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Executives

Donald J. MacLeod - Vice President and Assistant Secretary

René F. Jones - Chief Financial Officer, Executive Vice President, Chief Financial Officer of M & T Bank and Executive Vice President of M & T Bank

Analysts

Matthew T. Clark - Keefe, Bruyette, & Woods, Inc., Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Adam Chaim - Deutsche Bank AG, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

John D. Fox - Fenimore Asset Management, Inc.

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Michael Turner - Compass Point Research & Trading, LLC, Research Division

M&T Bank (MTB) Q4 2011 Earnings Call January 17, 2012 11:00 AM ET

Operator

Good morning. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the M&T Bank Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Don MacLeod, Director of Investor Relations.

Donald J. MacLeod

Thank you, Jackie, and good morning. This is Don MacLeod. I’d like to thank everyone for participating in M&T's Fourth Quarter 2011 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 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, René Jones.

René F. Jones

Thank you, Don, and good morning, everyone. Thank you for joining us on the call today to discuss the fourth quarter as well as our full year 2011 results. Let me begin by reviewing the highlights, after which, Don and I will take your questions. Turning to the specific numbers. Diluted GAAP earnings per common share were $1.04 for the fourth quarter of 2011 compared with $1.32 earned in the third quarter of 2011.

Net income for the recent quarter was $148 million compared with $183 million in the linked quarter. Earnings for the recent quarter were impacted by 4 items I'd like to highlight. We reported a $79 million pretax other-than-temporary impairment charge on our 20% minority investment in Bayview Lending Group or BLG. This amounts to $49 million on an after-tax basis or $0.39 per common share. This reduces M&T's investment in BLG to an estimated fair value of $115 million. This charge is reflected in other costs of operations in the income statement.

In 2008, M&T Bank Corporation filed a lawsuit against Deutsche Bank Securities, Inc. and several other parties, seeking damages arising from a 2007 investment in collateralized debt obligations. The lawsuit alleged, among other things, that the quality of the investment was not as represented. This matter has now been fully settled, and as part of that settlement, M&T received $55 million. This equates to a $34 million after-tax benefit or $0.27 per common share.

Subsequently, M&T made a $30 million contribution to The M&T Charitable Foundation. As most of you know, we've long articulated the view that healthy communities are the foundation of successful businesses. This belief lies at the heart of M&T's community banking business philosophy. Grants made to not-for-profit agencies by the foundation are focused on improving the quality of life in our communities and increasing economic opportunities where customers and employees -- where our customers and employees live and work.

Lastly, we recorded a $25 million other-than-temporary impairment charge on certain securities in our portfolio of non-agency MBS. This equates to $15 million after tax or $0.12 per common share. Taken together, these 4 items reduced both GAAP and net operating income by a net $48 million after tax or $0.38 per common share in the fourth quarter.

M&T consistently provides supplemental reporting of its results on a net operating or tangible basis from which we exclude the after-tax effects of amortization of intangible assets as well as expenses and gains associated with mergers and acquisitions. Included in GAAP earnings for the fourth quarter of 2011 were merger-related expenses of $16 million related to the Wilmington Trust acquisition, amounting to $10 million after tax or $0.08 per common share. This compares with $16 million after-tax or $0.13 per common share in the prior quarter.

After-tax expense from the amortization of intangible assets was also $10 million or $0.08 per common share in the recent quarter compared with $11 million or $0.08 per common share in the third quarter. M&T's net operating income for the quarter, which excludes those items, was $168 million compared with $210 million in the linked quarter.

Diluted net operating earnings per common share were $1.20 in the recent quarter compared with $1.53 in the linked quarter. In accordance with the SEC's guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results, including tangible assets and equity.

Next, I'd like to cover a few highlights from the balance sheet and the income statement. Taxable-equivalent net interest income was $625 million for the fourth quarter of 2011, up slightly from $623 million in the linked quarter. The net interest margin contracted during the fourth quarter, averaging 3.60%, down 8 basis points from 3.68% in the third quarter.

Some 4 basis points of its decline can be attributed to lower prepayment penalties and lower interest on nonperforming loans. The remaining 4 basis points amount to what I’d characterize as core margin compression as $1.5 billion of average loans and investment securities came onto the balance sheet at yields lower than the book overall. The lower yields were partially offset by lower borrowing costs and a higher proportion of non-interest-bearing deposits.

In both the third and fourth quarters, we held large balances of excess liquidity at the Fed: $1.85 billion in the fourth quarter and $1.7 billion in the third quarter with very modest yields. In both quarters, this excess liquidity diluted the net interest margin by some 9 basis points. The deposits that were the source of that excess liquidity, primarily trust related, have now been drawn -- have now been withdrawn or used to fund late fourth quarter loan growth. Funds held at the Fed as of December 31 were just $155 million.

I'll discuss our outlook for the margin balances and net interest income in a few moments. As for the balance sheet, average loans for the quarter increased by approximately $900 million or an annualized 6% to $59.1 billion from $58.2 billion in the third quarter. On that same basis, compared with the 2011 third quarter, changes in average loans by category were as follows: Commercial and industrial loans grew by an annualized 10%, loans to auto dealers to finance inventory within that category grew by $217 million, while all other C&I loans increased by $168 million or an annualized 5%.

Commercial real estate loans grew at an annualized 2%, residential real estate loans grew at an annualized 27% and consumer loans declined by 3%, driven by lower indirect auto loans and enclosed in home equity loans.

On an end-of-period basis, loan growth was somewhat stronger. Total loans at the end of 2011 increased by some $1.7 billion or 12% annualized from September 30. Put another way, we entered 2012 with loans already more than $1 billion higher than 2011's fourth quarter average.

Average investment securities grew by approximately $600 million to $7.6 billion. This growth includes purchases over the course of the third quarter which weren't fully reflected in the third quarter average as well as additional purchases during the fourth quarter. Average core customer deposits, which exclude foreign deposits and CDs over 250,000, increased in the fourth quarter by approximately $2.2 billion or an annualized 15% from the third quarter. To summarize, core organic growth in both loans and deposits was robust during the recent quarter.

Turning to non-interest income. Including securities gains and losses, the $55 million benefit received from the CDO settlement I mentioned, non-interest -- excuse me. Excluding the securities gains and losses and the $55 million benefit received from the CDO settlement I mentioned, non-interest income was $368 million for the recent quarter compared with $378 million in the linked quarter.

The $10 million decline was attributable to the implementation of the so-called Durbin Amendment, which caps pricing on debit card interchange fees. Those fees declined by about $17 million compared with the third quarter. Service charges on deposit accounts, which include debit card interchange, were $104 million during the recent quarter, down from $122 million in the linked quarter.

