All right, we can kick it off. Disclosures first. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, we're delighted to have with us today M&T, Daryl Bible, new CFO, Darren King, Head of Consumer and Business Banking. You know, first of all, I want to congratulate both of you on your new roles at M&T. You know, maybe to start with, Daryl, since you're new to M&T, you know, I'd love to start with a few questions on your experience and career.
you know, what can you say about your decision to join about M&T and what you've learned so far? I know it's early days. It's less than two weeks.
Who's counting? It's 10 days. Counting weekends, 14 days. You know, for me, it really started with the purpose, you know, making a difference in people's lives. You know, that purpose statement really connects with me. At M&T, they really believe that. It's something that I can abide to and really follow, and I try to personalize it and bring it home every day by growing and developing my team. I think that really makes a difference. You know, joining M&T, I think is kind of a dream come true for my career. I've had, you know, really good companies I've worked for in the past. I see kind of the strengths of my two former companies blended together at M&T that really makes them why they're such a strong, outstanding performing company.
Kind of take the purpose in caring from my BB&T Truist days, and you take the operating side and the business side from my U.S. Bank days, blend it together at M&T, and really shows that we have a strong performance.
Any early plans in your first year as CFO, or is it too early to say?
René, by saying everything was running perfectly before I got here, so nothing to change, okay? With that.
I do appreciate Darrin leaving a stacked deck in the finance team. We definitely have a strong team going there. René's got a pretty good list for me to work on. You know, it starts with updating our systems in the finance area, putting in a new general ledger. Did that before, probably about 7, 8 years ago. You know, as we get bigger, you know, making sure that our company is prepared for Category II or Category III regulations, that would've been one thing. Now, with new regulations coming, it gets added to that. You know, it's basically a huge build-out, but, you know, the mindset we have to have is we have to be operating at those levels before we try to get a deal to those levels.
That way, the regulators have confidence in us, and we'll approve from that perspective. It's really getting us to operate at Category II or Category III levels. You know, for my world, it'd be liquidity and capital. I like working with Michael Todisco and Robert P. Bojdak, our Chief Risk and Chief Credit Officers, and helping them build out the whole company there as well. I think that's really important. You know, I'm just excited to be around. I'm around a lot of operators. It reminds me of the days that, you know, Darren King, you know, he'll be a great operator because he was a CFO now, and he knows what we need to do to make it happen. You know, in my few days here, you know, we saw our guide or whatever.
I said, "We probably should do maybe a little bit better on expenses." Chief marketing officer, I didn't go to him. He comes in my office, starts laying out, "This is what I can do, what I can't do," and all that. Tracy, our Chief Administrative Officer, sends an email to Darren, and I saying: We can do this. Darren chirps in and says: We can do this and this as well. I mean, that's without the CFO even being proactive. I mean, that's the cooperation I see and how we really work together. You don't see that at every other bank, trust me. What you see here is a really tight-knit, focused group to really succeed for our communities, clients, as well as shareholders.
Then, you know, maybe one more question, given the wealth of experience on the stage. You know, in your long careers in banking, you know, have you ever thought that there would be so much focus on uninsured deposits and liquidity?
You know, if you look at it, and I kind of tried to be you the last two quarters since I was on garden leave and all. I looked at the landscape, listened to a lot of earnings reports of our peers, annual conferences and all that. It was really a miss in the industry and the regulators, is how I view it, in that we really never differentiated insured and uninsured in how we modeled deposits. At M&T, though, I give them a lot of credit. You know, they have really long-dated commercial consumer clients. Even with that long dating, they're still very conservative in their assumptions when they look at the liquidity stress scenarios and the interest rate risk scenarios.
I'm sure we'll have changes and modifications, but I think ours will be probably more modest than maybe others in the industry. The other thing that I noticed, though, in the last couple of months, though, is diversification still really matters. If you go back to the Great Recession, you know, the guys that had trouble really weren't as diversified. The guys that had trouble this time really weren't that diversified. Guess what? The next thing is TCE really matters. You know, to M&T's credit, you know, they didn't go long in the investment portfolio. Even if AOCI gets adopted, you know, and goes into our regulatory capital ratios, it's only a 20, 30 basis point hit to our CET1 ratio. We already have probably one of the highest, if not the highest, CET1 ratio in our peer group....
