BankUnited, Inc. Aktie

Good day, and welcome to the BankUnited, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jackie Bravo, Corporate Secretary. Please go ahead.

Thank you. Good morning, and thank you, everyone, for joining us today for BankUnited Inc. Third Quarter 2026 Results Conference Call. On the call this morning are Raj Singh, Chairman, President and CEO; Jim Mackey, Chief Financial Officer; and Tom Cornish, Chief Operating Officer.

Before we begin, please note that our remarks today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect current expectations and are subject to various risks and uncertainties that could cause actual results to differ materially. The company does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. Additional information regarding these risks can be found in the company's annual report on Form 10-K for the year ended December 31, 2025, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website.

With that, I'd like to turn the call over to Mr. Raj Singh.

Thank you, Jackie. Good morning, everyone. Thanks for joining us. Usually, we always have this issue that we come out with earnings, and there are 8 other banks doing their calls at the same time. My team tells me that we somehow got lucky and we picked a day when not many banks are coming out. So we'll have your undivided attention, that's awesome.

Let me start by just -- before we talk about our numbers, just talk about the question that I often get from investors, what do you see in the economy and how are things out there in mainstream? And my answer is going to be similar to last quarter, which is while there are geopolitical risks and energy is a lot of control, there are concerns around inflation. The economy itself is doing quite well. GDP [ is ] strong, unemployment is historically low. And in our particular markets, even more so, both those things. So we are benefiting from that. And but keeping an eye on making sure it continues that way.

What has changed from the last time that we spoke is the interest rate environment is quite different. Fed is no longer in a hold or a loosening mantra policy stance. It's gone the other way. We've had our first rate hike, but more important than the rate hike also has been what's happened with the rest of the yield curve. So that is a big change from last time, and we're paying extra attention to it and make sure that we have all our bases covered. That's really been the big change.

Overall, our numbers, I'll walk through them really quick. And of course, Tom and Jim will then get into some details. Net income came in at $72 million or $1.01 per share. I know you guys love to exclude anything on the securities front. So if you take out some securities losses we had, net income was $74 million, and EPS was $1.03 per share. If you compare that to last quarter, I think we were at $0.96 last quarter. And a year ago, we were at $0.94. So making progress. ROA on an adjusted basis was 84 basis points and ROE is now pretty damn close to 10%, but still not at 10%. It's at 9.8%. So basically, ROA, ROE, margin, EPS, everything improved and it all happened on the back of basically gaining market share and deepening client relationships.

So quickly, the highlight of the quarter was margin. We had given you guidance that by fourth quarter, we will be at 3.15% NIM. We're happy to be actually at 3.16% already in the third quarter. A bit of a deja vu moment for me, I think this time last year, we had the same dynamic play out. We had promised you a margin for the fourth quarter, but we achieved that in the third quarter and then expanded from there. So it's going to be a very similar story, and we'll talk about guidance a little bit, but margin is looking very good.

And the reason it's good is because we are not -- we've been very, very laser focused on pricing and profitability and refuse to do business just for volume sake. So that's the trade-off we've made and it's showing. If you dissect this a little bit deeper, where is the margin growth coming from. It's coming from both sides of the balance sheet. Commercial loan yields are up but average deposit costs are down. I tend to read not every bank that comes out for the earnings before, but I do selectively pick up earnings releases from other banks. And I have yet to see a bank that has -- [indiscernible], but I haven't seen a bank that has actually reduced deposit costs last quarter or quarter-over-quarter. So we're very proud of that.

And -- and by the way, that happened not because our NIDDA grew this quarter, actually, our average NIDDA was flat this quarter. So this is really all coming off the back of interest-bearing deposits. So we're very proud of that. So printing a number below 2%, I think that's -- that makes me very happy.

Talking about deposits, our franchise continued to perform well. And deposits, the seasonality in our deposit -- second quarter is always the strongest quarter. And then things tend to moderate in the third and fourth quarter and first quarter is our weakest quarter. So average NIDDA was essentially flat this quarter. To be honest, I was expecting a little bit of growth. But in September or late August into September with the mortgage origination business getting impacted pretty severely by rising 10-year rates, that took a hit -- our title business took a hit for that. Now we grew our title business in terms of customers who brought in more clients this quarter and continue to do that every quarter, but the average activity in those accounts was lower and directly attributable to what's happening in the long end of the curve.

NIDDA now stands at 32% of deposits, again, compared to a year ago, it was 30%. So there's growth. We still have 10% growth in NIDDA year-over-year, talking about averages. Remember, we've told you time and time again. Don't look at [indiscernible], always look at averages, that's what drives the P&L, and that's a better representation of how our business is doing.

Quickly talking about lending. Again, we had a pretty decent quarter in terms of production, but we also have been high again. Low production -- year-over-year, our core loans, which we define as a commercial CRE and small business and mortgage warehouse lending as well, grew at about 4%, about $700 million. But the average C&I balances from last quarter did decline by $300 million. Some of it is attributable to some loans that slipped over into the fourth quarter. But generally, that has been fairly -- it's all coming back to the discipline that we're trying to maintain on 2 fronts. One is trying to get the full relationship and not just to drive the actual business and second is spreads. So that's directly attributable to that.

Having said that, fourth quarter is always our biggest quarter. If you go back and look at last year or the year before you'll see fourth quarter tends to be the [indiscernible] quarter for us, and we expect the same this year.

I will say one more thing about C&I. I've been trying to look at a lot of what our competition is doing. A lot of C&I growth, especially over the last couple of years for the industry has come for, but at least to greatly benefited from NDFI expansion. We have actually taken a more selective path. And instead of increasing our NDFI exposure, we've been decreasing it. It's a call on risk for no other reason. And we think it's the right thing to do long term. We're okay with doing investment-grade capital called business, a little bit of that but other categories of NDFI have been taken down.

Also, we have steered clear of some of the flasher asset classes like data centers and AI. We don't think a bank our size really is geared towards participating in that. And I know some of our peers are actively participating in that growth as well. There's not -- there's no way we're getting deposits out of that business if we ever do this, let's put it that way.

Quickly, a comment or two on credit. Credit -- it's fairly benign and the charge-offs were pretty low just like last quarter. Provision would have actually been 0 if we had just gone with the model. But given all the geopolitical and other risks that are out there, we used qualitative overlays and build reserve to about 93 basis points.

Capital, we did -- because the stock was weak this quarter, we took this opportunity to step up our buyback speed and we bought back a lot more shares this quarter than previous quarters. I think we bought back 2.1 million shares for about $97 million. So year-to-date, if I combine dividends and share repurchase, I think we've returned $278 million in the first 9 months of capital. And having done that, CET1 still remains robust at 12.1%.

And I know your question is going to be, so what happens in the fourth quarter? Well, most likely, we will finish our -- whatever is remaining in this authorization, and we'll go back to our board in the fourth quarter. We have meetings coming up in November, December, and we'll discuss this with them. They'll probably want to see a detailed business plan for next year and revised forecast for actually not just the next year but the next 3 years, and they'll make a decision based on that. So -- but I'd be shocked if we don't re-up the buyback.

With that, quickly on margin, I've already said this, I expect margin to expand again modestly in the fourth quarter quite like it did last year. And I'm sure you'll all be tempted to ask us about what will happen past fourth quarter, and we're not ready for that yet. We will give you that guidance in January, like we always do.

With that, let me turn it over to Tom, and then Tom will turn it over to Jim.

Great. Thank you, Raj. So as Raj mentioned, average NIDDA remained essentially stable from the prior quarter despite the normal seasonal activity that we have. So some parts of the businesses we operate different businesses that have different cycles. Some parts were down, some parts were up across the quarter from an average perspective, but overall, up 10% from a year ago. We finished with total NIDDA at 32.2%, total deposits compared with 30.1% a year ago. So we were pleased with that. And average total deposits, excluding broker deposits, increased by approximately $1 billion from a year ago.

Commercial operating balances continued to remain strong. Pipeline continues to remain strong. As Raj mentioned, we're having good success in adding new relationships. So one thing I always talk about is the progress we're making on service charges on deposits. If we look at Q3 2026 compared to Q3 2025, we were up 19.4%. So we're really happy about that. I think it shows good product penetration across the treasury services business, strong operating account business and strong discipline on the pricing of products and services that we offer through the platform.

The quality of the funding base continues to improve as we add more operating accounts and expand relationship banking. Production, as Raj mentioned, we were happy with for the quarter, just slightly over $1.1 billion. We've had a quarterly increase of production for each major line of business for each quarter this year kind of building up to what is our normal very large fourth quarter, which we anticipate, and we've already seen a good level of closing activity early in the quarter so far for this year.

Loan balances for the quarter were impacted by some payoffs, some delayed closings and just ongoing portfolio positioning. Average core loans increased by $706 million or 4% from a year ago, areas where we saw some growth in the quarter. Average CRE loans increased by approximately $75 million from the prior quarter and 10% a year ago. Again, as you can see from the detailed additional information in the deck that's very balanced across all major asset categories within CRE. There's no particular imbalance and the overall CRE portfolio still remains with 1.8 average debt service coverage ratio and a 54% loan-to-value profile. So we feel very good about that.

Average mortgage warehouse balances increased approximately $133 million or 18% from the prior quarter and 35% from a year ago. The growth in CRE mortgage warehouse partly offset the C&I payoffs and the timing of closings. We continue to remain focused on growing core loans, while remaining disciplined around pricing and full relationship economics. Jim and Raj and I were looking at some numbers this morning kind of tracing spreads from a year ago to today, on a quarter-by-quarter basis and despite substantial competition in the market, I think we're holding spreads very, very well and staying really disciplined on that.

We continue to see a healthy flow of opportunities. As Rob said, we're in great markets. The markets continue to do well, virtually every market we're in. We're seeing good opportunities in Florida. Florida remains strong. The New York market has been very good to us, particularly over the last year in terms of growth, particularly in C&I area and our newer markets like Atlanta and Charlotte and Dallas are really, really doing well. So we're confident heading into the fourth quarter and looking forward to a very strong quarter.

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

Great. Thanks, Tom. As Raj mentioned, we had adjusted net income of $74 million or $1.03 per share. I won't repeat some of the statistics that Raj mentioned, but I do want to dive just a little bit deeper in some of the numbers. The only adjustment we made was related to security sales. We normally have flat to slight gains on this line item. But this quarter, we had a $2.3 million loss and what drove that is with the market volatility this quarter, it gave us an opportunity to sell some shorter-dated seasoned securities where spreads had come in and tightened, and we were able to reinvest those in longer-dated securities at more attractive yields. It certainly helps NIM, but more importantly, it complements our slight asset-sensitive balance sheet profile. And that's why we wanted to take those actions now.

Now while we only adjusted earnings for the security sales, there were a couple of other notable items I want to just want to call out at the beginning of my comments, both are down in noninterest income. First is leasing. We had the opportunity to sell some, I'll call it, challenging lease assets at attractive prices. We're continuing to sort of deemphasize that leasing portfolio. So when we have that opportunity, we want to take advantage of it. We recognized a $1.1 million loss on these transactions. But with residual gains and losses on equipment sales, it's a normal part of the business, and we have it regularly. This was just a little bit larger than usual. So I wanted to call it out.

On BOLI, we had a $1.9 million decline this quarter. These plans are designed so that the asset liabilities largely offset over time. But there are quarterly mismatches from -- in periods where rates are volatile. And if you look back over the last couple of years, you'll see it bouncing around. And usually when there's a big movement up or down in rates. We would expect this to normalize pretty quickly over time and start to see the quarterly BOLI performance level out, consistent with where you've seen it over time.

On net interest income and margin, as Raj mentioned, both have improved this quarter, reflecting our improved funding mix, lower deposit costs and higher asset yields. NII up $5 million from the last quarter, $11 million from a year ago. NIM up 10 bps from last quarter, 16 bps from a year ago. Related to the 10 bp improvement from last quarter, it's really driven primarily by improved asset yields. Our security yield went up 10 basis points, and that added 4 bps to NIM. And this reflects the portfolio actions that I mentioned earlier as well as various purchases that we made earlier in the year.

Core loan yield increased 4 basis points, also adding 4 bps to NIM. That was largely due to the favorable repricing and the improved mix within the loan book. The remaining 2 bps of improvement is due to funding optimization, where we relied on less wholesale funding during the quarter. And as Raj mentioned, deposit costs were $1.99 -- or sorry, 1.99%, down 6 bps from last quarter.

NIM improved year-over-year by 16 bps, and that was mostly due to improved funding mix. Both sides of the balance sheet saw the impact of lower rates. However, the funding cost just declined more than enough to offset the decline in earning asset yields.

On the noninterest income and expense, noninterest income was $20 million for the quarter, which is down $9 million from last quarter and $6 million from a year ago. As we -- as I talked about at the beginning of my comments, the biggest drivers were the, I'll call it, the notable items that happened during the quarter.

I will acknowledge capital markets revenue was down $1.8 million from last quarter and it was flat to the same quarter last year. Really, there were 2 things that drove that decline. One was there were several lending transactions that slipped from third quarter to fourth quarter. So that creates some noise between the quarters. And while our pipeline of transactions was strong, just the interest rate volatility this quarter, frankly, just resulted in a lower average revenue per transaction. So that weighed on it a little bit. Not much to say on noninterest expense, it was stable at $175 million. You can see it's up from a year ago. That's just inflationary higher compensation cost investments we're making in our business and elevated deposit costs as our NIDDA continues to grow.

On credit, just a couple of things to say. Our net charge-offs, as Raj mentioned, remained low this quarter. Just want to give a public service announcement that not -- don't just look at one quarter, look at this over time, it can bounce around given the nature of our portfolio. Criticized and classified down 14% year-over-year. Nonperforming loans are down 30%. Our NPA ratio improved to 77 basis points from 110 basis points and provision expense at only $9 million, really reflecting the low level of charge-offs, but importantly, we increased the covered 2 basis points. And we did that through the addition of qualitative factors given the low level of charge-offs.

So let me finish by turning to our guidance update. Obviously, as we're almost at the end of the year, we focused our guidance just on the fourth quarter. Again, we'll come back to you in January to talk about 2027. I'll note our fourth quarter guidance assumes one more rate increase in December, 25 basis points. So let me tick down the metrics that we provided. Core loans we're forecasting a range of $17.6 billion to $17.7 billion ending balance. That reflects our seasonally strong fourth quarter. We've got a healthy production pipeline so lots of good opportunities for the growth.

The one thing that's always a wild card you can't predict is timing of payoffs or what utilization rates may be. So that's why we're giving you a range. NIDDA, $8.65 billion, again, consistent with the seasonal patterns and also keeping in mind what's going on in the mortgage market related to the title business. NIM, as Raj mentioned, we expect to continue to improve in the fourth quarter. We're pegging that at around 3.2%. The impact from the September Fed increase and the fact that we're slightly asset-sensitive certainly is -- will help.

Net interest income of $265 million, just to remind everybody, that's sort of as reported, so a non-FTE basis. I know some model looking at it on an FTE basis. But -- and that just reflects the higher NIM and the increase in earning assets during the quarter. Noninterest income, we do expect to return more back to normalized levels. We would certainly expect to see some improved capital markets revenue in the quarter and a non-repeat from some of the notable items that we discussed.

Expenses around $178 million, just normal quarterly variability, nothing really to call out there. All that sort of drives the PPNR of $115 million. And lastly, credit provision, it's a little hard to peg, but we put it at $15 million, which is sort of our normal kind of run rate, if you will. And a lot of it will depend on where charge-offs and other things land during the quarter.

So with that, I'll turn it back to Raj.

All right. I think I was just looking through my notes here. One comment that I wanted to make, which I forgot, is, it's a detailed point, but it's an important one. In our C&I business, it's -- you see a C&I number. There are actually a few businesses that add up to that. And there is a large corporate business, which is larger tickets business. There's a middle market or what we call commercial banking, and there is tough very small ticket business, which we do out of our branches.

The middle one, the commercial banking is what we have been really focused on the last 2 years and has been growing at double digits. This will be its third year of growing double digits. That is a business that we tend to capture the full relationship, we tend to have 100% loan-to-deposit ratios, the deposits come in and generally, the deposits are the lowest cost of all of our business lines. So we are very focused on growing that. It doesn't show up in the numbers and still not going to be big enough to move the needle and the whole book is back a couple of billion dollars split between New York and Florida.

But that's what is growing and where the margin pressure is the biggest, and we don't get enough deposits is the large corporate business. And that's the one that actually is a little bit behind in terms of its overall balances. We still want to grow that business, too. So don't get me wrong. But I'm really excited about Commercial Banking, which is that small ticket, the $5 million, $10 million ticket size business doing as well as it has. And in the next 2, 3 years to come, that I expect that business to really become a big enough business to stand on its own as a separate line of business.

But we've had a lot of success there. It's taken a long time. We've changed leadership over here. It -- not change, but we added to the management bench over there. And we're expanding that into our new markets as well, which we have not done to date, so in Texas and eventually Atlanta as well. So we're very excited about that. So you'll hear me talk about this more and more over the course of next year or two. So just one point that I wanted to make that I forgot.

Let's open it up for Q&A.

[Operator Instructions] Our first question comes from David Chiaverini with Jefferies.

I guess, starting out on the net interest margin. You guided for it to expand further in the fourth quarter. You mentioned about how you're slightly asset sensitive and you're assuming one hike. I guess can you split out how much of the expansion is from the asset sensitivity versus mix shift on the balance sheet?

In the fourth quarter, I think it's largely the -- I mean it's largely the asset sensitivity. The NIDDA, obviously, it's a seasonal, so it declines. I mean we continue to have noncore loans running off, so on the margins, that is helping. And as Raj and Tom mentioned, we're holding the line on loans. So it's really just -- our loan yields. So it's really just the deposit cost resetting slower than the benefit of the loans repricing up.

That's helpful. And as we think about the forward curve with potential hikes coming in, what sort of magnitude of rate sensitivity should we think about as it relates to the NIM and rate hikes?

I think there are 2 things here. One is just the lag effect from rate hikes, which I think is really a shopper point to talk about the fourth quarter, eventually lag infects only help you for a period of time after the lags catch up with your deposits to price back up. But our stated strategy always has been to not be asset sensitive or liability sensitive to try and manage as close to 0 as possible. That's on a static basis. On a dynamic basis on new business coming on, naturally, we become asset-sensitive. So it is -- and even now, I mean [ ALCO's ] going to meet next week as well, we will try and again, [ rejigger ] to make sure that we're not -- because we really don't know where rates are headed. It feels like they're headed up, but they could be headed down within 3 months. So we're not trying to make a call on rates. We're trying to be as the static balance sheet to be as neutral as physically possible and just slight asset sensitivity from the new business that's coming on.

Raj -- I mean our deposit betas, I think, during the last rate hiking cycle was like 80 and we would expect that to be the same. But it's not linear, right? It's early -- the earlier cuts, you have -- it's much lower.

The next question comes from Jared Shaw with Barclays.

Looking at the growth expected in core loans, can you just help a little bit with breaking that out between C&I and CRE? And thanks, Raj, for the color on the middle market commercial but how should we think about that fourth quarter growth and how sustainable, I guess, those balances are on the balance sheet?

Yes. I would -- I would say if you look at what we've done maybe over the last 12 months, we've had more CRE growth as a percentage of that number. I would expect it to be a little bit less. I think that we will probably have about 2/3 of the growth across the sort of segments that make up C&I, including corporate banking, commercial banking, retail small business and about 1/3 of that would likely be in the CRE business. We are seeing a bit more -- probably won't impact us as much in the fourth quarter, but we are starting to see the consistent movement up in perspective that rates will move up being a little bit more impactful in deals that are coming together now.

Not what's in the pipeline, not what's closing in Q4, maybe not what's closing in Q1 but you are starting to see a lot of retrading of deals going on in the market. So I think when we look at the next quarter and even quarters after that, I'm expecting that our growth will probably be more like 2/3 to 70% in the C&I world and 1/3 to 30% in the CRE world, just because of kind of the rebalancing of that.

Okay. And then on DDA average balance for fourth quarter, I mean, how should we -- I know we -- that you're not focused on end of period, but how should we think about the movement through the quarter and sort of an exit rate for DDAs coming out of the year -- coming out of the quarter?

Well, I mean average DDA will decline in the fourth quarter. That's just the normal seasonal trend. Then obviously, the ending balance will be down as well, and that will be your exit rate in the next year. I'm not sure what else to say on that other than -- a lot of it will depend on...

It's a slight decline in the fourth quarter, not as much as it happens in the first quarter. But if you go back and look at fourth quarter decline last year or maybe the last couple of years and average that, it's probably our best guess. .

And then just finally, if -- any detail on that securities restructuring in terms of balances sold and yield and balances and what was purchased?

No. I mean, I wouldn't characterize it as a restructuring necessarily. It was sort of just our normal asset liability. It just is maybe a little bit more concentrated in one quarter. So I would say, again, we were selling assets that were highly seasoned. So we've been holding them for a while. They're less than one year maturity and reinvested in our normal profile, which is more in the 3% to 5% range, and that's...

It's more driven by ALCO than anything else. .

3- to 5-year being duration, right, not [indiscernible]?

Yes, I'm sorry, I misspoke. Yes, 3- to 5-year duration.

Jared, if you look at our origination now for the last 3 or 4 years, C&I is almost all floating rate. CRE also is largely floating rate. So we really have stayed away from the fixed business for now 3, 4 years. So as new production comes on, old loans pay off, if you just think about the fixed versus floating, that the left side of the balance sheet that keeps going more and more in the floating rate side. So we have to, every now and then, step up and rebalance and we don't use loans to rebalance. We use securities.

And the next question comes from David Rochester with Cantor.

Just wanted to touch on the title business for a minute. Looking at deposit balances, you're kind of flattish year-over-year on those, but you've been growing customers quite a bit over the last year. So I'm just wondering, can you talk about that flat trend? Is that coming solely from higher mortgage rates that you're seeing now that's slowing the purchase market? Or is there a measure of competitive pressures in there that's come online that's driving some of that headwind as well? And can you talk about how you think these deposit trends could look going forward in this higher rate environment where elevated mortgage rates become the norm? That would be great.

I think balance is -- because we saw a sharp decline in the month of September, I'm attributing it largely to what happened to the mortgage market and what happened to rates. The competitive pressure is definitely higher this year than last year, and last year was higher than the year before. But that is manifesting itself through pricing more than balances. So the pricing has gotten less favorable. That's -- our competitor is basically coming in, somebody new coming in that generally lead with price and we're the incumbent and we are reacting to that price.

But in terms of volume, I think it's going to -- it's more to do with what's happening in the mortgage market. And we -- in terms of picking up clients, we are picking up the same number of clients every quarter, roughly that we have been for quite some time now.

The other thing to add and again, we'll be able to talk more about it in January. But if -- just looking at the Mortgage Bankers Association projections of purchase mortgage market, most industry participants are saying purchase mortgage market will be flat next year to this year. It's sort of at a -- it can't go much lower, just mathematically. And the purchase mortgage market drives more of our balances than the refi market. Clearly, the refi market has completely dried up right now.

