M&T Bank Corporation
Q3 2009 Earnings Call Transcript

Published: 21 Oct 2009

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the M&T Bank Corporation, third quarter 2009 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) I would now like to turn the conference over to Mr. Don MacLeod, Vice President of Investor Relations. Sir, you may begin your conference.

[Don MacLeod:]

Thank you Paula, and good afternoon. This is Don MacLeod. I’d like to thank everyone for participating in M&T’s third quarter 2009 earnings conference call, both by telephone and through the webcast. If you have not read the earnings release we issued this morning, you may access it along with the financial tables and schedules from our website www.mtb.com and by clicking on the Investor Relations link. Also before we start, I’d like to mention that comments made during this call might contain forward-looking statements relating to the banking industry, and M&T Bank Corporation. M&T encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-K and 10-Q, for a complete discussion of forward-looking statements. Now, I’d like to introduce our Chief Financial Officer, Rene Jones.

[Rene Jones:]

Thank you Don, and welcome everyone. Thank you for joining us on the call today. Unavoidable conflicts made it necessary to schedule today’s call for the afternoon, so I’d also like to thank you for your patience. Let’s turn right to the results. Diluted earnings per common share were $0.97 in the third quarter of 2009, compared with $0.36 earned in the second quarter of 2009. Net income for the recent quarter was $128 million, compared with $51 million in the linked quarter. After tax, merger related expenses relating to both Provident and Bradford Bank acquisitions were $9 million or $0.07 per common share in the recent quarter. This compares with after tax merger related expenses of $40 million or $0.35 per common share in the second quarter of 2009. Future merger related expenses resulting from these two acquisitions should be quite modest. The purchase agreement related to Bradford Bank, which included a loss sharing agreement with the FDIC on the loan portfolio, lead to an after tax gain of $18 million or $0.15 per common share, which more than offset merger related expenses incurred during the quarter. These two items aggregate to a net after tax benefit of $9 million or $0.08 per common share. Amortization of core deposit and other intangible assets amounted to $0.09 per common share in the third quarter of 2009, compared to $0.08 in the linked quarter. Diluted net operating earnings per common share, which exclude the amortization of core deposits and other intangible assets, as well as each of the merger related items I just mentioned, were $0.98 per common share for the recent quarter, up 24% from $0.79 in the linked quarter. The net operating income for the quarter was $129 million, compared with $101 million in the linked quarter. There were two other noteworthy items reflected in M&T’s results for the recent quarter. First, we recorded pre-tax other than temporary impairment charges of $47 million for certain private mortgage backed securities carried in our available for sale securities portfolio, as well as for truck CDOs we acquired in 2007 Partners Trust merger. This reduced our earnings by $29 million or $0.24 per common share on an after tax basis. Second, we recorded a $10 million or $0.08 per common share reversal of income taxes previously accrued for uncertain tax positions in various jurisdictions. Next I’d like to cover a few highlights from the balance sheet and income statement. Taxable equivalent net interest income was $553 million for the third quarter, an increase of 9% from $507 million in the linked quarter, and an increase of 12% from $493 million in the third quarter of 2008. The net interest margin was 3.61%, expanding from 3.43% in the second quarter of 2009. There were two primary drivers of the margin expansion. The first was a decline in the rates tied to our wholesale borrowing. The average rates for three months and six months LIBOR declined by 46 and 59 basis points respectively in the second quarter, essentially catching up to the declines in short-term rates that we witnessed in the first half of 2009; roughly half of the 18 basis points of margin expansion related to the re-pricing of our wholesale borrowings. The second factor was deposit re-pricing. A combination of lower rates on money market deposit accounts, combined with the maturity of high rate times deposits accounted for substantially all of the remainder of the margin expansion. In January, we speculated that the full year margins for 2009 following a decline in the third quarter would be in line with the full year 2008 margins of 3.83%. With a margin of 3.41% for the first nine months of 2009, we appear to have realized much of the anticipated benefit of lower interest rates a bit earlier than expected. Although it’s difficult to predict the net interest margin over the short-term, our outlook for the remainder of 2009 is for the margin to be stable to modestly wider, assuming the interest rate environment remains unchanged. Average loans for the third quarter were $52.3 billion, compared to $50.6 billion in the linked quarter. The entire increase came as a result of the impact from Provident and Bradford mergers. On a core basis, excluding those transactions, we would estimate the changes to the M&T loan portfolio were as follows

[Operator:]

(Operator Instructions) Your first question comes from Heather Wolf - UBS.

