Good day and welcome to the M&T Bank Second Quarter 2023 Earnings Conference Call. All lines have been placed on listen-only mode and the floor will be opened for your questions following the presentation. [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.

Thank you, Todd, and good morning everyone. I'd like to thank everyone for participating in M&T's second quarter 2023 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 and 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 are included in today's earnings release materials and in the Investor presentation as well as our SEC filings and other investor materials. The presentation also includes non-GAAP financial measures as identified in the earnings release and Investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning are M&T's Senior Executive Vice President and CFO, Daryl Bible; and Senior Executive Vice President and Former CFO, Darren King. Now I'd like to turn the call over to Daryl Bible.

Thank you, Brian, and good morning, everyone. I would like to start by thanking Darren for his help with my transition. I'm very appreciative of his guidance and support. I'm also grateful for everyone across the bank that has welcomed me and helped me get up to speed quickly, including my incredibly talented finance team. Like me, I'm sure all of you are extremely happy that we now have an earnings presentation. So thank you to investor relations, corporate communication and corporate reporting teams for making this a reality. I'm very excited about the work we are doing and the transition has gone even smoother than I could have anticipated. I'm proud to be part of M&T's strong financial history, consistent operating philosophy, and conservative community focused banking principles. I'm even prouder to be part of a company that is tied to its purpose to make a difference in people's lives. I would like to thank our over 22,000 M&T colleagues for all their hard work each and every day. You are driven by the idea of delivering on our purpose and guided by our set of core values. It is because of you that M&T continues to make a difference in our customers' lives and continue to produce strong results for our shareholders. Please turn to slide three. Let's start with our purpose, mission and operating principles. Our purpose is to make a difference in people's lives by focusing on communities we serve. Our purpose drives our operating principles. We believe in local scale with 28 community-led regional presidents who make decisions about loans and community activities. This local scale has led us to superior credit performance, top deposit share and higher operating and capital efficiency. Our performance is fueled by a relentless focus on customers, talent and communities.…

Thank you. [Operator Instructions] We'll take our first question from Manan Gosalia with Morgan Stanley.

Hey, good morning.

Good morning.

I had a question on NII. I noticed you took your deposit balance guide up along with the deposit beta guide but kept the NII guide the same. So can you talk about the puts and takes there? I guess the question is why hold more liquidity and hold more in interest-bearing deposits in an environment where you're not growing loans that much? Is it more a function of any upcoming LCR rules or anything the regulators are asking you to do?

Yes, Manan. Thank you for the question. What I would tell you is that we start right now each and every day in making sure we have really strong liquidity on our balance sheet. And we want to make sure that is a really good strength as we continue to move through these times. Our deposits, we believe we are in a great position to continue to grow and gain share in our markets that we're serving. So we are aggressively going out and trying to get deposits from our clients and more customers out in these marketplaces. The beta guide did go up, but it's really a mix of how much of funding we get from core versus broker deposits. When the crisis first started in March, we took down Federal Home Loan Bank advances this quarter -- this past quarter and second quarter, we access the broker CD market. We thought that was a good use. And when we access the broker CD market that automatically increased their deposit beta. So if you look at our deposit beta this quarter, it was 40%, but if you back out the broker CDs, it's worth six points, so it was down to 34%. So the guide is that we gave going up to low to mid-40s. It was really excluding the broker deposits because you don't know if we're going to issue more broker deposits is going to be a mix between Federal Home Loan Bank advances, broker deposits and actually issuing debt in the marketplace. So it's a really mix, and it's really up to our treasury team to figure out what's best to do for our company. But right now, having liquidity is really important and really gaining share and serving our clients, we think, is really important as well.

So you took cash up this quarter, and it sounds like you're going to keep it at a high level for some time?

Yes. Yes, we're going to continue to keep really strong liquidity and continue to stay where it is. And it's one of the strengths that we have in the marketplace right now.

Got it. Okay. And then just as a follow-up, the debt markets seem to be opening up. Can you talk about how you're thinking about issuance for the remainder of the year? Just keeping in mind the possibility that TLAC rules could apply to banks of your asset size?

