BankUnited, Inc.

Good day and thank you for standing by. Welcome to Bank United first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you 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 first speaker today, Jackie Bravo, Corporate Secretary. Please go ahead. Thank you, Michelle.

Good morning, and thank you, everyone, for joining us today for Bank United, Inc.' 's first quarter 2025 results conference call. On the call this morning are Raj Singh, Chairman, President, and CEO, Leslie Lunak, Chief Financial Officer, and Tom Cornish, Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance. 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 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, 2024, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Raj Singh.

Thank you, Jackie. Thank you, everyone, for joining us. You may have noticed that our call is a little bit later than it usually is. And usually we go around the 22nd, 23rd. And the reason it was a little bit later, partially it had to do with calendars, but partially also was we went through a GL conversion, which is a fairly big undertaking, which Leslie sitting over here next to me led, and it went flawlessly. We didn't need the extra two or three days that we thought we might need, but it went really well. So I want to congratulate the team. But this was a good quarter, solid quarter in terms of where we landed versus our expectations. I know there's a lot of noise out in the economy, and we will get to that in a second. But first, let's go through what the last 90 days were like. In terms of net income, we came in at $58.5 million, $0.78 a share. I think consensus was 76, so slightly better than consensus. Margin was 281, which at the last quarter was down three basis points, which is exactly what we had expected. Most of that was around some hedges that rolled off, so it came in exactly where we expected it to. Cost of deposits came down by 14 basis points at 258 from 272 last quarter. Cost of interest-bearing deposits came down 21 basis points. It's now down at 354. Last quarter was 375. And on a spot basis also from December 31st to March 31st, we had an 11 basis point drop in that cost. NIDDA, which has been the story here for the last, you know, several quarters now, again, we had a very solid quarter. NIDDA was up $453 million. Again, as expected, and as we had mentioned to you last quarter at the last earnings release. Average NIDDA was down a little bit. Just that's the seasonality of how the DDA builds up for the year. You know, December 31st is not the bottom for us. It generally is somewhere deep in the first quarter where we bottom out and we start building back up. So March is generally a strong year. And then from here on, it's in several months of strong deposit growth. So we're expecting an even better second quarter. And in terms of, if I just look at total deposit growth outside of brokered, which we paid down quite a bit, total deposit growth excluding brokered came in at $719 million. So a very solid quarter no matter how you look at it from the deposit side. Wholesale funding, which is brokered and our wholesale FHLB borrowings were down $1.1 billion. The loan book, total loans were down $300 million. I'll break it up roughly into two pieces. One is what you expect, which is what we've been running down for some time, our resi book, some of our commercial finance subs. That was around number 200 million of that 300 million. About 100 million roughly was actually declined in our core commercial book, which we're trying to grow. Now, first quarter, I will remind you, is our slowest quarter. If you go back, you know, two, three, four, five years, you'll see first quarter is always our lightest growth quarter simply because we don't have, in our C&I business, we don't have financial information or audit differential information from last year, and we're working off of really dated financials. So we tend to be much lighter on growth in the first quarter than we, the season really picks up in the second, third, and fourth quarter. So, yeah, Also, coupled with some still fairly large paybacks that we've seen in the CNI book. So that trend has now been going on for about three quarters. That has not slowed down. Total loan-to-deposit ratio stood now at 85.5%. It was 87.2% at the end of last quarter. Set one is now 12.2%. And the tangible book value per share keeps climbing up. It's $37.48. Lastly, we'll talk more about AOCI. I don't actually recall the number off the top of my head, but I think that also improved. I'll talk about the macro environment for a second, then I'll talk about guidance. So you've seen the level of uncertainty that is out there. We're all monitoring it. Our clients are monitoring it. We actually had a very large client event just last week in New York. We met 75 or so of our top clients in both CNI and CRE businesses. And I would say that, you know, I went into that expecting a lot of concern and a lot of like, oh, my God, what's going on in this world? But I didn't actually get that. What I got, yes, there's some level of concern, some level of uncertainty. But for the most part, people are engaged and people are basically, while they're monitoring what's going on, they're not writing off the year in any way, shape or form. So they stay engaged. The fact that we had that level of attendance to this event itself was a good sign. But then how engaged people were and wanted to talk about growing their businesses. And yes, there was some talk about politics and tariffs and so on. but for the most part, it was a very positive event. So when it comes to our guidance, here's what I will say at a high level. We're not changing our guidance. So what we told you 90 days ago, we'll stand by that in terms of loan growth, deposit growth, margin, expenses, and all that good stuff. Having said that, I will say, and this is a phrase that I borrowed from somebody that I met last week, that the cone of uncertainty is much bigger than it was even a month ago. So there are a lot of moving parts here. The rate environment is moving around like crazy. The economic environment is also uncertain. And we don't know exactly where we're going to land with tariffs at the end of the day. And all of that will have an impact. So what can we do as a bank? What are we doing as a bank? We're paying a lot of attention to the risks that are unfolding in front of us. I think the most immediate risk that we have to deal with is interest rate risk. When the curve moves as much as it is doing on a weekly basis these days, both the short end and the long end of the curve, that means we have to pay extra attention to interest rate risk management, and we're trying to stay as neutral as possible in any scenario so we're not hurt by whatever happens to rates. Second, obviously, is credit and pipeline risk. I'll roll them up into one. The pipelines right now are actually very strong. So we have not seen a degradation in our pipeline. Now, in fact, I was meeting with our credit people last week and trying to compare what we had budgeted for for this time of the year for pipelines versus what we are seeing, and they are actually better than what we had even budgeted for. Now, what will be the pull-through rate on these pipelines? I think that will depend a lot on where everything lands with tariffs and the economy in general. But so far, I really have no basis for altering the guidance we gave you, except just to say that the possibilities of what can happen is much wider than 90 days ago. With that, I'm trying to see here in my notes if I've missed anything. No. We did, just to note the obvious, we did increase our dividend by a couple of pennies, which I think now going back to COVID is when we started doing this. I'd like to keep doing this very steady increase in dividends. and 10 years from now be able to come back to you and say, look at our track record for the last 10, 15, 20 years. We've been increasing dividends on a steady basis. So we're happy to report that. But all I'll say is while there is more uncertainty out there, we are as prepared as anyone or more prepared today than we've ever been to take on whatever is coming our way. if it is bad news or if it's good news. If it's good news, there's got to be a lot more economic activity. We're open for all kinds of business. And if it's a recession or something, you know, a slowdown, we're ready for that. We have more capital, more liquidity than we've ever had, and we can take that on. With that, I will turn it over to Tom, and he'll get a little more detail behind some of the numbers and then Leslie.

