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M&T Bank Corp., (NYSE:MTB)

Q3 2010 Earnings Conference Call

October 20, 2010 10:34 am ET

Executives

Donald McLeod - Director of Investor Relations

Rene Jones - Chief Financial Officer

Analysts

Bob Ramsey - FBR Capital Markets

John Pancari - Evercore Partners

Craig Siegenthaler - Credit Suisse

Steve Alexopoulos - JPMorgan Securities

John Fox - Fenimore Asset Management

Collyn Gilbert - Stifel Nicolaus

Matthew Clark - KBW

Jennifer Demba - SunTrust

[Lynn] - UBS

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the M&T Bank Third Quarter 2010 Earnings Call. (Operator instructions). After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions). Thank you.

I would now like to turn the conference over to Mr. Don McLeod, Director of Investor Relations. Sir, you may begin your conference.

Donald McLeod

Thank you Paula and good morning. I’d like to welcome everyone to M&T’s Third Quarter 2010 Earnings Conference Call, both by telephone and through the webcast. If you have not read our earnings release we issued earlier 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 may contain forward-looking statements relating to the banking industry and to M&T Bank Corporation. M&T encourages participants to refer to our SEC filings including those found on forms 8-K, 10-K, and 10-Q for a complete discussion of forward-looking statements.

Now I’d like to introduce our Chief Financial Officer, Rene Jones.

Rene Jones

Thank you Don and welcome everyone. Thank you for joining us on the call today. I believe with the last call this morning among our regional and sub-regional peers so when we’re finished you can settle down and try to assess what it all means.

I’d like to cover the highlights of the recent quarter, after which I’ll take your questions. For the third quarter of 2010, diluted earnings per common share were $1.48, up from $1.46 in the previous quarter, and $0.97 in the third quarter of 2009. Net income for the recent quarter was $192 million, up from 189 million in the linked quarter and $128 million in last year’s third quarter.

Recall that our GAAP results for the third quarter of ’09 included $9 million of after tax merger related benefit arising from a gain on the Bradford Bank acquisition, which was partially offset by merger related expenses arising from both the Provident and Bradford transactions. There were no merger related expenses in this year’s second or third quarter.

Our results for the third quarter of 2010 included after tax expense from the amortization of intangible assets amounting to $8 million or $0.07 per share. This compares to $9 million and $0.07 per common share in the linked quarter and $10 million or $0.09 per common share in the year ago quarter.

Net operating income, which excludes the amortization of intangibles, as well as the net merger related benefit in last year’s third quarter was $200 million for the recent quarter, up from $198 million in the linked quarter and $129 million in last year’s third quarter.

Diluted net operating income per share was at $1.55 for the third quarter of 2010, up from $1.53 per share in the prior quarter and up 58% from the $0.98 per share in last year’s third quarter. And according to SEC guidelines, this morning’s press release contains a tabular reconciliation of GAAP to Non-GAAP results including tangible assets and equity.

Turning to the balance sheet and income statement, taxable equivalent net interest income was $576 million for the third quarter, up from $573 million in the linked quarter and up 4% from 553 million in the third quarter of 2009. The net interest margin expanded slightly during the quarter, rising to 3.87% from 3.84% in the second quarter of 2010 and was up 26 basis points from the 3.61% in last year’s third quarter.

The yield on earnings assets was up about 2 basis points during the quarter, primarily reflecting favorable loan re-pricing. We also realized the benefit of prepayment penalties and the recognition of cash interest payments on non-accruing loans that was comparable to the levels that we saw in the second quarter.

The cost of funds declined by 1 basis point, reflecting the benefit of a shift in mix of core deposits from time deposits to non maturity savings product.

Looking forward, we seem to be on track with our previous comments back in January that our full year margin would not likely be higher than 380 to 385. Through the first 9 months of 2010, the margin was 3.83%.

