Oct 19, 2015
Operator
Good morning and welcome to M&T Bank’s Third Quarter 2015 Earnings Conference Call. At this time all participant lines have been placed in a listen only mode.
After the speakers’ remarks, we will open the floor for questions. [Operator Instructions] Thank you.
It is now my pleasure to turn the call over to Don MacLeod, Director of Investor Relations, please go ahead.
Don MacLeod
Thank you, Maria and good morning. I’d like to thank everyone for participating in M&T’s third quarter 2015 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 Jones
Thank you Don and good morning everyone. Thank you for joining us on the call this morning.
As I’m sure you noticed in this morning’s press release, earnings were a bit soft relative to this year’s second quarter as origination activity slowed in both our residential and commercial mortgage banking operations. In addition, credit costs were slightly higher coming off unusually low second quarter levels.
That said, growth in net interest income and certain other revenue categories combined with well-controlled operating expenses which enabled us to maintain solid efficiency ratio, slightly improved from both last quarter and last year’s third quarter. As I’m sure all of you are aware, our application to acquire Hudson City Bancorp was approved by the Federal Reserve on September 30th and by -- and subsequently by other regulators, and is set to close on November 1st.
We’ll start out this morning by reviewing a few of the highlights from the recent quarter’s results, after which we’ll give you an update on our outlook for the merger and its benefits to M&T; then Don and I will be happy to take your questions. Turning to the results, diluted GAAP earnings per common share were $1.93 for the third quarter of 2015 compared with $1.98 in the second quarter and up from $1.91 in the third quarter of 2014.
Net income for the quarter was $280 million compared with $287 million in the linked quarter and $275 million in the year ago quarter. Recall that in this year’s second quarter in connection with the divestiture of Wilmington Trust’s trade processing business we recorded a pretax gain of $45 million while operating expenses included $40 million in contributions to the M&T charitable foundation.
Taken together, the two items reduced net income by about $1 million or $0.01 per common share. Since 1998, M&T has consistently provided supplemental reporting of its results on a net operating or tangible basis from which we exclude the after-tax effect of amortization of intangible assets as well as expenses and gains associated with mergers and acquisitions.
After-tax expense from the amortization of intangible assets was $3 million or $0.02 per common share in the recent quarter compared with $4 million and $0.03 per common share in the second quarter. M&T’s net operating income for the third quarter which excludes intangible amortization was $283 million compared with $290 million in the linked quarter and $280 million in last year’s third quarter.
Diluted net operating earnings per common share were $1.95 for the recent quarter compared with $2.01 in the previous quarter and up one penny from the year ago quarter. Net operating income yielded annualized rates of return on average tangible assets and average tangible common shareholders’ equity of 1.18% and 12.98% for the recent quarter, the comparable returns were 1.24% and 13.76% in the second quarter of 2015.
In accordance with SEC guidelines, this morning’s press release contains a tabular reconciliation of GAAP non-GAAP results including tangible assets and equity. Looking to the balance sheet and the income statement, taxable equivalent net interest income was $699 million for the third quarter of 2015, representing a 4% increase from last year’s third quarter and up $10 million or an annualized 6% from the linked quarter.
The net interest margin was 3.14% during the quarter, down three basis points from 3.17% in the second quarter. Drivers of the change in margin were as follows: Higher levels of trust deposits placed with the Fed diluted the margin by about 2 basis points but had an immaterial impact on the dollar amount of net interest income.
Offsetting that were higher levels of prepayment fees and cash interest received on non-accrual loans which boosted the margin by about 2 basis points. And that implies the majority of the 3 basis-point overall margin decline was attributable to core factors such as loan and deposit pricing.
Average loans increased by $179 million or about 1% annualized compared with the second quarter. The quarter’s results were characterized by high levels of prepayment in addition to the usual slowdown in loans to auto dealers to finance their floor plan inventory.
Looking at each of the portfolio categories on n average basis compared to the link quarter, commercial and industrial loans decreased in annualized 1%; excluding floor plan loans, C&I loans actually grew at a 3% annualized base. Commercial real estate loans increased by about 1% annualized.
Residential mortgage loans declined $98 million on annualized 5%. We have chosen not to replace runoff in this portfolio in advance of the Hudson City merger as its portfolio is almost entirely comprised of residential mortgages.
Consumer loans grew an annualized 8%, reflecting good growth in indirect auto and recreation finance loans. We were pleased to see that the mid-Atlantic was our strongest region for loan growth during the past quarter, averaging about 6% annualized growth while our Metro region which includes New Jersey, averaged 3% growth.
Average core consumer deposits which excludes deposits received at M&T’s Cayman Island office and CDs over 250,000, increased an annualized 4% from the second quarter, primarily due to the higher levels of trust deposits I referenced earlier. Average investment securities increased $246 million or 1.7% compared with the second quarter.
We are currently in compliance with the liquidity coverage ratio requirement that comes into effect in early -- at the beginning of 2016. Turning to non-interest income, non-interest income or fee income totaled $440 million in the third quarter.
The comparable figure in the linked quarter was $497 million which included the $45 million gain on the trade processing sale, I mentioned earlier. Mortgage banking revenues were $84 million in the third quarter compared with $103 million in the prior quarter.
Residential mortgage banking revenues declined by $8 million; about half relating to lower gains on sale which came as a result of a 13% decline in mortgage loans originated for sale while the other half came from softer residential servicing revenues. Commercial mortgage banking revenues were down $10 million from the prior quarter as purchases of multifamily commercial mortgages by the GSEs slowed from the first half of the year as they managed to the annual caps imposed by their regulator.
Service charges on deposit accounts increased to $107 million, up from $105 million in the second quarter. The increase was balanced between consumer and commercial.
Trust income was $114 million in the recent quarter compared with $119 million in the previous quarter. The second quarter figure included $3 million of seasonal tax preparation fees; the remainder of the decline is largely attributable to lower market values of managed assets due to the recent stock market decline.
We note that after adjusting for the impact of the trade processing sale, both the gain and the divested revenues total non-interest revenue was up 2% through the first three quarters of 2015 compared with the same period last year. Turning to expenses, expenses continue to be well-controlled.
Operating expenses for the third quarter which exclude expenses from the amortization of tangible assets were $650 million, down from $691 million in the linked quarter which of course included the $40 million donation to the M&T Charitable Foundation. On a year-over-year basis, operating expenses declined $8 million or 1%.
Sharply lower professional service costs were partially offset by higher employee benefit expenses. As a result, the efficiency ratio which excludes intangible amortization was 57.1% for the third quarter, improved from 58.2% in the second quarter and 58.4% in the year ago quarter.
Next, let’s turn to credit. Non-accrual loans were $787 million or 1.15% of total loans at the end of the third quarter, a $10 million or 2 basis-point decline from the end of the second quarter.
Net charge-offs for the third quarter were $40 million compared with $21 million in the second quarter. Annualized net charge-offs as a percentage of loans were 24 basis points for the period compared with an unusually low 13 basis points in the previous quarter.
Looking back over the past two years, our trend in credit losses has been fairly consistent. Annualized net charge-offs were 19 basis points of total loans for the first three quarters of 2015, unchanged from the first three quarters of 2014.
