Q1 2024 BankUnited Inc Earnings Call
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Good day and thank you for standing by welcome to Bankunited first quarter of 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will dungeon automatic message advising yohan this way.
Please note that today's conference is being recorded.
I'll now hand, the conference I'll, let you speak of host Susan Greenfield Corporate Secretary. Please go ahead.
Good morning, and thank you for joining us today on our first quarter 2020 for Cabela's conference call on the call. This morning are Raj Singh, our chairman President and CEO Leslie Lunar ask 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.
These statements within the meaning of the private Securities Litigation Reform Act of 1995 that reflect the company's 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.
City area or on the company's current plans estimates and expectations.
The inclusion of this forward looking information should not be regarded as a representation by the company.
What's your plans estimates or expectations contemplated by the company will be achieved such forward looking statements are subject to various risks and uncertainties and assumptions, including without limitation those relating to the Companys operations financial results financial condition business prospects growth strategy and.
Liquidity, including that's impacted by external circumstances.
Outside of the company's direct control such as adverse events and taxi for financial services industry.
The company does not undertake any obligation to publicly update or review any forward looking statements, 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 on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2023, and any subsequent quarterly report on Form 10-Q. Our current report on form 8-K, 8-K, which are available at the Sec's website.
Www Dot <unk> dot Gov with that I'd like to turn the call over to Raj. Thank you Susan.
Everyone. Thanks for joining us I will jump quickly into the numbers.
We announced this morning.
And EPS of 64 cents per share net income of $48 million.
Yes, the day before yesterday I think.
Consensus was at 68.
I'm pretty happy about where we came out of these numbers do include theres not much noise in the numbers. This quarter, there's only one item to point out which is the $5 2 million.
Additional FDIC special assessment.
Other than that it's pretty clean set of numbers.
The highlights for this quarter.
Our deposits grew very nicely again.
Not just the number of non broker deposits by $644 million, but a large part of that growth was DDA $404 million of it was DDA.
DDA to total deposits now it's back up to 27%.
As we have done in the previous quarters, we continue to pay down wholesale funding, which was down a $1 billion for this quarter.
So if I look back the last 12 months since March of last year. Our total deposits have grown by 1 billion three it'd be paid down I think that'll be advances back $3 6 billion. In fact, I think it'll be advances are now at their lowest level.
Just in the last year, but in the last two years.
Back all the way to first quarter of 2002.
The average cost of deposits for the quarter came in at $3 18, but the more most important thing to note here is that we we think looking back at the last 335 months is that we have.
Now flattened out on the cost of deposits the cost of deposits at the beginning of the quarter or during the quarter or at the end of the quarter was all pretty much the same number so.
Yeah, we had a pretty big.
The cliff that occurred this quarter and despite that achieving.
That inflection point of cost of deposits is actually.
Pretty important thank.
Thank you pointed out.
And even into this quarter, it's only been a couple of weeks, but it looks like we've achieved stability, which obviously means.
It's good news for margins because that's what happened in the second quarter, but it happened a little bit earlier, we're happy about that.
As we continue to reposition the balance sheet.
So the left side.
Venture loans like tampered declining declined again by $152 million and we want to keep.
Continuing on that trend for the rest of this year.
Commercial loan growth. This is always our slowest growth in terms of production production did come in exactly where we have projected when we did have some.
Hey, offset quite a little bit unexpected and some line utilization that drop.
For that reason loan growth was negative.
The.
The margin for the quarter came out at $2 57, I think last quarter, we worked with <unk>. We had told you.
That margin will be somewhat stable to be down a couple of basis points. So it came in pretty much where we thought it would.
Credit looks good nonperforming assets are down non performing loans are down charge offs are down to almost nothing.
This quarter charge offs came in at two basis points I think last year annualized was at nine basis points.
NPA is.
$119 million.
They are down from a $131 million last quarter.
So excluding SBA guaranteed loans NPA ratios after just 23 basis points.
That's a couple of basis margin improvement from December capital strong liquidity strong book value tangible book value all buildup, so pretty happy about how the quarter shaped up.
And also and probably talk more about this but the pipelines are pretty decent both on the loan side and especially on the deposit and DVA side.
