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BankUnited (BKU) Q3 2018 Earnings Conference Call Transcript


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BankUnited (NYSE: BKU)
Q3 2018 Earnings Conference Call
Oct. 24, 2018 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the BankUnited 2018 third-quarter earnings call. At this time, all participants are on a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Lisa Shim, senior vice president, head of corporate development, strategy, and marketing. Ma'am, you may begin.

Lisa Shim -- Senior Vice President, Head of Corporate Development, Strategy and Marketing

Good morning and thank you for joining us today on our third-quarter 2018 earnings conference call. On our call this morning are Raj Singh, our president and CEO; Leslie Lunak, our chief financial officer; and Tom Cornish, our chief operating officer. Before we start, I'd like to remind everyone that this call contains forward-looking statements within the meaning of the U.S. securities laws. Forward-looking statements are subject to risks, uncertainties, and assumptions and actual results may vary materially from those indicated in these statements. Additional information concerning factors that could cause actual results to differ materially from those indicated by the forward-looking statements can be found in our earnings release and our SEC filings.

We do not undertake any obligation to update or revise any such forward-looking statements now or at any time in the future. And with that, I'd like to turn the call over to Raj.

Raj Singh -- President and Chief Executive Officer

Thanks, Lisa. Good morning, everyone. Thank you for joining us for our earnings call. We posted the earnings release this morning.

You must have seen it. $0.90 cents a share. I think that was a few cents ahead of estimates. We're happy to put a strong quarter in earnings.

This is comparable to $0.62 cents a share that we posted this time last year. More importantly we have been for the last few quarters been talking about our non-loss share earnings. Our non-loss earnings this quarter came out at $0.64 cents, compared to $0.50 cents at this time last year. Also that $0.64 cents compares to $0.59 cents that we posted just last quarter, which is an eight and a half percent increase quarter over quarter.

That's really, as we've often called out, the blue bar in the chart that we've now added to the earnings release that is sort of the ongoing earnings of the company. And that's what we are focused on building and had been reporting for the last few quarters. Let me take a minute to talk about the market and then we'll get a little deeper into BankUnited's numbers. My update on the market is not going to be very different from last time because the economic front, I think they're very favorable.

It's a very strong economy. There are no credit issues that we see in the markets and the products that we play in, and it's a good environment to be a bank and to be a lender in. Business and consumer sentiment is very optimistic and very positive. There is some geopolitical concerns that we always have.

We have election coming on in a few days. We obviously have some trade concerns, but overall, it doesn't feel that any of these things are a real issue, especially when we talk to our customers and we look at their financials as to how businesses are doing in our footprint. Things seem to be about as good as they can be. Again, that can change very quickly so we stay very, very focused on the economy, something we don't control but it impacts us immensely.

But good news on the economic front. On the rate front, again, the story is the same as last few quarters, which is that Fed has been raising rates. The long term has not moved enough. While there has been some strengthening of the curve very recently, and when I say recently, I mean, literally over the last three weeks.

For the most part, the curve has been flattening for a better part of the last year or year and a half, if not more, and that has an impact on bank earnings. Deposit betas across the system seem to be now emerging even for the largest banks whose deposit betas as recently as three or six months ago were almost -- were close to zero are certainly now showing the emergence of those deposits betas in a very perverse way. It actually feels good from a competitive perspective to see banks now beginning to catch up. We always said that betas will lag.

Different banks' deposit base will have a different kind of lag in their betas. Our deposit base is heavily commercial and also all organically generated, that's why our betas probably emerge a little bit sooner, but now we're seeing our competitors, large and small, catching up to it. I also have -- this is my theory, of course, that deposit beta is being low. Deposit costs, funding costs being low for so long despite move in rates taxi created a widening of margins that banks with low betas were then using aggressively on the lending side and pricing down spreads on the loans.

As banks' deposits pricing goes up, it is my theory that the deposit -- that deposit, sort of, windfall will no longer be used to subsidize loans, and I'm hoping to see better spreads both from the securities world as well as the loan pricing over the course of the next few quarters. We'll see if it comes out to be true or not. There is a fair amount of competition outside of the banks space, actually, these days. This year really has been about non-bank lenders really competing.

It's not the community bank across the street or the regional bank across the street that we're concerned about. It's actually, we're seeing a lot of runoff in our loan book mostly coming out of the private equity world, the credit funds, B2Cs, and other non-bank players. So that has become -- that has been a big phenomenon this year. It was not the case so much the year before or the year before that.

Coming back to our numbers, like I said it was a pretty decent quarter in terms of our earnings. NIM declined, as Leslie will get into it as what the various reasons were. NIM declined to 3.51% from 3.60%. Non-covered loans grew by $211 million for the quarter, and for the year, were up about $708 million.

Deposits also increased. They grew by $227 million, so less than what loans grew by. And our loan-to-deposit ratio is now at about 100%. For nine months the loans -- deposit grew by $427 million.

The story here is, as you will remember, at the beginning of the year, we had said that growing DDA is the most critical thing for us, for our short-term and long-term success. And we have not done a very good job of growing DDA in 2017. I think in all of 2017, our demand deposits grew just by 100 -- a little over $100 million. I'm happy to report that the mix of deposits that we've grown this year, 80% of that deposit growth has come into DDA, in the interest rate DDA category.

So $343 million off that $427 million, so about 80% is non-interest DDA. And non-interest DDA at the end of the day is the, A, most profitable product that we sell but to the core of every relationship that we have. If you don't have the DDA, you don't have the relationship as a word that I've been repeating over and over again and will keep doing so until everyone gets it in the company. And I'm very happy to report that while our the deposit growth has been lower than what we wanted it to be, I'm glad that it is happening in the categories that generate the most earnings.