The provision for credit losses was $44 million in the second quarter, exceeding net charge-offs by $4 million. That excess provision brought the allowance for credit losses to $934 million at the end of September and reflects our assessment of a loss content in the loan portfolio.
The ratio of allowance to loans was 1.36%, unchanged from the prior quarter. The loan loss allowance as September 30th was seven times 2015’s annualized year-to-date net charge-offs.
Finally, loans 90 days past due on which we continue to accrue interest, excluding acquired loans that have been marked to fair value at acquisition were $231 million at the end of the recent quarter. Of these loans, $194 million or 84% are guaranteed by government related entities.
Turning to capital, our common equity Tier 1 ratio under the transitional Basel III capital rule currently in effect, was an estimated 10.08% at the end of the recent quarter, up from 9.91% at the end of June. Now turning to the outlook, this past quarter was important as it represents our last quarter before the combination of M&T and Hudson City.
We thought it would be helpful to revisit where M&T has been on a standalone basis before we offer our thoughts on the impact from Hudson City. Through the first three quarters, our average loan growth is 4.8%, still running slightly ahead of the 4% projection we gave on the January earnings call, despite a very competitive lending environment.
Our outlook on net interest margin remains unchanged consistent with past comments. The pressure on the core margin from loan and deposit pricing remains in the area of about 3 basis points per quarter.
Net interest income is up 2% through the first three quarters of ‘15 compared with the same period last year. While an increase in short-term rates would more than offset those margin pressures, should that occur; we’ve learned not to hold our breath waiting for such an event.
It’s worth noting that the elevated levels of prepayment fees and interest on non-accrual loans in the past quarter could well return to more normal levels in the fourth quarter. The softness in the mortgage markets especially non-interest income, as noted earlier, adjusting for the trade processing divestures, non-interest revenues were also up 2% over the first three quarters compared to last year’s -- the same period last year.
Taken together, 2% growth in both spread revenues and fee revenues illustrates the slow revenue growth environment in which we’re operating. Regarding expenses, we are pleased with our progress towards improving our efficiency ratio over the course of this year.
We remain focused on optimizing areas of our expense base as a way of funding the additional investments we want to make toward enhancing our technology infrastructure. It remains our goal to demonstrate continued improvement in the efficiency ratio over time.
Credit trends have shown little change. Although the net charge-offs increased this quarter from what was an unsustainably low level in the second quarter, the 19 basis-point charge-off ratio for the year-to-date period has been consistent for some time now and other credit measures are still trending in a positive direction.
In all, the slow revenue growth environment has been challenging for banks, although we’ve tracked relatively well versus our peer group. It’s has been our historical practice in this type of environment to focus on managing expenses to produce modest positive operating leverage, such that the growth in the bottom line is a little bit better than the top line.
So, let’s turn to Hudson City and the impact from the merger. After a long waiting period, we are pleased that based on our estimates, the economics of the transaction are intact.
Our current expectation is that the merger will contribute mid-single-digit accretion to net operating earnings in 2016, slightly lower than our previous estimate. This excludes revenue synergies or changes in business mix that should occur over time.
At the same time, we estimate higher accretion to tangible book value per share and higher accretion to regulatory capital than our previous estimates. Those higher upfront economic benefits reflect the impact of changes in market conditions on the value of Hudson City’s assets and liabilities.
As such a greater portion of the economics of the transaction will be realized upfront in the opening balance sheet in the form of tangible capital. To the extent this capital can be deployed effectively or returned to shareholders, there could be additional positive impact on future earnings per share.
In summary, our key estimates for the transaction are as follows: Mid-single digit accretion in net operating earnings in 2016; immediately accretive to tangible book value per share; immediate accretion to the regulatory capital ratios in the range of 50 to 70 basis points. Our estimated internal rate of return from the transaction is unchanged from our due diligence estimates of approximately 18%.
Underlying those estimates are the following assumptions: We expect to close the transaction on November 1st, but don’t anticipate fully converting Hudson City to M&T systems and back-office until sometime near the end of the first quarter of 2016. We still expect to de-lever the Hudson City balance sheet, but the implementation of the liquidity coverage ratio may require us to retain a modest portion of the securities and borrowings as compared with our original projections.
When that de-leveraging is completed and inclusive of acquisition accounting, we expect Hudson City to add about $19 billion of loans and $24 billion of assets to M&T’s premerger balance sheet. The retention of securities and borrowings in order to neutralize the impact from Hudson City’s balance sheet on our liquidity coverage ratio position will modestly reduce the net interest margin for the consolidated balance sheet below premerger M&T, but will have little impact on net interest income.
Our estimate of merger-related expenses is substantially unchanged from our original projections. When the deal was announced we estimated that we would be able to rationalize approximately 24% of Hudson City’s premerger expense base, net of additions to staff required to build out a commercial banking capabilities within the Hudson City footprint.
Given that we’ve added to our existing presence in New Jersey, we believe we can likely exceed our original estimate. Of course as you are aware, our projections are subject to a number of uncertainties in various assumptions regarding national and regional economic growth, changes in the interest rates and credit spread, political events, and other macroeconomic factors which may differ materially from what actually unfolds in the future.
Now, let’s open up the call to questions before which Maria will briefly review the instructions.
Operator
Thank you. [Operator Instructions] Our first question comes from the line of David Eads of UBS.
David Eads
Maybe starting out kind of what you’ve touched on last about the progress on hiring the commercial lenders in New Jersey in the Hudson City footprint. Can you remind us how -- whether you are kind of already there and basically how quickly you think you can ramp up the loan growth in the Hudson City footprint?
René Jones
So, in total, we have on the ground 122 I believe this last count of folks focused on interfacing with customers. And we have -- our loan book has now grown in the interim time here to about 1.5 billion and is pretty much on track with sort of what our expectation was when we sort of set out to do this.
And the teams are working very well together. So, it’s not just commercial bankers, we’ve got very strong team of wealth professionals from Wilmington Trust.
We have basically mortgage folks; we have the full complement. What will be added to that is our presence in the branches which tends -- obviously is a benefit to commercial but it will be a real benefit to business banking lending.
And so my sense is we’ve got a nice pace of growth there from commercial and commercial real estate -- in the commercial real estate space. It will be nice to get a boost from the business banking side as well.
So, I don’t anticipate any difficulty in building out an M&T bank in New Jersey.
David Eads
And then how should we think about the trajectory for the mortgages on the balance sheet? You guys obviously ran it down decently this quarter and Hudson City has been running theirs down; it seems like 3% to 4% a quarter.
Should we kind of expect those kind of trends to continue or is there anything else we should think about from the mortgage on the balance sheet side?
René Jones
No, I don’t think so. I think the model that Hudson City ran, particularly with the volume and the volume includes use of brokerages is for us will be discontinued, so that will reduce in that balance sheet streaking over time.
And I don’t -- I mean it’s sort of a random walk. So, look at current prepayments fees, look at how the portfolio has been paying down over the last six months and that’s where I would focus my attention.
Operator
Our next question comes from the line of Erika Najarian of Bank of America.
Erika Najarian
My first question is just a little bit of more detail on the standalone guidance that you gave, René. You made a significant amount of -- continued to make significant amount of progress on the expense front for standalone M&T.
