M&T Bank Corporation (MTB) Earnings Call Transcript & Summary

Next up, very pleased to have M&T Bank with us. From the company, we have Darren King. Why don't we put up the first ARS question as I get my notes ready. We have been asking this to everyone, the ARS guy is not there. Bulls won the Super Bowl? Is that the question? I don't want Bryan wants to ask that -- wrote response . We took that out.

Maybe the best place to start is, last year at this conference, you guys kind of put in a slide a thesis that we've been talking about in terms of dry powder -- and you talked about the benefits that people United was going to bring, the benefit of your excess liquidity position in front of what could potentially be a rising rate environment, which we got in then some and just kind of all the excess capital you've built up. So I was hoping we can kind of just kind of structure the conversation around that. And why do not we put up the first ARS question. As I kind of just maybe start with people's just because it's on people's mind, no pun intended. But you closed in April, we saw the conversion was over Labor Day weekend, so just a week or 2 ago, maybe just talk us through how the integration when, how the conversion went both from a system standpoint, from a cultural standpoint and just any update on the opportunities with that franchise.

Sure. So overall, big picture, despite the delay in the approval that was 6 months longer than we thought, it still – we have got a personal best in how long it took to get Hudson City approved and hopefully, we never crossed that one again. But we're happy to have the deal closed and now converted. The economic impact of the deal and the strategic premise of the deal are all still intact. So that's great. We went from a place when we announced when rates were low that we expected the deal to be capital accretive immediately. But with the portfolio marks and the credit marks -- it was a little bit capital dilutive but should be earned back within a couple of quarters. And the IRR on the deal is everything we thought it would be. And so from that perspective, it's all great. Happy to have the system conversion behind us. And we're in the second week of that. And so it's -- we're in what I would call stabilized mode. When you take a franchise that's got 700,000 customers and you change their web banking and you change their mobile access. There's always change -- creates challenges for people and so we're working through those right now. I mean everything that we have is up and working. There's no technical issues. It's more just helping people through that change and getting them up and running. And so that's pretty typical for a conversion weekend, and that will go on through this week and probably struggle through the end of the month. But overall, it's exactly what we would expect and things are moving along as we would have hoped -- the strategic value of the deal, when you think about our geography and our go-to-market strategy in the -- that we show in the investor deck, talk about stable low-cost deposits. That franchise continues to provide stable, low-cost deposits, which for us, we always knew and always believe was something that creates long-term value. At the time we did the deal with rates at zero, it was hard to see that. But as you pointed out, with rates going up, those deposits are tremendously valuable. And then the density we have in the Northeast just makes it that much easier to manage and help you protect those deposits. And the other part, which was really important to us is culturally, their credit philosophy is similar to ours. When you look at our long-term charge-off history and you look at it relative to the peers, relative to the industry, there was only one institution that had a charge-off rate lower than us through time and it was them. And so from a cultural perspective, the 2 franchises fit really well together and so we're really pleased with how things are going. Like I said, we get things stabilized, and then we'll get -- start getting at some of the things that we talked about that we see as upside. A couple of those just to talk about, one is credit card. They were issuing a card by a third-party provider. We'll bring that in-house. We look at how we kind of outpunch our weight class in small business, we see tons of opportunity in that geography to grow small business. We see upside in our wealth business. We also see the potential to bring some of their businesses into our footprint. The mortgage warehouse lending business, the leasing business, to name a couple, fund lending, franchise finance. And so it's really getting everyone on the same page and then go to market and we can have it.

Sounds like a plan. I guess the second or maybe kind of shift to capital, kind of the other component of dry powder. Now on one hand, we did see our SEB will go up in the fourth quarter, which I want to talk to. We also -- but you're still at 10.9% CET1 at the end of the second quarter, well above your new target of 9.2%. So still a fair amount of excess capital. You announced a decent size buyback, I think, $3 billion or so in July. I guess, putting all that together, I guess, first off, what do you learn from the stress test? And is that something that you can maybe mitigate go forward?

