Welcome to the BankUnited 2021 Second Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Greenfield, Corporate Secretary.
Please go ahead.
Thank you, Victor. Good morning, and thank you for joining us today on our 2nd quarter results conference call. On the call this morning are Raj Singh, our Chairman, President and CEO Leslie Lunak, our Chief Financial Officer and Tom Cornish, our Chief Operating Officer. Before we start, I'd like that reflects the company's current views with respect to, among other things, future events and financial performance. Any forward looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates and expectations.
The inclusion of this forward looking information should not be regarded as a Such forward looking statements are subject to various risks and uncertainties and assumptions, including without limitation, Those relating to the company's operations, financial results, financial conditions, business prospects, growth strategy and liquidity, including as impacted by the COVID-nineteen pandemic. The company does not undertake any obligation to publicly update or review any forward Looking statements whether as a result of new information, future developments or otherwise. A number of important factors This could cause actual results to differ materially from those indicated by the forward looking statements. Information on these factors can be found in Our current report on Form 8 ks, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.
Thank you, Susan. Good morning, everyone. Thank you for joining us and giving us your time to listen to our earnings report. So for the quarter, earnings net income came in at $104,000,000 $1.11 per share compared to $98,800,000 or $1.06 per share last quarter. For the full for the 1st 6 months of the year, translates to an ROE of 13.2%, ROA of 115 basis points.
So very happy with where things came out on the earnings front. NII, net interest income, they've continued to grow. This despite tons and tons of liquidity on the balance sheet, which I think is a problem with every bank these days. Our NII came in at $198,000,000 Last quarter, it was $196,000,000 This quarter last year, it was 190,000,000 NIM contracted a tiny bit from $239,000,000 down to $237,000,000 mostly because of that elevated level of liquidity I just mentioned. On the deposit front, again, a very strong quarter.
Deposit cost came down, the mix improved, The volumes grew. So across the board, no matter how you measure it, the story of the deposit side was again very strong. So just quickly getting into the numbers, Our cost of deposits dropped from 33 basis points to 25 basis points in the last quarter. That's an 8 basis point reduction. The spot balances, DDA grew by $869,000,000 And most of our growth was DDA again.
And by the way, DDA now stands at 31% of deposits For now, it was 25% just at the end of last year. So for those of you who have followed our Sorry for some time. Even as recently as a year or 1.5 years ago, we used to think of 30% as the promised land. I'm happy to report more at 31%, but that doesn't mean that we're not shooting for a higher number. I think the bar just has And we think we can actually get improve the funding mix even beyond this 31% that we're at today.
Provision for credit losses came in at a negative $27,500,000 unless we will get into the specifics of how that all evolved. On the credit front, we again, lots of progress. The credit card size and classified assets dropped by $541,000,000 That's a 21% drop. Loans that are either temporary deferred or modified The CARES Act also declined. They were $762,000,000 last quarter.
Now they're down to 497,000,000 NPL ratio, however, went up a little bit from 1% of loans last quarter to 128. If you exclude the guaranteed portion of SP alone, that number is at $107,000,000 This increase is attributable to largely applicable to basically one credit. It's a large credit, dollars 69,000,000 It's a relationship to the C and I business here in Florida. It's a relationship we've had for almost a decade. And for a large part of that decade, for the 1st 7 years or so, it was we were the primary bank All in the last 2 or 3 years that we've become a participant in our shared national credit because the company got so large that we couldn't really support them from their credit needs.
So one of the largest banks in the country took over the primary and we've been a It's a company that we've known for a decade. Some accounting irregularities came up over the last few weeks in the books of this business, which is why we took the stand of moving this to a nonperforming loan and taking a large reserve against it. We have a $31,000,000 reserve against this loan. Capital By the way, net charge offs, just to finish on the credit side, net charge off ratio was 24 basis points compared to 26 basis points for the full year of 2020, So fairly steady. Capital, as you know, we have tons of capital.
We've announced our share buyback back in February, which It's still outstanding, but $37,700,000 is still outstanding in that. We are adding to that. And yesterday, the Board met and approved another $150,000,000 on What was already left in the last authorization. So I think over the last couple of earnings calls, I've mentioned The stand we've taken with buybacks is that we will be more opportunistic rather than just steady by a little bit every day. And the reason for that is We expect this to be a very volatile market.
Even a little bit of bad news or good news can really move Stock prices a lot, which is what we're seeing right now. So we're going to use that to our advantage and be opportunistic. It's With the stock trading at, it's a fairly easy decision what to do. CET1, step Capital, it's 13.5 percent in Holdco, 15.1 percent of the bank. Our book value, again, continues to grow.