A dollar worth of DDA has about five times the margin that a money market account -- a dollar in a money market account does have today. So, while I would love to have more interest-bearing deposit growth as well and we're working toward it, what I don't want to miss out is on the DDA growth, which is where what generates the most earnings, most most franchise value. I think our DDA percentage of our total deposits has grown from 14% to 15.3% in the nine months of this year. And as I look into fourth quarter, I see that trend continuing though deposits are notoriously hard to predict.

So, I don't want to say anything more than that other than that we are off to a pretty decent start this quarter better than what we've seen over the last two or three quarters, but we'll see where we end the year. Loan growth, like I said, the headwinds in loan growth, when you see the net number and obviously the number that is lighter than we had wanted it to be. We did a lot of analysis leading up to the earnings call as to where the weakness is coming from. And a number that we generally don't share, but I will throw out a number, is on production.

Production for this year, to get that $708 million of net loan growth, we've had production of $4.67 billion. So, you have to produce that much to be able to grow $700 million. Last year our production was about $50 million or $60 million less than what it has been in the nine months of this year. So, just compare nine months of last year to nine months of this year, we're actually seeing more production but the number in terms of net growth, there's a big difference.

This time last year we were up to $1.3 billion and this year we're up only the $700 million, and the difference is payoffs. And payoffs pretty much across the board whether it's C&I, whether it's CRE, and a lot of it happening because of private equity deals and M&A in the C&I space, and asset sales in this commercial real estate side, and even refinancings even this late in the game when rates have risen as much as they have. So, that trend continues and we're seeing that even in the fourth quarter. As rates rise even further, at least refinancings might slow down but it's -- there's a lot of non-bank funding out there chasing chasing companies and there's a lot of activity.

Also the healthy economy actually let us do it. The economy is good. People want to buy companies, people want to buildings, and that's sort of the the flipside of a good credit and good economic environment.Growth outlook for fourth quarter, like I said, third quarter, fourth quarter seems similar. You may see a little more deposit growth just based on what we've seen over the last two or three weeks of this quarter but, like I said, obviously hard to predict.Cost of deposits this quarter were up 235 basis points, so a 16 basis point move in cost of deposits this quarter.

That's about the same of maybe a basis point higher than what it was last quarter. But again I would point to the fact that in an environment where most of our competition is seeing DDA run dow, we are actually seeing strong DDA growth and that that is -- and by the way, it's not easy to do. That has been -- that's a tough thing to do. We are swimming upstream but we're succeeding and being on core DDA relationships.

On the deposit front -- do you want me to talk about this? OK. I'll walk through a little bit on deposit front. You will see that we have actually run down our money market and we've increased our CD book, and that's a deliberate strategy. We're trying to lock in rates. We think going out on the curve a little bit and getting 12- and 18-month money is from a street perspective is a better place to be than a money market that, of course, changes every day based on the competitive landscape.

But in third quarter and even in the second quarter we were basically on -- using that as a strategy. We're trying to lean heavily in deposits -- on time deposits and less on money market. Now that obviously, as the mix changes, the duration of our deposit book is lengthening. That's another factor into why deposit cost is going up over and above the fact that rates are moving up anyway.

Also, even in our money market book -- in the commercial money market, we have deployed a strategy of locking in some rates and -- for a period of a certain term. So, money market generally is part of the floating rate book, but about 10% of our money market, about $1.3 billion of it has been termed using deposit service agreements. So, keep that in mind that the money market rate -- money market line item also has some term in it. It's something that we have deliberately worked on to protect us in a rising rate environment.

So, those two things, which are not very evident and we haven't talked about in the past but they're important points to note. Tangible book value per share is at $28.88. It's up from $23.83 last year. We did complete our $150 million share buyback program, which was authorized earlier in the year, and the board just yesterday authorized another $150 million share repurchase program.

I would suspect that the share repurchase will probably happen a little faster than the last one, which took about nine months to occur given just where the stock price is. Asset quality remains strong. Again the only thing to talk about there is taxi, which, by the way, this quarter and for many many quarters actually feels like there's some stabilization there and Leslie will talk about that. But our NPL ratio is 96 basis points, 37 of that is directly attributable to taxi.

And our charge-off ratio is 21 basis points, of which nine was accounted for by taxi. A quick update on the FDIC loss share. There is a reasonable possibility that again pending consent from the FDIC, which we have not received yet. We're talking to them to talk to them. We've been talking to them since October 1st and we continue to do so.

We were hoping to get something from them before the earnings call, but we have not. But we're trying to get consent to do a loan sale this quarter rather than wait till the middle of next year or second quarter of next year and then also not sell all the loans but to sell part of the loans. Again this is all up in the air. To the extent that we retain loans, let me say that these loans that if we do end up repaying will be loans with very high credit quality at least as good as the loans we have if not better in terms of LTV, in terms of FICO, and in terms of pay history, and also very importantly in terms of coupon.

Most of these loans will be floating rate loans since they've been with us for 10 years. So, in terms of, again, before I give this over to Tom, I would say that fourth quarter again feels similar third quarter maybe a little bit better but it's hard to say. In terms of some new initiatives, we generally don't make a big -- a lot of hoopla about this and we generally like to launch things that have some success before coming out and talking about them but we did hire a healthcare team earlier this year. They've been with us for a few months now working on setting up a healthcare practice.

We have been a healthcare lender but we've done this in a very broad-based manner out of our general corporate and industrial business line. But we started to focus on this earlier this year and created a vertical -- a healthcare vertical and all the products, policies, the back-office risk management is in place and we expect to start growing that over the course of 2019. So, that's on the new business line front, not entirely new but definitely, like I said,  we did some of this but not in a very organized vertical fashion. But we're going to do that and we have the right people onboard.

We've had them now for a few months. We've been working on the risk management and we're ready to launch this now. So, with that I will turn it over to Tom to talk about loans and deposits in a little more detail.

