Good day, and welcome to the BankUnited, Inc.'s first quarter 2026 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jackie Bravo, corporate secretary. Please go ahead.
Thank you, 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 31st, 2025, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Raj Singh.
Thank you, Jackie. Thanks everyone for joining us. I know this is a very busy morning. A lot of banks have these calls going on, so if you joined our call, we appreciate it very much. I know it was not an easy choice. 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. You heard this announcement from me before at previous earnings releases, at meetings I've had with investors, and in conferences we've done. We've been talking about this for some time, but I think it bears repeating. Our business is a fairly seasonal business, and that seasonality is well understood by us and has been demonstrated now over several year cycles.
I'll talk about that in a little bit 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 they bottom out deep in the first quarter. They start to rebound back late in first quarter, towards the end of the first quarter, and then they go straight up in second quarter. Usually second quarter is our strongest 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, 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 in expenses, but I think that's not just to us. Everyone has that with FICA and stuff that happens in the first quarter. I won't get into those details. Now when this happens especially these big swings in NIDDA, it impacts our margin. It impacts our margin impacts our revenue, that impacts our bottom line, EPS, and ROA. What happens when you look from Q4 - Q1, you see pretty meaningful drop in earnings, in ROA, in EPS and so on. If you look to Q2, it kind of rebounds all the way back, if not, generally more than all the way back.
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 hand write what I'm going to say. I had this déjà vu moment. Like, I think I've done this before. I went back and I looked at my notes. Surprisingly, I actually still held onto my notes from my call a year ago, and it wasn't a déjà vu moment. It was that I've been here before. This is exactly what happened a year ago. I just quickly jotted down what happened Q4 last year to first quarter of last year. Q4 2024 going into 2025, what happened to earnings, EPS, ROA, and all that stuff, and I compared it to what happened this year.
Our earnings quarter-over-quarter declined by $11 million this time last year. This year, they've declined $10 million. EPS declined 13 basis points. This year it was 11 basis points. ROA declined 10 basis points last year. This year it was 9 basis points. Slightly better, but kind of in the same ballpark. That's just the seasonality of the business. 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're all believers in the here and now, but if you just look at the very short term it will throw you off, both in quarters in which seasonality works against us and in quarters in which seasonality works for us, which will be the next quarter. With that PSA out of the way, let me get into the numbers.
Earnings for the first quarter came in at $62 million. EPS was $0.83. I'll compare this to first quarter of last year, like I just said. Last year, earnings were $58 million, and EPS was $0.78. Excuse me. NIM was at 2.99%. Last year, this time, NIM was 2.81%. PPNR was $106 million. Last year, PPNR this time was $95.2 million, about 11.5% growth. Despite seasonal pressure on NIDDA, like I just mentioned, in the quarter, deposits did grow. Non-broker deposits grew to $177 million. We used most of them to pay down brokered, so net growth was about $7 million. Again, like I mentioned, should be looking at annual numbers or trailing 12 months numbers. Over the last 12 months, non-broker deposits grew by $1.4 billion, NIDDA grew by $875 million.
I would actually even go further and say period end balances don't mean as much as average balances do. Average NIDDA grew by more than a billion. I think it was $1.05 billion. I'm looking at Jim to confirm, but I think it was $1.05 billion. Talking of 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. Not much, nothing new over there. Let's switch to credit. We made a lot of progress on credit this quarter. NPLs were down $98 million. That's 26%. Criticized and classifieds were down $146 million or 12%. Now that 26% and 12% is just the progress we've made in the last three months. That's not an annualized number.
Our coverage ratio of ACL to NPLs improved from 59%-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. I will also say that they are very keenly aware of the situation in the Middle East and are watching it like as they should. Smart money seems to be betting that the conflict in the Middle East will wrap up in a matter of days or weeks and not months.
Only time will tell how that will play out. 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 and our numbers back in December. All the other numbers are not that notable for me to get into. I'll leave for some of the stuff for Tom and Jim to talk about. Oh, yeah, we did buy back 1.3 million shares, as we had promised. 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.
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. With that, I will turn it over to Tom.