And I am wondering as we think about the $200 million in other costs of operations, is that a sustainable number going forward or how much more savings do we think can come out of that line?
René Jones
So, I think at this point in time what we are doing in terms of looking at efficiencies is we’re examining our whole operations and not any one particular line item on the balance sheet. So that could come all the way through the categories from salaries and benefits, all the way through that the other operating expenses that you mentioned.
We maybe a little bit high today in professional services which still amount of -- some measure of work going on in the compliance and responses that we need to complete; little bit around CCAR that we need to complete. But as that goes away, you’ll see that we report into IT.
So as an example, our total IT expense I think from second to the third quarter was up $8 million. You see that total expenses are flat.
That’s essentially what’s been happening. So other expenses have come down but we’ve redeployed that into investment in IT.
That’s the type of thing that I would expect to keep happening. But I think -- I don’t know that I would be solely focused on other operating expenses; I’d be focused on the whole picture.
Erika Najarian
So in that case, is $654 million a good level set of a base that we should think about as we think about standalone M&T from here?
René Jones
I don’t know. In a very-very-very short-term, sure; but in terms of what we’re really trying to do is we’re trying to get a positive spread between revenue growth and expenses.
So, it could go higher depending on what our opportunities are. I think it’s worth, we’ve been looking a little bit back at where we’ve been to kind of come up with our thoughts there.
And Don and Andy and I looked at every quarter going back three years and we looked at our performance on each category relative to our peer group which is 12 institutions. We basically came out on top in terms of revenue growth over that period.
And we came out in terms of PP&R, so revenue minus expense; we came out top quartile. One of the things that’s been noticeably different is we have been continually -- we’ve not taken our down our allowance and you’ve seen that we provided more in our allowance.
And that’s a bit of a different trend than we’ve seen in the performance of peers that they sort of have taken their – right-sized their allowance to some degree. So when we look at it, we kind of think to ourselves, okay, boy, we wish our overall performance over that period was a little bit better in terms of EPS.
But at the end of the day, in terms of the strength of the franchise, we’re doing pretty well on the revenue growth front in a tough environment. So, our goal would be able to keep -- to try to keep doing that and which would mean that maybe we would grow expenses slightly but as long as we grow them slower, it will keep us on our mission.
Erika Najarian
And just one last one on Hudson City, as you mentioned, the accretion to tangible book value and regulatory capital is going to be greater than expected. And you plan to return or thinking about returning that excess back to shareholders.
In your understanding of the CCAR process, is the capital that you are going to accrete from that deal outside of the regular course of M&T business going to be looked at separately by the regulators in CCAR as they think about how much of your earnings that you could payout in 2016?
René Jones
Well, I think the way you need to think about it is prior to an acquisition, your job is to on a pro forma basis bring the two organizations together and try to understand if it still fits the risk profile that you’re comfortable in running an institution. And one of the biggest measures of that is that how does it fare under stressful conditions.
And so we’ve done that formally two times, maybe three or four. So, our sense today is as we look at that, we look at the combined institution.
Having said that, we generate a lot of capital on our own and we’re now sitting with more capital than we had anticipated when we were running those stress tests and were doing that on a portfolio that will continue to run down and be right-sized to the size of the franchise. So said another way, we’re going to generate a lot of excess capital as we move forward.
And I think we just have to present that the right way. And like always we may find opportunities to deploy it; if we don’t, we got to figure out ways to make sure we get that back to the shareholders.
But I think based on our previous tests and kind of how we feel where we’ve been running recently, we think when we complete the deal, we’ll have quite a bit of excess capital.
Operator
Our next question comes from the line of Matt O’Connor of Deutsche Bank.
Matt O’Connor
I want to follow up on the comment that including Hudson City there’d be a modest pressure to the NIM but little impact of it on net interest income dollars. I just want to clarify that because obviously you’re adding $24 billion of assets and I would net of NIM pressure, there’s still actual accretion to net and interest income dollars.
So, maybe I heard that wrong.
René Jones
Thanks Matt for that question; let me clarify. So, when we originally started out, we had said that we bring the two institutions together.
It didn’t really have an effect on our printed net interest margin percentage. And at that time we were de-levering all of the securities.
It seems like the most economical thing to do is to keep in the neighborhood of $2 billion of those securities and hang on to some of the borrowings. And that’s almost like what we’ve been doing over the past two years of adding in those securities to corporate ratios.
So, if you just look at that slightly higher than $2 billion trade, we think that is kind of -- that is neutral to net interest income. And then -- so therefore instead of being neutral when we bring the two institutions together, we’ll be slightly lower in our net interest margin as a combined entity.
That more clear?
Matt O’Connor
Okay, got it. So including all $24 billion of assets, the NIM will be a little bit lower; obviously you pick up a lot of dollars of the interest income then.
René Jones
Yes, exactly.
Matt O’Connor
And then just coming back to the actual accretion, what’s the tangible book value accretion that you estimate now and is that before after marks?
René Jones
Everything we said is after marks; it’s the end result; haven’t really said the number -- think about in the range of 3%. Remember that when we first did the transaction, when you use percentages, the bank was a lot smaller and the capital was smaller, so those dollar numbers are actually larger than what 3% or 4% would have produced three years ago.
Matt O’Connor
And then just lastly, as we think about the earnings accretion and what that gets us in terms of call it combined earnings power of company, show we just take this quarter’s earnings; annualize it; maybe assume some modest growth of that and then mid-single digit accretion; and that’s good the starting point, obviously without any benefit of higher rates or anything like that?
René Jones
I can’t pick for you the quarter to start with but I think you’re thinking about it the right way and that sort of why we talked about where we’ve been trending as a standalone organization. And if we didn’t have Hudson City, we try to tell you the things that we would be doing.
And I mean the operating leverage concept is that you can produce more on the bottom line then you get on you get on your top line but you can’t change the fact that we’re in a low revenue growth environment, all the banks are in that same space. So, I can’t pick your starting point, but just step back a bit, I think that’s how you should -- that’s how I would go about it; that’s how we’re going about it.
Operator
Our next question comes from the line of Brian Klock of Keefe, Bruyette & Woods.
Brian Klock
So, maybe just following up on the M&T standalone guidance discussion, you talked earlier about just the challenging revenue and in that sort of neighborhood so far you’ve seen about 2% revenue growth I guess from NII and from the fee income lines. I guess what’s -- when you think about your projections for standalone M&T into the next 12 months, what kind of operating leverage are you trying to target?
Are you trying target 1% to 2% positive operating leverage or what -- I guess what’s the sort of thought process around if it’s going to be a 2% revenue growth environment, does that you mean you are going be trying to keep expenses flat or how should we think about that?
René Jones
I like the idea that we were able to -- I think we got 1% to 1.5% improvement in efficiency ratio year-over-year and I think that -- let’s think about this way, if you did that every other year, you defiantly have the lowest cost structure in the industry. And that was probably 2% or so.
So, if you can get 1% spread over a long period of time, it gives you a tremendous advantage that might be we shoot for that but as long as we get positive operating leverage -- any positive operating leverage is a good thing.
