BankUnited, Inc. (NYSE:BKU) Q3 2025 Earnings Call Transcript

BankUnited, Inc. (NYSE:BKU) Q3 2025 Earnings Call Transcript October 22, 2025

BankUnited, Inc. beats earnings expectations. Reported EPS is $0.966, expectations were $0.84.

Operator: Good day, and thank you for standing by. Welcome to the BankUnited, Inc. Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Jacqueline Bravo, Corporate Secretary. Ma’am, please go ahead.

Jacqueline Bravo: Thank you, Michelle. Good morning, and thank you, everyone, for joining us today for BankUnited, Inc.’s Third Quarter 2025 Results Conference Call. On the call this morning are Rajinder P. Singh, Chairman, President and CEO; Leslie N. Lunak, Chief Financial Officer; Jim Mackie, Incoming Chief Financial Officer; and Thomas M. Cornish, Chief Operating Officer. Before we start, I’d like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect the company’s current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries, or on the company’s current plans, estimates, and expectations.

The inclusion of this forward-looking information should not be regarded as a representation by the company 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 statement, whether as a result of new information, future developments, or otherwise.

A number of important factors could cause actual results to differ 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. Rajinder P. Singh.

Rajinder P. Singh: Thank you, Jackie. Welcome, everyone. Thanks for joining us. Third quarter results were pretty solid. I will try not to get into the level of detail that Leslie and Tom will but 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, you know, as good a quarter as I could have expected even just a month ago. This is, you know, if there if there’s oh, by the way, deposits did exactly what we’ve had expected them to do, almost to a T. Loans CRE was up modestly. Mortgage warehouse was up nicely. C and I was down, unfortunately, not because of production, but of 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 is 3% the destination. This was just a waste of, we want to get further, and we will get further, and we’ll give you more guidance in January where margin can get to. In the short term. ROA of 82 basis points is improvement over last quarter certainly a big improvement over last year. ROE of 9.5%, EPS of $0.95 I think our I checked a couple of days ago. The consensus was 88¢. So happy to beat that. Capital continues to grow. Set one is now at 12.5%, and tangible capital book value per share is up to $39.27 I think total book value per share is now over 40.

The buyback is in place, though we didn’t really hit much of it, 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 strategy because the amount of volatility we see in the marketplace, we think it’s better to be more opportunistic and lean in 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. You know, criticized, classified, NPLs, our ACL, our charge offs, everything was like when I first looked at the numbers, I I thought maybe there a typo, but it’s not. Everything has been just very, very flat this quarter.

So we have put in some new disclosures around NDFI, Leslie and Tom will walk you through because those are the kind of questions we’re expecting. But, again, there also there is not much sensational news either. But with that, I’ll turn it over to Tom, and and then Tom will turn it over to Leslie. Great, thank you, Raj. So before I dive into a little bit of details about

Thomas M. Cornish: 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 have 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 an 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 commercial teams across the bank. We’ve got very good pipelines in the real estate team. Real estate’s 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 CRE 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 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 $28,000,000 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 and outgo during the third quarter. Overall, are pleased with $1,200,000,000 in non brokered deposit growth that we’ve had over the last twelve 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 and I loan portfolio declined by $69,000,000 for the quarter, CRE being up 61 while C and I segment declined by 130,000,000 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 in production can outrun as we move forward. Mortgage warehouse grew by $83,000,000 in the quarter, which was a good quarter.

And the resi franchise equipment in the 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 1,300,000,000.0 in NDIF exposure as of ninethirtytwenty five. 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. Are almost all predominantly investment grade very high risk graded from a quality perspective portfolio.

And our B2B portfolio is predominantly secured lending facilities that we have to 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 September only one loan was on non accrual for 26,000,000 through a real estate investment fund. Brief comments on CRE exposure. Our CRE exposure totaled 6,500,000,000.0 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 $1,000,000,000 in every major asset class from retail to to industrial to office, including medical office, and to multi family 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 degree portfolio was 55%. Weighted average debt service coverage was one point seven seven, 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 two 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 $122,000,000 or 7%. From the prior quarter end criticized classified CRE loans declined by $41,000,000 in the third quarter primarily as a result of payoffs and pay downs.

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 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.