Yes. When you look at the three sources that I just talked about, whether it's broker deposits, Federal Home Loan Bank Advances or debt, early on, when you're going into a crisis, it makes sense to access the home loan bank first because it's there available and you get a really fast in size. Broker markets, I think, were good use this past quarter. And over time, you will see us issue unsecured debt and basically pay off some of the home loan bank advances and probably some of the broker deposits over time. And that's just normally how we would fund the bank overall. But we start with really having really good core funding and making sure our core funding is growing and doing what it needs to from that perspective.

Great. Thanks so much.

Thanks.

Thank you. We'll take our next question from Matt O'Connor with Deutsche Bank.

Hi. Good morning. Just, I guess, first, a follow-up on the capital. Obviously, strong built quite a bit, and you talked about letting it continue to build as you wait for new capital rules, but I guess how high are you willing to let it get, I think, under kind of any rules, it seems like you have access and obviously, a good outcome from CCAR GFS. So this first question is how high are you willing to let it go and then maybe just kind of review the priorities in terms of capital deployment as you think about the next couple of years?

Yes. So let me start with capital deployment question. First and foremost, we want to make sure we serve our clients and our communities. So organic growth is number one, on how we deploy capital. And during turbulent time like this, we want to make sure that all of our customers and potential new customers that we want and want to join M&T that we have the capital there to serve and that's first and foremost when we start. Dividends, obviously, the second, second is dividend growth. And we have a long history of our dividend policy and keeping really strong dividends at M&T, really, really value a strong dividend from that perspective. And share buyback has always been part of our history of repurchasing shares. And from time to time, we might do any acquisitions, if that makes sense, and it's a good shareholder value from that perspective. But long-term, there's really not a change. Just right now in these turbulent times, we're keeping extra capital, and we think it's prudent to do that. And as we get more information from the rules that come out from the regulators. But right now, we are doing really well. Our business is performing well. We're getting new clients in, in the commercial area, business banking, wealth, corporate trust, I mean, our businesses are growing because we are strong. So I think it's an advantage right now to have a lot of capital.

And then just separately, last fall, Darren threw out this kind of long-term NIM range, I think it was 3.6 to 3.9 that kind of spooked folks a little bit, but obviously, you guys were kind of ahead of the curve in messaging the over-earning on deposits. And you did get to the high end of that NIM range this quarter. Wondering if you still think that's kind of a good long-term range? And do you get below that range at some point in the cycle, if you had to guess? Thanks.

Yes. So I want to give Darren a lot of credit. He was definitely ahead of the industry. And talking about margin and the impact of the margin and he saw it coming and I think he was a leader in telling people where everything was going. So it was really, really good guidance from that perspective. I would say that we will continue to have margin pressure just because of the cost of what we're seeing on the funding side. We have in disintermediation. And if you look at it, our DDA was down $5.7 billion. We retained all the clients. Some of the balances went to on-balance sheet sweeps. Some of them went into off-balance sheet sweeps. If you look at our consumer book, we are moving balances from nonmaturity buckets to CDs. But if you go back 20 plus years and you look at the deposit that we had back then, CDs were 20% plus of our funding base. Right now, we're at 10%, and we're probably going to be in the mid-teens before it's all said and done, it really depends on how long rates stay higher. And that's just the normal mix of how we run our retail bank. I mean it's the right thing to do. It's the right thing for our clients. It's the right thing for our bank. We can adjust our rate sensitivities with CDs on the books and manage that really well. So it's just basically learning things that when you ran banks 20 years ago, we're doing the same thing right now and doing it the same way. But we feel really good about our businesses. Our margin pressure is going to continue to come down, and I think we've given you some guidance for this year don't really want to get into '24 right now until we get working on our plan, which would be later this quarter.

Okay. Thank you very much.

Yeah. Thanks, Matt.

Thank you. We'll take our next question from Steven Alexopoulos with JPMorgan.

Hey, good morning, everybody.

Good morning, Steve.

And thank you for the earning slide deck.

You got to thank the team.

Appreciate it.

Yeah. The team did a great job.

I want to start on the noninterest-bearing deposits. So when I look at the decline this quarter, it's still perplexing to me that this mix shift is not basically done by now, right? If you're a commercial customer, you have a treasury function. I'd imagine you've done the analysis and you've already moved those balances, but you guys are now guiding you expect more decline in DDA. When you look at your client base, can you walk us through why is this taking so long? I mean, it's been quite a few quarters, right, the two years has been above 3% or 4%. And what's still to happen to cause this mix shift?

