Q2 2025 BankUnited Inc Earnings Call
Good day and thank you for standing by, welcome to the bank. United second 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 to press star 1, 1 on your telephone. You will then hear an automated message. Advising that your hand is raised to withdraw your question. Please press star 1 1 again, please be advised. That today's conference is being recorded, I would now like to hand the conference over to your speaker today. Jackie Bravo, corporate secretary you may begin.
Lotta: Thank you. Lotta, good morning, and thank you everyone, for joining us today for Bank United inks. Second quarter, 2025 results conference call.
Speaker Change: On the call this morning are Raj Singh, chairman president and CEO Leslie lunc Chief Financial Officer and Tom Cornish. Chief Operating Officer
Speaker Change: Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meeting of the private Securities, litigation Reform, Act of 1995.
Speaker Change: The reflect the company's current views with respect to among other things, future events and financial performance.
Any forward-looking statements made during this, call are based on the historical performance of the company and its subsidiaries or on the company's current plans estimates and expectations.
Speaker Change: The inclusion of this forward-looking information should not be regarded as a representation by the company, at the future plans, estimates, or expectations. Contemplated by the company will be achieved.
Speaker Change: 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 the liquidity including as impacted by external circumstances outside the company's Direct Control. Such as Adverse Events impacting, the financial services industry.
Speaker Change: 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,
Speaker Change: a number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements,
Speaker Change: These factors should not be construed as exhaustive.
Speaker Change: Information on these factors can be found in the company's annual report on form 10. K for the year ended December 31st 2024 and any subsequent quarterly report on form 10q or current report on Form 8K, which are available at the sec's website.
Raj Singh: With that. I'd like to turn the call over to Mr. Raj, Singh.
Raj Singh: Thank you, Jackie. Good morning, everyone and welcome. I know it's a busy learning day. Thank you for joining us. Uh, this is a pretty outstanding quarter for us, very happy with the results. Net income came in at about 69 million or 91 cents a share. I think the last I checked consensus was around 79, so I'm very happy to uh, uh, for a nice beat. There are Roa, improved to 78 basis points from 68, last quarter and 61 basis points. Uh, second quarter of last year, are we improved 9.4%? So we're getting closer and closer to the 10% Mark. Uh, uh, last quarter was 8.2% and last year was 8% at this time.
Raj Singh: Uh, the highlight of the, the quarter, obviously has, uh, been the deposit on the deposit front? Uh, we had a very impressive deposit growth quarter, and Ida is up more than a billion dollars average, Nida is up 581 million, uh, and total non-brokered, uh, declining, uh, deposit cost. Which I'll talk about in a second. Uh, we guided, uh, at the beginning of the year, to a double digit Nida growth. Uh, so far we already at 20%, so,
Raj Singh: now, I do, I will acknowledge this seasonality in these numbers, but even if you look at our Nida growth from last year, uh, this time, to now we're up 13%, uh, which is sort of a pretty sustainable rate, nice, uh, uh, growth rate,
Raj Singh: Um, and Ida is now 32% of total deposits. So that was another Milestone that we had been talking about, you know, getting past the 30% and, uh, were there. Uh, we crossed the 30%, we're at 32.
Raj Singh: It's still not the highest level that we've ever been at which was during the, the the, you know, the peak was back. I think in 22, we'd hit 34%.
Raj Singh: So, uh, we will set our Target now, uh, to that high Watermark and and uh, uh, will hopefully cross that in in a near near term. Probably next year.
Uh, funding composition and remix uh, you know, have are working. Uh, deposits costs are lower spot, cost of deposits declined by 15 basis points, uh, to 237 from, uh, from, you know, 90 days ago, when it was 2:52.
Raj Singh: And um, a year ago, of course, it was much higher, you know, 72 basis points higher. So, wholesale funding was paid down again. 749 million paid on wholesale, uh, loan to deposit ratio. Now, stands at 83.6%, uh, down from 85.5% last quarter.
Raj Singh: Very nice expansion of margin, uh margin expanded from 281 last quarter to 293 so 12 basis points Improvement in in uh, in margin. Uh and that interest uh income increased by uh 5.6% to score over quarter. So we're very happy, which is, you know, all of this is driving uh, the bottom line. Uh, so
Raj Singh: Uh with respect to loans uh commercial loans grew by 68 million and uh and if you break that up in between cni and cra cra cra by 267 million and cni uh uh declined by 199 million. Uh Tom will talk more about that. You know the production has been actually fairly good uh the payoffs unfortunately have also been fairly good which is why uh we had a slight decline.
Raj Singh: Uh, resi portfolio is uh, running off uh as predicted so no surprises here.
Tom: Uh let's get to credit uh total criticizing classified loans, decline by 156 million. I think this is 1 of the largest reductions we've seen in quite some time so we're very happy about that.
Tom: Uh not unexpectedly though. We did see some migration into uh npls uh npls through by 117 million.
Tom: Uh, I think a, a majority of this, I believe. 86 million out that 117. Is office related.
Tom: So not all office loans will, uh, uh, eventually get upgraded and, and, and pay off, although some did pay off and some did get upgraded, but some did move into npls as well. And, uh, you know, there was no surprises here. Uh, this was expected.
