Q1 2025 BankUnited Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the Bankunited first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone.
Speaker Change: Then hearing on admitted message of IP, New your hand, just raised.
Your question. Please press star one again.
Speaker Change: Today's conference is being recorded I would now like to hand, the conference over to your first speaker today Jackie problem Corporate Secretary. Please go ahead.
Speaker Change: Thank you Michele good morning, and thank you everyone for joining us today for Bankunited, Inc. First quarter 2025 results conference call.
Raj Singh: On the call. This morning are Raj Singh, Chairman, President and CEO, let's really lack chief financial Officer, and Tom Cornish Chief operating officer.
Raj Singh: Before we start I'd like to remind everyone that this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Raj Singh: It's like the company's current views with respect to among other things future events and financial performance.
Raj Singh: Any forward looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the Companys current plans estimates and expectations.
Raj Singh: The inclusion of this forward looking information should not be regarded as a representation by the company and the future plans estimates or expectations contemplated by the company will be achieved.
Raj Singh: Such forward looking statements are subject to various risks and uncertainties and assumptions, including those relating to the company's operations financial results financial condition business prospects growth strategy and liquidity.
Raj Singh: It's impacted by external circumstances outside the company with direct control such as adverse events impacting the financial services industry.
Raj Singh: The company does not undertake any obligation to publicly update or review any forward looking statement, whether as a result of new information future developments or otherwise.
Raj Singh: A number of important factors could cause actual results to differ materially from those indicated by the forward looking statements.
Raj Singh: These factors should not be construed as exhaustive.
Raj Singh: Information on these factors can be found in the company's annual report on Form 10-K for the year ended at December 31st 2024, and any subsequent quarterly report on Form 10-Q, our current report on form 8-K, which are available at the Sec's website.
Raj Singh: With that I'd like to turn the call over to Mr. Raj thing.
Speaker Change: Thank you Jackie thank.
Raj Singh: Thank you everyone for joining us.
Raj Singh: I you may have noticed that I'll call it a little bit later than it usually is.
Speaker Change: And usually we go around the 'twenty 'twenty occurred and the reason it was a little bit later, partially had to do with calendars, but partially also was we went through a GL conversion, which is a fairly big undertaking which Leslie sitting over here next to me led and went flawlessly.
We didn't need the extra two or three days that we thought we might maybe but if it went really well so I want to congratulate the team, but this was a good quarter.
Speaker Change: Solid quarter in terms of where we landed versus our expectations I know, there's a lot of noise in the economy and we will we.
Speaker Change: We will get to that in a second but first let's go through what the last 90 days were like.
Speaker Change: In terms of.
Speaker Change: Net income we came in at $58 5 million or 78 cents a share.
Speaker Change: I think consensus was 76% slightly better than consensus margin was 281, which was compared to last quarter was down three basis points, which is exactly what we had expected most of that was around some.
Speaker Change: The hedges that rolled off.
Speaker Change: It came in exactly where we expected it to cost of deposits came down by 14 basis points at $2 58 from 272 last quarter, our cost of interest bearing deposits came down 21 basis points, it's not down at $3 54 last quarter was $3 75 and on a spot basis also from December 31 to March 30.
Speaker Change: The one we had 11 basis point drop in that cost and.
Speaker Change: <unk>, which has been the story here for the last several quarters now again, we had a very solid quarter and IBD APE was up $453 million again as expected and as we had mentioned to you last quarter at the last earnings release.
Speaker Change: Average in IBD here was down a little bit just that's the seasonality of how the DDA builds up for the year.
Speaker Change: December 31, but not the bottom for us it generally is somewhere deep in the first quarter, where we bought them out when we start building back up.
Speaker Change: So March is generally a strong year and then from here on it since several months of strong deposit growth. So we're expecting even better second quarter.
Speaker Change: And in terms of if I just look at total deposit growth outside of brokered, which we paid down quite a bit total deposit growth. Excluding brokered came in at $719 million. So a very solid quarter no matter. How you look at it on the deposit side wholesale funding, which is broker to and our wholesale.
Speaker Change: <unk> borrowings were down $1 1 billion.
Speaker Change: The loan book total loans were down $300 million break it up roughly into two pieces. One is what you expect which is.
Speaker Change: What we've been running down for some time resi book or some of our commercial finance hubs.
Speaker Change: That was about 200 round number $200 million of that $300 million.
Speaker Change: About $100 million roughly was actually a decline in our core commercial book, which we're trying to grow our first quarter I will remind you is our slowest quarter. If you go back 2345 years Youll see first quarter is always our lightest growth quarter or simply because we don't have in our C&I business, we don't have.
Speaker Change: Information audited financial information from last year, and we're working off a fairly dated financials. So we tend to be much lighter a growth in the first quarter than we had the season really picks up in the second third and fourth quarter. So.
Speaker Change: Also coupled with some still fairly large payout paybacks that we've seen in the.
Speaker Change: In the C&I book.
Speaker Change: So that trend has now been going on for about three quarters that has not slowed down.
Speaker Change: Total loan to deposit ratio stood now at 85, 5%. It was $87 two at the end of last quarter.
Speaker Change: <unk> one is now 12, 2%.
Speaker Change: And.
Speaker Change: Tangible book value per share keeps climbing up its studies $7.48. Lastly, we'll talk more about <unk> I don't actually recall the number at the top of my head, but I think that also that also improved.
Speaker Change: Talking about I'll talk about the macro environment for a second then I'll talk about guidance.
Speaker Change: So you've seen.
