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spk49: Good day and welcome to the Bank United first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Corporate Secretary, Ms. Susan Greenfield. Please go ahead.
spk20: Thank you, Cherie. Good morning and thank you for joining us today on our first quarter 2023 results conference call. On the call this morning are Raj Singh, our Chairman, President, and CEO, Leslie Lunak, our Chief Financial Officer, and Tom Cornish, our Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements. within the meaning of the Private Securities Litigation Reform Act of 1995 that reflects the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that 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 without limitations, 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. 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 statement. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2022, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.
spk39: Thank you, Susan. Welcome, everyone. Thank you for joining us today. It's been an eventful quarter. We have a lot of information to share with you, so this call may be a little longer than usual. Let me start by saying, you know, making a simple statement. Our business is stable and growing. Our liquidity position is strong and our capital base is robust. These, you know, if all you take away from our call is just that, you know, that's sort of the most important thing in all the remarks that we will make. Let me elaborate a little bit on each one of those three things. March 13th, the week of March 13th was certainly disruptive. It cost us about a billion eight in deposit balances, but deposit flows basically the week after that returned to normal. In the last two weeks of the quarter, we actually saw a build of about 245 million in deposits, which is very normal for us. We obviously are building deposits late in the quarter, usually late in the month, but certainly late in the quarter. Our liquidity position, 62% of our deposits are either insured, FDIC insured, or are collateralized. And currently we have $12.3 billion in same-day availability, which equates to 128% ratio of uninsured and uncollateralized deposits. Our capital position, as you already know, is strong. Our SEC1 is 10.8%. At the bank level, it's 12.5%. We have suspended our buyback given all the volatility that we're seeing in the markets. We will revisit it again later in the year, the decision later in the year. And also, just, you know, the second ratio of 10.8%, if we were to actually put our AOCI mark through it, it would still solve to a 9.4%. And, of course, with the suspension of buyback now, the second ratio will start to accrete every month, every quarter. So based on just those things, I'll reiterate again, business is stable and growing, our liquidity position is strong, and capital base is robust. Let's talk a little bit about the quarter. And let me make some remarks about loans, and then really most of my comments will be about deposits, as you can imagine. From a loan perspective, this was, first quarter is our slow quarter. As you can go back and see many years, I think last year, last couple of years, it was a negative growth quarter. This quarter, it was basically flat. So there was nothing really interesting and exciting. It is our slowest quarter of the year, and it came in just as we had expected with basically flat numbers. There's some growth in CNI, you know, some reduction in DREZI, but that was all pretty much predictable. On the deposit side, I would say that the quarter, you could split it into two halves. You can talk about from January 1st all the way to the events of March 10th, March 11th, that weekend, and then what happened in the three weeks after that. So just before these events happened, so by March 10th, we were down about $277 million in deposits. And like I said a little bit earlier, you know, intra-month, intra-quarter, we're usually down, and then month-end and quarter-end, we usually see a build. So when I am standing on March 10th and looking at a negative 277, that generally means we will end the quarter at least flat and most likely up. So that's what we were expecting. We did see, of course, you know, shift from interest, non-interest bearing to interest bearing. So that trend was, you know, happening in January, February, and to March as well. But Before all of this chaos happened, it was looking like a fairly normal quarter, both on the lending side and on the deposit side. And then March 10th, 11th, 12th, that weekend happened. We saw outflows of about $1.8 billion in the very first few days. Most of it was on Monday. Some of it actually was on Tuesday and Wednesday. But by the end of that week, things had basically gone back to normal. Our nervousness was still high, but what we were seeing in the deposit flows, it went back to normal by the following Monday. And then from there on, while we were in heightened alert, we really did not see any unusual activity, except for that one week, for the week of March 13th. And like I said, as we always expect, deposits start to grow towards the end of the quarter, and we ended up where we did. We did a deep dive into exactly where that BillionAid came from, and it really came from 10 relationships. Two of those 10 relationships, I would say, surprised us. The eight did not because the eight, I would say, were in the category of institutional customers, often with fiduciary responsibilities, who decided that the regional bank sector, not Bank United, but regional bank sector was risky and they wanted to pull money out from all regional banks. Two were very core businesses where they didn't take money out completely, but they de-risked from us. And one client took out about half the money, the other one took out a little more. And that is core money, which was very profitable from a margin perspective and we're working hard to bring that money back or at least some of that money back. We also took a look at, you know, I asked Leslie, I said, okay, we get this 10. How about we look at the top 100 customers? You know, is there anything else happening in the sort of the other 100 customers? Leslie went back and said, you know what, nothing happened in the first 100 customers. We looked at customer by customer. We didn't see any flows. Nobody closed. Nobody pulled money out. I said, you know what, let's just go for 200 customers. Let's go another 100. And again, there was nothing that we found. So it was really limited to 10 clients. It was limited to, you know, it actually all was Monday and Wednesday for some reason. Most of it was Monday and Wednesday. And after that, it's been pretty normal. Now, I would like to make it clear that this money has not come back. And we are not, you know, engaging very strongly to bring that money back because, you know, this money kind of showed us exactly how non-strategic it was. And we probably shouldn't have had that much of this money here anyway. So we have not engaged in any meaningful way to try and bring back this money. And the comments I'll make about the pipeline and stuff we're doing there on will be separate, will be removed from this BillionAid, which I don't talk about in a different place. Let's see here. So in terms of our reaction, what we did that weekend and in that week, this shouldn't surprise anyone. I'm pretty sure every bank was doing this. We were hearing things about how the FHLB system is getting taxed and posting collateral is an issue and so on. So we did not see that actually on our end. We drew down $2 billion in cash on that Monday morning without any issue. We posted collateral with the Fed at the FHLB and stayed in constant communication with our regulators, with, of course, FED and the FHLB. We equipped our RMs and branch personnel with all the information that they needed. We offered ICS reciprocal programs, which we've always done in the past. It has never really been much of a product of interest, but we did offer that more widely. We held, obviously, lots of employee calls. And, you know, so it was basically communications one-on-one is what we were doing most of that week. It did, for a period of time, slow down the sale process. Everyone was distracted in sort of the middle of March towards, you know, all the way into end of March. But I'm happy to say, and I'll get into this in a little more detail, that it has not derailed in any way the pipeline that we were working on. That was my biggest fear, like, you know, when this was happening, you know, on one hand it was what's happening with deposits that we have currently, and the second question was what will this mean for going forward in terms of the pipeline that we have, will we be able to protect it or not? And I'm happy to actually say that not only have we been able to protect it, but grow that pipeline. And a few more comments in a couple more minutes. Let me say, deposit growth is hard, it's challenging, but it's also the number one strategic priority for the company. And when I say deposit growth, I mean core deposit growth. The pipeline that I just talked about in a little bit, you know, we do pipeline reviews all the time, both in the lending side and the deposit side. We did one actually just before this crisis happened in mid-March. We did one in early March. And I spent a good part of yesterday going through our pipeline reviews in preparation for this meeting. The numbers today are significantly better and higher than the numbers a month ago, which is why I was feeling very good yesterday. There's a couple of reasons for it. One is just some delayed activity which didn't fall off completely but just got delayed. But one large part for that healthy pipeline is that out of this chaos comes also an opportunity. You know, we've had a couple of really large banks fail, and others were struggling, and they're throwing off a lot of business. And while, you know, we don't completely follow the, you know, don't have a perfect overlap, let's say, with Silicon Valley Bank, and I'm not sure we're going to benefit from that, there was some overlap between the kinds of business we have and Signature had. That actually, I think, was also part of the reason why we saw the pain But also that is what is creating an opportunity. There's a lot of talent and a lot of business that has been thrown off. And I have actually interviewed more producers in the last month than I did all of last year. And so while it is a moment of caution, it is also a moment of opportunity, and we have to capitalize on that. So the pipelines for deposits look healthier than they did a week before this happened. And we are doing everything to capitalize on them. And this was done based on a very detailed review, account by account, relationship by relationship. By the way, I did tell my team members or my entire producing staff that we're no longer in the business of home runs. We're only in the business of singles and doubles. What this means is we have to build more granular. But we've been saying this actually for the last couple of years. But now it is even more important. that this business that is being thrown off is a lot of big-ticket business being thrown off. That's not what we're interested in. It's core middle market, small business, which we want to build the pipelines on and the business on over the long term. So let me talk a little bit about guidance. So in terms of the costs, like I said, we feel pretty good about the pipeline that we have of core business. Put aside the billionaires that left aside. I mean, there is probably some part, like I said, of this billionaire which will be good and strategic and would like to bring back. but I'm not very excited about bringing a lot of, or any of this, very lumpy price sensitive. We always knew this was price sensitive, but in this black swan event, it also showed us that it's very nervous money also. So I'm not sure there's much we can do with that kind of nervous money, so I'm not looking to bring this back, at least not in the way that it was here before. On the lending side, The economy is doing just fine. I mean, my comments generally, you know, I always talk about credit, but I don't really have much to talk about credit. So I'll just leave it at saying that credit is fine, and that's not what we're losing sleep on. Especially, you know, Florida is doing phenomenally well. Loan pipelines are healthy. But we are going to be careful in what kind of loans we do. We're going to do loans where we have the full relationship, and just credit-only transactional business we're not going to do or we're going to, you know, de-emphasize. The REZI portfolio shrunk this quarter. You should expect it to keep shrinking over the course of the rest of the year. The last, you know, through the pandemic, when we were nervous about doing a lot of commercial business, but we had deposit inflows, you know, the place where we put that money was the bond portfolio and REZI. And we have gotten heavy in those classes, and I think you should expect both, just like you saw this quarter, Securities run down and the resi portfolios run down over the course of the rest of the year. CNI will grow, given the pipelines that we're seeing, and fairly healthy. I think at some point, if the economy really slows down and we do enter a recession, then maybe not. But right now, I don't see that, so I am predicting good CNI growth. CRE, I would say, somewhere in the middle, probably stay flattish. And Overall, you know, Leslie will talk about margin and she'll walk you through that because I left the more fun stuff for Leslie's comments. Yeah. Wow's here. I took some notes before this call to make sure I covered everything. You know, we did increase the dividend by two cents this quarter, as we did this time last year as well, in February of last year. We did buy back $55 million of stock until we stopped it. There's a little bit of room left in the authorization, but like I said, our buyback will remain suspended until we see more stability in the economy and in the liquidity situation that the banking industry finds itself in. Let me see. That's it. I'm going to pass it over to to Tom, who will go through a little more detail on the numbers before Leslie will finish and then we'll take questions.
