Earnings Call Transcript - BKU Q1 2025

Operator, Operator

Good day and thank you for standing by. Welcome to BankUnited First Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jackie Bravo, Corporate Secretary. Please go ahead.

Jacqueline Bravo, Corporate Secretary

Thank you, Michelle. Good morning and thank you, everyone, for joining us today for BankUnited, Inc.'s first quarter 2025 results conference call. On the call this morning are Raj Singh, Chairman, President and CEO; Leslie Lunak, Chief Financial Officer; and Tom Cornish, Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company 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 those relating to the company's operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the company's direct control, such as adverse events impacting the financial services industry. The company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors should not be construed as exhaustive. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2024, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Raj Singh.

Raj Singh, Chairman, President and CEO

Thank you, Jackie. Thank you, everyone, for joining us. You may have noticed that our call is a little bit later than it usually is. And usually, we go around the 22nd, 23rd. The reason it was a little bit later was partially due to calendars, but also we went through a general ledger conversion, which is a fairly big undertaking, which Leslie, sitting over here next to me, led, and it went flawlessly. We didn't need the extra two or three days that we thought we might need, but it went really well. So I want to congratulate the team. It was a good quarter, a solid quarter in terms of where we landed versus our expectations. I know there's a lot of noise out in the economy, and we'll get to that in a second. But first, let's go through what the last 90 days were like. In terms of net income, we came in at $58.5 million or $0.78 a share. I think consensus was $0.76, so slightly better than consensus. Margin was 2.81%, which compared to last quarter was down 3 basis points, which is exactly what we had expected. Most of that was around some hedges that rolled off. So it came in exactly where we expected it to. Cost of deposits came down by 14 basis points to 2.58 from 2.72 last quarter. Cost of interest-bearing deposits came down 21 basis points; it's now down to 3.54. Last quarter, it was 3.75. And on a spot basis also, from December 31 to March 31, we had an 11 basis point drop in that cost. NIDDA, which has been the story here for the last several quarters, again we had a very solid quarter. NIDDA was up $453 million, again as expected, as we had mentioned to you last quarter, at the last earnings release. Average NIDDA was down a little bit; just that's the seasonality of how the DDA holds up for the year. December 31 is not the bottom for us. It generally is somewhere deep in the first quarter where we bottom out and when we started building back up. So March is generally a strong month, and from here on, it's several months of strong deposit growth. So we're expecting an even better second quarter. And in terms of total deposit growth outside of brokered, which we paid down quite a bit, total deposit growth came in at $719 million. So a very solid quarter, no matter how you look at it on the deposit side. Wholesale funding, which is brokered and our wholesale FHLB borrowings were down $1.1 billion. The loan book, total loans were down $300 million, and I'll break it up roughly into two pieces. One is what you expect, which is what we've been running down for some time; our residential book or some of our commercial finance subsidiaries, that was about $200 million of that $300 million down. About $100 million roughly was actually a decline in our core commercial book, which we're trying to grow. Now first quarter, I will remind you, is our slowest quarter. If you go back two, three, four, five years, you'll see first quarter is always our lightest-growth quarter simply because we don’t have financial information from last year, and we're working off of really dated financials. So we tend to be much lighter on growth in the first quarter than we do, and the season really picks up in the second, third and fourth quarters. So also, coupled with some still