Speaker Change: The level of uncertainty that is out there. We're all monitoring at our clients are monitoring it we actually had a very large client event just last week in New York, We met 75, or so of our top clients with both C&I and CRE businesses.
Speaker Change: I would say that I went into that expecting a lot of concern a lot of like Oh, My God, what's what's going on in this world, but I didn't actually get that what I got yes. There is some level of concern some level of uncertainty, but for the most part people are engaged and people are basically wilder monitoring whats going.
Speaker Change: They are not writing off the year in any way shape or form so they stay engaged the fact that we had that level of attendance to this event itself was a good.
Speaker Change: A good sign but then how engaged people wear and wanted to talk about growing their businesses and yes. There was some talk about politics.
And tariffs and so on but for the most part it was a very positive event.
Speaker Change: So.
Speaker Change: When it comes to <unk>.
Speaker Change: Our guidance, here's what I'll say at a high level, we're not changing our guidance.
Speaker Change: So what we told you 90 days ago, we'll stack, we'll stand by that in terms of loan growth deposit growth margin expenses and all that good stuff.
Speaker Change: Having said that I will say and this is a phrase that I borrowed from somebody that asked but I've met last week that the cone of uncertainty is much bigger than it was.
Speaker Change: Even a month ago. So there are a lot of moving parts here.
Speaker Change: Environment is.
Speaker Change: Moving around like Crazy that the economic.
Speaker Change: Environment is also uncertain and we don't know exactly where we're going to land with tariffs at the end of the day at all of that will have an impact. So so what can we do as a bank.
Speaker Change: What are we doing as a bank, we're paying a lot of attention to the risks that are unfolding in front of us I think the most immediate risk.
Speaker Change: That we have to deal with is interest rate risk.
Speaker Change: When the curve moves as much as it is doing on a weekly basis. These days, both the short and the long end of the curve that means we have to pay extra attention to interest rate risk management, and we're trying to stay as neutral as possible in any scenario so were not hurt by whatever happens to rates.
Speaker Change: <unk> obviously is.
Speaker Change: Ah crap.
Speaker Change: Credit and pipeline risk I'll roll them up into one the pipelines right now are actually very strong. So we have not seen a degradation of our pipeline now in fact I was I was meeting with our credit people last week and trying to compare what we had budgeted for for this time of the year for pipelines.
Speaker Change: This is what we are seeing and they are actually better than what we had budgeted for now.
Speaker Change: What will be the pull through rate on these pipelines I think that will depend a lot on where everything lands with tariffs and the economy in general.
Speaker Change: So far I really have no basis for altering the guidance we gave you.
Speaker Change: Except just to say that the possibility of the probabilities of.
Speaker Change: Of what can happen is much wider.
Speaker Change: 90 days ago, so with that.
Speaker Change: I'm trying to see here.
Speaker Change: My notes, if I've missed anything no.
Speaker Change: We did just to note the obvious we did increase our dividend by a couple of.
Speaker Change: <unk>, which.
Speaker Change: You know.
Speaker Change: I think now going back to Covid is when we started doing this I would like to keep doing this very steady increase in dividends.
Speaker Change: And 10 years from now be able to come back to you and say look look at our track record over the last 10, 15 20 years, we've been increasing dividends in a steady basis. So.
Speaker Change: So we're happy to report that.
Speaker Change: But all I would say is while there is more uncertainty out there we are as prepared as any one or.
Speaker Change: Or more prepared today than we've ever been to take on whatever is coming our way.
Speaker Change: If it is bad news or if its good news if there's good news and there's got to be a lot more economic activity. We are open for all kinds of business and if it's if it's a recession or something.
Speaker Change: A slowdown we're ready for that with more capital more liquidity than we've ever had and we can take that on.
Speaker Change: With that I will turn it over to Tom and he will get a little more detail behind some of the numbers and then lastly.
Tom: Alright, Thanks Raj.
Tom: So I'll start off talking a little bit more about the loan side and maybe give you a little bit more color on Rogers comments about the $100 million down.
Tom: And kind of the core segment, so basically Cree was flat.
Tom: For the quarter and most of the decline or all of the decline was really kind of in the <unk>.
Tom: Corporate banking space predominantly in the upper commercial space. So.
Tom: So the payoff activity that were.
Tom: Seeing last few quarters, I think not just in us phenomenon and I think it's pretty much across the industry and I'll give you some.
Tom: Broad sense of sort of what we're seeing in the marketplace. So when we look at payoffs.
Tom: I would say probably 25% of it.
Tom: As related to company sales, so it's not not really too much we can do about that about another 25% of it.
Tom: As situations, where we are kind of selectively I would say opting out of <unk>.
Tom: Credit opportunities in most of our opt out is either because we're looking at renewal opportunities, where the pricing has gotten more aggressive and we want to compete.
Tom: Or in many cases, the deposit and ancillary business opportunity. There is not really developed in a way that we thought that it would over a period of time. So those are kind of self selected sort of opportunities I'd say another 25% of it is predominantly deals.
Tom: Deals that we are competing on renewals that we're competing on.
Tom: But situations where debt funds.
Tom: Becoming more dominated in the corporate lending space and middle market lending space in particular, and taking all parts of the debt stack and not just taking like a subordinate piece in some cases those are those deals are just beyond.
Tom: The parameters that we want to play and I'd say the other 25% is just kind of dogs and cats are different reasons for different things.
Tom: Also.
Tom: The state as Raj mentioned production.