We are in a position of strength from both a capital and liquidity perspective, which gives us a lot of optionality as we move forward in running the company, and the ability to stay and serve our clients in times of stress.
Lots to dig into there, capital, liquidity, deposits, but, you know, maybe before I get into all of that, Darren, can you talk about, you know, just the impact of the turmoil we've seen in the industry in March? What does that do for returns across the sector? Does that drive returns lower for longer? Does the industry rebound back to where they were before? Can we get your perspective on that?
Yeah. I mean, I guess in the short term, what I think everyone's seeing and what you've seen at the conference, is movement in deposit pricing, right? When the crisis hit, the flight to both treasuries and to the G-SIBs was fairly pronounced. I think it was, you know, not recognized the same across every regional bank. You know, we saw some customers split deposits. We also saw some customers bring deposits to us because of the strength of our balance sheet. You know, we were about net neutral to slightly up. But overall, what it's done is it's put a lot of pressure on deposit pricing, and you can see margins are compressing. That's a short-term thing, right? Because the rates are moving faster than the book is repricing.
In general, if you look over time, whether you go back to the regulation that came out of the Great Financial Crisis, you know, things that are happening today with, you know, free checking went away, overdraft, reform, credit card late fees, capital, what have you. What happens all the time is there's this belief that these things are permanent and systemic and the industry is doomed. What I think our industry has proven is that we're resilient, that we work with clients. We figure out different ways to make sure that the value of the services we provide, is understood and we're compensated appropriately for it, right? So, you know, you can't gouge. We don't want to because that's not good for us and good for our clients.
We do provide services that have value, and, you know, we've done a lot of things over time as an industry to kind of teach people that they don't have value, and we need to reestablish that. I think you'll see some momentary shifts down in profitability, that, you know, like I said, happen in the moment. As the NPR come out, as the rules get finalized, then, you know, we will go to work, so will our colleagues at other banks and figure out how to adjust how you think about your institution, in light of those new regulations.
What does that mean strategically for M&T?
Well, you know, at the heart, we always start with the beliefs that we have in our model and how we think about the bank. There's some core tenants there. You know, one Darrell touched upon that I think is kind of what has kept us out of trouble. You know, we fundamentally believe that we're in a consolidating industry, right? You got to start with the belief that banking is consolidating and it's going to continue. We also have a belief that stable, low-cost funding is a competitive advantage, and that over time, if you've got that funding base, that's a critical element of any bank and its success.
You know, you said, "Boy, it's hard to believe we're talking about uninsured deposits again." Well, that's because we all went to sleep for 15 years with rates at zero, everyone forgot the lessons of liquidity and the value of deposits. When we were thinking about our merger with People's, one of the number one reasons why we were so attracted to that franchise, you know, very similar culture, they had one of the largest, low-cost, stable deposit funding franchises in the Northeast. Because of that, we were very attracted to that organization. That just brought another set of diversification, as Daryl talked about, in terms of customer and geography and client type, to our funding base. We start with those core tenants and then go from there.
As we look forward, we'll think about what's the value exchange in consumer checking accounts? What's the value exchange in the mortgage space? What's the value exchange with commercial customers? There's. The more time you spend with clients, which is really the key, the more you understand what is valuable and what services to provide and how to charge for it.
On the topic of stable, low-cost funding, Darren, you pointed out recently that bank balance sheets could start to move towards what they looked like before GFC in terms of the mix of NIB and IB. You know, based on what we've heard through this conference, you're probably in a minority of one on that topic. You know, can you expand on that a little bit? You know, you know, where do you think this will play out for NIB and IB over time?
You know, I guess I find it easier to look back and learn from the past than to try and be a prognosticator. Looking back at what's happened over the last 10 or 15 years, again, it's the rate environment we've been in. You know, we can debate, is this a new normal or not, you know? I don't know. If you look back far enough, you would say the answer is no. To me, the question is, if rates stay at the Fed funds, stays at the rate that it is today for a prolonged period of time, how will customer behavior look and what will they do?
