BankUnited, Inc. (NYSE:BKU) Q2 2022 Earnings Conference Call July 21, 2022 9:00 AM ET
Company Participants
Susan Greenfield – Corporate Secretary
Rajinder Singh – Chairman, President & CEO
Tom Cornish – COO
Leslie Lunak – CFO
Conference Call Participants
Ben Gerlinger – Hovde Group
Will Jones – KBW
Stephen Scouten – Piper Sandler
Operator
Good day, and thank you for standing by. Welcome to the BankUnited 2022 Second Quarter Earnings Call. At this time, all participants are in listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded.
I would now like to hand the conference to your speaker today, Susan Greenfield, Corporate Secretary. You may begin.
Susan Greenfield
Thank you, Latonia [ph]. Good morning, and thank you for joining us today on our second quarter 2022 results conference call. On the call this morning are; Raj Singh, our Chairman, 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 may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company’s current views with respect to, among other things, future events and financial performance.
Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries, or on the company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates or expectations contemplated by the company, will be achieved.
Such forward-looking statements are subject to various risks and uncertainties and assumptions, including, without limitation, those relating to the company’s operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the company’s direct control.
The company does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements.
Information on these factors can be found in the company’s annual report on Form 10-K for the year ended December 31, 2021, and any subsequent quarterly reports on Form 10-Q, or current report on Form 8-K, which are available at the SEC’s website, www.sec.gov.
With that, I’d like to turn the call over to Raj.
Rajinder Singh
Thank you, Susan. Welcome, everyone. Thanks for joining us. You’ve seen the earnings release. We announced $65.8 million of net income this morning for the quarter, $0.82 a share. That compares to $0.79 a share for the previous quarter. So happy about the numbers.
Really excited about loan growth, which came in very strong at $780 million. That’s excluding, of course, a PPP runoff, which is a little bit. More importantly, of that $780 million, $553 million of that was in the commercial segments. So, very healthy and broad based growth.
On the other side of the balance sheet, average non-interest DDA grew $370 million, though period-end there was a decline of $80 million. If you remember, at period end, is always noise in our numbers.
Last quarter, we had mentioned to you, there was a couple of hundred million dollars that came in on the last day of the quarter and left on the first day of this quarter. So, if you adjust for that, we still had DDA growth, which I’m happy about. Because in this environment to grow DDA, gets harder than it was a year ago, two years ago.
But we’re happy with the way the teams have performed. And it’s very much in line with our expectations, and with the guidance that we’ve given you. Margin expanded even better than we thought. It is at 253 basis points, up from 250 basis points last quarter.
And just to remind you, the second quarter of last year, I think we were at 237 basis points. So very nice trajectory, NII, net interest income grew $16.8 million, which again, we’re happy about it.
The rate environment, obviously is changing rapidly. Deposit pricing, as I’ve said in the last call, bottomed out in the first quarter, and now it will keep increasing at least until the Fed stops. Our deposit price, average is at 30 basis points for the quarter, it was 17 last quarter. But overall, like I said, margin expanded, because of course, we’re benefiting on the other side of the balance sheet from the Fed moves.
Credit, again, nothing but good news. Criticized classifieds, again declined by $181 million this quarter. I believe last quarter, it was roughly $150 million. NPLs also declined, excluding the guaranteed portion of non-accrual SBA loans or NPL ratio now stands at 42 basis points.
Charge-offs came in at 23 basis points. Again, to put it in perspective, last year, full year, we ran at about 29 basis points. Capital, as we had said to you many times in the past, we will be opportunistic, when we see weakness in our stock price, we will lean in and be more aggressive with our buybacks, which is exactly what we did last quarter.
We announced and largely completed $150 million authorization. And I think for the year, we have now bought back $326 million of stock, which roughly like 10% of our market cap. So, we think this is a good opportunity to step in and be aggressive and we were.
In terms of guidance, I think we’re going to stick with all the guidance we gave you with terms of loan growth we’re seeing. Pretty decent pipelines, like what we just saw this quarter happened. I fully expect next quarter and the quarter after that, that trend to continue.
In terms of guidance we gave you on margin, we’re sticking by it. Margin should expand from what it is. We’re happy it expanded as much as it did. And we remain pretty optimistic about that as well.
