M&T Bank Corp's (MTB) Q1 2016 Results - Earnings Call Transcript

| About: M&T Bank (MTB)

M&T Bank Corp. (NYSE:MTB)

Q1 2016 Earnings Conference Call

April 18, 2016 11:00 AM ET

Executives

Donald MacLeod – Administrative Vice President, Assistant Secretary and Director of Investor Relations

René Jones – Vice Chairman and Chief Financial Officer

Michael Spychala – Senior Vice President & Controller

Analysts

Brian Klock – Keefe, Bruyette & Woods, Inc.

Ken Zerbe – Morgan Stanley & Co.

John Pancari – Evercore ISI

Bob Ramsey – FBR Capital Markets & Co.

David Eads – UBS Securities

Matthew O'Connor – Deutsche Bank Securities, Inc.

Marty Mosby – Vining Sparks

Matthew Burnell – Wells Fargo Securities

Ken Usdin – Jefferies

Gerard Cassidy – RBC Capital Markets

Steven Alexopoulos – JPMorgan Securities

Matthew Kelley – Piper Jaffray & Co.

Jill Shea – Credit Suisse Securities

Peter Winter – Sterne Agee

Geoffrey Elliott – Autonomous Research

Bill Carcache – Nomura Securities International

Frank Schiraldi – Sandler O'Neill & Partners

Operator

Welcome to the M&T Bank First Quarter 2016 earnings conference call. It is now my pleasure to turn the floor over to Don MacLeod, Director of Investor Relations. Please go ahead, sir.

Donald MacLeod

Thank you, Laurie, and good morning. This is Don MacLeod. I'd like to thank you all for participating on M&T's first quarter 2016 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 Relation 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 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 Jones

Thank you, Don, and good morning, everyone. As noted in this morning's press release, M&T's results for the first quarter reflected strong growth in net interest income, which was driven by an expansion of the net interest margin and solid loan growth, controlled operating expenses stable credit performance. All of these contributed to an 11% growth in diluted net operating earnings per share over last year's first quarter.

As noted on the January call, we closed the merger with Hudson City and restructured its balance sheet in last year's fourth quarter. In the first quarter, we completed the migration of Hudson City's customers to M&T's products and services, as well as the conversion of its branches, systems and operations onto M&T's platform.

Hudson City's risk management framework has been fully integrated into M&T's risk governance structure, and our task now is to continue the evolution of Hudson City from what was essentially a monoline thrift into a real commercial bank, which will of course take some time.

Overall, we feel the first quarter was a productive one. As we usually do, I'll start by reviewing a few of the highlights from M&T's first quarter results, after which Don and I will be happy to take your questions.

Turning to the results, diluted GAAP earnings per common share were $1.73 for the first quarter of 2016, improved from $1.65 in both the first quarter and the fourth quarter of 2015. Net income for the quarter was $299 million, up 10% from $271 million in the linked quarter, and up 24% from $242 million in the year-ago quarter.

Consistent with our long-term practice, M&T provides supplemental reporting of its results on a net operating or tangible basis from which we exclude the after-tax effect of amortization of intangible assets as well as expenses associated with mergers and acquisition. After-tax expense from the amortization of intangible assets was $7 million or $0.05 per common share in the recent quarter compared with $4 million or $0.03 per share in last year's first quarter and $6 million or $0.04 per share in the fourth quarter.

Also included in the first quarter results were $23 million of pre-tax merger-related charges in the form of non-interest expense, incurred in connection with the Hudson City acquisition. This equates to $14 million after-tax or $0.09 per common share. Merger-related charges in the fourth quarter included $76 million of non-interest expense, and $21 million of loan loss provision. Combined, those amounted to $61 million after-tax or $0.40 per common share. There were no such charges in the first quarter of 2015.

M&T's net operating income for the first quarter, which excludes intangible amortization and the merger-related expenses, was $320 million compared with $246 million in last year's first quarter and $338 million in the linked quarter. Diluted net operating earnings per common share were $1.87 for the recent quarter, up 11% from $1.68 in the year-ago quarter. That figure was $2.09 in last year's fourth quarter.

Net operating income yielded annualized rates of return on average tangible assets and average tangible common shareholders' equity of 1.09% and 11.62% for the recent quarter. The comparable returns were 1.21% and 13.26% in the fourth quarter 2015. And in accordance with the SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP, non-GAAP results, including tangible assets and equity.

Turning to the balance sheet and the income statement; taxable equivalent net interest income was $878 million for the first quarter of 2016, improved by $65 million or approximately 8% from the linked quarter. About $45 million or some 70% of that increase reflects the full quarter of Hudson City's results compared with two months in last year's fourth quarter.

Contributing to the growth in net interest income was a six basis point expansion of the net interest margin to 3.18%, up from 312 basis points in the fourth quarter. The primary driver of that increase was the full quarter effect from the Fed's mid-December action to increase short-term interest rates, while the benefit from the day count in the shorter quarter was largely offset by the dilutive impact from a higher level of deposits placed at the Fed.

Average loans increased by 8% or $6.5 billion compared to the linked quarter. This included a 27% or $5.5 billion increase in residential mortgage loans, which primarily reflects the impact from the full quarter of Hudson City results.

Looking at the other loan categories, on an average basis compared with the linked quarter, commercial and industrial loans increased $497 million or an annualized 10%. Commercial real estate loans increased $452 million or about 6% annualized. Consumer loans grew at an annualized 1%, with growth in indirect auto loans offset by a decline in other consumer loan categories.

The loan growth was broad-based, excluding the impact from Hudson City mortgage loans, we saw a 6% annualized growth in upstate New York, 5% annualized growth in our Metro region, which includes New York City and New Jersey, 9% annualized growth in Pennsylvania, and 4% annualized growth in Baltimore, Washington, Delaware region. I'd note that end-of-period loans grew by 2% annualized with a 15% annualized decline in residential mortgages more than offset by 9% annualized growth in other loan categories.

Average core customer deposits, which exclude deposits received in M&T's Cayman Islands office and CDs over $250,000 increased by an annualized 32% from the fourth quarter, also reflecting the impact from Hudson City.

Turning to non-interest income, non-interest income totaled $421 million in the first quarter compared with $448 million in the prior quarter. Mortgage Banking revenues were $82 million in the first quarter compared with $88 million in the prior quarter, largely the result of a $5 million decline in Commercial Mortgage Banking revenues to about $22 million, down from $27 million in what was a solid fourth quarter.