spk11: Great. Thanks, Raj. So Raj covered the deposit outflows a little bit. I thought I would talk a little bit more about what the deposit pipeline looks like and sort of what we're seeing in new client relationships. So market share will be the name of the game, I think, as we look at growth from this point on. If we went back into Q1, we had well over 500 new commercial relationships between the commercial teams and the small business teams. That consistency has carried us through over a long number of quarters now. We feel really, really good about what the deposit pipeline looks like over the near term, this quarter, next quarter, the rest of the year. And I'd say it's a couple of different areas. We've got a number of specialized teams. We continue to invest in PM products, payment capabilities, specialized products within verticals, areas like HOA and our title service business are two examples of that. We've invested, as you know, a good deal in our digital capability for the small business side. Small business relationships are coming in over in the 400 range. Every quarter, we think that's a good place for us to invest in future deposit growth. We've recently rolled out a new consumer checking product that we believe will be attractive. As Raj mentioned, while we don't have a lot of overlap with Silicon Valley, we do have some overlap with banks in New York that have been in the news for the various challenges that they've had, and it's presented us a strong number of new accounts client opportunities in the New York market from those banks. We've continued to onboard new relationship managers in all geographies and verticals. You probably saw a press release that we onboarded an entire team from HSBC in Florida that specialize in multinational business across the state. We're very interested in that. We saw continued good growth in the Atlanta team and business in the Atlanta market has been very strong. Last week we opened up our office in Dallas. We hired a Cree Dallas head. That's our first hire in the market. Pipeline is starting to build in Dallas already. And I think over the course of the next week or so, you should expect to see us make a significant team acquisition in the New York market that we'll be able to finalize in the next couple of days. So we continue to invest in people. We continue to invest in teams. both in the geographies and the verticals that we're in. If you take a look at slide A to the deck, it's got some breakouts of deposit verticals. Our largest is in the title solutions business with total deposits of around $2 billion. Over 85% of these are in operating accounts. There are over 8,000 accounts in this space with 950 relationships. And this segment has actually been very stable and grew by $100 million. as of the end of March. There are really no other industry segments where we have deposits of over a billion dollars. The loan-to-deposit ratio ended the quarter at 97%. While we're still comfortable with that, we would like to see that come down into the low 90s as the deposit base develops and we do some of these shifts, as Raj mentioned, from residential to commercial and other areas. So I'll talk a little bit about loans for a moment. Consistent with the strategy that Raj laid out, residential declined by $111 million in the quarter. The commercial segments and the aggregate grew by $118 million. As Raj said, we continue to see solid pipelines of opportunities across the commercial segments, all geographies, all segments. And it was a good growth quarter for a quarter that typically is a negative quarter. We have not grown typically in the first quarter, and we did. And as you all know, generally, you don't see financial statements in the first quarter, so it tends to be a slower quarter. Overall, CNI grew by $173 million. CRE and BFG were down just a bit. Pinnacle was up modestly. The mortgage warehouse was stable for the quarter. Going forward, expect growth in middle market CNI, traditional new geographies, modest selective growth in the CRE segment. BFG will continue to decline. The Pinnacles will probably see some growth in relationships that tend to be deposit-oriented relationships within that line of business. I'll take a few minutes to speak about the Cree portfolio. Obviously, there's been a lot of press on this topic in the office segment in particular. I would point out that Cree is just lately less than 23% of our total portfolio. So I think, you know, for banks in our size range, You know, that's a pretty conservative level and is down significantly from where it would have been, down 24% over where it would have been two years ago before the pandemic. So we have de-risked this portfolio substantially. A lot of that has been in the rent-regulated space in the New York market. And given how events have played out in that segment, we've been very happy with that decision. If you take a look at slides 20 through 22, In the supplemental deck, it will give you some detailed information about the portfolio. I would say when you look at the office section of it, 60% is in Florida, where the demographics have been very favorable. I think everybody is very familiar with the job growth in Florida. New business starts, in-state migration is very strong. Our portfolio is well diversified across all markets, no significant concentration in any one market. It's in Miami, Fort Lauderdale, Palm Beach, Tampa, Orlando, Jacksonville, and all markets that are showing very, very strong growth overall. If you look at the weighted average loan-to-value in the portfolio, it's 57%. Weighted average debt service coverage ratio is about 1.9%. And if we look at maturities in the next 12 months, 8% would fall into the category of of where they're either fixed rates, either by our own balance sheet rates or swaps. So our upcoming maturity over the next 12 months for resets is relatively modest within the portfolio. Specifically in respect to office, which we continue to closely monitor, that portfolio is about $1.8 billion. Again, 58% of the portfolio is in Florida, where demand and absorption continues to exceed supply. Only 9% is in the Manhattan market. And in the Manhattan market, only 5% actually has lease rollover within the next 12 months. It's one of the smallest markets where we have lease rollover. 14% is in Long Island in the boroughs and neighboring states, and 19% is in other areas with no particular concentration. Weighted average LTV of the office portfolio is 64%. and the weighted average debt service coverage ratio is 1.7. And the overall portfolio and office rent rollover over the next 12 months is just a little over 10%. So, again, very modest. If we look at the office book in the last five years, our cumulative charge-offs have totaled only $2 million in the entire portfolio. So, you know, we're very confident that the overall CRE portfolio is a quality portfolio, and we look at the diversification in metrics of the office portfolio would feel very good about where we're positioned, you know, in office. So with that, we'll turn it over to Leslie for more details on the quarter.
spk27: Thanks, Tom. So in summary, net income for the quarter was $52.9 million, or $0.70 per share. Speak a little bit to the NEM. The NEM declined to $262 for the quarter compared to $281 last quarter, up from $250 for Q1 of 2022. You know, we obviously missed... guidance, our NIM guidance that we gave you in January, while earning asset yields did continue to increase as expected, securities from 433 to 495 and loans from 472 to 510, we underestimated the amount of mixed shift that occurred between NIDDA and interest-bearing deposits, and certainly we didn't anticipate the events of March. Overall, non-interest-bearing DDA was down about $780 million, and average cash balances for the quarter were up almost $300 million, all of that happening, obviously, at the end of March. And offsetting all of that was a $1.1 billion increase in wholesale and other high-cost funding at current market rates. And we estimate the impact of that overall mixed shift on them this quarter to be about 14 basis points. The average cost of deposits went up from 142 to 205, and the cost of FHLB advances went up from 344 to 427. That advance portfolio is by no means optimized. In order to retain the maximum flexibility, we kept that short, which is right now the most expensive part of the curve, and we're working right now on optimizing the composition of that portfolio. Looking forward, I will just say that any guidance we give you about the NIM is, I would say, fraught with peril. But it's a very difficult thing to predict right now. But I will give you, at least I'll lay out one scenario for you. Given the starting point and the fact that we're still holding a higher than normal level of cash on the balance sheet, the NIM will be under pressure again next quarter. I'll give you one scenario. If we keep deposits and the funding mix flat over the remainder of the year, see the strategic shift in loans that Raj described, I'd expect an end for the year in the 250s. We think we can do better than that. We do think we can grow deposits and improve the funding mix, in which case it'll be a little bit better than that. A few more details on liquidity. You can see in slides 8 through 10 of our deck, I'll reemphasize what Raj said. 62% of our deposits are insured or collateralized at March 31st. Currently, same day available liquidity is $12.3 billion, which provides us with 128% coverage of uninsured and collateralized deposits. Deposits in the ICS reciprocal program grew from about $94 million at March 13th to about $574 million currently, so we have seen some interest in that program. With respect to the securities portfolio, I'll just emphasize, as you're aware, with the exception of one tiny little $10 million bond, all of our securities are available for sale. The pre-tax mark on the available for sale portfolio improved by $100 million this quarter. And again, I'll point out that if AOCI were run through our regulatory capital ratios, that one would still be a healthy 9.4%, significantly in excess of the 7% well-capitalized requirements, including the conservation buffer. The duration of the portfolio is 195, and 68% of it is floating rate. Moving to a little bit of discussion of the provision and the reserve, the provision this quarter was $19.8 million. That was down from the prior quarter. I'll remind you, we kind of took our pain in the fourth quarter. We added $16 million of qualitative overlay in the fourth quarter related to economic uncertainty specifically. and most of that is still there. This quarter's provision does reflect further deterioration in the baseline forecast and an increase in some specific reserves. The ACL coverage ratio increased from 59 basis points to 64. Our economic forecast committee selected the Moody's baseline as its reasonable and supportable forecast for this quarter. However, a significant qualitative overlay that we established in the prior quarter still remains with respect to uncertainty about the economy. We believe our current reserve level is sufficient for a mild recessionary scenario. The ACL coverage ratio would be expected to move up with a mixed shift from resi to commercial that we are expecting to happen over the rest of the year and will obviously increase further if the economic outlook deteriorates materially from here, which we don't currently expect. We provided you with some stress testing results for the pre-portfolio in the deck. This was run with a Moody's S4, which is a pretty severe recessionary scenario, and lifetime losses on the CREE portfolio total about $97 million in that scenario. Now, while we don't want that scenario to materialize, if it does, I think that's a very manageable level of credit losses. I know we're going to get a question about this, so I'll head it off. We believe that the level of our CREE reserves currently, as well as those stress testing results, And remember, we're using the same models everybody else is using here. We believe those numbers are reflective of the high quality of that commercial real estate portfolio. One more thing I'll say. There was a modest increase in criticized and classified loans this quarter. Almost all of that was attributable to one loan that paid off yesterday. So that's back down to where it was before. The decline in non-interest income this quarter resulted primarily from $13.3 million in losses on preferred equity investments. That impacted EPS by 13%. And the issue that has been leading to most of those losses has now been liquidated. 13 cents. 13 cents. What did I say? Evan only knows what I said. But yes, whatever I said, I meant 13 cents. OK. Non-interest expense quarter over quarter, probably the only thing worth mentioning there is, you know, $4.2 million in operational losses that we took this quarter. There were two incidents there. One was a check-kiting scheme, and another was a customer that we had who was, you know, hacked or defrauded, not us, the customer, during the quarter, and we made the decision to, you know, we ended up reimbursing that loss. I will turn it back over to Raj for any closing comments.
spk39: No, let's open it up for questions. I'm sure there are plenty, and then I can maybe make closing comments at the very end.
spk49: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile the Q&A roster. Our first question will come from the line of Jared Shaw with Wells Fargo. Your line is open.
spk47: Hey, good morning. Good morning.
spk12: Good morning, Jared.
spk47: Maybe just starting on credit. Leslie, you mentioned that you were paid off on a loan that was criticized and classified. Is that also the loan that increased non-performers, the CNI loan? Is that the $20 million increase in non-performers?
spk27: No, Jerry, it's not. I would say non-performers are up by a negligible amount and no trends there, nothing unusual we're seeing. I think those are just normal puts and takes.
spk47: Okay, so that $20 million increase in the C&I side, it's not tied to one or two loans, it's more diversified?
spk27: Yeah, and I just think it's not that long. I just think, like I said, it's normal puts and takes. There's nothing, it's one loan and... I don't think it's anything indicative of anything systemic or any kind of trend.
spk47: Okay. Really appreciate the color on the commercial real estate side, especially the office. And looking at the trends in the New York office space, you have really good debt service coverage ratios and loan-to-values. But what's your thoughts in terms of what those landlords and property owners are going to do when those property or when those loans come due? Do you think that they have an appetite to add equity and refinance? Or do you think you're going to see more property sales at that point when those loans come due?
spk11: Yeah, what I would say on that, Brady, is that when we look particularly in the New York market, the quality of the sponsors that we have in the New York portfolio The deep pockets that they have, the fact that these are predominantly generational assets that they have owned for a long period of time, I think that they will maintain these assets over that period, and I think they will stand behind the properties and inject equity if that's what's needed at the time. Right now, the lease rollover and the maturities are relatively light. in that book. So we'll see what, you know, what plays out over the next couple of years. But I would say when we specifically look at the New York Manhattan office portfolio, the quality and depth and capability of the sponsors gives us, um, great comfort.
spk47: Okay. Um, that's a good color. And then on, on the opportunity, you know, you said CRE relatively flat, but when you look at New York city, especially with signature now gone, and maybe somebody like an NYC be more at capacity. Do you think there's going to be additional opportunity for commercial real estate there and maybe even in rent-stabilized multifamily with some of the law changes that we're seeing? Or is that still an area you're not that interested in expanding?
spk39: I'll take that one. We look at all opportunities that come to us, but we're not yet jumping with excitement on that opportunity. CRE, you know, going into a slowdown of the economy with all the question marks that come with that, we're not too bullish on trying to grow CRE. I mean, we worked very hard to shrink CRE portfolio by $2 billion over the last, you know, since the pandemic. And we've devised the portfolio very nicely. You know, I'm never saying never. But that's not where my excitement is from the business that is being thrown off from banks that have gone away. I think also CRE, very often, especially in New York, tends to be transactional in nature. Sometimes it comes with deposits, but it doesn't come with a lot of deposits. So that also, my comment about trying to grow relationship-oriented, you know, business, which means credit and debit business, it's harder to do in CRE than it is in middle market CNI. So that's another reason why we're choosing more the CNI side than CRE. Having said that, it's not that we're not doing CRE. We are. We're just not. I don't think you'll see a lot of growth in CRE. You'll see some replacement. You'll see maybe a little bit of growth, but not.
spk11: I think you'll see more in CNI. Yeah, I would also add to Roger's comment and say that our overall perspective on Cree is one that is a very disciplined approach from an asset allocation perspective. So while we're not seeing any shortages of phone calls in the New York market right now, it isn't a situation where we would deviate from the asset allocation strategy we have. And when we look at Cree across the footprint, you know, we're, we're obviously sitting in Florida, you know, with a, with a, you know, very, very good demographic and economic scenario. We have now, you know, a Cree office in the Atlanta market. We have one in Dallas, we have one in demographics, you know, that are growing very strongly. So, you know, our discipline around what we do, um, will be very important for us to continue. And it will not be an opportunistic response to something just happening in one market.
spk47: That's great. Thanks. And then just finally for me, when you look at that billion aid of deposits that left, were there any lending relationships tied to that or any specifically any lending relationships that required deposits? And if so, what's your... what do you expect to do with those? Would you, would you call those loans? Would you try to reduce that, that, uh, that lending relationship or is it really just a deposit side?
spk39: Yeah. So, so off the 10, the two that I talk about separately, those are very strategic. We have the full relationship. We do everything for them. If we have a piece of the lending, not as big, of course, lending all this because of our, you know, very small, uh, house limits, uh, the, the loan numbers are much smaller than the deposit numbers. But on those two relationships, we have the entire relationship, right? We have the lending, we have the cash management treasury, we have the entire back office is run out of Bank United. So those are very core. The other eight, I think a couple of them where we do have small pieces of the lending side, we've already actually told them that we will not be renewing because even the lending side, while it feels like, okay, we have the lending and the deposit side, It was more transactional in nature because they were just pieces of participation that we bought because we wanted to cement the relationship a little bit deeper. And now we realize it wasn't really helping. So if the deposits are gone, the loans will be gone. We already told them they're going to take out the – if they're going to be nervous about the deposit relationship, we're going to be nervous about the credit relationship.
