Operator: Good day, and welcome to the BankUnited, Inc. Third Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Jackie Bravo, Corporate Secretary. Please go ahead.
Jackie Bravo: Thank you. Good morning, and thank you everyone for joining us today for BankUnited, Inc.'s Q3 2026 results conference call. On the call this morning are Raj Singh, Chairman, President, and CEO, Jim Mackey, Chief Financial Officer, and Tom Cornish, Chief Operating Officer. Before we begin, please note that our remarks today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect current expectations and are subject to various risks and uncertainties that could cause actual results to differ materially. 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.
Jackie Bravo: Additional information regarding these risks can be found in the company's annual report on Form 10-K for the year ended 31 December 2025, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I would like to turn the call over to Mr. Raj Singh.
Raj Singh: Thank you, Jackie. Good morning, everyone. Thanks for joining us. Usually, we always have this issue that we come out with earnings, and there are eight other banks doing their calls at the same time. My team tells me that we somehow got lucky, and we picked a day when not many banks are coming out, so we will have your undivided attention. That is awesome. Let me start by just before we talk about our numbers, just talk about the question that I often get from investors. What do you see in the economy, and how are things out there on Main Street? My answer is going to be similar to last quarter, which is while there are geopolitical risks and energy is a little out of control, there are concerns around inflation. The economy itself is doing quite well. GDP prints are strong. Unemployment is historically low.
Raj Singh: In our particular markets, even more so both those things. So we are benefiting from that but keeping an eye on making sure it continues that way. What has changed from the last time that we spoke is the interest rate environment is quite different. Fed is no longer in a hold or loosening monetary policy stance. It has gone the other way. We have had our first rate hike, but more important than the rate hike also has been what has happened with the rest of the yield curve. So that is a big change from last time, and we are paying extra attention to it and make sure that we have all our bases covered. So that has really been the big change. Overall, our numbers, I will walk through them really quick, and of course, Tom and Jim will then get into some detail.
Raj Singh: Net income came in at $72 million or $1.01 per share. I know you guys love to exclude anything on the securities front. So if you take out some securities losses we had, net income was $74 million, and EPS was $1.03 per share. If you compare that to last quarter, I think we were at $0.96 last quarter, and a year ago we were at $0.94. So making progress. ROA on an adjusted basis was 84 basis points, and ROE is now pretty damn close to 10%, but still not at 10%. It is at 9.8%. So basically, ROA, ROE, margin, EPS, everything improved, and it all happened on the back of basically gaining market share and deepening client relationships. So quickly, the highlight of the quarter was margin. We had given you guidance that by Q4 we will be at 315 NIM.
Raj Singh: We're happy to be actually at 3.16 already in Q3. A bit of a deja vu moment for me. I think this time last year, we had the same dynamic play out. We had promised you a margin for Q4, but we achieved that in Q3 and then expanded from there. It's going to be a very similar story, and we'll talk about guidance a little bit, but margin is looking very good. The reason it's good is because we've been very laser-focused on pricing and profitability and refuse to do business just for volume's sake. That's the trade-off we've made, and it's showing. If you dissect this a little bit deeper, where is the margin growth coming from? Well, it's coming from both sides of the balance sheet. Commercial loan yields are up, but average deposit costs are down.
Raj Singh: I tend to read not every bank that comes out with earnings, but I do selectively pick up earnings releases from other banks. I have yet to see a bank that has, maybe there is some bank, but I haven't seen a bank that has actually reduced deposit costs last quarter quarter over quarter. We're very proud of that. By the way, that happened not because our DDA grew this quarter. Actually, our average NIDDA was flat this quarter. This is really all coming off the back of interest-bearing deposits. We're very proud of that. Printing a number below 2%, I think that makes me very happy. Talking about deposits, our franchise continued to perform well. Deposits, remember, the seasonality in our deposit.
Raj Singh: Q2 is always the strongest quarter, and then things tend to moderate in Q3 and Q4, and Q1 is our weakest quarter. Average NIDDA was essentially flat this quarter. To be honest, I was expecting a little bit of growth. But in September or late August into September, with the mortgage origination business getting impacted pretty severely by rising 10-year rates, our title business took a hit for that. Now, we grew our title business in terms of customers who brought in more clients this quarter and continue to do that every quarter. But the average activity in those accounts was lower and directly attributable to what's happening in the long end of the curve. NIDDA now stands at 32% of deposits. Again, compared to a year ago, it was 30%, so there's growth. We still have 10% growth in NIDDA year over year.
Raj Singh: Talking about averages, remember, we've told you time and time again, don't look at period ends. Always look at averages. That's what drives the P&L, and that's a better representation of how our business is doing. Quickly talking about lending. Again, we had a pretty decent quarter in terms of production, but payoffs have been high again. Loan production year over year, our core loans, which we define as commercial CRE in small business and mortgage warehouse lending as well, grew at about 4%, about $700 million. But the average C&I balances from last quarter did decline by 300. Some of it is attributable to some loans that slipped over into Q4, but generally, it's all coming back to the discipline that we're trying to maintain on two fronts. One is trying to get the full relationship and not just do transactional business, and second is spreads.