Expenses, also Leslie will talk about it. We’re happy where we came out. So, no real change to our guidance. We still remain focused on growing DDA. That is, at the end of the day, the long term single driver of success is continue to bring it core commercial DDA, and we’re executing on that, pipelines are good.
Overall deposit growth will be lower than our loam growth. Loan growth, we’ve said, it will be in the high single digits and deposit growth, total deposit growth will be in low single digits. So, we’re not changing any of that.
In terms of — I didn’t make remarks on the environments. Usually, I start my comments with that. Let me do that before handing it over to Tom. We are obviously in uncertain times, but I take somewhat optimistic view of this. Actually, this is a definition of getting old. I’ll recycled joke that I probably told you guys many times over.
The optimist and the pessimist walking down the street and the optimist says to the pessimist, look around you, life couldn’t get any better. And the pessimist says, well, that’s exactly what I’m afraid of. That’s where the environment that we’re in. It depends on beauties in the eye of the beholder. If I was to be analytical about it and say, where do we fall on that optimism, pessimism spectrum, the one being totally pessimistic and 10 being totally optimistic. We’re somewhere in the six, six and a half range.
That’s the average sort of view of the management team. There are opportunities. We’re cautiously optimistic. If — there clearly are signals coming from Wall Street of trouble that might be ahead maybe six months or so down the road. And we will monitor that carefully and change that attitude.
But right now, I see slightly more optimism than pessimism. But we’re being very careful, right? And loan growth is strong. Margins are better than we’ve seen in the recent past. And we had an event just three days ago, Monday, with our top clients in New York, and 60 of these people were together. We were there with them almost the entire day. We got to speak with people from various industries.
And overall, I’d say they were even more optimistic than that what I am being. So there is concern about the economy. We have to be careful. But there is also — there are opportunities that we can tap into in this environment. So cautiously optimistic, and all those opportunistic. That’s what I would say, is the stance of the management team.
With that, let me pass it over to Tom. He’ll get a little deeper into the numbers.
Tom Cornish
Good. Thanks a lot, Raj. Maybe before we dig into the numbers, a few comments on Raj’s view on opportunities that we’re thinking about, and investments that we made over the previous quarter, because the second quarter was a pretty busy quarter in terms of activities for us from a growth initiative investment perspective.
So, we’ve talked before about both the Dallas and Atlanta offices. I’d start with Atlanta, where our goal is to have a full wholesale banking team in that market, both from a corporate banking and CRE into treasury management perspective. We’re probably about halfway through the hiring process there.
We’ve got the corporate banking team fairly built out. At this point, we’ve got a CRE leader, and we’re recruiting other members of that team. And we’re also working on the treasury management position and some credit support there.
But overall market reception has been really good. We’ve started to book new relationships, and the pipeline for business in Atlanta, and the opportunities that we’re looking at, I think are matching our expectations when we talked about going into this market.
So, we’re happy with that. We’ve got our Dallas branch up and running, and we are seeing good deposit activity out of our business operations in the Texas market. And Texas continues to be a strong growth opportunity for us in the future.
Beyond that, we made several different investment position hires in the second quarter that I think are notable. We bought in a head of a sponsor finance team. We had never had a specific initiative to focus on sponsor finance relationships. We’ve done that. We’re happy with our early traction in that.
We added a position to focus on environmental enhancements, and alternative fuel type opportunities within our client base. We’re excited about that opportunity. We’ve added to our commercial banking team in the Jacksonville market.
We like Jacksonville, a great deal and unlike the growth opportunities in Jacksonville, our wholesale team has done well there, predominantly focused on corporate banking and CRE. So we’ve added a commercial banking segment to that area as well.
We’ve added a couple of positions to our New York commercial private banking team. We have added to our HOA teams during the quarter and also brought in an experienced salesperson on the deposit side to focus on multinational relationships in the Florida market, and Florida is a big multinational market.
So, we had a pretty strong quarter in terms of investing in areas where we see opportunities in the economy, both from an industry segment and a geographic perspective.
So a little bit more detail about some of the numbers that Raj articulated earlier. As he said, total loans grew by $780 million. For the quarter, the majority of that was in the commercial segment, which grew by $553 million, that includes core C&I, and the mortgage warehouse business.
