in Buffalo, New York. M&T's operations are concentrated in the Northeast and Mid-Atlantic states. They offer traditional banking services, trust, investment brokerage, and mortgages. M&T has consistently had among the highest ROA among its peers. Joining me today is Daryl Bible, CFO, who joined M&T in 2023. Daryl is responsible for the overall financial management of the company. Daryl has over three decades of corporate finance and banking experience, and prior to joining M&T, he was CFO at Truist, and its predecessor, BB&T. Thanks for joining us today.
Thanks, Susan.
Um.
Happy to be here.
Great. So 2023, the understatement of the century here is 2023 has been a challenging environment for bank stocks. With the inverted yield curve, rapidly rising rates, deposit betas, rising, and some failures in March. So, you've been in industry for a long time. What have you learned about M&T and how the bank is managed? And they've had pretty impressive results so far. So what can you attribute that to?
Yeah, no, thank you for the question. I, I would say, you know, it has been a challenging year. You know, obviously, loan growth is not robust, if there's growth at all. There's been actually a drop in deposits. That hasn't happened for, for a long time before. So definitely headwinds from an industry perspective. I think when you look at M&T, M&T is a very conservatively run company. We're very long-term oriented. And when I look at really the events that, that happened this year, and I kind of have been around for seeing a handful of downturns and all that, to me, it comes down to really three reasons, you know, why it, why it happened.
You know, diversification matters, you know, and I think the M&T model actually was validated in this scenario because we're a diversified company, and we have five business lines with consumer, business banking, commercial, wealth, and our corporate trust business. So all that really did well in that time frame. I think tangible common equity matters, and it matters when there's stress. It always has been. If you remember the Great Recession, you know, everybody was doing the same thing that just happened in the springtime. And if you look at M&T, you know, our tangible common equity is 7.8%. If you look at the decisions we made, you know, we basically did not invest in the investment portfolio because we didn't want to have the risk of the capital impact and all that.
We're very long-term oriented function, so I think that kind of plays through. You know, the last one was really the industry and regulators really didn't model any differential between insured and uninsured deposits, and we always looked at operating and not operating, and when you layer that in, you get maybe some different answers out there. If you look at the M&T model, you know, we are really, really good at operating accounts, core deposits. Whether it's consumer, business banking, commercial, you know, that's the first thing we go after, and we kind of build from that. Our business banking business, 87% of the deposits is basically operating accounts. And if you look at that business, it's a 4:1 ratio , four times more deposits than loans that we have there.
We've really had the great model to weather the stresses that really came about this past spring.
Okay. I hope that the percentage of insured deposits, I hope after this year, we never talk about that statistic again. That is nothing I ever worried about, and now it's very hot. Just moving on to the income statement. You know, a few things I'd like to talk about a little bit more. With deposit betas rising so quickly, with interest rates rising rapidly as well, you know, it's been a big focus. When do you think that NII and margin will trough, and can you just sort of talk about the outlook for those two things next year?
Yeah. So we're still in the midst of our planning process, but I'll give you, you know, obviously some points that, that we're looking at. For me, I think the hardest thing for this planning year is really modeling disintermediation that's occurring in the industry. You know, for us, it's the reduction of our demand deposits going into sweeps. We saw it moderate in the third quarter. We're expecting it to continue to moderate in the fourth quarter. But that ... And obviously, when you lose something you aren't paying interest on, and all of a sudden, you have to pay, you know, 5% interest on it, that has an impact on your net interest income there. So as that kind of moderates down, I think that would be a big key for, for net interest income.
That's probably the largest component of net impact in net interest income. You also have disintermediation in the consumer book going into the CDs. I actually don't view that as a negative. It really comes down to the discipline that you have and how you price the balance sheet and how you go to market, both on the lending side and on the deposit side. As long as you're pricing those deposits, you know, under the funding curve, you know, you're going to win over the long run with that scenario. You know, if you look at it now, we're 12%-13% funded of CDs versus total deposits. I would say if you look back in history, we're maybe mid-20s.