Purchase mortgage market, as Raj said, certainly, the quick movement in the 10-year and a quick movement in rates sort of stifle things. But generally, the market thinks that it will kind of normalize and be flat year-over-year. So really, if that plays out, then the big driver for us on trends will be continuing to grow share and generate our fair share of those, call it, flat year-over-year volume. Does that make sense?

Yes. Yes, absolutely. And in terms of plans to grow that business, just organically, are you doing any more hires, making more hires? And then from a competitive standpoint, I know historically, you competed with, I would say, smaller sophisticated banks versus your technology platform, which you had been working on for years and was really a step ahead of the rest. Where are you seeing the competition coming from? Is it coming from larger banks? Or are you starting to see some of the midsized banks coming into it as well?

I think it's a full spectrum. I know for small sort of sub-$5 billion bank that is trying to make a mark in this. I know of a bank in the mid-cap space. But then I also know the money center banks trying -- money center and the very large banks when they try, they have all the technology in the world, they can do it, but it can't get out of their own way to focus on this business. It's not just about technology, David, it also is about processes in the back office that are tailor-made for this business. Fraud, OFAC, BSA [indiscernible], they all have to be fine-tuned to serve this client base and large companies find that specialization very hard to achieve. It's not about technology. They could get those ducks in a row than they could do. So I'm not worried about them at all because they try and then they go away.

Smaller players are more nimble and hungry. And they are -- I think they just come out with price as the weapon to try and this large customers. They haven't been very successful, but they certainly are making the market more competitive.

Maybe just one last one on the HOA business. You've definitely grown those deposits. It's a nice sleeve of low cost. You have some low cost within that. Can you just give an update on progress on growing that business and what you're facing competitively?

Yes. No, that is -- there are a handful of banks, I would say, about 10 or 12 in -- that are doing that as a separate business line, and some of them are much bigger than us and others, our size. There -- the trick is to focus on the low end of the market and not the really big property management companies. That's our differentiator. That's why I think the profitability of our HOA business is much more different than somebody who's playing in a different scale.

If you really want to be at a scale 3, 4, 5, 6x bigger than us, you have to go to the very large property management companies. And there, the profitability is just very different. It's a different ball game. So we've avoided that really upper end of the market and stayed focused on the smaller associations. And it's a much harder way to build business. It takes much longer -- it has taken us 4, 5 years to get here, but that's okay, a trade speed for profitability.

Also another thing I might add is a lot of the M&A activity is sort of at the upper end of the market. And so if you're fishing consistently at the upper end of the market versus kind of the client segment that Raj is talking about you're susceptible to a lot more M&A activity, creating volatility in the business for you.

And can you just remind us roughly what the percent of GDA is within both of those sleeves and title and HOA and if that's changed recently?

I don't have that in front of me. But I would say, time line now, it's more than 50%. So it's a majority. And HOA, I don't have it in front of me, but it's a fairly large number in HOA as well.

And the next question comes from Woody Lay with KBW.

Maybe just to start on credit. It looks like special mentions were down, but some increase in substandard. I was just wondering if you could give any color on some of those moving pieces.

It's the usual stuff that happens 1 or 2 loans go back and forth between this. There's nothing that we're losing sleep on. But this does happen. We've always said our portfolio is lumpy and even just 2 loans moving -- migrating from one bucket to other can cause this. And Tom, do you have...

Kind of the -- it's basically what Raj said. I mean there's nothing systemic or correlated in that, that we look at. If we look at the one number that moved to NPL this quarter from being a criticized loan, it was a company that's in the -- I would broadly call it in the weather disaster recovery business. And I'll say this tongue in cheek, unfortunately, there's not enough weather disasters going on right now, and their business is soft. We haven't had significant hurricane activity. We haven't had significant hail storm activity. And unfortunately, that's the business they're in. And -- so that business is a little bit softer. That was kind of the highlight loan of the quarter that moved from one category to another. But beyond that, it's kind of just sort of episodic.

That's why I gave the public service announcement. Just look at the trends over a few quarters. And the general trends year-over-year have been quite positive and probably a more indicative measure of the status of credit.

Got it. That's helpful. And then maybe a question on deposits. It looks like there was some mix change between the IV demand into time. Could you just walk through some of that -- the mix change in the quarter and kind of what drove that change?

We look at some of the businesses -- I mean, let's say, we have an immunity business. We, of course, have some broker deposits. We have some other price-sensitive deposits. And we're always looking at them and quarter-over-quarter, month-over-month, you can find one segment get overheated another one a little less. Like last quarter, we were telling you that brokered market had gotten ahead of itself. And we had backed off brokered in a big way. This quarter, we felt the other way, actually, [ munis ] was a little ahead of itself, especially in Florida. So we backed off on [ munis ] and broker actually came in line with what our expectations would happen from brokerage. So we found more opportunities there than in munis.

So we're fine-tuning this almost on a weekly basis. But this quarter, it was a drop in munis and increase in brokerage, and we picked up 5, 8 basis points on similar duration assets -- or sorry, liabilities. So beyond that, it wasn't really anything of substance, we're not the highest rate out there. We're trying to -- we're still getting pretty good roll up of -- roll forward of our CDs. We're still capturing 80%, 85% of the rates we have. So we monitor it very carefully. But promotional money market rates and promotional CD rates in our market, I think, naturally have taken off. Deposit competition is pretty intense. But we're monitoring that very, very closely. And that was the only notable thing munis versus broker to kind of flipped on itself this quarter from last quarter.

We try to be flexible when there's opportunities for imbalances.

No, that's helpful color. And then maybe just last for me on capital. It sounds like we might get some additional detail next quarter. But where we are today, the CET1 is above 12%. I think the start to the year, you all kind of laid out a mid-11% CET1 target. Does that still feel like a good target in kind of the medium term?

Yes. I think so. We feel good about that. I mean our -- at the beginning of the year, I would have said we would progress towards that target a little faster. But as you know, the loan growth, we've been pretty diligent on that. So loan growth hasn't been as high as we originally modeled. So that -- we've been buying back the same volume of shares that we projected is just the investment in the balance sheet has been a little bit slower. So as we think about the next round of share repurchases, we'll want to be mindful of where the balance sheet is going and all of that as we [indiscernible].

In the fourth quarter, that number might come down not just from the remaining buyback but also from some balance sheet curve. So we'll see where we end the year and then most likely, I can't say anything about the buyback until the board authorizes us, but we'll be discussing that with them very soon. .

Yes. Just to remind, the 11.5%, we came up just sort of middle of the pack. We're looking at peer sets and capital ranges, and we don't want to be on the low end or the high end.

And the next question comes from David Bishop with Hovde Group.

Jim, following up on the loan origination yields and roll off. Just curious where you guys were onboarding new maybe commercial loans this quarter in terms of yields versus some of the roll off. It sounds like maybe some of the nonrelationship loans were rolling off at lower yields. Just curious sort of the spread dynamic there.

Yes. Yes, I would say it's different in different segments. But if you kind of average it all together, I would say the C&I compared from a SOFR perspective, I would probably give you an average of about 225 -- 225 to 240 in range spread, depending upon what segment you're in.

And CRE is lower.

CRE is lower.

CRE is without [indiscernible] between 160 to 180 in that range.

Got it. And then just in terms -- as you look at the loan pipeline across your geographic regions there. Just curious what markets may be standing out and driving the bulk of that commercial pipeline?

It's pretty evenly spread across all markets. I mean Florida has been good and basically every major area of the state. We've seen good strength in New York, particularly in the midsized business category that Raj has mentioned, the Commercial Banking segment in New York has been really, really strong and the new markets all continue to perform well. It's pretty broad.

Production is evenly spread. Payoffs are not. Obviously, payoffs are in the more mature markets where we've been -- that's Florida and New York, so not much payoffs in the new market for obvious reasons.

And the last question comes from Jon Arfstrom with RBC Capital Markets.

Just a couple of questions here. Higher rates, does that slow the progress on reducing residential at all? Or what are you expecting in the next several quarters on the residential runoff, should that stay about the same?

Yes, that's a good question. I don't think so, is my quick answer. And the reason is if you have a 3.5% mortgage, whether primary mortgage rates are at 7% or 7.5%, I don't think it really impacts CPR that much. I think a lot of this is just now either arms that are resetting, which are causing runoff or regular amortization or just -- people move, people have divorces, people die, stuff happens. And it is not active refi that is creating the CPR.

So yes, the refi market is very sensitive to [indiscernible] rates are, but that's not what's causing a 3.5% mortgage to go away. It's more regular stuff that happens. And we produced our resi portfolio very nicely now over the last 3 years. We are coming up to a time where the first half will be do not reduce it to actually flatline it. And then there will be a time, maybe a year or 2 after that, we'll grow it as well. It's not that we want to drive this to 0, like we did the multifamily business in New York many years ago. That's not the goal. The goal is to that we were too heavy in this asset class, and we need to bring it down.

So we've been at it for 3 years. We're doing a lot of work. The spreads in the business will do change from time to time, but that will dictate how aggressively and when we want to step back in. But if you take a finer point to it in our portfolio, you have some 30-year fixed, you have some 5-year arms, 7-year arms. There's a big difference between how much I like the 30-year, how much I like the 5-year? I hate the 30-year and I like the 5-year. So I would like to run that 30-year down for a very long time. We don't want to grow that. But there will be a time, and we'll give you guidance on that maybe in 3 months on when we will start to actively engage again on the 5.1 to 7.1 part of the business.

Okay. Slide 19 is helpful. I'm understanding that for what it's worth. The other part of this is the [ 3.20% ] NIM that you're talking about for the fourth quarter. I think that's notable. You promised us that and it looks like you're going to hit it. Do you feel like that's a sustainable level for you? And if we get some more hikes, can that 3.20% grow over time?

I think the dynamics that have been playing are still very much the same. Our balance sheet is still changing, left and right side. So as long as we keep doing that, there's no reason why our margin cannot keep expanding. The -- the only caveat I will give you is that there is a seasonal trend from quarter-over-quarter. So just be careful of that. But if you ask me year-over-year, do I expect NIM to keep improving? The answer is yes.

One final question from Michael Rose with Raymond James.

Raj, just one question on the NDFI exposure. I know you have been intentional about bringing it down a little over 5% of loans, I think about 7% of commercial loans that says in the deck. For a banker size, where do you think that should be? And where do you think it will kind of end up over time, basically asking is more structural runoff coming?

I don't think there's anything more that we feel compelled to do. This was a call we made actually earlier in the year last quarter, not third quarter, second quarter. So under something changes out there in the NDFI space, that we start to see more risk, I don't really expect this to change that much.

Yes, I would add that if you look at the NDFI exposure, there is diversity within that overall number. right? So a part of it is the capital call business. We don't -- that's largely an investment grade short-term business that we're not concerned about, and we'd be willing to expand that. We have a lot of things that run through the NDFI category like tax certificate financing, and there's a lot of different industry segments that fall into that category that we feel good about and would grow.

The part where we are very light and have been careful on has been essentially the lending to private credit funds. That's anything in the kind of B2B business development corporation type world. That's where we've been careful and that -- most of that is what's been sort of the reduction. I think late last year, we were at about $1.5 billion. Today, we're a little under $1.2 billion. Most of that couple of hundred million dollar reduction has been in that area. That's where we'll continue to be very careful because I think the impact in that industry segment from rising rates and heavy use of leverage as we head into next year is not going to be great. But the overall [indiscernible] they're not as significant as that component of the number.

Perfect. I appreciate the color. And maybe just one final housekeeping question. Jim, when did the securities repositioning happen in the quarter? And kind of what was the yield pickup, maybe what was sold, kind of et cetera?

It was probably front loaded. Most of it was at the front end of the quarter, and I don't have the exact -- well, I mean I know securities as a whole had a 4 basis point NIM impact for the quarter. But again, most of that was from the actions we took earlier in the year a little bit on this quarter. But I don't have the exact yield pickup that I can give you on this call.

I mean, again, the yield pickup is going to be going from less than a 1-year duration security out to a 3- to 5-year set of securities, and it was north of $1 billion -- north of $1 billion, less than $2 billion that we're really talking about here in book value.

This concludes our question-and-answer session. I would like to turn the conference back over to Raj Singh for any closing remarks.

Thank you so much. Guys, thanks for joining us. And I'm sure there are more questions that will pop up. And Jim is here. I will probably be on a plane in a short while, but [indiscernible] as well. Thanks. We'll talk to you again in 90 days, or probably at a conference before that. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to BankUnited Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. Note, this event is being recorded. I would now like to turn the conference over to Jackie Bravo, Corporate Secretary. Please go ahead.

Thank you, Chloe. Good morning, and thank you, everyone, for joining us today for BankUnited, Inc.'s Second Quarter 2026 Results Conference Call.

On the call this morning are Raj Singh, Chairman, President and CEO, and Jim Mackey, Chief Financial Officer; and Tom Cornish, Chief Operating Officer.

Before we begin, please note that our remarks today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect current expectations and are subject to various risks and uncertainties that could cause actual results to differ materially. The company does not undertake any obligation to publicly update or review any forward-looking statements whether as a result of new information, future developments or otherwise.

Additional information regarding these risks can be found in the company's annual report on Form 10-K for the year ended December 31, 2025, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Raj Singh.

Thank you, Jackie. Thanks, everyone. I know it's a busy day. We'll be quick with our comments and get you to Q&A.

Before I start the earnings and get into the numbers, I was looking at the transcript from our last call, and I read the very last comment that I made. It was a question that was asked, I forgot who asked that question, which was the one thing that you're looking at that matters more than anything else, what is it? I'm paraphrasing. And my answer was NIDDA, NIDDA growth is the most important thing for us. And if we take care of that, everything else will take care of itself. So I'm happy to announce NIDDA growth this quarter came in exactly where we expected.

But more importantly, we reached a pretty big milestone that internally, we've been focused on for quite some time. we have finally crossed the high watermark of NIDDA to deposits, which now stands at 34.4% and we set the high watermark during the height of COVID when money was free, rates were 0 and everyone was flushed with NIDDA and over the last few years, we've been working hard to bring that level back up. So we're very happy to report we have now -- we're now at a record high in the company's history of that ratio, which is a very important number for us in terms of building long-term franchise value.

We're also almost at a milestone of $10 billion. It takes me off that we've missed it by just an interest to. It's [ 9.935 billion ] or something like that. But I hope you'll indulge me in let me call it $10 billion. So that was also a pretty big sort of battle cry inside the company for the last several months, and I'm very happy. I want to take a moment to thank everyone in the company. This is -- it takes a village. It's not just a few people in the company, everyone from the front line to the back office and everyone in between has been working very hard over many years to achieve this.

So I actually even went back and looked at that over the last 10 years, we have grown our deposit portfolio by about $10 billion and $7 billion of the $10 billion has been NIDDA. That's a remarkable. And by the way, of course, it goes without saying, all of it done one client at a time, not through acquisitions. We didn't pay for this through goodwill or anything just good old-fashioned bringing in one client at a time. So I just wanted to start off with that. It's a pretty big thing for us, and we've been focused on it.

Of course, the new targets will be sent out to everyone's inbox before at the end of the day. We're not stopping at 34.4%. We want to move this further. With that, having said that, let me get back into the earnings. These are [ peered ] numbers, obviously. This is our biggest quarter. So I've always said, focus on averages. So I'll talk more about averages because that's what drives the P&L, but I just wanted to get that out of the way. Earnings came in at $0.07 a share, net income of about $71 million. ROE improved last quarter was, I think, 8.1%. Now we're at 9 3%. Deposits, like I said, a pretty good quarter for us, no matter how you look at it, whether it's core deposits, which is excluding [indiscernible], they were up very strongly, NIDDA was up very strong.

Actually, if I look at quarter-over-quarter and year-over-year, NIDDA year-over-year is up 13%. I think we guided that this year will be about 12%. So we're running a little bit ahead of the guidance we gave you. core deposits are up year-over-year. These are all averages, up about 7%, and that also, I think the guidance we gave you was about [indiscernible]. So we're doing a little bit better, but all within the rounding I would call that right on top of the guidance we gave you.

Quarter-over-quarter, NIDDA was up averages again, 7% core deposits were up 3%. We did take this opportunity to pay down brokered. Another big milestone actually, is that we've now brought our brokered deposits down to just over 10%. And to go back in time to see when we were at this level, you'd really have to again go back to the highs of the COVID crisis when money was free. So achieving that in a time and money is actually cost 3.5%, 4%, that's also a remarkable milestone.

Moving on to lending. While our deposit business follows a pattern of Q1 being the slowest Q2 being the best and then Q3 and Q4 falling somewhere in between. Our lending business follows a different pattern. Generally, it's more straight line. Q1 is the slowest, Q2 gets better, Q3 gets better, and Q4 is our strongest biggest quarter of the year, and then everything really sets again. So it's the pattern we've seen over the last couple of years. It's a pattern that we're following this year as well.

So if you look at how we're tracking in terms of core loan growth year-over-year, we're tracking at about 4% average loans last year this year. If you look at quarter-over-quarter, it was about 1%. And I'll talk a little bit about what we're seeing in the lending market, but that's a little bit behind guidance we gave you. So we'll be adjusting all the guidance that we've given you and Jim will walk you through those numbers.

Margin came in expanded, as you would expect, with all the deposit growth that we've had then came in at about 306, which was 7 basis points better than the first quarter and also [indiscernible] better than same time last year. Fee income, actually before fee income, lending, what we're seeing is -- we're seeing a lot of competition in lending, and we're seeing mispricing of credit from time to time. The second thing that we're seeing is the discipline that the industry had found a couple of years ago in sticking with the relationship business and insisting on getting the full relationship rather than just a transactional view, that seems to have really gone to the side. We're still holding the line and -- but it is harder and harder to hold the line. So we have lots of business go.

There were some strategic exits that we did this quarter. about $230 million, $240 million that fall into this category. This was not something we had planned. But looking at the price of credit, we cannot justify pricing at the level that's. I mean, the good part is the economy is in a good place. Generally, there's a lot of optimism. It's reflected in asset prices. It's reflected in cost of credit as well. And just our view is that it has gotten a little ahead of itself, and that's why we're being a little more cautious at trading loan production for returns. That's really what it comes down to.

Fee income, again, very strong quarter, did better than what we expected. Marginally it is the strength of our capital markets, especially the interest rate business. commercial card was strong service charges. I mean I'm really very happy. We put a lot of effort into it over the last 2 years and how much we've been able to achieve here. Lastly, I'll talk a little bit about credit. We've been saying to you, we'll continue saying that credit is a lumpy business. You can have a couple of loans can swing your numbers by a lot. And last quarter, our charge-offs were pretty elevated at $36 million.

But proof is right in front of you this year -- this quarter, our charters were just $6 million, $6.4 million to be exact. So I'm very happy with that, but I'm really happy is the fact that NPLs were down again this quarter by 19%. So year-to-date, NPLs are down 40%. That's a pretty big swing in nonperformers and they're backed out to a very reasonable level. Criticized classifieds were essentially flat, and we were up $7 million, but I call that being basically flat. Capital, very well capitalized at what is at 12.3%. We did buy back a little over $15 million of stock this quarter, and we'll continue -- we are continuing to do that this quarter as well.

We'll probably do a little more this quarter. Macro outlook, I don't want to -- I've been reading what other banks have been reporting. So I largely agree with the sentiment, which is the economy is doing well. the war has not really impacted Main Street as some might have predicted it. but we have to keep an eye on geopolitical developments because it is still not over and device inflation is still an issue. Rates are likely to go up and not damp. We think our house view was there will be 1 rate cut in the fourth quarter and likely more to follow. It's not rate cut rate hike in the fourth quarter and likely more to follow next year.

So one thing I did forget to mention is we talk a little bit about NIDDA, but there was a lot of effort put in this quarter on interest-bearing deposits as well. And in a time when rates are actually headed up, we were able to bring down our interest-bearing cost, which I know was not a small task. So everyone who worked on that great job. So coming to guidance, we have put a slide in here, I think, towards the end of the deck where we've taken our best at revising the guidance we gave you at the beginning of the year. I would still call the revisions all fine-tuning rather than any big changes.

A little bit better on deposits a little bit less on loans a little bit better on fee income, a little less on margin. So all within the margin of error, nothing that dramatic that would change numbers too much. Again, there's as much art as it is science. I do a pipeline review before this earnings call, and I'll tell you those meetings over the last 2 or 3 days have been fantastic. Pipelines and deposits and even loans have been -- are very strong and doing fine. We just have to fight the battle on pricing. And stay disciplined and not just put capital to work just to show volumes. So that's the discipline, I think you pay us for, and we're executing on that. What else? Now that said, I'll turn it over to Tom.

Great, Raj, thank you. A little bit more detail on some of the items that Raj covered. Overall deposit performance was really the operational highlight of the quarter. It was a really excellent quarter as we anticipated. NIDDA increased $991 million during the quarter and average NIDDA increased $564 million.

Total deposits, excluding broker deposits, increased by $1.1 billion, and commercial operating balances remained really strong. Raj mentioned the 4.4% percentage of NIDDA to total deposits as being an all-time high. We continue to add new client relationships, core operating balances across the business units. Raj briefly touched on the service charges. I talked about this at the last call, kind of year-to-date to year-to-date. Service charge income was up 18.6%, which is a number we're really very proud of. It takes a lot of work to do that.

We're actually touching the high points of product penetration per relationship on the treasury sales side and on the commercial side. So it takes a lot of effort to get that done. And I think that's reflective of the strategy of really focusing on core deposit growth, core operating accounts and fee income producing business.

On the loan side, production remained good, I think, solid through the quarter. As Raj mentioned, Q3 and Q4 pipelines, which are typically our best quarters are looking pretty good at this point. I think we're pretty optimistic that we'll see the normal uptick in Q3 and Q4 that we see. Growth this quarter came predominantly from the CRE and mortgage lending businesses. Raj mentioned the C&I balance decline due to selected exits for either pricing or structure related terms.

We are seeing substantial pricing pressure really in all businesses, probably a bit more in the CRE business than any business. Banks have returned to CRE lending in a significant way. I would say last year, when we didn't -- when a deal that was largely a LifeCo or other permanent market provider. These days, banks are back in the market. very aggressively at spread levels that we have not seen in quite some time, but we did increase overall CRE point-to-point balances by 120 and mortgage warehouse by $72 million.

Average core loans increased $643 million from a year ago. And as Raj mentioned, we continue to focus our efforts on primary client-related business that brings in deposit accounts, transaction business, fee income business swaps and everything else we're trying to drive in the direct relationship business and we have deemphasized a lot of what I would call kind of market-driven lending business. The opportunities are out there, but we have chosen to put our time on the things that we think drive fee income, drive deposits and drive NIM force.

We remain optimistic on the second half of the year, the markets we're in, predominantly from a geographic perspective, continue to do very well. We -- I'm happy to report that we expanded our operation in Dallas this quarter. We've essentially doubled our space and are investing more people there. We opened up our office in Charlotte a few weeks ago. We continue to invest in other market segments. We continue to invest in the Tampa market, and we're blessed to be in really good markets. So we're optimistic as we head into the to the second half of the year.

With that, I'll turn it over to Jim.

Great. Thanks, Tom. Raj covered the earnings highlights, so I'll try not to repeat all the information that both he and Tom gave you. But I just want to remind everybody that if I start with NII and margin that we typically follow our seasonal patterns, we're a broken record on that, but it's a really important fact as we think of the ebb and flows during the year.