Great. Thanks, Raj.
Yep.
I have a little bit of my own public service announcement today as well.
It's a day of PSAs.
To follow with Raj. I want to talk about deposits first and sort of deposit strategy. Before I dig into some of the numbers, some of which Raj has already covered, I wanted to back up a little bit and just talk about sort of what are we trying to do with the overall deposit and client book and over a longer period of time, and how has that performed? When I look at it, I would say we have three major goals. One is to be a top tier performer in NIDDA growth. Our NIDDA, as you know, is largely commercial NIDDA. When I look at that number, as Raj said, we're up period to period from first quarter last year, $875 million or 11%, which is a pretty impressive number. On an average basis, we're up $1.05 billion that Raj mentioned.
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. I kind of measure that by is our service charges on deposits growth greater than our NIDDA growth. When it is, to me, that seems to be a multiplier effect on that. 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.
To me, that means we're executing on the strategy of ensuring that book is well sold, well-priced, and client relationships are becoming very sticky. The last part, which is really the hardest work, is managing deposit cost. You'll see we had a decline in average deposit cost for the quarter, and I'll go through those numbers. The process of managing deposit cost, especially in a period of time where we're not forecasting a Fed funds rate decrease that we can lean into, is hard work. We are consistently doing that. Raj and I were talking now, we have a series of rate cuts that are going in this week on the deposit book. We are consistently analyzing the deposit book and looking to make it more cost-effective.
When I think 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. With that, a little bit more detail. As Raj mentioned, non-broker deposits were up by $277 million from the previous quarter and $1.4 billion from a year ago. NIDDA represents 30% of total deposits. Our average cost of deposits declined by 6 basis points from the previous quarter from 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 was up 18.8% for the quarter. As we look into the second quarter, which is on the deposit side, traditionally our best quarter. We have a high level of conviction around very strong deposit growth and NIDDA growth in the quarter.
It's our best quarter, typically, and all indications from pipeline and activity and business that's in closing documentation is that it'll be a very strong quarter. On the loan side, as Raj noted, it was fairly typical first quarter for us, CRE and mortgage warehouse lending were up $76 million and $77 million respectively. C&I declined by $144 million from the previous quarter. Part of that is declining off of higher utilization rates that we tend to see at the end of the quarter. First quarter, particularly in our larger corporate business, tends to always be a bit softer because of the financial statements timing for new business that comes through. Resi continued to decline as part of our emphasis to focus on the commercial lending business. I think it was about what we expected to see for the quarter. Few comments on CRE that I typically make.
The CRE portfolio is now just under 30% of the overall book. Within the CRE 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%-25%. Maintaining a good quality balance in the CRE book is important. You'll note that the total weighted average debt service coverage for all property types is 1.84, and the average loan to value is 55.4%. The portfolio continues to perform well. This is probably the last quarter I'll actually point this out, but we continue to see improvements in the office book. You'll note the office book on page nine, 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.
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. 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. We saw a pretty significant increase in the weighted average debt service coverage over the last few quarters. At 1.78, it's a pretty strong performing portfolio right now. That's my coverage on CRE, and I think with that, I'll turn it over to Jim.
Great. Thanks, Tom. As Raj walked through, it's worth mentioning again, our first quarter is our seasonally light quarter for most of our businesses. 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. 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. The trends year-over-year are really good and definitely in line with the guidance that we gave you at last quarter. 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. Just to highlight them, we did have a variety of year-end compensation-related items. That was largely just due to the really strong performance of the company last year and also the strong stock performance. This was more than offset by the reversal of our previously accrued FDIC special assessments. 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. Thought it'd be helpful.
Now, the dip from first quarter to fourth quarter this year was a few basis points larger than last year, certainly less than back in 2023. Just wanted to call out what was driving that. 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. 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. 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, 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. As I mentioned, NIM expanded 18 basis points. 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% from a year ago.
