Q2 2023 BankUnited Inc Earnings Call
Speaker 1: collectively for a period of time and said okay some of these things are things that you know we should be doing all the time anyway but what are the most actionable things that we can achieve in a matter of a couple of months or a couple of quarters and we made a laundry list and that became sort of our short-term quality you know I don't even think it's really strategic it really was tactical
We ran down our mortgage book our Securities book, we paid on average Lv.
And I'll talk about margin while margin came down this quarter, we stabilize that as well, we'll talk about that a little bit in a little more detail in a few minutes, so I'm pretty happy and where we are in a very short period of time.
Last quarter.
I had made a comment that the first quarter could be viewed really as two different sort of timelines. There was everything from January one to March 10, and then everything from March 11 to the end of March this quarter.
I was to try and do the same.
Wasn't that much of a clear demarcation, but I do feel the first half of the quarter felt very different but in the second half of the quarter.
And going into July that has continued.
Things feel fairly back to normal so I'm happy about that a good quick comments about.
The environment, the things that we don't control, but with reactive so first and foremost the economy.
The economy is very resilient.
So I'm kind of tired of saying this over and over on every call, but that's how we see it we don't see the stresses that we're all afraid of.
Showing up anywhere in any of our geographies. So the economy is strong and resilient, Florida is twice as strong as the National average if you look at Florida, GDP unemployment rate and so on unfortunately that also meet the installation is much higher in Florida than rest of the country.
The economy is failures Elliot on the rate environment. It does feel like the fed is very much at I think they will raise rates that's what the street is.
Pricing in but given where CPI and PPI data is.
It does feel like we are very close to the inflection point on fed policy. So that's good.
In the banking environment.
Generally speaking while it has improved tremendously from the chaos of three months ago. It is still a challenging environment and challenging for the reasons of the car being inverted and the competition for deposits still being very intense.
And still some concerns about the economy eventually slowing down our offering.
It's still that is an expectation out in the future, it's not here and now.
With that let me quickly go over some of the numbers Leslie and.
And Tom will go through a deeper dive I'll run through these quickly net income came at $58 million.78, a share I think that's right on top of consensus from what I checked a couple of days ago.
Deposits grew by $160 million.
EBITDA went down but only by $62 million, which is a big improvement over the big declines that we've seen in noninterest DDA over the course of last many quarters.
So.
Our <unk> ratio.
Our ratio of non interest DDA to total deposits.
It came in at $28 three relatively stable to what it was in March I think it was 28, 6% at that time loans declined by $263 million with the largest portion of that was residential.
We have gotten into residential heavy as you know in the last couple of quarters, mostly after the pandemic. So taking that down was a very deliberate decision by us. So total loans declined by <unk> 63, but revenue was 184 of that securities portfolio also we let that run down Thats also larger that will be needed to be.
Came down by $390 million on the other side of the balance sheet, we did pay off.
FX Shelby advances to the tune up $1 6 billion.
Margin was $2 47 for the quarter, Doug Thats, a decline from 262 last quarter, but.
I want to make a finer point here last quarter, when we looked at our margin.
And with declining from January to February from February to March. It was it was coming down and we ended up overall for the quarter at $2 62.
This quarter, we entered this quarter at $2 47.
And we ended this quarter at $2 47.
Relative to last quarter, where this was.
Coming down hard and fast this quarter.
While it was lower it felt a lot better because it was stable.
So I'm happy about that cost of deposits decreased.
$2 46.
That was compared to five last quarter I think the increase this quarter was 41 basis points last quarter was more it was 63 basis why the slight improvement.
At least the velocity with which deposits are repricing.
And on the credit fraud quickly there isn't really much to talk about it because everything is fairly stable.
<unk> were 34 basis points.
If you exclude the SBA guaranteed loans that there were 24 basis points I think that's two basis points higher than than last quarter charge offs were nine basis points very much in line with last quarter in fact compared to last year I think last year, we were averaging 22 basis points, so much better than last year.
So on.
The credit side, there isn't much of a story.
Everyone is focused on an office CRE, our total CRE levels are fairly low compared to our peers.
Im defining peers is sort of banks between 10 and 100 billion.
Yes, what we did last quarter also we gave you a lot of information on our office portfolio. This quarter, we are giving you even more information.
We are spending a lot of time looking every which way possible on this in this book to see if there is any trouble. This is not something that is causing us any kind of hardware. So this is a.
A very good portfolio.
Large part of the exposure is Florida and whatever exposure, we have in New York City is as it is.
Christine Abbey. It is it is really hard to do to to poke holes in this portfolio. So as of right now is not what we're losing sleep on.
Uh huh.
So.
Lastly, just a comment about capital I said at the beginning of the call. We also improved our capital position not because we needed to but in a time like this in volatile times like this.
Capital is always better are set one improved our tangible common equity ratio improved by 30 basis points.
