Q4 2022 BankUnited Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the Bankunited fourth quarter and fiscal year 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone and you will then hear an automated message of bites in your hand. It's raised please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Susan Greenfield corporate.
Secretary. Please go ahead.
Thank you Michele good morning, and thank you for joining us today on our fourth quarter and fiscal year 2022 results conference call on the call. This morning are Raj Singh, our chairman President and CEO , Leslie <unk>, our Chief Financial Officer, and Tom Cornish, Our Chief operating officer.
Before we start I'd like to remind everyone that this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Reflects the Companys current views with respect to among other things future events and financial performance.
Forward looking statements made during this call are based on the historical performance of the company.
Sidney Aries or on the Companys current plans estimates and expectations.
This forward looking information should not be regarded as a representation by the company that the future plans estimates or expectations contemplated by the company will be achieved such forward looking statements are subject to various risks uncertainties and assumptions, including without limitation those relating.
For the company's operations financial results financial condition business prospects growth strategy and liquidity, including they're impacted by external circumstances outside of the Companys direct control.
The company does not undertake any obligation.
Publicly update or review any forward looking statement, whether as a result of new information future developments or otherwise a number of important factors could cause actual results to differ materially from those indicated by the forward looking statements. These factors should not be construed as exhaustive information.
All of these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2021, and any subsequent quarterly report on Form 10-Q. Our current report on form 8-K, which are available at the SEC's web site Www Dot FCC dot com with that I'd like to turn the.
Call over to Raj. Thank you Susan welcome everyone. Thank you for joining us So we announced earnings this morning EPS for the quarter came in at 80% for the fiscal year $2 54 studies, let me get quickly into the components are the key components.
That you will find the release launch.
Okay.
$19 million.
If you look at our.
Nathan tailed businesses commercial and CRE actually grew $722 million and really happy about.
Well good lending teams were able to get done this quarter.
<unk>.
Which are under a lot of pressure across the system.
We actually grew deposits a little bit $160 million, though ni DDA did decline given the rate environment and how quick ones.
Ni DDA decline.
756 million DDA.
DDA now stands at about 29% of our total deposits.
We started this DDA growth journey five six years ago.
We were at 14%.
Uh huh.
The.
The reduction in DDA that we saw this year were still a decent.
Margin expanded again.
Though a little less than in previous quarters. As we had highlighted to you margin came in at $2 81, It was up from $2 76.
Higher quarter, so for the year I think margin grew by 30 basis points.
Right in line with what we had guided to you at this fall last year.
Provision for the quarter, Congratulations let me talk a little bit about credit quality criticized classified assets that need to come down as they have over the last many many quarters.
Our npls are at.
Now at 42 basis points or 64 last quarter and this includes the guaranteed portion of SBA loans. If you back that out Npls are now down to 26 basis points.
Just before this call I asked philosophy, a check for me what the Npls were before the pandemic hit.
And Npls.
Yesterday dollars are at $105 million and before the pandemic hit $205 million. So npls today are.
What they were.
And so from a credit quality perspective from the portfolio over the last two years, we've been sort of.
<unk> consciously and subconsciously didnt getting ready for whatever slowdown is coming and we feel pretty good about where we are.
Whatever comes our way.
Having said that we are more pessimistic about or more cautious about the environment than we were three months ago. So we did tweak our assumptions.
And increased our reserves, we took a reserve upfront 54 basis points to 59 basis points, you enforce that growth in the portfolio.
All of that added up to a provision of just under $40 million.
Yes.
Also the buyback.
As we have promised last time, we had bought back I think in the fourth quarter $65 million.
We had already bought 10.
From this authorization in the previous quarter that leaves us $75 million and this authorization, which we're continuing to we will continue to execute as.
As we see fit.
Quickly, let me talk about the environment and then we'll talk about guidance for next year.
The environment 2023. This is the year of the slowdown and possibly even a mild recession that seems to be the consensus out there.
The club is inverted.
Yes.
Everyone can see.
Ed wants to short term rates up.
Those are the 5%.
And then separately wants to grow closer to 3%, so a lot of yield curve and.
Spectrum stayed with US all through this year probably into next year as well.
Last year, the fed slammed on the brakes this year theyre not slamming on the brakes. It looks like they still have some pressure on the brake.
They will probably take the foot off the pedal a sudden sometime this year, but.
Its unlikely at least based on what the fed is saying that they want to step on the gas metals.
The market disagrees.
And on the Carnival.
Actually how things play out we build all of our <unk>.
Internal models and projections and everything based on whatever the future curve is telling us.
Labor costs, while they were very high last year I would say they are still higher than usual, but they are moderating somewhat.
Just on some weakness we're seeing in certain sectors. So that is that as good news if labor costs start seems to be getting back to normal, but its not back to normal yet.
Sure.