Each time you go through the stress test, you learn something new because each time there's a different portfolio that gets stressed. Probably the thing that strikes us most clearly when we look at the stress test is just the downside of being really good at one particular asset class because if that's the asset class that gets stressed and you're concentrated in it, then by definition, you're going to have higher losses in that and you're going to end up in it with an SCB like you saw for us. And when you look at our -- when you look at our actual charge-offs in real estate versus what is in this stress test or even what was in the December 2020 stress test. It's -- I guess the thing that we learned is that some of those concentrations are dangerous from a capital perspective. And the other thing we learned is that our portfolio and our bank can withstand a lot of pain and knock out of business because to have 11% losses in real estate in this test and 16% in the pandemic one and both times we passed, says that we've got a pretty resilient franchise. We see that it's a little bit less capital efficient if you have to hold those levels of capital against real estate, which is why we've talked about the strategy of bringing down the amount we keep on our balance sheet and starting to use capital markets as a source of funding for our clients and turning some of that business into fees instead of spread. But overall, the business is one that we know and we believe in, and we'll just participate in a slightly different way than we have in the past.

I guess when you think about kind of transitioning the CRE business, I think as analysts, how should we be thinking about that as we kind of -- as balance sheet implications, income statement implications, I guess, how long does this transition take? And how should we think about that?

Yes. I think the way to think about it is it will happen over the course of, probably, 3 plus years, right, that a lot of what will happen with the balance sheet. The first place you'll see it, and you've seen it for the last couple of quarters is construction loans, right at the construction portfolio got pretty large. A lot of those projects slowed down in COVID, but they've continued to complete. And as those complete, you won't see the growth there again and so you'll see some of the balances come down in that space. And then the rest of the portfolio, it will be as their loans come to term, right? And so they're typically a 5 year term, and so it would generally take 5 years for someone to be in a position where they're going to refinance and at that point, it would be a decision of do we do it on balance sheet or we do it off balance sheet. And so what you'll see is you'll see those balances come down slowly over the course of the next 3 to 5 years. And at the same time, you'll start to see growth in the fee income lines, probably be in other income until it becomes meaningful enough to call it out if you're looking forward from a geography on the income statement. And then as those balances come down, then we can bring down the capital, right? And so when you think about -- go back to the 9.2%, part of the driver of the 9.2 million is the real estate. And so as the real estate comes down, then that 9.2% will come down as we get through the cash, one of the drivers of the increase in the SCB was the size of the balance sheet, right, that I think it's pretty widely known that the FED's models calculate expense based on the balance sheet side rather than as a percentage of expenses. And so the cash that was sitting on the balance sheet caused the PPNR expense number to go up and PPNR down, which created more challenge under stress as that cash comes down and gets deployed, that will be helpful for the SCB. And all those things will help us deploy that excess capital. Now the nice thing is we've got we're well above 92% as it exists, and so there's nothing that will prevent us from executing on the $3 billion that the Board approved earlier this year.

So a lot in that. So I guess with CRE coming down and then you have the cash declining, which you talked about. Obviously, you mentioned earlier, PVCT had very low charge-offs -- so you're rolling them in -- you're going to have to partake in the CCAR process next year. I mean, would you expect that SCB number now to come back down next year?

Whether or not it comes down next year will be a function of 2 things. It should start with that, how much it comes down will be a function of how much stress is applied to the CRE book, right? Because even with people's, our CRE -- their CRE concentration was similar to ours. So in aggregate, it doesn't change that much. That's one. 2, the cash is coming down, but it's still elevated. And 3 is when the FED's models run and they calculate PPNR, they don't have a systemic way to take out onetime expenses. And so a lot of the conversion expenses are likely to go through their model, which is going to cause a lower PPNR number. And if that pulls through in the test that we'll do in March, based on this year, it could show a small -- a bigger decrease in PPNR to offset losses, which could necessitate a higher buffer in their model.

Right. So maybe one more, maybe a long...

Maybe it will take one more cycle to get back down to the 2.5%. Hopefully, we won't be at 4.7%, again, we'll at least have a 3 handling...

