BankUnited Q1 2025 Earnings Call Transcript

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April 28, 2025
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Operator

Good day and thank you for standing by. Welcome to BankUnited First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Jackie Bravo, Corporate Secretary. Please go ahead.

Jacqueline Bravo
Jacqueline Bravo
EVP & Corporate Secretary at BankUnited

Thank you, Michelle. Good morning, and thank you, everyone, for joining us today for BankUnited, Inc. First Quarter twenty twenty five Results Conference Call. On the call this morning are Raj Singh, Chairman, President and CEO Leslie Lunak, Chief Financial Officer and Tom Cornish, Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance.

Jacqueline Bravo
Jacqueline Bravo
EVP & Corporate Secretary at BankUnited

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. The inclusion of this forward looking information should not be regarded as a representation by the company as the future plans, estimates or expectations contemplated by the company will be achieved. Such forward looking statements are subject to various risks and uncertainties and assumptions, including those relating to the company's operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the company's direct control, such as adverse events impacting the financial services industry. 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. A number of important factors could cause actual results to differ materially from those indicated by the forward looking statements.

Jacqueline Bravo
Jacqueline Bravo
EVP & Corporate Secretary at BankUnited

These factors should not be construed as exhaustive. Information on these factors can be found in the company's annual report on Form 10 ks for the year ended 12/31/2024, and any subsequent quarterly report on Form 10 Q or current report on Form eight ks, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Raj Singh.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Thank you, Jackie. Thank you, everyone, for joining us. You may have noticed that our call is a little bit later than it usually is. And usually, we go around the twenty second, '20 third. And the reason it was a little bit later, partially it had to do with calendars, but partially also was we went through a GL conversion, which is a fairly big undertaking, which Leslie sitting over here next to me led and it went flawlessly.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

We didn't need the extra two, three days that we thought we might need, but it went really well. So I want to congratulate the team. But this was a good quarter, solid quarter in terms of where we landed versus our expectations. I know there's a lot of noise out in the economy, and we will get to that in a second. But first, let's go through what the last ninety days were like.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

In terms of net income, we came in at $58,500,000 or $0.78 a share. I think consensus was $0.76 so slightly better than consensus. Margin was $2.81 which compared to last quarter was down three basis points, which is exactly what we had expected. Most of that was around some hedges that rolled off. So it came in exactly where we expected it to.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Cost of deposits came down by 14 basis points at 2.58% from 2.72% last quarter. Cost of interest bearing deposits came down 21 basis points. It's now down at 3.54%. Last quarter was 3.75%.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

And on a spot basis also from December 31 to March 31, had an 11 basis point drop in that cost. NIDDA, which has been the story here for the last several quarters now, again, we had a very solid quarter.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

NIDDA was up $453,000,000 again, as expected and as we had mentioned to you last quarter by the last earnings release. Average NIDDA was down a little bit. That's the seasonality of how the DDA builds up for the year. December 31 is not the bottom for us. It generally is somewhere deep in the first quarter where we bottom out and we start building back up.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

So March is generally a strong year. And then from here on, it's in several months of strong deposit growth. So we're expecting an even better second quarter. And in terms of if I just look at total deposit growth outside of brokered, which we paid down quite a bit, total deposit growth, excluding brokered came in at $719,000,000 So a very solid quarter no matter how you look at it on the deposit side. Wholesale funding, which is brokered and our wholesale FHLB borrowings were down $1,100,000,000 The loan book, total loans were down $300,000,000 and I'll break it up roughly into two pieces.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

One is what you expect, which is what we've been running down for some time, our resi book, our some of our commercial finance subs. That was about $200,000,000 round number, 200,000,000 of that $300,000,000 About $100,000,000 roughly was actually declined in our core commercial book, which we're trying to grow. Now first quarter, I will remind you, is our slowest quarter. If you go back two, three, four, five years, you'll see first quarter is always our lightest growth quarter simply because we don't have in our C and I business, we don't have financial information or audit financial information from last year, and we're working off of really dated financials. So we tend to be much lighter on growth in the first quarter than we but the season really picks up in the second, third and fourth quarter.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

So also coupled with some still fairly large paybacks that we've seen in the C and I book. So that trend has now been going on for about three quarters and that has not slowed down. Total loan to deposit ratios stood now at 85.5%, it was 87.2% at the end of last quarter. Asset one is now 12.2% and the tangible book value per share keeps climbing up, it's $37.48 Lastly, we'll talk more about AOCI. I don't actually recall the number off the top of my head, but I think that also improved.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Talking about I'll talk about the macro environment for a second, then I'll talk about guidance. So you've seen the level of uncertainty that is out there. We're all monitoring it. Our clients are monitoring it. We actually had a very large client event just last week in New York.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

