Operator: Good morning, my name is Jackie, and I will be your conference operator today. At this time, I'd like to welcome everyone to the M&T Bank's Second Quarter 2013 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. Thank you.
I would now like to turn the call over to Don MacLeod, Director of Investor Relations. Please go ahead.
Donald J. MacLeod - Administrative Vice President and Assistant Secretary: Thank you, Jackie, and good morning. This is Don MacLeod. I'd like to thank everyone for participating in M&T's second quarter 2013 earnings conference call, both by telephone, and through the webcast. If you've 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 to M&T Bank Corporation. M&T encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-K, and 10-Q for a complete discussion of forward-looking statements.
Now, I'd like to introduce our Chief Financial Officer, Rene Jones.
Rene F. Jones - Executive Vice President and Chief Financial Officer: Thank you, Don, and good morning, everyone. Thank you for joining us on the call today. As I noted in the press release our earnings quality remained strong in the recent quarter including higher net interest income, comparatively strong mortgage banking revenues and above average credit quality. We took advantage of favorable market conditions by executing prudent balance sheet actions that enhanced our liquidity, capital, and long term return profile while continuing to serve the needs of our communities in a relatively competitive landscape and an evolving regulatory environment.
Let's review the detail of the quarter's results after which Don and I will be happy to take your questions. Turning to the specific numbers; diluted GAAP earnings per share per common share were $2.55 in the second quarter of 2013, up 29% from $1.98 in this year's first quarter and, up 49% for $1.71 in last year's second quarter. Net income for the recent quarter was $348 million, up from $274 million in the prior quarter. Net income was $233 million in the second quarter of 2012.
During the quarter we took advantage of some – of the stronger risk appetite from investors in the current low interest rate environment by selling over $1 billion of private label mortgage-backed securities previously held in our available-for-sale investment portfolio. The after-tax loss on the sale amounted to $28 million or $0.22 per common share. This transaction resulted in higher liquidity and capital and removed the risk-sensitive assets which had been generating substantially of our other than temporary impairment charges from our balance sheet and assist us in preparation for entering the 2014 CCAR process.
Also during the quarter, we sold our holdings of Visa and MasterCard common stock which we had received through the restructuring of those companies back before the financial crisis. The after-tax gain amounted to $62 million or $0.48 per common share.
Lastly, following the second anniversary of the Wilmington Trust merger, we reversed an accrual for our contingent compensation obligation assumed in that transaction. The result is a reduction of non-interest expense having an after-tax impact of $15 million or $0.12 per common share. Taken together, these three items contributed $50 million to net income for the quarter or $0.38 per common share.
Since 1998, M&T has consistently provided 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 the second quarter of 2013 were after-tax merger-related expenses related to Hudson City that were incurred early in the quarter and which amounted to $5 million or $0.04 per common share. This compares with $3 million or $0.02 per share in the prior quarter. After-tax expenses from the amortization of intangible assets was $8 million or $0.06 per common share, unchanged from the prior quarter.
Net operating income for the quarter, which excludes those merger-related expenses and intangible amortization, was $361 million compared with $285 million in the linked quarter.
Diluted net operating earnings per common share were $2.65 for the recent quarter, up 29% from $2.06 in the linked quarter. Net operating income expressed as an annualized rate of return on average tangible assets and average tangible common equity was 1.81% and 22.72% for the recent quarter. The comparable returns were 1.48% and 18.71% in the first quarter of 2013.
In accordance with SEC guidelines this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including intangible assets and equity.
Turning to the balance sheet and the income statement, tax equivalent net interest income was $684 million for the second quarter of 2013, up from $663 million in the linked quarter. As required by GAAP, we regularly revisit the cash flow projections on which we based our valuations of acquired loans.
In general, continued improvement in economic conditions particularly in the formal Wilmington Trust footprint, led to a reduction in estimated expected credit losses on acquired loans of $130 million. As a result, our estimates of cash flows to be generated by the acquired loans have increased by about 2%. Those increases resulted in about $6 million of additional interest income in the second quarter on our $4.9 billion portfolio of acquired loans as compared to the first quarter. Of course as acquired loans repay and that portfolio reduces in size in future periods, the dollar amount of interest income earned on acquired loans will also decline. Net interest margin was 3.71% during the second quarter, unchanged from the first quarter.