fairly large paybacks that we've seen in the C&I book. So that trend has now been going on for about three quarters, and that has not slowed down. Total loan-to-deposit ratio now stands at 85.5%. It was 87.2% at the end of last quarter. CET1 is now 12.2%, and the tangible book value per share keeps climbing up; it's $37.48. Leslie will talk more about AOCI. I don't actually recall the number on the top of my head; I think that also improved. Talking about the macro environment for a second, then I’ll talk about guidance. You've seen the level of uncertainty that is out there. We're all monitoring it. Our clients are monitoring it. We actually had a very large client event just last week in New York. We met 75 or so of our top clients in both C&I and CRE businesses. And I would say that I went into that expecting a lot of concern, a lot of like, 'Oh my God, what's going on in this world?' What I got was, yes, there's some level of concern, some level of uncertainty, but for the most part, people are engaged, and while they're monitoring what's going on, they are not writing off the year in any way, shape or form. They stay engaged. The fact that we had that level of attendance to this event itself was a good sign. People wanted to talk about growing their businesses. Yes, there was some talk about politics and tariffs and so on, but for the most part, it was a very positive event. So when it comes to our guidance, here's what I will say at a high level: we're not changing our guidance. So what we told you 90 days ago, we'll stand by that in terms of loan growth, deposit growth, margin, expenses, and all that good stuff. Having said that, I will say, and this is a phrase that I borrowed from somebody that I met last week, that the cone of uncertainty is much bigger than it was even a month ago. So there are a lot of moving parts here. The rate environment is moving around like crazy. The economic environment is also uncertain, and we don't know exactly where we're going to land with tariffs at the end of the day. And all of that will have an impact. So what can we do as a bank? What are we doing as a bank? We're paying a lot of attention to the risks that are unfolding in front of us. I think the most immediate risk that we have to deal with is interest rate risk. When the curve moves as much as it is doing on a weekly basis these days, both the short end and the long end of the curve, it means we have to pay extra attention to interest rate risk management. We're trying to stay as neutral as possible in any scenario, so we're not hurt by whatever happens to rates. Second is credit and pipeline risk. I'll roll them up into one. The pipelines right now are actually very strong, so we have not seen a degradation in our pipeline. I was meeting with our credit people last week, trying to compare what we had budgeted for, for this time of the year for pipelines versus what we are seeing. They are actually better than what we had even budgeted for. Now what will be the pull-through rate on these pipelines? I think that will depend a lot on where everything lands with tariffs and the economy in general. But so far, I really have no basis for altering the guidance we gave you, except just to say that the probabilities of what can happen are much wider than 90 days ago. So with that – I'm trying to see here in my notes if I've missed anything. We did increase our dividend by a couple of pennies. Since we started doing this back to Covid, I'd like to keep doing this very steady increase in dividends, and 10 years from now, be able to come back and say, look at our track record for the last 10, 15, 20 years; we've been increasing dividends on a steady basis. So we're happy to report that. But all I'll say is while there is more uncertainty out there, we are as prepared as anyone or more prepared today than we've ever been to take on whatever is coming our way. If it is bad news or if it's good news, if there's good news, there's going to be a lot more economic activity; we're open for all kinds of business. If it's a recession or something, we're also ready for that. We have capital, more liquidity than we've ever had, and we can take that on. With that, I will turn it over to Tom, and he’ll give a little more detail behind some of the numbers and then Leslie.