We did see a significant pickup in the first quarter -- or from the first quarter as we expected, with NII up $6 million and up $9 million from a year ago, NIM, up 7 basis points from last quarter and importantly, up 13 bps from a year ago. The funding the improvement is largely due to a funding mix improvement. That's a story we've been telling for a while now.

We saw our average deposit cost decreased 7 bps from last quarter and 42 basis points from a year ago. And of course, that's outpacing our decline in earning asset yields. So we had almost $600 million higher average NIDDA from last quarter and over $1 billion increase over a year ago. So this enabled us to reduce our higher cost wholesale funding.

Average balances came down $636 million from last quarter and $1.2 billion from a year ago. So not only bringing down the wholesale funding, we also shifted the mix within the wholesale funding. We talked about that last quarter. that we'd probably rely more on FHLB Vances and Fed fund purchase over brokered, and that's what you saw this quarter. We also talked last quarter about some of the actions we were taking in the securities portfolio that did bear fruit this quarter.

It improved the yields on that improved 9 basis points. So even with lower outstandings, it did modestly help margin. And as Raj mentioned, I think it's an important point. Our core interest-bearing deposits, that balance was up almost $250 million, and we were able to reduce that rate by 3 bps. So that growth at that lower cost helped us also reduce our wholesale funding. So it's important to note, I mean, we are tracking a bit behind where we expected to be at this point in the year.

The shortfall really is on the asset side. We talked about some of the risk management, things that we did related to pricing and structure, et cetera. And so we're not seeing exactly the loan growth we expected. But -- so we'll talk a little bit more about the impact of that when we get to guidance. Credit quality, again, I just mentioned, obviously, charge-off ratio at 11 bps. That's down meaningfully from last quarter. Raj talked about the metrics related to improving nonperforming loans, criticized and classified, but nonperforming loans down 40% from a year ago and criticized and classified down 14% from a year ago.

Provision expense, I thought was good this quarter at under $6 million, down $9 million from the last quarter, and we were able to take our coverage ratio and allowance up to 91 basis points. Just real quickly on noninterest income, Raj covered it, but I'll just remind everybody that there are ebbs and flows from quarter-to-quarter. We did see a pickup over last quarter as we expected because A lot of -- some of our activities such as swaps tracks our lending activity. So lending picked up that derivative activity picked up. So generally, we're on track for the full year.

And on expenses, I just want to mention a few things. Expenses were up from last quarter, obviously, up from a year ago. Everything is generally tracking with how we project it. Deposit costs are seasonal, just like the NIDDA growth patterns. They are up a few million quarter-over-quarter. It's a mix of both volume and a bit of competition. We'll talk about that related to the full year guidance. We did have some elevated operational losses this quarter. It was just an elevated by $1 million, but I just call it out just because it's sort of a nonrecurring thing. These do ebb and flow each quarter. But generally, for the full year, ops losses are tracking where we'd expect them to be. We'll call out an REO disposition expense this quarter which, again, we even had some of those in a while. But we're only -- we only have $1.5 million left on the balance sheet of REO, and that's down from over $7 million a year ago.

Capital, again, CET1 was 12.3%, up 10 bps. It was up even though we continue to buy back stock, that's largely due to the lower ending loan balances that we discussed. We repurchased just over $50 million of stock during the quarter. That leaves us about $146 million left on our current Board approved capacity. As we've discussed before, we are expecting to utilize that somewhere around year-end. It's obviously subject to market conditions, but we're committed to using the -- what we have. And obviously, once that's used up, we'll look at the balance sheet and earnings and talk to the Board about where to go next. But we are committed to getting to our targeted capital levels of CET1 in the mid-11s over time.

So with that, I'll turn to guidance. We -- it's just important to note, as Raj said, the overall story has not changed. Deposit trends remained stronger than we originally anticipated. Specifically, NIDDA continues to grow. Fee income is tracking ahead of plan. And the main changes are really a function of the competitive conditions. We saw credit spreads tighten faster this year than we had expected. And both Raj and Tom talked about how we're going to remain disciplined on risk and pricing.

So on Page 15 of the presentation, you can see the guidance we gave you the original guidance as well as the updated guidance. I'll focus on a few things that change the most. The loan balances, we're bringing the growth for core loans down to up 4% to 5% from our original projection of 6% total loan growth, therefore, would be potentially slightly lower. We're showing a range there as well. We always have -- the second half of the year is our strong part of the year. So there's always a chance that will hit the original guidance. But just given where we are at this point in the year, we thought it prudent to bring it down a bit.

On the deposit side, we are bringing up NIDDA average balances slightly from 12% to 13%. And on the net interest income side, because of halfway through the year, given where we are. We're bringing the full year down to 5% to 6% growth. It's largely due to the year-to-date tracking a bit behind where we projected. As Raj said, pipelines look really good for the rest of the year. So if the wins align properly, we can make up some of that ground. But we're being prudent in bringing it down slightly. Because NII is coming down, we're bringing the revenue forecast down to 5% to 6%, and that's largely related to NIM and NII.

Noninterest income, on the other hand, we're taking up slightly. Those numbers are smaller. So even though it's coming up, it doesn't -- it only mitigates some of the lower NII. On expenses, we took the guidance up just slightly. It's really driven by two items, deposit costs. I mentioned earlier, our volumes on NIDDA are expected to be a bit higher. So there is volume-related costs there. And also the competition, it's a highly competitive market, and so that's driving a little bit increased costs.

And then on the compensation side, we had a really strong year last year, so there were incentive payouts earlier this year. And importantly, we've been opportunistic in our hiring and we've been hiring revenue producers, some good hires. And so the combination of those two things is going to drive our compensation expense a little higher than we had expected. All the other categories are largely in line. And I guess I've concluded and say we're always looking for efficiency. So where we can, we'll try to offset those two items, but we did take up the guidance slightly.

Provision, the last thing I'll say on that is we -- it will be a range. We did have higher charge-offs earlier in the year. So that could mean a little bit higher provision expense for the full year, if you just look at the full year impact of it. A lot of it will depend on where loan balances play out in the second half. But it will be somewhere around our original guidance to a little bit higher, but it does reflect strong credit quality. All these projections reflect a strong economic environment.

But as Raj talked about it, good economic environment brings a lot of competition. So we're trying to be balanced in our expectations for the remainder of the year. And we do assume 1 rate increase late in the year. So it doesn't have a lot of impact on this year's numbers. But obviously, I'll just remind everybody, we're modestly asset sensitive. So as rates rise, it would impact us, but it would be more of a '27 thing. With that, Raj, I'll turn it back to you.

No, let's go to Q&A.

[Operator Instructions]. The first question today comes from Woody Lay with KBW.

Wanted to touch on the NII guide. And as you mentioned, it's feels like it's more of a function of the assets and maybe some of the loan competition on pricing and some runoff. And looking at the loan growth guide, it would imply we see a nice little ramp-up here in growth over the back half of the year, which is your historically seasonally stronger part. But are you seeing any dissipation in some of these competitive factors that would help on the loan growth front? Or is it more just building in the pipeline to account for maybe additional runoff of tiers?

Yes, we would love to see a dissipation of the competition, but I don't think that's likely to happen. I think it's really going to be the continued efforts in building of prospect opportunities and loan transaction opportunities and funding acquisitions and expansions and things of that nature that we typically see building in the second half of the year as it generally has and -- but I don't think the competitive market will change over the course of the next couple of quarters.

The guidance -- the guidance really reflects -- we believe we'll hold our own in the second half. We think credit will be able to hold our own on credit spreads and whatnot. And so a lot of the guide is really just reflecting the actions we saw in the marketplace and actions we took year-to-date.

And by the way, our credit box has not changed. It is the same. It was 6 months ago or a year ago, we have not revised our credit box. The market has moved meaningfully in terms of pricing credit. So we're winning less because we really haven't moved our credit book. And it's just our view of price of credit. We could be wrong, by the way, we could be maybe a little too pessimistic. But we have to kind of hold our own in terms of what we think the right price of credit is. And that's the whole sort of essence of the lending businesses to say yes and no, when you think you need to call the yes and the no.

So the other part of this is also we are very, very -- still very much disciplined on doing relationship business. And we might be the last bank left in that space, insisting on getting deposits. But if you're going to deliver NIDDA growth in 12%, 13%, 14% range, you have to do that. This doesn't happen by itself. People don't leave NIDDA because it just like you. It's because you assist is how you get that. And we see a lot of competitors not insisting anymore. So that's not quite a credit issue or a credit pricing issue, but it's a relationship pricing, you can call it that. So we're seeing less and less discipline on insisting on relationship, more willingness on unclarities transactional stuff. And we haven't forgotten the lessons from 3 or 4 years ago.

Yes, that's good color. And then maybe just one follow-up on BNII guide. You all have mentioned it's better look at average versus in the period given some of the seasonality movements. But if I just look at the spot rate of deposits, it's pretty meaningfully below where the average cost came in. And I was just Interested to know kind of what your deposit cost assumption is through year-end to hit that 15 year of end margin.

Yes. Spot deposit rates can be very misleading because especially at the end of June, when we just have a huge amount of deposits that are not going to be there for a long time. So I would not pay too much attention to that. I would look at what we did on actual deposit cost over the quarter, it came down, which we're very happy with. I don't think many banks have taken it down.

And in the future, it will be hard to take down interest-bearing costs because the 2 years at, what, 420,430 and 10 years now, 465 this morning. It's going to be hard to have deposit costs come down. We will still keep mining our deposit portfolio for it. But the real breakthrough for us is always going to be on NIDDA. I expect NIDDA, average NIDDA to continue to grow. [indiscernible] may not grow, but averages to keep growing, and that's going to help margin. That's where the deposit cost lowering will happen. That's where the margin growth will happen from

And you typically see. Second quarter, third quarter margin expansion, if you follow our normal seasonal trends, and then the fourth quarter is, I'll call it, flattish. It can be up, but it's -- you don't see the rate change as much between first and second and then second and third.

Raj mentioned the word work several times when we talked about the reduction in deposit cost. The market clients and people tend to think about things like this and sort of 0.25-point moves timed with market interest rate moves, the process of trying to fight for 4 or 5 basis points across the portfolio is a lot of work and you have to kind of go relationship by relationship, account by account and really fight for each of those inches, and we're going to continue to do that work.

The next question comes from Jared Shaw with Barclays.

Good morning, everybody. Really good trends on the NIDDA. Could you share with us what portion of the portfolio is subject to ECR and what your implied payout on ECR is on that?

I think you're referring to deposit costs, not ECR. ECRs like all commercial deposits have some kind of ECR. But the ECR is just the fees that we don't charge you expressed in basis points. So that's generally the entire commercial portfolio. But I think you're referring to the deposit costs, which are sort of a cash expense. And that is largely driven by the HOA business. Which is like a round numbers, I don't have it in front of me, like $2.5 billion, right? So most of it is coming from that. That's just how that industry has evolved over the last 20 years is that this whole notion of these arrangements are kind of the norm and even small clients expect that. So that's where it's really coming from.

Okay. And was any of the -- or how much of that, I guess, the quarterly growth was from the HOA business?

Well, we had -- I think we disclosed in our Q last quarter, we had $13 million or so, I think, of deposit cost down and in OpEx and a couple of million dollar growth in that quarter-over-quarter due to volumes. So that's in aggregate just rough numbers.

Okay. Okay. And then I guess shifting -- going back to follow-up on the margin discussion and hear what you're saying about the spot deposit cost versus the average. How should we think about, I guess, maybe the total cost of funding for the second half of the year, is there likely to be a continued reduction in brokered and shift to FHLB? I guess how are we thinking about that 310 spend rate?

Yes. So, brokered versus FHLB, we basically look at whatever is cheaper and we tap that market. I would throw fed funds in that as well. So between those three buckets, we just try to be opportunistic whatever is cheaper.

Brokered got more expensive starting, I think, March 1. And while it's that gap has narrowed somewhat in the last few weeks, it's still more expensive, which is why you see we really brought down very aggressively. Now if I think of these three buckets together, I call that sort of wholesale funding, and that came down quite a bit this quarter. I don't expect that to come down because this is seasonally high deposits from the title business are creating that excess cash that we have, which they do every due this happens. But going forward, I don't expect that number to continue to come down. In fact, it will probably grow. Would it be broker that will grow or FHLB or Set Funds it's hard for us to say because we'll tap whatever is the cheapest.

By the way, that if you go back and look at our numbers last year, it's exactly what you saw last year. Very similar trends will happen again this year. I just don't know which bucket it will be. It will be one of those three buckets. Our guidance is based on following the same seasonal pattern we've seen in the last couple of years.

And then I guess just a follow-up on the margin side. On the yields, hearing what you're saying about the competition if we're assuming sort of flat rates here, I know you have one cut at the end of the year, but if we look at third quarter, most of the fourth quarter, should we assume that loan yields stay flat? I mean, is that possible? Or do you think that the -- how should we think about the trend in loan yields with what you're looking at is that pipeline?

So, Jared, I don't know if you misspoke or I misspoke. We're not expecting a cut. We're expecting a hike [indiscernible].

I'm sorry, I'm sorry, I meant a hike.

I think I also misspoke.

But I think generally -- I'll let Tom add this, generally, yes, we're looking at loan yields. The credit spreads staying stable from here for the rest of the year. again, to talk about is one of the things that hurt us while we generally had flat core loans, we had a mix shift. So some of the higher-yielding portion, C&I were a little bit lower. Our mortgage warehouse is a little bit higher. Some of the yield will depend on what the mix is at the end of the year, but asset class by asset class, I think we're expecting roughly similar credit spreads.

Yes. I would say we've held -- when we look at production across all of the business lines, for this past quarter and really for the whole year. We have held margins and spreads within a very small kind of variance. There is some mix difference that the C&I market has better yields in the CRE market right now. And part of what we'll try to do is balance that a bit better in the second half of the year.

But I don't think we would have materially different yields than we're seeing right now, and we're trying to stay too. But a lot of that is also influenced by if we have very strong core deposit opportunities with these clients. We become a little bit more flexible on loan yields when we don't, we don't. And that's part of the trade-off you make.

The next question comes from David Chiaverini with Jefferies.

So a follow-up on NII. You mentioned about how weaker loan growth is the main driver for it. When I look at the updates on the guide, it looks like you went from 2% to 1% to 2%, but yet you took the guide down to 5% to 6% on NII versus 9%. So it seems like a modest tweak lower on loans, but yet a pretty decent cut on NII. Can you walk through? Is it a timing issue? Can you walk through some of the factors there?

It's timing, and it's also a little bit of loan mix. So Jim just mentioned, we did more growth in mortgage warehouse lending than we were expecting to. Also in CRE, we had growth. But C&I, we actually did some strategic exits. Well, if you look at C&I spreads, they are much higher than CRE spreads and that mortgage warehouse is kind of about the same as CRE spreads or even slightly a few basis points lower. So the mix is also not -- is also contributing to that. Well, timing and mix. But the pipelines right now, the C&I pipeline is pretty decent. If we can actually close on all that, we can probably make up some of it.

The issue is you're closing it ratably during the second half of the year, so you don't have a full year impact of those higher spreads. So you could still land the plane on loan volumes, but because we were sort of tracking behind in NII through midpoint of the year, you can only make up so much of that gap. So that's timing.

Got it. Very helpful. And then yes, it sure does. And then shifting over to the NIDDA, I think you mentioned about expecting continued growth despite the seasonal bump in the second quarter. Can you talk about the cadence and trajectory for 3Q and 4Q expectations there?

Yes. Generally, what we see is that end of period of June to September, you may not see much growth, but the average balance is still continue to grow because our average NIDDA is like $9 billion, and our period end is $10 billion. So that momentum carried into the third quarter. So average NIDDA is generally higher in the third quarter than the second, even though end of period may not be as high or maybe even flat but averages matter and that's what drives NIM and the P&L.

Fourth quarter, again, it starts to decline in December, sort of mid-December balance structure decline and that can make year-end numbers look bad, but averages don't look that bad because for the most of the quarter, we're still doing a lot of business. It only starts to really slow down in the holidays. Just the slowest. That's just the nature of the business. It really -- once it slows in December, it doesn't come back up in any meaningful way until March 1.

The next question comes from Michael Rose with Raymond James.

Raj, I think you described the loan pipelines as fantastic. I think that's the word that you use. Can you just give some color on kind of what is comprising that pipeline? And then maybe the interplay as we think about kind of the continued rundown as we move through the next couple of quarters of the rest mortgage piece because it does sound like the...

Yes, Michael. So I would say when you look , it's obviously different for each business line. I would say when you look at the C&I line of business, it's going to be, which is comprised of different sort of segments within that market, but it's going to be pretty broadly diversified across a number of industry groups. There's not any significant concentration. We're seeing more growth in new office markets because we're starting from lesser numbers.

We've had good growth in the Dallas office. We've had good growth in Atlanta, we're starting to see nice opportunities in the Charlotte, North Carolina, South Carolina kind of market. But it's kind of broad across 100 different industries. And that business is very granular based upon that. There is some M&A activity that we're seeing flow through that, that we're working on now that I think looks pretty good overall.

The CRE pipeline, we're definitely seeing strong interest in the CRE market, foreign investment is coming back to the CRE market. our portfolio, as you can see in the data supplied is pretty well diversified across all major asset classes. I would say what we're going to likely see the most of is industrial in retail, some in the multifamily sector will be large, although we are seeing more competition in the construction market, particularly for nonrecourse construction loans, which generally we have straight away from.

But I would say the major asset classes in CRE, if you look at our portfolio, each one is sort of in the 20% to 24% range. So it's a pretty well diversified and well-balanced portfolio. We expect to see good growth in that area. And I think in the smaller business lending teams, spread out over 1,000 industries, we expect to see good growth.

I just want to put a little footnote to this. Tom mentioned industrial, but that does not include data centers.

Correct. We have not done any data center business. I was actually surprised to -- I was talking to a few of my peers over the course of the last 2 or 3 months. how many people are actually actively participating in that asset space. We've not been able to wrap our head around the risk, especially the risk of obsolescence. On long-dated assets, and we've stayed away from the data center. We started -- we continue to study it, but we have not participated in that rush to finance data centers, whether through their bond portfolio or through our loan portfolio. So just a footnote to Tom's comments.

Yes. I would add to that is it's kind of more broadly in the data centers, but that is a type of lending that if you want to turn on the faucet, you can turn it on. I mean, it's there. There's a lot of stuff that's out there in the marketplace, private credit, things that you can do data center business that you can do that are typically credit only products and large amounts.

Not relationship.

Not relationships, no deposit relationship. I mean, it's out there to do if somebody wants to do it. But it tends to divert the organizational attention away from what we've really set out to be our mission. And that's part of the -- even setting aside credit issues and yield and all that kind of stuff. There's always so many things you can focus on and do excellently and stuff like that diverts everybody's attention, which is why we try to deemphasize that.

Yes. I will call -- call out on Page 17 in the materials we show our NFI or private credit exposure, and we did bring that down in the quarter.

No, I appreciate all the color there, especially on the data center stuff. Maybe just two quick follow-up ones. Anything to read into the build in the office reserve this quarter. I think it was up about 30 bps Q-on-Q. And then just secondarily, was there anything in the other expense category that is maybe onetime-ish or how should we think about that?

Nothing to note. I mean it's just general economic scenario updates nothing material to call out.

Yes. Other expenses, we kind of talk to you about the deposit costs that's probably the only big item in there, but it's not nonrecurring. It does move up and down with deposits. So second quarter being our biggest deposit quarter, it can elevate a little bit, but nothing I would call sort of uniquely or [indiscernible].

In expenses, I mean just the two items we call. I mean, again, ebb and flows of ops losses that can go up or down. And then the ARIA was a one-timer. We've had very small REO expense numbers over the last year. This was a little bit larger one due to one unique property that had asbestos. But REO is largely cleaned out of our balance sheet and not much left.

Yes, Michael, on the office side as well if you look at the data, the metrics around the office portfolio continue to be very good 1.76 weighted average debt service coverage, 65% loan-to-value. And while we're not actively doing a much new in that portfolio. The markets that we're in are recovering and doing very well. Miami is an unusual market because it's so hot right now. We don't actually do a lot of office in Miami, but even markets like New York is the leasing activity and the growth in the New York office market has been pretty good.

The next question comes from Ben Gerlinger with Citi.

The loan side is definitely core. It seems like you guys are implying it's a little bit kind of more fourth quarter than third quarter. Maybe I'm mishearing that. But I'm trying to think like through the funding aspect of it, I get brokered versus FHLB your just also funny as you said, Raj, like the fourth quarter does have the better loan growth, you do need to fund it. And just kind of struggling to get to the 315 NIM on top of all that, just given the spread where we are today. So just kind of curious if you could just kind of unpack that. I mean there's three moving parts to that. So where might I be rolling kind of thing?

I think it's -- starting with an NIDDA growth, average balances will increase. that drives it. I think also continue to change the balance sheet on the left side. Resi will keep running off. The commercial will keep growing. Hopefully, C&I will grow versus it shrank this quarter. We don't see any exits this quarter. And I think interest-bearing deposits would probably be the smallest driver, if any, at all.

But I do expect margin to grow to 35 by the end of the year. In terms of whether loan growth is more fourth quarter, third quarter, you can have loan closing scheduled for the end of the month and get below the next it's really hard to say when they materialize. But when we look at the pipeline, generally, it's a 6-month view. And of course, we want to close them as soon as possible, get them on the balance sheet and to interest-earning assets. But a lot gets the timing is often not always in our hands, but I'm referring -- it's very hard to really say this is third and this is what quarter. Overall, the pipeline for the rest of the year looks good, looks strong.

We expect both quarters to be good. Where it falls depends a lot upon whether we close a deal on 9.29 or 10.2.

Right. Yes. No, I understand that. Okay. That's helpful. And then utilize the buyback, maybe base with [indiscernible] $146 million. Should we assume [indiscernible] just kind of how do you make that timing on that? And potentially, would you do another 1 this year if you use the whole thing?

What the Board has told us is to use up this and then come back to them. So I expect that we will get this -- all of this stuff this year and we'll be in front of the Board of November or December talking about the next slug.

The next question comes from Jon Arfstrom with RBC Capital Markets.

Most of my questions have been asked, but can you guys give us an example of some of the more intense competition and miss pricing what you're walking away from and kind of where and what and why you think that's happening?

Yes. Well, how many hours do you have? Yes. I would say there is, particularly in the corporate market, middle market type credit there is broad competition. Part of it is rate. Part of it is also structure and terms. And you look at things like we exited private equity, private credit deal this quarter, where it got redialed, I mean, here's a very specific example. It got redialed, the credit is probably not as good the market conditions around private credit are certainly not as strong to put it mildly than it was a year ago, but yet the pricing is going down and the conditions around the covenants and structure around the credit is weakening.

So you go like, well, why would you do that? That doesn't make any sense. So when that deal gets redialed, we choose to exit that deal. That's a very specific. Each one is a little bit different. But I would say, by and large, when we look at the competitive nature, people are obviously trying to build volume. They're trying to build balances and there are times when you just look at it and -- it's maybe less scientific, but there are times you look at it that you just say, you know what, I think we'll wait for another opportunity with this funding base. and we'll look for something that's more within our wheelhouse and has got better relationship aspects to it than this does, and we're not going to chase like that.