[Heather Wolf:]

Just a couple of questions on the OTTI mark; first of all, can you give us a little bit more color on what piece of that was the private MBS and what piece of it was TruPS. Also can you just outline how much is remaining in the TruPS portfolio that was not marked on the PPKS deal?

[Rene Jones:]

Yes, sure. The Partners Trust piece was $2 million out of the $47 million, and just the amount that is all written down to today is $10 million.

[Heather Wolf:]

So it sounds like the majority of it was from private MBS

[Rene Jones:]

It’s from the private label mortgage backed securities book, and as you kind of look in the Q, we sort of outlined that portfolio by sort of saying how much is senior, and how much is subordinate, and how much is investment grade, and how much is not. Most of this came from the more subordinate portion of the portfolio, and we sort of the went through our standard process that we’ve used every quarter, and wrote down the $45 million.

[Operator:]

Your next question comes from Craig Siegenthaler - Credit Suisse.

[Craig Siegenthaler:]

First, just on the reserve level; can you talk about where you expect to build reserve levels over the next year and are you having any discussions with your regulators around reserving?

[Rene Jones:]

Well, I’ll take that in reverse. As far as our regulators are concerned, and all of the other parties that review us, our reserving process is very much an open book, and I think when you take into consideration things like shared national credit and those things, it probably should make an investor feel that much better, that a lot of people are looking at those processes. To get to the first part of your question, I would say that we still see increases in the overall classified loan book, as well as into non-performing that you can see in our results, albeit the pace that those increases have seemed to slow down, but given that you’re going to continue to see, we continue to see that migration, our reserving process will follow that migration. To the extent that we see some large credit that we think has loss content that we haven’t identified, we would provide for that, but generally I think our process is very consistent and you’ve kind of seen that over the last several quarters.

[Craig Siegenthaler:]

Then just a quick question on charge-offs; from what you just said, it sounds like the NPL growth all came from three large loans. $42 million of charge-offs came from one large loan. If you kind of put down the numbers and your delinquencies went up seasonally, do you think charge-offs could actually improve sequentially, third quarter to fourth quarter?

[Rene Jones:]

It’s too hard to predict. I think you described it very well. If you set aside the sort of one large credit we were just under $100 million. The primary reason for that I think is really two or three things. One, our consumer book continues to perform very well. The charge-offs in the consumer book were about equal, to what they were the prior quarter. If you look at 30 day plus delinquencies, we were at 1.66%, which was up 14 basis points from last quarter, but equal to where we were at the end of 2008. So it’s pretty stellar performance on that part. The other thing is that contributing to our losses last year and throughout this year, have been our residential mortgage book and particularly our Alt-A portfolio, but because we’ve been on that for so long, and I think we were early in the intervention, those losses again have been pretty stable. I think they were down. Something like last quarter they were $31 million and this quarter they were $19 million or $20 million, somewhere in that range. So we’ve been able to get a big portion of that portfolio by sort of getting at it early, and the fact that it was also very well underwritten has been pretty stable. We’ve seen for some time the items that we’ve been talking about over the last three or four quarters on the C&I side, and I think that will continue, but you can kind of get some sense that we seem to have a fair amount of room to be able to absorb those types of things in our overall credit outlook; those are my thoughts. Can I predict what’s next quarter? Not possible.

[Operator:]

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

[Bob Ramsey:]

I know we’ve talked around it a little bit, but could you break out with the $141 million in charge-offs; which portfolios, and how much was in each one?

[Rene Jones:]

Yes, I think I can. With the caveat that as we file the reports, I’m looking that it might be slightly different from where we end up on a regulatory basis but give me one second.

[Bob Ramsey:]

Sure, and maybe while you dig that up, with the renegotiated residential ones that you all have, are all of those initially placed in a non-accrual status until they’ve demonstrated performance, or if they’re performing at the time of modification, do some of them stay in accrual buckets?

