Q1 2023 BankUnited Inc Earnings Call
A slower quarter overall C&I grew by $173 million.
And in the Manhattan market only 5% actually has.
And neighboring states and 19% as in other areas with no particular concentration weighted average LTV of your office portfolio of 64% and a weighted average debt service coverage ratio was one seven and the overall portfolio in office rent rollover rent rollover over the next 12 months.
A little over 10% so again very modest if we look at the office book in the last five years, our cumulative charge offs have totaled only $2 million in the entire portfolio. So.
So we're very confident that the overall <unk> portfolio as a quality portfolio and when we look at the diversification and metrics of the office portfolio, we feel very good about where we're positioned.
In office, so with that we'll turn it over to Leslie for more details on the quarter.
In summary, net income for the quarter was $52 9 million or 70 cents per share.
It's a little bit to the lung the NIM declined to 262 for the quarter compared to $2 81 last quarter.
Guidance, our NIM guidance that we gave in January while earning asset yields and continue to increase as expected securities from $4 33 to $4 95 in loans from 472% to 510.
Duration of the portfolio was 195% and 68% of it is floating rate.
Our economic forecast and then selected the Moody's baseline as it's reasonable and supportable forecast for this quarter. However, a significant qualitative overlays that we established in the prior quarter still remains with respect.
Uncertainty about the economy, we believe our current reserve level is sufficient for a mild recessionary scenario. The ACL coverage ratio would be expected to move up with a mix shift from Rajiv commercial that we're expecting to happen over the rest of the year and will obviously increase further.
The economic outlook deteriorates materially from here, which we don't currently expect.
I know, we're going to get a question about this so I'll hand, it off we believe the level of our claim reserves currently as well as those stress testing results I remember reading the same model as everybody else is using here. We believe those numbers are reflective of the high quality of that commercial real estate portfolio.
That's back down.
Issue that has been leading the most of those losses has now been liquidated 13 centers, 13th what did I say.
Yes.
Noninterest expense quarter over quarter, probably the only thing worth mentioning there is.
Yes, $4 $2 million operational losses that we took this quarter. There were two incidents there one was a check tightening scheme and another with a customer that we had.
I will.
<unk> amount.
Okay, so that $20 million increase in the C&I side is it's not tied to one or two.
Yes, what I would say on that Brady is wigman, we look.
The deep pockets that they have the fact that these are predominantly generational assets that they have.
Great comfort.
You said CRE relatively flat, but when you look at New York City, especially with signature now gone.
And maybe say maybe somebody that can analyze CV more at capacity.
Do you think theres going to be additional opportunity for commercial real estate, there and maybe even in and rent stabilized multifamily with some of the law changes that were seeing or is that still an area you're not that interested in expanding.
Okay.
I'll take that one.
We look at all opportunities that come to us, but we're not yet jumping with excitement on that opportunity.
Going into a a slowdown of the economy with all the question marks that come with that.
We are not too bullish on trying to grow CRE I mean, we've worked very hard to shrink the CRE portfolio about $2 billion over the last since the pandemic and.
And we've derisked the portfolio very nicely.
I'll never say never but that's not my excitement is from from the business that is being thrown off from banks that have gone away.
I think also CRE very often especially in new York tends to be transactional in nature, sometimes it comes with deposits, but it doesn't come with a lot of deposits.
So that also either my comment about.
Trying to grow a relationship oriented.
Business, which means credit and debit business.
It's a harder it's harder to do in CRE than it is in <unk> and middle market C&I.
So that's another reason why we're choosing more of the C&I side.
CRE, having said that it's not that we're not doing CRE. We are we're just not I don't think youll see a lot of growth in CRE youll see some replacement youll see maybe a little bit of growth, but not I think youll see more in C&I.
I would also add to Roger's comment and say that.
Our overall perspective on Cree.
Is one that is a very disciplined approach from an asset allocation perspective.
So while we're not seeing any shortages of phone calls.
In the New York market right now it isn't a situation where we would deviate.
From the asset allocation strategy, we have and when we look at Cree across.
The footprint.
We're obviously sitting in Florida.
With a very very good demographic and economic scenario, we have now a Korea office in the Atlanta market. We have one in Dallas, we have won and demographics.
Our growing very strongly so our discipline around what we do.
We will be very important for us to continue.
It will not be.