We met 75 or so of our top clients with both C and I and CRE businesses. And I would say that I went into that expecting a lot of concern, a lot of like, oh my god, what's going on in this world? But I didn't actually get that. What I got, yes, there's some level of concern, some level of uncertainty. But for the most part, people are engaged and people are basically while they're monitoring what's going on, they're not writing off the year in any way, shape or form.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

So they stay engaged. The fact that we had that level of attendance to this event itself was a good sign, but then how engaged people were and wanted to talk about growing their businesses. And yes, there was some talk about politics and tariffs and so on. But for the most part, it was a very positive event. So when it comes to our guidance, here's what I will say at a high level.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

We're not changing our guidance. So what we told you 90 ago, we'll stand by that in terms of loan growth, deposit growth, margin, expenses and all that good stuff. Having said that, I will say, and this is a phrase that I borrowed from somebody that I met last week, that the cone of uncertainty is much bigger than it was even a month ago. So there are a lot of moving parts here. The rate environment is moving around like crazy.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

The economic environment is also uncertain, and we don't know exactly where we're going to land with tariffs at the end of the day. And all of that will have an impact. So what can we do as a bank? What are we doing as a bank? We're paying a lot of attention to the risks that are unfolding in front of us.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

I think the most immediate risk that we're that we have to deal with is interest rate risk. When the curve moves as much as it is doing on a weekly basis these days, both the short end and the long end of the curve, That means we have to pay extra attention to interest rate risk management. And we're trying to stay as neutral as possible in any scenario, so we're not hurt by whatever happens to rates. Second, obviously,

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

is

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

credit and pipeline risk. I'll roll them up into one. The pipelines right now are actually very strong. So we have not seen a degradation in our pipeline. Now in fact, I was meeting with our credit people last week and trying to compare what we had budgeted for this time of the year for pipelines versus what we are seeing.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

And they are actually better than what we had even budgeted for. Now what will be the pull through rate on these spot lands? I think that will depend a lot on where everything lands with tariffs and the economy in general. But so far, I really have no basis for altering the guidance we gave you, except just to say that the possibility of the probabilities of what can happen is much wider than ninety days ago. So with that, I'm trying to see here in my notes if I've missed anything.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

No. We did just to note the obvious, we did increase our dividend by a couple of pennies, which I think now going back to COVID is when we started doing this. I'd like to keep doing this very steady increase in dividends. And ten years from now, be able to come back to you and say, look, look at our track record for the last ten, fifteen, twenty years, we've been increasing dividends on a steady basis. We're happy to report that.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

But all I'll say is while there is more uncertainty out there, we are as prepared as anyone or more prepared today than we've ever been to take on whatever is coming our way. If it is bad news or if it's good news, if there's good news and there's going to be a lot more economic activity, we're open for all kinds of business. And if it's a recession or something, a slowdown, we're ready for that. We have more capital, more liquidity than we've ever had, and we can take that on. With that, I will turn it over to Tom, and he'll get a little more details behind some of the numbers and then lastly.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

Great. Thanks, Raj. So I'll start off talking a little bit more about the loan side and maybe give you a little bit more color on Raj's comments about the $100,000,000 down in kind of the core segments. So basically CRE was flat for the quarter and most of the decline or all of the decline was really kind of in the corporate banking space predominantly in the upper commercial space. So this payoff activity that we're seeing last few quarters is I think not just an Us phenomenon.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

I think it's pretty much across the industry. And I'll give you some broad sense of sort of what we're seeing in the marketplace. So when we look at payoffs, I would say probably 25 of it is related to company sales. So there's not really too much we can do about that. About another 25% of it is situations where we are kind of selectively, I would say, opting out of credit opportunities.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

And most of our opt out is either because we're looking at renewal opportunities where the pricing has gotten more aggressive than we want to compete at, or in many cases, the deposit and ancillary business opportunity is not really developed in the way that we thought that it would over a period of time. So those are kind of self selected sort of opportunities. I'd say another 25% of it is predominantly deals that we are competing on, renewals that we are competing on, but situations where debt funds are becoming more dominant in the corporate lending space and middle market lending space in particular and taking all parts of the debt stack and not just taking like a subordinate piece. And in some cases, those deals are just beyond the parameters that we want to play in. I'd say the other 25% is just kind of dogs and cats, different reasons for different things.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

I would also state, as Raj mentioned, production, particularly in the C and I areas was really good for the first quarter. And I think when we look at sort of the swap that we're making in deals that are paying off versus deals that are coming in, we're generally seeing all deals coming in, virtually 100% of those relationships are coming with deposits, which is a key part of what we're trying to focus on. And the pricing difference between what we're stepping into versus what we're stepping out of is favorable. So even though at times, it looks like an even wash kind of from a long term franchise perspective, It's really not because these are much more relationship oriented, deposit oriented clients. But as Rod said, we are looking at really good pipelines in all of our core business in the second quarter.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