[Rene Jones:]

Well, one of the things that’s different about our modification program, I think it’s one of the reasons why it’s doing so well, is that for a long time now we’ve been modifying loans that are current. So to the extent that we modify loans before someone gets into trouble, and it hasn’t missed a payment, it doesn’t go into non-performing. If they had missed the payment one or two or three payments before we did the modification, then after the modification they have to make six months worth of payments before we remove it out of the non-accrual status. I think about it a little differently, but if I just start with consumer loans. I’ll just make sure that we have the right columns here. So on the consumer books, the charge-offs this quarter were $30 million and the charge-offs last quarter were $31 million, and when we look at C& I, the charge-offs were $71 million versus last month being 48, with I believe that $42 million credit included in those numbers. Then if we go to residential, this quarter we had $20 million of residential mortgage charge-offs, last quarter we had 31. If you remember, in the 31 was a fair amount of sort of the remaining portion of our one closed construction portfolio; I think that portfolio is down to about $90 million now, so it’s pretty much off the table. Then our commercial real estate went from $28 million last quarter to $20 million this quarter, and the large portion of that, if not most of that is residential builders, the same story we’ve been talking about for some time, and that’s actually a little bit lower than we had anticipated when we were sitting at the beginning of the year, but I won’t say that we’re done on the builder and developer space, but I will say that we know the portfolio well, a couple years into that work.

[Bob Ramsey:]

Okay, that’s very helpful. Then maybe if I jump back to the renegotiated loans, could you just talk a little bit about the re-default rates that you all have seen, or maybe six months from the time of modification?

[Rene Jones:]

Yes, so if you look at six months from the time of modification, that number is 27%, and I think last quarter it was 25% or 26%, so it’s up a little bit, but still pretty good, and that re-default rate is 60 days or greater delinquent. If we were to go 30 plus days, it would be roughly 35%, so somebody missing one payment, it would be 35.

[Operator:]

Your next question comes from Matthew O’Connor - Deutsche Bank.

[Matthew O’Connor:]

Maybe I’ll ask the customary quarterly question on BLG; continued to report some losses. I think they’ve totaled about $45 million or so since you bought it. Do you still feel confident you won’t have to take an impairment on that investment?

[Rene Jones:]

Today we feel that we’ve addressed it appropriately. You saw that the losses this quarter were a little higher than we had been last quarter. Part of that as we said was a sales from loans, but then also sort of swing in the sort of hedging of the Canadian exchange on their Canadian portfolio moved against us this quarter, moved for us last quarter. So the projections are really not different than we had been thinking about over the course of this year. All the signs have been sort of on track with where our plan is, particularly on the Bayview Asset Management front, as well as the pay down of the cash flows coming from the residuals.

[Matthew O’Connor:]

Okay, then as you think about 2010, does the business need to start being profitable? Do you expect it to be? I guess I feel like an investment that’s made eventually, if it keeps kicking off losses, there’s risk of impairment, and I know we always ask the same question every quarter, but…

[Rene Jones:]

I don’t expect the long-term cash flow type losses to be significant in that originations business, because there’s not much business going on in that piece. Much of the valuation of our basis has to do with cash flows from residuals. I don’t know that as you receive those cash flows, that’s not necessarily from an accounting term income, because it’s a fixed set of cash flows that I would define in my old days, many years ago when I was in school, we used to call that a dying asset. So typically that type of asset as you get cash flow, it just writes down the basis. So I don’t think of it as income, I think of it as cash flow. I wouldn’t expect to have any significant losses from that as we kind of move forward.

[Matthew O’Connor:]

Okay, and then just separately, not a big deal but you mentioned indirect auto; I guess that’s auto on the consumer side was down a little bit quarter to quarter, and I was wondering why I thought spreads were actually pretty good in that business, and there’s pick up in volume and maybe an opportunity to make some good loans there.

[Rene Jones:]

You’re talking about the indirect auto business?

[Matthew O’Connor:]

Yes, on the consumer side.