Tom: With respect to Capital set 1. Now is at 12.27, and on a performer basis including aoci. It is at 11.3%, dce to ta, uh, ended at 8.1%. And again, tangible book, value per share, grew to 38.23 cents. I think that's a 9% increase over the last 12 months, so we're happy about that.
Tom: Uh, the board met yesterday to go over the earnings and talk about Capital as we always do and the authorized a hundred million dollar stock buyback program, uh, which will go into effect after earnings. Uh, we will be, uh, you know,
Tom: You, you've talked you, you you often ask us about BuyBacks and and capital accretion and and how we think about this, I I, you know, our our priorities haven't changed, uh, it is still the number 1 priority, is to run a safe and uh, sound Bank. Uh, yeah. The second is to grow uh, our our, our our balance sheet, in a safe and sound Manner. And then, of course, increase regularly dividends every once a year, and then this Capital left over uh to actually return it through buyback. So we're
Tom: Executing on that strategy.
Tom: uh, the environment today feels very different from 90 days ago, when we last spoke to you, if you remember 90 days ago in April, we were just still, uh, shell shocked from all the
Tom: Uh the Tariff situations that we were dealing with. It feels like a different world today but I will say that it is a fairly well, there's less uncertainty. Uh, today relatively speaking, I think there is still uh uh uh uncertainty still out there that we have to be careful of.
Tom: And and keep that in mind as we run the bank. So our priorities haven't changed manage the bank in a prudent way. Uh, grow responsibility, focus on profitability, manage our credit and our Pipelines.
Tom: And continue to deliver on the, uh, the the recomposition of the balance sheet. Uh, if you do that earnings will take care of themselves and we'll be, uh, uh, will be a stronger company over time.
Tom: Uh lastly I would say um uh you may have seen this in the news. I think we put this out already on recent expansion. Uh, we have expanded into New Jersey, uh, with the team in an office and also very recently into Charlotte, where we have a team and we will soon have an office as well.
Tom: Uh, let me turn it over to Tom and then Tom will pass it over to Leslie and then I'll come back for a few remarks and then we'll open for Q&A Tom, right? Thanks Raj. So, uh, I'll cover deposits, uh, a little bit first, Roger went into a fair amount of detail on that. Obviously, we're, uh, clearly happy with the deposit numbers for the quarter for the over a billion dollars and Ida growth and 1.2 billion dollars or so. In total deposits, uh, is Raj mentioned, there is some seasonality in that business but I would also say, as we look forward, um, into the third quarter, you know, deposit pipelines remain, you know, very strong in our deposit. Growth is predominantly driven by new relationships across all business lines. So we're feeling very, very comfortable and confident that we'll continue to add new core relationships across all of our businesses uh for the remainder of the year.
Tom: A very strong growth in Cree for the quarter of 267 million just over 4%, link quarter. Uh, as raj mentioned, cni production is actually met our, uh, our plan for the year, but we continue to see some higher level of payoff activity. I, I would say about half of that.
Tom: is really our own decision as it relates to opting out of
Um, credit opportunities, where we do not see, the kind of margin that will help us achieve our goals type of spread and, uh, another half is, you know, unscheduled payoffs refinancing businesses selling and things like that. Uh, I I would believe that we will see less of that.
Tom: In the remainder of the year and we expect production to be uh, continue to be strong throughout the second half of the year. In both the, the decree and the cni, uh, area resi was down 160 million while franchise equipment and Municipal Finance were down and combined, 10 million, and mortgage Warehouse Group by 46 million. All of this largely in line with our expectations. So for the aggregate that kind of solves for about a flat loan quarter, overall, a little bit more on Cree.
Tom: Our free exposure total 27% of total loans, and 185% of the bank's, total risc-based Capital, it June 30th 2025.
Tom: Comparatively based on March 31st, 2025 call report data, the median level of Cree. The total loans for banks in the 10 billion to 100 billion dollar range.
Tom: Was 35% and the median ratio of 3 total risc-based Capital was 27. So while our creep portfolio has
Tom: Grown, um, nicely across all asset classes. I think, overall, we still remain at the lower end of Cree exposure, uh, to Capital compared to our peer groups, uh, at June 30th, the weighted average LTV of the free portfolio was 54%. And the weighted average debt service coverage ratio was 1.76. So, very strong numbers for the entire portfolio 51% of the portfolio is in Florida, 24% in the New York uh tri-state area.
Tom: So, uh, to everybody's favorite topic for the office to be a little bit about free office.
Tom: Uh, not too much change, really from the last couple of quarters and continue trending downward of exposure gradually at June 30th. We had a total free office portfolio of 1.6 billion about 300 million of that is in um,
Medical office. So, about a billion 3 In traditional office down. 70 million from the quarter, end with 59 million 59% in Florida, which is predominantly Suburban. Inn 22% in the New York tri-state area.
Tom: I I would say that this quarter, we've seen uh, more return to the capital markets in the office area. We uh, we saw activity with office exposure that we had go to the cmbs market and we continue to expect that will happen with some upcoming majorities and the remaining of the year.
Tom: Criticizing classified career office loans total, 383 million at, June 30th down from 414 million in March, 31st 2025, and that decline of 31 million. It's some upgrades and downgrades and payoffs in that, you know, kind of led to the 72 million change. Um, so I said 337 million or 20% of the total free portfolio is medical office.