Mortgage banking fees were $41 million for the quarter, up from $38 million in the linked quarter. The increase is due to higher income from mortgage servicing and from commercial mortgage banking operations.

Turning to expenses. Operating expenses, excluding merger-related expenses and the amortization of intangible assets, were $706 million for the fourth quarter. Included in this figure is the $79 million pretax other-than-temporary impairment loss on our equity investment in Bayview Lending Group. Also included in this figure is the $30 million contribution to The M&T Charitable Foundation.

Excluding those 2 items, operating expenses were down from the third quarter of 2011. Salaries and benefits were down $13 million to $313 million in the fourth quarter, as compared with the linked quarter. The decline in -- is in large -- the decline is largely due to lower salaries and benefits related to our merger with Wilmington Trust. This reflects the benefits arising from the banking systems consolidation completed in late August but which had not yet materialized in the third quarter.

The efficiency ratio, which excludes securities gains and losses as well as intangible amortization and merger-related expenses -- gains and expenses, was 67.4% for the fourth quarter compared with 61.8% in the third quarter of 2011. The aggregate impact of the $79 million impairment charge related to BLG, the $55 million litigation settlement and the $30 million charitable contribution increased the efficiency ratio by 7 -- by some 7 percentage points in the fourth quarter.

Next, let's turn to credit. Overall, credit trends continue to show modest improvement. Non-accrual loans decreased to $1.1 billion or 1.83% of total loans at the end of 2011 from $1.11 billion or 1.91% of total loans at the end of the previous quarter. Other nonperforming assets, consisting of assets taken into foreclosure of defaulted loans, were $157 million as of December 31 compared with $150 million as of September 30.

Net charge-offs for the quarter were $74 million compared with $57 million in the third quarter of 2011. As we've noted on more than one occasion, at this comparatively low level of charge-offs, a single loan can make the difference between an increase or a decrease in any quarter. In this case, we charged off approximately $19 million on a single residential development project in -- located in Northern Virginia. Annualized net charge-offs as a percentage of total loans were 50 basis points, up from 39 basis points in the linked quarter but very much in line with the full year net charge-off ratio of 47 basis points.

The provision for credit losses was $74 million in the fourth quarter compared with $58 million in the linked quarter. The provision matched net charge-offs, and as a result, the allowance for loan losses was $908 million at the end of 2011. The ratio of allowance for credit losses to total loans was 1.51% compared with 1.56% in the linked quarter. The loan loss allowance as of December 31, 2011, was 3.4x net charge-offs for the past year.

We disclose loans past due 90 days but still accruing separately from non-accrual loans because they're deemed to be well secured and in the process of collection, which is to say there is a low risk of principal loss. Loans 90 days past due, excluding acquired loans that had been marked to fair value at acquisition, were $288 million at the end of the recent quarter. Of these loans, $253 million or 88% are guaranteed by government-related entities. Those figures were $240 million and $210 million, respectively, at the end of September.

M&T's estimated Tier 1 common capital ratio was 6.86% at the end of 2011. At the same time, M&T's tangible common equity ratio was 6.40% at the end of the fourth quarter. This reflects higher retained earnings offset by a slightly larger end-of-quarter balance sheet as well as a higher accumulated loss in other comprehensive income. Last week, we submitted our capital plans to the regulators as required under the terms of the 2012 capital plan review, and as with other participants, we expect to receive comments by the end of the first quarter.

Before we turn to our outlook, I'd like to highlight some of what we accomplished in 2011. We consummated the Wilmington Trust merger and took a major step in integrating process in -- the process by completing the conversion of the Wilmington Trust branches and the back office to M&T's core banking system.

Simultaneous with the merger, we purchased and retired Wilmington Trust's $330 million of TARP preferred stock from the Treasury Department, as well as retiring an additional $370 million of M&T's own TARP preferred. We were able to take advantage of an open window in the capital markets in the second quarter by issuing a new series of perpetual preferred stock that we viewed as an attractive fixed rate -- attractive at a fixed rate of 6 7/8. This offering served as both a source of financing for the purchase -- a repurchase of the TARP preferred as well as to partially fill the hole created by the coming disallowance of trust-preferred stock as an element of the Tier 1 capital structure starting in 2013.

We saw a continued improvement in credit trends, with net charge-offs for the year down 23% to $265 million or 47 basis points of average loans and provisioning for loan losses down 27% to $270 million. And we continue to build our capital ratios, particularly the risk-weighted regulatory ratios. As I noted, the Tier 1 common capital ratio was an estimated 6.86% at the end of 2011, up 35 basis points from 6.51% at the end of 2010, all while absorbing Wilmington Trust without a secondary common equity offering and accommodating loan growth. For the full year 2011, diluted earnings per share were $6.35, an increase of 12% over $5.69 in 2010.

Net income for 2011 was $859 million, which represents a 17% increase over the $736 million in 2010. The GAAP basis net income for the full year of 2010 (sic) [2011], expressed as a rate of average assets and average common shareholders' equity, was 1.16% and 9.67%, respectively, improved from 1.08% and 9.3% in 2010.

Included in GAAP earnings for 2011 was a net after-tax merger-related gain from the Wilmington Trust acquisition of $13 million or $0.10 per common share, and this compares to $16 million or $0.14 per common share of after-tax merger per common share net -- of after-tax merger-related gain in 2010 related to the K Bank transaction. Also included in these earnings for the past year was after-tax expense from the amortization of intangible assets amounting to $38 million or $0.30 per common share compared with $35 million or $0.29 per share in 2010.

Net operating income for 2011, which excludes those items I just mentioned, was $884 million, an increase of 17% from $755 million in 2010. Diluted net operating income per share was $6.55 for 2011, an increase of 12% from $5.84 per common share in 2010. The rate of return on average tangible assets and average tangible common shareholders' equity was 1.26% and 17.96%, respectively, for 2011 compared with 17 -- excuse me, compared with 1.17% and 18.95% in 2010. These high-teen returns are particularly notable.

Lastly, as most of you know, we don't offer much in the way of earnings guidance, but we'll share our thoughts on our general outlook. Our balance sheet continues to be positioned for slight downward pressure on the net interest margin as a result of new loans and securities coming on to the balance sheet at lower yields than those maturing. That said, the fourth quarter net interest margin of 3.60% could likely prove to be abnormally low, given the lower levels of cash we currently hold at the Federal Reserve as well as lower levels of prepayment penalties and interest on nonperforming loans we've seen -- that we saw in the recent quarter.