To me, the only way to start to answer that question is to look at how did they behave the last time rates were at this rate. What you see is people get smart about managing their excess liquidity and become more rate sensitive. You know, it starts with wealth customers and commercial customers, and it works its way down to consumers. You see a shift in non-interest bearing. Those balances come down, but everyone has a level that they're comfortable operating their accounts at. It'll get to that. Time deposits and money markets will go up as a percentage of what's on the balance sheet. You know, back to the advantage, when we talk about low cost, stable funding, that's really code for operating accounts, right?
The primary checking account for a consumer. Where do you have your check, your paycheck deposited? For a commercial or small business customer, where do you run your payables? Where do you pay your payroll out of? If you own that account, you own the relationship. That's also the best source of funds, and that helps manage down your overall funding cost. What we pay for non-interest-bearing deposits is the same as everybody else. It's zero, right? What we pay for money market, we're in a competitive environment. We're going to be within, you know, a few basis points of what the market is. Same with time deposits. What differentiates your cost of funds is the mix of deposits that you have on your balance sheet, not, you know, your ability to price. Although, you know, to a certain extent, that's the case.
I just look back over long periods of time and say, assuming the market adjusts and the mix on everyone's balance sheet adjusts to what it was, and pricing adjusts, then you kind of have a picture of where you think the world's going to end up, right? We started talking about this, you know, back last September, that earning over 4% in a, in a margin is highly unsustainable. It's, it's momentary, and obviously, that's kind of happened. didn't think it was going to play out this way, but we ended up where we are. You just got to be careful not to run your bank assuming something that's happening in the moment is going to be permanent, right? It's like, charge-offs.
You know, charge-offs for the last six or seven years have been, for us, below 20 basis points. That's just not real, that's going to stick around that long. To adjust the way you run your bank and the way you manage capital and think that rates are going to, I mean, margins are going to stay over 4%, and charge-offs are going to stay low, you're setting yourself up for a problem. You just try to look out at the changes that are happening, preserve your optionality, and think about what banking looks like over the long term, and that's kind of how we start to think about changes.
That's perfect. Hold that thought on credit, because I do want to dig into that. Daryl, just, you know, I want to bring you in here on just deposits for the industry as a whole. As the Treasury starts to refund the TGA, what do you think happens with, deposits in the banking system? Do you think we see another period of outflows across the system?
I think there's a big risk that outflows will continue. It's hard to know exactly how much it's going to go down, if it's going to go down to where it was or level off before that. I think for us at M&T, we really need to continue to focus, like Darren said, on, you know, focusing on serving the client and getting the operating accounts and growing that space, and really leveraging the relationships that we have to continue to grow the liability side. That's really what's going to really spur the growth of the revenue of the balance sheet, is by growing the core deposits on the liability side. That's really our strength, and that's really what we're going to focus on.
It's going to be more challenging if money's coming out in the system, but, you know, I take what Darren says, you know, we are really good, and we serve the communities that we're in, and we have strategies and operators that know how to get the job done.
You know, to bring that down to what we're seeing now in the second quarter for M&T specifically, the deck yesterday noted that deposits were down, I think, in the 2% range. You know, can you give us a little bit of an update on the deposit trends you're seeing in the second quarter in general?
Yeah. You know, in a nutshell, I would describe it as pretty typical second quarter deposit activity. You know, a lot of the hysteria went through the banking system through March and into the early part of April. April also is tax time. We see, you know, money move out from business accounts, commercial accounts, a little bit from consumer, although they kind of half get, half pay. You saw a little bit of seasonal decline early on in the quarter, and then it starts to build. The typical behavior is we see commercial deposit balances decline in the first four or five months of the year, and then they build up the rest of the year, and that cycle repeats.
That's what we're starting to see a little bit in the second quarter. Feels like there's some stability out there, you know, against the backdrop of what Daryl was talking about what's going on with the Fed and the government, with how they're trying to fund the deficit. Likely to put pressure on deposit balances, you know, for the whole industry in the coming months. You know, again, we'll adapt, and we'll figure it out.
What does that mean for deposit betas? You noted that NII could be down in the 1%-2% quarter-on-quarter range in the second quarter.