And opportunistic response to something just happening in one market.
That's great. Thanks, and then just finally for me when you look at that $1 billion out of deposits that left.
Were there any lending relationships tied to that or any specifically only lending relationships that required deposits.
And if so what's your.
What do you expect to do with those would you would you call those loans would you try to reduce that.
Lending relationship or is it really just the deposit side, yes. So so off the pad. The two that I talk about separately those are very strategic we have the full relationship we do everything for them. If we have a piece of the lending not as big of course lending all of those because of our very small house limits.
The loan numbers are much smaller than the deposit numbers, but on those strong relationships. We have the entire relationship right. We have the lending we have the cash rise in treasury we have.
Higher back office has run out of Bankunited. So those are very core the other eight I think a couple of them. We do have small pieces of the lending side, we've already actually told them that we would not be renewing.
Because even the lending side, while it feels like okay, we have the lending and the deposit.
It was more transactional in nature.
Because they were just pieces of participation that.
We bought because we wanted to.
Cement that relationship a little bit deeper and now we've realized it wasn't really helping so if deposit gone the launch of the John you.
<unk> already pulled to date.
They're going to pick up the.
They're going to be nervous about the the deposit relationship we're going to be nervous about the credit relationship.
I would also add that generally the ones that we stepped out of her unfunded participations that we got into to support the deposit relationships that when theres nothing to support.
And Raj with the two relationships I know you mentioned this earlier, but just to reiterate those deposits did not leave the bank bank inventory.
Spread their exposure around the mono market.
Yes, those accounts are still here yes.
Okay, but on those eight of those eight loan. So it's more you won't renew them, it's not like Youll actually go and call.
All loans that had deposit requirements.
We are just a participant in a much larger facility and we just want to re up that part of the patient okay.
Okay.
Thank you.
Thank you one moment our next question.
And that will come from the line of Brady Gailey with <unk>. Your line is open.
Hey, Thanks, good morning, guys.
Good morning Brady.
When I look at loan growth commercial real estate is going to be flat.
Ni growth is maybe offset with Rajiv shrinkage.
Should we think about loans kind of be flat going forward. So maybe loan and asset balances are kind of flat premier on out.
Yes, I would think yes for this year.
And you will see.
And then create margin because of the shift from <unk> into C&I.
Okay.
And then.
<unk> has repurchased a lot of its stock over the last several years.
I realize the uncertainty and the increased risk in the banking system right now so I totally get.
The pause there, but at the same time your stock that 65% of tangible book value.
When do you consider your attorneys that buyback back on.
I think it will be a topic of discussion that every board meeting over the course of the rest of the year. Starting in May we will have a discussion I don't think we're going to do anything in may.
At the August Board meeting and the November Board meeting this will be discussed.
It is the prudent thing to do right now given all the uncertainty around liquidity around the economy around EBIT regulation for that matter.
So when things settle down a little bit we have a clear line of sight.
Then we will.
We will probably step back up.
But I don't see that happening over the course of the next month or two.
Alright, and then finally, if you look at profitability levels.
Our return on tangible common equity.
Fairly.
Depressed I know, there's not much you can do about.
The net interest margin at this point, but is there an opportunity on the expense side to see some.
I know you guys have done their cost reduction plan previously like is that is that something that is on the table that could help.
The profitability of Bankunited up to peer levels.
Great.
Sure.
Okay.
The the lever that is going to move profitability more than any other is going to be revenue not expenses.
Origin is depressed given the makeup of the balance sheet right now it's like I said has gotten much more wholesale lead because of what has happened over the last two years or three years now.
And that mix has to actually change to a higher performing mix that is what will move the needle.
I'm hesitant to say, we will stop investing in the business because if I go back and think hard about the mistakes that we've made over the last couple of years or three years one.
Mistake was that during the pandemic when we really didn't know where the world was headed we pulled back and did not make investments and producers and revenue generators hired hardly any anyone doing 2020 into early part of 'twenty, one it really restarted the engine.
Only last year.
And that May feel good in the year you do it but you really pay a price long term and I don't want to make that mistake again. So you heard Tom talk about Dallas, We're moving forward you did Atlanta last year, we're moving forward with that we just picked up a team in broward whereby can pick up a team in New York.
And yes, those are investments that they are not going to pay off.
When you bring them on but they are not very long term investment in the big four or five years for those to pay off so what may look like a bit of a drag for six months or so.