Those are the spot, not the average. On the credit side, as Raj mentioned, credit trends are quite positive overall and which portends improvement going forward. Criticized and classified was down $333 million or 24% from a year ago. 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. This brings our trailing 12-month charge-off rate to 37 basis points, which, as we've talked about before, we'd like to see that closer to 25. It is elevated from what we'd like to see. Again, the trends that we are seeing more recently in some of these books, the inflows are a lot slower than the outflows.
Barring any economic shocks, we expect to see improvements in charge-offs later this year. As we mentioned, especially related to the guidance, we definitely felt like more of the provision expense would be more front-end loaded versus evenly spread throughout the year. Our allowance for credit losses was $209 million, down $11 million from last quarter. Provision expense, as I mentioned, was elevated at $25 million. We did add some qualitative reserves, about $8 million. Our coverage ratio ended at 87 basis points, which is down a few basis points 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.
I do want to mention, and we disclose this on page 11, most of our charge-offs are coming from the C&I portfolio of late. If we look at the coverage of our C&I portfolio, it's around 160 basis points. 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. It's up $2 million from a year ago. If I normalize for some of the securities gains, now, we always have securities gains. They bounce around from quarter to quarter. 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 loans close, when syndication fees occur, size of the types of swaps that are booked. 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 to go into new markets, hire specialty talent, et cetera, and also just cost of living increases and basic things that are going on in that space. 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. 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. 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. With that, I'll turn it back to Raj.
Thanks, Jim. Just one thing I forgot to mention on credit. 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. If we did the same clip, we won't have any NPAs left in a couple of quarters. I expect NPAs to reduce in second quarter, third quarter, and 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 Risk Officer, Chief Credit Officer, and I generally ask him how he's feeling about this quarter. This was, I think, the best call I've had in the last three quarters. 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. This call, I had to actually ask him, "What about this loan? What about that loan?" He was like, "No, things are going fine." The call lasted maybe all of three minutes or four minutes, versus last call three months ago lasted a lot longer. 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. I also get updates like that on pipelines from Tom. Deposit pipeline is better than I expected, honestly speaking. We're feeling pretty good. With that, I will turn it over for Q&A.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Dave Rochester with Cantor. Please go ahead.
Hey, good morning, guys.
Good morning, Dave.
Good morning.
Well, I wanted to ask you about the title business. I've noticed the deposits were down this quarter. Normally they get stronger as we head into 2Q. I would imagine that's still the expectation.
Oh, yeah.
I guess we're down like three quarters on that at this point. If you could just talk about that outlook and then are you still bringing in 40 ± new customers a quarter there? If you can just update us on the competitive backdrop that'd be great. Thanks.
Sure. Actually, we're bringing in more than 40 now. Our average over the last three quarters has been more closer to 50. The relationship intake has actually increased a little bit. I'm 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. Overall, in terms of gathering market share, we have not lost momentum. In fact, we've picked it up.
I would add that's net client relationship growth as well.
Yep.
Not just gross.
Yep.
Yeah. Great. Those relationships tend to be $2 million-$3 million on average in size, right?
On average it's about three. Yeah, around $3 million, give or take. Yeah.
Yep. Have you been adding more sales people to that business or any other technological enhancements, anything like that?
Yes. We have added more people in fulfillment in the back office. We've added more people in the front office. Clearly, yes. We have two large technology projects going on, which will impact not just that business, it'll impact the entire bank. 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. Just on the
Average deposits.
Oh, what's that? Sorry.
I was just going to say, average deposits are up year-over-year in the NTS business, so up meaningfully.
Yep. Maybe just one last one just on the competitive landscape there. Occasionally you see a larger bank come in and try to defend a relationship, and it may not just be for the title piece, but something else. Can you just talk about what you're seeing from any of the larger banks that might be snooping around and what you're seeing out of banks more of your size if you're seeing any interest in this?
Yeah
type of business? Thanks.
Yeah. There is certainly more competition today than a year or two ago. Both from, we see from time to time larger banks try to get into this, but they've not been able to replicate what we have. They've not been able to make much progress. We have seen banks much smaller than us and somewhat our size also compete. 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. 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 or whatever it is. It's not like we have some kind of a trademark or intellectual property that is the moat.