The higher level of accretable yield from acquired loans added about 6 basis points to the margin compared to the first quarter. Prepayment penalties on commercial loans combined with cash basis interest received on non-accrual loans added about 7 basis points to the margin as compared with the prior quarter. Higher level of excess funds held at the Fed reduced the margin by about 9 basis points and this reflected a higher level of deposits by Wilmington Trust – held by Wilmington Trust customers in connection with the pending capital markets transactions as well as proceeds from the private-label MBS and the Visa and MasterCard stock that we sold.
Lastly in line with our prior outlook, there were some 4 basis points of what we'd consider core margin compression which reflects the continuation of the trends that we and the industry have been seeing, higher-yielding loans maturing and being replaced at today's lower yields. As for the balance sheet the average loans grew at an annual 1% from the first quarter compared with the 2013's first quarter, changes in average balance in average loans by category were as follows.
Commercial and industrial loans grew a healthy 9% annualized, commercial real estate loans grew an annualized 2%, residential real estate loans declined an annualized 12%, reflecting in part our conversion of $288 million of FHA loan into Ginnie Mae securities, the majority of which were retained in our investment portfolio. Consumer loans were down an annualized 2%. On an end-of-period basis, both commercial and industrial loans as well as CRE loans grew at a similar pace to what we experienced on an average basis for the quarter.
From a regional perspective, the Upstate and Western New York region as well as Pennsylvania experienced decent overall loan growth at 8% and 7% annualized, respectively. This included double-digit annualized growth in C&I loans, while the benefit we have been seeing as a result of the HSBC divestures locally is tailing off. I would tell you that there is still some lingering benefit as customers who have not moved to M&T in the initial period following the merger are now finding M&T to be a good fit.
Loans in our metro region which includes New York City were relatively unchanged, reflecting paydowns on several large CRE transactions that generated the prepayment penalties I referenced earlier.
Mid-Atlantic region was also flat, I think, largely in connection with the fact that it's the region that we're seeing the most competition from banks as well as life insurance companies. Average core deposits which excluded deposits received at M&T's Cayman Islands office and CDs greater than $250,000 grew an annualized 12% reflecting in part the Trust-related deposits I mentioned earlier.
Turning to noninterest income, noninterest income totaled $509 million in the second quarter compared to $433 million in the prior quarter. Included in that figure is a $56 million of net securities gains which include the losses on the sale of the private label MBS and the gains from the sale of the Visa and MasterCard stock that I previously noted.
Noninterest income excluding securities gains and losses was $452 million, improved from $443 million in the linked quarter. Mortgage banking revenues declined to $91 million in the recent quarter compared with $93 million in the prior quarter. Residential origination volumes declined by 2% from the first quarter, while residential gain on sale margins declined about 40 basis points.
The bright spot was on the commercial side, where originations and gain on sale revenues nearly doubled from the first quarter, which match the decline on the residential side. We'll update you on our outlook for mortgage banking revenues in a few moments.
Fee income from deposit services provided were $112 million during the recent quarter, compared with $111 million in the linked quarter. Trust and investment revenues were $125 million, up from $122 million in the prior quarter. Those revenues benefited from the normal seasonal uptick in tax preparation fees.
Turning to expenses, operating expenses which exclude merger-related expenses, any amortization of intangible assets were $578 million for the second quarter. Excluding the reversal of the accrual that I mentioned at the beginning of the call, operating expenses were $604 million. This compares to $618 million in the first quarter. The decline compared to the linked quarter reflects a return to normal level of compensation expense following the seasonally high levels in the first quarter, partially offset by higher professional service fees, including those related to our BSA/AML work. The efficiency ratio excludes securities gains and losses as well as intangible amortization and the merger-related gains and expenses was 50.9% for the second quarter, improved from 55.9% in the prior quarter. Excluding the reversal of the Wilmington Trust accrual the efficiency ratio would have been 53.2% in the second quarter. That efficiency ratio was also improved from 56.9% in the year ago quarter.
