BankUnited (BKU) Q1 2026 earnings call transcript

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 first 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 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 Ving.

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 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, 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, you know, 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 deep in the first quarter, they start to rebound back late in first quarter, you know, 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 stabilize in 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, starts 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 and expenses, but that's not just to us. 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 ROA. So what happens when you look from Q4 to Q1, you see a pretty meaningful drop in earnings, in ROA, in 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 the day before I sit down with a yellow pad and I handwrite what I'm going to say. I had this deja vu moment. Like, I think I've done this before. And I went back and I looked at my notes, surprisingly, I actually still held on to my notes from my call a year ago. And it wasn't a deja vu moment. It was that I've been here before. This is exactly what happened a year ago. So I just quickly jotted down what happened Q4 last year to first quarter of last year. So Q4, 24 going into 25, what happened to earnings, EPS, ROA, and all that stuff, and I compared it to what happened this year.

And, you know, our earnings quarter over quarter declined by 11 million this time last year. This year, they've declined 10. EPS declined 13 basis points this year, it was 11. 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 moral 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 all 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.

So, with that PSA out of the way, let me get into the numbers. So, earnings of the first quarter came in at $62 million. EPS was 83 cents, and I'll compare this to first quarter of last year, like I just said. Last year, earnings were 58 million, and EPS was 78 cents. NIM was at $299.00 last year at this time. NIM was $281.00. 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-brokered deposits grew to $277 million. We used most of them to pay down brokerage, so net growth was about $7 million. But again, like I mentioned, should be looking at annual numbers or trading 12-month numbers. So over the last 12 months, non-brokered deposits grew by $1.4 billion. NIDDA grew by $875 million. I would actually even go further and say period end balances don't mean as much as average balances do. An average NIDDA grew by more than a billion. I think it was a billion fifty. I'm looking at Jim to confirm, but I think it was a billion fifty.

Talking of loans, loans over the last year grew by 906 million. This quarter 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 made in the last three 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 three 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 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 as they should. But 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 2.99%. 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, at least for some of the stuff for Tom and Jim to talk about. Oh yeah, we did buy back a million three 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. Yep. So I have a little bit of my own public service announcement today as well. It's a day of PSA. I wanted to follow with Raj. I want to talk about deposits first and deposit strategy.

Before I dig into some of the numbers, some of which Raj has already covered, I wanted to back up a little bit and just talk about what are we trying to do with the overall deposit and client book over a longer period of time and how is that performed. So when I look at it, I would say we have three major goals. One is to be a top-tier performer in NIDDA growth. And our NIDDA, as you know, is largely commercial NIDDA. So when I look at that number, as Rod 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 the billion, 50 million that Raj mentioned.

So, you know, strategy kind of number one 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, you know, 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 sicky. The last part, which is really the hardest work, is managing deposit cost. And you'll see we had a decline in average deposit cost for the quarter, and I'll go through those numbers. But, you know, 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, you know, and we are consistently doing that.

We just, Roger and I were talking now, we have a series of rate cuts that are going in this week on the deposit book. 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 three 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 six basis points from the previous quarter from 218 to 212. Wholesale funding declined by 70 million from the previous quarter and 749 million from the previous year. As I said, service charge revenue is 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. CNI 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. The 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 Cree that I typically make. The Cree portfolio is now just under 30% of the overall book, and within the Cree book, if you look at page nine 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 Cree book is important You note that the total weighted average debt service coverage for all property types is 1 and the average loan is 55 So portfolio continues to perform well.

This is probably the last quarter I'll actually point this out, but, you know, 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, you know, 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, you know, 1.78, it's a pretty strong performing portfolio right now. So that's my coverage on Cree, 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 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%, EPS was up 6%, and NIM was up 18 basis points. So, you know, the trends year-over-year are really good and definitely in line with the guidance that we gave you at last quarter.

So, we put in the press release just for full transparency. We do want to call out a couple notable items this quarter. The impact was negligible across both of them as they largely offset each other. But just to highlight them, we did have a variety of year-end compensation-related items. And that was largely just due to the really strong performance of the company 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 five, just a chart for the last few years, so you could easily see those trends. I thought it would be helpful. Now, you know, the dip from first quarter to fourth quarter this year was, you know, 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 flowed 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 broker 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 pre-fund some purchases and things like that because of the situation in the marketplace.

So we had a higher reliance on broker 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, you know, 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 11 percent 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, non-performing 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, you know, 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 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 and 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 and 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, it 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 CNI portfolio of late. And, you know, 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 risks in that portfolio. On the non-interest income and expense side, just a few quick comments. Non-interest income was $25 million. You know, it's up $2 million from a year ago. If I normalize for some of the securities gains, now, we always have securities gains. You know, they bounce around from quarter to quarter. But if I normalize for that, non-interest 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 loan clones, when syndication fees occur, size of the types of swaps that are booked. 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've 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. They go into new markets, you know, 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.

