BankUnited Inc (BKU) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the BankUnited Inc. Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference to your speaker today, Susan Greenfield, Corporate Secretary. Please go ahead, ma'am.

Thank you, Victor. Good morning, and thank you for joining us today on our fourth quarter and fiscal year 2020 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 the COVID-19 pandemic. 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, 2019, and any subsequent quarterly report 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.

Thank you, Susan. Welcome, everyone, to our earnings call. Thanks for joining us. I'll start by talking a little bit about the environment and the economy, then we'll get into our numbers.

Since we last talked to you 3 months ago, really 3 big things have happened in terms of reducing uncertainty. And reduced uncertainty is a good thing, always a good thing.

So the first and foremost and probably the biggest news of last year was the vaccine, which came out in November and is now being administered. Obviously, we had the election uncertainty last time. We're past that now. We also had the stimulus, which, compared to the other 2 news, is small news but nevertheless, positive news. We weren't expecting a stimulus to get done until the new administration takes over. But I'm glad it was passed a few days -- or a few weeks ago.

So with that, as I look through 2021, it feels like a year with a very, very strong potential in the second half of the year, possibly starting as early as second quarter. But I do see a slow first quarter as all this good news is great but it actually has to get converted into reality.

The biggest risk obviously still remains vaccine distribution and, to some extent, a new variant of coronavirus. So there's still some uncertainty around it but a hell a lot less than this time 90 days ago.

So we're feeling very good as we put together our budget for the year. We basically took assumptions that -- first quarter is always a slow quarter for us. But this year will be slow as well for all the reasons I just stated. But then pipeline starts to build up and we start executing on our growth strategy somewhere in the second quarter but really bringing it in, in the second half of the year.

Quickly looking back for this quarter. I'm very happy with the results, where we announced $0.89 per share, $85.7 million in earnings. That compares to $0.70 last quarter. And if you compare it to the fourth quarter of 2019, which feels like 100 years ago, it was $0.91. So not bad for what we've gone through this year to come out just very close to where we were fourth quarter of 2019 from an EPS perspective.

Then -- sorry, NII was $193-and-change million, which was $6 million more than our last quarter, about $8 million more than fourth quarter of 2019. PPNR was down by $10 million compared to last quarter but showed a little increase compared to fourth quarter of the prior year. Leslie will walk you through this. But there are some unique items in this -- in the expense category mostly having to do with compensation. We had reduced our variable compensation accrual quite dramatically in the second and third quarter. And we've adjusted that back up. Not all the way back up; variable compensation will still be much lower than in previous years but just not at the rate that we were accruing in the second and third quarter. That's one part of that adjustment.

There's some -- we made a change in policy to give rollover paid time off due to the circumstance that we're in to our employees that cost a couple of million dollars. And then there's an accounting thing, which Leslie would walk you through. I'm not smart enough to walk you through that.

The big story obviously continues to be deposit generation as well as deposit costs. We had another solid quarter. Total cost of deposits declined by 14 basis points. We were at 57 basis points last quarter. This quarter, we ended up at 43. And if you look at our spot cost of funds at December 31, we were at 36. So in other words, we're starting this quarter already at 36 and working our way down from there. So I feel pretty good that this quarter will be another very strong quarter in terms of reducing cost of funds. I think we'll end up in the low 30s. And on a spot basis, I feel pretty confident that we will end up with (inaudible).

So that's sort of the cost side. But also our average DDA, noninterest DDA grew by $966 million, which is again very, very strong. I will repeat what I've always said, 1 quarter doesn't make anything. You should always look at a 4-quarter average or 4 quarters or last 12-month numbers to really get a feel for how the business is doing. But no matter how you look at it these last 4 quarters or the last quarter, it's just been a very, very strong performance on the deposit side. Our noninterest DDA now stands, by the way, at over 25%. And I think a year ago, we were at 18%. Still more work to be done here. We are expecting this trend to continue into next year and for us to slowly work our way towards 30% DDA.

As we have predicted, risk rating migration has slowed quite significantly. I think for the first 9 months of 2020, there was downward rating migration on $2.1 billion in loans. This quarter, it was $169 million. Provisioning came down very, very materially. In fact, we have a net recovery of a small number of $1.6 million. Also, we had reported back in the summer $3.6 billion in loans that were on deferral, if you remember. That number is now down to $207 million or about 1% of total loans.

We do have $587 million in loans that were modified under the CARES Act. As you know, under the CARES Act, we don't -- these don't show up as TDRs. But nevertheless -- these modifications, by the way, are mostly IO modifications for 9 to 12 months. A lot of these modifications are in the CRE, the hospitality portfolio, the hotel portfolio. And we believe that most borrowers are going to come to us for temporary relief or deferral have been identified at this point.

NPLs picked up a little bit to $244 million, which is about 1.02% of loans. But excluding the government-guaranteed sort of SBA loans that are in this bucket, if you take that out, it's about 80 basis points. In our C&I subsegment, actually, NPLs declined.

The net charge-off rate was stable at 26 basis points for the year. Let's talk a little bit about NIM. Last time we met at this call, we had talked about NIM being stable, maybe slightly up, which is exactly what happened. NIM was 2.33% for the quarter. I think last quarter, it was 2.32% so 1 basis point improvement.

Total loans grew by $87 million and deposits grew $899 million in total, of which $219 million was noninterest DDA. These are spot numbers. What I gave you earlier was average DDA.

Book value is now up at $32.05, which is higher than what it was. At this time last year, it was $31.33. Capital position is strong. The Board met yesterday and reinstated our share buyback program. If you remember, when we stopped it, we still had about $45 million left. So that authority has been unfrozen. And then the Board wants us to get through this. And then we'll meet again to talk about additional repurchases.

Capital at CET1 is at 12.6%. At holdco, it's 13.9% in the bank. And we, of course, declared our usual $0.23 per share dividend.

Strategy for return to work. Let me talk a little bit about this and going forward. Not much has changed in terms of our positioning for return to work. We still are working remotely and we expect to do that for at least the next 2 or 3 months and then make a decision beyond that at that time. There have been more COVID cases in the company, as you would expect, in this quarter than in previous quarters but none that are serious enough to have impacted any of our operations.

The strategy going forward. Again, we're waiting very anxiously for economic activity to pick up and for us to start participating in the next business cycle, which, as we speak, is beginning right about now. The focus will stay the same, which is to build a relationship-based commercial bank with a focus on small and middle-market businesses. Stay focused on building core business through noninterest DDA, identifying niche markets that the big guys don't pay much attention to, investing in technology and innovation and not just in branches and locations. The game has really become about technology and solving customer pain points through innovation.