So we're optimistic about that. Back to the resi piece was down by $116,000,000 Franchise and Equipment and Municipal Finance were down by a combined 80,000,000 all kind of in line with expectations. And the Equipment Finance and Franchise business we're kind of getting to sort of the end. I mean, the downward movement from this point on will be a much smaller amounts because it'll just take time to run off at this point. With respect to tariffs and macro uncertainty, we're not really seeing any impact, as Raj mentioned, in the pipelines, although the pull through rate could be a little bit slower.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

There's certainly a lot of lenders in the market. We don't see any abatement of risk appetite going on right now. And given our core client base and markets, we believe the ultimate impact to us will probably be second, third or fourth order impacts. Those are pretty hard to predict. We don't have a tremendous amount of China, Mexico, Canada exposure, logistics exposure.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

In that way, you look at the supplemental data and look at our industry segmentation, it's less oriented towards that type of business and more in finance and insurance and health care and education and not for profits and things of that nature. With respect to CRE, not really much has changed since the last report. Our CRE exposure totaled 26% of loans, 173% of the total risk based capital as of 03/31/2025. Again, I point to the comparison based upon 12/31/2024 call report data, the medium level of CRE for total loans for $10,000,000,000 to $100,000,000,000 banks was 34% and the mean ratio of CRE to total risk based capital was 2.8%. So while this remains an important line of business for us, relatively speaking compared to peers, our exposure is a bit less.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

At March 31, the weighted average LTV of the portfolio was 55% and the weighted average debt service coverage ratio was 1.78. 50 three percent of the portfolio was in Florida and 25% in the New York Tri State area. The profile of the CRE office portfolio also is largely consistent with prior quarter end. We were down by $52,000,000 mostly ammo within the portfolio. At March 31, we had a total office portfolio of 1,700,000,000.0 fifty seven % in Florida, which is predominantly suburban, 23% in the New York Tri State area, three forty seven million or 20% of the total free portfolio is in medical office.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

So traditional office is probably about $1,350,000,000 Today, the construction portfolio includes an additional $87,000,000 in office related exposure with $84,000,000 of that in New York. The weighted average LTV of the stabilized office portfolio was 65% and the weighted average debt service coverage was 1.58 at March 31. I would point out that since the onset of the pandemic and the total change to the office environment and remote hybrid work patterns in 2020, we've had total office charge offs of $16,200,000 in our portfolio, 7,900,000.0 of which was this quarter. Criticized classified office loans totaled $414,000,000 at March 31, down a bit compared to the $425,000,000 at December 31, but generally not much changes. Pages 11 through 14 in the investor deck provide more details on the CRE portfolio, including the Office segment.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

So with that, I'll turn it over to Leslie.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Thanks, Tom. To reiterate, net income for the quarter was $58,500,000 or $0.78 per share, provide a little bit of color for you around the NIM and net interest income. Net interest income was down $6,100,000 or 3% linked quarter and that related to lower average interest earning assets and slight margin compression. The NIM declined three basis points to 2.81% from 2.84% last quarter, largely consistent with our expectations. And I'll remind you, that's the same trend as we saw in the prior year, where the NIM was down a few basis points in Q1 and then expanded throughout the rest of the year.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

The static balance sheet remains modestly asset sensitive, and there wasn't a lot of change in the composition of the average balance sheet this quarter. As we mentioned last quarter, some cash flow hedges expired this quarter that had a three basis point impact on the NIM. So without that, the NIM would have been flat. As we've said, margin expansion ultimately will be the product of change in mix on both sides of the balance sheet, which we continue to expect over the remainder of this year. As Tom discussed earlier, the core commercial loan portfolio segments declined to this quarter.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

And while period end NIDDA grew by $453,000,000 average DDA declined modestly by $144,000,000 And all of that is consistent with what we expected to see for the quarter. The average cost of interest bearing deposits decreased from $3.75 to $3.54, while the average cost of total deposits declined 14 basis points to two fifty eight from two seventy two. On a spot basis, the APY of total deposits was down to $2.52 at March 31 from $2.63 at December 31. For the current down rate cycle, and I'm measuring that from September 1 through the March, the realized down cycle beta on non maturity interest bearing deposits was 92%, and we're pretty proud of that and the ability we've had to lower deposit costs. We've worked hard at it.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

We did indeed. As expected, given the rate cuts in Q4, the average yield on loans declined from 5.6 to 5.48 and the average yield on securities from 5.31% to 5.07%. That really is just largely driven by the repricing of floating rate instruments. The average rate paid on FHLB advances was down from $3.82 to $3.69 primarily due to the paydown of higher rate short term advances, which is a weird thing to say, but short term advances are the higher rate ones. On last quarter's call, we did mention that impact of the expiring cash flow hedges and that played out exactly as we thought as I mentioned.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

