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spk02: Good day and thank you for standing by. Welcome to Bank United first quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Susan Greenfield, Corporate Secretary. Please go ahead.
spk08: Thank you, Livia. Good morning, and thank you for joining us today on our first quarter 2024 Rebels 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 around 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, such as adverse events impacting the financial services industry. The company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors should not be construed as exhaustive. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2023, and any subsequent quarterly report on Form 10Q or current report on Form 8K, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.
spk04: Thank you, Susan. Welcome, everyone. Thanks for joining us. We'll jump quickly into the numbers. We announced this morning an EPS of 64 cents per share, a net income of $48 million. I checked the day before yesterday, I think. Consensus was at 60, so pretty happy about where we came out. These numbers do include, there's not much noise in the numbers this quarter. There's only one item to point out, which is the $5.2 million on additional FDIC special assessment. Other than that, it's a pretty clean set of numbers. The highlights for this quarter are deposits grew very nicely again, and not just the number. We grew non-broker deposits by 644 million, but a large part of that growth was DDA. 404 million of it was DDA. So our DDA total deposits now is back up to 27%. As we have done in the previous quarters, we continue to pay down wholesale funding, which is down a billion for this quarter. So if I look back the last 12 months since March of last year, our total deposits have grown by a billion three and we paid down FHLB advances by 3.6 billion. In fact, I think FHLB advances are now at their lowest level, not just in the last year, but in the last like two years since going back all the way to first quarter of 22. So we're very happy about how much we've improved the balance sheet and the funding mix. Cost of deposits was up 22 basis points, excuse me. The average cost of deposits for the quarter came in at 318, but the most important thing to note over here is that we think, looking back at the last three, three and a half months, is that we have now flattened out on the cost of deposits. The cost of deposits at the beginning of the quarter or during the quarter or at the end of the quarter was all pretty much the same number. We had a pretty big CD cliff that occurred this quarter, and despite that, achieving that inflection point of cost of deposits is actually a pretty important thing to point out. And even into this quarter, it's only been a couple of weeks, but it looks like we have achieved that stability, which obviously means It's good news for margin. We thought this would happen in the second quarter, but it happened a little bit earlier. We're happy about that. As we continue to reposition the balance sheet on the left side, residential loans, like they have been declining, declined again by $152 million, and we want to keep continuing on that trend for the rest of this year. And commercial loan growth, this is always our slowest growth in terms of production. Production did come in exactly where we had projected, but we did have some payoffs that were a little bit unexpected and some line utilization that dropped. For that reason, loan growth was negative. The margin for the quarter came out at 257. I think last quarter we were at 260. We had told you that margin will be somewhat stable, maybe down a couple of basis points. It came in pretty much where we thought it would. Credit looks good. Non-performing assets are down. Non-performing loans are down. Charge-offs are down to almost nothing. This quarter, charge-offs came in at two basis points. I think last year, annualized was at nine basis points. NPAs are at $119 million. They're down from $131 million last quarter. So, you know, excluding SBA guaranteed loans, NPA ratio is down to just 23 basis points. That's a couple of basis points improvement from December. Capital is strong. Liquidity is strong. Book value, tangible book value all built up. So pretty happy about how the quarter shaped up. And also, and Tom will talk more about this, but the pipelines are pretty decent both on the loan side and especially on the deposit and DBA side. So in terms of guidance, when you put these plans together, which is late in the year as to what will happen over the course of the next 12 months, you put those together, we give you guidance in January, and very often coming up with this guidance is not you know, not easy, especially in a volatile environment. And often numbers can go off here and there fairly quickly. But this time around I would have to say that so far we're tracking so close to what we thought we would do that I'm very happy. So in terms of guidance, no changes. Whatever we told you in January stays. Margin will grow over the course of the next three quarters. Deposits should grow. Loans not . So all the guidance we've given you states no change in it. And what else here? Let me turn it over to Tom, and he can get a little more into details on the numbers before Leslie.