Overall.
Tangible book value increase and so on so.
Overall.
Okay.
Bob.
Our collective blood pressures is down a lot too.
Three months and Thats a good thing.
And.
I would say that we're basically back to doing.
Executing on the long term plan that we had already set out for ourselves.
And I hope it stays like this and we can come back to you in 90 days and talk more about the progress we've made on that front, but I will turn it over quickly to Tom I'll go a little more.
Detailed.
Sure.
Great. Thank you Raj.
So first on deposits again in aggregate deposits were up $116 million for the quarter.
DDA as Raj mentioned was down $62 million non maturity interest bearing deposits were down $92 million.
Time deposits were up for the quarter by $270 million.
The biggest kind of impact on deposits in the quarter was we have a large government municipal portfolio.
Seasonal portfolio that was.
Part of the $378 million decline in that book for the quarter, which we expected and that will kind of come and go up and go down as tax collections happen and whatnot in terms of new business, we have a very solid line of sight.
And to new business coming through our Treasury management operations platform and our systems.
We track it in various stages and have about $1 6 billion in deposits that are operating type deposits running through our treasury products that we expect to realize over the next couple of quarters, There's always some timing difference, especially in bilateral relationships and middle market relationships.
With Onboarding, but overall.
The deposit book from a <unk>.
Pipeline perspective, it looks very very strong.
As discussed on slide eight of the deck, our largest deposit vertical isn't the title solutions business with total deposits of $2 7 billion.
As of June 30th this is predominantly in operating accounts.
Over 700 accounts and grows by 30% to 40 accounts per quarter, and we feel very good about that there are no other industry verticals with deposits over $1 billion.
As of June 30.
Loan to deposit ratio ended the quarter at 95% compared to 97% at March 31.
We would like to continue to improve that and bring it down into the low ninety's.
Over time, so a little more detail on the loan portfolio.
As Raj said, the overall portfolio was down $263 million for the quarter, we kind of have and I'll talk about this as we go through these numbers sort of what we view as the core portfolio, which I would call kind of corporate banking commercial banking small business banking in Korea, and then we have some other national businesses.
We have more volatility in some of those are trending down as Raj mentioned the residential portfolio in BFG has been trending down for a period of time. So I'll break some of my comments into where we expect core growth versus other areas that we will likely.
<unk> edge down.
Overtime.
The <unk> portfolio was up $24 million for the quarter C&I was down $73 million clinical up 32 franchise finance and equipment Finance continued to go downward and we expect that.
To continue to happen over the next couple of quarters pinnacle will likely be fairly flattish to down.
Just seasonally again in their sector over the next couple of quarters.
Pipelines in the core areas remain very very strong over the next two quarters average rate on new production for the quarter was about 8% for the C&I portfolio and about seven 6% for the Cree.
And most of the things that we're seeing in the pipeline in both segments are north of Sofa, plus 300, I would say, we're seeing many things in the $3 25 to $3 50 range overall demand is as good and pricing is good and attractive across most of the market segments that we.
We're in most of the geographies that we're in.
Consistent with our strategy of deemphasizing non relationship credit business.
We have strategically exited about $75 million of shared national credits.
175 of shared national credits.
Last quarter.
We will continue to look at doing that kind of opportunistically over the next couple of quarters as we try to shift business. Some business that we did during the during the pandemic.
Period of time, when we had.
Some more shared national credit exposure are now shifting into more relationship and deposit.
Oriented business, so I'll take a few minutes to speak about the <unk> portfolio.
As Raj said I know Theres a lot of interest in this slides 12 through 15 of your deck gives some additional.
Disclosure on this overall the <unk> portfolio is very high quality ascribed said, it's about 23% of the overall loan book.
Which we feel very comfortable at that level.
Well positioned high quality low ltvs attractive debt service coverage ratios.
60% is in Florida as Raj said, the demographics continue to be extremely strong in Florida. Just finished up this month kind of a tour of different offices in different markets and I can tell you, Florida ranges from very good decision.
And I don't mean to temperature depending upon.
That sizzling too.
Yes.
Whether youre in Orlando, the suburban markets in Orlando, the Tampa market is extremely strong.
Ami you read about everyday and every publication in terms of what's going on in that market in terms of new to market.
Net absorption, we see tremendous due to market movement into Fort Lauderdale, and Palm Beach unemployment rates in most of the Florida markets are in the mid two range, so you're seeing dramatically better.
Economic metrics in Florida.
Really then than anywhere else.
At June 30, the weighted average LTV of the portfolio was 57% and a weighted average <unk> was one point a date about 16% of the <unk> portfolio matures in the next 12 months about 7% both matures in the next 12 months. It is fixed rate, which includes swap loans, which are fixed to the borrower.
So at everybody's favorite topic office.
As Raj said, we feel.
Really good about our office portfolio.