We've run a lot of different rate and balance sheet composition scenarios because frankly we don't know what's going to happen to rates or the yield curve. The greatest exposure from a rate perspective continues to be a severe downward shock in rates. And the most favorable scenario, obviously, would be a positively sloping curve. But again, margin expansion is still most dependent on our continued ability to remix on both sides of the balance sheet. AOCI this quarter improved by 17% as compared to twelvethirty onetwenty four.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

So that short duration of the bond portfolio continues to pay off in terms of whittling away at that AOCI balance. With respect to credit, the provision and the reserve, the provision this quarter was $15,000,000 The ACL to loans ratio remained unchanged at 92 basis points. Slide 16 of the deck presents a waterfall of changes in the ACL for the quarter. As you can see from that chart, we did build reserves this quarter, but then took some charge offs. So prior to taking those charge offs, the reserve built to a little over 1% and then we took the charge offs, and that's how it's supposed to work.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

So the ACL this quarter was also impacted by a true up of some specific reserves, largely related to updated appraisals and valuations on loans that have been worked out for some time. The commercial ACL ratio, that C and I CRE franchise and equipment finance was 134 at March 31, and the reserve on CRE office was 199. That was down a little bit from last quarter due to the charge off we took and also some upgrades. We did run the April Moody's scenario through our ACL models. It is incrementally worse than the March scenario.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

And we what we learned by doing that was that we have sufficient qualitative included in our reserve to more than cover the incremental increase that would have resulted from running that new forecast. We are seeing some normalization of credit. Net charge offs totaled 19,400,000.0 this quarter or 33 basis points annualized. If you look at that for the trailing twelve months, the net charge off ratio is 24 basis points. Substantially, all of the charge offs we took this quarter related to loans that have been in workout for a while, so nothing cropping up unexpectedly there.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Total criticized and classified assets were essentially flat. The NPA ratio was 67 basis points, excluding the guaranteed portion of SBA loans, and NPLs were up slightly. With that, I am going to turn it back over to Raj for any closing comments,

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

and then we'll open it up for questions. Thank you, Leslie. I forgot to mention, I usually talk about credit in my remarks, but you did a good job. So of course, I flipped that slide, so essentially flat and ACL is essentially flat. So it's not much news.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

But we'll open this up for Q and A. And Jackie? Yes.

Operator

Thank you. Our first question is going to come from the line of Jared Shaw with Barclays. Your line is open. Please go ahead.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Hey, good morning.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Good morning. Maybe starting just on some of the components of margin. When you look at asset yields or loan yields, how much are you seeing spread compression impacting new loans right now? Is it it seems like you're calling out some competition there. Is that increasing?

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

How should we think about the competitive environment for new loans?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

So it's a very good question, but it has a long answer because there's so much that is happening. I'll go not just loans, I'll even talk about securities. Starting there is the easiest one to answer. Credit spreads have widened out in the securities land over the last several weeks, especially over the last four or five weeks have widened out more. On the lending side, which always gets the news a little bit later than the securities world, we saw at least in CRE a tightening of spreads in the first quarter.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

'1 of the reasons we actually did less business than we thought in the CRE space was tighter spreads. It seems that a lot more banks are kind of get back into the CRE business, maybe because it's a new year, maybe because it's a different world today, but we're seeing more CRE competition than even a quarter or two ago. Having said that, when I look at the pipeline for CRE from here forward, again, the spreads look a little bit better than they look in the last three months. So it is really in flux. And maybe that's got to do with all the noise in the market for the last month or so.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

But spreads are again moving back higher by twenty, twenty five basis points when I look forward in CRE. In C and I, I would say that while we saw compression in spreads all through last year or especially from summer into December, they are largely steady. There wasn't that much change in the first quarter or in the pipeline. So CRE is the one that has gone down the whipsawing a little bit, but C and I is more steady and securities have, of course, widened out.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay, great. That's helpful. Thanks.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

I guess maybe as a follow-up or a second question, shifting over to credit. Any color around the growth in nonperformers? Is there any industry that stands out more than the other? Or is it just more broad based?

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

No, Jared. I mean, as you can see, it's mostly in the C and I book, but it's cats and dogs, ins and outs. I think it's up total maybe $9,000,000 which is like really equates to one loan, although I wouldn't say it's one loan. It's just different things moving in and out. Nothing we're seeing Low trend.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Back to trends or concerns about particular industry verticals.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay. Great. And then if I could sneak a last one in. When we look at the growth and end of period DDAs, what percentage of balances are subject to ECR in terms of that growth?