Also, we haven't lost sight of all the initiatives we had in 2.0. That was not just an exercise in time that you do and forget about. It really was about changing the culture. And we will keep pushing forward on that front as well.

We did launch a new initiative earlier last year. We did not make a lot of big deal about this but I do want to mention it on this call. It's called iCARE, which stands for inclusive community of advocacy, respect and equality. It is something that has been in the works since summer of last year. But we really announced it inside the company about 2, 2.5 months ago and has gotten a very positive feedback. It really is our effort as an organization to push and build a culture that celebrates and intentionally promotes diversity within the bank. This is not just words. This is -- we're putting our money where our mouth is and taking on initiatives. We think if we can do our bit and move things in the right direction by an inch and everyone does that, it will make a big difference in society. So we're very excited about this. Our employees are very excited about this and more to come on this in the future.

Let me see here. Let me turn this over to Tom. And he's going to walk you through a little more on the business side before Leslie gets into the numbers. Tom?

Sure. Thanks, Raj. So let me start with deposits in a little bit more detail on the deposit book. As Raj mentioned, total deposits grew by $899 million for the quarter and noninterest DDA grew by $219 million for the quarter. So the deposit mix continues to improve.

We allowed higher cost deposits to run off this quarter, which we continued to do for the last few quarters as time deposits declined by $1.1 billion for the quarter.

A little bit more detail on cost of funds. So the total cost of funds, cost of deposits declined to 43 basis points this quarter. On a spot basis, the APY on total deposits was 36 basis points at December 31, which was down from a spot of 49 basis points at September 30. And compared to last year at December 31, it was 142 basis points. So big continued progress there.

The spot rate on interest-bearing deposits was 48 basis points as of December 31 compared with 65 points at September 30 and 171 basis points a year ago. So we're seeing reductions in cost of deposits across all lines of business, across all products. That continues to be a very broad-based trend.

As we think about December 31, 2020, we had $1 billion of CDs in the book at an average rate of 1.61% that had not yet repriced since the last Fed cut in March of 2020. So in the first quarter of this year, we have a significant amount of that, just under $800 million, that we'll reprice in this quarter. And additionally, some CDs that matured and repriced early in the cycle, we'll also reprice down again at their next maturity date. So there's a very significant difference between what these will reprice at. Our current rates are running about 25 basis points.

So we right now continue to see good healthy pipelines and opportunities for core deposit growth across all business lines. It's always a little bit more difficult to size deposit pipelines and timing of treasury management relationships coming on board. But we continue to expect growth in noninterest DDA at the levels that we're seeing now. It's likely we'll see more time deposits run off at the same time as the mix of the overall book will continue to improve. We are seeing some of the maturing CDs move into money market category as well but obviously, it's significantly lower rates.

Switching to the loan side. As Raj mentioned, in aggregate, total loans grew by $87 million in the fourth quarter and operating leases declined by $13 million. So a little bit more detail on some of the segments.

The residential portfolio grew by $408 million in the fourth quarter. Of that, $330 million was in the Ginnie Mae EBO segment. Mortgage warehouse continued to perform well. Total commitments grew by $90.5 million for the quarter. And we ended the year at a little over $2.1 billion in mortgage warehouse commitments. So the entire quarter and the year was obviously very strong in the mortgage warehousing area.

In the aggregate, commercial real estate loans declined by $89 million for the quarter. Multifamily declined by $171 million, of which $151 million was in the New York market. So beyond that, we had overall expansion in other segments of the real estate business, obviously.

If you look at loans and operating leases in aggregate of BFG, including both franchise and equipment, we were down this year by -- down for the quarter by $124 million. Given the COVID impact on the BFG portfolio in particular, especially the franchise, we've been focusing our efforts over the last couple of quarters really on portfolio management and exposure reduction versus new production.

So if we look into 2021 a bit and kind of break down sort of what we see happening in the different business lines, we expect to see continued strong growth in the Ginnie Mae EBO and mortgage warehousing businesses. We expect to see the C&I business start to return to a more normalized growth mode as the economy picks up and the vaccines and so forth are distributed. We're seeing that as a high single-digit growth for 2021, predominantly in the back end of the year. We're forecasting a low single-digit decline in CRE for 2021. We continue to have some concerns about valuations in certain segments of the portfolio. Clearly, the hotel and retail segments will be challenged for a good portion of this year.

Small business lending is an area we expect to see good growth. And in 2021, we've invested a lot of our technology and time in expanding small business area. And in the franchise area, we expect to see that continue to run off probably in the 20% kind of range in 2021 as we continue to work through that.

Pinnacle is expected to decline slightly mid-single digits. But that may turn around if there are changes in corporate tax rates or the competitive landscape right now from an interest perspective.

Switching a little bit to the -- give you an update on PPP. I think the overall PPP process is going well. We're in the forgiveness stage on the 3,500 loans that we originally made in around 1 to PPP. That's going very smoothly. We probably have about 700 loans so far that have been forgiven. And we expect that to continue in the first quarter of 2021. And we're participating in the second draw program to eligible businesses who were given first draw PPP loans. That just recently opened and we'll be open for clients in that phase. We're expecting maybe a 50% to 60% second draw request from clients that we had in the first draw. So -- but overall, I think PPP is going well.

Some additional comments around loans that we've granted deferrals. And I'd refer you to Slide 16 in the supplemental deck for more detail around this as well. So starting at commercial, only $63 million of commercial loans were still under short-term deferral. At December 31, $575 million of commercial loans had been modified under the CARES Act. So taken together, this was $638 million or approximately 4% of the total commercial portfolio as of December 31.

Not unexpectedly, the portfolio segment most impacted has been the CRE hotel segment, where $343 million or 55% of the segment has been modified as of December 31. I would remind you that the majority of our hotel exposure is in Florida. The majority is in leisure properties. And so that -- those are the segments that we're expecting to see rebound a bit more. And over the last few months, we've seen occupancy tick up to much better levels than we had seen a few months previous to that. And so we see in that segment more travel and leisure coming up. And we also see some surveys that we've read recently about companies returning more back to the business travel segment as well. Our hotel book isn't really a business travel segment. But overall, we see the travel markets improving as we get into -- further deeper into 2021.

