Good morning and thank you for joining us today for BankUnited Inc's Third Quarter, 2024 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 related to the company's operations, financial results, financial condition, business prospects, growth strategy and liquidity including as impacted by external circumstances outside of 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, 2023 and any subsequent quarterly report on form 10-Q or current report on 8-K, which are available at the SEC's website.
With that, I'd like to turn the call over to Mr. Raj Singh.
Thank you, Jackie. Thank you for joining us for this call. Let me start by just quickly going through the numbers. This is a good quarter that income came in at $61.5 million or $0.81 a share. I think last quarter, we were $0.72 and the quarter, this time last year we were at $0.63. I checked last week what the consensus estimates were, I think they were $0.74. So always happy when we can do a little better than consensus.
What contributed to this first and foremost is margin, we had guided to the fact that margin would be up and it was up. The margin came in at 2.78% I think last quarter we were at 2.72%. So a nice growth in margin actually, if I look from third quarter of last year to this, it's been a 9% increase in our margin. So we're happy about that.
This was officially the quarter in which the inflection, the monetary policy inflection happened, happened pretty late in the quarter, but we started acting on bringing down cost of funds even slightly before that. The cost of deposits this quarter declined to 3.06% from 3.09% last quarter. Cost of interest deposits came down from 4.26% to 4.20%.
Now remember the fed move happened pretty late in the quarter. So if you want to see a better impact of all of that, you should look at our spot rates and the portfolio APY on deposits on September 30 was 2.93% on June 30. It was 3.09%.
And if you look at just spot APY for interest bearing, it came down from 4.29% in June to 4.01%. Even this doesn't actually fully include the actions that we're taking on deposits because some of our deposit products get only priced monthly. So the stuff that happened in on October 1st is outside of that.
So we're being long winded way of saying we're being proactive on and staying ahead of all changes in the interest rate environment. Loan-to-deposit ratio has now come down to 87.6% which is fairly low compared to -- I don't know Leslie if you look back on what was our low point, but feeling very good about where loan- to-deposit ratio is from a liquidity perspective.
NIDDA as we had said to you last quarter -- the last couple of quarters, we have had very, very strong growth there. Some seasonal trends in that trends go the other way for us in the second half, average deposits of NIDDA were down $93 million sorry -- $64 million, total deposits were up $93 million.
Period end NIDDA was down $430 million. It's really made up of a number of things. One is some seasonality, especially in our title book, but also in our corporate book, some of it is actually some deposit actions we took, we're trying to push out some very high priced price sensitive deposits which we were doing in the second quarter.
But it really -- while we took those actions in the second quarter, the money didn't leave until the third quarter. So it's a little bit of that. And I'm surprised to even be saying that still some move from DDA to money market this late in the game, but we saw some of that also happen.
So all of that contributed to this. But, what's important is really average NIDDA, there can be a lot of noise in our period. End numbers average DDA was down $64 million. And despite that we -- our margins still went up 6 basis points. So we're very happy about that.
Into the fourth quarter, the seasonal headwinds will remain, we're expecting NIDDA, our best guess is that it will be flat. But we very much expect that to start growing again when the seasonal trends favor us in the first quarter and second quarter.
So the pipeline of new business that is coming in is still very robust. We're very happy with the business that we've closed this quarter and looking to close into the fourth quarter. So loans were down $230 million this quarter, mostly in the residential and in the franchise and leasing business as we've been driving those down for quite some time. Tom will get into the details of that in a little bit.
In terms of credit charge offs were again very, very low. Single digits, I think it was $6.5 million, must be correct? $6.5 million for the quarter. We did build reserve again this quarter from [92 basis points], I guess not reserve, it's ACL is up to 94 basis points. NPA did take up a little bit. NPAs were 54 basis points excluding the guaranteed portion of SBA loans, there are 39 -- there were 31 basis points in June excluding the SPA guaranteed portion.
The two notable loans that moved into NPLs this quarter were in the C&I book. This is episodic. It does happen from time to time. We are adequately reserved for both these loans, they happen to be in two very different industries. It's just very unique to the situation that these borrowers are in. One is in the media space, the other is in the logistics space, but there is no trends anywhere in the portfolio that would suggest that this is something of that that repeat itself.
Capital TCETTA went up to 7.6%, tangible book value continued to create up to $36.52. So, pretty much good news on that front. We did have, as you will remember earlier in the year, we hired Ernie Diaz who now runs our small business commercial and the retail franchise. We made another significant hire this quarter pretty late in the quarter in September and (inaudible) has joined us. She had a [historical] career at JP Morgan for three decades plus and a little bit of time at Wells Fargo as well. So she joined the team, we're very happy to have her here. I'm sure she'll p make a big impact over the coming three, four, five years.
Quickly looking through my notes -- oh, yes, the hurricane, right. This is, this is the quarter we unfortunately give you hurricane updates as well. We had two hurricanes blow through one in September, one in October, the one in September missed us for the most part, no damage to either our physical premises or the loan portfolio.
Milton, which came by just last week. It was closer to our footprint on the, on the west coast, but I'm happy to report that really did not do much damage, all our branches are back in business, all locations are reopened. We are coming to the loan portfolio to make sure that there is no impact so far. We have not found anything but the work is not complete. So over the course of next few days, we will come through the entire portfolio and if there's anything, we'll give you an update. But as of right now, nothing to report back.
This weekend, as I was -- I got an email from our regulators asking for a bunch of detailed questions as they often do and one question kind of stuck out. And it was about fourth quarter of last year. It was about a small charge in our P&L and they asked me, could you walk us through what that was? And I just didn't remember what it was.
