Earnings Transcript for MTB - Q4 Fiscal Year 2022

Operator: Welcome to the M&T Bank Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brian Klock, Head of Market and Investor Relations. Please go ahead.

Brian Klock: Thank you, Gretchen, and good morning. I'd like to thank everyone for participating in M&T's fourth quarter and full year 2022 earnings conference call, both by telephone and through the webcast. If you have not read the earnings release we issued this morning, you may access it, along with the financial tables and schedules by going to our website www.mtb.com. Once there, you can click on the Investor Relations link and then on the Events & Presentations link. Also before we start, I'd like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information as well as reconciliations of non-GAAP financial measures are included in today's earnings release materials as well as our SEC filings and other investor materials. These materials are also available on our Investor Relations web page and we encourage participants to refer to them for a complete discussion of forward-looking statements and risk factors. These statements speak only as of the date made, and M&T undertakes no obligation to update them. Now I'd like to turn the call over to our Chief Financial Officer, Darren King?

Darren King: Thank you, Brian, and good morning, everyone. As we reflect on 2022, we want to start by taking a moment to recognize the hard work and dedication of our more than 22,000 colleagues, your tireless efforts to support our customers and communities during challenging times are the heartbeat of M&T. We also give a shout out to #3 and the early responders who saved his life, you remind us all about the bigger game of life. A year ago, we outlined three key objectives for 2022

Operator: [Operator Instructions] We'll take our first question from Matt O'Connor from Deutsche Bank.

Matthew O'Connor : I guess, sticking with the 3s, I think at one point you talked about a long-term NIM of 3.6 to 3.9. So those 3s involved there and they're divisible by 3. And so why don't we kick it off with that.

Darren King : All right. I guess our outlook for the net interest margin over the long term hasn't changed, Matt. And the question is, what's the long term? And when we look at the structure of an average bank balance sheet and the mix of funding that is deposits or wholesale funding, those costs tend to be pretty competitive, and it's the mix that ultimately drives the margin over the long run. And when you look at where we see our balance sheet going in that of the industry, we think that's -- we're in a unique time right now where pricing has not kept -- deposit pricing has not kept up to rates on loans. And that's ultimately going to close. And so will we see that in 2023, those numbers? Unlikely. But as we go into '24 and '25, will we start to see the margin move back down into those normal historic ranges? We think so. And the most important thing about why we talk about that is, we don't want to set up the bank and the expense structure, assuming that margins like that are going to hold because recent history suggests that's just not likely. If it happens to, that's great. But we don't want to build the bank so that we're counting on those kinds of margins for the expense run rate that we have.

Matthew O'Connor : Okay. So 3 years, once again, 3 popping up to normalize on the NIM. But did I miss any comments on the NIM for '23? Or most importantly, what you're modeling for the fourth quarter this year?

Darren King : For the first or the fourth, Matt, sorry?

Matthew O'Connor : Both on the full year and then most importantly, the fourth quarter of '23, what are you thinking on the NIM? And then I think that would assume both the forward curve and then I think commercial loans tend to reprice a little bit sooner than maybe funds move. So if you have a 4Q '23 estimate and then framing of puts and takes, which it's helpful, including with the repricing earlier the commercial loans?

Darren King : Yes, sure. If you look at the year, based on our current outlook, we think the average NIM for the year stays above 4%. You probably see a little move up in the first quarter just because of the impact of day count. And so you'll see it pop up. But actually, it's quite likely that net interest income in dollars might actually be lower -- will likely be lower in the first quarter of '23 than it was in the fourth quarter of 2022. Taking into account that forward curve that's relatively flat, but starts to see some cuts at the end of the year, we think the margin will be higher in the first half of the year than in the second half of the year and probably heads down towards 4% as we get to the fourth quarter of 2023.

Operator: Our next question comes from John Pancari from Evercore ISI.

John Pancari : And if you could talk a little bit about any efforts here to protect the NIM at that level, particularly as we look at potential cuts in the third pivot anything in terms of balance sheet positioning that we should be considering in terms of what you're already doing to protect the NIM at these levels?