spk00: Okay. Great. Thanks, Raj. So first, we'll start off on deposits. As Raj mentioned, total deposits grew by $489 million for the quarter. Non-broker grew by $644 million. And NIDDA grew by $404 million. So obviously, we're very excited about the NIDDA number. I mean, that's a big number. We feel like we've got great momentum in growing core operating business within the company. And what was particularly exciting about this quarter I mean, even beyond the 404 number is looking at like where it came from and how broadly based it was across all geographies and all lines of business. So, you know, really every team contributed to this and there were no enormous numbers in terms of, you know, any one client or one piece of business that drove it dramatically. It was kind of everywhere, which is a really good to see as Raj mentioned, the new business pipeline from a deposit perspective on the treasury management side is really good, over a billion dollars in near term deposits, and particularly coming off of such a strong quarter, we were pleased to see that the leading indicators going into this quarter and the next quarter look really good in terms of number of deals out there, number of proposals, acceptances, things of that nature. So we felt really good about that.
spk04: Tom, if I may interject, one point that I want to make about this quarter's DVA growth was it did happen in the third month of the quarter. So it happened more in March than in the first two months. What that means is it didn't really benefit our margin this quarter as much as it should benefit going forward. So just a detail point.
spk00: On the loan side, overall loans were down $407 million quarter over quarter, with Resi down $152 million, and CNI in Cree segments down a total of $226 million. As Raj mentioned, production was actually really good for the quarter. It was in line with what expectations were. We did have what I would say is an unusually high number of line pay downs in certain segments, and that really ended up impacting the quarter. more than we originally expected to see. As we look forward into the rest of the year, particularly in all of the core CNI segments, corporate banking, commercial banking, and small business, pipelines are really robust as we come into the second, third, and fourth quarters. So we continue to feel good about loan growth overall for the year. Other businesses kind of performed as we expected. Franchise equipment, municipal finance were down modestly. Mortgage Warehouse did have a bit of an uptick this quarter, but overall, I would say as we look forward, the pipelines for business look very good. Spent a few minutes on CRE, since obviously we know that's of great interest to everybody. Refer you also to slides 12 through 15 to the supplemental deck where we provided some detailed disclosure. So overall, as we've talked in the past, our CRE exposure is a percentage of the total book in risk-based capital is modest. In our view, it's 24% of total loans. Created total risk-based capital is 166%. Just as a comparison, if you look at the 12, 31, 23 call report data for banks in the $10 billion to $100 billion range, the average is 35% for the total portfolio and total created risk-based capital of 225. So when you kind of compare us to the core group that we would normally fit into from a peer comparison, we're, you know, I think well below where everyone is in the market predominantly. And I'd also point out our construction loan book has always been relatively modest and is less than 10% of the total UPV within Cree. If you look at some of the data points as of March 31st, the weighted average LTV of the Cree portfolio was 57% and the weighted average debt service coverage ratio was 1.83. About 15% of the CRE portfolio matures in the next 12 months and about 6% matures in 12 months in its fixed rate. Non-performing loans in the CRE portfolio other than the guarantee portion of the SBA loans are negligible. So I want to turn to office for a little bit. So we have a total office portfolio of $1.8 billion of that. About $300 million is medical office, so traditional office would be about $1.5 billion. It's made up of 99 loans. I have all of them in front of me. How much time do you have? And we follow each one closely by individual loan, by market segment on a quarterly basis, so we're very familiar. with the entire portfolio. The weighted average LTV of the office portfolio was 65%. Weighted average debt service coverage ratio was 1.7 at March 31st. There's breakdowns in the supplemental deck on the office portfolio by geography that you can look at.
spk04: Our largest loan is only $50 million.