Next we will turn to credit; our credit quality remained strong and in line with our expectations. Non-accrual loans were 1.46% of loans at the end of the second quarter, improved from 1.6% of total loans at the end of the previous quarter and 1.52% of total loans at the end of last year. Other non-performing assets consisting of assets taken in foreclosure of defaulted loans also continued to decline down from $96 million at the end of the first quarter to $82 million as of June 30th.
Now as has been the case for some time we expect to report a further decline in our level of criticized assets, when we file our 10-Q next month. Net charge-offs for the second quarter were $57 million, compared with $37 million in the first quarter. The increase was the result of a $30 million charge-off on a loan to a wholesaler and remanufacture of auto parts. The annualized charge-off rate – the annualized net charge-off as a percentage of total loans were 35 basis points, in line with our long-term average. Annualized net charge-offs were 23 basis points in the linked quarter.
The provision for credit losses was $57 million for the second quarter exactly matching charge-offs, as a result the allowance for credit losses was unchanged at $922 million at the end of the second quarter. The ratio of allowance for credit losses to total loans was 1.41%, again unchanged from the linked quarter. The loan loss allowance as of June 30th, was 4.9 times the annualized net charge-offs for the annualized year-to-date net charge-off level.
Loans 90 days past due excluding acquired loans that have been marked to fair value at acquisition were $340 million at the end of the recent quarter. Of these, $315 million or 93% are guaranteed by government-related entities. Our loans 90 days past due were $331 million at the end of the first quarter, of which, 94% were guaranteed by the government-related entities. M&T's Tier 1 common capital ratio was an estimated 8.55% at the end of June, up 62 basis points from 7.93% at the end of the first quarter.
With the adoption of the final rule on Basel III capital (quotes) for U.S. bank holding companies, we are now working on formalizing our disclosure for this ratio and should begin ongoing reporting of this measure by the end of the third quarter. Our preliminary estimate is that our Tier 1 common ratio under Basel III will be 40 basis points to 45 basis points lower than that under Basel I. This contrasts with our remarks on the January call where we estimated that our Tier 1 common ratio under Basel III NPR will be lower by some 75 basis points to 100 basis points than under Basel I. So in another way, we estimate that our Tier 1 common ratio under Basel III at the end of June would be approximately 8.1%.
Lastly, let's turn to our outlook. The rise in long-term interest rates during the quarter from historical low levels provide us with an opportunity to invest in higher yielding, qualifying liquid securities, and we continue to see the potential for the estimated 3 basis points of quarter core margin pressure that we've previously indicated. The intense competition among lenders in our markets continues, although at this point, our outlook for mid-single digit loan growth for 2013 is unchanged.
The tapering off in residential mortgage banking activity that we referenced earlier this year had obviously begun and should lead to further declines in mortgage banking revenues and gain on sale margins during the second half of the year.
Turning to expenses, while we expect our core expenses to continue to be well managed, we expect our professional service expenses continue to rise, reflecting a continued investment in infrastructure, including risk management, as well as enhancements to our capital planning and stress testing for us – stress testing.
In addition, we are hiring staff to support those and other regulatory efforts. And with respect to credit, despite the charge-off on the loan to the auto parts company this quarter, we expect net charge-offs to remain low for the remainder of 2013, which, as I have noted before, are already below what we've considered to be our long run, long-term loss rates.
As I've mentioned previously, we remain focused on enhancing our capital liquidity profile and closing the gap with our peer regional banks as we transition towards becoming a CCAR bank in 2014. We continue to build a quality capital at a healthy pace, with our estimated Tier 1 common ratio 8.55%, again up 140 basis points from last June and 62 basis points from March.
Lastly, I want to end by giving you an update on the BSA/AML matter that we disclosed in April. As you know we subsequently entered into a written agreement with the Federal Reserve on June 18th, which outlined our obligations to address the Fed's concerns regarding BSA/AML compliance. The recent agreement calls for submitting a plan in the near term, which would then need to be carried out to the satisfaction of our Board and the Fed. The satisfactory execution of that plan is a critical path towards the resolution of that written agreement. We are working diligently to address these matters in a timely and accurate manner and the successful resolution of which will result in a stronger risk management infrastructure at M&T for years to come.
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. I know you all have been busy this morning with all of the earnings announcements, in addition to ours.