Tom: Particularly in the C&I areas was really good for the first quarter and I think when we look at sort of the swap that were making in deals that are paying off versus deals that are coming in.
Tom: We're generally seeing all deals coming in.
Virtually 100% of those relationships are coming with deposits, which is a key part of what we're trying to focus on in the pricing difference between what we're stepping into versus what we're stepping out of.
Tom: This favorable so even even though at times it looks like it even wash kind of from a long term franchise perspective, it's really not because these are much more relationship oriented deposit oriented.
Tom: Lions, but.
Raj Singh: As Raj said, we are looking at.
Raj Singh: Really good pipelines in all of our core business in the second quarter. So we're optimistic about that.
Raj Singh: Back to the resi piece was down by $116 million franchise and equipment and municipal finance were down by a combined 80.
All kind of in line with expectations and the equipment finance and franchise business.
Raj Singh: Getting to sort of the and immediate the downward movement from this point on will be a much smaller amounts because it will just take time to run off at this point with.
Raj Singh: With respect to tariffs and macro uncertainty we are not really seeing any impact as Raj mentioned in the pipelines.
Raj Singh: Although the pull through rate could be a little bit slower. There is certainly a lot of lenders in the market. We don't see any abatement of risk appetite going on right now and given our core client base and markets. We believe the ultimate impact to us.
Raj Singh: We'll probably be second third or fourth order impacts.
Raj Singh: Those are pretty hard to predict we don't have a tremendous amount of <unk>.
Raj Singh: <unk>, Mexico, Canada exposure logistics exposure in that way if you look at the supplemental data and look at our industry segmentation.
Less oriented towards that type of business and more in finance and insurance and health care and education and nonprofits.
Raj Singh: Things of that nature.
Speaker Change: With respect to Cree not really much has changed since the last report our credit exposure totaled 26% of loans, 173% of the total risk based capital as of March 31.
Speaker Change: 2025, again I'd point to the comparison based upon December 31, 222024 call report data the medium level of Cree for total loans for $10 to $100 billion banks.
Speaker Change: It was 34% and the main ratio of create a total risk based capital was $2 18. So while this remains an important line of business for us relatively speaking compared to peers, our exposure is a bit less.
Speaker Change: At March 31, the weighted average LTV of the creep portfolio was 55%.
Speaker Change: Weighted average debt service coverage ratio was 178, 53% of the portfolio was in Florida, and 25% of New York Tri State area.
Speaker Change: The profile of the Cree office portfolio also is largely consistent with prior quarter, and we were down by $52 million.
Speaker Change: Mostly ammo within the portfolio at March 31, we had a total office portfolio of $1 7 billion 50.
Speaker Change: 57% in Florida, which is predominantly suburban 23% in the New York Tri State area.
Speaker Change: $347 million or 20% of the total free portfolio is in medical office. So traditional office is probably about 1 billion to $3 50.
Speaker Change: <unk>.
Speaker Change: The construction portfolio includes an additional $87 million and office related exposure with $84 million of that in New York.
Speaker Change: Weighted average LTV of the stabilized office portfolio was 65% and a.
Speaker Change: Weighted average debt service coverage was 158.
Speaker Change: At March 31.
Speaker Change: I would point out that since the onset.
Speaker Change: Of the pandemic and the total change to the office environment.
Speaker Change: <unk> hybrid work patterns in 2020, we've had total walk as charge offs of $16 $2 million and our portfolio of $7 9 million of which was this quarter.
Speaker Change: Criticized classified office loans totaled $414 million.
Speaker Change: At March 31 down a bit compared to the $425 million at December 31, but generally not much changes pages 11 through 14 of the investor deck provide more details on the <unk> portfolio pruning.
Leslie: The office segment, so with that I'll turn it over to Leslie.
Leslie: Thanks, Tom.
Speaker Change: To reiterate net income for the quarter was $58 5 million or <unk> 78 per share provide a little bit of color for you around the NIM and net interest income net interest income was down $6 $1 million or 3% linked quarter and that related to lower average interest, earning assets and slight margin compression.
Speaker Change: The NIM declined three basis points to 281 from $2 84 last quarter, largely consistent with our expectations and I'll remind you. That's the same trend as we saw in the prior year, where the NIM was down a few basis points in Q1, and then expand it throughout the rest of the year.
Speaker Change: The static balance sheet remains modestly asset sensitive and there wasn't a lot of change in the composition of the average balance sheet this quarter.
Speaker Change: As we mentioned last quarter, some cash flow hedges expired this quarter that had a three basis point impact on the NIM. So without that the NIM would have been flat.
Speaker Change: As we've said margin expansion ultimately will be the product of change in mix on both sides of the balance sheet, which we continue to expect over the remainder of this year.
Speaker Change: As Tom discussed earlier, the core commercial loan portfolio segments declined this quarter and while period end Ni DDA grew by $453 million average DDA declined modestly by $144 million and all of that is consistent with what we expected to see for the quarter.
Speaker Change: The average cost of interest bearing deposits decreased from $3 75 to $3 54, while the average cost of total deposits declined 14 basis points to $2 58 from <unk> 72 on.
Speaker Change: On a spot basis. The API of total deposits was down to $2 52 at March 31 from $2 63 at December 31.
Speaker Change: For the current down rate cycle, and I'm measuring that from September <unk> through the end of March the realized down cycle data on non maturity interest bearing deposits was 92 were pretty proud of that and the ability we've had to lower deposit costs. We've worked hard of hearing.
Speaker Change: We did indeed.