So I called Leslie on Sunday, I said, do you remember this? And she jogged her memory and she didn't remember it either. So I took it upon myself. I started pulling my files out to just go back and remind myself of where we were fourth quarter. If I could find something to answer. Long story short, I still don't know what the answer to that [$1 million] charge is and Leslie is going to take it from here.
But it gave me an opportunity to -- I started reading a press release from four quarters ago. And as you can imagine preparing for earnings for this call, we're deep in the numbers with what happened last three months. But this kind of broke that rhythm a little bit and forced me to look at where we were a year ago.
And then I started looking -- taking a bigger picture. The more I looked at this, the better I felt and I wrote down some -- just a few numbers over the last few quarters for myself and I want to share that on this call and Leslie, you can correct me if I'm wrong anywhere.
The key indicators of success really are EPS margin, ROA, ROE. And of course you have to keep an eye on credit and so on. Right? So after March madness, we embarked on the strategy of improving profitability through balance sheet transformation.
I mean, if there's one sentence that describes what we've been trying to do over the last six quarters, it's basically this. So if I just go back and look at the last four quarters, our EPS has gone starting in the fourth quarter of last year, $0.62, then $0.69, then $0.72 and now $0.81. It's not on the back of buybacks or anything like that. This is just core performance.
Our name has gone again, starting from fourth quarter of last year, 2.60% to 2.57% to 2.72% to 2.78%. Our ROA was $0.52, fourth quarter of last year, then $0.59 then $0.61 then $0.69 we're still not there. We're -- this is not mission accomplished kind of thing. This is -- but it's a trajectory that I, that made me feel good. And I just wanted to share, ROE similarly, it was 7.3% went to 7.9% went to 8%, now it's 8.8%. Again, we're not there yet, but we're moving in the right direction.
And just to make a point, this is not off of the back of cost cutting. This is not off of the back of bleeding reserves. If anything, our ACL went from 0.82% to 0.90% to 0.92% to 0.94%. We're building ACL, charge ups are low, almost too low for a commercial bank and bit by bit EPS is going up, margin is going up, ROA is going up, ROE is going up.
So just I wanted to share that because it happened on Sunday when I was for a very different reason, forced to go back and look at fourth quarter of last year, which I was not paying attention to. And I thought I'd share that with you. The other thing I would say is we give you guidance every January. That's our best guess of where the year will be.
Sometimes we're accurate, sometimes we're not last year. For example, we saw March madness coming. So whatever guidance we gave you in January got shredded in March. Thanks to Silicon Valley and a couple of other banks. But this year, the guidance we gave you is coming in -- just our results are coming in just in line with the guidance we gave you. We told you that we'll have double digit NIDDA growth. Well, as of right now, we're at about 11.7%.
We told you that non broker deposits will grow. High single digits -- I think we're at just over 8% right now. We said margin would grow and we get into the high two's. We're 2.78% right now.
Loans we said will be high single digits. I think we're a little behind over there. But we have another quarter to go, we'll probably end up in the mid-single digits. So -- it's, it's kind of the opposite of last year where everything was going haywire this year, everything is falling into plan and everything is steadily increased.
By the way, I also want to make a point. These improvements are not done artificially. This is not by some big restructure of the balance sheet and magically your numbers look better than next quarter. We didn't do any of that. We just took a sustained long term approach to this, improve the balance sheet, left side, improve the balance sheet right side, keep your expenses in check -- let's keep credit in check and the profitability will take care of itself, not immediately but over time.
And I'm very happy to see where everything is coming out. And, but I just wanted to share that, we often get lost in just one quarter, but it's important to kind of pull back. And, and look at two, three, four quarters. So -- but with that grant, I will turn it over to Mr. Cornish.
Thomas Cornish
Thank you Raj. Just for the record, I didn't remember the [$1.2 million] either. So all three --
Leslie Lunak
I searched for it and couldn't find it. So I don't know what they're talking about.
So a little more color on the different parts of the business. First, we'll start with loans. As Raj mentioned, the total loans were down $230 million. This quarter CRE grew by $34 million while C&I declined by $112 million. Mortgage Warehouse was up $33 million while [RESI] franchise equipment and municipal finance were down a combined $185 million is all generally in line with those businesses, what we're strategically looking at and have been doing for the last several quarters.
Year-to-date the C&I and free portfolios are up a combined $286 million. Mortgage Warehouse is up $139 million, residential is down 422 million in franchise equipment and municipal finance declined by a combined $238 million.
So all pretty much consistent with the repositioning strategy on the left side of the balance sheet. Maybe a little bit more color on the commercial loan piece, which as Raj noted is a little bit lighter so far this year than we originally forecast. Although we're still, I think, expecting an overall solid, mid-single digit year of growth. If you, if you look at it in a few components, I think our kind of baseline business is pretty much performed consistent with our early conviction in the year.
I think if you look, for example, in this quarter, our commitments and things like manufacturing and wholesale trade and construction and some other areas that I would kind of call the core Daily C&I business was up for the quarter nicely and continued to perform well.
We'll spend a little bit, less than our original predictions this year, were some of what I would call the more market sensitive areas, things like capital, call lending and issues like that. And it's not been so much that the demand has not been there overall from a market perspective. But we, we have a fairly disciplined view on risk rating, rate adequacy and things of that nature.
And when that business is there, we take advantage of it and when it's not there we typically pass. So in, in some of those business categories, we've just not seen the right blend of rate structure, credit quality and whatnot. So our performance there has been a bit lighter than we originally planned.