spk11: Yeah, I would also add that generally the ones that we stepped out of were unfunded participations that we got into to support the deposit relationship. So when there's nothing to support.
spk27: And Raj, with the two relationships, I know you mentioned this earlier, but just to reiterate, those deposits did not leave the bank. They just reduced or spread their exposure around among more banks. Those accounts are still here.
spk47: Yeah. Okay. But on those eight loans, though, it's more you won't renew them. It's not like you'll actually go and call. call loans that had deposit requirements.
spk27: We're just a participant in a much larger facility and we just won't re-up that participation.
spk42: Okay. Thank you.
spk49: Thank you. One moment for our next question. And that will come from the line of Brady Gailey with KBW. Your line is open.
spk08: Thanks. Good morning, guys.
spk23: Hey, Brady. Good morning, Brady.
spk08: When I look at loan growth, commercial real estate is going to be flat. C&I growth is maybe offset with resi shrinkage. Should we think about loans kind of being flat going forward? So maybe loan and asset balances are kind of flat from here on out?
spk27: Yeah, I would think so.
spk08: Yeah, for this year.
spk27: Yeah, but you'll see an improved margin because of the shift from resi into C&I.
spk08: Okay. And then, you know, Bank United has repurchased a lot of its stock over the last several years. You know, I realize the uncertainty and the increased risk just in the banking system right now, but I totally get the pause there. But at the same time, you know, your stock is at 65% of tangible book value. So when do you consider, you know, turning that buyback back on?
spk39: I think it will be a topic of discussion that every board meeting over the course of the rest of the year. Starting in May, we will have a discussion. I don't think we're going to do anything in May, but at the August board meeting and the November board meeting, this will be discussed. It is the prudent thing to do right now, given all the uncertainty around liquidity, around the economy, around even regulation for that matter. So when things settle down a little bit, we have a little bit of a clear line of sight, then we will probably step back up. But I don't see that happening over the course of the next month or two.
spk08: And then finally, if you look at profitability levels, like ROA and return on tangible common equity, they remain fairly depressed. I know there's not much you can do about the net interest margin at this point, but is there an opportunity – on the expense side to see some... I know you guys have done a cost reduction plan previously. Is that something that is on the table that could help get the profitability of Bank United up to peer levels?
spk39: Brady, the lever that is going to move profitability more than any other is going to be revenue, not expenses. Margin is depressed given the makeup of the balance sheet right now. It's like I said, has gotten much more wholesaly because of what has happened over the last two years or three years now. And that mix has to actually change to a higher performing mix. That is what will move the needle. I'm hesitant to say we will stop investing in the business because if I go back and think hard about the mistakes that we've made over the last couple of years or three years, one, you know, mistake was that during the pandemic, when, you know, we really didn't know where the world was headed, we pulled back and did not make investments in producers and revenue generators. Hardly anyone during 2020 into early part of 21, and really restarted the engine only last year. And that may feel good in the year you do it, but you really pay a price long term. And I don't want to make that mistake again. So you heard Tom talk about Dallas. We're moving forward. He did a plan to last year. We're moving forward with that. We just picked up a team in Broward. We're about to pick up a team in New York. And yeah, those are, you know, investments that they're not going to pay off, you know, immediately when you bring them on. But they're not very long-term investment. It doesn't take four or five years for those to pay off. So what may look like a bit of a drag for six months or so. Within a year, that should start producing revenue in excess of expenses. So I want to keep investing and really solve the profitability problem with remixing the balance sheet. And you need the right kind of producers to do that. You do need some time also, right? The resume is going to run off the way it's going to run off. CPRs are low at this point in time. But that is what will bring margin up, revenue up, ROA up, rather than let me go and, you know, listen, we are obviously squeezing the belt. Don't get me wrong. We are doing that. We are looking at any kind of investment that can be, that is very, very long-term in nature and see if we can delay that. But on the revenue producer side, I just see there's an opportunity here That doesn't come up very often, and I don't want to miss that.
spk07: Okay, great. Thanks, guys.
spk49: Thank you. One moment for our next question. And that will come from the line of Steven Scouten with Piper Sandler. Your line is open.
spk47: Hey, thanks, guys. I appreciate it. Good morning. I guess one question I had just on the funding side would be capacity for broker deposits. Can you give me a feel for how much, and maybe that's in the slide deck, I apologize, but where, you know, what level of capacity you guys would have from here to add those as needed?
spk27: Steven, there is still capacity to add. I don't actually think we're going to need to do that in the short term. I think we've got enough other types of deposits in the pipeline right now. But we certainly could add there another $500 million to $1 billion, but I don't think that will be necessary.
spk40: Okay, great.
spk47: And then can you give some color maybe about that marginal cost of deposits today, where you're seeing new deposits priced, and kind of what spreads that's leading to in respect to what you're able to book new loans at as well?
spk39: yeah it's a wide spectrum so usually when people ask the question they are asking about retail and I'll tell you retail is a little easier to answer right now we have money markets priced at 350 and I'll say at 350 it's not getting much fraction we have 12 months of CDs price at, I think, mid-4s, $4.50, if I'm not wrong.
spk18: I think it might have gone to $4.70.
spk39: No, it hasn't. No, it's $4.50.
spk25: I've got erroneous information.
spk39: Yeah, I think it's still $4.50 or $4.55. So mid-4s. And two-year is slightly lower at low 4s. And that sells. A $3.50 money market does not sell. I think you have to be a little bit higher, but we haven't been pushing that. And on the commercial side, it is a much wider spectrum. So we are engaging, we're right now engaged with kind of on the, you know, a two-yard line with a complex treasury relationship, and that's going to be priced in the twos. So, but then there's other money that may be, you know, at 4%. So it's much wider, and the title business you know, it's much lower. The book of business is still sitting at under 100 basis points. So it is a much bigger spectrum on the commercial side based on what, you know, what you're selling and what is a complete package like. But on the consumer side, if you want to grow, those are the kind of numbers we're seeing. And our consumer business, as you know, is really Florida, not so much in New York. So that's indicative of where the Florida market is.
spk30: Got it.
spk47: And new loan yields and kind of what sort of spreads you might be seeing, I guess.
spk15: Can you deliver like a 3% spread on new loan production?
spk39: Loan production is now getting into the SOFR plus 300 range, yes.
spk05: Oh, yeah.
spk15: Okay, great.
spk47: And then maybe just last thing for me, it sounds like the team in New York that you're looking to add is non-CRE focused, presuming C&I focused. But I guess I'm curious if you'd also have additional interest in potential signature loan sales when those come available later this year.
spk39: Yeah, we are familiar with that book, and I don't think we will have much interest.
spk27: The other thing I would say is we're really leaning away from credit-only deals. We're really looking for relationship-based business. where we're getting a fulsome relationship with the client, we're getting some operating deposits as well as the loan, and really de-emphasizing credit-only business.
spk15: Yeah, makes a lot of sense. Okay, thank you very much for the color. Appreciate it.
spk49: Thank you. One moment for our next question. And that will come from the line of David Bishop with Hovde Group. Your line is open.
spk46: Yeah, good morning. Hey, David. Hey, Raj.
spk47: You mentioned on the federal home loan bank side, there could be some maneuvering there, some restructuring. Just curious, maybe you can give us some color, maybe what might be contemplated there. Are we going to maybe term that out or
spk27: Yeah, I don't have a lot of details yet because we're still really analyzing and deciding what makes the most sense to do, but probably swapping some of it out. It makes more sense to swap it out than to term it out. You get better pricing because of their term premium. But we're analyzing all of that right now, and I think we can bring the cost of that portfolio down, and I also am fairly optimistic about us being able to pay some of that down in the near term as well.
spk47: Got it. And then, Raj, in terms of the de-emphasis on the resi mortgage side there, is that interest rate risk positioning just reducing its percent of capital? Has it gotten too big from that perspective? Just curious as the pullback there.
spk39: I think that it's just too large a portfolio. I mean, when you look at a mix of loans, you know, I just made a comment about it. We took CLE down by $2 billion since the pandemic. Well, when you take something down, something else grows. And it wasn't CNI. CNI grew nicely, but it was resi. Because in 2020 and 2021, when the world was shut down, that was sort of the safest place that we needed to be. But now, in 2023, standing here, I look at the mix of loans and I say, well, this has gotten too heavy in resi, too heavy in securities, and we need to kind of remix this a little bit. which is what will help returns. By the way, I just want to make a comment about the Resi portfolio. It is a very high credit quality portfolio, and it also is not some 30-year, 10-year IO type portfolio. That's not what it is. It's very carefully constructed. There's a lot of arms. There's some 15-year paper, some 10-year paper, some 30-year paper as well, and very little IOs. So Our CPRs are, you know, while they're lower than historically, everyone is lower, they're not that low as some other banks are because of the hybrid portion of the portfolio. So it will run off. It will be very sensitive to interest rates. Interest rates go down even a little bit. You'll see more runoff. By the way, the Ginnie Mae portfolio is in that too. You know, the... The portion of Ginnie Mae, which is not going to re-perform, that's going to have a very short life because in a year or so, that gets foreclosed on and cash flows. So it's a nicely mixed portfolio, but we have just too much of it. And we need to reduce it and take it back to the levels that it was before the pandemic and replace it with more core business that generates not just good returns, but also comes with liabilities.
spk27: It's more a return question than an interest rate risk question. The interest rate risk is nicely balanced by the short-duration bond portfolio.
spk48: Got it. Appreciate that, Colin. One final question, Leslie.
spk47: The preferred securities that you sold that drove the loss, is that the entire exposure to those entities?
spk27: The entire exposure to that issuer, it's not the entire preferred securities portfolio that was sold.
spk39: The preferred securities portfolio, the mark in that goes to the P&L every quarter.
spk00: Yeah. Yeah. I'm sorry. Go ahead.
spk37: Do you have the size of that portfolio?
spk26: The what? I'm sorry.
spk37: Just overall size of that portfolio.
spk27: Give us a second. Somebody's looking that up for me. We'll answer that question in a minute. Let's carry on.
spk14: It's not as big as you.
spk27: It's not huge, but we'll answer the question in just a minute. Okay, thanks.
spk17: We can move on.
spk27: I'll just throw that in when I get it. We can move on.
spk49: Okay, thank you. Our next question will come from the line of Brody Preston with UBS. Your line is open.
spk41: Hey, good morning, everyone. Leslie, I just wanted to circle back on that one multifamily loan that went special mention but has obviously paid off. Was that a New York City-based multifamily property?
spk27: No, it was actually in Florida. I don't know exactly where, but it went into special mention this quarter and then it paid off, so it's gone.
spk11: It wasn't an individual loan. It was a loan in our institutional real estate group that was a fund loan.
spk10: investing in multifamilies. It wasn't an individual property that paid off.
spk41: Got it. Okay. And I appreciated the stress test slide that y'all included. I wanted to ask just a couple of questions about it. How does the, I guess like how does the probability of default and loss given default in these scenarios shake out versus, you know, what you guys consider in your baseline modeling?
spk27: I mean, Both are higher. I don't have the exact numbers in front of me. Both the PD and the LGD are higher, obviously, in this scenario than they are in the baseline, but I don't have the PDs and LGDs in the stress scenario in front of me. I'm sorry.
spk41: Okay. No worries. I guess I was just trying to – the increase in the hotel losses?
spk27: That's really just, you know, in a recessionary scenario, the kind of underlying assumption there is people just stop traveling and stop staying in hotels. So that's why you see the big spike in the hotel losses. And some of that may be informed by what happened in the pandemic. But, you know, just the assumption there is that the business just drops off considerably and the NOIs go down dramatically in a recessionary scenario with the hotel portfolio. That's what you're seeing there.
spk40: Got it. Okay.
spk27: And then... It was very modest in size. I mean, the total losses off that stress are $97 million, which I consider to be a bad quarter, but an extremely manageable number.
spk41: Understood. Leslie, just on the expenses, just wanted to clarify if the expense guidance that you gave last quarter for the full year was still intact.
spk27: Yeah, I think we'll probably end up more towards the higher end of that guidance, but yes.
spk41: Okay. Okay. And then could you remind me, um, two things, just the floating rate loan percentage that y'all have, and then the, the interest bearing, uh, beta that you all are assuming, um, when you do your sensitivity analysis.
spk27: Yeah. Um, first let me throw in the answer to the question about the preferred securities. That's $69 million left in that portfolio segment. And those are not in the available for sale portfolio. Like Raj said, they get marked to market every quarter. but it's $69 million at March 31st, and that sits at the holding company. Betas, the total deposit beta to date this cycle through the end of the quarter is about 43%. That's all in. That's about 62% for interest-bearing deposits excluding CDs. Including CDs, it's 45% all in and 61% for the cycle. That's where the betas are landing, and somebody's getting me that floating rate portfolio information, so I'll throw that one in again as soon as it becomes available.
spk41: Got it. And then I just had two last ones. Just on the bigger deposit outflows that you called out, the 10 relationships, how much of that one point, I think it was 1.9, how much of that was non-interest bearing?