Great. Thanks, Raj. So I'll start off talking a little bit more about the loan side and maybe give you a little bit more color on Roger's comments about the $100 million down in kind of the core segments. So basically Cree was flat for the quarter and most of the decline or all the decline was really kind of in the corporate banking space, predominantly in the upper commercial space. So this payoff activity that we're seeing last few quarters is I think not just an us phenomenon, I think it's pretty much across the industry. And I give you some broad sense of sort of what we see in the marketplace. So when we look at payoffs, I would say probably 25% of it is related to company sales. So there's not really too much we can do about that. About another 25% of it is situations where we are kind of selectively, I would say, opting out of you know, credit opportunities. And most of our opt-out is either because we're looking at renewal opportunities where the pricing has gotten more aggressive than we want to compete at, or in many cases, the deposit and ancillary business opportunity is not really developed in the way that we thought, you know, that it would over a period of time. So those are kind of self-selected sort of opportunities. I'd say another 25% of it is predominantly deferred Deals that we are competing on, renewals that we are competing on, but situations where debt funds are becoming more dominant in the corporate lending space and middle market lending space in particular and taking all parts of the debt stack and not just taking like a subordinate piece. And in some cases, those deals are just beyond the parameters that we want to play in. I'd say the other 25% is just kind of dogs and cats, different reasons for different things. I would also state, as Raj mentioned, you know, production, particularly in the CNI areas, was really good for the first quarter. And I think when we look at sort of the swap that we're making in, you know, deals that are paying off versus deals that are coming in, we're generally seeing all deals coming in, you know, virtually 100% of those relationships are coming with deposits, which is a key part. of what we're trying to focus on and the pricing difference between what we're stepping into versus what we're stepping out of is favorable. So even though at times it looks like an even wash kind of from a long-term franchise perspective, it's really not because these are much more relationship-oriented, deposit-oriented clients. But as Rod said, we are looking at really good pipelines in all of our core business in the second quarter, so we're optimistic about that. Back to the resi piece was down by $116 million. Franchise and equipment and municipal finance were down by a combined 80, you know, all kind of in line with expectations. And the equipment, finance, and franchise business were kind of getting to sort of the end. I mean, the downward movement from this point on will be in much smaller amounts because it'll just take time to run off at this point. With respect to tariffs and macro uncertainty, we're not really seeing any impact, as Raj mentioned, in the pipelines. Although the pull-through rate could be a little bit slower. There are certainly a lot of lenders in the market. We don't see any abatement of risk appetite going on right now. And given our core client base in markets, we believe the ultimate impact to us will probably be second, third, or fourth order impacts. Those are pretty hard to predict. We don't have a tremendous amount of China, Mexico, Canada exposure. logistics exposure in that way. If you look at the supplemental data and look at our industry segmentation, it's less oriented towards that type of business and more in finance and insurance and healthcare and education and not-for-profits and things of that nature. With respect to CRE, not really much has changed since the last report. Our CRE exposure totaled 26% of loans, 173% of the total risk-based capital as of March 31st, 2025, again, I'd point to the comparison based upon December 31st, 2024 call report data, the medium level of CRE for total loans for $10 billion to $100 billion banks was 34%, and the mean ratio of CRE to total risk-based capital was 218. So while this remains an important line of business for us, relatively speaking, compared to peers, our exposure is a bit less At March 31st, the weighted average LTV of the CREE portfolio was 55%, and the weighted average debt service coverage ratio was 1.78. Fifty-three percent of the portfolio was in Florida and 25% in the New York tri-state area. The profile of the CREE office portfolio also is largely consistent with prior quarter, and we were down by $52 million, mostly ammo within the portfolio. At March 31st, we had a total office portfolio of $1.7 billion. 57% in Florida, which is predominantly suburban, 23% in the New York tri-state area, 347 million or 20% of the total free portfolio is in medical office, so traditional office is probably about $1.3 billion today. The construction portfolio includes an additional $87 million in office-related exposure, with $84 million of that in New York. The weighted average LTV of the stabilized office portfolio was 65%, and the weighted average debt service coverage was 1.58 at March 31st. I would point out that since the onset of the pandemic and the total change to the office environment and remote hybrid work patterns in 2020, we've had total office charge-offs of $16.2 million in our portfolio, $7.9 million of which was this quarter. Criticized classified office loans totaled $414 million at March 31st, down a bit compared to the $425 million at December the 31st, but generally not much changes. Pages 11 through 14 of the investor deck provide more details on the CRE portfolio, including the office segment. So with that, I'll turn it over to Leslie.