On the franchise side, 8% or $46 million of the franchise portfolio was on short-term deferral or had been modified as of December 31, compared to $76 million or 12% that were on short-term deferrals as of September 30 and 74% that were granted initial 90-day payment deferrals. $48 million or 67% of our cruise line exposure has been modified under the CARES Act of December 31.

Almost 80% of the total commercial deferrals and modifications and almost 60% of the total loans risk-rated substandard or doubtful are from portfolio segments that we had initially identified as needing of heightened monitoring due to potential impacts from the pandemic. So it continues to be those same segments that we're seeing all of this activity. And we don't, at this point, see really any level of difficulties coming from other segments than the ones that we had at first identified.

On the residential side, excluding the Ginnie Mae early buyout portfolio, $144 million of loans were on short-term deferral. An additional $12 million had been modified under a longer-term CARES Act repayment plan at December 31. This totaled about 2% of the residential portfolio.

Of the $525 million in residential loans that were granted an initial payment deferral, $144 million or 27% are still on deferral, while $381 million or 73% of those loans have now rolled off. Of those that have rolled off, $362 million or 95% are now making regular payments, while only 5% or $19 million have not resumed a regular payment program.

Just as a reminder, when we refer to loans modified under the CARES Act, we're referring to loans that have been excluded from modifications other than short-term deferrals. And these are loans that, if not for the CARES Act, would likely have been classified as TDRs. As Raj said, most of these have taken the form of 9- to 12-month interest-only deferrals.

Within the CRE portfolio, we're still seeing overall good rent collections in the office market, depending upon the geography. We're seeing 90% or so in the New York market, 97% in Florida. So we think the office collection rate is still running very well. Multifamily collections are running 90% in New York and about 96% in Florida. And for our larger retail loans, we're seeing sort of low 90% rates in the retail space.

A little bit more on what I mentioned earlier on hotel occupancy in the hospitality segment. All of our properties in Florida are now open. And 2 of the 3 properties that we have in New York are open. In Florida, we're continuing to see improvement in occupancy. We saw about a 46% average occupancy rate for the quarter. December is obviously a stronger travel month in Florida and we're coming into the better part of the season. In December, we saw occupancy rates in some areas as high as the 60% range. But generally, we saw upper 40s to low 50s. So the hotel segment is gradually showing some improvement there.

A little bit more detail about what we're seeing in the franchise space and in the fitness space. So as we've said before, when we look at concepts where there's significant drive-through delivery capability, those tend to be doing well. Things like pizza, chicken, other more popular QSR concepts are doing very well. Many are posting now double-digit same-store sales increases.

In-dining concepts are obviously still struggling a bit and that's where we see some softness. And certain segments are a little bit divided depending upon whether those concepts in certain locations have delivery-type economic models or whether they're in malls or things like that. Those are a little bit up and down. But overall, we're seeing improvement within the franchise area.

Fitness has taken some steps forward since our last call. At this point, all of our stores are open with the exception of those that are in California, particularly those around the Los Angeles area. So basically, 90% of our stores are open at this point. They're not all operating at 100% level but this is the highest rate of openings that we have seen since the pandemic started. So with the exception of just California at this point, of 280 stores that we have, 90% of them are open. So that gives you, I think, a good sense of what we're seeing in the restaurant and the fitness area.

So now let me turn it over to Leslie for a little bit more details on the quarter.

Thanks, Tom. So I'll start with everybody's favorite subject, CECL in the reserve. Overall, the provision for credit losses for the quarter was a net credit or recovery of $1.6 million compared to a provision of $29.2 million last quarter. That $1.6 million consisted of a $1.2 million provision related to funded loans and a recovery of $2.9 million related to unfunded commitments.

The reserve, the ACL declined from 1.15% to 1.08%, 1.08% of loans this quarter primarily because of charge-offs, which is exactly what we would expect to happen under CECL. As charge-offs are taken, the reserve would come down.

Slides 9 through 11 of the supplemental deck provides some details on changes in the reserve and the composition of the provision and the allowance. Charge-offs totaled $18.8 million for the quarter, which reduced the reserve. $13.8 million of this related to the write-down to market of some loans that we sold during the quarter or that were moved to held for sale right at quarter end and those were sold in January. $34.1 million -- and all of the rest of this is stuff that ran through the provision, a $34.1 million decrease in the reserve and provision related to the improvement in the economic forecast.

Offsetting that was a $32.8 million increase related to increases in some specific reserves and net risk rating migration. We had an $11.4 million reduction in the amount of qualitative overlays. This is exactly what we would expect. We expect that qualitative overlay to come down as more facts are known about individual borrowers and more of that gets captured in the quantitative modeling.

And then we also had an increase of $15.2 million related to more conservative modeling assumptions that we've made around behavior of certain residential borrowers that have been on payment deferral. So all of that going in opposite direction is kind of netted down to that provision of basically 0 for the quarter.

The decrease in the reserve percentage also reflects the fact that Ginnie Mae EBO mortgages are a larger component of total loans and those carry basically no reserve.

Some of the key economic forecast assumptions. And I'll remind you, this is a really high-level look. The models are really processing literally hundreds, if not thousands, of regional and other economic data points. But our forecast is for national unemployment at about 6.7% for the first quarter of '21, remaining stable through 2021 and then trending down to 5.4% by the end of 2022. Real GDP growth reaching 4.1% in 2021 and 4.7% by the end of 2022. And S&P 500 index remaining relatively stable around 3,500 and a bit stabilizing. Fed funds rates staying at or near 0 into 2023.

The franchise finance portfolio continues to carry the highest reserve level at 6.6%, followed by CRE at 1.5% then C&I at 1.1%. The reserve on the residential portfolio remained relatively stable quarter-over-quarter. Reductions resulting from the improved economic forecasts were offset by changes in modeling assumptions.

As to risk rating migration, on Slides 23 through 26 in the deck, we have some detail around this. Not surprisingly, as we continue to move through the cycle and get more detailed information about borrowers, we did see some additional downward migration this quarter. Although as Raj pointed out, the pace of this has slowed considerably as we would expect. And we hope to see some positive tailwinds if the economy continues to improve as we move through 2021 as we're expecting it to.

In terms of migration to substandard accrual, the largest categories were in CRE. And that would be in the hotel, multifamily, New York and retail segments. And we downgraded some of the cruise line credits this quarter.