Speaker Change: As expected given the rate cuts in Q4, the average yield on loans declined from $5 60 to $5 48, and the average yield on securities from $5 31 to 507 that really is just largely driven by the repricing of floating rate instruments.
Speaker Change: The average rate paid on <unk> advances was down from 382% to $3 69, primarily due to the paydown of higher rate short term advances, which is a weird thing to say, but the short term advances are the higher rate lines.
Speaker Change: On last quarter's call, we did mention that impact of the expiring cash flow hedges and that played out exactly as we thought as I mentioned, we've run a lot of different rate and balance sheet composition scenarios, because frankly, we don't know whats going to happen to rates or the yield curve. The greatest exposure from a rate perspective continues to be a severe downward shocking right.
Speaker Change: And the most favorable scenario, obviously would be a positively sloping curve.
Speaker Change: But again margin expansion is still most dependent on our continued ability to remix on both sides of the balance sheet.
Speaker Change: <unk> this quarter improved by 17% as compared to 12 31, 24, so that short duration of the bond portfolio continues to pay off in terms of whittling away at that ALC I balance with respect to credit the provision and the reserve the provision this quarter was $15 million the ACL to Lee.
Speaker Change: Loans ratio remained unchanged at 92 basis points slide 16 of the deck presents a waterfall of changes in the ACL for the quarter as you can see from that chart. We did build reserves. This quarter, but then took some charge offs prior to taking those charge offs. The reserve built to a little over 1% and then we took the.
Speaker Change: The charge offs and that helps supposed to work.
Speaker Change: The ACL. This quarter was also impacted by the true up of some specific reserves largely related to updated appraisals and valuations on loans that have been in workout for some time.
Speaker Change: The commercial ACL ratio that C&I Cree franchise and equipment Finance was 134 at March 31, and the reserve on Cree office with 199 that was down a little bit from last quarter due to the charge off we took in also some upgrades.
Speaker Change: Okay.
Speaker Change: We did run the April Moody's scenarios through our ACL models. It is incrementally worse than the March scenario.
Speaker Change: And what.
Speaker Change: What we learned by doing that with that we have sufficient qualitative reserves included in our reserve to more than cover the incremental increase that would've resulted from running that.
Speaker Change: Our new forecast, we are seeing some normalization of credit net charge offs totaled $19 $4 million this quarter or <unk> 33 basis points annualized if you look at that for the trailing 12 months. The net charge off ratio was 24 basis points.
Speaker Change: Substantially all of the charge offs, we took this quarter related to loans that have been in workout for a while so nothing cropping up unexpectedly there.
Speaker Change: Total Christmas criticized and classified assets were essentially flat. The NPA ratio was <unk> 67 basis points, excluding the guaranteed portion of SBA loans and Npls were up slightly.
Raj Singh: And with that I am going to turn it back over to Raj for any closing comments.
Raj Singh: Thank you Leslie I forgot to mention I, usually talk about credit in my remarks does a good job. So criticized classified so essentially flat and ACL is essentially flat so not much news.
Raj Singh: But.
Raj Singh: But we'll open this up for Q&A.
Raj Singh: Jackie.
Raj Singh: Yes.
Raj Singh: Thank you and as a reminder to ask a question. Please.
Raj Singh: Press Star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile our Q&A roster.
Raj Singh: Okay.
Speaker Change: Our first question is going to come from the line of Jared Shaw with Barclays. Your line is open. Please go ahead.
Jared Shaw: Hey, good morning.
Raj Singh: Good morning.
Raj Singh: Maybe starting just on some of the components of margin when you look at asset yields our loan yields.
Raj Singh: How much are you seeing spread compression impacting <unk>.
Raj Singh: Impacting new loans right now is it.
Raj Singh: It seems like you're you're calling out some some competition there.
Raj Singh: Is that increasing how should how should we think about the competitive environment for new loans.
Raj Singh: So it's a very good question, but it has a long answer.
Raj Singh: So much of that is happening.
Raj Singh: I'll go back.
Raj Singh: Not just loans that he would talk about securities starting they're the easiest one to answer.
Raj Singh: Credit spreads have widened out in the securities.
Raj Singh: <unk> learned over the last several weeks, especially over the last four or five weeks it wiped out more on the lending side, which always got some news a little bit later than the securities World.
We saw at least in CRE tightening of spreads in the first quarter.
Raj Singh: One of the reasons, we actually did less business than we thought in the CRE space was tighter spreads it seems that.
Raj Singh: Lot more banks are kind of get back into the CRE business, maybe because it's a new year or maybe because it's a different world today, but we're seeing more CRE competition than even <unk>.
Raj Singh: Or two ago.
Raj Singh: Having said that when I look at the pipeline for CRE from here forward.
Raj Singh: Again, the spreads look a little bit better than they've looked in the last three months. So it is really influx and maybe thats got to do with.
All of that noise in the market for the last month, or so but spreads us again moving back higher by 2025 basis points. When I look forward in CRE and C&I I would say that while we saw a compression in spreads all through last year, especially from summer into December there.
Raj Singh: Largely.
Raj Singh: Steady.
Raj Singh: There wasn't that much change in the first quarter or in the pipeline. So CRE is the one that has gone down the the whipsawing a little bit, but C&I is more steady and securities of course.
Raj Singh: Widened out.
Raj Singh: Okay great.
Raj Singh: That's helpful. Thanks.
Raj Singh: I guess, maybe as a follow up or second question shifting over to credit.
Raj Singh: Any color around the growth in non performers.
Raj Singh: Is there any any industry that stands out.