We look at every loan every quarter we have.
Very high level of analytics running through the entire.
Portfolio, which is just less than $1 9 billion about $1 85 billion.
The weighted average LTV of the office portfolio was 66% weighted average <unk> has won six at June 30th Theres additional breakdowns in your in your supplemental deck on 12 <unk>.
Substantially all of the office portfolio was performing.
Tower portfolio, we had $313000.
Nonperforming loans and 95% was pass rated as of June 30, 59% of their office portfolios in Florida or the demand the demographics as I mentioned continues to be.
Very favorable and Theres breakdowns on the Florida, New York Tri State portfolios in the package.
Substantially all of the Florida exposure this classified as suburban it's well diversified across all of the major markets that we're in in Florida and with respect to the New York portfolio, we have $181 million or so in loans in New York City and Manhattan.
<unk>, obviously thats a center point of attention, they're kind of spread all over the borough of Manhattan, They're all well performing properties and as I mentioned in the last call. They're all too long term sponsors not fund related business and Theyre all to sponsors that are generally owned these properties for generations and have very low basis.
And the properties our portfolio in Manhattan is 94% occupancy rates.
As a 5% 12 month lease rollovers so.
We feel as bad as good about our portfolio as we could possibly feel about the overall office portfolio as I said we are.
Stepped up our level of analytics substantially in the book.
Over the last couple of quarters and I can almost say we are intimately familiar with every single loan in the portfolio, so with that I'll turn it over to Leslie.
Thanks, Tom I'll get into a little bit more detail about some of the numbers.
As Raj said, the NIM for the quarter with $2 47, compared to $2 62 last quarter and down 15 basis points and I'll reiterate what Raj said.
<unk> has been stable this quarter month to month April was the same as May is the same with <unk>. So we're very happy to see that stability.
Okay.
Decline in NIM is mainly due to the mix shift on average and funding average deposits down 794, and average <unk> advances up $680 million and that's just all reflects the impact of the events in March and you saw all of that stabilized considerably in deposits come up and if hlv come down by quarter end.
The cash levels, we held were up on average by about $300 million for the quarter and all of that taken together, we estimate had about a nine basis accounted for about nine basis points of that decline in NIM.
And again, we saw some improvement in stable stability towards the end of the quarter.
Cost of deposits was up 41 basis points from 205 to $2 46, and the rate of increase in deposit costs slowed this quarter cost of total deposits was up 41 basis points this quarter compared to an increase of 63 basis points last quarter. So we were happy to see that the average cost of <unk> advances increased from.
427% to 459 again reflective.
The additional wholesale funding we had to put on the balance sheet in March.
Okay.
And looking forward I would say we saw stability in the NIM during the quarter. Our best estimate is we will continue to see that stability, obviously, we're making assumptions there about deposits in depositor behavior that in this environment are very difficult.
To pin down, but our best estimate is that we'll see we'll see stability in the near term in the NIM.
A few comments on liquidity.
At 66, 66% of our deposits are insured a collateralized at June <unk> up from 62% at the last quarter and same day available liquidity at June 30 was $14 7 billion up from $9 4 billion at March 31.
And the ratio of available liquidity to uninsured deposits was up to 167% at June 30 from 95% at March 31.
So all positive trends there the provision for credit losses, this quarter was $15 5 million.
And the ratio of ACL to loans increased from 64 to 68 basis points. This quarters provision just really was impacted by the Moody's baseline economic forecast being a little less favorable than it was in the prior quarter and we also placed a little bit greater weight on the downside scenario in our modeling just to recognize.
But there is still some risk Scott.
A recession coming.
We had some shift from the qualitative to the quantitative portion of the reserve this quarter, you'll see that in our slide deck. As we are now capturing in the modeling with the weighting of that downside scenario some of the economic uncertainty we had previously been capturing qualitatively.
Reserve on core office was up to 83 basis points at June 30 from 56 basis points at March 31, we did add something qualitative to that reserve. This quarter just in view of the uncertainty that's out there, but I echo what both Tom and Ross I've said, and we really feel very good about the quality and potential loss content.
And that office portfolio.
We've also added some stress testing results to our slide deck this quarter based on the CCAR severely adverse scenario.
I thought that that would be interesting to you guys in the CCAR severely adverse scenario lifetime expected losses on the loan portfolio in the aggregate were projected at two 2% that's three 3% for Cree and four 7% or a total of $90 million for Cree office and that again I remind you is in the CCAR seven.
Yearly adverse in the Moody's asked for a recessionary scenario.
Projected losses for office were only one 7% or $45 million. So that's a portfolio that's projected to perform extraordinarily well even under a period of hypothetical severe stress.
Fluctuation in noninterest income compared to the prior quarter. The biggest driver there was $13 $3 million in the prior quarter of losses that we took on some preferred equity investments that did not recur in the current quarter and not in the noninterest expense category, we saw compensation and benefits down primarily due to normal seasonal.
