BankUnited - Q4 2025

Transcript

Operator (participant)

Good day and welcome to the BankUnited Inc 4th Quarter and Fiscal Year 2025 Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jacqueline Bravo, Corporate Secretary. Please go ahead.

Jacqueline Bravo (Corporate Secretary)

Thank you, Ben. Good morning and thank you, everyone, for joining us today for BankUnited Inc's 4th Quarter and Fiscal Year 2025 Results Conference Call. On the call this morning are Raj Singh, Chairman, President, and CEO, Jim Mackey, Chief Financial Officer, and Tom Cornish, Chief Operating Officer. Before we 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 31st, 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, Jacqueline. Good morning, everyone, and welcome to our earnings call. Before I walked in here, I was looking at, I think, CNN or CNBC and realized that we're competing with President Trump's speech at Davos. So for those of you who are listening in, a special thank you because I know we have stiff competition this morning for your attention. Honestly, if it was up to me, if I was the audience, I'd probably be listening to his speech as well more than our earnings call. But nevertheless, thank you. And I'm going to walk quickly through the earnings for the quarter. But before we get into quarter, just a couple of minutes on how the year turned out to be.

I'll talk about the year, talk about the quarter, give you some guidance for next year, and then I'll turn it over to Tom, who will then turn it over to Jim. By the way, Leslie sends regards from the beach. I believe she's on the call listening in. But coming back to our 2025, this was a great year for us. I mean, there is no other way to describe it. If I was to summarize everything in one sentence, I would say double-digit EPS growth came from double-digit earnings growth, which came from double-digit PP&R growth, which came from double-digit NIDDA growth, which caused margin to expand by like 22 basis points. I mean, there is a lot more nuance to it. There's fee income, this, that, and the other. But if I had to summarize it in 20 seconds, that's how I would.

We pretty much hit everything we were trying to hit, and it just turned out to be an awesome year. Turning to the fourth quarter, again, this was a very strong quarter for us on just about every metric. Earnings came in at $69.3 million, $0.90 a share. There were some one-times, which Jim will walk you through, some software write-downs that we took at the end of the year. But adjusted for that, I think our EPS would have been $0.94. I think consensus I checked last week was $0.89. PP&R for the quarter was $115.4 million compared to $109.5 million last quarter. I think it was $104 million fourth quarter of last year. Margin continued to expand, which has been a story with us. Last quarter, we were at 3%. Now we're at 3.06%.

If you compare it to fourth quarter of last year, we're up 22 basis points. Annualized ROA came in at 78 basis points, but if you adjust for that software write-down, it was about 81 basis points. Deposits and loans, this is like a really strong quarter on both sides of the balance sheet. NIDDA grew on a spot basis by $485 million, and for the year, it was up $1.5 billion. But to be honest, the right way to look at our balance, especially deposits, is always on an average basis because there's a lot of noise that comes from seasonalities, a lot of noise that comes in from just the last couple of days of the quarter. Our average NIDDA for the quarter was up about $500 million, about $505 million. And for the year, average NIDDA was up $844 million.

Those are pretty solid numbers, and we're very proud of it. Now, this quarter, we had guided to you that this is a seasonally slow quarter for us. And your question might be, "So did the seasonality not show up?" The answer is no. The seasonality very much showed up. NTS, which is our title business, was down, as it always is in December. So that happened. What really made up for that and then some was all the other business lines came in very strong on deposit growth, especially on NIDDA growth, and we ended up where we did. So very happy with that performance. NIDDA now stands at 31% of total deposits. Last quarter, we were at 30%, and we want to recapture that peak that we hit during COVID years of 34%, and we are more and more confident of getting there soon.

There was obviously a Fed rate move this quarter. Cost of deposits came down. Spot cost of deposits declined by 21 basis points to 2.10 at the end of the year, which was 2.31 at the end of September. So just compared to December of last year, spot cost of deposits is down 53 basis points. Now, quickly turning to loans, the last couple of quarters, we've been seeing a lot of payoffs and some expected, some unexpected. But this quarter, we've made up a lot on the loan growth side. Core loans grew by $769 million. By core means commercial and CRE and small business and all that stuff, excluding residential and that we've been running off. So the core loans growing $769 million, this is a very big quarter for us. We were very busy all through the end of the year.

We're very happy about that, and Tom will talk a little more in detail about where that growth came from. Quickly turning to credit, criticized classified loans were down a little bit by $27 million. NPLs were down a little by $7 million. We did see slightly elevated provision and charge-offs. We are in a lumpy business when these credit costs hit us. They do come in large chunks. As an example, of the $25 million, one loan, which was a fraud that we got hit by in the fourth quarter, was $10 million bucks. It's very hard to predict these things. It's very hard to protect yourself against fraud, but it did happen, and we had a complete write-off on a $10 million loan, and that's in the numbers. But overall, we're feeling good about credit and expect NPLs to continue to decline into this year.