Overall, in franchise, the level of criticized and classified assets actually declined this quarter. But we did see some fitness concepts move from special mention to substandard.

Nonperforming loans increased by about $44 million this quarter. The largest increases being in multifamily; residential, as we had some loans come off of deferral and fail to resume a regular payment schedule; and a little bit of franchise finance in the fitness segment.

As expected, we continue to see recovery in the fair value mark on the investment portfolio this quarter. The portfolio is now in a net unrealized gain position of $85.6 million. And we expect no credit losses related to any of the securities in that portfolio.

Consistent with the guidance we provided last quarter, the NIM increased by 1 basis point this quarter to 2.33%. The yield on earning assets declined by 12 basis points. And this was -- there's still pressure on asset yields. But this was a much lower -- smaller decline than we had experienced the quarter before so that's good to see. Obviously, this is just due to runoff of higher-yielding older assets that were put on in a higher prevailing rate environment.

Cost of deposits declined by 14 basis points quarter-over-quarter. And as Tom pointed out, I'll remind you that almost $800 million of those of time deposits are scheduled to mature and price down in Q1.

Noninterest expense. Compensation expense was up this quarter. And there were a few notable items in there that we pointed out in the press release that I'll highlight for you. We did adjust our variable compensation accruals by $6.6 million as operating results in the back half of the year were far better than we had initially expected. I would call that a first-world problem. Glad to see those revenues up, allowing us to do a little more for our employees in the way of variable compensation. A $2.2 million accrual portion rollover vacation time that we made the decision to allow our employees due to the COVID pandemic and the difficulty people have had using their vacation time. And we also had an increase in an accrual related to some RSU and PSU awards that resulted from the increase in the stock price, another first-world problem. I'll take that. So that's kind of what went on in compensation expense.

A little bit of guidance looking forward to 2021. I will preface my remarks by saying this is maybe the most challenging environment in which I've ever had to forecast what was going to happen over the course of the coming year. So all of this guidance is predicated on a lot of assumptions about the economy, interest rates, tax rates, the competitive environment, the regulatory environment. And any of that could change but as of now, what we see is mid-single-digit loan growth, more of that concentrated in the back half of the year. As Raj said, we don't expect much in the first quarter. And that's excluding the runoff of PPP loans, by the way, that mid-single digits, excluding that runoff of PPP loans. Again, mid-single digit, a little bit higher than loan growth, mid-single-digit deposit growth but double digit, mid-teens noninterest DDA growth as we continue to remix that portfolio and let those higher cost rate-sensitive customers run off and grow noninterest DDA.

We expect the NIM to increase for the year. And we would expect the PPP forgiveness to be largely a first quarter 2021 event. So the NIM in the first quarter will get a lift from PPP forgiveness. I think there's about $11 million worth of unrecognized fees still remaining to flow through that will come through in the first and maybe some in the second quarter.

The provision. So under CECL, in theory, the provision should be related only to new loan production and charge-offs should increase -- should reduce the reserve. And if the world didn't change, that's what would happen. We have not attempted to forecast changes in the economic forecast. But if the economic forecast doesn't change, the provision for the year should be modest. And it would be higher in the second half of the year as loan growth picks up. And any charge-offs taken should reduce the allowance, And we would expect net charge-offs to exceed the provision for the year and the reserve to come down. If our prognostication about the economy is true, we would expect over time, if we return to an environment similar to what we were in right before -- at the time we adopted CECL, we would expect the reserve to return back to those levels.

Noninterest income. For next year, we do expect to see some increase in deposit service charge and commercial card revenue materialize in 2021 and for lease financing income to stabilize after some decline in the first quarter.

Expenses. Overall, in the aggregate, we would expect probably a mid- single-digit increase. And that's going to come from 2 areas. One is comp. Part of that is just the natural normal merit increases and inflationary salary increases, which we think will resume -- we actually hope will resume in 2021 as the economy recovers. But we do expect it to remain below 2019 levels. And we also expect technology-related cost to increase as we continue to invest in some important initiatives that Raj alluded to.

Tax rate, we would expect to be around 25%, excluding discrete items, if there's no change in the corporate tax rate. The other -- the one other thing that I will point out to you. We had about 3 million dividend equivalent rights outstanding that expire in the first quarter of 2021. And that will add $0.02 to $0.03 per quarter to EPS. So I just want to make you aware of that.

And with that, I'll turn it back over to Raj for closing comments.

Thank you, Leslie. There's so much information to give you these days. These calls end up taking way too much time in the first half. But hopefully, as the economy returns and -- we have to do less talking and take more of your questions.

But let me turn it over to you guys and take questions now. I see a line already, yes. Operator?

(Operator Instructions) Our first question will come from the line of Ebrahim Poonawala from Bank of America.

I guess first question is just around deposit mix. Raj. Let me -- thanks for the guidance around the noninterest-bearing deposit growth. When I look at BKU pre-COVID, I think the biggest gap when you look at ROE was driven by the cost of deposits. And given the inflow of liquidity for the entire industry, it makes it a little bit challenging to figure out who's growing core relationship deposits that are going to stick around when rates go up.

So just talk to us in terms of your comfort level in terms of the clients that you brought on in the last year and the last few years and how that should translate if and when rates actually go up and BKU's ability to sort of deliver peer-like or better-than-peer ROE, ROA.

Yes. So listen, what you guys see is our push for growing DDA and bringing on cost of funds. What you don't see behind the scenes that I'm really pushing hard in the company is make sure we have the right clients. So for the last almost 6 months, every deposit call that we've had, we have one every month, the topic of discussion is how to make sure that when rates go up -- because they will someday, maybe 2 years out but eventually they will go up, that we have lower betas and lower pain at that time than when rates went up the last time around.

We look to various things. Park money, single accounts or few accounts-type behavior is generally an indicator of -- that they will -- either the money will leave or it will have high beta. So we're trying to de-stress and push those accounts out. We're also trying to, by industry, select industries that tend to be less -- will have less beta.

So we're doing all those things. But there's -- you don't really exactly know how a client or a relationship will behave when rates rise up. You can guess. You can look at how they did last time around. You can look at those industries. You can look at their customer behavior, how much business -- how much payments run through the bank. And those are all indicators. But at the end of the day, they are indicators.

So I think we're working on all those fronts, trying to sort of not work for just this quarter and this year but really focus on 2024 when rates rise up. But eventually, I'm very curious myself to see how this will eventually all break out.