Book value was 33 91 now, tangible is 3,308, so very happy about that good progress upwards. This quarter after I think the longest hiatus we've ever had, this quarter, we We're back in the hiring business and brought in producers both on the left and right side of the balance sheet Across business, buffet's business lines, so this is exciting. We have not done that for a full year, which, like I said, was the longest we've ever gone without bringing in new producers. We even launched a new business line. We were always in this business, I think this is the HOA deposit business.
We've always been in this business but not organized as a separate business line, but we did that to see a big opportunity. We've made a couple of hires, again, on the production side, and those hires will be starting soon. So very excited about what that business Last quarter, excluding PPP loans, our loan growth was negative $500,000,000 round numbers. This quarter, We still have a negative number, but it's small compared to how much decline we had in loans last quarter. And as I look forward to where the pipeline is, I'm actually very optimistic about what 3rd quarter and Q4 would bring to us, especially in the commercial side, especially in the C and I business.
Less on the CRE front where the pipelines are getting better, but C and I pipelines are much better. And Tom will get into the details of this a little more. But as we see into the second half of the year, the best we can tell We will most likely make up the reduction that we've had in loans, again, excluding PPP loans, that's just a different animal. So the economy is healing both in New York and Florida. Florida is further ahead than New York, like I've said in the past, Even New York is showing very good signs.
We are obviously watching how the health care numbers That can change at any time, so we do keep an eye on that very closely. But overall, it's been a very positive picture. We have opened up and brought our employees back in a capitalated way. We're not completely back into the office. But by Labor Day, goal is to get to the new normal, where a number of people will work In a hybrid fashion, others will work remotely, some few will work permanently 5 days a week at the office.
So all those, what we call, are to all return to office is being played out as we speak, and we expect that by Labor Day, we will be in the new normal. Again, the caveat obviously is the healthcare numbers that keep watching. What else? I am going to actually turn it over to Tom, who will get into a little more detail. One more thing, which Leslie just pointed out to me.
The other change on strategy That is very recent over the last 3 months or so. It's for the first time in the history of We are beginning to think about geographies outside of just New York and Florida. In the past, we said New York and Florida is about as much of the market as we want because it's just hard just flying back and forth between these two markets. But if the pandemic has told us anything, it's that you don't have to fly back and forth all the time to cover 2 markets. If that's the case, then There are other markets that will work well with our business model.
There are generally business dense urban markets where we are beginning to look and have discussions with to see if we want to expand into these markets. So nothing To announce this is very early phases, but I wanted to share at least our thinking about geographic expansion much before it actually happens. So when there is something more concrete, of course, we'll come talk to you about it, but we are beginning to at least think in those terms That is not just Miami and Manhattan, but other markets might also get added to this franchise over time. But with that, I'll turn it over to Tom, who will walk you through a little more detail.
Great. Thanks, Raj. So let's talk a little bit about the deposit side. First, Overall average non interest bearing deposits grew by $673,000,000 for the quarter and by $2,900,000 compared to the Q2 of 2020. On a period end basis, non interest bearing DDA, as Rod said, grew by 869,000,000 For the quarter, while total deposits grew by $877,000,000 NIDDA has now increased 26% on a year to date basis.
So What's really good about that is it's another quarter where we've seen really strong growth really in all of our business lines. It's a broad based Support of the continuance of NIDDA, new relationships, most of the growth was driven by new logos Coming into the organization, new treasury management relationships, which is showing up strongly in our fee income lines, which are up 31% in terms service charges. So we're seeing good support in all of these areas. Time deposits declined by 806,000,000 Money market and interest bearing checking grew by a total of $815,000,000 So we're seeing some movement from time deposits to our money market product as we've lowered Rates on the CD side, retention has been good and actually, as I said, a lot of this money has been moving to the money market accounts. On the loan side, I spent a little bit of time on this and follow-up on some of Raj's comments.
While we did have a decline Excluding the PPP loan forgiveness by $56,000,000 in the quarter, it began to feel like a more Normalized quarter, residential growth was $494,000,000 for the quarter, including both the residential and the EBO side. And I think most importantly for us as an indicator, C and I loans were up by $186,000,000 for the quarter, which is really, really a good sign for us. It's one of our major business lines. It's the first time that this line has grown Since the onset of the pandemic, so that was really good to see. It's also even better or just as good as 186,000,000 What was nice is it was a good blend of new relationships into the bank as well as existing clients increasing credit So utilization, line utilization has been a challenge for the industry, it's been a challenge for us.
We're at relatively low historic rates from a utilization perspective. So it was nice to see clients start to move back
To a
more normalized basis, new transactions being done in the quarter, see M and A activity being done in the quarter. So The blend was good and we also within the C and I business, if we looked at the business, it was a strong back end of the quarter. June was particularly strong. And we saw transactions in a number of different industries. At one point, I looked at the pipeline for closing in June, And we had something like 18 deals and all 18 were in different industries.