Darren King : Yes. There's a few things John, that we've been working on all this year to start to protect the NIM. First, you've seen us increase the size of the securities portfolio, and we've talked a little bit about growing that a little bit further in 2023. Within there, we also anticipate shifting the duration a little bit. We've taken some duration so far in -- on the balance sheet, in the mortgage portfolio, we'll slow that down and we'll take that duration in the securities portfolio with some MBS -- we'll also be doing -- we mentioned some term funding, which we'll lock that in, which will also help. And then the thing that ultimately is the biggest benefit to maintaining the margin and reducing asset sensitivity is deposit pricing, right? And so it's a little bit painful when it's compressing on the way up, when it's catching up to the loan pricing. But ultimately, the best way to combat declining rates is through repricing of deposits. And so those three things would be the biggest help. We will and continue to have a hedge portfolio that helps reduce some of the asset sensitivity in the short term, might help the NIM of some of the earlier hedges that were put on that are a lower received fixed rate roll off. And so those are kind of the three major things that will have helped us reduce our asset sensitivity, and will help us protect the NIM at these kind of higher levels as time goes on.

John Pancari : Okay. So no major change in terms of the hedging swaps other than what is rolling off, correct?

Darren King: Yes. We'll see how much we grow from where we are at the end of the first quarter because of the position of the balance sheet and what we'll do will likely not be to add to outstanding notional but to add to forward starting is likely what we would do.

John Pancari : Right. Got it. Okay. And then just one other follow-up on the commercial real estate front, could you maybe give us an update on what you're seeing there in terms of credit trends, maybe trends in delinquencies and criticized assets and any time distress in the office portfolio, that would help?

Darren King : Yes, sure. Within -- in the commercial real estate portfolio, the biggest trend that we've had going on for probably the last four quarters is just the reduction in the construction portfolio. And so a large number of construction projects were originated in late '18 and during 2019. And as the pandemic went, they continued but at a slower pace, and those have been coming to completion this year. And as those have come to completion, they've turned into permanent mortgage financing oftentimes not on our balance sheet. And so you've seen the decline in commercial real estate largely being construction related. When we look underneath at some of the major categories and we look at the criticized, we actually have seen hotel criticized balances peak probably about two or three quarters ago. It got as high as about 86% of our hotel portfolio. It's now down below 50%. And if we're seeing remixing in the criticized, there's two categories. One is healthcare, which we've talked about a little bit before, and that's typically assisted living and senior housing. And that's not from a lack of demand that we're seeing some challenges in that portfolio. It's their ability to staff. And so we've seen occupancy rates in these portfolios come up post pandemic but they're not able to get all the way back to pre-pandemic levels because there's not enough staff to adequately care for the folks that want to live there. And then the other place, obviously, we're looking at is office, and we're paying a lot of attention to office. The portfolio, I think, is as of the end of the year, right around 20% criticized, we're watching lease expirations and lease sign-ups. The vast majority of our real estate portfolio has lease expirations out 2024 and later. So far, what we've seen is decent renewing. We are seeing some movement down in price per square foot. But what we've been doing is going through all of the lease portfolios -- sorry, the office portfolios and stressing both vacancy rates and lease rates to see what the debt service coverage ratio is and what making sure that we've got adequate coverage. If we talk about our expectations for charge-offs, in -- as we go into this year. That's the place where we'd have the most concern. When we talk about charge-offs moving up from the levels we've seen in 2022. It will be some of those portfolios that is still a place where we've really got our eye.

Operator: Our next question comes from Frank Schiraldi from Piper Sandler.

Frank Schiraldi : Hi, Darren. Just wanted to ask about -- just, I guess, a follow-up on the office book. If you could just remind us where that total office exposure is and then specifically the exposure in New York City?

Darren King: Probably you should -- you'll see this when the K comes out. But the office exposure in total is right around $5 billion. When you look at what's in New York City, it's about 15% that would be New York City. It's pretty widespread across predominantly the Northeast.

Frank Schiraldi : Okay. And then just a follow-up on CRE. In terms of -- I think you mentioned that the permanent CRE book was sort of flattish linked quarter with construction balances rolling off. And it sounded like -- I just want to make sure I understand that for 2023, is the expectation that, that permanent CRE book will grow just to a lesser extent than the C&I book? Or do you still -- are you still looking for outflows in that or thinking about outflows in that CRE book?

Darren King : Yes. Yes. Overall, Frank, we're thinking that the overall CRE book does continue to drift down, but at a much slower rate than what we've seen in 2022. It will be a modest decline -- well, on average, it's actually going to be up because of the People's United. But if you look versus the fourth quarter, the permanent book on average is relatively flat compared to where the fourth quarter was. And most of the decline would continue to be in the construction side of things. Remind you the construction portfolio is the one that -- is one of the ones that tends to carry higher loss rates in the stress test, which is part of the reason why we've been working to obviously support our customers so that they can finish the projects, but then to not add meaningfully to that once those reach their completion and find permanent financing.