As for the balance sheet, average earnings assets declined by an annualized 5% as compared to the second quarter of 2010 and this included the impact from $382 million decrease in investment securities and a $443 million or 3% annualized decline in average loan balances.

On an end of period basis, total loans for this year’s third quarter declined by 270 million or 2% annualized from the end of the prior quarter. On the same basis by category, C&I loans declined by 229 million or 7% annualized. Commercial real estate loans declined by $33 million or 1%. Consumer loans also declined by $33 million or 1% while residential real estate loans grew by $25 million or 2%. Despite the overall pressure on loan volumes, we’ve seen a few encouraging signs. On an end of period basis, the pace of decline in total loans is flowed from rates seen in each of this year’s first and second quarters. In the final month of the quarter, we saw a growth in commercial and industrial loans and stable commercial real estate loans.

Finally, much of the quarterly decline appeared to be driven by lower utilization rates as overall commitments rose.

Turning to non-interest income, our non-interest income was 290 million for the recent quarter, up from 274 million in the linked quarter, and the recent quarter’s results included $8 million of securities losses compared with 22 million in the prior quarter. Mortgage banking fees was $61 million for the third quarter compared with 47 million in the linked quarter.

Origination volumes were up 29% during the recent quarter, reflecting, in part, the record low interest rates while gain on sale margins widened further from this year’s second quarter. Service charges on deposit accounts were $118 million during the recent quarter, compared with 129 million in the linked quarter. The 9% decline was attributable to the implementation of the new regulation. The customer response to the new regulation has been consistent with or perhaps slightly better than our expectations.

Our decision not to charge NSF fees on transactions less than $10 has had a negative impact on overall fees but has met with a favorable response from our customers.

Turning to expenses, operating expenses, which excludes the amortization and tangible assets were $467 million compared with 461 million in the linked quarter. This year’s third quarter results included a $3 million addition to the impairment allowance for capitalized mortgage servicing rights, compared with the $2 million addition in the allowance in the second quarter, last year’s third quarter results included no adjustment to the impairment allowance.

The efficiency ratio, which excludes securities gains and losses as well as intangible amortization was 53.4% in the third quarter, up just slightly from the 53.1% in the linked quarter.

Next let’s turn to credit. Overall credit trends remain stable with the linked quarter and considerably improved from the prior year. Criticize and classified loans declined for the fourth consecutive quarter. Non-accrual loans were 1.1 billion or 2.16% of loans at the end of the recent quarter, compared with 1.09 billion or 2.13% of loans at the end of the previous quarter.

Foreclosed assets were unchanged from the previous quarter at quarter end at $193 million and non-performing asset ratio, which is non-performing assets divided by total loans plus real estate and other foreclosed assets was 2.53% as of September 30, 2010 compared with 2.50% at June 30.

Annualized net charge-offs as a percentage of loans were 73 basis points in the third quarter compared with 64 basis points in the linked quarter for the 9 months ended September 30 annualized net charge-offs were 70 basis points, down from 100 basis points in the year earlier period.

Net charge-offs for commercial and industrial loans were 33 million in the third quarter compared with 9 million in the linked quarter. Net charge-offs for residential builder construction loans were 11 million for the recent quarter compared with 17 million in the prior quarter.

Net charge-offs for all other commercial real estate loans were 7 million, down from 19 million in the second quarter. Net charge-offs in residential real estate loans were 17 million in the third quarter compared to 13 million in the linked quarter and net charge-offs on consumer loans were 25 million in the third quarter compared to 24 million in the linked quarter.

The provision for credit losses was $93 million in the third quarter compared with 85 million in the linked quarter. The allowance for loan losses was unchanged at 895 million at the end of the third quarter. The ratio of allowance to credit losses to Legacy M&T loans, which excludes acquired loans that were marked to value add at the acquisition was also unchanged at 1.86% as compared to June 30th. The loan loss allowance as at September 30 was 2.4 times annual net charge-offs for the recent quarter and 2.5 times annualized net charge-offs year-to-date.

