Apr 16, 2008
Operator
At this time, I would like to welcome everyone to the M&T Bank First Quarter 2008 Earnings Conference Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Don Macleod, Director of IR.
Don Macleod
Thank you, Natasha, and good afternoon everyone. This is Don Macleod and I’d like to thank everyone for participating in M&T’s First Quarter 2008 Earnings Conference Call, both by telephone and through the webcast.
I hope everyone has had an opportunity to read our earnings release issued this morning. If you’ve not read our earnings release, you may access it, along with the financial tables and schedules, from our website at 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 may contain forward-looking statements pertaining 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 8K, 10K and 10Q for complete discussions of forward-looking statements.
Now, I’d like to introduce our Chief Financial Officer, René Jones.
René Jones
Thank you, Don, and good afternoon everyone. As Don mentioned, I’m sure you got a chance to review this morning’s press release.
I’d like to highlight and expand upon a few items from that release before I respond to questions. Diluted earnings per share, which includes the amortization of core deposits and other intangible assets, were $1.82 in the first quarter of 2008, compared with $1.57 in the first quarter of 2007 and $0.60 found in the late quarter.
Net income for the first quarter of 2008 was $212 million, compared with $176 million a year earlier and $65 million earned in the sequential quarter. The company’s results in the recent quarter were 85 membership interests in Visa.
M&T Bank and many other large banks received shares of stock in Visa in collection with Visa’s initial public offering. Member banks were required to redeem portions of their shares in the recent quarter which, in M&T’s case, resulted in an after-tax gain of $20 million, or $0.18 of diluted earnings per share.
Visa also established an escrow account to cover the pending litigation costs prior to distributing shares to its owners. As a result, the company was able to reverse a portion of the accruals that dampened our results in the fourth quarter of 2007, equal to our estimated share of those escrow balances.
That amounted to $9 million after tax, or $0.08 of diluted earnings per share. Visa then added $29 million to the company’s first quarter net income or $0.26 of diluted earnings per share.
Amortization of core deposits and other intangible assets amount to $0.10 per share in the first quarter of 2008 and 2007, and $0.09 per share in the fourth quarter of 2007. In addition, the first quarter results included after-tax merger-related costs of $2 million or $0.02 per share, which relates to the Partners Trust acquisition and the First Horizon branch transaction.
There were after-tax merger-related costs of $9 million or $0.08 per share in the fourth quarter of 2007. No such costs were recorded in 2007’s first quarter.
Diluted net operating earnings per share, which excludes the amortization of core deposits and other intangible assets, as well as, merger-related costs that I mentioned, were $1.94, up 16% from $1.67 in the first quarter of 2007 and up from $0.77 from the late quarter. This morning’s press release contains the reconciliation of GAAP and non-GAAP results including tangible assets and equity.
Net operating income for the first quarter was $216 million, up from $187 million in the first quarter of 2007 and $84 million from the late quarter. Now, turning to the income statement, taxable-equivalent net interest income rose to $485 million for the first quarter, up from $476 million from the late quarter, giving an annualized increase of 7%.
The net interest margin declined seven basis points in the first quarter of 2008 to 3.38% compared with 3.45% in the late quarter. Some of the items contributing to that decline are as follows: Three basis points of decline are related to the full quarter run rate impact of the mergers of Partners Trust and First Horizon branch acquisition, completed late in the fourth quarter.
Another four basis points of the decline related to the issuance of $400 million of subordinated debt at the end of November 2007 and the issuance of $350 million of Trust Preferred Securities, which qualifies Q1 capital in this year’s first quarter. Excluding the acquisitions, our loan rates remain robust if overall impact on earnings assets and margins pressure, which minified decline in short-term money market assets and investment securities.
Turning to loans: The high-level growing and average loans for the quarter represent in part the carry-over effect of the strong end-of-period growth that we experience in last year’s fourth quarter. Average loans for the first quarter were $48.6 billion, an increase of $2.5 billion from the late quarter.