So now maybe we will – let's open up the call to questions before which I will have Jackie briefly review the instructions.
Operator: Brian Klock, Keefe, Bruyette & Woods.
Brian Klock - Keefe, Bruyette & Woods: Thanks for the color in the call related to the margin. Just want to make sure I get all the moving pieces here. So within the release, you guys talked about a $13 million impact in net interest income, which sounded to me that it'd be related to the $130 million you re-classed from the non-accretable. So is that – that's something I think is – how does that kind of reconcile with the $6 million you talked about here this morning?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Yes. Think about – when we report our Q, the table on accretable yield, it's all of the yield on the acquired loans. So, you have that number coming down from quarter-to-quarter, right. We added our new estimate of our cash flows that we are likely to receive. So really when you look at the change from the quarter-to-quarter, the accretable yield from acquired loans, that actually increased by just $6 million, right, because the number is coming down over time.
Brian Klock - Keefe, Bruyette & Woods: So the $70.5 million you recorded in the first quarter, that number had gone down by $7 million and now you've added $6 million in, so…
Rene F. Jones - Executive Vice President and Chief Financial Officer: Yes. So I think that number is about $6.5 million higher than the last quarter, $70.5 million to $77 million, so…
Brian Klock - Keefe, Bruyette & Woods: So I guess going forward then, that $6 million, I mean, I guess if I had to run rate that, I was kind of assuming you'd have a level yield in that acquired portfolio that the accretable yield would go down, I should be adding somewhere about that $13 million impact to my, what I would have guessed would have been your normal accretable yields going forward? Is that a fair estimate?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Well, I think if you were to reset yourself, right, you can kind of look back at those tables we provide and you can see how much that is coming down, so for example – well, I won't give you the example, but you can kind of work your way through that. But the way I think about it Brian, is, so we're left with about $4.9 million of acquired loans out of $60 billion. And if you look at the yield, the yield – the difference between our yields on loans with versus without those acquired loans, it's about 15 basis points. And if you assume for a minute the average life is three years, you are going to lose about 5 basis points of that every year, basis points for the quarter. That's embedded in when Don and I talk about 3 basis points of compression, that's one of the things causing that compression. The assumption of level yield is that's the way we look at it and that's the appropriate way to look at it, I think.
Brian Klock - Keefe, Bruyette & Woods: So, ex-all of this, your guidance has been of saying what you should be back to sort of the 3 to 4 basis points of core compression. Then as assuming now that you take that what about $2 billion or so, $2.4 billion of interest bearing deposits that excess liquidity with the 9 basis point drag this quarter on the NIM, you're going to put that back to work, or you are going to buy some securities or actually put that in organic loan growth?
Rene F. Jones - Executive Vice President and Chief Financial Officer: So, what I would say is, you got it right, so what our thought process is, 3 basis points of compression in the quarter was just sticking with that. One of the things that we do have is we do have the opportunity to reinvest that cash in sort of qualifying liquid securities as you start thinking about the new ratios that are coming out. So, that gives us some ability to us that – and I don't know how to exactly think about that because as you know, we often think about match-funded. So, as we put on Ginnie Maes and those types of things economically, we think about the spread towards wholesale funding that we did go out and get. But you're right. One of the sources of equity in the near-term have the margin be more stable is reinvesting that cash.
Brian Klock - Keefe, Bruyette & Woods: I am going to get in the queue, but just one last one. You haven’t reinvested that excess liquidity yet?
Rene F. Jones - Executive Vice President and Chief Financial Officer: We have invested some. So if you look at the investment securities portfolio you have got – so we sold $1.1 billion of the agencies that probably had an average impact of somewhere between $600 million and $700 million on the balance sheet. But we also purchased a little over $800 million of Ginnies and if you think about what we have been saying, our investment securities book has been shrinking in part because and this is my term. The rates seems to be a little artificial and so with the jump up of 100 basis points it was sort of a nice opportunity for us to say, okay, well let's start buying some so that we can hold those qualifying securities as we go forward.
Brian Klock - Keefe, Bruyette & Woods: I guess the agencies you bought can you give us that yield and then I will get out in the queue?
Donald J. MacLeod - Administrative Vice President and Assistant Secretary: The Ginnies we bought, we committed to buy in 2Q but they all settle in July. So they are not on the balance sheet at June 30th.