Similarly, credit-related fees were lower by $14 million, coming off what was also a very strong fourth quarter. That decline is largely related to fees that are often event-driven, such as a syndication fee and can vary somewhat from quarter-to-quarter. Several fee categories were impacted by the typical seasonal factors that we see. For example, fee income from deposit service charges provided was $102 million during the first quarter compared with $106 million in the linked quarter, and trust income was also down modestly.

Turning to expenses, operating expenses for the first quarter which exclude merger-related expenses and the amortization of intangible assets were $741 million compared with $701 million in the prior quarter. We continue to be pleased that we've kept expenses relatively stable, while absorbing Hudson City, as well as funding our technology and other initiatives.

This is reflected in our efficiency ratio, which was 57.0% for the first quarter, improved by 450 basis points from 61.5% in the year-ago quarter. We estimate that approximately 280 basis points of that improvement is attributable to the merger, and 170 basis points is from M&T's legacy operation, the result of our ability to grow revenues at a faster pace than expenses following several years of strengthening our infrastructure. The efficiency ratio was 55.5% in last year's fourth quarter.

As usual, the first quarter comparison with the fourth quarter reflects our normal seasonal increase in salaries and benefits relating to accelerated recognition of equity compensation expense for certain retirement-eligible employees, the 401(k) match and the annual reset in Social Security or FICA payments, and similar items. Those items accounted for an approximate $40 million increase in salaries and benefits from the fourth quarter, similar to last year. As usual, those seasonal factors will decline by some $30 million to $35 million as we enter the second quarter.

One item worth noting is the increase in FDIC assessment to $25 million in the first quarter from $20 million in the fourth quarter. This reflects in part the fact that one component of the FDIC's assessment calculator looks back at Hudson City's earnings and treats them as if the Hudson City merger had been in place for the entire year, instead of just the final two months of 2015, and notwithstanding the fact that Hudson City paid its own FDIC assessment as an independent company through the first three quarters of 2015. This factor will normalize as we move later into the year.

Also, as you know, the FDIC has imposed a surcharge on large banks to recapitalize the deposit insurance fund more quickly, likely starting in the third quarter. We estimate that this will add about $5 million per quarter to our assessment expense, starting in the third quarter.

Next, let's turn to credit. Our credit quality remains in line with our expectations, which is to say strong, with continued low levels of non-accrual loans and net charge-offs. Non-accrual loans increased to $877 million and the ratio of non-accrual loans to total loans was 1% at the end of the recent quarter.

The $77 million increase from the end of the fourth quarter is primarily attributable to Hudson City mortgages. As you know, loans obtained from Hudson City that were 90 days past due as of the acquisition date, were recorded as purchased impaired loans. And in accordance with GAAP interest continues to accrue on those loans despite their delinquency status.

Appropriately, those specific acquired loans were not in the non-accrual balances as of either March 31, 2016, or December 31, 2015. The higher level of non-accrual loans at the end of the first quarter reflects the normal migration of approximately $80 million of previously performing loans that became more than 90 days past due during the recent quarter. And which could not be deemed as impaired at the acquisition date, because they were paying at the time of the merger.

As a result, we should continue to see a migration of the Hudson City loans acquired at a premium into and eventually out of non-accrual status as this process normalizes to a more steady state through the passage of time.

Net charge-offs for the first quarter were $42 million compared with $36 million in the fourth quarter. During the first quarter of 2016, M&T charged off loans associated with consumers who were either deceased or filed for bankruptcy. That, in accordance with GAAP had previously had been considered when determining the level of allowance for credit loss. Such charge-offs totaled $14 million in the recent quarter, and included $11 million of loan balances with a current payment status.

Annualized net charge-offs as a percentage of total loans were 19 basis points for the first quarter, up slightly from 18 basis points in the previous quarter, and matching the figure we reported for each of the past two calendar years.

The provision for credit losses was $49 million for the recent quarter, exceeding net charge-offs by $7 million. And the allowance for credit losses was $963 million amounting to 1.10% of total loans at the end of March.

Loans 90 days past due, which continue to accrue interest, excluding the acquired loans that have been marked at fair value at the acquisition were $336 million at the end of the recent quarter. Of these loans $279 million or 83% are guaranteed by government-related entity.

Turning to capital, M&T's Common Equity Tier 1 ratio under the current transitional Basel III capital rules was an estimated 11.06%, little change from 11.08% at the end of 2015. Recall that the capital plan M&T submitted in connection with the 2015 CCAR process, and which received no objection from the Federal Reserve, included the repurchase of $200 million of common stock over the first half of 2016.

We began execution of that buyback program in January and expect to complete it by the end of the second quarter. In addition, because the completion of the Hudson City merger occurred later than contemplated in the capital plan submission, we did not pay all of the projected dividends associated with the M&T common stock that was issued as merger consideration. As disclosed previously, the distribution of that capital, some $54 million, is being redirected into the repurchase program for the second quarter of 2016.

Now, turning to the outlook, as is our usual practice without giving specific earnings guidance, we'd like to offer our thoughts as to how we're tracking against the outlook for the full-year that we gave to you on the January call.

Loan growth this past quarter was largely in line with or slightly better than our expectations with solid growth in commercial loans in both commercial and industrial and commercial real estate loans, partially offset by slower growth in consumer loans and the expected decline in residential real estate loan. We were pleased with the strong performance of our net interest margin. Our outlook on the January call for stable net interest margin was predicated on two increases in the Fed's funds target in the calendar year 2016.

More recently, the forward curve is implying one increase in mid-year, which would still be a benefit. To some extent, the margin is dampened by our decision to maintain pricing on Hudson City's time deposits, which we will revisit over time. Fee revenues are in line with our expectations given the normal seasonal effects that we talked about. As is normally the case, we would expect the seasonal increase in salaries and benefits during the first quarter to reverse itself again to the tune of some $30 million to $35 million in the second quarter, and we remain on track with realizing our expected cost savings from the merger.

Overall, our basic outlook for expenses is unchanged; we remain focused on producing modest positive operating leverage on a year-over-year basis. Our outlook for credit is little changed over the short-term, while we've had little or no impact from the energy-related credit headwinds that others are seeing; the current low level of losses has persisted for over two years.

Overall, our areas of focus for 2016 are fairly straightforward and relatively consistent with what we've talked about in the past, to continue to improve the efficiency of our balance sheet with an emphasis on building out our commercial banking profile in New Jersey; to manage the revenue expense dynamic to produce positive operating leverage; to capitalize on the M&A-driven disruptions within our footprint; and to optimize our capital structure while conforming with both regulatory capital threshold, as well as the annual stress test.

Of course, as you are aware, our 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.