Okay. Good. And then, Jim, maybe for you. You alluded to it in your prepared comments, but on capital markets, you talked about [indiscernible] lending activity. Is the message there that capital markets revenues can grow from here in the second half of the year?

Sure. I mean that's why we took guidance up a little bit. And both swaps activity related to lending has been strong for us year-to-date. We expect it to continue to be that way. It's a smaller business for us, but FX is an area we've been focusing on and there's loan syndication fees. There's lots of things that is market dependent, but we have strong pipeline. So if we do our job right, we should be able to deliver those -- that growth.

The next question comes from Stephen Scouten with Piper Sandler.

I'm not sure if I missed it, but you guys have new coming on loan yields for this quarter?

Just new production loan yields?

Yes, exactly.

Is that what you're asking? I don't think we disclosed.

Got you. And on the average 531, I think, would you expect that to kind of continue to move lower from here on those kind of strategic runoff? And maybe along with that, does all the competition that you're talking about and the tightening of credit spreads, maybe quicker than you would have expected. Does that make you rethink any of the pace or direction of the strategic runoff moving forward?

Well, when we set the original -- I'll try to parse this out. When we set the original guidance at the beginning of the year, we had always counted on credit spreads in CRE and C&I to tighten. They tightened a little bit faster or not a little bit, a lot faster than we had originally expected. So that's one thing. Where spreads are today and certainly where we are -- our buy box, we are in our guidance for the remainder of the year, we're expecting that the main relatively stable from those tightened levels that we talked about.

And so then largely, yields will somewhat depend on the mix of the portfolio as we go through the year. And we talked about our mix a little bit less C&I, a little bit more mortgage warehouse and other things, that certainly hurt loan yields earlier in the year. And so we should have a little bit higher C&I mix, for example, later in the year, things like that.

I think you also asked about strategic runoff. So that's a resi portfolio. So we expect it to keep running off. it's hard to really pinpoint every quarter how much it will be. But overall, it will still -- directionally, it will still be the same. I think we had a little more runoff this quarter than typical. I think it might have been because there was like a 1-week period of a refi boom in late first quarter, which those loans will be closed in the second quarter. I'm guessing that's the reason. I don't see any refi home going forward where the 10-year is. So I think that runoff may slow down a little bit. But it will continue to be run off.

And in the core loans, we talked about some of the holding firm on pricing and structure I think I forget the exact number, 250-ish million of lower loan balances because of some of those actions. And we certainly expect to replace that volume. It's just -- it doesn't happen immediately.

Yes. I would also add, when you think about strategic exits. When I think about that phrase, I think more about -- we probably had three of those in the course of the last 10 years to run down of the resi portfolio, the exit that we did from the New York rent stabilized and rent controlled market and the significant rundown that we had in the office market. Those are things where we look at an entire sector or asset class and say we want to have whatever percentage less of it than we currently have now.

What we're seeing today is more of an individual credit-by-credit decision, which are less predictable because we don't know necessarily what the competition is going to do on the other side. And we do try to put a common sense bar against what we're doing, and we're strongly focused on continuing to expand the NIM and you don't get there by lowering rates dramatically on your yields. And so we try to think about each one of those.

So an exit can be a deal that gets redialed like this private credit deal I mentioned, that you just look at and say, we're not exiting the entire sector from a strategy perspective, but this individual loan does not make sense. Those are episodic things that are a bit harder to predict when you look at a quarter or 2 quarters out.

Got it. And then one last clarifier on the -- I know we just had March 31 balances, I guess in the Q, but I think HOA deposits were 2.3 in the title were around 4.1. Are the majority of those deposits contained within the NIDDA? And is the way to think about that expense line the $13.2 million that you noted? Is that -- would that correspond kind of proportionately with the growth in HOA? Is that fairly linear?

It's largely HOA. It's a little bit entitled and a very small amount outside of those as well. But the biggest bucket is HOA. And if your question is our HOA and title all checking, no, that is not true. There is an element of interest-bearing in both of them. I would say majority of title business is NIDDA, but not 100%, not even close.

There is a fairly good amount. I don't know if you've disclosed it or not, but it's -- it's largely checking, but there's a pretty big element of interest bearing. Same thing with HOA. It's a good amount of checking, but there's a pretty large amount of interest-bearing as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Raj Singh for any closing remarks.

Yes. I will close where I started this call, which is a long time ago, 20 years ago, it was leading to me that the value of the bank's franchise cuts from the right side of the balance sheet is not from the left. I believe that I've preached it. I have never had a shareholder or an analyst or anyone disagree with me on that. It is also the hardest thing to build is also the most lasting thing to build. We're very proud of what we have been able to achieve almost $10 billion of NIDDA, record high NIDDA total deposits. It didn't happen overnight. It didn't happen even over 1 or 2 years. It took a while to do and the momentum has not diminished at all. I expect this number to grow. We'll give you guidance, obviously, at the end of the year or what it can be at this time next year, but I would expect a similar kind of trajectory going into the next 12 to 24 months. So very happy about that. We have a company-wide call right after this to celebrate this.

And in the meantime, we'll keep plugging away. Markets go up and down, I mean, listen, we're just a little country back. We're no Berkshire Hathaway. But we have to be sitting on $350 million of cash and not deploying it, an article I just read a couple of days ago. Like I said, we're not [indiscernible] or Berkshire, but the sentiment is the same. You have to be prudent with when you want to deploy capital and you don't want to deploy capital. So we're doing that deal by deal, client by client and staying laser-focused on building the right side of the balance sheet.

So thank you for joining us. And if you have any other detailed questions, you know how to reach us. Otherwise, we will talk to you again in 90 days. Thanks. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the BankUnited, Inc. First Quarter 2026 Results Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Jackie Brova, Corporate Secretary. Please go ahead.

Thank you, Clay. Good morning, and thank you, everyone, for joining us today for Bank Unit Inc.'s First Quarter 2026 Results Conference Call. On the call this morning are Raj Singh, Chairman, President and CEO; and Jim Mackey, Chief Financial Officer; and Tom Cornish, Chief Operating Officer. .

Before we begin, please note that our remarks today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect current expectations and are subject to various risks and uncertainties that could cause actual results to differ materially.

The company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Additional information regarding these risks can be found in the company's annual report on Form 10-K for the year ended December 31, 2025, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website.

With that, I'd like to turn the call over to Mr. Raj Singh.

Thank you, Jackie. Thanks, everyone, for joining us. I know this is a very busy morning. A lot of banks have these calls going on. So if you joined our call, we appreciate it very much.

I know we had -- it was not an easy choice. But before we get into the numbers, I want to take a minute of your time and do my public service announcement which I usually do towards the end of the call, but I'm going to start this time with that.

And you heard this announcement from me before at previous earnings releases that meetings I've had with investors and conferences we've done. We've been talking about this for some time, but I think it bears repeating. So our business is a fairly seasonal business. And that seasonality is well understood by us and has been demonstrated now over several cycles, several year cycles.

And I'll talk about that in a little bit of just as a refresher of what that seasonality is. Deposits and loans, I'll talk about them separately because they behave separately. Our deposit balances, especially NIDDA, they start declining sometime in mid- to late December and the bottom out and deep in the first quarter they start to rebound back late in the first quarter, towards the end of the first quarter.

And then they go straight up in second quarter, usually, second quarter is our strongest growth -- NIDDA growth quarter. They stabilized in the third quarter, and then in fourth quarter, the cycle again begins with declines in December.

Now we've observed this for many, many years. Loan production and again, production, not balances. Loan production, especially C&I loan production start slow in the first quarter. That's our slowest quarter. It picks up steam in Q2 and Q3 and Q4 tends to be our biggest production quarter.

We saw that last year, the year before, and we expect to have the same happen this year. There is some seasonality in expenses, but I think that's not just to us that everyone has that with FICA and stuff that happens in the first quarter.

So I won't get into those details. Now when this happens, especially this big swings in NIDDA, it impacts our margin. It impacts our margin, margin impacts our revenue, that impacts our bottom line, EPS and ROE.

So what happens when you look from Q4 to Q1, you see a pretty meaningful drop in earnings in ROA and EPS and so on. But then if you look to Q2, it kind of rebounds all the way back, if not generally more than all the way back.

So in fact, yesterday, as I was writing down my notes on what I'm going to say on this call, I do this day before I sit down with a yellow pad and I hand write what I'm going to say. I had this data at moment, like I think I've done this before. And I went back and I looked at my notes, surprisingly actually still held on to my notes from my call a year ago.

And it wasn't a dejavu moment. It was that I've been here before. This is exactly what happened a year ago. So I just quickly jotted down like what happened in Q4 last year to first quarter of last year, like so '24 going into '25, what happened to earnings, EPS, ROA and all that stuff.

And I compare it to what happened this year, -- and our earnings quarter-over-quarter declined by $11 million this time last year. This year, they declined $10 million. EPS declined 13 basis points this year. It was a ROA declined 10 basis points last year, this year, it was 9%, slightly better, but kind of in the same ballpark. That's just the seasonality of the business.

So the model of the story is, don't look at quarter-over-quarter, look at year-over-year or trailing 12 months. I know it's a fast-changing world, and we're all in the -- I believe in the here and now. But if you just look at the very short term, it will throw you off both in quarters in which seasonality works against us and in quarters in which seasonality works for us, which will be the next quarter.

With that PSA out of the way, let me get into the numbers. So earnings for the first quarter came in at $62 million. EPS was $0.83. And I'll compare this to first quarter of last year, like I just said. Last year, earnings were $58 million, and EPS was $0.78. NIM was at 2.99%. Last year, this time, NIM was 2.81%. PPNR was $106 million. Last year, PPNR at this time was $95.2 million, about 11.5% growth. Despite seasonal pressure on NIDDA, like I just mentioned, in the quarter, deposits did grow.

Non-broker deposits grew $277 million. We used most of them to pay down brokered. So net growth was about $7 million but again, like I mentioned, should be looking at annual numbers or trailing 12 months number. So over the last 12 months, non-broker deposits grew by $1.4 billion, NIDDA grew by $875 million.

I would actually even go further and say, [indiscernible] end balances don't mean as much as average balances do. And average NIDDA grew by more than $1 billion. I think it was $1.5 billion. I'm looking at Jim to confirm, but I think it was $1.5 million.

Talking of loans over the last year grew at $906 million. This quarter, it grew only $9 million. Non-core loans continue to shrink pretty consistently. That's been now going on for several quarters. So not much -- nothing new over there.

Let's switch to credit. So we made a lot of progress on credit this quarter. NPLs were down $98 million, that's 26% and criticized and classifieds were down $146 million or 12%. Now that 26% and 12% is just the progress we've made in the last 3 months.

That's not an annualized number. Our coverage ratio of ACL to NPLs improved from 59% to 76%. Switching to provision, with respect to provision, we continue to be cautious. The geopolitical landscape has changed in the 3 months since we last spoke to you. And we did use $8 million in qualitative factors in our provisioning to kind of account for that uncertainty.

Tom can talk more about this, but I don't think we've seen any meaningful change from the way -- what our customers are telling us in terms of their plans and their capital investments and so on.

But I will also say that they are very keenly aware of the situation in the Middle East and are watching it like as they should. -- smart money seems to be betting that the conflict in the Middle East will wrap up in a matter of days or weeks and not months but only time will tell how that will play out.

So like I said, I'll go back and say we did use some qualitative factors to the tune of $8 million for that uncertainty. Switching to other aspects of the P&L, NIM, like I said, came down to 2.9%. And that number was within sort of the ranges of outcomes that we were expecting when we modeled this in our numbers back in December.

All the other numbers are not that notable for me to get into. I'll leave for some of the stuff for Tom and Jim to talk about. Oh, yes, we did buy back 1.3 million shares as we had promised. So we're off to a good start on the buyback, and we still have just a hair under $200 million in dry powder left, and we'll continue to use that.

Lastly, guidance, no change to guidance. So what we gave you stays. That's a full year guidance that we gave you, and we're still feeling pretty good about those numbers. I think not much has changed actually since we gave you guidance in our business or in the economy.

I guess in the economy, you could say, the conflict in the Middle East is sort of the only new factor but it looks like it's moving towards some kind of resolution in the short term. So with that, I will turn it over to Tom.

Great. Thanks, Raj. So I have a little bit of my own public service announcement today as well [indiscernible] with Raj. So before I -- I want to talk about deposits first and sort of deposit strategy. before I dig into some of the numbers, some of which Raj has already covered, I want to back up a little bit and just talk about sort of what are we trying to do with the overall deposit and client book and over a longer period of time and how has that performed? .

So when I look at it, I would say we have 3 major goals. One is to be a top-tier performer in NIDDA growth. And our NIDDA, as you know, is largely commercial and NIDDA. So when I look at that number, as Raj said, we're up period-to-period from first quarter last year, $875 million or 11%, which is a pretty impressive number.

On an average basis, we're up $1.5 billion that Raj mentioned. So strategy kind of #1 of being a high-level NIDDA growth organization and that being a central part of our business focus, I think, has been well accomplished.

The second major emphasis is being a payment processor and transactional bank for our clients and making sure that we maintain good pricing discipline around all the products and services that we sell that flow through commercial NIDDA and making sure that we are effectively cross-selling as many products as we can into the client base.

So I kind of measure that by -- is our service charges on deposit growth greater than our NIDDA growth? And when it is, to me, that seems to be a multiplier effect on that. So if we look at service charges on deposits year-over-year, first quarter to first quarter, we're up 18.8% versus an 11% deposit growth.

So to me, that means we're executing on the strategy of ensuring that, that book is well sold, well priced and client relationships are becoming very sticky.

The last part, which is really the hardest work is managing deposit costs. And you'll see we had a decline in average deposit cost for the quarter, and I'll go through those numbers.

But the process of managing deposit costs, especially in a period of time where we're not forecasting a Fed funds rate decrease that we can lean into is hard work. And we are consistently doing that.

We just -- Raj and I were talking now, we have a series of rate cuts that are going in this week on the deposit front. So we are consistently analyzing the deposit book and looking to make it more cost effective.

So I think kind of about -- those are the big 3 strategies that we try to execute around when we think about the client book and the deposit book as a whole. So with that, a little bit more detail, as Raj mentioned, non-broker deposits were up by $277 million from the previous quarter and $1.4 billion from a year ago.

NIDDA represents 30% of total deposits. Our average cost of deposits declined by 6 basis points from the previous quarter from 2018 to $212 million. Wholesale funding declined by $70 million from the previous quarter and $749 million from the previous year.

And as I said, service charge revenue was up 18.8% for the quarter. As we look into the second quarter, which is on the deposit side, traditionally, our best quarter. We have a high level of conviction around very strong deposit growth and NIDDA growth in the quarter.

It's our best quarter typically, and all indications from pipeline and activity and business that's in closing documentation is that it will be a very strong quarter.

On the loan side, as Raj noted, it was fairly typical first quarter for us, Cree and mortgage warehouse lending were up $76 million and $77 million, respectively. C&I declined by $144 million from the previous quarter.

Part of that is declining off of higher utilization rates that we tend to see at the end of the quarter. First quarter, particularly in our larger corporate business tends to always be a bit softer because of the financial statements timing for new business that comes through.

Resi continued to decline as part of our emphasis to focus on the commercial lending business. And so I think it was about what we expected to see for the quarter.

A few comments on CRE that I typically make the CRE portfolio is now just under 30% of the overall booking within the CRE book, if you look at Page 9 in the detailed analysis, you'll continue to see that it's a well-balanced portfolio across all asset classes, virtually all asset classes are somewhere between 20% and 25%.

And so maintaining a good quality balance in the CRE book is important. You'll note that the total weighted average debt service coverage for all property types is $1.84 and the average loan-to-value is 55.4%.

So portfolio continues to perform well. It's probably the last quarter, I'll actually point this out, but we continue to see improvements in the office book. You'll note the office book on Page 9, the weighted average debt service coverage ratio is now up to 1.78. It's typically been running in the 1.54, 1.55 range. And what we're seeing is continued improvements in leasing.

We've seen a reduction in the office book, which the traditional office book is now only about 16% of the book and about 4% is medical office building. And we're also each quarter, starting to see this narrowing that we've talked about in the past, which is the gap between physical occupancy and economic occupancy as lease rate abatements start to run off, we see a closing of that.

So we saw a pretty significant increase in the weighted average debt service coverage over the last few quarters. And 1.78, it's a pretty strong performing portfolio right now. So that's my coverage on CRE. And I think with that, I'll turn it over to Jim.

Great. Thanks, Tom. -- as Raj walked through, it's worth mentioning again, our first quarter is our seasonally light quarter for most of our businesses. So therefore, comparisons to the fourth quarter are always difficult to make. I don't want to repeat a bunch of the numbers that Raj took you through, but I do want to hit just a couple of other highlights.

So if I just focus on the full year trends, you definitely see steady improvement in most of our key performance indicators that we look at. Net income was up 5%. PPNR was up 10%, ROA was up 6%. And was up 6% and NIM was up 18 basis points.

So the trends year-over-year are really good and definitely in line with the guidance that we gave you at the last quarter. So we put in the press release just for full transparency, we do want to call out a couple of notable items this quarter. The impact was largely just due to the really strong performance last year and also the strong stock performance.

And this was more than offset by the reversal of our previously accrued FDIC special assessments. So turning to NII and NIM.

As Raj mentioned, relative to the prior quarter, we typically see a downward trend. We also added in the materials on Page 5, just a chart for the last few years, so you could easily see those trends, I thought it would be helpful. Now the dip from first quarter to fourth quarter this year was a few basis points larger than last year, certainly less than back in '23.

But I just wanted to call out what was driving that. And it was a variety of small things. It was nothing large. It was all the things that we were sort of modeling going into it broadly. We saw the full quarter impact of the Fed rate cuts last year as it flows through the balance sheet.

And notably, in the securities portfolio, some of the timing of those cuts were present more in the first quarter than in the fourth as certain coupons reset. We also had a higher reliance on brokered deposits due to the NIDDA seasonality that we've been talking about.

We also did some activities in our investment portfolio. We had some opportunities to prefund some purchases and things like that because of actual situation in the marketplace. So we had a higher reliance on brokered deposits in the quarter and also the broker deposits were a little more expensive this year than historical.

It's a little unclear exactly what was driving that. I don't know if it was from the war, the activities in Iran or what, but it was elevated costs that we don't typically see. NII was up $16 million or 7% from a year ago. And as I mentioned, NIM expanded 18 basis points. And this is driven by the common theme that we've been talking about that we've been reducing the cost of our deposits at a faster clip than the decline in our loan yields. Importantly, the NIDDA balances were up $875 million or from a year ago.

Those are the spot, not the average. On the credit side, as Raj mentioned, credit trends are quite positive overall, which portends improvement going forward. Criticized and classified was down $333 million or 24% from a year ago. And just since last quarter, nonperforming loans were down $98 million or 26%. Now some of these improvements were resolved through charge-offs. That's why you did see some elevated charge-offs this quarter. It was $36 million. It was largely driven by just a few C&I loans.

So this brings our trailing 12-month charge-off rate to 37 basis points, which as we've talked about before, we'd like to see that closer to 25%. So it is elevated from what we'd like to see. But again, the trends that -- things that we are seeing more recently in some of these books, the inflows are a lot slower than the outflows.

So barring any economic shocks, we expect to see improvements in charge-offs later this year. And as we mentioned, especially related to the guidance, we definitely felt like more of the provision expense would be more front-end loaded versus evenly spread throughout the year.

Our allowance for credit losses was $209 million, down $11 million from last quarter. Provision expense, as I mentioned, was elevated at $25 million. We did add some qualitative reserves, about $8 million. So our coverage ratio ended at 87 basis points, which is down a few bps from the prior quarter.

If we purely followed our models, we would have told us to bring those reserves down a little bit more, but we felt prudent to add some into our qualitative, which brought it up to the 87 basis points.

And I do want to mention, and we disclosed this on Page 11, most of our charge-offs are coming from the C&I portfolio of late. And if we look at the coverage of our C&I portfolio, it's around 160 basis points. So quite a solid coverage to cover the risk in that portfolio.

On the noninterest income and expense side, just a few quick comments. Noninterest income was $25 million. It's up $2 million from a year ago. If I normalize for some of the securities gains. We always have securities gains. They bounce around from quarter-to-quarter. But if I normalize for that, noninterest income was basically flat.

We felt good about the activity that we saw in our capital markets fee income, but they are dependent on activity in the quarter, when loans close, when syndication fees occur, size of the types of swaps that are booked and -- and so we're generally in line with where we expect to be at this point in the year and still feel good about the guidance that we provided.

On the expense side, it is up from a year ago, $167 million. That's largely due to the investments that we made last year into our businesses to go into new markets, higher specialty talent, et cetera, and also just cost of living increases and basic things that are going on in that space.

So it's in line with expectations. It's consistent with our full year guidance, and it's really driven by employee compensation and the benefits as we grow our businesses. And then just before I turn it back to Raj, I'll just reiterate a comment that he said that we are not changing our full year guidance. We always have volatility quarter-to-quarter. That's a theme that we talk about constantly just the nature of our commercial businesses but we're performing consistently with our seasonal patterns and in line with expectations, and all of that was modeled as we provided our guidance and so no changes.

And with that, I'll turn it back to Raj.

Just one thing I forgot to mention on credit. So we took down NPAs pretty meaningfully this quarter. And I expect NPAs to go down into the rest of the year as well, probably not at the same clip. I mean if we did the same clip, we won't have any NPAs left in a couple of quarters.

So -- there will be -- I expect NPAs to reduce at second quarter, third quarter into the fourth quarter. Another anecdote I'll give you. One of the things I do generally before this call a day or 2 before is I talked to my Chief Credit Officer -- Chief Risk officer Chief Credit Officer.

And I generally ask him how he's feeling about this quarter. And this was, I think, the best call I've had in the last 3 quarters. And I measure the success of the call by the length of the call. the longer the call is the worst I feel because generally, he's walking me through names of things that he's worried about.

This call, I have to actually ask them, "What about this loan? What about that London he was like, no, are going fine. So the call lasted maybe all of 3 minutes or 4 minutes versus last call 3 months ago, lasted a lot longer. So it's only 3 months -- 3 weeks into the quarter. but I'm feeling much better about credit and feeling much better about how much lower our NPAs are.

And I also get updates like that on pipelines from Tom, deposit pipeline is better than I expected, honestly speaking. And we're feeling pretty good. With that, I will turn it over for Q&A.

[Operator Instructions] The first question comes from Dave Rochester with Cantor.

I wanted to ask you about the title business. I noticed the deposits were down this quarter. Normally, they get stronger as we head into 2Q.

I would imagine that's still the expectation. And we're down like 3 quarters on that at this point. So if you could just talk about that outlook. And then are you still bringing in plus or minus new customers a quarter there?

And if you can just update us on the competitive backdrop, that would be great.

Sure. Actually, we're bringing in more than 40 now. So our average over the last months -- 3 quarters has been more closer to 50. So the relationship intake has actually increased a little bit. .

