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

Great. Moving right along, very pleased to have M&T Bank with us. From the company, Daryl Bible, Chief Financial Officer. Daryl, good morning.

Good morning, Jason.

So we were just talking on the side about your last couple of days kind of your first, I guess, management offsite with some of the new members. I mean maybe share with us kind of what went on there?

Yes. So I'm still relatively a newbie at M&T, 15 months in, but we had an executive leadership offsite the last 2 days, and it was really good to see the new -- we added 3 new people to our executive leadership team: Eric, Rich and [ Mike Todaro ]. And it's just really exciting to see the young guys come in and really contribute and add to the discussion and strategies that we're using in the company. We really use this to make sure we're grounded in our beliefs. And we believe that M&T is going to be the best bank in the communities that we serve. We firmly believe that. We also believe that our communities are a reflection of the strength of our banks. So we want our communities to be successful, so our bank can be really successful. And we had very good alignment there and really good consensus moving forward. I love René bringing everybody together. And I've worked for some pretty good leaders over the years, and I would put René up there with all of them on how he manages our group and the company and really gets us to be the best that we can be.

Interesting. I would put up the first ARS session. We've been asking this of all the presenters. M&T did put out a slide deck last night, which I was flipping through. And I guess, a couple of things in that. One of them I maybe didn't appreciate, Slide 16 kind of jumped out in terms of just how much you've reduced the asset sensitivity over the last few years. And also you had a bit just on kind of fee income, and not only fee income, but fee income diversification. Can you maybe talk to how M&T is positioned as clearly the Feds are going to pivot next week?

Yes. If you go back to the beginning of 2023, we were really, really asset sensitive. At the beginning of 2022, we're really asset sensitive at that point in time. And over the last 1.5 years, our treasury team has done a good job, methodically really putting in hedges throughout our balance sheet. When you look at M&T naturally, without any hedging, we are very asset sensitive. If you look at our loan book, 75% floating, 25% fixed. If you look at our liabilities, we have a higher percentage than most in transaction accounts. Operating accounts tend to have longer duration. So without hedging, we would be super asset sensitive, probably outside of our policy limits from there. So we usually have -- receiving swaps on the books anywhere from $15 billion to $20 billion. This past year, we were able to continue to extend those out into '26, and we feel good hedging for the next couple of years from a rate sensitivity perspective. But we will continue to work on our rate sensitivity as we go out farther and farther. One of the other things that we've done over the last year is that we've put more money in the investment portfolio. We still have probably $25 billion of cash at the Fed, plus or minus, but we have over $31 billion now in the investment portfolio. Duration is a little bit over 3 years. So we're trying to use that to help manage our rate sensitivity as well. And just looking at how things kind of play together, we feel that we are really neutral overall for a big balance sheet and assumptions you have to layer in there. I think we're as neutral as we can be, to be honest with you. And it's all driven on assumptions. Those assumptions, the big drivers are disintermediation and betas for the most part. But we feel good that, as rates start to come down, we will continue to maintain a good margin and net interest income and possibly continue to grow that as well.

And just maybe talk to maybe some of the -- what happens like with fee income and some of the drivers there in a lower rate environment.