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

I mean, if you mean true ECR, pretty much all commercial deposit accounts are subject to ECR.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Yeah. I don't think Garry is asking for true ECR.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

If you're talking about rebate and commission costs, I I think most of it, not to any great extent.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay. Thank you.

Operator

Thank you. And one moment as we move on to the next question. Our next question comes from the line of Woody Way with KBW. Your line is open. Please go ahead.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

Hey, good morning, guys.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

Good morning. A

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

couple of follow ups on credit to start. First, I just wanted to start with, it looks like there were some downgrades from special mention to substandard accruing just based on balances. Any color on what drove the increase to substandard?

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

I mean, you're right. There was some migration that's not unexpected. I think the quarter was characterized by a combination of upgrades and downgrades, and and I don't think there's anything specific to call out, Woody. It's it's just loans going in, loans going out, normal migrations. Nothing in particular to call out, I don't think.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

Got it. And then, Leslie, based on your opening comments, it sounded like, you know, if you factored in April Moody's, that would imply a reserve pickup, but it sounds like you have some flexibility on the scenario waiting. So how should we think about forward report levels here if things remain sort of the same?

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Yes. One thing I should have mentioned in my comments, my prepared comments, and I didn't, is we did add to our qualitative reserves this quarter. And we added more related to just general, to Raj's point, the cone of uncertainty getting wider.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Actually, we already had qualitative reserves.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

And then we added more.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

And then we added some more this quarter because of all the uncertainty. And then we tested with the April movies.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

And our qualitative reserves are more than sufficient to cover any increased reserve that would have resulted from that April forecast. Now I don't know what the June forecast is going to look like, Woody. If things deteriorate, obviously, there'll be more provisioning. If things don't, then at least related specifically to that, there won't. But we did compare the April result to what we already had in the qualitative reserve related to economic uncertainty and we recovered more than covered.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

What I might add in the CRE portfolio, a lot of times when you see movement in and out, particularly in Florida what you're tending to see is we have office buildings that you lose a tenant and then you have office buildings that you gain a tenant. When you lose a tenant and gain a tenant you usually are signing abatement periods of time. We have properties that go into abatement periods of time and we have other properties that are coming out of abatement periods of time when we can start to count the lease income into the NOI. So you have this kind of shifting around every quarter of certain loans as abatements either roll in or roll out.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

So there were just a lot of puts and takes. And our guidance with respect to the overall reserve level hasn't

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

changed. So All right.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

That's really helpful. And then maybe just last for me, shifting over to the loan pipelines and production in the quarter. Any way to quantify production in the core CRE and C and I segments in the first quarter and how that compares to previous quarters? And then just a follow-up there. Second quarter outlook is a little murky just given the macro, but how should we think about that growth opportunity in the back half of the year?

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

We don't disclose production numbers, and I'm hesitant to go down that path. But I will say that production slightly exceeded our budget for the first quarter. So it's coming in slightly ahead of expectations, and the pipelines are pretty robust.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

All right. Thanks for taking my questions.

Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Tamir Brazzilar Your line is open. Please go ahead.

Timur Braziler
Timur Braziler
Analyst at Wells Fargo

Hi, good morning. Good morning. Let me I want to start just on the setup, particularly into 2Q. So if you look at first quarter results year over year, they're pretty similar, margin down three basis points. Both here, as you got the DDA component where the balance is billed while average is still down.

Timur Braziler
Timur Braziler
Analyst at Wells Fargo

Can we see a similar level of margin expansion 2Q this year as you get some of the remixing at the funding side? I guess, just maybe talk more broadly about how you see margin and NII trajectory into second quarter.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Sure. I'm not going to provide that guidance quarter by quarter because unlike you, I don't really care which quarter it happens in. But we do expect the margin to expand over the course of the rest of the year. And again, we expect that irrespective of the Fed cuts, there are four built into our forecast, by the way, and an inverted yield curve. So honestly, it can't get worse, I don't think, but from that perspective.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

But we do expect margin expansion, and that will be driven on growth or transformation of mix on both sides of the balance sheet. So putting on core commercial loans that are higher yielding and more core deposits replacing high cost funding and that's what will drive that margin expansion. But I hesitate to say exactly how many basis points I would expect in each quarter because the timing of some of that can be a little bit difficult to predict with precision.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

NIDDA growth that happened this quarter, because it happened later in the quarter, obviously did not help margin. Into second quarter, we expect second quarter is our best quarter for NIDDA growth. So clearly, the benefit will be felt in the second quarter. But I'll stay away from giving any specific guidance or Leslie will kill me here. But the trend that you're seeing in the balance sheet are similar to last last year, first quarter, second quarter strong, very strong DDA growth, total deposit growth, third, fourth quarter less so.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

And loans of course first quarter light, but second, third, fourth quarters are main. That's when most of the business gets done in those nine months. Okay. Maybe asking a different way, Leslie, do you have

Timur Braziler
Timur Braziler
Analyst at Wells Fargo

the spot rate on deposits exiting the quarter? Just so we can get a sense

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

of

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

52, I think.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Yes, $2.52. And that's also in the deck, Woody.