Brian Klock
I think you’re looking at to how challenging it’s been and obviously the expense you guys have put in BSA/AML is still pretty impressive when I think about the returns you have generated versus your peers. So, I am looking forward to having you guys focus on what you do well and getting those costs down and integrating the deal.
I guess on a follow-up side of this on the Hudson City impact, you mentioned mid-single-digit accretion of ‘16, but it sounds like from the timing of layering in the integration and obviously in some of the LCR stuff that seems to be early in the year, do you think that by the time we get to the back half of ‘16 that we might be maybe upper single digits to accretion as your run rate into ‘17 or how should we think about that?
René Jones
I think there are two things to think about. I think the first one you’ve got which is that we can’t get expense savings until we get through the integration.
So, you’ve got that which I wouldn’t expect to see -- really benefits of that really until the second quarter. And then on the other side of it, this is the real banking work; we’ve got to change the mix.
So, balance sheet there was ballooned with more mortgages than we would have practically carried which means that you’re relatively aggressive in your deposit pricing. And you’re only using time.
But for us as over time we convert that to sort of the full-service commercial type bank, we should be able to get some synergies from bringing on more non-interest bearing deposits and those more sort of core business and consumer deposits. That will take some time but that’s what our job is.
Brian Klock
And then last question, it has been pretty challenging from a commercial growth perspective for the industry this quarter; it’s been seasonally soft. Obviously you’ve pointed out the dealer floor plan which is seasonally soft.
Obviously the fourth quarter for dealer floor plan comes back, I guess what you think about your core sort of middle-market C&I customer and maybe can talk about what you’re seeing in the pipeline and for the fourth quarter?
René Jones
It’s interesting. We gather all the commentary from every single region every quarter we sit down and we chat.
And the as I look at it this quarter, it’s been the quietest ever since. And what I mean by that is it’s not like the competition is abated but when you look spreads particularly in what we call middle-market which is mostly C&I, most of the regions had decent originations and from a roll-on margin perspective, it was not different from the previous quarter; so there wasn’t continued pressure there or increasing pressure.
My sense is that our sales force has done a very, very nice job. And it doesn’t change the competitive environment.
But I can’t imagine that we would see it slowing in any way, shape or form. I mentioned it in the comments that we’re really pleased to see the mid-Atlantic kind of have another quarter growth which seems like those guys on the ground there have really sort of turned it around from where we were a couple of years ago.
So things look pretty good. The one trend that we saw that we’ve been sort of internally talking about which is the long-term trend is we saw a number of payoffs in Western New York and the largest of those were companies being taken out by private equity firms and financed outside of our bank.
So that’s a trend that you step way back in non-bank lending private equity in those spaces had an impact on the industry. And I think that might continue.
Operator
Our next question comes from the line of Bob Ramsey of FBR.
Bob Ramsey
Thinking about loan growth, I know you talked about sort of continued attrition on the resi book. If I look at M&T standalone, you’ve grown loans about $3 billion over the last year.
Hudson City has seen just north of that in loan attrition. Is it fair to think that, on a combined basis, you guys are more or less flat over the next 12 months?
René Jones
I don’t know -- I mean I don’t think you’re thinking about it wrong, but I just think look at the prepayments fees there. I think you’re right; our outlook for the loan growth is not any different than we’ve been running.
And we’ve been running at about 5% loan growth annually. Don and I talked about it before but we’ve been slightly ahead of that.
And I think what’s important is we’ve been doing that with very limited margin compression. So, not just the loan growth, it’s can you do it with rationale rates.
So,. I would guess we are able to stay there.
Bob Ramsey
Shifting gears back to kind of the capital question, you guys really emphasize you’re going to generate a lot of capital going forward and you are starting off in a stronger place in terms of equity accretion than when the deal was announced. How are you thinking now about the potential to use the share repurchase authorization in your 2015 CCAR test now that you’ve got the approval and Hudson City will close pretty quickly here?
René Jones
Process-wise, what it makes us think about Bob is, it’s obviously worth it to continue to invest and focus on our CCAR process because while we’re all used to historically just looking at it from a quantitative perspective, the gate-keeping is all around the qualitative. So, we’ll continue to put heavy emphasis in that area, making sure that we continue to make good progress there and keep up with what the best standards are in the industry.
And then I think we’re well below the payout ratios even with what we submitted and got approved last time. We’re sort of at the low-end ratio with total payout of our peers.
So my sense is that has to get normalized. But even after that, I think given the circumstances that we’ve just talked about, if didn’t think about some other opportunities, capital would continue to grow.
So, we’ve got to think about that strategically. But I would expect that we’ll try to normalize our payout ratios with the rest of the industry.
Bob Ramsey
I guess what I’m saying is given that position, it sounds like you all are inclined to use the $200 million of authorization you’ve got this year?
René Jones
The way you asked that question, we don’t have any different -- we don’t have any different thoughts than when we submitted our plan.
Bob Ramsey
Okay. I guess -- and maybe I don’t remember right, I thought originally when you all had submitted the plan the thought was you want to get Hudson City done first but you did want to have this out there and sort of see how the year progressed and would sort of assess…
René Jones
I see what you’re asking; yes, that’s absolutely true; that’s exactly the same. Getting the integration behind us is sort of a watershed event for us.
So, we’ll get that behind us and then think about how we move forward there. But it’s not different from what I was saying earlier.
Bob Ramsey
Okay. Any thoughts on other bank M&A, now that this deal has finally got an approval?
René Jones
The only thought I have is number one, we’re going to focus on the integration of this deal. We think we’ve got it well under control and that it’s not likely -- it’s likely to go pretty smoothly.
And then on that basis, I guess the thing I would just sort of reiterate is that despite how much capital you have sitting around we don’t do transactions unless they make a lot of economic sense. And so doing them for the sake of doing them doesn’t have much appetite for us.
So, we’ll just have to see what comes up. But our first priority is to sort of finish our risk work and integrate this transaction and a lot of work on the ground in New Jersey.
So we’re happy about that. I guess I would say from what I know today, we’re relatively content with the work we have in front of us.
Bob Ramsey
Last question and I’ll hop out. But just on the FDIC assessment line, can you remind us what the expectation is for the FDIC insurance expense with Hudson City in there both I guess in the fourth quarter and then I think that that rate sort of gets reevaluated; I just can’t remember exactly how it works.
René Jones
I’ve got a lot of blank stares around the table.
Bob Ramsey
Okay. We can circle back up on that offline I guess.
René Jones
Yes, sure.
Operator
Our next question comes from the line of Bill Carcache of Nomura.
Bill Carcache
Can you talk about how far Hudson City is currently from where you think you’ll need to get it, so that you have the kind of branch density that you’ve historically had in your core markets where I guess convenience has been one of the factors that has enabled you to enjoy below market funding costs?
René Jones
It’s a great question. I mean let me start off by saying if you’ve got a publish an investor presentation somewhere in the next 30 days, but when you look at the branch presence that we get with 130 branches which are not all in New Jersey, some complement -- there’s some complement -- we’re in Connecticut for the first time.
We have very-very nice complement on Long Island. So, when you look at what happens on Long Island from the Hudson City branches combined with the M&T branches, I think you get a meaningful change there.