Thanks, Tom. To reiterate, net income for the quarter was $58.5 million, or 78 cents per share. Provide a little bit of color for you around the NIM and net interest income. Net interest income was down $6.1 million, or 3%, linked quarter, and that related to lower average interest earning assets and slight margin compression. The NIM declined three basis points to 281 from 284 last quarter, largely consistent with our expectations, and I'll remind you, That's the same trend as we saw in the prior year, where the NIM was down a few basis points in Q1 and then expanded throughout the rest of the year. The static balance sheet remains modestly asset sensitive, and there wasn't a lot of change in the composition of the average balance sheet this quarter. As we mentioned last quarter, some cash flow hedges expired this quarter that had a three basis point impact on the NIM, so without that, the NIM would have been flat. As we've said, margin expansion ultimately will be the product of change and mix on both sides of the balance sheet, which we continue to expect over the remainder of this year. As Tom discussed earlier, the core commercial loan portfolio segments declined this quarter. And while period end NIDDA grew by $453 million, average DDA declined modestly by $144 million. And all of that is consistent with what we expected to see for the quarter. The average cost of interest-bearing deposits decreased from 375 to 354, while the average cost of total deposits declined 14 basis points to 258 from 272. On a spot basis, the APY of total deposits was down to 252 at March 31st from 263 at December 31st. For the current down rate cycle, and I'm measuring that from September 1st through the end of March, The realized down cycle beta on non-maturity interest-bearing deposits was 92, and we're pretty proud of that and the ability we've had to lower deposit costs.