It really depends on how long rates stay higher, but rates stay higher for longer, probably that's going to continue to have. You could have the DDA maybe stop switching as we kind of bottom out, but I think that could basically be an occurrence that happens. But you have to look at the other side of the balance sheet. You know, right now, our balance sheet on the lending side is 60% floating, 40% fixed. If you look at the consumer book, you know, our auto loans, our rec loans are repricing up, you know, 300 and 250 basis points higher of what's rolling off of what's rolling on. That can help mitigate, you know, the repricing of the CD, CD book. So I would kind of look for the-...
the switching of the DDA impact will probably be the single most important piece-
Okay.
-for that to stabilize.
So if the Fed, you know, their messaging is a little unclear. They paused, obviously, this time, and then a little bit of a hawkish point of view. So if they maybe raise one more time in December, and then we're kind of flat for next year, how does that help at all? Does it? Or you said higher for longer maybe isn't necessarily helpful.
In a high rate environment, banks can make a lot of money. It comes down to discipline, how you price assets and your deposits. The disintermediation impact, I think, will have... If you look at how much DDA we have as a percentage of deposits, we're at 33% of total deposits. But since we have brokered in our denominator, if you really back that out, that's 36%. If you look back historically, the DDA, if you go back 20 years, was 25%. If you add Wilmington Trust to that, because we have a lot of DDA from our corporate trust business there, if you add that in there, we're closer to 30% is our historical bottom. So there's risk that it can go maybe from 36% to 30% over time. Does it get down that low? I, I'm not sure.
Mm-hmm.
But that, that's probably the biggest driver that I would see, you know, from that impact. It's going to take a couple quarters when the Fed's done raising rates before everything kind of gets balanced, you know, on the balance sheet. But if July was the last increase, maybe yes, maybe not, you know, you probably see some stabilization as you get into, you know, middle half of next year, potentially.
Okay. And then, I've asked some other folks this, how much can you monitor, sort of, how fine can you get on your monitoring of what, where, what people have moved? So if I have a DDA account, consumer and the commercial side, I've moved half of my deposits to money markets, to CDs, or 75%. What, what I'm getting at is, has most people moved their money? If you look at that analysis, have most people kind of moved their money, 50% of it, 75%, 20%, when you look at that?
We monitor the balances daily.
Yeah.
As you would expect, and we do it by product codes, we know exactly how much is moving. I have a report that basically shows what our interest cost is on deposits every single day and what that mix is, so we're monitoring it very closely from that perspective. I would say that the bulk of the repricing has probably occurred, but higher for longer, we'll probably have some dribs and drabs of things which probably trickle in over time. You know, for us, you know, it just... We just need to continue to execute our model. We go to market getting operating accounts, growing operating accounts, that's probably the most important thing that we do.
And we want to make sure that, in my past, we always want to have an always-on scenario in that we are going to market, you know, for loans. We are not on an RWA diet, so we're trying to grow loans with the exception of CRE. So we're trying to grow that, but we're also trying to get deposits at the same time. And we want to make sure that we price our deposits cognizant of where our marginal funding cost is, and we price at a spread underneath that funding cost. That discipline of how we manage banks, you know, 10, 15, 20 years ago, I think, has to play into how we manage in a higher rate environment.
Yeah. Okay. You know, it has been a little bit more challenging environment. A lot of people are introducing cost savings, you know, up to number nine for certain folks. What, you know, what do you think about on the expense side?
So what I would tell you, I actually go to the board in a week and a half.
Mm-hmm.
And we don't have any wood around here, but it's been a pretty good environment for planning. It was probably the easiest plan that I've put together so far, to be honest with you. It really comes down that our leadership is really aligned on what we have to do. And I'm just so happy and pleased with what... So I challenged all, all of my peers to come in at flat expenses. I asked them to absorb their merit, merits at 3.5%. I asked them to fund any job growth or changes or whatever, and we're, we're there on that. Now, I'm not going to say we're going to guide yet or anything like that, but I have basically no expense growth. Now, there are certain projects that we are working on in the company.