The moat is the fact that we have the largest market share. We've seen every issue that comes up with this. We have the largest sales force, and we've been doing it the longest in the way we are. We're most integrated with all the ERP providers, and that gives you the advantage to keep going forward. There's more competition. I expect that competition to be even more going forward, but so far, we're doing just fine.
We're not sitting still. We're continuing to focus on improving operations, getting better at everything we do.
Yeah.
We're letting that iron sharpens iron.
Yeah. We made a pretty significant investment in the back office, in fulfilling, in customer service and what have you, because the book had grown quite rapidly, and when things are growing, it's easy to go hire salespeople because you can see how salespeople will add more revenue. 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't lose them. That was a pretty big investment we made last year.
This is a heavy operational business.
Yeah, it's a heavy operational business.
Well, it's a great business and certainly a nice advantage for you guys. Appreciate all the color there. Thanks.
Thank you.
Thank you.
The next question comes from Jared Shaw with Barclays. Please go ahead.
Hey, good morning. 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 3.20% margin at the end of the year?
Yeah. Our balance sheet is very neutrally hedged. It will very slightly asset sensitive. Just mathematically speaking, it probably should give us a basis point advantage if the Fed doesn't cut. 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 C&I, but everything has tightened up this year, has been for several quarters now. That is actually a bigger risk than what the Fed does. Unless Fed does something sort of bizarre as in it moves several moves that nobody's expecting one way or another, it really will not impact our guidance.
We're not really worried about the Fed cutting once or twice or not cutting. It'll not have an impact. If we miss our NIDDA guidance, if you're not able to grow, that'll obviously be the single largest driver, the single largest risk we would have, and the second would be loan pricing and credit spreads.
Okay. All right. Thanks. On the provision, you called out the $8 million qualitative overlay. Should we think about that as just maybe front-loading some of that provision and that the $68 million is still the good number, or is it really $68 plus $8 for the full year?
No, we're still sticking with the guidance that we provided for the full year. Like we said, I do think based on what we see, more of that $68 would be front-end loaded versus at the back end. You can't just take the $68 divided by four and project it out, but skew it more to first and second quarter.
Yep. Okay. Thanks. If I could just sneak one more in, just on the fee income, capital markets obviously very strong in fourth quarter. How should we think about sort of the components of growth in fee income as we move forward through the rest of the year?
Jared, capital markets income is probably closely aligned to production in both C&I and CRE. Within production, I would say slightly larger loans tend to drive that, like syndications. You're not going to syndicate a $10 million loan. We will syndicate a $60, $70, $80 million loan. 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. You saw lower capital markets income this quarter for both those reasons. Last quarter was our biggest production quarter, and that's why you saw capital markets income as strong as it was. It'll vary quarter- over- quarter. Plus, it's a little bit of episodic also. It's not like a dollar a day type of a business. It is a little bit lumpy.
You could have a big deal you're working on. It slips over into the next quarter. That can happen from time to time. 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'll do. 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 onto the FX platform in the last six months, it's an impressive number. I think even the raw number, while Raj Singh said it's a small number, is up over 100% from the previous year. We have really good hopes for the FX income, especially in the markets that we're in. They tend to be markets where people have international trade transactions, they have payroll transactions, they have other things that drive that business. We would expect the service charges on account business to be double digit in terms of fee income growth. I mentioned it was up 18.8% over last year. Our expectations are somewhere in the 15%-20% range for that, and I think we have a good bit of conviction that we'll be able to get that.
The swap business is a bit interesting because there's kind of like a sweet spot as it relates to the profitability of the business. At the very highest end, as you would imagine when you do swaps, you're sitting across the table from somebody like Jim, who's extraordinarily knowledgeable about every basis point in the swap transaction. If you can go down far enough market where the transaction is still large, but there's more room in the pricing on swaps, that's really where kind of the sweet spot is for us. The volume of transactions is important, and we think that will be good seasonally through the rest of the year. Also the mix point tends to be very important because that can vary by 3, 4 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 the syndication revenue will be good the remainder of the year.