Yes. Thank you for the question, Steven. First and foremost, if you look at M&T and you look at pre-COVID and going in into COVID, M&T had one of the largest increases of surplus balances of all the banks out there proportionately. So we're starting at a really high strength. I think our DDA percentage of total deposits was 48%, yes. So it was really high to start with. And if you look at how we run this company, as I learn about this company, I am just amazed at how well we are getting primacy, getting the operating accounts. We are really good in the consumer business, in our business banking, business and commercial businesses. We lead with getting operating accounts so we have a disproportionate amount of operating accounts there. So that said, to answer your question, it just means that we're going to continue to have mix shift changes. It does seem to be slowing down a bit. But we're still seeing some mix change happen, and it's going to continue to put a little bit pressure on funding, but we're still serving our clients at the end of the day. We're gaining new clients, too. So I think all-in-all, I think we're doing good. We still have a pretty high margin overall, if you look at others in the industry even with this coming down. So I think we feel really good at what we're doing and how we're executing.

Okay. That's helpful. And then just a question on the reserve. What's the unemployment rate you're assuming in the total reserve? And then I know you increased the reserve a bit. You called out commercial real estate. What's the reserve on the commercial real estate portfolio? Thanks.

We're right around 4%. If you really look at the reserves, Steve, there's four drivers there that we have. The one that really impacted our increase in our allowance was really the crappy. The change in the commercial real estate this quarter. That went from a negative 5% to 11%. The other three variables, unemployment was around mid-4s. GDP was basically right around 1% didn't change a whole lot. And HPI was right at mid-6s didn't change a lot. So what really drove the change was the crappy on the allowance side.

Got it. I'm sorry, I missed it. What was the specific reserve now on commercial real estate loans?

Commercial real estate, when the macro variable value that we used in the model went from 6 to 11 and if you look at the allowance, the allowance we increase more to office overall, we had decreases in hotel and multifamily.

Got it. I'm still not following what the specific reserve is on CRE, but I could follow up with Brian after. Thanks.

Yeah. I didn't hear that well. Okay. All right.

We'll take our next question from Gerard Cassidy with RBC.

Hey, Daryl.

Hey, Gerard.

Good luck with the new position for you. And ditto on the slide deck to you, Brian, and your colleagues, it's a very strong slide deck. So thank you. Daryl, can you share with us these proposals that we're hearing about for Basel III end game may include banks as low as $100 billion in assets and so when you guys talk about what could happen and then I believe earlier this week, Bloomberg kind of story, that there may be higher risk-weighted asset assumptions for residential mortgages, which seem to be a new twist to these capital requirements. How are you guys approaching what could happen in terms of greater RWA increases for your organization and the capital needed to support them?

Yes. Thanks for the question, Gerard. Obviously, we are very eager to get these new roles and see what's out there and make comments that's going to go through those normal process there. So it's going to take time, probably get most of these things implemented. On your specific question of RWA and mortgages, we'll wait and see how that comes out. We are in the residential mortgage space. We exited the correspondent space last quarter. So we're really just focusing on meeting the needs of our clients of the company. And we're basically selling all the conforming into the marketplace and we're balance sheeting all of our wealth clients and clients that are low and moderate income are the ones that really are going on the balance sheet. So we're going to stay in our core businesses because we're serving our clients. If it's a little bit higher capital, the market will probably adjust and just raise pricing to accommodate for that would be my best guess from that. As far as the other changes out there, there's a lot of proposals there. If it's like long-term debt or TLAC, we're waiting to see what that happens. M&T really, we don't have a whole lot of debt outstanding. So it's something that we will have to just manage. It's probably going to be holding company. If it's not holding company and allow bank will probably end up with a mix of holding company and bank because you still want to have a strong parent company from a source of capital perspective there, but we'll just optimize it. But with us using now Federal Home Loan Bank advances, broker deposits, I think we have, right now, ability where we can pay those off, issue unsecured debt and really not blow the balance sheet from that and still have a really strong liquidity position from that. So we're waiting to see. I think you know our AOCI comes in, looks like that's coming in were 55 basis points, that's 55 basis points negative adjustment at the end of this quarter includes all three pieces. It's the AFS securities, cash flow hedges as well as pension. That's probably one of the lowest that we have in the industry. So it's not a real big impact for us. So that's the strength as well.