We worked hard at it.

We did indeed. As expected, given the rate cuts in Q4, the average yield on loans declined from 560 to 548, and the average yield on securities from 531 to 507. That really is just largely driven by the repricing of floating rate instruments. The average rate paid on FHLB advances was down from 382 to 369, primarily due to the pay down of higher rate short-term advances, which is a weird thing to say, but short-term advances are the higher rate ones. On last quarter's call, we did mention that impact of the expiring cash flow hedges, and that played out exactly as we thought, as I mentioned. We've run a lot of different rate and balance sheet composition scenarios because, frankly, we don't know what's going to happen to rates or the yield curve. The greatest exposure from a rate perspective continues to be a severe downward shock in rates, and the most favorable scenario obviously would be a positively sloping curve. But again, margin expansion is still most dependent on our continued ability to remix on both sides of the balance sheet. AOCI this quarter improved by 17% as compared to 1231.24, so that short duration of the bond portfolio continues to pay off in terms of whittling away at that AOCI balance. With respect to credit, the provision in the reserve, the provision this quarter was $15 million. The ACL to loans ratio remained unchanged at 92 basis points. Slide 16 of the deck presents a waterfall of changes in the ACL for the quarter. As you can see from that chart, we did build reserves this quarter, but then took some charge-offs. So prior to taking those charge-offs, the reserve built to a little over 1%, and then we took the the charge-offs, and that's how it's supposed to work. So the ACL this quarter was also impacted by a true-up of some specific reserves, largely related to updated appraisals and valuations on loans that have been worked out for some time. The commercial ACL ratio, that's CNI, Cree, franchise, and equipment finance, was 134 at March 31st, and the reserve on Cree office was 199. That was down a little bit from last quarter due to the charge-off we took and also some upgrades. We did run the April Moody's scenario through our ACL models. It is incrementally worse than the March scenario. And what we learned by doing that was that we have sufficient qualitative reserves included in our reserve to more than cover the incremental increase that would have resulted from running that new forecast. We are seeing some normalization of credit. Net charge-offs totaled $19.4 million this quarter. or 33 basis points annualized. If you look at that for the trailing 12 months, then that charge off ratio is 24 basis points. Substantially, all of the charge offs we took this quarter related to loans that have been in work out for a while, so nothing cropping up unexpectedly there. Total criticized and classified assets were essentially flat. The NPA ratio was 67 basis points, excluding the guaranteed portion of SBA loans, and NPLs were up slightly. With that, I am going to turn it back over to Raj for any closing comments.

Thank you, Leslie. I forgot to mention, I usually talk about credit in my remarks, but you did a good job. So, you know, of course, that's why it's essentially flat and ACL is essentially flat. So not much news. But we'll open this up for Q&A. And Jackie? Yep.

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 our Q&A roster. Okay. Our first question is going to come from the line of Jared Shaw with Barclays. Your line is open. Please go ahead.

Hey, good morning.

Good morning.

You may be starting just on some of the components of margin. When we look at asset yields or loan yields, how much are you seeing spread compression impacting new loans right now? It seems like you're calling out some competition there. Is that increasing? How should we think about the competitive environment for new loans?