Tom: The construction portfolio includes an additional 88 million in office related exposure with 84 million of that in New York.
The weighted average LTV of the stabilized office, portfolio was 63%. And the weighted average debt service coverage ratio was 1.52, which June 30th, not too much different from the previous quarter. Um Pages 11 through 14 of the investor deck, provide additional details on the credit portfolio including the office segment. So with that, I'll turn it over to Leslie.
Leslie: Thanks Tom.
Leslie: So, to reiterate net income, for the quarter was 68.8 million or 91 cents per share. So, a great quarter, from an earnings perspective. Net interest income was up 13 million or 6%. Quarter over quarter, and the Nim increased 12 basis points, to 293 from 281 last quarter. As we've been saying all along margin expansion has been and will continue to ultimately be primarily driven by the change in mix on both sides of the balance sheet and continued execution on that remains our priority.
Deposits de declined by 11 basis points, to 247 from 2:58 on a trailing 12-month basis, that's down. 62 basis points,
the cost of interest bearing, deposits declined, 6 basis points to 348 from 354, and on a trailing 12-month basis steps down, 78 basis points,
Leslie: On a spot basis. The apy of deposits continued to move down and was down 15 basis points sitting at 2307, at June 30th down from 2:52, at March 31st.
Leslie: The average yield on loaned increased to 55.55 for the second quarter from 5:48 last quarter. I think it's notable that in a largely stable rate environment. We saw the yield on our loan portfolio. Grow in the cost of our deposits Decline and that's
Leslie: just evidence of the fruit of the work we're doing on the balance sheet. And so we're we're really happy to see that the increased yield on loans related to a couple of things 1 in pricing discipline. New originations coming on at higher rates or higher spreads than pay downs and exits. As Tom mentioned, we've voluntarily exited a number of thinly priced credits.
Leslie: And while those decisions have impacted growth, we're seeing the contribution to the margin, which is our priority. And we also see in that rise, the continued composition shift from resi to commercial.
Leslie: The average rate paid on fhlb advances increased this quarter from 369 to 379 and that was mainly due to the expiration of some cash flow hedges.
our guide, all of our guidance assumes,
Leslie: 2 Fed rate Cuts in 2025 and kind of Smooths those over the remainder of the year. But again, as I said, that's not really the driver of our prognostications about
Leslie: Moving to Credit in the provision, in the reserve, the provision for credit losses. This quarter was 15.7 Million. The ACL to Total loans ratio crept up to 93 basis points. And I refer you to slide 16 of our investor deck that presents some details about changes in the ACL for the quarter.
Leslie: A couple things going on. We had an increase in specific reserves related directly to the sum of the npls that we added this quarter and that was partially offset by the positive impact of overall positive risk rating migration.
Leslie: We had some deterioration in the economic forecast.
Leslie: Going the other way. We had some payoffs and pay Downs of some criticized and classified assets. And generally, we saw improving quarter over quarter Financial metrics for borrowers in the passport portfolio, which had a positive impact on the
Leslie: expected loss modeling.
Net charge offs totaled, 12.7 million, this quarter, the net charge up rate was 27 basis points for the 6 months, annualized and 23 basis points for the trailing 12 months, both right in line with kind of what we expect those to run.
Leslie: A few further observations on the reserve, the commercial ACL ratio. So cni Creek franchise and Equipment. Finance was 1 136 at June 30th up slightly from 1 134 at March 31st and the reserve on Cree office was 192.
Leslie: The reserve is actually a little more than double our historical. Net charge off rate over the weighted average life of the loan portfolio.
Leslie: And I would also point out that a significant portion of our npls actually carry zero reserves because of the adequacy of collateral. You can see that in our ltvs, some of those loans have been charged down partially charged down to take them down to liquidation value, but there are a number of those those loans that are more than adequately collateralized.
Leslie: And the majority of our npls were also paying as agreed about 75% of them. In fact, at June 30th 2025
Leslie: Um, as Ros Raj mentioned in pel's war up, 117 million quarter over quarter. 86 million of that increase was in office, exposure and office, overall is behaving wholly in line with our expectations. So no, big surprises of 142 million in total Cree. Non across 124 million is office exposed.
Leslie: Moving to non-interest income and expense, not a whole lot unexpected or unusual or material going on there, but I will say total non-interest income is up 5 and a half million dollars. Some of that is, um, sporadic stuff. You see with respect to bully but most of that is actually some of our fee, businesses gaining traction, whether that's, you know, syndication fees, commercial card Revenue, uh, Capital markets derivative income. So we're starting to see, um,
Leslie: All of those businesses, gaining some traction, and happy to see that.
Leslie: We guided to double digit Nida growth. We're already at 20%. Seasonality may bring that down some by the end of the year, but we still expect solid double digit growth year-over-year.
Leslie: We guided to mid to high single digit. Non-brokered guidance to hold.
Leslie: We previously guided for low single digit growth in total loans and mid to high single digit growth in core cni and Cree kind of give us a slow start. Uh with respect to cni growth we're probably expecting that cni grow cni and Creeks growth core to be more mid single digits as opposed to high single digits.