[Rene Jones:]

Yes, I think that we’re still relatively cautious. Volumes are good, but more importantly when we said I think it was in January of 2008, that what we were going to do is we were going to focus on our in footprint business, and we were going to make loans specifically in the community and try to take share, we meant that. So the fact that we have a legacy portfolio there, that might have been slightly outside of the footprint or not relationship driven, then we’re not doing that portion anymore, it creates the run-off in the books. We’re still generating probably something like $100 million, maybe slightly north of that a month in new business there. So what you’re getting, if you were to look at a P&L, is the overall portfolio margin is widening. The old stuff is running off.

[Operator:]

Your next question comes from Ken Zerbe - Morgan Stanley.

[Ken Zerbe:]

If I heard correctly on the call, you mentioned that your loan balances excluding recent acquisitions may have been slightly negative this quarter. I was just wondering what you’re seeing given your pipeline about further loan balance contraction from here and really how much visibility do you have on that; is it one quarter, two quarter, etc…

[Rene Jones:]

Well, It’s a very good question. First of all, when you look at the pipeline for business, it’s not down. I’ve got a slight adjustment to make for the acquisitions, but I think the pipeline seems to be slightly up, but the utilization is the big issue and utilization has been down maybe 1% over the quarter, and I think it seems to be consistent with people who are sort of pulling back not making capital expenditures, and one of the things that you definitely see Ken is not because the companies are unhealthy, because they’re producing significant profits and significant amount of cash, and you are seeing that on the other side of our balance sheets. So I think that the business bankers, small businesses and middle-market businesses in our footprint seem to be very cautious to make new capital investments. We’re willing to lend, so we’re out there. I guess that that continues for some time. When I look at the Federal Reserve data, our data mirrors it.

[Ken Zerbe:]

Okay, that’s great. Then the other question I had was on you’re I guess New York commercial real estate portfolio. Obviously with credit losses down, the credit quality is holding in very well, but just commenting on sort of what you’re seeing in the underlying credit trends. Are we seeing higher LTVs, are you checking I guess the appraisals or getting new appraisals? Our cash flow is holding in, supporting the underlying loans?

[Rene Jones:]

Yes sure, and Ken I beg your patience a little bit. I’ll start off by saying our normal process is that we review every loan every year as it comes up for renewal and we look at all of that. Then on top of that, we don’t talk about it that much, but we review any loan that’s in our classified loan book that is greater than $350,000 every single quarter. We do a write up on the loan, it goes to committee to they determine whether they need to look at it or not; it’s a pretty exhaustive review. Then as you’ve seen over the last three years, we then do specific reviews on portfolios. So now, this past quarter I should say, we completed our second formal review of the New York City book, and the short answer is there’s not much change there. A couple of things I can kind of point you to is that, if you look at our largest 10 loans in that portfolio, our largest 10 relationships at the end of July, there were only two that had worked their way into the criticized loan book, and as I look at those two, there hasn’t been much change from last quarter, and I’ll take one, in case the a larger loan is that. There is some probability, that down the road, if the owners are those people who have the equity stake or the mezzanine stake, and they decide they don’t want to continue to participate, we could see ourselves having a non-performing loan. We got appraisals on that particular building I believe in the last 10 days, and we’re money good on that loan as the valuations stand today. Much of that has to do with the structure of how we under wrote that loan. The second is probably further out and is very similar. I think overall, when you go from review to review, we’ve seen a continued downward migration. If we were to look at the top-level statistics that are sort of outside M&T when we begin the review, they’re exactly what you’ve been reading about and hearing about in terms of vacancies and delinquencies. It helps us that we’re not in the Class A space of the lot, but overall for our portfolio, while we’ve seen a continuation of the migration, there’s been a slower rate of down grades, and most of those down grades are from market conditions versus surprises, like we didn’t understand the structure of our particular loan. The things I think that seem to be separating us from the pack are, that we really have a limited true construction and development risk. We’ve got low condo exposure, and to give you some sense of that, if you were to look in that New York City book of $5.6 billion, there’s $601 million of commitments that you could classify as construction, $461 million is outstanding. 62% of that is completed. The remainder is in sort of residential and sort of condo, that’s roughly outstanding of $153 million. When you look at that space, of all of the projects -- I’ve got a list in front of me of all of the projects, there’s only two of those projects that the sales price of the units are greater than $1 million, the highest is a million two; every other one has average unit sales prices of below $1 million, that’s the space that’s moving in New York. So if you go from our last review, which was February to this review, the condo co-op construction exposure has actually dropped 60% since February, because we’re in that sort of low-end space relative to New York City, and those are moving. So I kind of look at the whole thing and I classify it as no change. For example, we won’t do less work here, we’ll continue to get appraisals and focus on our watch list, but we still feel pretty good about our underwriting, but we still feel that we like everybody else will focus on commercial real estate.