And I'm very, very positive on the outlook for the title business. It is the most seasonal of our businesses. right? HOA is also a little seasonal, not as much, but NTS is what drives a lot of that NIDDA volatility. But overall, in terms of gathering market share, we have not lost momentum. In fact, we picked it up.

I would add that's net. -- client relationship growth as well not just gross. Yes. .

Yes. SP663696138 Great. And those relationships tend to be $2 million to $3 million on average in size, right?

On average, it's about 3 yes, around $3 million, give or take, yes. .

Have you been adding more sales people to that business or any other technological enhancements, anything like that?

Yes, we have added more people in fulfillment in the back office. We've added more people in the front office. So clearly, yes, we are also, we have 2 large technology projects going on, which will impact much as that business, that will impact the entire bank but we're upgrading our treasury platform, and we're operating our payments platform.

But again, like I said, those are infrastructural things that every business line will use, but NTS uses them as well.

Yes. And just the -- what's that? -- sorry? .

I'd just say, average deposits are up year-over-year in the MTS business. So not meaningful.

Yes, yes. And maybe just 1 last 1 just on the competitive landscape there. Occasionally, you see a larger bank come in and try to defend a relationship and it may not just be for the title piece, but something else. Can you just talk about what you're seeing from any of the larger banks that might be snooping around and what you're seeing out of banks more of your size, if you're seeing any interest in this type of business.

There is certainly more competition today than a year or 2 ago, both from -- we see from time to time, larger banks try to get into this but they've not been able to replicate what we have. So they've not been able to make much progress. We have seen banks much smaller than us and somewhat our size also compete.

But honestly, I think it's a lot easier for them to just be taking market share away, like we're taking away from the 90% or 89% of the market that we don't bank than it is to take away from us.

So there is more competition. There is -- I've seen like very small community banks trying to play around this space, but we have a 8-year head start, 9-year head start whatever it is. It's not like we have some kind of a trademark or intellectual property that is the moat.

The moat is the fact that we have the largest market share. We've seen every issue that comes up with this. We have the largest sales force, and we've been doing it the longest in the way we are.

We're most integrated with all the ERP providers. and that gives you the advantage to keep going forward. So there's more competition. I expect the competition to be even more going forward, but so far, we're doing just fine.

And we're not sitting still. We're continuing to focus on improving operations, getting better at everything we do. So we're letting that iron sharp and iron.

Yes. We made a pretty significant investment in the back office and fulfilling in customer service and what have you because the book has grown quite rapidly. And if you just -- when things are growing, it's easy to go hire salespeople because you can see salespeople will add more revenue, but you have to pay attention to the back office that actually keeps the lights on for our clients.

It makes them happy in the long term so they don't lose you -- so we don't lose them. That was a pretty big investment we made last year.

And this is a heavy real business. .

Yes, it's a heavy operational business. .

Well, it's a great business and certainly a nice advantage for you guys. So I appreciate all the color there.

The next question comes from Jared Shaw with Barclays.

I guess just looking at the guidance and when you're saying reiterate the guidance, I'm just going back to last quarter's deck. With with that guidance you were assuming 2 cuts, if we don't get cuts, can you walk us through the ability to get to that 30% margin at the end of the year?

Yes. Our balance sheet is very, very neutrally hedged. So we're very, very slightly asset sensitive. So just mathematically speaking, it probably should give us a basis point advantage with the Fed doesn't cut, but it's really rounding.

For the most part, it really does not do anything for us. Our risk to our guidance if it comes from market competitiveness, especially on the lending spread side, where we've been kind of calling that out for some time now.

We're still seeing very tight spreads, CRE more tight than C&I, but everything has tightened up this year has been for several quarters now. That is actually a bigger risk than what the Fed does unless Fed does something sort of bizarre as it move several moves that nobody is expecting one way or another, it really will not impact our guidance.

So we're not really worried about the Fed cutting once or twice or not cutting, it will not have an impact. If we miss our NIDDA guidance, if you're not able to grow, that will obviously be the single largest driver the largest risk we would have, and the second would be loan pricing and credit spreads.

Okay. All right. And then on the provision, you called out the $8 million qualitative overlay. Should we think about that as just maybe front-loading some of that provision and that the $68 million is still the good number? Or is it really 68% plus 8% for the full year?

No. We're still sticking with the guidance that we provided for the full year. And like we said, I do think based on what we see more of that $68 million would be front-end loaded versus at the back end. So you can't just take the 68 divide it by 4 and project it out, but skew it more to first and second quarter.

Yes. Okay. And then if I could just sneak one more in. Just on the fee income. -- capital market is obviously very strong in fourth quarter. How should we think about sort of the components of growth in fee income as we move forward through the rest of the year?

Our capital markets income is probably closely aligned to production in both C&I and CRE. And then within production, I would say, slightly larger loans tend to drive that like syndication.

They're not going to syndicate a $10 million loan, but we will syndicate a $60 million, $70 million, $80 million loan. So production is light in the first quarter.

And then within the production if you're doing most of it in the lower end, then your capital markets income generally is impacted. So you saw lower capital markets income this quarter for both those reasons.

Last quarter, it was the biggest production quarter and that's why you saw capital markets income as strong as it was. So it will vary quarter-over-quarter, plus it's a little bit of episodic also. It's not like $1 a day type of a business. It is a little bit lumpy. You can have a big deal you're working on, it slips over into the next quarter that could happen from time to time.

But overall, the capital markets business should be a double-digit growth business for us. FX, which is still in the very early stages that is just beginning to gather momentum, and it's hard for me to predict what it will do but that's a very small number right now, but that can have a very big impact over the coming year or 2.

I would also add, if you look at the number of clients that we have added on to the FX platform, in the last 6 months, it's an impressive number. And I think even the raw number, well, Raj said, it's a small number, is up over 100% from the previous year.

So we have really good hopes for the FX income, especially in the markets that we're in. They tend to be markets where people have international trade transactions, they have payroll transactions.

They have other things that drive that business. We would expect the service charges on account business to be double digit in terms of fee income growth. I mentioned it was up 18.8% over last year. Our expectations are somewhere in the 15% to 20% range for that.

And I think we feel we have a good bit of conviction that we'll be able to get that. The swap business is a bit interesting because there's kind of like a sweet spot as it relates to the profitability of the business at the very highest end as you would imagine, when you do swaps, you're sitting across the table from somebody like Jim who is extraordinarily knowledgeable about every basis point in the swap transaction.

If you can go down far enough market where the transaction is still large, but there's more room in the pricing on swaps. That's really where kind of the sweet spot is for us. So the volume of transactions is important, and we think that will be good seasonally through the rest of the year.

But also the mix point tends to be very, very important because you can -- that can vary by basis points, which over a lot of transactions over the course of the year can be meaningful. We do have a good bit of confidence in our syndications business, and it's been a strong point for us.

We've funded these teams on the syndication side. We've added very good quality resources to them, and I have good confidence that syndication revenue would be good at the remainder of the year.

Just 1 last thing to add to it. I mean commercial card revenue was up good strongly year-over-year. Again, it's small, but it's growing. And then 1 of the comments that Raj said, just with it being in the swaps business is very tied to the lending business, the activity we saw this quarter versus a year ago was very consistent -- just last quarter, we had a couple -- 1 or 2 larger transactions that drove a little more revenue a year ago versus this time.

So it's -- the activity is there. It just really depends on the size of the transactions in any given quarter.

The next question comes from David Chiaverini with Jefferies.

Wanted to swing back to credit quality. -- kind of mixed in the quarter, criticized classified down, but you did mention in the release about 2 credits being charged off and we did see the elevated NCOs this quarter.

Are you able to share which industries those were in? And then the second part of it, you mentioned about how we should see a decline in NCOs later this year. So it sounds like we should expect elevated NCOs in the second quarter as well. Is that a fair interpretation?

No, I think that as a general statement that the first half would be better -- will be higher net charge-offs because we already have first quarter, $35 million, $36 million. It's hard to predict exactly quarter-by-quarter. But generally speaking, I would say the charge-offs should be front-loaded.

The 2 industries that you asked about, 1 is health care, and the other was transportation. So those 2 made up a large portion of the charge-offs and one was in Atlanta and one was in Florida. So geography also in case you asked that next question.

And our larger child drafts last quarter were in 2 completely different industries from the car was yes, yes. .

Got it. And then back to the NIDA discussion. Nice trends year-over-year, 11%. Your guide is for 12% given this higher for longer rate environment. To what extent could that be a headwind to NIDDA growth? Because in the past few quarters, you've mentioned about the NIM expansion being driven by mix shift rather than the Fed, but curious about your thoughts there.

Yes. We were growing double digits. NIDDA was growing double digits when Fed funds was over 5%. So it is not about pricing. What is driving our NIDDA growth is our focus, our products, our specialty capability we've built. And it's not about just lazy money.

This is not lazy money. This money we do a lot of payments, which is why this money sits in our pipes and people use us not because the price were because of the capability that we offer them and we continue to gather market share.

So I'm not worried about rates could be 50 basis points higher, 50 basis points lower, that will not impact our NIDDA outlook. That will have an impact on interest-bearing deposits. And if the Fed moves down, it gives us an excuse to go back and reprice the deposits.

And when the Fed is not moving and it's just harder to just do that, but we're still doing that, as Tom said, during -- this week, actually, we are pushing through certain portfolios, some pricing action on some of the portfolios. It's just as easier the Fed is moving. So I'm not -- the Fed being up or down or sideways, it doesn't really impact our NIDDA outlook.

The NIDDA growth is largely driven by net new client acquisition. Yes, that's across all business lines, specialty geography, whatever segment that it's in, it's driven by that. probably 75% to 80% of the growth was driven by that. .

The next question comes from Michael Rose with Raymond James.

Just given the absence of rate cuts now that I think the market is expecting. Any updated thoughts around. Deposit beta expectations as we move forward. I think last quarter, you kind of talked about an 80% beta with cuts. .

Yes. With cuts is 80%, but the Fed is not going to move. If we get complacent, and don't look at interest-bearing deposits and just let that ride. It has a natural tendency that the rates -- the portfolio will price up.

So that's the hard work you have to do is to make sure it doesn't price up and maybe even get it even to go down a few basis points.

Not easy. That is really hand-to-hand combat client-by-client portfolio-by-portfolio but we are attempting to do that. New money competition is high. I think Jim mentioned, as an example, as a proxy, broker deposits are 15 basis points wider than they were like 6 weeks ago.

Now I'm not smart enough to know why I'm guessing maybe it's the conflict in the Middle East and people just get a little nervous, they want to grab more liquidity or maybe it's something else.

But we did see a pretty meaningful change maybe just rates have gone up 2 years now at 370, 380 and not closer to 350, maybe it's that, maybe it's a whole bunch of stuff.

But we are leaning more and more towards NIDDA, I mean if I could have my way, and I have just no growth but NIDDA,all growth NIDDA. That's not possible, right?

That's -- we will have interest-bearing growth as well. But it is our job is to make sure interest-bearing costs stay within reason, maybe come down just a little bit but it will be hard to make it come down a lot if the Fed is not moving. But if we don't do the hard work, they will naturally have a tendency to drift up, and we don't want to happen.

Okay. Helpful. And then maybe just the follow-up question on that, and I hate to ask for near-term guide, but I'm going to try here. .

So obviously, given the margin guide for the year and the decline this quarter, it implies a pretty steep ramp from here. Can you just help us with the second quarter with the inflows coming back in and just some of what that margin within a run of expectations could look like for the second quarter?

Because I think people are -- at least what I'm hearing is you're struggling to kind of get to that 320 full year guide.

What I'll do is, I'm actually looking at a sheet here from last year. So I'm not going to give you guidance quarter by quarter going forward. If we don't do that, right? If Leslie was here should be screaming at you.

What I will do is I will just point to what happened last year, right? In fourth quarter of '24, we were at 2.84% we came down to 2.81% in the first quarter. And in the second quarter, we went up to 2.93% and then we went up to 3% in the third quarter and to 306 in the fourth quarter. .

Now you can go and look at that pattern, right? We have a pattern of dipping down and then coming back very strongly in the second quarter and then maintaining some of that growth in the third and fourth quarter as well and then coming down again in the first quarter.

So that's the best sort of guidance I can give you is go back and look at what has happened in the past because it tends to follow some pattern. Not every year is exactly the same. There is a lot of moving parts.

But that's about as much guidance I can give you. I can't tell you what the quarter will be. But more than what we've already said, which is that it will be a very strong NIDDA growth quarter.

Totally get it, just trying to frame the conversation. Maybe just one last follow-up. Obviously, the repurchase is pretty strong this quarter. Any reason to think that the pace would be any different as we move forward?

I know you said up to $250 million stock is obviously down a little bit today. But any reason to think that, that pace would change?

Not really. We're still being opportunistic where we can be. But at the same time, we're not trying to manage it on a day-to-day basis. Jim and I both have day jobs. So -- but there is still volatility in the market, and we try to use that volatility to our advantage the best we can. .

And we're working -- we're trying to steadily work towards the target of about 11.5% CET1. Better gravity that we're working towards.

All right. The next question comes from Woody Lay with KBW.

One wanted to follow up on credit. And as you noted, NPA saw nice improvement even if you exclude the charge-off benefit -- so that incremental like $65 million of improvement. Could you just give some color on either the resolution or upgrades there? .

Yes. I would say if you look at that, you have a couple of fairly large loans that moved out of the bank. They were either refinanced in the longer-term capital markets that we were taken out by a lender in the group that was several of the large ones.

You have a couple of upgrades in performance. That would be the mixture of the other items other than the charge-offs.

Yes. And then maybe just on the outlook that NPAs should continue to decline from here. Middle East represents some uncertainty and the kind of whipsaws back and forth on when that could potentially end.

So what's driving that positivity that NPAs could continue to decline?

I think we're very familiar with every loan that is either in NPAs or criticized classified bucket. And we're looking at them very granularly to see where is performance getting worse or better or stable -- so my assessment on NPAs into the -- looking into the future is more based on that granular knowledge of the portfolio rather than what $100 oil might do.

So that's not really what is driving that. It's -- I'll give you an example. Just 2 days ago, there's an NPA of about $17 million, $18 million in the CRE space that has been sitting there for almost a year, it looks like it's going to come to a resolution, and we might get a small recovery out of that.

So I just know what's in the portfolio and where it is, this loan that I'm talking about as a close date of like third week of June. So I won't count the money until it actually the wire comes in, but it's it's a pretty good indicator that $7 million will get resolved, and it will be off our books before the end of second quarter.

So it's things like that, right? There's another one in the C&I space, which has -- the performance has stabilized to kind of improve.

But we're keeping it in the NPA category, we'll see how it works out. Three months ago, I was not as positive about how that business was doing. But now we've seen things they've done in the last 2 or 3 months that are looking better.

It will probably still be an NPA, but it's maybe a couple of quarters down the road it gets resolved.

So it's based on our granular knowledge of the loan portfolio rather than any big macroeconomic thing.

Yes. In some instances, we're aware of refinancings in the private credit market that are going on, in some instances, and individual credits. We're familiar with asset sales that are happening that will pay down the debt, you may have a division that's selling off within the company.

I mean there -- as Raj said, there's specific kind of item by item that we can go through and identify events that we think are going to happen in the near term that give us that conviction.

Got it. That's really helpful color. And then last for me. I know it's pretty small in the grand scheme of things, but that little over $5 million of performance items and compensation this quarter. Was that included in the expense guide that was given last quarter? Or is that in addition? .

Yes. No, it's included.

The next question comes from Jon Arfstrom with RBC Capital Markets. .

Maybe for you, Tom, anything else to note on the C&I decline? You flagged the Q4 utilization, but anything else to note on commercial lending pipelines and what you're seeing there?

I would say, different parts of the business operate differently. When we say C&I, it really encompasses kind of larger middle market corporate lending and encompasses commercial lending for more midsized companies in the small business area.

I think we're having probably higher levels of success in kind of the mid-level and down areas.

That's a little less volatile as well. And also the credit sizes are a bit smaller. Pricing tends to be a bit better. We see less pricing pressure in that segment. The further you go upmarket, the more pricing competitiveness in terms and conditions competitiveness that you face.

So a big part of kind of managing the growth of the business this year is managing that mix and managing the segments that we're in. We're fairly -- what is the right word I'm looking for, fanatical about kind of managing segments and keeping them within risk tolerance levels and kind of risk appetite as it relates to total exposure for industry segments, whether it's C&I side or the CRE side.

So I expect that we'll see good quality C&I growth over the rest of the year. We're seeing good penetration in new markets that we're in particularly the southern markets, the Atlanta, the Charlotte.

We just had a party yesterday for our new Charlotte office and had really good responses. We expect Texas to continue to grow well. So I think that there's -- it's broad, but I think there's going to be good market segments for us to grow in, but it's a very competitive business right now.

We're trying very hard to manage this margin issue versus the volume issue and make sure that we're -- we've got a good pricing discipline. .

Yes. Okay. Yes. And just that segues into the next one. How much more room do you guys think you have on deposit pricing from here? It sounds like you've got some rate cuts coming, but or some deposit pricing cuts coming, but how much more room do you guys think you have?

If the Fed doesn't move, then I think it's not like there is 30 basis points of room left here to cut. We will probably -- the existing book will probably cut 5, 10 basis points here or there but it's -- you can't really move too much unless the Fed moves.

And the new money that comes in generally is at a higher price than the existing book. That's just the nature of the deposit business. So that will depend on where the market is.

Like I said, broker market as a proxy was certainly very heated in March. We'll see where it kind of lands over the course of the next quarter, the remaining of the year. But it's we'll cut where we can, but it's not like there's some wholesale reduction that is still left if the Fed doesn't move.

But it is our commitment to focus on this. I can't even begin to tell you how much time we spend and how many painful meetings we have, we torture people over this, we torture our people, we torture ourselves .

Actually, the next meeting is on Friday .

Working through this. And it's like -- can we go down by 3 basis points on this account. And if it's a large account, 3 basis points makes a difference. It's an account by account relationship by relationship and pushing hard. It doesn't come by itself. I can assure you of that. .

I know it's not easy. But you're still thinking 320 NIM by the end of the year and holding the provision guide? And if you can deliver that, I think that's really all that matters. Yes. I appreciate it. Correct.

The next question comes from David Bishop with Hub D Group.

Yes. Staying on the topic of maybe the NIM here. I think Tom or Jim, you mentioned securities took it on the chin a little bit from the Fed rate moves. From an earning asset yield perspective, do you think with an absence of rate cut here, -- in the near term, you might see average earning assets yields stabilize or start to turn here?

I'm just curious how you're viewing yields within the market relative to roll-off.

Yes, except for competition related to credit spreads, right? If competition continues to ramp up and you start to see pressure there, that will be a little pressure on pricing.

But we tried to factor that into our guidance. So really dependent if it's worse or better than what we projected. Yes, that will be also partially impacted by the asset yield mix changes. I mean, the continued rundown of resi and the continued emphasis on the commercial lending categories will help that.

We also have some commercial real estate credits this year that are up for this year that were part of an older fixed rate book that we had of loans that were done 7 years ago or whatever they were done at lower rates. So we're looking at probably 7% to 8% of the portfolio that was at a fixed rate basis that we think we can reprice.

So there's different elements to this that are levers that we think we can pull throughout the year in order to improve asset yields kind of across the board.

Got it. And one f0inal question, as you look across the commercial portfolio. Any particular segments that are particularly impacted by rising energy or gas costs there? Just curious as you sort of analyze the portfolio, any segments that sort of jump out as being potentially at risk in the near term.

Yes. Everything is impacted a bit by it. I mean, we don't have we're not in sort of the energy lending business or businesses that you would say have a very front-end direct impact from it, but every consumer is impacted by rising energy prices and to some extent, any rise at that drives in food consumption type prices.

So we do not have heavy consumer lending portfolios kind of B2C type lending portfolios. We don't have much of that. So we think we're reasonably insulated from that, but it's going to impact every consumer, and that drives 70% of the economy in terms of consumer expenditures and GDP.

So it sort of depends on severity and duration in duration, duration -- we're watching it closely, and we'll react quickly if we start to see something that's concerned. It's one of those things we have a large food distribution company food distribution companies are going to have some level of impact from gas prices and what happens at the consumer if they start to downsize or trade down in quality of beef for things like that, but those are really difficult to try to assess other than watching it credit by credit.

The next question comes from Stephen Scouten with Piper Sandler.

I'm just curious if you could remind what you guys are using for your economic scenarios as you calculate your loan loss reserve? And maybe what about your portfolio kind of gives you confidence that at what is a kind of below peer loan loss reserve to loan ratio?

Well, we look at Moody's primarily with the different booty scenarios and obviously, internal views as well overlays but again, really compare when you're comparing our aggregate coverage to others, you have to look at the mix within the portfolio.

For example, if you just look at our C&I book, which I talked about, is where a lot of the charge-off activity has been. I think our coverage ratios are very comparable to peers. We've got a larger portion in our book of resi than some of our peers and the coverage on that tends to be a lot lighter.

The performance there is very good. So you have to look at the sum of parts really to compare it to others. And I think we look much more comparable when you do that.

Fair enough. And then just my only other question would be, I think, Raj, like I like you reminding us to think about year-over-year, but I do look year-over-year profitability from an ROA perspective is basically flat around 66 basis points on what appears to be a core basis. So what's the biggest driver of improving that ROA on a year-over-year basis through the rest of this year.

NIDDA growth. If I was to pick 1 thing, that would be it. We deliver on ID improved in -- we deliver on that, everything else will take care of itself.

Got it. Sounds good. I appreciate the time. right.

This concludes our question-and-answer session. I would like to turn the conference back over to Raj Singh for any closing remarks.

Thank you all for joining us. And like I said, I know this is a very busy day. If we missed anything, of course, you know how to reach me or Jim will be available. Thank you so much. Talk to you again in 90 days. Bye. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the BankUnited, Inc. Fourth Quarter and Fiscal Year 2025 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jacqueline Bravo, Corporate Secretary. Please go ahead.

Thank you, Vic. Good morning, and thank you, everyone, for joining us today for BankUnited Inc.'s Fourth Quarter and Fiscal Year 2025 Results Conference Call. On the call this morning are Raj Singh, Chairman, President and CEO; Jim Mackey, Chief Financial Officer; and Tom Cornish, Chief Operating Officer.

Before we 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 and 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 statements, 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. Good morning, everyone, and welcome to our earnings call. Before I walked in here, I was looking at I think CNN or CNBC and realize that we're competing with President Trump's speech at Davos. So for those of you who are listening in, a special thank you because I know if we have stiff competition this morning for your attention. Honestly, if it is up to me, yes, if I was the audience, I'll probably be listening to this speech as well more than our earnings call. But nevertheless, thank you. And we -- I'm going to walk quickly through the earnings for the quarter. But before we get into the quarter, just a couple of minutes on how the year turned out to be. I'll talk about the year, talk about the quarter to give you some guidance for next year, and then I'll turn it over to Tom, who will then turn it over to Jim.

By the way, Lesly sends regards from the beach. I believe she's on the call listening in. But coming back to our 2025, this was a great year for us. I mean there is no other way to describe it. If I was to summarize everything in 1 sentence, I would say double-digit EPS growth came from double-digit earnings growth, which came from double-digit PPNR growth, which came from double-digit NIDDA growth, which caused margin to expand by like 22 basis points. I mean there's a lot more nuance to it, as fee income, this, that and the other, but if I had to summarize it in 20 seconds, that's how I would.