I mean what do you think is the longer-term CET1 target kind of as you look out and undertake kind of its downside?

Yes. I mean we think that we can run well below where our current levels are. And we've always talked about being at the low end of our peers because we think our underwriting is strong enough that we should be able to run at the bottom end of the peer range. And how low that goes is always a function of what's happening with the FED and even though you could probably run even lower than that, there's a practical constraint, which is if you get too far to the range of the peers, then that doesn't work. So you see people now. I think last time I looked for our peer group, I think our peer median is about 9.6%. And so we're running 110 basis points more in capital than the peers.

So you have this excess capital, you bought back 100 million shares in the second quarter and now just $3 billion buyback -- how should we think about the pace of that?

Yes, I think the number that we talked about on the call, 600 a quarter is a good threshold and then depending on what's happening in the world, maybe we'll go a little faster or a little slower, but that's a safe target.

Okay. And then maybe shifting to the liquidity. You deployed some of cash into securities, yet you're still kind of capturing asset ratio is well above peers. Maybe talk about your plans to add more fixed rate assets to the balance sheet. You've been portfolioing mortgages. You talked about, I think, adding $2 billion of securities a quarter. Just kind of maybe flesh out how you're managing... In this rate environment?

Yes. So the excess cash is just inefficient. And so when you think about how we feel about capital efficiency and asset efficiency, having dollars sitting in cash is highly inefficient. And so it's a question of how do you deploy it. And when you think about where we were back in 2020 and 2021, we've talked often about our -- we couldn't make the math work for us on if we deployed that cash into either a mortgage-backed security or some longer-dated U.S. treasury that the AOCI impact would be severe if there's any meaningful change in rates and even 2 hikes, which, at that point, seem pretty aggressive, gave us a nose bleed with what would happen to the equity. And so we couldn't make the math work and so we didn't do it and now here we are where rates have been going up like crazy. And so now the question is, how do we deploy it. And so to think about the cash, the main thing to keep in mind and think about is really what's the asset sensitivity, right? And so our goal wasn't to sit on the cash because we wanted to be asset sensitive and we wanted to make a rate bet. We were trying to avoid taking on a lot of duration risk and destroying equity when those things reprice. And so now our objective is to deploy that cash to build a securities portfolio to use mortgages to bring down our asset sensitivity so that we start to protect the downside, right? Because the cash is really nice right now when rates are going up, it's 100% elastic. And every basis point that goes up falls to the bottom line. The problem is, if, for some reason, rates go the other way, but the reverse is true. And so to think about the cash, we're trying to deploy it in a way that allows us to take that asset sensitivity off the table in a way that you don't -- if you deploy it all at once, then you're basically taking a different bet. And so we're dollar cost averaging into it. We're building the portfolio. As we've talked about a couple of billion dollars a quarter. We're also doing some other things we've talked about, about letting some higher cost deposits go. Last quarter, we saw some muni deposits run off. And so we allowed the cash to roll out for that. You'll see this quarter that there's some additional deposit runoff, which is big brokered deposits are in higher cost savings in money market that came off the people's balance sheet. They went off at the end of the second quarter, but from an average perspective, it will be this quarter. And so we're managing the funding costs with that cash. We're deploying it in a way to build back that portfolio, but dollar cost average into it.

I guess maybe, I guess, prepandemic, I recall you guys having a fairly active interest rate hedging program, rates rising outlet. Just how are you kind of thinking about using derivatives to manage the balance sheet?

Yes. So we think about derivatives as another element to help us bring that asset sensitivity down and to protect the margin through time. And so we've been rebuilding that derivatives portfolio much the same way we built it before. that we're doing a lot of one year, 2 year, 3 year swaps turn to lock in the curve. Actually, some of the ones we did early on are actually negative right now because the curves move faster than what the forwards were when we lock them in, but that's a good problem to have. And so it's starting to rebuild that portfolio and take the duration out 2 or 3 years to use as much of the -- we generally do cash flow hedges there, and it's usually against the real estate book. And so we're doing a similar strategy that we did last time in building that book out.