We disclosed loans past due 90 days but still accruing separately from non-accrual loans because they are deemed to be well secured and in the process of collection, which is to say that there is minimal risk of principal loss. In our case, that’s particularly true. Loans 90 days past due were 215 million at the end of the recent quarter. Of these, 194 million or 90% are guaranteed by government related entities. Those figures were 203 million and 188 million respectively at the end of June.

M&T’s tangible common equity ratio was 5.96% at the end of the third quarter, an increase of 21 basis points from 5.75% at the end of June. The Tier 1 common ratio was an estimated 6.4% as of the end of the recent quarter, improved from 6.15% at the end of the second quarter.

Turning to our outlook, M&T’s credit trends continue to compare favorably with those of the industry overall and we’re seeing signs that the economy continues to stabilize although unemployment remains high. The decline in loan volumes has continued to moderate and we expect that trend to continue but at a slow pace.

Late in the third quarter, we began to retain conforming mortgages originated through our retail network to hold on the balance sheet. With the run off in our securities book, our level of sensitivity has been getting a little higher than we like. We believe that it makes more sense in the current environment to retain our own production of mortgage loans rather than to sell them and simultaneously purchase securities from others. For the near term, this actually will reduce our residential gain on sale revenues, which ultimately will be offset by higher net interest income in subsequent periods.

We’re also thinking through the best approach to collateralize seasonal inflows of government deposits to the extent that we choose to use repurchase agreements, we’d expect a modest benefit to net interest income in the future and the reduction of net interest margin by a few basis points.

Finally, 2 weeks ago, Allied Irish Banks took their initial steps to divest their shareholding in M&T that they’ve held since we bought all First Financial from them in 2003. In doing so, they sold 26.7 million notes convertible into 26.7 million shares of M&T stock following the approval by AIB shareholders. The notes were priced at $77.50 each, valuing the at 2.5 times our June 30 tangible book value and 20.2 million of those notes were sold to 123 institutional investors so 6.5 million of the notes were sold to the retail channel. We believe that successful completion of this offering demonstrates the strength of M&T’s access to the capital markets.

In closing, I would remind you that all of 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.

We’ll now open up the call to questions, before which Paula will briefly review the instructions.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from Bob Ramsey of FBR Capital Markets

Rene Jones

Hi Bob

Bob Ramsey - FBR Capital Markets

Good morning.

Rene Jones

Good morning

Bob Ramsey - FBR Capital Markets

I think it’s interesting that you mentioned that you all are beginning to portfolio conforming mortgages, and historically you felt that the return on capital on these assets didn’t justify having a big portfolio. Could you just maybe expand a little bit on the change with mortgage rates as low as they are and also talk about are these arms or are they fixed rate mortgages or what is sort of the focus?

Rene Jones

I think that -- we don’t have a difference in change. We’ve not changed our thinking. We still have the same view of what the returns generally are on residential mortgage, especially given the role of [indiscernible]. But having said that, we long sort of viewed residential mortgages as substitute for securities. We have the same profile and we clump them all into our discretionary portfolio so what is unusual today is that there’s a big difference in both rates and yields and returns that you can get on mortgages and securities today and so if you start thinking about it, it really doesn’t make sense for us to be selling assets at the same time we’re buying them because we’re basically just giving up the transaction spread. So economically, the best thing to sort of do to balance out your portfolio is just slow down the amount that you’re selling and it sort of helps to keep ourselves neutral. So it’s the cheapest way to keep the balance sheet where we like it.

Bob Ramsey - FBR Capital Markets

Okay, that helps. And then could you also talk a little bit about your plans for trust prefers, there’s Basel III and US capital rules so we get a little bit clear. I know they’re largely callable do you all anticipate calling them at some point? If so, how would that funding be replaced and what might be the impact on funding cost?