Raj Singh: More than the other or is it.
Raj Singh: Just more broad base.
Jared Shaw: No Jared I mean as you can see it's mostly in the C&I book, but it's cats and dogs ins and outs I think its up total maybe $9 million, which is like really equates to one loan although I wouldn't say, it's one law.
Jared Shaw: Different things moving in and out nothing we're seeing no trend back to trends or concerns about particular industry verticals.
Speaker Change: Okay, Great and then if I could just sneak a last one and then when we look at the growth in end of period DDA is.
What percentage of of balances or are subject to ECR.
Speaker Change: In terms of that growth.
Speaker Change: I mean, if you mean truly ECR pretty much all commercial deposit accounts are subject to ECR I don't think Jarrod is asking for choice.
Speaker Change: Talking about rebate and commission costs.
Speaker Change: I think most of it not to any great extent.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you and one moment as we move on to the next question.
Speaker Change: Our next question comes from the line of Woody lay with <unk>. Your line is open. Please go ahead.
Speaker Change: Hey, good morning, guys.
Speaker Change: Good morning.
Speaker Change: A couple of follow ups on credit to start.
Speaker Change: First I just wanted to start with.
Speaker Change: Some downgrades from special mentioned substandard accruing just based on on balances any color on what drove the increase to substandard.
Speaker Change: I mean youre right. There was some migration that's not unexpected I think the quarter was characterized by a combination of upgrades and downgrades and I don't think theres anything specific to call out Woody.
Speaker Change: <unk>.
Speaker Change: It's just loans going in loans going out normal migration.
In particular to call out I don't think.
Speaker Change: Got it and then.
Speaker Change: Based on your opening comments it sounded like you factored in April Moody's that would imply.
Speaker Change: Reserve pick up by.
Speaker Change: It sounds like you have some flexibility on the scenario weighting so how should we think about.
Speaker Change: Yes, Richard levels year, if things remain the same.
Speaker Change: Yeah, one thing I Should've mentioned in my comments my prepared comments and I Didnt Miss we did add to our qualitative reserves this quarter.
Speaker Change: And we added more related to just general to Roger's point, the cone of uncertainty getting wider.
Speaker Change: Actually we already had qualitative and then we added more and then we added some more of this quarter because of all the uncertainty and then we tested with the April Moody's.
Speaker Change: Qualitative reserves are more than sufficient to cover any increased reserve that would've resulted from that April forecast now I don't know what the June forecast is going to look like <unk>.
Speaker Change: If things deteriorate, obviously there'll be more provisioning is.
Speaker Change: And then at least related specifically to that one.
Speaker Change: But we did compare the April result to what we already had in the qualitative reserve related to economic uncertainty and we are covered more than covered.
Speaker Change: Might add in the core portfolio a lot of times when you see movement in and out.
Speaker Change: Particularly in Florida, which you're tending to see is.
Speaker Change: We have office buildings that you lose attendance and then you have office buildings that you gained a tenant when you lose attendance gain attendant you usually are signing abatement periods of time, where properties are going to abate and been periods of time and we have other properties that are coming out of abatement periods of time, when we can start to count.
Speaker Change: The lease income into the NOI. So you have this kind of shifting around every quarter of certain loans as abatements either rolling rollout.
Speaker Change: So there were just a lot of puts and takes.
Speaker Change: And our guidance with respect to the overall reserve level Hasnt changed.
Speaker Change: Sure.
Speaker Change: Alright, Thats really helpful. And then maybe just last for me is shifting over to the loan pipeline and production in the quarter any way to quantify the production in the core CRE and C&I segments in the first quarter and how that compared to previous quarters.
Speaker Change: And then just a follow up there.
Speaker Change: Second quarter outlook is a little murky just given the macro but how should we think about the growth opportunity in the back half of the year.
Speaker Change: We don't disclose production numbers in <unk>.
Speaker Change: Tend to go down that path, but I will say that production slightly exceeded our budget for the first quarter. So it's coming in slightly ahead of expectations and the pipelines are pretty robust.
Speaker Change: Alright, thanks for taking my questions.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question is going to come from the line of Jimmy <unk> with Wells Fargo. Your line is open. Please go ahead.
Jimmy <unk>: Hi, good morning.
Speaker Change: Good morning.
Speaker Change: Hey.
Speaker Change: Wanted to start just on the setup, particularly into <unk>. So if you look at first quarter results year over year, they're pretty similar margin down three basis points. Both years, you got the DTA component, where the balances build while average is still down.
Speaker Change: Can we see a similar level of margin expansion too.
<unk> this year as you get some of the Remixing of the funding side.
Speaker Change: I guess, just maybe talk more broadly about how you see margin and NII <unk>.
Speaker Change: Factory into second quarter.
Speaker Change: Im not going to provide that guidance quarter by quarter, because unlike you I don't really care, which quarter. It happens in but we do expect the margin to expand over the course of the rest of the year and again, we expect that irrespective of the fed cuts. There are four built into our forecast by the way and an inverted yield curve. So honestly.
Speaker Change: Can't get worse, I don't think but from that perspective, but we do expect margin expansion and that will be driven on growth or transformation of mix on both sides of the balance sheet. So putting on core commercial loans that are higher yielding and more core deposits, replacing high cost funding and Thats what will drive that.
Speaker Change: That margin expansion, but I hesitate to say exactly how many basis points I would expect in each quarter because the timing of some of that can be a little bit difficult to predict with precision.
Speaker Change: Ni DDA growth that happened this quarter because it happened later in the quarter.
