BankUnited, Inc. Q3 FY2023 Earnings Call

Good day. Thank you for standing by. Welcome to the BankUnited Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised 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, Michelle. Good morning, and thank you for joining us today on our third quarter 2023 results conference call. On the call this morning are Raj Singh, our Chairman, President and CEO; and Leslie Lunak, our Chief Financial Officer; and Tom Cornish, our Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, including, without limitation, those relating to the company's operations, financial results, financial condition, business prospects, growth strategy, and liquidity, including as impacted by external circumstances outside the company's direct control such as adverse events impacting the financial services industry. The company does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors should not be concerned as exhaustive. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2022, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, 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. Welcome, everyone. Thank you for joining us for our earnings call. In preparation for this call, I usually ask Leslie, about a week before if she can guide me as to what are the things investors are looking for? What are the hot topics? So this time I did the same thing. Leslie forwarded me an email from one of the sell-side analysts, I think it might have been JPMorgan, indicating that general bank investors are looking for five or six key topics. In my comments, I'm going to address those topics directly. The issues were: NIM inflation, deposit stability, both pricing and inflows, credit trends, unrealized losses, expense management, and regulatory considerations, which mainly apply to larger banks. So I'll provide an overview of these instead of just recapping what's in our earnings, which was released a few hours ago. Our NIM increased by 9 basis points from 2.47% to 2.56%. Just to provide context, last quarter, we mentioned that our NIM had reduced from the first quarter to the second quarter, remaining flat at 2.47% each month. This quarter, we experienced an increase. If you look from January to now, NIM was in decline from January to April, flat for the next three months, and now improved over the last three months. Thus, I feel confident in predicting a modest improvement will continue in the coming months. Regarding deposit stability, this quarter we grew deposits outside of brokered by about $500 million and noninterest DDA by just over $50 million. Our NIDDA to total deposits remains stable at approximately 28%. I have been asked many times over the last couple of years about what the long-term run rate for this ratio could be, and it's challenging to determine a definitive stabilization ratio. However, reviewing this quarter’s data along with recent months, I am beginning to feel confident that we are close to stabilization. If we have another couple of quarters like this, we can expect to declare that we are indeed at a stabilizing point and could see improvements beyond 30% again in the upcoming quarters. As for credit trends, net charge-offs remain low at 7 basis points, compared to 8 basis points last quarter. NPAs sit at 40 basis points. Excluding the SBA guaranteed portion, that number is approximately 11 basis points, again indicating low levels of concerns. Unrealized losses came in at $407 million, an increase from $373 million last quarter, reflecting the impacts of recent rate changes, particularly in the last few weeks. In terms of expenses, we previously guided that we aim to keep expenses flat for the second half of the year, and we have largely achieved that. Lastly, on the regulatory front, while the email indicated concern about larger banks, I do not have any new information to report that you haven't already seen in industry news. Our balance sheet review shows securities down $257 million while loans dropped to 25%. However, C&I loans increased by $100 million, and CRE rose 46%. Overall, our deposit loans slid down to 74%. Note that within the CRE category, we did push out about $300 million of non-core C&I. This indicates that without that, the figures would look more favorable. We're feeling confident about the trajectory ahead. We repaid over $800 million in FHLB and more than $200 million in brokered CDs, which means our FHLB balances are lower than the end of last year. The loan-to-deposit ratio decreased to 93% from 95% last quarter, and despite this balance sheet contraction, our PPNR improved slightly, allowing me to feel optimistic about this quarter's performance. We did build reserves this quarter, increasing ACL to 80 basis points. This was mainly due to uncertainty regarding potential slowdowns, which could suggest a mild recession on the horizon; hence the need for readiness. The build-up in reserves was mostly influenced by a worse outlook from Moody's forecasting. I will address the environment briefly, touching on rates, the economy, and regulatory factors. Personally, I believe the Fed has concluded its rate adjustments, with market movements indicating the same. I would not be surprised if no significant changes occur soon. The economy continues to show positive signs, but consumer cash reserves from the pandemic are depleting, prompting careful monitoring for any signs of deterioration. On the regulatory side, various changes are anticipated, especially impacting larger banks with some trickle-down effects for us, but mostly, daily operations remain unaffected. Thank you for your attention, and I will now hand over the call to Tom.