We pretty much hit everything we were trying to hit, and it just turned out to be an awesome year. Turning to the fourth quarter. Again, this is a very strong quarter for us on just about every metric. Earnings came in at $69.3 million, $0.90 a share. There was some onetimes, which Jim will walk you through, some software write-downs that we took at the end of the year. But adjusted for that, I think our EPS would have been $0.94. I think consensus, I checked last week, was $0.89. PPNR for the quarter was $115 million, $115.4 million compared to $109.5 million last quarter. I think it was $104 million fourth quarter of last year.

Margin continue to expand, which has been a story with us. Last quarter, we were at 3%. Now we're at 3.6%. And if you compare it to fourth quarter of last year, we are up 22 basis points. Annualized ROA came in at 78 basis points. But if you adjust for that software write-down, it was about 81 basis points.

Deposits and loans, this is like a really strong quarter on both sides of the balance sheet. NIDDA grew on a spot basis by $485 million, and for the year was up $1.5 billion. But to be honest, the right way to look at our balance -- our specialty deposits is always on an average basis because there's a lot of noise that comes from seasonality, a lot of noise that comes in from just last couple of days of the quarter. Our average NIDDA for the quarter was up about $500 million -- about $505 million. And for the year, average NIDDA was up $844 million. Those are pretty solid numbers, and we're very proud of it.

Now this quarter, we had guided to you that this is a seasonally slow quarter for us. And your question might be, so did the seasonality not show up? The answer is, no, the seasonality very much showed up. NTS, which is our title business was down as it always is in December. So that happened. What really made up for that at [indiscernible] was all the other business lines came in very strong on deposit growth, especially on NIDDA growth, and we ended up where we did. So very happy with that performance.

NIDDA now stands at 31% of total deposits. Last quarter, we were at 30% and and we want to recapture that peak that we hit during COVID years of 34%, and we are more and more confident of getting there. So there was obviously a Fed rate move this quarter. Spot -- cost of deposits came down. Spot cost of deposits declined by 21 basis points to 10 at the end of the year, which was 231 at the end of September. So just compared to December of last year, spot cost of deposits down 53 basis points.

Now quickly turning to loans. The last couple of quarters, we've been seeing a lot of payoffs and some expected, some unexpected. But this quarter, we've made up a lot of -- on the loan growth side. Core loans grew by $769 million. Like core means commercial and CRE and small business and all that stuff, excluding residential and that we've been running off. So the core loans growing $79 million. This is a very big quarter for us. We were very busy all through the end of the year. So we're very happy about that, and Tom will talk a little more in detail about where that growth came from.

Quickly turning to credit. Criticized classified loans were down a little bit by $27 million. NPLs were down a little by $7 million. We did see slightly elevated provision and charge-offs. We are in a lumpy business when these credit costs hit us that do come in large jumps up. As an example, of the $25 million 1 loan, which was a fraud that we got hit by in the fourth quarter was $10 million. It's very hard to predict these things. It's very hard to protect yourself against fraud, but it did happen, and we had a complete write-off on a $10 million loan and that's in the numbers.

So -- but overall, we're feeling good about credit and expect NPLs to continue to decline into this year.

Capital, CET1 was a little lower at 12.3%, partly because of growth, partially because of a little bit of buyback that we did in the fourth quarter. And on a pro forma basis, including AOCI, CET1 is 11.6%. Tangible common equity to tangible assets got to 8.5%, and tangible book value per share is now over $40, at $40.14. I think that's a 10% growth year-over-year.

So the Board met just yesterday, looked at our plan, looked at our numbers and authorized us for an additional $200 million share buyback. Of the $100 million that they had authorized a few months ago, we've already used up about half that. So we will have about $50 million left over roughly from the previously announced buyback authorization, add another $200 million to it, so we'll have $250 million or so of dry powder. Also, they increased dividends by $0.02 as they often do at this time.

In terms of philosophy on buybacks, I think you heard me say that in the past. We want to stay in the middle of the pack of our peers. We think our middle of the pack is somewhere in the mid-11s, and that's what we're shooting for. Now that -- where the herd moves only time will tell. That number could go lower, and we will address it if it does. But right now, it feels like mid-11s is the middle of the pack, and [indiscernible] in the mid- to low 12s and we're at the top of the end of that range, and the buyback will bring us in line.

So before I hand it over to Tom, let me quickly talk about guidance. And we put a deck out, you can look at it at your leisure, but I would just -- for guidance, I would ask you to look at Page 14 and then Page 15. Page 14 is sort of a look back of what guidance we gave last year and what were we able to deliver in actual results. We give you guidance about deposits and NIDDA and loans and expenses and net interest margin and so on. We pretty much got there on everything and did better on most things. NII was up 8%. Margin, we got to do ending the year 3, we ended at 306. Deposits, we said mid-single digits, we did mid-single digits. NIDDA, we said low double digits, we did period end, we did 20% on average, it did about 12%. The only one that we missed was core loan growth. We thought we would be in high single digits, but we ended up at 5%. And expenses, we said they'll be controlled or be mid-single digits, and we ended up at 3%. So very happy with what the guidance last year worked out to be.

So with that, keeping that in perspective, our guidance for next year is on Page 15. It might look like almost -- we were being too lazy or this is a little -- it's almost the same guidance that we gave you last year. It's so boring that we think loan growth, deposit growth, between NIDDA and total revenue growth, everything will be very similar to last year, where loans should grow -- core loans should grow about 6%, resi and others will shrink at about 8%, total loan growth will be in the 2% to 3% range, deposits, NIDDA will continue to grow at the 12% rate that it has been growing at. Total deposits, excluding brokered, will be at about 6% Revenue, which grew last year 8%, should grow again at 8%. Margins, slightly more, fee income slightly less simply because this lease financing income and fee income that is coming down, which has dragged it down a little bit and expenses will stay controlled.

For provision, we're using an assumption that the provision will be similar to last year, though it's a little hard to all to pinpoint that, but our best assumption is it will be the same. The difference this year is we're announcing capital actions, which we did not announce last year, like I just mentioned the $200 million additional buyback, that's different this year. And all of our assumption and everything was built on the economic environment staying pretty much what it is. And spreads are tight and tightening. So we did take that into account, which is why you see margin improvement only going from 3.06% to 3.20%, it's largely because we're seeing much tighter spreads this time than we did 12 months ago.

And 2 Fed rate cuts, but our numbers aren't very sensitive, whether it's 1 cut or 2 cuts or 3 cuts. The balance sheet is fairly hedged. So with that, did I miss anything? Should turn it over? All right. Let's turn it over to Tom.

Great. Thank you, Raj. Just a follow up on Raj's earlier comments, on deposit growth, Total deposits increased by $735 million during the quarter, $1.5 billion for the year, and NIDDA was up this quarter by $485 million and $1.5 billion for the year. As Raj mentioned, despite the normal seasonality, we have numerous business lines contributed to strong growth in the fourth quarter, which was really good to see. I would also say, if you look at the lending business that we did in the quarter, which was also up strong, the treasury pipeline, operating account pipeline going into the early part of the year is very good because you tend to fund loans first, and then you tend to migrate the deposits afterwards. So given the strength that we had in the lending teams, at the end of Q4, during Q4, we'll see some lag time in the development of those operating account businesses. So we remain really optimistic about that.

as Raj said, core loans grew by net $769 million for the quarter. If you break that down, CRE was up by $276 million. The C&I segments were up by $474 million and mortgage warehouse was up by $19 million. We talked in the last few quarters about the fact that production throughout the year remained relatively strong, but we did have these headwinds of strategic exits and payoffs and sales of companies and whatnot. One of you asked me on the last call, what inning we were in of the exit process. And I said we were kind of in the bottom of the ninth inning. I think if you look at the walk through that Jim did on Page 9 of the deck you'll see that the production was very strong and the level of exits was fairly minor compared to what it had been in previous quarters. So as we move into this year, while there certainly will be 1 or 2 things we exit from for various reasons, overall, I think we're in a year where production will continue to be strong, and we've kind of finished the game of looking at things that we want to get out of.

Overall, resi was down by $148 million, while franchise, equipment and municipal finance were down a combined $50 million. In aggregate, that gets you to your $571 million of total growth. The loan-to-deposit ratio finished the quarter at 82.7%.

A few comments on the commercial real estate portfolio. It was a good year for CRE. We grew by 9% and on the team. Overall, exposure totaled $6.8 billion or 28% of total loans. And as you can see from the supplemental deck, pretty well diversified across all major asset classes, again. Consistent with last quarter, at December 31, the weighted average LTV of the CRE portfolio was 55% and the weighted average debt service coverage ratio was 1.82. So both very strong metrics. 48% of the portfolio was in Florida, 22% in New York. And obviously, the remainder in other areas where we've emphasized growth in the Southeast and in Texas over the last couple of years. Our exposure to CRE office was down $98 million or about 6% from the prior quarter end. Criticized and classified CRE loans declined by $36 million in the fourth quarter, primarily as a result of payoffs and paydowns. I think, at this point, we continue to see generally positive trends in the overall office book. Obviously, it's down significantly over the last few years. I think this will be a year where we see a lot of rent abatement improvements. And in most of the markets that we're in, when we kind of break it down submarket by submarket, we're seeing continued improvement in each of the submarkets.

Page 8 of the investor deck provides greater detail on the CRE portfolio. So with that, I'll turn it over to Jim.

Thanks, Tom. I'm going to take through a couple of things for the quarter, try not to repeat too much what Raj and Tom mentioned, but I do want to highlight a few things. So as reported, $69 million, a little north of $69 million of net income for the quarter, $0.90 a share. We did call out for you a onetime write-down of some previously capitalized software as we were going through our tech stack doing our strategic planning. We determined to go in a different direction. So we took that charge during the quarter. So if we adjust that net income, it would be $72 million or $0.94 a share. So that's roughly consistent with the prior quarter, up about $3 million from a year ago. And importantly, we're seeing PPNR grow about 14% year-over-year.

On NII and NIM, where NII is up 3% from the prior quarter, 7% from a year ago. The NIM expansion story that Raj mentioned, 6 basis points up to 3.06%. It's really a pretty simple story. It's -- our cost of deposits is declining by more than our loan yields are declining. We talked about the NIDDA growth of average balances of $505 million during the quarter. Interest-bearing deposits were down. Average interest-bearing deposits were down about 3.47%. So that brings our NIDDA mix up to about 31%.

We were successful as we've been all bag year long passing along rate cuts timely, so that certainly helped margin. And our loan growth -- the timing of the loan growth during the quarter was helping us as loans were put on throughout the quarter. And then we're also helped by the resi loans that paid down, we did see a favorable mix in the lower coupons maturing. So all of that combined for the 6 basis point improvement.

Just a reminder, NIM was up 22 basis points for the full year, NIDDA up $1.5 billion. So our mix is up from 27 to 31 at the end of the year.

Couple of comments on credit provision and reserving. So our charge-offs were just shy of $25 million or 30 basis points for the quarter, slightly elevated from where we'd like to see it. We sort of underwrite to about a 25 basis point charge-off rate over time. So a little elevated. We remind you constantly we are a little bit episodic. Raj talked about a couple of items during the quarter.

Provision was $25.6 million for the quarter, again, a little bit elevated, but it was really a function of the specific reserves that we booked and, to a lesser extent, previously reserved charge-offs. We provide a walk for you in the deck.

Allowance for credit losses, roughly flat, right around $220 million. The coverage ratio is slightly down, but it's really just a bunch of model noise and rounding. So I'm going to call the coverage ratio flat as well. Again, on Page 10, we lay out all the moving parts in a walk.

As Raj mentioned, nonperforming loans are down and criticized and classified loans are also down. On noninterest income and expenses, again, noninterest income is a very positive story for us. We're up $30 million -- we're up to $30 million, $4 million growth quarter-over-quarter and year-over-year, that is despite our leasing income falling. Capital Markets-related revenue is continuing to steadily improve over time. So if we exclude that $13 million of leasing income that we saw in 2025, we had full year noninterest income grew by about 28%.

So while the numbers are still small, it's definitely a positive growth area for us that will continue to help us moving into the next year.

On the noninterest expense side, we were up $6.6 million from the prior quarter. The majority of that was 2 things. One was the capitalized software charge that I mentioned earlier and an employee compensation expense, the impact of the stock price movements that impact on equity-based compensation that makes up the other portion.

For the full year, noninterest expense was up 3%. It's largely [indiscernible] up as we've been hiring revenue-producing people, technology expenses as we continue to invest in growing our business. We also had a credit in '24, just to remind you of that didn't repeat.

Deposit costs are growing as we grow our deposit base, and that's being offset by lower FDIC premiums and lower leasing costs.

So before I turn it back to Raj for some concluding remarks, I just want to make a quick comment on '26 guidance in addition to what Raj mentioned. Again, all that guidance is on Page 15. It's a full year view. Just want to remind you that we do have some seasonality in our results during the year. For example, loan volume is typically seasonally low for us early in the year. and our noninterest-bearing deposit balances are typically highest in the second and third quarter. While we do think provision is going to be flat year-over-year, the timing of which, in what quarters and where will be determined as everything is a little bit episodic.

With that, I'll turn it back to Raj.

Yes. The one part that I usually talk about and I forgot this time is generally how is the economy and how is the stuff that we don't control, right? So that's economy, that's rates, and the -- sort of the regulatory environment. So regulatory environment is constructive. There's no surprising news over there. In terms of the economy, it feels very good. But at the same time, if you watch the news too much, it can scare you a little bit. That's what has been the case for the entire of 2025. A lot happened, but it didn't really impact the economy. In fact, the economy is doing reasonably well. And we're going to stay optimistic until proven otherwise, but it feels really good, both in New York and over here, business in New York also is doing very well, it's not just Florida. So the economy is doing well. And as far as we can see it, it will continue to despite heightened geopolitical risks and noise.

And rates, again, the monetary policy looks pretty straightforward what will happen this year, but there is -- it's hard to predict too far out in the future what will happen with rates. We think 2 rate cuts, might be 1, might be 2, might be 3. Nobody is predicting 8 rate cuts or anything crazy like that, or, for that matter, the rates start to go the other direction. We have hedged ourselves as best as we can, and we're not worried about rate cuts being a little bit more, a little bit less. But if there's something crazy, if there are -- if rates go back to 0 or something like that, that will impact our earnings and everyone's earning. But outside of that, the environment feels fairly straightforward, and we're running the business with those assumptions in mind.

So with that, let me turn it over and take some questions.

[Operator Instructions] And the first question will come from Woody Lay with KBW.

Wanted to start on the fourth quarter noninterest-bearing deposit growth. As you mentioned in your comments, it's pretty remarkable to see the growth when you also saw the downward seasonality in the title business. I was just wondering if there were any specifics on what drove that growth and what you would attribute it to?

So first, I will say, actually, just before this call, we might get this question, Tom and I were discussing this. I look at business line by business line where the growth came from and to see if there was any outliers. Happy to report there are no outliers. Every business line contributor. It's pretty even, small business, middle market, corporate even CRE everything brought in deposits, HOA, the only one with the negative number was title, which we -- right? This is a seasonal time when NPS slows down and then they picked back up in late first quarter. So it's not concentrated in any one place. However, we do see from time to time, like last day of the quarter, some deposits may come in, which may leave then a couple of weeks later. And I wouldn't call that core growth, which is why $1.5 billion of deviated growth for the year is probably not the way to look at it. I think the right way, the honest way to look at it is what happened to our average NIDDA. Our average NIDDA was up $844 million for the year, and our average for the quarter was $505 million.

I'm very happy, but -- I'm very happy that we ended the year where we did, but average is the right way to look at this, not period end.

Yes. I would also add that when we look at this, we tend to think of dividing the world into 2 segments; one I would call new wallets and one I would call expanded wallets. So if we look at the quarter from a core operating account growth, I would probably say just roughly about 2/3 of the growth were new wallets, meaning new relationships, and about 1/3 were expanded wallets in terms of deeper cross-selling across relationships that we're already in. So we thought that was a pretty healthy mix.

Got it. That's helpful color. And then embedded in the NII guide, could you just walk through some of the loan and deposit beta assumptions you are assuming there?

The beta assumptions for deposits are the same that betas that we have realized so far, which is about 80%?

80%.

3%. So the 2 rate cuts that we have baked in here, we will achieve 80% just like we have been achieving. On loans, it's really a matter of which business line you're talking about. We do a lot of fixed rate -- sorry, floating rate loans. We're more of a floating rate shop than a fixed rate shop. Even our CRE business has become predominantly floating rate. So it depends on the floating rate, the beta is 100%. And if it's fixed, it's 0. So you'll be able to find in our disclosure the mix of floating and fixed.

It's not until you see significant number of rate cuts before you really start to see betas materially drop on repricing. We've talked about this before. We're modestly asset sensitive. So if you -- a few rate cuts up or down really doesn't move the needle for NII. And I know there's a lot of talk now of is there going to be less Fed rate cuts than what the forwards are? And so again, we're pretty neutral. So we'd be slightly benefited but not much at all.

And always remember, positively sloping yield curve is good for bank earnings, especially our bank earnings, which is where we find ourselves today. And we have been over the last few months. So we're happy about an upward sloping curve.

Got it. And then last for me, it was positive to see the buybacks in the fourth quarter. You upped the authorization. I would expect the stock to react pretty well to the quarter. How do you balance sort of price sensitivity of the buybacks with wanting to get capital levels down to more peer-like numbers?

I think there is still -- we're still living in pretty volatile times. Stock prices can move for no -- nothing that you do. Something might happen in the market and prices can move a lot. I mean I remember the day the administration said they're going to cap credit card interest rates by 10% -- or to 10%, and our stock took took it on the chin even though we were not even a credit card company. So on days like that, when you see overreaction, we'll lean in a little bit more. On other days, we'll lean in a little less. So we'll stay opportunistic like that.

I do expect volatility to continue because this 24-hour news cycle, just stuff comes at you and then it distorts prices for a period of time, and then it gets better after a couple of days, people forget about it and life goes on. But it will create those opportunities, which we will take advantage of.

The next question will come from Jared Shaw with Barclays.

Just following up on the deposit side with the 80% beta, it's great that you think that you can maintain that. Can you just walk us through what percentage of the non-DDA deposits are indexed or brokered? And how -- I guess, how you feel that you can still keep that 80% beta?

I think the brokered we will have in our disclosures probably around 15% of our deposits, I don't have that number in front of me exactly. But in terms of index, I don't think we have disclosed that, and it's actually very hard to disclose because some of the indexing might be just contractual, but a lot of it is just handshakes. So I'm not sure we could actually give you an exact number. It does come down to pushing our salespeople who then push our clients. And sometimes it's just client to client sort of how much you can push. Overall, we feel we can get to 80%. We have been getting there without much trouble. And over the next couple of cuts, we'll do the same.

Like Jim said, if it's 8 cuts, then this is a very different story. And while nobody is expecting that, we do run sensitivities along that as well. And while margin in an extreme scenario like that, will be hurt, it's not like crazy. We can manage even some pretty dramatic cuts if it comes to that.

6.6% in the fourth quarter.

Yes, proper 16.6%. Actually, our brokerage was up this quarter a little bit because we were ourselves not expecting this level of deposit growth. So we had expected deposits to be not as good, and we had lots of brokered, which December turned out to be better than we expected.

And then maybe shifting to CRE, good to see that CRE growth, and you've spoken in the past about having a lot of capacity under the capital concentration. How should we think about CRE growth as a percentage of overall growth, and where you'd like to bring that? And maybe just comment a little bit about the competitive market on the CRE side.

I don't think we're constrained in CRE by room in the bucket. There's lots of room to grow. What we're constrained by is our our assessment of the kind of business we want to do. We're still not doing much in the office or any in office. We're contracting that. We're not doing much in hospitality, but we are focused on -- we have room on the other asset classes, which is where the growth is coming from. So Tom, do you want to add to that?

Yes. I would say if you look at the breakdowns in the supplemental package, you can see that virtually all of our asset classes today are kind of in the low 20% range. And I would get there by if you take the multifamily number at 14% and add in the construction book, the construction book is almost entirely multifamily. We kind of like to look at the major asset classes as being under 25%. It's important for us from a risk perspective to keep the portfolio; a, to keep CRE well balanced within the context of the total portfolio on risk-based capital; and b, to keep the individual asset segmentation within the book at relatively reasonable and equal proportion. So you'll see their office or retail or industrial or multifamily, including construction, are all kind of in the low 20s.

So it's -- we think we'll grow CRE mid-single digits in 2026, and it will be balanced across all asset classes to make sure we kind of stay any individual asset class is not above 25%. We do expect a more competitive market because some of our folks from the Cree teams recently attended the Big Creek conference that was in Miami Beach last week, and we saw some of the notes from that. It's clear more banks are back involved in Creek, some that may have been sitting on the sidelines due to asset concentrations and whatnot are back, and there will be probably more competition on the private credit side as well.

So look, every -- I was -- Raj and I talk about this all the time. We're always in search of a great market that's not competitive and we can never find one. So there will be competition in every market, but I think we have the balance sheet to be able to continue to work in the CRE space. I think we have the expertise and the teams to execute and we're in a well-balanced position that allows us to be a consistent lender in the marketplace.

Okay. And if I could just more, just a final one on credit. You called out a fraud. Can you just give any -- what category of C&I, I guess, that was in? And as we look at the provision guidance, does that assume a reduction in the ALL ratio as we move through the year? Or is that more a reflection of the growth in the portfolio?

No, I would expect ACL to stay fairly consistent. To give you any more color on that one loan, it was in New York. It was a contractor. And literally, the place shuttered, fired all the employees and is out of business in a matter of days. And there is no colateral to go after. So it was a complete write-off.

As with most of the trends in nonperforming and whatnot, I mean, we're just not seeing any broad systemic risk that everything is uncorrelated, unrelated industries, unrelated geographies.

Yes. On [indiscernible] is office and which is getting better.

[Operator Instructions] And the next question will come from Michael Rose with Raymond James.

Maybe we could just start on the deposit growth. I think you guys previously talked about getting the NIDDA mix up to 34%. You're expecting pretty good average growth. This year seems like a lot of the stories coming together here. Is that something that you think you can hit this year? Or is it kind of a multiyear trajectory? And then kind of what needs to, in your mind, happen to kind of get to that 34% level?

I think there's a good chance we'll get there this year. I mean we're expecting again double-digit NIDDA growth. So if you just do the math, we're not expecting total deposits to grow that much. So the ratio should get there.

33-ish percent.

Yes, maybe 33% is sort of looking at our budget here in detail. So we're getting close to it. I mean, what's more important is that we keep driving NIDDA growth, which we feel fairly good about.

Okay. Perfect. And then maybe just 1 follow-up. Clearly good core loan growth momentum expected as we move through the year. How much of that is coming from some of the newer markets that you've more recently expanded into? And then it looks like you did have a bump up in NDFI exposure of about $200 million this quarter. How should we think about that growth as we contemplate the core growth guidance?

Yes. I would say if you look at growth across the franchise, a good portion of it came from the new markets we're in. I mean, we're continuing to invest more in the Atlanta market. We're investing more in the Texas market. We're investing in the North Carolina market. So we saw good growth across all of those markets. It was an important part of the growth of the portfolio for the year.