spk00: Our average loan in the book is actually about $18 million, and the vast majority of them range between 15 and 25 is the majority of the portfolio. 59% of the office portfolio is in Florida, where the demand and demographics continue to be generally favorable. Substantially, all of the Florida portfolio is suburban. Our overall exposure to central business district-type towers is very modest. Maybe of the 99 loans, we have about 12 of them that I would actually call kind of downtown you know, office tower buildings. The rest are all suburban type property and, again, substantially in Florida. There's some charts on slide 15 that will give you further geographic breakdown of that. With respect to the New York tri-state portfolio, again, not much difference. 43% is in Manhattan, about $181 million of office in Manhattan, 96% occupancy within that book, and a 12-month lease rollover of 4%. rent rollover in the next 12 months is a small portion of the office portfolio at about 10%. We have seen some increases that we have expected to see in criticizing classified office loans. I thought I'd give you a little bit of a sense of kind of what those issues look like by maybe pointing out a couple of situations. So when we look at loans that are in that category, generally what we see is office buildings undergoing lease transition. And they fit into a couple of categories. One, our largest criticized classified loan happens to fit into this, where it's an office building in suburban Miami in a high demand area where the actual occupancy today is 98%, but unfortunately you have one large tenant that came in as a new tenant you know, six or seven months ago. And, you know, the demand these days generally allows for credit tenants to get 12 months of concessionary lease payments. So you have a period of time where the actual occupancy of the building is 98%, but the economic occupancy is far less. So we know when those lease payments will start. You know, we kind of have it on a calendar. We know went what the pro forma debt service coverage will look like once the lease payments do start but regardless of who the tenant is it could be the u.s government we don't start to count that in place cash flow until it's paid and until we have a maturity on the lease payments which is normally 90 days after the commencement of the lease payments so we have several buildings that are kind of in this sort of transitionary stage where you have occupancy that really is, you know, in the 90% range, where you have pro formas that would be well above, you know, kind of past loan policy guidelines, but they're in this kind of transition stage with new tenants. You know, and we also have loans that, like everyone is seeing in the market, where you have some vacancies where you have lease-up going on and, you know, properties being subdivided and whatnot. But, you know, there are situations where we see you know, activity and lease up in the market, particularly in the Florida suburban market. So you might have a 20,000 square foot, you know, lease that goes vacant, and then you have to subdivide the property. And it just takes time to kind of work through this. In general, we think the asset owners are supporting their assets. They're putting money into them. They're making investments in the properties. They have, you know, significant equity in it. And I think we'll just be in you know, a handful of these situations for a period of time as we work through this kind of lease transition phase. But I did want to provide you a little bit of anecdotal information that I thought would be helpful for sort of understanding the dimension of the office book that we have. So hopefully that was helpful. With that, I'll turn it over to Leslie.
spk09: Thanks, Tom. As Russ said, net income for the quarter was $48 million or 64 cents per share. The margin was $257 this quarter compared to $260 last quarter. The yield on loans was up from $569 to $578. That's just really portfolio transition as new production is coming on at higher rates and lower yielding loans, including residue loans, are paying down. The yield on securities did decrease from 573 to 559. This was really driven by retrospective accounting adjustments that we booked in the fourth quarter that made that fourth quarter yield, I guess, for lack of a better term, artificially high. What you're seeing now is probably a better sense of the run rate. The cost of deposits was up 22 basis points from 296 to 318. And as Raj mentioned, this appears to be stabilizing. So that's really good news for the margin going forward. The average cost of FHLB advances was down to 418 this quarter from 458 last quarter as we are paying down those higher rate advances. Our NIM guidance, we do continue to expect NIM to expand for the full year 24 compared to 23 and we think Q1 was the low point. I'm going to remind you again that this guidance is based on our continued success in transforming and remixing the balance sheet on both sides much more than on anything that the Fed might or might not do. In fact, in answer to a number of your questions, we ran a scenario with the same balance sheet transition assumptions and no cuts in 2024, and it moved the margin by one basis point. And it moved it up, by the way. It just doesn't really matter. What's going to drive our margin is our success in doing what we're trying to do to the balance sheet. Provision and reserves, the provision with this quarter was $15 million. The ACL to loans ratio increased from 82 basis points to 90 basis points. And the ratio of the ACL to non-performing loans increased to 188 from 160. The big drivers of this quarter's provision and the increase in the ACL, the biggest one was an increase in qualitative reserves and a lot of that related to the office portfolio. Another driver was risk rating migration, and those were partially offset by improvements in the economic forecast. And you can see a chart on slide 17 in the deck that kind of gives you a waterfall of the changes in the ACL. The reserve on the commercial portfolio, and when I use that term, I'm talking about all C&I, all CRE, franchise finance and equipment finance, not mortgage warehouse and Pinnacle because those have unique risk profiles, so they're not in this number. But that commercial reserve was 142. at March 31st. The reserve on the office portfolio was 226 at March 31st, and most of that build was qualitative and really prompted by the fact that we have seen some risk rating migration there, as Tom spoke to earlier. I would also point out that our total CREE reserve right now is about six times our lifetime historical loss rate, so pretty generous reserve there. Non-interest income and expense, not much to comment on here. Raj referred to the $5.2 million of additional FDIC special assessment this quarter. And we had about $6.5 million in residual losses on lease equipment last quarter compared to $2.7 million in residual gains this quarter, so that caused a swing in the fee line. The ETR was a little high this quarter because of one discrete item, but our guidance around that going forward hasn't changed. With that, I will turn it over to Raj for any closing comments, and then we can take the questions.