Commercial growth was led in the C&I segment with $474 million of growth, mortgage warehouse was at $116 million. A couple of comments there. I think, when we look at the commercial growth to the quarter, and the commercial and industrial segment commitments grew by 7.5% for the quarter, loans grew by 6.9% year to-date. That line item has grown by 13.2%.
And we’ve seen really good growth across all segments that flow into the C&I area has been predominantly led by corporate banking, but we’ve seen really good growth in commercial banking and small business lending.
And not only is it broad among all of the segments in the C&I world, but it’s also broad among a number of industries that we serve. No one industry drove that. It was probably if you look at the additional supplemental information and compare it to last quarter, you can see that growth was among a number of the different industries that we service.
The other point I would make is that growth was really exclusively driven by new business, our overall line utilization has remained pretty flat from an C&I perspective. And actually, even the growth in the mortgage warehouse business, we’re at pretty historical low points, and utilization on those facilities. There’s really a new business driven kind of quarter from a C&I, and from a mortgage warehouse perspective.
CRE declined slightly, pretty flat for the quarter, $26 million decline. We had a couple of large transactions that were closing that we thought by the end of the quarter that didn’t close to the following quarter. I would also point out within the CRE book, we did see nice growth within the industrial segment. We grew the industrial segment, which is an area of focus for us by $180 million for the quarter. And we have started a selective focus on doing more construction lending. And that grew by $37 million in the quarter.
So we had about $145 million of growth within the CRE segment, in some of the specialty segments, we’re really focused pretty hard on. On to some other areas, Bridge declined somewhat pretty much as we anticipated, particularly in the Franchise Finance area, where we’re cautious in that segment, and not necessarily seeing risk adjusted returns, that kind of fit into where we want to go strategically.
We did see some nice growth in the Pinnacle portfolio during the quarter, and residential grew by $228 million during the quarter. So overall, a really good growth quarter. And as we look into Q3, pipelines in all areas have stayed very strong, kind of at the Q2 kind of pipeline numbers that we were looking at going into the second quarter. So we’re pleased with what we see within the book as it relates to the pipeline.
On to deposits consistent with previous guidance, total deposits and total NIDDA were pretty stable quarter-over-quarter, average non-interest bearing deposits grew by $371 million for the quarter. As you might recall, on our last quarter call, we pointed out about the $200 million that Raj mentioned as being fairly fast moving money at the end of last quarter that we expected to run off.
So factoring that in, we continue to be pleased by NIDDA for the quarter. We continue to be pleased by the amount of new logo growth within all of our lines of business. That was a very strong quarter from the new relationship perspective. Loan-to-deposit ratio ended the quarter at about 85%, which is a level that we’re pretty comfortable with at this point.
So with that, we’ll turn it over to Leslie for more detail comments about the quarter.
Leslie Lunak
Thanks, Tom. We’re very pleased to report that the net interest margin increased to $263 this quarter from $250 for the prior quarter, largely on the strength of increasing earning asset yields.
The yield on the investment securities portfolio increased to $212 from $173, given the short duration of the portfolio, we’re obviously seeing the impact of rising rates and widening spreads on the overall portfolio yield.
The yield on loans increased to $359 from $336 last quarter and resetting the coupons on variable rate loans and new production at higher rates contributed to that increase. The cost of total deposits was 30 basis points for the quarter, up from 17 basis points last quarter, again, as Raj said, as the Fed continues to hike rates.
Slide nine and 10 of the deck give some more details about the allowance for credit losses. The reserve as a percentage of loans was flat to the prior quarter at 54 basis points. And I want to point out that the ratio of the reserve to nonperforming loans increased to 90 basis points this quarter. The provision for the quarter was $24 million, impacted by a number of factors.
Total criticized and classified commercial loans continued to decline this quarter, down by a $181 million, with the largest decrease being in the substandard accruing bucket, which came down by $169 million. And total nonperforming loans also declined for the quarter to $144 million from $151 million.
Not surprisingly, given the macro environment and what’s happening with rates, unrealized losses on available for sales securities increased this quarter to about 4.5% of amortized costs, which I still think is overall given the environment we’re in, a pretty modest mark at 6.30 [ph].