So I think that's an integral portion of how we're going to continue to grow. Florida will continue to grow as well. We've also just completed a major investment in the Tampa market. We're actually opening up our new office in Tampa next Monday in the downtown area and hiring more producers in that market. So it played a key role overall.

Just mathematically speaking, new markets always tend to show more growth because there's not much runoff. And mature markets, but you've been in for a long time, there's always runoff that is happening. So just mathematically, they will contribute a little bit more, but we're very happy with the investments we've made and how they're paying off. So we're -- we want to invest more. We want to hire more people in Texas. We're expanding our office space there. In Atlanta, we actually already have doubled our capacity there in terms of our physical footprint. So we're happy with how these new expansions have worked out. We don't have any new market on the horizon because we think we can really double, triple this -- the bets that we've already made. That's probably the best thing to do over the next couple of years.

Yes. Michael, in response to your question about the finance and insurance category, probably the largest segment of that would be what we would call investment-grade subscription type credit facilities. We are opportunistic in that. It's a good space to be in, but the quality and rate kind of has to be right. And when it is, we'll move a little bit more into it. When it's not, we tend to move away from it.

There's also a fair amount of -- there's kind of a convergence between what is insurance and what is health care. We have a lot of reasonably large credit relationships that are health care insurance related that fills up a little bit of that bucket as well. Those would probably be kind of the 2 larger segments within it.

I think there was a $200 million increase quarter-over-quarter. 100-ish was the subscription lines that Tom referred to. And to be honest, the other $100 is just refining the methodology that last quarter was the first time we pulled this information together for you view. And so data and getting organized, but the [indiscernible] increase in the sufficient amount is the big change.

Where we're not very active is kind of that you often talk about lending to debt funds world. That's really a small piece of the overall financial and insurance bucket for us.

Do want to reiterating comment Raj -- sorry, I do want to reiterate a comment that Raj has made related to our investments, we're leaning into the markets that we've previously announced, not in our projections for next year. It's not new markets, it's not new things. it's our existing footprint.

Yes. Totally got it. If I could squeeze in just 1 last one. Is there any reason to think that you wouldn't use most of, if not all, of the remaining buyback authorization this year, just given where the stock is and earn back on the buyback?

Not really. I mean, if you see there is massive opportunity for growth that we're not thinking about today. We always want to use capital for growth first, if we can deliver it safely. But based on the numbers we put in front of you, that's what we end up doing. There is room for buyback and to fund that growth. But I wish we'd be lucky enough to come back to you and say, Oh, the growth is twice as much as we thought and [indiscernible] capital." That will be a very happy problem to have.

We have a philosophy. We want to be sort of middle of the pack and capital ratio at ratios with the peer group. And we're generally targeting 11.5% CET1. And so we'll hit that through buybacks, dividends and growth opportunities.

The next question will come from David Bishop with Hovde Group.

Tom, a quick question circling back to the the loan waterfall. Just curious in terms of payoffs this quarter versus last. Were these sort of in line with last quarter? And just curious if you have a line of sight, maybe what could be looming maybe into the first or second quarter of this year?

That's always tough to say early, David, because right now, a lot of the payoff activity that we are expecting would be unexpected. I'll say it that way. In terms of company selling is predominantly what I would expect to see. If I look at 2026, I think I would say companies selling would be probably the #1 exposure that we have to pay offs. I think #2 would likely be relationships that may be exiting the standard commercial banking world and opting into the private credit world because terms and conditions are different. And then lastly would be what I would call strategic exits. So in 2025, kind of the order of that would have been reversed. We had more strategic exits and things from a pricing, deposit perspective or type of lending that we exited. Those were easier to plan because you kind of knew what they were, you knew when the facility is matured, or you know when they were going to redial based upon the timing of the line of credit. So they were a bit easier to predict.

This year, that number will be substantially reduced as you saw in the fourth quarter. It was a lot less than it was the previous 3 quarters. I would say, strategic exits were probably triple what it was in the last quarter, each of 3 previous quarters. So I would expect that, that number will probably be around what it was in the fourth quarter, the $80-ish million type number, maybe a little bit less. A bit harder to predict what's going to happen in the M&A and refinance market. But when I put all of those together, our kind of base forecast is we'll still see continued quality production across all of the lines of business that we have, and we will see less payoffs within the upper part of the C&I market.

Got it. Appreciate that color. And then, I don't know if it's Tom or Raj, you said in the preamble, [indiscernible]. It sounds like spreads are tightening. Just curious maybe what you saw in terms of average origination yields this quarter?

Do we have that?

Yes. Give us a second.

That's fine. I can at an interesting time, we'll follow up with you afterwards.

It will be somewhere in our disclosure, but it's not popping up to us as right now.

I could certainly tell you from looking at volume that spreads did tighten in Q4 if we looked at it didn't necessarily impact the total book greatly. If we looked at spreads in the total book for the entire year, it remained fairly stable. We did see more pressure kind of late third quarter, early fourth quarter across the lines of business. I would -- Jim will give you the exact number, but Jim will give me the exact. What's this, C&I was $617 million in Korea was $570 million. So that's new on production coming online. I would ballpark to probably say we saw 15 to 20 basis point compression and new production in Q4. It's different for different type of deals, but a bit more in Q4, and we'll probably see that going into the year.

As we built our plans here certainly assumed it would continue to tighten throughout the year.

The next question will come from Jon Arfstrom with RBC Capital Markets.

Jim, maybe a question for you. Most of my questions have been asked, but just puts and takes on the expense outlook. You guys are flagging some investments in '26, but also talking about limiting growth. Just where are you spending? Where are you trending?

Yes. I mean, honestly, the way we set our plan is, I kind of think about it as sort of run the bank, grow the bank with our existing cost base. We're always looking to keep within inflation and generate operating leverage. And then we want to use that expense discipline to invest in the things that we want to invest in. The types of things that we're investing in are continuing to hire revenue-producing staff and the various support staff to support that growth. We also are -- we're focusing on technology modernization, especially our payment systems and AI workflows, all the things that continue to help us improve and grow our business. And as Raj mentioned, in our existing footprint, we are looking to expand in Dallas, Tampa, here in Florida, et cetera. So that's really bread and butter using operational discipline to pay for as much of the expansion and growth areas that we can.

Okay. Raj, a bigger picture question for you. Can you touch a little bit more on your New York comments? I think it sounds like it's doing fine and it's maybe similar size to Florida in terms of C&I, a little smaller in CRE. But I think the narrative is New York is difficult and Florida is on fire, and it sounds like maybe you wouldn't agree with that?

Our Florida business is bigger than New York. So let me start by just saying that. Having said that, I just look at production numbers by geography, by division. And at least this quarter, sort of our lower-end middle market business, they had the best quarter ever in New York. Almost the [indiscernible] of that, look at the numbers, and my first reaction was, I think there's a typo here. And they came back and said to me, no, that's not a typo, that is actually what we did this quarter. So -- but that's a quarter. Over time -- they had a great year also. But our business is still very much Florida is the center of gravity. And New York is a nice hedge, a nice sort of risk mitigation geography for us. But this notion that New York is just in a downward spiral as an economy, that's not true. That's -- New York is doing fine. New York CRE is doing more than fine. New York C&I, there is business to be done in New York.

So we're optimistic and more than optimistic about both geographies that we're in. And then Dallas and Atlanta, they are -- you know those markets doing really well. So we're not pulling back on any geography. But having said all that, the center of gravity of the company is and will remain South Florida.

Yes. I would add, we've invested in a new team in New Jersey. We're -- we have invested in resources in the Long Island market, both on the C&I and on the CRE side. And although people -- sometimes when they talk about New York pointer the tri-state area, point to differences in growth rates, that's true, but you're also starting from a $2 trillion base. It is a very, very large economy, and we're not the market share leader there. So regardless of really whether it's up 2% or down 2%, there's still a lot of great opportunities in the Greater New York area. It is separately would be one of the largest economies in the world if they were a separate country. So you can't you can't walk away from that. There's still a tremendous amount of opportunities for us to grow in a market where our model of high-quality service, personalized business stands out among the competition in that market. So we have growth plans for that market as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Raj Singh for any closing remarks.

I almost thought Lesly would ask a question, but no listen, guys, thank you so much for dialing in and listening to our story. And we'll talk to you again in 90 days. And before that, we'll probably see some of you on the road. Thank you so much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the BankUnited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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. Ma'am, please go ahead.

Thank you, Michelle. Good morning, and thank you, everyone, for joining us today for BankUnited, Inc. Third Quarter 2025 Results Conference Call. On the call this morning are Raj Singh, Chairman, President and CEO; Leslie Lunak, Chief Financial Officer; Jim Mackey, Incoming 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 and 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 as the future plans, estimates or expectations contemplated by the company will be achieved.

Such forward-looking statements are subject to various risks, 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 statements, 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 exhausted. 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. Welcome, everyone. Thanks for joining us. Third quarter results, a pretty solid quarter. I will try not to get into the level of detail that Leslie and Tom will but will just hit the highlights. For the quarter, earnings are up, ROA is up, EPS is up, ROE is up, margin is up and expenses are very controlled and credit is flat. So if I was to summarize this, this is as good a quarter as I could have expected even just a month ago. This is -- if there is -- oh, by the way, deposits did exactly what we had expected them to do almost to a T.

Loans, CRE was up modestly. Mortgage warehouse was up nicely. C&I was down, unfortunately, not because of production but the ongoing payoffs that we've been seeing. So hitting margin 3% a quarter early, I think that's sort of the highlight. We're very happy about that. We kind of hinted on that. Even on our last call, we were running further ahead. We've been running further ahead all year. So we're very happy that we're at 3%. And by no means 3% is the destination, this was just [indiscernible], we want to get further, and we will get further and we'll give you more guidance in January of where margins can get to in the short term.

ROA of 82 basis points is an improvement over last quarter. It's certainly a big improvement over last year. ROE of 9.5%. EPS of $0.95, I think I checked a couple of days ago, the consensus was $0.88. So happy to beat that. Capital continues to grow. CET1 is now at 12.5%, and tangible capital book value per share is up to $39.7, I think total book value per share is now over $40.

The buyback is in place. So we didn't really hit much of it in -- or any of it in the third quarter. We're being more opportunistic with the buyback rather than in the past, our buyback strategy has been by a little bit every day. This time around, we have a different strategy because of the amount of volatility we see in the marketplace, we think it's better to be more opportunistic and lean and hard when there is the opportunity to do so. So you'll see that play out over the course of next few months.

What else am I missing? Like I said, with credit, everything was about as flat. Criticized classified NPLs, our ACL, our charge-offs, everything was like when I first looked at the numbers, I thought maybe it was a typo, but it's not. Everything has been just very, very flat this quarter. So we have put in some new disclosures around NBFI, which Leslie and Tom will walk you through because those are the kind of questions we're expecting. But again, there are also -- there is not much sensational news either.

But with that, I'll turn it over to Tom, and then Tom will turn it over to Leslie.

Great. Thank you, Raj. So before I dive into a little bit of details about the quarter, just a couple of comments from an environment perspective that we're operating in right now. And what we kind of see as we look forward into this coming quarter and the start of next year. So Raj and I've done a number of events with major clients over the last few weeks. We've visited almost all of our offices, including the new office locations that we've been announcing. We've seen a fair amount of hiring -- that's really good quality hiring that we're starting to see a really good build in those areas. So we have traditionally been an early of the year, deposit grower and in end of the year, asset grower on the loan side. And I would expect that we would see that based upon what we're looking at right now.

We've got very, very good pipelines in the commercial teams across the bank. We've got very good pipelines the real estate team. And real estate has been a good growth area for us all year long. Deposit pipelines look strong from an operating account perspective in the fourth quarter. So I think the -- and when we track business sentiment of clients, both on the commercial side and on the CRE side, I think businesses are feeling pretty optimistic right now. And we had a lengthy session for the Group of Creek clients the other night, probably over 100 clients. And I think the optimism in the free markets heading into the end of this year and next year is very strong. So we're quite optimistic about what we expect to see in the near-term environment.

A little bit more detail on the quarter. As Raj said, total deposits were basically flat for the quarter, declined by $28 million. We did experience the normal seasonal fluctuations that we always see in the title business at this point in the year and to a lesser extent, HOA and government banking, the municipal quarters generally an outgo during the third quarter. Overall, we are pleased with $1.2 billion in nonbroker deposit growth that we've had over the last 12 months. We expect to see seasonality continue in the fourth quarter, but kind of broadly across the bank, the level of market penetration, new relationships net new relationships in each of our operating segments and geographies is really very strong and very encouraging.

On the loan side, as Raj mentioned, of course, CRE and C&I loan portfolio declined by $69 million for the quarter, CRE being up $61 million, while C&I segment declined by $130 million for the quarter. We still see payoffs larger than we have historically seen, but we also see those kind of coming to a close as it relates to relationships that we may have decided to exit. We are seeing a little less utilization than we've traditionally seen on the book. I think part of that is because we are continuing to focus on relationships that tend to be more deposit rich. That's one of the reasons. But we're seeing a slight dip in utilization, but nothing that I don't think new business opportunities and production can now run as we move forward.

Mortgage warehouse grew by $83 million in the quarter, which was a good quarter. And the resi franchise equipment in municipal finance were down in line with what we have guided to in the past and what we expect. Overall loan-to-deposit ratio finished at 82.8% for the end of the quarter. Raj mentioned NDFI, so there's been a lot of talk about that recently. So we added some information on Slide 16 in the supplemental deck about our NDFI exposure. In total, we have $1.3 billion in NDIF exposure as of 9/30/25 which excludes mortgage warehouse lines. That's about 5% of our total loan portfolio. The largest components are B2B credit and subscription lines or subscription line outstandings as you look at the exhibit or almost all predominantly investment grade, very high risk rated from a quality perspective portfolio and our B2B portfolio is predominantly secured lending facilities that we have the real estate investment funds.

We're not really in the kinds of larger lending to private credit that people are reading about and talking about our facilities are more moderate in size and generally secured by the pledges of assets and real estate collateral that we have. Substantially all of the NDFI portfolio was rated pass as of September 30, only one loan was on nonaccrual for $26 million to a real estate investment fund.

Brief comments on CRE exposure. Our CRE exposure totaled $6.5 billion or 28% of loans and 185% of risk-based capital, pretty consistent with the prior quarter. I think if you look at Page 11 of the supplemental deck, you can see we've got a well-balanced portfolio. It's kind of interesting, it's almost $1.5 billion in every major asset class from retail to industrial to office, including medical office and the multifamily when you include the construction portfolio, which is predominantly multifamily. So very balanced overall real estate portfolio.

Consistent with last quarter at September 30, the weighted average LTV of the CRE portfolio was 55%, weighted average debt service coverage was 1.77, 49% of the portfolio was in Florida, 22% in the New York tri-state area, and these numbers are becoming a little less concentrated in those 2 as we do more real estate in the Atlanta market, the Southeast market and the Texas market over a period of time.

Office exposure was down $122 million or 7%, from the prior quarter-end criticized classified CRE loans declined by $41 million in the third quarter, primarily as a result of payoffs and paydowns. We are seeing a more normalized refinancing market. in the office market. I think everybody has seen positive comments about most of the office markets that we're in, particularly in the New York market in the recent months, the CMBS market has picked up, and there are more players involved in looking at new office. So that's part of the reason why the portfolio continues to trend down. We're seeing a little bit more of a normalized refinancing market out there. Pages 11 through 14 of the deck have more details on the CRE portfolio, including the office segment.

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

Thanks, Tom. Just one quick point, that $41 million decline was specifically CRE office, not CRE overall and [indiscernible] classified. So to reiterate, net income for the quarter was $71.9 million or $0.95 per share. Net interest income was up $4 million. And as Raj said, we're very happy to report that the NIM was up 7 basis points to 3%. So we hit that target that we had put out there for you a quarter sooner than we thought we would at the beginning of the year. To reiterate what we've been saying for a while now, margin expansion has been and will continue to be primarily driven by a change in mix on both sides of the balance sheet rather than by the Fed's actions with respect to rates. Continued execution on this has continued to remain our priority, and the static balance sheet remains modestly asset-sensitive.

We've done some hedging to protect the margin if rates should decline more than the forward curves would suggest and there'll be details about those in the upcoming 10-Q filing. This quarter margin expansion was mostly attributable to an improved funding mix. Average NIDDA grew by $210 million and average interest-bearing liabilities declined by $526 million. On average, higher cost broker deposits were a smaller part of the funding mix this quarter. We did redeem the $400 million of outstanding senior debt in August that improved the funding mix from a cost perspective. The yield on that is 5.12%. So that was helpful also.

The average cost of interest-bearing liabilities declined to 3.52% from 3.57% and the average cost of deposits declined by 9 basis points to $2.38. The average cost of interest-bearing deposits was down 8 basis points to $3.40. And on a spot basis, the API deposits continued to trend down to $2.31 and with the rate cuts that we expect in the fourth quarter, that trend should continue.

The average rate on FHLB advances did increase, and that was mainly due to the continued expiration of cash flow hedges. Again, there'll be details on all of that in the Q. The average yield on interest-earning assets was flat at $5.38 this quarter, while the yield on loans decreased marginally. The yield on securities was up a little bit to offset that. All of our guidance assumes 2 additional rate cuts in 2025, one in October and a 75% chance of another in December.

On the provision and reserve, the provision this quarter was $11.6 million. The ACL to loans ratio was 93 basis points, consistent with the prior quarter end. And I'd refer you to Slide 17 of the deck for a waterfall chart that talks about the changes in the ACL for the quarter.

A couple of things that were driving the movement in the ACL and provision for the quarter. We had improvement in the economic forecast, offset -- largely offsetting an increase in specific reserves and the majority of that increase in specific reserves was related to one C&I credit to a lesser extent, one office loan. That C&I credit appears to be idiosyncratic in nature. It doesn't seem to be any kind of common thread with respect to industry or geography emerging there.

We also had increases in certain qualitative overlays and obviously, net charge-offs reduced the reserve. Net charge-offs totaled $14.7 million. The net charge-off rate was 26 basis points for the 9 months ended September 30 and 27 basis points for the trailing 12 months, so pretty consistent. And those net charge-offs primarily related to those same 2 loans, the one C&I loan and the one office loan.

The commercial ACL ratio was pretty consistent with last quarter at 1.35 and the reserve remains a little more than double historical net charge-offs over the weighted average life of the portfolio. As Raj mentioned, NPLs were essentially flat quarter-over-quarter, up $3 million of $136 million in total CRE non-accruals. $119 million is office and the other $17 million is New York rent-regulated multifamily. NPA ratio was pretty flat quarter-over-quarter, 99 basis points this quarter compared to 98 last excluding guaranteed SPA loans.

Nothing of note to point out in noninterest income or expense this quarter. I will point out, however, that year-over-year noninterest income for all categories combined other than lease financing, which we know is running down as expected, is up 24%, and some of our commercial fee businesses start to gain traction. So I think that's very noticeable. We've been pointing that out. I think that 24% increase is worth noting.

And that's early innings for us.

Yes, very much so. And noninterest expense remains well controlled. A couple of comments on guidance for the fourth quarter. We expect margin for the fourth quarter to be flattish, essentially flat. Double-digit NIDDA growth for the year is what we have guided to. We're at 13% year-to-date. And while we do expect some headwinds to that in the fourth quarter, I think we'll easily get that double-digit guidance that we gave you for the full year. Total loans likely flat year-over-year. And core C&I, we expect year-over-year to end with low single-digit growth, which echo Tom's comments that we do expect pretty strong core commercial loan growth in the fourth quarter.

Because of some opportunistic purchasing activity, I think the securities portfolio will be down in Q4, but still up slightly year-over-year. Noninterest expense, we had guided to being up mid-single digits for the year. I think we'll do a little bit better than that, probably closer to the 3% area. So those remain well controlled.

So that, I will turn it over to Raj for any closing comments.

Listen, I'll close with where I started, and I'll just add one thing to it, which you just alluded to, which is 20% growth in core fee income is something we're very happy about and celebrating. And -- but not -- again, it's not a destination. This is just maybe the first or second inning of what we want to do in the in that category. So we are very optimistic about long-term prospects for fee income. But like I said, I'll end where we started. Strong EPS growth, ROA, ROE got better, margin got to 3% a little earlier than we thought. And the balance sheet for the most part, behaved like we had expected it to, and credit remains pretty stable. So -- and capital continue to accrue.

So the other thing I would like to say is, this is Leslie's last earnings well. And I talked to her yesterday, I wanted to make sure she wouldn't tear up.

I am a little bit.

She has been my partner as CFO for 13 years?

Yes.

13 years, they've gone by very fast. But I just want to thank her for her partnership, helping me build what we have and not just a strong finance department, but a strong company. And the transition to Jim is going very well. It's been a couple of months. And over the next couple of weeks, we will see the transition actually officially happen. Leslie will be with us through the end of the year, and we'll be a friend of the company forever. So probably soon reach out to her for advice into next year wherever she is traveling.

Good luck finding me.

I'll find you. I'll find you. But thank you for everything you've done for the company and for me specifically.

Thanks, Raj. And just one thing I would add to that, seriously, and I mean this very sincerely, one of my favorite parts of this job has been interacting with and working with and getting to know all of you in the analyst and investor community. I really have enjoyed that. I've enjoyed working with each and every one of you, and that's one of the parts of this job that I'm going to miss the most.

With that, let's turn it over for Q&A.

[Operator Instructions] Our first question is going to come from the line of Ben Gerlinger with Citi.

Thanks again, Leslie, for all the help and really, really [indiscernible] things down for me. I appreciate that. And not to start on credit, but I'm going to start on credit. When you think about the one C&I and CRE, you have a specific reserve and you're also charging off. But the reserve was -- the build was bigger than charge-off, is it fair to anticipate a potential charge-off in 4Q or another one down the road as related to those 2 loans?

Yes. I think with the one C&I credit, yes, there will be an additional few million dollars charge-off in 4Q related to that loan, but it's been fully reserved for. And then with the other one, the office loan, the charge-off has already been taken.

Got it. Okay. And then as we kind of finish out the year, I know you gave some improvement in guidance. When you just think about the loan opportunity, when you think are clients becoming more comfortable with the environment we're working in. And are you seeing increased traction in Atlanta? And I know the Charlotte one is fairly new, but just kind of think like longer term, is the opportunity set getting better over -- because I mean, you're arguably the most competitive area in the United States. So I'm just trying to think like is a risk-adjusted spread that's not meaning that hurdles -- why are loans so kind of stuck? I get there's payoffs, but what can we expect over the road?

I'll have Tom answer this, but I just want to start by saying -- our -- with now being in markets outside of Florida, the opportunity set is actually bigger. And yes, these are competitive markets, but they're also healthy growing markets, right? That's the trade-off. You want to be in good markets, but good markets are also competitive markets. So we've chosen these markets intentionally and we'd rather be growing markets that are healthy, that are competitive than the opposite.