Yep.
you know, how do you think about deposit betas as we get to the next two or three quarters?
Sure. I don't know, do you want to start that one, or you want me to go?
Doesn't matter.
You know, we've talked about our through-the-cycle deposit beta being, you know, kind of high 30s, low 40s. We think about that based on the mix of deposits on our balance sheet. This quarter, I think, you know, just given everything that's gone on in the market, betas are going to be high. They're going to be high for everybody. That doesn't necessarily change where the terminal beta is, you know, through the cycle. It's just how fast or how slow you get there. You know, we're watching what's going on. The more there is pressure from things that might happen in the government, it's possible that those betas start to move up as we go through the year. The other question is what happens with Fed funds? How stable is it?
Is it still going up? Do they start to cut? You know, for now, that we still feel comfortable with that range. You know, it looks like we're moving towards the higher end of that range, a little faster than maybe we thought. That's really the big thing that I see happening. I don't know, Daryl, you see anything different?
The only thing I would call out, you know, when we fund the company, you know, from a treasurer's perspective, you have a lot of non, core deposit funding sources. You have Federal Home Loan Bank.
... you have broker deposits, and you have federal and unsecured debt. You know, this past quarter, you know, we decided to use more broker deposits. When you actually look at the beta on deposits, including broker deposits, it's going to basically make that look a lot higher. If you adjust for that, it's probably going to bring it down 5 or 6 percentage points, and actually look at what the core deposit is of the franchise. I think that's more of a pure way of doing it, 'cause whether you do broker deposits, unsecured debt, or home bank advances, you know, it's really just a treasurer decision on how we're funding the company from that perspective.
How does that compare, I guess, you know, you spoke about broker deposits, but when you look at, you know, commercial betas, wealth management betas, consumer betas, you know, how do you think that compares and where are we in the cycle?
Well, commercial and wealth betas, they, you know, they move pretty quickly, and they've been reacting, you know. I think we talked last time about 70%-80% range. You know, this quarter, we're probably more like in the 80%-100% range, maybe even slightly above. Consumer betas are always at the lower end. You know, we've kind of been in the range of, say, 15%-20% betas. Whether we actually even get above 30 in the cycle, you know, again, remains to be seen.
Why do you say that? Shouldn't we get higher betas in the consumer side as we go later into the end of the cycle?
Yeah, I think it just depends on, for consumers, they're slower to react, and a lot of times they move into time deposits. Time deposit betas, if you're doing a 12-month or a 15-month or an 18-month CD, you don't actually see that repricing until you get to the end of the maturity. We'll see where Fed funds is at the end of that time. If Fed funds stays high, people that bought CDs early, you'll start to see that beta go up. People that bought CDs late, you might actually see that go down, depending on where Fed funds is at when those mature. The other question is: How stable is the environment then? Right, there's been a lot of competition on price to hold deposits right now.
If that competition subsides, even if Fed funds are still high, you might be able to reprice those at a lower rate.
Got it. Before we change topics, you know, I know you gave a pretty comprehensive guide in your deck last night. Is there anything you want to add or talk about there?
No, I don't think so. I mean, you know, we've we tried to spend our time running the bank and focusing on the annual performance as opposed to the quarterly performance. When you look at where we're trending, you know, we feel like we're right now, like we're in the range that we saw back in January, and we feel like we're tracking towards the kind of EPS for the year that we thought we would have. You know, how you actually get there, is not always the way you think. You know, whenever you tee up on a golf course, you hope to hit it down the middle, put it on the green and two putt and get a par.
Well, sometimes you hit it in the rough or hit it in the bunker, you got to get up and down to make a par. You know, there's lots of ways to hit your EPS, there's lots of ways to get a par. You know, as we go through the year, we'll make adjustments based on what's happening in the economy. You know, I think some of the things that'll be a little bit of nuance to this quarter, you know, that will help everyone through is, we completed the sale of our collective investment trust business. It happened at the end of April. We had the gain there in April, but there was 2 months of fees that obviously were, in effect, pulled forward in the gain.