Rene Jones

You’ve got a 2 part question. The first part is a big chunk of them, 450 million or so just are cheap debt. Their price is so low that we would never sort of call them -- we would retain them. And then the second half of it is sort of what happens with capital, and as you know, we really won’t find out probably for another 6 months exactly what the rules will be around that so I realize that they’ll probably lose their capital content, but I guess the big question really is what is the sort of rules around [indiscernible] and when you think of them and see -- if you were to stack up our capital structure versus everybody else’s, much more of our Tier 1 risk rate is capital -- or let’s say Tier 1 common equity is just dependent upon common equity so we’ve never -- what our likely thinking is going to be thinking about the risk rating of our balance sheet and our minds, is the risk rating today appropriate or do we need to have a different one which would basically mean maybe you’d hold more residential mortgages or some other types of securities slightly.

In terms of what we do with the rest of it, it depends on what the rules are. But it’s all callable so we would take it out if it was necessary, but I don’t think you still have enough information around what exact rules are going to be to make that decision today.

Bob Ramsey - FBR Capital Markets

Alright, great. Thank you Rene.

Operator

Your next question comes from John Pancari of Evercore Partners

John Pancari - Evercore Partners

Good morning

Rene Jones

Good morning

John Pancari - Evercore Partners

Rene, could you talk a little bit more about your loan growth outlook, specifically the trends that you saw in September? It’s interesting you actually saw some C&I growths and stabilization in CRE, is that something you think could continue given the stabilization and the utilization rates?

Rene Jones

I think that -- if I go back to where we were in January, what we’re talking about is that we have planned to have a certain amount of loan growth for the year, and we didn’t expect to see much in the first half but we thought it would turn around by the second. I think all that is happening. It’s just happening at a much slower pace. So that’s why I mentioned the fact that if you look at first the second, second the third and then now this last quarter, you see a moderation in the decline. The other thing that I think is relatively encouraging is that when we look at this quarter’s decline, almost all of it on the commercial side is lower utilization, and I think what you’re seeing if we kind of work our way across the commercial bank, we’ve seen for example in the Mid Atlantic a number of customers who are paying down debt, repositioning themselves. We’ve seen in the commercial real estate space a number of pretty well healed commercial real estate folks actually just looking at the liquidity and their portfolio, maybe selling down some projects to improve the overall liquidity position. But overall, our commitments are up so I think people are just on hold. The rates are low, they’re trying to lock in some credit today but they’re not necessarily using it because they’re not yet investing. I would guess if the trends continue to improve but I wouldn’t expect a big spike up in loan growth all of a sudden.

The other thing I’d point out is that in the volume of loans that run through our senior loan committee, they were higher than last quarter and the returns were better.

John Pancari - Evercore Partners

Okay, that’s helpful. On the MT [indiscernible] you saw them go up in the quarter despite the increase in charge-offs and you’ve indicated that the [indiscernible] list improved but can you talk a little bit about the inflows into non-performance in this quarter and what that may mean in the coming quarters.

Rene Jones

The increase is of $9 million and I think what’s most interesting to me is that in that $9 million increase, there was a $27 million increase in construction and development, and of that $27 million increase in construction and development, 15 million came from [indiscernible] so you’re not going to see a lot of content coming from there. The continued positive trend was that [audio break] so when we look at construction and developments, this is a portfolio that we’ve marked before or a portfolio that we’ve sort of taken -- reserve for in the balance sheet and so there are really no surprises there so I think as Don has been saying for some time, you’re just going to get some lumpiness as we move our way and things improve. It will take some time, and this is one of the quarters where we saw some more C&D actually fall from the classified book into non-performing.

John Pancari - Evercore Partners

Alright, thanks Rene.

Operator

Your next question is from Craig Siegenthaler of Credit Suisse

Craig Siegenthaler - Credit Suisse

Thanks. Good morning Rene.