The acquisitions accounted for $600 million of that late quarter bill. Excluding acquisitions, average loans grew an annualized rate of 17% from last year’s fourth quarter.
By category, annualized loan growth, compared with the late quarter and excluding the impact of acquisitions, is as follows: Average commercial and industrial loans grew at an annualized rate of 20%. Average commercial real estate loans, including owner-occupied, grew at a rate of 33%.
Average residential real estate loans declined at an annualized rate of 14%. The decline was seen in both mortgages held for investment, as well as, mortgages held for sale.
The average consumer loans grew by 6%. Home equity loans and lines of credit essentially remained flat during the full year.
We remained focused on lending to our four banking relationships within our footprints. We have led them to empathize the transactional-type business.
For example, we have slowed originations in all the loans and the consumer business services. At the end of period loans as of March 31, 2008, were $49.3 billion up an annualized 11% and this reflects the trend towards mid to high single digit growth anticipated to the remainder of 2008.
Excluding acquisitions, core deposits grew at an annualized rate of 7% and comparable with the late quarter with most of that increase in money market savings products, partially offset by run off and time accounts. Through the past two quarters, we have lowered deposit rates more slowly than the overall decline in the marketplace.
In terms of credit, the provisions for credit loss is in the first quarter of 2008 with $60 million and exceeded charge-offs by $14 million. Non-performing loans totaled $495 million at the end of the recent quarter, compared with $447 million at the end of the previous quarter and $273 million at the end of the first quarter of 2007.
The increase in non-performing loans from the late quarter includes $11 million are full-plan credit, $11 million are residential homebuilder credit, and $17 million are residential mortgages. The non-performing loan ratio was exactly 1% at the end of the first quarter, compared with 93 basis points at the end of the late quarter and 63 basis points at the end of the first quarter of 2007.
Net charge offs for the quarter were $46 million, representing an annualized rate of 38 basis points of total loans. This compares to 46 basis points in the late quarter or 33 basis points after adjusting the last quarter’s change and charge off policy.
Allowance for credit losses increased to $774 million and was 1.57% of total loans as of March 31, 2008. This compared to an allowance ratio of 1.58 at the end of the late quarter and 1.52 at the end of last year’s first quarter.
Loans past due 90 days, or still occurring, were $81 million at the end of the recent quarter compared with $77 million at the end of 2007. This includes $77 million and $73 million respectively of loans that are guaranteed by government-related entities.
Turning to non-interest income, non-interest income for the first quarter of 2008 was $313 million dollars, compared with $236 million in the first quarter of 2007 and $160 million in the fourth quarter of 2007. The recent quarter includes a $33 million gain from the sale of stock arising from the Visa IPO noted earlier.
Service charges on deposit accounts were $103 million during the recent quarter reflecting a seasonal decline from $106 million in the fourth quarter of 2007. Service charges increased by $9 million from last year’s first quarter.
$3 million of that increase relates to the Partners Trust and First Horizon acquisitions. Service charges for commercial customers were higher, reflecting reduced earnings credit being offered in today’s lower-interest rate decline.
Mortgage banking fees were $40 million for the first quarter, compared with $31 million in the late quarter and $14 in the first quarter of 2007. Recall that last year’s first quarter results included $18 million of charges arising from mortgages.
As we previously discussed in our 10-K, mortgage banking revenues in the first quarter of 2008 include a $7 million acceleration of income of resulting from the implementation of Staff Accounting Bulletin 109. The quarter’s results also include a $1 million loss from our investment in baby lending groups.
As most of you are aware, the commercial mortgage rep’s market essentially came to a halt during the quarter. It spreads wide in to the point that securitizations are not economically viable in the current environment.
While BLG securitizations is $664 million of loans during the quarter, there were not sufficient amount of securities sellers to recognize to sales treatment because no gain on sales revenues from loan securitizations was recorded. As part of their contingency liquidity plan, BLG restructured support securities contract and some viable contracts and a their quarter to gain of this transaction.
The BLG results for the first quarter include enmities for a share of that gain of approximately $9 million. Going forward, while the dislocation in the CNBS market persists, we would expect our results to reflect enmity 20% share of any operating losses from BLG.