Overall, we expect the full year net interest margin for 2012 to be modestly lower than the 3.73% reported for the full year of 2011. When combined with mid single-digit loan growth, we anticipate continued growth in net interest income throughout 2012.

We remain very focused on expenses both on the day-to-day costs of operating the business as well as on achieving the remaining cost-savings opportunities arising from the Wilmington Trust integration. Realizing those opportunities should materialize throughout the year with the majority of the impact to occur in the second half following our planned second quarter trust-to-systems conversion. In addition, I'd expect a limited amount of additional merger-related expenses, approximately $10 million, to be incurred over the first half of 2012, combined with the $84 million of merger-related expenses incurred to date and this would keep us below the $100 million we outlined back on September 12.

We remain cautious with our outlook for credit. After all, we're bankers. The economy is growing, albeit slowly, but unemployment still remains high and the housing sector is unsettled. We expect continued slow, steady improvement in criticized and non-accrual loans, with credit costs improving over a long-time horizon.

Lastly, I'll remind you that M&T's first quarter results have tended to be seasonally low, reflecting fewer days and higher expenses associated with the FICA reset, accelerated recognition of equity compensation expense and the 401(k) match. Of course, all of these projections are subject to a number of uncertainties and various assumptions regarding national and regional economic growth, changes in interest rates, political events and other macroeconomic factors which may differ materially from what actually unfolds in the future.

We will now open up the call to questions before which Jackie will briefly review the instructions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Matthew Clark with KBW.

Matthew T. Clark - Keefe, Bruyette, & Woods, Inc., Research Division

As it relates to the seasonal increase in comp you tend to experience in the first quarter, can you give us a sense for whether or not that might be different this time around in terms of the magnitude partly since you – I would assume you still have some cost savings coming to you from Wilmington? I guess asked another way is can you give us a sense for how much in the way of cost saves you got this past quarter?

René F. Jones

Yes, let me answer you 2 ways. I mean, I just tend to -- there's never a lot of big change in sort of what we're doing around comps so my sense is that you’re looking back to what happened in the fourth, the first quarter. The last couple of years is a good gauge. Maybe, on its own, it's a little higher because it's a little bit bigger, right, but not significantly larger. And then as I think about where we are, we're pretty pleased with what we've been able to achieve to date. We talked about the trend down in expenses. You saw sort of what happened to the salary and benefit line. And my sense is, if you kind of move your way out, we're probably halfway through the work to get to the overall expense saves that we have. So said another way, if you were to sort of annualize the benefits you saw from the third to the fourth quarter and then looked at the full year impact on that next year, I'd say that number is probably about 1/2 of what we'll be able to realize then.

Matthew T. Clark - Keefe, Bruyette, & Woods, Inc., Research Division

So you got 10 of the 20 in the run rate?

René F. Jones

I think, probably a little more. I mean much of the salary and benefits declined. We talked about the $13 million. It’s I think it’s probably a decent gauge of the impact from Wilmington. It might not have all come in salaries, but generally, that's a pretty good gauge.

Donald J. MacLeod

Just to clarify, that would be the quarterly running rate.

Matthew T. Clark - Keefe, Bruyette, & Woods, Inc., Research Division

Correct, okay. Okay, and then on the credit side of things, can you give us a -- it looks like it was, in the 90 days past due, I know a lot of that is government guaranteed, but still, I think, up roughly $40 million or so. Just, anything going on there? And then as a follow-on, just the, how much classified assets improved or maybe have gone the other way?

René F. Jones

Yes, I have to look at the classified assets. I believe that, that trend was positive. Let me get back to you for a second. The 90 day issue is just a purchase of -- the Ginnie Mae repurchases. So remember, we think it makes a lot of economic sense to buy those government-guaranteed loans out of servicing because, at the end of the day, the economics are better if we do that. So that's just, that's all that really is. Give me one second. So we are down slightly again. I mean, I think, if you look at from our queues, the decline that you saw in the last several -- each of the last several quarters, you'll see a similar decline when we publish our Q, so a steady improvement or a reduction in the classified loan balances.

Matthew T. Clark - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And just housekeeping on the tax rate, a little lower this quarter. I'm assuming we bounced back a little bit here...

René F. Jones

Yes, I think that's right. I think that, obviously when you have some of the net lower effect of the items we mentioned, you still have a fixed tax credit so that'll come up. And then we had probably some slight benefit from some small tax settlements we did with the States that went in our favor. But generally speaking, I think what you'll see is it'll come up a little bit when -- as the earnings come up.

Operator

Your next question comes from the line of Marty Mosby with Guggenheim Securities.

Marty Mosby - Guggenheim Securities, LLC, Research Division

I wanted to just touch base a little bit on the – all the extraordinary items. Kind of taking $1.04, you obviously take the $0.38 out; that gets you up to about $1.42. And then when you start to adjust out the integration costs that I've, I heard about an $0.08 there, so like $1.50 was, including still the intangible amortization, but kind of $1.50 is kind of, in my mind, kind of an operating number.

René F. Jones

Your math seems good.

Marty Mosby - Guggenheim Securities, LLC, Research Division

Okay, and given that, we kind of came into the acquisition of Wilmington Trust with about $1.60 in earnings power. How do you see us kind of recapturing that as we go forward? Is it really still just based into the fact that we're starting to hold more of those mortgages so we get the benefit of that next year, we get the integration costs still coming out? But kind of give us just a feel for how we build back towards the earnings level we were pre the acquisition.

René F. Jones

There are just 2 things that come to mind. I think you're right in the idea that we think it's beneficial to hold mortgages now, so obviously, that benefit will accrue to us in the future. I think -- just by way of example, I think we -- that the fee income that we, that was foregone this past quarter was about 14 -- between $14 million and $15 million, right, so all that comes to you down the road in the form of net interest income. But I think what we can't lose sight of is, what tends to happen is we’ve had a lot of change in regulation. So by way of example, we were just looking at some of our numbers and if we go back to, say, the second quarter of 2010, so 6 quarters ago, and we look at the impact of Durbin overdraft changes, the higher calculation of the FDIC insurance premium, looking at the second quarter of 2010 versus this quarter, that's almost a $40 million difference. So said another way, annualized $160 million, $150 million to $160 million. So what's really been happening is we've sort of been running the bank and you haven't noticed that because our earnings have held up. But we've, through Wilmington and other ways, have been offsetting what has been a really, really heavy regulatory burden. And I think, along with other banks, over time, we're going to have to figure that out. What I do is I focus on the efficiency ratio. And if you look at where our efficiency ratio is, and I think, in large part, because of all the changes, that it's higher than it normally is. And what we'll do is we'll start thinking about how we move that efficiency ratio back to a level that we like and are comfortable with because we think it's a big part of the strength of the bank overall. People talk about capital a lot, but at the end of the day, the strength of your operating earnings and the sort of quality of those earnings are your sort of first line of defense. So I think that's that. It's hard to answer your question any more specifically, Marty, but we're working on it.