Leslie: Um, well, a firm that previous guidance for Mid single digit increase in non-interest expense for the full year and still expecting to end the year at that 3% level with respect to margin and we're already well on our way there.
Leslie: We previously guided to Mid single digit growth in net, interest income. I think we may do a little better than that, considering where we are now.
Leslie: And um 1 final Point as announced in our 8K that we filed this morning, we will be redeeming our outstanding, senior Bond, um that matures in November we expect the Redemption to happen later in August.
Raj Singh: With that. I will turn it over to Raj for closing comments. Thank you Lesley. Uh, we just put out another, uh, press release this morning, very important piece of news, uh, on CFO succession planning.
Raj Singh: Uh, we have been working on this. For some time, we ran a national search Leslie had come to me a couple of years ago and said there's a timeline in which you would like to retire. Uh, totally understandable, we ran a process. Uh, very methodically over the last several reporters, and uh, we have, uh, uh, hired, a, uh, We've hired Jim macki a veteran and in the industry, who will be joining us in a couple of weeks, I think mid August, right last week and, um, uh, less people remain CFO, uh, through next quarter and November 1st. We will make the official change last day. We'll stay with the company, through the end of the year. We'll retire on January 1st, but bye bye. Bye know, I'll I you, you'll be on, I'll be on the next call. Yeah, you'll be on the next call and and uh, uh, but unless these contributed tremendously to this company, we were a third, the size of what it is today or what we are today. And if that's the least contribution, we cannot be
Raj Singh: Explained in a in a in a short call but she's been my partner and I thank her but like I said she's not going away anywhere. We'll be seeing you guys on the road in the coming weeks and months. Yep.
Speaker Change: But, um, coming back to the quarter, we're very happy with where things turned out. Um, you know, I I at a very high level, I look at this and say, okay, so we're stronger and more profitable, right? Think about it. We have more Capital more reserves, lower loaner deposit ratio, which is the definition of stronger in my mind and ready for any kind of, uh, uh, mishap in the economy if it were to ever happen. And we're delivering, all of that while improving our profitability margin, uh, earnings our way, are we? Everything is up. So, uh, fairly decent, uh, quarter. And, uh, hopefully in 90 days, we'll come back to you with even better news. Uh, but let's open it up for Q&A, uh, operator.
Speaker Change: Certainly, as a reminder to ask a question. Please press star, 1 1 1 on your telephone and wait for your name, to be announced to withdraw your question. Please press star 1 1 1 again.
Speaker Change: 1 moment while we compile our Q&A roster.
Speaker Change: Our first question will be coming from Jared. Shaw of Barkley, your line is open.
Speaker Change: Good morning, Jared.
Good morning. Good morning everyone. Congratulations. Lesley on the planned retirement. Um,
Speaker Change: So, maybe just starting with the uh with credit and and the office detail. Um,
Speaker Change: When when these loans are moving to non-performer, are you going out and reappraising those at that time and uh, charging down to to appraise value? Maybe just just walk us through a little bit of the, um, you know, the steps that happen once, uh, once it moves into to non-performers. And if the um loans to value and debt service coverage ratio, you you reference if that's updated for evaluation in the the rate environment.
Speaker Change: and our LTV is, even if we don't have a current appraisal, we model an updated valuation based on, you know,
Very uh, granular MSA level market dynamics. So we do our best to update all of those. And we do charge, yes. When they moved in on acral
Speaker Change: Do typically T typically, we would charge them down to that, liquidation value.
Speaker Change: So so when we look at the the move this quarter and the provision was, can you give us a breakdown of of what was charged off versus what was given us specific uh, a specific provision?
Or maybe I guess it could be both. Yeah, you can see that on, uh, the slide on page 16. I mean, obviously, we're not going to talk about that on an individual credit level.
Speaker Change: But um, you can see this first thing increase in specific reserves. Net of positive risk rating migration, so 33, million was the increase in specific reserves and then about 4 million dollars, offset due to net positive risk rating. Migration. So that's what's happening there. You can see no total net charge offs of of 12.7 million, um, and 5.2 of that was office. Charge offs Jared.
Okay. That's uh, that's a great color. Thanks, uh, maybe shifting to, to the deposit side and the the strength and ddas. Uh, it's great to see to see that, um,
Speaker Change: 1, I guess. Do you have the the ECR tied to uh, to ddas and then 2, you know, you talk about the seasonality and potentially seeing that lower at your end. How how should we think about the those balances moving? Uh, over the next 2 quarters?
The term in the past.
Speaker Change: Will be disclosed in the 10 quid like we always do and I don't expect it to differ materially from from last quarter's number. I don't have it right in front of me, but there will be about the same and it'll be it'll be disclosed in the queue.
Um, you know, seasonality, you know, over the next couple of quarters that'll become, you know, a headwind. It was a Tailwind this quarter. Um, my best guess is, it'll be relatively stable through the third quarter and then, you know, decline in the fourth quarter. But it's it's difficult to predict whether you know, is that going to happen in September or October or November but that's generally the the trend we would expect. And if you look back over the last couple of years, it, you know our expectations it would be roughly the same.