On the other side is good news margins are better than we've seen lending margins loan pricing gets very rational we're getting paid for taking credit risk.
Pretty much across the board from the safest to across the spectrum any kind of asset you want to.
Participating margins are $50 70, 80, 90 basis points better than they were just nine months ago.
And most importantly that is succeeding.
Sure enough controlling inflation that was very important.
Three or six months ago this looked like.
A pretty crazy place that decline was in but the fact is finally having success.
That will also have an impact on on this one.
And what vehicles are not good for bank margins.
So as effect finishes this tightening.
And gets to the other side it will be a better rate environment for banks, but right now it's.
I mean, we're at a vehicle which is tough.
Last year, we gave you guidance around loans deposits margins and so on.
We said loans should grow mid to high single digits that grew 6% and totaled 13% for C&I and CRE are made in Britain butter categories.
Deposits.
We said mid single digits, but Saudi starting in January of last year, Nobody foresaw what the fed was about today I don't think go into effect before so it actually did.
So we've missed on that.
Margin, we said would expand by 30 basis points came in exactly as we expected.
But as we said would grow mid to high single digits at that seven 5% growth in expenses and.
The end result was.
We also said we would buy back stock and we did a little over $400 million with the stock.
NII grew 58%.
Based on actually one of the metrics I asked this morning.
I also look at 2019 and sort of a year to compare things do because 2020, one pretty messy years with <unk>.
Provisions in the diversions provision and so on.
And it really clean here is 2019 I often ask about just like I said on Npls Npls at the end of 19 versus today, where they are I asked about margin also.
And our.
Our margin has.
Despite the difficult rate environment, our margin is significantly better than it wasn't bigger item 19.
We're just sort of an end result of all the hard work that has gone into improving the franchise.
Cost of funds, while it is elevated at 140 basis cost of deposits 142 basis points. It would be two basis points in an environment of.
North of 4% fed funds rate so to get to 5%.
So it is a lot of progress was made on the balance sheet.
You look at the credit metrics of profitability metrics, but yes. There is a lazy part of the balance sheet is still sitting there Dave securities portfolio.
A large legacy portfolio, which will sort of wind its way down over time, but overall I think the balance sheet into a much better place than it was before the pandemic.
This year.
Everything I've said about the environment I think we're looking at loan.
Loans growing at mid single digits deposits doing the same margin is still expanding though not as much as it did last year.
And expenses again very similar to last year.
We expect to drop buyback will continue we will get this $75 million done.
Over the course of next.
A few weeks.
Unlike <unk> the board authorized another 150 after that.
A quick.
Reminder.
It's been now nine months since we launched our Atlanta presence.
I'm extremely happy with how that next panned out.
We did open a branch in Dallas, but we did not fully.
Acquire team on the on the commercial banking side.
The market for that now so Dallas will be the projects for this year in terms of having full capability in Dallas is not just a branch.
Atlanta is off to the races, and very happy with that and I think going forward.
We will look to opportunities like Dallas like Atlanta, and continue to grow this business will become part of our ongoing strategy.
With that I don't want to take away all the talking points here I'll leave some for Tom Tom.
Tom I'll pass it over to you and maybe you can pass Leslie great. Thanks, Raj. So as Raj mentioned total loans grew by $619 million for the quarter.
C&I grew by $599 million.
<unk> grew by $123 million for the quarter.
And overall.
To continue the meat and potatoes analogy for $722 million growth in those two lines of business with.
It was extremely encouraging for us we felt great about it.
I think if we break it down a little bit and look at industry components and asset classes.
Really broad you can see in the supplemental data.
We generally provide in the scene.
Ni side, we grew 11 different segments during the quarter.
$600 million essentially.
Loan growth in the quarter. It continues on a strong.
C&I growth number for the entire year.
Just separately kind of our middle market and corporate banking business grew by 25% for the year. So it was just an.
Outstanding year I think that's.
Reflective of both our own efforts.
And it is also reflective of the fact that we're in great markets.
Florida has performed extremely well all of the major cities in Florida have done.
Very well, we're blessed to be in great markets as Raj said.
We really couldnt be more delighted than we are with what we've been able to accomplish in Atlanta in a very short period of time.
Multi hundreds of millions of dollars of commitments and that market excellent relationships.
We are very enthusiastic.
About expanding into Dallas, we see Dallas.
It's a very parallel market to Atlanta in terms of size of the MSA in terms of depth of the economy and breadth across the number of industry segments.
Fit to kind of risk profile that we're looking for in terms of diversification and so we're excited about that the rest of Florida continues to do well we saw good growth in the commercial segments in the New York market.
In the quarter and throughout the year. So I think both the combination of our efforts to segments that we're in and the overall health of the markets that we're in we're very important parts of the growth story in the quarter.
And throughout the year.
Last quarter, we had.
Bit of a growth in Korea, we told you we would have more than we did.