So it's a very good question, but it has a long answer because there's so much that is happening. I'll go... Not just loans, I'll even talk about securities. Starting there, the easiest one to answer, credit spreads have widened out in the securities land over the last several weeks, especially over the last four or five weeks have widened out more. On the lending side, which always gets the news a little bit later than the securities world, we saw, at least in CRE, a tightening of spreads in the first quarter. One of the reasons we actually did less business than we thought in the CRE space was tighter spreads. It seems that a lot more banks are trying to get back into the CRE business, maybe because it's a new year, maybe because it's a different world today, but we're seeing more CRE competition than even a quarter or two ago. Having said that, when I look at the pipeline for CRE from here forward, Again, the spreads look a little bit better than they looked in the last three months. So it is really in flux. And maybe that's got to do with all the noise in the market for the last month or so. But spreads are, again, moving back higher by 20, 25 basis points when I look forward in CRE. In CNI, I would say that while we saw compression in spreads all through last year, especially from summer into December, they are largely steady. There wasn't that much change in the first quarter or in the pipeline. So CRE is the one that has done the whip-sawing a little bit, but CNI is more steady, and securities have, of course, have widened out.

Okay, great. That's helpful. Thanks. I guess maybe as a second question, shifting over to credit, any color around the growth in non-performers Is there any industry that stands out more than the other, or is it just more broad-based?

No, Jared, I mean, as you can see, it's mostly in the CNI book, but it's cats and dogs, ins and outs. I think it's up total maybe $9 million, which is like really equates to one loan, although I wouldn't say it's one loan. It's just different things moving in and out. Nothing we're seeing back to trends or concerns about particular industries.

Okay, great. And if I could just sink a last one in, when we look at the growth and end of period DDAs, what percentage of balances are subject to ECR in terms of that growth?

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

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

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

Okay. Thank you.

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

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

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

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

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

Actually, we already had qualitative reserves. And then we added more. And then we added some more this quarter because of all the uncertainty. Yes. And then we tested with the April movies.

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

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

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

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

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

All right. Thanks for taking my questions.

Thank you. One moment for our next question. Our next question is going to come from the line of Tamir Brazeiler with Wells Fargo, your line is open. Please go ahead.

Hi, good morning. Good morning. Leslie, I want to start just on the setup, particularly into 2Q. So if you look at first quarter results year over year, they're pretty similar. Margin down three basis points both years. You got the DDA component where the balance is billed while average is still down. Can we see a similar level of margin expansion 2Q this year as you get some of the remixing at the funding side? I guess just maybe talk more broadly about how you see margin and NII trajectory into second quarter.

Sure. I'm not going to provide that guidance quarter by quarter because unlike you, I don't really care which quarter it happens in. But we do expect the margin to expand over the course of the rest of the year. And again, We expect that irrespective of the Fed cuts. There are four built into our forecast, by the way, in an inverted yield curve. So honestly, it can't get worse, I don't think, from that perspective. But we do expect margin expansion, and that will be driven on growth or transformation of mix on both sides of the balance sheet. So putting on core commercial loans that are higher yielding and more core deposits replacing high-cost funding. And that's what will drive that growth. margin expansion, but I hesitate to say exactly how many basis points I would expect in each quarter because the timing of some of that can be a little bit difficult to predict with precision.

NIDDA growth that happened this quarter, because it happened later in the quarter, obviously did not help margin.

Right.

Now, into second quarter, we expect, you know, second quarter is our best quarter for NIDDA growth, so clearly the benefit will be felt in the second quarter. but I'll stay away from giving any specific guidance or Leslie will kill me here. But the trend that you're seeing in the balance sheet are similar to last year. First quarter, second quarter, strong, very strong DDA growth, total deposit growth. Third, fourth quarter, less so. And loans, of course, first quarter light, but second, third, fourth quarter is our main trend. you know, that's when most of the business gets done in those nine months.

Okay. Maybe asking a different way, Leslie, do you have the spot rate on deposits exiting the quarter? Yeah.

252, I think.

Yes, 252. And that's also in the deck, Woody.

Okay. Thanks for that. I guess next, maybe either for Roger or for Tom, but there's more news on just the Florida condo market softening. Can you just give us some color around your exposure to the Florida condo market and then what you're seeing just in terms of boots on the ground?

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

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

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

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

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

Hey, good morning, everyone. So it sounds like you guys remain pretty confident around the NIM trajectory through the rest of the year, which is great, and it seems like your assumptions are pretty conservative there. Is there any ability to kind of narrow the range on potential NII growth as a result of that, or maybe said a different way, what could lead you to the kind of low end of that mid to high single-digit range, and what could get you to the top end if there is not the ability yet to narrow that?