Fluctuations in payroll taxes and benefits.
And.
We also saw last quarter, we recognized $4 4 million in operational losses that didn't recur as well.
We think probably.
In terms of guidance about expenses, we think the second half will probably be flat to the first half.
In terms of total non interest expense.
That I will turn it over to Raj for any closing comments that he wants.
I think we should go straight to Q&A.
Certainly.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster and one moment for our first question.
And our first question will come from Brady Gailey of <unk>. Your line is open.
Hey, Thanks, good morning, guys.
Great.
So I just wanted to start with the margin and I heard your guidance about how near term.
Spec the margin to be stable, but I would think with the balance sheet of bankunited. Once the fed is the terminal rate deposit costs are steady youll still have some loan repricing is going higher.
Is there a scenario that maybe in the medium term you could see NIM expansion.
Yeah Brady there is a scenario even in the near term, where we could see NIM expansion at all it all depends on.
And stability of the deposit base.
Stable NIM guidance that I gave is predicated on our railroad on a slight decline in ni DDA and then flat deposit scenario. So if we are more successful than we think will be or if we're more successful than that are as successful as we think we can be in growing deposits and keeping ni DDA stable. There is some potential upside but yes.
All dependent on what we're able to do on the funding side Brady.
Okay.
Loan growth has been pretty.
Flat in the first half of the year is that what we should think about for loan growth for the back half of the year as well just not much of it.
Yes, I would.
From the core growth perspective, we expect to see growth in the C&I book.
We expect to see growth in the <unk> book some of that will be shifted out of Ramsey.
And PFG, we expect political to be fairly flat, so it'll be kind of the core part of the book that has a better yielding part I think will be growing for the second half of the year grew slightly in the first half of the year.
We will see accelerated growth in the second half of the year, but that will be offset by exiting other.
Loan assets that are lower yielding assets, but we expect to see obviously a yield pickup in doing that.
Alright, and then finally for me just on the share buyback you know it doesn't look like you guys repurchase any stock in the second quarter I know historically, you had been a big stock repurchase or maybe just updated thoughts on the buyback headed into the back half of this year.
We stopped our buyback.
Back in March.
I think we may have a little bit left in the authorization, but we're not buying back stock.
We will discuss with our board as we do.
In the ordinary course, I think the board meeting is in a month or so.
And we've gone through some pretty volatile times so.
It was the right decision to halt and at some point in the future. The board will decide to reengage, but not right now.
Okay, Alright, great. Thanks, guys.
One moment for our next question.
And our next question will come from Jared Shaw of Wells Fargo Gerrick. Your line is open.
Good morning Jared.
Hi, Good morning, this is Tim on Brazil, or filling in for Jared.
Okay.
Ian.
Yes, yes, okay, sorry about that maybe just starting on the credit the increase in special mentioned I know you are you.
Talk about your comfort in the commercial real estate bump, but maybe just talking about.
The C&I portfolio and more generally what are some areas that you could end up seeing more stress, if it's not coming out of the equity bucket.
Okay.
I would say first of all that.
The increase in special mention was really there's no correlated risk there we've done obviously, a deep dive we know what each of those credits are and Theres no correlated risk or anything systemic in a particular sector of the book there.
Arent concerned about loss content in those particular credits at this point in time, we put them in special mentioned for some additional monitoring because they are under a little bit of stress, but we arent concerned about loss content in those particular credits at this time and we saw the substandard category actually come down this quarter. So we feel like credits holding up pretty well, we're not seeing any.
<unk> of systemic concern.
Arthur loans that rebound.
At the end of the quarter it has already paid off.
In the earnings release.
That was a $22 million exposure not exposure.
Outstanding.
It's a $50 million exposure and sometimes the timing doesn't work right.
That paid off in the last week of June but way to build I think the 12 to 13 of July one.
So yes, we actually had a couple of payoffs after quarter end I would echo.
Leslie said I mean, there's a couple of idiosyncratic moves this quarter.
We expect to see those come back, but there is no underlying each was sort of a different industry sector. There was no two in any one industry.
Industry sector in our C&I book tends to be extremely wide and well diversified across 100 different.
Industry segments. So.
As I mentioned and Raj said, we saw two of those pay off after the end of the quarter.
And there is no particular sector where really.
Concerned about the health of the consumer looks good none of it was commercial real estate right. None of it was commercial real estate.
Okay, and then maybe just parlaying that commentary into the allowance I mean, you guys have been pretty efficient in how you run the bank from an allowance standpoint.
And I appreciate the waterfall on kind of the quarter to quarter changes, but as we look out going forward.
The overlays that were applied in the second quarter.
What would need to happen in the back end of the year to continue seeing a reserve build and as I kind of implied in your modeling as we get closer to whatever their recessionary period.