You know, we'll have the full quarter of the mortgage servicing right, and rights that we purchased at the end of the quarter. The deposit betas. All that stuff taken into account, you know, we're kind of in the range to where we expected to be for the year. I think there might have been some confusion, probably we miscommunicated a little bit on maybe where expenses might be in the quarter, and that, you know, we talked about them being a little bit elevated in the first two quarters of the year and coming down, I think there was some miss there, it looked like, compared to consensus. Hopefully, help people understand what the trajectory looks like.
It's not the overall for the year that's changing, it's more how it looks through the year and quarter by quarter.
Just to clarify on the fees, does the guide include or exclude the CIT gain?
The guide that we put out now includes Well, the CIT gain. The gain will always hold it inside. This would be the rev, the fee revenue, ex CIT.
Ex CIT.
Plus MSR.
Right. Okay, perfect. That's a good clarification.
When you look at the fee income, it's pretty straightforward and very consistent. It's just a little bit of noise with the sale and the purchase of those two actions, but it's pretty predictable when you look at it.
All right. Perfect. Maybe to dig into credit, because, you know, that's been a big topic, especially on CRE. Just given the stress we're seeing across the CRE market, you know, can you talk about how you're prepping to work with your borrowers in an environment where things get tougher? You know, is there capacity for sponsors to bring in more equity? How are you working with your borrowers as you get into a repricing cycle from here?
Yeah. I guess a couple of things. I mean, I think when we communicate, sometimes we get lazy, we talk in generalities, we say there's stress in the CRE market. Well, there's stress in certain segments of the CRE market. It's not across the board issue. When we look at industrial, we look at warehouse, we look at multifamily, rents have been strong. You know, the ability of borrowers to refi and manage debt service coverage ratio is not a problem. The place where even retail's really come a long ways from where it was during the pandemic, the place where the real focus is clearly office. We continue to see some stress in healthcare.
although the healthcare for us, when we look across our, you know, our broader set of geographies now, is a little more acute in New York State than some of the other states, right? There's state-specific funding and funding issues that happen in New York State, and so it's a little bit more acute there. Within office is also very nuanced. You know, we clearly have some properties in New York City. People might have heard about that over time. The difference that we see between Downtown and Midtown, right? Just to say New York City office is not being explicit enough, that as we look at what we see coming, you see it's more property specific and sponsor or client specific, where you're going to have challenges or not.
You know, to get to, you know, your question about how we work with clients, I mean, many of our clients have been around for not just 5 or 10 years, but 20 or 30. Their cost basis in these properties is incredibly low. We underwrite each individual property, but many of these clients look like a REIT. They have other properties. They're not always in one asset class, we get the benefit of their other properties and the cash flow of those other properties, because they will support one if it's not moving or if, you know, they're not, they're not cash flowing properly. We still have to write that up as criticized because we look at each individual property, which is why you see some of our criticized numbers.
The difference between what ends up in non-accrual and ultimately charge-off is reflects people's outside sources, to help support those individual properties. Some of it will be that cross-collateralization I talked about. Some of it might be they just have wealth and cash in because of their situation and their personal wealth. The issue will always be when a loan comes to maturity and what the current occupancy is and what the current debt service coverage is, which will affect the cap rates and the LTV. If the LTV has moved up because values have come down, we'll look for clients to bring in outside sources and inject some equity and bring the LTV down, and then we move on, and everything's fine. Some people will do that.
Other people might not have the wherewithal. We might do something like an A-note, B-note structure, where, you know, we put the A-note, at a reasonable LTV, and then, you know, the B-note looks more like mezzanine debt. It probably carries a higher rate. You may or may not charge some of it off at that time, as a partial charge-off, and then you help keep them in business. You know, some people might go interest only, and it becomes a TDR.
Each situation is unique, and we try to work with each client to figure out what's the best alternative to keep them in business and keep this property functioning, so that it's got the best chance of coming out of it on the other side without a loss for our client or for us. You know, does that mean everything's going to work out great? No. There's going to be charge-offs. They will come. They'll be lumpy. You know, probably see a little bit of some of that this quarter.
you know, if you look over the course of the year, you know, again, you look at where we've been last quarter, the quarter before, the average is still well below our long-term average, but there's going to be some of that stuff that moves in and out, as we go through the year. It'll, It's going to take a while, I guess, is, to me, the two key messages. It won't be Armageddon all in one quarter. It might not be It probably won't be Armageddon at all, but there will be some consistency through this as the Fed stabilizes, where rates are, as the clients can adjust their properties and their business models to that new environment.