If you look at our priorities that we have, we have four main priorities. One is continuing to build out the markets that we got from people, so in New England and Long Island, so we will invest in that. We want to continue to invest in our operations areas from an automation perspective. We're investing in resiliency. Like in finance, you know, I thought I would never put in another general ledger in my career. And guess what? I'm putting in another general ledger, this time. It actually is going really well, but you know, that's a resiliency investment, from that, perspective. The other one is just continuing to build out our risk infrastructure that we have. Our risk infrastructure, you know, is really sound, but as you get larger, you just need to continue to automate.
So as we're building out the general ledger, in the past, I built out an automated LCR 2052, 52a process. We're doing the exact same thing here at M&T. So we're trying to automate, you know, for me, it's my capital liquidity, RRP, as much as possible. For Mike Todaro, it's a broader, you know, challenge of how we manage risk from a risk appetite perspective. So we are making those investments. But given where we ended with the lines of businesses and support groups, I feel really good that when we come to guide, you know, in the January time frame, that will be a modest increase off of what our base is.
Okay. So on the automation, are you using AI for that? You should talk about that extensively. That's the only way you're stopped by... We talked about the GLP-1 after that.
Yeah. I remember the dotcom era, too, if you go back 20 years.
I'm just going to pause for a second and see if anybody has any questions.
... Great, thank you.
So it's a commercial real estate question. M&T has a great reputation on underwriting, very strong track record. People's, I would say, is more average. So I'm wondering, I think probably about 30% of your commercial real estate portfolio is, is from People's. Is that right? And I'm wondering if you could differentiate in terms of, like, broad, broad characteristics, loan-to-value at origination. I also think People's did cash-out refis, which I think M&T doesn't. And I guess you've had People's for a bit of time, so maybe that's amortized down a bit. But just, just help us understand. Now, you've seen the problems more on the People's side than M&T? Just, just help us understand those. I guess M&T is more kind of—has more in New York, but.
Yeah. Yeah, that's a good question, Julian. I think, you know, when we purchased People's, we did a mark to market on the balance sheet, so any risk that we saw at that time, we kind of addressed that risk from that perspective. Obviously, your interest rates continue to get higher, so there's more stress in the system, both on the legacy portfolio as well as on the People's portfolio. I really wouldn't differentiate the two, to be honest with you. I mean, one of the reasons we merged with People's is we thought that they have a really sound credit underwriting process, and we believe that was a good fit for us in how we do that.
You know, rates where they are and higher for longer, is just putting more stress in the system, and I think that's just what you're seeing playing out. You know, I think I signaled in the earnings call in your CRQ that comes out early next week, you know, but, you know, our criticized numbers are going up. The main reason for that is, the majority is in the multifamily space, and it's really driven by just rates higher for longer. Doesn't mean the projects are not performing well, it just means the interest rates are going up higher, and some of the hedges are starting to mature, from that perspective. You know, we take a very long-term approach. You know, our model is to work with clients that work with us.
You know, we have great client selection as how we go to market and do that, so we think we're banking the best clients in the markets that we serve, from that perspective, and we will support those. When you do see us exit out of loans or in properties, it's really more the people that were investment funds, where they took their cash out already, and they aren't going to support those products. Those are the ones that we exit out early, and we don't—we've done a few of those. We might do more of those in the future, from that perspective, but that's really what we're really selling. Otherwise, we're going to work with clients that basically have been with us for a long time.
Thank you.
Just to follow up, when People's did do cash out refi, is that correct that they did it? Like, what would they allow leverage to go up to by an asset class limits?
I might have to phone a friend on that one, Julian. I don't know that one, to be honest with you. Yeah, we can get back to you on that. If I knew, I would tell you. I just... For the first one, I haven't asked that question in my six months being here, so I'll get that answer for you.
Before I go to Charlie, I just wanted to ask a follow-up. When you said, you know, you want to exit some of the ones that you're less certain about, is it easy to do that, or are there-
No, it's not very liquid.
Okay.