That's also I think are good solid commitment to the fundamental parts of the business. We want to grow we had solid growth in the industrial and <unk>.
Our house segment, again, which is really strong, particularly in the southeast.
We have committed a bit more resources to our construction lending efforts and saw the construction loan portfolio.
Pick up a bit and we're particularly active in the multifamily construction area, which is a strong growth area in virtually every market that we're in multifamily units continue to trail the need for multi family housing and most of the areas that we're in so those things really lead.
Two what we feel really good about in terms of our growth story for the quarter and for the year.
Other areas mortgage warehouse that environment remains.
Pretty challenged right now we're committed to that business.
We think we will see some growth in it but right now the overall housing market as you know is not robust so we're seeing.
Utilization rates are fairly low in that business right now.
Pinnacle and bridge continued to decline during the year I think if the tax rates improve.
<unk> improves in pinnacle that may be an area for growth.
We continue to deemphasize the franchise lending and the equipment finance area both from a an.
And overall quality and just return on asset perspective is not very attractive to us.
Right now.
Revenue grew modestly.
In Q4, so looking forward into this year, we continue to see growth in the core C&I inquiry Brooks, we see it across all of our geographies as I said, we're committed to mortgage warehouse for the long term and expect to see some growth in that portfolio.
Also for the environment for January <unk> business improves there could be some growth opportunities there as well.
Continue to build sales teams bring.
Bringing on new producers.
In the market and we're looking at some key hires even in this quarter as we start off the year, even beyond the Dallas expansion that we've talked about.
On the deposit side total deposits grew by $160 million for the quarter that growth was in interest bearing deposits as Raj said ni DDA decline for the quarter, which was not unexpected and the environment given the rising rates and tightening liquidity, we did finish the loan to deposit ratio at 90%, which essentially was flat from the.
From the previous quarter.
Leslie will get into more details on the quarter.
Thanks, Tom.
As we guided last quarter and as Raj said, we saw demand increase this quarter to $2 81 for $2 76.
Yield on investment Securities increased to $4 33 for $3 12, the duration of this portfolio stands at 194 at December 31 yield.
The yield on loans $4 72 from 411 this quarter.
All mainly attributable to the resetting of coupon rates on variable rate instruments, and new production and securities purchases at higher rates.
Total cost of deposits was 142 basis points for the quarter up from 78 basis points last quarter I would refer you to slide six of the deck.
While this is a story that is obviously still playing out you can see on that slide.
Illustration that the spread between the fed funds target and the cost of deposits have grown.
Quite a bit.
Compared to back in 2019, which is a testament in my mind team the improvement that we've made and the quality of the deposit base.
Total deposit beta to date. This cycle is about 43% at the peak of the last cycle. Our total deposit beta was about 61%.
It's going to go up from 43, but we still don't think its going to get to that 61.
With respect to the reserve and the provision slides nine and 10 and get some detailed capital reserve. The provision this quarter was $39 6 million in the ACL increased to 59 basis points from 54 basis points as Raj mentioned in spite of the increase the decline in our Npls and favorable credit quality.
We built reserves, primarily due to an increasing level of uncertainty about the economy and quantitatively, we waited a downside scenario more heavily in establishing our reserve this quarter.
Okay.
We did.
Majority of the increase in specific reserves that you saw this quarter, which was another contributor to the reserve build related to one single loan that was charged off before the end of the quarter and substantially all of the charge offs taken this quarter.
Added to that particular loan.
There's not really much to comment on with respect to noninterest income and expense I'll, just reiterate that for the year noninterest expense, if you factor out the hedge loss.
We kept that in the fourth quarter of 2021, it was up seven 5%, which is really exactly what we've been guiding the case since the first of the year. So we came in right where we've been telling you we would.
With respect to that I don't think Theres anything there, particularly to comment on for this quarter, so with that I'll turn it over to Ross for closing comments and then we'll take your questions.
We'll open it up for questions I know there are 19 of the banks that have released so.
We will.
Let's let's take questions operator, you can open up the lines.
As a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Our first question comes from Ben Garlinger with Hovde Group. Your line is now open.
Hi, Good morning, everyone. Appreciate you taking the time.
Good morning.
I was curious just wanted to follow up on the guidance that we've given you some kind of a mid single digit loan growth and deposit growth is that correct.
Yes.
And then kind of thinking just a deposits perspective.
Quantitative tightening and kind of fighting against.
The treasury curve really in terms of.
What else is available to depositors.
I mean, when you look year over year. Your deposits are down and I was curious is there any new action or are you willing to go to price to market in order to garner.
So some overall growth relative to peers I mean, you guys arent the only ones I don't mean to pick on you, but others are balance was curious on what actions.
And you might be taking that to get them.
Yes, yes.
I think the big difference.
And we could be wrong on this but the big difference from last year, but this year, we're not expecting that flattening of the brakes.