Great. Thank you, Raj. I want to provide some follow-up on the discussion regarding deposits, linking it to our dialogue from last quarter. We previously mentioned a strong deposit pipeline; this quarter confirmed that with our operating business lines generating almost $500 million in deposit growth, which came from all operating segments. Specifically, the number was $484 million for this quarter. Looking at our deposit pipeline, it remains significant and consistent with last quarter's execution strategy in our core operating accounts, NIDDA business, treasury management, and others. Our largest deposit vertical continues to be the title solutions business, with deposits totaling around $2.8 billion as of September 30. On the loan side, we adhered to our outlined strategy, with residential loans declining by $225 million. CRE increased about $46 million for the quarter, yet the overall market outlook for CRE remains challenging. We're not observing robust pipeline opportunities at current interest and cap rate levels, making it difficult for new deals to proceed. Our loan category has largely been flat this year. The C&I segment, which grew by $101 million this quarter, could have been much higher had we not pushed out about $650 million of commitments. The relationships exited were determined unsuitable for our strategic direction. Speaking of our performance, we had a significant quarter in small business lending, particularly in commercial segments, contributing positively to our corporate banking segment. Despite our C&I growth amidst exiting $650 million in commitments, our pipeline remains strong across all geographic markets and industry segments. The franchise equipment and municipal finance businesses trended downward, while mortgage warehouse lending fell by $116 million due to current conditions in the residential mortgage market. Rates on new production for C&I hovered between 8% and 8.5%, indicative of opportunities we are exploring. In terms of CRE pipeline yields, we are seeing slightly below the 8% level, which is promising. Further details can be found on slides 12 to 14. Looking specifically at our office sector, we continue to feel positive about our portfolio. We possess about $1.8 billion in office loans, with $200 million allocated to traditional medical office facilities, differentiating them from conventional office holdings. Our office portfolio showcases strong metrics, with a weighted average LTV of 64% and a debt service coverage ratio of 1.7. As it stands, 95% of the portfolio remains pass-rated, with 58% concentrated in Florida's suburban office spaces. The Florida market continues to perform robustly, and specific insights are available on slides 14 and others outlining geographic and asset breakdowns. Conclusively, our overall credit quality has remained steady; looking at the numbers from 12/31 '22 and this quarter, they have not materially deviated. With that, I’ll turn it over to Leslie.

Great. Thanks, Tom. To summarize, net income for the quarter landed at $47 million, equivalent to $0.63 per share, but earnings reflected an impact from the reserve build this quarter. Positive news includes net interest margin rising from 2.47% to 2.56% as we begin seeing our previously established balance sheet strategies gaining traction and contributing positively to NIM. Total earning asset yield rose from 5.30% to 5.52%, with securities improving from 5.19% to 5.48%. The yield on loans also saw a rise from 5.53% to 5.54%, while the cost of deposits increased by 28 basis points, a decrease from the previous quarter's 41 basis point rise, indicating a gradual slowdown in deposit costs, which now stand at 2.74%. Additionally, we observed a decline in higher-priced wholesale funding, further benefiting this quarter's NIM. The provision for this quarter was $33 million, and the ACL to loans ratio increased from 68 basis points to 80 basis points, even though net charge-offs remained low. The main contributor to the provision increase was the influence of Moody's forecast, which was less favorable. Other factors included portfolio composition changes, tick-ups in specific reserves, and risk rating migrations. On Slide 16, you can see a waterfall chart illustrating the various factors impacting the reserves this quarter. Specifically, the CRE office portfolio saw an uptick in reserves from 83 to 99 basis points. In last quarter's call, we provided some stress test results, which we have reiterated this quarter for your reference. I do not have any noteworthy trends to report in noninterest income or expenses, but we anticipate Q4 noninterest expenses to remain relatively flat. All capital ratios saw an increase this quarter, with the holding company CET1 at 11.4% and pro forma, including AOCI, at 9.8% as of September 30. Thus, we have maintained a robust capital position, and our liquidity remains sound with pertinent details available in the slides if you're interested. Now I'll turn it back to Raj for closing comments.

I would say that I did well not interrupting either of you. That's not to say that there weren't one or two moments, but I managed that. Let's now turn to Q&A.