Thomas Cornish -- Chief Operating Officer

Good. Thank you very much, Raj. So, just to provide a little bit more detail on the loan and lease portfolio for the quarter, if we break it down into the different components, residential and consumer loans grew by $115 million for the quarter, including $51 million of growth in the Ginnie Mae buyout loans. C&I continued to perform well, grew by $151 million for the quarter, driven primarily by the Florida corporate banking portfolio.

Mortgage warehouse business, which is one of our newest businesses, grew by $8 million for the quarter. And now our total mortgage warehouse commitments for the quarter increased by $78 million, where we're now up to $1.2 billion in total commitments in that line of business. In CRE, in aggregate we declined by $69 million kind of consistent with previous quarters. We had $124 million decrease in the New York portfolio, primarily multifamily loans.

This was offset by $55 million of growth in the Florida CRE portfolio. Loans and leases and our commercial lending subsidiaries grew by $6 million in aggregate consisted of $60 million of growth at Bridge, which is divided into both our equipment finance company and our franchise finance company, which had a good quarter. That was offset by a runoff of $54 million in our Pinacle unit. And that continues to be impacted by post-tax pricing pressure and that market is just not as attractive as it was previously, as we've talked about in other calls.

Raj mentioned a bit of the elevated runoff in the portfolio and that's absolutely what we're seeing, but I would also emphasize that there are lines of business within the overall bank that are still generating healthy growth. For example, I mentioned the Florida corporate banking book has grown by 15% year to date. Mortgage warehouse outstandings are up by 17% year to date. The Bridge leasing and franchise finance business is up by 10%, and the business banking portfolio has grown by over 7% this year.

So, these are kind of all core C&I type business units that we've been stressing as part of the strategy shift mix in the portfolio. And I think what's illustrative of that is if you look at our new commercial production for the quarter, it came in at an average coupon of 5.1%, about 63% of that was floating. We continue to try to improve the floating fixed ratio. And you can see that by looking at the portfolio as a total, but average coupon is 4.3% with 43% floating, compared to 63% floating of the new production for the quarter.

On the deposit side, continuing with the comments that Raj made about NI DDA, deposit growth for the quarter was driven by a non-interest DDA growth, which accounted for $98 million of the $127 million of deposit growth. Interest-bearing demand deposits declined by 34% for the quarter.

Leslie Lunak -- Chief Financial Officer

$34 million.

Thomas Cornish -- Chief Operating Officer

$34 million, I'm sorry. While savings and money market deposits were down slightly, and time deposits grew by $66 million. One example of good progress in growing DDA is the continued progress of our national deposit group, which grew non-interesting DDA from 8.3% of their book 12/31/2017 to 12.7% of their book at September 30 of 2018. So, that we think is outstanding progress.

And across the franchise and all the geographies and our teams' growth in core relationships, core checking accounts continues to be the primary strategic focus for everyone. So, with that I'll turn it over to Leslie.

Leslie Lunak -- Chief Financial Officer

OK. Thanks, Tom. Digging into just a little bit more detail on some of the quarterly results around yields and the net interest margin, net interest income for the quarter was $252 million, a $10.7 million increase over the comparable quarter the prior year. The NIM did decline to 3.51% from 3.62%.

The real drivers behind that in spite of increases in yields on all categories of interest-earning assets, we did see obviously an increase in the cost of interest-bearing liabilities. The NIM was also not unexpectedly impacted this quarter by the continued runoff of high yields coverage loans, particularly with the larger-than-usual loan sale that we did this quarter. So, this quarter was impacted a little bit more by that phenomenon than some quarters have been. We're also -- we also continue to see relatively tight spreads on both loans and securities that we're putting on the balance sheet.

The yield on both non-covered and covered loans as well on securities increased this quarter. The yield on non-covered loans increased to 4.05% from 3.96% linked quarter and 3.79% for the comparable quarter of the prior year. The tax equivalent yield on investment securities was 3.41% for the quarter, compared to 3.33% for the immediately preceding quarter and 3.14% for the comparable quarter of the prior year. Those increases were influenced both by coupon rate increases on floaters and also some changes in portfolio composition.

The portfolio duration importantly remains low at 1.48%. The tax equivalent yields on non-covered loans and investments as well as the NIM, when compared to comparable numbers for the prior year, were each impacted by about 8 basis points due to the change in the tax rate, which had an impact of lowering each of those yields by about 8 basis points compared to the prior year. Raj, I think, has already addressed deposit costs for the quarter, so I won't get into that any further. We have also saw an increase in the cost of FHLB advances.

Two things are going on there. Just general increases in rates, but we've also done some more hedging this quarter and extended the duration of that portfolio. Now we feel like where rates are today is the favorable time to take advantage of that. Reserves and the provision.

The provision related to non-covered loans was $1.3 million for the quarter, compared to $37.6 million for the comparable quarter in the prior year. Just to remind you, last year in the third quarter the provision related to taxi medallion loans was $32.7 million, compared to a net recovery of $1 million this quarter. And the provision for Q3 of 2017 also included $5 million related to the Hurricanes Irma and Harvey. So, those two things really speak to the difference between the provision for those two quarters.

Our ALLL methodology hasn't changed. It remains consistent. A quick update on the taxi portfolio. Exposure is now down to $80.2 million from $87.2 million at June 30th.

That reduction was primarily due to paydown, against $6.3 million in paydowns this quarter. We're now basing our methodology for determining reserves on this portfolio primarily on recorded transfer prices since those transfer prices has now -- have started to converge with the results of the cash flow base template that we previously use. Those results are converging, so now we're relying primarily on the transfer prices. We didn't change the valuations underlying our reserves this quarter.