Speaker Change: Obviously did not help margin right now into the second quarter, we expect second quarter is our best quarter for Ni DDA growth.
Speaker Change: So clearly the benefit will be felt in the second quarter.
Speaker Change: I'll stay away from giving any specific guidance or Leslie will kill me here.
Speaker Change: Yes.
Speaker Change: But.
Speaker Change: The trend.
But you are seeing in the balance sheet are similar to last year first quarter second quarter strong very strong DDA growth total deposit growth set third fourth quarter less so and loans of course first quarter light, but second third fourth quarter as our main.
Speaker Change: That's been most of the business got started those nine months.
Speaker Change: Okay, maybe maybe asking a different way Leslie do you have the spot rate on deposits exiting the quarter.
You can get.
Speaker Change: Two $2 52 I think.
Speaker Change: Yes, $2 52, and that's also in the deck.
Speaker Change: Okay.
Speaker Change: Thanks for that.
Speaker Change: I guess next maybe either for Roger for time, but there is no more news.
Speaker Change: The Florida condo market market softening.
Speaker Change: Can you just give us some.
Speaker Change: Some color around your exposure to the Florida condo market and then what you are seeing just in terms of boots on the ground.
Speaker Change: We rarely have we don't have any that's not a market. We play it. So we're probably not even the best people to talk to you about what's going on I mean, we read the same articles you do but we don't have any exposure.
Speaker Change: Okay and then just last from me I guess, just given some of this uncertainty does this push out your thoughts around buyback any kind of color you can provide on just what you're looking for internally before you might get more comfortable and accelerating the capital return beyond just the dividend.
Speaker Change: Yes, I would say that.
Speaker Change: Given the level of uncertainty.
Speaker Change: Comments that I made last quarter also that probably apply even more so today.
Speaker Change: Having a little bit of excess capital when there is so much uncertainty Rob it's probably not a bad thing and even if you were to deploy this capital in a buyback it's.
Speaker Change: It's not like this that much of excess capital that we would make that big a difference in EPS.
Speaker Change: So as of right now we will just to set it out but we will continue to look at it every three months.
Speaker Change: And revisit this but right now with the level of uncertainty there is.
Speaker Change: It's probably best to just just hold onto a little bit of excess capital.
Speaker Change: Great. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question is going to come from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.
Hey, good morning, everyone.
Stephen Scouten: So it sounds like you guys remain pretty confident around the NIM trajectory through the rest of the year, which is great and it seems like your assumptions are pretty conservative. There is there any ability to kind of narrow the range on potential NII growth as a result of that.
Speaker Change: Or maybe said a different way what could lead you to the kind of low end of that mid to high single digit range and what could get you to the top end. If there is not the ability to narrow that.
Speaker Change: I will say there are none.
Speaker Change: One of things that go into.
Speaker Change: The NIM projection right. There is what's going to happen to the right side of the balance sheet, what's going to happen on the left side of the balance sheet. What are the spreads going to be on the left side of the balance sheet and what is the.
Speaker Change: The slope of the curve right. So that a lot of math that goes into predicting that on the right side of the balance sheet I feel very confident on our pipelines because they are not really impacted by the.
Speaker Change: What's happening with tariffs and general macroeconomic situation. The left side of the balance sheet is going to be sensitive, especially if we have a display and doesn't land wealth.
Speaker Change: Take a.
Speaker Change: Term from CNBC.
Speaker Change: So there is there is that but then there is credit spreads also which like I. Just explained a couple of questions ago, there seem to be moving around quite a bit and lastly, the curve the slope of the curve, which Leslie mentioned.
Speaker Change: A minute ago that is also pretty meaningful and theyre actually see good news.
Speaker Change: We have been modeling much flatter.
Speaker Change: And we're seeing and I'm keeping my fingers crossed upward sloping curve is good for us and every other bank.
Speaker Change: So a lot of moving parts to all of this.
Speaker Change: Well it all away and say, okay. So how do I feel about the.
Speaker Change: The guidance that we've given you.
Speaker Change: I'd say, what I said at the top of the call, which is we're not changing our guidance.
Speaker Change: Yes, no that makes sense, yeah, we're all hoping that curve steepens a little bit for sure.
Speaker Change: Okay and then on the on this remix away from the Resi book.
Speaker Change: Happening over time is there anything that you guys would consider doing to maybe expedite that remix in any way any sort of loan sales or larger scale actions.
Speaker Change: We've analyzed it and we do so two to three times a year, we get this urge to go do this exercise and then we come back and say no I think we'll just let it happen organically earn back periods very long and it's just not a compelling trade.
Speaker Change: Just given the duration of the assets.
Speaker Change: Exactly yes.
And then just last thing for me, obviously, the balance sheet is kind of.
Speaker Change: Year end at least was pretty similar to where it was year end 2020.
Speaker Change: Deposit growth has been it's been great or we do you think we're finally getting to like kind of an inflection point, where we can actually see some more balance sheet growth or.
Speaker Change: How confident do you feel like we can start to see some overall balance sheet growth from here.
Speaker Change: I think we've been on this especially since.
Speaker Change: 2023, or beginning of 'twenty three to now we've really been on this.
Speaker Change: Optimization.
Speaker Change: Journey to make the balance sheet less but it became very thrifty looking because of COVID-19 during COVID-19, but a lot of resi.
Speaker Change: And it's still not.