Capital, CET1, was a little lower at 12.3%, partly because of growth, partially because of a little bit of buyback that we did in the fourth quarter. And on a pro forma basis, including AOCI, CET1 is 11.6%. Tangible common equity to tangible assets got to 8.5%, and tangible book value per share is now over $40 at $40.14. I think that's a 10% growth year over year. So the board met just yesterday, looked at our plan, looked at our numbers, and authorized us for an additional $200 million share buyback. Of the 100 that they had authorized a few months ago, we've already used up about half that. So we will have about 50 million left over, roughly, from the previously announced buyback authorization add another 200 to it. So we'll have 250 million or so of dry powder.

Also, they increased dividends by $0.02, as they often do at this time. In terms of philosophy on buybacks, I think you heard me say that in the past. We want to stay in the middle of the pack of our peers. We think our middle of the pack is somewhere in the mid-11s, and that's what we're shooting for. Now, where the herd moves, only time will tell. That number could go lower, and we will address it if it does. But right now, it feels like mid-11s is the middle of the pack, and we're in the mid to low 12s, and we're at the top of the end of that range, and the buyback will bring us in line. So before I hand it over to Tom, let me quickly talk about guidance, and we put a deck out.

You can look at it at your leisure. But just for guidance, I would ask you to look at page 14 and then page 15. Page 14 is sort of a look back of what guidance we gave last year and what we were able to deliver in actual results. We gave you guidance about deposits and NIDDA and loans and expenses and net interest margin and so on. We pretty much got there on everything and did better on most things. And NIM was up 8%. We guided to ending the year at 3%. We ended at 3.06%. Deposits, we said mid-single digits. We did mid-single digits. NIDDA, we said low double digits. We did period end, we did 20%. On average, we did about 12%. The only one that we missed was core loan growth.

We thought we would be in high single digits, but we ended up at 5%. And expenses, we said they'll be controlled or it'd be mid-single digits, and we ended up at 3%. So very happy with what the guidance last year worked out to be. So with that, keeping that in perspective, our guidance for next year is on page 15. It might look like almost we were being too lazy, or this is a little, it's almost the same guidance that we gave you last year. It's so boring that we think loan growth, deposit growth between NIDDA and total revenue growth, everything will be very similar to last year. Loans should grow. Core loans should grow about 6%. Resi and others will shrink at about 8%. Total loan growth will be in the 2%-3% range.

Deposits, NIDDA will continue to grow at the 12% rate that it has been growing at. Total deposits, excluding broker, will be at about 6%. Revenue, which grew last year at 8%, should grow again at 8%. Margin slightly more, fee income slightly less, simply because there's lease financing income and fee income that is coming down, which has dragged it down a little bit, and expenses will stay controlled. For provision, we're using an assumption that the provision will be similar to last year, though it's a little hard to always pinpoint that, but our best assumption is it will be the same. The difference this year is we're announcing capital actions, which we did not announce last year. Like I just mentioned, the $200 million additional buyback, that's different this year.

And all of our assumptions and everything was built on the economic environment staying pretty much what it is. And spreads are tight and tightening. So we did take that into account, which is why you see margin improvement only going from 306-320. It's largely because we're seeing much tighter spreads this time than we did 12 months ago. And two Fed rate cuts, but our numbers aren't very sensitive, whether it's one cut or two cuts or three cuts. The balance sheet is fairly hedged. So with that, did I miss anything? Should I turn it over? All right. Let's turn it over to Tom.

Tom Cornish (COO)

Great. Thank you, Raj.

Just to follow up on Raj's earlier comments, on deposit growth, total deposits increased by $735 million during the quarter, $1.5 billion for the year, and NIDDA was up this quarter by $485 million and $1.5 billion for the year. As Raj mentioned, despite the normal seasonality, we have numerous business lines contributed to strong growth in the fourth quarter, which was really good to see. I would also say, if you look at the lending business that we did in the quarter, which was also up strong, the treasury pipeline, operating account pipeline going into the early part of the year is very good because you tend to fund loans first, and then you tend to migrate the deposits afterwards.

So given the strength that we had in the lending teams at the end of Q4, during Q4, we'll see some lag time in the development of those operating account businesses. So we remain really optimistic about that. As Raj said, core loans grew by net $769 million for the quarter. If you break that down, CRE was up by $276 million. The C&I segments were up by $474 million, and mortgage warehouse was up by $19 million. We talked in the last few quarters about the fact that production throughout the year remained relatively strong, but we did have these headwinds of strategic exits and payoffs and sales of companies and whatnot. One of you asked me on the last call what inning we were in of the exit process, and I said we were kind of in the bottom of the ninth inning.