Operating expenses, which includes the merger-related charges and amortization of intangible assets, were $404 million compared with $381 in the first quarter of 2007 and $415 in the fourth quarter of 2007. Last year’s fourth quarter results include the $23 million pre-tax charge relating to the Visa litigation.
As I just mentioned, the recent quarters expected include a $15 million partial reversal of the Visa-related litigation accrual. The quarter’s results also include seasoning high salaries and badges expense, which includes accelerator recognition of equity compensation expense or for certain retirement eligible employees, as well as, prior strike expense, prior unemployment insurance expense and other expenses that are related to salary.
In final, these expenses account for some $20 million prior in the late quarter. This is consistent with our experience in each of the past two years.
Expenses also reflect the full quarter impact of the before mentioned acquisitions. First quarter results included $5 million addition to the evaluation allowance for capitalized residential mortgage servicing rates, compared to $2 million additional allowance in the fourth quarter of 2007 and the $1 million reversal in that evaluation allowance in the first quarter of 2007.
This brings us to outlook. The ongoing disarray in the financial market and the continued weakening of the economy make forecasting actually a fool’s game.
It is very important to remember that an added score enmity in the traditional community bank. Everyday, enmity bankers help their customers by making loans, taking deposits, and from writing a variety of banking services across our seven-state banking business.
We are optimistic with regards to all of those activities. We expect overall loan growth to be tampered so much than the robust level of experience over the past two quarters.
Our goal is for percentage growth in the mid to upper single digits with strengthened commercial and commercial real estate loans, lightly offset by little or no growth in consumer loans and residential mortgages. Similarly, we expect to remain focused on doing our deposits as a result of this quarter.
We expect net interest margins for the full year of 2008 to remain under modest pressure. As always, expenses will be carefully managed, particularly through realizing that merger synergies arising from the Partners Trust acquisition.
As we usually do, we’re planning on delivering a positive equity expense credit in the coming year. Charge offs, while manageable, are likely to continue to trek higher through 2008 is evident by the increasing non-performing loans.
We remain very proactive with regard to our outstanding mortgage and residential construction portfolios. With respect to capital, at present we have no plans to repurchase stock until our tangible capital ratio is rebuilt to our target range of 5.2 to 5.6.
And all of these projections are, of course, subject to a number of uncertainties and various assumptions regarding national and regional economic growth: Changes in interest rates, vertical events and other economic factors which may differ materially from what actually unfolds in the future. We’ll now open the call for questions.
Operator
(Operator Instructions) Your first question comes from Ken Zerbe of Morgan Stanley.
Ken Zerbe
I was a little surprised to see that your reserve ratio actually declined on a sequential basis by even though it’s one basis point, given the most of the banks that we’re seeing are increasing their reserve ratios this quarter. Could you please talk a little about your philosophy or your methodology in terms of what led to the 157?
René F. Jones
Yes, I always start off with answering that question that we have a very, very consistent conservative approach that we’ve used and not changed over time. And so, eventually if what we’re trying to measure and the losses that are inherent to the portfolio, and so in end, from period to period, as we look at the classified long book and in this environment as it migrates off the grading scale, we continue to provide more for those individual loans.
And to the extent that we are seeing the trends in our books that we already knew existed and already provided, so we wouldn’t provide again. So, essentially, we’ll continue to over-provide because we think the credit environment continue to deteriorate.
At times, you’ll see that it’s not the ratio necessarily that matters. It’s really what you have on the line in your book and how much coverage you have.
Ken Zerbe
Okay, great, and maybe you could provide a brief update where you stand with the Billy through Alt-A portfolio in terms of how much reserves you have set up against this still or at this point and the balance that is remaining on this. And your plans going forward for it?
René F. Jones
The Alt-A portfolio still rounds to $1.2 billion. In our numbers, I believe in total residential mortgages, we had about $18 million of charge offs in the quarter.