But in our core business area I think it's been pretty good, production has been pretty good all year long, particularly in the, in the corporate banking area. for the year, the second piece of it is the CRE pipeline started out originally at the beginning of the year a bit slower. It's been interesting to watch this year. Each quarter, our production has improved and we're expecting a pretty good fourth quarter.
We're starting to see, as rates ticked down as capital is available in the CRE segment. We're starting to see kind of much better production and pipeline as we get to the end of the year. I think for both of those businesses, and all of our C&I related businesses, whether it's corporate commercial, small business.
I think we'll see the strongest production numbers in the fourth quarter that we've seen all year. Fourth quarter is typically our strongest quarter and I think the pipelines in all the areas are looking good. We did see in Q3, a higher level of payoffs than we normally see.
that kind of comes with the game. I mean, some quarters are lower than we think. Some quarters are what we think and some quarters or above what we think most of that had to do with either company sales, which is pretty hard to predict or, credits that we took a proactive position at renewals or upsizing and elected to step out of, for various reasons, either relationship reasons or pricing reasons or the fact that we had a slightly different view of the structure of the credit with the economic outlook would be for those.
But overall, I think as we head into Q4, we're very optimistic about what we're seeing the markets we're in continue to be strong. We've continued to add talent and virtually all of the, geographies and verticals that we're in.
The ones that Raj mentioned from a talent acquisition perspective earlier, a little bit more of the headline ones, but a couple levels below that at the relationship manager level that practice leader, [areas] we've continued in all of our groups and all of our geographies, to hire and in Q3 was good hiring quarter force.
A little bit more specifically on CRE given the interest in this topic, I'll spend a few minutes going into this a little bit more. I would also refer you to slides 11 through 14 of the supplemental deck where we've provided some additional detailed disclosure.
Overall, the CRE portfolio continues to perform well. Our CRE exposure remains modest compared to other peers, the 25% of total loans. CRE to risk based capital is 164%. Comparatively based upon the June 30, 2024 reports, the median level of CRE for total loans for banks in the $10 billion to $100 billion space was 35% compared to our 25% in the medium [CRE] ratio to risk based capital was 220% compared to our 164%.
So it's a good business line for us. It's important but overall, it's more modest within our balance sheet than it is for some other banks on a big picture basis. At September 30, the weighted average LTV at the degree portfolio was 55% and the weighted average debt service coverage ratio was 1.77%. 56% of the portfolio was in Florida, 25% in in the New York tri-state area and 19% in other geographies that were active in.
Office continues to be the sector we're watching. Most closely as I say it, every call I have every office loan in front of me right now and we're watching it very carefully. We are seeing some improvements in the sector but overall the demographics of office and how it will play out and return to office. It's still a developing story at this point.
For our portfolio, we have a total office portfolio of $1.8 billion with 57% in Florida which is predominantly suburban, 23% in the New York tri-state area of that $1.8 billion, $352 million of total CRE is in the medical office space which is a very high performing segment right now.
So our traditional office portfolio is just south of $1.5 billion for the total portfolio, the weighted average LTV of the stabilized office portfolio was 65% and the weighted average debt service coverage ratio was 1.56% at September the 30. So well performing $449 million of office loans mature in the next 12 months. $234 million of that is fixed rate rent roll over in the next 12 months is only 11% of the office portfolio.
So I think from a majority and rollover perspective, we're in good shape. With respect to the New York tri-state portfolio 41% is in Manhattan approximately with approximately $169 million 95% occupancy and a lease roll over in the next 12 months. Is 10%. So I think they're well positioned as well.
It's still early and there's a lot remaining to play out in the office sector broadly in our portfolio. So I would caution against over generalizing, but we are starting to see particularly in Florida some good consistent trends as it relates to quarterly.
Upticks gradually in debt service coverage ratio numbers, we are starting to see a gradual narrowing of the gap between physical occupancy and economic occupancy as abatements and concessions start to roll up.
And as you look at whether it's Miami or Fort Lauderdale or Orlando or Tampa, Jacksonville, particularly in Florida. We are starting to see some kind of quarterly gradual few basis points uptick in debt service coverage ratios kind of across the board.
Overall, the office portfolio continues to perform comparatively well and is generally characterized by strong sponsors who continue to support the underlying properties to date. Any asset concerns are very specific to a small handful of loans and very manageable. Since the start of the pandemic in 2020 we've had total office charge offs of $8.3 million related to four loans. Most of that was two loans that we took partial charge off on last quarter and these are still then work out.
Overall non performing pre loans consisted of five loans totaling $61 million against almost $6 billion as of September, the 30, excluding the guaranteed portion of SBA loans of the $61 million, $52 million we in the office segment.
So as you can see the remainder of the segments we're in has virtually non-performing loans. So overall, we feel pretty good about where we are from a pre perspective. That's a lot of detail. But Leslie, we now get into more detail around the quarter.
Leslie Lunak
Thanks Tom. So as Raj said net income for the quarter was $61.5 million or $0.81 per share. Net interest income was up $8.1 million or 4% this quarter. And the NIM increased 6 basis points to 2.78% from 2.72% last quarter right in line with our expectations.
The yield on loans was up from 5.85% to 5.87% as new production continues to come on at higher rates and lower yielding loans paid down. Yield on securities was up 2 basis points quarter over quarter as well. So at September 30t, the commercial portfolio with 68% floating and the security portfolio with 70% floating.