Just one last thing to add to it. Commercial card revenue was up good, strongly year-over-year. Again, it's small, but it's growing. One other comment that Raj said, just with it being in the swaps business, very tied to the lending business. The activity we saw this quarter versus a year ago was very consistent. Just last quarter, we had one or two larger transactions that drove a little more revenue a year ago versus this time. The activity's there. It just really depends on the size of the transactions in any given quarter.
Thanks a lot.
The next question comes from David Chiaverini with Jefferies. Please go ahead.
Hi, thanks for taking the questions. Wanted to swing back to credit quality. Kind of mixed in the quarter, criticized, classified down, but you did mention in the release about 2 credits being charged off, and we did see the elevated NCOs this quarter. Are you able to share which industries those were in? And then the second part of it, you mentioned about how we should see a decline in NCOs later this year. It sounds like we should expect elevated NCOs in the second quarter as well. Is that a fair interpretation?
No, I think that there's a general statement that the first half will be higher Net Charge-Offs because we already have the first quarter, $35 million-$36 million. It's hard to predict exactly quarter by quarter, but generally speaking, I would say the charge-offs should be front-loaded. The two industries that you asked about, one is healthcare and the other was transportation. Those two made up a large portion of the charge-offs, and one was in Atlanta and one was in Florida. Geography also in case you ask that next question.
Our larger charge-offs last quarter were in two completely different industries from this quarter.
Right.
One was, yeah.
Yeah.
Got it. Thanks for that. Then back to the NIDDA discussion. Nice trends year-over-year, 11%. Your guide is for 12%. Given this higher for longer rate environment, to what extent could that be a headwind to NIDDA growth? Because in the past few quarters, you've mentioned about the NIM expansion being driven by mix shift rather than the Fed. Curious about your thoughts there.
Yeah. NIDDA was growing double digits when Fed funds was over 5%. It is not about pricing. What is driving our NIDDA growth is our focus, our products, our specialty capability we've built, and it's not about just lazy money. This is not lazy money. This money where we do a lot of payments, which is why this money sits in our pipes. People use us not because the price, but because of the capability that we offer them. We continue to gather market share. I'm not worried about rates could be 50 basis points higher, 50 basis points lower. That will not impact our NIDDA outlook. That will have an impact on interest-bearing deposits.
If the Fed moves down, it gives us an excuse to go back and reprice the deposits when the Fed is not moving, and it's just harder to just do that. We're still doing that. As Tom said during this week, actually, we are pushing through certain portfolios, some pricing action on some of the portfolios. It's just easier the Fed is moving. 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.
Yep.
That's across all business lines, specialty, geography, whatever segment that it's in, it's driven by that. Probably 75%-80% of the growth is driven by that.
Very helpful. Thank you.
The next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning. Thanks for taking my questions. Just given the absence of rate cuts now that I think the market's expecting, any updated thoughts around deposit beta expectations as we move forward? I think last quarter you'd kind of talked about an 80% beta with cuts. 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, the portfolio will price up. That's the hard work you have to do is to make sure it doesn't price up and maybe get it even to go down a few basis points. Not easy. That is really hand-to-hand combat, client- by- client, portfolio- by- portfolio. We are attempting to do that. New money competition is high. I think Jim mentioned as an example, as a proxy, broker deposits are 15 basis points wider than they were like 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. We did see a pretty meaningful change. Maybe it's just rates have gone up. Two-year is now at 3.70%-3.80% and not closer to 3.50%. Maybe it's that, maybe it's a whole bunch of stuff. We are leaning more and more towards NIDDA. 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. Our job is to make sure interest-bearing 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.
If we don't do the hard work, they'll naturally have a tendency to drift up, and we don't want that to happen.
Okay. Helpful. Maybe just the follow-up question to that, and I hate to ask for near term guide, but I'm going to try here. Obviously given the margin guide for the year and the decline this quarter, it implies a pretty steep ramp from here. Can you just help us with the second quarter with the inflows coming back in and just some of the seasonality, what that margin within a realm of expectations could look like for the second quarter? Because I think people are, at least what I'm hearing is you're struggling to kind of get to that 3.20% full year guide. Thanks.