So that was nice to see from a diversity perspective. So given the pipeline activity that we're seeing now, we expect to see growth in the second half of the year. We will see a better commercial real estate environment. We had $225,000,000 of CRE Run off in the multifamily business that will pretty much taper off at this point as you can see from some of the supplemental information. Our multifamily New York portfolio has now been kind of reduced to what I would call a pretty stabilized level.
This has been kind of a 5 year process of this reduction, and I think now we're kind of at a stabilized level. The other thing that was good is, as Raj mentioned, We've made a number of key hires, the HOA segment on the deposit side. We've brought in producers on both sides of the balance sheet. We've been a strong player in this market, and I think this is an opportunity for us to really significantly grow This business over the next few years, we also added capability to our healthcare practice team, which is important to us and we hired several commercial producers at kind of our one of our core Florida C and I type team. So the cadence in the field, it feels like it's starting to return to kind of a normalized basis for us from a business production calling perspective and whatnot.
So a little update on the PPP, $438,000,000 of 1st draw PPP loans were forgiven in Q2. At June 30, there was a total of $209,000,000 in PPP loans Quick update on deferrals and care modifications. Slide 17 in the supplemental deck also provides some data on this. On the commercial side, only $3,000,000 of commercial loans, now in short term deferral as of June 30, $436,000,000 of commercial loans remained on a modified terms under the CARES Act. The largest group of loans still under the CARES Act is in the hotel portfolio, Although the total CARES Act modified loans in that portfolio declined from $343,000,000 at March 31 to $225,000,000 At June 30, we've seen particularly in Florida, where about 76% of our hotel portfolio Yes, we've seen a pretty strong rebound in tourism in Florida.
Any of us who have been trying to book hotel rooms in Florida Recently, I found it pretty difficult to do it at high rates and we're seeing a strong rebound in occupancy, particularly travel related, beachfront property occupancy within the overall Florida book. So that led to The significant decline that we had there, we expect to continue to see improvement in that. Dollars 218,000,000 in commercial loans rolled off of deferral and modification this quarter. 100% of these loans are either paid off or resume regular payments. On the residential side, excluding the Ginnie Mae early buyout portfolio, $59,000,000 of the loans were on short term deferral or have been modified under a longer term CARES Act repayment plan at June 30.
Of $532,000,000 in residential loans that were granted an initial payment deferral, dollars 493,000,000 or 93% have rolled off. Of those that have rolled off, 93% will be the paid offer or making regular payments. Just some selected data On our CRE portfolio, rent collections on commercial properties remain very strong when we look at larger clients Selected data that we see in the office portfolio, it's rent collections have run 98% actually, both in Florida And New York continued strong performance in multifamily, 96% in Florida, 91% in New York. Retail collections were 95% in Florida, 85% in New York, and we continue to see some improvement in the New York retail Market, as I mentioned a little bit earlier, the Florida hotel market is particularly back stronger. All Florida and all New York properties are now open, occupancy averaging 75% for the Q2 of 2021, excluding 1 New York hotel that did not open until the end of the second quarter.
So we're seeing a good overall rebound In that market, so with that, I'll turn it over to Leslie for some more detail over the quarter.
Thanks, Tom. So as Raj mentioned, NIM was down slightly this quarter to $2.37 from $2.39 in large part due to even stronger than anticipated headwinds from high levels of liquidity. Cash was elevated and liquidity was deployed into the bond portfolio, which while accretive to net interest income is not accretive to the margin. The yield on loans this quarter increased to 3.59% from 3.58% last quarter. Recognition of fees on PPP loans that were forgiven added 11 basis points to that loan yield this quarter compared to 6 basis points last quarter.
So without the impact of PPP origination fees, the yield on loans would have declined by 4 basis points for the quarter just due to the turnover of the portfolio into lower yielding assets in this environment. We have $9,800,000 of fees on PPP loans that remain to be recognized. Dollars 1,100,000 of this relates to the 1st draw program, and I would expect most of that to come into In the Q3 and $8,700,000 relates to the 2nd draw program, and I really wouldn't expect to see much of any of that in the 3rd quarter. The yield on securities declined from $1.73 to $1.56 that was somewhat more than we had anticipated. Retrospective method accounting adjustments related to faster prepayments on mortgage backed securities actually accounted for 10 basis points of that quarterly decline and the rest of the decline obviously just attributable to turnover of the portfolio in a slower rate environment.
As Raj said, the total cost of deposits declined by 8 basis points quarter over quarter with the cost of interest bearing deposits declining by 10 basis points. With respect to the FHLB advances, there's still $1,100,000,000 of cash flow hedges against FHLB advances that are scheduled to mature over the remainder of 2021 with a weighted average rate of 2.4%. We estimate that we talked about the impact on The NIM at higher levels of liquidity, we estimate that if we simply if we normalize elevated cash balances, That accounts for about 8 basis points. So even if cash balances had been normalized and then would have been 8 basis points higher and we estimate that if we also normalize level of securities, we would have seen 14 basis points. So that impact on NIM of high levels of liquidity is somewhere between 8 14 basis points depending on how you think about it, so As Raj said, we currently expect the cost of deposits to continue to decline next quarter and we currently expect the NIM to be stable to slightly higher.