So now, let's open up the call to questions before, which Laurie, will briefly review the instructions. [Operator Instructions]

Question-and-Answer Session

Operator

Your first question comes from the line of Brian Klock of Keefe, Bruyette & Woods.

Donald MacLeod

Good morning, Brian.

Brian Klock

Hey, good morning, Don and René.

René Jones

Good morning.

Brian Klock

So René, with the loan growth, end-of-period loan growth was very strong in the C&I book. So interesting, it seems like the Gary Keith survey that he did in February seem to be directionally down sort of like the NFIB survey that came out a week ago, that seem to be more negative. But it seem like the loan growth, may be later in the quarter, picked up on the C&I side, so maybe, can you talk about what you guys saw, and was it in certain regions that you saw stronger C&I growth than others?

René Jones

Not really, and I think, Brian, I try to give those total loan growth numbers which were driven mostly by, obviously commercial. And it was pretty strong across the board, maybe slightly more leaning towards commercial real estate in Western New York, but other than that, C&I growth was strong across the board.

I think, the thing that impressed me most was, we get our results, and we look at them, but then in preparing for the call, we tend to look at the quality. So what is the quality of the loans book? What's the pricing? And we were able to get the growth without seeing any deterioration in the margins and the total returns that we were getting on that population of loans.

And one of the other things that I think was interesting is that, in some of our markets, Philadelphia, Pennsylvania, New Jersey, Upstate New York, and to some extent in Washington, D.C. and New York City, we saw, the margins actually on – new deals come up maybe, 20 basis points to 25 basis points, which we, I guess, estimate that, that had to do with the widening spreads that we saw in the capital markets, and the slowdown in the CMBS market, it had some small effect. So I was very encouraged by what we saw, I thought the pace was pretty even, and I think our pipelines continue to remain fairly robust.

Brian Klock

Okay. So again, so the outlook is for overall loan growth to still be muted by the rising mortgage run-off coming out of Hudson, but do you think the C&I in commercial real estate would be as strong as it was in the first quarter?

René Jones

Let's say this – we're going to stick with our outlook for January. We're really pleased with this quarter. It may get a little lumpy here and there, but I don't see anything that suggests that, things feel a little better than they did for the whole of last year when we started out.

Brian Klock

Okay. And then one last question, can you breakout – out of the residential mortgage decline, linked quarter, how much of that was Hudson City versus core M&T?

René Jones

There wouldn't be any of the decline. Remember, almost all of the decline, Brian, is on the commercial side, so – and that's coming off a pretty strong first quarter. We had about a 10% increase in our quarter-end pipeline for residential mortgages, so we started off slow. We kind of made up for it, and as we went into April here, the volume still remains pretty decent.

And then Hudson City, I don't have the exact numbers, but we did begin – we do have production, the first quarter of production that we would have seen in doing the normal agency stuff that we sell into the market.

Brian Klock

Okay. Thanks for your time, René.

René Jones

Sure. Thanks, Brian.

Operator

Your next question comes from the line of Ken Zerbe of Morgan Stanley.

Ken Zerbe

Great. Good morning.

René Jones

Good morning.

Ken Zerbe

First question, just in terms of the Hudson City loans that went non-accrual, the $80 million, just so I have a sense of magnitude, is that a normal-sized quarter? Was it little heavier, little weaker? Just trying to get a sense of how much we should be expecting going forward?

René Jones

Yeah. I mean, it's a normal pace. So we were seeing probably, I mean, I'll just do this roughly, $25 million a month roll into the delinquency status. But had we not done the acquisition accounting, you would see a similar amount roll-out. So I'm sitting next to Mike Spychala, so he's always going to kick me when I say this, but as a rough proxy this quarter, if you go in the press release, and you look at page 11, you'll see there's a – we disclose purchased impaired loans. You'll see that those came down $80 million, right?

So those would be the ones that are still in accrual status, and so you'll get a normal migration in, and a normal migration out. So I think what that means is, as a percentage – non-performing as a percentage of that book, it will continue to rise, I would expect at about the same pace that it is – that you saw this quarter.

Ken Zerbe

Got it. Okay. That helps. And then just with expenses, the $30 million, $35 million seasonal that comes out in second quarter, just want to make sure that we're using the right base. The $753 million that you reported this quarter, I know there's just a lot of moving parts with Hudson City, but is that the right base to use, so you're sort of in a $720 million range next quarter, or is there any other moving pieces?

René Jones

I'm using, which you might not be able to see, but I'm using $741 million.

Ken Zerbe

Oh, ex-amortization?

René Jones

Yeah, because remember, you've got, what you also have in the numbers, you have stuff like, you can't see the one-time expenses that are in the salaries, all right? So if you take out the merger-related expenses, and you take out the amount, you're at $741 million. And when I say, $30 million to $35 million, I mean off of that number.

Ken Zerbe

Okay. But off of that number, that is the right base to use?

René Jones

Yes.

Ken Zerbe

Okay. All right. Perfect. Thank you.

Operator

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

René Jones

Hi, John.

John Pancari

Good morning. Just wanted to ask on the fee income side, again, around service charges. I know you gave us little bit of color around seasonality. I know on a year-over-year basis, service charges were flat. How should we think about what's going on there, and how to think about the growth as we model out?

René Jones

I mean, I don't – I'll start by saying, I don't see anything unusual in those numbers. We know that commercial mortgage origination fee income tends to be lumpy. You saw that. We talked last quarter about the fact that the third and fourth quarters in commercial loan fees was very, very strong, so that bounced back down.

I would expect that to come back at some point, and continue to be a little bit lumpy. You just can't predict exactly how it's going to work. So there was nothing there that really concerned me. I didn't change my outlook or view of what's going to happen for the year based on what I saw this quarter.

John Pancari

Okay and you would say the same thing around the trust income? Obviously that was impacted by the market, etcetera, nothing really changing your view there?

René Jones

No, let me explain that a little bit. To me there's maybe three factors there. The market which you mentioned was probably a third of that, so $1 million. And then we do have income from affiliate managers, and we also offer collective funds to other relationships that we have. And essentially, you remember that both of those are down, a little seasonal, a little bit about the balance is just being lower because of market participation.

On the collective funds, you get almost an equal offset on the expenses, because, right, you're just passing that through, so that was probably a third. And then, I think the last piece is probably just a bit of seasonal stuff for tax reporting and those types of things, you see bounce back in the second quarter.

John Pancari

Okay. All right. And then lastly, just wanted to get a little bit more color on the efficiency ratio? Kind of follow-up to Ken's question, but at the current level, what are your expectations for full year efficiency, how we should think about that? Thanks.