Within a year that should start producing revenue in excess of expenses, so I want to keep investing and really solve the profitability.
<unk>.
Problem with.
Remixing the balance sheet and you need the right kind of producers to do that you do need. Some time also rate. The revenue is going to run off the way it is going to run up.
<unk>.
CPR so low at this point in time.
But.
That is what will bring margin up revenue up ottaway up rather than let me go and.
We are obviously squeezing the belt.
<unk>, we are doing that we are looking at any kind of investment that can be.
That is a very very long term in nature and see if we can delay that but on the revenue producers side I can see there is an opportunity here that doesn't come.
Come up very often and I don't want to Miss that.
Okay, great. Thanks, guys.
Thank you one moment for our next question.
And that will come from the line of Stephen Scouten with Piper Sandler Your line is open.
Hey, Thanks, guys I appreciate it good morning.
Yes, one question I had just on the funding side.
Would be capacity for broker deposits can you give me a feel for how much and maybe that in the slide deck, I apologize, but where.
The level of capacity you guys would have from here to add those as needed.
Stephen There is still capacity to add I don't actually think we're going to need to do that in the short term I think we've got enough other types of deposits in the pipeline right now.
But we certainly could add there are another $500 million to $1 billion, but I don't think that will be necessary.
Okay, Great and then can you give some color maybe about that marginal cost of deposits today, where youre seeing.
New deposits price and kind of what spreads that's leading to in respect to what you are able to book that as well.
Yes.
<unk> spectrum, so usually when people asked the question they are asking about retail and I'll tell you what retail is a little easier to answer.
Right now we have money markets priced at $3 50, and I'll say it $3 50, it's not getting much traction.
We have 12 months Cds price that I think mid fours $4 50, if I'm not wrong.
On the first half no it hasnt.
Yes, erroneous information I think it's still 450 455.
So mid fours.
And two year is slightly lower at low fours Thats, where.
That sells.
At $3 50 money market does not sell.
I think you have to be a little bit higher, but we haven't been pushing that.
And.
On the commercial side. It is a much wider spectrum. So we are engaging right now engaged with.
A two yard line with.
Complex treasury relationship and Thats going to be priced in the twos.
But then theres other money that maybe <unk> at 4%. So it's much wider in the title business.
It's much lower.
The book of business is still sitting at under 100 basis points. So it is a much bigger spectrum.
On the commercial side based on what.
What you are selling and what is a complete package like but on the consumer side. If you want to grow those are the kind of numbers, we're seeing and our consumer business. As you know is really Florida, not so much in New York, So thats indicative of the Florida market is.
Got it.
New loan yields and kind of what sort of spreads you might be seeing I guess.
And you can use deliver like a 3% spread on new loan production.
Loan production is now getting into the software plus 300 range yes.
Okay great.
And then maybe just last thing for me.
Like the team in New York that Youre looking to add as non theory focused presuming C&I focused.
I guess I'm curious if you could also have additional interest in potential signature loan sales.
When those.
Become available later this year.
Yes, we.
Are familiar with that book and I don't think we will have much interest.
The other thing I forgot to answer.
We're really leaning away from credit only.
So we're really looking for relationship based business.
We're getting a fulsome relationship with the client or getting some operating deposits as well as the loan and really deemphasizing credit online business.
Yes, Thanks, a lot okay. Thank you very much for the color appreciate it.
Thank you our next question.
And that will come from the line of David Bishop with Hub Group. Your line is open.
Yes, good morning.
Hey.
Hey, Ross.
You mentioned the <unk>.
On the federal home loan bank, but there could be.
Some maneuvering there some restructuring just curious maybe you can give us some color maybe what might be contemplated there we're going to maybe term that out there for now.
I don't have a lot of details yet because we're still really analyzing and deciding what makes the most sense to deal, but probably swapping some of it out it makes more sense to swap. It out then determine out to get better pricing because of their term premium.
But we are analyzing all of that right now and I think we can bring the.
Cost of that portfolio.
And I also im fairly optimistic about us being able to pay some of that down in the near term as well.
Got it and then.
In terms of the.
The de emphasis on the resi mortgage side. There is that does that interest rate risk positioning just reducing as a percent of capital.
Got too big from that perspective, just curious does the pullback there.
I think.