Obviously, those assets will be price down as rates come down, but that impact will be partially offset by the remixing that continues in the portfolio. And the fact that fixed rate assets that mature or pay down are still being replaced by higher yielding assets the rates on our commercial production for Q3 average a little over 8% for C&I and around 7.5% for CRE.
We're very happy to see the average cost of total deposits actually declined this quarter as rush said from 3.09% to 3.06% and on a spot basis down to 2.93% from 3.09%. And that downtrend is continuing.
We've been very proactive in bringing deposit rates down from September 1 through October 11. No magic to that day is just when we did the math, the beta on the non-maturity interest bearing book was 78%. So that's a really, really good start on bringing deposit rates down and we will continue to bring rates down over Q4. For example, we've got about $1.7 billion in CDs maturing in Q4 at a weighted average rate in the low five that will reprice down on average we believe into the low four. So that's just an example of the progress that we're making there.
In terms of guidance around the NIM, I expect the NIM for Q4 to be to be roughly flat to Q3. Reason for tempering that previous guidance a little bit, a couple of things going on. We're a little bit lower starting point than we thought we would be within IDDA and commercial loans. So there's a little bit of catch up that needs to happen there, but that's really a timing thing.
And the rates are coming down or forecasted currently to come down a little bit faster than we originally thought they would. So back to there just being a little time needed for catch up there. Looking forward on the NIM, as we've been saying, all along the trajectory in the future will be more dependent on our ability to continue the balance sheet transformation story and to continue the remixing on both sides, then it will be on what the fed does and the static balance sheet as it has been for some time remains modestly asset sensitive.
Comment just a little bit briefly on wholesale funding. We did see an uptick this quarter. The increase you saw in FHLB advances was just really related to intraday cash management activities going on the last day of the quarter. It's also reflected in elevated cash balances and that will normalize.
We leaned into broker deposits a little more this quarter frankly, because of some dislocation in market pricing and they were priced well inside of retail CDs. So that was -- I'm sure that's temporary and it'll resolve itself over time, but we took advantage of it while it lasted. If I look back, the funding profile of the company improved considerably over the course of the year for the nine months ended, September 30 wholesale funding is down by $1.9 billion non brokered deposits have grown by $1.7 billion and NIDDA has grown by $800 million.
So the story -- if you look -- if you take a little bit longer than a one quarter view is a very good one. With respect to the provision and reserve the provision this quarter was $9 million. The ACL to loans ratio up from 92 basis points to 94 basis points and the commercial ACL ratio including C&I and CRE franchise and equipment finance was 1.41% at September 30.
This quarter, the provision a few different moving parts in there. Some changes in portfolio characteristics and some assumption changes as well as additional qualitative reserves serve to increase the reserve and that was partially offset by an improving economic forecast. Slide 16 of the supplemental that gives you some more detail around that.
The reserve on CRE office was 2.20% at September 30. That's down from 2.47% in June. This really related primarily to a reduction in specific reserve for one loan where we had an updated valuation come in much more favorable than we expected.
So that was very good news in the in the office portfolio and that's also what led to the overall reduction you see in the CRE reserve. With respect to reserving around hurricane Milton, as Raj said, the assessment is still ongoing, we currently don't expect anything material, but there could be some provisioning next quarter. That's not expected currently to be material.
Non-interest income and expense, nothing particular to note with respect to non-interest income, nothing material going on in there. This quarter you saw the increase in non-interest expense and that was mainly on the comp line and we can all celebrate the fact that the biggest driver of that was an increase in the company's stock price which led to an increase in some of our share based compensation approvals. We hope that happens every quarter. And I'm sure you do as well.
We previously guided to non-interest expense being up mid-single digits for the year. Ignoring the FDIC special assessments that guidance hadn't changed. One thing we do expect next quarter is about $8 million in railcar retrofit costs. And that'll push that guidance maybe to the hot towards the higher end of what you might define as mid-single digits.
I think, the other thing in terms of guidance, I'll throw out there is NIDDA we're currently expecting maybe slightly down in in the fourth quarter on NIDDA, slightly down --
Rajinder Singh
But then growing again in the first half of next year.
Leslie Lunak
And continue to expect the ETR to be around 26.5% going forward. I will end my remarks there and turn it back over to Raj for closing remarks and then we'll take your question.
Rajinder Singh
I just realized I forgot to mention the numbers. I rattled off on EPS, ROA, ROE over the last four quarters exclude the FDIC special assessment. I don't want to be in trouble with my CFO after the meeting.
I was supposed to mention that in my March, but I forgot, I apologize but it's adjusted for the special assessments in the fourth quarter and first quarter. But now we'll open it up for questions.
Give guidance at the very end and I scramble. So writing it down. So I just want to make sure I had it all. So you said margin roughly flat next quarter, non-interest bearing a little bit softer due to some seasonality trends. And then you also said there was an expense for railcar. I'm assuming that expenses one time in nature?
Leslie Lunak
It's sporadic or periodic in nature is what I would call it.
Benjamin Gerlinger
Okay. That's fair. And I know you don't want to give '25 guidance. So when you think about just kind of the quarterly or kind of seasonality cadence of the non-interest bearing deposits. Is it kind of run the calendar the 2025?
Do you think it's kind of follows the normal mortgage where it's like the first half of the first quarter is still pretty weak as well? Or do you think there's a little bit more idiosyncratic points to be made? And I get that lower interest rates if we do get a couple of cuts here and then early one to kind of throw seasonality into the loop.