René Jones

Okay. Well, I think, what I've been doing is, I just simply look at the first quarter results relative to last year's first quarter. And then I superimpose that performance over on the full year. And I think – as I said, obviously we got benefit from Hudson City, but we've got a substantial benefit right now from the core M&T operations.

And I think our job is to sort of maintain that, and again, we're just looking for, over a long period of time, some modest spread between the two. So I don't have a number on top of my head, but I think if you do that, you probably get somewhere around 54.5% or somewhere in 54% range, but you can do that.

John Pancari

Yeah. Got it. Thanks, René.

René Jones

Yep.

Operator

Your next question comes from the line of Bob Ramsey of FBR.

Bob Ramsey

Hey. Good morning. Hoping you could elaborate a little bit, I know you mentioned that you all are maintaining CD pricing on the Hudson City deposit base, and just kind of curious, sort of what the timeline looks for that? How you've, I guess what the interactions have been like with Hudson City customers so far? When you think you'll be able to start to migrate that deposit base?

René Jones

Well, I think the first thing I would say, Bob, is that, we're sort of set up, right, because we spent the whole quarter getting ourselves on the same platforms and system. And we spent also the whole quarter with our folks from legacy M&T in the retail bank sitting side-by-side with the new Hudson City employees. And so, that training has been ongoing. And I think, we will need more time, some part of this year, to make sure that those balances stick around, and that we have the opportunity to interact with those customers over time.

One of the things that you're seeing is that, we're getting about – our pre-payment speeds on the mortgage book of 15%, so say $300 million a month. But we haven't really seen the similar run-off in the time deposit book, because we're maintaining those prices in an effort to reach out to contact those customers through the course of the year. When we talk about some diminishment of our margin, that's embedded in our margin at the top of the house.

So while we're calling for a stable margin for the full year, I wouldn't be surprised to see a couple of basis point decline next quarter, and you'll see, that will be solely the effect of maintaining those, that sort of higher time account balances, and pricing, but that's totally in our control.

So at some point, as we target the customers that we're very focused on getting, and that there's a very high probability that we can convert, the rest of the book will just revert that process to normal rational pricing that we want to do in New Jersey, and that should give us some benefit. But we're not in a rush. We've got the ability to introduce ourselves to those clients, so we're going to make sure we do that.

Bob Ramsey

Okay, that's helpful. And could you remind me when you talk about a stable margin for the year, are you sort of talking about stable at this 3.18% level or stable to the 3.14% for the full-year last year? Or was it somehow an adjusted number that included Hudson City?

Donald MacLeod

We were talking about stable to last year's 4Q, which was indicative of the post-merger, so 3.12%.

Bob Ramsey

So, 3.12% is still sort of full year, where you guys expect to shake out?

Donald MacLeod

Yeah.

Bob Ramsey

Okay.

René Jones

I don't think I expect significant change during the course of the year. And if we were to keep our position where we're offering the current rates in New Jersey and the Metro market, my sense is that that any Fed rate hike of 25 basis points more than offsets it, and we'll manage those two. So somewhere between what Don said, and where we were this quarter, it's probably the right answer, but it's stable is the way to think about it.

Bob Ramsey

Okay, great. And then last question and I'll hop out, but nice to see the uptick in loan yields. I know you mentioned that reflected the Fed increase. Just curious, if from where we sit today, is that fully factored in? Or is there any sort of lagged follow-on benefit that you should see in the second quarter from what the Fed has already done?

René Jones

No, I think it's fully factored in right now.

Bob Ramsey

Got it. Thank you.

Operator

Your next question comes from the line of David Eads of UBS.

René Jones

Hi, David.

David Eads

Hi. Good morning. Maybe if we could – on the – you talked a little bit about the FDIC extent. Just want to kind of confirm, is it fair to think about you've got a little bit of improvement from the assessment based on in Hudson City, kind of rolling-off and then you guys step up in 3Q, so basically it's kind of flattish through the rest of the year? Is that a reasonable way to think about it?

René Jones

Yeah, directionally that's right. We should see that increase we saw now roll-off by the end of the year, but then we're going to add five per quarter for the assessment. So a fair way to look at it.

David Eads

All right. And then it was helpful to talk about the 170 basis point of core efficiency improvement. Is that kind of in the fairway of when you talk about your kind of modest efficiency improvement? Or if you – or is that kind of on the upper end, where if you continued there, you might want to front-load some of the technology expenses, you feel like you'd have more ability to do that?

René Jones

Well, two things. Remember, what you're seeing in this quarter is the work from last year, and that has a lot to do with – we talked about a lot of professional services that were in place that came down over the course of the year. We've only begun to really ramp up our technology spend.

So to give you some sense, our technology spend this quarter was about $20 million higher than it was a year ago in the first quarter. And my sense is that, that will continue to ramp up to the third and fourth quarters before it hits the run rate level. And that's why when we get the additional savings from the Hudson City, that should dampen that somewhat, and so you won't really see a big change, is my guess, overall.

David Eads

Okay. That makes sense. And it is a good baseline to go from. All right, well, thanks for taking the question.

René Jones

Sure.

Operator

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

Matthew O’Connor

Hi, René.

René Jones

Hi, Matt.

Matthew O’Connor

Can you remind us the money market waivers within the trust fees, how much they were in the fourth quarter? I assume you got some improvement there this quarter. And then how much is left if short-term rates go up further?

René Jones

Well, I think – I'm going to answer your first question in a minute, but I think, yeah, you're right. The full impact is in the quarter unless we were to see another rate increase. And I'm just not – I don't have the amount off the top of my head.

Donald MacLeod

We got back to the proverbial couple of million. The waivers we've previously disclosed would be just less that.

René Jones

$6 million to $12 million a year?

Donald MacLeod

No, it's more like $30-ish million.

René Jones

I'm sorry.

Donald MacLeod

Run rate.

René Jones

So $6 million in the quarter?

Donald MacLeod

I don't think we got that much.

René Jones

Somewhere around there should be the full effect of a quarter. It'd be about, I think, it's about $6 million, but I'm just doing that off the top of my head.

Donald MacLeod

But just to expand on that a little bit, the guys are a little worried about our ability to fully recoup all the waivers given the fundamental changes that are happening in the money market industry. For example, the migration of settlement accounts from prime funds into government funds, and how will corporate customers take the redemption restrictions on prime funds and will they choose to go to other alternatives.

René Jones

Yeah. Then I think, our view on that is that, we'd be more conservative, so less income in the near-term, but over time maybe more later, but not this year.