It's just too large a portfolio when you look at our mix of loans.
<unk>.
I just made a comment about it we took <unk> down by $2 billion since the pandemic well when you take something down something else grows and it wasn't C&I C&I grew nicely, but it was resi.
In 2020 in 2021, when the World was shut down that was sort of the safest place that itself.
That needed to be but now.
I think 2023 standing year I look at the mix of loans and I'd say well to some got too heavy and Razee do heavier securities and we need to kind of remix a little bit.
What will help returns.
By the way I, just want to make a comment about the rest of the portfolio at a very high credit quality portfolio.
And.
It also is not some all 30 year 10 year Io type portfolio, that's not what it is.
Very carefully constructed as a lot of arms that is.
Some 15 year paper, some 10 year paper, some 30 year paper as well and Dave Little Io. So.
Our <unk> are are while they are lower than historically, everyone is lower.
That low as some other banks are because of the hybrid portion of the portfolio.
So it will run off it will be very sensitive to interest rates.
Interest rates go down even a little bit youll see more run off by the way the Ginnie Mae portfolios in that too.
The.
The portion of Ginnie Mae, which is not going to re perform that's going to have a very short life because in a year or so that gets.
Foreclosed on and cash flows. So it is a nicely mixed portfolio, but we have just too much of it and we need to reduce it and take it back to the levels that it was before the pandemic.
And replace it with more core business that generates not just good returns, but also from good liabilities. That's more retiring question in an interest rate risk question, the interest rate risk with a nicely balanced by the short duration bond portfolio, yes.
Got it appreciate that call. It one final question lies the.
The preferred securities that you sold that drove the loss does that is that the entire exposure to those.
So is that just curious some color on the sponsor to that issuer, it's not the entire preferred securities portfolio.
Yeah.
The preferred securities were got Leo the Mark and that goes through the P&L every quarter.
So.
Yes, I'm sorry go ahead.
Do you have the size of that portfolio.
And what I'm sorry.
Overall size of that portfolio.
Give us a second.
Got it.
Somebody is looking that up for me will answer that question and then that much area, it's not as big as you.
It's not huge.
I answered the question on just a minute.
Okay. Thanks.
We can move on I'll throw that I'll, just throw that in when I get it.
Okay. Thank you. Our next question will come from the line.
<unk>.
Brody Preston with UBS Your line is open.
Hey, good morning, everyone.
<unk>.
Lastly, I just wanted to circle back on that one multifamily alone.
Special mentioned is obviously paid off.
Was that in New York City based multifamily property no it was actually in Florida.
Okay.
One is a special mention this quarter and then paid off so Scott it wasn't an individual loan it was a loan in our institutional real estate group. There was a fund investing in multifamily as it wasn't in the individual property and it paid off.
Got it okay.
And I appreciate it.
The stress test slide that you're all included.
I wanted to ask just a couple of questions about it how does the I guess like how does the probability of default and loss given defaults in these scenarios shake out versus what you guys consider in your in your baseline modeling.
I mean, well.
Our higher I don't have the exact numbers in front of me.
Both the PD and LGD are higher obviously in this scenario than they are in the baseline, but I don't have the PD and LGD stress scenarios in front of me I'm sorry.
Okay No worries.
I guess I was just trying to.
Yes, I guess I was I was particularly curious of the of the hotel the increase in the hotel losses.
It really just.
In a recessionary scenario.
The underlying assumption there.
Traveling we stopped selling in hotels. So that's why you see the big Spike in the hotel losses.
Some of that may be influenced by what happened with the pandemic, but just the assumption there is that the business drops off considerably in the NOI.
Dramatically.
Recessionary scenario with the hotel portfolio and Thats, what Youre seeing there.
Got it Okay and then.
Portfolio was very modest yeah.
I mean, the total loss of about that stress or $97 million, which I consider to be in that quarter, but an extremely manageable.
Understood.
Leslie just on the expenses just wanted to clarify if the expense guidance that you gave last quarter for the full year was snow.
<unk>.
Yes, I think we'll probably end up more towards the higher end of that guidance, but yes.
Okay, Okay, and then could you remind me.
Two things just the floating rate loan percentages that you all have and then the interest bearing beta that you all are assuming when you do your NII sensitivity analysis.