What does that mean for criticized assets? It sounds like criticized assets might rise, but at the same time, you know, that might not really translate into loan losses. Is that the message?
Yeah. I mean, you know, it's no secret our criticized have been high for a while, and that's because of the grading. Grading something as criticized doesn't always take into account these outside sources, right? That's not part of credit policy and what you can do. That's why you don't always lead to charge-offs. When we look at our criticized book, it's down from its peak, and it's been coming down, what's happening is it's remixing, right? The hotel portfolio that everyone was scared to death about in the pandemic because no one was ever going to travel again and stay in a hotel, well, guess what? Hotels are probably one of the most profitable parts of the portfolio right now.
Those are coming out of criticized, and you see some office moving in and a little bit of healthcare. You know, it's kind of stable. Hopefully, we'll see it stabilize and actually continue to come down.
What are you hearing from borrowers in general for in terms of the rate repricing, right? Like, presumably, a lot of them have hedged for the increase in rates. What are you hearing from them, and how are you working with them on that?
Well, in the short term, you know, again, it's really about what happens when loans mature and at maturity. By and large, the borrowers will take a floating rate loan, and they'll swap it to fixed at the time they originate it. So their shock impact from rate increases in the short term is basically zero. It's all when you get to maturity and you're repricing. That's where you go back to the other conversation we're having about how, you know, we look for equity, we look for outside support. We'll, you know, do whatever we can to structure the notes so that they can cover it.
How does private capital come in here? You know, we've seen headlines recently that private capital is more willing to come in and, you know, buy whole loans or help banks, where the banks originate the loans, and they buy them. You know, how does that figure into the M&T strategy, especially when we think about de-emphasizing CRE a little bit here?
Well, we think of it as part of a way that we can help our clients. you know, we try to be agnostic about whether it sits on our balance sheet or someone else's, that our relationship is with our clients and our borrower, and our job is to help them make sure they got the capital they need to run their business. you know, in some of these situations, I always say I'd rather have a payoff than a charge-off.
Maybe, as we get towards, let's start talking about regulation, right? Clearly, regulation is moving for most of the regional banks. Can you talk about.
That's Daryl's specialty.
Then, Daryl, where do you think regulation is going for some of the regional banks? You know, how are you preparing for it?
You know, probably it's a given that AOCI is going to be in regulatory capital. I think we are prepared very well for that. Definitely think that, you know, the regulators are going to look at our liquidity stress scenarios, look at our LCR calculations, and really look at the underlying assumptions that basically they use, and those will probably get adjusted over time. That'll probably be a longer-term change from that perspective. If you look at other potential changes out there, you know, interest rate risk will probably go through that same type of process as well. But I think from what we have at M&T, you know, we've been very conservative.
We take a long-term approach to how we manage the company, really, we want to be a strong, you know, capital, strong liquidity, and make sure that we can serve our clients and communities consistently over time. If there's adjustments we have to make, well, we will make those adjustments, and, you know, we'll probably lead the pack in trying to do that to get ahead of everybody else. I'm very confident that whatever it is, we will get to where we need to be. I agree with Darrin in that the industry will adjust from a profitability perspective, and we'll figure out to make sure that we get adequate returns and support our shareholders and communities at the same time.
I think it's something very doable, but, you know, definitely changes are coming down the road, and we will, you know, we'll manage through it.
One of the things M&T has done quite consistently through QE is hold more and more liquidity as some of those social deposits were coming in. Cash is still at about 12% of total assets. It's still one of the highest in at least the group that I cover. How are you thinking about that liquidity?