Operator: Our next question comes from Ken from Jefferies. Go ahead, Ken.

Darren King: Maybe we'll continue on, and we'll catch Ken in a little bit.

Operator: Our next question comes from Ebrahim Poonawala from Bank of America.

Ebrahim Poonawala : I guess just maybe on the balance sheet. So you mentioned about $4 billion in securities purchases from $25 billion at year-end. If you don't mind reminding us like what that implies for the cash balance as we think about -- on a steady state, I think cash was about $25 billion over the fourth quarter. Is $20 billion the right place for you or where the bank expects to be? And how much of that might go away from like deposit runoff. So just thought process around that?

Darren King: Yes. There will be some movement, Ebrahim, between cash and securities over the course of the year. If you look at the as-at the end of the year, probably down in the $9 billion range. If you look at the average for the year, probably think in the slightly below $20 billion, between $20 billion and $19 billion is probably the spot. That number is going to move around a little bit, obviously, depending on outflows in deposits, as well as our funding needs to support loan growth as well as to make sure we're managing the bank's liquidity profile. And so those will move around a little bit over the course of the year, but those are kind of round numbers where we're forecasting 2023.

Ebrahim Poonawala : Got it. And I'm sorry if I missed it, you talked about issuing some debt. Did you quantify how much in debt do you expect to issue through the course of the year?

Darren King: I didn't mention a number, obviously, that this is dynamic, right? And that the amount is going to be a function of what's happening with deposit funding and runoff and whatnot. But right now, we think it's in the $3 billion to $4 billion range over the course of 2023.

Ebrahim Poonawala : And what would be the cost of the debt today given just the shape of the yield curve? I'm just wondering if it's better to lock in term funding relative to short term right now based on the market?

Darren King : Well, it's a great question. There's -- obviously, the rate isn't depending on the tenor, right? And right now, there's a -- you like the opportunity to reprice the shorter-dated notes but they're trading higher than the longer-term debt. And so we think low to mid-5s is the range of yield on that depending on the term. And what we'll be trying to do since we've really brought down the level of wholesale funding at the bank will be to not lock in all-in-one tenor, but to start to build a more balanced maturity profile as we think about the funding of the bank, so that we don't have massive amounts coming due all at the same time. And so I think as you think about it, think about not being all one tenor and one type of but something that starts to build a little bit of a profile that is spread out over the next few years.

Ebrahim Poonawala : Got it. And just on a separate note, the CRE book or the CRE office, do you have the debt service coverage ratios handy in terms of where they were at the end of the year?

Darren King: I don't know that I have that right off the top of my -- at the tip of my fingers here. Give me one second and let me see if I can find it. But it has -- in aggregate, that portfolio has still been above 1. And when we look at the LTVs in that portfolio, they still run below 60% on a weighted average basis. Now obviously, there are some above that and some below. But as we look at it right now and we look at the clients' ability to support the asset either with cash flow or with how much equity they have in the property where we feel pretty comfortable with where we sit, but we're watching it. As we've talked about, there's -- it's one of the places where we see the most risk and where we're focusing a lot of our attention from a credit perspective.

Operator: Next question comes from Manan Gosalia from Morgan Stanley.

Manan Gosalia : I was hoping you can break down your loan growth guidance for next year. In the past, you've spoken about the lending synergies from the People’s acquisition and the footprint there. I think you mentioned small business card and equipment finance. So just if you can break down how you see that contributing to loan growth in '23? And how you see that evolving?