Very good. And then as a follow-up question, you touched on and I may have missed some of this, the charge-offs in the quarter about some lower values for commercial real estate in a slide deck you guys put out earlier in the second quarter, you gave some very detailed information about your commercial real estate portfolio by location and loan to values. Can you share with us where is it the higher loan to values that were required to be written down? Or are you actually seeing it in some of the lower loan to values seeing some weakness as well? And then second, on top of that, when you go through the portfolio, where are you in terms of -- are you 50% through reviewing the portfolio or 75% or 20%?

Yes. Thank you for the question. So on your first question, CRE is really just you have to look at it on a case-by-case basis just because of the unique quality and pieces of how it is each borrower has different implications. You have tenant things, you have to market conditions, interest rate. So that is a case-by-case basis. So you really go through the deep dives there. On your question on portfolio review. Yes. So we are 50%, 60% plus through it. All the loans that we have in the criticized bucket is reviewed every quarter. We stress test those really well. And if I look at what we're doing versus my prior places, I would say, we're doing as much if not more. What I've seen done in our credit process. So we're staying on top of this. Our teams are doing really well. Valuations are coming in, and we're doing the best we can with the information we have. But I would say we feel good at where we are and we're just continuing to monitor where everything is.

Very good and good luck again in your new role. Thank you.

Thanks, Gerard.

Thank you. We'll take our next question from Brent Erensel with Portales Partners.

Good morning and, Daryl, welcome to Western New York.

Thank you, Brent.

So specifically on the CRE drilling down to the Manhattan real estate or New York City real estate, I was wondering, could you walk us through what you do? You said you were taking charge-offs there. So you take possession, do you restructure? What happens when you have a CRE Manhattan, I guess it's an office building. What do you do here in that situation?

Yes. So in New York City, New York City, is a big marketplace, and every place is a little bit different. Right now, it seems like the downtown area might be a little weaker than the middle part of Manhattan. So the charge-off that we took in Manhattan was in the downtown district there. But I would say we do all the above. I mean we really work with our clients. It really for us starts from a client perspective. Client is really, really important client selection. And in the CRE business, we make loans in the larger studies like New York, D.C., Boston, and in those markets, I would say, 75% of those are very long-term oriented clients and really good clients. Once you get outside of these major market cities, it's almost all of our clients are really long-term oriented. But as far as which notes we would sell or whatever, it's probably more the financially oriented clients that we have, where they've had their returns and they are putting any more equity into the deal is really how we would handle that.

To follow-up on that, you're seeing strong-handed borrowers, some of these big names, just mailing in the keys. Are you experiencing that as well? Where your long-term strong-handed CRE borrower is actually not so strong-handed after all.

I would say what we're seeing right now is our long-term clients. It really comes on to client selection, but they're really holding in there. You have to look at their portfolios that they have, and they might have one trouble property, but they have a lot of others that are really performing well and they move cash over to support and put equity into those transactions. So we feel good about that. And we've been in this business for a long time. I get a lot of comfort when I look at Bob and his team, there's a lot of gray hair there. They've been through this many, many times and gives me a lot of confidence. And like I said earlier, the processes we're using are as good or better than what I've seen in the past.

Thank you.

Thank you. We'll take our next question from Ken Usdin with Jefferies.

Thanks. Good morning, everyone.

Hey, Ken.

,:

Yes. I think that's right. And it does exclude broker because we may pay off some of the broker deposits to really dependently access the unsecured market or not. So I would say, if you look at core, I think that's the right assumption to use, Ken.

And that was going to be my follow-up, Daryl. So can you explain that just to broker deposit beta is completely outside of that mid-40s beta comment?