However, liquidity may continue to be a headwind there. Moving on to the provision and the allowance. Overall, the provision for credit losses this quarter was a recovery of $27,500,000 Slides 10 through 12 of our DAG provides some further details on the allowance for credit losses. The reserve declined from 95 basis points at March 31 to 77 basis points at June 30. Biggest drivers of that change, dollars 19,400,000 of the decrease related to the economic forecast.
The largest impacts were improvement in the unemployment outlook and improving HPI and commercial property forecasts. The reserve decreased by $17,600,000 due to net charge offs and to $16,200,000 due to portfolio changes. That bucket includes things like the net decrease in loans, shift into portfolio segments with lower expected loss rates such as residential as well as the impact of Just loans moving in and out of the portfolio and improving borrower financial statement spreads. Dollars 12,800,000 decrease in the amount of qualitative overlays that had related to some uncertainties around the COVID pandemic that seem to be The largest component of the reduction in the reserve was the CRE portfolio because that model is particularly sensitive The C and I reserve actually increased this quarter on a loss rate basis, and that was again due to the large reserve on the one loan. Total criticized and classified loans declined by $541,000,000 special mention down by 2 $82,000,000 in substandard accruing, down by $299,000,000 Substandard non accruing loans increased by $40,000,000 again, back to that With respect to operating expenses, we saw a decline in comp this quarter.
As expected, Q1 is always somewhat elevated. Deposit insurance expense came down correlating to the reduction in criticized and classified assets. We continue to see increases in deposit service charges and fees stemming from our treasury management solutions initiatives that we initiated in conjunction with BankUnited 2.0. One more thing I just want to mention real quick. With respect to the tax rate, I would expect it to remain around 26%.
Consistent with the uncertain tax positions disclosure we made in our last 10 ks, we have very recently entered into discussions with the state of Florida Regarding several outstanding tax matters, there's a possibility that these discussions could result in recognition of a benefit somewhere in the next few quarters. These discussions have just recently gotten underway, so it's too soon for me to be much more specific than that. So with that, I'm going to turn it over to Raj for some closing comments.
While Leslie was talking, I just looked on my deposit report, We got to get every day. So as of last night, our deposit cost was at 20 basis points. So I feel pretty comfortable in saying that we will be in the teens this quarter, might be in the teens as early as next week. So I know in the past I've said that we think we will end the year on a spot basis in the teens. I'm happy to say that we're about 5 months ahead of schedule.
And by the way, deposits continue to grow. Truth be told, while I'm very excited about deposit growth that has come in, liquidity is a problem. So This would have been an even better report if we had said to you that we actually kept the models flat. So we're trying to and we are Succeeding and pushing out anything that we think is price sensitive, it will hurt us in the future when rates rise of continue to increase the quality of the book because some day rates will rise. So it is If I look back 6 months ago, what we thought the year would play itself out is overall, on the deposit side, we're much further ahead of what we thought On the loan front, we're further behind in what we thought we would do.
But think about And cost of funds are still declining further than we ever thought it would. And on the loan side, pipelines are now beginning to look normal. So Also a point that Tom made that I just want to repeat that may have gotten lost. Multifamily New York has been the big Headwind for us, the runoff from that portfolio has been a big headwind for us because exactly 5 years ago is when we changed strategy and de emphasized multifamily. That's why they're anniversary.
It's literally around maybe I think this month. So as that portfolio matures and those payoffs and So the natural sort of runoff gets behind us. As I look forward, we don't see the same velocity of payoffs happening a very good story as I look forward over the next couple of quarters compared to the last couple of quarters for the last 5 years. So I just wanted to make that point. But we will turn it over to the moderator for questions.
Our first question comes from the line of Ben Gurlinger from Hovde Group. You may begin.
Hey, good morning, everyone.
Good morning, Ben.
I was wondering if we start on Slide 23, it's the nonperforming loans. The big uptick, I totally understand, is that one major C and I credit. But if you back that out, linked quarter looks to be roughly flat. And as Tom worked through the credit information, it seems like everything is not only positive, but it's working in the right direction as well. I was curious if you could shed some more color on nonperforming loan balances in general.
And then also the credit that you guys called out, it seems to be 30,000,000 you said $30,000,000 reserve. It seems to be pretty high as a percentage of reserve relative to the total loan. I was just curious if you could shed some color on the confidence there in terms of the SNC and performing going forward.
Yes. On that loan, we are still capturing a lot of We'll actually come a lot more in about 2 weeks' time about exactly the collateral coverage we will have evaluating all the collateral there. So that was our best guess. And obviously, we don't want to go back and keep doing this over and over again. So we just took what we thought was a conservative and appropriate level of reserve, but we'll know a lot more in about 2 weeks' time.