I think if you look at the walkthrough that Jim did on page nine of the deck, you'll see that the production was very strong, and the level of exits was fairly minor compared to what it had been in previous quarters. So as we move into this year, while there certainly will be one or two things we exit from for various reasons, overall, I think we're in a year where production will continue to be strong, and we've kind of finished the game of looking at things that we want to get out of. Overall, Resi was down by $148 million, while franchise equipment and municipal finance were down to combined $50 million. In aggregate, that gets you to your $571 million of total growth. The loan-to-deposit ratio finished the quarter at 82.7%. A few comments on the commercial real estate portfolio.

It was a good year for CRE. We grew by 9% on the team. Overall exposure total of $6.8 billion for 28% of total loans. As you can see from the supplemental deck, pretty well diversified across all major asset classes. Again, consistent with last quarter, at December 31st, the weighted average LTV of the CRE portfolio was 55%, and the weighted average debt service coverage ratio was 1.82. Both very strong metrics. 48% of the portfolio was in Florida, 22% in New York, and obviously the remainder in other areas where we've emphasized growth in the Southeast and Texas over the last couple of years. Our exposure to CRE office was down $98 million, or about 6%, from the prior quarter end. Criticized and classified CRE loans declined by $36 million in the fourth quarter, primarily as a result of payoffs and paydowns.

I think at this point, we continue to see generally positive trends in the overall office book. Obviously, it's down significantly over the last few years. I think this will be a year where we see a lot of rent abatement improvements. And in most of the markets that we're in, when we kind of break it down sub-market by sub-market, we're seeing continued improvement in each of the sub-markets. Page 8 of the investor deck provides greater detail on the CRE portfolio. So with that, I'll turn it over to Jim.

Jim Mackey (CFO)

Thanks, Tom. I'm going to walk through a couple of things for the quarter. Try not to repeat too much what Raj and Tom mentioned, but I do want to highlight a few things. So as reported, $69 million, a little north of $69 million of net income for the quarter, $0.90 a share.

We did call out for you a one-time write-down of some previously capitalized software as we were going through our tech stack, doing our strategic planning. We determined to go in a different direction, so we took that charge during the quarter. So if we adjust that net income, it would be $72 million or $0.94 a share. So that's roughly consistent with the prior quarter, up about $3 million from a year ago. And importantly, we're seeing PP&R grow about 14% year over year. On NII and NIM, NII is up 3% from the prior quarter, 7% from a year ago. The NIM expansion story that Raj mentioned, 6 basis points up to 3.06. It's really a pretty simple story. Our cost of deposits is declining by more than our loan yields are declining.

We talked about the NIDDA growth of average balances of $505 million during the quarter. Interest-bearing deposits were down. Average interest-bearing deposits were down about $347 million. So that brings our NIDDA mix up to about 31%. We were successful as we've been all year long, passing along rate cuts timely. So that certainly helped margin. And our loan growth, the timing of the loan growth during the quarter was helping us as loans were put on throughout the quarter. And then we were also helped by the Resi loans that paid down. We did see a favorable mix in the lower coupons maturing. So all of that combined for the 6 basis point improvement. Just a reminder, NIM was up 22 basis points for the full year. NIDDA up $1.5 billion. So our mix is up from 27%-31% at the end of the year.

A couple of comments on credit provision and the reserving, so our charge-offs were just shy of $25 million or 30 basis points for the quarter. Slightly elevated from where we'd like to see it. We sort of underrate to about a 25 basis point charge-off rate over time, so a little elevated. We remind you constantly we are a little bit episodic. Raj talked about a couple of items during the quarter. Provision was $25.6 million for the quarter. Again, a little bit elevated, but it was really a function of the specific reserves that we booked and to a lesser extent previously reserved charge-offs. We provide a walk for you in the deck. Allowance for credit losses, roughly flat, right around $220 million. The coverage ratio is slightly down, but it's really just a bunch of model noise and rounding.

So I'm going to call the coverage ratio flat as well. Again, on page 10, we lay out all the moving parts in a walk. As Raj mentioned, non-performing loans are down, and criticized and classified loans are also down. On non-interest income and expenses, again, non-interest income is a very positive story for us. We're up $30 million. We're up to $30 million, $4 million growth quarter over quarter, and year over year. And that is despite our leasing income falling. Capital markets-related revenue is continuing to steadily improve over time. So if we exclude that $13 million of leasing income that we saw in 2025, we had full-year non-interest income grew by about 28%. So while the numbers are still small, it's definitely a positive growth area for us that will continue to help us moving into the next year.