Yes, I get this a lot in that M&T has really good net interest margin, but really low fees. So we have an oversized net interest margin. I think we have the largest -- second largest margin. So if you look at it as a percent of revenue, fees of 25%. If you normalize the margin to peers, not saying that's what we want to do, we're closer to 30% on what our fee income is. So it isn't quite as bad as what people think it is. That said, when you look at our fee businesses, we divested our insurance business as well as our CIT business over the last 1.5 years. I think those were good plays that make sense and really focus on core businesses that really support our customers and our communities from that perspective. But when you look at what we have now, our trust business right now is having a record year. ICS, which is mainly corporate trust services, is just killing it right now. They're gaining market share against a lot of the big guys in that space. We are not doing it by having advantageous pricing, we're really doing it on service and quality. And as that market continues to grow, that will be a growth for us. On the wealth area, we continue to penetrate more of our M&T clients into our Wilmington Trust wealth business. That's a positive. Our brokerage business is having also a very strong year. With the recent drop in interest rates, our mortgage businesses, fee incomes, you're starting to see those come through. Commercial mortgage is going to have a great third quarter, probably have a great fourth quarter as well with lower rates. That's a good guy on fees. That will also be a good guy on credit quality because it's helping us get permanent placement on a lot of our construction portfolios there. Resi mortgage, we continue to invest in producers in that space, especially in our New England markets, to help grow out and deepen our relationships in those places. So I'm very positive overall. And finally, our treasury management, that was 1 of our 7 investment areas that we put money into this year. It's up 13% year-over-year right now and continuing to grow and have success. So fee businesses are continuing to rise. Whether the percentage increases or not, we'll see how much our margin increases as well. So I can't guarantee the percentage of fee is going to increase, but I think our revenues are definitely headed up.

And then one of the things that kind of always stuck out to me that kind of differentiates M&T is just the community banking approach. Maybe just talk to how that's performing and expectations there?

We spend a lot of time on what is a community bank the last 2 days and what does that really mean? And for us, it really means doing the right thing in our markets to make them be successful. When we go to market, we basically go there and really penetrate. We get involved with all the political folks within those markets, making sure we can support them on their agendas, trying to support what's needed in those markets. We have 28 operating regions right now. We go to our car dealership people that we go to. The people that are movers and shakers in those markets, we want to make sure that they have a relationship with M&T. From that position, then we continue to grow share throughout that whole marketplace. If you look at Baltimore, if you go back 20 years ago, M&T entered Baltimore with the acquisition of Allfirst. Now we are the dominant player in Baltimore as we continue to grow and invest in that space. We're going to try to do that in the people's markets as well. When you look at how we go to market, being a community bank with scale, you have a lot of smaller players there, they don't have the scale. You have the larger guys, but they really don't go to market like we do, where we fine-tune and actually meet the needs of each of the communities we're in. 28 marketplaces, I call it, we have 28 different headquarters. So we're decision-makers, so they can meet the needs of those communities and be successful there and grow in those areas. And they're all a little bit different in how successful and how we achieve. But we take the long game, and we think we can be very successful in these new markets with how we bring banking and financial services to the communities.

I want to shift gears and turn to capital for a moment. We'll put up the next slide. But in that vein, M&T, we started the buyback in the third quarter and, obviously, a lot of movement in capital. We got the Basel III endgame preview, I guess, yesterday. It looks like M&T will be able to avoid the RWA inflation.

Good guy for us.

Yes, that is good.

So AFS is positive for us now. We actually have a gain in our AFS...

Given the drop in rates?

We do.

Interesting.

It actually adds to capital.

That makes the question even better. So maybe keep that in mind as you're answering the ARS question and be careful there. So you kind of answered part of my question. You also mentioned on the earnings call that despite the ability to opt out of CCAR next year, whatever they call it now, you're going to opt in. So I guess maybe kind of what actions are you taking to lower your SCB? And just how does that -- how does both the potential low of the SCB as well as kind of yesterday's news kind of inform your kind of buyback expectations for next year?