They continue to range from $185,000 to $210,000, which is within the range of the recent recorded transfer prices. Total delinquencies in the portfolio are $16.9 million, $13.4 million of that is over 90 days. That's just a very slight uptick from the prior quarter end, and the entire portfolio remains on nonaccrual. In terms of forward guidance, Raj spoke to what we're expecting to see in the way of loan and deposit growth for the fourth quarter.

No changes to the other guidance that we've put out there for the year, either the NIM or the operating expense guidance in the aggregate that we've put out for the year. We are not changing, with respect to the covered loans, future estimated accretion on ACI loans as of 9/30 is $284 million, and future estimated amortization of the indemnification asset is $82 million. Both of those estimates are still predicated on the operating assumption that it will be a final sale of all of the covered loans in the second quarter of 2019. Raj -- referring back to Raj's comments about the possibility that we will retain a portion of high-credit quality loans that exist within that portfolio and potentially be able to accelerate the timing of the sale of the rest of those loans to the fourth quarter of 2018, the impact of that from an accounting perspective would be that the amount and timing of the writedown of the indemnification asset would be accelerated into the fourth quarter, or what remains of the indemnification asset after receiving the reimbursement related to the final sale would be accelerated into the fourth quarter.

And a portion of the accretion -- that portion related to any loans that we might retain would then be recognized over the expected lives of those loans, so over a longer period of time. We would also expect that the aggregate amount of accretion to be recognized would increase in part because of the collection of more contractual interest. Unfortunately, I had hoped, by today, that we would have reached some kind of -- had received some consent from the FDIC, and I would've been able to quantify that for you. I'm unfortunately not able to do that, but when and if we get that consent, we will update you and try to quantify some of that for you.

With that, I will turn this back over to Raj for closing remarks.

Raj Singh -- President and Chief Executive Officer

Thanks, Leslie. I actually forgot a very important disclosure at the beginning of this call, which is that today is Leslie's birthday. The second half of the disclosure, which is how many candles are on the birthday cake later, will remain confidential.

Leslie Lunak -- Chief Financial Officer

Thank you.

Thomas Cornish -- Chief Operating Officer

The FDA will need to decide

Raj Singh -- President and Chief Executive Officer

But with that, I would like to open it up for questions.

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Ken Zerbe with Morgan Stanley. Your line is open.

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. Good morning.

Leslie Lunak -- Chief Financial Officer

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

I guess the -- maybe we could just start off just in terms of the acceleration of the FDIC loan sales, can you just talk about the rationale for why you would choose to do that just versus keeping them on for another couple quarters?

Raj Singh -- President and Chief Executive Officer

There's a -- as we have said in the past that loss share will have some expenses associated with it. And there are things that -- there are obligations that we have with the FDIC in terms of administering loss share, which is a burden for the FDIC and it's a burden for us. If we can save six months' worth of that burden, of that administrative hassle, that's -- that's better for us. Also, the value of FDIC loss share is important to the extent you expect loans to go back.

And while, obviously, an option is always worth something, but when the loan portfolio that's left is so clean that you don't expect much losses, the value of that insurance is not worth as much versus the benefit that you might get by wrapping things up a little sooner.

Ken Zerbe -- Morgan Stanley -- Analyst

Gotcha. Understood. And are you able to quantify the amount of expense savings that you should be able to get once these loans are off the books?

Raj Singh -- President and Chief Executive Officer

I will say that whatever there is, it's not going to be, obviously, this year. It'll all be in 2019, and it'll not be immediately in the first quarter of 2019 or anything like that. It'll take a little bit of time. We will quantify that for you in January when we give you guidance for 2019.

We're working on that, and we will give you numbers, specific numbers, in 2019 in January.

Ken Zerbe -- Morgan Stanley -- Analyst

Gotcha. OK. And then just one last question. Just in terms of loan growth, if I heard right, I think you said loan growth for fourth quarter is going to be around the same $200 million as it was in 3Q. When we think about 2019, knowing that you might not be ready to give guidance, but when we think about 2019, assuming that -- I mean, should we assume, right, that the non-banks remain just as competitive as they are right now? And is it fair to take, say, the $200 million times four when we think about 2019 loan growth? Thanks.

Raj Singh -- President and Chief Executive Officer

Our loan growth year to date has been about -- a little over $700 million. It's -- We're not ready to give you guidance on 2019. I will say this much that the competitive landscape will probably remain the same, but as rates start to rise, at some point in time, refi basically ends. There's some refi activity that is still happening.

Somebody may have a loan that they did five years ago, four years ago at three and a quarter percent and now if they can do it -- even if it's close to 4%, they want to lock it in for another five years. Well, that rate has now moved to four and a half percent, and suddenly that opportunity starts to go away. So, as rates keep climbing, especially the long end of the middle of the curve starts to rise, that will dry itself out. And also, like I said at the beginning of my remarks, as I see deposit betas for even the largest banks, the BofAs and Chase and -- of the world, also start to get real, I think that low-funding cost advantage that they've had over us for the last year or so will start to dissipate.

And they've been using that as a weapon on the lending side and I think you will start to see some of that go away. That doesn't take away the non-bank players. The non-bank players still have -- still are very much active. Life insurance companies will still remain very much active.

So, it's hard for me to give you what the runoff number will be next year. In terms of our production, I think our production will be very similar. The only place where we feel production is light, is Pinnacle, which was a very steady grower for us, about $200 million, $250 million a year of growth, and now it's shrinking for the last several quarters, the last three or four quarters. And that could turn around, but it doesn't look like it has yet.

So, that is a -- I'm a little pessimistic about where that business is. And New York CRE, which we've been running down for the last two, two and a half years now. Other than that, everything else is growing and payoffs are notoriously hard to predict even for fourth quarter, where we sit here and we do the math almost on a weekly basis and the numbers move around a lot.

Ken Zerbe -- Morgan Stanley -- Analyst

Gotcha. Understood. OK. Thank you very much.