Matthew O’Connor

And I guess, just more broadly speaking, I mean, I feel like there had been some changes in the trust business, maybe back-half of last year. I mean, how are you thinking about outside of market movement impacting that line? How are you thinking about the business, and is there expense rightsizing you need to do, maybe for example for things like not getting the money market fee waivers back over time or just kind of more broadly how do you think about the business?

René Jones

Yeah, thanks for that, I'm glad you started that way, because we've spent, I don't know a good 18 months at essentially getting rid of parts of the business that we didn't really think we had a strategic focus on. And so, you saw that year-over-year with the retirement business – a portion of retirement business that we got rid of.

We've also gotten rid of a number of affiliated managers or those balances have run down. So I think, you're starting to get to sort of the core of what we would keep going forward. And underneath, things are going very, very well both in the Global Capital Markets portion of the Institutional Client Service business, and as well as in the Wealth side, and my sense is that, that still has an underlying growth of 4% or 5% in the revenue space, but more importantly it's a heavy-expense business.

And so, what we've been focused on, and I believe we're starting to make really good traction on is sort of streamlining the back office, which comes in a couple of forms, right, it's sort of – now that we've got all of our controls in place, we're beginning to change our statementing process, we're beginning to change our on-boarding process, which has an impact of freeing up expenses, but it also improves the service quality.

And so, I think we'll be at that for at least another year or so. And it should, from a bottom line perspective continue to grow. Bottom line, both of those businesses have grown every year since we brought them on board. So we're pretty pleased with where they're going.

Matthew O’Connor

Kind of just lastly, I'll stick on this topic here, I mean, holding the markets constant, do you think you can grow revenues in this segment? And then on the expense side, how much costs actually do come out as you streamline the back-office you were just talking about?

René Jones

Yeah. No, I do think that – I'm absolutely positive that we can continue to grow revenues in this space. Remember, one of the things, I guess, I would share with you is, think about this, in many places, we're getting paid in balances, right? So be careful, just looking at that trust line, because in the Global Capital Markets business, we're making a choice, either as we sign up new business sometimes we're getting paid in fees, sometimes we're getting paid in balances.

And so, it's hard for you to see that total picture. And I would look, Matt, at – don't look for an expense number, because we're investing in that business. And so, I would say widening margins is really what we're focused on. And so, you might not see an expense decline somewhere in there, but you should expect to see the whole business grow in the margins, and the bottom line widen.

Matthew O’Connor

Okay. If I may make a suggestion, more detail on that business overall might be helpful. Because I just feel like it's been in a decline from a revenue point of view as you've been kind of changing the mix, and it may be helpful to show broader business, how it's performing longer-term, if you want to consider?

René Jones

We'll think about it. Thank you.

Matthew O’Connor

Thank you.

Operator

Your next question comes from the line of Marty Mosby of Vining Sparks.

Marty Mosby

Good morning, René and Don. I wanted to ask you one quick one, restructure charges, are we getting towards the end of that with integration of Hudson City or do we have a couple more quarters to go there?

René Jones

I think we're thinking maybe $10 million, maybe $14 million somewhere in there, more, most of which should be next quarter.

Marty Mosby

And then with the transition of Mortgage Banking from Hudson City coming on board, are you kind of seeing now, it's kind of shifting out in a sense of what's going to go on the balance sheet and portfolio, and what really is going to be securitized and just on origination capacity?

René Jones

Yeah, I mean, the large majority of what we produce there, I think you'll get a better up and running view maybe next quarter and the quarter after what that volume looks like, but all of that is, the majority is going to be sold, and where it's not, and what it's done for our balance sheet, it will be specifically either retaining certain target customers that are with us already and balances, maybe because they happen to own a business or have a profile that we would like to see if we could bank them. But I think that will be harder to see as a segment. I would tend to focus on that government-related type business we're putting into the securitization market.

Marty Mosby

And then when you talked about the servicing income being down, was that the $5 million from the commercial side or was there any write-downs in servicing income related to the drop in long-term rates towards the end of the quarter?

René Jones

No write-downs, and if I use the word servicing, I might have misspoke. It's commercial mortgage origination income that was – in fact that was down.

Marty Mosby

Yeah, that's what's you had highlighted, just in the press release there was something about servicing income, so that helps. Thanks.

Donald MacLeod

A little bit of the pressure on the commercial side was servicing, but more of it was lower origination.

Marty Mosby

Okay, thanks.

Operator

Your next question comes from the line of Matt Burnell of Wells Fargo Securities.

René Jones

Good morning.

Matthew Burnell

Good morning, guys. Thanks for taking my question. Just – René, maybe a question for you related to deposit pricing, it looks like that was held pretty stable despite Fed's action in December. And you gave us some good information in terms of the loan growth by market. I guess, I'm curious if you're seeing any deposit pricing competition, and I guess, I'm specifically focusing on Upstate New York, given some of the upheaval in that market that's been announced over the last few months?

René Jones

No. No, not yet. Not seeing anything in any emerging yet. We're all seeing a little bit more on the advertising front, and those types of things, but nothing that really has affected our book at this point in time, but it's early.

Matthew Burnell

Okay, fair enough. And then just as a second question, you mentioned it would take a little bit of time to train the Hudson City team to be more of a true commercial bank; how long do you think that, that will take?

René Jones

Well, look, the folks are fantastic, as are ours. And so, I think the pure training will be done over the course of this summer, I think we'll be well on our way. The thing that takes a long time is converting a thrift platform into a commercial bank, and quite frankly, it may be a better description that you actually are creating a commercial bank while you are rightsizing a thrift; that's probably a better way to think about it. We've done it before, we did it in Syracuse, it just takes time.

But on an incremental basis, I hear a lot of folks are writing about, well maybe M&T's balance sheet won't grow that fast, but the growth is never how we think about it. We think about transforming the quality of that book. And so, if we can make New Jersey look more like a full-service commercial bank with also retail capabilities, each year or so you will see a difference, and it will improve the overall profitability profile. So it just takes time.

Matthew Burnell

And then, just finally, René, you've got a reserve to loans ratio at 110 basis points, it's obviously down year-over-year due to Hudson City. But you did build the reserve a little bit this quarter, I guess, I'm curious how you're thinking about that trend over the course of 2016?

René Jones

Similar to what you saw from the fourth to the first. And then if I broaden your questions over time, I would expect that to migrate back up as, again, similarly, as we end up with a book that looks more like a commercial book, and not a residential mortgages which tend to have a fairly low loss rate, I would guess, that the history of the Hudson City charge-off, annualized charge-offs are less than 25 basis points, 15 basis points to 25 basis points, right? So that's what's dampening that. And as that book runs down, you will see the allowance to loan ratio move up.

Matthew Burnell

Okay. Thanks, René, I appreciate your color.