Look like.
Again.
The thing that would lead to reserve build is this the.
Broadly the view of the future of the economy deteriorates.
I personally don't expect that to happen, but I can personally be wrong. So that would be the thing that would really lead to reserve build as if we saw.
The deterioration in not only actual economic conditions that forecasted economic conditions.
That would be the thing that would lead to significant reserve Bill Youll also see some reserve build just happen naturally as the composition of the portfolio shifts from residential to commercial because the commercial portion of the portfolio carry higher reserves.
And then the resi portfolio, so some of that will happen as well.
Okay. That's good color and then switching gears just looking at the DDA stability that was encouraging to see in the second quarter.
I know you talked about some of the municipal balances that are a bit seasonal in nature, but how should we be thinking about DDA balances going forward is there actually an outlook, where you can see BD can you tell us.
[laughter].
Let me try after that so.
Relative stable stability you solid BVA.
I want to.
That's the net number the gross number is deferred and the reason is that.
The movement of money out of BVA into money market or.
<unk> very often at that money getting used for.
Whatever it gets used for ray if somebody buys a build a company buys another company somebody expanded warehouses, that's what happens.
It's not that people.
Certainly movement into interest bearing as well, but a lot of that movement is something the whole industry has been suffering from now for a better part of a year that is still happening right. It's not like suddenly the 28% DDA. We have all these people decided to just stay the reason the number was stable is because.
<unk> whatever.
To go into other places got replaced with new business that we are doing and the pipeline that we talked about at the last fall.
That is a.
Okay.
A pretty big deal given the environment that we're in especially in the first half of the quarter to actually keep executing on the sales strategy of bringing in new business, Yes, Tom mentioned.
The title business.
So I'll just talk about that we did we would be brought on 35 new relationships this quarter.
Brought in 35, new relationships last quarter I may be off by one or two.
Roughly that and that was the velocity of new business in the fourth quarter last year ended the quarter before that so the fact that we haven't missed a beat.
Despite the distraction.
March and April that is actually the real story here without that I don't think we would have been able to hold it.
Oh, the BVA steady it really is trying to fill the bucket faster than the natural attrition that is happening that natural additional will eventually slow down.
But it is still happening.
And we really just have to run harder and faster on the treadmill to stay ahead of it.
Great. Thanks for the color.
One moment for our next question.
Okay.
And our next question will come from David Rochester of Compass point. Your line is open.
Hey, Good morning, guys. How are you doing good morning, good morning, David.
On the margin front with the stability you guys are looking for was just wondering what that means for NII going forward. If youre looking for stable levels. There and then on the deposit pipeline you mentioned the one six.
I was wondering what portion of that was non interest bearing.
We will take the first part.
So so I would say on the NII outlook again, Dave it depends on the.
The success that we have growing deposits.
We are in the short term.
Focused on reducing the wholesale funding level you saw some of that this quarter and so earning asset our loan growth will come from deposit growth. So I think if we are able to achieve net deposit growth.
It will generate net loan growth, which will.
Then.
Yeah.
Lead to NII growth and I'm not trying to be evasive I just think deposit.
Growth in depositor behavior is very hard to predict right now and we think we can succeed in growing deposits, that's what that depends on.
And the $1 6 billion, Tom you want to comment on that.
Say when you look at that Dave that since that is what's coming through the pipeline and our Treasury management team, that's largely operating ni DDA accounts.
Great Okay.
And then on the expense front you guys had mentioned and expense management program. When you were talking about that whiteboard at the beginning of the call was just.
Wondering what you guys are thinking about on that front and what the chance is already you could actually see lower expenses in the back half of the year versus the first half.
I would say a flat expenses with the guidance.
So.
From here on over the next couple of quarters, you Shouldnt expect expense growth and that again.
In an inflationary environment that doesn't happen by itself that happens because of all the things that we've been working on for the last two months that are being put into motion as we speak.
And I will say, we are still investing in certain parts of the business still hiring producers and investing in growth opportunities. So yes.
We have not gotten to the point, yet where we want to do draconian themes and cut things off that we may have to turnaround a year from now and figure out a way to rebuild.
Alright, great. Thanks, guys.
One moment for our next question.
Yes.
And our next question will come from Steven Alexopoulos of JP Morgan Your line is open.
Hey, good morning, everyone. Good.
Good morning, Steve.
To start on the loan side, so the pace of residential loan runoff was a bit elevated in the quarter. What explains that or do you think runoff will continue at the pace we saw at <unk>.
I think.
The reason the pace was accelerated with because in the first quarter. We still had some committed pipeline that we were.
Putting on I don't think there's been really any change in the rate of amortization, our prepay speeds are extraordinarily.
Flow as you can well imagine so it's really just amortization that's going on so I don't think if it does not do anything inorganic it sounds like we sold anything it's just that we've tightened up.