Thanks, Jim. Just one thing I forgot to mention on credit. So, you know, 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 flip, we won't have any NPS left in a couple of quarters. So, I expect NPS to reduce second quarter, third quarter, into fourth quarter.

Another anecdote I'll give you, one of the things I do generally before this call, a day or two before, is I talk 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 three quarters. And I measure the success of the call by the length of the call. The longer the call is, the worse I feel, because generally he's walking me through names of things that he's worried about. But this call, I had to actually ask him, what about this loan? What about that loan? And he was like, no, things are going fine.

So the call lasted maybe all of three minutes or four minutes versus last call three months ago lasted a lot longer. So, you know, it's only three weeks into the quarter, but I'm feeling much better about credit and feeling much better about how much lower our NPAs are. And, you know, 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. Thank you.

Good morning, Dave.

Good morning.

Sure. Actually, we're bringing in more than 40 now. So our average over the last three 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. Yeah.

And those relationships tend to be 2 to 3 million on average in size, right? On average, it's about three, yeah, around three million bucks, give or take, yeah.

Yes, we have added more people in fulfillment in the back office. We've added more people in the front office. So clearly, yes, you know, we are also, you know, we have two large technology projects going on, which will impact not just that business, it will impact the entire bank, but we're upgrading our treasury platform, and we're upgrading our payments platform. Again, like I said, those are infrastructural things that every business line will use, but NTS uses them as well.

Yeah.

I'll just say average deposits are up year-over-year in the NTS business, so up meaningfully. Yep, yep.

But 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? Yeah, there is certainly more competition today than a year or two ago. 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. I've seen very small community banks trying to play around in this space, but we have an eight-year head start, nine-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 mode 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 that 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, you know, iron sharpens iron.

Yeah we made a pretty significant investment in the back office and fulfilling you know in customer service and what have you because the book had grown quite rapidly And if you just you know when things are growing it 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 and makes them happy in the long term so we don lose them That was a pretty big investment we made last year And this is a heavy operational business.

Thanks. 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 that guidance, you were assuming two cuts. If we don't get cuts, can you walk us through the ability to get to that 320 margin at the end of the year? Yeah, our balance sheet is very, very neutrally hedged. So, very, very slightly asset sensitive. So, just mathematically speaking, it probably should give us a basis point advantage if 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, 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 CNI, 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 moves, you know, 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 you miss our NIDDA guidance, if you're not able to grow, that will obviously be the single largest driver, the single largest risk we would have, and the second would be loan pricing and credit spreads.

And then on the provision, you called out the $8 million qualitative overlay. Should we think about that as just, you know, 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, you know, more of that $68 would be front-end loaded versus at the back-end. So you can't just take the 68 divided by four and project it out, but skew it more to first and second quarter.

Yep.

Our capital market 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 syndications. You're not going to syndicate a $10 million loan, but we will syndicate a $60, $70, $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 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 episodic also. It's not like a dollar 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. However, that can 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 two.

I would also add, if you look at the number of clients that we have added on to the FX platform in the last six months, it's an impressive number. And I think even the raw number, while Rod 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. You know, 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.

You know, 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 do 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's extraordinarily knowledgeable about every basis point in the swap transaction. And 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, you know, seasonally through the rest of the year. But also the mixed point tends to be very, very important because that can vary by three, four 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 will be good the remainder of the year.

Just one last thing to add to it. I mean, commercial card revenue was up good, you know, strongly year-over-year. Again, it's small, but it's growing. And then one other comment that Raj said, you know, just with it being in the SWOT business very tied to the lending business, you know, the activity we saw this quarter versus a year ago was very consistent. You know, just last quarter, we had a couple, one or two larger transactions that drove a little more revenue a year ago versus this time. So, the activity is there. It just really depends on the size of the transactions in any given quarter.

And it's hard to predict exactly quarter by quarter, but generally speaking, I would say the charge-offs should be front-loaded. The two industries that you asked about, one is healthcare, and the other was transportation.

So those two 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 drives last quarter were in two completely different industries from this quarter. Yeah, yeah.

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 is money where we do a lot of payments, which is why this money sits in our pipes, and people use us not because of the price but because of the capability that we offer them, and we continue to gather market share. So I'm not worried about, you know, rates could be 50 basis points higher, 50 basis points lower. That will not impact our NIDDA outlook. That will have an impact on, you know, interest-bearing deposits. And, you know, if the Fed moves down, it gives us an excuse to go back and reprice the deposits.

And when the Fed is not moving, it's just harder to just, you know, 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. So it's just as easier as the Fed is moving. So I'm not, you know, 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.

Yeah. That's across all business lines, specialty, geography, whatever segment that it's in, it's driven by that. Probably 75 to 80 percent of the growth is driven by that.