And I’m starting on a smaller end. And then if you actually think about Philadelphia, we were in Philadelphia; then we did Wilmington which gotten more of a presence and we get a few branches in Philadelphia again which helps the density over time.
If I go back 15 years ago, everybody would ask what are you doing in Philadelphia. Over time that changes and that density matters a lot.
New Jersey, I think we’re in a good starting position, I forget it was fourth or fifth deposit share, we like to be in the top two or three. And we think that if you’re in the top two or three, you get meaningful -- make a meaningful difference.
So my sense is we have work to do there over time but just think about it today I think we have in the neighborhood of -- I’m going to get this wrong, 700 branches to 800 branches -- 700, somewhere in that neighborhood. So, adding a 130 is significant.
And so I think it gets us off to a pretty good start. It’ll take some time but we’ll start -- it’ll make a difference especially relative to last year.
Bill Carcache
Switching over to some of the accretion impacts that you ran through earlier, if we set that aside, those immediate impacts and just kind of look forward a little bit longer term, can you talk about what are you most excited about and where you see the greatest opportunity from a P&L perspective?
René Jones
Yes, I don’t know if I can do it from a P&L perspective but what I’m most excited about is the significance -- significantly outsized level of opportunity for small businesses, middle-market companies in New Jersey in terms of density versus our existing footprint. And we’re not coming in sort of thinking about we’ve just bought some branches and we’re going to work out, we’re coming in with a full-service bank.
So, we have the ability to meet the needs of those. And we think we’re differentiated in our approach relative to the existing institutions that serve those markets today.
So it’s not one line item. I think that the way in which we’re going to be able to come in with our product set which is now much broader than it was 15 years ago, my sense is that I’m really, really looking forward to becoming a really a well-known productive member of those communities.
The other thing I’m excited about is we add a lot of employees on the ground in New Jersey. And adding significant amounts of people is really what makes us notable in a community.
It’s not just the guys that are out there making loans, it’s that we begin to have the ability to have people in all kinds of the sort of organizations that improve the quality of life in New Jersey and we try to become part of the fabric. So it’s hard to say it’s going to be across the board but that’s what I’m most excited about, it should be a lot of fun.
Bill Carcache
And switching gears to the fee income line, I wanted to follow up on some of the comments that you made about the softness that was on mortgage banking revenues this quarter. Can you frame for us what kind of run rate for standalone M&T we should be thinking about going forward in -- broadly in the fee income line?
René Jones
Yes. So, I gave you the impacts of the decline, little less than half in retail; half in commercial.
On the retail side, we’ve been moving along -- part of that decline was in our mortgage servicing book; and then short-term you could see that stay at those levels. But we do have, as I mentioned, the appetite and the capacity at some point, should the opportunity arise to do more in that space.
So, when you think longer term, my sense is as long as we remain a strong servicer through with strong policies and performance that we have today that could be a bigger space for us and provide some upside to where we’re running. If you go to the commercial side, a lot of the decline was really caused by the cap.
So, the business is running along, I would suspect that in that business across the industry you saw probably the similar decline. In our case, maybe it was a little bit more and I think we’re at the lower levels that we’ve seen in the long time.
So even despite the cap, my sense is that we could still a little bit of a rebound there as well.
Operator
Our next question comes from the line of Sameer Gokhale of Janney Montgomery Scott.
Sameer Gokhale
I just want to go back your commentary about the 24% in cost saves that you are anticipating. I just wanted to clarify because I think going back to your comments a while back when the deal was announced it looks like a lot of those costs were associated with technology related and similar type costs.
So, should I expect that you realize those in Q4, and then Q1 2016 onwards you have that cost reduction all baked in; is that the way to think about it? Because I think those were related to data processing and service agreements and the like.
So I just want to clarify that.
René Jones
The sort of base elements of what you’re saying are correct, but remember, unlike what we have done in our history, we couldn’t this time do a simultaneous merger conversion. So, we need all that technology.
The bank will run on its existing technology through conversion which doesn’t take place until the first quarter. So post that, when we’re not using those services, those services, post the first quarter will be performed by M&T.
Sameer Gokhale
And then just thinking about the timeframe, obviously it’s been two years now and you’ve finally got the approval to close on the deal. But relative to your initial expectations, I would’ve thought between then and now that there might have been additional areas where you could have maybe realized or thought about more operating efficiencies and the like, so that when you close the deal, you’d probably get more of the benefit in that regard than you might have initially expected.
So, was it just a function of the deal kind of dragging on and the fact that maybe Hudson City couldn’t make the changes it needed to in anticipation of the deal that might result in less cost savings or the same cost savings relative to what you’d have estimated? I was just wondering why there couldn’t be more in savings just given the fact that you’ve had more time to work through operational issues and the like.
René Jones
So, it’s really, really -- it’s a great question. It’s really, really important to understand that in today’s environment until you have approval, you really can’t go anywhere near that other institution, you run totally separately and you don’t have any influence over the management whatsoever.
And that’s not a gray area at all. So, we have not been engaged in any of that type of activity.
I think the other thing is that really where a lot of the -- all of our areas are fantastic, but there are very few places where you get the full force of an M&T like banking experience where you don’t have a lot of branches. So, the idea that we now are bringing on the branches, all those branch employees, I think that actually will give us a lot more opportunities in time to be thinking about that.
And they’re not -- don’t think about it all as in this particular case, as expense reduction; think of it as opportunities to sort of apply broader services to that same set of customers who today are using really basic time accountings. They all have banking account relationships.
They’re not just doing their full-service banking with Hudson.
Sameer Gokhale
And then just a question again just going back to the yields on your C&I loans and I think you referenced also growth in indirect auto. And indirect auto in particular has been an area where people have talked a lot in the prime side about margin compression, yield compression; and on the C&I side, of course you saw some yield compression.
And I would say that that has been a little bit mixed. And I think you’ve been seeing yields coming down, but were you surprised by the magnitude of your decline in the yield sequentially because there seem to be some banks talking about now finally some stabilization in yields on the commercial side.
So, if you can just talk about your C&I yield ex where you ended up relative to expectations, and then on the indirect auto, why pursue growth here when that’s one of the most competitive areas out there? So, just to get your thoughts would be helpful.
René Jones
It didn’t feel to me like we had significant compression. Obviously when we look at C&I yields, we look -- we net out the prepayment fees and things like that, the first fees.
And as I look at not the balance sheet, but we’ve spent a lot of time, I’ve got a deck of looking at all the new loans that are coming onto the system. As I said earlier, they came on at spreads that were pretty consistent with the last two quarters.
So, I didn’t see a big change there. I would agree, I would agree that -- let me say it this way, it won’t take much of a rate increase at all for all that margin compression to go away.
And I kind of feel like even with where there is speculation about rates increasing, the actual market rates increase, and I think it benefits us. So, my sense is that a lot of what we had seen a year or more ago has slowed down.
But I think the pricing on loans I don’t expect the margins to be able to go up. But I think the overall movement in the balance sheet stays sort of where it is now, unless we get a little increase in rates.
Sameer Gokhale
Okay. That’s helpful.
And I just want to congratulate you again on getting the approval for Hudson City after a long time, finally good to see that. So, thanks for your comments.