More detailed information about that is presented on slide 21 and 22 of the deck. The segments, the largest impact were private label RMBs, private label CMBS and agencies. We continue to believe that all those unrealized losses are attributable to increasing rates and widening spreads brought on by the Feds actions and the market’s expectation is their future actions.
We believe these losses are temporary in nature. We haven’t recognized any credit impairment losses. And we don’t think these losses are indicative of any credit concerns in the portfolio.
You have some information on slide 22 in the deck about subordination levels that are very strong for the major categories of private label securities. On the non-interest income side, we took a negative mark through the P&L of $9.3 million on some preferred stock investments, again, attributable fairly to rising rates.
The decline in other non-interest income compared to the prior year was really due to lower BOLI revenue and lower gain on sale of loans as we haven’t had the kind of gains on sale of EBL [ph] loans in this environment that we had in a different rate environment.
Non-interest expense, compensation expense declined this quarter. Some of that was expected seasonal declines in payroll taxes and other benefits. And we also have some share awards that are liability classified that are marked based on the stock price at quarter end and the stock price was lower at quarter end, so that reduced compensation expense this quarter, and that piece is probably temporary.
So we probably will see that go back up a little bit in the in future quarters. As Raj said, we still feel good about the previous guidance we’ve given you overall on expenses and no change to that.
With that, I’ll turn it back over to Raj for any closing remarks you have to make.
Rajinder Singh
No, I think I’m good. It’s a good quarter. Feeling pretty good about the next quarter too. I’ll open it up for questions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from Ben Gerlinger of Hovde Group. Your line is open.
Ben Gerlinger
Hey, good morning, everyone. Sorry, if there’s any background noise. There’s a pretty big thunderstorm in Atlanta. I was curious if you guys could just kind of break out a little bit of the loan growth expectations here going forward as CRE had a pretty healthy rebound in the quarter. But from thinking about growth from here, is there any areas that you’re more targeted? I know, construction was called out, where Bridge is kind of winding down. And just kind of thinking about a mix going forward?
Rajinder Singh
Yes. Construction is still going to be — not the main story. We’re not a construction heavy bank. And that’s just — I think core growth is going to come from C&I, commercial. CRE, I’m very happy to — we were really hoping this quarter would be actually a positive. We’ve just missed by a couple of bucks, but CRE has been declining for many quarters, but I see growth in CRE as well. I think some of the national businesses like Bridge and Franchise will probably not contribute to growth as they’ve been declining for a while. And mortgage, while we had predicted will decline. We’re seeing margins that are very healthy, especially in the jumbo business where they’ve been very tight for long time, right? We’ve been doing mostly EBL business where the margin has been wider. Now we’re seeing tighter margins over there, but wider margins in jumbo. So that’s growing. So we tend to basically focus on where the market is, and allocate capital based on what we’re seeing.
That’s sort of what it looks like today that — if that changes tomorrow, if jumbo pricing and spreads start to come down, or any other category comes tighter, it’ll be harder to grow and allocate capital to those business lines. But right now, it looks like core C&I, even CRE, and to some extent, resi will continue to grow. Mortgage warehouse is a attractive business, we’re growing commitments over there, but utilization will stay low, unless there’s a refi boom, which I don’t see one happening. And, so we’re chasing better risk adjusted returns. Whatever they are, we will try to allocate. You can change on a day to day basis, on a week to week basis, but over a period a quarter or two, we always look for where the margin is best and where the returns on the best, and we try and allocate capital there. Those are the areas which look like are the ones that will grow. That’s where the pipelines are good.
Tom Cornish
I would also add that when you look at the CRE market, I mean, it’s a divergent story of how you feel about different asset classes. The asset classes that we like the best are industrial, which we actually grow 13% in the quarter, and we like the industrial market a great deal. And we still think we have room to grow industrial. We like multifamily, a good deal. Some — a lot of our construction activity as Raj said, its not — I’m going to say that it sounds bigger than it is. But a lot of the growth in the $37 million was in the multifamily space on a couple of projects we’re involved in. So I think multifamily and industrial are going to continue to be the favored asset classes. If you look at our mix and the CRE book, our mix improved a lot this quarter, because it is more the favorite asset classes. And we pared down a bit the retail segment, we pared down the hotel segment a bit. And actually, we’re watching that number very carefully.