Yes, first let me throw in the answer of the question about the preferred securities that $69 million left in that portfolio segment and those are not in the available for sale portfolio like Ross said, they get mark to market every quarter that it's $69 million at March 31, and that sits at the holding company.
Yes.
The total deposit beta to date this cycle.
Through the end of the quarter is about 43% that's all in that's about 62% for interest bearing deposits excluding Cds.
Including CD that 70, it's 45% all in 16 one for.
The cycle.
That's where the betas are landing and somebody is getting me that floating rate portfolio information, so I'll throw that one again.
Available.
Got it and then I just had two two last one just on the on the on the bigger deposit outflows that you that you called out the tenant relationships how much of that one point I think it was $1 nine how much of that was noninterest bearing.
Okay.
During November .
Sorry, I was distracted by a $1 9 billion.
<unk> customers, who left how much was interest bearing how much not understood.
Not have asset platform.
Okay and then the last one was more.
For you on the ROA improvement I heard you earlier about kind of Remixing.
Take place over time, so I guess, just as we think about the.
Where the loan to deposit ratio is right now you are kind of pulling back on.
Loan production at least from a from a non relationship perspective, right now I guess like what is your.
What is your long term goal for the ROA.
Yes.
When do we get there because it seems like it will probably take a couple of years just given the economic outlook.
The fact that the securities portfolio is still relatively large.
Yes.
Reggie portfolio that will drive it more than the securities portfolio of Securities portfolio.
While it's large it is.
668, or 70% floating rate.
It's the resi portfolio, which.
The runoff of that portfolio at current CPR rates.
It's slow.
That can change rapidly.
In a slightly different interest rate environment.
The speed with which we can remix will depend a little bit on.
That.
And it's that Remixing, which will cause the returns to get better so.
I'm not trying to evade your question, but it really it's very hard to say when that will happen and how fast that will happen. It could happen relatively fast rates went up very fast they could move down I mean, I know nobody is talking about with moving down much lower I'll tell you that.
Thank you Laura.
That.
So yes.
The goal is still 1% ROA.
And low double digit Roe.
This model should get there.
We expect it to get there that's what we're driving for but the timeline is harder for me to say.
Your guests, but I'll make a couple of years is probably right.
Got it. Thank you very much for taking my question Oh, Yeah go ahead, Liz I'm, sorry about that so the first one on the loan portfolio Thats floating our commercial loan portfolio, excluding pinnacle, unbranded, 67% floating including those with 61% clothing.
Got it. Thank you very much for taking my questions everyone I appreciate it.
Thank you one moment our next question.
And that will come from the line of Steven Alexopoulos with Jpmorgan. Your line is open.
Hey, good morning, everyone.
Good morning, Mr. <unk>.
Hi, Leslie.
I wanted to start so going back to the $1 8 billion of outflows.
Could you just give us more color on where that money move to and why.
You Couldnt almost all anime question Eurobank Steven.
Well, obviously thats why couldn't you make greater use of the insured deposit network, because I would think thats lower cost and <unk> were not interested therefore for the most part therefore, it's made a major decision over the weekend to move all of their money out of mid sized banks not just out of Bankunited.
And yes, we had long conversations with these folks for the most part they're bored.
<unk> that all money would be moved out of mid sized banks and I believe when I looked at it about 95% of it is now on your balance sheet Steven.
You might recall.
They were.
Supportive and open to the idea in the future, but we're not in a position to negotiate with their own boards over this.
So that's really kind of what happened.
And what's your latest thought on where the mix of noninterest bearing deposits bottoms.
Very hard to say.
Very very hard to say I know you've been asking that question about consumer theater.
Yes, I mean, it's holding at 29%.
And Pam.
Probably be under some pressure.
I can say confidently, it's not coming back to what it was pre pandemic, which was the <unk>.
Yes.
It's really hard.
As we go into 2008 or 2700 aware, but.
Yes.
Hopefully coming to an end here in.
And while they would probably pause and stay here for a while at least it's not 75 basis points every time, we turnaround.
Yes, yes.
Hey.
And then.
So Raj <unk> been working to improve the deposit quality rate of the company for a couple of years now I'm curious what lessons do you learn from what just unfolded not just for you, but for the whole industry and how does this change the go forward strategy for the company.
Yes.
I mean listen some things we already knew but we now know EBIT more than that.
That category things such as.
The smaller is beautiful smallest better and large is not so.