This all kind of played itself out over the last few weeks. Where we are accounting irregularities, it becomes much harder to understand sort of the extent of The problem that might be because you can't really rely on the numbers that have been presented to you. So that's it almost falls outside of credit losses. It More like a fraud loss. So that's what we're dealing with here.
It's not like the business slowed down and we saw this slowly happening and we get to kind of predict how it will come back up. It's just suddenly the numbers that you've been relying on are worth to pay for the rig now. That's the situation we're dealing with. So we're rallying the lateral. We think we made an appropriate conservative estimate of what the reserve needs to be.
But we'll know a lot more, like I said, in a couple of weeks and we'll true it up for the coming quarter.
Yes. With respect to the rest of the population, This is for the most part, I mean, there
have been some small ins
and outs, but for the most part for the last This has been a relatively stagnant population of loans that are in our workout recovery department and Yes, just working through them. So other than this one loan that Raj just mentioned, there's a little ins and outs, but for the most part, this is The population of loans that we've been working out for the last few quarters and are hopeful that we'll see that gradually start to wind down.
Yes. There's nothing really stands out on this one.
No. Okay, great. That's really helpful color. And then if we could just kind of switch gears here. Raj, you seem pretty optimistic in terms of loan growth.
I get that You've transitioned from a giant question mark at the beginning of the year to being in a sense of positivity and now you guys Taking the offensive approach of hiring lenders and looking outside your markets. I was curious if you can kind of Maybe potentially frame what your loan growth targets might be in terms of the end of this year or even a year from now, Any sort of areas you want to grow and growth in general? What do you think would be a good mark to have in terms of growth? Yes.
So for this year, I mean, look at the trajectory. Over the Q1, we were down $500,000,000 This quarter, we're down about roughly 50,000,000 And by the way, the quarter had closed one day early. We would not have it down. We had to pay off on the very last day, which really This is annoying when that happens, but we did have unexpected payouts in the last day. We were actually going to have a positive quarter.
But nevertheless, The first two quarters have been negative quarters. I'm expecting the next 2 to be positive quarters. In the past, we've said we'll probably have Very low single digit sort of percent growth, which is kind of what it still feels like. It is hard to predict in this environment. It is not a normal environment yet.
I would not even dare try what things to predict what next year would be I think we need to see things settle down a little more. But just for this quarter, I expect the next quarter Q3, Q4 to be positive and for us to kind of make up for what we have lost in terms of balances over the 1st 2 quarters. That's my optimism comes really from, a, seeing the environment, but more importantly, seeing the pipeline. So when I sit down with Tom every couple of weeks, I just look at where the especially the commercial C and I pipelines That's they're the best place they've been since the pandemic started. And light utilization, Slowly but surely every single month with the exception of June, the last year of June when we had some pay downs, when it went down a little bit.
But overall, the trajectory is pretty healthy. And all we need in our forecast is our forecast doesn't say that it will go back to normal
Yes. I might add that's one of the reasons why I made the comment about where our production came in the quarter, which is there are things that we proactively control, which is new relationships calling, Bringing in new clients into the bank. And I think when we look at the pipelines coming from that activity, it looks pretty good right now. The part that we don't control is the line utilization of existing clients, but the fact that we saw a good portion of our production coming From line increases during the quarter, clients during new transactions, while the utilization didn't move much because of some of pay downs that Raj mentioned that we had at the end of the quarter. The overall feeling and sentiment of our clients doing more activity, See more activity, revenue starting to go up, a lot of our credit facilities are formula based facilities.
So as sales goes, Receivables go up, inventory goes up, and you're going to we would expect to start to see as the economy continues to recover, More line utilization. So if we get both of those going in the same direction at the same time, then I think that's going to be a much better story. Great. That's really helpful. If I
could just sneak one more in, Leslie. I know expenses has always been a little bit volatile, especially With comp and other moving pieces outside of technology spend, which I get that is an important investment for the bank, is this Kind of 118.5 percent a good run rate or should we expect something a little bit higher going forward?
I would say over time, that's probably going to creep up a little bit. Tom and Raj both Refer to hiring we're doing of some producers. Do I think that's going to materially move the needle on that run rate in the near term? No. But we are seeing that.
However, on the flip side, that should also lead to more than that much. Yes. These people have to earn their keeper. They're not going to be here long, so that should lead to an increase in revenue offsetting it. But I would say there is going to be a little bit of upward Strong comp because we are actively hiring.
And I think the other thing that's going on in the comp number right now, our variable compensation accruals have been increased over prior year, again, in anticipation of a strong second half and a pickup in revenue. So that's actually great news.
Okay, great. I appreciate the color guys.
Yes.