In terms of guidance.
Yes.
You put these plans together, which is late in the year.
What will happen over the course of the next 12 months you put those together that would give you guidance in January it very often.
Coming up with this guidance does not.
Not easy, especially that.
In a volatile environment.
And often numbers, Kevin we can go off here and Theyre fairly quickly, but this time around I would have to say that so far we're tracking so close to what we thought we would do that I am very happy so in terms of guidance no changes whenever we told you in January stays market will grow.
Over the course of the next three quarters.
Deposits should grow loans.
You guys will keep declining so all the guidance. We've given you stated no change in that.
And what else here.
Let me turn it over to Tom and he can get a little more into the details on the numbers before.
Okay, great. Thanks, Raj. So first we'll start off on deposits as Raj mentioned total deposits grew by $489 million for the quarter non brokered grew by $644 million and NID Ni DDA grew by $404 million. So obviously, we're very excited about the ni DDA number.
That's a big number.
We feel like we've got great momentum.
And growing core operating business within the company and what was particularly exciting about this quarter.
And the $4 four number is looking at like where it came from and how broadly based it was across all geographies in all lines of business. So really every team contributed to this.
And there were no enormous numbers in terms of.
Anyone inquired in one piece of business that drove it dramatically. It was kind of everywhere, which is really good to see as Raj mentioned.
The new business pipeline from a deposit perspective.
On the Treasury management side is really good.
Over $1 billion in near term deposits, and particularly coming off of such a strong quarter. We were pleased to see that the leading indicators growing into.
This quarter in the next quarter look really good in terms of number of deals out there number of proposals acceptances things of that nature. So we felt really good about that Tom if I may interject, one point that I want to make about this quarter's DDA growth was it did happen in the third month of the quarter.
So it happened more in March than in the first two months.
What that means is it's been fairly flat affect our margin.
This quarter as much of it should benefit going forward.
A detailed point.
On the loan side overall loans were down $407 million quarter over quarter with resident on $152 million.
C&I.
Chris segments down a total of $226 million as Raj mentioned production was actually really good for the quarter was in line with what expectations were we did have what I would say the unusually high number of line pay downs.
In certain segments and that really ended up impacting the quarter more than we had originally expected to see as we look forward into the rest of the year, particularly in all of.
The core C&I segments, corporate banking commercial banking and small business pie.
Pipelines are really robust.
As we come into the second third and fourth quarters. So we continue to feel good about loan growth overall for the year. Other other business has kind of performed as we expected Fran.
<unk> franchise equipment municipal finance were down modestly.
Mortgage warehouse did have a bit of an uptick.
This quarter, but overall I would say as we look forward the pipelines for business look very good.
Spend a few minutes on creates obviously, we know that with great interest everybody.
Scott refer you also to slides 12 through 15 to the supplemental deck, where we've provided some detailed disclosure. So overall as we've talked in the past our credit exposure as a percentage of the total book and risk based capital is modest in our view, it's 24% of total loans.
Create a total risk based capital was 166%.
Just as a comparison if you look at the 12 31 23 call report data for banks and that $10 billion to $100 billion range. The average is 35% for the total portfolio.
Total accretive risk based capital of 225%. So when you kind of compare us to the core group that we would normally fit into from a peer comparison, we are I think well below where everyone is in the market predominantly and I'd also point out our construction.
Loan book has always been relatively modest and is less than 10% of the <unk>.
<unk> within Creek.
If you look at some of the data points as of March 31, the weighted average LTV of the Cree portfolio.
<unk>, 7% in the weighted average debt service coverage ratio was 183 about 58% of the creep portfolio matures in the next 12 months and about 6% matures in 12 months. It is fixed rate nonperforming loans in the core portfolio other than the guarantee portion of SBA.
Loans are negligible.
Turning to office for a little bit.
So we have a total office portfolio of $1 $8 billion of that.
$300 million medical office or traditional office would be about about one 5 billion, it's made up of.
99 loans that have all of them in front of me.
At this time.
Although each one closely by by individual loan by market segment.
On a quarterly basis. So we're very familiar with the entire portfolio. The weighted average LTV of the office portfolio was 65% weighted average debt service coverage ratio was one seven at March 31.