Yes. So let me start with our stress test. We were 1 of 3 banks out of 31 banks that actually had a reduction in our stress capital buffer. So we were happy to see that decline of 0.2%. So that was really positive. As we look out into this next year, when we look at the drivers, we think PPNR will probably stress test better, all things being equal, because we're now 3 years past the People's acquisition. And usually, those expenses kind of fall out. They use the moving average when they kind of model the PPNR piece. So we think that will be a benefit for us as we go forward there. If you look at it from a balance sheet perspective, our CRE concentration has continued to shrink this year, which is a good thing for stress losses that they model, as well as our criticized balances continue to fall. So we're very hopeful that those will continue to improve in third and fourth quarters such that it will probably make sense for us to opt in and hopefully continue to drive our stress capital buffer down. Even though we went down, we have ways to go before we can basically be in the top quartile of that, and that's the direction we went ahead. The other benefit that we get, quite frankly, is a lot of our constituencies like the rating agencies use the stress capital buffer in how they -- it's one objective thing that they can look at across everything from a credit perspective. So they use that. It's also important for us from a ratings perspective as well to continue to improve that stress capital buffer, so we can basically work on getting upgraded from our rating agencies at some point down the road. As far as the share repurchase goes, we announced we did $200 million this quarter. We're doing it again in the fourth quarter. We haven't made any decisions for what we're going to do in '25 yet. I would just tell you that our CET1 ratio continues to increase. At the pace that we're doing right now, we'll be probably over 11.5% CET1 when we close the books this quarter. If you look at that and you look at how much capital and you look at what our constituencies want from us on where they want us to operate capital levels, we could easily repurchase $2 billion of stock next year and still have over 11% CET1 ratio because of our strong earnings and PPNR that we have. I'm not saying we're going to do that. We haven't really figured that out, but we have, I think, huge flexibility on how much we can actually repurchase if we decide to move forward and things continue to improve in our balance sheet from a credit quality perspective.

Helpful. The audience seems below your $2 billion expectation or commentary.

That was before or after I said?

That was before.

Okay. I have...

I have this later on, but I'm going to ask you this now. 0% of the audience picked bank acquisitions. And M&T has historically been a very good bank acquirer, particularly when some banks are struggling, and there's definitely a lot of regional banks struggling right now. Can you maybe talk to kind of your appetite around bank acquisitions?

I agree with you. M&T has historically done a great job acquiring. We have no desire to be a national institution. We want -- I view us as kind of -- I could call us a regional champion. We're in Northeast, Mid-Atlantic. There's a lot of opportunities in those markets. So if we decide to do something, it would probably be in market, out of market, contiguous out of market or a combination thereof. But really, right now, we're focused on our priorities. We have 4 priorities in the company. And we're growing out our New England, Long Island markets from People's; we're improving our risk, how we manage risk throughout the whole company; improving resiliency, so that's more scalable; and we're working on optimization, both from a revenue and expense perspective. Those 4 priorities have driven 7 large projects in our company that we've started this past year that we're making tremendous progress in. That's really where we're zeroed in and focused on doing. And as we complete some of these projects, we have other projects already lined up that we are going to go into and move forward with and continue to drive those priorities. In those past 2 days, we confirmed our priorities. We know that the projects we have right now are the most important things in the company, and we will continue to change those out as things get completed and move forward going.

Got it. Maybe to up the next ARS question and maybe shift to credit quality. Can you maybe talk to the impact that lower rates could have on kind of the credit quality outlook? I think one of the concerns has been, particularly in commercial real estate, that borrowers have a difficulty refinancing. And as rates come down, what impact does that have? And just how do you think that translates into overall credit costs?

Yes. So let me start with CRE. So if you look at CRE, for the most part, most of the stress in the CRE book, with the exception of office, was driven by higher interest rates. Most of the business models in those segments are performing well, as expected from that perspective. Office has a tenancy issue, as we all are aware of from that perspective. So when you look at it and you look at lower rates just in the CRE space, there are 2 areas where we get relief. One, we're seeing already that the yield curve has shifted down. Our commercial mortgage or our RCC business is really experts at getting placements done for people coming out of construction, looking for permanent financing. We have a lot of apartment owners now that are trying to get more permanent financing. So those are all starting to get placed in the marketplace now. Rates are lower and the people want to basically -- it's how much money they can basically take out with the payments that are available right now. With lower rates, a lot of our clients now are taking advantage of that and extending out and getting that permanent financing. So you're actually seeing a reduction in a lot of our criticized book being placed out now permanently. I think on the short end of the curve, as the Fed will drop interest rates, we have a very black and white picture of how things go in criticized. If it's under 1.2 discounted cash flow, it becomes criticized. So just as rates start to fall, our discounted cash flow ratios will move up with all those borrowers. And you're going to see 100 basis points -- if we get 100 basis points, that will be a significant threshold that you'll see a lot of more loans come out of criticized into performing status. 200 basis points would be -- pretty much wipe out the vast majority of the criticized book. So I mean just that short answer -- so on both sides, I feel really good. We had a good second quarter from a credit quality perspective. I know we're going to have a good third quarter. I believe fourth quarter is going to be strong as well. So our criticized levels are headed down right now, and we feel really good about that for the reasons that we talked about.