spk39: Yeah. Do you know the number? I'm sorry. I was distracted by... The $1.9 billion of the top 10 customers who left, how much was interest-bearing, how much not interest-bearing?
spk24: I do not have that in front of me.
spk41: Okay. And then the last one was more, Raj, for you on the ROA improvement. I heard you earlier about kind of remixing, and it'll take place over time. So I guess just as we think about the... where the loan to deposit ratio is right now, you're kind of pulling back on a loan production, at least from a, you know, from a non-relationship perspective right now, I guess, like, what is your, what is your long-term goal for the ROA? And, you know, I guess, when do we get there? Cause it seems like it'll probably take a couple of years just given the economic outlook and, you know, the fact that the securities portfolio is still relatively large.
spk39: Yeah, it's the Resi portfolio that will drive it more than the securities portfolio. Securities portfolio, while it's large, it is, you know, 68 or 70% floating rate. It's the Resi portfolio, which, you know, the runoff of that portfolio at current CPR rates is slow. That can change rapidly in a slightly different interest rate environment. So the speed with which we can remix will depend a little bit on that. And it's that remixing which will cause the returns to get better. So I'm not trying to evade your question, but it's very hard to say when that will happen and how fast that will happen. It could happen relatively fast. Rates went up very fast. They could move down. I mean, I know nobody's talking about rates moving down right now.
spk19: They're not going to get much lower, I'll tell you that.
spk39: But, yeah, they can't get any lower. So, yeah, I mean, you know, the goal is still 1% ROA, you know, and low double digits ROE, and this model should get there. We expect it to get there. That's what we're driving for. But the timeline is harder for me to say. your guess, probably a couple of years, is probably right. Got it.
spk41: Thank you very much for taking my question. Oh, yeah, go ahead, Leslie. Sorry about that.
spk27: Back to the percent of the loan portfolio that's floating. The commercial loan portfolio, excluding Pinnacle and Bridge, is 67% floating, including those at 61% floating.
spk41: Got it. Thank you very much for taking my questions, everyone. I appreciate it.
spk49: Thank you. One moment for our next question. And that will come from the line of Stephen Alexopoulos with JP Morgan. Your line is open.
spk44: Hey, good morning, everyone. Morning, Mr. Alexopoulos. Hi, Leslie. I wanted to start.
spk47: So going back to the $1.8 billion of outflows, could you just give us more color on where that money moved to?
spk22: Almost all of it went to your bank, Stephen.
spk47: Well, let me ask you this. Why couldn't you make greater use of the insured deposit network? Because I would think that's lower cost than FHLB.
spk27: They were not interested. Their boards, for the most part, their boards made a knee-jerk decision over the weekend to move all of their money out of mid-sized banks, not just out of Bank United. And, you know, we had long conversations with these folks. For the most part, their boards decreed that all money would be moved out of mid-sized banks, and I believe when I looked at it, about 95% of it is now on your balance sheet, Stephen.
spk11: Because generally when we talk to the management team, Stephen, they were supportive and open to the idea in the future, but they were not in a position to negotiate with their own boards over this.
spk27: So that's really kind of what happened.
spk47: And what's your latest thought on where the mix of non-interest-bearing deposits bottoms?
spk39: Very hard to say. Very, very hard to say. I know you've been asking that question every quarter. Yeah, I mean, it's holding at 29%. And, you know, yeah, probably be under some pressure. I can't say confidently. It's not going back to what it was pre-pandemic, which was, you know, the T-17. Yeah, it's not headed there. But it's really hard to say, you know, is it going to 28 or 27 or where, but... You know, the Fed is hopefully coming to an end here. And while, you know, they'll probably pause and stay here for a while, at least it's not, you know, 75 basis points every time we turn around.
spk44: Yes, yes.
spk39: Okay.
spk44: And then, so Raj, you've been working to improve the deposit quality, right, of the company for a couple of years now. I'm curious, what lessons do you learn from what just unfolded, not just for you, but for the whole industry? And how does this change the go-forward strategy for the company?
spk39: Yeah. I mean, listen, some things we already knew, but we now know even more. And in that category, things such as smaller is beautiful, right? Small is better and large is not. So no home runs. only singles and doubles right we've been saying that for the last two years and achieving it but we had a lot of work to do and we were holding on to this you know this what i would say a crutch the crutch got knocked out from under us and and and now we just have to stand on our own legs which is all singles and doubles that's one i think another learning uh uh you know in general not just for the deposit side i would say is we always considered reputation risk as something to pay, you know, even more attention to than all the other risks that, you know, cyber and credit and liquidity and all that. But we always defined reputation risk as stuff that, you know, happens to us and bad press about us and, you know, monitoring Bank United on social media and so on. What I learned through this is that guilt by association it's something you also have to worry about a lot. The company you keep, so to say. We've agonized about this a lot, like what was that reaction on Monday? Our business is so different from Silicon Valley and Signature and others that have very different business. There is some guilt by association. So Silicon Valley, we have little to no association with and didn't really hurt us. I would say Signature did. because there is a little bit of that contagion. Now, it's also creating the opportunity for us, by the way, but that's sort of after the fact. So that was also a learning that you have to worry about your reputation, but also the company you keep and guilt by association and getting caught up. I mean, Steve, the number of negative articles I have read about the banking, the regional banking business, You know, it's enough to, you know, put me on some kind of an antidepressant medication. It's like everything you read, every newspaper article, every time you hear somebody on CNBC talking about there's no need for a regional bank. And, you know, I've saved these comments for my closing remarks, but let me just add right here. You know, the darkest time for me, and this was actually not that Monday, but it was maybe a week or two into this, reading all these articles talking about that, you know, America doesn't need regional banks. And in that chaos, I actually got a phone call from a friend of mine who's a venture capitalist and who was at Silicon Valley Bank for 20 years and had moved all of his money and portfolio company money over to, you know, I won't say which bank, but you can guess one of the bigger banks. And two weeks had passed and I asked him, how were things? He said, you know, I'm feeling much better. Everything is in a safe place and so sad to see what happened to Silicon Valley Bank. But then he said, you know, it's strange. All the money that I had moved, I was trying to reach somebody at the bank the last couple of days and, you know, they gave me an 800 number. I don't do 800 numbers, were his exact words. And I said, well, get used to it because that's how it works. He said, I really, you know, I had the phone number for my person at Silicon Valley. And then he said to me, would you mind if I introduce you to this person? And she has a team of about eight people and they're wonderful. I said, I'm happy to be introduced to her. I'd love to talk to her. But we're not in that business. I'm not sure that, you know, it'll be very fruitful. But that team is going to land somewhere. And that team looks after this person and other business like that in a way that larger banks cannot. Larger banks have a lot of benefits over a lot of advantages over a size and scale and brand recognition and so on. But the size and scale is what also gets in the way of closeness to customers. And for commercial customers, what matters more is not how many products you can offer, how big a check you can write and how many branches you have. What matters more to middle market commercial customers and small businesses is that I know somebody at the bank who's a decision maker. And that if something happens, I can always call someone and I know that I can greet someone with some authority. That's just not possible at a large bank where the 30 levels of, you know, from where the customer touches the bank to where decisions are made. That is actually the most critical thing that a commercial customer looks for. And that's why regional banks exist. That's why we exist. That's why we take market share away every day. That's why we have a pipeline of business. So that is sort of, you know, to me, sort of personally speaking, that was my sort of inflection point in how depressing all of this was in March. After that phone call and after that realization, I started getting out of this and started feeling good about, okay, this has happened. We'll deal with it. There's an opportunity that comes with it. We'll capitalize on it and we'll continue to keep building the bank. So, you know, it's been a hell of a What, six, seven, eight weeks now? Yeah.
spk47: Raj, if I could follow up on what you just said. So when we look at the results we're seeing from the industry, it's very clear that what you have in your slides, right, there was a week of outflows or a couple of days, and then it's pretty much back to normal, right? I know CNBC is going out of their way to convince everybody we're in a crisis. We're not. But the question is, do your customers still think we're in a crisis because they're watching CNBC? Or when you talk to them, do they feel like, okay – That was a storm. It's over, and it's pretty much back to business as usual now from the customer view.
spk39: Yeah. If I was to describe this and try and draw up comparisons to 2009, this felt like a tornado. 2009 felt like a hurricane. Hurricanes come. They give you a little bit of warning. They're headed your way. They sit on you for maybe two, three, four days, a long period of time. They do a lot of widespread destruction. Tornadoes hit you with little to no notice, do a lot of destruction, but it's very localized, and then they're gone. And that's what this feels like. It happened with little to no warning. I mean, I didn't know that, you know, a week before that this was going to happen. I'm not sure anyone did. And it happened. It happened very fast. And it went back to normal with clients, you know, not with CNBC, but with your clients, it went back to normal a week later. So we're still a little shell-shocked, to be honest. We're still worried, is it tornado season? Could this happen again? Is there another one which might happen, which is normal. The building codes, i.e. regulations, will change to make the structures, i.e. banks, stronger going forward, and there will be a price for that. But there is a difference between what 2009 felt like and what this feels like. This was very, very sudden. 2009 was not very sudden. We saw that happen over all of 2008, starting in 2007, and then bottoming out in 2009 early. So it is a little different. The clients are, you know, we're not showing them slides anymore. We showed them slides for about a week about how we're, every bank was doing this, by the way. This is us, this is Silicon Valley Bank, and this is Signature and how we're different. That slide was used for about a week. And after that, it's no longer in any pitch book or anything that's been taken out. We're not talking about safety and soundness issues. We're talking about products and services and selling the way we were back in February.
spk11: You know, I'd also add, when you talk to clients, if you look at our target client, who's an entrepreneur running a $40 million plumbing supply company, they're actually now reading the Wall Street Journal and CNBC, and they don't have a Bloomberg screen on their desk. They're running their business online. You know, they're not as panicky about these kinds of issues.
spk44: Thanks for taking all my questions. I appreciate the color.
spk49: Thank you. One moment for our next question. Our next question comes from the line of David Rochester with Compass Point. Your line is open.
spk47: Hey, good morning, guys. Sorry to extend the call here, but I'll make it quick. On the expense side, appreciated your comments about hitting the high end of that guidance range, which I believe was mid to high single digits. So you're talking about a high single digit growth pace. It looks like that implies a pretty decent step down in that quarterly run rate from here.
spk16: I was hoping you could just maybe ballpark that for Q2.
spk27: Like Raj said, I think we're in the process. We had that $4.4 million operational loss. That was pretty unusual for us. I don't expect anything like that to recur. We've actually never had anything like that in the past. That's going to be gone. As Raj said, we're also taking a pretty hard look right now at the expense base. While we don't want to sacrifice anything, The investment we're making in teams of producers, we are taking a pretty hard look at the rest of the expense base right now and seeing if there's areas where we can pull back or push things out.
spk47: Okay. And then on the margin, appreciated your 250s for the year comment. Was wondering if you had any rate cuts in that. And then in terms of the cadence, it sort of sounds like you're looking for maybe a little bit of a bigger step down in 2Q and then possibly stability from there. How are you thinking about it?
spk27: So we use the consensus forward curve, and I think there are two 25 basis point rate cuts based into that later in the year. And yeah, you're probably right about the cadence being lower in Q2, given the starting point.
spk47: All right. And then on the deposits, I know the scenario you gave for the 250s included, it sounded like flat funding mix, I believe you said. But then you talked about the solid pipeline there on the deposit front. I know it can take a little while for some of those to pan out, but just wanted to get a sense of the size of that opportunity, if you're talking about hundreds of billions or maybe billions. And then for the discussion earlier on the GDA mix, I was just curious what that component was in the pipeline you're seeing right now.
spk39: Yeah, I think on the guidance, that's just mathematically, just to show you, we ran the numbers assuming everything is flat. We kind of made that a base case on the NIM guidance. The pipeline is about $1.5 billion to $2 billion in size. It's not going to happen all in one quarter. It's going to happen over the course of the next two or three quarters. And like I said, it's all operating money. It's not any of the $1.8 billion that left. But it's not all DDA. It is operating money, but it's a mix of DDA and money market.
spk27: Maybe about 20% DDA. I'm curious. And I would also say that $1.5 to $2 billion is pipeline that we have a really good line of sight into. You know, there are more opportunities than that, but this is stuff that is really in the process of, you know, really in our sight line very specifically and granularly.
spk47: Yeah. All right. That's good to hear. And just to wrap up, Raj, your anecdote on the 800 number, we've heard a number of stories just like that post the – the crisis. So not to take any shots at other banks represented on the call today, but there are a lot of stories like that out there. So feel good about it.
spk38: Thank you.
spk49: Thank you. And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Rod Singh for any closing remarks.
spk39: I think we've taken enough of your time. We've had a rather long call, but thank you very much for joining us. And we'll talk to you again in 90 days.