Speaker Change: It really is, you know, there are certain things that you really should look at a 12-month basis given the seasonality. So I I wouldn't you know say oh look it's a billion dollar quarter great. I I I look at it okay? It's double digit growth year-over-year, that's a better way to look at it and a billion dollars a year over here. High Point to High Point, we still had a billion dollars to grow.
Speaker Change: Okay.
Thanks. Um, if I could just sneak a last 1 in with the with the buyback, good to see, uh, to see that. Is there a a c 1 that you're sort of solving for how should we think about the, the pace of BuyBacks, or your your appetite for for deploying that um, given your your stock price and and capital here.
Speaker Change: I I I I don't think I uh we have a Target to put out there, but I will say yes, we do feel. We have excess Capital right now compared to Industry peers and uh
You you, you know, we're doing a 100 million. Typically, we've gotten authorizations of 150. The board felt 100 was a good place to start, but I'm sure this is not the end, um, uh, as we keep recruiting Capital, uh, and don't have, uh, much use for it. Uh, we'll probably come back and look at it again.
Speaker Change: And Jared part of this equation is, you know, as raj said earlier, it's our preference to deploy Capital into growth. So part of the continual evaluation that will be undergoing is um to what extent, We Believe will be able to do that because that's always our our better option.
Speaker Change: Profitable growth profitable growth. Yes.
Speaker Change: Hey, thanks a lot.
Speaker Change: And 1 moment for our next question.
Our next question will be coming from Woody Lei of KBW. Your line is open.
Woody Lei: Hey, good morning, guys.
Speaker Change: Hey, Woody.
Speaker Change: I think it's it's what Tom said earlier, you know, across our businesses.
Speaker Change: We are seeing the continued onboarding of new client relationships and, and that's really, um, that's really the driver. I, I know that sounds
Pretty basic but it is. It's yeah, but a fine point off of Just 1 Thing caused uh
Speaker Change: you know, first of all,
The numbers that were at when we look at our own, internal sort of expectation, we're not that far ahead. We kind of expected this involved. This, uh, we will do, we, we, we view that we have to hit, um, our targets for the year before June, uh, which we have and that was the case last year as well. Uh, because we will face those Tailwinds in the second half of the year. So we're happy. We're, we're a little behind on cni. Uh, uh, but on CRA growth DDA growth, total deposit growth. We're right in line with expectations. Yeah.
um,
Speaker Change: Uh there's no 1 thing that I could point to. It's just the seasonality of the business. Yeah, I think the investment in producers has helped us. Yeah. Go throughout the year investment in New Markets. Yeah.
Speaker Change: Has helped us but it's a lot of blocking and tackling every day and we we put a tremendous amount of focus on deposit growth.
Speaker Change: All right, really helpful and and then 1 follow up on the office, migration. It it doesn't sound like this was a surprise on your end, but it was just curious on sort of what the triggering event was for the migration of the based on maturity schedules. Um, just looking for any color there.
I mean, really, what what triggers migration is, if you know, our risk rating system, is largely driven by cash flow, where cash flow lenders. So, while we often have more than adequate collateral to support the debt, even it updated valuations, you know, it's really occupancy and you know,
Speaker Change: Landlords that are struggling to to fill buildings. Those ones that are migrating to nanak cruel. It's almost always an occupancy issue.
Yep, exactly.
Speaker Change: Okay, appreciate that. And then just last for me maybe like maybe they lost a tenant and haven't been able to replace the tenant yet. That could be a driver, you know, things like that.
Speaker Change: Got it it. And then last for me um you know, you announced a couple new markets, you're expanding, Corporate Offices into I was just wondering if you could sort of Peel back the curtain and sort of walk us through the process on on how you evaluate new markets and sort of what it takes to expand into them as it sort of Team first and then build around them. Um,
Speaker Change: On your thoughts there.
Speaker Change: Sometimes it's opportunities, opportunistic. Some other times, it's it's more methodical. Uh,
Speaker Change: So, you know, New Jersey was a little optimistic. I optimistic. I don't think it was, uh, very high on our on our, uh, priority list. But we started doing some business. We had some good people and suddenly it became, uh, a priority, uh,
Speaker Change: Charlotte, I would say.
Was also partially opportunistic, but it has been on our radar for quite some time. It's a very good Market. Uh, it is, uh, We've looked at Charlotte for a number of reasons, not just for business reasons, but also for talent reasons.
Speaker Change: And uh, you know, we've been waiting for the right opportunity for about a couple of years in Charlotte. And when the right team, uh, uh, uh, came up, uh, we were able to make this happen, but we have done a fair amount of work uh, on trying to match markets that are growing at a healthy and our conducive to the kind of business. We do not every Market is, but the kind of business we do, uh, uh, and we've looked up and down these in C board and uh, uh, you know, we we don't look nationally, we don't go out looking at California and, you know, the Pacific Northwest, we just look up and down the Eastern Seaboard, Charlotte Atlanta. These these were markets that were always high on our list and then it's a matter of waiting for the right team to come around. Uh, before you can make your move. Yeah, I I, I would agree and I would add a little bit.
Speaker Change: to that we we study each market and look pretty heavily
At overall growth in the market, you know, is it a business Friendly Market? What state like are, they attracting new to Market you know, relocations from other parts of the country, what's a business formation?