Leslie N. Lunak: Thanks, Tom. Just one quick point. That $41,000,000 decline was specifically CRE office, not CRE overall in size and classified. So to reiterate, net income for the quarter was $71,900,000 or $0.95 per share. Net interest income was up $4,000,000 and as Raj said, we’re very happy to report that the NIM was up seven 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 in 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 Average NIDDA grew by $210,000,000 and average interest bearing liabilities declined by $526,000,000 On average, higher cost brokered deposits were smaller part of the funding mix this quarter. We did redeem the $400,000,000 of outstanding senior debt in August, that improved the funding mix from a cost perspective. The yield on that was 5.12. So that was helpful also. The average cost of interest bearing liabilities declined to three fifty two from three fifty seven, and the average cost of deposits declined by nine basis points to 2.38 The average cost of interest bearing deposits was down eight basis points to three forty And on a spot basis, the APY of deposits continued to trend down to two thirty one and with the rate cuts that we expect in the fourth quarter, that trend should continue.

The average rate paid 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 the queue. The average yield on interest earning assets was flat at five thirty eight this quarter. While the yield on loans decreased marginally, the yield on securities was up a little bit to offset offset that. All of our guidance assumes two 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 $11,000,000 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.

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 and I credit and, to a lesser extent, one office loan. That C and I credit appears to be idiosyncratic in nature, 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 14,700,000.0 The net charge off rate was 26 basis points. For the nine months ended September thirty and twenty seven basis points for the trailing twelve months, so pretty consistent.

And those net charge offs primarily related to those same two loans. The one C and I loan and the one office loan. The commercial ACL ratio was pretty consistent with last quarter at 135. 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 3,000,000. Of $136,000,000 in total CRE non accruals, 119,000,000 is office and the other 17,000,000 is New York rent regulated multifamily. NPA ratio was pretty flat quarter over quarter, 99 points this quarter compared to 98 last, excluding guaranteed SBA loans. Nothing of note to point out in non interest 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% as some of our commercial fee businesses start to gain traction.

So I think I think that’s very noticeable. We’ve been pointing that out. Think that 24% increase is worth noting. And that’s early innings for us? Yes. Very much so. Yep. And noninterest expense remains well controlled. 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 hit that double digit guidance that we gave you for the full year. Total loans likely flat year over year. And core C and 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 know, the securities portfolio will be down in Q4, but still up slightly year over year. Non interest 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 with that, I will turn it over to Raj for any closing comments.

Rajinder P. Singh: No. Listen, I’ll I’ll I’ll close with where I started. And I’ll just add one thing to 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 and but not again, it’s a it’s not a destination. This is just this maybe the first or the second inning what we wanna do in the in the in that category. So we’re very off you know? Optimistic about long term prospects for fee income. But like I said, I’ll I’ll end where we started you know, 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 call. And I talked to her yesterday. I wanted to make sure she tear up. I am a little bit. She has been my partner as CFO for thirteen years. Yep. Thirteen years. So they’ve come you know, they’ve gone by very fast. But I just wanna 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 will be a friend of the company forever. So I’ll probably still reach out to her for advice into next year.

Wherever she is traveling. But Good luck finding me. I’ll find you. I’ll find you. But but thank you. Thank you for everything you’ve done for the company and and for me specifically.

Leslie N. Lunak: 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 gonna miss the most. With that, let’s, turn it over, for

Rajinder P. Singh: Q and A.

Q&A Session

Operator: Thank you. Star one one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment while we compile our Q and A roster. Our first question is going to come from the line of Benjamin Tyson Gerlinger with Citi. Your line is open. Please go ahead.

Benjamin Tyson Gerlinger: Hi. Good morning.

Leslie N. Lunak: Good morning.

Thomas M. Cornish: Thanks again, Leslie, for all the help and really, really dumbing, dumbing, dumbing things

Benjamin Tyson Gerlinger: down for me. Appreciate that. Not to start on credit, but I’m gonna start on credit. When you think about the the one C and I and CRE, you have a specific reserve, and you’re also charging off. But the reserve was the build was bigger than the charge off. Is it fair to anticipate a potential charge off in four q or another one down the road as we wait for those two loans?

Leslie N. Lunak: Yeah. I think with the one c and I credit yes, there will be an additional set few million dollars charge off in April. 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.

Benjamin Tyson Gerlinger: Oh, got it. Okay. And then as we kind of finish out the year, I know you gave some preliminary 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 are you seeing it increased traction in Atlanta? And I know the Charlotte one is is fairly new, but just kinda think, like, longer term, is 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 it risk adjusted spread that’s not meeting the hurdles? Or why why are loans so kinda stuck? I get there’s payoffs, but what what can we expect over the road?