Operator
Our next question comes from the line of Matt Burnell of Wells Fargo Securities.
Matt Burnell
Just a couple of follow-ups, first on credit losses. I realized your point that year-to-date losses are pretty -- in terms of the ratio are basically right on top of where they were last year.
But just looking at this quarter versus the last quarter, was there any clean up in the portfolio that you were looking at ahead of the Hudson City transaction or is that -- was that basically a one-off or two-off this quarter that you don’t expect to continue, given what appears to be guidance for pretty stable credit performance going forward on a M&T standalone basis?
René Jones
No, there is no such thing as cleanup at M&T. As we see things, we record them.
But I what I would say is that just think about it this way. If you take the second and third quarter and merge them together, I think you come out with a charge-off rate of 18.5 basis points.
So, the message has been incredibly stable in terms of any way you look at it, we seem to be running about 19 basis points. So my sense is unless we see some change in the economy or that over a long periods of -- over a while, will be there.
Now having said that I think our lowest charge-off rate in my time is 16 basis points. So, it doesn’t get much lower than this and our average is 37.
So, these are the points in time when you typically would see that we’re at a place where each quarter we’ve added a little bit to the allowance because you’re kind of as good as it gets. And you got to start making sure that is as things are frothy out there particularly with the other bank, with other lenders and particularly with non-bank lenders, the competitiveness tends to cyclically turn around and produce issues on credit.
And so we’re sort of looking forward there and you’ve seen us add a little bit to our allowance over time. That would be pretty typical because we’re sort of at lows in charge-off experience and eventually that has to turn around.
Don MacLeod
The other thing I’d mention maybe it’s -- Matt, you’re seeing a sort of statistically stable level of charge-offs coming out of the consumer portfolios but commercial charge-offs come when they come. And there was a very low level of commercial charge-offs in 2Q and just a couple of loans that the charged off in 3Q.
Matt Burnell
Understood, that’s helpful. And then René, you mentioned your focus is in -- is really turning to tech investments with sort of the incremental investment dollar that you’re creating with some savings elsewhere.
Can you give us a little more color as to what areas those tech investment are going to focus on? I think you’ve mentioned CCAR as being an area where you still want to make sure that your processes are continuing to improve, but are there other investments maybe in the retail product side or other areas that you are also targeting?
René Jones
Yes. So, there are four to five general themes that make up our technology plan.
Just sort of generally speaking, one theme is integrated risk and regulatory compliance reporting of platforms, making sure all of our regulatory activities are sitting on the same platform; rethinking of our integrated sales and service capabilities not by line of business but across the board. We’re looking at a lot around origination, account opening on onboarding frameworks for the institution.
We’re looking at a whole another category which is employee experience, reducing the work and time -- administrative time that our employees have to spend. And then finally, another line of category is sort of things that allow us to have a 360 degree view of the customer.
So, to give you some more specifics, I mean couple of things that we’ve been -- in the works for a little while now is one of the things we’re doing is we’re developing a framework for centralized management and linking of customer data to create an enterprise customer hub. So, we’ve never really had a full-service enterprise customer hub.
It will take a long time to get there but we’ve been spending money moving in that direction and think of a platform that all of each individual business could use regardless of where the customer comes in. On the regulatory front and more, we’re doing a lot around enterprise data management.
We’ve got a large data quality initiative going on. And really what we’re trying to do there is to position the bank’s data sources for scalability and usability.
And initially we think that helps us you know strengthen our reporting and our regulatory front but ultimately we think that helps us have higher integrity around our customer data. And we think as we move forward, that will be a big-big benefit.
Many of these things are -- you mentioned the customer side, we’re doing a lot around the expansion of our online banking platform to include things like mobile banking alerts, analytics and the like, and also technology that could be used in the branch network as well to supplement the branch network like remote check deposits and so forth. So the way I’d say is we’ve got a very large framework, it’s not in one area but we just think that given where we are, these types of efforts are going to be key for us to be much more efficient over time.
The banking industry as a whole has not been at the forefront of technology investment but we think in the future, you really need to sort of -- that will be one of the biggest competitive advantages.
Matt Burnell
Sounds like no opportunity to sit still. The final question I have is you mentioned you’re growing presence in Long Island in Connecticut partly helped by the HCBK transaction.
And also your ideal market share is usually top two or three in most markets. It doesn’t appear that you’re very close to that in either Connecticut or Long Island.
Is that an area over time that you would like to grow into a number two or number three or is that -- does that target really not apply to those markets?
René Jones
No, I think that economics of banking, they don’t change. It matters that you’ve got a very strong market position to be an outperformer there.
But having said that, I think if you’d asked Bob Wilmers when is the first time you thought about the idea that you could have a bank in New Jersey, it would have been a long, long time ago and not -- but the opportunities -- the right opportunities with the right people don’t just come around every day. So, you really can’t predict that.
So, those are all markets that we like a lot that are very attractive. And at some point in time, it’s the right opportunity were to present itself, so we go there.
But it’s not a predictable thing. I think we wanted to be in New Jersey for decades.
Operator
Our next question comes from line of Ken Zerbe of Morgan Stanley.
Ken Zerbe
René, you mentioned that the tangible book value accretion, call it 3% or so, if I heard right, I just wanted to square that up with the $2 billion of borrowings that you guys plan on keeping. Normally, I would assume that if you refinance the $2 billion from Hudson that would’ve incurred a fairly large charge, given the long duration nature of the liabilities.
How much is not refinancing those securities adds to tangible book value if that makes sense?
René Jones
No. So, the way you think about it is the step one, you mark everything to market, so that gets -- that charge that you’re talking about we will take it is the same charge.
But now when you’re sitting on your balance sheet, you have those same liabilities or should be exactly what you could go out and fund in the market, so they’re substitutable. So, we will take the charges; that won’t change.
So almost, you could almost think about it as getting new funding. Market prices shouldn’t be any different.
The one thing I would tell you Ken is that relative to when we started, Hudson City had a lot of MBS and those types of things. That’s kind of been mostly replaced with cash and treasuries.
So, a lot of the execution risk that you had way back then is now gone and should be pretty executable.
Ken Zerbe
And then in terms of the timing of selling the -- the security, say you will be selling; is that something you can actually get done by year-end or are you going to be holding some of those in the first quarter.
René Jones
We think we can probably get the majority of it done by year-end. We will be doing most of it as you said in the first quarter and we will watch to make sure that we don’t have any disruption in the markets there.
But I think that’s our expectation that we’ll have the majority if it done by year-end.
Ken Zerbe
So, first quarter should have more of a normalized NIM? Okay.
René Jones
I Think so.
Operator
Our next question comes from line of Ken Usdin of Jefferies.
Ken Usdin
Hey, one clarification also on the accretion. So, you mentioned that mid-single-digit to operating earnings, I’m assuming there’s also some amortization that will come with the Hudson City deal that’s not included in that number.
And since it’s been such a long time since we’ve gotten that update, I know we got that February 8-K that talked about it being I think about $19 million for year one; does that still ring true now that you’ve kind of gotten to the end point here?