Speaker Change: rate look like and then we try to match it against our own sort of risk appetite from a credit policy respective and say you know, when we look at the industries that are growing
Speaker Change: What competition is like in those markets, right. How competitive are they are those? Uh, uh, that's another fact.
I have a very helpful. Thanks for taking my questions and, uh, congrats a lot.
Speaker Change: Thank you.
Speaker Change: You.
Speaker Change: And our next question will be coming from Ben gerlinger of City. Your line is open bin.
Ben Gerlinger: Good morning, congratulations.
Uh, and we talked to credit a little bit here. I just kind of curious when you think about just, it's like, this was well known and I'm just kind of think most of the credit seems to be improving, but all sequels npas are ticked off. Is there, is there an area or time frame where you kind of expect it to?
Ben Gerlinger: Roll over. Maybe I'm just reading what you guys said a little bit incorrectly but it just no, no, I think it's a
Ben Gerlinger: Been. And
Ben Gerlinger: and I think this is,
Ben Gerlinger: Progression of of these credits that are experiencing some stress. You know, 1 of 2, things is going to well 1 of 3 things is going to happen. They're going to get taken out and raphide out by somebody who's willing to take them on and pay off or they're going to improve.
And turn around or they're going to go through the workout process. And and I think this is just, you know, some of them are going to end up there. This is just the natural progression. You know, we're seeing most of this activity in the office space and and, you know, I think surely at some point there will be an inflection, but I still think there's a little time left before the whole
Office Dynamic, broadly finishes playing out. I I don't think that's going to happen this quarter. I I don't know if it's a year if its 2 years. But I I think you know, that Dynamic is still going to play out over a period of time. I don't none of these loans came out of nowhere and we said, oh my gosh we never would have thought that 1 would experience any stress. So I think we have our hands round. The portion of the portfolio that could
Ben Gerlinger: Experience some stress and it is still going to take a while to play out 1 way or the other. Yeah, part of. It is also, when you look at the office book, you know, we're in largely growing markets. Yeah. So there is positive absorption. Absolutely. In most of the markets that you're in, but it, you know, until you get
Ben Gerlinger: a very mature back to work environment.
Ben Gerlinger: You're still in Fairly lengthy abatement periods of time, you know, for new tenants coming in so that you know it is a bit of an elevator ride on some of these where you've got some going up, some going down.
Ben Gerlinger: When you start to get more positive absorption to the point, where it does get more competitive and abatement periods, shorten the cycle, and then then the cycle will shorten and you'll start to see that otherwise you've got, you know, a variety of ups and downs that you're balancing.
Ben Gerlinger: And I think Tom may have mentioned. I don't know if he did or not, but we are seeing some very positive developments for office properties in the cnbs market. So I think that's an encouraging sign. Not only that some of the loans that we'd like to see, go may go there, but just generally, it's an indicator of of positive, um, activity in the office Market that the cnbs market is picking up.
Ben Gerlinger: Gotcha. That's helpful. Um, and then I can switch gears a little bit. Next 1 is a little more philosophical for, I mean, either you as well or Tom, whoever wants to answer what Tom you. You alluded to not writing some credits because you didn't want to rent your balance sheet. It would be negative to the spread. And then as we I think you said spot rates and deposits were notably lower, so it seems like margin should continue to go higher. So it's more philosophical philosophical nature.
Ben Gerlinger: What, what do you think the franchise could run with on a kind of a core margin? Not any not this year? Or next year, just kind of the franchise value going forward. What are you guys targeting as like a normalized? Yeah, I would say mid-30s I I think anything.
Ben Gerlinger: Much higher than that is probably moving out on the risk Spectrum. You know, we're not going to become a subprime lender or a credit card company.
Ben Gerlinger: Uh and then we don't do deals. So we don't have purchase accounting. Accretion feeding the margin. So you know, I would say mid 3s. Yep. Yep.
Speaker Change: Does does mix get through there faster or is it kind of mixes a part of that mid 3s as well? I I think mixes the biggest part of it. It's not the only part. I think as Tom said earlier you know we've strategically exited some Center margin credits so I think pricing discipline is also an element.
Speaker Change: Both of those things. I mean, it's it's rare that you see a bank without numbers where loan yields are going up and deposit rates are going down. We did that this quarter.
Speaker Change: Profitable and Leslie's answer. Yes, if that's a song, we've been singing in the company for quite some time. Uh, you know, we're
Internally by line of business tracking and holding people lob managers responsible for margins loan, margins and saying. These need to move up even if it's 2 3 4 basis points, they need to move up and they are moving up and that is contributing to the 12 basis point increase in in uh, in in March, and the top of the house, you know, deposits help of course, but loans are also helping and that, that that, that that discipline on on selection is is, is critical to doing that. What what, what matters at the end of the day is knee growth. Yeah. Right. That's that's sort of what we solve for because you get that right. You get you know your profitability, right?