Raj Singh: That is directly attributable to that. Having said that, Q4 is always our biggest quarter. If you go back and look at last year or the year before, you will see Q4 tends to be the blowout quarter for us, and we expect the same this year. I will say one more thing about C&I. I have been trying to look at a lot of what our competition is doing. A lot of C&I growth, especially over the last couple of years for the industry, has come from, or at least greatly benefited from NIM expansion. We have actually taken a more selective path, and instead of increasing our NIM exposure, we have been decreasing it. It is a call on risk for no other reason, and we think it is the right thing to do long term.
Raj Singh: We are okay with doing investment-grade capital call business, a little bit of that, but other asset categories for NIM, we have been taking down. Also, we have steered clear of some of the flashier asset classes like data centers and AI. We do not think a bank our size really is geared towards participating in that. And I know some of our peers are actively participating in that growth as well. There is no way we are getting deposits out of that business if we ever do that, put it that way. Quickly, a comment or two on credit. Credit is fairly benign, and the charge-offs were pretty low, just like last quarter. Provision would have actually been zero if we had just gone with the model. But given all the geopolitical and other risks that are out there, we used qualitative overlays and built reserve to about 93 basis points. Capital.
Raj Singh: Because the stock was weak this quarter, we took this opportunity to step up our buyback speed, and we bought back a lot more shares this quarter than previous quarters. I think we bought back 2.1 million shares for about $97 million. So year to date, if I combine dividends and share repurchase, I think we have returned $278 million in the first nine months of capital. And having done that, CET1 still remains robust at 12.1%. And I know your question is going to be, so what happens in Q4. Well, most likely we will finish our whatever is remaining in this authorization, and we will go back to our board. In Q4, we have meetings coming up in November, December, and we will discuss this with them.
Raj Singh: They will probably want to see a detailed business plan for next year and revised forecasts for actually not just the next year, but the next three years, and they will make a decision based on that. But I would be shocked if we do not re-up the buyback. With that, quickly on margin, I have already said this. Expect margin to expand again modestly in Q4 quite like it did last year. And I am sure you will all be tempted to ask us about what will happen past Q4, and we are not ready for that yet. We will give you that guidance in January like we always do. With that, let me turn it over to Tom, and then Tom will turn it over to Jim.
Tom Cornish: Great. Thank you, Raj. As Raj mentioned, average NIDDA remained essentially stable from the prior quarter, despite the normal seasonal activity that we have. Some parts of the businesses, we operate different businesses that have different cycles. Some parts were down, some parts were up across the quarter from an average perspective, but overall up 10% from a year ago. We finished with total NIDDA at 32.2% of total deposits, compared with 30.1% a year ago. We were pleased with that. Average total deposits, excluding broker deposits, increased by approximately $1 billion from a year ago. Commercial operating balances continued to remain strong. Pipeline continues to remain strong. As Raj mentioned, we are having good success in adding new relationships. One thing I always talk about is the progress we are making on service charges on deposits.
Tom Cornish: If we look at Q3 2026 compared to Q3 2025, we were up 19.4%. We are really happy about that. I think it shows good product penetration across the treasury services business, strong operating account business, and strong discipline on the pricing of products and services that we offer through the platform. The quality of the funding base continues to improve as we add more operating accounts and expand relationship banking. Production, as Raj mentioned, we were happy with for the quarter, just slightly over $1.1 billion. We have had a quarterly increase of production for each major line of business for each quarter this year, kind of building up to what is our normal very large Q4, which we anticipate, and we have already seen a good level of closing activity early in the quarter so far for this year.
Tom Cornish: Loan balances for the quarter were impacted by some payoffs, some delayed closings, and just ongoing portfolio positioning. Average core loans increased by $706 million or 4% from a year ago. Areas where we saw some growth in the quarter. Average CRE loans increased by approximately $75 million from the prior quarter and 10% a year ago. Again, as you can see from the detailed additional information in the deck, that is very balanced across all major asset categories within CRE. There is no particular imbalance and the overall CRE portfolio still remains with a 1.8 average debt service coverage ratio and a 54% loan-to-value profile. We feel very good about that. Average mortgage warehouse balances increased approximately $133 million, or 18% from the prior quarter and 35% from a year ago. The growth in CRE and mortgage warehouse partly offset the C&I payoffs and the timing of closings.
Tom Cornish: We continue to remain focused on growing core loans while remaining disciplined around pricing and full relationship economics. Jim and Raj and I were looking at some numbers this morning, kind of tracing spreads from a year ago to today on a quarter-by-quarter basis. Despite substantial competition in the market, I think we are holding spreads very well and staying really disciplined on that. We continue to see healthy flow of opportunities. As Raj said, we are in great markets. The markets continue to do well. Virtually every market we are in, we are seeing good opportunities in Florida. Florida remains strong. The New York market has been very good to us, particularly over the last year in terms of growth, particularly in C&I area. Our newer markets like Atlanta and Charlotte and Dallas are really doing well.