Theres breakdowns in the supplemental deck on the office portfolio by geography that you can look at.
Our largest loan is only $50 million run rate.
Our average loan in the book is actually about $18 million with the vast majority of them range between 15% to 25 is the majority of the portfolio.
59% of the office portfolio is in Florida, where the demand the demographics continue to be generally favorable substantially all of the Florida portfolio of suburban our overall exposure to central business District type towers.
Very modest maybe at the 99 loans, we have about 12 of them that I would actually call kind of downtown.
Office Tower building the rest are all suburban type property and again substantially in Florida.
And the charts on slide 15 that will give you further geographic breakdown to that with respect to the New York Tri State portfolio again, not much difference, 43% is a manhattan about $181 million of office in Manhattan.
96% occupancy within that book and a 12 month lease rollover of 4% rent rollover in the next 12 months is a small portion of the office portfolio at about 10%.
Have seen some.
The increases that we have expected to see in criticized and classified office loans I thought I'd give you a little bit of a sense of kind of what those.
Issues look like by.
If I may be pointing out a couple of situations. So when we when we look at loans that are in that category generally what we see as office buildings undergoing lease transition.
And they fit into a couple of categories.
Our largest criticized classified loan happens to fit into this.
<unk>.
<unk> building in suburban Miami in a high demand area, where the actual occupancy today is 98%, but unfortunately, you have one large tenant that.
<unk> came in as a new tenant.
Six or seven months ago and the demand. These days generally allows for credit tenants to get 12 months of concessionary lease payments. So you have a period of time.
The accurate occupancy actual occupancy of the building is 98%, but the economic occupancy is far less so we know when those lease payments will start.
We kind of have an earn a calendar we know what the pro forma debt service coverage will look like once the lease payments due start, but regardless of who the tenant is it could be the U S. Government, we don't start to count that in place cash flow until its paid that until we have a maturity on the lease payments which is normally.
90 days after the commencement of the lease payments. So we have several buildings that are kind of in this sort of transition early stage, where you have occupancy that really is in the 90% range, where you have pro forma is that we'd be well above.
Pass loan policy guidelines, but they are in this kind of transition stage with new tenants.
We also have loans that like everyone is seeing in the market, where you have some vacancies where you have lease up going on in property is being subdivided and whatnot.
Situations, where we see.
Activity in lease up in the market, particularly in the Florida suburban market. So you might have a 20000 square foot.
At least that that goes vacant and then you have to subdivide the property and it just takes time to kind of work through this in general we think the asset owners are supporting their assets, they're putting money into them. They are making the investments in the properties. They have significant equity in it and I think we will just be in.
A handful of these situations for a period of time as we work through this kind of lease transition.
But I did want to provide you a little bit of anecdotal information that I thought would be helpful for sort of understanding the dimension of the office book that we have so hopefully that was helpful with that I'll turn it over to Leslie.
Thanks, Tom.
As Raj said net income for the quarter with $48 million or 64 cents per share.
Arjun.
<unk> 57, this quarter compared to $2 60 last quarter the yield on loans is up from $5 69 to $5 78, Thats, just really portfolio transition as new production is coming on at higher rates and lower yielding loans, including Randy loans are paying down.
The yield on securities decreased from $5 73 to $5 59. This was really driven by a retrospective accounting adjustments that we booked in the fourth quarter that the net.
Fourth quarter yields I guess for lack of a better term artificially high.
Now for a better sense of the run rate.
The cost of deposits was up 22 basis points from 296 to $3 18, and as Raj mentioned disappears to be stayed.
Stabilizing so thats exactly right.
Good news for your margin going forward.
The average cost of <unk> advances was down to <unk>. This quarter from 458 last quarter as we are paying down those higher rate advances.
Our NIM guidance, we do continue to expect NIM to expand for the full year 2004, compared to 23, and we think Q1 was the low point.
And I'll remind you again that this guidance is based on our continued success in transforming and Remixing the balance sheet on both sides much more than on anything that the fed might or might not do in fact in answer to a number of your questions. We ran a scenario with the same balance sheet transition assumptions.