And maybe talk to maybe some of the drivers in the C&I portfolio. There's been some lumpiness there.

Yes. If you look at our charge-off budget, it's good that you have a charge-off budget. We have hardly any charge-offs, I think $35 million in CRE charge-offs versus about $200 million last year. So that's coming in way under budget, but our C&I is a little bit over budget. And it's really driven by the leverage. We have a small leverage lending book. And when you look at our leverage lending book, our 5 largest charge-offs year-to-date, 4 out of the 5 were in leverage lending, and they were PE-backed. If you look at the amount of loans that are PE-backed leverage lending, it's under $1 billion in our company. So we have a very small exposure, but that's where the stress is really coming from and seen. But with lower rates coming on, that will probably get alleviation as well. Just like in the CRE book, that will also improve their performance from that perspective there, too. So -- but the losses are in C&I right now, but we feel really good. 40 basis points, plus or minus, I think, is kind of the ballpark where we'll end up in charge-offs. And I think we have a good long-term history of really outperforming our peers in charge-offs over a long period of time, and we will continue to do that. One of the reasons why we're so profitable is because of our credit underwriting and our credit performance. That is the strength of M&T and will continue to be a strength of what we do.

Got it. We're at the halfway mark here, so we have to go to guidance.

We have to go to guidance?

That's the rule. So you did put out a comprehensive slide deck with kind of your expectations. Maybe just talk about net interest income. And I mean, the 2024 guidance is all unchanged. But I guess, throughout the year, kind of the rate tightening -- or rate easing cycle kind of got pushed out and kind of your NII guide kind of continually went up. Now we're kind of going into an easing cycle, and despite kind of going from 2 cuts to 4 cuts, NII guide unchanged. Can you maybe talk to and kind of expand on kind of what's driving that? And one of the things you mentioned in the onset was $25 billion in cash. As the Fed begins to ease, and I suspect there'll be some lag on kind of deposit repricing, just how does that inform your view on NII as we look into next year?

Yes. I mean, it really comes back to the model that we have for the whole balance sheet, how it all works together. We definitely have a lot of liquidity at the Fed. We think we have put in more fixed rates on the asset side to help us give us that protection as we move forward. If I look at NII right now, we gave guidance that we would be in the high 350s for the second half of the year. Two quarters in to the third quarter, we're 3.59% is our net interest margin. We still have September to go, obviously, from that. So we feel that we're right on track of what we thought we're going to get. We had the benefit last quarter of a lot of the nonaccrual interest getting recaptured when some of our nonaccrual loans paid off. We aren't seeing that right now. So we're basically getting the net interest income basically just from the balance sheet that we have. We aren't getting a lot of positive ones that you can count on right now. That could happen in September. You really can't plan for that. So I feel really good that we're going in an upward trajectory. When I look at my interest-bearing cost, because that's going to be what's going to make or break us and where we're going to come through on a net interest income perspective, right now, our interest-bearing deposit costs are down 2 basis points. If you look at it from first to second, we were down 3. So we're down 2. Now if the Fed cuts 25, we'll probably be down kind of mid-single digits is kind of what I would expect right now because we got 2 weeks of the higher beta stuff repricing now for that 2-week time period. So we feel very good that we're on track from what we need to do and from a repricing perspective, and I feel comfortable that we'll be in the high 350s, may even crack into the low 360s as well.