Almost all of that is related to that Alt-A portfolio. We’ve can’t specifically talk about the reserve we have there but we do have it on 10K, the level of reserves on overall real estate, and you can get a sense for the place where we’ve actually added to our reserves over the course of the year.
That’s probably on to the more significant areas that we’ve added to the reserve on. In our outlook, that we would continue to expect to see the level of losses that we saw in the first quarter.
I think what’s probably most important about the charge offs and thinking about the fact that we think they will continue to trek up there’s really two factors. If you look into our charge off books, which I said was $46 million of charge offs, there were only two large commercial loans in that.
There was a $2 million charge off related to a commercial builder and then there was one $1 million charge off related to a commercial loan. And that’s pretty low, I think, given the current operating environment.
If you put back to the residential, recall what we did in the fourth quarter. Essentially, going into the fourth quarter, we had a policy that we would take the charge off at disposition essentially—a foreclosure disposition—of the housing asset, the mortgage.
And what we did is we changed that policy and moved it back to 150 days, which essentially means you’re making an estimate of a partial charge off than what you think will actually happen at disposition. And when you do that, you’re actually accelerating your charge offs quite a bit.
So, as we look at the book, we think the performance really hasn’t changed dramatically from what we thought what our assumptions were at December. But having said that, our objective is to just sort of take a lifetime loss number on that pool of $1.2 billion.
Our objective is to work through it as fast as possible, to the extent that losses are higher than they were in the fourth quarter in that book. It’s simply because we’re working through that book and trying to get through that static pool of loss.
Ken Zerbe
Maybe talk about the credit performance of your four-plan portfolio-type; if I heard you correctly, I think you said you had another $11 million towards NPL this quarter.
René F. Jones
Yes, we had one credit for about $12.5 to $13 million and it was a division which was out of trust and I don’t know much more to say, but the rest of the book continued to actually pay down, are the non-performance that actually come down. I think the way to think about that portfolio is as the economy weakens and as the auto center particular has trouble, you might see one or two more.
But as we said on the last call, we did a [inaudible] at the portfolio over the last two years and we’ve been able to take out most of the weaker links in credits from that portfolio. So, I think we’re not overly concerned there.
Operator
Your next question comes from Steven Alexopoulos from JP Morgan.
Steven Alexopoulos
First, in terms of the mortgage guidance you gave, are you saying full year modest pressure from the 338 from this quarter? Is that what you’re saying?
René F. Jones
Yes, I guess that’s what I’m saying. If you look at our profile, we kind of have very similar profiles.
We assets-sensitive so at a 200 rate down, we lose $17 million over the course of the year. And then on a 200 up, it’s almost neutral.
It’s negative $1.5 million. But if you think about that, the idea that you’d actually have a 200 balance from where rates are today is pretty nil, right?
So I think that our position is sort of a modest down. I think we’re tempering the loan growth a bit, so that should take a bit of pressure off.
And then, the other factor that you have out there is that when rates have dropped as fast as they have in the last three months, it’s very difficult for your time deposit pressure to catch up, right? So, it’s locked in.
So, I think it’s a rate-stop-dropping will be in that sort of modest downward pressure. I wouldn’t expect to see big significant drops but the modest downward pressure.
Steven Alexopoulos
Looking at your cost of CD’s across the quarters, I think this was the biggest drop we’ve seen on a quarter-to-quarter basis. How much do you think is left there and the ability to lower out your CD rates from here?
René F. Jones
This is probably most banks but if you think back a year and a half ago, a consumer would not go longer than a year. So, most people who have time accounts will accept about a year in duration, not much more.
Probably less, right? So I think for some time now you’re going to begin to see those books run off and then the question really becomes what length of maturity you going to start to put back on the books.
And we’ve seen some advertise for longer than a year in this environment. If that helps…
Steven Alexopoulos
And a final question: There was news out there in the quarter, that Day View, I think that there was some subsidiary was cutting staff. Can you talk about what the outlook is there the next couple of quarters and do you think they’ll at least be able to cover their expenses?