Operator: Todd Hagerman, Sterne Agee.
Todd Hagerman - Sterne, Agee & Leach: Rene a couple of questions just in terms of the BSA issue as well as Hudson City. First off, can you give us a sense of what's the timeline for the planned submission to the Fed?
Rene F. Jones - Executive Vice President and Chief Financial Officer: I mean, we clearly we really can give you this, as saw in the written agreement, the requirement is around 60 days for us to come up with our credible plan that would need to be proved by the regulators. And then, what's probably most important is from there you actually have to go execute that plan, right. So, the way I think about it is, we are really focused on submitting that plan and then we'll have our heads down for some time, trying to make sure that we have everything in place to execute it. So I think, sort of speculating on any timeline at least right now doesn't make much sense for us. We'll keep updating you as we move forward, but there's not really much to say beyond that at this point.
Todd Hagerman - Sterne, Agee & Leach: Is only just my assumption that you guys obviously had kind of started that work prior to formally receiving the agreement based on what they had possibly communicated to you previously as you guys disclosed that last quarter.
Rene F. Jones - Executive Vice President and Chief Financial Officer: Yeah. I mean that's true. I mean, I'd say two things. I feel that I'm happy. We've got a good jumpstart on the issue, and in the same tone, I think there's lot of work to do. So, I think the way we think about is, once we get into something like that, like everything else, you want to build a first-grade process, not one that just sort of meets the hurdle, but that you can sort of use as an investment for the long term. So, I feel good and at the same time, I also feel like (indiscernible).
Todd Hagerman - Sterne, Agee & Leach: Then, I don't know if you can answer this, but within the agreement, there's not necessarily any prohibition in terms of asset purchases and so on and so forth. But I think as you mentioned in your remark, you want the plan and execution so to speak to be the satisfaction of not only the Fed but the Board as well. So, help me in kind of understand in terms of, again kind of process if you will, from a formal standpoint and how it may affect or influence your ongoing kind of evaluation of the Hudson City transaction, as I think about valuation and your ongoing review of that deal as time goes on?
Rene F. Jones - Executive Vice President and Chief Financial Officer: You got a couple of questions in there. I mean, I think, well, I'm going to repeat myself, I think, once we get through the work we have to do on BSA/AML, we get through the satisfaction of everybody. And then we'll consider what we do with things such as Hudson City, but really not before that. In terms of the economic, I mean we have a good understanding Hudson City's balance sheet. We think about, for example what the moves and rates will do to them. There is a lot of moving parts, but there is nothing that makes us uncomfortable about the economics of the transaction relative to where we were before. Obviously, all of that's got to be revisited when we sort of get back at it, right.
Operator: Kenneth Usdin, Jefferies & Co.
Kenneth Usdin - Jefferies & Co.: Can you tell us or talk a little bit about the servicing acquisition that you guys are going to close, when it's going to close and how do we think about the financial impact of it?
Rene F. Jones - Executive Vice President and Chief Financial Officer: I think first thing is that we're not purchasing servicing, right. What we've agreed to do has been out there in type of (levels) for some time is to be a sub-servicer. So, just sort of operationally, I mean if you think about expenses for a minute, you know, you are likely to see expenses rise on a normal basis and I talked about that on my earlier comments, but we've now hired about 500 people located here in Buffalo that used to work for a third-party, and all of those 500 people are up and running as of July 1. So first thing you are going to see is that there will be little bit higher expenses as you get into the third quarter and then that work will trickle in through the quarter. So I don’t think you really get a full running impact of any change in our servicing profitability and probably till the fourth quarter. But I would say it is kind of relatively negligible if you think of the bottom line because of the fact that you have got to start up negligible next quarter because you have got to put those upfront costs in place.
Kenneth Usdin - Jefferies & Co.: I was (looking) more at what you think the incremental kicker is from a run rate perspective, not from the next quarter but is this accretive to earnings, is it – in the math let's say it is, I am just trying to get a sense of is this a needle move or is this just?