On the non-interest expense side, we were up $6.6 million from the prior quarter. The majority of that was two things. One was the capitalized software charge that I mentioned earlier, and an employee compensation expense, the impact of the stock price movements, that impact on equity-based compensation makes up the other portion. For the full-year, non-interest expense was up 3%. It's largely comp and benes up as we've been hiring revenue-producing people. Technology expenses as we continue to invest in growing our business. We also had a credit in 2024, just to remind you of, that didn't repeat. Deposit costs are growing as we grow our deposit base, and that's being offset by lower FDIC premiums and lower leasing costs.

So sorry, before I turn it back to Raj for some concluding remarks, I just want to make a quick comment on '26 guidance in addition to what Raj mentioned. Again, all that guidance is on page 15. It's a full-year view. Just want to remind you that we do have some seasonality in our results during the year. For example, loan volume is typically seasonally low for us early in the year, and our non-interest-bearing deposit balances are typically highest in second and third quarter. While we do think provision is going to be flat year over year, the timing of which in what quarters and where will be determined as everything is a little bit episodic. With that, I'll turn it back to Raj.

Raj Singh (Chairman, President, and CEO)

Yeah.

The one part that I usually talk about, and I forgot this time, is generally how's the economy and how's the stuff that we don't control, right? So that's economy, that's rates, and sort of the regulatory environment. So regulatory environment is constructive. There's no surprising news over there. In terms of the economy, it feels very good. At the same time, if you watch the news too much, it can scare you a little bit. That's what has been the case for the entirety of 2025. A lot happened, but it didn't really impact the economy. In fact, the economy is doing reasonably well, and we're going to stay optimistic until proven otherwise, but feels really good. Both in New York and over here, business in New York also is doing very well. Now, it's not just Florida.

So the economy is doing well, and as far as we can see it, it will continue to, despite heightened geopolitical risks and noise. And rates, again, the monetary policy looks pretty straightforward what will happen this year, but it's hard to predict too far out in the future what will happen with rates. We think two rate cuts, might be one, might be two, might be three. Nobody's predicting eight rate cuts or anything crazy like that, or for that matter, the rates start to go the other direction. We have hedged ourselves as best as we can, and we're not worried about rate cuts being a little bit more, a little bit less. But if there's something crazy, if interest rates go back to zero or something like that, that'll impact our earnings and everyone's earnings.

But outside of that, the environment feels fairly straightforward, and we're running the business with those assumptions in mind. So with that, let me turn it over and take some questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble the roster. And the first question will come from Woody Lay with KBW. Please go ahead.

Woody Lay (VP)

Hey, good morning, guys.

Raj Singh (Chairman, President, and CEO)

Good morning.

Woody Lay (VP)

Wanted to start on the fourth quarter non-interest-bearing deposit growth.

As you mentioned in your comments, it's pretty remarkable to see the growth when you also saw the downward seasonality in the title business. I was just wondering if there were any specifics on what drove that growth and what you would attribute it to.

Raj Singh (Chairman, President, and CEO)

First, I will say, actually, just before this call, we might get this question. Tom and I were discussing this. I looked at business line by business line where the growth came from and to see if there were any outliers. Happy to report there are no outliers. Every business line contributed. It's pretty even. Small business, middle market, corporate, even CRE, everything brought in deposits. HOA, the only one with a negative number was title, which we knew, right? This is a seasonal time when NTS slows down, and then they pick back up in late first quarter.

So it's not concentrated in any one place. However, we do see from time to time, last day of the quarter, some deposits may come in, which may leave then a couple of weeks later. And I wouldn't call that core growth, which is why $1.5 billion of DDA growth for the year is probably not the way to look at it. I think the right way, the honest way to look at it is what happened to our average NIDDA. Our average NIDDA was up $844 million for the year, and our average for the quarter was $505 million. I'm very happy. I'm very happy that we ended the year where we did, but average is the right way to look at this, not period end.

Tom Cornish (COO)

Yeah. I would also add that when we look at this, we tend to think of dividing the world into two segments.

One I would call new wallets and one I would call expanded wallets. So if we look at the quarter from a core operating account growth, I would probably say just roughly about two-thirds of the growth were new wallets, meaning new relationships, and about a third were expanded wallets in terms of deeper cross-selling across relationships that we're already in. So we thought that was a pretty healthy mix.

Woody Lay (VP)

Got it. That's helpful color. And then embedded in the NII guide, could you just walk through some of the loan and deposit beta assumptions y'all are assuming there?