Some of the loans that led to a slight decline were actually criticized and classified loans that left, if we think the optimist, if I looked at performing loans, we grew, performing loans, and so the ones that left or ones we wanted to leave. I’m on the optimist side of that one.
Leslie Lunak
Me too.
Tom Cornish
Yes. The 6.5 that I said, on a scale of one to 10, that’s the average of the management team. That is just described within the management team.
Ben Gerlinger
Got you. That’s fair. That’s great color. Then my second question, to take more of that pessimist view. Is there anything in your loan book that’s kind of more [Indiscernible] of a little word like PE or sponsor or kind of cash flow lending that isn’t already specifically called out within those specialty lending verticals? Although there is clear classifications that you would have to call it a is it a kind of by a different name or kind of in that line of lending that’s partly somewhat embedded in the C&I?
Tom Cornish
Yes. It’s embedded within the C&I lines. I would say that our overall level of sponsor finance related activity is not a significant portion of the overall portfolio. I think it could be better which is why we hired an experienced sponsor finance relationship officer in the in the New York market that’s going to focus on better developing that business. But it flows through the geographic and industry specific teams, rather than residing in a specific sponsored finance unit cost center.
Ben Gerlinger
Got you. Okay. That’s helpful. I appreciate the color. And congrats on a solid margin expansion in quarter.
Tom Cornish
Thank you.
Operator
One moment. Our next question comes from Will Jones with KBW. Your line is open.
Will Jones
Hey, great. Good morning, guys.
Leslie Lunak
Good morning.
Will Jones
Hey. So just wanted to start on the deposit cost and deposit pricing. If you look at total deposit costs, they were up just modestly. I calculate somewhere a low 20% beta. You guys have been very vocal about keeping beta lower this cycle. I just curious if you could talk about — talk to some of the puts and takes on — you competence on maintaining a lower beta through this cycle? And how are you guys internally benchmarking where deposit betas could play out ultimately
Rajinder Singh
What I’ll say is, if there is uncertainty in our budgeting and planning, it is actually trying to predict betas. And the reason I say that is, often you predict betas by looking at historical information, how does your cost deposit base behave last time around. When we go back and look at four or five years ago, when Fed was raising rates, our deposit base and our customer mix has changed quite dramatically. And so, making predictions based off of that is not a very accurate way. So, why do we have model this, every which way possible. I still think that it’s sort of the hardest thing to pin down as to what they will be.
Now, I will say, up to now, based on our own models, and what has emerged so far, we’re doing best. So our modeling has been more conservative than where we are today. I’ll also add actually by the way, all our modeling which was done was, you know, like late last year, when we had run out of budget and everything, and we’ve given you guidance for margin all, it was based on a different trajectory of Fed rate increases, the trajectory has been much steeper as we all know. So the Fed is moving faster than what our plan was. Our betas emerging slower — actually, our betas are lower at least so far in the cycle. But that’s the hardest thing. It’s all assumption late. Our margin has came out better than we had expected largely, because of that, my focus is really on DDA. We’ve worked very hard to get us to 34%. And we started this journey at like 14%. We’ve come a long way. And I don’t want to give even an inch of that.
Now, some of that will happen as rates go up, ECRs go up, people do move deposits around. But as long as we’re bringing in new relationships, core relationships, smaller relationships, I feel very good about the quality of this deposit franchise today than it was even two or three years ago. So, I know, I’m not giving you a very direct answer, because I don’t have — we haven’t announced what our betas are, what we projected them to be. We’ve given you a total assumption that we expect margin.
Leslie Lunak
The number is right. Obviously, on what they are.
Rajinder Singh
Yes. Anyone can do that calculation, it’s running around that 20%. But overall, I would say that, the way we position the balance sheet is that we expect margin to expand from here.
Leslie Lunak
Yes. We’re still pretty confident that the betas will be lower than they were in the last rate hiking cycle. But how much lower it..?