Rene F. Jones - Executive Vice President and Chief Financial Officer: I mean it's a great question Ken. I guess the way – I didn’t think about it till you just said that, but I don’t really – it's not that big because that is going to offset the decline that we are going to see in residential mortgage gains. We saw 40 point decline on the residential side there. I wouldn't be surprised to see the same again next quarter and I don't – I think that's probably the bigger theme maybe mortgage banking revenue will be a little bit supported over the next two quarters but you are still going to see an overall (de novo) trend.
Kenneth Usdin - Jefferies & Co.: Just that reversal of the Wilmington gain, did – can you just talk to us about the size of that and where that was geographically within the expense lines?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Well it's in other expense and this was – when we closed the merger at the outset of the opening balance sheet, there was a contingency outstanding obviously because you can take yourself back to all that turmoil. We wanted to make sure that we were properly reserved given all the contracts that were sort of there. And I think what you see is a very sign that as over time, we've kind of gotten through the integration. It's now a little past the two year anniversary. A lot of people have remained with M&T and have decided to sort of remain as part of the Group. So, what you're kind of seeing is the finale of all that, and there was sort of that amount that was no longer considered a contingent viability as we got to this quarter. And I think I said the amount, did I not?
Donald J. MacLeod - Administrative Vice President and Assistant Secretary: On pre-tax basis, it was $26 million.
Kenneth Usdin - Jefferies & Co.: Then last quick thing is just could you give us the mortgaged apps pipeline closings?
Rene F. Jones - Executive Vice President and Chief Financial Officer: I'll give you a couple of numbers. So, this locked volume, I'll give you, the first quarter was $1.9 billion, second quarter was $1.8 billion. And then, if I give you the pipeline at the end of the first quarter, we had $1.6 billion, at the end of the second quarter, we had $1.6 billion. So what's happening is, the volume is up, it's remaining steady, maybe down 1 percentage points or 2 percentage points, but the only reason that's happening is because the gain on sale margins are dropping at a healthy pace. So, and I think that kind of keys you up. I wouldn't expect a big, big change in volume next quarter, but I would expect gain on sale margins to continue to go on.
Operator: Bob Ramsey, FBR Capital Markets.
Bob Ramsey - FBR Capital Markets: I was hoping if you could talk a little bit about how the movement that we've seen in mortgage rates and interest rates generally impacts the Hudson City acquisition, and then I think that those assets get mark-to-market at close. So, with mortgage rates higher, how does that affect I guess the capital gain as well as the income off of that business?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Okay. So, I'm going to give you a very general sense, and from my understanding of over the past year the balance sheet, not necessarily from having any conversations with Hudson City. And I would guess if I look at the profile of that balance sheet the mortgages will extend some. Net interest income will be higher. The issue you had is the steepening of the curve. So, obviously that's going to affect a little bit of the mark on any sort of fixed rate asset size, but you're going to have about there for a longer period as well, so that's a little bit of an offset. And I wouldn't expect much in the way of any change in the mark on liability side, right because of short-ended move. So, you could get some – if you are thinking of marks, maybe there would be some negative impact as where we stand today. Really what matters most is what happens to the short-end, because that's where the big issue is on the wholesale borrowings. The second point I would make is that as we see things here, these are reflections of the economy improving, so you also should get some improvement on the credit profile. I mean they are pristine, but having said that, everybody should get some benefit from the improvement in the economy. And the third thing is that the change in the Basel III rules is probably a positive effect from what we were all thinking on how mortgages are treated, but from a complexity of what we have to do to track it all and also from the favorable capital treatment from the rule now being finalized. So a lot of moving parts, right, but those are the items.
Bob Ramsey - FBR Capital Markets: Then one other question and I will hop back out. The (indiscernible) in CRE loan yields this quarter, I know you mentioned prepayment penalty income. I am just curious, how much of that was the prepayment and how much was maybe the adjustment assumptions on the Wilmington purchased loans? I didn't catch the prepayment dollar amount if you gave it earlier.