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, right? If Leslie was here she'd be screaming at you.
I understand.
I'm nicer. She's wincing, I'm sure, so.
What I will do is I will just point to what happened last year, right? In fourth quarter of 2024 we were 284. We came down to 281 in the first quarter, and in the second quarter we went up to 293. Okay? Then we went up to 3% in the third quarter to 306 in the fourth quarter. Now you can go and look at that pattern, right? We have a pattern of dipping down and then coming back very strongly in the second quarter and then maintaining some of that growth in the third and fourth quarter as well, and then coming down again in the first quarter. 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. That's about as much guidance I can give you. I can't tell you what the quarter will be. More than what we've already said, which is that it'll be a very strong NIDDA growth quarter.
Totally get it. Just trying to frame the conversation. Maybe just one last follow-up. Obviously, the repurchase is pretty strong this quarter. Any reason to think that the pace would be any different as we move forward? I know you said up to $250 million. Stock is obviously down a little bit today. But any reason to think that that pace would change?
Not really. We're still being opportunistic where we can be. At the same time, we're not trying to manage it on a day-to-day basis. Jim and I both have day jobs. There is still volatility in the market and we try to use that volatility to our advantage the best we can.
We're trying to steadily work towards the target of about 11.5% CET1.
Yeah. Totally get it.
That's the center of gravity that we're working towards.
All right. I'll step back. Thanks for taking my questions.
Thank you.
The next question comes from Woody Lay with KBW. Please go ahead.
Hey, good morning, guys.
How are you?
Hey. I wanted to follow up on credit, and as you noted, NPAs saw nice improvement, even if you exclude the charge-off benefit. That incremental $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. They were either refinanced in the longer-term capital markets or 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.
Got it.
The inflows are being lower than the outflows.
Yes. The influence was lighter.
Yeah. Maybe just on the outlook that NPA should continue to decline from here. Middle East represents some uncertainty, and it kind of whipsaws back and forth on when that could potentially end. 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. 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. 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 million-$18 million in the CRE space that has been sitting there for almost a year. It looks like it's going to come to a resolution. We might get a small recovery out of that. I just know what's in the portfolio and where it is. This loan that I'm talking about has a close date of third week of June.
I won't count the money until 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. It's things like that, right? There's another one in the C&I space which the performance has stabilized to kind of improve. We're keeping it in the NPA category. We'll see how it works out. Three months ago, I was not as positive about how that business was doing. Now we've seen things they've done in the last two or three months that are looking better. It'll probably still be an NPA, but it's maybe a couple of quarters down the road it gets resolved. It's based on our granular knowledge of the loan portfolio rather than any big macroeconomic thing.
Yeah, in some instances, we're aware of refinancings in the private credit market that are going on in some instances in 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. As Raj said, there's specific kind of item by item that we can go through and identify events that we think are going to happen in the near term that give us that conviction.
Got it. That's really helpful color. Maybe just last for me, I know it's pretty small in the grand scheme of things, but that little over $5 million of performance items and compensation this quarter, was that included in the expense guide that was given last quarter, or is that in addition?
Yes. No, it's included.
Okay. Awesome. Thanks for taking my questions.
Thank you.
The next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Hey, thanks. Good morning.
Hey, Jon.
Maybe for you, Tom, anything else to note on the C&I decline? You flagged the Q4 utilization, but anything else to note on commercial lending pipelines and what you're seeing there?
I would say different parts of the business operate differently. When we say C&I, it really encompasses kind of larger middle-market corporate lending and encompasses commercial lending for more mid-size 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. 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 up market, the more pricing competitiveness in terms and conditions competitiveness that you face. 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 per industry segments, whether it's C&I side or the CRE side. I expect that we'll see good quality C&I growth over the rest of the year, where we're seeing good penetration in new markets that we're in. Particularly the southern markets, the Atlanta, the Charlotte. We just had a party yesterday for our new Charlotte office and had really good responses. We expect Texas to continue to grow well. I think that it's broad, but I think that there's going to be good market segments for us to grow in. It's a very competitive business right now.