spk04: This is about as clean and as good a quarter as we could have hoped for nine days ago. Very happy with where everything landed, and looking forward to the rest of the year very optimistically. So we will take Q&A now.
spk02: Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone. and wait for your name to be announced. To withdraw your question, simply press star one, one again. Please stand by while we compile the Q&A roster.
spk01: Now, first question coming from the line of Benjamin Gillinger with CityHelan is open.
spk03: Hey, good morning, everyone. Good morning. I hate to belabor the point too much, but I was curious, can we just talk through the theory provision increase? I know you talked through the qualitative overlay, and then there's quite a bit in terms of like the office, and I think a lot of that is really, really helpful. But I'm just kind of trying to square the circle. It sounds like things are good, but then you also did increase the reserve a healthy amount. So just kind of thinking about the dynamics associated with that, are you expecting losses or is it more Cecil accounting? I'm just trying to square those two circles because things sound good, but then you also did increase the reserve.
spk09: Sure. You guys have been asking us to increase the reserve. No, I'm just kidding. That's not why we did it in case the SEC is listening. No, you know, I think then we don't expect, we expect any losses in our CREE portfolio to be very manageable. But I think it's also prudent for us to recognize that, you know, the environment particularly around office is challenging and we have seen some risk rating migration going on there. And so what we did to kind of come up with that qualitative reserve is we just made some broad assumptions around, so what if cap rates increased a lot more than current commercial property forecasts indicate that they're going to? and what impact might that have. So that was sort of how we thought about it. I do think we are not expecting a lot of lost content in this portfolio, but we do recognize that the environment is challenging and we're seeing some risk rating migration. I hope that helps.
spk04: Ben, I want to add one thing, a general comment about risk rating migration. We take our risk rating... the intellectual honesty that goes into this rating very seriously. We don't ever try to play games with that. We call the risk the way we see it. We don't try to say we are overly conservative or overly non-conservative. We try to be as down in the middle of the path because risk ratings are, whatever you call the load, they're not going to determine eventual performance. Eventual performance for the loan is determined by what a customer does or does not do. or a borrower does or does not do. Risk rating is what you think of that loan along the way. And if you try and play games with that, you just lose credibility with your stakeholders, whether it's regulators or investors or what have you. So we try to be as straight down the path on risk ratings. And when we see risk build up, we call it out and we move risk ratings down. I think that's a very important aspect of running a company and having credibility in the long term. I will point to the fact that during COVID also we called out risk early and our risk ratings, we downgraded them because we saw risk and we saw a lot of our peers not do that and we've scratched our heads like how can you not call the situation more risky given that we've had the biggest health crisis in the history of the country. So just to comment about, you know, there is obviously more risk in office today than it was, you know, a few months ago. And we're calling it out and we're also reserving qualitatively, but reserving for that.
spk09: And I think a follow-up to Raj's comment about COVID, all of that, we've downgraded loans, we increased our reserves, and we never saw any lost content. No, and the reserves were worse eventually, yeah. So, yeah.