The new originations.
That took effect in the quarter, which is what you saw so yes second half of the year I should say at similar speed, Yes people will forget a large part of our portfolio we do have.
One of the slides.
His arms and hybrids and I think only 30% or so of our portfolio is fixed.
30 year fixed so it does have.
A better CPR than most people think.
And it ramped up so which is a good thing in this environment.
So we do expect more runoff in the third and fourth quarter.
But we do expect some runoff in the securities portfolio as well that would be not as much as we saw this quarter.
But yes.
Yes, those friendships should continue yes, I would say based on what we know today that resi portfolio, probably run down by another 450 between now and the end of the.
Got it okay. That's helpful.
On the commercial side given that your core markets are fairly vibrant I mean, you sound pretty optimistic on the call why are you seeing stronger commercial loan growth here.
Again, the Devil's in the detail on one hand, we are growing core business, but we're also letting go of noncore or what I would call.
Craig the only business by $175 million in snacks as an example.
Or some of the.
Yes.
The leasing business that we.
<unk> been running down for about several quarters over the franchise business and running down so the core business that we want to grow which comes with deposits is growing healthy actually even in New York, It's growing what is not growing or shrinking is the stuff that is transactional.
Yeah, and I would also add Stephen that when when there are opportunities in that business.
Sort of back book of shared national credits or other things that fall into that category you have to exit Opportunistically alright, your middle market business kind of builds over a period of time, we're seeing a good quarter. So far this quarter in terms of closings and fundings in new originations.
Nations and things of that nature, but those come on.
Over a period of time, where some of the shared national credits.
They don't necessarily mature, but you get an upsizing opportunity or you get a redial.
Deal or it comes where it's going to come within 12 month period of time and you have the opportunity to exited that period of time, and we're taking advantage of those opportunities to exit so that $175 million.
Of.
Deals that we got out of in Q2 will be.
Our strategy that we will continue to think through in Q3 in subsequent quarters is how we can redirect that effort into higher generating bilateral loans that come with deposits and TM business.
So should we expect commercial.
Commercial loan growth in the second half or is this yes, yes, yes.
Okay enough to offset the 450, Leslie where we'll see flattish loans will there be enough yes.
Yes, I think so Steve.
Okay.
And then final question so Raj in terms of getting back on offense here back to the long term plan.
When you launched Bankunited, two point or the industry have their eye off the ball in terms of noninterest bearing deposits now everybody is trying to grow and retain noninterest bearing deposits.
<unk>.
We enter the market with the same playbook like whats your ability now to actually.
Groove I know the pipeline is fairly strong right now, but it's a totally different environment today than what it was where it was even a year ago.
Yes.
Listen.
The most common question that I get from investors is.
Where will.
DDA as a percentage of deposits to end up.
When all the dust settles over the course of next year or two because everyone has backed off from where we were what at high of 32, and we're down to 28.
And I've heard some.
As our projections, let's call. It that that you would go back to 2019 levels subsidy Youll go back to 2008 levels.
I'd remind that didn't exist in 2008.
So I'm not sure we'll go back to that level.
The prior back only a $50 million and DDA when we bought it so I'm, 100% circuit, we're not getting there.
But stabilizing DVA.
And doing that through new business that is.
The most important thing.
Comes to building long term value and even short term earnings by the way. That's the most that's the key driver. So we're focused on that that $1 six pipeline more than we're focused on anything else.
Bob.
And executing against that.
<unk>.
The long term plan is still goes right through building a better deposit base of what we do.
Not only better but also bigger.
Yes.
We want to take down <unk> more have more core business or grow more of the core bank.
Maybe more funding to have a bigger loan book, we don't want to run the bank over 100% loan to deposit ratio have been very vocal about that we're happy to have created a little more breathing room for ourselves this quarter, but if I can create even more breathing room, that's even better.
We don't need to be at 80%, but but I don't want to get close to a 100 or over 100%. So.
Okay.
The long term strategy doesn't change that often.
If it changes that often that it's not very long term strategy then its tactics.
No.
We just want to put the noise behind us and get back to executing what we are.
Executing guest environment exchange interest rates go up and down the economies go up and down but long term you still got to.
The North Star really Hasnt changed the look we're trying to build.
Steve I would add a couple of points to that as well when you think about execution strategy, one would be a word that garage used.
Which I would say is intense focus on doing it.
I think the second you probably may have picked up we added.
A number of quality producers in the last quarter, so as Leslie alluded to we continue to invest.
Can the talent base of people that.
Name from really excellent banks that have business that they can bring to us that we have added to the talent base in the commercial areas.
All year really particularly over the last quarter.
The third is the continued investment in.
Technology, driven cash management type programs API connectivity payable.
Payables or receivables integration opportunities. So its focus people in product that are going to be the three things that are going to get us there.
Got it.
Thanks for all the color.