[Operator:]

Your next question comes from Steven Alexopolous – JP Morgan.

[Steven Alexopoulos:]

Could you start by commenting on the impact to your shared national credit book, from the quarter in the exam?

[Rene Jones:]

I guess can make the general statement that any increase in our classified loan book are non-performing loans, as well as our charge-offs this quarter fully reflect anything that came out of the shared national credit again. I thought it was interesting that everything where we were the lead agent held up well, and we actually had one of the credits upgraded, and for the most part, I think we saw some of the same things that you are probably seeing at other institutions, we just have a smaller number of those credits, and so anything that you see in our numbers this quarter and last quarter are reflective of what we knew at that time.

[Don MacLeod:]

And the exams this year focused on some high-risk kinds of activities, like leverage and finance, media and telecom, and obviously the real estate component. From a leverage finance perspective and media and telecom perspective, it’s not areas where we really play.

[Steven Alexopoulos:]

Rene, I just had one other question; a peer bank of yours has been fairly vocal recently, that they’re planning to deploy capital in your core markets. Just wondering how competitive you might get given where your capital levels are in a non-FDIC deal. I know you are essentially just targeting FDIC deals now?

[Rene Jones:]

It’s hard to change our DNA. I mean, we tend to think about things as a very long term. If there was an opportunity in the space where that entity had a lot of core customers, where we think that could add value, we would be interested, but we’re not in any sort of arms race out there. We’re very content with growing the business in a very consistent fashion that we have, and you kind of see our decisions. So we don’t really think about what other people are thinking about.

[Steven Alexopoulos:]

Maybe as a follow-up on your NIM outlook, does this imply essentially the cost benefit you’ve seen on the funding side as done, and there’s been a benefit coming from this mix shift into non-interest bearing? Is that essentially played out as well?

[Rene Jones:]

I think you describe it pretty well. The half that came from the deposit side, there’s a nice benefit coming there, and you remember that some of the benefit on the deposit side, kind of hurts you in the service charge category, because it’s covering fees on your commercial side, but I think that’s really what we’ve seen. I look at the yield on the time deposit book, it’s not fully re-priced yet, but I’d be surprised to see an 18 basis point expansion again, so that’s where we get our guidance.

[Operator:]

Your next question comes from John Fox - Fenimore Asset Management.

[John Fox:]

I have a couple of questions; the first is, you mentioned the NPLs, that some of those came from Provident; I believe you said, $42 million in the quarter. I’m trying to figure out, is that consistent with your original accounting, that you wrote all the loans down to fair value, or is there something going on with the Provident loans?

[Rene Jones:]

No, I mean if you think about, it’s sort of a three-step process that we do. We project forward all of the cash flows in the loans, and in the embedded in, there’s an expectation we won’t get paid on from credit losses. As we said in the transaction, I think that our credit mark at the time we closed the deal was about $320 million. Some portion of that went to loans, and on the day we acquired it, we felt we’re already impaired, and that’s where we set up our SOP 3-3 loan, and we disclosed that in our Q. What happens from there is, the loan sort of has a downturn, it also then just goes through your normal process, and so even though you have got set up a mark on that loan, it still has stopped paying so it can go into non-accrual. So what I was pointing out is that, the migration of things to non-accrual and to loss for Provident if we had done our job, should be covered in that original 320 mark.

[John Fox:]

So they won’t result in charge-offs in future quarters.

[Rene Jones:]

That’s a good way to put it. If our estimates are proper, they shouldn’t result in charge-offs in future quarters.

[John Fox:]

Okay, and in response to an earlier question, did you mention the amount of subordinated MBS you have left, what the fair value of that is at this point?

[Rene Jones:]

I did not. The pure subordinate number, I don’t want to get it wrong. I’m going to come back to you on this, but I thought it was around $116 million or $120 million.