spk03: Got you. Yeah, that's tough to call out. I appreciate it. And if we just kind of pivot here for the next one. I know that you guys are kind of baking into growth. I know that I think you said higher loan balances ending for year over year. I'm just kind of curious on the cadence of that growth, where it might come from. Because what I'm really trying to back into is like the mix on the asset side of the balance sheet is really going to be the driver of PP&R from this point, it seems like. So I'm just trying to get a sense of like where your exit margin might be based on that growth and kind of the pricing. I know Leslie kind of touched your third rail, but just kind of curious if you could narrow it down considering rate cuts are probably the minimus for your margin outlook.
spk09: Yeah, I would say similar to what we told you last quarter, we expect the margin to be in the high twos by the end of the year. That guidance is unchanged from what we told you last quarter. We expect the resi portfolio to continue to amortize down at about the pace you've seen over the last four quarters. So another, for the year, probably $800 million or so. We expect the growth to come from our core middle market commercial portfolio, primarily CNI. Maybe some creep, but primarily CNI. And we expect double-digit growth in that segment. So that's you know, probably the subs, which are now getting very small, but Pinnacle and Bridge will probably not grow. Bridge will probably continue to wind down Pinnacle for the time being, given pricing dynamics, and that market will tread water.
spk03: Got it. Okay. Helpful. I appreciate it. I'll step back.
spk02: Thank you. And our next question, coming from the lineup, Steven Scone with 5% oil and a solvent.
spk07: Hey, good morning, everyone. Thanks for the time. I guess I was curious, one, I mean, you guys took up your dividend here this quarter. I was wondering if there's any updates on the thoughts around the share repurchase. Capital continues to build. You've been building the reserves. It seems like at these levels, you might be more apt to do a buyback. So I just wonder any updated thoughts there.
spk04: Yeah, there's not an update. We do continue to talk about it at each of our board meetings. So in the May board meeting, we will again have a conversation. But I'm not expecting a buyback yet. We are changing our mix of our balance sheet. So keep in mind, from a risk-weighted assets perspective, we are talking about taking down low-risk-weighted assets like RESI and replacing them with high-risk-weighted assets, CNI. So yes, capital does build up, but capital ratio, or the TCE will build up, but SEP one doesn't build up quite as much because of the change of mix of assets, which is necessarily a force to improve margin. So we will, the board had, we talked about the buyback back in February when we took the action on dividend. We will talk about it in May, and I don't want to get in front of that discussion, but I think buyback is probably more, you know, it's probably in the second half of the year is when it will get, you know, we'll take a harder look at this. I doubt if it will be in May.
spk07: Okay. That's really helpful, Rush. Thanks for that. And then I'm just kind of curious on thinking about the loan option reserve obviously went up eight basis points and you're incrementally more protected. But if I look at that waterfall chart and I see the economic forecast component kind of going down, was that – am I reading that right? Were there some scenario weighting adjustments that you guys made to take that number down? Or what's kind of the dynamics of that around the economic forecast?
spk09: Most of that is just that the forecast is better than it was three months ago.
spk07: Okay. So no change to the way you guys are weighting to the various scenarios?
spk09: I mean, we tweak that every quarter, but really we're just seeing better forecasts. And so the model loss results are coming down, coming out of the model.
spk07: Got it. And then just last thing for me, obviously great momentum on the non-expiring deposits. Sounds like Tom said the pipelines were pretty good on the treasury side as well. Kind of curious what you think you can do there. I know it's hard to predict through the full year and then maybe kind of an update on Dallas in particular and what sort of progress you've seen, how much that may or may not be contributing to the positive momentum there?
spk04: It's too early for Dallas to contribute anything meaningful, so these numbers are not really because of Dallas. There is obviously some growth there, but it's small compared to the total number. But Tom?
spk00: Yeah, when we look at the markets that we're in, I would say this last quarter was a particularly good hiring timeframe for us. We added to the teams in Atlanta. We added to the teams in Dallas. We made some really good key hires in the corporate banking space in Dallas. It is too early for any major results to kick in yet. We are seeing good activity, good pipeline build business coming in, but that's not predominantly driving the numbers that you see in the $404 million of NIDDA growth. That was really more across existing geographies and existing lines of business.
spk07: Got it. Got it. And think that progress can continue based on what you're seeing in the pipeline, I guess, is the general message? Yes. Fantastic. Thanks for the color, and congrats on all the progress. Thank you.