Marty Mosby - Guggenheim Securities, LLC, Research Division

And just as a curiosity, if you look at the $30 million that you put into the charitable foundation, have you done that in the past? Is this something you typically prefund the next year's expenses? Or in my mind, typically when you have something that's unusual, you can take that and put it into the charitable foundation as a good benefit. But right now, trying to build your capital up, would it not have been more efficient to keep the $30 million and just pay for it as you go because you get the benefit in the capital ratio upfront?

René F. Jones

I think, a couple. I think I'm looking to answer that a couple of different ways. We feel very, very comfortable about our capital generation. And if you kind of look at the quarter and what we did and we supported $1.7 billion of loan growth and had our adjustment to the value of Bayview, and at the end of the day, I think our Tier 1 common moved down one basis point so we're generating capital very quickly. I also think that if you look back at the history, we've just sort of had a history, whenever you sort of see a bit of a windfall like that, like we saw with the Deutsche Bank situation, that we tend to look at our ability to fund the charitable -- make a funding to the charitable foundation and that's what we did. I think, really explicitly in this case, we've talk a lot about how the health of our communities is really important to the health of M&T Bank and I also think, in this case, there's been a link between Wall Street and what's gone on to the health of the communities out there, so we felt very, very -- we thought it was the right thing to do. When we got the $55 million in cash, we turned around and funded the charitable contribution. So I don't know how to describe it any differently. We feel very comfortable about all the items you mentioned, capital generation, our commitment to the communities. I don't think we thought about it as much as maybe -- as you might think.

Marty Mosby - Guggenheim Securities, LLC, Research Division

And what percent of your annual community budget is funded out of the charitable foundation?

René F. Jones

I mean, most of what we do, not all, but most of what we do is managed through the foundation.

Operator

Your next question comes from the line of Ken Usdin with Jefferies.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

René, I was wondering if you'd give us a little bit more color on the NIM comments you made. So with, I understand well your points about the excess liquidity, but just trying to get a little bit of a gauge in terms of, is it then that 9 basis points of excess liquidity that basically you get back, going forward from a magnitude perspective and then the margin kind is positioned to drip from there? I just want to kind of understand the progression and kind of the magnitude of the get-back from that excess liquidity being now utilized in loan growth.

René F. Jones

Yes, I mean we quantify that going from the $1.8 billion that we've been running at to down to $1.55 billion was 9 basis points impact. And I guess the way I look at it is the first point I'd make is that, with Wilmington Trust as part of M&T and the opportunity from time to time to get cash, you're going to see a little bit of noise from time to time in the printed net interest margin percentage. But when I step back, we started with a slight borrowing position before the Wilmington Trust transaction. We inherited on the merger day, I think it was $2.6 billion of cash, and we've been carrying that. And now what you've seen is we've been able to put that to work. It's taken some time, but with the securities growth, the loan growth, right, we've been able to sort of utilize that position now, so I think that's a change. And then just as I look at the trends as to where we're headed, as sort of a guess [ph], I just saw that we were a little low on some of the other cash items versus where we've been in past periods. So as I think about it, I think there's clearly some core margin compression that's embedded in our numbers, and I think that, that would accelerate, if you saw, really continued elevated levels of loan and balance sheet growth, right, because it's just sort of new stuff rolling on and replacing, I think, at a lower yield. With a little bit more normalized loan growth from period to period, I think maybe that margin compression might be a little less, and then that sort of is offset by a little bit of repricing that's left on the liability side. So to summarize, the 360 seems a little low, we're going to be lower than we were in the full year last year. That's kind of what we think.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

But again, just to confirm then so the premise is that maybe you get the pop in the first, just from the excess liquidity now being utilized, and then underneath that, past that point, the natural direction would be to be slightly down from there.

René F. Jones

I think, I don't know about the timing, but I think the natural position is slight downward pressure on that margin. And I guess what I was worried about is when I look at where we see ourselves headed, our starting point probably is not the 360 that we posted this quarter.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Okay, that's fair. My second question is just with regards to the growth that you've seen on the balance sheet and you mentioned continuing to want to retain mortgages. Obviously, that was almost $1 billion of sequential growth. Does the pipeline that you have in terms of originations continue to support that type of growth in the mortgage balances?

René F. Jones

Yes, I think we did. For our portfolio, we originated last quarter something like a little under $800 million, and then this quarter, we did, I think, a little under $700 million. So just give me one second and I'll see where I am there. And I mean, the volume probably slowed a little bit as of late with rates up, but there's probably a pretty decent clip. I mean, when we started this thing, I guess, I was thinking we’d do about $500,000 a quarter and we've been running ahead of that because of where the rate environment has been. Yes so specifically, if you look, locking for our -- or sort of originating [ph] for our portfolio, locking for our portfolio was, in the third quarter, 9 – 791. We did 680 in the fourth quarter, right, and so I think we're well above are target of $0.5 billion.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Okay. And my final question, René, is tangible book value was down a little bit because of the unrealized swing. I was wondering if you can just characterize what parts of the portfolio are you still seeing the spread widening in and how much of that portfolio, I guess, is still left, that's probably the, resulting in some of that OTTI that you booked this quarter?

René F. Jones

Okay, separate -- let's just break those into 2 parts. So really, the drop that we saw in -- or the increase in our other comprehensive income was relative to the pension plan, which was lowering our discount rate by about one point, given where rates are, looking at sort of the user. Use a corporate bond yield. And look at that at the end of the year. So that was the big change. I think that was a change of almost $200 million pretax. So that's why that was down. When we look at our OTTI, I mean, we were just under $10 million last quarter; we're at $25 million this quarter. And I guess the way I would characterize that is as we kind of look out and look at the performance of the bonds and then, more importantly, think about the time horizon in which it will take for low rates to get better and for housing to get better. We sort of extended our outlook a little longer out on that basis. So not necessarily a change in the performance of the underlying bonds but a change in our outlook on how long it will -- the current environment will stay as it is today.

Operator

Your next question comes from the line of John Pancari with Evercore Partners.