Rajinder Singh
I mean, just the fact that last time we had like 12% or 15%, sort of in that range DDA, now we have 30%, 34%, that will cause lower betas overall. So, we’re starting off at a much better place. We’re starting — the bottom was 17 basis points, last time the bottom was like 50, 60 basis points in terms of our deposit costs. Starting in a better place, we have more DDA, we worked very hard at this. But it is one of the hardest things to predict.
Will Jones
Got you. Very helpful color. And you guys undoubtedly one of the better deposit mix of stories out there today. So thanks for the color there. And just switching pace, going to the buyback, I know we’ve talked about — that’s a lot over the past handful of quarters, you guys have been just wildly active the past handful of quarters. I mean, should we just assume the baseline at this point or just the buybacks continue, and that’s big magnitude, as long as valuations kind of say they put?
Rajinder Singh
So, we have a board meeting coming up in August. This is going to be one of the topics of discussion. In the past when we’ve taken authorizations to board, they’ve been like five minute discussions. And very quickly, the authorization comes through. I think this time, it’ll be a more interesting discussion. Mostly because we’re seeing better pipelines. Right? So, if you have excess capital. You want to deploy in organic growth? You want to do buybacks? You want to do something else with it. A, six months ago, we were not seeing the level of pipeline that we’re seeing today. But on the other hand, we’re also seeing a stock price which is very, very attractive. So, you’ve got to balance it.
I understand the economy’s in a more precarious place today than in the past, which is bearing on the stock price. But it’s also creating this opportunity of a really low stock price. But I’m also looking at a great pipeline. So, I think it’s going to be more than a five minute discussion, to some, it might be a 30 minute discussion. But I don’t want to preempt that. Let that happen in August, and then we’ll announce what the board — where the board comes out.
Will Jones
Yes. That makes sense. And then, outside of growth, do you see any other constraints? Maybe the being active to this extent on the buyback. How do you think about capital levels?
Rajinder Singh
There is excess capital, clearly. But if we can deploy it organically and how fast, it’s also accreting, right? So it’s a dynamic equation you have to solve. You create capital, but at the same time you growing, margins are better, what will be the best way to allocate this? In a perfect world, I would love to not do any buyback and just grow. That’s the best thing. But how much can you put towards growth? How much can you safely grow? Is economy, where’s it going? Not the next few months, but in the next six or nine or 12 months? All those discussions will be on the table and we’ll announce when the board decides.
Will Jones
Yes, awesome. Thanks for color and congrats on a good quarter.
Rajinder Singh
Thank you.
Operator
Thank you. And our next question comes from Stephen Scouten with Piper Sandler. Your line is open.
Stephen Scouten
Hey, good morning, everyone. Thanks for taking my question. I guess, I would love some color on where you saw new loan yields in the quarter. Obviously, we can see what the average did. It looks like you had some nice movement higher there. But I’m just wondering what you’re seeing relative to what we’ve seen on from rate hikes. And if you feel like you’re getting paid for credit risk today, if the spreads are maintaining where they have been overall, I guess?
Tom Cornish
I’ll just have Leslie, just take the details on this. But as a general matter, I will say that spreads are better. Spreads are better in our loan business. Spreads are better in our securities business of our portfolio. But overall, given the fact that the largest participant in the marketplace has announced that they want to be a seller and not a buyer, which is the Fed, you should not be surprised that spreads are better today than they were over the last two years. So some businesses more so than others. But as a general matter spreads are better.
Leslie Lunak
Yes. Stephen, in terms of where new loan yields are coming on, there’s obviously a wide range, but on average new commercial loan yield for the quarter as a whole little bit higher at the end of the quarter, obviously, we’re coming on at about 4.30 [ph].
Stephen Scouten
Okay. And where did that kind of compare ballpark to what you saw last quarter? Maybe if you have a frame of reference there?
Leslie Lunak
I don’t have that number in front of me, it’s up considerably. And it’s a little bit of a — it’s not a great comparison, because we didn’t have as much production last quarter, so or as much growth last quarter. So that was a smaller set of loans, but it’s up considerably over 100 basis points over what we saw on average last quarter. But I think the more important comparison is that it’s significantly higher than the previous average yield, is higher than the back book and that inflection point [Indiscernible].