Rajinder P. Singh: I’ll I’ll have Tom answer this, but I just wanna start by saying our without being in markets outside Florida, the the opportunity set is actually bigger. And, yes, these are competitive markets, but they’re also healthy growing markets. Right? That that that’s a trade off. You wanna be in good markets, but good markets are competitive markets. So you know, we’ve chosen these markets intentionally and we’d rather be in 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 a it is you have to and, of course, credit is always front and center.

So you have to balance all those three things But I would still say that it is the miss that we’ve had in specifically in C and 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 you know, pricing and credit and letting those things run out prudently. But, Tom, you just add some more color to it, please.

Thomas M. Cornish: Yeah. 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 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 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 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 under invested 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’s good. 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 is a very complicated answer, but to some extent mix plays a big role in what we’ve seen in loan growth, particularly on the upper end of the C and 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 in the 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.

Leslie N. Lunak: And I will reiterate on a little bit shorter term focus, Q4 has traditionally and historically been a stronger loan production quarter for us. With respect to next quarter in particular, that’s another factor that comes play. We’re a big Q4 player.

Benjamin Tyson Gerlinger: Gotcha. Thank you again.

Operator: Thank you. And one moment for our next question. Our next question comes from the line of David Rochester with Cantor. Your line is open. Please go ahead.

David Rochester: Hey. Good morning, guys. And, Leslie, know I’ve already told you this before, but, it’s been a real pleasure of the the years working with you. You’ve been extremely helpful. Good luck in retirements. And, Jim, looking forward to to picking it up with you. Thanks. Just Yeah. Absolutely. On expenses for next year, 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 then is there anything big that’s coming that people should be aware of? Thanks.

Leslie N. Lunak: I mean, Dave, I we’re not prepared to give any 2020 guidance on this call. We’ll you’ll hear all that from Jim in January. But but there you know, we’ve talked about some investments in in teams and, you know, platforms and whatnot, but it’s not like any giant rip everything out and replace kind of investment that we’re looking at. But we’ll give more specific guidance on the January call.

David Rochester: Yep. 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. Know you gave the balance of title, which is great. But be great to hear just what the customer acquisition was this quarter. I know you typically grow around 40 customers plus or minus. Yeah. And then, how how many customers do you have at this point? And and what’s your outlook there?

Rajinder P. Singh: It’s very similar to the run rate that we’ve over the last many quarters. So I don’t have the exact number in front of me, but I also am looking at you know, I’d I’d gotten an update on the pipeline for the next couple of quarters and very strong. So that title business is doing just great. And you know, it’s total customers. You know, we have about 10% market share. If not more. Of the entire industry already. I’ll leave it at that. Yeah. And that’s the best we can tell because nobody publishes it to the to the perfect accuracy. But this business is growing It’s growing at the same speed as it has over the last two, three years. And I don’t I don’t expect anything to slow down. Slow us down. Someday, hopefully, the mortgage market will come back, and that’ll help us. But but

David Rochester: yeah. Not counting on it. We’re we’re not counting on it. We’re just when that happens, it happens. Yep. It’ll it’ll be nice. Just one last one on on capital. At this point, trading below tangible book, it’s about a 6% discount right now. It seems like a great time to lean into that. Your capital levels are very strong. Just wanted to get your thoughts there.

Rajinder P. Singh: Yeah. Like I said in my comments, we are being opportunistic with the buyback because there’s been a a lot of volatility in the marketplace. So the 10 b five one plan we have out there is designed to take advantage of that opportunity of that volatility.

David Rochester: Sounds great. Thanks, guys. Thanks again, Leslie.

Rajinder P. Singh: Yep.

Operator: Thank you. And one moment for our next question. Our next question will come from the line of Wood Neblett Lay with KBW. Your line is open. Please go ahead.

Wood Neblett Lay: Hey. Good morning, guys. Good morning, Steve. Wanted to start on fee income. I I appreciate you sort of highlighting the core growth trends because it does get masked a little bit just with lease financing Yep. Cuts down. So that 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 what are some what’s the growth potential of those businesses?

Rajinder P. Singh: Yeah. 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’s capital commercial card purchasing card businesses in there. All of that Effects more broadly, not just the derivatives? Yeah. Exactly. The FX, the spot business as well. So all of those are investments that were made over the last three, four years, some as recently as just twelve months ago, some about four, five years ago. But they’re all different levels of their I’d say they’re all in early innings, question is, what is in first inning and what is in second So there’s a lot of room to grow.