John G. Pancari - Evercore Partners Inc., Research Division

René, can you talk a little bit more about the drivers of loan growth this quarter, where you really saw some of the growth in the C&I book? And then also, can you give us a little bit of color around loan demand, where your line utilization is and also the trend in commitments?

René F. Jones

Yes, sure, sure. I'm happy to do that. We saw -- let me just give you some numbers. We saw, on the 6%, if you think about the average loan growth, the 6% up, we saw 5% growth in Upstate New York and Western New York. We saw, in our metro region, which is Philly, Westchester, New York metropolitan area, we saw 11% growth in total loans. And we saw a decline, a slight decline in PA and a decline of about 8% in the Mid-Atlantic. In the Mid-Atlantic, that was sort of funding of construction loans, which kind of went -- actually, after having funded construction loans, they moved over to permanent and we syndicated those out of our book. So we're collecting fees there, but generally, what's happening is we're kind of making sure we don't keep more than the amount of exposure that we want there. So activity in the Mid-Atlantic was pretty strong, as well. So if you kind of look at it, I'd say it's relatively across the board. We continue to be really encouraged by our performance in Upstate New York. We really do feel that we have an unprecedented opportunity to gain market share in upstate given the disruption that's gone on with, in particular with HSBC. That seems to be going very well. And then overall, I'd just say that there was a nice uptick in the activity. If you look at, exclude Wilmington, and you look from the fourth quarter of last year to the fourth quarter of this year, I'd say we had about 4% growth, core growth, and the current trends and the activities feel a little bit more positive than they did a year ago. So those are my comments. I don't know if you have any other follow-up questions.

John G. Pancari - Evercore Partners Inc., Research Division

Well, just from the line utilization, do you have what it was for the quarter?

René F. Jones

I haven't really looked at it, but it was up a bit; it ticked up a bit for the last 2 quarters.

John G. Pancari - Evercore Partners Inc., Research Division

Okay, good. And then on TARP, can you -- I know you just mentioned that you obviously submitted under CCAR the capital plan. Can you talk to us about your updated thoughts about around the timing of the payment of your remaining slice of TARP?

René F. Jones

As we said before, we'll do it as soon as is practical and that’s not something that sort of -- it involves others; it involves the Federal Reserve and so forth. So our objective would be to do it as soon as practical because we kind of view it a bit as a drain on our tangible generation. So that's our position; it hasn't really changed. I guess I'll leave it at that.

Operator

Your next question comes from the line of Robert Ramsey with FBR.

Bob Ramsey - FBR Capital Markets & Co., Research Division

René, just along the lines of loan growth, could you talk about, with the resi mortgage loan growth, is that mostly arms? Or sort of what is the yield that you all are putting new loans on your books at?

René F. Jones

The yield is sort of at 4%, maybe a little below 4%, and it's a sort of a mix of 30- and 15-year. I'd say more than 1/2 of that, maybe 60% of it, is 15-year agency mortgages.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, okay. And then just a quick question on credit. You mentioned the $19 million charge-off in the Mid-Atlantic. Was that fully reserved for or is some of this quarter's provision related to that credit?

René F. Jones

We had a specific -- we had a specific reserve for that loan so there wasn't a big surprise with respect to it. And this is a portfolio -- I think, in fact, I think it's something that was from that original Mid-Atlantic portfolio that we've been talking about for several years, which is now down to, dare I say, de minimis amounts. I think I looked at the balances the other day and the on-balance sheet from that original -- of sort of Mid-Atlantic original portfolio was something like $170 million.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. And then sort of as we think about provisioning going forward, should we -- can we expect charge-offs and provision to sort of match as you work down specific reserves and then replace it as you think about provisioning for growth? Or net-net are you thinking you can release reserves or build? Or how are you thinking about it?

René F. Jones

I think it depends. I mean, if we didn't -- don't see an improvement in the overall economy and the levels of nonperforming criticized loans but we like the trends, right, but having said that, there's still very -- the levels are very abnormally high, at least for us. And until we see a significant change there, it would be hard just to think about taking down the allowance. Having said that, at the same time, we're booking a lot of loans, right? So when you put on $1.7 billion of new loans, you've got to provide for those as well. So I think our trend is -- when I look to the future, I look at what we've done in the past, right?

Operator

Your next question comes from the line of Erika Penala with Merrill Lynch.

Leanne Erika Penala - BofA Merrill Lynch, Research Division

My first question is clarity on the Tier 1 common ratio that you gave of 6.86%. That's on a Basel I basis?

René F. Jones

Yes.

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Do you have what it would be on a Basel III basis?

René F. Jones

No. And again, I've said this before, sort of speculating on how the regulation is going to come out and what the rules of the game are going to be. We just haven't spent much time doing that so all of our -- you got it?

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Got it. I guess my follow-up question to you is we're getting mixed messages in terms of what the regulators are looking at in the cap -- in CCAR for 2012. Some banks have told us that, "Don't be so naïve to think that Basel III doesn't matter," but it sounds like you submitted your capital plan, that it's, given what you said, we still don't know what the final rules are. Basel I will continue to be the focus for the regulators. Is it your sense that they're not looking at Basel III for those, for the capital plan for 2012?

René F. Jones

Well, we just follow the rules. I mean, they've got a process. They tell you what to look for -- what to use, and we've gone through that process. And to the extent that we are required to go out and do something under a new set of rules, we would do that when the time comes. But it's just a lot of energy to be spending time trying to hit on what those prospective rules might come out to be. The other thing I think about is when we think about the capital planning here at M&T, we don't think about it any differently because we’ve been asked to do a capital plan review than we’ve done in the past. And I think it's kind of helpful to remember with M&T is why our capital ratios are where they are. We started out in the middle of a really poor economic environment in 2009 and we bought Provident and then we did a couple of FDIC-assisted deals and helped them out with another and then we bought Wilmington. And every single time that you go through that, you've got to be approved and so we submit plans and capital plans and, in several cases, stress tests and all that through the process. And if the regulators are comfortable with those plans then you move forward as it is. So when you look at that under a fair amount of scrutiny, what we've done is we've taken a lot of our capital generation and used it to support the stability of the banking industry by not letting those institutions kind of come down, and we brought them on as part of M&T. Our ability to generate capital, as you kind of look at that, is really, really high, right? So when we look at it, we've been through a lot of stress testing. We kind of took the same process and presented what we do in the same way. And from our perspective, we're not too concerned.