[John Fox:]

Okay, and then two quick ones; in terms of Bayview, are you suggesting because of these unusual items in the quarter that the loss going forward should be less?

[Rene Jones:]

I don’t know. I’m just sort of trying to give you a quarter to quarter the run rate. Last quarter was there was no loss, and we benefited from a swing in foreign exchange. This quarter it was kind of high, because we had those types of items right? So I’m just trying to give you a sense of what’s in the numbers and why they swing a little bit.

[John Fox:]

The service charges line which you mentioned the increase, do you feel that’s a sustainable level at this point?

[Rene Jones:]

Well, the trends are pretty consistent. I’d say that this has been a flat to slight decline in service charges in the industry overall. I think that where you see some decline in that line is particularly on the commercial side as commercial businesses continue to hold more cash, it reduces that line, because they get credit for that, for the services they use with us, so that should have a direct offset in the margin.

[John Fox:]

But to pick up from Provident, it seems like that would continue on an ongoing basis.

[Rene Jones:]

What would continue?

[John Fox:]

You said you had an increase in service because of the acquisitions.

[Rene Jones:]

That’s just bringing the two together and now you got the full quarter of Provident.

[Operator:]

Your next question comes from Jason Goldberg - Barclays Capital.

[Jason Goldberg:]

Sorry if I missed this, but did the Bradford deal impact the SOP-3 loans. Can you just give us more color with respect to what impact Provident had on net interest income if it determines kind of accretable yield and advertising some of the fair value marks, back into net interest income of just whether dollars or NIM impact and your outlook for that going forward?

[Rene Jones:]

On the second question, I think it was one basis point negative Provident, but it was one basis point negative to our overall margin. Then I’m being told that the Bradford is about of the SOP, is it difference? So the Bradford ad is about $20 million to the SOP, so I took it from 88.7 to 108.

[Operator:]

Your next question comes from Todd Hagerman of Collins Stuart.

[Todd Hagerman:]

Rene, I just had a question in terms of the pre-provision profit. You had a nice rebound this quarter and I’m just wondering how we should think about it as we look out into 2010. If I think about maybe a balance sheet, that’s kind of flattish if you will, given kind of where loan demand is, and just kind of mortgage banking that’s been obviously having a terrific year this year. How do you put those pieces together as you think about possibly growing the revenue growth or revenue base in a kind of a tough environment into 2010?

[Rene Jones:]

Well, I think that the way I think about it is that when you look at the overall economy, it’s probably going to be slow, and so I wouldn’t expect our balance sheet to grow more than the overall economy. So if you think that it’s sort of flat to slightly positive, we should benefit from that. I still think that we have sort of some portfolios of assets that in my mind are transactional or will continue to run off, so our overall earnings asset growth might be modest next year. I would think that our end market share might be higher, and so that tends to focus on sort of the profitability aspect of things, rather than pure balance sheet growth. Mortgage is hard to predict, it’s a very volatile business. Remember that today, throughout 2009, ours and other fee income businesses have been muted a bit by the fact that the market is in the first half of the year performed so poorly, so any sort of rebound in the market helps us a little bit. Then I think we have work to do on cross-selling some of the new customers that we’ve gotten, and that should help us a bit. I think more than anything, I think that the thing I look at is, the last time we were in the 360s was in the third quarter of 2007 and in terms of our margin, we had a 51.5% efficiency ratio roughly back then, now we’re at 55. We would like to explore ways to sort of get back to our normal level of efficiency over time.

[Todd Hagerman:]

Just in that regard, can you give us any kind of an update just on the efficiency initiative? You’ve talked about in the past about trying to balance the two between the revenue side as well as the cost side and as you know, the cost is the hallmark of the company. Any additional detail or color you can give us there?

[Rene Jones:]

Not a lot of specifics, because I would say that unlike the project work that we’ve done in the past, this is really each of the individual business units segments and regions, kind of looking at what the opportunities are in their space. Clearly the opportunity in the Mid Atlantic where we’ve just done two deals is very different from what it might be in New York City, and what it might be for some of our pure fee income businesses. So everybody is sort of taking a look at that, and at some point maybe next quarter or shortly thereafter, we would probably have a little bit more color, but we just call it basic blocking and tackling, and kind of set a goal, and we’re pretty good at executing towards that. So as we learn more, we’ll talk to you more about it.