That we saw with the fed.
But a more gentle sort of slowdown.
<unk> of monetary policy and eventually.
Ending that tightening.
If the fed continues to surprise us with very aggressive action than achieving mistaken, but it will be hard of all the guidance I've given you whether it's loans margin dollar deposits or what have you.
The deposit guidance is the hardest one to really get in.
Some of this is also our desire not to let our loan deposit ratio get too out of whack and get past the 100 to 105.
So you can gather deposits.
It comes down to price.
So.
We're not.
Loans, you can look at the pipeline and kind of gas okay. Here's with loan demand is and this is what I know typically we're able to close of the pipeline and so on.
With deposits.
It's much harder.
But based on another 325 basis point increase and eventually slowing.
On on rate hikes, I think thats what happens.
There's a good chance that we will end up at mid single digits, if it's worse.
If the tightening is harder to stronger and longer and it will be.
It will be tough to get to mid single digits.
I would also add that one of the things.
We look at is when you look at the creation of new relationships across the franchise and you look at virtually all of the business segments that we're in.
The overlying economic activity, obviously impacts the balances that might be in any individual account, but.
We have.
Very very good.
Friend line information.
Performance history. This year as it relates to the number of new relationships being created by all of the sales teams.
That.
It gives us some confidence that that will continue as we look into the year.
Gotcha.
No.
Prominent thinking that you guys can get the deposits really are what cause and then kind of Conversely, there that you guys are expecting some.
Margin expansion from here, so thats thats farmers kind of square the circle to some degree.
But the latter question I have is.
More kind of the nuance I'd, probably for wisely, but when you think about the expenses.
<unk> historically had some pretty clear.
Seasonality I guess, you could say from quarter to quarter and what that kind of has fallen off as of late I was just kind of curious should we still expect <unk> to be a little bit high.
Higher relative to two three in the fourth quarter, the highest from here or is that kind of.
Under the waste item just trying to look for.
Some overall quarter over quarter expectations I get the whole year is around 7% ballpark.
Quarter to quarter.
We don't spend a lot of time, obviously, focusing on any one particular quarter, but but typically compensation expenses higher in the first quarter, just due to the impact of certain payroll taxes and benefits and whatnot, but as we've been investing in people and in bringing new sales teams and support people.
And to support growth of the business you may have seen that trend smoothed out a little more because those people tend to come on over the course over the course of the year in head count.
Not be held constant.
Again don't spend a lot of time and energy trying to figure out what the quarter to quarter forecast it I'm more concerned with the year as a whole.
But you will see that spike in benefits that the trend maybe slowed down a little bit by.
New ftes coming on more evenly over the course of the year.
Got it Okay. That's helpful. I appreciate the time everyone.
Guys have done a great job.
Remixing.
The deposit side of the balance sheet. So it's clearly set you guys up to support work for years ago. Thank you.
Thanks.
Please standby for our next question.
Our next question comes from will Jones with <unk>. Your line is now open.
Great. Thanks, Good morning, guys.
Good morning.
So I wanted to stick on the expenses first that Raj just to clarify you said expense guidance is the same as last year, which is the mid to high single digits correct, yes.
Okay, and just as we think about the base was with mid to.
High single digit growth also in the right way to think about it annualize the fourth quarter and growth from there or is it really just cumulatively year full year and will add up to the full year.
Okay helpful. Thank you and then Raj I know you called out maybe.
One or two maybe nonrecurring or onetime charges that happened in the third quarter was it was there anything similar that happened in the fourth quarter, you know and others.
A fairly big tick up in expenses.
Not really.
I don't think Theres anything, particularly unique in the fourth quarter here.
Got you Okay, great. Thank you and then.
Just moving to.
Appreciate all the great commentary of the allowance.
The bump up linked quarter there.
Just as it relates to the one charge off you guys took I was hoping to get little more color around that and I appreciate it.
Specific reserves tied to that charge off it looks like maybe based on the way Youre <unk> there was a CRE loan.
Just hoping to get a little more.
So that loan is a workout.
So I could be careful what I say.
What I will tell you is it a situation where.
We lose faith in the.
The financials of the company.
Sorry, if I can actually with the company.
We tend to charge off.
Don.
We.
We basically write off the entire day.
This is a developing situation.
It's only three months in in terms of.
When we really found this ought to be a little more than three months into this and we just took the most conservative.
Stand, which is we can't you don't really know there are some it looks like they may be someday regularities and financials of the borrower and we're just kind of charge off the loan which is what we did.
Our recoveries have come back.
Im hoping there'll be some recoveries, but not knowing that.
With any confidence.
We just talked.
Got it.
Great.
Yes.
Yes.
Digging deeper and is there any specific industry or.
Any kind of specifics around the nature of them off situation.
No.
