Excessive spindle runout BP 2J2 Series 1

I am evaluating a machine and discovered some unexpected runout in the spindle.

When I throw a 1/2" end mill and collet in and indicate the stem up at the collet im getting. 0038-.0043" runout. Ok, ok I realize its not a gauge pin but in my other machines it spins at or less than .0005"

I have tried thoroughly cleaning the inside of the spindle, tried other collets, endmills, etc to no improvement. If I indicate about .100 inside the spindle bore I am getting .0025-.0029" I can't see any physical damage inside the spindle. Key looks well used but not obviously damaged.

I realize this is not good, is this usually the death of a spindle? bearings?

What else should I check next?

Thanks