Timur Braziler
Timur Braziler
Analyst at Wells Fargo

Okay. I guess next, maybe either for Raj or for Tom, but there's no more news on just the Florida condo market softening. Can you just give us some color around your exposure to the Florida condo market and then what you're seeing just in terms of boots on the ground?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

We we really have any? We don't have any. That's not a market we play in.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

So we're probably not even the best people to talk to about what's going on. We we read the same articles you do, but we don't have any exposure.

Timur Braziler
Timur Braziler
Analyst at Wells Fargo

And then just last for me, I guess, just given some of this uncertainty, does this push out your thoughts around buyback? Any kind of color you can provide on just what you're looking for internally before you might get more comfortable in accelerating the capital return beyond just the dividend?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Yes. I would say that given the level of uncertainty and the comments that I made last quarter also, they probably apply even more so today. Having a little bit of excess capital when there's so much uncertainty around is probably not a bad thing. And even if we were to deploy this capital in a buyback, it's not like there's that much of excess capital that would make that bigger difference in EPS. So as of right now, we'll just sit it out, but we'll continue to look at it every three months and revisit this.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

But right now with the level of uncertainty that there is, it's probably best to just hold on to a little bit of excess capital.

Timur Braziler
Timur Braziler
Analyst at Wells Fargo

Great. Thank you.

Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Hey, good morning, everyone. So it sounds like you guys remain pretty confident around the NIM trajectory through the record, which is great. And it seems like your assumptions are pretty conservative there. Is there any ability to kind of narrow the range on potential NII growth as a result of that? Or maybe said a different way, what could lead you to the kind of low end of that, mid- high single digit range?

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

And what could get you to the top end if there is not the ability yet to narrow that?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

I will say there are a number of things that go into the NIM projection, right? There is what's going to happen to the right side of the balance sheet, what's going to happen on the left side of the balance sheet, what are the spreads going to be on the left side of the balance sheet and what is the slope of the curve, right? So there's a lot of math that goes into predicting that. On the right side of the balance sheet, I feel very confident on our pipelines because they're not really impacted by the what's happening with tariffs and general macroeconomic situation. The left side of the balance sheet is going to be sensitive, especially if we have a this plane doesn't land well to take a term from CNBC.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

So there is that. But then there is credit spreads also, which, like I just explained a couple of questions ago, they seem to be moving around quite a bit. And lastly, the curve, the slope of the curve, which Leslie mentioned a minute ago, that is also pretty meaningful. And there, actually see good news. We have been modeling much flatter curve Than we're seeing.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Than we're seeing, and I'm keeping my fingers crossed. Upward sloping curve is good for us and every other bank. So a lot of moving parts to all of this. If I whittle it all away and say, okay, so how do I feel about the guidance that we've given you? I would say what I said at the top of the call, which is we're not changing our guidance.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Yes. No, that makes sense. Yes, we're all hoping that occurs, Stephens, a little bit, for sure.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Okay. And then on the you

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

know, on this remix away from the resi book that's, you know, happening over time, is there anything that you guys would consider doing to maybe expedite that remix in any way, any sort of loan sales or or larger scale actions there?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

We've analyzed it, and we do so two, three times a year. We get this urge to go do this exercise, and then we come out and say, no, I think we'll just let it happen organically.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

The earn back period is very long, and it's just not a compelling trade.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

Just given the duration of the assets, is that the balance Yes.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Exactly. Yes.

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

That makes sense. And then

Stephen Scouten
Stephen Scouten
Managing Director & Senior Research Analyst at Piper Sandler Companies

just last thing for me. Obviously, the balance sheet is kind of, at year end at least, was pretty similar to where it was year end 2020. Deposit growth has been great. Are we do you think we're finally getting to like kind of an inflection point where we can actually see some more balance sheet growth? Or how confident do you feel like we can start to see some overall balance sheet growth from here?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

I think we've been on this, especially since 2023 or beginning of twenty twenty three to now, we've really been on this optimization journey to make the balance sheet less. It became very thrifty looking because of COVID. During COVID, we put on a lot of resi and it's still not anywhere close to ideal. So I think for the rest of this year, the strategy will still continue. But going into next year, we will come back and revisit it.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

I don't want to preempt and talk about next year's guidance. But at least what we've signed up for this year is an improvement of the balance sheet as the primary driver of profitability rather than just let's just grow everything and let's get to $40,000,000,000 and $50,000,000,000 Extremely helpful. Thanks guys for all the color. You.