Rene F. Jones - Executive Vice President and Chief Financial Officer: Yes. I lumped it off together and I think with the non-performing and we said that it was 7 basis points the two in total relative to the previous quarter. I mean without getting – I have it somewhere, it's probably half of that, it's probably prepayment. Give me a second. Yes. I don’t have the two broken up, but let's say it's half of the 7 basis points just as a general thought. I think the real issue is interesting is that, when we sit around thinking about that, we say okay, well maybe that won't reoccur next quarter. So we tend to be relatively conservative. But having said that, it's very logical that we are receiving prepayments, those prepayment (balances) because all throughout our balance sheet we saw the impact of lower rates and people trying to refinance. We saw it in credit, in both deals in our normal portfolio, where it actually was not a bad quarter in terms of loan volume, in terms of originations, but we are seeing a lot of refinancing. We are seeing that in the non-performing book. It's also part of what's behind the reversal on the Wilmington side of the – into accretable yield, right, because people are able to refinance things (are) relatively healthy. So that said, it's hard to predict that's somewhat lumpy in the margin, but it could continue well as people are trying to make sure they lock down their refinancings with the anticipation of rates being up.
Bob Ramsey - FBR Capital Markets: The Wilmington credit mark adjustments, was that predominantly in the commercial real estate portfolio? Is that where virtually all that was?
Rene F. Jones - Executive Vice President and Chief Financial Officer: It's across the board. There was a fair amount, a healthy amount in the real estate portfolio, yes.
Operator: Erika Penala, Bank of America.
Erika Penala - Bank of America: Just a follow-up question on the liquidity. What of the $2.4 billion in average backed loans is, especially in light of the Basel III requirements on liquidity, how much should we consider excess for reinvestment?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Well, let me just – I'll do it in two parts. So overall, our focus over the next couple of quarters is to sort of continue to improve liquidity profile, and sort of the movement in rates makes that a little bit easier today. So, as we get to the outset, it would not be surprising to see all of that sort of reinvested in very, very liquid-type securities. But beyond that, we probably would continue to focus on that through additional – we did $800 million of unsecured funding a quarter or two ago and we'll probably do more of that, right. So, over time we'll start to work on that liquidity profile as we get closer to the final rule, and then that will have to be also invested. So, I'd kind of think of the first set as, maybe all of the $2.4 billion, $2.5 billion will be invested, and then there will be more, but those will be sort of match-funded spreads.
Erika Penala - Bank of America: Just the second question on the follow-up to your expense guidance. Should we think of the base upon which we're growing, expenses for the second half of the year at $604 million?
Rene F. Jones - Executive Vice President and Chief Financial Officer: I don't see anything wrong with doing that. I think, yeah, then you will have to make adjustments for again, I mentioned the people we've hired and we continue to hire both on the regulatory side. I think since last quarter for example we've hired 53 BSA/AML professionals we've added to the team and then you will see professional services is rising some as well. But starting that $604 million is probably a good way to go about it.
Operator: Craig Siegenthaler, Credit Suisse.
Craig Siegenthaler - Credit Suisse: Just looking at overall loan growth here, and I understand why you are reducing the consumer real estate portfolio at a pretty fast clip here. But wondering, could you provide some commentary around your expectations for overall loan growth before the Hudson City deal closes, really giving kind of modest negative loan growth in the first quarter and flattish loan growth here in the second quarter.
Rene F. Jones - Executive Vice President and Chief Financial Officer: What was the first part, modest negative growth, when?
Craig Siegenthaler - Credit Suisse: So I was just saying, I mean the question is, what are your expectations for overall loan growth given residential real estate kind of running off and commercial is actually fairly strong?
Rene F. Jones - Executive Vice President and Chief Financial Officer: I don't know if you caught that, but we secured some FHA loans, and so a little under $300 million of that just went right into our securities book. So in terms of earnings assets there wasn't much of a change. There will be a slight run-off in the resi portfolio but we will also do some – retain a certain portion so to keep that run-off to be flat, ready as we go forward. The C&I, I mean, it was a little higher than normal and I would say 9% is pretty healthy. We haven’t seen a change. When we look at our pipeline for both C&I and CRE, the quarter was pretty good. The amount of pressure on deals that we accept it was light, the margins were strong. The thing that, we are seeing is that, there is a fair amount of prepay, particularly on the fixed rate portfolios. Then finally if you look at the consumer side on a (net) basis and particularly if you look at home equity and indirect, for the first time they actually had slight growth. So sort of seems like those are leveling off, which is kind of why we held on to our or 5% number overall. So we don't see much change. Some people are talking about slowdown, but everything we see is – the slowdown is driven by pay downs, which is always good from a credit perspective, it's always good from the customer locking in lower rates and being healthier. So that's our logic behind sort of sticking with 5%, mid-single digit I think is what we – sort of low mid-single digit loan growth.