Our first question comes from Will Jones with KBW. Your line is open. Please go ahead.

Good morning. Thank you for the questions. I wanted to ask about the reserves. If you look back over the last four or five quarters, you've been steadily building since the end of last year. I understand this quarter was largely influenced by macro conditions, but I wanted to confirm that there isn't anything underlying in the book that warrants this. I know that classified and criticized accounts have seen some changes, along with possibly some non-performing assets, but I wanted to verify that. Looking ahead, I would like to know your perspective on the provision as we approach next year. Do you believe that the majority of the reserve build is finished, especially considering we may be in a higher for a longer scenario? Moody's suggested that the reserve could remain stable, or is there a higher figure you anticipate the reserve needs to be?

Well, it's not really that we're trying to solve for a number. I actually joked with the management...

That was true. It’s going to be a very easy answer to your question, but...

Yes, it is. CECL has brought us to this place where I joke about this often that the economists at Moody's can wake up on the wrong side of the bed and impact our P&L in any given quarter more than anything else we do. So unfortunately, that is who we are wedded to. It will depend a lot on what Moody's puts out in three months from now and how their outlook changes. That is a big driver. I will say this much that if we are going into a recession or a slowdown, it can be painful with all these builds that happen, but there will be a reflective opposite effect as we come out of it. So what can feel like pain can feel like gain a year down the road, but who knows? We're not trying to solve for anything with a specific timeline. This is purely based on the math that works off of Moody's forecast, and I'm unsure how they will forecast six to 90 days from now.

Yes. And the other thing I would say, is this other thing that is having some impact and will continue to have some impact as we see the portfolio composition shift out of residential into commercial, you will also see the reserve gradually build because the commercial portfolio carries more risk. Specifically, if you look at the allocation by type of loan, you will see gradual reserve build as that shift continues. So there will be a gradual increase in reserves, but it is not due to any early warning signs or a brewing problem in our portfolio.

Yes, absolutely. That's going to be gradual because the portfolio is not changing overnight, but gradually that will happen.

Got you. That’s very helpful. I know it seems challenging, but that's helpful, thanks. Now I wanted to discuss the margin. It was great to see and collect this quarter. It really feels like it was a story of the remix on the funding side that's been partially enabled by the great deposit growth we're experiencing, and it seems like that momentum is continuing. Raj, you mentioned the margin increased each consecutive month of this quarter. I'm curious, where did the margin end the quarter, and what was the margin in September?

So I don’t think that's what Raj said.

No. I think last quarter, we did offer details for the month-by-month figures. I'd prefer not to delve into those as it can get verbose.

Month-by-month can be tricky because if one unusual event happens in a month, and you're annualizing it based on that one month, it may not be as helpful.

But, we believe for the fourth quarter, the margin should be modestly up again. Unless some bizarre event occurs, our current observations indicate continuing improvement. It might not reach 3% in the next quarter, but we predict further improvement based on this trajectory.

Got you. Okay. That makes sense. And I guess just thinking a little more intermediate term, to the extent that this deposit pipeline continues to materialize, you see maybe a little less FHLB in the funding mix moving forward, and you get some asset repricing that keeps flowing through. Do you feel like the margin continues to expand like through 2024? Or do you feel like it…

So I'm under strict orders from Leslie not to speak about 2024 because we haven't completed our planning cycle. So right now, we can only comment about the fourth quarter. Our strategy for the fourth quarter is consistent with what we pursued in the third quarter: optimizing the balance sheet, growing in the right areas while reducing reliance on residential and the securities portfolio, and enhancing C&I and DDA growth. As long as we continue executing this plan, we expect to see the margin align positively. An essential point regarding demand deposit growth is noteworthy; I'm actually quite excited about it. We communicated about our pipeline last quarter. We converted much of that into good business this quarter, reporting net growth in DDA of just over $50 million. This net figure reflects the challenging environment in which some existing deposits are moving from DDA to interest-bearing accounts or being utilized elsewhere. The growth we've experienced in DDA stems from new business brought in this quarter that outpaced the trend seen in existing deposits. It’s critical to note that this is a pattern observed throughout the industry. Despite the challenges, we are enthusiastic about the pipeline we maintain, especially given the difficulties of the first quarter. Hence, it is a positive outcome to report our good pipeline has produced DDA growth over the last three months.