But I'm just trying to figure out the, how you guys are thinking about the non-interest bearing deposit because you've had tremendous success, but you're also facing the tougher part of the calendar. So just kind of curious your thoughts over that quarter --?
Rajinder Singh
In our -- I think you're accurate for our title business. But then there is a lot of business outside of the title space and each one of those business lines has their own cadence may not be as choppy as the title business, but whether it's our corporate business, whether it's the HOA or small business, they all follow a slightly different pattern.
NTS our title business certainly is the most has the biggest swings from month to month or quarter to quarter and you're correct for that business. It starts picking up mid first quarter and it peaks in the summer because it's very driven by purchase money.
So overall, I think, expecting first quarter, second quarter to be our strong quarters for an IDDA growth and third and fourth quarter not so strong, is probably accurate. So kind of the pattern that we are seeing this year should be the pattern going forward unless there is some kind of a big mortgage sort of market turn. It can only turn to our favor because probably a pretty historic low. So if it does turn, then that will be sort of gravy on top, but we're not sort of sitting here and counting on that.
Thomas Cornish
But I did want to add one comment on your railcar question. The, the recertification and retrofit expense is generally one time for all of the rail cars we're looking at, we had identified the expenses required to do that. Some of that happened last year. Most of it is this year there's a small amount of it next year and then we're pretty much done at that point with all the federally mandated recertifications and retrofitting that we need to do. It doesn't --
Leslie Lunak
It's one time per car, but it doesn't all happen in the same quarter.
Thomas Cornish
But it's identified and we know when we have to do it, it's not like it just sort of pops up.
Benjamin Gerlinger
Got you. Okay. That was about as clear as mud, but I appreciate the color. And then my other question, I know Rod, you talked through like earnings have improved reserve, has improved interest bearing or nib deposits have improved capital has also improved.
And it seems like loan growth is going to be similar to the rest of the industry a little bit softer, but it should improve with lower rates and help your both sides of the balance sheet. So kind of just curious your thoughts on just capital deployment here considering capital CET 1 has gone up pretty healthy and it doesn't seem like you have a tremendous amount of growth on the near term, but the outlook looks pretty healthy concerning Florida is a great economic state, thoughts on a buyback or capital deployment going forward?
Rajinder Singh
So actively on in discussion right now on that topic, we're in capital planning budgeting mode as we speak over the course of next two months. It's going to be intensive dialogue on that front. We did talk to the board about this as recently as our last board meeting, which was August.
And at that time, they decided to not authorize a buyback, but to reconsider it again at the end of the year, capital is building up, but it's building up slower than, than usual because the balance sheet is changing and set one given that we're leaning on commercial growth and running of residential that does eat up some capital.
Yes, we have some cushion but, I'd rather deploy it for growth. I know right now this quarter certainly there wasn't growth, but I'm a little more optimistic about growth next year. But if we're not able to, then yes, we will look at share buybacks as a way to return capital. Also in terms of pre pandemic or pre the crisis last year, what used to be acceptable levels of capital, like a 10% set one, I think that has been reset industry wide to a slightly higher expectation, maybe more like 11%. So if you think about that, yes, we do have excess capital, but it's not like oodles and noodles of excess capital. And if we can deploy it in growth, that would be my top choice. If not, we'll look to doing a buyback next year.
I had a quick follow up on the non-interest bearing deposit guidance. Is that referring to the end of period deposits or is it referring to the average basis?
Leslie Lunak
Really? Probably both woody I would say flat to slightly down on both counts.
Woody Lay
Okay. Got it. And then I wanted to shift over to credit looking at a slide 22. It looks like there was a pickup in some of the CRE past due buckets. Is there anything to note there or is that mostly just administrative issues?
Leslie Lunak
The past due. Honestly, that's a loan that's been in non-accrual for some time now that finally just actually went past due. So.
Woody Lay
Got it. Okay. And then maybe shifting over to the to the office segment that's being criticized right now. I know there was a movement back in the first quarter and I believe we talked about how those loans were moved because of some of the 12 month lease concessions is the expectation still that those loans will be upgraded once the concession expires.
Leslie Lunak
Yes, once it expires and rent has been collected for a period of time.
Hey, good morning. Just looking at the deposit cost trends. Actually maybe just a broader funding cost trends. How should be thinking about the duration of the FHLB borrowings that you added in the duration of the broker deposits for one part of that and then the other is, is when you're looking at the ability to reprice deposits lower from this first rate move is that moved in line with your expectations or has pricing been a little stickier than maybe you initially thought?
Leslie Lunak
I'll take the first part of that and then I'll turn it over to Raj for the second part. The, the increase in FHLB advances, what we put on is all very short because we expect that to be temporary and the duration of the broker, it's mostly six month money.
Rajinder Singh
Yeah, I'd say all CDs are fairly short, whether retail or brokered in terms of deposit pricing, has it been sticky or not? It actually has been for this first cut that happened, we came out exactly where we modeled, right? So Leslie mentioned the data was 78% or so. I think we're modeling 75%.
So it was pretty close to what our expectation was. We'll see, well, this is not the, the last cut, this is the first cut and we'll, we'll see you know how the market evolves as, as the fed moves on. But so far, I'm actually optimistic that we will be able to bring down and the market will accept that that level of price decrease. So, or the rate decrease.
Leslie Lunak
We haven't really seen outflows that seem to be prompted by the rate decrease and haven't heard a lot of pushback.
So when we look at the discussion around margin being relatively flat versus the prior guide for ending the year closer to the high twos what's, what's driving, I guess that incremental pressure is that, is that more just the DDA balance is being lower than expected or is that rates on yields?