You know, obviously there's not a lot of activity out there. There are, you know, one large portfolio that's out there being rumored to maybe be sold, so we'll see how that goes out there. You know, my guess is, is that, you know, if and when the Fed decides to officially pause, which could be soon, could be two years from now, it depends on what happens. I believe that there's a lot of money on the sidelines that will know that's the bottom of the market, and people will, will come in at, at that space at that point in time. But you're right, it is not-
Okay
... robust. We were able to get that one hotel in New York City sold.
Mm-hmm.
We sold that property and actually had a recovery on it for approximately $5 million.
Great. Okay. Charlie?
Yeah. Daryl, I wanted to test out a theory on, on you and see what your reaction is. So the current narrative is the banks are overearning on NII, and obviously, the concern is that demand deposits will continue to migrate away or deposit balances will decline or, you know, repricing, et cetera. And that's all based on a very high level theme that QT is going to continue to drain liquidity and Treasury issuance is going to drain liquidity. So my theory is that maybe you can overearn for longer than expected.
And the reason is, if you understand how the Treasury has been financing during the third quarter, when bank deposit balances actually started to stabilize, it was because they were issuing treasuries at the short end, particularly T-bills, and now they're up to their maximum 20% of marketable, you know, mix. And that came out of the reverse repo facility. And so excess reserves remain fairly stable at $3 trillion. Going forward, they're talking now about, you know, buying off-the-run coupons. Essentially, they're going to do yield curve control, issue at the short end and buy at the long end. And that program is running, you know, a test pilot of $30 billion right now. It's probably going to go to $60 billion-$100 billion.
If I understand my T accounts correctly, when they buy those off-the-run coupons, it's usually from pension funds, insurance companies, corporate treasurers. So those guys get cash, and that cash goes back into the banking system as a demand deposit. So you may not get that decline in banking deposits that everyone's talking about or that continued migration, at least until the reverse repo facility is completely run down. Is that correct?
... have any merit in your mind?
I think it does have some merit, you know, from a flow of funds perspective. You know, our institution, for the most part, you know, I think is just has the DNA to actually go to market all the time to try to get deposits, operating accounts. So we're always on from that perspective. But I think from a macro perspective, having that ability to have less pressure in the system, I think that would create some more modest pricing competitions potentially out on the marketplace. You know, if the supply of funding actually, you know, settles down and doesn't shrink anymore. So I think that's a possibility. You know, to me, though, it really gets back to: How do you run a bank's balance sheet, you know, at a higher rate environment?
The first part of your question, you know, you need to have discipline on how you price your loans. You need to put prepayment penalties on your fixed rate assets that you can. You need to price your deposits under the funding curve. You know, we did that 25 years ago. From that, we need to have that discipline, how you do that on a go-forward basis. We can earn pretty good margins at these rate levels. Even if rates drop, you know, one or two hundred basis points, it's still at a pretty high rate level than what we've seen in the last 10, 15 years. So I feel very comfortable that we will continue to have a good margin for M&T on a relative basis versus the industry.
We'll always have that advantage just because of the mix that we have on the funding side and on the asset side.
Hey, Daryl. So you've had a buildup in cash the last few quarters. Does that reflect a degree of, like, how you view the deposits? Or why don't you kind of, like, wind down some of the short-term borrowings that are higher cost?
So we, you know, what you have seen come out is Basel III rules, and you've seen long-term debt rules. You know, down the road, you know, my guess is that you will probably see, you know, more rules come out when it comes to liquidity, interest rate risk, of how that actually operates. I think we're just trying to get a little bit ahead of that. So if you look at how we model, and I kind of mentioned it in the first question that Susan asked, but if you look at what we didn't model was the insured, uninsured. So now we're factoring in that volatility into our liquidity stress scenarios. You know, that, that adjustment for us that we started to implement was a increase of $4 billion of highly liquid assets that we operate with. Doesn't have to be all with the Fed.
It can be the Fed or, you know, in the investment portfolio or whatever, but it, but it is something that basically will have more liquidity available. That will put pressure on the NIM. Depending on the shape of the yield curve, it may or may not impact NII a whole lot, depending on how that plays out. But it's really just trying to get ahead of where they were probably moving to and trying to just run the company, you know, from a conservative posture that M&T has done over many, many years.