When you're audited financials coming to your question, it's not about the industry. It's about just that one situation.
Got it understood. Thanks, and then.
So just thinking Holistically you Mitch.
Mid to high single digit expense growth year over year.
And the guidance do you think the margins silicon steel expansion from here.
I mean, just putting the two together Raj do you feel like you could still grow revenues over.
The mid to high single digit expense guidance and still maintaining some of your positive operating leverage.
I'm just wondering yes.
Yes, yes overtime.
Absolutely agree that.
What should we look forward, that's what we will get to.
It may not be that literally every quarter.
And it is a tough environment to try to achieve that but remember, we're making investments not for the next six months or for the next even 12 months. Some of these investments, we're making are multiyear investments.
Multiyear payoffs.
We had a lot of discussion this time around during the budgeting season as to this.
Europe slowdown, possibly even a recession the curve is inverted should be pulled back on investments.
And.
You really cannot take a very short term view of investing you have to take a longer term view. So the things that we've put into motion, we're not going to pull back because the next couple of quarters might be.
A difficult banking environment or there may be a recession in the second half of the year.
<unk>.
You are hearing me talk about we've launched you blanked out last year with launching.
Something in Dallas this year box into new markets and actually these are all long term investments.
Some of the technology investments so.
So you can yoyo youre investing.
Sentiment.
By quarter or even year by year, you really have to stay.
Date of course, we have.
From a from the expense to asset ratio were one of the.
Not just better one of the best banks in the country.
I would argue that we're not investing enough, which is why our ratios are as low as they are so investing.
On a steady pace as important revenue. Unfortunately, it does get a little bit.
It's more tied to the environment that we're in and this is a tough tough year, but next year will probably not be so.
But over a period of time, what you just said is our expectation revenue will grow more than expenses, absolutely otherwise why why do it.
And I will say currently our forecast is for a modest amount not a lot, but a modest amount of margin expansion next year, obviously as Raj alluded to earlier, the hardest part about that to predict as.
The deposit environment, yes.
Right totally understood great.
Great Great, Colorado, we appreciate that and that's all the questions I had thank you.
Please standby for our next question.
Our next question comes from Tomorrow in Brazil with Wells Fargo. Your line is now open.
Hi, good morning.
Good morning.
Maybe circling back to that last comment from me Leslie on margin expansion next year, I guess, what's the rate environment or rate outlook that you're using for that guidance and then just looking at the deposit spot rates ending of the year versus the average.
It seems like that's going to be a headwind in the first quarter.
Is that kind of backend loaded that comment or do you think theres enough happening on the asset side to offset.
Jonathan that focused on what happens quarter by quarter, because thats extremely hard to.
Predict.
But we're using the forward curve. So this has fed funds, peaking at 5% in the second quarter and dropping to four five to 475 by the end of the year with an inverted treasury curve throughout the year. So that's the forward curve that underlies those estimates, but as I said before the wildcard is the deposit environment is Raj expressed.
We're very confident that we can grow core deposits. This year based on our geographic expansion and the growth of the Florida economy that producers that were adding.
Our business people are very confident that we can grow our core deposits given the environment that we think we believe it's going to play out at the first time on the brakes harder the environment being more challenging and we think that that margin prediction could come under pressure.
Okay.
And maybe just asking you to look at the deposit Crystal ball on more time, but on the way down.
[laughter].
On the way down or once the fed stops at least hiking, what's the expectation for the deposit environment in your geography, I mean, I'm, assuming it's going to remain competitive but could you actually see deposit pricing continue to increase.
The loan demand is still there or do you expect that to kind of tail off at a similar pace to what it did on the way up.
Okay.
Youre asking about not just in the next six or 12 months, but beyond that it's very hard for me to say what the deposit environment will be like if there is a lag on the way up there is some light on the way down as well.
And.
Yes.
But it's really hard for me to predict what will happen when the effect starts to pull back.
I don't know what you on demand will be like I don't know what the economy will be like will be will we be in a recession or not.
It is.
I would say the best.
It'll be hard actually for you to even go back at the last cycle and try and look back over the last couple of Covid.
But we're not going to have.
Is that going to zero overnight kind of a situation thats going to be a slow.
Slow drop.
A very gentle decline is what I think will happen over the effects, but.
It is very hard for me to say what will happen in Europe .
Do you see more rate sensitive parts of the deposit portfolio and respond very quickly either way on the way up or the way down.
More core portions of the deposit portfolio I think you'll see a lag on the way up but you also see a lag on the way down and it is very difficult to predict I wish I had that crystal ball.
Yes.
And remember, it's even more complex for us because.
A lot of art.
Deposit business is.
In one way shape or another tie to the.
The real estate business right, the refi business, which is dead right now or even the purchase business, which is not doing that well so.
We could have a mini refi boom before you know what I mean.
If the 10 year is flirting with $3 35.