Darren King : I guess as we look at People's impact on 2023 from a loan perspective, it's certainly additive. But it's one of those things where the loan balances take a little bit of time to build and to show up in a material way. So when we look at 2023, we continue our focus on C&I, and we expect to see strong growth in the C&I portfolio over 2023. On an average basis, it prints a big number because it's four quarters of People’s and not just three, and so 20-ish percent over the average in 2022. But outside of that, it comes down a little bit more like into the 3% to 5% range. There's a bunch of pieces in there. One of the ones that we talked about that impacted the fourth quarter was our dealer floor plan business. And what we've seen is, is some inventory builds as supply chains open up and consumer purchases slowed down a little bit with rising rates, and so we saw some movement there. We did see some broad-based movement in our core commercial customer. The leasing business where we prefer to call it our equipment finance business continues to show steady growth, which would show up in the C&I balances. And then the other thing where we'll be intensely focused is on building out our small business and business banking segment. That's one of the places where we see a great opportunity in the New England franchise and to deploy our methods of banking. When you look at the other portfolio CRE, we talked about relatively flat to slight somewhat down, the consumer real estate also flat to down, and that's really -- that's the consumer mortgage business, and that's really just a reflection of normal amortization. And because we will stop holding the originations, we will go back to gain on sale. And then we think the consumer portfolio slows down a little bit, again, just because of the interest rates and the pace of activity in terms of car buying as well as recreational vehicle purchases. The one offset there, which is also a People's related thing. But unfortunately, it doesn't grow the balances that much as we expect to launch our credit card into the People's United markets, which will help grow credit card balances. But as I mentioned, they are still relatively small, and so hard to see in the bond growth but nice from a margin perspective. One of the other things that is in the People's franchise, which we like is, we've talked about it before, the mortgage warehouse lending business, but it's a tough part of the cycle for the mortgage warehouse lending business that -- with refinance activity almost not exist and purchase a little bit low, but the balance is there, are likely to still be a headwind. We don't think that they go down materially from here, but they won't go back to where they were in 2020 and 2021 without a decrease in the long-term mortgage rates.

Manan Gosalia: That's really helpful. And I think you've also mentioned in the past that C&I is benefiting now because of less capital markets activity. Are you assuming some sort of reversal in your '23 guide?

Darren King : We're just -- we're cautious about the level of economic activity and seeing some slowdown in inflation, in GDP and what that translates into in terms of demand from our clients. It's really not much more than that. There isn't any sign that we see that we're seeing a material slowdown -- or we're not seeing credit concerns, we're just seeing cautiousness while people wait to see how the economy plays out in 2023. And so we're cautious on it as well.

Manan Gosalia : Got it. And then just a follow-up on one of the prior questions. On the stress test, you've spoken about the adverse effects of the excess cash balances and of course, the Fed has been stressing CRE more than the other asset classes. Just given that December 31 will be used as a starting point for the next stress test, do you think you've done it now for how well do you think you're positioned going into that?

Darren King: We've certainly made a meaningful shift in the balance sheet this year. Cash balances, we mentioned, are down the better part of $17 billion from where they were at the end of last year. The mix of C&I and CRE when we focus just on commercial balances is almost 50-50, where it was 60-40 before CRE. And when we look at the -- or the construction balances, they're down a couple of billion dollars. And so -- and not to mention the margin is up and so the PPNR start point is higher. Things that we've got our eye on, and we're not -- we're uncertain a little bit is how the merger expenses will be treated in the stress test this year. But once we get through 2023, it should be clean. And so that will be helpful. And then the other question is, what's the Fed scenario, right? We haven't seen it yet. It's very likely that it will continue to focus in the real estate sector. Previously it focused on hotel and retail. Those seem to be doing a little bit better. So it wouldn't surprise us if the new focus is office and healthcare. And so it just depends on where the emphasis is from that perspective as well. But we start from a really strong capital position. We've got the current SCB covered, which is pretty high. And we continue to move the balance sheet in a positive direction, which if it doesn't get us all the way where we want to be in 2023, it should carry us a long ways towards where we want to be in 2024.

Operator: And our next question comes from Ken Usdin from Jefferies.

Ken Usdin : Darren, on the cost side, you mentioned, obviously, the conversions being passed. Can you give us an update on what proportion of the initially expected $330 million of saves from People’s were in the fourth quarter run rate; and if not fully there, when do you expect to get there?

Darren King : Yes. Ken, the vast majority of the saves are in there through the end of the fourth quarter. We're probably -- if you think about we were targeting 30% of the cost base, we’re like 27% or something in that range, is what we've achieved so far. When you look at it on a percentage basis, we're almost there. When we look at it on a dollar basis, the run rate is actually a little bit higher than we thought it would be because of inflation. When we talk about the percent save, it's still the same. And so, some of that will come out over the course of the year. We're running -- we’re carrying a little bit higher staffing in the branches as we stabilize a little bit higher staffing in some of the call centers. And so those things will normalize themselves over the course of the year. But when we look at where we sit, from my perspective, we pretty much closed the book on the cost saves that we expected to achieve. A couple of other things that have worked out very positive is the onetime expenses turned out to be a little bit less than we thought. We incurred a little bit less in severance expense. We also incurred a little bit less in some contract terminations than we thought at due diligence. And the nice thing is the People’s was an asset-sensitive franchise. And with rates going up, the NII is coming in better than we thought. And so the PPNR is a little bit higher than we expected. So overall, the numbers that we thought we would realize post close and post conversion are in line to slightly better than what we thought, and we're almost back to breakeven on tangible book value. So overall, we're very, very positive about where things sit early on. And as we mentioned before, excited to go to work in New England and bring M&T's branded banking into that new market.