Yes. So if you look this quarter, our beta on total interest-bearing deposits was 40% and we issued $4 billion of broker deposits during the quarter. If we back out those broker deposits, we were at 34% deposit beta. Our decision to issue broker deposits was one versus looking at it from issuing doing Federal Home Loan Bank Advances or doing unsecured debt, we chose that. As we move forward, the treasury team will basically do what's best for the company and what we need to do. And we'll probably use all three pieces. And when it actually goes into deposits, it impacts the deposit beta. So we tried to give you, excluding the broker piece, what deposit beta is, what Darren said the last several quarters on deposit betas, if you back out the book or he's spot on still where we're performing. So I mean the guide there, we just kind of mixed it up by issuing these broker deposits.

Understood. And then could you just tell us then, so of -- I don't know, a great way to think about $103 billion of total interest-bearing deposits, just how much of that in aggregate is brokered.

I think our broker deposits are about $10 billion in total. And I would say $8 billion of it is CDs and $2 billion of it money market.

Okay. I get it. That helps. Thanks a lot Daryl.

You're welcome.

Thank you. Our next question comes from Ebrahim Poonawala with Bank of America.

Hey, Daryl, good morning.

Good morning, Ebrahim.

Good morning. Just a follow-up on Ken's question around broker to $10 billion at the end of the quarter. Is there a target that the MAX that we should think about how much brokered deposits can get either on a dollar basis or as a percentage of total deposits that we should keep in mind when we're thinking about betas and the outlook there?

Yes. Probably just a few more billion from Ken is probably as high as we want to go there. So we don't want to be outsized in the use of that. Like anything else, we want to be diversified and kind of use all of our funding tools just kind of you want to just make sure you have use them all and you have access to all of them. So but I'd say a couple more billion is all we're going to use in the broker space, but you might actually see that come down if we issue more unsecured debt.

Got it. And just one follow-up on the CRE appraisals. I think if I heard you correctly, you said you had to 50% to 60% of the portfolio. How hard is it to get a true appraisal on a CRE property right now and what I'm trying to get to is what's the risk of being blindsided on reserve levels two or three quarters from now where you need to take a lot more because of fair values. And I'm just wondering the visibility on the appraisal, how conservative are you being as a bank in kind of trying to put this -- getting ahead of this issue?

Yes, that's a great question. So what I would tell you is there aren't a whole lot of sales in the marketplace right now. So we don't have a lot of specs when we do have when we use them. But a lot of the valuations we're using, we use the discounted cash flow method and when we look at just a couple of pieces of the discounted cash flow method, when we're looking at properties and the properties vacant, we assume a three-year vacancy for it to get sold up when something is coming due and it's turning over, we assume with 12-year vacancy or 12 months vacancy. So from a cash flow perspective, we're factoring in three amenities to get people in leases. So all that cash flow adjusted in the discounted cash flow model. So it's really impacting the valuation that you have. Cap rates really haven't changed a whole lot, it's really the assumptions you're using on the cash that you're generating in these properties is really what's driving down the values.

Got it. And welcome to the new role. Good to hear you -- call again. Thanks.

Thank you. We'll take our next question from Frank Schiraldi with Piper Sandler.

Thanks. Good morning.

Good morning.

Just, Daryl, I missed the -- I know you talked about the back to sort of the noninterest-bearing mix shift. You talked about maybe a more normalized, I guess, sort of balance sheet, getting CD balances ultimately back into the mid-teens. Is the best way to think about noninterest-bearing shift from here is basically that all comes at the cost of noninterest-bearing so that we could continue to see pretty significant shift adding noninterest bearing because it seems like you could have some offsetting tailwinds from the trust business as well, right, as sort of that transactional volume maybe picks up or normalized. So I'm just wondering the best way to think about where noninterest-bearing balances could kind of migrate?

Yes. No, I think those are all great questions. If you look at our noninterest-bearing to total deposits this quarter, we were at 35%. But if you actually back out the broker deposits that you put in there, we were at 38%. So that here again, broker is kind of playing something with the numbers from that perspective. We probably have that going down, though, by the end of the year, maybe 2% or 3% with a mix change that we have. So I think from that, Corporate Trust is definitely a great business for us. It's a business that's growing for us. As market activity increases in that sector, it will be a big contributor to our balances that we have on the noninterest-bearing side. So that is a really important piece. Right now, the activity just is down some. So there's a lot of market activity. But right now, we're just giving an outlook for a couple of quarters, but as market activity picks up, Corporate Trust will definitely be a big benefit for us in having that mix change.