Raj Singh -- President and Chief Executive Officer

Production should be similar to a little bit higher given some of the new initiatives we have in place, $4.6 billion or $4.7 billion for nine months. That's a lot of production and very steady production from last year to this year and will be steady again next year. As long as the economy's still doing well, we'll keep producing at that level and probably a little bit higher than that but runoff is much harder to predict.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Understood. Thank you.

Operator

Thank you. Our next question comes from Brady Gailey with KBW.

Raj Singh -- President and Chief Executive Officer

Hey, Brady.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hey. Good morning, guys. Hey, just one more on the loan growth question. So, Raj, I know loan growth expectations have kind of come down over the years.

Last time you talked about it, high single-digit loan growth. It doesn't sound like that is possible anytime in the near term, like obviously not in 4Q. But as you look out into 2019, it feels like it's going to be less than that, right?

Raj Singh -- President and Chief Executive Officer

Again, I don't want to talk about 2019 because I'm not giving you guidance on 2019. But for 2018, obviously, that number will be lighter than what we had expected even three months ago. Yes.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

OK. And then it's great to see you all get a little more activate on the buyback front. You've got the new plan out there and I mean, the stock's basically trading at tangible book value, so I'd expect you all to be fairly active on that front. But beyond the new buyback, maybe just talk about your interest in buybacks from a bigger-picture point of view.

If you all complete this buyback fairly quickly, I mean, that'll take capital ratios down. How much lower would you be willing to take, like, the TCE ratio?

Raj Singh -- President and Chief Executive Officer

Leslie, you want to talk about our threshold there?

Leslie Lunak -- Chief Financial Officer

Yes. Generally, Brady, our TCE ratio, you're correct in realizing that that's the constraining ratio. And we tend to think about 8% at the level that we'd be unlikely to go below. At that point, I think you start to raise some eyebrows.

Raj Singh -- President and Chief Executive Officer

Yes.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

But you still have a lot of room from here to there.

Leslie Lunak -- Chief Financial Officer

Absolutely.

Raj Singh -- President and Chief Executive Officer

The $150 million that we just did, our board wants to do this in increments. So, we did $150 million. They're giving us authority to do another $150 million. Like I said, this will probably go a little bit faster, given where the stock price is at.

It's a no-brainer to step in with the legal limits, obviously, and buy stock here, and we'll start in two days once our blackout is over. But the philosophy on buybacks hasn't changed. This company used to have one lever for growth, for earnings growth, right? It used to be loan growth. That was, for the longest time, the story of BankUnited.

Over the last two years, it has been a more nuanced story. It is about loan growth, but in the right categories, right? So, changing the mix of that balance sheet, both on the loan side and on the deposit side, that is what is driving not just total growth. Obviously, there's capital management on top of that, which you've seen us execute already, and we were about to execute again, and we will do even more so in the future if it warrants it. And getting into 2019, it'll also be expense control.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

OK. And then lastly for me just on NPAs, they've picked up a little bit, I mean, really kind of got back to the level that you all saw at the end of Q1 '18. But if you just look bigger picture, I mean, NPAs are running around 1% of loans plus OREO, which is a little high compared to peers. And maybe I've just forgot, but is there any reason that your NPA ratio would be a little bit above the peer average here at 1%?

Leslie Lunak -- Chief Financial Officer

Yes, the taxi medallion portfolio.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. Got it. Yeah.

Raj Singh -- President and Chief Executive Officer

You take that out and then --

Leslie Lunak -- Chief Financial Officer

You take that out, it's pretty favorable. And the uptick is nothing -- I recognize the uptick this quarter, it's nothing we see that's systemic. It's a onesie, twosies, odds and ends-type things that just pop up from time to time, but nothing we're seeing that's systemic.

Raj Singh -- President and Chief Executive Officer

The entire taxi portfolio is our nonperforming, so -- it's on nonaccrual. So, even the loans that are performing are on nonaccrual.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. That makes sense. Thanks for the color, and happy birthday, Leslie.

Leslie Lunak -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Stephen Scouten with Sandler O'Neill. Your line is open.

Stephen Scouten -- Sandler O'Neill -- Analyst

Hey, guys. Good morning.

Raj Singh -- President and Chief Executive Officer

Good morning.

Stephen Scouten -- Sandler O'Neill -- Analyst

I'm curious. I know, Raj, you said no specific guidance around, well, 2019 in general or the reduction in expenses that could come from getting past the loss share. But expenses were a little elevated, it looked like on some professional fees and other non-interest expense. Was there anything kind of one time in nature there that I might've missed? Or how are you thinking about maybe 2018 expense growth, I guess, year over year now?

Raj Singh -- President and Chief Executive Officer

Yes, the professional expenses that you see that are a little higher, part of it is season related. Part of it is we have a specific technology project that is going on where we do have some external consultants. That'll be over in a few months. But also we have engaged a consulting firm only about -- yeah, that's actually not even in the numbers which is only very recently, which is to help us think through life post loss share.

And you will see those expenses elevated for a couple of quarters, but eventually that is to help us think through what the operating environment should be for BankUnited as we get past loss share.

Stephen Scouten -- Sandler O'Neill -- Analyst

Gotcha. Gotcha.

Raj Singh -- President and Chief Executive Officer

I guess, we'll see the things that you're talking about. Yes.

Stephen Scouten -- Sandler O'Neill -- Analyst

And so, for the full year in terms of expense growth, x the amortization, are we still talking high-single digits or will it be materially different from that?

Leslie Lunak -- Chief Financial Officer

I think the guidance we put out there was in the single digits, and I...

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. Sorry.

Raj Singh -- President and Chief Executive Officer

Yes.

Leslie Lunak -- Chief Financial Officer

Yes. That's where we'll be.