And no cuts.
2024, and it moved to the margin by one basis point and move it either way.
It just doesn't really matter, what's going to drive our margin is our success and given what we're trying to do to the balance sheet.
Provisioning and reserve the provision was this quarter was $15 million.
ACL to loan ratio increased from 82 basis points to 90 basis points.
And the ratio of the ACL to nonperforming loans increased to 188 from 160 <unk>.
Drivers of this quarter's provision and the increase in the ACL.
The biggest one was an increase in qualitative reserve and a lot of that related to the office portfolio.
Another driver was risk rating migration and those were partially offset by improvements in the economic forecast and you can see a chart on slide 17 in the deck that kind of gives you a waterfall of the changes in the ACL.
The reserve on the commercial portfolio and when I use that term I'm talking about all C&I all Cree.
<unk>.
Franchise, finance and equipment finance, not mortgage warehouse and pinnacle because those have unique risk profile. So they are not in this number but that commercial reserve with 142 at March 31.
Reserve on the office portfolio was $2 26 at March 31st and most of that build with qualitative and really prompted by the fact that we have seen some risk rating migration there as Tom spoke to earlier.
I would also point out that.
Our total credit reserve right now is about six times, our lifetime historical loss rate.
Pretty pretty generous.
Reserve there.
Noninterest income and expense not much to comment on here Raj referred to the 5 million $5 $2 million of additional FDIC special assessment this quarter.
We had about $6 $5 million in residual losses on lease equivalent last quarter compared to $2 $7 million in residual gains this quarter, so that cause the swing in the fee line.
<unk> is a little high this quarter because of one discrete item that our guidance around that going forward Hasnt changed.
With that I will turn it over to Raj for any closing comments and then we can take your questions.
This is about ex clean in as good a quarter.
Could have hoped for 90 days ago, very happy with where I think ladder.
Looking forward within a three year very optimistically so.
We will take Q&A now.
Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question simply press Star One again, please standby, while we compile the Q&A roster.
No first question coming from the line of.
A man Gillingham with Citi. Your line is open.
Good morning, everyone.
Alright.
I hate to belabor the point too much but I was curious can you just talk through.
Theory provision increase I know you talked through the qualitative overlay and then there is theres quite a bit.
In terms of like the office.
Thanks to all of that is really really helpful. But I'm just kind of trying to square the circle. It sounds like things are good. But then you also did increase the reserve.
Up.
So just kind of thinking about the dynamics associated with that are you expecting losses or is it more seasonal accounting I'm just trying to square those two circles things sound. Good. But then you also did increase the reserve.
Sure.
You guys didn't asking us to increase every year.
Hi, guys.
No I think Ben we don't expect we expect any losses in our core portfolio to be very manageable, but I think it's also trading for us to recognize that the.
The environment, particularly around office is challenging and we have seen some risk rating migration going on there and so what we did to kind of.
Come up with that qualitative reserve as we just made some broad assumptions around dilutive cap rates increased a lot more than the current commercial property forecasts indicate that theres, a long queue and what impact might that have so that was sort of how we thought about it.
We are not expecting a lot of loss content in this portfolio, but we do recognize that the environment is challenging and we're seeing some risk rating migration I hope that helps.
Yes.
Speaker Change: I wanted to add one thing general comment about risk rating migration, we take out of risk rating.
<unk>.
Intellectual honesty that closer to risk trading very seriously.
We don't ever try to play games that we call the rest of the way we see it we don't try to say if we are overly conservative or overly non conservative we try to be as down the middle of the pack because the risk weightings or whatever you call them out.
Determine eventual performance.
The performance of a loan to the gentleman by what a customer does or does not do our borrower doesn't go back to risk rating is what you pick up that loan along the way.
And if you if you try and play games with that you just lose carnival of EBIT stakeholders, whether its regulators or investors or what have you. So we try to be as great down to that on risk ratings and then we see risks buildup, we call it out and we will bridge ratings down.
That's a very important aspect of running a company and having credibility in the long term.
I will point to the fact that during Covid also we called out risk early in our risk ratings, we downgraded them because we saw risk we saw a lot of our peers not due back end infrastructure head play, helping you or not.