[Operator:]

Your next question comes from Amanda Larsen - Raymond James.

[Amanda Larsen:]

I just wanted to know, did you mention why other revenues from operations went up? It’s the line item below BLG on your non-interest income.

[Rene Jones:]

That might be where the Bradford gain is recorded, which is $29 million pre-tax.

[Amanda Larsen:]

Bradford gain of $29 million pre-tax? Additionally you said that merger charges would be modest from here, could you give us a range between the two transactions?

[Rene Jones:]

I mean I think that we’re substantially done. I mean, maybe here or there we’ve got to work on some branches and so fourth, but single digits.

[Amanda Larsen:]

And then if another Bradford came along this quarter, is that something you’d be willing to look at; another FDIC assisted deal like immediately?

[Rene Jones:]

Well, we look at everything, so it would have to be attractive, it would have to be probably in our core footprint where there are a lot of customers that we could engage, and I think right now though, we’re heavily focused on sort of understanding the process with an FDIC assisted deal, and beyond announcing the transaction, there’s always a lot of work around getting your systems configured to handle that type of reporting, and those types of things. So that’s what we’re focused on now. We really continue to focus on Bradford to understand how to do it well, but all of that as we move forward, month after month, makes us probably that much more proficient at being able to handle another.

[Operator:]

Your next question comes from Garry Fall - Private Investor.

[Garry Fall:]

The fact that you recorded a gain on Barnard, does that imply that all exposed assets, meaning assets other than the loss component for which the government will cover you on losses were written to zero, and you still had enough assistance to record the gain?

[Rene Jones:]

Well, we didn’t take all of the securities books, and the other securities books were written down to market, right? I believe most of those were government related investments.

[Garry Fall:]

The rules then have changed, because they used to have to write everything down before you got to a gain, that’s been changed?

[Rene Jones:]

That’s exactly right. The rules have changed, so what ends up happening Garry, other than the wonderful days of the early 90s, you don’t take that directly to the balance sheet and goodwill. What ends up happening is, you mark the loans as if you own them, and then you also record a receivable from the FDIC and that actually is what creates the gain that goes through your income statements.

[Garry Fall:]

Well that’s different than when I did deals in the 90s. Okay, my second question is Bayview; I was a little confused by your answer on cash flows. Does your answer mean that you’re getting cash flows from Bayview in addition to what you’re recording from the loss?

[Rene Jones:]

Well, if you look at the one business, which is BLG, what we’re doing is we record the basis and then if we have gains through the income statement that writes the basis up, and if we have losses it writes the basis down. Then we have two other assets, which flow to M&T, one is a subset of over more than $1 billion dollars of residuals of which we receive 20% of the payments on, and those cash flows, I think of them as balance sheet items.

[Garry Fall:]

So you have those recorded separately from the Bayview?

[Rene Jones:]

No, you would see it on the basis, right? If we think of the overall relationship, the way it’s structured is first residuals go to pay off their loans and lines right, and then as those get fully paid down, in part in January of 2010, and then finally in May of 2010, then you’ll begin to see those cash flows reduce the basis of the investment.

[Garry Fall:]

What is the basis today?

[Rene Jones:]

$256.2 million.

[Operator:]

Your next question comes from Collyn Gilbert - Stifel Nicolaus.

[Collyn Gilbert:]

Just a couple of things; what were the geographic locations of the three large non-accruals that came on this quarter?

[Rene Jones:]

Good question. Let’s see… Why don’t you ask the second one and I’ll see if I can get an answer for you.

[Collyn Gilbert:]

The second one is just, sort of what’s your expectation on run rate on expenses?

[Rene Jones:]

Yes, I think that we’ve done a pretty good job of containing expenses so far. I don’t think that that will change. I think we’ll probably have to contain core expenses, but we haven’t yet fully integrated the Provident acquisition, so we have work there. I would say expenses going forward next year would be pretty contained, and then we’ll also receive some benefit from fully integrating the branch network of Provident.

[Collyn Gilbert:]

Can you remind us what the dollar amount was then, of the expense saved you had anticipated with Provident?