spk49: bye thank you for participating this concludes today's program you may now disconnect you Thank you. Thank you. Good day and welcome to the Bank United first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Corporate Secretary, Ms. Susan Greenfield. Please go ahead.
spk20: Thank you, Cherie. Good morning, and thank you for joining us today on our first quarter 2023 results conference call. On the call this morning are Raj Singh, our Chairman, President, and CEO, Leslie Lunak, our Chief Financial Officer, and Tom Cornish, our Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements. within the meaning of the Private Securities Litigation Reform Act of 1995 that reflects the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that 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, without limitations, 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. 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. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2022, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.
spk39: Thank you, Susan. Welcome, everyone. Thank you for joining us today. It's been an eventful quarter. We have a lot of information to share with you, so this call may be a little longer than usual. Let me start by making a simple statement. Our business is stable and growing. Our liquidity position is strong, and our capital base is robust. If all you take away from our call is just that, that's sort of the most important thing in all the remarks that we will make. Let me elaborate a little bit on each one of those three things. March 13th, you know, the week of March 13th was certainly disruptive. It cost us about $1.8 billion in deposit balances. The deposit flows basically the week after that returned to normal. In the last two weeks of the quarter, we actually saw a build of about $245 million in deposits, which is very normal for us. We obviously are building deposits late in the quarter, usually late in the month, but certainly late in the quarter. Our liquidity position. 62% of our deposits are either insured, FDIC insured, or are collateralized. And currently we have $12.3 billion in same-day availability, which equates to 128% ratio of uninsured and uncollateralized deposits. Our capital position, as you already know, is strong. Our SEC1 is 10.8%. At the bank level, it's 12.5%. We have suspended our buyback given all the volatility that we're seeing in the markets. We will revisit it again later in the year, the decision later in the year. And also, just, you know, that second ratio of 10.8%, if we were to actually put our AOCI mark through it, it would still solve to a 9.4%. And, of course, with the suspension of buyback now, the second ratio will start to accrete every month, every quarter. So based on just those things, I'll reiterate again, business is stable and growing, our liquidity position is strong, and capital base is robust. Let's talk a little bit about the quarter. And let me make some remarks about loans, and then really most of my comments will be about deposits, as you can imagine. From a loan perspective, this was, first quarter is our slow quarter. As you can go back and see many years, I think last year, last couple of years, it was a negative growth quarter. This quarter, it was basically flat. So there was nothing really interesting and exciting. It is our slowest quarter of the year, and it came in just as we had expected with basically flat numbers. There's some growth in CNI, some reduction in DREZI, but that was all pretty much predictable. On the deposit side, I would say that the quarter, you could split it into two halves. You can talk about from January 1st all the way to the events of March 10th, March 11th, that weekend, and then what happened in the three weeks after that. So just before these events happened, so by March 10th, we were down about $277 million in deposits. And like I said a little bit earlier, you know, intra-month, intra-quarter, we're usually down, and then month-end and quarter-end, we usually see a build. So when I am standing on March 10th and looking at a negative 277, that generally means we will end the quarter at least flat and most likely up. So that's what we were expecting. We did see, of course, you know, shift from interest, non-interest bearing to interest bearing. So that trend was, you know, happening in January, February, and to March as well. But Before all of this chaos happened, it was looking like a fairly normal quarter, both on the lending side and on the deposit side. And then March 10th, 11th, 12th, that weekend happened. We saw outflows of about $1.8 billion in the very first few days. Most of it was on Monday. Some of it actually was on Tuesday and Wednesday. But by the end of that week, things had basically gone back to normal. Our nervousness was still high, but what we were seeing in the deposit flows, it went back to normal by the following Monday. And then from there on, while we were in heightened alert, we really did not see any unusual activity, except for that one week, for the week of March 13th. And like I said, as we always expect, deposits start to grow towards the end of the quarter, and we ended up where we did. We did a deep dive into exactly where that BillionAid came from, and it really came from 10 relationships. Two of those 10 relationships, I would say, surprised us. The eight did not because the eight, I would say, were in the category of institutional customers, often with fiduciary responsibilities, who decided that the regional bank sector, not Bank United, but regional bank sector was risky and they wanted to pull money out from all regional banks. Two were very core businesses where they didn't take money out completely, but they de-risked from us. And one client took out about half the money, the other one took out a little more. And that is core money, which was very profitable from a margin perspective and we're working hard to bring that money back or at least some of that money back. We also took a look at, you know, I asked Leslie, I said, okay, we get this 10. How about we look at the top 100 customers? You know, is there anything else happening in the sort of the other 100 customers? Leslie went back and said, you know what, nothing happened in the first 100 customers. We looked at customer by customer. We didn't see any flows. Nobody closed. Nobody pulled money out. I said, you know what, let's just go for 200 customers. Let's go another 100. And again, there was nothing that we found. So it was really limited to 10 clients. It was limited to, you know, it actually all was Monday and Wednesday for some reason. Most of it was Monday and Wednesday. And after that, it's been pretty normal. Now, I would like to make it clear that this money has not come back. And we are not, you know, engaging very strongly to bring that money back because, you know, this money kind of showed us exactly how non-strategic it was. And we probably shouldn't have had that much of this money here anyway. So we have not engaged in any meaningful way to try and bring back this money. And the comments I'll make about the pipeline and stuff we're doing there on will be separate, will be removed from this BillionAid, which I will talk about in a different place. Let's see here. So in terms of our reaction, what we did that weekend and in that week, this shouldn't surprise anyone. I'm pretty sure every bank was doing this. We were hearing things about how the FHLB system is getting taxed and posting collateral is an issue and so on. So we did not see that actually on our end. We drew down $2 billion in cash on that Monday morning without any issue. We posted collateral with the Fed at the FHLB and stayed in constant communication with our regulators, with, of course, FED and the FHLB. We equipped our RMs and branch personnel with all the information that they needed. We offered ICS reciprocal programs, which we've always done in the past. It has never really been much of a product of interest, but we did offer that more widely. We held, obviously, lots of employee calls. And, you know, so it was basically communications one-on-one is what we were doing most of that week. It did, for a period of time, slow down the sale process. Everyone was distracted in sort of the middle of March towards, you know, all the way into end of March. But I'm happy to say, and I'll get into this in a little more detail, that it has not derailed in any way the pipeline that we were working on. That was my biggest fear, like, you know, when this was happening, you know, on one hand it was what's happening with deposits that we have currently, and the second question was what will this mean for going forward in terms of the pipeline that we have, will we be able to protect it or not? And I'm happy to actually say that not only have we been able to protect it, but grow that pipeline. And a few more comments in a couple more minutes. So, Let me say, deposit growth is hard, it's challenging, but it's also the number one strategic priority for the company. And when I say deposit growth, I mean core deposit growth. The pipeline that I just talked about in a little bit, we do pipeline reviews all the time, both on the lending side and the deposit side. We did one actually just before this crisis happened in mid-March. We did one in early March. And I spent a good part of yesterday going through our pipeline in preparation for this meeting. The numbers today are significantly better and higher than the numbers a month ago, which is why I was feeling very good yesterday. There's a couple of reasons for it. One is just some delayed activity which didn't fall off completely but just got delayed. But one large part for that healthy pipeline is that out of this chaos comes also an opportunity. You know, we've had a couple of really large banks fail and others who are struggling, and they're throwing off a lot of business. And while, you know, we don't completely fall, you know, don't have a perfect overlap, let's say, with Silicon Valley Bank, and I'm not sure we're going to benefit from that, there was some overlap between the kinds of business we have and Signature had. That actually, I think, was also part of the reason why we saw the pain But also that is what is creating an opportunity. There's a lot of talent and a lot of business that has been thrown off and I have actually interviewed more producers in the last month than I did all of last year and and so while it is a moment of caution it is also a moment of opportunity which And we have to capitalize on that so the pipelines were deposits look healthier than they did a week before this happened and And we are doing everything to capitalize on them. And this was done based on a very detailed review, account by account, relationship by relationship. By the way, I did tell my team members or my entire producing staff that we're no longer in the business of home runs. We're only in the business of singles and doubles. What this means is we have to build more granular. But we've been saying this actually for the last couple of years. But now it is even more important. that this business that is being thrown off, there's a lot of big ticket business being thrown off. That's not what we're interested in. It's core middle market, small business, which we want to build the pipelines on and the business on over the long term. So let me talk a little bit about guidance. So in terms of the costs, like I said, we feel pretty good about the pipeline that we have of core business. Put aside the billionaires that left aside. I mean, there is probably some part, like I said, of this billionaire, which will be good and strategic and would like to bring back. but I'm not very excited about bringing a lot of, or any of this, very lumpy price sensitive. We always knew this was price sensitive, but in this black swan event, it also showed us that it's very nervous money also. So I'm not sure there's much we can do with that kind of nervous money, so I'm not looking to bring this back, at least not in the way that it was here before. On the lending side, The economy is doing just fine. I mean, my comments generally, you know, I always talk about credit, but I don't really have much to talk about credit. So I'll just leave it at saying that credit is fine, and that's not what we're losing sleep on, especially, you know, Florida is doing phenomenally well. Loan pipelines are healthy, but we are going to be careful in what kind of loans we do. We're going to do loans where we have the full relationship, and just credit-only transactional business we're not going to do or we're going to, you know, de-emphasize. The resi portfolio shrunk this quarter. You should expect it to keep shrinking over the course of the rest of the year. The last, you know, through the pandemic, when we were nervous about doing a lot of commercial business, but we had deposit inflows, you know, the place where we put that money was the bond portfolio and resi. And we have gotten heavy in those classes, and I think you should expect both, just like you saw this quarter, Securities run down and the RESI portfolio will run down over the course of the rest of the year. CNI will grow, given the pipelines that we're seeing, and fairly healthy. I think at some point, if the economy really slows down and we do enter a recession, then maybe not. But right now, I don't see that, so I am predicting good CNI growth. CRE, I would say, somewhere in the middle, probably stay flattish. And Overall, you know, I'd love for you to talk about margin and truth. She'll walk you through that because I left the more fun stuff for Leslie's comments. Yeah. Wow's here. I took some notes before this call to make sure I covered everything. You know, we did increase the dividend by two cents this quarter, as we did this time last year as well, in February of last year. We did buy back $55 million of stock until we stopped it. There's a little bit of room left in the authorization, but like I said, our buyback will remain suspended until we see more stability in the economy and in the liquidity situation that the banking industry finds itself in. Let me see. That's it. I'm going to pass it over to Tom. We'll go through a little more detail on the numbers before Leslie will finish, and then we'll take questions.