Leslie Lunak
Now, the primary driver, there's a lot of moving parts obviously in the margin, but the primary driver is just the lower starting point than we expected with an DDA. So, like I said, we just got some catch up to do.
Rajinder Singh
Our margin. Obviously directly related to our NIDDA. NIDDA gets if you grow, that margin will grow and does follow that pattern. So margin growth will not be in a straight line, but it will grow over time as it has over the last 12 months. So $100 million of NIDDA produces $5 million of earnings. It's, it's very powerful, which is why we're focused so much on NIDDA growth, but the fact that margin is expected to be flattish is directly linked to the fact that NIDDA is expected to be flattish for the next three months.
Jared Shaw
Okay. Thanks. And just finally, for me, I think Tom was mentioning the pay down the level of pay down activity versus the strength of the pipeline in fourth quarter. Maybe could you just revisit that in terms of do you expect still high levels of, of pay down activity for the, for the foreseeable future or were you saying that the pipelines are starting to build stronger levels than expected, pay downs on this, I guess. And that's on the CRE side.
Thomas Cornish
I would say the latter would be true. We would expect the production will out distance payoffs, payoffs when people sell businesses is always very difficult to predict because they typically don't tell you until a few days before because you there's a lot of sponsor activity and sponsors don't tend to release that information. But I would say if you look at the payoff level for Q3, it was higher than it's been in past quarters.
And we would not expect that to be a normalized level. There are some normal levels that we will see from time to time. But we would expect that to be a higher level than we would see going forward. But we would expect the production Q4 will certainly be the highest we've seen this year.
Leslie Lunak
To reiterate, I think for the full year, we should still land at mid-single digit growth for the core commercial and free portfolios combined.
Hi, good morning. Again, just circling back to the margin commentary. I'm just wondering how that translates over to NII should we extrapolate that flattish margin means flattish NII or do we get maybe some uptick on the volume side given some of the strength in the lending pipelines?
Leslie Lunak
I mean -- I think we should probably see for the full year, mid-single digit growth in NI I as well. So I think there'll be some benefit in the fourth quarter from the loan growth that we're anticipating. But I still think for the full year we're probably going to single digit growth.
Timur Braziler
Raj, just going back to your comments on, on where the bank has come over the last four quarters or so, I guess maybe taking a step back into the transformation on both sides of the balance sheet. what inning are we in there? And then as you look at the end game in terms of either ROA or ROE where do you see BankUnited eventually emerging on those fronts?
Rajinder Singh
Think we're somewhere in the middle of the game. We're not in the very early innings. I think that was probably the beginning of this year or late last year and we're not clearly not in the, in, in towards the end of the game. There's still a lot of work to be done. I think this transformation, we, we need to get our NIDDA up back out over 30%.
And maybe even dare to shoot for much higher than that. The 69 basis points, ROA or the 8.8%. ROE is nowhere near where I think the franchise is, is capable of. I think these numbers need to get over 1% and over certainly over 10%, 11%, 12% range for ROE.
That again, will not get done in the next one or two quarters. It is, I think, just if you see what the trajectory has been and if we just draw the line from there, it is going to take a better part of next year to get up there, we'll give you more guidance in January when we have kind of gone pencils down on our budgeting and everything. But, to your original question, I think we're kind of in the middle of the game. Not at the beginning, not the first inning, not at the eighth or ninth inning. So, this still work to be done here.
Timur Braziler
Great. And then just last for me on the bond book, can you just remind us what majority of that is indexed to?
Yeah. There, there's a lot of, there's a lot of variety in terms of what the benchmark rates and timing of, of rates changes are in the bond book. It's not one thing. The loan book is mostly one month. So, but there's quite a bit more variety in the bond book in terms of the benchmark and frequency.
Hey, good morning guys. On the title business. How much do those deposits decline this quarter? And where do those sit at quarter end or for the average balance, whatever you guys have would be great.
Rajinder Singh
I think a third of that $430 million decline was from the title business roughly.
I've got somebody looking that up, Dave, I'll get right back to you.
David Rochester
No problem. How was the customer growth this quarter in that business? I know you talk about like 40 to 45 customers per quarter. How does that work?
Rajinder Singh
I think if I recall, I think it was 38 customers or relationships that are brought in. I could be off by one or two. But we, we, we actually just this Saturday took the entire team out to sole getting to 1,000. We're actually just a couple of a couple shy from 1,000 but we're, we're, we're about to get to 1,000 relationships sometime in this month or maybe next month. So, yeah, last quarter was as, very much in line with the previous quarters. I think it was about 38 new relationships.
Yeah. Okay. How about that? The large customer, you guys got back in two Q, I know those deposits weren't at the bank in 2Q, are they there now?
Rajinder Singh
Not yet. The implementation is much more complex. So that is actually a pretty, we know we run the business but it's going to take time and that's going to be we're going to be doing the conversion over the course of next year.
David Rochester
How large of an ad can that be on, on the deposit front?
Rajinder Singh
It's fairly, fairly big. It is -- it can easily bring in a couple of $100 million bucks.
David Rochester
Is there once you guys are on board them and show that you're successful and in integrating everything that they're doing is there a way you could potentially win more larger clients like this?
Rajinder Singh
I like the smaller client nature of this business. Big clients, complex clients are fine but the magic of this business is that the average client size is only $3 million bucks. And II I want to keep it like that because that's where you have you, you're getting paid for service rather than it being a price game. So I've asked the team to stay focused on the small end rather than go for the easy sort of big clients that can move the needle very quickly.