Okay. Great. And then just on the other side of the balance sheet, back to the loan growth outlook and I guess, consumers continuing to slow and 4Q balances maybe being down overall. Just on the C&I side, should that growth decelerate here as the floor deal planning stabilizes? And ultimately, where do you think CRE kind of flushes out or stabilizes in terms of the total loans?

Right now, if you look at our projections for total loans, it's relatively flat to maybe up slightly. If you look specifically at the commercial side, C&I is growing. This past quarter, it was really driven by dealers, floor planning as far as we're getting on the lots. Some of our specialty businesses and fund or sponsor or kind of the growth areas there. As you move forward, I think as CRE, we're going to serve our clients in CRE. But with the businesses that we have, some of it where we will basically lend to them and sell it back out, so that's more fee business. So that overall business is going to become a smaller percentage of the balance sheet and C&I will continue to be a larger percentage. On the consumer side, it's I think performing well. We might do some asset sales or securitizations just to test the plumbing later this year. So that's really impacting some of those balances if that actually happens.

Okay. All right. Great. Thank you.

Thank you. We'll take our next question from Mike Mayo with Wells Fargo Securities.

Hey, Daryl.

How are you doing, Mike?

Welcome to the North. Just a big picture question. I mean, you've been in the Midwest, U.S. Bancorp and you've been in the South, BB&T and Truist and now you're at M&T. And just how do you view M&T when you pull the lens back, having been on the inside at so many different firms and so much perspective over a few decades. Why did you choose to go to M&T, what do you see as the potential that's not unrealized? And what do you think that you can bring extra to the table, which you probably brought up when you spoke to management?

Yes, Mike, thank you for the question. I would tell you, first and foremost, I am ecstatic to be here and to be part of the leadership team at M&T. I was actually, my neighbor, Tracy, one of my peers, I walked into her office one evening, and I told her, I think it's better than I expected it to be just the reception of the people and the work ethic and we run a really good company here, and it is really performing well. I'm just blessed to be on the team to try to continue that performance. To me, it reminds me a lot of a bank that's getting larger. And as we get larger, you have to adjust and to meet certain requirements and from regulations and basically actually running a larger company. For me, the big balance that we have to keep is the magic that happens on in the communities each and every day. We empower our regional presidents and people to make decisions out in the field and really do a great job with client touch and how we serve clients. And we want to make sure that, that stays intact. But running a larger company, we also have to have controls and processes in place, so we know what's going on and we can manage the risk as we continue to get larger. So I think it's just a balancing act from that perspective, Mike. And I see a lot of opportunity where I think I can help us perform and get things in working better potentially as we kind of move forward just because we're a bigger company. But I can't say, I can't tell you how much the work ethic here, just how well we run the company and everything. We do a great job and it really starts with the community and are serving our clients. And from that, it kind of all falls down. Working for Rene somebody that I've really respected have known over the industry, I would tell you, it is just a dream come true for me in my career. So I am really blessed to be here, Mike.

And just one follow-up. Qualitatively, I think that makes sense, helping a bank manage through becoming bigger and all the regulatory and complexity that involves, but if there was one quantitative metric where you say, you know what, three years from now or maybe five years from now, this financial measure should be better and I'm going to take ownership of that. What would that one financial metric be or maybe a couple?

I would say we have a good strong performance, if you look at our investor deck and you look at our investor thesis, our return on average tangible common equity at 15% to 20% is pretty darn good to do that consistently. I think that's good. If you get well over 20% you're either growing too fast or taking more risk, so you have to be careful for some of that. So I think that, that would be a really good target. We are really focused by how we run the company to really, at the end of the day, give a great return to our shareholders. We are really prudent with how we manage our capital, whether it's through buybacks, dividends are definitely key and acquisition. The acquisitions we do and you just look at the Peoples acquisition, I mean, we have great returns off that acquisition. I went through some of the metrics earlier in my prepared remarks. So that's going well. And I would continue to see probably more acquisitions in our future over time. It's kind of in the pace of how we absorb it. When you do these acquisitions, it really takes us good two, three, four years to get the performance up to the M&T standard. So just buying people last year, we probably don't expect people's performance to really be at the M&T performance until we get a couple of years under our growth there. But as we grow into that, we could have potentially other opportunities to do more of that over time. So it's good and it will continue to change and evolve as the industry changes, but people here are fully dedicated to the mission. Everybody is 110% all in, and I'm just excited to be on the team.