And, you know, probably the most exciting part of the bank right now growing that. Lease financing business absolutely is something which is being wound down 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 that 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.

Leslie N. Lunak: Yeah. And I would say all of those buckets that Raj mentioned are complementary to our core commercial lending and deposit businesses. Yeah. And Yeah. I and I think that’s an important

Rajinder P. Singh: And there’s no, like, gain on sale type of stuff in there. We don’t a mortgage origination business that can you know, go up and down on a on a moment’s notice. It’s all related to a core commercial business. You’re making a loan, you sell a swap. You’re moving money around internationally, you sell an FX product. You know, purchasing card, it’s it’s an annuity. Once some you know, once you sell it you know, 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, didn’t just go out there and say, let’s start something totally different and just 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.

Leslie N. Lunak: And I do think the derivatives business, the FX business, the card business, the syndications business, all of those have tremendous growth potential. Yeah.

Thomas M. Cornish: Yeah. Would add that, you know, if you look two years ago, we have invested a lot in syndication’s capability. If you look two years ago, we were normally either in a bilateral deal where we were the only bank or we may have been in in a deal led by somebody else. Today, 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, brand new. It’s a baby business.

Wood Neblett Lay: Yeah.

Leslie N. Lunak: And, you know, not even make you know, 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.

Thomas M. Cornish: 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

Leslie N. Lunak: we couldn’t have won when we didn’t have the capability as well. And, you know, like I said, I 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 and L. Right now, they’re still new and they’re a bit lumpy, but

Wood Neblett Lay: Right. That that’s really great color. I I appreciate it. And, obviously, there’s a bunch of sub verticals there. But if I kind of just track, you know, compensation from a year ago, it feels like the fee income growth is is you know, growing a lot faster than the expense side. Yeah. So how do you how do you expect sort of, like, the efficiency ratio impact of those businesses. It feels like it should help drive improvements.

Leslie N. Lunak: A 100%. I think all of those businesses are very efficient from that you know, from a cost revenue relationship perspective without question. And I do expect you know, operating leverage to continue.

Wood Neblett Lay: Alright. That’s great to hear. And then last I appreciate the updated disclosures on the NDFI lending book. I I was just interested on sort of how that portfolio has grown over the past several years. Is it been pretty stable? Or has it just any note on the growth trends over the years in that specific portfolio?

Thomas M. Cornish: Yeah. I’d say there’s been modest growth in it.

Leslie N. Lunak: Yeah. I don’t have all the numbers in front of me, but I would agree with that. I mean, there are certain segments

Thomas M. Cornish: 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 consumer level. In some of those. So the overall bucket has grown modestly, but there’s been some shifts within those buckets to kinda reflect portfolio strategy.

Wood Neblett Lay: Got it. All right. Well, for taking my questions and congrats, Leslie, on the upcoming retirement. Really appreciate all all the help you’ve given given me in my seat. Thanks, Woody.

Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Jared Shaw with Barclays. Your line is open. Please go ahead.

Jared Shaw: Hey. Good morning, everybody, and congratulations also, Leslie. I guess, you know, maybe on on the CRE side, where’s your appetite for incremental CRE here, multifamily balances?

Rajinder P. Singh: Were down quarter over quarter. The office was down

Jared Shaw: quarter over quarter. Where do see sort of opportunity and and, you know, within those subsectors.

Thomas M. Cornish: I I would say it’s in, three areas. I think the retail market has been very strong, particularly the gross anchored urban market and every market that we’re in. We’ve seen good growth in that asset segment over the last eighteen months, twenty four 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 in 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 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 three you know, primary points of emphasis that we would have. We we will still be open to a little bit of medical office But I would say the big three will be retail, industrial, and multifamily.

Leslie N. Lunak: Yes, Jared, I think the decline in multifamily, the quarter wasn’t any anything intentional or by design. It’s just the way the chips fell for the quarter.