spk11: Great. Thanks, Raj. So Raj covered the deposit outflows a little bit. I thought I would talk a little bit more about what the deposit pipeline looks like and sort of what we're seeing in new client relationships. So market share will be the name of the game, I think, as we look at growth from this point on. If we went back into Q1, We had well over 500 new commercial relationships between the commercial teams and the small business teams. That consistency has carried us through over a long number of quarters now. We feel really, really good about what the deposit pipeline looks like over the near term, this quarter, next quarter, the rest of the year. And I'd say it's a couple of different areas. We've got a number of specialized teams. We continue to invest in PM products, payment capabilities, specialized products within verticals, areas like HOA and our title service business are two examples of that. We've invested, as you know, a good deal in our digital capability for the small business side. Small business relationships are coming in over in the 400 range. Every quarter, we think that's a good place for us to invest in future deposit growth. We've recently rolled out a new consumer checking product that we believe will be attractive. As Raj mentioned, while we don't have a lot of overlap with Silicon Valley, we do have some overlap with banks in New York that have been in the news for the various challenges that they've had, and it's presented us a strong number of new accounts client opportunities in the New York market from those banks. We've continued to onboard new relationship managers in all geographies and verticals. You probably saw a press release that we onboarded an entire team from HSBC in Florida that specialize in multinational business across the state. We're very interested in that. We saw continued good growth in the Atlanta team and business in the Atlanta market has been very strong. Last week we opened up our office in Dallas. We hired a Cree Dallas head. That's our first hire in the market. Pipeline is starting to build in Dallas already. And I think over the course of the next week or so, you should expect to see us make a significant team acquisition in the New York market that we'll be able to finalize in the next couple of days. So we continue to invest in people. We continue to invest in teams. both in the geographies and the verticals that we're in. If you take a look at slide eight of the deck, it's got some breakouts of deposit verticals. Our largest is in the title solutions business with total deposits of around $2 billion. Over 85% of these are in operating accounts. There are over 8,000 accounts in this space with 950 relationships. And this segment has actually been very stable and grew by $100 million. as of the end of March. There are really no other industry segments where we have deposits of over a billion dollars. The loan-to-deposit ratio ended the quarter at 97%. While we're still comfortable with that, we would like to see that come down into the low 90s as the deposit base develops and we do some of these shifts, as Raj mentioned, from residential to commercial and other areas. So I'll talk a little bit about loans for a moment. Consistent with the strategy that Raj laid out, residential declined by 111 million in the quarter. The commercial segments and the aggregate grew by 118 million. As Raj said, we continue to see solid pipelines of opportunities across the commercial segments, all geographies, all segments. And it was a good growth quarter for a quarter that typically is a negative quarter. We have not grown typically in the first quarter, and we did. And as you all know, generally, you don't see financial statements in the first quarter, so it tends to be a slower quarter. Overall, CNI grew by $173 million. CRE and BFG were down just a bit. Pinnacle was up modestly. The mortgage warehouse was stable for the quarter. Going forward, expect growth in middle market CNI, traditional new geographies, modest selective growth in the CRE segment. BFG will continue to decline. And Pinnacles will probably see some growth in relationships that tend to be deposit-oriented relationships within that line of business. I'll take a few minutes to speak about the Cree portfolio. Obviously, there's been a lot of press on this topic in the office segment in particular. I would point out that Cree is just lately less than 23% of our total portfolio. So I think, you know, for banks in our size range, You know, that's a pretty conservative level and is down significantly from where it would have been, down 24% over where it would have been two years ago before the pandemic. So we have de-risked this portfolio substantially. A lot of that has been in the rent regulated space in the New York market. And given how events have played out in that segment, we've been very happy with that decision. If you take a look at slides 20 through 22, In the supplemental deck, it will give you some detailed information about the portfolio. I would say when you look at the office section of it, 60% is in Florida, where the demographics have been very favorable. I think everybody is very familiar with the job growth in Florida. New business starts, in-state migration is very strong. Our portfolio is well diversified across all markets, no significant concentration in any one market. It's in Miami, Fort Lauderdale, Palm Beach, Tampa, Orlando, Jacksonville, and all markets that are showing very, very strong growth overall. If you look at the weighted average loan-to-value in the portfolio, it's 57%. Weighted average debt service coverage ratio is about 1.9%. And if we look at maturities in the next 12 months, 8% would fall into the category of of where there are either fixed rates either by our own balance sheet rates or swaps. So our upcoming maturity over the next 12 months for resets is relatively modest within the portfolio. Specifically in respect to office, which we continue to closely monitor, that portfolio is about $1.8 billion. Again, 58% of the portfolio is in Florida, where demand and absorption continues to exceed supply. Only 9% is in the Manhattan market. And in the Manhattan market, only 5% actually has lease rollover within the next 12 months. It's one of the smallest markets where we have lease rollover. 14% is in Long Island in the boroughs and neighboring states, and 19% is in other areas with no particular concentration. Weighted average LTV of the office portfolio is 64%. and the weighted average debt service coverage ratio is 1.7. And the overall portfolio and office rent rollover over the next 12 months is just a little over 10%. So, again, very modest. If we look at the office book in the last five years, our cumulative charge-offs have totaled only $2 million in the entire portfolio. So, you know, we're very confident that the overall CRE portfolio is a quality portfolio, and we look at the diversification in metrics of the office portfolio would feel very good about where we're positioned, you know, in office. So with that, we'll turn it over to Leslie for more details on the quarter.
spk27: Thanks, Tom. So in summary, net income for the quarter was $52.9 million, or $0.70 per share. Speak a little bit to the NEM. The NEM declined to $262 for the quarter compared to $281 last quarter, up from $250 for Q1 of 2022. You know, we obviously missed... guidance, our NIM guidance that we gave you in January. While earning asset yields did continue to increase as expected, securities from 433 to 495 and loans from 472 to 510, we underestimated the amount of mixed shift that occurred between NIDDA and interest-bearing deposits, and certainly we didn't anticipate the events of March. Overall, non-interest-bearing DDA was down about $780 million, and average cash balances for the quarter were up almost $300 million, all of that happening, obviously, at the end of March, and offsetting all of that with a $1.1 billion increase in wholesale and other high-cost funding at current market rates. We estimate the impact of that overall mixed shift on NIM this quarter to be about 14 basis points. The average cost of deposits went up from 142 to 205, and the cost of FHLB advances went up from 344 to 427. That advance portfolio is by no means optimized. In order to retain the maximum flexibility, we kept that short, which is right now the most expensive part of the curve, and we're working right now on optimizing the composition of that portfolio. Looking forward, I will just say that any guidance we give you about the NIM is, I would say, fraught with peril. But it's a very difficult thing to predict right now. But I will give you, at least I'll lay out one scenario for you. Given the starting point and the fact that we're still holding a higher than normal level of cash on the balance sheet, the NIM will be under pressure again next quarter. I'll give you one scenario. If we keep deposits and the funding mix flat over the remainder of the year, see the strategic shift in loans that Raj described, I'd expect an M for the year in the 250s. We think we can do better than that. We do think we can grow deposits and improve the funding mix, in which case it'll be a little bit better than that. A few more details on liquidity. You can see in slides 8 through 10 of our deck, I'll re-emphasize what Raj said. 62% of our deposits are insured or collateralized at March 31st. Currently, same-day available liquidity is $12.3 billion, which provides us with 128% coverage of uninsured and collateralized deposits. Deposits in the ICS reciprocal program grew from about $94 million at March 13th to about $574 million currently, so we have seen some interest in that program. With respect to the securities portfolio, I'll just emphasize, as you're aware, with the exception of one tiny little $10 million bond, all of our securities are available for sale. The pre-tax mark on the available for sale portfolio improved by $100 million this quarter. And again, I'll point out that if AOCI were run through our regulatory capital ratios, that one would still be a healthy 9.4%, significantly in excess of the 7% well-capitalized requirements, including the conservation buffer. The duration of the portfolio is 195, and 68% of it is floating rate. Moving to a little bit of discussion of the provision and the reserve, the provision this quarter was $19.8 million. That was down from the prior quarter. I'll remind you, we kind of took our pain in the fourth quarter. We added $16 million of qualitative overlay in the fourth quarter related to economic uncertainty specifically. and most of that is still there. This quarter's provision does reflect further deterioration in the baseline forecast and an increase in some specific reserves. The ACL coverage ratio increased from 59 basis points to 64. Our economic forecast committee selected the Moody's baseline as its reasonable and supportable forecast for this quarter. However, a significant qualitative overlay that we established in the prior quarter still remains with respect to uncertainty about the economy. We believe our current reserve level is sufficient for a mild recessionary scenario. The ACL coverage ratio would be expected to move up with a mixed shift from resi to commercial that we are expecting to happen over the rest of the year and will obviously increase further if the economic outlook deteriorates materially from here, which we don't currently expect. We provided you with some stress testing results for the pre-portfolio and the debt. This was run with a Moody's S4, which is a pretty severe recessionary scenario, and lifetime losses on the CREE portfolio total about $97 million in that scenario. Now, while we don't want that scenario to materialize, if it does, I think that's a very manageable level of credit losses. I know we're going to get a question about this, so I'll head it off. We believe that the level of our CREE reserves currently, as well as those stress testing results, And remember, we're using the same models everybody else is using here. We believe those numbers are reflective of the high quality of that commercial real estate portfolio. One more thing I'll say, there was a modest increase in criticized and classified loans this quarter. Almost all of that was attributable to one loan that paid off yesterday. So that's back down to where it was before. The decline in non-interest income this quarter resulted primarily from $13.3 million in losses on preferred equity investments. That impacted EPS by 13%. And the issue that has been leading to most of those losses has now been liquidated. 13 cents. 13 cents. What did I say? Evan only knows what I said. But yes, whatever I said, I meant 13 cents. OK. Non-interest expense quarter over quarter, probably the only thing worth mentioning there is, you know, $4.2 million in operational losses that we took this quarter. There were two incidents there. One was a check-kiting scheme, and another was a customer that we had who was, you know, hacked or defrauded, not us, the customer, during the quarter, and we made the decision to, you know, we ended up reimbursing that loss. I will turn it back over to Raj for any closing comments.
spk39: No, let's open it up for questions. I'm sure there are plenty, and then I can maybe make closing comments at the very end.
spk49: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile the Q&A roster. Our first question will come from the line of Jared Shaw with Wells Fargo. Your line is open.
spk47: Hey, good morning. Good morning.
spk12: Good morning, Jared.
spk47: Maybe just starting on credit. Leslie, you mentioned that you were paid off on a loan that was criticized and classified. Is that also the loan that increased non-performers, the CNI loan? Is that the $20 million increase in non-performers?
spk27: No, Jerry, it's not. I would say non-performers are up by a negligible amount, and no trends there, nothing unusual we're seeing. I think those are just normal puts and takes.
spk47: Okay, so that $20 million increase in the C&I side, it's not tied to one or two loans? It's more diversified?
spk27: Yeah, and I just think it's not that long. I just think, like I said, it's normal puts and takes. There's nothing. It's one loan, and... I don't think it's anything indicative of anything systemic or any kind of trend.
spk47: Okay. Really appreciate the color on the commercial real estate side, especially the office. And looking at the trends in the New York office space, you have really good debt service coverage ratios and loan-to-values. But what's your thoughts in terms of what those landlords and property owners are going to do when those property or when those loans come due? Do you think that they have an appetite to add equity and refinance? Or do you think you're going to see more property sales at that point when those loans come due?
spk11: Yeah, what I would say on that, Brady, is that when we look particularly in the New York market, the quality of the sponsors that we have in the New York portfolio The deep pockets that they have, the fact that these are predominantly generational assets that they have owned for a long period of time, I think that they will maintain these assets over that period, and I think they will stand behind the properties and inject equity if that's what's needed at the time. Right now, the lease rollover and the maturities are relatively light. in that book. So we'll see what, you know, what plays out over the next couple of years. But I would say when we specifically look at the New York Manhattan office portfolio, the quality and depth and capability of the sponsors gives us, um, great comfort.
spk47: Okay. Um, that's a good color. And then on, on the opportunity, you know, you said CRE relatively flat, but when you look at New York city, especially with signature now gone, and maybe somebody like an NYCB more at capacity. Do you think there's going to be additional opportunity for commercial real estate there and maybe even in rent-stabilized multifamily with some of the law changes that we're seeing? Or is that still an area you're not that interested in expanding?
spk39: I'll take that one. We look at all opportunities that come to us, but we're not yet jumping with excitement on that opportunity. CRE, you know, going into a slowdown of the economy with all the question marks that come with that, we're not too bullish on trying to grow CRE. I mean, we worked very hard to shrink CRE portfolio by $2 billion over the last, you know, since the pandemic. And we've devised the portfolio very nicely. You know, I'm never saying never. But that's not where my excitement is from the business that is being thrown off from banks that have gone away. I think also CRE, very often, especially in New York, tends to be transactional in nature. Sometimes it comes with deposits, but it doesn't come with a lot of deposits. So that also, my comment about trying to grow relationship-oriented, you know, business, which means credit and debit business, it's harder to do in CRE than it is in middle market CNI. So that's another reason why we're choosing more the CNI side than CRE. Having said that, it's not that we're not doing CRE. We are. We're just not. I don't think you'll see a lot of growth in CRE. You'll see some replacement. You'll see maybe a little bit of growth, but not. I think you'll see more in CNI.
spk11: Yeah, I would also add to Roger's comment and say that our overall perspective on Cree is one that is a very disciplined approach from an asset allocation perspective. So while we're not seeing any shortages of phone calls in the New York market right now, it isn't a situation where we would deviate from the asset allocation strategy we have. And when we look at Cree across the footprint, you know, we're, we're obviously sitting in Florida, you know, with a, with a, you know, very, very good demographic and economic scenario. We have now, you know, a Cree office in the Atlanta market. We have one in Dallas, we have one in demographics, you know, that are growing very strongly. So, you know, our discipline around what we do, um, will be very important for us to continue. And it will not be an opportunistic response to something just happening in one market.
spk47: That's great. Thanks. And then just finally for me, when you look at that billion aid of deposits that left, were there any lending relationships tied to that or any specifically any lending relationships that required deposits? And if so, what's your... what do you expect to do with those? Would you, would you call those loans? Would you try to reduce that, that, uh, that lending relationship or is it really just a deposit side?
spk39: Yeah. So, so off the 10, the two that I talk about separately, those are very strategic. We have the full relationship. We do everything for them. If we have a piece of the lending, not as big, of course, the lending all this because of our, you know, very small, uh, house limits, uh, the, the loan numbers are much smaller than the deposit numbers. But on those two relationships, we have the entire relationship, right? We have the lending, we have the cash management treasury, we have the entire back office is run out of Bank United. So those are very core. The other eight, I think a couple of them where we do have small pieces of the lending side, we've already actually told them that we will not be renewing because even the lending side, while it feels like, okay, we have the lending and the deposit side, It was more transactional in nature because they were just pieces of participation that we bought because, you know, we wanted to, you know, cement the relationship a little bit deeper. And now we realize it wasn't really helping. So if the depositors are gone, the loans will be gone, or if you already told them they're going to take out the – if they're going to be nervous about the deposit relationship, we're going to be nervous about the credit relationship.