Operator

One moment as we move on to our next question. And our next question is gonna come from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.

David Bishop
Director - Research Department at Hovde Group

Yeah. Good morning. Hey, Bill. Good morning, Dave.

David Bishop
Director - Research Department at Hovde Group

A question for probably Tom or Leslie. As as you sort of scrubbed the the office here rebook and maybe New York City commercial real estate in general, do you think you sort of moved past maybe the any sort of big downgrades or big negative surprises on that book?

David Bishop
Director - Research Department at Hovde Group

Do you feel pretty comfortable in terms of what's in there now in terms

David Bishop
Director - Research Department at Hovde Group

of you know, what what's ahead potentially from a worst case scenario.

Operator

David, one moment. We're having technical issues. Please stay on the line. Again, ladies and gentlemen, please stand by. We're having technical issues.

Operator

We will resume momentarily.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Hello?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Hello?

Operator

And pardon me, mister Bishop. Could you go ahead and please repeat your question?

Jacqueline Bravo
Jacqueline Bravo
EVP & Corporate Secretary at BankUnited

Sorry, Dave. We're back.

David Bishop
Director - Research Department at Hovde Group

Hey, Leslie and Tom. I was asking in general. As you sort of scrubbed the New York City office and commercial real estate in general, you look at ratings downgrades, you think you're probably past the worst of the off law in terms of potential for downgrades on a risk rating perspective?

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Yes, I do. I think it's possible there could still be some, but there's also going to be some upgrades coming. So I think we are through the worst of it. What's sitting in nonperforming CRE right now is there's three office loans sitting in there and a couple of multifamily. And I don't expect generally the profile of the portfolio to change.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Individual loans may move around a little, but I think we're through the worst of it. And I don't think there are any surprises left in that book, loans that are going to pop up that deteriorate that we didn't know anything about or that surprises.

David Bishop
Director - Research Department at Hovde Group

And generally, have a fairly small number of loans in New York City and Manhattan in particular. We have maybe 10 in total. It's not any of this exposure. So we are seeing some improvement in the CMBS market.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

We do based on what we're

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

seeing in that market,

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

we do expect we'll have some refinancings out of that portfolio this year as well.

David Bishop
Director - Research Department at Hovde Group

Got it. And then Tom, terms of the C and I attrition this quarter, any due to runoff in syndicated national credits? I'm just curious how that portfolio has performed as of late.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

Yes, it depends upon what you describe as a syndicated national credit. I mean, have this dialogue all the time. You've got a technical definition and you've got there are syndicated national credits that we agent. There are syndicated national credits that are really club deals. We had some runoff in what I would term broadly syndicated credits where we have a relatively small percentage.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

And it's a very large bank group. So of what we saw in runoff, some of that was in that book. And like I said, a lot of it was each time a deal comes up for redial, we look at it and we make a judgment, does this still make sense? And more often than not, it doesn't right now. But there are still some to do, but we'll see more of that.

David Bishop
Director - Research Department at Hovde Group

Thanks. And then Leslie, one final question. The broker deposit run off this quarter, just curious what the broker exposure stood and how much runoff. Thanks.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Oh, boy. Hang on. I there's a slide in the deck. If I can find it, I can give you some numbers. I I don't have the numbers in front of me.

David Bishop
Director - Research Department at Hovde Group

That's okay. I can follow-up offline.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

I've got somebody looking them up. I'll

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Yes. Non brokered growth was $719,000,000 And now if you go and just look at actual total deposit growth and you can subtract the two, you'll see the difference.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

I'll have the beginning and ending brokered numbers in a few minutes. I'll put them out there before we leave the call.

David Bishop
Director - Research Department at Hovde Group

Great. Thanks.

Operator

Thank you. And one moment for our next question. Our next question is going to come from the line of Christopher Marinac with Janney.

Christopher Marinac
Director of Research at Janney Montgomery Scott

Leslie

Christopher Marinac
Director of Research at Janney Montgomery Scott

and Raj, I wanted to ask

Christopher Marinac
Director of Research at Janney Montgomery Scott

you about expenses. And do you think of expenses going forward more as a percentage of average assets? Or is the efficiency ratio kind of become more prominent as franchises? I

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

don't think we think in terms of efficiency ratio or for that matter, in terms of just basis points of assets. What

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

look at that one more than efficiency ratio. Yes.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

I look at it more in terms of operating leverage. In other words, if we can invest another $1,000,000 to generate then $2,000,000 of revenue in the short term, we'll go spend the next $1,000,000 or 10,000,000 or $50,000,000 if the opportunity comes around. So it's more in terms of we're happy to invest and come to you and say, listen, expenses will be even higher if we are pretty certain that we can generate revenue behind it that is even bigger than that. So we think of it in those terms rather than just trying to think of a sort of a golden number of an efficiency ratio that we have to hit, and then we can come and say victory.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Yes. And I would say we haven't changed our guidance about expenses for the year, so mid single digits in total.