Helpful. Maybe put up the next ARS slide in terms of deposits. I guess, you're one of the few banks that saw interest-bearing deposit cost decline last quarter, and it sounds like another modest reduction this quarter. If I look at kind of overall deposit growth, it does look to be lagging peers. We have limited data kind of quarter to date. But is that -- maybe talk to what -- is that you kind of saying, hey, we don't need all those deposits because we'll get to loan growth in a minute, but loan growth is a bit soft, so we don't mind these customers leaving? Or maybe just kind of help us flesh out the strategy there.

So we still continue to have a little disintermediation. I mean, DDA is still coming down a little bit. We've had some municipal client wake up after not having any interest for this time period. And we gave them a 2% rate, and that helped from that perspective. But -- so there's still people looking at that. So you still have a little bit of migration. That, I think, we're very close for that ending for the most part. I'm a big believer in that we want to grow core funding. We need to continue to grow core funding. If you look at what we have in broker deposits, Federal Home Loan Bank advances and unsecured debt, we have plenty of that funding that we can shrink to basically replace it as long as we price that core deposits coming in. So if you look so far this quarter, we're actually having good growth in core funding coming in. We continue to price aggressively in certain places. But we're pricing under what I would call the marginal funding curve and what it would take for us to borrow non-customer funding. But the more that we can do, we want to be always on in our company from that perspective. And that is when we go to market, the treasury drives that, and we drive it throughout the whole company that we always want to be competitive. We won't win every deal, we'll be competitive, we won't be the highest, but we want to make sure we get our fair share. Now from a lending perspective, for the most part, it's playing out similar to what it has the last couple of quarters, except that total loan growth is more flattish. C&I is growing still. It's growing in our specialty businesses. If I look at our dealer business, corporate institutional, mortgage, warehouse, fund banking, all those continue to grow. Some of our regional markets like Buffalo, Baltimore, Boston are growing. So we're growing in certain spaces there. Our CRE book is actually running down a little faster than what we thought it would from that perspective. So that is coming down. Our consumer book is still growing. We're still growing RV and auto. I think we're getting really good pricing still in those areas that are acceptable. Really good credit quality. Our credit quality in RV is 790, credit quality in auto is over 760. So I think we're still attracting the right type of loans in those books. So I think business is performing well. NII will continue to improve upon and grow, and I feel good about that.

Yes, you're one of the few banks to be talking constructively on C&I loan growth. I guess what -- you gave us kind of the industries that's driving that. But what, I guess, allows you to grow where others can't? And I would say, it's M&T, so it's not getting enough credit.

Yes, it's within our risk basket. For the specialty businesses, we got those from People's, so we're really rightsizing them for the size of company we are. So we're having higher hold limits than what People's had in a lot of those portfolios. In the middle market space, it's just hand-to-hand combat there. I mean, we are being aggressive, being competitive, but it's how we go to market. We're there for the long term. Our customers know, in good times and bad times, M&T is there for you and we'll be with you from that perspective. So I think that's a positive.

And then before -- as I look at deposits, the quarterly data shows kind of a continued mix shift with noninterest-bearing falling more than interest-bearing. With the Fed expected to cut, I guess, how do you kind of see that -- or where do you see that kind of mix leveling off?

From a deposit perspective, high level, we expect our betas to be in the 30% to 40% range is kind of where we're estimating that to be. About half of our deposit book has a beta north of 75%. So I think that will reprice. The consumer book will be a lot lower than that, which would be the other big chunk of that portfolio. Our DDA has been shrinking and all that. We hopefully believe that kind of levels out and starts to actually start going the other way. Usually, when rates start to fall, your noninterest-bearing deposits actually start to grow in that case. And I don't know when that will happen, but it will probably happen sometime in 2025 would be my guess from that perspective. So we feel good that we'll have good pricing power. One of the advantages that we have is that in the markets that we're in, we dominate a lot of those markets and we can control the pricing in those spaces, which is really important.