Speaker Change: Anywhere close to ideal so I think for the rest of this year. This strategy will silicon Neil but going into next year, we will come back and revisit it I don't want to preempt that talk about next year's guidance, but at least what we've signed up for this year is an improvement of the balance sheet as the primary driver of profitability rather than just.
Speaker Change: Let's just grow everything and let's get to $40 billion 50 billion.
Speaker Change: Extremely helpful. Thanks, guys for all the color.
Speaker Change: Okay.
Speaker Change: Thank you one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.
David Bishop: Yes, good morning.
David Bishop: Good day.
Speaker Change: Question for probably Tom or locally as you sort of.
David Bishop: Scrubbed the office CRE book and maybe.
David Bishop: New York City commercial real estate in General do you think you've sort of boom a path, maybe the any sort of big downgrades or big negative surprises on that book.
David Bishop: Pretty comfortable in terms of whats in there down in terms of you know.
David Bishop: But what's the head potentially from a worst case scenario.
David Bishop: David One moment, we're having technical issues. Please stay on the line.
Speaker Change: Again, ladies and gentlemen, please standby, we're having technical issues, we will resume momentarily.
Speaker Change: Again, ladies and gentlemen, please standby your conference will resume momentarily.
Speaker Change: Hello.
Speaker Change: Thank you.
Speaker Change: Hello.
Speaker Change: And pardon me Mr. Bishop could you go ahead and please repeat your.
Speaker Change: Question sorry.
Speaker Change: Sorry, Dave Webex.
Speaker Change: Okay.
Speaker Change: Tom I was asking in general as you sort of describe the New York City office and commercial real estate in general.
Speaker Change: You know look at ratings downgrades, you think you're probably past the worst of the awful lot in terms of potential for downgrades of a risk weighting perspective.
Speaker Change: Yes, I do I think it's possible there could still be some but there's also going to be some upgrades coming so I think we are through the worst of it.
Speaker Change: What's sitting in nonperforming Cree right now.
Theres three office loans sitting in there in a couple of multifamily.
Speaker Change: And I don't expect generally the profile of the portfolio to change individual loans may move around a little but I think we're through the worst of it and I don't think there are any surprises left in that book loans that are going to pop that pop uptick deteriorate that we didn't know anything about or that surprises and generally we have a fairly small number of loans in New York City in Manhattan.
Speaker Change: Particular rehab maybe 10.
Speaker Change: Not at this time.
Speaker Change: This exposure, so we honestly supercritical <unk> market.
Speaker Change: And we do.
Speaker Change: But based upon what we're seeing in that market would you expect it will have some refinances out of that portfolio this year as well.
Speaker Change: Got it.
Speaker Change: At that time.
Speaker Change: Terms of the C&I attrition this quarter any due to runoff in syndicated national credits, but just curious how that portfolio has performed as of late.
Speaker Change: Yes, it depends upon what you describe as a syndicated national credit I mean, we have this dialogue all the time, you've got a technical definition.
And you've got.
Speaker Change: There are syndicated national credits that we agent there syndicated national credits that are really.
Speaker Change: Club deals we had.
Speaker Change: Some run off and what I would term broadly syndicated credits, where we have a relatively small percentage.
Speaker Change: It's a very large bank groups of the of what we saw in run off some of that was in that book.
Speaker Change: And like I said, a lot of it was.
Speaker Change: They're each time a deal comes up for re dial we look at it.
Speaker Change: We make a judgment as does it still makes sense and.
Speaker Change: More often than not is it doesn't right now.
But there are still some that do but we will see more of that.
Speaker Change: Thanks, and then lastly, one final question the broker deposit runoff this quarter just curious about the broker.
Speaker Change: Closure stood in how much rent opex.
Speaker Change: Okay.
Speaker Change: Hang on.
Speaker Change: Okay.
There's a slide in the deck.
Speaker Change: If I can find it.
Speaker Change: Can give you some numbers.
Speaker Change: Yes.
Speaker Change: Hi.
Speaker Change: I don't have the numbers in front of me.
Speaker Change: That's okay I can follow up offline.
Speaker Change: I've got somebody looking at mopani non to non brokered growth was $719 million and now if you go and just look at actual total deposit growth and you can subtract the two youll see them all at the beginning and ending brokered numbers in a few minutes I'll put them out there before we leave the call.
Speaker Change: Great. Thanks.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: Our next question is going to come from the line of Christopher <unk> with Janney. Your line is open. Please go ahead.
Christopher: Hey, Thanks. Good morning, Thank you for hosting us Leslie and barrage and wanted to ask you about expenses and do you think of expenses going forward more as a percentage of average assets or is the efficiency ratio kind of become more prominent.
Speaker Change: Comcast is in balance.
Speaker Change: I don't think we think in terms of efficiency ratio or for that matter.
Speaker Change: In terms of just.
Speaker Change: No.
Speaker Change: Points of assets.
Speaker Change: You hit that one more than efficiency.
Speaker Change: I look at it more in terms of operating leverage.
Speaker Change: In other words, if we can invest to.
Speaker Change: Another $1 million due to generate then $2 million of revenue in the short term, we'll we'll go spend the next million or 10 or $50 million if the opportunity comes around.
Speaker Change: So it's more in terms of.
Speaker Change: We're happy to invest in it.
Speaker Change: It come to you and Teva some expenses will be even higher if we are pretty certain that we can generate revenue behind it that is even bigger than that.
Speaker Change: So we think of it in those terms rather than just trying to.
Speaker Change: Think of a sort of a golden number of an efficiency ratio that we have to hit them. Then we can compensate victory.