Thanks. And you touched on deposits, but it's become a big theme of this conference. I was hoping to spend a little bit more time there in terms of trends you're seeing in terms of levels, in terms of mix from noninterest-bearing into interest-bearing, in terms of betas, why don't you kind of start and I could fill in.

Where to begin? So I guess what I would say is from my experience, which one time I was a deposit product manager before I was in this job, it's playing out the way it kind of typically does in a rising rate environment. The most price elastic are typically the munis. And that's what you're seeing. You're seeing a lot of requests for pricing there. We're seeing a little bit of it in our capital markets, global capital markets business, which is really institutional custody and balances sitting there looking for more rate. You're seeing it in the wealthy customers. And so the people that have lots of liquid cash are looking for rate. Starting to see a little bit more in the commercial space. We're starting to see a little bit of movement into sweep in that space. And in the consumer world, and small business world, it's really not much action yet.

Right. I guess you talked about -- I think you mentioned on the call, deposits down in the back half of the year. Would that still be your expectation? And then you kind of mentioned deposits, I guess, slow to tick up. Any kind of change in thoughts in terms of you kind of through the cicle beta assumptions? Or do you think will, at some point, kind of catch up?

We're going to catch up. It's not a question of if, it's when. And the rises have just been so swift and so big that the betas are just taking time to go. You're definitely seeing more in the commercial space and like I said, in the muni space. And you're seeing a bunch of that go off balance sheet, right? Some of the muni deposits are going into funds, some of the commercial deposits are going in off-balance sheet sweep to get rate. But in the consumer world, the only action really so far is in time, and there hasn't been a huge movement yet into time and remixing. But that's typically where that starts in the consumer space, as you'll see people move into time deposits. But in terms of where the balance sheet goes, it's going to be down as we allow some of those higher rate deposits to go off balance sheet because of the excess cash, right? And the last part of the equation on managing that asset sensitivity is, over time, as you start to reprice deposits, deposit repricing up brings down your asset sensitivity, right? And so when we talk about how we're trying to take the asset sensitivity down in the balance sheet, we're always looking at and saying, well, how much do we want to solve through derivatives? How much do we want to solve through the securities portfolio and include in that the consumer mortgage book and then how much will ultimately take care of itself through deposit pricing. And we're always trying to figure out what that mix is because if you overedge, that's as bad as being underhedged, right? And ultimately, that deposit pricing is the key lever there, and that's the one that you always trying to manage and do the right thing for the client and do the right thing for the bank.

Interesting. Why don't we cut the next ARS question. What is the biggest positive in the catalyst for M&T? How come we didn't put all of the above? Yes, I want to force them to answer, I guess I want to kind of hit the next one before. So capital and NIM. We talked a bit about capital, and we're certainly going to get to NIM maybe we'll go to the whole NII construct next. I just put up the next question -- why we have the audience answer on the flip side? What do you think is the biggest negative catalyst? And as the audience answers that, Darren, hoping maybe you could talk through loan growth. I saw the slide deck you put out last night, it looked like you're kind of reiterating all the loan growth guidance you gave on the call. And for those that are not familiar, is of loans, lower end up 24% to 26% is exactly what you said on the earnings call. I think some pipe missed that last night. But -- which is obviously a healthy number. Now maybe we can maybe walk through the major categories, starting with C&I kind of being driven by middle market. economy slowing based on what I read... Just how do you think about lending into a slowing economy?