Ken Usdin : Got it. Great. So then one follow-up to that is then if that's the case that you're pretty run rate, then we can all take a look at the kind of implied underlying expense growth off of this fourth quarter and knowing that you have the seasonal step-up in the first. So can you just kind of frame that for us, just what do you think about that organic side, what's driving it in terms of the initiatives that you're focusing the most in terms of incremental expense growth from here?

Darren King : Yes. The biggest driver of that is compensation. And when you look at 2022, we made some meaningful adjustments to our associates' compensation. We raised the minimum wage. We've been dealing with competition for talent like everyone has, and compensation expense is about 55% of our total expense base. And so when you look at the driver of that growth, it's really that compensation cost that's driving it. Outside of that, the other line item, you'll see where we'll be investing and have been is in outside data processing and software, that I think for us and for the industry, you see more and more reliance on purchased software. And with those future software contracts come licenses and maintenance fees, which tend to go up, every year. And the other place, we'll probably see a little bit of growth in advertising and promotion. As we continue to stabilize the franchise and introduce ourselves in New England, we'll see an uptick in that as we go forward and then kind of normalize into what I would describe as a normal percentage of our operating expense over time.

Operator: Our next question comes from Steven Alexopoulos from JPMorgan.

Steven Alexopoulos : I want to start. So looking at this quarter with the second quarter where you funded loan growth with excess liquidity, talking about issuing sub debt, when do you think you'll start growing deposits again? Is this back half '23? And where do you see the loan-to-deposit ratio trending through the year or maybe ending the year?

Darren King: There's always an ability to grow deposits. It's just at what cost, right? And so we're always looking at -- number one, our focus is on customers and customer relationships. And so for situations where we would have single-service time deposits or money market accounts, we may not choose pay rate there because we can fund the bank more efficiently in the wholesale markets. But for customers who are operating account customers, which is our core funding base and part of our long-term strategy, then we're more willing to pay rate. And so we're always making that trade-off. And so to say that it's going to officially end in the second half of the year, I think would be would be a little foolhardy. But our idea is, obviously, there will be a spot you get to where customers maintain balances in their checking accounts, if you're a consumer or your operating account, if you're a business and you kind of hit that floor. And when will that floor hit, I think we start to see it as rates stabilize, and you'll see that as we go through 2023. But also, we know that the deposit pricing lags movements in Fed funds and moves -- lags movements in loans. And so our goal will be to stabilize it as we go through the year. But obviously, making those trade-offs that I mentioned as we work with clients.

Steven Alexopoulos : Okay. And then -- so where do you see the loan-to-deposit ratio moving?

Darren King: Oh, sorry. Right. The -- I think over time -- and again, time, maybe, let's call it, 3 years, aha, just to pick on our #3 is, over the long term, loan-to-deposit ratios for us and for the industry will trend back to their long-term average. And when we think about those loan-to-deposit ratios and those long-term averages, that's also part of the reason why we talk about that net interest margin over the long run, normalizing back to where it's been historically. And so we're kind of, we think, maybe around 80-ish a little bit above as we get to the end of 2024 -- sorry, 2023. But it's obviously a function of how we choose to pay and fund the bank.

Operator: And our last question comes from Gerard Cassidy from RBC Capital Markets.

Gerard Cassidy : I was going to say, and I know the 3 was in the middle of the call, your stock was up 3%, but now it's up over that, so I can't use that.

Darren King : Well, we appreciate that and the 3 reference. There's something that happens in every call and it kind of seems to run its course. So 3 is this one.

Gerard Cassidy : There you go. A question for you regarding your comments about the commercial real estate portfolio. When you look at it, particularly for office, there's a concern, of course, with the work-from-home possibly being more permanent and there'll be less space needed, possibly vacancy rates go up in the office space. What do you think is the greater risk? The occupancy rates going higher because of that trend or the refinancing risk where your customers having to refinance because their mortgages are terming out, they have to refinance it and the rates are just so much higher today than when people took down these mortgages maybe 5 years ago?