Tom Cornish, Chief Operating Officer

Thanks, Raj. So I'll start off talking a little bit more about the loan side and maybe give you a little more color on Raj's comments about the $100 million down in the core segment. Basically, CRE was flat for the quarter, and most of the decline, or all of the decline, was really in the corporate banking space, predominantly in the upper commercial space. This payoff activity that we're seeing the last few quarters is not just a phenomenon for us; I think it's pretty common across the industry. When we look at payoffs, I would say probably 25% of it is related to company sales, so there's not really too much we can do about that. About another 25% of it is situations where we are kind of selectively opting out of credit opportunities. Most of our opt-outs are because we're looking at renewal opportunities where the pricing has gotten more aggressive than we want to compete at or, in many cases, the deposit and ancillary business opportunity is not really developed in the way that we thought it would over time. So those are self-selected opportunities. I'd say another 25% of it is predominantly deals that we are competing on, renewals that we are competing on, but situations where debt funds are becoming more dominant in the corporate lending space and middle-market lending space, in particular, taking all parts of the debt stack and not just a subordinate piece. In some cases, those deals are just beyond the parameters we want to play in. The other 25% is just different regions for different reasons. I would also state, as Raj mentioned, production, particularly in the C&I areas, was really good for the first quarter. When we look at sort of the swap that we're making in deals that are paying off versus deals that are coming in, we're generally seeing all deals coming in; virtually 100% of those relationships are coming with deposits, which is a key part of what we're focusing on. The pricing difference between what we're stepping into versus what we're stepping out of is favorable. So even though at times, it looks like an even wash, from a long-term franchise perspective, it's really not because these are much more relationship-oriented and deposit-oriented. But as Raj said, we are looking at really good pipelines in all of our core businesses in the second quarter, so we're optimistic about that. The residential piece was down by $116 million. Franchise and equipment and municipal finance were down by a combined $80 million, all kind of in line with expectations. The equipment finance and franchise business were getting to sort of the end. The downward movement from this point on will be in much smaller measures because it will just take time to run off. With respect to tariffs and macro uncertainty, we’re not really seeing any impact in the pipelines, although the pull-through rate could be a little bit slower. There are certainly a lot of lenders in the market. We don't see any abatement of risk appetite going on right now. Given our core client base and markets, we believe the ultimate impact on us will probably be second, third, or fourth order; those are pretty hard to predict. We don't have a tremendous amount of China, Mexico, or Canada exposure, logistics exposure in that way. If you look at the supplemental data and look at our industry segmentation, it's less oriented towards that type of business and more in finance, insurance, healthcare, education, and not-for-profits and things of that nature. With respect to CRE, not really much has changed since the last report. Our CRE exposure totaled 26% of loans, 173% of total risk-based capital as of March 31, 2025. Again, I'd point to the comparison based upon December 31, 2024 call report data; the medium level of CRE for total loans for $10 billion to $100 billion banks was 34%, and the mean ratio of CRE to total risk-based capital was 2.18. While this remains an important line of business for us, relatively speaking, compared to peers, our exposure is a bit less. At March 31, the weighted average LTV of the CRE portfolio was 55%, and the weighted average debt service coverage ratio was 1.78%. 53% of the portfolio was in Florida and 25% in the New York tri-state area. The profile of the CRE office portfolio also is largely consistent with prior quarter end. We were down by $52 million, mostly within the portfolio. At March 31, we had a total office portfolio of $1.7 billion: 57% in Florida, predominantly suburban; 23% in the New York tri-state area; $347 million or 20% of the total CRE portfolio is in medical offices. Traditional office is probably about $1.35 billion today. The construction portfolio includes an additional $87 million in office-related exposure with $84 million of that in New York. The weighted average LTV at the stabilized office portfolio was 65%, and the weighted average debt service coverage was 1.58% at March 31. I would point out that since beyond the pandemic and the total change to the office environment and remote hybrid work patterns in 2020, we've had total office charge-offs of $16.2 million in our portfolio of which $7.9 million was this quarter. Criticized classified office loans totaled $414 million at March 31, down a bit compared to the $425 million at December 31, but generally not much changes. Pages 11 through 14 of the investor deck provide more details on the CRE portfolio, including the office segment. With that, I will turn it over to Leslie.

Leslie Lunak, Chief Financial Officer

Thanks, Tom. To reiterate, net income for the quarter was $58.5 million or $0.78 per share. I'll provide a little bit of color around the NIM and net interest income. Net interest income was down $6.1 million or 3% linked quarter, and that was related to lower average interest-earning assets and slight margin compression. The NIM declined 3 basis points to 2.81 from 2.84 last quarter, largely consistent with our expectations. I'll remind you that's the same trend as we saw in the prior year, where the NIM was down a few basis points in Q1 and then expanded throughout the rest of the year. The static balance sheet remains modestly asset-sensitive, and there wasn't much change in composition of the average balance sheet this quarter. As we mentioned last quarter, some cash flow hedges expired this quarter; that had a 3 basis point impact on the NIM. So without that, the NIM would have been flat. As we've said, margin expansion ultimately will be the product of a change in mix on both sides of the balance sheet, which we continue to expect over the remainder of this year. As Tom discussed earlier, the core commercial loan portfolio segments declined this quarter. While period-end NIDDA grew by $453 million, average DDA declined modestly by $144 million, and all of that is consistent with what we expected to see for the quarter. The average cost of interest-bearing deposits decreased from 3.75 to 3.54, while the average cost of total deposits declined 14 basis points to 2.58 from 2.72. On a spot basis, the APY of deposits was down to 2.52 at March 31 from 2.63 at December 31. For the current down rate cycle, and I'm measuring that from September 1 through the end of March, the realized down cycle beta on non-maturity interest-bearing deposits was 92, and we're pretty proud of that and the ability we've had to lower deposit costs.