I will say, you know, there are a number of things that go into, you know, the NIM projection, right? There is what's going to happen on the right side of the balance sheet, what's going to happen on the left side of the balance sheet, what are the spreads going to be on the left side of the balance sheet, and what is the slope of the curve, right? So there's a lot of math that goes into predicting that. On the right side of the balance sheet, I feel very confident on our pipelines because they're not really impacted by the what's happening with tariffs and general macroeconomic situation. The left side of the balance sheet is going to be sensitive, especially if we have a, you know, this plane doesn't land well, to take a term from CNBC. So there is that, but then there is credit spreads also, which like I just explained a couple of questions ago, there seem to be moving around quite a bit. And lastly, the curve, the slope of the curve, which Leslie mentioned a minute ago, that is also pretty meaningful. And there I actually see good news. We have been modeling much flatter curve than we're seeing, and I'm keeping my fingers crossed. Upward sloping curve is good for us and every other bank. So a lot of moving parts to all of this. If I whittle it all away and say, okay, so how do I feel about the guidance that we've given you? I would say, what I said at the top of the call, which is we're not changing our guidance.

Yeah, that makes sense. Yeah, we're all hoping that curve steepens a little bit for sure. Okay, and then on this remix away from the Rezzy book that's happening over time, is there anything that you guys would consider doing to maybe expedite that remix in any way, any sort of loan sales or larger scale actions?

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

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

Just given the duration of the assets, is that the biggest issue there? Yeah, exactly. Yeah, that makes sense. And then just last thing for me, you know, obviously the balance sheets kind of, you know, at year end at least was pretty similar to where it was year end 2020. Deposit growth has been great. Do you think we're finally getting to like kind of an inflection point where we can actually see some more balance sheet growth or how confident do you feel like we can start to see some overall balance sheet growth from here?

I think we've been on this, especially since, you know, 2023 or beginning of 23 to now, we've really been on this optimization journey to make the balance sheet less. It became very thrifty looking because of COVID. During COVID, we put on a lot of resi, and it's still not anywhere close to ideal. So I think for the rest of this year, this strategy will still continue. But going into next year, we will come back and revisit it. I don't want to, you know, preempt and talk about next year's guidance. But at least what we've signed up for for this year is an improvement of the balance sheet as a primary driver of profitability rather than just, you know, let's just grow everything and let's get to $40 billion and $50 billion.

Extremely helpful. Thanks, guys, for all the color. Appreciate it.

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

Yeah, good morning.

Good morning, Dave.

The question for probably Tom or Leslie is you sort of scrubbed the office theory book and maybe New York City commercial real estate in general. Do you think you've sort of moved past maybe any sort of big downgrades or big negative surprises on that book? Do you feel pretty comfortable in terms of what's in there now in terms of, you know, you know, what's ahead potentially from a worst-case scenario?

Yeah, I do. I think it's possible there could still be some, but there's also going to be some upgrades coming. So, I think we are through the worst of it. What's sitting in non-performing CREE right now is, you know, there's three office loans sitting in there and a couple multifamily loans. And I don't expect generally the profile of the portfolio to change. Individual loans may move around a little, but I think we're through the worst of it. And I don't think there are any surprises left in that book, loans that are going to pop up that deteriorate that we didn't know anything about or that surprise us.

And generally, we have a fairly small number of loans in New York City and Manhattan in particular. We have maybe 10. You know, in total, it's not any of this exposure. And we are seeing some improvement in the CMBS market. And we do, based on what we're seeing in that market, we do expect we'll have some refinancings out of that portfolio this year as well.

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

Yeah, it depends upon what you describe as a syndicated national credit. I mean, we have this dialogue all the time. You've got a technical definition and you've got, you know, there are syndicated national credits that we agent. There are syndicated national credits that are really club deals. We had some runoff in what I would term broadly syndicated credits where we have a relatively small percentage. And, you know, it's a very large bank group. So of the of what we saw in runoff, some of that was in that book. And like I said, a lot of it was, you know, each time a deal comes up for redial, we look at it and, you know, we make a judgment. Does this still make sense? And more often than not, it doesn't right now. But there are still some to do, but we'll see more of that.