Let me put the next ARS question. I guess, as kind of the audience responds to this, maybe just talk to, as you kind of look out, what do you need to see maybe for NII to come in kind of the high end versus the low end of expectations?

The big things that are really impacting net interest income and margin is disintermediation, that's moving money from DDA into sweeps or off balance sheet. I think we're -- when we see it, we're doing a good job keeping it on balance sheet and paying a competitive rate that's interest-bearing. Beta repricing is going to be critical. We haven't had rates come down for some time period. I've talked to the leadership team around our company. Treasury is driving it in there. But we're going to work really hard to make sure that we, at a minimum, achieve the assumptions that we have in our models and hopefully try to exceed those assumptions that we have in those models. But that is something that we are really working hard towards from there. And the third thing is really mix change on the balance sheet. I love to use it on both sides of the balance sheet. We're still getting positive mix change in our consumer book, which is a good guy. We have some debt that's maturing in the next couple of quarters that we'll be able to reprice down to. We're still repricing up our investment portfolio. So it's all those other pieces coming together. But those are the 3 big drivers that I would say would be for net interest income and margin.

And I guess one of the things you kind of expect this quarter is just smaller balance sheet. Looking out, I guess, how do you kind of see the overall size of the balance sheet evolving throughout next year?

Yes. The size of the balance sheet is going to be driven upon, I would say, the core funding that we have of the company at the end of the day. The more core funding we have, the more we can deploy into assets. We were meeting the last couple of days talking about how we're going to do lending and all that. And as long as we have both, I call it, both oars in the water, when we go and talk to clients, we want to get lending and we also want to get deposits and you get them at different times, maybe from the same client and all that. I think we'll be fine. We are very good at getting whole relationships and really working on the long game to really win the day with our customers and our communities. So it's what M&T does. It's really a successful business model. We go to market in our 6 businesses to get operating accounts. And we aren't in the fastest growth markets, but we probably -- when you look at industry averages, we're averaging growing operating accounts, but we are the best in attrition. We have the lowest attrition rates in the industry. Because once people come and bank with us, they love what they see and really want to be a full customer. And I tell them, if we can get their operating account, then that will just lead to much more revenue over a long time period of time with the customer. And that's really where we're starting to go to work.

The audience sees a little bit of margin expansion from current levels next year.

No comment. I can't comment on that.

And I guess your outlook kind of for fee income and expenses, you talked about fee income at the onset, how you have a benefit of lower rates. And then I guess, in that vein, as you kind of -- I guess without thinking about expenses, as you kind of approach the 2025 kind of budgeting cycle, you'd have -- you kind of called for some expense growth this year. How are you kind of thinking about the outlook for 2025?

We aren't going to give '25 guidance yet, but I am very, very positive in our fee businesses. The lower rates are good. Lower rates are really good for us. We think we've done a good job hedging our net interest income. I think we're doing a good job there. Our businesses, I think on the fee side will be driven just with better revenues in our ICS business, capital markets business, our mortgage businesses. All that, I think, will be really positive, and our credit costs will come down. As our criticized levels come down, we're going to have lower provision costs over time. At some point, we'll probably start to reverse the allowance sometime in '25 if rates continue to fall. So I think things are headed in a really good trajectory from that perspective. You asked me about CRE?

What?

You asked me about CRE?

Do you want to talk on CRE?

Okay. So...

We've covered it earlier, but...

I missed the talking point on CRE. So...

Once you said classified and criticized are all coming down...