Christopher Marinac
Director of Research at Janney Montgomery Scott

Okay. Great. And then lastly, since Raj mentioned the new GL system, what does that do for you? I know there's a necessary evil. I'm just curious if that's going to help you going forward.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

I mean, it should make us more streamlined, more efficient in a lot of ways. Nothing you're going to see in the financial statements, but it should make us more streamlined in a lot of ways. Frankly, we had a system that was being sunset, so we had to replace it.

Christopher Marinac
Director of Research at Janney Montgomery Scott

Got you. Sounds great. Thank you for taking our questions this morning.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Let me throw out the answer to the broker deposit question real quick, down from $5,200,000,000 to $4,700,000,000 a total decline of $528,000,000 for the quarter.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Your line is open. Please go ahead.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Thanks. Good morning.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Good morning, Just

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

to kick, I guess, a couple of housekeeping things here. But should we expect the same decline in residential that we saw last year? Is that is that the glide path we should be on? Roughly.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Yes. Unless there's something very remarkable that happens in the long end of the curve, I would expect similar levels of runoff this Yes. Okay. Okay.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

On your overall guidance, margin still past the 3% by the end of the year. Is that the big picture objective for you?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Yes.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

It is. And I I would say just as Raj guided to, you know, the cone of uncertainty is big is wider, but but yes.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. And and the the reserve there's been some questions on the reserves as well, but it feels like feels you're in a decent spot. So is the past the 1% also still an objective for the end of the year? I

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

wouldn't call that as objective. Unlike loan growth, a reserve isn't something you can set a goal for that you achieve. It's governed by an accounting standard, but that's our expectation, yes.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Yes. And I know some of that's a mix shift as well. Okay. And then, Raj, I think maybe some of the best of your prepared comments was the client event with the top 75 clients. Any other color from that meeting, kind of collectively what you were hearing there?

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

You know, I what I would say, the the best thing for me was taking away kind of a temperature, like how concerned are people, how much is their hair on fire. And I went in with an expectation that there will be at least some who will be really not happy and in a bad place. But that's not what I found. So I stand corrected. I was more pessimistic going into it than the clients were.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

Now of course, you heard very interesting stories about sort of the unintended consequences of everything that's going on. And those all just make for a great anecdote. But we, as a Main Street bank, let's call us that, we live in a world that half our time is spent kind of like people on this call looking at screens and CNBC and Bloomberg and what have you. And half our time is spent in on Main Street talking to our clients and visiting them and walking warehouses and buildings and what have you. So we kind of split our time between the finance, high finance world and what I would call the real world.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

There is real world, I would say. And it depends on what week we're talking about. There is a pretty big gap between what you hear on CNBC and what you hear when you walk down Main Street. Eventually, those things will converge. But exactly where they converge, I think, will depend a lot on what our federal government does over the course of next sixty, ninety, one hundred and twenty days in terms of landing this plane.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

But I was I came back away feeling good after that planned event. I went in more pessimistic than I came out. I was a little more optimistic.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Yes. And I guess it's helpful to hear the pipeline comments as well.

Thomas M. Cornish
Thomas M. Cornish
COO at BankUnited

Would also add a lot of conversation that we had was well run businesses that have strong capital positions look at times of uncertainty as an opportunity. And we saw a fairly large amount of clients who felt like now there are times to invest in certain aspects of their business. And while they're knowledgeable and thoughtful about the risks that are out there, they're also seeing this as a time of opportunity.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. All right. Thank you very much.

Operator

Thank you. And I would now like to hand the conference back over to Raj Singh for any further remarks.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

I think that last question was a pretty good place to end this. This is a time of uncertainty, but it's also a time of opportunity. We're unprepared for whatever is coming our way in terms of opportunities and otherwise, but feeling pretty good about the quarter we just had with the momentum that we have, the pipeline we have. And thank you again for joining us and we'll talk We're

Jacqueline Bravo
Jacqueline Bravo
EVP & Corporate Secretary at BankUnited

in through our technical Yes. Know, it's been

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

a public company for, what, fourteen, fifteen years. It's the first time that has happened. Which I'll be doing a little diagnosis of what just happened here, so it doesn't happen again. So we apologize for that. But otherwise, thank you so much.

Rajinder P. Singh
Rajinder P. Singh
Chairman, President & CEO at BankUnited

And call us via me if you have any follow ups. Otherwise, we'll see you again in ninety days. Bye.

Leslie N. Lunak
Leslie N. Lunak
CFO at BankUnited

Bye, everyone.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

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BankUnited Q1 2025
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