Stephen Scouten -- Sandler O'Neill -- Analyst

Gotcha. Perfect. OK. And then, Leslie, I'm not sure if I missed this, but did you kind of give updated guidance on where you think the NIM will go? And maybe as I dig into that, can you give some further granularity on the comment in the release were you talked about new yields kind of coming on lower than existing yields? And will we see some continued pressure on, not only the funding side, but also on the asset yield side?

Leslie Lunak -- Chief Financial Officer

So, OK. Let me try to unpack that. That was a lot of questions. So, first of all, the comment about new assets coming on at lower-than-existing yields.

That's totally about the runoff of the covered loans. The new loans we're bringing on are coming on at higher than the existing yields on the non-covered portfolio, but they're coming on at a lower yield than the aggregate yield on loans because of the impact of covered loans. So that's what that comment is about --

Stephen Scouten -- Sandler O'Neill -- Analyst

Makes sense. Yup.

Leslie Lunak -- Chief Financial Officer

-- that since 2009 the runoff of the covered loans has had a downward impact on the NIM, and it will continue until we execute that final sale. So, that's what that's about. What else did you ask? I'm sorry. Oh...

Stephen Scouten -- Sandler O'Neill -- Analyst

I guess, just -- yes, just overall direction of the NIM. Sorry. Overall direction of the NIM. If there's continued kind of core margin pressure here x the accretion?

Leslie Lunak -- Chief Financial Officer

I'm so excited about my birthday that I can only keep one question in my mind at a time. And guidance about the NIM for the year is -- has not changed. We said between 3.50% and 3.60% all-in for the year, closer to the higher end of the range, and I think that's still where we will be for the year in the aggregate. But that does include the accretion on the covered loans.

Stephen Scouten -- Sandler O'Neill -- Analyst

And in that assumption, are you assuming that that loan sale gets completed and that's particularly elevated in 4Q, the accretion? Above the kind of $80 million-ish run rate we've seen?

Leslie Lunak -- Chief Financial Officer

Either way, I think we'll still be in that 3.50% to 3.60% range on the NIM for the year.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. Great. Thank you, guys, for the color. Appreciate it.

Leslie Lunak -- Chief Financial Officer

OK. Thanks.

Operator

Thank you. Our next question comes from Jared Shaw with Wells Fargo Securities. Your line is open.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning.

Raj Singh -- President and Chief Executive Officer

Hey, Jared.

Leslie Lunak -- Chief Financial Officer

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

I guess, just first could you update us on what the remaining New York City multifamily balance is that's in runoff?

Leslie Lunak -- Chief Financial Officer

I'll get that. Yes, give me just a minute and I'll get that.

Raj Singh -- President and Chief Executive Officer

It's about $80 million.

Leslie Lunak -- Chief Financial Officer

How much New York City multifamily is left?

Raj Singh -- President and Chief Executive Officer

Multifamily? It was like -- OK.

Jared Shaw -- Wells Fargo Securities -- Analyst

Yes.

Raj Singh -- President and Chief Executive Officer

[Inaudible]

Leslie Lunak -- Chief Financial Officer

September 30. Yes. Give me just one second. I've got the number [Inaudible]

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. And then I guess while you're looking at that --

Leslie Lunak -- Chief Financial Officer

New York multi?

Jared Shaw -- Wells Fargo Securities -- Analyst

Yes.

Leslie Lunak -- Chief Financial Officer

Total New York multifamily at September 30, $2.2 billion.

Raj Singh -- President and Chief Executive Officer

$2.2 billion. Yes, it's $2.2 billion.

Jared Shaw -- Wells Fargo Securities -- Analyst

$2.2 billion.

Raj Singh -- President and Chief Executive Officer

$2.2 billion.

Leslie Lunak -- Chief Financial Officer

But don't assume that we intend to run that down to zero. That's not the plan, so...

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. OK. And then when you look at the loss share agreement or the covered loans and the loans that you would consider keeping, I guess that those loans would be the same whether you get early approval on the sale or not. But when you look at that total unpaid principal balance, how big of a portion of that do you think could be loans that you'd be interested in keeping? And then when you look at those loans, what are some of the dynamics around average life and the coupon on those loans?

Raj Singh -- President and Chief Executive Officer

I will not be able to give you the number because we're negotiating that with the FDIC as we speak. But when we have a deal, we will file an 8-K, and we'll give you as much detail as you would want. I will say the following about the characteristics of the loans that we're sort of refinancing. It's -- they all have to be performing.

They all have to -- the LTV's are going to be lower, significantly lower than the LTVs of the loans that we already have. And FICO scores are going to be in the high 700s, so 750 and over. And because this portfolio is an aged portfolio -- so, it was originated at least 10 years ago -- a large part of this portfolio is going to be floating rate. The vast majority will be floating-rate portfolio with a coupon which is actually north of where coupons are right now.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. Great. That's good color. Thanks. And then when you look at the -- you spoke about terming out some of the money market deposits to extend the duration there.

How long of a term are you able to get on that money market side? And then when you combine it with the CDs, how much of a duration extension are you looking for on the funding liabilities? Are we talking fairly modest or are you looking to [Inaudible] that a little further?

Raj Singh -- President and Chief Executive Officer

That portfolio, that part of the money market that is extended out, is extended out around a little over two years.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. And that's about $1 billion of the $10 billion?

Raj Singh -- President and Chief Executive Officer

Yes, roughly. A little more than $1 billion, yes.

Jared Shaw -- Wells Fargo Securities -- Analyst

And do you think that that balance that's termed out could continue to grow or are you happy with where it is there?

Raj Singh -- President and Chief Executive Officer

It depends on how much demand there is for that particular product. We've had the demand earlier this year. Also, it depends on the slope of the curve. The flatter the curve is, the more of that product you can do.