Tom Cornish: We are confident heading into Q4 and looking forward to a very strong quarter. With that, I will turn it over to Jim.
Jim Mackey: Great. Thanks, Tom. As Raj mentioned, we had adjusted net income of $74 million or $1.03 per share. I will not repeat some of the statistics that Raj mentioned, but I do want to dive just a little bit deeper in some of the numbers. The only adjustment we made was related to security sales. We normally have flat to slight gains on this line item, but this quarter we had a $2.3 million loss. What drove that is with the market volatility this quarter, it gave us an opportunity to sell some shorter-dated seasoned securities where spreads had come in and tightened, and we were able to reinvest those in longer-dated securities at more attractive yields. It certainly helps NIM, but more importantly, it complements our slight asset sensitive balance sheet profile. That is why we wanted to take those actions now.
Jim Mackey: While we only adjusted earnings for the security sales, there were a couple other notable items I just want to call out at the beginning of my comments. Both are down in non-interest income. First is leasing. We had the opportunity to sell some, I will call it challenging lease assets at attractive prices. We are continuing to sort of de-emphasize that leasing portfolio. When we have that opportunity, we want to take advantage of it. We recognize the $1.1 million loss on these transactions, but with residual gains and losses on equipment sales, it is a normal part of the business and we have it regularly. This was just a little bit larger than usual, so I wanted to call it out. On BOLI, we had a $1.9 million decline this quarter. These plans are designed so that the asset and liabilities largely offset over time.
Jim Mackey: There are quarterly mismatches in periods where rates are volatile. If you look back over the last couple of years, you will see it bouncing around and usually when there is a big movement up or down in rates. We would expect this to normalize pretty quickly over time and start to see the quarterly BOLI performance level out consistent with where you have seen it over time. On net interest income and margin, as Raj mentioned, both have improved this quarter, reflecting our improved funding mix, lower deposit costs, and higher asset yields. NII up $5 million from last quarter, $11 million from a year ago. NIM up 10 bps from last quarter, 16 bps from a year ago. Related to the 10 bp improvement from last quarter, it is really driven primarily by improved asset yields.
Jim Mackey: Our security yield went up 10 basis points, and that added 4 bps to NIM. This reflects the portfolio actions that I mentioned earlier, as well as various purchases that we made earlier in the year. Core loan yield increased 4 basis points, also adding 4 bps to NIM. That was largely due to the favorable repricing and the improved mix within the loan book. The remaining 2 bps of improvement is due to funding optimization, where we relied on less wholesale funding during the quarter. As Raj mentioned, deposit costs were $1.99 or, sorry, 1.99%, down 6 bps from last quarter. NIM improved year over year by 16 bps, and that was mostly due to improved funding mix. Both sides of the balance sheet saw the impact of lower rates.
Jim Mackey: However, the funding costs just declined more, more than enough to offset the decline in earning asset yields. On the non-interest income and expense, non-interest income was $20 million for the quarter, which is down $9 million from last quarter and $6 million from a year ago. As I talked about at the beginning of my comments, the biggest drivers were the, I will call it the notable items that happened during the quarter. I will acknowledge capital markets revenue was down $1.8 million from last quarter, and it was flat to the same quarter last year. Really, there were two things that drove that decline. One was there were several lending transactions that slipped from Q3 to Q4, so that creates some noise between the quarters.
Jim Mackey: However, the funding costs just declined more, more than enough to offset the decline in earning asset yields. On the non-interest income and expense, non-interest income was $20 million for the quarter, which is down $9 million from last quarter and $6 million from a year ago. As I talked about at the beginning of my comments, the biggest drivers were the, I will call it the notable items that happened during the quarter. I will acknowledge capital markets revenue was down $1.8 million from last quarter, and it was flat to the same quarter last year. Really, there were two things that drove that decline. One was there were several lending transactions that slipped from Q3 to Q4, so that creates some noise between the quarters.
Jim Mackey: While our pipeline of transactions was strong, just the interest rate volatility this quarter frankly just resulted in a lower average revenue per transaction. So that weighed on it a little bit. Not much to say on non-interest expense. It was stable at $175 million. You can see it is up from a year ago. That is just inflationary, higher compensation costs, investments we are making in our business, and elevated deposit costs as our NIDDA continues to grow. On credit, just a couple things to say. Our net charge-offs, as Raj mentioned, remain low this quarter. Just want to give a public service announcement that do not just look at one quarter. Look at this over time. It can bounce around given the nature of our portfolio. Criticized and classified down 14% year over year. Non-performing loans are down 30%. Our NPA ratio improved to 77 basis points from 110 basis points.