You know, I would say that you want to manage it. Right now, we're about half at the Fed and half in the investment portfolio. You know, it really comes to make sure we have really strong liquidity and make sure that if we don't have it at the Fed, we have it in also very short term, very liquid securities like Treasuries and all that. We will have a strong HQLA one. That's a given. You know, if we end up investing in more securities, you know, the securities we're investing in, you know, could be your agency MBS, but, you know, we've done a good job in investing in agency CMBS. You know, we have much less convexity than many others in the industry, and I think we will continue to run a really conservative portfolio.
Depending on what we want our rate sensitivity to be, we don't want to take a lot of interest rate risk at the end of the day. I mean, the way you grow earnings and revenue is really by growing your businesses and your clients, and that's how you grow consistent earnings. If we guess right on rates this year, we can't continue to get that track record year after year. We're going to keep that pretty tight band to interest rate risk to be no more than plus or minus, probably 2% for a decent move of interest rates. We just don't want to take a lot of risk, and we want to grow our businesses and serve our clients and communities is really how we're going to run M&T.
5.25% is not a bad rate on cash right now.
That's fair. Before I go to the audience, maybe on the balance sheet front, you know, you noted more liquidity, but how do you think about the duration of the deposit side of the balance sheet, right? Post- Valley Bank and Signature Bank. How does that inform your view on the asset side, whether it's the rest of the securities book as well as the loan book?
You know, we have definitely a long-term relationship with the vast majority of our clients. You start with that. You look at the diversification of the industries and the clients that we have, we don't really have any overconcentration in any one specific industry. Diversification really matters from that perspective. You know, my guess is we will continue to shorten up, we already have a conservative... When I looked at our treasury assumptions that we have and our interest rate risk and liquidity stress scenarios, you know, they're shorter than what I've seen in my past. Will we make them shorter in the assumptions? I think we'll just have to see how the rules play out.
You know, I feel pretty good where we are today, and we'll continue to manage what we need to as we move forward.
I'll just pick up on that a little bit. We take our cues from our customers, and through time, you know, probably for the last 15 years, maybe 20 years, we've modeled the deposit base, particularly the nondeterminant deposits, and we've looked at customer behavior against themselves, to see where do they kind of keep their account balances if they're a consumer, small business, middle market client. Where that consistency is, we call those operational balances. Those are the ones that we'll tranch and think about giving them a little bit more duration credit. We can see in moments of time, money flows in and out, like someone might sell a business or, and you'll see a big pop up in their deposit account. We don't give them immediate credit for that, right?
We need to see what happens over time with the operational balances, and it's that thought process that played itself out in the pandemic. When those balances came in, you know, we could see here's the level of operational balances, but holy moly, there's this big surge that came in. If it came in overnight, it can go out overnight. We need to see some pattern before we would start to think about extending the duration of it. It was that thought process that kind of kept us from, you know, going longer into securities with the cash while we were waiting to see it play itself out.
you know, just exactly on Daryl's point about the mix of the clients that we have, their behavior tells us how to think about their deposit base, and we use that data to watch and think about how we think about the value of those deposits.
Is there a quick question in the room before we wrap up? Maybe to finish up, if you can talk about capital return. You have a gain on sale from the CIT sale. You still have a lot of excess capital. I think your CET1 after the CIT sale is around 10.5%. You know, can you talk about how you're thinking about capital return, not just from the CIT sale, but as we go through the rest of this year?
Yeah. Our window's closed. We took the quarter off. When we were watching what was happening with the industry, you know, we were kind of starting to feel a little more comfortable with things, then we had the final change with JP and First Republic, and with the stress capital buffer results coming out, you know, we thought, let's just sit tight and see how the world shakes out.
As we see things stabilize, and we look at where our capital ratios are today, where we think loan growth is heading, and our ability to generate capital, plus our, the size of our allowance and our confidence in our underwriting, we think that we've got some room to bring those capital levels down. We'll be looking to get back to work on some repurchases in the coming quarters.
All right. Perfect. With that, we're out of time. Oh, yes.
One comment. I just want to thank Darren for kind of helping me through this transition. He's been a trooper, and, you know, I look forward to seeing how we grow in the consumer business, but, you know, I just can't thank-
That's all Daryl, I'm not doing it.
No, no. It's been a great transition. I really thank him for all that.
Perfect. On that note, Darren and Daryl, thanks so much for joining us.
Our pleasure.