Speaker Change: So, uh, bit by bit, we're getting there, all this progress we've made as I did. I think a couple of quarters ago, I'd just like to remind everyone is we have not done anything unnatural as a balance sheet. We haven't done some big restructuring and taking a big loss and then showing a higher margin. This is all bit by bit by bit hard work. 1 loan 1 deposit at a time 1 basis point at a time we don't, uh, unfortunately, we don't operate in a vacuum, there is competition. Yeah, yeah. And a lot of these loans that we're talking about opting out of people are opting into yeah, you know, at much lower margins but you know, as we tell the team we've got,
Speaker Change: We got to fight for every basis point to get to where we want to get to.
Speaker Change: Got you. That's really helpful. Thank you.
Speaker Change: 1 moment for our next question.
Our next question will be coming from timra Brazil of Wells, Fargo. Your line is open.
Timra Brazil: Hi, good morning and Leslie. Congratulations on depending retirement. Well, well deserved, um,
Timra Brazil: Maybe starting on just the the Improvement in DDA uh end of the period versus average. Looks like a nice little pale wind heading into 3Q. The unchanged guidance as a pertains to to margin. Rosie should we expect to see margin over 3% and ratty over 10% in 3 q? And then with seasonality, maybe that papers off a little bit in 4, can you just talk us through the timing on that?
Speaker Change: Timur. As I've said many times, I don't care and I know you do, so I'll try to answer your question. Um, currently what we're looking at is margin expansion, both in 3Q and 4 q, that's what our current forecast has embedded in it, and that's our expectation. But, um,
Speaker Change: You know what, what quarter things happen in is far less important to me than it is to you. But currently our expectation would be continued expansion throughout the year and predicated mostly on, you know, continued mixed shift on both sides of the balance sheet and pricing discipline. And you know, roll over a fixed rate loans. All of those things are going to contribute but that's currently what what we're forecasting.
Speaker Change: I'm not going to try to say how much in 3 key versus how much in 4 q. But we are expecting an increasing trend.
Speaker Change: Okay. Fair enough. Um and then that's a the labor of the point on credit but I don't think we touched on the increase, in cni, npls and corresponding increase in that allowance could you just maybe talk to what drove? Um, that increase.
Speaker Change: A couple things, uh, you know, a portion of that.
Speaker Change: um, I think about 20
Speaker Change: million is some indirect office exposure. That's embedded in the cni portfolio and the majority of the rest of it is, is 1 loan, you know, as we've said in the past cni
Uh, credit performance will be lumpy and idiosyncratic and and you know that nothing systemic that we're seeing in the cni book or no correlation in Industries or geographies or anything like that to comment on. So it it's really just those 2 things on the topic of you know, quarter relation, you know, we always looking for that. So the only correlation we know in our portfolio is office. Yeah. Right that's a systemic thing across the industry but in our cni portfolio, yesterday I actually
Speaker Change: We looked at top 5 uh loans that that are problematic and each of the 5 are. In fact only. Yeah. So it's very idiosyncratic. Yeah. We're not seeing anything. We're not seeing any impact from tariffs or any other changes, uh, it's just, you know, sometimes things do just go the wrong way. And, uh,
Speaker Change: If you ever see a pattern emerging, we will share that with you.
Speaker Change: Talk to what you would need to to see uh in order to potentially consider a combination with a larger Institution.
Speaker Change: assistant, uh, since late last year,
Speaker Change: uh, so uh, there was obviously a little bit of a
Speaker Change: Uh, concern 3 months ago when the markets dipped as much as they did, uh, but in terms of m&a, I still think there will be a lot of m&a over the course of next, uh, 124 months. Uh, as a buyer, we are probably not very going to be very active because that's sort of a dnf for our company is to try and do things organically. We never say, no, but it's unlikely. Uh, and as to the other side of this, you know, we don't
Speaker Change: You know, sit here and raise our hands all the time saying, you know, we want to be uh, part of m&a story. But we have a fiduciary responsibility if the right uh uh dealers on the table, we will talk to anyone.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question, will be coming from David Bishop of Health Group, your line is open David.
David Bishop: Yeah, good morning and uh congratulations again Leslie. Thanks morning, d.
David Bishop: Hey Leslie, just in terms of the uh the loan yield here, it sounds like the repricing Outlook.
David Bishop: Sounds positive, uh, from some of the back book of the fixed rate loans repricing, just curious, Maybe.
David Bishop: what that uh weighted average yield repricing in the near term looks like and and what you're seeing in terms of new origination rates,
David Bishop: you know, I I don't have in front of me, the weighted average yield on on what's repricing. But I, you know, it is true that what's rolling off is generally being replaced by something at higher rates because that's still primarily loans that were put on in a much, lower rate environment. Um,
David Bishop: you know, I I would say it comes back more to what we talked about is being more selective about the credits, we are originating and choosing to engage in as opposed to, um,
you know, just rate market, dynamics per se
David Bishop: I,
Speaker Change: Yeah, we don't. Yeah, I don't have all those rates right in front of me but
Speaker Change: I I would broadly tell you on the cni book. When we look at things that were opting out of from a pricing perspective, it's usually things that are floating rate deals that are under
Speaker Change: Sulfur plus 150 and when we look at new production, it's generally at rates in the so for plus 200 is 225 type range. So dollar for dollar. You know we're seeing 75 to 80 basis points of pickup, on that swap, sometimes even a little low, even a little wider.