Raj Singh (Chairman, President, and CEO)

The beta assumptions for deposits are the same beta that we've realized so far, which is about 80%. 80%. So the two rate cuts that we have baked in here, we will achieve 80% just like we have been achieving.

On loans, it's really a matter of which business line you're talking about. We do a lot of fixed rate sorry, floating rate loans. We're more of a floating rate shop than a fixed rate shop. Even our CRE business has become predominantly floating rate. It depends on if the floating rate, the beta is 100%. And if it's fixed, it's zero. You'll be able to find in our disclosure the mix of floating and fixed.

Tom Cornish (COO)

It's not until you see a significant number of rate cuts before you really start to see betas materially drop on the repricing. We've talked about this before. We're modestly asset-sensitive. A few rate cuts up or down really doesn't move the needle for NII. I know there's a lot of talk now of, is there going to be less Fed rate cuts than what the boards are?

And so again, we're pretty neutral. So we'd be slightly benefited, but not much at all.

Raj Singh (Chairman, President, and CEO)

Yes. And always remember, a positively sloping yield curve is good for bank earnings, especially our bank earnings, which is where we find ourselves today. And we have been over the last few months. So we're happy about an upward sloping curve.

Woody Lay (VP)

Got it. And then last for me, it's positive to see the buybacks in the fourth quarter. You upped the authorization. I would expect the stock to react pretty well to the quarter. How do you balance sort of price sensitivity of the buybacks with wanting to get capital levels down to more peer-like numbers?

Raj Singh (Chairman, President, and CEO)

Yeah. I think we're still living in pretty volatile times. Stock prices can move for nothing that you do. Something might happen in the market, and prices can move a lot.

I mean, I remember the day the administration said they were going to cap credit card interest rates by 10% or to 10%, and our stock took it on the chin, even though we're not even a credit card company, so on days like that, when you see overreaction, we'll lean in a little bit more. On other days, we'll lean in a little less, so we'll stay opportunistic like that. I do expect volatility to continue because this 24-hour news cycle, just stuff comes at you, and then it distorts prices for a period of time, and then it gets better. After a couple of days, people forget about it, and life goes on, but it'll create those opportunities which we will take advantage of.

Woody Lay (VP)

All right. That's all for me. Thanks for taking my questions and congrats on the good quarter.

Raj Singh (Chairman, President, and CEO)

Yeah. Thank you.

Operator (participant)

The next question will come from Jared Shaw with Barclays. Please go ahead.

Jared Shaw (Managing Director)

Hey, guys. Good morning.

Raj Singh (Chairman, President, and CEO)

Morning.

Tom Cornish (COO)

Morning.

Jared Shaw (Managing Director)

Hey, just following up on the deposit side with the 80% beta, it's great that you think that you can maintain that. Can you just walk us through what percentage of the non-DDA deposits are indexed or brokered and I guess how you feel that you can still keep that 80% beta?

Raj Singh (Chairman, President, and CEO)

I think the brokered we will have in our disclosures probably around 15% of our deposits. I don't have that number in front of me exactly. But in terms of index, I don't think we have disclosed that. And it's actually very hard to disclose because some of the indexing might be just contractual, but a lot of it is just handshakes. So I'm not sure we could actually give you an exact number.

It does come down to pushing our salespeople who then push our clients. And sometimes it's just client to client, sort of, how much you can push. Overall, we feel we can get to 80%. We have been getting there without much trouble. And over the next couple of cuts, we'll do the same. Like Jim said, if it's eight cuts, then this is a very different story. And while nobody's expecting that, we do run sensitivities along that as well. And while margin in an extreme scenario like that will be hurt, it's not crazy. We can manage even some pretty dramatic cuts if it comes to that.

Tom Cornish (COO)

60.6% in the fourth quarter.

Raj Singh (Chairman, President, and CEO)

Yeah. Brokered is 16.6%. Actually, our brokered was up this quarter a little bit because we were ourselves not expecting this level of deposit growth.

So, we expected deposits to be not as good, and we had lots of brokered, which December turned out to be better than we expected.

Jared Shaw (Managing Director)

And then, maybe shifting to CRE, good to see that CRE growth. And you've spoken in the past about having a lot of capacity under the capital concentration. How should we think about CRE growth as a percentage of overall growth and where you'd like to bring that? And maybe just comment a little bit about the competitive market on the CRE side.

Raj Singh (Chairman, President, and CEO)

I don't think we're constrained in CRE by room in the bucket. There's lots of room to grow. What we're constrained by is our assessment of the kind of business we want to do. We're still not doing much in-office or any in-office. We're contracting that. We're not doing much in hospitality.

But we are focused on, we have room on the other asset classes, which is where the growth is coming from. So Tom, you want to add to that?