Call the situation more risky given that we've had the biggest health prices in the industry in the country.
No.
So just just to comment about maybe obviously more risk in office today than it was a few months ago and.
And then we're calling it out and we are also reserving quantitatively, but reserving for that and I think a follow up to Roger's comment about COVID-19 all of that.
Downgraded loans, we increased our reserve and we never saw any loss content.
Thankfully so.
Gotcha, that's helpful color I appreciate it.
Pivot here for the next one.
You guys are.
Kind of baking in growth I think you said.
Higher loan balances ending.
The year over year, just kind of curious on the cadence of that grow core by Commscope.
Trying to back into like the.
So listen the mix on the asset side of the balance sheet is really going to be the driver of.
Keeping it from this point it seems like so I am just trying to get a sense of like where do you exit margin price fee based on that growth kind of the pricing.
Kind of touching a third rail, but kind of curious if you can narrow down scrap rate cuts are purely definitiveness for your margin outlook.
Speaker Change: Yes, I would say.
Similar to what we told you last quarter, we expect the margin to be in the high twos by the end of the year.
That's not that guidance is unchanged from what we told you last quarter, we expect the resi portfolio to continue to amortize down at about the pace you've seen over the last four quarters.
Another.
For the year, probably $800 million or so.
We expect the growth to come from our core middle market commercial portfolio, primarily C&I, maybe some some created primarily C&I and we expect double digit growth in that segment.
Probably the stops which are now getting very small, but the nickel and bridge are probably not throw bridge will probably continue to wind down a nickel for the time being given the pricing dynamics in that market will tread water.
Got it okay helpful. I appreciate it.
Thank you.
And our next question is coming from the line of Stephens Cohen with Piper Sandler Your line is open.
Hey, good morning, everyone. Thanks for the time.
Stephen Kendall Scouten: I guess I was curious one I mean, you guys took up your dividend here this quarter.
I was wondering if there's any update on thoughts around the share repurchase capital continues to build you've been building the reserve, but it seems like at these levels you might be more apt to do that.
On buyback so I just wanted to any updated thoughts there.
Yes.
Not an update we do continue to talk about it at each of our board meeting So that May Board meeting, we will again have a conversation.
But I'm not expecting a buyback.
Yes.
We are changing our mix of our balance sheet, but keep in mind from a risk weighted asset perspective, we are talking about taking down low risk weighted assets like RSV and replacing them with higher risk weighted assets Eni. So.
Yes capital Thats build up but capital ratio on a TCE will both up but the second one does it build up quite as my proposal of change of mix of of assets, which is necessary for simple margin.
So we will the board had we've talked about the buyback back in February.
Took the action on dividend, we will talk about it in May and I don't want to.
Trying to affect discussion.
But I think buyback as probably.
More.
If.
It's probably in the second half of the year is when they will it will get we will take a harder look at us I doubt if it will be in may.
Okay.
Really helpful. Thanks for that.
And then I'm just kind of curious on thinking about the loan loss reserve, obviously went up eight basis points and you are incrementally more protected but if I look at that waterfall chart and I see that.
Economic forecast component kind of going down.
Is that.
Am I reading that right, where there are some scenario weighting adjustment that you guys may need to take that number down or whats kind of the dynamics of that around the economic forecast. Most of that is just that the forecast is better than it was three months ago.
Okay. So no change to the way you guys are waiting to the various scenarios.
Let me squeeze out every quarter, but really we're just seeing better forecast.
So the modeled loss results are coming down.
Okay.
Got it and then just last thing for me, obviously, great momentum on our non interest bearing deposit sounds like Tom said, the pipelines were pretty good on the treasury side as well kind of curious what you think you can do there I know it is hard to predict through the full year and then maybe kind of an update on Dallas in particular, and what sort of progress you've seen how much that may or may not be <unk>.
We're getting to a positive momentum there.
It's too early for Dallas to contribute anything meaningful. So these numbers are not really because.
Opt out there if there is obviously some growth there, but it's small compared to the total number.
Yes.
When we look at the markets that we're in I would say this was.
This last quarter was a particularly good hiring.
Timeframe for Us we added.