Got it. And then Tom, in terms of the
Speaker Change: Uh, you know what's left in terms of maybe the the cni credits. That are relatively thinly, priced any sense, how much is left from a, a dollar basis, a percentage basis. I don't know if you have any Optics there from from that, do you?
Speaker Change: Yeah, it it's we're near the end of that Journey. Now, you know what, you don't know is what, what deal is going to be redial that was at 185 that. Now, you know, somebody thinks should be at 1:10 so that that you don't know. But when we go, um, I, I went through this yesterday, actually, and we go line item by line item.
Speaker Change: Of all of the deals today that are, you know, kind of sub 2000. There's only uh there's a small handful that I would say are like that sort of below 150, which is kind of where Leslie has a baseball bat in her office. So if I sit right across, I actually do, somebody gave her away as a gift. I call that the baseball bat territory.
Speaker Change: She will be passing on that baseball bat to Jim. I don't know that I will cuz my name's engraved on it. I well then then we'll have to get Jim a new baseball bat.
End of that. Yeah.
Speaker Change: Got it. And then, um, uh, back to credit quality, just curious Leslie. I think, I think I heard the Preamble that, you know, um,
Speaker Change: Loss rate overall for the bank I think it's running you know mid 20s or so year to date over the past 12 months or so it doesn't sound like even with the office inflows. You're Expecting too much of a traumatic impact. Moving forward. Is that correct?
Yeah, I I would agree I think that's in the range of what what we would expect. I mean, in a given quarter, you can have
Speaker Change: Higher or lower charge offs but you know, on a running basis I think that's in the range of what we would expect. Yes,
Speaker Change: Great. Thank you.
Speaker Change: And our next question will be coming from John Armstrong of RBC Capital markets. Your line is open.
John Armstrong: Great, thanks. Good morning.
Speaker Change: Morning John, congrats to Leslie. Um, thank you.
Speaker Change: Yep. Um couple of clean up questions. Um the other income drivers you you talked about boly but you also mentioned a few other businesses. Is this is this a sustainable level? Do you think we should pull back a little bit on that line item because of the bully? I I think, over the long run, this is not a sustainable level, it's going to get better, uh, you know, quarter by quarter, you can have a sporadic thing happen. Like we did this quarter with the bully and you know, those things are sporadic. But I think looking out with a trajectory that's more than 1 quarter, I think we should see that line item gradually grow. Yeah. If that doesn't grow, then that we're doing something wrong. So, our expectation is that will grow not just over the year, but over multiple years, is fair amount of effort and and investment going into these businesses that I expect them to grow. I mean, is it possible that next quarter, there will be a pullback because of the bully thing and that but sure but again I don't care. Um but if you look at the trajectory
Speaker Change: Going forward, uh, over the medium to longer term. I think you should see an upward sloping line.
Speaker Change: Okay, I was going to try to get you to say, I don't care on a different question, but I got it, so that's good.
Speaker Change: You can ask me another little reporter question. Okay, yeah, yeah. Uh, was the was the bully material? I know this is ticky tacky, but I was just curious. I, I I would not use the word material.
Speaker Change: Okay. Okay. Um, on the inspiring deposit pricing. How much more room do you think you have to bring that down?
Speaker Change: I mean, I I think it's without any Fed rate cut, there's no big Catalyst but we'll continue to work around the edges, you know, to there's still opportunities, um, where you can bring this customer down 5 or 10 basis points or that customer down 5 or 10 basis points and and we'll continue to work around, you know.
okay, continue to be focused on it but there's no big Catalyst for a wholesale rate decreases, unless the FED moves
Speaker Change: Well, I would say every every quarter we sit and look at a number of relationships customer by customer and it's not glamorous and fun conversations. But, you know, if you go out and adjust down 4 or 5 basis points here a basis points, there it adds up. Yep.
Speaker Change: Okay.
Um, and then maybe 1 for Tom Mirage. Um, I understand that the, you know, I don't, I don't even want to say lower end of the loan growth guidance, but because a lot of things happened earlier in the year, but it it seems like based on your answer to Dave Bishops last question. It feels like
Speaker Change: The cni payoffs are voluntary. Exits are starting to slow down and Raj it sounds like you're saying
Speaker Change: it's still a little bit uncertain but getting better. Are you guys signaling that even though it's maybe a lower starting point mid year? That growth could accelerate in the second half of the year? Is that the right message? Yeah. Yes, yes, yes.
Speaker Change: Yeah. And the and the reason why we have confidence in that is because we're looking at the production numbers. And so, the production numbers,
You know, actually looked very good for the first 2 quarters of of the Year. We're expecting it to look very good in the third and fourth quarter. And so getting to the tail end of
You know, exits that we want to do ourselves, we we we can balance that in and see the where we see the growth opportunities. Our pipelines. Look very good, right.
Speaker Change: Okay, okay, very helpful. Thank you.
Speaker Change: Thank you.
Raj Singh: And I would now like to turn the conference back to Raj Singh CEO for closing remarks.
Uh, thank you all for joining us. Uh, we're again, very happy about the quarter. Um,
Raj Singh: Uh, but is there any other questions? So you know how to reach us and if not, we will talk to you again in 3 months. Thanks, bye. This concludes today's conference call, thank you for participating. You may now disconnect