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Got it. And just my second question, I wanted to follow up on some of the guidance you gave on the expense side. If I'm looking at the number correctly, and please let me know if I'm looking at it incorrectly, excluding the -- some of the noise and excluding the intangible amortization expense, it looks like the quarterly run rate for expenses would be $603 million for the fourth quarter. And if I'm looking at an annualized rate of $2.4 billion in core expenses for 2012, how much is left to take out of that $2.4 billion number? And I'm wondering, because you mentioned there could still be 50% of cost saves remaining to realize from Wilmington Trust but you mentioned last quarter that there could still be reinvestment going into the legacy franchise that could be going on as well, how should we think about the puts and takes?

René F. Jones

Numbers aside, the way you're thinking about it is exactly right. I mean, I just -- we've talked about -- initially, we talked about $80 million in expense saves from the Wilmington transaction. I don't know, maybe if you annualize the 13, we're up around 40 to 50, and I think we’re 50% of the way there so we feel very, very good about that. And those are pretty much absolute numbers, but then you've got to bring them into M&T. And the way we think about M&T, particularly after receiving a lot of this pressure on fees and things from the regulation, is that we have to have a positive revenue expense spread. That means expenses will grow. We just want to make sure that they grow at a slower rate than the revenues. So I mean, I kind of look at the 2 separately, but when I look at it overall, expenses should be very well controlled in total as we kind of move forward.

Operator

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

Adam Chaim - Deutsche Bank AG, Research Division

This is actually Adam Chaim calling in for Matt. I just had a quick one on, I guess, the expenses in 4Q, the extraordinary expenses in 4Q. It looks like it's mostly sort of a clean-up quarter; I don't know if that's fair to say. But what do those impairment charges mean for securities, OTTI losses going forward, and also the Bayview run rate losses?

René F. Jones

Well, with respect to the securities, you're -- what you're trying to do is you're trying to look out into the future and predict your cash flows. And to the extent that you think that you're going to have some credit impairment, you've got to take that and write those securities down to fair value. So if we've done that the right way and we don't see any change in the economic environment on a particular security, we think we've taken care of it. Having said that, in any quarter, you could get a different set of securities that could come up and you've got to look at them each quarter. With respect to the Bayview thing, remember that what we did this quarter takes down our basis, but the structure is such that our initial -- original investment, BLG or Bayview Lending Group, we have a 20% equity interest in, and in that particular piece, we use equity accounting so we record our share of the losses of that business. And while it's no longer originating a small-balance commercial security, it still has operating cost, is the best way to put it. And so I would expect very little change in what you've been seeing quarter over quarter there. The remaining -- most of the value that you have that supports our current market value is related to the parent company, Bayview Financial, and our 20% interest in all of it is cash flows. It's not 20% ownership but it's interest in the upside. And then in terms of cleanup, I don't -- that clean-up word is kind of weird to me, but it – it doesn't register with me so...

Adam Chaim - Deutsche Bank AG, Research Division

Okay. Just one other quick one on the trust income. Revenues were flat Q-over-Q. We thought that revenues might have seen a little bit of a bounce in 1Q. I think, in 3Q, you might have said that – you said that revenues were weak by I think $5 million to $8 million based on lower valuations and the equity markets. So when do we sort of start seeing a rebound there since we've seen an improvement in the financial markets? I know it's a temporary thing, but is that a related driver of that revenue?

René F. Jones

Well, I think what you're talking about there is all related to the trust and investment income. And then in that space, that's where the $5 million to $8 million was. We saw some of that come back. Fees and total trust fees were relatively flat quarter-over-quarter and part of that was because of some of the uptick in market values. I think it might take a couple of quarters to get that back. Having said that, when you look at the underlying business, you've got to look at each of the components. And so for example, in the global capital markets portion of the business, Wilmington is the trustee for a lot of the securitizations that are out there. And so you get a lot of -- the uptick in revenue comes with a lot of issuances of debt and those types of thing. That market was -- dropped heavily in the third quarter. I think the amount of issuances were even lower on the fourth quarter and are some sort of record low for the last several years. So when that happens, their income is going to be down a little bit in that particular part of the business. I think, generally speaking overall, we'll -- we expect sort of modest growth. We're taking our time. And we think there's probably a lot of upside, but it's hard to predict exactly when that occurs.

Operator

Your next question comes from the line of Steven Alexopoulos with JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

I wanted to start, I wasn't clear on your answer to Erika's question: Should we now be modeling $100 million of cost saves from Wilmington?

René F. Jones

I don't know. I mean, I think -- I feel like we're at about 1/2 where we were so we're at least -- we at least got 1/2 of the 40. We've done the work to get 1/2 of the 40. Maybe it's a little higher. I'm just kind of looking at where we're running and I'd say we will probably have expense saves from Wilmington of -- that have been baked in and on an annual basis of $40 million to $50 million, and I think we're about halfway there.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

All right. So we should take it up a bit, I'm assuming. Okay. In terms of the margin...

René F. Jones

A lot of moving parts in the whole expense space, you know.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Yes. In terms of the margin, you said that prepaid fees declined. Can you break out what the dollars of prepaid fees were here in the fourth quarter so we know how much of that might be at risk in future quarters going away?

René F. Jones

I'd rather not, but let me give you this context. I mean, it's a couple of million dollars, right, so a basis point is less than $1 million or something like that, right? So that's why you can kind of tell when it gets down to negligible amounts that that's not consistent, right?

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And then finally, René, in terms of this excess liquidity, how do you think about the right amount of cash you should be holding? And are you expecting to move some of that into the securities portfolio to offset some of this margin pressure over the next few quarters?

René F. Jones

I think our securities -- let me think of a way to start on that. First of all, I think our securities book is probably one of the lowest among the regional banks, and the last I looked, we were probably half the size relative to our size of a securities book. And for the time being, we will continue to purchase security and hold mortgages so that probably would be a source of offset to the extent that we see continued growth in deposits and liquidity. But I feel -- in a very macro sense, I feel pretty good that we were able to take the $2.6 billion that we got from Wilmington. It took us 6 months, and to begin to utilize it. I would guess that the average balances, going forward, we typically don't carry that much cash.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

But should we think of it that you continue to hold the liquidity or that you draw that down into the securities portfolio?

René F. Jones

Well, what we did is we drew the -- we drew that down into liquid securities, right, so we're just, it means -- the word liquidity is interesting, right? As long as you're keeping high-quality securities, you're maintaining liquidity and you have that for future dates for whatever reason, right? But you're just earning money on it, as opposed to sitting -- having it sit with the Fed.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Got you, got you. Any thoughts on the operating expense side to offset margin pressure beyond Wilmington?