Jim Mackey: Provision expense at only $9 million really reflecting the low level of charge-offs, but importantly, we increased the coverage 2 basis points. We did that through the addition of qualitative factors given the low level of charge-offs. So let me finish by turning to our guidance update. Obviously, as we are almost at the end of the year, we focused our guidance just on Q4. Again, we will come back to you in January to talk about 2027. I will note our Q4 guidance assumes one more rate increase in December, 25 basis points. So let me tick down the metrics that we provided. Core loans, we are forecasting at a range of $17.6 to $17.7 billion ending balance. That reflects our seasonally strong Q4. We have got a healthy production pipeline, so lots of good opportunities for the growth.
Jim Mackey: The one thing that's always a wildcard you can't predict is timing of payoffs or what utilization rates may be. So that's why we're giving you a range. NIDDA, $8.65 billion. Again, consistent with the seasonal patterns and also keeping in mind what's going on in the mortgage market related to the title business. NIM, as Raj mentioned, we expect to continue to improve in Q4. We're pegging that at around 3.2%. The impact from the September Fed increase and the fact that we're slightly asset sensitive certainly will help. Net interest income of $265 million. Just to remind everybody, that's as reported, so a non-FTE basis. I know some model looking at it on FTE basis. That just reflects the higher NIM and the increase in earning assets during the quarter. Non-interest income, we do expect to return more back to the normalized levels.
Jim Mackey: We certainly expect to see some improved capital markets revenue in the quarter and a non-repeat from some of the notable items that we discussed. Expenses around $178 million. Just normal quarterly variability. Nothing really to call out there. All that drives the PPNR of $115 million. Lastly, credit provision. It's a little hard to peg, but we put it at $15 million, which is our normal kind of run rate, if you will. A lot of it'll depend on where charge-offs and other things land during the quarter. With that, I'll turn it back to Raj.
Raj Singh: All right. I think I was just looking through my notes here. One comment that I wanted to make, which I forgot is, it's a detailed point, but it's an important one. In our C&I business, you just see a C&I number. There are actually a few businesses that add up to that. There is a large corporate business, which is larger tickets business. There is a middle market or what we call commercial banking, and there is stuff, very small ticket business, which we do out of our branches. The middle one, the commercial banking is what we've been really focused on the last two years and has been growing at double digits. This will be its third year of growing double digits. That is a business that we tend to capture the full relationship. We tend to have 100% loan-to-deposit ratios.
Raj Singh: The deposits come in and generally the deposits are the lowest cost of all of our business lines. So we are very focused on growing that. It doesn't show up in the numbers and still not going to be big enough to move the needle. I think the whole book is about a couple of billion dollars split between New York and Florida. That's what is growing and where the margin pressure is the biggest, and we don't get enough deposits is the large corporate business. That's the one that actually is a little bit behind in terms of its overall balances. We still want to grow that business too, so don't get me wrong. But I'm really excited about commercial banking, which is that small ticket of $5, $10 million ticket size business doing as well as it has.
Raj Singh: In the next 2, 3 years to come, I expect that business to really become a big enough business to stand on its own as a separate line of business. We have had a lot of success there. It has taken a long time. We have changed leadership over here. We have added to the management bench over there. We are expanding that into our new markets as well, which we have not done to date. So, in Texas and eventually Atlanta as well. We are very excited about that. You will hear me talk about this more and more over the course of next year or 2. Just one point that I wanted to make that I forgot. Let us open it up for Q&A.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Our first question comes from David Chiaverini with Jefferies. Please go ahead.
David Chiaverini: Hi. Thanks for taking the questions. I guess starting out on the net interest margin. You guided for it to expand further in Q4. You mentioned about how you are slightly asset sensitive and you are assuming one hike. I guess, can you split out how much of the expansion is from the asset sensitivity versus mix shift on the balance sheet?
Raj Singh: In Q4, I think it is largely the asset sensitivity. The NIDDA obviously is seasonal, so it declines. We continue to have non-core loans running off, so on the margins, that is helping. As Raj and Tom mentioned, we are holding the line on loans. So it is really just our loan yields. So it is really just the deposit cost resetting slower than the benefit of the loans repricing up.
David Chiaverini: That's helpful. As we think about the forward curve with a few potential hikes coming in, what sort of magnitude of rate sensitivity should we think about as it relates to the NIM and rate hikes?
Raj Singh: I think there are two things here. One is just the lag effect from rate hikes, which I think is really a sharper point to talk about the Q4. Eventually, lag effects only help you for a period of time after the lags catch up with you, deposits do price back up. Our stated strategy always has been to not be asset sensitive or liability sensitive, but try and manage as close to zero as possible. That's on a static basis. On a dynamic basis, on new business coming on, naturally we become asset sensitive. Even now, ALCO's going to meet next week as well. We will try and again rejigger to make sure that we're not because we really don't know where rates are headed. It feels like they're headed up, but they could be headed down within 3 months.
Raj Singh: We're not trying to make a call on rates. We're trying to be as the static balance sheet to be as neutral as physically possible and just slight asset sensitivity from the new business that's coming on.
Jim Mackey: Yeah. As Raj mentioned, our deposit betas, I think, during the last rate hiking cycle was like 80, and we would expect that to be the same, but it's not linear, right? In the earlier cuts, it's much lower.