So the teams in Atlanta, we added to the teams in Dallas, We made some really good key hires in the corporate banking space in Dallas. It is too early for any major results to kick in yet we are we are.
See good activity good pipeline build.
Business coming in.
But.
Thats not predominantly driving the numbers.
What you see.
$404 million of Ni DDA growth hours really more across existing geographies the existing lines of business.
Got it.
Got it and think that progress can continue based on what youre seeing in the pipeline I guess the general method.
Yes.
Fantastic Thanks for the color and congrats on all the progress.
Thank you.
Thank you and our next question coming from the line of Darren <unk> with Barclays. Your line is open.
Hey, good morning, everybody.
Morning.
<unk>.
Maybe just following up on the deposits and funding.
With the trends that we're seeing in DDA.
One I guess would you say are you also seeing continued remix from existing customers offset by the new new customers, bringing money in or do you feel like.
And then average account basis.
But the bottom on an average DDA is here.
It's a little hard to say I think that is still some bleed happening on older relationships, which is.
What youre seeing the 400 million or so its net growth. So I think theres still some.
Some of that happening, but we're trying to kind of out we are not quite but we are out running it with new business coming in the front door.
I think it's still a little bit of a leaky bucket and I think if thats, what youre asking about.
Yes, I think there is some some of that is still happening you do wonder like.
<unk> been woken up yet.
Thank you.
But I think I think the leaky bucket phenomenon is still true.
But we have a lot of momentum on filling the bucket with new business.
And based on what business was closed this quarter, but also based on what's in the pipeline.
Okay, and then on the deposit beta do you think we've seen the peak here, even if we don't get rate cuts should we expect to start to see.
A gradual.
Decline either from that remix of DDA or not having to pay up as much and market to to retain some of those interest bearing deposits.
I, certainly hope so or at least stability.
<unk>.
<unk> seen the numbers from Jan March and into April we're seeing.
Being complete stability, it's been absolutely flat.
Report every morning, what the deposit.
Book looked like the night before.
Usually I look at DDA at total.
It's nice to see the far right column, which is the.
The cost of funds basically our change in cost of funds are looking pretty favorable.
So yes, it looks like it's stable when will it start declining without the fed moving.
Yes.
Deviate keeps building up the way we are thinking it will start declining as well, but yes, we have reached that inflection point it certainly feels better.
Okay, and then finally for me on the office side.
You talked about some of the rent concessions to get new tenants.
Have you been noticing.
<unk>, having to increase either the rate or pace of concessions to attract those new tenants.
As one part of it and then I guess, what gives you confidence that the.
As expected lower occupancy levels are temporary or is that just.
Yes, you have you have some insight into the pipeline for those for those landlords.
Yes.
Say two things I don't think in most of the markets that we're in.
The concessionary period has expanded here.
In San Francisco, or Chicago, Im sure Thats true, but.
Better growth markets.
Generally you are seeing kind of a 12 month.
A period of time.
We're not seeing any major changes in that the confidence.
Really comes from sort of the underlying demographics of what's happening in the market. So if you look at markets, where we have.
Significant office exposure spread out through Florida. For example, if you look at the underlying demographics.
Inflow business migration, new business startups and whatnot in Miami Fort Lauderdale in Palm Beach, and Tampa, It's good I mean, theres really stop activity and Youre seeing the lease up activity from that I mean, the amount of new migration of companies that come to market expansions that are being done.
It's just really.
Strong throughout virtually every market.
In Florida. So that's what gives you confidence to see that this year as you are looking at very very strong population and business growth requires.
A lot of these a lot of these buildings are.
Professional services oriented technology oriented and Youre, just seeing growth across all of those industry segments within Florida.
I'd also point out in Manhattan in particular, the rent rollover in the next 12 months is only 4%.
Yes, I mean, even if you look there was a recent report in the journal I think yesterday that said New York, New York City led the country in creating new tech jobs.
While we don't have a lot of buildings in New York I think they had a $3 five number as the growth in the tech related return to office and new job environment.
That comes in to those buildings.
So the markets that we're in I think are generally giving us.
Reasonable confidence that we are seeing business activity that will lead to leasing activity. The other thing I would say and we've said it.