Thanks. Yeah, with cuts it's 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, you know, 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, you know, get it even to go down a few basis points. Not easy. That is really hand-to-hand combat, you know, client-by-client, portfolio-by-court portfolio. But we are attempting to do that. But, you know, 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 six 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 it's just rates have gone up two 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'd have just no growth but NIDDA, all growth NIDDA. That's not possible, right? We will have interest-bearing growth as well. So, but it is, you know, our job is to make sure interest-based costs stay within reason, maybe come down just a little bit.

But it'll be hard to make them come down a lot if the Fed is not moving. But if you don't do the hard work, they'll naturally have a tendency to drift up, and we don't want that to happen.

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

I understand. I'm nicer. She's listening, I'm sure. What I will do is I will just point to what happened last year. In fourth quarter of 24, we were 284. We came down to 281 in the first quarter, and in the second quarter, we went up to 293. Then we went up to 3% in the third quarter and to 306 in the fourth quarter. Now, you know, you can go and look at that pattern, right? We have a pattern of dipping down and then coming back, you know, 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.

Jim and I both have day jobs. 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 trying to steadily work towards the target of about 11.5% set one. And that's the center of gravity that we're working towards.

So that incremental, like, $65 million of improvement, could you just give some color on either the resolution or upgrades there?

Yeah, I would say if you look at that, you have a couple of fairly large loans that moved out of the bank. You know, they were either refinanced in the longer-term capital markets, or 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.

Yeah, and then maybe just on the outlook that NPAs should continue to decline from here, you know, Middle East represents some uncertainty and it kind of whipsaws back and forth on, you know, 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 in a criticized classified bucket. We're looking at them very granularly to see where is performance getting worse or better or stable.

So my assessment on NPAs 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. I'll give you an example. Just two days ago, there's an NPA for about $17, $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 third week of June. So, I won't count the money until it actually, the wire comes in, but it's a pretty good indicator that $17 million will get resolved, and it'll be off our books before the end of second quarter.

So it's things like that, right? There's another one in the CNI space which has, you know, 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, you know, how that business was doing, but now we've seen things they've done in the last two or three 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.

Yeah, and 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 a company. I mean, as Rod 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.

Yes. No, it's included.

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?

You know, I would say, you know, different parts of the business operate differently. You know, when we say C&I, it really encompasses kind of larger middle market corporate lending and encompasses commercial lending for more midsize 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's the right word I'm looking for, fanatical about kind of managing segments and keeping them within, you know, 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 Cree side. So I expect that we'll see, you know, good quality C&I growth over the rest of the year.

We're seeing, you know, good penetration in new markets that we're in, you know, particularly the southern markets, the Atlanta, the Charlotte. We just had a party yesterday for our new Charlotte office and, you know, had really good responses. We expect Texas to continue, you know, to grow well. So I think that it's broad, but I think that there's going to be good market segments for us to grow in. But it's a very competitive business right now.

Yep, okay. And we're trying very hard to manage this margin issue versus, you know, the volume issue and make sure that we've got good pricing discipline.

It sounds like you've got some rate cuts coming, 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, you know, it's not like there's 30 basis points of room left here to cut. We will probably, you know, the existing book will probably cut, you know, 5, 10 basis points here or there. But 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, the broken 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 or the remaining of the year.

But it's, you know, we'll cut where we can, but it sounds 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, you know, and how many painful meetings we have over this. We torture our people and we torture ourselves. Actually, the next meeting is on Friday. Working through this, it's like, can we go down by three basis points on this account? And if it's a large account, three 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.

Correct.

But, you know, we tried to factor that into our guidance. So, really dependent if it's worse or better than what we projected.

Yeah, that'll 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 repricing this year that were part of an older fixed rate book that we had of loans that were done seven years ago or whatever they were done at lower. So, you know, we're looking at probably 70% 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, you know, asset yields kind of across the board.

Yeah, you know, 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 know, you would say have a very front-end direct impact from it. But, you know, every consumer is impacted by, you know, rising energy prices, and to some extent, any rise of that derives in food consumption type prices. So, you know, we do not have heavy consumer lending portfolios, you know, kind of, you know, B2C type lending portfolios. We don't have much of that. So we think we're, you know, reasonably insulated from that, but, you know, it's going to impact every consumer, and that drives 70% of, you know, the economy in terms of consumer expenditures and GDP.

So it sort of depends on severity and duration.

Yeah, and duration.

Duration, yeah. We're watching it closely, you know, and we'll react quickly if we start to see something that's concerning.

Okay. Hello?

Well, we look at Moody's primarily, the different Moody scenarios, and obviously internal views as well, overlays. But again, really 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.

Yeah. Yep.

If I was to pick one thing, that would be it. We deliver on that, everything else will take care of itself.

All right. Thank you.

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 you missed anything, of course you know how to reach me or Jim, we'll be available. Thank you so much. Talk to you again in 90 days. Bye.