René F. Jones
Yes, I think I covered it a little bit but I guess the way I would describe it is that through the Fall, they were selling securities as the market got worse but when nobody else. And we got to January; they sort of entered the market with two securitizations in a 30-day period.
They were able to sell probably half of that book but as you get to February, the markets have frozen up quite a bit. So, they’re clearly into their backup liquidity plan.
Part of that plan—it’s a fairly robust plan using sources to fund any inventory that they have and then forward sales contracts which they have out there that they could use to place securities. I guess the first place to start is that there are very little inventory overhang.
And the primary reason is that they’ve been slowing their volume by tightening other standards probably since December. So the volume there has come down a fair amount and they seem to be doing a pretty good job.
So, I guess with any of these businesses, a lot depends on whether we’re out here a year from now; we’re still in an environment where you can securitize. But today, they seem to be doing all the right things to manage the business.
Operator
Next question comes from Matt O’Connor of UBS.
Matt O’Connor
The one question I have was your investment of $300 million. Just remind us how that valued and at what point would you test if for permanent impairment and might have to take a write down.
René F. Jones
We paid $300 million for an interest in Bayview and I think our view of that investment is that we were trying to put ourselves into a place where we could learn the securitization market and we could position ourselves for a very long time. Clearly, when you have the kind of destruction that you’ve seen in the last 60 days, you can’t make an investment like that without planning for the best that that might happen for some period of time.
So, it’s really been too short to tell and we think that the franchise value of Bayview is also there and we need to let them work through their process as clearly they’re doing.
Matt O’Connor
Okay, and I think we’re all hoping the securitization market open up to some extent but if we just fast-forward a year from now and they haven’t, there are a lot of issues we’ve got to deal with but one of them might be they’ll have to lie down that $300 million.
René F. Jones
Yes, if the markets do not open a year from now, they’ll have to have an alternative business plan.
Matt O’Connor
Okay, and then just off to a different topic. You mentioned you raised some trust deferred to this quarter and I kind of reconciled what your tier one is right now.
Is it about a 7.5% range?
René F. Jones
Yes, that’s probably near there. Maybe between 7.5% and 7.6%, I would guess, but I don’t have that in front of me.
Matt O’Connor
Okay, so just how should we think about your capital ratios? They obviously generate very high returns on your capital and your low portfolios are more granular, but it seems like there’s pressure everywhere to increase the capital ratio.
René F. Jones
Yes, I think our regulatory capital ratios are strong. I think that what we want to do is get our tangible ratios back into the range and I think that’s sort of our mission as we go forward.
From a practical standpoint, think about where we were two years ago. We weren’t buying investment securities because they didn’t make sense.
We were running off our loans working in direct auto with the New York City real estate because the spreads were too thin. Today, that’s not the case at all and the idea that we would be buying back shares as opposed to using it for the opportunities to book loans when they’re back in high return.
It doesn’t make much sense, right. So our view is that we’ll be opportunistic and probably shy away from share buybacks, at least in the near term.
And we’ll continue to build capital for opportunities.
Matt O’Connor
Okay, that’s actually a good [inaudible] to my last question. When I think about banks out there, the navigators downturn well so far, you come to mind.
My guess is you’d have access to additional capital if you would need to do something opportunistic. So, just talk about how you think about acquisitions out there and specifically, the question I think I’m forming is when there’s distressed assets for sale—this could be stepping up and to the effect that [inaudible] to step up.
René F. Jones
We’re a full community bank and to the extent that there are opportunities out there that have to do with strengthening our community bank profiles, then we’ll be very selfish on that. But to the extent that there are issues out there where you’re able to buy distressed assets that are in [inaudible] transaction, it’s really not the business that we’re in.
So, nothing has really changed for us. We plan to look for partners that fit our profile, that are interested in staying in the banking business, and then typically, in and around our footprints.
So, no change in the way we think of things and we are more than capable of doing something if it should arise.
Matt O’Connor
And some of the bigger names from the bigger banks has obviously been the headlines as potentially seeking partners but I think a lot of smaller community banks that may be on your radar screen are not on the rest of ours. Are you seeing similar pressures there or interest there for bank management to partner up?