And then just separately, so you listed a few investment priorities. Where are the line of business CFOs getting their cost savings, to offset those?
You know, it's a mixture of how they run businesses. You know, I'm a big believer. So I'm not a fan of consultants. At the end of the day, it's just not in my DNA. And I'm a big believer that if I can challenge my peers that know how to run their businesses and have them kind of restructure their businesses and adjust those businesses, they're better to do it than anybody else in the process, and they were able to restructure. Some of it was maybe some workforce strategies that occurred. Some of it was, you know, how they, you know, basically, operated in their businesses from an expense perspective.
It's a mixture of a bag there, but, you know, I always like to empower the people that run the businesses first and let them have a choice of how to make them more efficient as possible and still grow their business from that perspective. So I thought that was really important, and they rallied and delivered on that.
Daryl, you've been doing deals since your days at Firstar, decades ago.
Star Bank, actually.
I saw you talking to the Fifth Third CFO out there, and maybe it was about the Bills-Bengals game. But could you talk about the appetite for deals out there, and what the environment is?
Yeah. So when I was interviewing with René, and he was my last interview, he says: "What are you going to do with the Bills and the Bengals?" Because he knew I grew up in Cincinnati. And I said, "I would root for the Bills, except when they're playing the Bengals," which happens to be this Sunday night from that perspective. But yeah, Jamie and I know each other, you know, from Cincinnati days. So your question on-
I'm going to-
Yeah, sure.
Yeah. Yeah.
The appetite in the 1990s, for example, is completely different than it is now.
It's just really tough to do deals right now. I mean, if you look at most of the banks out there, just because of the mark to market of their balance sheets, there's just not a lot of equity out there. So it's really hard to get the math to work to actually do acquisitions. There's a capital hole that we have to fill. We're one of the few banks that have a significant amount of capital, with our tangible common equity at 7.8%. So my guess is that over time, you know, there will be other transactions and that would happen. Right now, I don't foresee anything happening, you know, on a more—unless it's a forced type of transaction.
I don't see anything happening just because of the marks you have to pay and what it would do to your tangible book dilution and all that. It's just really hard to get it to work. But you've been through cycles before and definitely believe that, you know, there will come a day. You know, one of our core competencies is really doing bank acquisitions and, you know, doing a really good job on the bank acquisitions, and, you know, we will continue to do that when it's appropriate. But M&T is not going to vary from what we do. I mean, we're really good at, in the markets that we serve.... If we do anything down the road, it'll probably be something similar to what we've done in the past. You won't get any surprises out of what we do when that happens.
Okay. Any other questions before we move on? Great. Okay, I just wanted to follow up with what you had said before, that you're not on a risk-weight diet, like many others are. You have a fair amount of capital. So is there opportunity to maybe grow the loan portfolio a little bit more than the average right now?
Yeah. So we actually had a call with our senior leadership, which is our top 300 people in the company, and I had five asks out of the leadership team. And, you know, one of them, my first ask was basically, you know, with the exception of CRE, we want to be able to, to grow C&I and consumer, but we want to do it within what the market will give us. Obviously, we aren't going to do anything and stretch from a credit perspective.
Mm-hmm.
But, you know, if we can get the right pricing, we get the right stays within our risk appetite structure, you know, I think we're definitely open for growing there. And I also asked them to also ask for the deposits as well on that, so it's getting relationships. We've actually been growing customers, you know, in the last two quarters and all that, so that's a real positive. And that's... You know, we are trying to grow as much as we can. Now, we don't have any, obviously, capital constraints and all that with our capital levels where they are. So it's just a matter of, you know, executing and getting good client relationships over at M&T.
So, are your loan officers or, when you're at, you know, some of the committees, did they say it's noticeable that there are people that are out of the market right now, and this is an opportunity for us, or it's, that's a little exaggerated?
Yeah, I mean, obviously, our competitors are going to protect their best clients and all that, so you have to win over the client selection that you want from that perspective. But, you know, I think we just have more ability just because of our strong capital and liquidity versus others right now. And on the margin, I think we're winning the day in our markets.