DDA is obviously a cure for everything. At the end of the day, DDA has 0 beta. That's what you -- if I could have the entire deposit base be just noninterest DDA, while that's silly, but I would love for that to be the case. So as long as we keep delivering on that, that's our ultimate insurance from pain in a rising rate environment.

Got it. And just separately, Raj, around the buybacks. So you -- I guess you're back in the market or at least willing to buy back stock. Is -- just tell us in terms of your appetite. I mean this seemed like a modest amount in terms of like scaling the buybacks up. And then just talk to us in terms of your outlook around M&A, like does anything change coming out of this versus how you viewed M&A going in -- pre-COVID?

I don't think our philosophy around M&A really changes. I think M&A is a tool to be used carefully. And the idea shouldn't just be let's get bigger. The idea should be let's get more profitable. And sometimes, M&A does make sense. But if you can build it yourself, we'd rather be patient and build it ourselves. But certain things cannot be built themselves. And for that, M&A is fine.

So my M&A view is really, my philosophy hasn't changed. I think what has changed is the environment is very different. Last year, there wasn't much M&A until the fourth quarter. And now, I think as you're coming out of this painful period, I do expect more M&A especially in the mid-cap space, maybe not so much in the very large bank space. But yes, this year and maybe next year, we'll be active on the M&A front. And we're here to talk to anyone and everyone. Any deal that makes sense, we will talk but we don't lead with that.

Got it. And just on buybacks?

On buybacks, our Board, as you know, has given us always $150 million at a time in terms of authorization. And I think they want to just stick to that rhythm. And our budget that we presented to them only less than 1 month ago includes buybacks much more than the $45 million that we've just gotten authorized for.

My guess is once we get through this $45 million, there will probably be another $150 million. When we get through that $150 million, there'll be number $150 million and so on. It really is about managing your TCE to TA targets, which we're basically going to go back to where we were prior to COVID, which is trying to target for 8% TCE to TA over time.

Our next question will come from the line of Jared Shaw from Wells Fargo.

Maybe sticking, I guess, with the deposit and NIM discussion. It's great to see the reduction in your funding costs there. As we -- as you look at that next round of CDs rolling off, do you think that you need to start holding on to some of those? Or should we still expect to see the actual level of CDs decline as well as DDAs increase? Or will the mix shift come about more just by DDAs outgrowing the CDs?

I think CDs will continue to decline, not just because of the way we're pricing it but also because of customer preferences change, right? People don't really want to lock up money in such a low rate environment. So a lot of money is just flowing into money market.

DDA growth is separate. That's more about our business development efforts that have been singularly focused on DDA growth. And they've panned out for the last many quarters now. So that will continue. And overall, deposit cost will keep dropping...

Yes. And then on the CRE side, clearly, you still have the headwind of paydowns and payoffs there. But on the loans that you are writing, how are you seeing changes in pricing and structure? Is that moving to your advantage? Or is it still a pretty competitive market for a new paper?

Tom, why don't you take that one?

Yes. I would say when you look at the CRE market, what we're predominantly doing new today tends to be in a couple of subsectors. It tends to be in the industrial market where we have a good level of credit appetite for industrial property. We're seeing good opportunities in Florida multifamily, where those markets are tending to do extremely well.

I think there's been some structural competition, I would say, in the last quarter perhaps more than we saw in the third quarter. We are seeing lifecos and other banks return a little bit more to that market. But at this point, when we look at what we originated in the fourth quarter that what I would call relationship-oriented business, I still think we're seeing good quality structure and good rates in the market. Our pipeline in those segments heading into 2021, I think, is good. And I think clients have a good level of confidence in our ability to execute on transactions. And I think that's -- because of that, we're still seeing what I would consider to be reasonable pricing in terms on the asset classes that we're emphasizing in 2021.

Okay. And then just, I guess, maybe more of a modeling question on the expenses and the growth. When your -- the growth outlook that you're giving is full year over full year, I'm assuming. And I guess how should we be thinking about first quarter comp expenses with some of those moving parts that you called out this quarter?

Yes. Yes, the guidance was full year over full year. And as you know, in the first quarter, comp expense is always elevated by several million dollars because of just the timing of payroll taxes and HSA accounts seating, 401(k) contributions and all of those things that tend to be front loaded. So it will be higher in the first quarter, Jared, as it always has been.

So those higher levels of incentive that we saw in fourth quarter should roll forward?

Yes, those things should not recur. But we will see elevated comp expense in Q1. We always do.

Yes. Okay. And then just, I guess, finally for me. When do you think you could see the CLO portfolio back to par? Is that something you're expecting this year?

It's almost there. Yes, it's difficult for me to predict. I can tell you that spreads in the bond market are tightening everywhere, which is not a good problem to have, to be honest. But that will contribute to that coming back in. We're almost there now. And I don't see any reason why it wouldn't continue to pull to par, Jared.

Our next question will come from the line of Bradley Gailey from KBW.

Yes. It's Brady. I wanted to close the loop on buybacks. I mean your stock has done pretty well recently. I don't think you've ever been a repurchaser of when the stock has been at this level. But it doesn't appear that that's going to stop you from reengaging in the buyback of the stock. I mean relatively speaking, that's still, what, only like 1.25x tangible so it's still pretty cheap. But I just wanted to make sure that was the case.

Brady, I think we have bought our stock in the high 30s.

Yes, absolutely...

We would like to buy it lower but I think we have. And we will be opportunistic. I still think there will be volatility in the stock. Not our stock but everyone's stock. So we will use that to our advantage. And we're not going to just go out and do the entire thing tomorrow.

So we will be opportunistic. We will set up a grid. We don't try -- Leslie and I don't do this on a full-time basis. We just give some instructions, we set up a grid and we just let it run for a few weeks. That's what we'll expect. And if the stock is lower, we'll buy faster. If it's higher, we'll buy slower.

Okay. And to clarify, Leslie, your NIM guidance is the reported NIM, not like the NIM ex PPP or anything like that, right?

That's correct, Brady. We will get some -- we expect that we will get some lift from PPP in the first quarter given how we think the forgiveness is going to go on those loans. But that's correct.

Okay. And then lastly for me, I just wanted to hit again on expenses. I know -- I believe I remember you guys guided for flat expenses on a linked-quarter basis this quarter. And they're up $14 million to $15 million, which I get. I know you guys called out this for kind of special mention items so I get that. But the guidance for this year, 2021, the mid-single-digit increase, I'm a little surprised by that. That seemed...

