful.

Brian Foran, Nomura.

Hi, the statement "limited returns on indirect auto in the current environment", can you just talk about is that a price statement or is that a future projected losses statement or something else that's driving that? And then are the returns outright bad or are they just not as good as what you can get on other opportunities?

I think that we were a little bit of a pro forma on every single month of all the volume that we do which is a full P&L. And we have an appetite for that business because we like it. But at times the competition gets a little frothy and as we can't -- if we can't generate a return above our cost of capital then our appetite for the volume actually slows down.

And I would say that in some ways I kind of guess it has to do with the fact that we just came through a cycle where there was not a lot of credit demand. And so a number of banks were probably going to that space and it just makes it very competitive in terms of pricing. And that takes the returns down to a breakeven economic. So we tend to have a little bit of discipline there and we'd just rather take the slower growth than not generate economic profits.

And then a follow-up on the mortgage retention. Given how high gain on sale is right now across the industry, is portfolio'ing mortgages even more profitable than the gain on sale route? Or is it more that the benefits you get from an ALM perspective make it worthwhile to portfolio things even if the stand-alone return is a little lower?

I mean, generally it's the latter, right, it's just an ALM issue. We don't see much of an impact on our long run income statement from that move. And the economics for selling, retaining should be generally the same as long as you're funding it properly, right, you're not doing a carry trade or something like that.

Okay, thank you.

Gerard Cassidy, RBS (sic).

My auto question was just asked. But to follow up on that question, do you think the -- is the competition in the indirect auto space coming more from banks expanding more aggressively or is it the captives coming back into the business?

I don't know about the captives. I can tell you in the bank space that the way I look at it is there are probably two camps. There's a camp that just has a lower cost of borrowing than us and I think you've heard some stories about the securitization market being back and appetite for that. And so that actually pulls demand away from us because we just don't have as low a cost of borrowing as some of the bigger players and so that gives them a little advantage. And then I think there's another half which is just smaller institutions chasing the asset that they can get, right.

Right.

But I don't know about the captives.

Okay. Regarding loan demand in general, when you talk to -- when your guys on the front line talk to their commercial customers, are they seeing any signs or feeling better that your customers are going to be maybe drawing down lines on commercial to build up for inventories or capital expenditures -- are you seeing any evidence of that yet?

I think the last survey we do is in the third quarter, so I'm kind of dry on new information there. But we've seen generally positive signs from our customer base. And a quarter ago they were just on the sidelines a bit but very healthy. You're seeing a little bit of utilization pick up, but we haven't -- most of the stories I've heard have been generally positive ones.

And then finally, when you guys do your asset liability modeling what type of assumptions are you using should the Fed start raising Fed funds rates let's say in the second half of this year? For your interest-bearing deposits on the retail side, what type of assumption are you using on the amount of those deposits that will reprice after the first Fed funds increase of let's say 50 basis points?

Is there a specific question -- I haven't gotten that question in a long time. I have to go look (inaudible).

We don't want to give you just all easy questions.

Yes, yes. I mean, I would think that our [reactivity] is probably pretty consistent with the past and we move relatively slow, but I just don't have it right in front of me.

I can get it from Don later. Thank you.

Yes, we'll be happy to provide it. I think we do provide that kind of information in our disclosure.

Great. Okay, Rene, thank you.

Okay.

Mac Hodgson, Robinson Humphrey.

Good morning. On the two large new non-accrual loans in the quarter, where are those located from a market perspective or geographic standpoint?

We didn't say. But I think one is in the PA area and the other was a customer in our -- with a customer in our Maryland market.

Okay.

Not acquired loans.

Okay. And then on capital, when you did the Wilmington Trust acquisition you estimated kind of the TCE range at the second quarter of [596] to [640]. Is that still accurate? And does that assume any sort of capital issued to support the acquisition?

We haven't changed anything we've said on Wilmington Trust. And I think the nice part about it is we have some time to get in there and see how everything works out, both for M&T and Wilmington. And then if it changes we'll say something, but we haven't said anything yet.