Okay. And then switching back a little bit to the deposit side and then maybe a follow-up to what was asked before: How do you think about the use of broker deposits, and, you know, some of the excess liquidity that you have and your growth? How do you think about those fitting together?
Yeah. So I... You know, we have to fund the bank, you know, and not all the funding. As much as I would like it to be all customer funding, it's not all customer funded. So, you know, we use unsecured debt, we use Federal Home Loan Bank advances, as well as broker deposits. You know, with the long-term debt requirement, you will see us use more unsecured debt, you know, over the next year or two, as that requirement goes into place. And my guess is that we will pay off and continue to shrink Federal Home Loan Bank advances and broker deposits over time. You know, it's really just what do we think is available, what's the best funding source for us at this point in time?
We are intentionally, if you look at brokered, it's kind of a static number right now, but we are changing the mix of that. It's not, I think it's $8 billion CDs, $4 billion money market, and it's making us less asset sensitive. So we're trying to, as, you know, we have disintermediation in the sweeps as we move this in the brokered money market. You know, we're, we're naturally becoming more neutral on a rate sensitivity perspective, which is kind of where we want to position ourselves probably over the next year or so.
Okay. And then I guess moving. Oh, sorry.
Just to follow up on that quickly. So you, you did issue some bonds last week. It was a relatively pretty small deal. My concern is, if you're issuing at sort of 2.5% + credit spreads, which is kind of very high for the quality of bank that you are, and you're using that to pay down FHLB, which is kind of zero spread, you're basically locking in a 2% + negative spread. So why don't you just put it off as long as possible and hope, you know, spreads come in after the crisis? Because you've actually got a long time, or it may not get implemented as it's been outlined. Like, why not just take your time on this?
Yeah, Julian, that's a great question. So we are trading wider than spreads, probably because of our exposure to CRE or office, would be probably why you have the spread widening. The deal that we did, you know, was oversubscribed, but we basically did a small deal, $750 million. We did that intentionally, and you saw from issuing that, our spreads tightened down, and they continue to tighten down. So our strategy really is to continue to go to market with smaller type transactions and try to push those spreads down to where we think they should be over time. We need to really work on that and deliver on that, and that's really the main reason that we did there.
You know, it helps us a little bit from a long-term debt perspective, but it was really just trying to position the company to work on tightening those spreads down some. Creating a demand out there for it.
Any other questions before we go? Okay. A good segue into credit. You know, that has been what people feel like is the next shoe to drop. Now we're going to have credit problems. So, can you talk about the credit trends in your portfolios right now? And then I'll do a follow-up on other parts.
Yeah.
Sorry.
I think overall, our credit trends have been relatively strong, you know, pretty much on target with what we communicated to the marketplace. I think all that's coming through, from that perspective. You know, obviously, office is probably one of the most, highest risk areas that we have. We've done deep dives on office. We've done deep dives on our healthcare portfolio. We've now done deep dives in our multifamily portfolio.... So we are digging in where we see any chance of risk of maturities in the next one to two years, and we're looking through those transactions to see where they could have issues, from that perspective. So we continue to review those portfolios, from that.
You know, from a consumer perspective, we're pretty much of a prime borrower, so I'm saying we're not seeing anything other than more normalization for the most part. Our C&I book is holding up really well, if you look at it. So that's performing, I think, strong, from that. We are shrinking our CRE exposure, and we're bringing that down. We've done it since 2020. We've brought it down about $10 billion. You know, we will continue to bring that down, you know, this quarter as well as into next year, you know, another probably $3 billion-$4 billion, from that perspective. So we're on that trajectory down, just trying to change the mix of how that balance sheet operates. It's very similar to my prior life, to be honest with you.
If you go back a decade ago, when I was at BB&T in Winston-Salem, you know, we had a lot of CRE, and, you know, over time, we basically changed the mix prudently into more C&I and more consumer lending, and we made that transition over, you know, three or four years, and that's really what we're doing here at M&T. So I've seen this before.