René F. Jones

We're going to be very diligent on expenses. And it's hard to say, but I think the way we look at it, we'll probably talk about -- a little bit about it in our annual report. We've got a lot of work to do to offset sort of the changing banking environment because the rules of the game have changed. And so part of that is going to be focused on expense outside of what goes on with Wilmington. There will also be the other side. So what I'm talking about is the fact that we've got to have a much wider revenue expense grid than we've been running at in the past so efficiency is probably key for us.

Operator

Your next question comes from the line of Craig Siegenthaler with Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Just looking at the 12 basis point decline in loan yields quarter-over-quarter, can you give us the impact between what was actually driven by spread, what was driven by rate, and if there’s any derivative or swap impact?

René F. Jones

[indiscernible] No swap impact. Could you ask me that question in a different way?

Craig Siegenthaler - Crédit Suisse AG, Research Division

Sure. Most of the impact, I'm assuming, is from putting new loans on at lower yields, with higher loan -- high-yielding loans rolling off. So what is the impact from that, which is really spread? And the other impact was, for all your variable-rate loans, what was the impact in this shift in rates?

René F. Jones

Okay. So I would say that if our core margin compression that I talked about was 4 basis points, I would say at least 1/2 of that was volume of loan coming on probably a little bit more. Maybe a little bit is a result of -- if you look at the Wilmington book, it's got a higher mix of variable rates in that, and so when you bring that on, there was a little bit of margin compression from normal margin compression as well. So majority of the 4 basis points, in my mind, and the majority therefore of the 11 points in the asset side is going to be from the volume, but there is, I don't know, 1, 2, 3 basis points, 3, 4 basis points of the 11 that is just normal -- I would guess, is normal yield compression. Remember, when we talk about lower prepayment penalties and those things, that's also a component of the 11 basis points that you're looking at. And then finally, what I'll say is you can see the change in the book. Some of that is lower rates on deposits and time deposits running off. But I mean that -- I mean, I don't know, the deposit side, I wouldn't expect the change to trend -- to change dramatically.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. And then, René, just one follow-up. If you look at your pretty strong loan growth from last quarter and assumed, and I don't want to be too short-term focused here, but assumed that the first quarter ended last Friday and you annualized that. I'm just wondering how is loan demand trending in the first quarter versus the fourth quarter? And can you also discuss any expected seasonality?

René F. Jones

I don't know. I mean, I think the activity seems to have picked up. Let's go back. We had actually a pretty robust quarter a year ago. And that tailed in -- last year, that tailed into January and February and then it got a little quiet. And then of course, with the downgrade of the U.S. and Europe falling off the charts, everything seemed to get very quiet. I think that really affected our third quarter. Having said that, in the third quarter of this year, even though our balances were low, we saw a lot of underlying demand and a lot of that materialized over the last, say, 4 months of the year. And so it's hard to predict what will happen, but I do kind of feel like it's sort of déjà vu from where we were last year. And if we can get some stability out there, then maybe that'll all translate into sort of an uptick in the total level of year-over-year loan growth. But I mean, given what happened last year, I feel very -- pretty comfortable with that. What we were able to do last year, we should be able to do again this year, and that's kind of how I look at it.

Operator

Your next question comes from the line of John Fox with Fenimore Asset Management.

John D. Fox - Fenimore Asset Management, Inc.

Most of my questions have been answered, but I have 2 quick. René, the mark-to-market on the pension plan, did you say that was 200 pretax?

René F. Jones

Something like that, up in that range.

John D. Fox - Fenimore Asset Management, Inc.

Okay. And what was the amount of preferred dividends in the quarter?

René F. Jones

I think it's in the release, but give me a second.

John D. Fox - Fenimore Asset Management, Inc.

I backed into $17.9 million. Is that right?

René F. Jones

Give me one second and I’ll tell you. That seems high.

John D. Fox - Fenimore Asset Management, Inc.

It seems high to me, which is why I'm asking.

René F. Jones

16, maybe. You've got the, in that number, you've got the amortization of the -- $2 million is the amortization of the TARP discount.

Donald J. MacLeod

John, just the, some of the other analysts include the net income attributable to unvested restricted stock and so you may be thinking of that as being preferred dividend even though it’s not technically is, but it is part of the difference between GAAP net income and net income for EPS purposes, and I believe that's another 2.

John D. Fox - Fenimore Asset Management, Inc.

All right, great. And I had a -- somebody at a another bank mentioned to me that they have -- the bank has no interest in getting -- collecting deposits at this point because everyone has so much liquidity. What are your thoughts on that comment?

René F. Jones

As one of my peers on the management group says, we call those customers. So we're more than happy to help everybody with their liquidity.

Operator

Your next question comes from the line of Collyn Gilbert with Stifel, Nicolaus.

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Just want to follow up -- you've seen a lot of these things, but just on the loan yield side as we look at kind of the differentiation between what's rolling off and what you're putting on. I know you said it's lower. Can you quantify sort of how much lower? And I'm just trying to reconcile when that churn really starts to slow because you guys already seem like you're sitting in a fairly low kind of weighted average loan yield, anyway, and I would just think you're probably closer to a bottoming then. And maybe that's what you mean on your margin comment, but just trying to reconcile those numbers a little bit more.

René F. Jones

Yes, I mean, okay, I, one, I don't think I can quantify it. I'll think about it, and if we decide to do some more, then we'll disclose it in -- somewhere in our Q and so forth. But the way I think about it is, if you think about last quarter, the linked quarter, we actually had some uptick in our loan yields, right, and that was because we had higher prepayment and non-accrual interest on those loans. And my sense is that they would have been flat to slightly down the previous quarter, as well. And then, that trend would have continued this quarter. This quarter, you had a flip in those sort of cash items, right? And I don't, off the top of my mind, know, is that like maybe 3. Give me one second. Maybe 2 to 3 basis points, 4 basis points on the loan yields; maybe that's the 4 that I talked about. And then – but, so that would leave you with something like 7 to 8 and a lot of that, I think, was a little abnormally high because we had so much volume of loan and securities on our books. So there's a natural number in there. I haven't really quantified exactly what that natural number is.

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Okay, okay, that's helpful. And then just on the -- just a little bit of color on the loan side, the loan growth that you're seeing. I know you broke it out geographically, but do you have a sense at all of what types of businesses are borrowing and where you're seeing the demand just from a kind of an economic sector standpoint?