Raj Singh, Chairman, President and CEO

We worked hard, Les.

Leslie Lunak, Chief Financial Officer

We did, indeed. As expected, given the rate cuts in Q4, the average yield on loans declined from 5.60 to 5.48 and the average yield on securities from 5.31 to 5.07. That really is just largely driven by the repricing of floating rate instruments. The average rate paid on FHLB advances was down from 3.82 to 69, primarily due to the paydown of higher rate short-term advances, which is a weird thing to say, but short-term advances are the higher rate ones. On last quarter's call, we did mention that impact of the expiring cash flow hedges, and that played out exactly as we thought. We've run a lot of different rate and balance sheet composition scenarios because, frankly, we don't know what's going to happen to rates or the yield curve. The greatest exposure from a rate perspective continues to be a severe downward shock in rates. The most favorable scenario, obviously, would be a positively sloping curve. But again, margin expansion is still most dependent on our continued ability to remix on both sides of the balance sheet. AOCI this quarter improved by 17% as compared to 12/31/24. The short duration of the bond portfolio continues to pay off in terms of whittling away at that AOCI balance. With respect to credit, the provision and the reserve, the provision this quarter was $15 million. The ACL-to-loans ratio remained unchanged at 92 basis points. Slide 16 of the deck presents a waterfall of changes in the ACL for the quarter. As you can see from that chart, we did build reserves this quarter but then took some charge-offs. Prior to taking those charge-offs, the reserve built to a little over 1%, and then we took the charge-offs. And that's how it's supposed to work. The ACL this quarter was also impacted by a true-up of some specific reserves largely related to updated appraisals and valuations on loans that have been worked out for some time. The commercial ACL ratio, that C&I, CRE, franchise, and equipment finance was 1.34% at March 31, and the reserve on CRE office was 1.99%. That was down a little bit from last quarter due to the charge-off we took and also some upgrades. We did run the April Moody's scenario through our ACL models. It is incrementally worse than the March scenario. What we learned by doing that was that we have sufficient qualitative reserves included in our reserve to more than cover the incremental increase that would have resulted from running that new forecast. We are seeing some normalization of credit. Net charge-offs totaled $19.4 million this quarter or 33 basis points annualized. If you look at that for the trailing 12 months, the net charge-off ratio was 24 basis points. Substantially all of the charge-offs we took this quarter related to loans that have been in workout for a while, so nothing cropping up unexpectedly there. Total criticized and classified ads were essentially flat. The NPA ratio was 67 basis points, excluding the guaranteed portion of SBA loans, and NPLs were up slightly. With that, I am going to turn it back over to Raj for any closing comments, and then we'll open it up for questions.

Raj Singh, Chairman, President and CEO

Thank you, Leslie. I usually discuss credit in my remarks, but you did a good job. The criticized amount is essentially flat, and the ACL is also flat. There isn't much news to report.

Leslie Lunak, Chief Financial Officer

Nothing to talk about, yes.

Raj Singh, Chairman, President and CEO

But we'll open this up for Q&A. And Jackie? Yes.

Operator, Operator

Our first question is from Jared Shaw with Barclays. Your line is open. Please go ahead.

Jared Shaw, Analyst

Hi. Good morning. Can you provide insights on how spread compression is affecting new loan yields? It seems that you are referencing some competitive pressures in that area. Is that competition increasing, and how should we assess the competitive landscape for new loans?