Darren King : Right. So I think it's hard, Gerard to pinpoint it on one or the other because they work together, right? I mean if occupancy and price per square foot was okay, are holding up, then you probably got the coverage to refinance when your loan is due. I remind you, when we underwrite whether it's multifamily, office or hotel, we underwrite to long-term interest rates and long-term occupancy rates. And so we've got some protection built in with our clients when we underwrite. So there's a little bit of room there. But as we look at it, I think in the short term, it's the refinance risk, it's a little bit bigger. Over the long run, we debate this a lot internally, and we go back and forth with our Chief Credit Officer, that this trend of more remote work, hard to handicap where that's going to end up, right? You can see some changes in the economy. You see some movements with some of the tech firms with employment. That may or may not drive people back into the office, we don't know. But when you see younger people early in their professional career, you can see the benefits to being co-located with their co-workers. And so that trend, I think, ultimately starts to come back. Is it five days a week probably not, but it's not going to be zero, at least this is Darren's opinion. So take it for what it's worth. To me, the bigger issue is when you look long term at the population, there's a big chunk of the population called the baby boomers that are approaching retirement age. They're not enough of them to come in up in the next wave to use all the space that they needed to sit in to be employed. And that's a longer-term cyclical trend, which will affect these things. And so there's going to be some pain in the short term, no doubt. Over time, rates will move up and down and refinancings will happen. There will be some movement in and out. But to me, the longer-term trend is what's happening with the population and the working population and what's the capacity that exists today versus what the likely future looks like, absent any other changes in politics. And I will leave it at that before we get into a discussion I don't want to get into.

Gerard Cassidy : Sure. As a follow-up question, based upon your experience and your conversations with your colleagues at M&T, what do you think is driving what we're seeing today where the CECL reserve build -- you and your peers obviously have to take a look at the economic forecast. Many people use Moody's, which is weaker this quarter than last quarter, which drove up reserves. But at the same time, I think you mentioned your net charge-off numbers are expected this year to be below your through the cycle levels. Spreads in many areas, high-yield securities or even one of your peers that their corporate loan spreads haven't widened out yet. What's going on where we're not seeing -- we -- I don't think, some metrics telling us we're going to have a tough downturn, whereas the reserve build is pointing to a weaker economy?

Darren King: Yes. I think, Gerard, to me, when I think about the way we all set aside reserves. We've got -- it's weighted heavily on your economic forecast and your R&S period, your reasonable and supportable period, which for a lot of the industry is the first couple of years and then there's a reversion to the long-term average. And so what you're seeing today is the current view where the charge-offs are well below the long-term average. And so the allowance is always going to take that the long term into account. And then you're forecasting and bringing forward those losses based on the assumptions that go into the R&S period. And the expectation for unemployment to go up and for GDP to come down is there. It's in the baseline for Moody's. It's moved a little bit. Most People like us will not just look at the baseline, but look at a more severe economic scenario as well as a better one. And you kind of weight those. And it doesn't necessarily need to be what you see today in the pricing and the spreads versus what's in the forecast. They should be connected, but they're not always, right? And there's always going to be points in time where these disconnects exist. And so we look at it and we think about the provision is keeping the bank safe. It's capital by another form. But as we underwrite business, we're always looking at each individual relationship and its ability to pay back. And the spreads are going to be a reflection of the expectation of that credit risk through the cycle. And so for us, we've had so many long-term relationships where we've seen the behavior of these clients through the cycle and their willingness to step up and many times bring outside resources to help maintain their payments and stay accruing. And so each organization is different, but that to me is a little bit of why you might see a disconnect between what's actually pricing today versus what's in the CECL outlook.

Gerard Cassidy : And just quickly on the CECL outlook, what was the weighted unemployment rate that you guys came up with in your analysis? You mentioned you used the base case, but you also took into account the more severe case as well.

Darren King : Yes. We're kind of in the 4-1 range on unemployment in the base. And that's during the R&S period, obviously, right? And so you're -- once you get past that, then you're reverting to the long term.

Operator: We have reached our allotted time for the question-and-answer session. I will now turn the call back over to Brian Klock for closing remarks. .

Brian Klock : Again, thank you all for participating today. And as always, a clarification of any of the items on the call or news release is necessary, please contact our Investor Relations department at area code (716) 842-5138. Thank you and have a good day

Operator: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect, and have a wonderful day.