René F. Jones

Yes, yes. Well, I mean, we saw -- I saw – I take a look at by stick code [ph] and all that. I mean, there's really no one particular trend. We -- it seems to be in all types of commercial customers. We did have, as we spelled out in our press release, the fact that we got a rebound in the inventories on the auto floor plan, right, but aside from that, you can't really see -- I mean, in the real estate world, you saw that come back. For the first time, we've been running slightly down. I think all the activity was there, but probably the runoff of the book, remember, we've got Wilmington in there, has slowed. But there's no specific spike. I mean, I would say we've got growth in a lot of categories. The other thing I'd point out is that, since the acquisition, the Wilmington loan book has actually been coming down, but we saw -- even in Delaware, we saw C&I grow for 4 consecutive months, right, for the first time so that turned. And in total, the amount of runoff that we've seen in that book has actually slowed a bit. So there's some encouraging signs and it would be nice to have a quarter where every one of the regions has grown. And that's not happened yet, but I think the trend is headed in the right direction.

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Okay, okay, that's helpful. And then just finally, just curious, and maybe it was your comments about your outlook just being cautious as to the timeline that we're sitting -- going to sit in this environment, but why now did you change your course on Bayview? I mean, for years, you guys have been badgered on this line item. I just am curious why now you opted to pull the trigger.

René F. Jones

Well, I mean, you kind of got to go back, right? So other-than-temporary impairment requires a view that says over the passage of time, if something stays below its fair value for a long period of time, you've got to really think hard about saying that that's not other-than -- that’s not a temporary decline. And so if you think about what happened over time, in 2008, Bayview, BLG, stopped doing its origination of loans, and then what we did in 2008 is we restructured that investment so that we received an interest on all the cash flows of parent, Bayview Financial. And if you look at where we are today, much of the valuation that we have today is based on the sort of asset management business. If you kind of go back to our Q, when we were extending out our view of our ability to sort of collect our book value, all of our calculations said that, in our estimates, that our present value of the cash flows that we thought we would be able to collect were about 106% of the book value of our investment. What's kind of changed, is as you kind of think about, is -- what's changed really is our thinking about that timing. And so as you think about the business that they're in, Bayview's asset management business is a business which sort of manages capital for investors in the distressed mortgage space through either asset purchases or through servicing. And what I guess we would say is it's kind of ironic in a sense because what we like is the prudence at which they seem to be managing that business. And what that means is that, when asset prices or servicing prices are high, they chose not to deploy a lot of money so that they could keep their returns high. And as opportunities and prices drop and they think they're fair, they have the ability to grow assets under management by deploying that cash much faster. If you kind of just think about that discipline, what it says to us is that if they keep doing that, the business is actually growing, it's doing well but our ability to predict the timing, sort of schedule out the timing of when we'd receive those cash flows is less. So as we kind of looked at it, we were somewhere around, our cash flows, we suggested were sort of somewhere in and around the book value, and we said, "Look, what's our ability to really predict the timing to a great degree of accuracy?" So we decided to sort of take a look at the fair value and write it down to fair value at that time, which is what's required with an OTTI analysis. So really, the underlying business, we see a lot of growth and a lot of favorable things that are going on, but what's really changed is our view of the timing of when we'd be able to recover the investment.

Operator

Your next question comes from the line of Mike Turner with Compass Point.

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Sorry to kind of beat the dead horse, but just a follow-up to earlier questions, what's kind of your average loan yield on C&I loans in the quarter?

René F. Jones

Give me 2 seconds and I'll give you that. In total, we were somewhere around -- average loan yield was 378.

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Okay, for consolidated all products or just C&I?

René F. Jones

C&I.

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Okay. How does that compare -- I mean, the Fed survey shows it's around 2.5. I mean, what's the main, I guess, discrepancy? I know you historically have very low losses, just how you're getting over 100 basis points more than kind of the industry norm.

René F. Jones

Well, let me -- give me a second; let me give you some sense [ph]. If you look at how we manage the business, one, I think, if there's a difference, we're not doing a lot of large, syndicated credits with investment-grade companies, right? And I think that's how you would get margins, I would say or yields that are that much lower on your C&I book. But to give you some sense: If you look at a spread from swaps, our margins are routinely in the -- above 3% on the businesses that we actually bank, which a lot of which are smaller, small businesses and middle-market companies so we're something like the sixth-largest SBA lender in the U.S. ; third-largest east of the Mississippi, all right? So we're banking much smaller business credit. The one thing I would say is that, it's interesting, what you see when you look at the volume of business that we do, over the last 4 or 5 quarters, the margin has held up steady, right, in and around 3%; slightly higher when you look at it relative to the swaps curve. And so I think, really, when you think of the bank's margin, what's really happening is banks have hit a floor on the deposit side. And -- but when you look at the underlying business, if we're booking it at an appropriate spread, there really tends to be quite a bit of upside if the interest rate environment were to be -- were to normalize. So I'm not sure, I mean, the C&I spread, that seems really, really low for the type of business we would be in. So I don't know exactly what everybody else would be doing.

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Okay, that's helpful. So the 378 look like actually the rate for the average for the quarter, but you're saying what you originated is still -- are you saying it's in the ballpark of the, what's on the books right now?

René F. Jones

If you look at what we originated in the last 2 quarters, it's just above 3% relative to the swap rates. So maybe, I don't know, what is that, 323, 325, 330, somewhere in that range, yield.

Operator

Your final question comes from the line of Marty Mosby with Guggenheim securities.

Marty Mosby - Guggenheim Securities, LLC, Research Division

It's more of a concept of, on the earlier question about the Basel III. When we do the calculation, we put all the enterprise-wide risk into our models. M&T Bank actually doesn't have much of an adjustment. All I was getting at is because you don't and because of the great risk management that you've had in the past, there is not much of an adjustment between Basel I and Basel III so really, there's not the haircut that you see in all the other banks, which would make it so important for them to do the calculation versus you-all being able to equate at least without any unknown changes, that you're pretty much in line with where Basel III would be.

René F. Jones

I like what you're saying. I just, my problem is I don't -- thank you very much.

Marty Mosby - Guggenheim Securities, LLC, Research Division

I'm just saying, in general, the risk management practice has limited the impact of Basel III. So that way, your capital plan can kind of get away without having to formally calculate that.

René F. Jones

I think it's very, very important that capital management's got to be above capital and risk.

Marty Mosby - Guggenheim Securities, LLC, Research Division

I was just going to put that out there so you kind of reconcile a lot of other banks are probably having to have more emphasis on that.

René F. Jones

Thanks, Marty.

Operator

That was our final question. I'd now like to turn the floor back over to Mr. MacLeod for any closing remarks.

Donald J. MacLeod

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

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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