Raj Singh, Chairman, President and CEO

That's a great question, and it requires a detailed response due to the various factors at play. Starting with securities, credit spreads have widened in recent weeks, particularly over the last month. On the lending side, specifically in commercial real estate, we observed tighter spreads in the first quarter, which led to a slowdown in business in that area. It appears that more banks are re-entering the commercial real estate sector, possibly due to the new year and changing market dynamics, resulting in increased competition compared to a couple of quarters ago. Looking ahead at the commercial real estate pipeline, spreads seem to be improving slightly compared to the last three months. The market is quite dynamic, likely influenced by recent volatility. In commercial and industrial lending, while we experienced spread compression throughout last year, especially from summer to December, the situation has remained relatively stable. So, while commercial real estate has seen some fluctuations, commercial and industrial lending has been steadier, and spreads on securities have also widened.

Jared Shaw, Analyst

Okay. Great. That's helpful. I guess maybe as a follow-up or a second question shifting over to credit. Any color around the growth in nonperformers? Is there any industry that stands out more than the other? Or is it just more broad-based?

Leslie Lunak, Chief Financial Officer

No, Jared. I mean, as you can see, it's mostly in the C&I book, but it's cats and dogs, ins and outs. I think it's up total maybe $9 million, which really equates to one loan. I wouldn't say it's one loan. It's just different things moving in and out; not we're seeing both trends.

Jared Shaw, Analyst

Okay. Great. And then if I could just sneak in one last one. When we look at the growth in end-of-period DDAs, what percentage of balances are subject to ECR, that growth?

Leslie Lunak, Chief Financial Officer

I mean, if you mean true ECR, pretty much all commercial deposit accounts are subject to ECR.

Raj Singh, Chairman, President and CEO

Yes. I don't think Jared is asking for true ECR.

Leslie Lunak, Chief Financial Officer

If you're talking about rebate and commission costs, then most of it is not to any great extent.

Jared Shaw, Analyst

Okay. Thank you.

Operator, Operator

Thank you. And one moment as we move on to the next question. Our next question comes from the line of Woody Lay with KBW. Your line is open. Please go ahead.

Woody Lay, Analyst

Hi. Good morning, everyone. I have a couple of follow-up questions regarding credit to begin with. First, I noticed that there were some downgrades from special mention to substandard accruing based on balances. Can you provide any insight into what caused the increase to substandard?

Leslie Lunak, Chief Financial Officer

You're right. There was some migration that's not unexpected. I think the quarter was characterized by a combination of upgrades and downgrades. I don't think there's anything specific to call out, Woody. It's just loans going in, loans going out, normal migration. Nothing in particular to call out, I don't think.

Woody Lay, Analyst

Got it. And then, Leslie, based on your opening comments, it sounded like if you factored in April, Moody's scenario that would imply a reserve pickup. It sounds like you have some flexibility on the scenario waiting. How should we think about order levels here if things remain sort of the same?

Leslie Lunak, Chief Financial Officer

Yes. One thing I should have mentioned in my prepared comments is that we did add to our qualitative reserves this quarter. We added more due to the widening cone of uncertainty.

Raj Singh, Chairman, President and CEO

Yes. Actually, we've already had qualitative reserve.

Leslie Lunak, Chief Financial Officer

And we added more.

Raj Singh, Chairman, President and CEO

Then we added some more this quarter because of all the uncertainty. Then we tested with the April Moody's scenario...

Leslie Lunak, Chief Financial Officer

Our qualitative reserves are more than adequate to address any increase in reserves that could have arisen from the April forecast. I'm uncertain about the outlook of the GM forecast, Woody. If conditions worsen, there will inevitably be additional provisioning. Conversely, if they do not worsen, then there won't be any related provisions specifically tied to that issue. However, we did evaluate the April outcome against our existing qualitative reserves concerning economic uncertainty, and we found that we were well covered.

Tom Cornish, Chief Operating Officer

Woody, I might add, in the CRE portfolio, a lot of times when you see movement in and out, particularly in Florida, what you're tending to see is we have office buildings that you lose a tenant, and then you have office buildings that you gain a tenant. When you lose a tenant and gain a tenant, usually you're signing abatement periods of time. We have properties that are going into abatement periods of time, and we have other properties that are coming out of abatement periods of time when we can start to count the lease income into the NOI. You have this kind of shifting around every quarter of certain loans as abatements either roll in or roll out.