Great. That's very helpful. And the last thing I really just wanted to hit on. I know the buyback has been big for you guys in the past, we kind of paused that conversation in the first half of the year with just naturally given what was going on. But it feels like now we've really kind of removed ourselves from that kind of disrupt, it feels like where the stock is trading today, it's just a huge opportunity for you guys. Is there any update on where you stand with the buy-back?

Last time we spoke with the Board about it, we all unanimously agreed that the timing was not ready yet, which was maybe six weeks ago, Leslie, right? We will re-evaluate again in four weeks in mid-November. My best judgment suggests it's still early and we should consider this in the new year, not this quarter.

And our next question is going to come from the line of Graham Dick with Piper Sandler.

So I just wanted to hit on the loan side of things. I noticed that you had about $300 million in commercial loans that you exited. I wanted to hear a little bit more about your strategic thinking here. What kind of yields around these portfolios or what kind of spread rather if you include the deposit relationship? And then you mentioned that there's a little more to do here. I'm just wondering what that would look like maybe over the next couple of quarters and how it might impact your overall growth outlook because if I back this out, the $300 million this quarter, it looks like balances were actually essentially flat. So just wondering about the size of the loan portfolio going forward and maybe the overall direction that takes the balance sheet as well.

Let me break it down by loan category. Residential loans decreased by 2.25%, and I expect that trend to continue over the next couple of quarters. We have actively been reducing our Residential Loans by about $200 million every quarter. The C&I segment rose by $100 million, but that figure includes the reduction from exiting about $300 million of non-strategic relationships. What we're exiting generally consists of transactional business where we have little or no expectation of reasonable deposits coming. We tend to exit relationships that do not yield favorable pricing compared to existing market opportunities, so as a result, we have to manage the business carefully. Last year, we were executing on businesses that yielded spreads of around SOFR plus 150 to 200. Currently, we’re seeing a return on new deals in the range of SOFR plus 300 to 330, which is promising for future business. In terms of our CRE funding, we expect growth will be limited, especially given current market conditions for transactions. Small business will see growth—albeit slowly—but won't substantially impact the total balance sheet. Our commercial finance segments, like franchise finance and equipment leasing, have been experiencing declines, a trend we believe will continue. Our mortgage area has encountered one of the most challenging origination years, with volume down. A potential rebound could spur growth, but we see that as uncertain unless rates improve. Overall, we don’t anticipate a significant increase in the loan portfolio, but we expect profitability to improve.

Yes, I want to add some detail here. When it comes to exiting, there are two time frames: maturities, which are easier to navigate, and events that arise suddenly. The latter can be less predictable. We don’t expect to exit with the same frequency as in Q3 coming up this quarter, but there may still be opportunities. Overall, our risk assessment indicates we’re consistently completing trades geared towards maintaining higher yield profitability. To illustrate, taking any large credit—let's say a $50 million deal—we could replace it with a $225 million deal, with better pricing and that includes ancillary business. This is the trade-off we consistently strive to execute.

So all in, it kind of sounds like flattish to maybe slightly down loan balances as a whole, but a much more profitable portfolio. Is that kind of a fair way to look at it right now?

Yes, that's a fair assessment over the course of the next quarter.

Okay. Cool. You mentioned shared national credits, and I wanted to know what your total SNC exposure is right now as a percentage of loans.

It's about $4.7 billion in total. This is based on the regulatory definition of a shared national credit.

The definition has expanded over the years. It covers a broad range, from traditional SNCs led by major banks to smaller club deals where we hold significant portions. We've developed syndication capabilities on both real estate and corporate banking since they significantly enhance our offerings.

Yes, I totally understand. And I get if you don't have this number, but it definitely seems important and much more profitable to be the lead agent on these deals. What amount of that $4.7 million are you guys involved in?

We don't have all of the detailed allocations available at this moment.

Okay, I understand.

It's generally advantageous to be the agent on the deal since agents tend to capture a larger share of ancillary business, although competition in the SNC market can make that more challenging.

Right. Yes, understood. And then I guess the last thing I wanted to touch on is just capital and the CET1 ratio, maybe including those AOCI losses of 9.8%. Is this the ratio you guys are managing around right now? And then is there a specific near-term, I guess, level you guys are looking at?