But I don't expect it to grow too much, but there are still a few clients we're talking to about that, so there may be marginal growth over there. There's a very unique kind of client that wants to lock in rates, so you give them -- you get duration and they get slightly higher rate and works out. But if the curve starts to steepen, then the opportunity sort of goes away quickly.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Lana Chan with BMO Capital Markets. Your line is open.

Lana Chan -- BMO Capital Markets -- Analyst

Hi. Good morning.

Raj Singh -- President and Chief Executive Officer

Good morning, Lana.

Leslie Lunak -- Chief Financial Officer

Good morning, Lana.

Lana Chan -- BMO Capital Markets -- Analyst

I just wanted to clarify the expense growth or the associated savings with the FDIC loss share going away. I mean, if you do retain some of those loans, does that impact the expense reduction that we're expecting to see from the FDIC loss share going away?

Raj Singh -- President and Chief Executive Officer

No, we already have a multi-billion-dollar book of residential loans, so adding a little bit to that, it doesn't really require anything more than what we would need with our current portfolio. So, it's the administrative burden of running loss share that will go away, and that's where the savings will be.

Lana Chan -- BMO Capital Markets -- Analyst

OK. And then secondly around the hiring of the consulting firm looking at life beyond the FDIC loss share, are they looking at additional opportunities to potentially cut costs outside of the FDIC loss share going away?

Raj Singh -- President and Chief Executive Officer

It's a well-known strategy consulting firm, and they're looking at everything, soup and nuts.

Lana Chan -- BMO Capital Markets -- Analyst

OK. Just one more, if I could, in terms of -- I think you had recently hired a new commercial real estate guy, manager in New York City, and you've been, obviously, pulling back from multifamily in New York for some time now. Could you talk about the strategy there now with the new hire on the CRE side?

Raj Singh -- President and Chief Executive Officer

Yes. So Ben has been with us two months, Tom? About two months?

Thomas Cornish -- Chief Operating Officer

A month and a half.

Raj Singh -- President and Chief Executive Officer

Right, and we are really right now sitting down and spending time with him about what the production strategy will be for 2019 and how are we going to diversity away from multifamily? We -- 75% of our portfolio, or something like that, is really multifamily, and to broaden the scope is really why we've brought Ben in. Ben is a more general CRE producer, and a team lead. And our plan is to not be focused only on multifamily. Multifamily will be an important part of it, but to actually sort of venture beyond multifamily into other aspects of commercial real estate.

We've done that to some extent, but we've done it with the existing team, which really was a multifamily team. So, with this change in leadership, with Ben's years and years of experience in areas beyond multifamily, we have high hopes that next year you will see a higher level of production out of New York or the North multifa -- CRE business than you have this year or last year. So, give him a little time. He's been here about two months.

I should start to -- we will see some better numbers in the fourth quarter. But I'm really looking forward to 2019, and I hope he's on the phone.

Thomas Cornish -- Chief Operating Officer

I would add our non-multifamily book in New York is about $1.5 billion dollars, and it's spread among various asset classes. And over the last couple of years, we've better balanced this as we've run down both the multifamily side and grown the nonmultifamily side, so an acceleration of that strategy is what we'll be looking to see in 2019 and beyond. Yeah.

Raj Singh -- President and Chief Executive Officer

And multifamily coupons, which is a question I always get. We haven't gotten it, so I'll talk about it anyway. We are seeing somewhat better coupons than we have for the longest time. So multifamily coupons, five-year paper, are now in the mid-fours, sometimes a little bit better than mid-four, sometimes a little worse.

But for the longest time, they were stuck in the high-threes and around 4%, so that's a good sign. What we don't like is structure when people are doing 10-year IOs or seven-year IOs. That's not a pricing issue. That's a credit issue.

10 years is a long time. The cap rates are very, very low and interest rates are rising. And that makes us a little nervous on putting on very long-dated IOs, but the pricing in the 4.5%, 4.75% is actually not as bad as it was even three or four months ago.

Thomas Cornish -- Chief Operating Officer

Also asset sales in that category remain down, so even if you get into the longer-term loans, you're likely to -- your average weighted life of the loan is likely to be more extended than it was a couple years ago. So, when you make those decisions, you tend to be in it for longer.

Lana Chan -- BMO Capital Markets -- Analyst

OK. Great. Thank you very much.

Operator

Thank you. Our next question comes from Steven Alexopoulos with JPMorgan. Your line is open.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Hey. Good morning, everybody.

Raj Singh -- President and Chief Executive Officer

Good morning.

Leslie Lunak -- Chief Financial Officer

Steven, good morning.

Thomas Cornish -- Chief Operating Officer

Good morning.

Steven Alexopoulos -- J.P. Morgan -- Analyst

And happy birthday, Leslie.

Leslie Lunak -- Chief Financial Officer

Thank you.

Steven Alexopoulos -- J.P. Morgan -- Analyst

I wanted to start, first a follow-up on the cost saves, which I know you've been asked on a few times on the loss share getting resolved. Raj, given that you're still not in a position to share the cost saves, I would think that's fairly straightforward, right? You have a certain number of people working on the asset that you won't need. What else is in that equation that you can't share it yet?

Raj Singh -- President and Chief Executive Officer

The reason we stay away, Steven, from talking about cost saves is it impacts people, OK? And until we are ready to talk to people about it, I don't want to talk about it on the call.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK. That's fair. To shift gears, Raj, so you guys obviously had good growth in the non-interest-bearing. Everybody's obviously trying to grow that here. Can you talk about why you're able to grow that business? We had nice growth in the quarter.

What are you doing to win here?

Raj Singh -- President and Chief Executive Officer

There was a big, big push at the beginning of this year, a change of messaging inside the company. I think there isn't a meeting that I go in or any loan that we approve or anything that we do without the question coming up, 10 times a day, where's the DDA? Are we doing this? We're signing up this vendor. Where's the DDA from that vendor? We're signing up this -- we're doing this loan. Why didn't we get the DDA? So, we've changed incentive plans to favor DDA in a big way across the board.