Leslie Lunak, Chief Financial Officer

There were just a lot of puts and takes. Our guidance with respect to the overall reserve level hasn't changed, so...

Woody Lay, Analyst

All right. That's really helpful. And then maybe just last for me, shifting over to the loan pipelines and production in the quarter. Any way to quantify the production in the core CRE and C&I segments in the first quarter and how that compared to previous quarters? And then just a follow-up there. Second quarter outlook is a little murky just given the macro. But how should we think about that growth opportunity in the back half of the year?

Leslie Lunak, Chief Financial Officer

Woody, we don't disclose production numbers, and I'm hesitant to go down that path. But I will say that production slightly exceeded our budget for the first quarter, so it's coming in slightly ahead of expectations, and the pipelines are pretty robust.

Woody Lay, Analyst

All right. Thanks for taking my questions.

Operator, Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Timur Braziler with Wells Fargo. Your line is open. Please go ahead.

Timur Braziler, Analyst

Hi. Good morning, Leslie. I want to begin by discussing the setup, particularly for the second quarter. When we compare the results from the first quarter year-over-year, they are quite similar, with margins down 3 basis points in both years. The DDA component shows that while the average balance is still down, can we expect a comparable level of margin expansion in the second quarter this year due to changes in the funding mix? Could you also speak more broadly about your outlook on margin and net interest income trends for the second quarter?

Leslie Lunak, Chief Financial Officer

Sure. I'm not going to provide that guidance quarter-by-quarter because unlike you, I don't really care which quarter it happens in. But we do expect the margin to expand over the course of the rest of the year. Again, we expect that irrespective of the Fed cuts. There are four built into our forecast, by the way, in an inverted yield curve, so honestly can't get worse, I don't think, but from that perspective. But we expect margin expansion, and that will be driven on growth or transformation of mix on both sides of the balance sheet. Putting on core commercial loans that are higher yielding and more core deposits replacing high-cost funding will drive that margin expansion. I hesitate to say exactly how many basis points I would expect in each quarter because the timing of some of that can be a little bit difficult to predict with precision.

Raj Singh, Chairman, President and CEO

Yes. NIDDA growth that happened this quarter because it happened later in the quarter obviously did not help margins.

Leslie Lunak, Chief Financial Officer

Right.

Raj Singh, Chairman, President and CEO

Now, into second quarter, we expect second quarter is our best quarter for NIDDA growth. Clearly, the benefit will be felt in the second quarter. But I'll stay away from giving any specific guidance or Leslie will kill me here.

Leslie Lunak, Chief Financial Officer

I will.

Raj Singh, Chairman, President and CEO

Yes. The trend that you're seeing in the balance sheet is similar to last year. First quarter, second quarter, strong DDA growth, total deposit growth; third, fourth quarter, less so. Loans, of course, first quarter light, but the second, third, and fourth quarter is when most of the business gets done in those nine months.

Timur Braziler, Analyst

Okay. Maybe asking a different way, Leslie, do you have the spot rate on deposits exiting the quarter? Is that something I can get us on?

Raj Singh, Chairman, President and CEO

Yes, yes. 2.52, I think.

Leslie Lunak, Chief Financial Officer

Yes, 2.52, and that's also in the deck, Woody.

Timur Braziler, Analyst

Okay. Thanks for that. I guess next, maybe either for Raj or for Tom, but there's more news on just the Florida condo market softening. Can you just give us some color around your exposure to the Florida condo market and then what you're seeing just in terms of boots on the ground?

Raj Singh, Chairman, President and CEO

We really have...

Leslie Lunak, Chief Financial Officer

We don't have any.

Raj Singh, Chairman, President and CEO

We don't have any. That's not a market we play in.

Leslie Lunak, Chief Financial Officer

So we're probably not even the best people to talk to about what's going on. We read the same articles you do, but we don't have any exposure.

Timur Braziler, Analyst

Okay. And then just last for me. I guess just given some of this uncertainty, does this push out your thoughts around buyback? Any kind of color you can provide on just what you're looking for internally before you might get more comfortable in accelerating the capital return beyond just the dividend?