Jared Shaw: Okay. Alright. Great. And then on the on the the non performers in office, I know it’s relatively small numbers overall, but what drove sort of the incremental weakness that caused that that uptick in non performers? Was it

Leslie N. Lunak: I I don’t know. Or vacancy or rate? I don’t even know if I’d really call it an incremental weakness, Jared. I I 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, you know, if anything, looking forward over the medium term, I would expect it to trend down as opposed to up. Wouldn’t make that comment necessarily for any one quarter specifically. But I don’t think it was a trend or or incremental weakness. I think it was just the kind of episodic things that are going to happen as we work through that portfolio. Yeah, there’s a small batch of loans

Rajinder P. Singh: Yeah. If you look at the overall portfolio and look at the average debt service coverage ratio,

Thomas M. Cornish: obviously, overall portfolio is performing pretty well to be over 1.5 We you know? But there are a handful of assets

Rajinder P. Singh: that can move up or down, and there are situations where you, you know, you lose a

Thomas M. Cornish: tenant in any one building and now you’re in abatement period even if you bring in a new asset that things can shift up and down. Just step aside. Yeah. Overall, when we look at the whole portfolio, which I’m staring at the printout right now, the general trends in most markets are improving each quarter as abatements run off. That’s the big driver is abatement runoff.

Leslie N. Lunak: Yeah. And I would say the one we took the charge off on this quarter Jared, that’s one that’s been sitting in workout for a long time, and it finally just reached its final resolution. And yeah. So that that’s what was going on with that one.

Jared Shaw: 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 in opportunistic, Any other uses of capital we should be thinking of, whether that’s accelerated increase in dividends or a special dividend or M and 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?

Rajinder P. Singh: Yeah. I I I don’t think my answer is gonna be very exciting. It’s going to be the same that I’ve given in the past. Which is, yeah, you know, 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 people use, though opportunistically. M and A has never really been a lever for us. As demonstrated by our history of building the bank organically. So my number one priority would be to grow. Right, organic growth. And but if it is not that, then buybacks and dividends but not special ones, just regular ones, Those will be the way to deploy it.

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

Jared Shaw: Yep. Okay. Thank you. Appreciate it.

Operator: Thank you. And one moment for our next question. Our next question comes from the line of Timur Felixovich Braziler with Wells Fargo. Your line is open. Please go ahead.

Timur Felixovich Braziler: Hi. Good morning.

Rajinder P. Singh: Good morning.

Leslie N. Lunak: Good morning.

Timur Felixovich Braziler: Looking at you know, margin over 3%, reach on equity, if you round up, you’re you’re 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 are we kind of at that level where we’re gonna continue grinding that higher? Or is there still going to be potentially some kind of back and forth the either provision expense or PPNR or whatever else?

Rajinder P. Singh: I expect it to grow. Yeah. A 100%. Margin to grow. I expect ROA to grow, and I expect ROE to grow.

Leslie N. Lunak: Yep. 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 we could one could expect.

Timur Felixovich Braziler: Okay. Got it. That’s good color. A couple on credit. Just the $26,000,000 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 MPL status? And then The underlying the underlying assets or office? The underlying what?

Leslie N. Lunak: At real estate assets or office. That’s what? The underlying That’s that’s the answer. And that that’s the only one we have with an office concentration.

Timur Felixovich Braziler: Okay. And then the bucket that b to c I guess, how big is that bucket and 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.

Thomas M. Cornish: Yeah. The if you look at the b to c Which is in other in that chart. Which is Yeah. That portfolio is relatively small.

Timur Felixovich Braziler: Okay.

Timur Felixovich Braziler: Okay.

Leslie N. Lunak: And then maybe the And it’s been substantially reduced over the last few

Timur Felixovich Braziler: Okay.

Timur Felixovich Braziler: But in terms of in terms of of borrower type, is there any kind of distribution either by FICO or collateral type?

Leslie N. Lunak: It’s literally a handful of loans.

Timur Felixovich Braziler: Okay. Yeah. We’ve been negative on the lending space for a couple of years, so we’ve been working that portfolio down is why it’s not even making the chart. In that other, there are a lot of different categories, but, you know relative. All of which are are tiny. But it it it’s you know, if we had done this chart, years ago or three years ago, that would have been you know, bigger and would have stood out here.

Timur Felixovich Braziler: But now it’s it’s a rounding error. We say handful. It’s only one handful.

Leslie N. Lunak: Got it.

Timur Felixovich Braziler: Okay. How about on the commercial side? Commercial delinquencies, you know, ticked up across the board. You had the the the charge and reserve for one c and I credit, but allowance looks like it’s it’s down kinda couple quarters in a row in the C and I book. Can you just maybe talk through is that an indication that maybe we’re getting through some of the more kind of ringed in credits and and the outlook is is improving indicative of the reserves, or is there, maybe a chance for commercial allowance has to catch up on the back end of the year just given some the way the delinquencies?