Rene Jones

Morning

Craig Siegenthaler - Credit Suisse

How should we think about the loan or deposit ratio trending here, especially with your comments on holding more resi mortgage loans, but maybe with the makeshift from deposit growth to collateralized deposits, which really get excluded from this map?

Rene Jones

Loan deposit ratios are proxy, it’s all about liquidity, and really we’re using the resis to replace the runoff and the securities book so on the profile basis, it doesn’t change it very much. I will say that if you look at the numbers, I think our deposit growth was flat but what that’s really driven by is over $450 million of a decline in government deposits from the second to the third, and what you see going into the fourth is that they seasonally spike back up. So I think there’s not that much change. Deposit growth is slower than we’ve seen in the past, and that probably is just consistent with the idea that the flow lending environment is flying out a little bit as well. But there’s not a lot of news there.

Craig Siegenthaler - Credit Suisse

And then can you just remind us from a liquidity side you’ve been building a little bit of excess liquidity here with the stronger deposit growth. Is your plans to deploying that help offset declines driven from security pricing here?

Rene Jones

We said in the script, we talked about this idea of putting on [rebounce] to collateralize our government deposits. If you wanted to make a little more money and do that, you’d put on securities, but I think we’re a little cautious because we think that the prices of securities are artificially inflated today based on the government buying and all the news out there so really what we’re doing is nothing and we’re just holding our options open. But you’re right, we would have room if we wanted the balance sheet to be a little bit bigger and we could make a little bit more money but I think we’re still a little cautious and uncertain.

Craig Siegenthaler - Credit Suisse

Alright, great. Thank you for taking my questions.

Operator

Next question comes from Steven Alexopoulos of JPMorgan

Steve Alexopoulos - JPMorgan

Rene Jones

Hi Steven

Steve Alexopoulos - JPMorgan

Good morning Rene. Maybe we could start, Rene, I know last quarter you said you guys provide for loans to address repurchase risk. I was hoping to get a little more color on that this quarter. Maybe could you just break out for us the amount of loans you sold and are still outstanding over ’05 to ’08? How much of that was Alt-A and maybe a split between GSE and private label?

Rene Jones

Why don’t we think about doing that and then we’ll decide how to disclose that publicly. I guess what I would say is it’s hard to do off the cuff. What I would say is that I would guess that when we finish this year, our cost which today goes through revenue would be probably $15 to $17 million for the year, somewhere in that range. Just to give you a sense of what we’re doing, and then that’s tied to a number -- I know we probably get somewhere between 25 and 35 repurchase requests so 25 loans or 35 loans in the course of a month, and then some smaller percentage of that is actually things that we actually settle on and have to pay because people are paying a lot of things back to you but quite frankly, not all of them have a lot of substance. So those are some numbers to start with and then to think about debenturing that.

Steve Alexopoulos - JPMorgan

What about -- because you were selling Alt-A -- private label. Is there any way that [indiscernible] how much risk there might be in that area?

Rene Jones

We probably sold $2.5 billion of Alt-A loans into the market, and the thing to think about is, if you follow the stories that are going on, one good thing is that if you marry it to the 1.3 that we started with several years ago, and you look at the credit quality of that Alt-A loan book, and compare it to the national averages, it's better. We didn’t like it but it’s better than average. And then the other thing is that we're early in the chain, right? We originated these loans. So, all the noise about title and who has the right titles to it is a little bit less of an issue for us because there were things where we actually did the work to pass the title, right? So, we don’t have an estimate today, but I am not overly worried about it. If the trend comes, it will happen over a long period of time and you'll have fair warning. But we haven’t seen a request today on those books.

Steve Alexopoulos - JPMorgan

Is this also a risk? I know BLG was originating and securitizing commercial credits. Is this at risk in their business too?

Rene Jones

I think the issues that are out there today touch all services, right? So, technically yes, but the extent to which is out there, I don't know. It wouldn’t probably be my space to comment on it. I am just not really familiar with their servicing practice.