No home runs only singles and doubles right, we've been saying that for the last two years and achieving it but we had a lot of work to do and we were holding on to this.
What I would say a crutch crushed rock knocked out from under us.
And now we just have to stand on their own legs, which is all singles and doubles that's one.
I think another learning.
In general not just for the deposit side I would say is we.
All of this considered reputation risk as something to pay.
Even more attention to them all the other risk that either credit and liquidity and all of that.
But we always define reputation brisk as stuffed that.
Happens to us and bad press about us and.
Sure.
<unk> Bankunited.
Social media and so on.
What I learned through this is that guilt by association is something you also have to worry about a lot. The company you keep so to say.
We've agonized about this a lot like what was the reaction on Monday, our business is so different from Silicon valley and signature and others.
Very different business there is some guilt by association.
So silicon Valley, we have little to no association with and didn't really hurt us I would say a signature did because.
There is a little bit of that contagion now, it's also creating the opportunity for us by the way, but that's sort of after the fact, so that was also a learning that you have to worry about your reputation but also the company you keep and guilt by association and getting caught up I mean.
Steve the number of negative articles I have read about the banking the regional banking business.
There is enough to.
Put me on some benefit accurate depressive medications.
Everything you read every newspaper article every time, you hear somebody on CNBC Youre talking about there is no need for.
A regional bank and.
I've saved these comments where my.
My closing remarks, but let me just add right here.
The darkest time for me and this was actually not that Monday, but it was maybe a week or two weeks of this reading all these articles talking about America.
America needs regional banks.
And in that tier.
I actually got a phone call from.
A friend of mine, who is the venture capitalist.
And who was at Silicon Valley Bank for 20 years and have moved all of his money in portfolio companies on ease over too.
Which bank, but you can guess one of the bigger banks.
And.
Two weeks had passed and I ask them, how what are the things you said.
I'm feeling much better everything is in place.
And so sad to see what happened to Silicon Valley Bank, but then you said you know.
It's strange all the money that I have moved I was trying to reach somebody at the bank. The last couple of days that they gave me an 800 number I don't want do 800 numbers, where his exact words.
Well get used to it because that's how it works.
Really.
I had the phone number for by person in Silicon Valley and been effectively would you mind if I introduce you to this person and she has a team of about eight people and they are wonderful I said I'm happy to be introduced to where I'd love to talk to her but we're not in that business I'm not sure that it'll be very fruitful.
That team is going to land somewhere in that team looks after.
This person and other business like that in a way that larger banks cannot get banks have a lot of benefits over a lot of advantages over our size and scale of brand recognition and so on.
But the size and scale is what also gets in the way of closeness to customers and commercial customers what matters more is not how many products you can offer how bigger check you can write in how many branches you have what matters more to middle market commercial customers and small businesses is that I know somebody at the bank was a dip.
<unk>.
And then if something happens I can all this call somewhat and I know that I can I can I can I can greet someone with some authority. That's just not possible at a large bank, where the 30 levels from.
From where the customer touches the bank to where decisions are made.
That is actually the most critical thing.
Is that a commercial customer looks for and Thats why regional bank suggest that's why we exist.
Why do we take market share away every day, that's why we it will take a line of business.
So that is sort of.
So proportionately speaking that was my sort of inflection point in how depressing all of this was in March.
After that phone call after that realization I started getting out of this and started feeling good about okay. This has happened we'll deal with it.
There is an opportunity that comes with it will capitalize on it and we'll come near the peak building the bank. So.
Yes.
Hello.
So yes, yes.
Raj if I could follow up on what you just said so when we look at the results we're seeing from the industry.
Very clear that you have in your slides right. There was a week of outflows or a couple of days and then it's pretty much back to normal right CNBC is going out of their way to convince everybody. We're in a crisis or not but the question is do your customers still think we're at a crisis, because theyre watching CNBC or when you talk to them do they feel like okay.
There was a storm, it's over and it's pretty much back to business as usual now.
Radio.
Yes.
If I was to describe this it was in.
Try and drop.
<unk> 2009, this felt like a tornado 2009 feels like a hurricane hurricanes come to give you a little bit of a warning theyre headed your way there.
Sit on you for maybe 234 days a long period of time to do a lot of widespread destruction tornadoes hit you with little to no notice to a lot of disruption, but it is very localized and they're gone.
<unk>.