So I'll let Tom speak specifically where we're seeing the opportunities. And we are being very disciplined about pricing, right? Because we have one eye on margin and the other on volume. So it is -- you have to -- and of course, credit is always front and center. So you have to balance all those 3 things. But I would still say that it is -- the miss that we've had in -- specifically in C&I is not about missing on production. It has been mostly because of a large amount of runoff, some of it that we don't control, but some that we do control, which is pricing and credit and letting those things run our prudently.

But Tom, will you just add some more color to it, please?

Yes. I would say when you talk about opportunity in markets, Raj has asked me to find great markets that are not competitive, and I've not been able to do that yet. Every great market we're in is pretty competitive. But I think if you look at the pricing piece of it for a second, I think we have held -- there is a lot of price compression and there is a lot of price competition. When we look at pricing through the end of the third quarter, I was actually very happy with where we held spreads at the end of the third quarter. And we had some key segments that actually had a couple of basis points of spread increase for the quarter, and that might not seem too exciting, but this is a game of inches in keeping spreads at the level that we're keeping them is a big part of making the overall margin numbers we're looking at.

I think the environment is very good. I am always heavily impacted by ensuring that we're hitting overall production numbers because I believe as long as we're hitting overall production numbers, we will see growth over the long run, and we're also growing core relationships which are really, really critical to the bank. I think new markets, we've invested a lot in new markets, and we're investing even in markets that were maybe older markets that we were a bit underinvested in like Tampa in the past, we're investing in new producers in these markets. So I'm very optimistic about what we're going to see.

The environment is good. The business owners and executives are optimistic about what they see in the economy, and they're optimistic about what they see in companies. To some extent, it's a very complicated answer. But to some extent, mix plays a big role in what we've seen in the loan growth, particularly on the upper end of the C&I market more towards the corporate banking market in terms of a lot of times you're in deals and you're approving deals that have delayed term funding in it, they have acquisition components in it. So your production on some of these kinds of opportunities doesn't immediately turn in the funding, it almost looks like a construction loan in many ways. But I feel very good about what we're looking at in the very near term and into next year in terms of business environment, where clients are, where we're positioned in the market and actually how we're doing from a spread perspective and a competitive perspective in the in the market. I feel very, very enthused about where we are.

And I will reiterate a little bit shorter-term focus. Q4 has traditionally and historically been a stronger loan production quarter for us. So with respect to next quarter, in particular, that's another factor that comes into play.

We're a big Q4 player.

[Operator Instructions] Our next question comes from the line of Dave Rochester with Cantor.

Leslie, I know I've already told you this before, but it's been a real pleasure of the years working with you. You've been extremely helpful. Good luck in retirement and Jim, looking forward to picking it up with you.

Yes, absolutely. On expenses for next year, I know you may still be working on those at this point, but is there any reason for expense growth to accelerate next year just given everything you want to do in the new markets or upgrading systems, anything like that? And is there anything big that's coming that people should be aware of?

I mean, Dave, -- we're not prepared to give any 2026 guidance on this call. You'll hear all that from Jim in January. But the -- we've talked about some investments in teams and platforms and whatnot, but it's not like any giant with everything out and replace kind of investment that we're looking at. But we'll give more specific guidance on the January call.

That sounds good. I figured I'd try one last time. On deposits, if you could give an update on the title business on some of the trends this quarter, just from a customer growth perspective? I know you gave the balance of title, which is great. But it would be great to hear just what the customer acquisition was this quarter, I know you typically grow around 40 customers, plus or minus, and then how many customers do you have at this point? And what's your outlook there?

It's very similar to the run rate that we've seen over the last many quarters. I don't have the exact number in front of me, but I'm also looking at -- I've gotten an update on the pipeline for the next couple of quarters and very strong. So that title business is doing just great. And it's -- total customers -- we have about 10% market share, if not more, of the entire industry already. But I'll leave it at that. And that's the best we can tell because nobody publishes it through the perfect accuracy. But this business is growing. It's growing at the same speed as it has over the last 2, 3 years. And I don't expect anything to slow down -- slow us down. Someday hopefully the mortgage market will come back, and that will help us but...

We are not counting on it.

We're not counting on it. We're just -- when that happens, it happens.

It will be nice. Maybe just one last one on capital. At this point, trading below tangible book, it's about a 6% discount right now. It seems like a great time to sort of lean into that, your capital levels are very strong. Just wanted to get your thoughts there.

Yes. Like I said in my comments, we are being opportunistic with the buyback because there's been a lot of volatility in the marketplace. So the 10B51 plan we have out there is designed to take advantage of that volatility.

[Operator Instructions] Our next question will come from the line of Woody Lay with KBW.

Wanted to start on fee income. I appreciate you sort of highlighting the core growth trends. So it does get masked a little bit just with lease financing cuts down. So that growth rate is pretty impressive. And I know a lot of it gets lumped into the other noninterest income bucket. So I was just curious if you could sort of break down some of those initiatives? And given we're in the early innings, what are some -- what's the growth potential of those businesses?

Yes. I'll tell you what is in that, like the big buckets without breaking it out like dollars and cents but things that are in there. It's lending fees, syndication fees, capital markets, interest rate derivatives business, capital markets, FX business, which is very new and very small so far, but could be much bigger. There is capital commercial card purchasing card businesses in there. So all of that...

FX more broadly, just the derivatives.

Yes, exactly, the FX, the spot business as well. So all of those are investments that were made over the last 3, 4 years, some as recently as just 12 months ago, some about 4, 5 years ago, but they are all at different levels of their -- I'd say they're all in early innings. The question is, what is in the first inning, and what is it the second of thing? So there's a lot of room to grow. And probably the most exciting part of the bank right now, growing debt.

The lease financing business absolutely is something which is being [indiscernible] down as you can see, quarter-over-quarter, those numbers are coming down. And the deposit business -- the deposit service charges, that's more related to DDA. Some of the benefits of growing DDA get picked up at margins, some in that fee income, but that's also growing at a healthy clip, not at 24%, but it's also growing. So overall, fee income should grow very nicely, especially once the lease finance drag is behind us, which we're getting close to. So we're excited about this contributing to profitability in a meaningful way very soon.

Yes. And I would say all of those buckets that Raj mentioned are complementary to our core commercial lending and deposit businesses. And I think that's an important...

And there's like gain on sale type of stuff in there. We don't have a mortgage origination business that can go up and down on a moment's notice. It's all related to our core commercial business. You're making a loan, you sell a swap. You're doing some -- you're moving money around internationally, you sell an FX product. Purchasing card, it's an annuity. Once you sell it, it's a recurring income item. So we focus on trying to build stuff that is recurring, and it's closely tied to our core business. We didn't just go out there and say, let's start something totally different and just to generate fee income. So we don't have wealth management. We don't have some funky servicing income in here. It's very, very core to what we are doing with our clients.

And I do think the derivatives business, the FX business, the card business, the syndications business, all of those have tremendous growth potential.

Yes. I would add that if you look 2 years ago, we have invested a lot in syndications capability. If you look 2 years ago, we were normally either in a bilateral deal where we were the only bank or we may have been in a deal led by somebody else. Today, we are leading more and more deals on both the CRE side and the corporate side and that's what's driving the syndication revenue.

And FX is brand new. It's a baby business not even making today a pretty insignificant contribution, and that's one of the areas where we see the biggest growth potential in the markets we're in.

We're in high international business markets where you have a lot of international trade. And I think this gives us the opportunity to focus on when you're in places like Miami and New York and Atlanta and Dallas, you're in big international trade markets and having this capability allows us to not just take advantage of sort of daily transactions, but to focus on this kind of a client base that will drive that revenue.

Business we can win that we could have won when we didn't have the capability as well. And like I said, Jim will now be looking forward to the day when those numbers are all big enough that we have to break them out on the P&L. Right now, they're still new and they're a bit lumpy, but...

Really great color. I appreciate it. And obviously, there's a bunch of sub verticals there, but if I kind of just track compensation from a year ago, it feels like the fee income growth is growing a lot faster than the expense side. So how do you expect sort of like the efficiency ratio impact of those businesses. It feels like it should help drive improvements.

100%. I think all of those businesses are very efficient from that -- from a cost revenue relationship perspective without question. And I do expect operating leverage to continue.

All right. That's great to hear. And then last, I appreciate the updated disclosures on the NDFI lending book. I was just interested on sort of how that portfolio has grown over the past several years. Has it been pretty stable? Or has it -- just any note on the growth trends over the years in that specific portfolio?

Yes. I'd say there's been modest growth in it.

I don't have all the numbers in front me, but I would agree with that.

I mean there are certain segments that have grown more. There are certain segments that have grown less when we look at that, we have grown more in business-to-business and sort of real estate underlying businesses, and we've reduced substantially the portion of it that was consumer lending related over the last couple of years as we had more concerns about what was happening at the consumer level in some of those. So the overall bucket has grown modestly, but there's been some shifts within those buckets to kind of reflect portfolio strategy.

Congrats Leslie on upcoming retirement. Really appreciate all the help you have given the [indiscernible].

[Operator Instructions] Our next question is going to come from the line of Jared Shaw with Barclays.

Congratulations also Leslie. I guess maybe on the CRE side, where is your appetite for incremental CRE here, multifamily balances were down quarter-over-quarter. The office was down quarter-over-quarter, where do you see sort of opportunity and within those subsectors?

I would say it's in 3 areas. I think the retail market has been very strong, particularly the grocery-anchored urban market in every market that we're in. We've seen good growth in that asset segment over the last 18 months, 24 months. We continue to feel good about the industrial segment, which has had good growth over the last few years. Industrial is performing well in virtually every market that we're in. And even in the Northeast as well in places like New Jersey, the industrial market is very good.

And multifamily has shifted a bit because we have a little bit less stabilized lending and a little bit more in construction. When you look at the construction line, that's virtually all multifamily, most stabilized loans are now moving to permanent markets, but we still see in all the markets that we're in, for the most part, particularly in the South, you're still seeing good population migration. You're seeing good development of new multifamily. And when you look at the big picture data around the cost of owning versus the cost of renting, in most of the markets we're in, we still see a very big differential in cost of owning versus cost of renting for homeowners. So we see continued growth in multifamily in virtually all of the markets that we're in.

So those would be the 3 primary points of emphasis that we would have. We will still be open to a little bit of medical office but I would say the big 3 will be retail, industrial and multifamily.

Yes, Jared, I think the decline in multifamily this quarter wasn't anything intentional or by design. It's just the way the chips fell for the quarter.

Okay. All right. Great. And then on the nonperformers in office, I know it's relatively small numbers overall. But what drove sort of the incremental weakness because that uptick in nonperformers -- was it vacancy or rate?

I don't even know if I'd really call it an incremental weakness, Jared. I think it was just episodic as these things work their way through the resolution process. I don't think it was a trend or if anything, looking forward over the medium term, I would expect it to trend down as opposed to up. I wouldn't make that comment necessarily for any one quarter specifically. But I don't think it was a trend or incremental weakness, I think it was just the kind of episodic things that are going to happen as we work through that portfolio.

Yes. There's a small batch of loans -- if you look at the overall portfolio and look at the average debt service coverage ratio, obviously, the overall portfolio is performing pretty well to be over 1.5 but there are a handful of assets that can move up or down and there are situations where you lose a tenant in any one building, and now you're an abatement period even if you bring in a new asset that things can shift up and down.

But overall, when we look at the whole portfolio, which I'm staring at the print out right now, the general trends in most markets are improving each quarter as abatements runoff. That's the big driver is abatement runoff.

Yes. And I would say the one we took the charge-off on this quarter, Jared, that's one that's been sitting and work out for a long time, and it finally just reached its final resolution and yes -- so that's what was going on with that one.

Okay. And then just finally, going back to the capital discussion, we've seen a steady increase in capital, CET1 and TCE. And I guess if we're assuming that the buyback is more limited and opportunistic, any other uses of capital we should be thinking of, whether that's accelerated increase in dividends or a special dividend or M&A? And I guess, what would be the upper end of capital where you would start to be more interested in the buyback versus opportunistic?

Yes. I don't think my answer is going to be very exciting. It's going to be the same that I've given in the past, which is, yes, dividend -- growing dividend is a priority for us and that usually we do early in the year. So stay tuned for that. Special dividends are not on the table. We have gotten feedback from investors that has been very clear that don't do special dividends. Buyback is certainly something that is one of the tools that we will use, do opportunistically. M&A has never really been a lever for us as demonstrated by our history of building the bank organically.

So my #1 priority would be to grow. Right, organic growth. And -- but if it is not that, then buybacks and dividends, but not special ones, it's regular ones. So those will be the way to deploy it.

And the only other thing I would add to that, Jared, I know we're being a little maybe vague, but we're right in the stick right now of our annual business and capital planning process. So probably maybe a little bit more to say about this on the January call when we give you guidance for 2026.

[Operator Instructions] Our next question comes from the line of Timur Braziler with Wells Fargo.

Looking at margin over 3% return on equity, if you round up, you're at that 10% level. I know you'll give us more detail as to the margin trajectory on the January call. But for the 10% return on equity benefited a little bit this quarter, maybe from a lower provision. But is that pretty sustainable here going forward? Are we kind of at that level where we're going to continue grinding that higher? Or is there going to be potentially some kind of back and forth with the either provision expense or PPNR or whatever else?

I expect it to grow. .

Yes, 100%.

I expect margin to grow. I expect ROA to grow and I expect ROE to grow. Absolutely.

And I would say with respect to provision, I don't think it was abnormally low this quarter because we have largely a commercial lending base and things can be episodic, you can see some volatility quarter-over-quarter. But I don't know that I would characterize this quarter's provision overall as being abnormally low in terms of the range of what one could expect.

Okay. Got it. That's good color. A couple on credit, just the $26 million NDFI loan that was called out for the real estate investment fund. Can you just give us some more detail there, what's driving that NPL status and then...

The underlying asset or office?

The underlying what?

Real estate assets or office. That's the answer. And that's the only one we have with an office concentration.

Okay. And then the bucket that B2C -- I guess, how big is that bucket? And just in terms of underlying collateral there? Is there any exposure to the subprime consumer. Maybe just talk me through kind of what's in that bucket more broadly.

Yes. The -- if you look at the B2C...

Which is in the other in that chart.

Yes, that portfolio is relatively small. And it's been substantially reduced over the last few years.

Okay. But in terms of borrower type, is there any kind of distribution either by FICO or collateral type?

It's literally a handful of loans.

We've been negative on the consumer lending space for a couple of years. So we've been working that portfolio down, which is why it's not even making the chart in that other, there are a lot of different categories, but -- all of these are tiny. But it's -- if we end up this chart 2 years ago or 3 years ago, that would have bigger and would have stood out here, but now it's a rounding error.

We say handful, there's only one handful.

Got it. Okay. How about on the commercial side, commercial delinquencies ticked up across the board. You had the charge in reserve for one C&I credit, but allowance looks like it's down kind of a couple of quarters in a row on the C&I book. Can you just maybe talk through -- is that an indication that maybe we're getting through some of the more kind of bring in credits and the outlook is improving indicative of the reserves or -- is there maybe a chance for commercial allowances to catch up on the back end of the year just given some delinquencies?

So I really -- I'm pulling up the slide now. But I think the commercial reserve overall was pretty consistent quarter-over-quarter. The slight downtick in C&I was really because of the charge-offs that we took for the one loan. So I don't think really there's anything changing at a high level about how we think about the reserve for that portfolio. I think the delinquencies are exactly what you said. They're just the normal ins and outs. I did actually ask for a list of them. It's a couple of loans and I don't think there's anything going on in there that feels like a trend.

Got it. And then just last for me. Raj, one of your Southeast peers made a comment last week that there's a lot more banks potentially for sale in the Southeast. Maybe just talk through that dynamic? Are you getting more inbound? How are you just thinking about the broader M&A environment in the Southeast?

I think mostly, I'm getting calls from investment bankers trying to do the best that they can to they're feeding the formal sentiment, if anything else, like everybody is doing a deal. Everyone's -- you better be talking. So that's the sentiment, I would say, it's mostly driven from [indiscernible] bankers. Having said that, I will say there will be more deals I've been saying that for a better part of the year that there's a pent-up demand for deals. And we're seeing it, and we'll see more of it in the coming weeks, months. And as a buyer, you know where I stand, we want to build the bank organically. We've had that stand for ever since we started the company.

But any other deal that makes sense for us, we're always open to having a discussion, but we don't spend our day-to-day thinking about a deal because if you do that, you're not going to build a company. So we're focused on building. And if a deal ever comes along that makes sense, whether it's tomorrow or 10 years from tomorrow, we're always here to talk about it.

Great. And Leslie, again, just echo the congratulations on retirement.

Just a quick follow-up on your delinquency question in the C&I bucket. It's actually 3 loans, and they've been in the criticized classified bucket but paying for a while and not unexpected.

Nor are we seeing any trends like [indiscernible] perspective.

[indiscernible]

[Operator Instructions] Our next question comes from the line of Jon Arfstrom with RBC Capital Markets.

Congrats, Leslie. Just a few follow-ups. This can be rapidfire as well. But has your buyback appetite changed at all? Or is it just your approach and timing?

Our approach.

Yes. Okay. And do you want to grow the balance sheet over time, Raj? Or are we still kind of in the medium term in the loan mix shift mode?

We certainly want to grow the balance sheet. Hoild one for one second.

[indiscernible] music. Emphatically, yes, we want to grow the balance sheet. .

Yes. That's the investment bankers calling, Raj.

They are entertaining, if nothing else.

Okay. And then I think I know the answer, but -- you touched a little on CRE optimism and some slower utilization as well. But is borrower sentiment better than it was a quarter ago. Is it generally improving at this point? Or is it kind of the [indiscernible].

I wouldn't necessarily compare it to a quarter ago as much as that compared to the beginning of the year. There was a lot more concern about tariff issues and way the economy was going to head and would interest rates decline as much as people expected. That was particularly in reinvestors mind. So I would say clients have a more clear and optimistic view that's getting a little bit better every day.

Okay. Good. I guess, Raj, on the balance sheet growth question, I guess, back to that, we were interrupted. But medium term, do you expect to grow the balance sheet? Is it still a near-term mix shift? What are your thoughts there?

Yes. I expect the balance sheet to grow in the medium term. I do expect the balance sheet to also keep changing the mix because we're not going to stop on the resi runoff. So that will keep happening, but I could eventually expect C&I growth to overtake that runoff.

[Operator Instructions] Our next question will come from the line of David Bishop with Hovde Group.

Congrats again, Leslie, we've enjoyed working with you over the years, and I think I will cry if you tell me [indiscernible] is leaving as well. A quick follow-up question on the DFI. I appreciate the color there. Just curious in terms of the granularity of both the other and the B2B NDFI, is that comparable average loan size to the rest of the commercial bank? Just curious if you have any granularity there you can share?

I would say if you looked at the NDFI portfolio, the average credit size is maybe slightly larger but not much.

It's pretty comparable.

Pretty comparable. It's a fairly granular portfolio as you look at the entire -- like the overall loan portfolio is -- we're generally prudent about taking very large exposures in credits. And if you look at this portfolio or the remainder of the whole portfolio, you'll see a lot of midsized credit exposures. You will not tend to see extremely large individual credit exposures.

And is it fair to say, Tom, that we're really not in the business of where we're really not concentrated in blind to private credit cost.

Yes. No, no, we're not at all. I mean, our B2B exposure would look like a small handful of BDC corporations, which are very modest facilities in size, and we would have credit facilities that are predominantly to real estate investment funds largely in the Northeast that have been long-term historical clients and major depository clients of the institution and were secured by pledges of assets. These are not like -- not to say anything about -- negative about any of the large private credit funds, but we're not in the $2 billion fund to whatever fund you want to pay, that's an unsecured facility for supporting their general obligations. We're not in those kinds of deals. .

Got it. Appreciate the color. And then, Tom, maybe a follow-up question or final question for you. You noted some of the headwinds on the -- some of the runoff in the C&I segments and such. Just curious, I don't know if you have a dollar basis or maybe what inning were maybe in terms of runoff from some of those maybe noncore portfolio?

Yes, I'd say we're in the bottom of the ninth inning on that. We're pretty much finished with the work that we wanted to do from a rate perspective or a risk perspective or client focus perspective, we're at the very bottom of the game. .

[Operator Instructions] Our last question will come from the line of Stephen Scouten with Piper Sandler.

So Tom, your last comment was encouraging kind of similar to what I was curious about. Thinking about you guys in 2013, '14, '15 was a strong double-digit kind of loan grower. And loans have basically been flat since 2019. So what's kind of the spectrum of how we can think about potential loan growth if we really are kind of past all the needed remixing? Is it kind of a mid-single-digit run rate in a perfect world? Or could it be better?

We'll give you the exact guidance in January.

But expect growth.

And I would say, expect balance growth across the segments that we're in, across geographies that we're in. And when you look at the CRE book, expect us to keep a very balanced portfolio. And as the overall size of the bank grows, the CRE book will grow, but it will remain reasonably in line with a 28% to 30% kind of size range. And when you look at the asset distribution that we have today, it will be evenly spread among major asset categories. We will not be overly indulgent in chasing any one asset category. It will be a balanced growth portfolio.

Got it. But it sounds like 2026 could kind of be the inflection point from -- versus what we've seen in the last 5 or 6 years in terms of flow in the balance sheet growth. Is that fair to say?

I think that's fair.

Yes. And you should remember during that 5- to 6-year time frame, we were taking the leasing portfolio from $2 billion to a couple of hundred million dollars, and we were taking [indiscernible].

[indiscernible] regulated multifamily.

No, that dropped dramatically by...

Minor matter of a global pandemic.

$3-plus billion dollars, and we're also happy to be sitting where we are.

Yes. No, for sure. I think that's why the remix question is important to know if that process is kind of completed after all the puts and takes. And then maybe last thing for me. Just obviously, we've seen a bit of an uptick in the banking space in terms of more activism from investors. I'm kind of curious if you've seen any incremental pushback from your investors around the path and the pace of progress and kind of what your response would be if anyone were to get more aggressive in terms of asking you guys, where is profitability and what's really the pace of improvement to come?

I'll take the first part, and then I'll let Raj take the second part. We have not been getting any increased level of pushback [indiscernible] what we would say if we did.

We engaged we're -- we're happy to engage with anyone. And we actually reach out and do as many conferences as we can and try and go see investors as often as we can. So I want to make sure is that our investors understand the approach that we've taken and the progress that we're making. I wish I could just give you a catalyst that tomorrow, everything will approve. This is as Tom said in his earlier remarks, this is a game of inches. But that's how you build a franchise. It's not something this is a -- that's a bolts business, one plant at a time business. And -- but that's how you build something which sustains in value for a long time. So we're open to engaging with any investor who wants to talk to us, and we do all the time. And when we sit down and talk to them, I rarely have I come across an investors saying, I don't agree with what you're doing.

Yes. No, they've been very supportive of what we've been [indiscernible] asked some of the same questions that you guys are asking what's our more medium and longer-term thoughts about growth. but we haven't gotten -- I think they've been supportive of what we've done thus far.

Perfect. Appreciate the transparency and Leslie, congrats on the retirement.

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

Thank you all for joining me and joining us, and we will talk to you again, minus Leslie, in 90 days. She'll be [indiscernible] be asking questions. Thank you so much. But if you have any more detailed questions, you know how to reach either Jim or Leslie, feel free to call us. Thank you. .

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