Steve Alexopoulos - JPMorgan

May be just one final question. The yield on commercial real estate loans was up to around 485. What is that without the prepayment fees; is that around 450, and do you expect the prepayments to continue through year end?

Rene Jones

I'd say, a third of it is maybe prepayments and those types of things; the payments on non-accruals. I'd say a third of it is a fact that we had some repricing off of the book, particularly the book that’s based on three months LIBOR, and then there was just sort of some smaller yield adjustments, but that would be the breakout. So, the LIBOR thing can move every three months or so, and the pre payment penalty is really not all that surprising with the low rate environment, right?

Steve Alexopoulos - JPMorgan

Okay. And one technical question, how long has it – you've only been charging for overdraft sort of transaction less than $10?

Rene Jones

It’s either July 1 or August 15. August 15 I think is the answer.

Steve Alexopoulos - JPMorgan

So it just started, okay?

Rene Jones

Yeah. It's part of our overall package to address the new legislation.

Steve Alexopoulos - JPMorgan

Okay, thanks

Operator

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

John Fox - Fenimore Asset Management

Good morning everyone. Before I ask my question, I would just say it'll be great to see in the 10-Q or in 8-K and some of the mortgage information that the last questioner was asking about, so that would be terrific. Most of my questions have been answered, but I have a couple left, regarding the service charges, you obviously talked about NSF and that impact, Rene, can you just comment on any impact you might have for the next year in terms of the debit fee changes and that type of thing, debit cards?

Rene Jones

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I wish I could, but I really don’t have a good sense of that, and I think the way to think about it is much like we addressed the Reg E regulation, right? We kind of did a lot of work around it but weren’t able to provide a lot of estimates, and then as we got closer to it, we gave you some good ballpark sense, but still there are rules to be written and the work to be done on our part to think through that issue.

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John Fox - Fenimore Asset Management

Okay, we’ll just wait on that. Is there anything your noninterest bearing deposit growth has been very good, is there anything there to show what’s going on and the reason for that?

Rene Jones

No, I think over the long-term, it's everywhere, but a big part of it's in the commercial side, and I think it's just consistent with what you've been seeing in the downward trend in loan demand, and I think those two things will reverse themselves together. We had, if you look over a longer period of time, maybe two years, we've made a big concerted effort to focus on our deposit products and on the commercial side, our treasury management services, and we definitely have gained access to new customers over that time period. So, we're probably much better positioned going into the future than we were in the past.

John Fox - Fenimore Asset Management

Okay. I thought the expense control was really good, but the other expense line was higher than I expected. You mentioned the MSRs; is there anything else unusual on that line or – I guess overall it was very, very good?

Rene Jones

No, we had a few million dollars of increase in an ORE costs from some reappraisals. We also had higher processing fees for cards and merchant services, which means the volume is coming up, which we sometimes see in September. Kind of funny, everybody goes back to school; they spend a lot of money. Then we had higher professional services expenses that we recorded, and I did talk about the idea that we're going to be spending on deposit related activities in the future last quarter.

John Fox - Fenimore Asset Management

Okay, and my last question, somebody mentioned the increased liquidity, so maybe you address this, but it just caught my eye looking at the five-quarter trend on the balance sheet of $402 million interest-bearing deposits at other banks. That’s a lot of cash. Is that just because of the environment, lack of loan growth or is it just-- anything to comment on there?

Rene Jones

It's the first part of the repo trade I mentioned, and I think it’s exactly $400 million, and that was driven by the need to collateralize the government deposits as they spike up. It sort of peaks right about now, right around the 15 of October.

John Fox - Fenimore Asset Management

Okay, thank you.

Rene Jones

You’re welcome

Operator

Your next question comes from Matthew Clark of KBW.

Rene Jones

Hey Matt?