Okay. And just to clarify that, so it does not assume a capital raise to support the acquisition?

What we have said is that we thought about the accretion and the economics of the deal with the idea that if there was potential TARP repayment we'd include all the cost and economics in there. So we haven't talked about capital raises, we've just talked about the economics of the deal.

Okay. And then just one last one on M&A. Should we assume you guys are out of the market for any sort of similar size transaction until Wilmington is closed and fully integrated, say maybe 2012 would be a time when you'd be ready?

For other activity, other M&A activity? Is that your question?

Yes, of kind of similar size.

Oh -- oh, yes. Well, I would say generally that -- we get through our work pretty quickly. But in terms of our mind set today we're very focused on Wilmington. And we think that it would be silly to focus on something else because if we can execute it well it means a lot to both organizations. So, we really haven't talked much about that, but I guess as we get towards the end of next year ask us the question again and we'll tell you if we're on to other things. But I think Wilmington is our focus.

Okay, great. Thanks.

If I could -- if I could just get back to Gerard's question. We had initially -- your first rate hike, if you saw a rate hike I think we had initially about 30% reactivity. But you've got to take a look at that and I think what it basically says is you've got to -- we've got a fair amount of cushion, I think it's pretty consistent with what we had seen in the past. We'll take a look at it over a longer period than just sort of from the initial hike.

Sachin Shah, Capstone Global.

Hi, thanks for taking my call. I just wanted to kind of follow up on this regulatory approval process for Wilmington Trust. Any kind of clarity or transparency on where some of these regulatory approvals stand, the Fed OTS, where approvals there are required?

As the approvals happen and they become public we'll talk about it, but there's no update there.

Okay. Any comment on when you expect a shareholder vote to be held on the Wilmington side?

No, no news there.

Okay. And when you say second-quarter possibility of a deal close, are we talking Easter second quarter or are we talking Memorial Day second quarter?

We don't have a date. So we just -- you're basically -- that information is what we said on November 1 when we announced the deal. And we have an update to it we'll say it publicly.

Okay, just one last question. Now, is -- you mentioned the loan losses when you announced the deal about $1 billion or so. Is there any concern about consummating the deal? Any issues as far as the loan losses? Anything that would deter you from just consummating a deal as you're kind of working through the integration and completing the deal?

If we had a material issue we would have said it.

Okay, fair enough. Thank you very much. Have a good day.

Matthew Breese, Sterne, Agee & Leach.

Hi, it's actually Matt Kelley. I was wondering on the residential construction book of business are you seeing any pockets of strength throughout the footprint on C&D loans or is it weak across the entire franchise?

No, I don't think it's -- I don't see any differentiation really across the regions. I think it's more differentiated by the strength of the underlying borrower and their individual wherewithal. So, I think it's a case-by-case basis. Some projects are moving and even within the two one of them is selling and moving property and the other is doing less of that.

Okay. Then one other question just in the mortgage banking business. The gain on sale margins in the fourth quarter versus what you're seeing today and what you were seeing in the first half of the year, what kind of changes have you seen?

It was -- the gain on sale market was a little less in the fourth quarter than the third, but actually the fourth quarter probably looked more like the first and second, third was relatively high. But they're still high gain on sale margins relative to history.

What are those today that you're seeing?

Oh, geez, we're probably still -- I don't know what they were in the past and maybe in the past you were somewhere between -- any given time maybe between 80 and 100 basis points. And -- 70 to 100 basis points, let me say that.

Got you. All right, thank you.

Yes, sure.

And at this time I'm showing no further questions. I'll turn the conference back to Mr. MacLeod for any closing remarks.

Again, thank you all for participating today. And as always, if clarification of any of the items on the call or news release is necessary, please contact our Investor Relations Department at 716-842-5138.

And, ladies and gentlemen, that concludes the M&T Bank fourth-quarter fiscal year 2010 earnings conference call. We appreciate your time. You may now disconnect.