Yep. Okay.
We're trying very hard to manage this margin issue versus the volume issue and make sure that we've got good pricing discipline.
Yep. Okay. Yeah, just that segues into the next one. How much more room do you guys think you have on deposit pricing from here? It sounds like you've got some rate cuts coming, or some deposit pricing cuts coming, but how much more room do you guys think you have?
If the Fed doesn't move, then I think it's not like there's 30 basis points of room left here to cut. The existing book we'll probably cut 5, 10 basis points here or there, but you can't really move too much unless the Fed moves. 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. That'll depend on where the market is. Like I said, brokered market as a proxy was certainly very heated in March. We'll see where it kind of lands over the course of the next quarter, the remainder of the year. We'll cut where we can, but it's not like there's some wholesale reduction that is still left if the Fed doesn't move.
It is our commitment to focus on this. I can't even begin to tell you how much time we spend and how many painful meetings we have.
We torture our people.
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? 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.
Yep. Yeah, I know it's not easy. You're still thinking 320 NIM by the end of the year and holding the provision guidance?
Yeah.
If you can deliver that, I think that's really all that matters.
Yep.
I appreciate it.
Correct.
The next question comes from David Bishop with Hovde Group. Please go ahead.
Yeah. Staying on the topic of maybe the NIM here. I think, Tom or Jim, you mentioned securities yield took it on the chin a little bit from the Fed rate moves. From an earning asset yield perspective, do you think, with an absence of rate cut here in the near term, you might see average earning asset yield stabilize or start to turn here? I'm just curious how you're viewing yields within the market relative to roll off. Thanks.
Well, yes, except for competition related to credit spreads, right? If competition continues to ramp up and you start to see pressure there, that'll put pressure on pricing. 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, that were done at lower rates. We're looking at probably 7%-8% of the portfolio that was at a fixed rate basis that we think we can reprice. There's different elements to this that are levers that we think we can pull throughout the year in order to improve asset yields kind of across the board.
Got it. One final question. As you look across the commercial portfolio, any particular segments that are particularly impacted by rising energy or gas costs there? Just curious, as you sort of analyze the portfolio, any segments that sort of jump out as being potentially at risk in the near term? Thanks.
Yeah. Everything is impacted a bit by it. We're not in sort of the energy lending business or businesses that you would say have a very front-end direct impact from it. Every consumer is impacted by rising energy prices, and to some extent, any rise that that drives in food consumption type prices. We do not have heavy consumer lending portfolios, kind of B2C type lending portfolios. We don't have much of that. We think we're reasonably insulated from that. It's going to impact every consumer, and that drives 70% of the economy in terms of consumer expenditures and GDP.
It sort of depends on severity and duration.
Severity and duration.
Duration.
Yeah.
We're watching it closely, and we'll react quickly if we start to see something that's concerning.
Yeah. I appreciate the time.
It's one of those things, if we have a large food distribution company, food distribution companies are going to have some level of impact from gas prices and what happens at the consumer if they start to downsize or trade down in quality of beef or things like that. Those are really difficult to try to assess other than watching it credit- by- credit.
Hello?
The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Morning. Thanks. I'm curious if you could remind what you guys are using for your economic scenarios as you calculate your loan loss reserve, and maybe what about your portfolio kind of gives you confidence that at what is a kind of below peer loan loss reserve to loans ratio?
Well, we look at Moody's primarily, the different Moody's scenarios, and obviously internal views as well as overlays. 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. 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.
Yep.
Yeah.
Fair enough. Just my only other question would be, I think, Raj, I like you reminding us to think about year-over-year, but if I do look year-over-year, profitability from an ROA perspective is basically flat around 66 basis points on what appears to be a core basis. What's the biggest driver of improving that ROA on a year-over-year basis through the rest of this year?
NIDDA growth. If I was to pick one thing, that would be it. We deliver on that NIDDA growth, everything else will take care of itself.
Got it. Sounds good. Appreciate the time.
All right. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Raj Singh for any closing remarks.
Thank you all for joining us, and like I said, I know this is a very busy day. If we've 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.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.