Jokingly, but Tom really is sitting here with a tape.
The stack of paper in front of them that has all the details of every single loan in the office portfolio.
I think the granular level at which we are monitoring and paying attention.
Gathering information about the loans in this portfolio.
Yes.
Gives us.
The confidence in this portfolio, we really didn't know what's going on with each and every one of the.
Portfolio management has.
Sure different levels.
I mean, our teams are visiting these properties consistent later talking to the asset owners.
They are talking to the leasing agent somebody they have a very granular level of knowledge of what is going on in each and every property.
Great. Thanks very much.
Okay.
Thank you.
Hey, good morning, guys.
Morning.
Just one one follow up question on the noninterest bearing deposits as you mentioned it looked like it all sort of came on in the final month of the quarter.
All of those deposits should be sticky theres no seasonal factors there.
No.
There are seasonal trends to startup businesses that we're in that our monthly trends there are seasonal trends, but you know.
A lot of that growth was new business. Some of it was certainly seasonal as well.
We had a decline of DVA last quarter as always happens in December.
And we're now seeing that build out that buildup.
It's not like 100 high season that is the level continue to happen. So we expect a seasonal.
Changes to keep helping us as we get into the summer.
No there isn't any lumpiness that I'm worried about that.
Here, one quarter and going into next next quarter now.
Got it.
I wanted to sit there I think in the release you mentioned in your thoughts on <unk>.
Share National credit run off I was just wondering if you could quantify that on a dollar basis and do you think that that trend that continues from here.
We don't have those numbers in front of me right now, but I'll, let Tom.
Current expectations are.
I'd say when it comes to that segment.
We consistently try to look forward and see where we see risk in the economy and when we make those decisions to exit those credits and there were a couple of them this quarter Theyre typically.
Areas that we look at where we are not as optimistic about the trend lines in those industry segments.
And Thats, typically where we make that kind of decision there a bit more.
<unk> based upon how we're viewing what might be happening in a given industry segment versus kind of I mean, our long term strategy is to build bilateral.
Business with operating accounts, and Treasury management business or whatnot.
We do have we are in some.
Some shared national credits on the corporate side and the real estate side, but.
We generally think about it from.
Do we have confidence in the next 12 to 24 months and where this sector is growing and when we don't we try to take opportunities to exit at majority of Readouts.
So.
So those credits that were exited I mean did they have a deposit relationship with the bank.
The majority of your national credit portfolio have to have a full banking relationship.
The credits that we have exited did not have depository relationships, we have a portion of our book.
The shared national credit book breaks down into kind of different categories. For example, if we are the lead bank.
In a shared national credit, which we are then we have the depository relationship and many of the shared national credits were in <unk>.
Stephen Kendall Scouten: We may not be the lead on the credit, but where the depository agency agents.
We have.
It's not one broad statement across all.
Lines, but I would say in shared national credits, where we are neither the <unk> nor the depository.
Our general bias would be those are relationships that are probably going to be de emphasized going forward.
Got it that's helpful commentary, that's all from me thanks, guys.
Thank you.
Our next question coming from the line of Steven Alexopoulos with Jpmorgan. Your line is open.
Hey, good morning, everybody.
Good morning, Steve.
I know you've had a bunch of questions on office Cree, but I had a big bigger picture question for you guys.
When investors or analyst asked a larger banks like what's your outlook, whereas the risks inevitably the answer is the regional banks are holding the risk on office Cree I Didnt really hear that in your response to all these questions Tom Youre working through some of these challenges do you guys agree with that that the regional banks I mean, you see what your peers are doing.
Do you think you are an exception to the rule of your peers are in trouble as asset class or what you're experiencing.
Do you see that is fairly typical.
So.
I'll start and then Tom you chime in I think the first place.
We have a somewhat agree is the fact that regional banks do have more CRE exposure.
In general.
<unk>.
The top 10 banks for example, so just look at.
CRE to risk based capital ratios like that yes, smaller banks community banks, although that provisional tax do have more CRE exposure.
But from there on I actually will start to disagree.
Banks have different types of CRE.
And you can have a regional bank average ticket size of $1 million.
$5 another one that.