Raj Singh, Chairman, President and CEO

Yes. I would say that given the current level of uncertainty, the comments I made last quarter are even more relevant today. Having some extra capital during such uncertain times is probably beneficial. Even if we were to use this capital for a buyback, it wouldn't significantly impact earnings per share. Therefore, for now, we'll just hold onto it and continue to evaluate the situation every three months. With the current level of uncertainty, it's likely best to retain a bit of excess capital.

Timur Braziler, Analyst

Great. Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Stephen Scouten, Analyst

Hi. Good morning, everyone. It sounds like you guys remain pretty confident around the NIM trajectory through the rest of the year, which is great, and it seems like your assumptions are pretty conservative there. Any ability to kind of narrow the range on potential NII growth as a result of that? Or maybe said a different way, what could lead you to the kind of low end of that mid- to high single-digit range? And what could get you to the top end if there is not the ability yet to narrow that?

Raj Singh, Chairman, President and CEO

I will say there are a number of things that go into the NIM projection. There is what’s going to happen to the right side of the balance sheet, what's going to happen on the left side of the balance sheet, what are the spreads going to be on the left side of the balance sheet, and what is the slope of the curve. There's a lot of math that goes into predicting that. On the right side of the balance sheet, I feel very confident on our pipelines because they're not really impacted by what's happening with tariffs and the general macroeconomic situation. The left side of the balance sheet is going to be sensitive, especially if we have, let's say, this plan doesn't land well, to take a term from CNBC. There is that. But then there are credit spreads which, like I just explained, seem to be moving around quite a bit. Lastly, the curve, the slope of the curve, which Leslie mentioned a minute ago, is also pretty meaningful. There, I actually see good news. We have been modeling much flatter curves.

Leslie Lunak, Chief Financial Officer

That we're seeing.

Raj Singh, Chairman, President and CEO

Yes, keeping my fingers crossed. An upward sloping curve is good for us and every other bank. So a lot of moving parts to all of this. If I whittle it all away and say, okay, so how do I feel about the guidance that we've given you? I would say, what I said at the top of the call, which is we're not changing our guidance.

Stephen Scouten, Analyst

Yes. No, that makes sense. We're all hoping that curve steepens a little bit, for sure. Okay. And then on this remix away from the residential book that's happening over time, is there anything that you guys would consider doing to maybe expedite that remix in any way? Any sort of loan sales or larger-scale actions that...

Raj Singh, Chairman, President and CEO

We've analyzed it and we do so two or three times a year, we get this urge to go do this exercise. Then we come out and say, no, we'll just let it happen organically.

Leslie Lunak, Chief Financial Officer

The earn-back period is very long. It's just not a compelling trade.

Stephen Scouten, Analyst

Just given the duration of the assets, is that the biggest issue there?

Raj Singh, Chairman, President and CEO

Yes.

Stephen Scouten, Analyst

Exactly. That makes sense. And just one last thing from me. The balance sheet at year-end was quite similar to what it was at the end of 2020. Deposit growth has been strong. Do you think we are finally reaching a point where we can see some more growth in the balance sheet? How confident are you that we can start to experience overall balance sheet growth from this point onward?

Raj Singh, Chairman, President and CEO

I think we've been on this, especially since 2023 or the beginning of 2023 to now. We've really been on this optimization journey to make the balance sheet less. It became very thrifty-looking during Covid. We put in a lot of residential, and it's still not anywhere close to ideal. So I think for the rest of this year, this strategy will still continue. But going into next year, we will come back and revisit it. I don't want to preempt and talk about next year's guidance. But at least what we've signed up for this year is an improvement of the balance sheet driver of profitability rather than just let's just grow everything and let's get to $40 billion and $50 billion.

Stephen Scouten, Analyst

Extremely helpful. Thanks, guys, for all the color. Appreciate it.

Operator, Operator

Thank you. One moment for our next question. Our next question is going to come from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.