You're achieving that mostly through attrition. If it comes to maturity, you'd you-
The vast majority would be attrition and just being less active on originations in certain spaces. You know, we still want to support our valued clients in the markets that we serve, but, you know, there are opportunities where we can pass on certain transactions, and that's how we're shrinking for the most part. Every now and then, you might see some sales, but for the most part, it's just more just maturing out.
Yeah. Okay. And can you see where those clients go, or are there plenty of banks that are lining up to,
CRE-
Doing the funding?
is a place that I think is just... There's not a lot of opportunities for people to there. So I would say, there's just not a lot of demand for more CRE lending. You look at the agencies, those are at really high rates, so that's pretty soft right now. Insurance companies, relatively soft. So it's not an asset of choice at this point in time.
Yeah. Okay. And then just circling back to multifamily. When you think about a couple of things, you know, the inventory that's been built, that's coming on, I don't know if that worries you or if there are certain markets in which you operate where it's a little more elevated. I guess I'll start there, and then I'll-
Yeah. From a geography perspective, we aren't seeing any real big trends like you would see in the Southwest area. There's more issues there. I think just because of the regulations that you see, you know, in the geography that we serve, there's a lot of restrictions there. So the overbuilding is less applicable in most of our markets that we serve from that perspective. You know, for the most part, the transactions are performing well. It's just, you know, the higher interest rates is really what's putting on the stress. If you look at rents, you know, if you go back a couple of years ago, rents were increasing mid-single digit pace. Now, rent increases are much more modest, and that's playing—couple that with higher interest rates is that's what's putting the squeeze on the cash flows that you see.
But, you know, if rates are going to pause eventually, the rents will continue to probably modestly increase over time. So I think a lot of that will work itself out. You know, at the end of the day, our multifamily will exit through agencies or other third parties for the most part. You know, there's some of that happening today, and, you know, people are putting in right-sizing some of the transactions, and we're still getting some deals done, but there's others that are basically, you know, just in a temporary pause period until they can get them more right-sized.
Okay. And then when you're originating the multifamily loans, how much rent increase is sort of factored into your underwriting, or that's, you know, minimal?
I would say it's modest.
Yeah.
I think we're pretty conservative, from an underwriting perspective. You know, if we're seeing 3% now, my guess is we're probably modeling something less than 3%.
Yeah.
Okay.
Okay. And then you built the reserve in the quarter. Can you just talk about what the drivers were behind that?
Yeah. So from a dollar amount, our reserve went up $50 million. Half of it went to the CRE portfolio, which you'd expect that. The other half went to C&I, and if you looked at the growth this past quarter, it was in C&I. So it was really the reserve to fund the new loans that you had on the, the C&I book, from that perspective.
Okay. Any other questions? Okay.
With regard to the CRE and... So I've heard that there's—you said there's a lot of cash on the sidelines, a lot of cash on the sidelines, and yet, I've heard that in, like, New York City office, there's no cash for nobody. So how do you reconcile those two?
I think there's cash that will surface once rates stabilize. Right now, nobody's really saying that they're going to invest in CRE until the market stabilizes, probably what I would say. From that perspective, it's a good value from a valuation perspective to probably enter the market once you know that rates have stopped increasing, from that. So we'll see how that plays out.
Okay. Just then, just to get that right. Just one more on the capital side. You have pretty robust capital ratios, thankfully, for you. But you talked about your share repurchases being paused. When do you think you go to the board, what has to happen for that to... For the resumption in buybacks?
Yeah, so we really like being in a position that we're in right now, having really strong capital and strong liquidity. Not being on an RWA diet, we're in a strong position. So I think, I think that's the position we want to stay in for the foreseeable future. That will eventually change over time. We'll let you know when that happens, but buyback has always been core to M&T. It's not going to go anywhere. Capital is there and all that. So at some point, you will see us return to share repurchase. But right now, you know, as soon as you think the market's gotta settle down a little bit, something else happens, and we just want to make sure that we're clear from any disruption in the marketplace because we're in such a strong position right now.
Okay. All right. Any other questions? All right. Well, please join me in thanking Daryl for joining us today.