Raj Singh: Yeah.
Jim Mackey: So.
David Chiaverini: Very helpful. Thank you.
Operator: The next question comes from Jared Shaw with Barclays. Please go ahead.
Jared Shaw: Hey, good morning.
Raj Singh: Morning.
Jim Mackey: Morning.
Jared Shaw: Looking at the growth expected in core loans, can you just help a little bit with breaking that out between C&I and CRE? Thanks, Raj, for the color on the middle market commercial. How should we think about that Q4 growth and how sustainable, I guess, those balances are on the balance sheet?
Tom Cornish: Yeah. I would say if you look at what we've done, maybe over the last 12 months, we've had more CRE growth as a percentage of that number. I would expect it to be a little bit less. I think that we will probably have about two-thirds of the growth across the segments that make up C&I, including corporate banking, commercial banking, retail, small business, and about a third of that would likely be in the CRE business. We are seeing a bit more. It probably won't impact us as much in Q4, but we are starting to see the consistent movement up in perspective that rates will move up being a little bit more impactful in CRE deals that are coming together now.
Tom Cornish: Not what's in the pipeline, not what's closing in Q4, maybe not what's closing in Q1, but you are starting to see a lot of retrading of deals going on in the market. I think when we look at the next quarter and even quarters after that, I'm expecting that our growth will probably be more like two-thirds to 70% in the C&I world and a third to 30% in the CRE world, just because of kind of the rebalancing of that.
Jared Shaw: Okay. Thanks. Then, on the DDA average balance for Q4, I know that you're not focused on end of period, but how should we think about the movement through the quarter and sort of an exit rate for DDAs coming out of the year, coming out of the quarter?
Jim Mackey: Well, average DDA will decline in Q4. That's just the normal seasonal trend. Then obviously, the ending balance will be down as well, and that'll be your exit rate in the next year. I'm not sure what else to say on that other than.
Tom Cornish: Yeah
Jim Mackey: a lot of it will depend on-
Tom Cornish: It is a slight decline in Q4, not as much as happens in Q1. But if you go back and look at Q4 decline last year or maybe the last couple of years and average that, it is probably our best guess.
Jim Mackey: Yeah.
Jared Shaw: Yeah. Okay. All right. Thanks. Then just finally, any detail on that securities restructuring in terms of balances sold and yield and balances in what was purchased?
Jim Mackey: No. I would not characterize it as a restructuring necessarily. It was sort of just our normal asset liability. It just is maybe a little bit more concentrated in one quarter.
Jared Shaw: Yeah.
Jim Mackey: I would say, again, we were selling assets that were highly seasoned, so we have been holding them for a while. They are less than a year maturity and reinvested in our normal profile, which is more in the 3 to 5 range. That is what we are doing.
Tom Cornish: It is more driven by ALCO than anything else.
Jim Mackey: Yeah.
Jared Shaw: Okay. 3 to 5 being 3 to 5-year duration, right? Not yield.
Jim Mackey: Yeah. I am sorry. I misspoke. Yes. 3 to 5-year duration.
Tom Cornish: Jared, if you look at our origination now for the last three or four years, C&I is almost all floating rate. CRE also is largely floating rate. So we really have stayed away from the fixed business for now three, four years. So as new production comes on, old loans pay off. If you just think about the fixed versus floating that on the left side of the balance sheet, that keeps going more and more in the floating rate side. So we have to every now and then step up and rebalance. And we don't use loans to rebalance, we use securities.
Jared Shaw: Got it. Thank you.
Tom Cornish: No problem.
Operator: The next question comes from David Rochester with Cantor. Please go ahead.
David Rochester: Hey, good morning, guys.
Tom Cornish: Good morning.
Jim Mackey: Good morning.
David Rochester: I just want to touch on the title business for a minute. Looking at deposit balances, you are kind of flattish year-over-year on those, but you have been growing customers quite a bit over the last year. I am just wondering, can you talk about that flat trend? Is that coming solely from higher mortgage rates that you are seeing now that is slowing the purchase market, or is there a measure of competitive pressures in there that is come online that is driving some of that headwind as well? Can you talk about how you think these deposit trends could look going forward in this higher rate environment where elevated mortgage rates become the norm?
Tom Cornish: Yeah.
David Rochester: That would be great.
Tom Cornish: I think balances, because we saw a sharp decline in the month of September, I am attributing it largely to what happened to the mortgage market and what happened to rates. The competitive pressure is definitely higher this year than last year, and last year was higher than the year before. That is manifesting itself through pricing more than balances. So, the pricing has gotten less favorable. That is our competitors basically coming in, somebody new coming in, they generally lead with price. We are the incumbent, and we are reacting to that price.
Tom Cornish: In terms of volume, I think it is more to do with what is happening in the mortgage market. In terms of picking up clients, we are picking up the same number of clients every quarter, roughly, that we have been for quite some time now.