Operator

Mr. Clark, your line is open. Your next question comes from Collyn Gilbert of Stifel Nicolaus. Collyn Gilbert, your line is open

Collyn Gilbert - Stifel Nicolaus

Rene, you may have covered this, but just along the lines of the residential mortgage originations in the third quarter, the amount that you sold versus what you retained, what were those numbers and then what are you kind of anticipating for volume in coming quarters or at least maybe in the third quarter, given the pipeline?

Rene Jones

I think we sold – you know what, let me try to answer it this way and then I will come back to that if you still need them. I would guess that if we pick up purchases, let me just guess that it’s $500 million to $600 million worth of purchases, and if gain on sales margins are 150 to 200, you are talking about $10 million of impact, right, $10 million or $0.05 a share, which you would see out of the gate in the fourth quarter. And then in terms of -- you are looking for volume sold?

Collyn Gilbert - Stifel Nicolaus

Well, or as much too curious about what we can expect you to retain as part of your strategy to keep more mortgages versus the securities?

Rene Jones

Yeah, for now I think that’s the best estimate I can give you, maybe 500 or $500 million to $600 million more than we have in the past quarter.

Collyn Gilbert - Stifel Nicolaus

Okay. That’s what your comment was.

Don MacLeod

The only thing I'd remind you that Collyn is that we’ll go from zero to a number, so the face value of the mortgage is retained, but on an average basis it will be all sort of legged into.

Collyn Gilbert - Stifel Nicolaus

Okay, that’s helpful. And then just a question on the funding side, on the borrowing side. Can you just give us a little bit of colors as to what your strategy is there in terms of how you are managing the longer term borrowings from an extension perspective or cost perspective?

Rene Jones

Yeah. I guess the answer that I have to start with is our short-term position. So we are very comfortable with our liquidity position, and in fact, we are probably, we could as one of the other callers mentioned, we could afford probably more short-term borrowings if we wanted to but we don’t necessarily see what the opportunities are on the asset side. So we haven’t done anything there. Then the long term, we sort of bucket everything out in our long-term borrowings. You look at our FHLB borrowings and as they begin to mature, we kind of look at them. We don’t see any problem with rolling them over, but pretty much we don’t expect much of a change. I would say as you look 12 months out maybe out, maybe we will lesser them over and use a little bit more short-term, but I don’t expect much of a change and the borrowing costs really hasn’t changed much for the last six months in those periods, because LIBOR has been flat and they're all LIBOR-based borrowings.

Collyn Gilbert - Stifel Nicolaus

Okay, that’s helpful. That’s all I had. Thanks.

Operator

Now we’ll return to Matthew Clark of KBW.

Matthew Clark - KBW

Hey guys?

Rene Jones

Much better

Matthew Clark - KBW

I know your C&I related charge-offs can bounce around from time to time. Just curious as it relates to the latest [SNC] exam whether or not some of that was tied to that or was it just more small business, just struggling?

Rene Jones

Much less than that, our shared national credit exam again didn’t have much of an impact on us. We had a couple of credits. We had maybe something like $6 million or so with the largest related to provider of pharmaceutical services. Then we had some smaller sort of $4 million or less in terms of charge-offs around companies or manufacturers, providers of entertainment – non-entertainment businesses, but smaller avenues. So, there isn't really a theme in the C&I book. As I said, the overall seems to be improving in the little market space. I think it’s interesting you mentioned small business because that’s sort of the one place as we look over quarter-over-quarter where you really don’t see much if any improvement in the Business Banking space. In fact, I think our charge-offs in the Business Banking were probably – went from like, something like $12 million to $15 million, right? What you're seeing there is that, as the economy remains very, very slow, there is uncertainty, those are the guys that are the most affected, and as the length of the downturn remains very long, you just continue to put more and more pressure on those small businesses. For us, as you can see, $12 million to $15 million is not really all that material, but it does tell you a lot about the broader economy. That’s where all the jobs come from, right?