David Bishop, Analyst

A question for probably Tom or Leslie. As you scrub the CRE book and maybe New York City commercial real estate in general, do you think you've moved past the worst path? Do you feel pretty comfortable in terms of what's in there now in terms of what's ahead potentially from a worst-case scenario?

Leslie Lunak, Chief Financial Officer

Yes, I do. I think it's possible there could still be some, but there's also going to be some upgrades coming. I think we are through the worst of it. What's sitting in nonperforming CRE right now is there's three office loans sitting in there and a couple of multifamily. I don't expect generally the profile of the portfolio to change. Individual loans may move around a little, but I think we're through the worst of it. I don't think there are any surprises left in that book; loans that are going to pop up to deteriorate that we didn't know anything about or that surprise us.

Tom Cornish, Chief Operating Officer

In general, we have a fairly small number of loans in New York City and Manhattan, in particular. We have maybe 10 in total; it's not significant exposure that we are seeing some improvement in the CMBS market. Based on what we're seeing in that market, we do expect we'll have to refinance out of that portfolio this year as well.

David Bishop, Analyst

Got it. And then, Tom, in terms of the C&I attrition this quarter, any due to runoff in syndicated national credits? Just curious how that portfolio has performed as of late.

Tom Cornish, Chief Operating Officer

Yes. It depends upon what you describe as a syndicated national credit. We have this dialogue all the time. You've got a technical definition, and there are syndicated national credits that we agent. There are syndicated national credits that are really club deals. We had some runoff in what I would term broadly syndicated credits where we have a relatively small percentage, and it's a very large bank group. So of what we saw in runoff, some of that was in that book. A lot of that was, each time a deal comes up for redial, we look at it, and we make a judgment on whether it still makes sense. More often than not, it doesn't right now. Some to do, but we'll see more of that.

David Bishop, Analyst

And then lastly, one final question. The broker deposit runoff this quarter. Just curious about the brokered exposure and how much ran off.

Leslie Lunak, Chief Financial Officer

Oh, boy. Hang on. There's a slide in the deck. I can find it. I can give you some numbers. I don't have the numbers in front of me.

David Bishop, Analyst

That's okay. I can follow up offline.

Leslie Lunak, Chief Financial Officer

I've got somebody looking them up.

Raj Singh, Chairman, President and CEO

Non-brokered growth was $719 million. Now if you go and just look at actual total deposit growth and you can subtract the $2 million, you'll see the difference.

Leslie Lunak, Chief Financial Officer

I'll have the beginning and ending broker numbers in a few minutes. I'll put them out there before we leave the call.

David Bishop, Analyst

Great. Thanks.

Operator, Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Christopher Marinac with Janney. Your line is open. Please go ahead.

Christopher Marinac, Analyst

Hi, thanks. Good morning. Thank you for hosting us. Leslie and Raj, I wanted to ask about expenses. Do you think of expenses going forward more as a percentage of average assets? Or is the efficiency ratio kind of becoming more prominent as time passes?

Raj Singh, Chairman, President and CEO

I don't think we think in terms of efficiency ratio...

Leslie Lunak, Chief Financial Officer

No.

Raj Singh, Chairman, President and CEO

I look at it more in terms of operating leverage. In other words, if we can invest another $1 million to generate $2 million of revenue in the short term, we’ll go spend the next $1 million or $10 million or $50 million if the opportunity comes around. So it's more in terms of we're happy to invest and come to you and say, listen, expenses will be even higher if we are pretty certain that we can generate revenue that is even bigger than that. So we think of it in those terms rather than just trying to think of a sort of a golden number of an efficiency ratio that we have to hit, and then we can come and say, 'Victory.'

Leslie Lunak, Chief Financial Officer

Yes. And I would say we haven't changed our guidance about expenses for the year; still mid-single digits in total.

Raj Singh, Chairman, President and CEO

Yes.

Leslie Lunak, Chief Financial Officer

Let me throw out the answer to the broker deposit question real quick: down from $5.2 billion to $4.7 billion, a total decline of $528 million for the quarter.

Raj Singh, Chairman, President and CEO

Yes. Thanks for all your questions today.

Operator, Operator

Thank you. That concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.