Stephen Scouten
Yes. That’s helpful. Okay. And then thinking about deposit costs, I know you guys have talked about wanting to hold the line on non-interest bearing and that movement has been tremendous over the last couple years. But I’m just — I’m kind of wondering, what you guys are seeing competitively, especially on money markets? I mean, I think your loan to deposit ratio is 84%. Still, traditionally low, but that may be higher than the industry average. So just kind of wondering how you think those competitive pressures could push on money market deposits in particular?
Rajinder Singh
Yes. It’s a pretty big range, depending on what business you’re talking about. Right? So in our branches, we are not seeing as much competition yet. We don’t compete fairly online, but we monitor online, we’re seeing obviously, very, very aggressive competition there. And in commercial, it’s a big range, Small business and core middle market, it’s still very modest level of competition. But in some larger corporate and some bigger depositors that we’re seeing, that competition emerge very quickly. So, if you pick our book, we’ve seen a pretty wide spread of where we’ve had to move and very aggressively. And on other hand, a large part of the book, we haven’t moved at all. So it’s a pretty widespread.
We’re not competing on the retail side where we don’t have, as you know, we’re not focused so much on retail prices, we really haven’t changed. At some point, I think we’ll have to move that there as well. Otherwise, we’ll just try to weigh what business we have, but we’ve not had to do that. So it’s — there isn’t a single answer. It’s anywhere from 10 basis points all the way to Fed fund effective, it’s a pretty wide swath of where different segments are, and different types of customers are and what they’re demanding and getting in the marketplace.
Leslie Lunak
I would also say, Stephen, Raj and I were talking about this just before the call, looking forward, our willingness to raise deposit rates will be dependent to some extent on spreads that we’re seeing on the asset side of the balance sheet. If we are seeing really healthy wide spreads on new business on the asset side of the balance sheet, that gives us the flexibility to be able to pay a little bit more for funding than if we don’t see that. So that’s also going to enter into the future equation in terms of what happens with the cost of funding, is what kind of spreads we’re seeing on the left side of the balance sheet.
Stephen Scouten
Yes. That makes sense. And I think, last quarter, if I’m looking at this, right, it was maybe plus 2.6% on the asset sensitivity and up 100 basis points scenario. And I know you said you’re a little bit ahead of your deposit beta projection. So, any material change there? Is that still kind of the ballpark range?
Leslie Lunak
I mean, I think you’ll see a little bit more probably asset sensitivity when we released those numbers this quarter. But still, philosophically, we managed to a relatively neutral level. And I think all of the volatility that we have seen over the past couple of years, and some of the predictions about volatility to come in terms of rates has only reinforced my belief that our board’s mandate to continue to manage to a relatively neutral position is wise. And so, you probably won’t see us all of a sudden make a big bet on rates. We never have and I don’t think you will. To Raj’s point, our deposit betas have — are lower than what we have been modeling. And that is still true. Difficult to predict how they going to pay in the future.
Stephen Scouten
Yep. And then maybe just last question for me. I think you guys noted some of that stock expense, was maybe somewhat temporary, a temporary help. And then, I know, Tom noted, some new hires and so forth. Can you maybe remind us what that overall expense guidance was? And what a good starting point for third quarter might be?
Leslie Lunak
Yes. We had gotten to a mid to high single digit increase for the full year over the full year last year after adjusting for some really weird one time things in last year’s fourth quarter. And we still think that’s good guidance.
Stephen Scouten
Got it. Okay. And so probably just a couple of million quarter over quarter that was that temporary effect? Nothing, nothing over the material.
Leslie Lunak
Yes. I would say that’s probably in the right ballpark.
Stephen Scouten
Okay, great. Thank you guys for the color. Appreciate it.
Operator
I would now like to turn the call to Mr. Singh for closing remarks.
Rajinder Singh
We must be competing with other earnings.
Leslie Lunak
There’s about 20 people coming out to this morning, yes. It’s a long list.
Rajinder Singh
But okay. That’s fine. I’ll take that as good news. Thank you very much everyone for joining us. Like I said, we’re happy about the quarter we [Indiscernible] and look forward. optimistically. Thank you for your time. We’ll talk to you in the quarter thereafter. Thank you
Operator
This concludes today’s conference call. Thank you for participating You may now disconnect.
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