Speaker Change: Yeah, and I would say, we haven't changed our guidance about expenses for the year sales mid single digits in total.
Speaker Change: Okay.
Speaker Change: Okay, Great and then Leslie since Raj mentioned, the new GL system, what does that do for you I know those are necessary evils I'm just curious if that's going to help you going forward.
Leslie: I mean, it should make us more streamlined more efficient and a lot of ways nothing youre going to see in the financial statements, but but it should make us more streamlined and a lot of ways frankly, we had a system that was being sunset. So we had to replace it.
Speaker Change: Gotcha.
Speaker Change: Great. Thank you for taking our questions. This morning.
Speaker Change: Yeah, let me throw out the answered as a broker deposit question real quick down from $5 2 billion to $4 7 billion, a total decline of $528 million during the quarter.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: Our next question comes from the line of Jon <unk> with RBC capital markets. Your line is open. Please go ahead.
Jon: Thanks, Good morning.
Speaker Change: Good morning, Dan.
Okay.
Jon: Just I guess, a couple of housekeeping things here, but.
Jon: Should we expect the same.
Speaker Change: The decline in residential.
Speaker Change: That we saw last year is that is that the glide path we should be on.
Speaker Change: Roughly yes, unless there's something.
Speaker Change: It's remarkable that happens the long end of the curve.
Speaker Change: I would expect similar levels of runoff this year.
Speaker Change: Okay. Okay.
Speaker Change: On your <unk>.
Speaker Change: Overall guidance.
Speaker Change: Margin still.
Speaker Change: Path to 3% by the end of the year is that is that the big picture objectives for you yes.
Raj Singh: It is and I would say just as Raj guided to the cone of uncertainty is big is wider.
Speaker Change: But yes.
Speaker Change: Okay and.
Speaker Change: The reserve there's been some questions on the reserves as well, but it feels like it feels like you're in a decent spot. So is it is the path to 1%.
Speaker Change: Also still an objective for the end of the laboratory report I wouldn't call that as objective. Unlike loan growth of reserve isn't something you can set a goal for that you achieve effective governed by an accounting standards, but that's our expectation yes.
Speaker Change: Yes, yes, and I know some of that mix shift as well.
Speaker Change: Okay, and then Raj I think maybe some of the best of your prepared comments was the client event with the top 75 clients.
Speaker Change: Any other color from that meeting just kind of collectively.
Speaker Change: What you were hearing there.
Speaker Change: Yeah.
What I would say.
The best thing for me was taking away kind of.
Speaker Change: Temperature.
Speaker Change: How concerned are people, how how much has their hair on fire and I went in with an expectation.
Speaker Change: That was.
Speaker Change: There will be at least some of it will be really not happy and in a bad place, but thats not what ive found so I stand corrected.
Speaker Change: I was more pessimistic going into it and the clients were.
Speaker Change: Now of course, you heard very interesting stories about sort of the unintended consequences of everything thats going on in those all of us make for great anecdote.
Speaker Change: But we as a main street bank lets call is that we live in a world that half. Our time is spent kind of like people on this call looking at screens.
Speaker Change: C N B C and Bloomberg and what have you at half. Our time is spent in on main street talking to our clients.
Speaker Change: Visiting Devin walking warehouses and buildings and what have you. So we kind of split our time between the finance high Finance World.
Speaker Change: Yes.
Speaker Change: What I would call the real world.
Speaker Change: And I would say yes.
Speaker Change: It depends on one week wear.
Speaker Change: We're talking about there is a pretty big gap between what you hear on CNBC.
Speaker Change: And what you hear would you walked out in mainstream.
Speaker Change: Eventually those things will converge.
Speaker Change: But exactly where the converge I think it will depend a lot on what our federal government does over the course of next 60, 90 120 days and.
Speaker Change: In terms of landing disclaim.
Speaker Change: Uh huh.
Speaker Change: But I was just I came back away feeling good after that client demand.
Speaker Change: I went in more pessimistic than I came out of it but a little more optimistic.
Speaker Change: Yes.
Speaker Change: I guess that's helpful to hear the pipeline comments as well.
Speaker Change: I would also add a lot of a lot of the conversation that we had.
Speaker Change: Was well run businesses that have strong capital positions look at times of uncertainty as an opportunity.
Speaker Change: And we saw a fairly large amount of.
Speaker Change: Clients, who felt like now there are times to invest in certain aspects of their business.
Speaker Change: While they're knowledgeable and thoughtful about the risk that are out there. They're also saying this is a time of opportunity.
Speaker Change: Okay, Alright, thank you very much.
Speaker Change: Thank you and I would now like to hand, the conference back over to Raj Singh for any further remarks.
Speaker Change: I think that last question was a pretty good place to end. This you know this is a time of uncertainty, but it's also a time of opportunity.
Speaker Change: With John prepared for whatever is coming our way in terms of opportunities and.
Speaker Change: Otherwise.
Speaker Change: But feeling pretty good about the quarter, we just had that the momentum that we have the pipeline we have.
Speaker Change: And.
Speaker Change: Thank you again for joining us and we'll talk to you.
Speaker Change: And through our technical difficulty.
Speaker Change: <unk> been a public company for 14 15 years is the first time that has happened with sharp redoing.
Speaker Change: Diagnosis of what just happened here. So it doesn't happen again, so we apologize for that but otherwise. Thank you so much and call Leslie or me. If you have any follow ups otherwise we will see you again in 90 days.
Hi, everyone.
Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.
Speaker Change: Yeah.
Speaker Change: [music].