René F. Jones
I think that people are focused on risk management and making sure that they have good capital and are monitoring their credit portfolio, and they’re not spending a ton of time—I think you’re spending a ton of time focusing internally. That’s just what we see.
Operator
Your next question comes from Bill Rubin of The Boston Company.
Bill Rubin
Back on the topic of credit, specifically, traditional C&I lending credit. I’m just wondering whether you’re seeing any early signs of deterioration there.
And if so, which end markets or which industries of any are showing a weakness? Can you talk to that?
René F. Jones
We’ve talked about auto for some time now and even though we’ve been talking about it for two years, that industry continues to weaken. So, I think we’ve got to be careful and look out there.
Anything related to housing is weakened, whether you’re talking about suppliers of lumber or anything of those types of things. There’s clearly been a slowdown in those markets.
I think, overall, when we’ve talked about particular things like residential mortgages or builder construction, all along our conversations had been that the credit cycle and that’s because we’ve seen migration of problems. All of our products—and none of that are really slow.
I think those specifics that I would expect us to have to remain very cautious across all of our portfolios. Nothing that jumps up as any different from the trends we’ve actually been seeing for the past year.
Bill Rubin
So, you wouldn’t argue there’s any acceleration going on at this juncture?
René F. Jones
Hard to say an acceleration but clearly there’s an increasing rate of weakness across all portfolios.
Operator
Your next question comes from Gaurav Patankar from SuNova Capital.
Gaurav Patankar
Hi, guys. Congratulations for the quarter.
Real quick—in terms of the spread wide main on the commercial loans and the incremental commercial production, can you comment a little bit about the trends that you’re seeing, especially the New York City commercial real estate, assuming that now most of your blinds would be shut down of securitization market? And how much of that could translate into [inaudible] for the name in the rest of the year?
René F. Jones
I think that one thing to watch for us is if you skip the manager’s margin and you look at the manager’s spread that we report, clearly you will see to the extent that loans are being put on at a wider spread. You’ll see it in the spread and one of the things that obviously we get is the margin is simply the lower cost of refund.
So, clearly across our books, one of the ways that the long growth will be slower is by having appropriate market prices in there. And I don’t know how to say it—they’re wider but they didn’t mention how much wider.
I don’t know if that makes much sense.
Operator
Your next question comes from Collyn Gilbert of Stifel Nicolaus.
Collyn Gilbert
Just ask you a couple questions on some comments you made specifically. When you were talking at one point about credit, you had referred to a static pool of loans that you want to work through as fast a possible.
Is that the—roughly by my calculations off of what you said on the last quarter’s call—like $95 to $96 million in the—well, actually, no. That would have been my view.
What was the static pool of loans to which you’re referring?
René F. Jones
I was referring to the pool of Alt-A loans that mortgages were $1.2 billion and that in particular, what we’ve said in the past, is that there is about 150 million of those that really has a higher loss content. $60 to $70 million of that $150 is related to second mortgages and the remainder of that $150 is really scratch-and-dent or fairly delinquent loans that we had originated and weren’t available a year ago.
So, it’s very concentrated and remember, we’re not in the business of sort of originating all the paper, or lack of a better term, we got stuck holding the bag when we were securitizing that. And we decided to hold on to our balance sheet.
So, at this point, it’s just a matter to working through that defined pool of loans.
Collyn Gilbert
Okay, you’ve identified that $150 now for a while but it doesn’t seem as if it’s really migrated into significant loss rate. So, I guess I’m just to trying to gage what the potential loss rate really is on that, or if you think it’s fairly controlled?
René F. Jones
For a long time we’ve said that our losses are manageable and I guess the way to think about it is—from your perspective, that’s absolutely right what you think about it. It’s a mild percentage of our portfolio and that the reason for it is that it’s only one $1 billion out of our $50 billion loans, right?
But, that you flip it around and look at the absolute [inaudible], losing $18 million in a quarter on a $1 billion loan book in our mind is something that’s a free trouble portfolio.