spk02: Thank you. And our next question, coming from the lineup, Jared Shaw with Barclays. Your line is open.
spk06: Hey, good morning, everybody. Maybe just following up on the deposits and funding, you know, with the trends that we're seeing in DDA, one, I guess, would you say, are you also seeing continued remix from existing customers offset by the new customers bringing money in, or do you feel like, you know, on an average account basis, we're sort of at the bottom on average DDAs here?
spk04: It's a little hard to say. I think that it's still some bleed happening on older relationships, which is, you know, what you're seeing, the 400 million or so is net growth. So I think there's still some of that happening. But we're trying to kind of out, we are not trying to, we are outrunning it with new business that is coming in the front door. So I think it's still a little bit of a leaky bucket. I think if that's what you're asking about. But, yeah, I think there's some of that still happening. You do wonder, like, you know, you haven't woken up yet. But I think the leaky bucket phenomenon is still true. But we have a lot of momentum on filling the bucket with new business and based on what business was closed this quarter, but also based on what's in the pipeline.
spk06: And then on deposit data, do you think we've seen the peak here? Even if we don't get rate cuts, should we expect to start to see a gradual decline either from that remix of DDAs or not having to pay up as much in market to retain some of those interest-bearing deposits?
spk04: I certainly hope so, or at least stability. Seeing the numbers from Jan, Feb, March, and into April, we're seeing complete stability. It's been absolutely flat. I get a report every morning what the deposit book looked like the night before. And usually I look at DDA in total, but it's nice to see the far right column, which is the cost of funds, basically, or change in cost of funds looking pretty stable. So yeah, it looks like it's stable. When will it start declining without the Fed moving? You know, if DDA keeps building up the way we are thinking, it will start declining as well. But, yeah, we have reached that inflection point. It certainly feels that way.
spk06: Okay. And then, finally, for me on the office side, you talked about some of the rent concessions to get new tenants. Have you been noticing landlords having to increase either the rate or pace of concessions to attract those new tenants? Yes. is one part of it. And then I guess what gives you confidence that the expected lower occupancy levels are temporary? Is that just you have some insight into the pipeline for those landlords?
spk00: Yeah, I would say two things. I don't think in most of the markets that we're in, the concessionary period has expanded. Now, you know, if you're in San Francisco or Chicago, I'm sure that's true. But in better growth markets, generally, you're seeing kind of a 12-month period of time. And we're not seeing any major changes in that. The confidence really comes from sort of the underlying demographics of what's happening in the market. So if you look at markets where we have you know, significant office exposure, like spread out through Florida, for example, if you look at the underlying demographics and, you know, inflow business migration, new business startups and whatnot in Miami, in Fort Lauderdale, in Palm Beach, in Tampa, it's good. I mean, there's really, and you're seeing the lease up activity from that. I mean, the amount of new migration of companies that come to a market, the expansions, that are being done is just really, you know, strong throughout virtually every market, you know, in Florida. So that's what gives you confidence to see that as you're looking at, you know, very, very strong population and business growth that requires, you know, a lot of these buildings are, you know, professional services oriented, technology oriented, and you're just seeing growth across all of those industry segments within Florida.
spk09: And I would also point out, you know, in Manhattan in particular, the rent rollover in the next 12 months is only 4%.
spk00: Yeah, I mean, even if you look, there was a recent report in the journal, I think yesterday, that said New York City led the country in creating new tech jobs. And while we don't have a lot of buildings in New York, I think they had a 3.5 number as the growth in the tech-related return to office and new job environment. you know, that comes in to those buildings. So, you know, the markets that we're in, I think, are generally giving us reasonable confidence that we're seeing, you know, business activity that will lead to leasing activity.
spk09: The other thing I would say, I know we've said it kind of jokingly, but Tom really is sitting here with a stack of paper in front of him that has on it details of every single loan in the office portfolio. So I think the granular level at which we are monitoring and paying attention and gathering information about the loans in this portfolio is what gives us the confidence in this portfolio. We really do know what's going on with each and every one of these.
spk04: Portfolio management has been at a different level.