One moment for our next question.
And our next question will come from Brody Preston of UBS. Your line is open Brody.
Good morning, everyone.
Good morning, Barry.
Hey, I just wanted to ask real quick on the securities yield.
I think it was 65% to 70% floating rate Leslie is what I had written down and so the yield came up a little bit less than I was looking for I was hoping maybe you could give me some details as to why.
Yes.
It is about 68% floating and protean I don't have all the exact numbers around this with me, but there are some securities in the portfolio that hit caps and so that's why that trajectory came down a little bit.
Got it okay. Okay. Thanks for that and then I did want to ask just on the <unk>.
The spot rate on the interest bearing deposit costs. It didn't look too terribly far off as to kind of where the average I would say you would end the quarter and so I guess when you look at the trajectory going forward on the interest bearing deposit costs do you have a sense for what the expected step up is.
Within within the margin guidance that you gave.
I mean, it is going to it is going to step up again I think.
Without question last quarter time deposits.
Bank deposits.
So far the all in.
Beta, including Cds, I think through the cycle is a little over 50% and I think that is going to be able to hire.
Okay.
Terminal rate. So it is going to go up again.
Got it and I also wanted to ask on the noninterest bearing.
When I look at the average average balance sheet and the period end.
Sort of implies that you had some strong growth in <unk> in the back half of the quarter Raj maybe this is for Tom.
Could you maybe help me understand what drove the rebound and noninterest bearing in the back half of the quarter was there anything seasonal.
That drove that and should that kind of stick around.
Forward.
I don't think there was anything seasonal I know things no.
We do have fluctuations in Montana versus middle of the month.
A pattern to the deposit flows, but thats all of those are in every month.
Thus, especially I think it's just a sales cycle when some deals happened or didn't happen and when we boarded people onto us.
So there was nothing.
About.
Worth mentioning I don't know Tom if you know I don't think I would say normally you see a trend of corporates wanting to build up some liquidity at quarter end for financial reporting purposes, but other than that really speaks to anything unusual.
The back half.
I do think we saw stronger onboarding of new accounts in the back half.
At the beginning of the quarter, which as we all know a pretty weird time, and maybe thats, what thats, what it was but obviously, yes hello.
I don't think in April anybody was thinking about moving their deposit relationship from bank.
Thank you hi, everybody. So I think that probably has something to do as Raj said the quarter was really two quarters within a quarter of the first quarter was still kind of recovering from the first quarter and the second part of the second quarter, we're starting to get back to normal sales not as normal.
Got it okay.
And then Raj just on the just within the DDA book titled Solutions at $2 7 billion. That's obviously the largest segment that you have and I.
Thank you.
Zero deposit business back in 2018, but you've spoken you've spoken before about other noninterest bearing.
Deposit businesses.
<unk> grown sort of since then I know that nothing is over $1 billion I guess I wanted some more detail.
Beyond titled Solutions, what are some of the other areas of success that you've had building noninterest bearing deposits over the last several years.
Theyre kind of different I guess, maybe different than just the excess noninterest bearing deposit flows at the industry saw during COVID-19.
Yes.
Just to clarify the title is not all DDA as it is majority of DVA.
It has a very low cost of funds. So it's operating but there's always some money market that come with it.
Likewise, the other business I would point to is the HOA business, which we also built over the last few years, which is also around $1 billion again.
A nice amount of DDA, but some money market as well and that's also growing very nicely.
We're already having a great year.
<unk> already met their year end goals by by by June So pretty solid year.
For that team and there are some other businesses that we're investing in that we haven't launched yet.
I don't like to talk about them for competitive reasons, but.
We're always experimenting and tinkering with other sort of niches that are out there sometimes are successful sometimes theyre not but these are small investments that we make all the time, we're spending a lot of time and focus on one right now, which will probably bear fruit in maybe two or three years time.
I flagged at Hyatt.
<unk> heard us talk about the title business in 2018 or 19, when we were busy building. This.
So.
Those HOA and title et cetera.
The most prominent ones.
But but there'll be more to hopefully more to share with you in a couple of years.
Got it and then last one for me just real quick we we've seen a few banks.
Sell some office loans.
This quarter.
And.
Depending on I guess, what what type of office building at the band we've seen a pretty wide range of outcomes.
And I know the book is performing well for you, but you've never been afraid before to kind of strategically exit something and so is there anything within the portfolio you look at and you say you know maybe it might make sense to you.
Do a loan sale here or there.
Selling any of that portfolio at a discount we like the portfolio yes.
Thank you guys very much for the questions I appreciate it.
One moment for our next question.
And our next question will come from Christian de Grassi.
Goldman Sachs. Your line is open Christian.
Hey, good morning.
Good morning Christian.
So just another follow up on the $1 6 billion pipeline, what type of customer demographic and geography is coming from it just seems that deposit competition is.