Our next question comes from the line of Jared Shaw from Wells Fargo Securities. You may begin.
Hey, good morning, everybody.
Hey, Jared. Good morning.
Maybe sticking with the loan growth Outlook, that's good optimism there. Is that on the C and I side, is that really Just more broad based with being able to start to penetrate those new customers to the bank that you brought in on the deposit side or are there certain industries that you're seeing more strength, whether it's franchise finance or whatever? I guess maybe a little color on what you're seeing in the pipeline there and
help with the turnover. For sure.
Careful. From a credit perspective, we have not increased our risk appetite for credit. We're still being cautious on that front. But it's mostly coming from a very healthy economy in Florida especially and also rebounding economy in New York, which is just a few months Fine. But, no, that's it's not like we've brought on a deposit line to what are selling Credit product, it's more coming from the fact that there is the economy is rebounding very strongly in Florida, and we are sort of benefiting from that and harvesting There's a good news over there.
Yes, I would say it's pretty broad based. Like I referred earlier when I looked at the closing production for the quarter, There were no 2 deals in the same industry. So it ranged from a multinational company in Orlando that manufacturers toilet paper to renewable energy to communications to healthcare. It was a broad number of industries Across the board in the segments that we serve.
Okay. And then on the HOA business, It sounds like that's primarily or exclusively deposit right now. Is there an opportunity to have that become a lending product in conjunction with that expansion?
Yes. There is a small element of credit in that business, but that's not really what the business is about. Credit is generally if you do 10% loan to deposit, that's probably a high number. It really is a deposit business. And I want to clarify, we have been in that business for a while, but it was just Never really organized a separate line of business or a sub line of business.
So we're putting some resources behind it. We're going to spend some money on technology, and then we'll go to market. And it's a national business for us actually Because while we do a lot of it in New York and Florida, we do have clients outside. So more recently, some banks have actually stepped up and bought platforms and spent Tons and tons of money on goodwill and intangible. We think we can grow that organically Without spending that kind of capital.
Yes. The production team that we've hired in terms of new people have a national footprint in terms of their client base.
Okay. And then when you talk, Raj, about looking at other geographies as being potentially attractive, How should we think about BankUnited entering any of those? Would that be if you come across a person or a team that has some good relationships in the in the market, you would do that or it would be a bigger once you identify a market, it would be a bigger entrance with potentially a branch or potentially an acquisition or A bigger splash than just 1 or 2 people?
First of all, look at the way we've entered other businesses, other geographies over the last 10 years. Chances are it will be similar to that, which is going to be a small step in a new geography with a small team and then slowly grow it over time. Acquisitions are always possible, but it's never our primary strategy. We always try to find ways to ourselves and we can't. If there's something so special that you have to acquire it, then we're open to that, too.
But our history will tell you that, that's It's not something we lead with. We always lead with organic growth. So we are it has to be a market that makes sense for us. It has healthy market. There has to be a market where our business model will work.
Not every market is like that. It's unlikely it will be far flung. We're not going to go Yeah. Well, as an example, but it will be somewhere within, let's say, the Eastern seaboard. So we are looking at markets from Boston all the way down to Atlanta and beginning to engage with teams to Where we could actually get what's the health of these markets?
What is the health of the lending markets? And what are the pricing dynamics? They're quite different from one MSA to the other. What is the competition like? And then most importantly, Can you find Michael, Michael, people who will work well in our family.
Great. And then maybe just finally for me for Leslie, The securities portfolio went up about $1,000,000,000 this quarter. Can you give any detail around And what the purchase yields and duration was like and is that changing the overall interest rate sensitivity at all of the bank?
So the purchase yields are depressing, but they are what they are. They've averaged just under 1% for the quarter. The composition of the portfolio has not changed materially because of the purchase activity and we've made a conscious decision to keep the duration of the portfolio short. Jared, it always has been. We don't believe that this is the time to take duration.
So we're still we're keeping the duration of the portfolio short. Yes. The bond portfolio is probably a little larger than we'd ideally like it to be right now, but it's better than letting it sit at the Fed regarding 15 basis points.
Great. Thank you.
Our next question comes from the line of Dave Rochester from Compass Point. You may begin.
Hey, good morning guys.
Good morning, Dave.
I wanted to go back to the loan trajectory for a minute. I appreciated all the color there. You'll definitely get some nice lift with that multifamily runoff going away. But You've also had some decent runoff in the bridge book as well. That was another, I think, $100,000,000 on top of the $250,000,000 for multifamily this quarter.
So just wanted to get your take on how you see that book trending and when you think you'll hit bottom there?
Yes. I would say I'd split the answer to that into 2 pieces. 1 is the equipment piece and the other is the franchise finance piece. I'll take franchise first and ended the quarter at about $463,000,000 We will probably continue to prove that a bit and take out concepts that we don't think are the long term winning concepts In that business, I would expect that to trend down a bit over the next couple of quarters. We do see some new transactional opportunity.