Collyn Gilbert
Okay, and then just quickly back to Bayview. I just wanted some clarification.
When you spoke about—you said $9 million gain came through this quarter. Can you just clear that again and how that spends factors in—if we net that out, what that means for what the loss would have been for the quarter?
René F. Jones
Understand, you had to go back to August of 2007 and there was all of that destruction and we were unable to securitize at least initially. They weren’t able to securitize initially, complete the transaction.
Well, as you look at that market at that point in time, one of the things they did to beef up their liquidity plan was to center a number of forward contracts to make sure that they could deliver securities going forward. And as you think about it, essentially what they did is they provide sort of a [?]
box in the case that the economic environment would turn worse. And it turned worse and so that they exercised those contracts to provide themselves with liquidity.
So, they’ve been very good at doing that. I think you got the numbers right.
I mean, if you kind of back out that gain, our quarter looks a lot like the third quarter of last year when we had no revenue. And you heard from previous callers that Bayview’s actually doing a number of things to manage their expenses and volumes down to a manageable level so that they can continue with that steady level.
Mainly, there is some modest pressure in reducing that run rate loss.
Collyn Gilbert
That’s right. And then just finally, as you look at your markets which are probably diverse, are there certain markets that are providing you with better growth opportunities than others?
And if so, what is it that would be driving that growth?
René F. Jones
I don’t think so. I think our growth is very strong across the board.
We had adjusted for acquisitions in Pennsylvania. For example, we had 7% annualized loan growth and that was the lowest we had anywhere.
The way we think about it though is a little bit different. As you think about, for example, places that are much closer to the capital market.
Even clients that are here using the capital market. As the capital markets are shut down, those folks that are looking for homes—and so you said the traditional relationships where we’ve done business before—all of those individuals are coming back to us.
I think that is not necessarily region-specific. Across the board, the volumes are very high.
Operator
Your next question comes from Salvatore DiMartino of Bear Stearns.
Salvatore DiMartino
Collyn asked most of my questions but in fact, can I just follow up on one on the loan growth and then an additional one. Can you just provide us a little bit of color on pricing and structure during the quarter and are you seeing any changes there?
And then also, could you tell us what you’re hearing from some of your commercial borrowers regarding their outlook for their businesses? Are you seeing any re-crunchment on their partners?
René F. Jones
I think what we saw in the fourth quarter were a number of borrowers looking to take out a lot of short-term variable debt and that would imply that they were going to sort of take on the debt and when the capital market cleared up, they were going to go and refinance. As we move ourselves into the first quarter, there are still much of the folks are on variable rates but I think the number of people are more and more willing to go a little bit longer because of the uncertainties in the market exists.
People are trying to be prudent. There’s sort of a changing view on how long this cycle will last.
And as we kind of work through it again, month by month, structures continue to improve and I think that is in part because some of the larger national institutions and then maybe some of the small community banks has taken a while to start to react to changing the structures and the way business is done. But all of those things has tightened up dramatically from the last year.
I don’t know if that’s what you’re looking for Sal.
Operator
Your next question comes from Bob Hughes of KBW. Bob Hughes - Keefe, Bruyette & Woods, Inc.
(KBW) One follow up on Bayview: René, has there been any change to your relationship with the parent Bayview Financial or if you had any additional draws on your liquidity commitment to the parent? Think you have a warehouse line to Bayview Financial.
Is that correct?
René F. Jones
Yes, we do. I don’t believe as we sit here today that there are any material differences in the level of that line from where we were at year-end.
If you just give me a minute—I’ll take a look at that. Bob Hughes - Keefe, Bruyette & Woods, Inc.
(KBW) Okay, maybe we can come back to that in a second. With respect to metro New York, and multi-family lending in particular, have you sensed any change in appetite from the GFC’s for this product at all?
René F. Jones
No, it’s interesting. We have not seen much changes in that business that we have—obviously, we have two businesses where we sell.
The volumes had been relatively steady. They haven’t accelerated as much as some of our other businesses but they’re relatively stable.