And Thats, what this feels like it happened with little to no warning.
I didn't know that a week before that this was going to happen I'm not sure anyone did.
And it happened it happened very fast.
And it went back to normal with clients.
No.
That could CNBC, but whats your clients it went back to normal a week later.
So we're still a little shell shocked to be honest.
We are still worried is it fair NATO season is could this happen again is another one which might happen which is normal.
The building codes I E regulations will change to make.
The structures I E bank stronger going forward and there'll be a price for that.
But there is a difference between 2009 and felt like and what this feels like this is very very seven 2009 was not big.
Saw that happened over a lot.
For all of 2008, starting in 2007, and then bottoming out in 2009 early.
So it is a little different.
Clients are we're not showing them slides anymore, we showed them slides for about a week about how we are every bank was doing this by the way. This is us this isn't a big rally banking business signature and how were different that slide was used for about a week and after that it's no longer in any pitch book or anything thats been taken out we're not talking about safety and soundness issues that we're talking about products and services.
And selling the way we were back in February .
And I'd also add when you talk to clients. If you look at our target client who is a <unk>.
<unk>, we're running a $40 million plumbing supply company Theyre actually not reading the Wall Street Journal and CNBC and they don't have a bloomberg screen on their desk they are running their business.
They are not as panicky about these kinds of issues.
Thanks for taking all my questions I appreciate the color.
Okay. Thank you one moment our next question.
Okay.
Our next question comes from the line of David Rochester, with Compass point. Your line is open.
Hey, good morning, guys, sorry to extend the call here, but just kind of follow up I'll make it quick on the expense side I appreciated your comments about hitting the high end of that guidance range, which I believe was mid to high single digits. So youre talking about a high single digit growth pace. It looks like that implies a pretty decent step down and that quarterly run rate.
I'm here I was hoping you could just maybe ballpark that for Q2.
Okay.
Like Ross said I think we are in the process.
Yes, we had that $4 $4 million operational loss that was pretty unusual for us I don't expect anything like that to recur, we've actually never had anything like that in the past that's going to be gone.
As Raj said were also taken a pretty hard look right now at <unk>.
While we don't want to sacrifice the investments we're making in teams of producers. We are taken a pretty hard look at the rest of the expense base right now and seeing if there is areas, where we can pull back or push things out.
Okay.
And then on the margin.
Appreciated your $2 $50 for the year comment was wondering if you had any rate cuts in that and then in terms of the cadence.
Sounds like Youre looking for maybe a little bit of a bigger step down in <unk> and then possibly stability from there how are you thinking about it.
So we use a consensus forward curve and I think there are 225 basis point rate cuts baked into that later here.
Yes, you're probably right about the cadence being lower in Q2, given the starting point.
Alright, and then on the deposits I know the scenario you gave for.
The $2 50 is included it sounds like flat funding mix I believe you said you talked about the solid pipeline there on the deposit front I know it can take a little while for some of those to pan out, but just wanted to get a sense of the size of that opportunity if you're talking about one hundreds of millions or maybe billions.
And therefore, the discussion earlier on the DDA mix was just curious what that component was in the pipeline you are saying right now yes.
Yes, I think on the guidance.
That just mathematically just to show you.
We ran the numbers assuming everything is flat.
We kind of made that are basically in the NIM the NIM guidance.
The pipeline is about $1 $5 2 billion in size. It is not going to happen all in one quarter is it'll happen over a course of next two or three quarters.
And I guess, that's all operating money its not any of the $1 8 billion that left.
Right, but it's not all DDA it is operating money, but its a mix of DDA and money market.
Maybe about 20% DDA.
<unk>.
And I would also say that one $5 billion to $2 billion pipeline that we have a really good line of sight into and there are more opportunities in that but this is stuff that is really in the process of.
Really in our sightline very specifically on Granularly.
Okay, Alright, thats good to hear and just to wrap up rise your anecdote on the 800 number we've heard a number of stories just like that.
Post the <unk>.
Crisis, so not to take any shots at other banks represented on the call today, but there are a.
A lot of stories like that out there so feel good about it.
Thank you.
Okay.
Thank you and speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Rod Zhang for any closing remarks.
I think we've taken enough of your time move.
Rather long call, but thank you very much for joining us and we'll talk to you again in 90 days.
Thank you for participating. This concludes today's program you may now disconnect.
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