Yes. We're at a point now, if you looked at where we ended the month in August, our CRE concentration is at 148%. So we're operating at a level where we think we need to be from a CRE perspective. And we are opening up our CRE opportunity and starting to bring that in. I don't expect it to grow probably until 2025 because it has to start to build momentum and all that, but we're comfortable. About 21% of our total percentage of loans is in CRE. We'll probably end the year close to 20%. But we feel good at those levels, and we believe that CRE will now probably grow in tandem as we grow other parts of our balance sheet as well.

So when you say CRE, it's obviously a broad...

Not a whole lot of office.

So it's kind of CRE ex office. And is that, I guess, driven by some of the other banks kind of pulling back more broadly kind of creating opportunities?

Well, I think it's the diversification that we've done in the company. I mean, we've really diversified. I mean, our C&I book will be probably 45% C&I, 20% CRE. We'll probably end up at 35% in consumer, the rest will be in mortgage. So I mean, I think we're very comfortable with this diversification. I think the constituencies are getting more comfortable with that as well, and I feel good. And the loans you can make now in the CRE space are probably some of the best loans you could ever have in that space. So we want to be supportive of our communities and our clients in that marketplace.

So in the past several conferences, even before you and with you, we've talked about wanting to move kind of CRE off balance sheet and kind of leverage some capabilities we're building there. So it sounds like you continue with that as well as kind of maybe more comfortable using your balance sheet for your customers?

Yes. I think we'll grow the balance sheet as we can grow other loan categories, so it doesn't get disproportionately. We worked really hard the last 4 years to get it to the size that it is now in our company on balance sheet. I think we're comfortable with that space. And now we just got to make sure we have all the other levers moving in the same direction. You are right, though, that we will still have a relatively large CRE business, but a lot of it will be off balance sheet and generate fee income. And we've invested in a lot of resources there and are starting to add traction and success in that space as well.

Actually, what else haven't I asked you that I should be asking you?

You didn't ask me the last question yet.

My last question? We talked about buyback. We talked about acquisitions. We haven't talked about dividends. I guess, any thoughts around there?

Yes. I mean I think if you look at our peers and where our payout ratios are, we're the lowest payout ratio by far in the industry. We feel really good about operating earnings. So I'm just cognizant that we are aware of where we are versus others in the peer group and feel really good. We're one of the -- I think we're the only company that hasn't cut the dividend if you go back from its history and even in the great financial crisis. So we take that really seriously moving forward and all that. But we also want to make sure that we're doing the right thing versus our investors and all.

So we get the $2 billion buyback and a decent dividend increase?

You never know. Everything is possible.

Interesting. And I guess it's -- because you talked about buyback, you talked about dividend increase, you talked about you're actually one of the few banks seeing C&I loan growth and consumer loan growth and now this opportunity to grow commercial real estate. So it sounds like it's...

We're hitting on all cylinders.

Right. And I guess, you feel like you have enough capital to kind of do all of the above.

Yes. We're in a sweet spot right now.

And I guess, something you touched on and I want to expand on is, you talked about how lower rates drive down criticized and classified commercial real estate loans. I assume when something goes criticized, classified, you're putting up reserves against it. As those kind of come out of those buckets, how does that inform the overall allowance?

Well, I will tell you, it may not be intuitive, but if you look at our nonaccruals, about half of our nonaccruals don't have any specific reserve that's attached because the LTVs are so low that we don't think there's any loss content. So you can't just say we're lower criticized and automatically release. It is going to release some reserves because a lot of them do have reserves, but it's not dollar for dollar from that perspective just because our LTVs are very conservative from that. So actually, with what we saw with Basel III come out, you're kind of anxious to be a Category 3 bank because you want to take advantage of those new risk weights from a credit perspective. That would be a really good scenario for us.

Does that make you maybe increase your desire to do an acquisition?

No. We got our priorities, Jason. But I'm just telling you, from a credit perspective and our underwriting perspective, we are in a really sweet spot from what we're seeing in the proposal.

And that's true for your model, that may not be true for all banks. But with that, please join me in thanking Daryl for his time today.