Jim Mackey: The other thing to add, and again, we will be able to talk more about it in January, but if just looking at the Mortgage Bankers Association projections of purchase mortgage market, most industry participants are saying purchase mortgage market will be flat next year to this year. It cannot go much lower, just mathematically. The purchase mortgage market drives more of our balances than the refi market. Clearly, the refi market has completely dried up right now. Purchase mortgage market, as Raj said, certainly, the quick movement in the 10-year and the quick movement in rates sort of stifles things. But I think generally, the market thinks that it will normalize and be flat year-over-year.
Jim Mackey: Really, if that plays out, then the big driver for us on trends will be continuing to grow share and generate our fair share of those, call it flat year-over-year volumes. Does that make sense?
David Rochester: Yeah, absolutely. In terms of plans to grow that business just organically, are you doing any more hires, making any more hires? From a competitive standpoint, I know historically you competed with, I would say, smaller, sophisticated banks versus your technology platform, which you had been working on for years and was really a step ahead of the rest. Where are you seeing the competition coming from? Is it coming from larger banks, or are you starting to see some of the midsize banks coming into it as well? Thanks.
Raj Singh: I think it is the full spectrum. I know of a small sub $5 billion bank that is trying to make a mark in this. I know of a bank in the midcap space, but then I also know the money center banks trying. Money center and the very large banks when they try, they have all the technology in the world, they can do it, but it cannot get out of their own way to focus on this business. It is not just about technology, Dave, it also is about processes in the back office that are tailor-made for this business. Fraud, OFAC, BSA, AML, they all have to be fine-tuned to serve this client base, and large companies find that specialization very hard to achieve. It is not about technology. If they could get those ducks in a row, then they could do so.
Raj Singh: I am not worried about them at all because they try and then they go away. Smaller players are more nimble and hungry, and there, I think they just come out with price as the weapon to try and dislodge customers. They haven't been very successful, but they certainly are making the market more competitive.
David Rochester: Yeah. Maybe just one last one on the HOA business. You've definitely grown those deposits. It's a nice sleeve of low cost.
Raj Singh: Yep.
David Rochester: You have some low cost within that. Can you just give an update on progress on growing that business and what you're facing competitively?
Raj Singh: Yep.
David Rochester: Thanks.
Raj Singh: Yeah. There are a handful of banks, I would say about 10 or 12, that are doing that as a separate business line, and some of them are much bigger than us, and others are our size. The trick is to focus on the low end of the market and not the really big property management companies. That's our differentiator. That's why I think the profitability of our HOA business is much more different than somebody who's playing at a different scale. If you really want to be at a scale three, four, five, six times bigger than us, you have to go to the very large property management companies. And there, the profitability is just very different. It's a different ball game. So we've avoided that really upper end of the market and stayed focused on the smaller associations. And it's a much harder way to build business.
Raj Singh: It takes much longer. It has taken us four or five years to get here. But that's okay. I'd trade speed for profitability.
Jim Mackey: Also, another thing I might add is a lot of the M&A activity is sort of at the upper end of the market. If you're fishing consistently at the upper end of the market versus the client segment that Raj Singh is talking about, you're susceptible to a lot more M&A activity, creating volatility in the business for you.
David Rochester: Can you just remind us roughly what the percent of DDA is within both of those sleeves and title and HOA, and if that's changed recently?
Raj Singh: I don't have that in front of me, but I'll say, title, I know it's more than 50%, so it's a majority.
David Rochester: Yeah.
Raj Singh: HOA, I don't have it in front of me, but it's a fairly large number in HOA as well.
David Rochester: Yeah. Okay. All right. Thanks, guys. Appreciate it.
Raj Singh: Okay. The next question?
Operator: The next question comes from Woody Lay with KBW. Please go ahead.
Woody Lay: Hey, good morning, guys.
Raj Singh: Morning.
Jim Mackey: Good morning.
Woody Lay: Maybe just to start on credit. It looked like special mentions were down, but some increase in substandard. Was just wondering if you could give any color on some of those moving pieces.
Raj Singh: It's the usual stuff that happens. One or two loans go
Jim Mackey: Yeah
Raj Singh: back and forth between this. There's nothing that we're losing sleep on. I mean, this does happen. We've always said our portfolio is lumpy, and even just two loans moving, migrating from one bucket to another can cause this. Tom, do you have any?
Tom Cornish: Yeah. It is basically what Raj said. There is nothing systemic or correlated in that that we look at. If we look at the one number that moved to NPL this quarter from being a criticized loan, it was a company that is in the, I would broadly call it in the weather disaster recovery business. I will say this tongue in cheek, unfortunately, there is not enough weather disasters going on right now, and their business is soft. We have not had significant hurricane activity, we have not had significant hailstorm activity. Unfortunately, that is the business they are in. That business is a little bit softer. That was kind of a highlight loan of the quarter that moved from one category to another. But beyond that, it is kind of just sort of episodic.
Jim Mackey: That is why I gave the public service announcement. Just look at the trends over a few quarters. The general trends year-over-year have been quite positive, and that is probably a more indicative measure of the status of credit.