That's in overall expenses, Brady, not just in comps. So technology is probably going to be the line item that increases the most on a percentage basis actually, Brady, as we continue to invest in technology.

The other thing that's baked into that, which hopefully won't materialize but it is baked into that number, is an assumption that workout and recovery costs are going to be elevated in 2021 as we move through the pandemic and work with these borrowers to try to get through the pandemic with them. And hopefully, that won't materialize. But some of that is baked into that guidance as well, Brady.

I'll add to that also, Brady. It's great to see so much an operating business come over in a year. But the back end of that is -- and you have to -- you have a lot more wires, a lot more issues. There's a lot more payments happening. And you start adding a couple of people in the wire room, a couple of people in front, a couple of people in BSA, all related to the growth in DDA that we've had. So some of that's also happening.

But technology is a big one. We have been investing over the last 18 months or 24 months in technology. Some of those expenses are coming through. But that's really the future of the company. And some of the success that we're having is also based on some of the technology spend that we've done. But it's really coming in and hitting the P&L on a full basis right about this time.

Yes. I would remind you that these expenses -- these expense increases that we're guiding to won't happen if we don't have the accompanying revenue increases. They're predicated on some assumptions about growth and revenue. And obviously, that's, again, another good problem to have. So...

And then I mean BankUnited 2.0 was very successful. You all did a great job with that. Any thoughts on banking on 3.0?

I mean if you are thinking of 2.0 as an expense exercise, then the answer is no because you can really get very short sighted in saying, "Let me just speak on a little more expenses." And before you know it, you don't have a future left. So investing is -- in the future of the company is as important as being mindful on where you can be on expenses. So we've done a good job. We took $40 million expense out. But we did not say that we would not invest in the future.

So I think if you think about 3.0 more as the continuous sort of transformation of the company, the answer is yes. Will we have fewer branches in the future than today? The answer is yes simply because that's where the business is headed. Will we have more automation in the company than even what 2.0 was about? The answer is yes. Would we actually continue to push on all the revenue aspects of this, increase our commercial card portfolio? The answer is yes.

But just purely as an expense exercise, I think we're not an outlier when it comes to expense ratios and expenses to assets, expenses to loans, whichever you want to measure it. And I want to be mindful and make sure that we're investing for the future as well.

Our next question will come from the line of Christopher Keith from D.A. Davidson.

So I just have some questions. I want to dig a little more into the loan growth. I appreciate all the segment detail. But I just want to think a little bit about demand and your comments on loan growth really starting to begin to return to a normalized level in the second quarter but then really improving in the back half.

And so I think that it's clear, Raj, the comments you made about some of the positive news needing to materialize. But I'm also curious on the impact of the new PPP on C&I loans. Is that something that your customers will be a beneficiary of? And if so, does that kind of dampen C&I demand and for how long?

We've all been sitting and talking in the last few weeks, few days about how big PPP 2.0 is going to be. And we don't exactly know but I don't think it will be anywhere close to the first round. So the first round was $850 million for us. My best guess is it's going to be maybe half of that. So it's not a very large number. And a lot of the old PPP is getting forgiven and a new one is coming on. So I don't think net, it's really going to move the needle that much. But it will help our clients tremendously. So it is a great thing that the Federal government has done. So we're very supportive of it. And we're trying to do as much as possible. But we just don't see that huge -- I mean our phones are ringing off the hook back in April. That's not the case right now.

The -- our comments about -- really, economic activity will pick up only when there is a certain level of vaccines that get administered. We think it's probably still 3 months away. But when that happens, when economic activity picks up, it's not just new loans will -- pipelines will farm up but also our existing lines. We're at the lowest usage in the history of the company. We're at least 10 points behind in our commercial lines than what we would expect in normal times.

When that starts to normalize, just if you don't even originate anything, if you just act -- move in, that's several hundred million dollars of growth that we will get without really underwriting a new loan. So -- but that's all linked to economic activity. Economic activity has to pick up. And I think it's still probably 3 months away.

Yes. I would add to that, that all of the guidance we gave is predicated on an underlying assumption that we continue down a pretty steady path of economic recovery. Should that not materialize, obviously, our guidance may be a little too optimistic. Should things recover much more quickly and faster than we assumed, then the opposite would be the case.

Yes. I would also add when you look at the PPP program for the second draw, the bar and the qualifications are different. So one of the biggest bars that you have that's different than the first program is that you have to have a 25% reduction in revenue in any 1 quarter. So the maximum amount of the loan is now $2 million versus $10 million. And the 25% bar is really going to relegate this to the most heavily impacted industry segments.

So just by the net -- obviously, we have some of those but the vast majority of our portfolio, as you can see, is obviously not in heavily impacted areas. So the number of clients that will be eligible to take advantage of it, you will also have to have used up all of your round 1 expense funding that you got in a way that you can indicate that you are compliant with how phase 1 was used. So there's some natural parameters around that, that will not lead to the same kinds of demand numbers that we saw in phase 1.

Got it. Great. And then I was just also hoping to get some insight from you on the multifamily marketplace and particularly in New York. Obviously, you continue to see rundown in that portfolio.

I'm just curious. Are borrowers getting -- what is -- I guess figuring them leaving the bank, is it that they're getting to the end of their term and they're looking to take advantage of the lower rate environment? And if so, are they -- those that are walking away, are they -- do they have healthy debt service coverage ratios and you're just allowing them to walk away for a strategic reason? Or maybe just some color around that.

Yes. So we started a couple of years ago obviously with a strategy of reducing our exposure in the New York multifamily market. So when we -- this 2021 is kind of the last 5-year term of the original vintage loans that we had put into the market.

When we look at clients that are leaving, these are predominantly relationships that we are not interested in maintaining because the overall health of the market, with the changes in rent regulation, some of the changes that are going on in the economy in New York, you're seeing rising cap rates, which is putting pressure on valuations. And you're seeing extremely thin debt service levels in some of the properties that we're exiting out of.

So I think this is a healthy rebalancing of our portfolio. And multifamily will continue to run down in 2021 as the kind of the last group of vintage of the 2015 production sort of comes to maturity in 2021.

Got it. Great. And then just last question on deposits and the impact of the new PPP round 2 and the additional stimulus we've seen. Do you anticipate some of this excess liquidity to eventually start to run down? Do you expect your customers to kind of hold on to their own liquidity throughout the course of '21? And what kind of impact are these new programs having on potential future loan growth -- or I'm sorry, deposit growth?