And by the way, the DDA growth is coming across the board, so it's not like one business line shown -- brought in some big DDA. It's fairly spread out, and I think the message is getting out. It's not easy, Steve. This is really swimming upstream.

I know what effort it took to actually get in that DAA, and the battle is not won. This is just the beginning and we have a lot of work to do in terms of DDA. But if we can keep at that, you're increasing not just earnings, you're increasing franchise value of the company.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK.

Thomas Cornish -- Chief Operating Officer

And in the process, you're increasing treasury management revenue, which we're seeing nice increases in because these are operating accounts where you're selling treasury product and you're making the relationships stickier to the bank.

Raj Singh -- President and Chief Executive Officer

Yeah, it's coming from small business. It's coming from the business banking unit. It's coming from large corporate, even the national deposit team, as Tom had mentioned in his talking points. The national deposit.

That's sort of the biggest ticket size business. And when we sat down with them this year and said, OK, your goal is not to grow just volume, but we want you to move the needle on demand deposits, and we tied their incentives to achieving those goals, I'm very happy with the fact that in just nine months we've turn that around so much. The average ticket size of that business has gone down dramatically because you don't win $100 million DDAs. That's not how the DDA business works.

The DDA business works, you bring in $1 million or $2 million or $0.5 million on the commercial side, and the consumer's very, very small. And it takes a lot to get just that. So, that business has gone from chasing really big accounts to really, really small accounts. Average ticket size of $1 million or $2 million, and you do enough of that, and it actually moves the needle.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK. Thanks, Raj. Just one final one following up on the large loan payoffs you're seeing. Can you give some color on which businesses you're actually seeing the largest payoffs here? Thanks.

Thomas Cornish -- Chief Operating Officer

Yes. I would say it's in both the large C&I corporate business and in the CRE book of business. Now in both markets. And as Raj said, it's a bit episodic.

You see asset sales. You see private equity buyouts. You see asset securitizations, real estate projects moving to the CMBS and life co. market, but it's predominantly in those two businesses where we see -- in both markets where we see the largest payoff levels.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK. Great. Thanks for all the color.

Operator

Thank you. Our next question comes from Dave Bishop with FIG Partners. Your line is open.

Dave Bishop -- FIG Partners -- Analyst

Hey. Good morning, guys.

Raj Singh -- President and Chief Executive Officer

Good morning, Dave.

Leslie Lunak -- Chief Financial Officer

Good morning, Dave.

Dave Bishop -- FIG Partners -- Analyst

Leslie, a question for you, and I know it's sort of an accounting geeky question. The net loss on the [Inaudible] terms negative to positive. Remind me the accounting drivers or what's driving that. And is that approaching expiration or should that stay positive moving forward?

Leslie Lunak -- Chief Financial Officer

So, that is a really geeky question, you're right. And you can call me and we can dig into it a little bit further if you want to, but essentially a couple of things happened. We had -- boy, and this is accounting geekiness for sure. The carrying -- as a result of that sale, the carrying value of one of those pools went to zero, and we had some release of accretable discount associated with that.

And since that didn't have anything to do with expected losses, it didn't have an offsetting indemnification impact. So, there was a -- really, it was the release of that accretable discount. If you really want to dig into that more, give me a call, and we can do that.

Dave Bishop -- FIG Partners -- Analyst

OK. I might take you up on that. And then Raj, you talked about the launch of the healthcare group. Obviously, it'll take some time to get going.

Is that national in scope and maybe, just maybe, size in terms of outstandings. Should we think of that with a B instead of an M over time? Just maybe thoughts as you head into 2019. Can they start impacting loans outstanding in 2019?

Raj Singh -- President and Chief Executive Officer

OK. So, the business is regional. It is not national. It will be focused on New York and Florida. Both these economies have healthcare as probably 20% of the GDP of these economies, so there's a big opportunity here.

It is not just a lending business. It's a lending and deposit business. And like I said, we have certain products that we've worked on this year, especially in the treasury management side, which we now intend to go out and sell. In terms of defining what the opportunity is, it's not in billions of dollars in the short term.

This is not the national deposit group. It will be measured in hundreds of millions over the course of the next couple of years.

Dave Bishop -- FIG Partners -- Analyst

Got it. And another sort of geekier or housekeeping question for you, Leslie. The tax rate looks like it ticked down this quarter. Anything driving that? Is that a good run rate into the third quarter and -- I guess, how should we think about 2019 for an overall tax rate?

Leslie Lunak -- Chief Financial Officer

No, it'll probably revert to where it's been in more recent quarters, Dave. And it's really an effect of some return to provision adjustments. We filed a return, so --

Dave Bishop -- FIG Partners -- Analyst

Got it. Thank you.

Operator

Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Raj Singh for closing remarks.

Raj Singh -- President and Chief Executive Officer

Once again, thank you so much for joining us for our earnings call. We'll talk to you again in 90 days. Thank you. Bye.

Operator

[Operator signoff]

Duration: 58 minutes

Call Participants:

Lisa Shim -- Senior Vice President, Head of Corporate Development, Strategy and Marketing

Raj Singh -- President and Chief Executive Officer

Thomas Cornish -- Chief Operating Officer

Leslie Lunak -- Chief Financial Officer

Thomas Cornish -- Chief Operating Officer

Ken Zerbe -- Morgan Stanley -- Analyst

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Stephen Scouten -- Sandler O'Neill -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Lana Chan -- BMO Capital Markets -- Analyst

Steven Alexopoulos -- J.P. Morgan -- Analyst

Dave Bishop -- FIG Partners -- Analyst

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This article appears in: Personal Finance , Stocks
Referenced Symbols: BKU



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