$50 million to $80 million like we do and then there are regional banks that have very large.
Exposures and each one of them will have a very different risk profile. So generalizing it.
Beyond just saying, yes, generally speaking regional banks have more CRE.
The only statement that applies but beyond that we really have to dig into what kind of lending each bank is doing and it can be quite different from one regional bank to the next we obviously know our book better.
Yes.
And I can't really talk much about another bank that might be.
Doing very small ticket CRE of any large ticket CRE.
Those risks might be quite different but with the risk profile that we have starting with the fact that we have much lower CRE than typically a bank our size would have.
And the kind of CRE, we've done mix.
$15 million to $18 million type of average ticket size, we don't have a super large loans, but we also don't have very small.
One $5 million loans either.
And the mix up.
And the markets that we serve we feel pretty good about our portfolio.
Do you have a bigger point I think it's more complex than making a very generalized chase them.
I would say I would add I would agree with your broad said I also think.
When you look at our portfolio in total create.
Can you scope out all of the banks and the $10 billion to $100 billion range, we're clearly at the lower end.
Overall, <unk> exposure and we have always.
I think maintained a good discipline around asset diversification.
Within that book no one asset is more than 25% or so or the entire base and we spend a lot of time thinking about.
Asset allocation within that book, an asset allocation within the total portfolio and also project limits. So as Raj said generally.
Our portfolio across all asset classes with a Cree.
What I would kind of call a middle market real estate portfolio, we're not typically in <unk>.
Loans above.
15% to $30 million range, we're not sitting with $100 million loans on towers.
And a major construction loans in the last part.
As I think generally.
Over a long period of cycles. Most people would agree that your risk is in the construction.
Loan portfolio has a higher risk element and thats always been.
A very modest part of our overall portfolio.
Right now it's at about 8% of the portfolio.
Great portfolio correct.
And just one more thing.
Between CBD.
Stephen Kendall Scouten: And suburban is pretty stark.
And I think paying attention to that.
Two banks with the same exposure same numbers, but if it's.
CBD versus.
Suburban.
It's a mix of different banks.
Sure.
It could shed a lot more life by the way the risk is there.
Even within Submarkets I'm staring at this piece of paper that we keep referring to.
And we break it down by sub market no sub market.
Is overweighted in any area so.
We pay attention to what's in Tampa, which in New York, What's in Miami Fort Lauderdale because.
All of these economies do have some levels of difference different types of business mix.
So we keep it at asset levels asset allocation levels sub market levels project levels were pretty disciplined approach to this.
Got it my other questions have been answered. Thanks, thanks for that detailed response.
Thanks, Steve.
Thank you.
Question coming from the line of David Bishop with Husky Group. Your line is open.
Yes, good morning, everyone.
Right.
Hey, Leslie quick question I think you mentioned that there were some maybe waterfall payoffs are repricing on the CD book this quarter.
Just curious maybe what that look like and maybe what the repricing.
Looks like over the next quarter or two on that book and what.
But the average rate is looking like currently.
We had about $900 million repriced in the first quarter I don't know somewhere between.
30 to 50 basis points.
That really just a cliff I think going forward, it's pretty tame and spread out. So I think we're kind of past the class and you can see the impact of that embedded in the change in the cost of funds for the quarter.
Got it and then I know there was some noise obviously in.
And fee income in the fourth quarter.
Just curious if you think thats first quarter rate represents a decent run rate or a good approximation heading out to the rest of the year. Thanks.
For the most part yes, the base leasing residual items are going to be episodic and sporadic the portfolio is small enough.
<unk>.
Yes, Donna carbon a regular predictable cadence. So you saw some of that we have seen a little bit of that every quarter. The last several quarters and those those things will be sporadic, but if you pull that out yes, probably.
Perfect most of my questions.
Asked and answered thank you.
Thank you.
Yes.
Thank you.
I see no further questions in the queue at this time I will now turn the call back over to Mr. Raj Singh for any closing remarks.
Thank you everyone for joining us.
We will speak to you again take us in the meantime, we know how to reach us.
Ladies and gentlemen, Douglas will call conference for today. Thank you for your participation and you may now disconnect.
Yeah.
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