Tom Cornish (COO)

Yeah. I would say if you look at the breakdowns in the supplemental package, you can see that virtually all of our asset classes today are kind of in the low 20% range. And I would get there by, if you take the multifamily number at 14% and add in the construction book. The construction book is almost entirely multifamily. We kind of like to look at the major asset classes as being under 25%. It's important for us, from a risk perspective, to keep the portfolio, A, to keep CRE well-balanced within the context of the total portfolio and risk-based capital, and B, to keep the individual asset segmentation within the book at relatively reasonable and equal proportions.

So you'll see your office or retail or industrial or multifamily, including construction, are all kind of in the low 20s. So we think we'll grow CRE mid-single digits in 2026, and it will be balanced across all asset classes to make sure we kind of stay any individual asset class is not above 25%. We do expect a more competitive market. Some of our folks from the CRE teams recently attended the Big CREFC Conference that was in Miami Beach last week, and we saw some of the notes from that. It's clear more banks are back involved in CRE. Some that may have been sitting on the sidelines due to asset concentrations and whatnot are back, and there will be probably more competition on the private credit side as well. So look, every I always Raj and I talk about this all the time.

We're always in search of a great market that's not competitive, and we can never find one. So there will be competition in every market, but I think we have the balance sheet to be able to continue to work in the CRE space. I think we have the expertise and the teams to execute, and we're in a well-balanced position that allows us to be a consistent lender in the marketplace.

Jared Shaw (Managing Director)

Okay. Thanks. And if I could just ask one more, just the final one on credit. You called out a fraud. Can you just give any what category of C&I, I guess, that was in? And as we look at the provision guidance, does that assume a reduction in the ALL ratio as we move through the year, or is that more a reflection of the growth in the portfolio?

Raj Singh (Chairman, President, and CEO)

No, I would expect ACL to stay fairly consistent. To give you any more color on that one loan, it was in New York. It was a contractor, and literally, the place shuttered, fired all the employees, and is out of business in a matter of days. And there is no collateral to go after. So it was a complete write-off.

Jared Shaw (Managing Director)

Okay. Thanks.

Tom Cornish (COO)

Yeah. As with most of the trends and non-performing and whatnot, I mean, we're just not seeing any broad systemic risk that everything is uncorrelated, unrelated industries, unrelated geographies. Yeah. The only correlation is office, which is getting better.

Jared Shaw (Managing Director)

Thank you.

Operator (participant)

Again, if you have a question, please press star, then one. And the next question will come from Michael Rose with Raymond James. Please go ahead.

Michael Rose (Managing Director of Equity Research)

Hey, good morning, guys. Thanks for taking my questions. Good morning. Maybe we could just start on the deposit growth.

I think you guys had previously talked about getting the NIDDA mix up to 34%. You're expecting pretty good average growth this year, seems like. A lot of the stories coming together here. Is that something that you think you can hit this year, or is it kind of a multi-year trajectory? And then kind of what needs to, in your mind, happen to kind of get to that 34% level? Thanks.

Raj Singh (Chairman, President, and CEO)

I think there's a good chance we'll get there this year. I mean, we're expecting, again, double-digit NIDDA growth. So if you just do the math, we're not expecting total deposits to grow that much. So the ratio should get there. 33-ish%. Yeah. Maybe 33% is sort of our looking at our budget here in detail. So we're getting close to it.

I mean, what's more important is that we keep driving NIDDA growth, which we feel fairly good about.

Michael Rose (Managing Director of Equity Research)

Okay. Perfect. And then maybe just one follow-up. Clearly good core loan growth momentum expected as we move through the year. How much of that is coming from some of the newer markets that you've more recently expanded into? And then it looks like you did have a bump up in NDFI exposure of about $200 million this quarter. How should we think about that growth as we contemplate the core growth guidance? Thanks.

Raj Singh (Chairman, President, and CEO)

Yeah. I would say if you look at growth across the franchise, a good portion of it came from the new markets we're in. I mean, we're continuing to invest more in the Atlanta market. We're investing more in the Texas market. We're investing in the North Carolina market.

So we saw good growth across all of those markets. It was an important part of the growth of the portfolio for the year. So I think that's an integral portion of how we're going to continue to grow. Florida will continue to grow as well. We've also just completed a major investment in the Tampa market. We're actually opening up our new office in Tampa next Monday in the downtown area and hiring more producers in that market. So it played a key role overall. Just mathematically speaking, new markets always tend to show more growth because there's not much runoff. And mature markets where you've been in for a long time, there's always runoff that is happening. So just mathematically, they'll contribute a little bit more. But we're very happy with the investments we made and how they're paying off. So we want to invest more.