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

Timur Felixovich Braziler: 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 inbounds? How are you just thinking about the the broader m and a environment in the Southeast?

Rajinder P. Singh: I think mostly, I’m getting calls from investment bankers trying to you know, do the best that they can to to, you know, they’re feeding the FOMO sentiment if anything else, like, everybody’s doing a deal. Everyone’s you better be talking. So that’s the the sentiment I would say. It’s mostly driven from innocent bankers Having said that, I will say it. There will be more deals. I’ve been saying that for for better part of a 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’re we’re we’re we’re we wanna 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 gonna build a company. So we’re focused on building, and if a deal ever comes along that makes sense, whether it’s tomorrow or ten years from tomorrow, we’re always here. To talk about it.

Timur Felixovich Braziler: Great. Thank you. And and, Leslie, again, just echo the, congratulations on on retirement.

Leslie N. Lunak: Thank you. And just a quick follow-up on your delinquency question in the c and I bucket. It’s actually three loans, and they’ve been in the criticized classified bucket, but paying for a while. And so not unexpected.

Timur Felixovich Braziler: Great. Thank you.

Thomas M. Cornish: Nor nor are we seeing any trends No. With the language perspective that we’re gonna Trevor doesn’t like a trend. Yeah.

Operator: You. And one moment for our next question. Our next question comes from the line of Jon Glenn Arfstrom with RBC Capital Markets. Your line is open. Please go ahead.

Jon Glenn Arfstrom: Thanks. Good morning.

Leslie N. Lunak: Good morning, John. Congrats, Leslie.

Rajinder P. Singh: Thank you.

Jon Glenn Arfstrom: Yep. Just a few follow ups. This can be rapid fire as well, but has your buyback appetite changed at all? Or is it just your approach and timing?

Rajinder P. Singh: Our approach. Yeah.

Jon Glenn Arfstrom: Okay. And and do you wanna grow the balance sheet over time, Raj? Or are we still kind of in the medium term in the loan mix shift mode?

Rajinder P. Singh: I I we certainly wanna grow the balance Hold on one second. Getting weird music. Yeah. Emphatically, yes. We wanna grow the balance.

Jon Glenn Arfstrom: Yes. The investment bankers calling, Raj. They are entertaining if nothing else. Okay. And then I I 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 Yeah. Kinda the same as it was a quarter ago?

Thomas M. Cornish: I wouldn’t necessarily compare it to quarter ago as much as I’d compare it to the beginning of the year. There was a lot more concern about tariff issues and which way the economy was going to head and would interest rates decline as much as people expected that was particularly in CRE investors’ mind. So I would say clients have a more clear and optimistic view. That’s getting a little bit better every day. Mhmm. Okay. Good.

Jon Glenn Arfstrom: 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.

Rajinder P. Singh: 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 gonna stop on the resi runoff. So that’ll keep happening, but I eventually expect C and I growth to overtake that runoff.

Jon Glenn Arfstrom: Okay. Okay. Thanks a lot. I appreciate it.

Operator: Thank you. And one moment for our next question. Our next question will come from the line of David Jason Bishop with Hovde Group. Your line is open. Please go ahead.

David Jason Bishop: Yes. Thank you, and congrats again Leslie. You’ve enjoyed the working with you over the years, and, I I think I will cry if you tell me Isis is leaving as well. Hey. Quick follow-up question on the NDFI. Appreciate the color there. Just curious in terms of the the granularity of both the other and the b two b NDFI. Is that comparable average loan size to the rest of the commercial bank? Just curious if you have granularity there you can share.

Leslie N. Lunak: Probably. I would say if

Thomas M. Cornish: you looked at the NDFI portfolio, the average credit size is maybe slightly larger but not much. It’s pretty comparable. Pretty comparable. You know, 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 and credits. And if you look at this portfolio or the remainder of the whole, portfolio, you’ll see a lot of mid sized credit exposures. You will not tend to see extremely large individual credit exposures.

Leslie N. Lunak: Is it fair to say, Tom, that we’re really not in the business of or we’re really not concentrated in lines to private credit fund?