René Jones

Sure.

Operator

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

René Jones

Hi, Ken.

Ken Usdin

Hey, thanks. Hey, good morning, guys. Hey, René, just on that last point, so now that we've gotten to see a full quarter of Hudson City, is there kind of, run-down in the mortgage book and that migration towards the faster commercial growth? Is this about the pace that we should kind of see that run-down and remix that looked like the mortgage was down $1 billion, sequentially?

René Jones

Yeah, I think the short answer is, the random walk answer is, yes, all right. The longer answer as you think towards the end of the year is to think about what mix do we want to have of run-off in the mortgage book and the time book. And right now, they're mismatched, right. One is running-off, the assets are running-off at about $300 million a month, whereas the time is being held up, both of those might normalize a little bit so that they're moving in sync is the way to think about it. And that will help us with any pressure on the margin. And then we'll have to think about how long we deal with that, right because those two trades are very low-margin trades.

Ken Usdin

Yeah. And in that regard do you have an idea yet of how big you want the mortgage book to be as a percentage of either your loan book or your earning asset mix? I'm sure that's got a securities component to it as well, right, just from a total rate trade perspective?

René Jones

So, in the near-term, all we're going to do, we'll sit around the table and we'll look at statistics. Are we able to convert folks? What's the offer that we have? Are they bringing over checking accounts, right? And we'll go through that whole thing.

But really if you think about it in a simple way, go way out, you've got 130 branches, you know deposits per branch that you think would be healthy in our markets in Upstate New York, $50 million would be big, and sometimes in a place like Jersey or New York, $100 million would be more like, in fact it sort of takes some average in there, you can actually see that you're building a $10 billion bank in that space, right, over a long period of time. And if we view it as looking like a typical M&T footprint, you kind of get there, but over a long period of time, right?

Ken Usdin

Right. Okay. And then last, just quick one, you mentioned that you're on track as far as the conversions. Do have a sense of when you'll get to kind of your run rate savings on that conversions front, what quarter we kind of get there in terms of the cost saves?

René Jones

Yeah. So Hudson, right?

Ken Usdin

Yes.

René Jones

So this is the way we're thinking about it. So prior to our acquisition, their annualized expenses were about $280 million a year. We think, if we look at the first quarter, and you were to annualize those expenses, it would be about $230 million. So there's $50 million of savings that have taken place.

We think that, as we get to the end of the year, maybe that's $190 million, $200 million, all right; somewhere in that range. And then it stays there until we build the bank and grow the bank, all right. So it will take some time, but again, I don't know that you'll see those remaining things, because we expect an uptick to be offset by the things that we're trying to do on the technology side.

Ken Usdin

Right, the other investments. Okay. Got it. Thanks a lot, René.

René Jones

Sure.

Operator

Your next question comes from the line of Gerard Cassidy of RBC.

René Jones

Hi, Gerard.

Gerard Cassidy

Hi, René. Can you give us some color on the automobile lending business, clearly you've been in the business for quite some time and we've been reading different stories about the subprime aspects of it, having some distress, particularly in the Southwest. How are you guys looking at the automobile lending business?

René Jones

Well, we haven't changed much. Our volume that we've been doing in that business has been running, oh, I think, we're doing something like $130 million a month of volume. In the low point of that business when we were kind of shying away because there were uncertainties maybe five years ago, it would be something like $80 million or $90 million and then in the high point we maybe, we're doing $200 million when that business was really robust.

You keep in mind that we sort of stay in the prime space, all right. So for example, this quarter we averaged 729, our average score, which is pretty consistent, if you go back over four quarters or five quarter, it's all around 725 or so, is our average.

So with that said, we are seeing growth or opportunity because of this record year, but pricing is really, really competitive, and so that's what's kept us in that $130 million a month, because that's what's sort of hitting our standards. Within that, most of that volume we're trying to direct towards the dealers that we also supply them, we finance their floor plan loan. So it's trying to run it more and more like a relationship business.

The one thing that you're seeing, which we're in lockstep with, although in a better credit profile is that, delinquencies are moving, it's the one portfolio where you see an increase in delinquencies. And to give you some sense, these are rough numbers, but if we were at December of 2014, I think 30 days plus was 1.97%, and this quarter at the end of the quarter it was 2.32% or 2.36%, all right? So similar migration that we're seeing, and what I think is interesting about it is, you don't see it anywhere else in any other portfolio, which is the same nationally.

Gerard Cassidy

And what's your view on what's going on with the Dealer Reserves with the Consumer Financial Protection Bureau? Will you guys move to a flat fee as a few banks have done? Or what's your view on that?

René Jones

We'll watch. We'll watch what happens with the industry. I think from the intelligence that I have, people that have taken that move have seen an immediate decrease in business.

Gerard Cassidy

Correct.

René Jones

But having said that, a number of folks have told me that subsequently over time that's rebounded as the customer base gets used to it, and they get a slightly different makeup of the customer base, but a rebound. So, we'll watch that over time, but no decisions to change anything that we're doing right now.

Gerard Cassidy

Okay. And then you touched on the integration of Hudson City obviously being a thrift, you've kind of experienced with doing these types of integrations. Was there any benefit from all the money you had spent over the years in upgrading your internal systems? Was this integration easier than what you've done in the past? Or did it go smoother because of the money you had spent?

René Jones

Well, okay, so two things. I'll answer that two ways. The reason it went smoothly is because Hudson City was relatively uncomplicated. We had a lot of time to think about it, right, and a lot of time to watch the portfolio, so our team is – I shouldn't say it but I'll say it, our team is really good. They've done a really good job over the years at these integrations. And so the lack of complexity was what made this go so smoothly, I think.

Having said that, we did have a much more robust approach, sort of, beyond the due diligence to looking at the integration area by area and monitoring the potential areas for risk and closing them down. So for example, as we went into the conversion, specifically, focused on exactly 70 different places where risk could exist and where that risk would exist between the date we acquired it, the portfolio, and the date we integrated it. And then we were able to go through and close all of those down by the time we got to sitting here today.

So, I think one of the shifts is that because of the way the process works now, the idea of anybody doing simultaneous merger conversions is long gone. We are sad about that from the standpoint that it limits your risk, so you need a much more robust process now, if you're going to own the institution and not convert it right away. And that was something that we added this time, which I think went very, very smoothly.

Gerard Cassidy

Thank you. And then recognizing you have a dominant market share in Buffalo, can you give us any color on any customer migration that you're seeing from the transaction between First Niagara and Key?