In that, we're looking at 4 or 5 deals right now in our McDonald's focused that I think are good looking deals. So that will probably drift down, but then stabilize as we get to the end of the year. We've got a couple of more concepts that we might want to clean up a little bit and we will probably continue to reduce one of the fitness concepts a little bit where there are sale There's some transactional volume going on in the fitness work where you see some aggregation of operators in that area. On the equipment side, I think that will also continue to trend down just a little bit. There is not as much transactional opportunity in the equipment finance area right now.
We're not seeing as much return The stronger CapEx type spending there and frankly, right now, the deals that we're seeing are fairly long duration opportunities and they're at fairly thin rates. And so it doesn't give us sort of great economies As we look at the trade off between credit risk and return and like in other businesses that we're in To take sub-two percent type risk for 10 years and mid pass level credits doesn't make an awful lot of sense right now. And I think we'll just we'll see growth in other areas of the portfolio that have got better returns and covered deposits and treasury opportunities And things of that nature.
Yes. Okay. So you've got runoffs of Siding and Bridge.
You've got the
multifamily portfolio basically stabilizing, it sounds like in 3Q. So it seems like
Q is still there. It's
down a little bit?
Yes, the rate of decline will slow considerably.
But it just seems like with to your point, the rate of decline slowing Pretty significantly and your positive commentary on the pipelines and growth in other areas, it seems like you guys are poised for some pretty decent loan growth here in the back half of the year. Is that fair?
Yes. Yes.
Yes. Good. Just switching to capital, it sounds like you're Perhaps about to get aggressive here, just given where the stock is trading, as the buyback goes. So if you end up Wrapping this up, in the shorter term, do you see more excess capital behind that? And would there be a willingness on your part to put out Another plan?
Not trying to get too far ahead here, but just want to understand how you think about excess capital right now.
Yes. We will be back Most likely, obviously, the Board will make the decision. But there's a lot of excess capital here. I can see us doing another $150,000,000 right after that.
Great. And then maybe just switching to your the securities investment strategy, How are you thinking about growing the book now just given the newer lower rate environment that we're in at this point, if you end up getting more excess deposits in the back half of the year.
So obviously, we see stronger loan growth on the horizon and It would be our desire that we would not be growing the securities book from here, but that growth on the balance sheet would be We'd be seeing growth in the loan book instead of the securities book. And as Raj mentioned earlier, we are Also in the process of actively incentivizing depositors who we believe will be rate sensitive in a different rate environment to take their deposits elsewhere. So we would not be disappointed if we didn't see total deposits grow next However, to be honest, if we find ourselves in the same position we're in this quarter where we have a lot of excess liquidity there, that's where we'll put it.
Listen, if the deposits were to decline by $1,000,000,000 let's say, and we just reduce cash on the other side of the balance sheet, Not not lose any earnings, but you'll free up $80,000,000 of capital, which you could buy back stock at what are we trading at 1.2x, 1.3x book. I'd say accretive to EPS. Yes. So I wouldn't be concerned if we end up And that's all. All the balance sheet.
All the balance sheet would be a good thing. Yes.
Yes. Exactly.
Sounds good. Maybe just one last one on fee side. I saw The bump up in lease financing revenue this quarter, and I know that can bounce around a little bit, but are you finally expecting that the
Stabilized for the foreseeable future.
Great. All
right. Thank you very much. Appreciate it.
Yes.
Our next question comes from the line of Brady Gailey from KBW. You may begin.
Yes, from KBW. Thanks. Good morning, guys.
Great. We thought you switched firm.
Still here. I wanted to ask just another one on the C and I nonperforming. What sector was that in? And then when you look at your total Loan portfolio, can you remind us what the percentage of total loans that are shared national credits?
The sector this is in is retail and wholesale distribution of Commercial sort of heavy equipment in largely the southeast part of the country. And while technically this fall under a SNC category, I wouldn't really call it that, we have a positive relationship here. We were the primary bank for the longest time and only because of the size of this thing growing to a place that we did not want to go. This became sort of a club deal. Overall, the deal was large enough that this has to be called a SNC, but this is not one of your typical SNCs
where It wasn't the capital markets transaction. Yes.
This wasn't like a large money center bank called 17 banks and says who wants to take that $20,000,000 of a deal. This was somebody business and a company we've known and banked for a long time, So, which is why it is even more painful to see us go the way it has gone.
Yes. The definition of SNC is over $100,000,000 in total credit commitment in 3 or more banks. So I mean, it's not as Raj said, this isn't your You know, a multi $1,000,000,000 deal where you have 28 banks and it's really a club deal.
Yes. Unfortunately, we have a long standing relationship
with
this Like Raj said, that makes this even more painful.
Yes.