That could happen that could actually help.
That will help the warehouse business, but that loan to deposit business as well.
It's a lot of pain that we felt this year was from the title insurance space.
And that industries that have deep recession, so to say if you talk to anyone in that industry, but that could come back thats a rate sensitive and that doesn't have to move too much because it's a long term rates keep doing what they're doing you would have.
<unk>.
Significant pickup in activity.
We're not counting on that.
But we're very cognizant of that sort of quite a swing if you were to say.
Great. Okay. Thank you for the color I appreciate that and then just lastly for me the C&I growth all year and then the fourth quarter was quite impressive I am just wondering.
How much of that is increased utilization if any how much of that is new client growth and then are you able to get deposit relationships with those new C&I clients that youre, bringing on board how much of that production is actually being self funded.
Yes, I would say that we saw very little lift from utilization throughout the year. When we look at production in the C&I teams throughout the entire year. It was it was a very strong new client production new relationship production.
We are able to get significant deposits.
Out of these most of our general focus is on relationship banking opportunities are these tend to come with strong depository and Treasury management.
Type relationships, but.
We didn't see much lift.
At all and utilization rates throughout the year. So we'll see how that plays out into 2023.
Originally when we started the year, we thought we would see more of a lift we thought we'd see maybe 500 basis points of lift we didn't see that it stayed pretty flat.
Throughout the year.
And if that were to pick up that would help us as well, but while we did this year.
So it was it was really.
A lot of new relationship production this year across all of the C&I segments.
Got it.
Thank you for the color I appreciate it.
Please standby for our next question.
Our next question comes from Steven Alexopoulos with Jpmorgan. Your line is now open.
Hi, Good morning, this is Alex Lau on for Steve.
Morning Al.
Good morning.
First question is on deposits can you talk about the decrease in noninterest bearing deposits.
Are your clients moving those balance balances to any color on whether it's internal or competition from T bills or other reasons, we're not talking this quarter, because we didn't experience that this quarter and noninterest bearing deposits.
Well we did.
Sorry, I misunderstood your question I misunderstood your question.
Yeah. So.
It's.
It's a laundry list of things so they're still slowdown in the real estate industry. We are seeing our title business average balances in those accounts from the smallest to largest everything decline.
Use money for.
Buybacks or dividends just distributions.
Distributions that was a fairly large category.
Also I would say as ECR SEC moved up.
You need to keep balances to avoid fees from the bank.
That needed balance have gone down so when that happens capital frees up and it moves into money market or leaves the bank and those go out and buy treasuries.
We don't have.
Our wealth management business, so we're not seeing that.
Corporate customers don't typically.
Take money out of the banking by treasuries with adult some of that might be happening with whatever small retail business that we do have so it's a mix of those things, but I would say that the real estate.
Industry is suffering is still probably our largest driver.
Followed shortly with just people, taking distributions and using money for either investments or buying properties or what have you. So there's.
Money is not being left.
Idle and people are much more.
Corporate customers commercial customers are much more.
Aware.
The cost of idle money.
In 2006 Raj.
2021, there was a pretty substantial buildup in corporate.
Deposit balances.
Across really all industry segments coming out of the pandemic that is.
Then utilized.
Okay. Thanks, and then as a follow up to that buildup.
Any sense of how much DBA is considered excess deposits for our customers before they get to like a core operating DTA level.
No that's very hard for us to do.
Yeah.
We spend a lot of time trying to analyze that but I don't I still don't think we know the answer to the question.
Fair enough.
The net interest margin guidance for expansion in 2003 any color in terms of the trajectory do you expect.
Pension every quarter or at some point do you expect a reversal of that but still end the year higher.
I think that's very difficult to predict there's just too many external factors, particularly with respect to funding that are going to impact what happens.
Quarter by quarter, I think looking at the year in whole, we can get a little bit better idea.
Welcome to try to pinpoint what the NIM is going to be quarter by quarter.
Got it and just one last question on the.
Other fee income line of $7 million it was a little bit elevated this quarter compared to the rest of the year can you touch on what drove this and if there was anything onetime in nature there.
It's just really a CASM dock Alex there is no one thing there's a lot of puts and takes in there one of the things that's been kind of volatile over the last year or so has been bowling revenue I don't really know how to predict that but it's no. One thing is theres just a lot of puts and takes in that line item. So I don't think theres anything that I would necessarily regard.
Either.
Something to call out specifically.
I do think in terms of the core items that are in noninterest income, we will see a steady increase.
But all the little puts and takes can be episodic and volatile I don't think theres anything material enough to call out in there.
Okay. Thanks for taking my question.
Please standby for our next question.
Our next question comes from Stephen Scouten with Piper Sandler Your line is now open.
Thank you and good morning, everyone. Appreciate the time.
The NIM guidance for next year is pretty encouraging relative to what we're seeing for most of the industry.