We want to hire more people in Texas. We're expanding our office space there. In Atlanta, we actually already have doubled our capacity there in terms of our physical footprint. So we're happy with how these new expansions have worked out. We don't have any new market on the horizon because we think we can really double, triple the bets that we've already made. That's probably the best thing to do over the next couple of years. Yeah.

Tom Cornish (COO)

Michael, in response to your question about the finance and insurance category, probably the largest segment of that would be what we would call investment-grade subscription-type credit facilities. We are opportunistic in that. It's a good space to be in, but the quality and rate kind of has to be right, and when it is, we'll move a little bit more into it.

When it's not, we tend to move away from it. There's also a fair amount of a kind of a convergence between what is insurance and what is healthcare. We have a lot of reasonably large credit relationships that are healthcare insurance-related that fills up a little bit of that bucket as well. Those would probably be kind of the two larger segments within it.

Raj Singh (Chairman, President, and CEO)

I think there was a $200 million increase quarter over quarter. 100-ish was the subscription lines that Tom referred to. And to be honest, the other 100 is just refining the methodology. The last quarter was the first time we pulled this information together for you. And so it's just cleaning up the data and getting it organized. But the hundred million increase in the subscription lines is a big change. Yeah.

Tom Cornish (COO)

Where we're not very active is kind of the often talked about lending to debt funds world. That's really a small piece of the overall finance and insurance bucket for us. I do want to reiterate a comment, Raj. Sorry. Do you want to reiterate a comment that Raj just made related to our investments? We're leaning into the markets that we previously announced. In our projections for next year, it's not new markets. It's not new things. It's our existing footprint. Yeah.

Michael Rose (Managing Director of Equity Research)

Yep. Totally get it. If I could squeeze in just one last one, is there any reason to think that you wouldn't use most of, if not all, of the remaining buyback authorization this year? Just given where the stock is and the earned back on the buyback? Thanks.

Raj Singh (Chairman, President, and CEO)

Not really.

I mean, if you see some massive opportunity for growth that we're not thinking about today, we always want to use capital for growth first if we can deliver it safely. But based on the numbers we put in front of you, if that's what we end up doing, there is room for buyback and to fund that growth. But I wish we'd be lucky enough to come back to you and say, "Oh, the growth is twice as much as we thought, and we needed capital." That would be a very happy problem to have. We have a philosophy. We want to be sort of middle of the pack in capital ratios, set-one ratios with the peer group. And we're generally targeting 11.5% set-one. And so we'll hit that through buybacks, dividends, and growth opportunities.

Michael Rose (Managing Director of Equity Research)

Perfect. Appreciate you guys taking my questions.

The next question will come from David Bishop with Hovde Group. Please go ahead.

David Bishop (Director and Senior Equity Research Analyst)

Hey. Good morning. Hey. Good morning. Tom, quick question circling back to the loan waterfall. Just curious in terms of payoffs this quarter versus last. Were these sort of in line with last quarter? And just curious if you have a line of sight, maybe what could be looming maybe into the first or second quarter of this year.

Tom Cornish (COO)

That's always tough to say early, David, because right now, a lot of the payoff activity that we are expecting would be unexpected. I'll say it that way. In terms of companies selling is predominantly what I would expect to see. If I look at 2026, I think I would say companies selling would be probably the number one exposure that we have to payoffs.

I think number two would likely be relationships that may be exiting the standard commercial banking world and opting into the private credit world because terms and conditions are different. And then lastly would be what I would call strategic exits. So in 2025, kind of the order of that would have been reversed. We had more strategic exits and things from a pricing, deposit perspective, or type of lending that we exited. Those were easier to plan because you kind of knew what they were. You knew when the facilities matured, or you knew when they were going to renewal based upon the timing of the line of credit. So they were a bit easier to predict. This year, that number will be substantially reduced, as you saw in the fourth quarter. It was a lot less than it was the previous three quarters.

I would say strategic exits were probably triple what it was in the last quarter, each of the three previous quarters. So I would expect that that number will probably be around what it was in the fourth quarter, the $80 million-ish type number, maybe a little bit less. A bit harder to predict what's going to happen in the M&A and refinance market. But when I put all of those together, our kind of base forecast is we'll still see continued quality production across all of the lines of business that we have, and we will see less payoffs within the upper part of the C&I market.

David Bishop (Director and Senior Equity Research Analyst)

Got it. Appreciate that, color. And then I don't know if it's Tom or Raj who said in the preamble, it sounds like spreads are tightening. Just curious maybe what you saw in terms of average origination yields this quarter. Thanks.

Tom Cornish (COO)

Do we have that, Jim?

Jim Mackey (CFO)

Yeah.

Tom Cornish (COO)

Give us a second.