Yeah. And in this particular relationship that we're talking about, part of the complexity is it's really not per se one relationship. It's a, a large entity that owns hundreds of underlying entities beneath it. So each one is actually its own separate business which leads to the complexity of trying to --
Rajinder Singh
Onboard this, which is why it'll take a long time to bring every one of those entities on. It's, it's like it's, it's not one big conversion, it's multiple conversions.
David Rochester
Yeah. Okay. Just switching to expenses. What was the comp component from the stock price move this quarter? Do you have a sense for the dollar amount of the rail car expense? You can see in 4Q?
Leslie Lunak
The dollar amount of the railcar expense is probably going to be about $8 million in 4Q and it was a little over 2Q and 3Q. So increase there of a few million dollars total increase in comp was $6.2 million and I don't have the exact amount, but the vast majority of that $6.2 million was stock price as well as some we also increased our incentive compensation approvals, our regular compensation accrual. So those two things.
David Rochester
So I'm just curious for the four Q trend, excluding that rail car expense bump up. Are you thinking that expenses could be potentially flattish or maybe even down because you may have that roll off of the higher comp from the stock price move?
Leslie Lunak
Yeah, what I will say to that is we haven't changed our full year guidance. We haven't moved off of that single digit mark. So.
David Rochester
Okay, great. Maybe just one last one on the buyback. I was just curious what, what's holding the board back? I know you, you've, you've been asked this question every quarter and a lot of times you talk about the board meeting that's upcoming and then the board doesn't go for it.
Is there anything any signpost they're looking at in this period where you are remixing and not necessarily aimed at growing the balance sheet. And I know you've talked about how CET 1 at 11% where 11% is like the new 10% and we're getting close to 12% now, 12%, like the new 11%. How do you guys think about that?
Rajinder Singh
It's not the level and it's not any one thing. It's a discussion is around just to give you a context, for example, the August board meeting was, I think three days after [vicks] hit that 65 intraday.
So when you go into a board meeting and the market is going completely. Hey I remember back in August, when we had that little temper tantrum in the market. So the board meeting was literally three days after that.
So the mood of the boardroom was like, what is going on? What does this all mean? And, and so they're taking into account the market, they're looking at the uncertainty from the geopolitical situation that we're in, they're looking at also what kind of growth might be at our doorstep.
So they're looking at the pluses and minuses. And they're also saying, okay, if we do a buyback, how big is it going to be and how material will it be? And we show them the numbers, it's not like we can go out do $300 million $400 million buyback. It's going to be small. And when you run through it and say, okay, so what is the bottom line EPS impact? And it's not much.
So in light of all of that, they say, we'll -- let's wait let's do your capital planning, come back to us and then we'll, we'll see if you want to do something.
So it's not any one thing that they're solving for. It's a number of things, including the environment, including what do you think growth prospects might be? What the FED is about to do, what will happen with elections with all of that stuff goes into that and they, they benchmark that against how much could we do and what impact will it have? And it's, it's, it's not really the bottom line on that sheet that we show them at the bottom is the EPS impact. And honestly, it's not that much.
David Rochester
All right, great, Appreciate all the color. Thanks guys.
Hey, good morning. Quick question, Raj and Tom. You in the slide deck plenty of capacity to grow on the commercial real estate side. I think you're at 164. So you saw a little bit of uptick in multifamily lending this quarter. Just curious, do you have any sort of guidelines or a targeting specific ratio there? Just maybe curious, you know what, what the comfort level is to grow, grow that ratio?
Rajinder Singh
I don't think there's a -- there's plenty of room to grow. It's not about can the 165 number go up to 185 or 200 whatever we're not solving for that. There is plenty of room to grow where there is restrictions is there are asset classes that we are not touching.
So as an obvious one being office, nobody is touching office. So we're not going to grow that hospitality also, we're very careful and doing very few deals here and there, but, but not a whole lot. So you look at the avenues of growth, we have limited ourselves from a concentration perspective. That's where the restriction comes in.
Not at the total C level, there's lots of room at the total C level, there's no room in the office space, there's little to no room in hospitality, there's some room in warehouse and where we're looking at some new asset classes like data centers where we haven't done a whole lot in the past, we might do a little bit in that space. But the there are some segments of CRE that are much more restricted rather than the total CRE.
Thomas Cornish
Yeah, I would also add to that. Raj is 100% accurate as you look at even what people think are the most favorite asset classes right now, which would generally be looked at as multifamily and industrial. the last 12 to 18 months was pretty robust construction in both of those asset classes. We have seen upticks in vacancy rates in both of those areas.
So while we like them a good deal we, we are cautious when it comes to building these concentrations and ensuring that we're within the overall asset class segmentation strategy that we have. And that's really, that's really the limiting factor rather than a sort of a big picture of number.
David Bishop
Got it. And then Raj, I think you noted in the preamble pretty good line of sight into the non-interest bearing. EDA line here even if you're flat, you're probably still looking at a 11% to 12% growth rate this year. Do you, do you feel confident you can maintain that level growth into 2025 and perhaps even improve on that?
Rajinder Singh
Yeah. We'll give you exact guidance in January but looking at just where the pipeline stand right now, I feel pretty optimistic.
Hey, good morning, everyone and thanks for the time. One question on the expense growth in the quarter, it looked like occupancy and equipment saw a little bit of a jump here. Was there any sort of branch expansion or is there anything within that that's worth noting? Or is that I don't know, normal puts and takes.