René Jones
Yes, I mean -- I’m not sure I fully understand your question but I think…
Ken Usdin
I’m basically just saying your comments about operating EPS accretion; the way you usually do operating is ex-amortization. And I’m assuming that with the Hudson City acquisition, you will have some intangible amortization.
I’m just wondering if you can quantify that for us.
René Jones
Yes, I can’t quantify. So, I’ll take a look at that and see if I can get that in our deck in November.
But I think it’d probably be better to mention that after we finally finalize all the marks which will be in November 1st NIM.
Ken Usdin
And then this then might run to that also because I was just wondering then originally the cost saves were going to be you’d said originally three years ago, $55 million of absolute saves. And just wondering again, can you just refresh us please?
That number was ex the FDIC expense declines that were expected and then just relative to that $55 million are you bigger, smaller, different? Because you talked about in percentage terms and I’m just wondering if you could talk about it in dollar terms.
René Jones
Yes, that’s a good question. I don’t know if I’m ready to talk about it that way.
I guess the way I think about it is we separated that out. I would think that you are going to see Hudson City’s FDIC expense normalized to ours and those rates should be about the same.
And so that’s how I would do that. And then what we kept separate is we talked about being about 24% of the expense base but that was net of the adds that we had.
So, I think we can do -- I think our number will be slightly better than that because it is already higher than most of the folks that we need.
Ken Usdin
And then just two things on the quarter, first of all, anything notable and just the other fees, other income in fees was decently above trend; were there any one timers in there this quarter?
René Jones
I think that the way I think about it is, we were up a little bit in gains from our commercial leasing business but we were also down in participations and down in syndications. So from one category to the next, different -- one time in the sense of the type of transaction but they’re all coming from our commercial base and my sense is that that’s a little lumpy from time to time.
Ken Usdin
And then last one just on the trust part of business, you mentioned that sequential was mostly impacted by market levels and in the absence from the second quarter tax; that business ex the trade processing business sale, still having a tough time growing. And I’m just wondering anything strategic new or different to think about as far as you’re trying to level set on that business or is it really just a question of the market levels that are going drive growth from here?
René Jones
No. I think we -- first of all, I think we’ve done a lot of work there.
I think our plans are to continue to do a tremendous amount of work. And it’s never going to be a high revenue growth business; it’s going to be more of a steady progression because you’re building these trusted relationships with individuals.
So, it’s not something that happens over night; it’s capabilities that you continue to build. And I think if you look at what’s happened over time and you factor in the fact that we had the market being down, we were not immune to that.
To give you an example, I think that in the periods -- between the pricing periods from the second quarter to where we price in the third quarter, the S&P was down more than 8%, our customer portfolios saw a 3% decline in their market values. So, as long as we continue to perform like that, we’ll build long-term relationships but you can’t get immune from the fact that the market goes down from time to time and that’s how you get paid into your fees.
So we feel very good.
Ken Usdin
I was just going to ask then like core growth ex the markets. Can you give us a sense of how that’s been building?
Is there -- relationship adds or core asset adds if you isolate the impact from markets?
René Jones
I mean we measure new sales volume and lost business and our retention rates are very, very, very high, 98%, 99%. And every year since we’ve had Wilmington Trust, our new sales have far outstripped any lost business.
So, we continue to grow there. And we’ve divested a couple of lines of business.
I think we’re really close to being done with those things that we don’t think are core. But the core business is doing very well.
Operator
Our next question comes from the line of Marty Mosby of Vining Sparks.
Marty Mosby
I have three questions I wanted to ask you which are a little bit different. One is the deposit costs at Hudson City are relatively high, 75 basis points as of last quarter related to your deposit costs of 13 basis points.
I was just curious how you kind of plan going forward; you could either kind of let the interest rates go higher and keep their rates the same and therefore neutralize that way, or you assuming rates are going to stay lower, so you have to kind of migrate their rates lower to be more equivalent to your current market offering?
René Jones
Marty, the way I think about it is, we’ve got this wonderful opportunity in front of us. We have all of these customers who have come to Hudson City for what it offered and we have an opportunity to go introduce ourselves to them.
And we are going to spend some time introducing ourselves to them and our other capabilities before we start dealing with rates. That is always been the opportunity whether we were up in Syracuse in OnBank which was a thrift.
You’ve got to really use those capabilities, so you can’t think too much financial early in the game.
Marty Mosby
And so over time, maybe not the first year in your accretion estimates but over time, you would have some ability to migrate to get a benefit from that but not immediately.
René Jones
Yes, exactly, exactly.
Marty Mosby
The other question was when you looked at Hudson City’s loan portfolio being a very legacy mortgage portfolio, it was really a defensive mechanism three years ago when you were thinking about rates not going up very rapidly. We are actually still in kind of the same quagmire that we were three years ago.
Do you still look at it as that real defensive for the lower for longer scenario that we seem to be caught in right now?
René Jones
I think I understand what you’re saying. I mean it still has the same impact on our asset liability position.
We’re really heavily asset sensitive; I think we go up 5 plus for 100 basis-point increase; we bring the two balance sheets together that takes two points off of that, down to about three. So, it’s sort of we need long fixed assets and it marries up pretty well with our current position.
Marty Mosby
And then lastly, you talked about as you built out your customer data warehouse for the AML/BSA, that you would also be able to leverage that for your cross-sell within your own organization. And also I was thinking even more when you went down into New Jersey you’d would have that tool behind you; I just didn’t know how you were thinking about leveraging that as you go and turn to the next page.
René Jones
I think that’s right. I think it’s a long-term effort.
Because I think you’ve got a focus on the most foundational things. So, it includes customer data, the customer data for regulatory reporting purposes and credit purposes.
And once you get through those stages of coming up with the language and governance around those things, that’s what will make the data more flexible and usable for the customers. So, I think that might be a second stage impact.
I think what’s probably -- what a more immediate term is the idea that regardless of where -- let’s say a commercial customer were to come into the institution, if our current commercial RMs were to know about that, if they were able to get access to their private banking capabilities in addition to their business stuff, if they were able to get access to the retail accounts or access to their relationship with what relationship that customer has with Wilmington Trust, that actually to me as much more immediate benefits around the cost shelves. To feel integrated, think about integrated statement.
So to me, that’s a more -- that’s a near-term benefit than is the data and the information for us.
Marty Mosby
And any anecdotal kind of messaging? I know you haven’t been able to work with Hudson City’s management, but like you’re saying, any feelings from their part how their customers now waiting three years to have access to MTB’s products; how positive are the feelings or the process as you move in there now?
René Jones
I knew there would be a lot of excitement on the ground when we were able to announce the approval. I was blown away by the expressions of interest first from our employees and their -- and the Hudson City employees.
And I’ve had a number of folks come up to me and say well, I finally now will have an M&T account because they were customers of Hudson City. So, I think the energy is very high.
I think we got to carry that to the field. And my guess is, we’ll get off to a good start.
Operator
Our next question comes from the line of David Darst of Guggenheim Securities.
David Darst
René, once you discontinue the broker mortgage business in New Jersey and across -- and that’s part of the New Jersey for them, what’s left in New Jersey from a mortgage origination capability and is there an opportunity to more quickly replace some of that with your type of business and have some fee income?