I mean, I would say this tends to be the ratio that most stakeholders focus on. So we give it substantial consideration. It's not the only one we monitor, as we also keep tabs on TCE to TA and Tier 1 leverage. We are comfortable with our current position in the near-term. As part of our year-end capital planning, we’ll discuss our outlook moving forward with the Board. Another way to say it is I’m not ready to share that information today.

Yes, understood. Alright, well thank you guys. I appreciate it.

Thank you. Our next question will come from John Arfstorm with RBC Capital Markets. Your line is open. Please go ahead.

Hey, guys. Thanks, good morning.

Good morning, John.

Leslie, I'm not going to ask you about the '24 margin, but…

Do, I want to answer to you.

The question is that you made a comment about over the course of the next quarter, this trend is going to continue. And I don't know if it's for you or Raj, but how long does it take to accomplish what you want to accomplish on the balance sheet remixing the assets and remixing the liabilities? I hate to term what inning are we in, but I'll just ask you, how long does it take to get to where you want to go?

I think we'll be in a better position to answer that once we go through our year-end planning process, so we'll likely have an answer in January.

Yes, I think it's safe to say it's not a one- or two-quarter effort; it will take some time.

So we can expect more of the same, essentially. I mean we have to make some assumptions, but we can expect more of the same over time, okay?

In the near-term sure. Yes.

Yes. Okay. And Raj, what do you want the balance sheet to look like when you're done?

Well, if you look back at our balance sheet from pre-pandemic levels compared to now, it appears quite different. It’s become significantly heavy in securities and residential loans. Our goal is to revert to a balanced mix from 2018-2019, although we don't want to completely eliminate residential loans. We certainly need to adjust them to more reasonable levels. Regarding the right side of the balance sheet, we aim to increase the percentage of DDA from the current 28% to 32-33% over time, so I range, we believe is achievable.

Okay. Okay. Good. Anything you'd call out on the non-interest-bearing growth this quarter on the drivers?

Nothing extraordinary, just continued progress across the franchise through our pipeline.

Lots of new relationship wins.

Okay, okay. Yes, I guess that's what I was getting at as well, okay. And then, Tom, maybe a question for you, last one for me. But I understand what you're saying on the commercial office, the CRE office portfolio. I'm curious what the discussions are like when these renewals come up? How difficult are they with your clients? And then secondarily, is there anything different between what you're seeing in New York and Florida?

Yes. I would say the renewal discussions have generally gone well due to strong property performance. We are witnessing some payoff opportunities as clients look to the CMBS market, but alternatives are limited at the moment. While our renewal talks generally yield positive results based on good debt service coverage metrics, we don't have extensive exposure to the Manhattan market, with that being a specific area we keep a close eye on, but occupancy metrics for our Manhattan properties are performing well. Specifically, our properties located at 57th receive steady foot traffic, suggesting a gradual return of office workers, as indicated by subway ridership and general activity in the area. Therefore, we are optimistic about our office portfolio while expecting gradual reductions in exposure over time based on amortization and select movements to the CMBS market. The portfolio is performing adequately overall.

Okay, alright. Thank you, very nice quarter.

Thank you.

Thank you.

Thank you. Our next question is from Steven Alexopoulos with JPMorgan. Your line is open. Please go ahead.

Good morning. This is Janet Lee on for Steven Alexopoulos. All I want to go back to reserves for a second and how the higher rate forecast for Moody's is the largest driver of the build in reserves. Is this really tied to your assumption that rates higher for longer will increase the odds of a recession?

It's not tied to our assumption. It's the assumption that's embedded in the Moody's economic forecast that we see to model.

Moody's assumption.

Yes, it’s directly related to the model where higher rates will stress maturing and repricing loans, which is a core driver. Just so you know, these models are extraordinarily complex. But yes, that overarching statement holds true.

Right. Okay. Because when I was looking — when I was comparing Moody's August and May forecast, the unemployment assumption hasn't changed through 2025.

Actually at a regional level, the trajectory of the unemployment path has changed. I know everybody tends to fixate on national unemployment and GDP figures when evaluating, but these models operate on numerous factors that influence their output. I can’t provide a detailed explanation, but I want to convey its complexity.