René Jones

It's early, but we have a lot of positive signals. As you know, we've been in the market for a long time. We live here. So our view is that we should see positive migration of customers. It'll just take a little bit of time to do that. And obviously, that transaction hasn't sort of been completed and there's no conversion going on now. But our sense is it's early but there's nothing in the indications that we see that don't suggest that we won't fare well in the disruption.

Gerard Cassidy

Thank you. And finally, can you give us any update on your written agreement regarding BSA/AML? When you might think that would be listed?

René Jones

Yeah, I don't know. We haven't been focused on it. We've been focused on our work. And I think from a BSA/AML perspective, we're really, really pleased, as I said last quarter, with everything that we've done. We think we've got a great process and we also think that we've got a much more broader and a more robust process overall beyond BSA/AML. So we'll keep doing what we do and there's nothing in front of us. We're focused on Hudson City now and that'll just happen when it happens. But nothing to point to. Nothing good or bad. No news really there.

Gerard Cassidy

Okay. Appreciate it. Thank you.

René Jones

Sure.

Operator

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

Steven Alexopoulos

Hey, René. Good morning.

René Jones

Good morning.

Steven Alexopoulos

I just actually had two follow-ups. In regards to Ken Usdin's earlier question on the resi mortgage run-off, was there anything unusual this quarter in terms of the $970 million period-end decline?

René Jones

No. I mean, that is like as steady as it goes.

Steven Alexopoulos

Okay. Okay. That's helpful. And then, I just wanted to follow up on the comments about the additional investment in technology. I would think the need to invest in the front office is fairly broad at this point, particularly as you convert Hudson City into a commercial bank. Is this a year that you guys really step up broad investment? Do you just basically manage that through the efficiency ratio, where you have opportunities, you'll reinvest? But can you talk about the front office investment need this year? Thanks.

René Jones

Let me just ask a question first, when you say front office investment, do you mean people, or do you mean...

Steven Alexopoulos

Yeah. I would think if you're going to build out a commercial side of Hudson City, you need to bring bankers in over there, for example.

René Jones

Yeah, and that has been happening, and it's all embedded into what we've got in our operating plans for this year. So that's incorporated in the numbers I'm talking about. It's another place where the – it's some – the Hudson City expense savings I'm talking about are net. And so we have made a lot of progress. We've had quite a few pick-up in hiring business and middle-market lenders. We've hired a few business bankers, and we have more to go through the course of the year.

I think one of the things that we're thinking about in terms of – we know that we're bringing on increased head count in those areas of discipline. And while we're recruiting from the outside, we're also very focused on the idea that if there's an M&T person that wants to be in New Jersey, that benefits us very well because they're bringing all of our experience there. So we're also looking at a – in addition to adding people, we're looking at migrating people there.

Steven Alexopoulos

Okay. So essentially what you're saying is the investment needed in Hudson City, we're seeing in the numbers today?

René Jones

Yeah, you're seeing it in the numbers today.

Steven Alexopoulos

Yeah. Okay.

René Jones

And I think we'll be in good stead by the end of the year to look – the staffing complement will be finished by the end of the year.

Steven Alexopoulos

Okay. Okay. That's what I had. Thanks.

Operator

Your next question comes from the line of Matthew Kelley of Piper Jaffray.

Matthew Kelley

Yeah. Hi. Just staying on the Hudson City cost saves, I believe, when you announced the transaction, Hudson was running at about $222 million of operating expenses and 24% with the savings bogie, so $53 million in dollar terms. Maybe if you could just give us an update on how much of that has already been extracted relative to that number. And correct me if those were inaccurate numbers in the dollar terms of the cost saves.

René Jones

I don't have that in front of me, but I think the difference between – look, logically the difference between our two numbers is maybe FDIC expense or something, but I was about $280 million is what we had all-in where they were running. No, I mean, I'm trying to think is there a specific area where it's greater? No. No, I think we were just able to realize a little bit more expense saves than we thought. So we're above the $53 million. I'm trying to think it's not in any one category.

Matthew Kelley

Got you. Okay. And then on the deposit costs, your average CD costs during the quarter was 75 basis points. There's a lot of institutions that are in need of funding in New Jersey, Metro New York City, high loan-to-deposit ratios. Where are you, right now, in terms of rollover rates for existing Hudson City customers on typical CD terms, one year to three years?

René Jones

I don't want to quote the exact rate, but we're very competitive. We're up at the – up there, over 1%, I think, on some of those. And those are both in renewal and in looking at places where someone might bring on a checking account.

Donald MacLeod

I believe a lot of that book is in the under the year category as well. There's not a lot of longer-dated stuff there.

René Jones

Yeah.

Matthew Kelley

Got it. Got it. And then what should we be using for an effective tax rate going forward?

René Jones

This is a pretty good quarter, I think, Mike?

Michael Spychala

Yeah, I would say we're spot on in this quarter. It varies each quarter as the amount of pre-tax income changes. There's a lot of the permanent differences that are steady and it's up this quarter because there were [indiscernible].

Matthew Kelley

Okay. Just over 36%?

René Jones

Yeah. Yeah. So this is a good quarter.

Matthew Kelley

Got it. And then just one last one, on your commercial real estate yield of 4.16%, up 5 basis points versus year-end, what categories are you seeing that the new production anywhere near those types of four-plus handles on commercial real estate yields? And maybe just talk about origination yields versus that number.

René Jones

I don't think in terms of yields. I always think in terms – I see the yield increase you're talking about, but I think mostly in terms of spreads. And one of the things that you'll get is sometimes there's some lumpiness in the prepayment penalties would also go into that space. But while I think pricing was solid this quarter, it's not significant enough on new loans to be moving that yield.

Matthew Kelley

All right. Were prepaids particularly high this quarter?

Donald MacLeod

They were – they're not higher than last quarter.

Matthew Kelley

Okay. All right. Thank you.

Operator

Your next question comes from the line of Jill Shea of Credit Suisse.

Jill Shea

Good morning. Just in terms of capital return, given your strong capital positioning, can you just talk about how do you think about total payout and your appetite for share buyback, realizing that out quarters are contingent on the CCAR results, but can you talk about how you think about total capital return and payout over time?

René Jones

Yeah. I think I talked a little bit about this maybe in January but we've been on an evolution. That evolution is, this will be our third CCAR and we were at a CapPR before that. In the last two CCARs, we were at about 9.10% in our Tier 1 common ratio and then maybe 9.70% and we fared pretty well. But at that time, we weren't thinking about distributing any capital because we were in a space where we still had a transaction to do. And so just out of that normal principle, we wouldn't be doing that because there's some risk when you enter a transaction, if maybe a recession happens, when you're doing it, or there are some operational issues.