But.
Pace of expansion can you tell me I guess, one is that from the $2 81 fourth quarter level or is that more from the $2 68 full year level.
Okay.
Really when I gave you the guidance was referring to the full year level Im taking a look right now.
You can find it.
<unk>.
I would expect it to expand from the $2 68 full year I would also expect it to expand from the 281, having said that the caveat again, it's going to be a very challenging deposit environment and if that doesn't play out the way, we're forecasting that put some pressure on that.
So we're not expecting much of a platinum is knowing that this year.
It'll be very much understood. It understood I'd still say, that's encouraging and it probably plays to an earlier point, maybe that Raj you said you feel like Youre getting paid.
For your growth getting paid for the risk you are taking so can you talk to maybe what youre seeing on new loan yields because I'm presuming you are seeing some good expansion there even in light of the funding pressures.
New commercial loans for the quarter, so higher at the end than at the beginning but for the quarter and commercial loans came on let's say on average.
C&I inquiry.
In the commercial space average together.
Quarter.
Great Okay.
And then maybe digging back into expenses really quickly I just want to make sure.
I look at expenses, it looks like they're up 12% year over year, seven 6% quarter over quarter.
So I just wanted to make sure if we're yes.
And I take total expenses for this year in total expenses for last year and I back out unless my math is wrong, which is possible.
Back out that hedge termination loss, we had last year I didn't increase right about seven 5% year over year.
Yeah, Yeah, I'm doing the same thing again like 12, but I guess.
Either way.
The expenses have gone up about $10 million a quarter.
Each of the last two quarters kind of in line with revenue growth. So do you think in in 'twenty three that that revenue growth can kind of outpace the size of of expense growth.
Okay.
My comment in a couple of questions ago long term, that's what we're shooting for.
It doesn't always happen every quarter and 23 is a tough year to actually if you get it.
That is certainly.
We're here to achieve long term I mean, our forecast.
Revenue growth will exceed expense growth next year.
Very challenging revenue environment, and there's a lot of things happening in the environment that we have no control over.
Okay, and then last thing for me is the big.
A question I get from investors a lot is.
Whereas the margin for error and banking and I didn't know if we've got.
What was the ROA this year 80 basis points to 67 basis points. This quarter and then one of the lower loan loss reserves still at 59 basis points. So I guess, how would you speak to that and kind of assuage folks that might have concerns that if we do enter.
Worsening environment that Theres, just less margin for error, given the lower profitability and lower reserves I think our margin as well as our reserve levels are a function of the portfolio.
Have we have.
Compared to a difficult times, we do have a much higher level of raise a lot of that recipe government guaranteed we have.
Investment grade municipal portfolio. So if you have a lot of these loan portfolios that have lower margin and lower losses and lower reserve.
I think that the point I made early on that if you look at where our Npls are.
The absolute level.
26 basis points, excluding sort of guaranteed SBA loans.
That is.
Also related to the kind of portfolio, we have if you look at.
Bob.
On a relative basis, whereby npls were.
December .
19 to where we are today, our npls are.
So.
The portfolio over the course of the.
Pandemic.
<unk> has really become even safer, but we've been able to grow margin not because we're taking more risk but because.
We've proven our deposit base.
So margin has improved significantly from 19 Npls have come down significantly from 19 deposits have improved significantly from 19.
So.
Sometimes just looking at a number at the top of the house without color behind why that number is what it is is often where people get tripped up every bank is a little bit different and.
And over time you would.
Really have to look at the composition of the balance sheet.
To keep you can really get good answers on why the numbers make sense or don't make sense.
Okay, Great. That's very helpful. Raj I appreciate the time everyone.
Yes.
Please standby for next question.
Our next question comes from John Armstrong with RBC Capital. Your line is now open.
Thanks, Good morning, everyone.
One.
Stephen kind of took my question, but I'll ask it a different way Raj.
Are you are you more pessimistic or is this.
Step up in provision just out of <unk>.
Caution you're cautious nature.
What is that.
What's the provision message going forward I, just because obviously the lower ROA it was driven by that.
Yes, yes.
This quarter was pretty heavily influenced by the movie has to pay downside scenario. So I think we're well positioned from a reserve perspective in the event of a mild recession, obviously, if the economy totally goes off the rail and we have a severe recession.
That's all for the whole industry.
Alright, I'm not expecting that to happen. So I think we're very well positioned.
And I expect provisioning sitting here today I expect provisioning for 2023 and have really been mostly a function of production.
Yes growth plus charge offs, because what I am thinking okay.
Well.
Are you guys seeing any changes on the quality of your pipelines at all.
We've not.
Not in the quality, but the quantity we have seen some.
<unk>.
A little less robustness in the pipeline.
And some of it is probably because we had a pretty good quarter.