Woody Lay: Got it. That is helpful. Then maybe a question on deposits. It looks like there was some mix change between the IB demand into time. Could you just walk through some of that, the mix change in the quarter and kind of what drove that change?
Raj Singh: We look at some of the businesses. As I said, we have a muni business. We of course have some brokered deposits. We have some other price-sensitive deposits. We are always looking at them and quarter-over-quarter, month-over-month, you can find one segment get overheated, another one a little less. Like last quarter, we were telling you that brokered market had gotten ahead of itself, and we had backed off brokered in a big way. This quarter, we felt the other way. Actually, muni was a little ahead of itself, especially in Florida. So we backed off on muni, and brokered actually came in line with what our expectations would have been from brokered. So we found more opportunities there than in muni. So we are fine-tuning this almost on a weekly basis.
Raj Singh: But this quarter it was a drop in muni, an increase in brokered, and we picked up five, eight basis points on similar duration assets. Oh, sorry, liabilities.
Jim Mackey: Yeah
Raj Singh: of substance. We are not the highest rate out there. We are still getting pretty good roll forward of our CDs. We are still capturing 80%, 85% of the rates we have, so we monitor it very carefully. But promotional money market rates and promotional CD rates in our market, and I think nationally, have taken off. Deposit competition is pretty intense. But we are monitoring that very closely. That was the only notable thing. Muni versus brokered kind of flipped on itself this quarter from last quarter.
Tom Cornish: Yeah, we try to be flexible.
Woody Lay: Got it.
Tom Cornish: on opportunities when there's opportunities for imbalances.
Raj Singh: Sure.
Woody Lay: No, that's helpful color. Then maybe just last for me on capital. It sounds like we might get some additional detail next quarter. But where we are today, the CET1's above 12%. I think the start to year, y'all kind of laid out a mid-11% CET1 target. Does that still feel like a good target in kind of the medium term?
Jim Mackey: Well, I think so. We feel good about that. At the beginning of the year, I would've said we would progress towards that target a little faster. But as you know, the loan growth, we've been pretty diligent on that. So loan growth hasn't been as high as we originally modeled. We've been buying back the same volume of shares that we projected. It's just the investment in the balance sheet's been a little bit slower. So as we think about the next round of share repurchases, we'll want to be mindful of where the balance sheet's going and all of that as we talk.
Raj Singh: Yeah. Before Q4, that number might come down, not just from the remaining buyback, but also from some balance sheet growth. So we'll see where we end the year, and then, most likely, I can't say anything about the buyback until the board authorizes us, but we'll be discussing that with them very soon.
Jim Mackey: Yeah. Just to remind you.
Raj Singh: Okay.
Jim Mackey: In the 11.5, we came up just sort of middle of the pack. We are looking at peer sets and capital ranges, and we do not want to be on the low end or the high end.
Raj Singh: Yeah.
Woody Lay: Yeah. Awesome. Well, thanks for taking my questions.
Raj Singh: Yeah. Thank you.
Operator: The next question comes from David Bishop with Hovde Group. Please go ahead.
David Bishop: Yeah, good morning. Hey, Jim, calling up on the loan origination deals and roll-off. Just curious where you guys were onboarding new, maybe commercial loans this quarter in terms of the yields versus some of the roll-off. It sounds like maybe some of the non-relationship loans were rolling off at lower yields. Just curious, sort of the spread dynamic there.
Tom Cornish: Well, I would say it is different in different segments. But if you kind of average it all together, I would say the C&I from a SOFR perspective, I would probably give you an average of about 225 to 240 in range.
Raj Singh: Spread
Tom Cornish: general spread, depending upon what segment you are in.
Raj Singh: CRE is lower?
Tom Cornish: CRE is lower.
Raj Singh: CRE is what I want to handle.
Tom Cornish: Yeah.
Raj Singh: Between 160 to 180, in that range.
David Bishop: Got it. Just in terms, as you look at the loan pipeline across your geographic regions there, just curious what markets may be standing out and driving the bulk of that commercial pipeline. Thanks.
Tom Cornish: It is pretty evenly spread across all markets. Florida has been good in basically every major area of the state. We have seen good strength in New York, particularly in the mid-sized business category that Raj has mentioned. The commercial banking segment in New York has been really, really strong, and the new markets all continue to perform well.
Raj Singh: Yeah.
Tom Cornish: It is pretty broad.
Raj Singh: Production is evenly spread. Payoffs are not, obviously. Payoffs are in the more mature markets where we have been. That is Florida and New York. So not much payoffs in the new market, for obvious reasons.
David Bishop: Got it. Appreciate the color.
Operator: The last question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Jon Arfstrom: Hey. Morning, everyone.
Tom Cornish: Morning.
Raj Singh: Morning.
Jon Arfstrom: Just, yeah, a couple of questions here. Higher rates, does that slow the progress on reducing residential at all? Or what are you expecting in the next several quarters on the residential runoff? Should that stay about the same?