Matthew Clark - KBW

Right. And then on the net new problems front, it was about, I think $102 million if you gross it up for charge-offs this quarter after I think being non-existent last quarter. It sounds like the migration continues to improve, but just curious as to the source maybe of that, of those new problems. I would assume it’s not in Manhattan, but just an update on Manhattan really would be helpful too?

Rene Jones

Sure. I missed the first part. The question is on nonperforming?

Matthew Clark - KBW

Net new problems, so just the change in nonperformers plus charge-offs?

Rene Jones

It's much of what I had mentioned earlier. I think, again, you saw about $27 million of addition in construction development. If I look at where those were, a couple of them -- as I said 15 of it was Provident. So, a couple of them were in the Mid-Atlantic space. We had one that was -- I think it’s in Pennsylvania, but I can’t quite see it in front of me. So that was really what drove most of it. In terms of Manhattan, we haven’t seen much of a change. We still have the one large property that’s in the ORE, and that hasn’t moved yet, but we are working on that.

Matthew Clark - KBW

Okay, and then just a 30-day, 89-day number if you have it

Rene Jones

On the consumer side, well, when I throw out Provident, we were up something like five basis points on the quarter, 161 versus 155, and that's actually down five basis points from a year earlier, so not much change. That's 30-day plus on the consumer side. And then I talked about the classified loan book in my comment.

Matthew Clark - KBW

Thanks.

Operator

Your next question comes from Jennifer Demba of SunTrust.

Jennifer Demba - SunTrust

Rene Jones

Hi Jennifer?

Jennifer Demba - SunTrust

Good morning. Curious as to what you're seeing on the acquisition pipeline front. Are you seeing any acceleration and seller interest at this point?

Rene Jones

I guess what I would say is that we feel pretty good about our overall condition in our health, and I am still very positive that there will be a fair amount of opportunities for M&T in the future. I have not seen anything that would tell me that that's not going to be the case. Today, what you see is a lot of small institutions that don't have a lot of strategic value, who have difficulties from a regulatory standpoint or performance standpoint. But I don't think that’s sort of where we make our hay. I think it comes from as people think through the difficult environment and they think about who they want to partner with as opposed to sell their institution, then the opportunities for us are probably going to be pretty bright.

Jennifer Demba - SunTrust

Thanks a lot.

Rene Jones

You’re welcome

Operator

Your next question comes from Heather Wolf of UBS.

Lynn - UBS

This is actually [Lynn] stepping in for Heather. Just a couple of quick questions. I think most of my other questions have been answered. Just want to know could you give me the duration on your investment securities portfolio?

Rene Jones

Yeah. I have that. I mean it's around 2, but let me give you the exact number. It hasn't really changed much in the fairly long times, give me one second. Yeah, it’s 1.97%.

Lynn - UBS

Okay, great. And then also just what percent of your loans are floating versus fixed?

Rene Jones

I keep getting asked that question, I laid it out, but I think it’s…

Don MacLeod

It’s roughly 60%, 40%.

Rene Jones

Yeah, 55% fixed would be my…

Lynn - UBS

Did you say 65% or 55%?

Rene Jones

55%.

Lynn - UBS

55% fixed. Okay, great. I think that’s it. Thanks.

Rene Jones

I'm sorry. Let me show at that. 55% floating is what…

Lynn - UBS

55% floating.

Rene Jones

Most of our C&I book in our business, they are all float-off a one month LIBOR, so it's slightly more floating than it is fixed.

Lynn - UBS

Okay, and then duration of your fixed loan portfolio, do you have that off hand?

Rene Jones

I don’t. I probably have the duration of my total discretionary portfolio, which is securities and resi mortgages, which when you combine that together it would be 2.7 years.

Lynn - UBS

Great. Thank you.

Rene Jones

You’re welcome

Operator

At this time, there are no further questions. I will now turn the floor back over to management for any closing remarks.

Don McLeod

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

Operator

Thank you. This concludes your conference. You may know disconnect.

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