All right. Thank you.

Thank you. We'll take our next question from Erika Najarian with UBS.

Hey, just one last question. I'm sure everybody is hopping on their 9 o'clock call. But Daryl, could you give us a sense of how you think if you are going to do $7 billion in NII, how is the cadence unfurls for the second half of the year. More importantly, what fourth quarter looks like? And is the $183 million impact on a down 100 basis point scenario, from your last Q still sort of in the ballpark of your rate sensitivity to the downside?

Yes. Let me start with the sensitivity question, Erika. As we continue to look at our hedging strategies that we have in place and that we are continuing to operate on, we are becoming less and less asset sensitive and right now, when we -- if the Fed increases one or two more times, we'll get a little benefit out of it. But what I use, if you go up 25 basis points and over a 12-month period with that increase, our net interest margin is probably only going to increase one or two basis points because of that. On the downside, we're getting less negatively impacted as we move forward such that if you go down 25 basis points, our deposit betas are not deposit betas. Our net interest margin is only going to go down three to five basis points. So it's getting tighter and over time, we just want to try to keep it as close to zero. I mean it's a big balance sheet so you can't be exact, but you want to be as close as you can, and you don't really want to take a whole lot of rate risk and our treasury team is doing an awesome job and manage this through that. As far as the guide goes, right now with the funding pressures, if you look at what we have rolling off or what's rolling in, we'll probably have a little bit more pressure third quarter versus fourth quarter just because of the repricing that's occurring on the liability side. That said, as things kind of normalize, we're starting to pick up spreads, higher spreads on the asset side and if things stabilize on the liability side, you could actually start to stabilize margin probably in the mid-3s as you kind of embark, but we'll see how that goes maybe next quarter when we look at '24 and beyond. But hopefully, that helps.

That really helps. Thanks, Daryl, and look forward to working with you again.

Yes. Thanks, Erica. Appreciate it.

Thank you. We'll take our last question from John Pancari with Evercore.

Good morning and congrats, Daryl in the new role. Just a couple of very quick things for me. And just on that NIB, noninterest-bearing mix of 34%. Did you -- where you believe it could bottom? Could it be below that 30 -- you're around currently the level that you were pre-pandemic? Could it how much further below that could be noninterest-bearing mix migrate?

Yes. I said earlier on another question, John, you may have missed it, but we -- because of the broker deposits that we put on, just putting those broker deposits on dilutes our percentages. So you aren't comparing apples-to-apples from that perspective. But I would say we're going to go down probably 2% or 3%. The rest of this year will be our best guess. So it's really serving clients to have higher rates. But what I said earlier, we started from a really high place because we've got a lot of surplus deposits, and we really have a huge focus on getting primacy on the operating accounts. And that basically gives us a lot to deal with. And I think at the end of the day, M&T will still have one of the highest percentages of noninterest-bearing to total deposits of our peer group. So I think it's just playing out with just a higher rate environment, and that will change if rates start to go down at some point.

Got it. All right. And then lastly for me. On the deposit side, your outlook does imply modest growth in the second half of this year? What is that primarily going to reflect? Is that a lot of the incremental broker that you expect? Or maybe a little bit of color there?

Yes. It's not broker. We really saw this quarter in the middle of the quarter start to stabilize and start to grow. So we're hopeful that we'll be able to get some growth out of our core businesses, whether it's retail, business banking and commercial and maybe towards the end of the year, maybe we'll get higher activity out of the capital markets area in our corporate trust space as well and wealth areas. So I'm hoping that all those business lines will continue to modestly grow throughout the year as we compete for deposits.

Okay. Great. Thanks for taking my questions.

Yes. Thanks, John.

Thank you. At this time, I'll turn the floor back over to Brian Klock for any additional or closing remarks.

Again, thank you all for participating today. And as always, clarification of any 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 great day.

This does conclude today's M&T Bank Second Quarter 2023 Earnings Conference Call. You may disconnect your line at this time and have a wonderful day.