Raj Singh: Yeah, that's a good question. I don't think so, is my quick answer. The reason is if you have a 3.5% mortgage, whether primary mortgage rates are at 7% or 7.5%, I don't think it really impacts CPR that much. I think a lot of this is just now either ARMs that are resetting, which are causing runoff, or regular amortization, or just people move, people have divorces, people die, stuff happens. It is not active refi that is creating the CPR. Yeah, the refi market is very sensitive to where rates are, but that's not what's causing a 3.5% mortgage to go away. It's more regular stuff that happens. We've reduced our resi portfolio very nicely now over the last three years. We are coming up to a time where the first step will be to not reduce it, to actually flatline it.
Raj Singh: Then there'll be a time, maybe a year or 2 after that, we'll grow it as well. It's not that we want to drive this to zero like we did the multifamily business in New York many years ago. That's not the goal. The goal is that we were too heavy in this asset class and we need to bring it down. So we've been at it for three years. We're doing a lot of work. The spreads in the business will change from time to time, but that'll dictate how aggressively and when we want to step back in. But if you take a finer point to it, in our portfolio, you have some 30-year fixed, you have some five-year ARMs, seven-year ARMs. There's a big difference between how much I like the 30-year and how much I like the five-year.
Raj Singh: I hate the 30-year and I like the five-year. So I would like to run that 30-year down for a very long time. We don't want to grow that. But there will be a time, and we'll give you guidance on that maybe in three months, on when we will start to actively engage again on the five 1 to seven 1 part of the business.
Jon Arfstrom: Yep. Okay. Yeah, that's slide 19. That's helpful on understanding that for what it's worth. The other part of this is the 320 NIM that you're talking about for the Q4. I think that's notable. You promised us that, and it looks like you're going to hit it. Do you feel like that's a sustainable level for you? If we get some more hikes, can that 320 grow over time?
Raj Singh: I think the dynamics that have been playing are still very much the same. Balance sheet is still changing left and right side. So as long as we keep doing that, there is no reason why a margin cannot keep expanding. The only caveat I will give you is that there is a seasonal trend quarter-over-quarter. So just be careful of that. But if you ask me year-over-year, do I expect NIM to keep improving? The answer is yes.
Jon Arfstrom: Okay. All right. Thank you very much.
Operator: One final question from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey, everyone. Thanks for squeezing me in.
Raj Singh: No worries.
Michael Rose: Raj, just one question on the NIM exposure. I know you have been intentional about bringing it down.
Raj Singh: Yeah.
Michael Rose: It is a little over 5% of loans. I think about 7% of commercial loans it says in the deck. For a bank your size, where do you think that should be, and where do you think it will kind of end up over time? Basically asking is more structural runoff coming? Thanks.
Raj Singh: I don't think there is anything more that we feel compelled to do. This was a call we made actually earlier in the year, last quarter. Not Q3, but Q2. So unless something changes out there in the NIM space that we start to see more risk, I don't really expect this to change that much.
Tom Cornish: Yeah, I would add that if you look at the NDFI exposure, there is diversity within that overall number, right? A part of it is the capital call business. That's largely an investment-grade short-term business that we're not concerned about, and we'd be willing to expand that. We have a lot of things that run through the NDFI category, like tax certificate financing, and there's a lot of different industry segments that fall into that category that we feel good about and would grow. The part where we are very light and have been careful on has been essentially the lending to private credit funds. That's anything in the kind of BDC business development company type world. That's where we've been careful, and most of that is what's been the reduction. I think late last year, we were at about $1.5 billion.
Tom Cornish: Today, we're a little under $1.2 billion. Most of that couple of hundred million dollar reduction has been in that area. That's where we'll continue to be very careful because I think the impact in that industry segment from rising rates and heavy use of leverage as we head into next year is not going to be great. But the overall number,
Michael Rose: I appreciate that color.
Tom Cornish: is not as significant as that component of the number.
Michael Rose: Yep. Perfect. I appreciate the color. Maybe just one final housekeeping question. Jim, when did the securities repositioning happen in the quarter, and what was the yield pickup, maybe what was sold, et cetera? Thanks.
Jim Mackey: It was probably front-loaded. Most of it was at the front end of the quarter, and I do not have the exact. Well, I mean, I know securities as a whole had a 4 basis point NIM impact for the quarter. But again, most of that was from the actions we took earlier in the year, a little bit on this quarter. But I do not have the exact yield pickup that I can give you on this call.
Michael Rose: All right.
Jim Mackey: But again, the yield pickup is going to be going from less than a one-year duration security out to a three- to five-year set of securities. And it was north of $1 billion, less than $2 billion that we are really talking about here in book value.
Michael Rose: Got it. Thanks, guys.
Jim Mackey: Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Raj Singh for any closing remarks.
Raj Singh: Oh, thank you so much, guys. Thanks for joining us, and I am sure there are more questions that will pop up. Jim is here. I will probably be on a plane in a short while, but reachable as well. Thanks. We will talk to you again in 90 days, or probably at a conference before that. Bye.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