Yes. Okay. And then Raj, you mentioned you're back On offense, you're hiring people. Can you maybe size out how many people you hired in the Q2? And maybe just talk about How many people you could hire going forward?
I couldn't answer the second part of the question because It's always ad hoc how many people you'll be able to bring on. We are having multiple discussions. Tom, do you remember how many we've hired?
I would say it's probably about 6 or 7. Okay. And then lastly, to some extent, the future hire is also a very opportunistic issue. I mean, if we find A terrific producer in a market, whether we have an opening or not, we're going to hire them. I mean, we're in the hunt for talent every day.
Yes, that makes sense. And then Leslie, I heard you have $9,800,000 of PPP fees left. Can you tell us how many PPPPs were actually taken in the 2nd quarter of the dollar amount?
Yes, dollars 4,500,000. Great.
Great. Thank you all.
And our next question comes from the line of David Bishop from Seaport Research. You may begin.
Yes. Good morning.
Good morning, Gabe.
Hey, Leslie, a quick question
for you. Just in terms of Quarter to quarter change, just curious how the balance sheet looks from an interest rate sensitivity positioning. Just curious if you Have that updated relative to last quarter.
Not much different, Dave. The balance sheet has been for some time and continues to be moderately asset It's probably a little bit more asset sensitive now than it was a quarter ago, but Still in the same range and that's kind of what we try to manage to.
And in terms of, I guess, Loan floors, just curious to get a sense in terms of how much we have to see rates rise before we start seeing some of these loans Coming through their floors, is it a big impediment in terms of repricing?
It's not a big impediment. Tom, correct me if I'm wrong, but I The only book where we have really meaningful operating floors right now is the mortgage warehouse book. The rest of the book has some floors, but they're pretty low. Correct.
Got it. And then Raj, in terms of maybe a high level commentary, You mentioned that the runoff, I guess, in the New York multifamily is probably nearing an endpoint here. A broader view of that as an asset class here, do you think that will eventually begin to grow again? And maybe just your view of just New York multifamily in general at this point?
I mean, it's a very wholesaling asset class, and it's very hard to generate deposits. You would think it would be easier than it really is. And we just so compete with some Thanks. For them, that's the only asset class, which makes it hard to compete with. It is Overall, the New York market obviously has suffered more in this downturn than, let's say, Florida, which also applies to this asset class.
So I'm still not very bullish on New York Quality Family as a class I would not want it to grow, but at least not very meaningfully. What we will be left with are core relationships where we have deposits, we And it's not just loans that we bought from our broker. So If we can grow that business, of course, we would want to grow it. But it is such a wholesale broker driven industry That to have real sort of substantive growth measured in 1,000,000,000 of dollars, you really have to go through the broker channel and really Think of this as almost buying bonds. That's the only way you can really get a lot of growth.
So I don't suspect that we'll end up with a lot of growth in New York multifamily, but I think we'll always have it as an asset class and stable in kind of the form that it is in right now.
Yes. I would also add that even prior to the pandemic, the rent regulatory changes that went through Recently, 1.5 years ago or so in New York, dramatically changed the economics of the business.
Yes. The long term economics are These are 5 year loans for the most part. So if you go out and say, okay, what are the cash flow projections going to be 5 years out, Based on those changes that happened just before the pandemic, those tenant debt service coverage ratios will look only thinner 5 years out. So that is a concern that we never used to have with New York Multifamily, but now it's something you're going to put into your math.
Yes. Operating expenses in that business are just growing faster than rent rolls can grow. And therefore, there's just compression in NOI.
Got it. And then maybe Leslie turning back to credit, obviously, The improvement in the economic forecast driving the lower ACL ratio. Just curious when things do start to bottom out In terms of having to provide for loan growth, just curious where you see yourself maybe preserving at from a percent of loans perspective moving ahead?
Before the pandemic hit, right,
what was our CECL coverage ratio? 50 basis points. And so I would say, Dave, and I've I've said this before, these kinds of things are difficult at best to predict with a high degree of precision. But I would say, we see the economy really close to what it looked like when we put that day 1 CECL reserve on. If portfolio composition is consistent with where we were then, I would say we're going to drift back to that 60 basis point level.
Right now, the portfolio composition is a little more tilted toward residential than it was then, which carries a lower reserve. So even with more commercial origination, heading back there probably makes as much sense to me as anything. Can I say definitively when we get there? No, because some of that also depends on continued upward risk rating migration, The nature of production, believe me, I would be very pleased to get back to a place where we have a positive provision in the quarter because of loan growth. That would be a good thing.
But I think my best the best way to look at it is probably we're headed back Towards that 60 basis point barring things looking going in a different direction economically.
Got it. Appreciate the color.
Thank you. I'm not showing any further questions in the queue at this moment. I'd like to turn the call back over to Mr. Raj Singh for any closing remarks.
Thank you, everyone, for joining us and listening to our story. We'll talk