spk11: Yeah, I would also add that generally the ones that we stepped out of were unfunded participations that we got into to support the deposit relationships. So when there's nothing to support.
spk27: And Raj, with the two relationships, I know you mentioned this earlier, but just to reiterate, those deposits did not leave the bank. They just reduced or spread their exposure around among more banks. Those accounts are still here.
spk47: Yeah. Okay. But on those eight loans, though, it's more you won't renew them. It's not like you'll actually go and call. call loans that had deposit requirements.
spk27: We're just a participant in a much larger facility, and we just won't re-up that participation.
spk42: Okay. Thank you.
spk49: Thank you. One moment for our next question. And that will come from the line of Brady Gailey with KBW. Your line is open.
spk08: Thanks. Good morning, guys.
spk23: Hey, Brady. Good morning, Brady.
spk08: When I look at loan growth, commercial real estate is going to be flat. C&I growth is maybe offset with resi shrinkage. Should we think about loans kind of being flat going forward? So maybe loan and asset balances are kind of flat from here on out?
spk27: Yeah, I would think so.
spk08: Yeah, for this year.
spk27: Yeah, but you'll see an improved margin because of the shift from resi into C&I.
spk08: Okay. And then, you know, Bank United has repurchased a lot of its stock over the last several years. You know, I realize the uncertainty and the increased risk just in the banking system right now, but I totally get the pause there. But at the same time, you know, your stock is at 65% of tangible book value. So when do you consider, you know, turning that buyback back on?
spk39: I think it will be a topic of discussion that every board meeting over the course of the rest of the year. Starting in May, we will have a discussion. I don't think we're going to do anything in May, but at the August board meeting and the November board meeting, this will be discussed. It is the prudent thing to do right now, given all the uncertainty around liquidity, around the economy, around even regulation for that matter. So when things settle down a little bit, we have a little bit of a clear line of sight, then we will probably step back up. But I don't see that happening over the course of the next month or two.
spk08: And then finally, if you look at profitability levels, like ROA and return on tangible common equity, they remain fairly depressed. I know there's not much you can do about the net interest margin at this point, but is there an opportunity – on the expense side to see some... I know you guys have done a cost reduction plan previously. Is that something that is on the table that could help get the profitability of Bank United up to peer levels?
spk39: Brady, the lever that is going to move profitability more than any other is going to be revenue, not expenses. Margin is depressed given the makeup of the balance sheet right now. It's like I said, has gotten much more wholesaly because of what has happened over the last two years or three years now. And that mix has to actually change to a higher performing mix. That is what will move the needle. I'm hesitant to say we will stop investing in the business because if I go back and think hard about the mistakes that we've made over the last couple of years or three years, one, you know, a mistake was that during the pandemic, when, you know, we really didn't know where the world was headed, we pulled back and did not make investments in producers and revenue generators. Hardly anyone during 2020 into early part of 21, and really restarted the engine only last year. And that may feel good in the year you do it, but you really pay a price long term. And I don't want to make that mistake again. So you heard Tom talk about Dallas. We're moving forward. He did a plan to last year. We're moving forward with that. We just picked up a team in Broward. We're about to pick up a team in New York. And yeah, those are, you know, investments that they're not going to pay off, you know, immediately when you bring them on. But they're not very long-term investment. It doesn't take four or five years for those to pay off. So what may look like a bit of a drag for six months or so. Within a year, that should start producing revenue in excess of expenses. So I want to keep investing and really solve the profitability problem with remixing the balance sheet. And you need the right kind of producers to do that. You do need some time also, right? The resume is going to run off the way it's going to run off. CPRs are low at this point in time. But that is what will bring margin up, revenue up, ROA up, rather than let me go and, you know, listen, we are obviously squeezing the belt. You know, don't get me wrong. We are doing that. We are looking at any kind of investment that can be, that is very, very long-term in nature and see if we can delay that. But on the revenue producer side, I just see there's an opportunity here That doesn't come up very often, and I don't want to miss that.
spk07: Okay, great. Thanks, guys.
spk49: Thank you. One moment for our next question. And that will come from the line of Steven Scouten with Piper Sandler. Your line is open.
spk47: Hey, thanks, guys. I appreciate it. Good morning. I guess one question I had just on the funding side would be capacity for broker deposits. Can you give me a feel for how much, and maybe that's in the slide deck, I apologize, but where, you know, what level of capacity you guys would have from here to add those as needed?
spk27: Steven, there is still capacity to add. I don't actually think we're going to need to do that in the short term. I think we've got enough other types of deposits in the pipeline right now. But we certainly could add there another $500 million to $1 billion, but I don't think that will be necessary.
spk40: Okay, great.
spk47: And then can you give some color maybe about that marginal cost of deposits today, where you're seeing new deposits priced, and kind of what spreads that's leading to in respect to what you're able to book new loans at as well?
spk39: yeah it's a wide spectrum so usually when people ask the question they are asking about retail and I'll tell you retail is a little easier to answer right now we have money markets priced at 350 and I'll say at 350 it's not getting much fraction we have 12 months of CDs price at, I think, mid-4s, $4.50, if I'm not wrong.
spk18: I think it might have gone to $4.70.
spk39: No, it hasn't. No, it's $4.50.
spk25: I've got erroneous information.
spk39: Yeah, I think it's still $4.50 or $4.55. So mid-4s. And two-year is slightly lower at low 4s. And that sells. A $3.50 money market does not sell. I think you have to be a little bit higher, but we haven't been pushing that. And on the commercial side, it is a much wider spectrum. So we are engaging, we're right now engaged with kind of on the, you know, a two-yard line with a complex treasury relationship, and that's going to be priced in the twos. So, but then there's other money that may be, you know, at 4%. So it's much wider, and the title business you know, it's much lower. The book of business is still sitting at under 100 basis points. So it is a much bigger spectrum on the commercial side based on what, you know, what you're selling and what is a complete package like. But on the consumer side, if you want to grow, those are the kind of numbers we're seeing. And our consumer business, as you know, is really Florida, not so much in New York. So that's indicative of where the Florida market is.
spk47: Got it. And new loan yields and kind of what sort of spreads you might be seeing, I guess.
spk15: Can you deliver like a 3% spread on new loan production?
spk39: Loan production is now getting into the SOFR plus 300 range, yes. Oh, yeah.
spk15: Okay, great.
spk47: And then maybe just last thing for me, it sounds like the team in New York that you're looking to add is non-CRE focused, presuming C&I focused. But I guess I'm curious if you'd also have additional interest in potential signature loan sales when those come available later this year.
spk39: Yeah, we are familiar with that book, and I don't think we will have much interest.
spk27: The other thing I would say is we're really leaning away from credit-only deals. We're really looking for relationship-based businesses. where we're getting a fulsome relationship with the client, we're getting some operating deposits as well as the loan, and really de-emphasizing credit-only business.
spk15: Yeah, makes a lot of sense. Okay, thank you very much for the color. Appreciate it.
spk49: Thank you. One moment for our next question. And that will come from the line of David Bishop with Hovde Group. Your line is open.
spk46: Yeah, good morning. Hey, David. Hey, Raj.
spk47: You mentioned on the federal home loan bank side, there could be some maneuvering there, some restructuring. Just curious, maybe you can give us some color, maybe what might be contemplated there. Are we going to maybe term that out or
spk27: Yeah, I don't have a lot of details yet because we're still really analyzing and deciding what makes the most sense to do, but probably swapping some of it out. It makes more sense to swap it out than to term it out. You get better pricing because of their term premium. But we're analyzing all of that right now, and I think we can bring the cost of that portfolio down, and I also am fairly optimistic about us being able to pay some of that down in the near term as well.
spk47: Got it. And then, Raj, in terms of the de-emphasis on the resi mortgage side there, is that interest rate risk positioning just reducing its percent of capital? Has it gotten too big from that perspective? Just curious as the pullback there.
spk39: I think that it's just too large a portfolio. I mean, when you look at a mix of loans, you know, I just made a comment about it. We took CLE down by $2 billion since the pandemic. Well, when you take something down, something else grows. And it wasn't CNI. CNI grew nicely, but it was resi. Because in 2020 and 2021, when the world was shut down, that was sort of the safest place that we needed to be. But now, in 2023, standing here, I look at the mix of loans and I say, well, this has gotten too heavy in resi, too heavy in securities, and we need to kind of remix this a little bit. which is what will help returns. By the way, I just want to make a comment about the Resi portfolio. It is a very high credit quality portfolio, and it also is not some 30-year, 10-year IO type portfolio. That's not what it is. It's very carefully constructed. There's a lot of arms. There's some 15-year paper, some 10-year paper, some 30-year paper as well, and very little IOs. So our CPRs are, you know, while they're lower than historically, everyone is lower, they're not that low as some other banks are because of the hybrid portion of the portfolio. So it will run off. It will be very sensitive to interest rates. Interest rates go down even a little bit. You'll see more runoff. By the way, the Ginnie Mae portfolio is in that too. You know, the... The portion of Ginnie Mae, which is not going to re-perform, that's going to have a very short life because in a year or so, that gets foreclosed on and cash flows. So it's a nicely mixed portfolio, but we have just too much of it. And we need to reduce it and take it back to the levels that it was before the pandemic and replace it with more core business that generates not just good returns, but also some good liabilities.
spk27: It's more a return question than an interest rate risk question. The interest rate risk is nicely balanced by the short-duration bond portfolio.
spk48: Yeah. Got it. Appreciate that, Colin. One final question, Leslie.
spk47: The preferred securities that you sold that drove the loss, is that the entire exposure to those entities?
spk27: The entire exposure to that issuer, it's not the entire preferred securities portfolio that was sold.
spk39: The preferred securities portfolio, the mark in that goes to the P&L every quarter.
spk00: Yeah. Yeah. I'm sorry.
spk39: Go ahead.
spk37: Do you have the size of that portfolio?
spk26: The what? I'm sorry.
spk37: Just overall size of that portfolio.
spk26: Give us a second.
spk27: Somebody's looking that up for me. We'll answer that question in a minute. Let's carry on.
spk14: It's not as big as you.
spk27: It's not huge, but we'll answer the question in just a minute. Okay, thanks. We can move on. I'll just throw that in when I get it. We can move on.
spk49: Okay, thank you. Our next question will come from the line of Brody Preston with UBS. Your line is open.
spk41: Hey, good morning, everyone. Good morning.
spk18: Good morning, Brody.
spk41: Leslie, I just wanted to circle back on that one multifamily loan that went special mention but has obviously paid off. Was that a New York City-based multifamily property?
spk27: No, it was actually in Florida. I don't know exactly where. But it went into special mention this quarter, and then it paid off, so it's gone.
spk11: It wasn't an individual loan. It was a loan in our institution, a real estate group, that was a fund investing in multifamilies.
spk10: It wasn't an individual property, and it paid off.
spk41: Got it. Okay. And I appreciated the stress test slide that you all included. I wanted to ask just a couple of questions about it. How does the probability of default and loss given default in these scenarios shake out versus what you guys consider in your baseline modeling?
spk27: Both are higher. I don't have the exact numbers in front of me. Both the PD and the LGD are higher, obviously, in this scenario than they are in the baseline, but I don't have the PDs and LGDs in the stress scenario in front of me. I'm sorry.
spk41: Okay. No worries. I guess I was just trying to – the increase in the hotel losses?
spk27: That's really just, you know, in a recessionary scenario, the kind of underlying assumption there is people just stop traveling and stop staying in hotels. So that's why you see the big spike in the hotel losses. And some of that may be informed by what happened in the pandemic. But, you know, just the assumption there is that the business just drops off considerably and the NOIs go down dramatically in a recessionary scenario with the hotel portfolio. That's what you're seeing there.
spk40: Got it. Okay.
spk27: And then... It was very modest in size. I mean, the total losses off that stress are $97 million, which I consider to be a bad quarter, but an extremely manageable number.
spk41: Understood. Leslie, just on the expenses, just wanted to clarify if the expense guidance that you gave last quarter for the full year was still intact.
spk27: Yeah, I think we'll probably end up more towards the higher end of that guidance, but yes.
spk41: Okay. Okay. And then could you remind me two things, just the floating rate loan percentage that you all have and then the interest-bearing beta that you all are assuming when you do your NIH sensitivity analysis?
spk27: Yeah. First, let me throw in the answer to the question about the preferred securities. That's $69 million left in that portfolio segment, and those are not in the available-for-sale portfolio. Like Raj said, they get marked to market every quarter. but it's $69 million at March 31st, and that sits at the holding company. Betas, the total deposit beta to date this cycle through the end of the quarter is about 43%. That's all in. That's about 62% for interest-bearing deposits excluding CDs. Including CDs, it's 45% all in and 61% for the cycle. That's where the betas are landing, and somebody's getting me that floating rate portfolio information, so I'll throw that one in again as soon as it becomes available.
spk41: Got it. And then I just had two last ones. Just on the bigger deposit outflows that you called out, the 10 relationships, how much of that one point, I think it was 1.9, how much of that was non-interest bearing?