That's -- obviously, each business that applies will be a little bit different. So it's hard to generalize that at this point because we haven't processed the first new application yet. So it's difficult to forecast what that demand is going to look like and then what ultimately the retention of those dollars are going to look like. I would suspect that given the bars that are around the program, meaning predominantly the 25% drop in revenue, you're going to see -- not just for us, for everybody. And these are for every bank. You're going to see a higher percentage of borrowers that have come through more distressed times.

So I suspect that the -- whatever we were, to phrase this -- the liquidity buildup that happened in phase 1, you're going to have borrowers who did not need a substantial part of the liquidity and held it for longer periods of time are probably not going to qualify for phase 2.

So I think the dynamics of deposit funding and deposit retention under phase 2 are going to be fairly different than phase 1. But having said that, we haven't seen any applications yet so it's hard to say.

It's a great question.

We're seeing them now. We will be executing and opening up the program this week. But we haven't seen any of the -- enough of the detail to be able to kind of forecast what we think that might look like.

And our next question will come from the line of Stephen Scouten from Piper Sandler.

I guess maybe quick kind of housekeeping question. I'm wondering, Leslie, if you have the amount of PPP fees that were recognized this quarter and the average balances on the PPP.

So the fees recognized were about $1 million, Stephen. So not -- really not very impactful this quarter. I don't have the average balance in front of me. It really didn't -- that's what we recorded. We don't have...

Yes. I guess it -- yes, not changed much.

Yes. We only had $48 million forgiven. So the average balance is somewhere around $800 million for the quarter on PPP. And I think I said it's about $11 million in those referred fees left to be recognized.

Great. Okay. And then maybe thinking about kind of the net portfolio migration you saw this quarter. I mean obviously, you walked through Slide 10. That's very helpful. But I'm wondering kind of what you all saw on the CRE trends and maybe multifamily retail in particular that led to some of these jumps in the substandard recurring categories and if you think that's an issue that could persist based on what you're seeing today.

Yes. I would -- all real estate is local rights. So I would say that when -- it's interesting. We went through an analysis of that last night. When you look at predominantly what happened in that category, it's multifamily and mixed-use multifamily retail that is sort of all around NYU. And so some of our biggest challenges were what we believe are short term in nature is the lack of students. And a lot of these properties and retail properties cater kind of around the Washington Square Park area to NYU students. And we're not seeing those students physically return back on to campus. And we're not seeing those retail establishments doing well.

So what we saw in migration this quarter was predominantly property that is around that -- around the sort of the village area around NYU. We don't see -- that's kind of the concentration that we had in that area. So I don't think that's reflective of what's going on in the entire New York market. I think it's a very micro area. And obviously, we're hopeful that when the vaccine is out, students start coming back to campus when some of those things -- some of those conditions improve.

Okay. That's extremely helpful. And then just on loan growth, the kind of mid- single-digit range. You noted, I guess, that 1Q should still be pretty tepid. I'm wondering does that include kind of the same pace of Ginnie Mae buyout activity? Or would that be more towards the core commercial side of things that you think could pick back up that would drive that growth?

Yes. That's in there also, Brady (sic) [Stephen]. I think we do think this is a good time to be in that business and we see opportunity there right now. So I do think the Ginnie Mae buyout portfolio will be -- will contribute to growth, for sure, in 2021, at least as we see the world today.

Okay. And then just last thing, going back to expenses. I just wanted to confirm that expense guidance. Is that off of kind of the -- I think it was $123 million expenses this quarter. Is that off of some sort of base that excludes the jump in salaries on the comp accruals and so forth?

No. It's off the annualized -- I mean it's off the annual expense number, Brady, all in. And I know -- I guess there's a lot of moving parts in there. But that's what that guidance is based off of.

Okay. So like the $457 million total expense rate...

Sorry. My (inaudible) my mind.

No problem. That $457 million...

We're halfway. We're halfway.

That's right. That's right. That's right. We'll all answer to whatever. It's not a big -- So it's based off more that $457 million number?

Yes.

Our next question comes from the line of Dave Bishop from Seaport Global.

Following up on the Brady's or Stephen's or whoever that was before me question. Just to clarify and make sure I heard it right. So I appreciate the continued disclosure in the slide deck there. But the -- so the increase in that sort of substandard accruing multifamily, if I heard that right, that's sort of centered within that portfolio, that sort of that retail mixed use or maybe the multifamily in and around sort of Washington Square Park, NYU, New York City. Is that the case?

Correct.

Got it. Got it. And then Leslie, I think you noted in the preamble in terms of just the trends and migrations in terms of CECL and the allowance for credit losses. There is a -- I noticed a little bit of uptick in terms of how the assumption changes in regards to the residential loans. Just curious maybe what's driving that. Are you seeing any sort of particular weakness in various areas? Just maybe some commentary on that.

I think where that comes from is, as our credit folks look at the residential portfolio and the population of loans that either still are or were on deferral, they kind of feel like -- what we did was we modeled those a little more conservatively this quarter until those loans that are rolling off of deferral establish a little bit longer trajectory of a regular payment history.

So my hope is that we get 6 months down the road and that gets reversed out but we'll see. That was just a conservative assumption that we made because we still feel there's some level of uncertainty as to whether all these residential borrowers that are rolling off deferral are truly going -- the ones that didn't keep making payments while they were on deferral are truly going to establish a good history of regular -- making their regular scheduled payments. So we were just a little more conservative in how we modeled those loans this quarter.

Okay. So it wasn't anything particular in terms of deterioration in terms of the underlying...

No. And it's not really -- a lot of that. But they just -- a lot of these guys just have not established the -- reestablished the payment history. So we wanted to be a little more conservative until they do.

Got it. Got it. And then maybe a question for Tom or Raj. You noted sort of the outlook and hope for double-digit, maybe mid-teens DDA growth. Is that predicated on the ability to sort of get your cash management, treasure management team sort of on the ground in front of clients? Or you think you can still sort of maintain or sustain that growth in this sort of virtual world that we're all living in these days?

Yes. We can do that in a virtual world. The real world opening up is more needed for the loan side. But on the deposit side, as we have been doing all of last year, we found a way to keep developing the business even if it's virtual.