It's ever been right now and Thats like a really valuable amount so where are you really seeing this opportunity.
I'm going to give you a strange answer it's everywhere, it's all over our geographies.
It's within HOA as Raj mentioned, it's within the title solutions areas within C&I small business core middle market. It's in all of the geographies.
We worked in New York, Florida, Atlanta, It's in a lot of places I want to clarify this driven made that $1 6 billion of growth is going to happen. This quarter correct. Yes. This is our pipeline.
Due to the three quarters right.
Friday won't pan out as well it is but it is these are these are not like.
I think I have a name of somebody that I might call who might give me deposits. This is.
People, who.
We have.
Proposal proposals out and have at least a handshake and are in some.
Somewhere in the pipeline with the accounts that are opened or.
Our.
Treasury trading is happening.
We're somewhere in the pipeline, where there is a good level of certainty that this business will come even after accounts are opened the business doesn't show up so I just wanted to have be grounded.
Sure.
The expectation, but <unk> pipeline in this environment is actually commendable and the reason is the Billboard focus on this more than anything else. This is the most of what I think that's what people are getting paid.
To do this year.
Yes. Thank you that's definitely very helpful and then.
Leslie I think you mentioned a number of different scenarios you guys were looking at the NIM. If hypothetically, we see a rate hike. This week and we stay in a higher for longer scenario for quite some time call it a year or so.
I think Tom mentioned, some pretty attractive new loan yields you guys are putting on but how do you see deposit rates kind of shifting in a prolonged rate pause environment.
So question the guidance that I gave is predicated on a forward curve at the time, we printed the forecast it feels like it changes every five minutes had two rate hikes.
Now, we're looking more at one rate hike in the enterprise.
<unk>.
And as I said to I think.
And I do think from here deposit betas are going to are going to accelerate a little bit. We're in a low 50 is now we'll probably get to.
So a bit higher than that and that's what's kind of baked into that.
Thank you.
One moment for our next question.
And our last question will come from John Armstrong of RBC capital markets. Your line is open.
Thanks, Good morning.
Good morning, John I appreciate you letting me and I'm exhausted on the $1 6 billion.
Conversations but.
Okay.
Big picture ones Raj you talked about the tactical near term exercise you went through.
Is that same exercise the priority right now and what would be the near term tactical priorities for you.
I think some of that stuff.
Is still relevant at some lesser honestly speaking.
Levels of liquidity and uninsured deposit their available liquidity.
Not less important today.
90 days ago.
However.
NIM stabilization.
Spence manage then things of that nature DDA growth deposit growth they are still very relevant so.
<unk>.
Sure.
Well, so keep an eye on.
Our liquidity metrics for example, but probably move that down a little bit in terms of.
What I am looking at everyday use.
He used to get at when this crisis hit in March.
He was getting.
Two or three emails a day about wires that we're going in and out of the bank.
I don't get that report anymore.
I don't want to see that report again.
Relevant today.
Stepping down from twice a day to once a day to once a week and now it is at a place where we've gone back to normal that I don't need to look at that information and get them more about hey, guys.
Yeah.
One left vacant box.
That focus my time on looking at other things so yes.
It still feels like.
Yes.
Whiteboard.
A large part of that is still relevant and will stay relevant.
But not all of it.
Okay. Good.
A bunch of different ways. It could go but just just one more I guess that.
The shared national credit single relationship transactional pool, how big is that and do you expect to bring that down over time or is this something thats basically going to churn overtime.
Alright.
Will come down.
Over time, I think part of that was <unk>.
Built up during the pandemic when there was an opportunity to put liquidity into play at floating rate high quality.
Opportunities when the.
Local middle market type business across most of our business units was not available or not accessible because of the health reasons.
Other issues, but.
That has never been.
Our principal strategy of the organization and so we will.
<unk> to be in.
Credits that we are the lead or an important less lead with deposit.
Business.
But it will not be.
An important factor in our long term growth and we will exit.
Opportunities, where we think it's the right opportunity to to get out and redistribute to better quality relationships in terms of the overall business, but it brings to the bank not necessarily the risk ratings of those under underlying credits.
Okay have you disclosed how big that portfolio is.
We have not I think we have in the past.
Total shared national credits, but we have not disclosed the portion of that that we're referring to here because some of that businesses is relationship.
Fair enough I don't think we have elected to dig into that a little more.
Okay. Good I'll, let you go thank you very much I appreciate it.
Thank you.
And I'm showing no further questions at this time I would now like to turn the call back to Raj Singh for closing remarks.
I'll end the call. It the same way I've started it does feel very different.
90 days ago.
And we're thankful to the market gods for that.
Happy to be focusing on and what the wallets focus on is building a long term.
Sure.
Relationship oriented bank.
I appreciate you, taking the time and engaging with us and we.
We will see you or talk to you again in 90 days. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
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