Okay. So your scenario contemplates local conditions as opposed to just a generic national outlook?

Yes, that is how these models operate. They function on a submarket level.

Okay. Got it. And — can you remind me what unemployment rate is embedded in your current reserves then?

Well, it varies between markets. For instance, it’s different when comparing New York to Florida. On average, it’s somewhere in the low-4s range.

Right. And just following up on reserves. Looking at the franchise finance segment, are you seeing any stress building in that segment? It looks like lower, but it looks like more.

It's primarily tied to one loan that migrated down to nonaccrual this quarter; we placed specific reserves on it. I’d characterize that loan as a leftover case that never managed to recover.

Okay. Got it. And last question on NIM and NII. So is it fair to say like theoretically speaking, you'll get more benefit from a NIM point of view if the Fed cuts rates sooner when considering your portfolio mix? Or do you get more benefits if rates stay higher for longer and benefits the fixed asset repricing?

To be honest, Janet, the most impactful thing is mix; by far is the funding mix and loan mix. The static balance sheet will create a relatively neutral outcome from an interest rate risk perspective. So how the mix evolves is critical to NIM adjustments, more so than the Fed's movements.

DDA growth is crucial; that’s why it is the number one priority at the bank.

Alright, thank you.

You’re welcome.

Thank you. Our next question comes from David Bishop with Hovde Group. Your line is open. Please go ahead.

Yes, thank you. Good morning.

Good morning, David.

Quick question, Raj, Leslie, you guys have done a nice job tamping down the level of expense growth. Anything looming? I know you haven't done budgets for next year, but anything that could drive that growth rate materially higher next year? Are there any pending team lift-outs or teams you're targeting that could move the needle there materially?

Actually, we forgot to mention in this call that we did hire a C&I head for Texas. Last quarter, we informed you about the CRE business shifting as well. It took longer than expected for the C&I role; however, a press release about that hiring will be issued in the next day or two. Other than this, we’re continuously searching for talent, but there’s nothing particularly notable to share right now aside from those C&I hires. We remain focused on deposit growth. Since we're keeping expenses flat, some existing talent might leave due to the changing incentive plans. This is a natural recycling in our talent pool because our major focus remains on the right side of the balance sheet. So, there aren’t any immediate plans that stand out other than the C&I hires starting as of Monday, if I’m not mistaken.

We're always actively working to improve the talent mix. It’s a constant talent management process, engaging with the right individuals while ensuring those not meeting our standards are replaced.

Got it. And then in terms of deposit success story this quarter, Raj, or Tom or Leslie, can you attribute some of that to Texas? Are you starting to see that contribute to the bottom line? And I don't know, had you disclosed the dollar amount of the deposit pipeline if so? Just curious, where that stood relative to last quarter?

When I analyze the deposit and C&I portfolio, it is indeed broad-based but I wouldn’t drill down just into Texas alone. We did see growth across several sectors, primarily within our core dessert account strategies including manufacturing, wholesale trade, logistics, and even healthcare lines—all fared well. This improvement spanned beyond Texas, indicating a wide across-the-board uplift. Our pipeline continues to be strong. If I can’t add further detail here, note that entering new markets typically produces loan relationships first and helps establish our presence before deposits start coming in. Successfully growing relationships takes time, particularly to develop into deposits in competitive markets, although we have seen promising signs from this quarter.

And was that also translated to the deposit side in Texas?

No, generally, when launching a new office, early relationships tend to favor loans; building deposits requires years of dedicated effort. We're targeting markets that are attractive yet competitive, which amplifies the complexity of breaking into those spaces.

Got it. And one final question. Leslie, a tick-up in special mention loans, just curious if there are any segments or industries that you'd call out to drive that increase?

Yes, there’s really nothing to highlight in particular. This appears more like a normalization of the credit metrics without significant issues within any portfolio segments.

Got it. Appreciate the color.

Thank you. Our last question is from Samuel Varga with UBS. Your line is open. Please go ahead.

Alright. We will go ahead and I will go ahead and hand the conference back over to Raj Singh for any further remarks.

As always, thank you very much for joining us and listening to our story. We feel pretty good about where the bank is and the progress that we've made in a very short period of time. We look forward to speaking with you again with a lot more information in 3 months. Until then, stay safe. Thank you. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.