Those are a lot of stuff nothing really spoke overdue into January but some of it I suspect is also customers basically looking at.
The environment and saying you know.
Maybe I want to wait a little bit to make the next investment to build the next factory over the next day.
So some of that when we talk to clients I can I can see.
Intended effect that the fed wanted to half of it is actually happening in the real economy.
Our more cautious people are thinking hard about their expansion plans and being on the margin a little more cautious.
So that is also influencing our.
And so we're giving you about loan growth.
That in this year in which everyone is expecting a modest recession, you're not going to see some outsized level of growth rate would be responsible.
Okay.
Particularly see that in the real estate business, where.
The.
Pipelines in investment is driven by Theres, a substantial amount of capital on the sidelines today in the real estate markets, but if people kind of read into what they think the curve is going to look like.
But the curve looks like today.
Towards the latter part of the year people are thinking the cost of debt will be fixed rate debt will be less.
It is today, so investment strategies are being paused.
Particularly in the current markets.
Okay. Thank.
When do you guys think of pause probably changes that.
So I don't worry about.
No I think that that is encompassed in the outlook that we gave you.
Okay, and then just one more on commercial real estate.
It's a $30 million number last quarter. So maybe that's the number we're looking at you guys don't have a single nonperformer.
Non performer that way you categorize commercial real estate.
Alright.
Talk a little bit about what youre seeing in the quality of the portfolio. It's obviously on every investor's mind, but it looks like your portfolio is very very clean are you seeing any eroding are you being more cautious or do you feel like this is more symbolic of your portfolio maybe.
And maybe the industry is going to get a little bit worse, that's all I had thanks.
Yes, I think.
It is.
Very detailed answer because it's not a portfolio a lot of sub portfolios that add up to it.
So I think where the industry.
It needs to be cautious is obviously central business District office that is again, probably not as much of a deal in the next 12 months, but over the next 24 to 36 months, that's the asset class really.
The attention too.
And I think there'll be an evolving story and we're spending a lot of time focused on whatever little of that we have.
Now it helps us tremendously being in Florida, where.
Everything is getting absorbed in Florida.
But in markets outside of Florida, New York for US for example in front of the banks at the other part of the country. That's the asset class that you want to pay attention to in the medium term I think the short term, it's not really an issue.
And.
But outside of that.
Retail has been a perpetual issue for banks that I think for the most part Brexit put that behind them.
And multifamily warehouse industrial is still doing very well.
Yes, I would add.
We're super asset allocation focused when we when we think about the real estate portfolio, we've got a very disciplined.
Approach to thinking about what sectors geographies.
And asset classes, we take exposure in and even the broadest of categories.
As Raj said really have multi category. So they know an anchor a grocery store anchored center in Boca Raton.
Very different than retail or it might be a Tom Ford store on Madison Avenue, and 63rd Street, that's very different kinds of retail, but we think pretty pretty highly of the quality.
The real estate portfolio that we have and I think when we look at exposures across the platform.
In areas, where we think there could be some softness we feel really good about what our exposure levels are in those categories.
Okay Alright.
Alright, Thank you for the help I appreciate it.
Please standby for our next question.
Our next question comes from will Jones with K B W. Your line is now open.
Hey, great. Thanks, So let me jump back on guys. Just a quick quick follow up I wanted to hit on the buyback I know.
Bob biomass.
Massive buybacks this year somewhere around 12% of the company repurchased in 2022.
Raj is if the stock kind of hovering around current levels do you plan to keep the gas on the buyback here.
And then just as it relates to your capital and I know you guys don't look at TCE is much more common equity tier one at the bank level.
Have any internal targets.
Internal thresholds, where you wouldn't want to see that ratio drill down too. Thanks.
So yes, we are active.
If the price of the stock is that right now.
As a no brainer from my perspective and.
In terms of what ratios, we look at SEC I'll actually let Leslie answer that.
Yes, we are more focused on sept one.
Couple of things, we think about when we think about capital levels.
Are very protective of the Companys investment grade rating. So that we're very conscious of the ratings agencies view of buyback. We also wanted to be sure we're retaining sufficient capital to support the growth that we see on the horizon. So those are the two constraints as we think about.
Our board is probably going to need in the next month or started to improve our actual capital plan for 2023 that Hasnt happened yet currently I don't anticipate any changes in the way, we think about capital targets, but I'm going to refrain from putting them out there until that capital plan gets finalized.
Sure.
Understood.
I would not anticipate that the capital targets that we've laid out in the past the change, but I don't know that with certainty until the board meets.
Okay. That's perfect. Thank you.
At this time I show no further questions I would now like to turn the conference back to Raj Singh for closing remarks.
Thank you.
Appreciate all your questions all the back and forth here, let's say and I are both here. If you have any follow up questions, but again. Thank you. So much for joining US we'll talk to you again FEMA.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
Yes.
Yes.