So because that took so long, it allowed us to build up that capital over time. Also, think about the idea that when we first announced the deal, we had about $28 billion in mortgages and that's now down to $17 billion, right? So we have all the capital that we expected to have but the book has run down over that period of time, also as we expected. So, over time, we thought it, no, we've got to distribute that capital back to the shareholders or to put it to a decent use and that's sort of our task and what we're trying to do. We've today been lower than everybody in the total payout ratios, probably half of what the industry has been. And I think I've said our intention would be to normalize that.

And over long periods of time, because we run a model that's not based on growth but it's based on profitability, I think we will always be having a lot of excess capital relative to the average in the industry. And we'll try to do the right thing. We've got a good history so far. But I think one of the things that you won't see us doing is necessarily buying a bank just because we have excess capital. We think that might be the fastest way to destroy value depending on what the pricing is. We'll be cautious and try to get it back to you.

Jill Shea

Very helpful. Thanks.

Operator

Your next question comes from the line of Peter Winter of Sterne, Agee.

Peter Winter

Good morning.

René Jones

Hi, Peter.

Peter Winter

Quick question. Consumer loan growth, it moderated this quarter. I'm just wondering was that seasonality or was it something else that caused that?

René Jones

Home equity loans, I think, were down and they're down and utilization has been low. I only imagine that that's sort of the natural offset with rates being low and mortgage volume picking up. But it's been pretty steady. You're talking about loan balances, right?

Peter Winter

Yes.

René Jones

Yeah. That's what it was. It was the continued low utilization on home equity.

Peter Winter

Okay. And then I'm just wondering, do you have what the impact could be with regards to the trust, wealth management business with this fiduciary rule?

René Jones

We're going through it. It's nice to have a little bit more time. We think on some level over a longer period of time it fits us very well because of who Wilmington Trust is. But at this point in time, I actually do not see any profitability impact. It's just how we migrate to the right space. And for us, I don't know that we're all that far from where we need to be in principle today. So my sense is we'll work our way through it, but I don't see any negatives and, quite frankly. Longer term, maybe there's a positive for us.

Peter Winter

Got it. Thanks very much.

Operator

Your next question comes from the line of Geoffrey Elliott of Autonomous Research.

Geoffrey Elliott

Hello there. Thank you for squeezing me in. You kind of piqued my interest when you mentioned that wider, high-yield spread and CMBS spreads were given you an opportunity to lend more during the first quarter, because, back on the last call, you talked about those as an early indicator that you look at on the credit front of things potentially deteriorating. So I guess, I'm curious do you think that this cycle is different? Or are they both an indicator and the reason that it makes sense to lend more?

René Jones

I guess the way I see it is we've got a pretty granular discipline process. So if I provide more color, I would say the feedback I'm getting from the commercial bankers is that on larger or more complex transaction is where you were able to see slight move in pricing. I think that does tell you a lot, because I think the capital markets along with life companies have been providing the extra competition that have pushed pricing down. And so when you see a hiccup in that space, like you saw on the CMBS markets and like you saw with the wider spread, it's interesting to me that you can feel it pretty quickly. I don't think that's necessarily a positive thing. I think it tells you how sensitive the market can be to the mood swings of those capital markets.

Having said that, at the same time, I think, what's interesting, Geoffrey, is that competition didn't change an ounce with the smaller institutions. They are working on their balance sheets, they are not necessarily looking at the capital markets and competition on that front remains pretty intense when it came to smaller institutions.

Geoffrey Elliott

Great. Thank you

Operator

Your next question comes from the line of Bill Carcache of Nomura.

Bill Carcache

Thanks. I just had one quick one, René, on the GAAP and operating EPS differential. So we have been seeing a convergence between the two up until the last couple of quarters, obviously with Hudson City and its – the merger related expense line item where we've seen some of the disconnect, and I was hoping you could give a sense for what that looks like going forward? You mentioned earlier $10 million to $14 million in restructuring charges next quarter and that's it? Is that in that merger related expense line item? Any color around that would be helpful.

René Jones

Yeah. No, you've got it. You got it exactly. We would expect that – we don't expect to see much if anything in the second half of the year, so that should normalize again, with the exception that maybe from a year ago we might have slightly higher amortization on the [indiscernible].

Bill Carcache

Perfect. That makes sense. My other questions have been answered. Thank you.

René Jones

Thank you.

Operator

Your final question comes from the line of Frank Schiraldi of Sandler O'Neill.

René Jones

Hi, Frank. You are allowing me to say good afternoon.

Frank Schiraldi

Good morning or good afternoon, that's right. Oh, man, I've to change my script here. Just two quick real ones, if I could. First on the NIM, setting aside where you ended up in the quarter in lieu of further rate hikes, and no rate hikes through the rest of 2016, directionally from here, is it reasonable to assume a few basis points of core compression a quarter in this environment is that still reasonable?

René Jones

I think that, in that scenario you painted, that's exactly right and I think all of that compression would be coming from the time account book at Hudson City and depending on what we do. So if we changed course, because we thought it wasn't beneficial to us, we weren't capturing customers from that profile, we could just change it and then I think it would go back to flat.

Frank Schiraldi

Okay. Okay. Great. And then just one on repurchases, you went through the reasoning for, I think it's $54 million in the additional share buyback. And I realize it'll be a small incremental number and, I don't know, maybe the process is different, but if you had to go get the non-objection from regulators, what is the thinking about not seeking or asking for the full additional 1% of Tier 1 capital, which seems like could've been on the table?

René Jones

It sounds funny, but we just simply followed our process. We had asked for a certain amount of distributions in the plan. We think it makes sense to follow that process. And then we sort of, as we started looking at post the deal, we realized that, well, we haven't distributed all the dividends. And so, one, on its face, we should probably go back and add, and then it just so happened that that also fits within the context of the 1% rule as well. I think our number would've been something like – total number would've been $92 million, $93 million, $94 million, but I don't know. It just seemed like we were focused on distributing the same capital that we asked to distribute and we kept it at that. Obviously, the 1% rule if you needed it down the road would be bigger now because our capital base in the test is bigger. But having said that, from our view, we should just be focused on trying to do – figure out what the right thing to do is based on the test, project that and stick to it is how I would think about it.

Frank Schiraldi

Okay. All right. Thank you, guys, for taking the questions.

Operator

Thank you. I'll now return the call to Don MacLeod for any additional or closing remarks.

Donald MacLeod

Again, thank you all for participating today. And as always, any clarifications 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. Thank you and goodbye.

Operator

Thank you for participating in the M&T Bank first quarter 2016 Earnings Conference Call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!