Craig Siegenthaler - Credit Suisse: Rene you classified about $10.4 billion of consumer real estate loans in the June quarter and I understand why that was down. But do you expect the portfolio to decline at a pretty quick pace the next two quarters, you think that's going to kind of level off here?
Rene F. Jones - Executive Vice President and Chief Financial Officer: It hasn't changed much. I mean, it's been down 1%, to 2% every time we report, and then on an asset basis, it was actually flat to up this quarter, right. So, I kind of view it as slowing. I can't think of another reason why that would change.
Craig Siegenthaler - Credit Suisse: Then, Rene, just a number question on the fee waiver. What was the impact of fee waivers in the second and first quarters in the cost to income line? Was it material?
Donald J. MacLeod - Administrative Vice President and Assistant Secretary: Fee waivers. On the money front, I think I'll have to get back to you on that, Craig. I don't have it at the hand right now.
Rene F. Jones - Executive Vice President and Chief Financial Officer: Well, finally, to your last question, I think the other thing is that, we may do more securitizations, right, so that will be just a re-class. But again, we want to make sure that the portions of our balance sheet that we have as customer loans that we make sure that they have guarantees and there's a certain amount of liquidity as we kind of think about our liquidity coverage.
Operator: Ken Zerbe, Morgan Stanley.
Ken Zerbe - Morgan Stanley: Rene, at the beginning of the call, you mentioned that you – the part of the reason why you sold the securities was to help your 2014 CCAR application. Has anything changed in terms of the application process? Is there a certain reason for why you are doing it? Because obviously you went through the process last year, I was just wondering, what's different about next year's process?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Well, we went through the (CAPER) process, which is a process where we run our own models, and we go through a review and the Federal Reserve actually goes through and reviews our governance and our process. But we've actually never been a CCAR bank, which requires an extra step, which is being part of the horizontal process, in which half is after that process is what we did before, but the other half is that it now goes through the Fed zone models, which was something that we're not familiar with. So, we've really taken the position that as we kind of learned about our portfolio, we thought – we want to make sure that we're pretty well positioned to go through that test for the first time and of course that – sort of is all benchmarked off of where you are at 9/30. So, it's been a big focus of ours. Well that married up very nicely with the private label mortgage-backed securities is that we run a model and we've modeled those for evaluation purposes. And until recently, our model was saying that those securities were worth more than what the market prices were implying. But as we got into the early part of the quarter, that changed and the evaluations on the market were well above our model and so we decided to pull the trigger. To give you some sense, had we pulled that trigger back on '09, the difference would have been roughly $240 million. So, it's not a core security, it's also a risk sensitive security. So, if you have stress and housing prices were to drop, then not only are you not going to collect that $200 million extra, you are going to take a hit in OTTI under extreme stress. So, it's not a core asset. We decided to move it off and then we take the $1 billion and we also use it to improve our liquidity profile.
Ken Zerbe - Morgan Stanley: Then just really quickly, the last thing is on the CRE payout submission there was a couple of big ones in the quarter that drove the pre-pays. How large were they? I'm just trying to get a sense of if there was meaningful sort of a growth in CRE this quarter?
Rene F. Jones - Executive Vice President and Chief Financial Officer: Yeah, it would have changed the percentage growth. I definitely think so. I don't know how to – I mean the (indiscernible) was settled. Several loans anywhere from $5 million to $30 million, $35 million would not be abnormal, and not only that, in our non-accrual book we had several loans that paid off as well, so both there and the non-accrual balances. So how do I say it, I think, I kind of think of it as more of a trend, I don’t know how long the trend will last. But I don’t know if that helps, it was not one really large transaction there.
Operator: That was our final question. I'd now like to turn the floor back over to management for any closing remarks.
Rene F. Jones - Executive Vice President and Chief Financial Officer: 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 area code 716-842-5138.
Operator: Thank you this concludes today's conference call. You may now disconnect.