And part of it is the certain industry segments that we have chosen to specialize in, some of them are lending themselves well to this type of selling methodology. And we've developed products and service capability around these. So it's not like you're having to sort of start kind of new relationship segments. We're deepening a lot of the traditional ones that we've been in, where we have strong service models and good capability and relationship managers with the context in those subsegments. And so it makes it far easier to continue to develop this business in a virtual atmosphere.

And our last question will be from the line of Brody Preston from Stephens.

So I just wanted to -- sorry to beat a dead horse, Leslie, but just on the expenses. Just taking your sort of commentary around the variable comp from earlier in the call and sort of the guidance you gave around merit-based increases for 1Q. So it sounds like the variable comp may come down a bit in the first quarter but then you're also going to have merit-based increases on top of that. So I guess all in, when I think about that salaries and benefits line item, should that stay sort of relatively flattish to fourth quarter, just factoring those 2 kind of data points in?

It will be -- I mean it will be higher, Brody, because of other elements that always hit in the first quarter, such as we always have a big flood of payroll taxes. We see all our HSA accounts. Our 401(k) contributions are front loaded. So -- and then it will come down quarterly after that in spite of the merit increases. But the first quarter comp is always higher because of those front-loaded tax and benefit costs.

Okay. Got it. And then on the securities portfolio, I'm sorry if I missed it. I just wanted to get a sense for what new securities yields were in the fourth quarter in terms of what you're putting on. And just could you remind me -- I know the duration of the book is relatively short. But what percentage of the portfolio still needs to sort of reprice down to current levels or what you've seen over the last couple of quarters?

Yes. I would say 2 things about that. I do expect pressure on securities yields again in the first quarter. Based on what I know today, I would think they would be down 5 to 7 basis points from where they were in the fourth quarter. Part of that is spreads are really tight right now. And I don't know if that is going to persist or if it's not going to persist. But even since mid-December, spreads have really come in a lot across all segments of the securities portfolio and the bond market that we participate in. So things aren't coming on at lower yields.

As far as coupon resets, there are still somewhat. We do have some securities in the book that reprice annually but not as many. I do expect some pressure on those yields. So again -- in the first quarter as that portfolio turns over. The duration is pretty short. So sometime over the course of 2021, I would expect that to stabilize. But it will come down again in the first quarter.

Okay. And maybe this is just a larger-picture question as it relates to the securities portfolio. But you tend to run the securities book a little bit larger or quite a bit larger than some of the -- some of your peers, I guess. And as I think about, Raj, maybe BKU 3.0 or something like that, have you given any thought to maybe trying to mix shift earning asset base more heavily into loans? And -- because it would really allow you to kind of rightsize the ROA profile of the bank.

We'd certainly love to do that. And if the loan demand is there to allow us to, we will.

Yes. We need loan demand. We need economic activity to safely deploy into high-yielding loans. But there is a lot of pent-up demand in this economy. This is a very artificial recession unlike we've ever seen. It went down fast. It's coming up fast.

I do expect 3, 4 -- pick a number of months, the economy could be in a very different place. And that's when we'll have an opportunity to grow loans. I mean just wishing that we would grow loans in this environment is not a great strategy. It is just -- we would love for us to swap out our securities for more loans. But I think you have to wait for the right environment to do that.

Right. I understand that. I'm just thinking from a liquidity perspective, your period and cash balances here aren't completely out of whack relative to historic levels. And so as I think about how to fund, I guess, the mix shift on the balance sheet in '21 and '22, understanding that you're trying to get really good deposit growth. But it just seems like there's an opportunity to really kind of mix shift the earning asset profile. And just given how short the duration of the securities portfolio is, I would assume that that's something that could be potentially attractive.

Yes. It absolutely is. And that's one of the reasons we've kept it very short because we don't want to be hamstrung with long bid securities when the time comes to actually start investing on the loan portfolio.

Okay. And then one last one that I had. I'm sorry if you covered this already. But just the hotel portfolio, the criticized and classified, I think, make up 82% of the balances and a big chunk of that, 70% of total hotels is in substandard or classified. That's a decent step-up from 3Q. And so I just wanted to get a sense for what the plan was moving forward. Would you consider selling these loans? Or when would you expect workout to occur? Or are these loans still paying?

I mean most of them are still paying. Admittedly, some of them have been modified to an IO structure for a period of time. I think we're fairly optimistic with respect to that portfolio and in terms of recovery of these businesses particularly the Florida leisure segment. Tom, what would you...

Yes. I would agree to that. I mean when we look at the client base that we have in that segment, I mean these are primary depository relationships of ours. They're generally strong asset owners. As Leslie said, the payments have continued. We see recovery each month in this segment. And it's not difficult to imagine an environment where you get a vaccine fully out in the marketplace. And the predictions for travel later on towards the back end of the year are actually pretty strong. These hotels could rapidly recover because they're -- with the exception of 1 or 2, our hotel exposure in Florida is predominantly leisure. It's predominantly beachfront. And as I said, we're now seeing occupancy rates in places like the Keys and the West Coast up in the 60%-plus range.

So I think the greatest opportunity for this -- the risk rating and the economic scenario to change for us is you start to see more of a -- you start to see the vaccines get out and people start to return. These hotels are not that far away from being able to be back up in the 70%, 75% range and have stronger ADRs in F&B business.

So -- and as I said, most of these hotels, if not all of the Florida ones, are primary relationships where we have significant deposits and significant treasury management business and hotel owners and operators that have performed well for a number of years...

Tom, I'll just add. As a test case of one, when I look at my own family's desire to go for vacation, a very strong desire to go away for vacation this summer, I feel very hopeful about this industry in the second half of the year. Now it's a test case of one. It's just my family. But I think a lot of families are going to be -- post vaccination, it will be a different place for entertainment and hospitality.

I will tell you that a lot of Florida hotels are very full on the weekend because I'm staying in them. I'm not the only one there. (inaudible) on Tuesday nights. But I could tell you what they're like on Fridays and Saturdays.

Just anecdotally, I spent a weekend there on South Beach over the weekend and it was 100% booked. And every restaurant on Miami Beach was packed. And you couldn't get reservations for 2 or 3 weeks at better-quality restaurants. So the beach was 100% booked over the Martin Luther King weekend.

So there is health coming back to the markets, and. I think that there is pent-up demand as soon as we get a more full rollout of the vaccine. And that's what our hotel owners also believe.

And I'm not showing any further questions in the queue. I would now like to turn the call back over to Mr. Singh for any further or closing remarks.

Thank you very much for joining us. We'll talk to you again in 3 months. Stay safe.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.