spk00: I mean, our teams are visiting these properties consistently. They're talking to the asset owners. You know, they're talking to the leasing agents. I mean, they have a very granular level of knowledge of what is going on in each and every property.
spk06: Great. Thanks very much.
spk02: Thank you. And our next question, coming from the lineup, Woody Lay with KBW. You want us open?
spk05: Hey, good morning, guys. Good morning. Good morning. Just one follow-up question on the non-interest-bearing deposits. As you mentioned, it looked like it all sort of came on in the final month of the quarter. All those deposits should be sticky. There's no seasonal factors there?
spk04: No. There are seasonal trends to certain businesses that we're in. There are monthly trends. There are seasonal trends. But, you know, a lot of that growth was new business. Some of it was certainly seasonal as well. We had a decline in DDA last quarter, as always happens in December. And we're now seeing that build up, that build up, you know, It's not like we're in high season. That buildup will continue to happen. So we expect the seasonal changes to keep helping us as we get into the summer. No, there isn't any lumpiness that I'm worried about that is, you know, here one quarter and gone the next quarter. No.
spk05: Got it. And then I wanted to shift over. I think in the release you mentioned you saw some shared national credit runoff. I was just wondering if you could quantify that on a dollar basis. And do you think that's a trend that continues from here?
spk09: I don't have those numbers in front of me right now, Woody, but I'll let Tom speak to what his expectations are.
spk00: I would say, you know, when it comes to that segment, we consistently try to look forward and see where we see risk in the economy. And when we make those decisions to exit those credits, and there were a couple of them this quarter, they're typically areas that we look at where we are not as optimistic about the trend lines in those industry segments. And that's typically where we make that kind of decision. They're a bit more episodic based upon how we're viewing what might be happening in a given industry segment versus kind of, I mean, our long-term strategy is to build bilateral, you know, business with operating accounts and treasury management business and whatnot. You know, we do have, we are in, you know, some shared national credits on both the corporate side and the real estate side, but we generally think about it from You know, do we have confidence in the next 12 to 24 months in where this sector is going? And when we don't, we try to take opportunities to exit at maturity or redials.
spk05: So those credits that were exited, I mean, did they have a deposit relationship with the bank? And does a majority of your national credit portfolio have a full banking relationship?
spk00: The credits that we have exited did not have depository relationships. We have a portion of our book, you know, the shared national credit book breaks down into kind of different categories. For example, if we are the lead bank in a shared national credit, which we are, then we have the depository relationship. And many of the shared national credits we're in We may not be the lead on the credit, but we're the depository agent for the relationship. In some, we have, you know, it's not one broad statement across all lines, but I would say in shared national credits where we are neither the agent nor the depository bank, our general bias would be those are relationships that are probably going to be de-emphasized going forward.
spk05: Got it. That's helpful commentary. That's all for me. Thanks, guys.
spk01: Thank you.
spk02: And our next question coming from the line of Stephen Alexopoulos with JP Morgan. Your line is open.
spk07: Hey, good morning, everybody. Good morning. I know you've had a bunch of questions on Office Cree, but I had a bigger picture question for you guys. You know, when investors or analysts ask the larger banks, like, what's your outlook? Where's the risk? Inevitably, The answer is the regional banks are holding the risk on Office Cree. I didn't really hear that in your response to all these questions and Tom, you working through some of these challenges. Do you guys agree with that? That the regional bank, I mean, you see what your peers are doing. Do you think you're an exception to the rule and your peers are in trouble in this asset class or what you're experiencing? Do you see that as fairly typical? Yeah.