spk39: I don't know. I'm sorry, I was distracted by... The $1.9 billion of the top 10 customers who left, how much was interest rating and how much not interest rating?
spk24: I do not have that in front of me.
spk41: Okay. And then the last one was more, Raj, for you on the ROA improvement. I heard you earlier about kind of remixing and it'll take place over time. So I guess just as we think about the... where the loan to deposit ratio is right now, you're kind of pulling back on a loan production, at least from a, you know, from a non-relationship perspective right now, I guess, like, what is your, what is your long-term goal for the ROA? And, you know, I guess, when do we get there? Cause it seems like it'll probably take a couple of years just given the economic outlook and, you know, the fact that the securities portfolio is still relatively large.
spk39: Yeah, it's the Resi portfolio that will drive it more than the securities portfolio. Securities portfolio, while it's large, it is, you know, 68 or 70% floating rate. It's the Resi portfolio, which, you know, the runoff of that portfolio at current CPR rates is slow. That can change rapidly in a slightly different interest rate environment. So the speed with which we can remix will depend a little bit on that. And it's that remixing which will cause the returns to get better. So I'm not trying to evade your question, but it's very hard to say when that will happen and how fast that will happen. It could happen relatively fast. Rates went up very fast. They could move down. I mean, I know nobody's talking about rates moving down right now.
spk19: They're not going to get much lower, I'll tell you that.
spk39: But, yeah, they can't get any lower. That... So, yeah, I mean, you know, the goal is still 1% ROA, you know, and low double digits ROE, and this model should get there. We expect it to get there. That's what we're driving for. But the timeline is harder for me to say your guess, probably a couple of years, is probably right.
spk41: Got it. Thank you very much for taking my question. Oh, yeah, go ahead, Leslie. Sorry about that.
spk27: Back to the percent of the loan portfolio that's floating. The commercial loan portfolio, excluding Pinnacle and Bridge, is 67% floating, including those at 61% floating.
spk41: Got it. Thank you very much for taking my questions, everyone. I appreciate it.
spk49: Thank you. One moment for our next question. And that will come from the line of Stephen Alexopoulos with JP Morgan. Your line is open.
spk44: Hey, good morning, everyone. Morning, Mr. Alexopoulos. Hi, Leslie.
spk47: I wanted to start. So going back to the $1.8 billion of outflows, could you just give us more color on where that money moved to?
spk22: Almost all of it went to your bank, Stephen.
spk47: Well, let me ask you this. Why couldn't you make greater use of the insured deposit network? Because I would think that's lower cost than FHLB.
spk27: They were not interested. Their boards, for the most part, their boards made a knee-jerk decision over the weekend to move all of their money out of mid-sized banks, not just out of Bank United. And we had long conversations with these folks. For the most part, their boards decreed that all money would be moved out of mid-sized banks, and I believe when I looked at it, about 95% of it is now on your balance sheet, Stephen.
spk11: Because generally when we talk to the management team, Stephen, they were supportive and open to the idea in the future, but they were not in a position to negotiate with their own boards over this.
spk27: So that's really kind of what happened.
spk47: And what's your latest thought on where the mix of non-interest-bearing deposits bottoms?
spk39: Very hard to say. Very, very hard to say. I know you've been asking that question every quarter. Yeah. I mean, it's holding at 29%. And, you know, yeah, probably be under some pressure. I can't say confidently. It's not going back to what it was pre-pandemic, which was, you know, the team. Yeah, it's not headed there. But it's really hard to say, you know, is it going to 28 or 27 or where, but... You know, the Fed is hopefully coming to an end here. And while, you know, they'll probably pause and stay here for a while, at least it's not, you know, 75 basis points every time we turn around.
spk44: Yes, yes. Okay. And then, so Raj, you've been working to improve the deposit quality, right, of the company for a couple of years now.
spk47: I'm curious, what lessons do you learn from what just unfolded, not just for you, but for the whole industry? And how does this change the go-forward strategy for the company?
spk39: Yeah. I mean, listen, some things we already knew, but we now know even more. And in that category, things such as smaller is beautiful, right? Small is better and large is not. So no home runs. only singles and doubles right we've been saying that for the last two years and achieving it but we had a lot of work to do and we were holding on to this you know this what i would say a crutch the crutch got knocked out from under us and and and now we just have to stand on our own legs which is all singles and doubles that's one i think another learning uh uh you know in general not just for the deposit side i would say is we always considered reputation risk as something to pay, you know, even more attention to than all the other risks that, you know, cyber and credit and liquidity and all that. But we always defined reputation risk as stuff that, you know, happens to us and bad press about us and, you know, monitoring Bank United on social media and so on. What I learned through this is that guilt by association it's something you also have to worry about a lot. The company you keep, so to say. We've agonized about this a lot, like what was that reaction on Monday? Our business is so different from Silicon Valley and Signature and others that have very different business. There is some guilt by association. So Silicon Valley, we have little to no association with and didn't really hurt us. I would say Signature did. because there is a little bit of that contagion. Now, it's also creating the opportunity for us, by the way, but that's sort of after the fact. So that was also a learning that you have to worry about your reputation, but also the company you keep and guilt by association and getting caught up. I mean, Steve, the number of negative articles I have read about the banking, the regional banking business, You know, it's enough to, you know, put me on some kind of an antidepressant medication. It's like everything you read, every newspaper article, every time you hear somebody on CNBC talking about there's no need for a regional bank. And, you know, I've saved these comments for my closing remarks, but let me just add right here. You know, the darkest time for me, and this was actually not that Monday, but it was maybe a week or two into this, reading all these articles talking about that, you know, America doesn't need regional banks. And in that chaos, I actually got a phone call from a friend of mine who's a venture capitalist and who was at Silicon Valley Bank for 20 years and had moved all of his money and portfolio company money over to, you know, I won't say which bank, but you can guess one of the bigger banks. And two weeks had passed, and I asked him how were things. He said, you know, I'm feeling much better. Everything is in a safe place, and so sad to see what happened to Silicon Valley Bank. But then he said, you know, it's strange. All the money that I had moved, I was trying to reach somebody at the bank the last couple of days, and, you know, they gave me an 800 number. I don't do 800 numbers, were his exact words. And I said, well, get used to it, because that's how it works. He said, I really, you know, I had the phone number for my person at Silicon Valley. And then he said to me, would you mind if I introduce you to this person? And she has a team of about eight people and they're wonderful. I said, I'm happy to be introduced to her. I'd love to talk to her. But we're not in that business. I'm not sure that, you know, it'll be very fruitful. But that team is going to land somewhere. And that team looks after this person and other business like that in a way that larger banks cannot. Larger banks have a lot of benefits over us, a lot of advantages over us, size and scale and brand recognition and so on. But the size and scale is what also gets in the way of closeness to customers. And for commercial customers, what matters more is not how many products you can offer, how big a check you can write, and how many branches you have. What matters more to middle market commercial customers and small businesses is that I know somebody at the bank who's a decision maker. And that if something happens, I can always call someone and I know that I can greet someone with some authority. That's just not possible at a large bank where the 30 levels of, you know, from where the customer touches the bank to where decisions are made. That is actually the most critical thing that a commercial customer looks for. And that's why regional banks exist. That's why we exist. That's why we take market share away every day. That's why we have a pipeline of business. So that is sort of, you know, to me, sort of personally speaking, that was my sort of inflection point in how depressing all of this was in March. After that phone call and after that realization, I started getting out of this and started feeling good about, okay, this has happened. We'll deal with it. There's an opportunity that comes with it. We'll capitalize on it and we'll continue to keep building the bank. So, you know, it's been a hell of a, What, six, seven, eight weeks now?
spk47: Yeah. Raj, if I could follow up on what you just said. So when we look at the results we're seeing from the industry, it's very clear that what you have in your slides, right, there was a week of outflows or a couple of days, and then it's pretty much back to normal, right? I know CNBC is going out of their way to convince everybody we're in a crisis. We're not. But the question is, do your customers still think we're in a crisis because they're watching CNBC? Or when you talk to them, do they feel like, okay, That was a storm. It's over, and it's pretty much back to business as usual now from the customer view.
spk39: Yeah. If I was to describe this and try and draw up comparisons to 2009, this felt like a tornado. 2009 felt like a hurricane. Hurricanes come. They give you a little bit of warning. They're headed your way. They sit on you for maybe two, three, four days, a long period of time. They do a lot of widespread destruction. tornadoes hit you with little to no notice, do a lot of destruction, but it's very localized, and then they're gone. And that's what this feels like. It happened with little to no warning. I mean, I didn't know that, you know, a week before that this was going to happen. I'm not sure anyone did. And it happened. It happened very fast. And it went back to normal with clients, you know, not with CNBC, but with your clients, it went back to normal a week later. So we're still a little shell-shocked, to be honest. We're still worried, is it tornado season? Could this happen again? Is there another one which might happen, which is normal. The building codes, i.e. regulations, will change to make the structures, i.e. banks, stronger going forward, and there will be a price for that. But there is a difference between what 2009 felt like and what this feels like. This was very, very sudden. 2009 was not very sudden. We saw that happen over all of 2008, starting in 2007, and then bottoming out in 2009 early. So it is a little different. The clients are, you know, we're not showing them slides anymore. We showed them slides for about a week about how we're, every bank was doing this, by the way. This is us, this is Silicon Valley Bank, and this is Signature and how we're different. That slide was used for about a week. And after that, it's no longer in any pitch book or anything that's been taken out. We're not talking about safety and soundness issues. We're talking about products and services and selling the way we were back in February.
spk11: You know, I'd also add, when you talk to clients, if you look at our target client, who's an entrepreneur running a $40 million plumbing supply company, they're actually now reading the Wall Street Journal and CNBC, and they don't have a Bloomberg screen on their desk. They're running their business online. They're not as panicky about these kinds of issues.
spk44: Thanks for taking all my questions. I appreciate the color.
spk49: Thank you. One moment for our next question. Our next question comes from the line of David Rochester with Compass Point. Your line is open.
spk47: Hey, good morning, guys. Sorry to extend the call here, but I'll make it quick. On the expense side, appreciated your comments about hitting the high end of that guidance range, which I believe was mid to high single digits. So you're talking about a high single digit growth pace. It looks like that implies a pretty decent step down in that quarterly run rate from here.
spk16: I was hoping you could just maybe ballpark that for Q2.
spk27: Like Raj said, I think we're in the process. We had that $4.4 million operational loss. That was pretty unusual for us. I don't expect anything like that to recur. We've actually never had anything like that in the past. That's going to be gone. As Raj said, we're also taking a pretty hard look right now at the expense base. While we don't want to sacrifice anything, The investment we're making in teams of producers, we are taking a pretty hard look at the rest of the expense base right now and seeing if there's areas where we can pull back or push things out.
spk47: Okay. And then on the margin, appreciated your 250s for the year comment. Was wondering if you had any rate cuts in that. And then in terms of the cadence, it sort of sounds like you're looking for maybe a little bit of a bigger step down in 2Q and then possibly stability from there. How are you thinking about it?
spk27: So we use the consensus forward curve, and I think there are two 25 basis point rate cuts based into that later in the year. And yeah, you're probably right about the cadence being lower in Q2, given the starting point.
spk47: All right. And then on the deposits, I know the scenario you gave for the 250s included, it sounded like flat funding mix, I believe you said. But then you talked about the solid pipeline there on the deposit front. I know it can take a little while for some of those to pan out, but just wanted to get a sense of the size of that opportunity, if you're talking about hundreds of billions or maybe billions. And then for the discussion earlier on the GDA mix, I was just curious what that component was in the pipeline you're seeing right now.
spk39: Yeah, I think on the guidance, that's just mathematically, just to show you, we ran the numbers assuming everything is flat. We kind of made that a base case on the NIM guidance. The pipeline is about $1.5 billion to $2 billion in size. It's not going to happen all in one quarter. It's going to happen over the course of the next two or three quarters. And like I said, it's all operating money. It's not any of the $1.8 billion that left. But it's not all DDA. It is operating money, but it's a mix of DDA and money market.
spk27: Maybe about 20% DDA, I'm hearing. And I would also say that $1.5 to $2 billion is pipeline that we have a really good line of sight into. You know, there are more opportunities than that, but this is stuff that is really in the process of, you know, really in our sight line very specifically and granularly.
spk47: Yeah. All right. That's good to hear. And just to wrap up, Raj, your anecdote on the 800 number, we've heard a number of stories just like that post the – the crisis. So not to take any shots at other banks represented on the call today, but there are a lot of stories like that out there. So feel good about it. Thank you.
spk49: Thank you. And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Rod Singh for any closing remarks.
spk39: I think we've taken enough of your time. We've had a rather long call, but thank you very much for joining us, and we'll talk to you again in 90 days. Bye.
spk49: Thank you for participating. This concludes today's program. You may now disconnect.
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