[Rene Jones:]

I don’t know, what did we say, 45%? A pre-merger cost basis. So you may have to take a look at say their first quarter I think, take a look at where they were and if they do a run rate on that.

[Collyn Gilbert:]

And the timeline for integrating those would be?

[Rene Jones:]

And I think I also said on the last call, if our goal was 45, we probably have gotten to 26%, 27% already.

[Collyn Gilbert:]

What percent of the C&I book is tied to LIBOR?

[Rene Jones:]

Oh, most of it. The lion’s share is tied to LIBOR. The lion’s share of that is tied to one month LIBOR. Some is three, but most of it is one month LIBOR, which is why you saw it reprice so fast at the beginning of the year. Then to your earlier question, one was in sort of Hudson Valley, but that’s not now, because the stork market is rebounded and I think that has probably helped a little bit in moving units, but early on when folks couldn’t sell their homes, that would delay them, in terms of going into purchasing unites within the retirement community. That sort of slowed the cash flows a little and put a little stress on them, but there’s probably some of that I would guess is still going on, but I also think that I read from the book, that what our credit guys have done is, the rebound in the stock market has helped some people sort of push them over the edge there.

[Collyn Gilbert:]

Okay, and just one last thing, on the net charge-offs that you had indicated was part of the retirement community, you said that went on non-accrual when? Was that the first or second quarter?

[Rene Jones:]

Second quarter.

[Collyn Gilbert:]

And then just one final question; would you mind breaking out the loan balances per segment for the quarter. It was helpful, the way you did it on the NPL front, but could you just do it on the straight loan growth.

[Rene Jones:]

Loan growth you mean?

[Collyn Gilbert:]

No, you could just give us the balances just for this quarter, for each loan segment. You can always put it in the press release too if you wanted going forward.

[Rene Jones:]

Thank you for the suggestion. Isn’t it in the press release?

[Collyn Gilbert:]

No.

[Rene Jones:]

You’re saying as that or average? Well, I’ll give it to you.

[Collyn Gilbert:]

Oh, my mistake. Never mind, forget it, my fault.

[Rene Jones:]

It was still a good suggestion.

[Operator:]

Your next question comes from David George - Robert W. Baird.

[David George:]

I had a quick question about consumer legislation and the impact on NSF overdraft fees. Do you care and try to quantify the impact that it would have for you guys longer term. Obviously I know it was a meaningful driver for Provident historically. I was just wondering if you had a comment on that. Thanks.

[Rene Jones:]

I’m not sure that it is a quantifiable thing in part, because you’re not quite sure where it will end up, right? I tend to think of not necessarily fees, but I think of the value of the deposit account, but having said that, there’s a lot of folks that came out with the sort of pre-announcement of some of the things that they were going to do. We haven’t really said anything about it, but that’s in part because there’s a number of things that we were already doing, that seems to be either talked about in legislation or announced by some of the institutions. I’ll give you a couple of them. We had capped the number of insufficient fund fees per day since 2005, so we had a maximum of six per day already. As you know, we also had on the first occurrence, we did not charge the full fee, we actually charged a fee of $18 or something like that per item, which was among the lowest of any of the banks that were out there, with the thought process that clearly anybody can sort of make a mistake, and when that happens to you it’s a bit of a reminder as opposed to sort of charging the full penalty. Then a couple of other things; when you think about it, when you come to an M&T ATM, in places where we don’t have the technology we simply don’t allow it to overdraw, but where we do have the technology, we provide the customer with a notice saying they are about to overdraw their account, just as if they had just walked up to a teller and asked the same question, right. So now to the extent they choose to proceed forward, then they can actually do the transaction. So I think we’ve been very conscious of this stuff for a very long time. It doesn’t mean that we won’t make changes, but this is something that we think about all the time. We’ll be competitive, but I think it’s really kind of early to tell what the financial impact will be, not even quite sure what legislation will look like.

[Operator:]

This concludes the Q-and-A portion of today’s conference. I will now turn the call back over to Mr. MacLeod for closing remarks.

[Don MacLeod:]

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

[Operator:]

Thank you for your participation in today’s call. This concludes your conference. You may now disconnect.