spk04: So I'll start and then Tom, you chime in. I think the first place where I would somewhat agree is the fact that regional banks do have more CRE exposure in general than the top 10 banks, for example. So just look at, you know, CRE to risk-based capital or ratios like that. Yes, smaller banks, community banks, all the way up to regional banks do have more CRE exposure. But from there on, I actually will start to disagree. Different banks have different types of CRE. And you can have a regional bank with, you know, average ticket size of $1.5 million, another one at, you know, $15, $18 million like we do. And then there are regional banks that have very large exposures. And each one of them will have a very different risk profile. So generalizing it beyond just saying, yeah, generally speaking, regional banks have more CRE. That's the only statement that applies. But beyond that, you really have to dig into what kind of lending each bank is doing. And it can be quite different from one regional bank to the next. We obviously know our book best. And I can't really talk much about another bank that might be, you know, doing very small ticket CRE or very large ticket CRE. those risks might be quite different. But with the risk profile that we have, starting with the fact that we have much lower CRE than typically a bank our size would have, and the kind of CRE we've done, it's sort of, you know, $15 to $18 million type of average ticket size. We don't have very super large loans, but we also don't have very small, you know, one, $1.5 million loans either. And the mix that we've formed and the markets that we serve, we feel pretty good about our portfolios. But to your bigger point, I think it's more complex than making a very generalized statement.
spk00: Yeah, I would, Steve, I would add, I would agree with what Raj said. I also think, you know, when you look at our portfolio in total CRE, you know, and you scope out all of the banks in the $10 billion to $100 billion range, you know, we're clearly at the lower end of overall CRE exposure. And we have always, I think, maintained a good discipline around asset diversification. Within that book, no one asset is more than 25% or so of the entire base, and we spend a lot of time thinking about asset allocation within that book and asset allocation within the total portfolio and also project limits. So as Rod said, generally, our portfolio across all asset classes within Cree is what I would kind of call a middle market real estate portfolio. We're not typically in, you know, loans above the 15 to $30 million range. We're not sitting with a hundred million dollar loans on, you know, towers and, and major construction loans. And the last part is I think generally, over a long period of cycles most people would agree that your risk is in the construction loan portfolio is a higher risk element and that's always been you know a very modest part of our overall portfolio i think right now it sits at about eight percent of the portfolio the green portfolio correct just one more thing the difference between cbd and and suburban is pretty stark
spk04: And I think paying attention to that, you know, two banks with the same exposure, same numbers, but if it's CBD versus suburban, you know, that makes a difference between banks, it can shed a lot more light about where the risk is.
spk00: Even within submarkets, I'm staring at this piece of paper that we keep referring to, you know, and we break it down by submarket, you know, no submarket is overweighted in any area. So, you know, we pay attention to what's in Tampa, what's in New York, what's in Miami, what's in Fort Lauderdale, because all of these economies do have some levels of difference, different types of business mix. And we, you know, so we keep it at asset levels, asset allocation levels, sub-market levels, project levels. We have a pretty disciplined approach to this.
spk07: Got it. A lot of the questions have been answered. Thanks for that detailed response. Thanks, Steve.
spk02: Thank you. And our next question coming from the line of David Bishop with Hopti Group. Your line is open.
spk07: Yeah, good morning, everyone. Good morning. Hey, Leslie, quick question. I think you mentioned that there were some maybe waterfall payoffs or repricing on the CD book this quarter. Just curious maybe what that looked like and maybe what the repricing looks like over the next quarter or two on that book and what – what the average rate's looking like currently.
spk09: We had about $900 million or so repriced in the first quarter up, I don't know, somewhere between 30 and 50 basis points. But that really was the cliff. I think going forward, it's pretty tame and spread out. So I think we're kind of past the cliff, and you can see the impact of that embedded in the change in the cost of funds for the quarter.
spk07: Got it. And then I know there was some noise, obviously, in fee income in the fourth quarter. Just curious if you think this first quarter rate sort of represents a decent run rate or good approximation heading out to the rest of the year. Thanks.
spk09: I mean, for the most part, yes. These leasing residual items are going to be episodic and sporadic. The portfolio is small enough that – you know, those don't occur with a regular predictable cadence. So you saw some of that. You've seen a little bit of that every quarter the last several quarters, and those things will be sporadic. But if you pull that out, yes, probably.
spk07: Perfect. Most of my questions have been asked and answered. Thank you. Thank you.
spk02: Thank you. And I see no further questions in the queue at this time. I will now turn the call back over to Mr. Rodgers for any closing remarks.
spk04: Thank you, everyone, for joining us. We will speak to you again in three months. In the meantime, you know how to reach us. Thanks. Bye.
spk02: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
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