Thanks. And then, Leslie, one final question. The broker deposit runoff, This quarter, just curious, the brokered exposure stood and how much ran off. Thanks.

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

That's okay.

I can follow up offline.

I've got somebody looking them up.

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

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

Great. Thanks.

Thank you. And one moment for our next question. Our next question is going to come from the line of Christopher Marynack with Jamie. Your line is open. Please go ahead.

Hey, thanks. Good morning. Thank you for hosting us. Leslie and Raj, I wanted to ask you about expenses. And do you think of expenses going forward more as a percentage of average assets, or is the efficiency ratio kind of become more prominent as time passes?

I don't think we think in terms of efficiency ratio. No. Or for that matter, in terms of just, you know, basis points of assets.

I look at that one more than efficiency ratio.

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

And I would say we haven't changed our guidance about expenses for the year. So it's single digits in total.

Okay, great. And then, Leslie, since Raj mentioned the new GL system, what does that do for you? I know those are necessary evils. I'm just curious if that's going to help you going forward.

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

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

Yeah, let me throw out the answer to the broker deposit question real quick. Down from $5.2 billion to $4.7 billion, a total decline of $528 million for the quarter.

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

Thanks. Good morning. Good morning, John. Just to kick, I guess, a couple housekeeping things here, but should we expect the same decline in residential that we saw last year? Is that the glide path we should be on?

Roughly.

Yeah.

Unless there's something remarkable that happens along end of the curve, I would expect similar levels of runoff this year. OK.

OK. On your overall guidance, margin still passed to three percent by the end of the year is that is that the big picture objective for you yes it is and i i would say just as raj guided to you know the cone of uncertainty is big is wider but um but yes okay and and the uh there's been some questions on the reserves as well but it feels like feels like you're in a decent spot so is it is the path to one percent also still an objective for the end of the year?

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

Yeah, and I know some of that's makeshift as well. Okay, and then Raj, I think maybe some of the best of your prepared comments was the client event with the top 75 clients. Any other color from that meeting just kind of collectively

what you were hearing there you know I what I would say the the best thing for me was taking away kind of a temperature like how concerned are people how how much is their hair on fire and I went in with an expectation that that was you know that there will be at least some who will be really not happy and in a bad place but that's not what I found so I I stand corrected I was more pessimistic going into it than the clients were. Now, of course, you heard very interesting stories about sort of the unintended consequences of everything that's going on, and those always make for great anecdotes. But, you know, we as a Main Street bank, let's call us that, we live in a world that half our time is spent kind of like people on this call looking at screens and, you know, CNBC and Bloomberg and what have you, And half our time is spent on Main Street talking to our clients and visiting them and walking warehouses and buildings and what have you. So we kind of split our time between the high finance world and what I would call the real world.

More than the real world, I would say.

Yeah, and it depends on what week we're talking about. there is a pretty big gap between what you hear on CNBC and what you hear when you walk down Main Street. Eventually, those things will converge. But exactly where they converge, I think, will depend a lot on what our federal government does over the course of next 60, 90, 120 days in terms of landing this plane. But I came back away feeling good after that planned event. I went in more pessimistic than I came out. I was a little more optimistic.

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

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

Okay. All right. Thank you very much.

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

I think that last question was a pretty good place to end this. You know, this is a time of uncertainty, but it's also a time of opportunity. We're prepared for whatever is coming our way in terms of opportunities and, you know, otherwise. But feeling pretty good about the quarter we just had, the momentum that we have, the Thank you again for joining us.

For hanging in through our technical difficulties.

We've been a public company for 14, 15 years. It's the first time that has happened. We shall be doing a little diagnosis of what just happened here so it doesn't happen again. So we apologize for that. But otherwise, thank you so much. And call Leslie or me if you have any follow-ups. Otherwise, we'll see you again in 90 days. Bye.

Bye, everyone.

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