René Jones
We’ll talk about that as -- we have on the -- and I forget the number but we have a fair number of mortgage folks on the ground already that have been doing that work, so we haven’t had started there. And then when you add those 130 branches, we tend to be a big originator of mortgages are the branches, I think you’ll begin to be able to introduce all of the services -- products and services that we typically do.
And looking here, we have -- in all of the footprint that represents Hudson City, we already have 29 mortgage bankers on the ground. So, we will continue to build that out.
We’ll be able to do maybe a little bit more as we complement that with our services to the branches. And the way to think about it is, we’re much more in the government space, we’re in the -- think about us being much more heavily in the affordable mortgage space.
So in essence, I think we’ll be doing a lot more on that front, we will be a little -- will be very close to the community. And that’s something that we’ve been very, very well known for.
So it will look different, the customers that we’re providing mortgages to will be I think of much broader array of customers.
David Darst
And then just as far as the conversion occurs and late in the first quarter, is it really going to be in the second quarter when you actually have the opportunity to improve the product set or can you do that prior to the conversion?
René Jones
Well, on the ground, you’re doing that already because we can do that through our M&T employees. So, on a commercial bank, we’re doing all those services, cash management, we’ve got a whole team of wealth managers there.
As I said, we’ve got 29 mortgage bankers on the ground. I just think those capabilities get enhanced.
So, think about it this way. We can do everything today but those branches -- we can’t do it through branches because they’re not equipped and staffed and trained with the ability to do that.
So, it’ll be a boost is the way to think about it.
David Darst
Correct, beginning in the second quarter of ‘16 you’ll train everyone and launch it then. Okay, got it.
René Jones
Yes. And then we have this which I’m assuming we’re doing this time which is fun time thing which we call the branch buddy system.
So, we send down whole bunches of M&T bankers who are very familiar with the integration and acquisitions and they spend a lot of time with the existing branch folks that are there. So, it’s sort of hands-on training and hands-on introduction to the customers.
It’s worked really well. And we think that sort of speeds up the ability to offer our products and services without a lot of disruption.
Operator
Our next question comes from the line of Gerard Cassidy of RBC.
Gerard Cassidy
A couple of questions for you, René. First, you made a comment in talking about Hudson City that you’re planning not to use the broker channel for mortgage originations as they do.
Can you give us some color behind the strategic thinking of why you guys don’t use that channel?
René Jones
Well, I mean I think for us, it’s a little -- it’s going to sound funny, but it’s a little bit more of a commodity type space where you’re not necessarily controlling the customer experience. So, it’s not like we could have done -- we could have added brokerage in New Jersey all along.
I think the way in which we approach our mortgage banking unit is the idea that more branch originated type, M&T originated type business. We still have a better risk profile, we can control the upfront -- who the customer is in the upfront underwriting and so forth.
There are some cases where on the risk side where we dabbled very lightly in the past on home equities and things like that with brokerage business and the risk profile wasn’t the same for us. Now having said that Hudson City has done just a tremendous job in that space but we’re just not sure it fits our model.
Will we do jumbo mortgages? Yes.
We didn’t do very many of them in the past. I think here we’ll continue to do those but we would prefer not to do them necessarily through brokers.
And quite frankly if you changed your mind, you could do that at anytime, it’s so commodity like.
Gerard Cassidy
Second is with the recent news of your neighborhood competitor hiring an investment bank to maybe look at different alternatives. Is there been any change in the business environment for you in Western New York?
René Jones
No. I mean we haven’t spent much time on that.
We’re -- all of us are spending time on what’s going on in the Buffalo and Western New York community. And Gerard, it’s a funny time.
I mean economically -- if you look at economic measures, Buffalo is probably one of our fastest-growing footprints with all that’s going on there. There’s a lot to keep us all busy, a lot of new jobs being created here.
And so, we are not really focused on those rumors and things like that. I don’t think it benefits us to do so.
Gerard Cassidy
And then as a follow-up, I think you may have touched on this in the Q&A. In the original slide deck for doing this deal with Hudson City, you identified pretax $223 million in merger-related charges.
Is that still a good number to use today?
Don MacLeod
That was -- that number included some things will go through acquisition accounting, Gerard.
René Jones
Not a change.
Don MacLeod
Right. So, the amount that’ll go through income statement is roughly unchanged.
René Jones
Yes, that’s both. That’s part of things that would get market and things that would be one-time expenses but I don’t -- we don’t see any material change when we look at the numbers.
Yes.
Gerard Cassidy
And then another question on this time period that you’ve had to wait. Mobile banking has grown very rapidly over this last three-year time period and the adoption of it is moving up quickly as you know from your own numbers.
Can you share with us -- has that changed any of your thinkings on how you’re going to implement Hudson City into M&T and are there any potential benefits that now will be here that weren’t here three years ago because mobile banking wasn’t as successful?
René Jones
No, I don’t think so. I think it’s a -- those and capabilities like those have become very fundamental.
And so, I don’t think of New Jersey as being different than Buffalo in that respect. I think you just have to have those capabilities; your clients expect them.
But one thing is I think is maybe more relevant to the case of adding those technologies is probably the whole issue around cyber security and security trends. I mean you really, really have to be buttoned down as all these new technologies come out; I mean the bad guys keep up with things.
And so why do I mention that? New Jersey has a bit of a higher natural incidence of fraud and those types of things.
So, we watch that very closely relative to other footprints and make sure that the products that we offered are adapted for that.
Operator
Our next question comes from the line of Chris Spahr of CLSA.
Chris Spahr
I kind of have derivative questions off of Marty. The deposit trends or interest bearing deposits have been trending lower the last four quarters.
Is there any strategic reason behind that?
René Jones
Yes, it’s matching the decline in sort of the natural rightsizing of the mortgage book, so that will continue right. And that sort of as you get that to more sustainable size, think about no more originations and things like that, that’s also a factor that will play into the deposit pricing.
Chris Spahr
And with the pending, or the soon to close Hudson City deal, should we expect a pickup in interest bearing deposits, just given what Hudson City has been doing in the past?
René Jones
Pickup in the interest bearing deposits? I mean their balance sheet will come over.
Their trends probably from what you’re seeing on them standalone trend wise will probably stay the same. And then we’ll introduce our product.
Now, in different rate environments, typically in a rising rate environment, we’re much more dependent upon -- and our customers who are seeking yields are much more dependent on time accounts. So will rates go up and the rate environment would change, yes.
I mean you might turn that specific engine that right back on. And that might actually give us from a substitute to wholesale a nice benefit because those markets are more vibrant, so you can quickly raise dollars in a market like that versus some of our other markets.
We’ve long done in New York City.
Chris Spahr
And then one final question, regulatory capital, the comments for the benefit of the deal, those are both in regards to CET1 and total capital, or are they different?
René Jones
It was regulatory, we said CET1.
Operator
At this time, I am showing no further questions. I would like to turn the floor back over to Mr.
MacLeod for any additional or closing remarks.
Don MacLeod
Again, thank you all for participating today. And as always, if clarification of any of the items on the call or news release if necessary, please contact our Investor Relations department at area code (716) 842-5138.
Good bye.
Operator
Thank you. This concludes today’s M&T Bank’s third quarter 2015 earnings call.
You may now disconnect.