So, I assume that there’s no disruption there and the appetite is what it was a quarter ago. Bob Hughes - Keefe, Bruyette & Woods, Inc.
(KBW) Okay, and then in the home equity book, have you guys been cutting lines at all to medicate risks, as we read about in some of the national press?
René F. Jones
Not in any large way and I think—if you back to our portfolio—while the losses are rising—it’s from very low levels—and it just continues to be performing very well on a relative basis. So, I’m not aware that we’re doing it.
Bob Hughes - Keefe, Bruyette & Woods, Inc. (KBW) The basis of my question wasn’t so much about the credit performance of the portfolio but just available of liquidity of consumers as well.
René F. Jones
Oh, I see. No, they’re available.
The volumes are low, not because of our pricing are tightening. It’s just the volumes just seems to be low—the home equity line of credit product.
I gather it to be what we’re hearing about people cancelling lines has a lot to do with the quality of the book. Bob Hughes - Keefe, Bruyette & Woods, Inc.
(KBW) Okay. I understood.
René F. Jones
But no, no change. We just haven’t seen an up-taken and borrowing on [inaudible].
Bob Hughes - Keefe, Bruyette & Woods, Inc. (KBW) And no meaningful change in the Bayview Financial?
René F. Jones
Yes, I just got it written right down in front of me. The availability line has not changed.
Operator
Your next question comes from Gary Paul, a private investor.
Gary Paul
I have three questions. The first is a very simple one.
You don’t intend to repurchase until you get your capital tangible assets ratio to 5.2 to 5.6. What is it now?
René F. Jones
At the end of the quarter, it was 4.94%.
Gary Paul
Thank you. The operations were obviously going very well.
The only two areas of the concerns I have are the construction portfolio of Alt-A. You make tell me the same limitations on answer as on you gave to someone earlier on Alt-A, but do you have a specific amount of allocated reserves to the commercial construction portfolio?
The annual gives you the total commercial real estate but not for construction.
René F. Jones
Yes, Gary, the way to think about that is at year-end, we have in non-performing—give me a second. At the end of the quarter in that category, builder construction, we had non-performing loans of $95 million and by the time they get to that category of non-performing, we have specific reserves on each of those credits.
Gary Paul
But it won’t happen before that time?
René F. Jones
No, and through that process—how do I say this? It’s not in specific reserves.
As it go into the grading, we’re increasing the amount of specific provisions we put on them. And if you think about—we’ve actually talked about this—the amount of specific reserves we have on the two credits and at the end of the year, those made up the line share—almost 90-something% of total non-performing that we had in that quote.
And now, we’ve added another for about $12 million that that facility hasn’t even provided for.
Gary Paul
And my third question relates to the Alt-A. When you announced the problem of the first quarter of last year, there was $800-some odd million.
The increase to 1.2 or the I think the annual at 1.3, was that from stuff in the pipeline that hadn’t hit the books yet or was that from having to repurchase things that went delinquent in that early time period where you guarantee repurchase?
René F. Jones
Now, the big difference was that we had in our discretionary portfolio that we purchases—we had roughly $400 million just in the normal securities book. And then you add the $880, that added up to $1.3 billion and now it is down to $1.15 billion.
Gary Paul
So that other $400 was stuff you intended to hold.
René F. Jones
Exactly.
Operator
Your next question is a follow up from Collyn Gilbert of Stifel Nicolaus.
Collyn Gilbert
Sorry, just two housekeeping things. Number one is the $7 million in the mortgage banking accelerated revenue recognition, that’s non-recurring, correct?
René F. Jones
Yes, that’s the way I would think of it.
Collyn Gilbert
Okay and then what was the actual pre-tax merger charge number for the first quarter.
René F. Jones
For the first quarter, I think was $3.5 million, and I wouldn’t expect to see more of that.
Operator
There are no further questions at this time.
René F. Jones
Again, we’d like to thank all for participating today. If there are any questions or clarifications of any of the items in the call or news release as necessary, please contact our Investor Relations Department at (716) 842-5138.
Thank you.