I guess at the end of the day, when we think about lending, we think about supporting clients in our geographies, right? We can't make people lend. All we can do is respond to their needs and if they're growing and investing in their business, then we're there to support them and if they're not, then we support them in other ways. And when you look at what happened in the first half of the year, middle market was driving a lot of growth. I think we'll see and continue to see for us and for the industry growth in C&I, this quarter and through the rest of the year, maybe a slower rate. I think we're going to find for us that we're up quarter-over-quarter, but it may not be at the same rate that it was in the second quarter at our folks a little internally focused for the last 90 days getting ready for the conversion. But well, like I said, we'll be out with the vengeance starting in October. And -- but C&I is driving a lot of the growth. There's been a lot going on in that category for us of late, which creates noise. So if you look over the last -- if you look year-over-year, the print would be down because of PPP, right? You've got to remember that in the first half of last year, we had $6 billion of PPP loans sitting on our balance sheet in C&I. And as of the end of the quarter, in June, it was $250 million. And so that's a huge number to outrun. We've seen some -- and so if you hold that to the side and you look underneath it, what else is going on, we've seen, obviously, tremendous growth that you've seen line utilization go back up. It was the starting point. We're seeing some inventory on dealer lots again, so our floor plan lines are being used. One of the things that will happen and is happening this quarter is with People's United, one of the businesses that we're in now is mortgage warehouse lending. -- and that sits in the C&I line. And so the mortgage warehouse lending business is being affected just like the mortgage businesses is and so if there's less activity, there's less line usage. And so that will show up as a decline in the C&I. But when you put it all together and you look at underlying in the economy, generally, the C&I customer is doing very well, and they're continuing to borrow and invest. And so that's underneath it all, that's really strong. If we keep going down the categories, when you get to CRE -- have to people think CRE uncertainties a negative. Look at that. Well maybe address that and what you're about to say. Yes. I mean the only -- I guess, it's certain to me that the size of the portfolio is going to shrink. It's going to be led by construction as these construction projects go down or reach their natural conclusion. And over time, we'll see a little bit less in the commercial mortgage space. I think the hard part to do the math on it is -- it will be -- there'll be less CRE balances on the balance sheet, which will bring down NII a little bit over time. The offset will be in fees. And the thing that's got to be in the equation is the capital, right? And so the number 3 and number one, the CRE uncertainty and the trapped capital kind of go together because as we change our approach to CRE, it's going to be actually a more capital-efficient way to run that business and should be a better EPS business and a better return business because you're not having to hold the capital that you have to against those CRE loans, especially given what's been -- what happened in the stress test, right? And so when you go through that stress test and you see 11% losses on real estate, and you got to hold the capital against that, then the return on capital isn't what it was. And so if you shrink that portfolio a little bit, you release that capital. And what you have, you get -- you do more through fee income and you get a better return on equity by that approach to the business rather than doing it all balance sheet. And so I think the thing that is difficult to see right now is how that will play itself out for people to put it in their model. But if we just think about the math, the math is, I think, pretty straightforward in terms of the returns and what the returns look like on that business when you take that approach. We just got to play it out.

And then I guess my consumer mortgage, anything -- and mortgage, anything that...

Yes. I mean the mortgage portfolio, obviously, we're retaining our production. And so that's growing, although again, the rate of growth is a little bit slower as rates go up and activity in the market comes down, but that portfolio will grow. And then in the consumer portfolio, there's a mix of things in there. There's auto, there's recfi and there's home equity. And so like I know it's been a topic around the conference. Auto is a little bit slower. It's just the production is down. Sales are down, a little bit more competition, so the economics aren't as good. And so that's a little bit slower. Refi's still strong, and home equity has actually grown this the last quarter and continues this quarter, thanks to the rate environment.

Got it. So I guess we talked about loans, deposit securities, maybe kind of bring it all together in terms of net interest income. Why don't we put up the last ARS question, which we could ask the audience as I ask Darren, my next question. But what is your estimate for M&T's NIM for next year? It was 3% in the second quarter. I guess, Darren, so you've talked to, I think, 54% to 58% net interest income growth. I'm not sure if you want to tighten that range or leave it as is...

Don't make it wider.

I do that. But obviously, we've seen second quarter strong NII growth, strong NIM expansion. Maybe just talk to your outlook for the second half of the year. And just more color in terms of where you see the NIM headed? I kind of want to see what this answer is before we help me frame it. the audience sees the NIM really 3.5% to 370. I guess I would think you be able to get to a NIM over 4 over time. Do you think you can get there? Can it stay there and just maybe more color.