Jim Mackey (CFO)

That's fine. I can log in. Yeah.

In the interest of time, we'll follow up with you afterwards.

Tom Cornish (COO)

It'll be somewhere in our disclosure, but it's not popping up to us right now. I could certainly tell you from looking at volume that spreads did tighten in Q4. If we looked at it, it didn't necessarily impact the total book greatly. If we looked at spreads in the total book for the entire year, it remained fairly stable. We did see more pressure kind of late third quarter, early fourth quarter across the lines of business. Jim will give you the exact number, but Jim will give me the exact number. C&I was 617, and CRE was 570. So that's new. That's new on production coming online.

I would ballpark to probably say we saw 15-20 basis points compression in new production in Q4. It's different for different type of deals, but a bit more in Q4. And we'll probably see that going into the year.

Raj Singh (Chairman, President, and CEO)

As we built our plan for next year, we certainly assumed it would continue to tighten throughout the year.

David Bishop (Director and Senior Equity Research Analyst)

Got it. Thank you.

Operator (participant)

The next question will come from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon Arfstrom (Equity Research Analyst)

Thanks. Good morning.

Raj Singh (Chairman, President, and CEO)

Good morning.

Jon Arfstrom (Equity Research Analyst)

Jim, maybe a question for you. Most of my questions have been asked, but just puts and takes on the expense outlook. You guys are flagging some investments in 2026, but also talking about limiting growth. Just where are you spending? Where are you trimming?

Jim Mackey (CFO)

Yeah.

I mean, honestly, the way we set our plan is I kind of think about it as sort of run the bank, grow the bank. With our existing cost base, we're always looking to keep within inflation and generate operating leverage. And then we want to use that expense discipline to invest in the things that we want to invest in. The types of things that we're investing in are continuing to hire revenue-producing staff, and the various support staff to support that growth. We also are focusing on technology modernization, especially our payment systems and AI workflows, all the things to continue to help us improve and grow our business. And as Raj mentioned, in our existing footprint, we are looking to expand in Dallas, Tampa here, and Florida, etc.

So that's really bread and butter, using operational discipline to pay for as much of the expansion and growth areas that we can.

Jon Arfstrom (Equity Research Analyst)

Yeah. Okay. Raj, a bigger picture question for you. Can you touch a little bit more on your New York comments? I think it sounds like it's doing fine, and it's maybe similar size to Florida in terms of C&I, a little smaller in CRE. But I think the narrative is New York is difficult and Florida's on fire, and it sounds like maybe you wouldn't agree with that.

Raj Singh (Chairman, President, and CEO)

Florida business is bigger than New York. So let me start by just saying that. Having said that, I just look at production numbers by geography, by division. And at least this quarter, sort of our lower-end middle-market business, they had their best quarter ever in New York, almost to the tune of that.

Look at the numbers, and my first reaction was, "I think there's a typo here." And they came back and said to me, "No, that's not a typo. That is actually what we did this quarter." But that's a quarter. Over time, they had a great year also. But our business is still very much, Florida is the center of gravity, and New York is a nice hedge, a nice sort of risk mitigation geography for us. But this notion that New York is just in a downward spiral as an economy, and that's not true. New York is doing fine. New York CRE is doing more than fine. New York C&I, there is business to be done in New York. So we're optimistic and more than optimistic about both geographies that we're in. And then Dallas and Atlanta, you know those markets doing really well.

We're not pulling back on any geography. But having said all that, the center of gravity of the company is and will remain South Florida.

Tom Cornish (COO)

Yeah. I would add we've invested in a new team in New Jersey. We have invested in resources in the Long Island market, both on the C&I and on the CRE side. And although people sometimes when they talk about New York or the Tri-State area, point to differences in growth rates, that's true, but you're also starting from a $2 trillion base. It is a very, very large economy, and we're not the market share leader there. So regardless of really whether it's up 2% or down 2%, there's still a lot of great opportunities in the greater New York area. It separately would be one of the largest economies in the world if it were a separate country.

So you can't walk away from that. There's still a tremendous amount of opportunities for us to grow in a market where our model of high-quality service, personalized business stands out among the competition in that market. So we have growth plans for that market as well.

Jon Arfstrom (Equity Research Analyst)

Yep. Okay. Okay. Thank you very much. Appreciate it.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Mr. Raj Singh for any closing remarks.

Raj Singh (Chairman, President, and CEO)

I almost thought Leslie would ask a question. But now, listen, guys, thank you so much for dialing in and listening to our story. And we'll talk to you again in 90 days. And before that, we'll probably see some of you on the road. Thank you so much. The conference has now concluded.

Operator (participant)

Thank you for attending today's presentation. You may now disconnect.