Leslie Lunak
Scouten repair and maintenance expenses in there. That's the (inaudible) --
Stephen Scouten
Got you. So, I mean -- is that something that should kind of normalize back down as a result or is that a decent run rate?
Leslie Lunak
I mean, I would look at maybe four trailing quarters is a decent run rate and I think it's dangerous whenever you look at any quarter and say that's the run rate.
Stephen Scouten
Yes. Perfect. Very helpful. And then as you're thinking about maybe the long term potential for the NIM as you work through, continue to process through this balance sheet transformation and build up knowledge, sparing, etcetera. How do you, how do you think about that long term potential for where you could or would like to get the NIM over the next couple of years in a perfect room?
Rajinder Singh
We have to get it over 3% without changing the business model. If we decide to change the business model and take on a little more risk, then you can get much higher. But based on the current mix of business, this should be we're shooting for over 3%.
Stephen Scouten
Okay, great. And then maybe the last thing for me is just Raj, you talked a lot about the progress that's been made over the last four quarters last year. Directional trends look really good. I guess the one probably missing piece there is PPNR income is, is still down from this time last year. So what needs to happen to actually grow PPNR? And kind of maybe fix that last piece of the puzzle. Do we need a BKU 3.0. Is that something that's on the table or how do we get that, that last piece there?
Rajinder Singh
I think, I think it's growth the balance sheet, the balance sheet is actually going to shrink this year. A little bit, maybe 1% or so. And, and that is deliberate because we're busy, kind of transforming it but eventually we have to get to growing it.
Leslie Lunak
I mean it's revenue, Stephen, it's spread revenue and also incremental improvements in --
Stephen Scouten
Makes sense. Alright, great. Thanks for the time guys. Appreciate it.
Hey, thanks, good morning. Thanks for all the information this morning. I was just curious either from Raj or Tom about the potential for upgrades on credits and whether it's some lower interest rates or new tax information you have from borrowers what's the potential to see upgrades in some of the commercial lines that you disclosed?
Thomas Cornish
Yeah, I think I I'd split it into two. I mean, one, the CRE portfolio, we can kind of clearly get line of sight on upgrade potential, which we think is good because a good portion of it is tied to this rent abatement issue that we have in new leases that have been signed in office building.
So I think it's either Leslie or Raj mentioned earlier we do not count sign leases when there's physical occupancy until the 90 days after the rent is, is being paid. So we can kind of chart out property by property and look at it of those properties that have been downgraded.
And we can almost say this particular date this is when we will start to count that rent being paid. So we have pretty good sideline and feel good about upgrades within the overall pre portfolio because it's more systemic kind of the nature of what we're looking at and in the C&I portfolio, that's a little harder to say because every individual loan is in kind of a different industry segment, a different issue.
It's a little harder to look at it in a very generalized manner. I would say we see some, we think there's good upgrade potential somewhere management changes and business model changes are ongoing that may take a longer period of time and some of them may be more stuck where they are.
I would say in general, lower rates will help everything. It'll help to C&I portfolio as well. It's harder to pick that. I would be optimistic about that. But in the CRE portfolio it's much easier to have very direct line of sight and I would be more optimistic about that.
Christopher Marinac
Great, thanks for that background that's helpful and Raj just curious on your comments on the call about the regulatory inquiry over a weekend that seems odd compared to what we've seen in the past. I guess that's just normal workflow.
Rajinder Singh
Well, I was on vacation last week so I was catching up on my email over the weekend. That's all it was.
Christopher Marinac
Perfect. Thanks for qualifying that. Thanks again.
Raj on vacation before earnings. He's clearly comfortable.
Rajinder Singh
I was on vacation. It wasn't -- the hurricane hit the week I took off. So it was interesting from being the other side of the world dialing in and finding out what's going on with the hurricane. Not that I could do much about it.
John Oxner
Right. Okay. Obviously. Most of the questions have been asked and answered, but I did have a question on if you have any preferences for what the fed does. It, it, it feels like the margin marches higher just based on what you're doing from a business point of view. And I understand the pause in the margin this quarter. I get that. But what, what is there anything that you would prefer the fed does from a rate perspective?
Rajinder Singh
Not really, we build our balance sheet in a way that it doesn't really impact us that much. Of course, if they move 100 basis points, 200 basis points and surprise everyone that's not going to be good. But a gradual reduction in rates is what we're expecting and we'll be fine.
I have a very long laundry list of what I'd like the fiscal side of the house to do. But on the monetary side, I really -- I think they've done a good job. I think they have a very difficult task ahead of them. I still remain afraid of that inflation might spark again next year based on all the spending and all the we're talking about and all the giveaways that come about during election time, hopefully cooler heads will prevail next year and we will have a more sort of responsible fiscal policy.
But on the monetary side, I think they've done a good job and I think if they just continue on a steady pace and not surprise the markets, I think we'll be fine.
John Oxner
Okay. I'll leave it there. Leslie, I'll send you a couple of questions, but nice job. Thank you.
Operator
Thank you. And I'll now turn the call back over to Mr Raj Singh for closing comments.
Rajinder Singh
All right. Thank you. Listen, we're happy with where the quarter came out. We're happy that like I said earlier in my remarks that everything has gone according to plan this year. It's rare that happens but it has happened. And I'm very optimistic and excited about when I see what the next two, three quarters will be, and where we can take this franchise. So thank you for indulging us and listening to our story and we'll talk to you again in 90 days. Bye.
Operator
Ladies and gentlemen, that doesn't have a conference for today. Thank you for your participation and you may now disconnect.