Yes. Yes to the question is posed 4%. I was going to make you sign that. No. Well, I guess if you look in the material that we sent out last night towards the back, we put a graphic of net interest margin over time and against FED funds. And if you look back in time, there's a real line of demarcation right around 2,000. And you haven't seen NIM above 4% for any sustained period since 2000, and that's when FED funds has been down below 4%. And will FED funds get above 4% and there's enough play there to maybe see a sustainable margin above 4%? Maybe. The flip side is there's such competition in banking, right, that it's going to stop margins from getting sustainably above 4%. And so when you look at our history, I was looking at it this morning, we printed 404, I think, in the first quarter of 2019. And that was as we were coming through the last rising rate cycle and rebuilding the portfolio after Hudson City and pricing out some of the CDs that they had on the books. And so what will happen is you're going to see rates and margins grow, I would expect for the industry pretty dramatically in the third and fourth quarter just because of the pace of what the FED has been doing, right? And so when you get 3.75 in rapid succession, deposits just don't move that fast, right? And so for us, with that cash, it's going to -- we're going to move a little bit faster. And so you'll see some upward trajectory on the margin. But over time, I don't think 4% is a sustainable long-term margin. And what we print over 4, I expect we probably will at some point, but I don't expect it to last long, right? Because deposit pricing will catch up, right? And so again, when we think about the bank and we think about the margin, we talked a lot about deploying the liquidity. We talked a lot about bringing down the asset sensitivity. We're not looking for interest rate bets and for volatility in that line item that we think that a net interest margin, not far from where the audience is in the -- I would say, the 360 to 390 range over a long period of time is probably a good spot to be, and I'd be happy with that for the bank and that charge-offs with low 360 to 390 with low volatility, that allows you to make the investments you want to make, right? And so when we talk about the bank, and we haven't talked about it in a while, our objective is to not take interest rate pets. It's to be relatively neutral. And we ended up in this position for all the reasons we talked about before. But it's to have low volatility in the net interest margin, stable predictable fees and that allows us to make the investments that we need to make to continue to build the franchise. And it's tech investments, it's investments in people and capabilities. And so that's the place we're trying to get to. And if you have that kind of steady predictable earnings, then it also helps you manage capital. and we can be more efficient with the capital. And so all those pieces play together. As we talked about before, Jason, the balance sheet is a little bit out of whack right now with all the cash. And that will straighten itself out over time. And obviously, that will have an impact on the margin.

So you mentioned 360, 390 over time versus 3% in the second quarter. So still some more upside there. You also mentioned kind of wanting low volatility in terms of losses and maybe just shifting gears to the balance sheet, credit quality continues to be incredible across the industry. Everyone is talking about normalization kind of being pushed out and just taking a while. Just maybe talk to in terms of what you're seeing. One of the topics that's come up at this conference is we ask executives where you're looking for tar problems, I think office CRE would probably be number one, other pockets of CRE like hospitality, retail, also continue to come up. Maybe just talk in terms of what you're seeing from a loss concern perspective.

Yes. It's obviously, it's a lot different than what it was a couple of years ago. We talked a lot about hotels and hotels in New York City. I don't know what you guys are paying a night here, but it's a lot more than it used to be prepandemic. And so when we look at the hotels and we look at the vacancy and the RevPAR, they're pretty much back to -- and so the hotel space is pretty good. The only ones that from our book, still are not all the way back, are ones that rely on conferences and events like weddings, -- but otherwise, everything is doing well there. Multifamily is really good. Retail has come back very strong. I think the last time I looked, I thought the second quarter redose retail in-person sales were the same percentage they were pre-pandemic versus online. And so when you look at the rents that are coming in to retail owners as a percentage of sales, that cash flow is back. And offices is a place to worry and -- but what happens with office is you've got really long-dated leases. And so it takes a while for that to work its way through the system, which means the landlord has lots of time to find other alternatives. And so it's not really a struggle yet, but it's something that we're watching. And the other place that we're watching is health care. -- and it's senior living, assisted living. And the issue for those folks now isn't COVID, it's staff and finding enough folks to actually staff the homes to provide the level of service that they need to attract the residents. And so you're seeing occupancy rates there are up from where they were in pandemic, but they're not all the way back to where they were prepandemic.