Thomas M. Cornish: Yeah. No. No. We’re not at all. I mean, our our b two b 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 negative about any of the large private credit funds. But we’re not in, you know, the $2,000,000,000 fund to, you know, whatever fund you wanna pick. That’s an unsecured facility for, you know, supporting their general obligations. We’re not in those kinds of deals.

David Jason Bishop: Got it. Appreciate the color then. Tom, maybe a a a follow-up question, final question for you. You noted some of the headwinds on the some of the runoff in the C and I segments and such. Just curious, I don’t know if you have a dollar basis or maybe what inning we’re maybe in, in terms of runoff from some of those maybe noncore portfolio. Thanks.

Thomas M. Cornish: Yeah, I’d say we’re in the bottom of the ninth inning on that We’re we’re we’re pretty much finished with the work that we wanted to do. From a rate perspective or a risk perspective or, you know, client focus perspective, we’re at the very bottom of the game.

David Jason Bishop: Got it. Thank you.

Operator: Thank you. And one moment for our next question. Our last question will come from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Stephen Scouten: Thanks, guys. So Tom, your last comment was encouraging, kind of similar to what I was curious about. You know, thinking about you guys in, man, 2013, ’14, was a strong double digit kinda loan grower. Haven’t you know, loans have basically been flat since 2019. So what’s kind of the spectrum of how we could think about potential loan growth if we really are kind of past all the needed remixing? Is it is it kind of a mid single digit run rate in a perfect world, or or could it be better than

Rajinder P. Singh: We’ll give you the exact guidance in January.

Leslie N. Lunak: But expect growth. Yeah. Yeah. Yeah.

Thomas M. Cornish: And I would say expect balanced 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, decree 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 We will not be overly indulgent in chasing any one asset category. It will be a balanced growth portfolio.

Stephen Scouten: Got it. But it sounds like 2026 could kinda be the inflection point from versus what we’ve seen the last, you know, five or six years in terms of loan and balance sheet growth. Is that fair to say?

Leslie N. Lunak: I think that’s fair.

Thomas M. Cornish: Yeah. And you you should remember during that five to six year time frame, we were taking the leasing portfolio from $2,000,000,000 to a couple $100,000,000 and we were taking multifamily rent regulated multi

Leslie N. Lunak: family. That dropped dramatically by

Thomas M. Cornish: three plus Minor matter of a global pandemic. Three plus billion dollars in we’re awful happy to be sitting where we are. Yeah. Yeah. No. For sure. I think that’s why the remix question is important to know if if if that process is kinda completed after all the puts and takes. And then maybe last thing for me, just you know, obviously, we we’ve seen a bit of an uptick in in the banking space in terms of more activism from investors.

Stephen Scouten: I’m kind of curious if you’ve seen any incremental pushback from your around the path and the pace of progress and kind of what your response would be you know, if anyone were to get more more aggressive in terms of you know, asking you guys where where’s profitability and what’s really the pace of improvement to come?

Leslie N. Lunak: I’ll take the first part, then I’ll let Raj take the second part. We have not been getting any increase level of pushback, and I will let Raj answer what we say if we did. We engage. We we hope we’re we’re

Rajinder P. Singh: we’re we’re happy to engage with anyone. Yeah. And and we actually reach out and, you know, do as many conferences as we can. And try and go see investors as often as we can. So, you know, what I wanna 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 do, you know, give you a catalyst that tomorrow everything will improve. 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 know, this is a nuts and bolts business, one client at a time business. And but that’s how you build something which sustains in value for a long time. So we’re we’re open to engaging with any investor who wants to talk to us.

We do. And we do all the time. And when we sit down and talk to them, I rarely have I come across an investor saying, don’t agree with what you’re doing. Yeah. No. They’ve been very supportive of what we’ve been doing. You know? And they’ve asked some of the same questions

Leslie N. Lunak: that you guys are asking. What’s our more medium and longer term thoughts about growth? But but we haven’t gotten you know, I think there’s been supportive of what we’ve done thus far. Yeah.

Stephen Scouten: Perfect. Thanks, guys. Appreciate the transparency. And, Leslie, congrats on the retirement.

Leslie N. Lunak: Thank you. Thank you.

Operator: Thank you. And I would now like to hand the conference back over to Rajinder P. Singh for closing remarks.

Rajinder P. Singh: Thank you all for joining me and joining us And we will talk to you again minus Leslie in ninety days. I’ll be listening. She’ll be listening. She’ll be asking questions. Yeah, know. I’m getting Q and A. 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. Bye. Yep.

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