I guess when we think about CRE in a high inflation, rising interest rate environment, does that make you more nervous? And how has your portfolio performed over time against that backdrop?

It's -- it's something that we stress, right? And when I mean stress -- we actually stress the portfolio and look at what it looks like under different rate environments and what that does for debt service coverage ratios and customers' ability to pay. The thing -- a couple of things to keep in mind there is generally when people do a loan, they swap it, right? So it's a variable and they swap it's fixed. And so you've got to get to the end of that term before that repricing risk comes, right? And so it's not immediate. The other thing is when we underwrite CRE, we generally underwrite to long-term interest rates and long-term occupancy. So someone comes in and they got a loan that they want to do and prevailing rates are 4%, and they're like at 98% occupancy. But we know through time, rates are 7% and occupancy 93%. We underwrite to those numbers, right? And so you're thinking about what the property looks like through the cycle. -- right? And so one of the things that -- whether it's how we think about the bank, how we think about the portfolio, how we think about the mix. It's always -- what does it look like through the cycle? And so will those things be impactful? They will. But that's always a function of the client that you're dealing with. And when you look at a lot of our real estate book, we've disclosed what the loan to values are, the bulk of the loan to values are below 60%. And so someone's not going to walk away from 40% equity because rates moved, right? They figure out ways to handle it. And so it's a concern. We pay a lot of attention to it. But on a positive side, if you think about the pandemic and you think about the stress test, what better actual real-life stress test was there than what happened there, right? And if you think about a lot of the multifamily properties, rent forbearance was given and mortgage forbearance was given and all these folks made it through, and charge-offs never went above 20 basis points, anywhere near 11%. And so I think there's been a real live stress test that told us how well that industry can survive.

I got 2 minutes and 3 questions. All right. Be around. Okay, just reserves. Just we've talked about banks having to given CECL and maybe greater downside scenario, loan growth. Just how do you think about reserving kind of near term and into next year?

Just math, right? I mean you look at where the economy is going, and that's a big, big factor in your models and then portfolio growth. But -- we can't control what GDP is going to go out and what employment is going to be, and it will be what it will be. I mean, I guess when I step back and I look at it and I think about some of the crazy numbers that went into CECL models during the pandemic and how much the industry set aside, you'll know better than me, but I don't think any banks actually reported a loss in 2020 despite that kind of reserving. And so if the industry can handle that, I think whatever is common, we can handle just fine.

And then when you talk about fee comer expenses, so you guide fee income up 5% to 7%. Anything in there of note?

Not really. I mean, I think if you trace your eye across our fee income lines on a quarterly basis on our income statement, it's pretty predictable.

Got it. And expense is up 24% to $26 million, likely at the high end, you said in the slide exactly it's in the second quarter earnings call. Anything you want to call out there as we think about the back half of the year?

No. I mean just to remind everyone that there's -- when we talk about this, we talk about net operating. We're not talking about what the gap print is. And so we did the system conversion over Labor Day weekend. That's really the kickoff of round 2 of onetime expenses, right, and some of the severance expense that will happen in the fourth quarter, but there's nothing out there other than the pressures that everyone is seeing just on wages and the labor markets, but nothing crazy.

And then lastly, we saw a cash efficiency ratio of 58% in the second quarter. You still got all the people merger savings ahead of you. Where do you think that can go?

Much like the margin, it will move around a bit, right? Because it's -- there's a denominator issue, right? And so it's going to drop. It will drop into the low 50s for a period of time. But I guess that -- but that's the denominator, right? And so the thing to remember with M&T is we always worry about running our bank efficiently and not going crazy on expense growth. And when you see movement in the efficiency ratio, generally, it's because of the denominator, not the numerator with us. And so nothing that's going to cause any big changes in how we think about the bank and investing in the bank and our expense run rate, but that number will move around a little bit because of what's happening with margin and rates until that stabilizes.

Awesome. On that note, please join me in thanking Darren for his time today.