BankUnited Inc (BKU) 2002 Q1 法說會逐字稿

I'd like to inform you that this conference is being recorded for re-broadcast and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. This conference call may contain certain forward-looking statements which are based on management's expectations regarding factors that may impact the company's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values and competition, changes in accounting principles, policies or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological facts are affecting the company's operations, pricing, products, and services. I will now turn the conference over to Alfred Camner, Chairman, and CEO of BankUnited. Please go ahead, sir.

Thank you. Good afternoon and thank you for joining this Second Quarter conference call for BankUnited Financial Corporation. With me I have Bert Lopez, our Chief Financial Officer. Today, with Bert's assistance, I want to share with you some of the highlights for the quarter and elaborate on some of the plans we have as we move further into fiscal year 2002. The Second Quarter of fiscal 2002 yet again yielded record results with net income before extraordinary items reaching $7.5 million, up 79% from $44.2 million this time last year. This quarter's results translated to basic undiluted earnings per share are 30 and 28 cents respectively, which were up 36 and 33% respectively over the same period a year ago. On a year-to-date basis, net income is up 89% over the same six-month period last year to reach $14.4 million from $7.6 million, translated to basic undiluted earnings per share of 57 and 54% respectively.

Our quarterly results were very positively impacted by increases in non-interest income, as well as a widening margin,

Bert will elaborate upon shortly. These two factors combined as well with our successes in our lending activities that produced strong revenues for the quarter that have helped offset expenses we have taken to both increase our marketing advertising, as well as improve our overall infrastructure. Likewise, this revenue growth has helped improve our efficiency ratio again this quarter. We continue to grow core deposits and have recently launched our new signature banking line of

to this end. This new product line provides significant

opportunities for our associates as they come with incentives for customers to take advantage of more of the products that we offer. Between these attractive new deposit products and an aggressive marketing campaign to support their launch, we have been able to increase our core deposits to $1.1 billion this quarter. This deposit figure represents a 57% increase over this time last year. Likewise, our overall deposit figure has grown to $2.9 billion from $2.6 billion at this time last year. Of particular note is the growth on non-interest-bearing deposits, which reached over $100 million this quarter, up 37% from this time last year.

Lending activities across the board remain very strong, which continue to demonstrate our ability both to gain and deepen relationships. Total loan originations have grown substantially to reach $513 million this quarter. This was a 109% increase over the quarter last year. Generating our own assets has been, and continues to be, a focus of BankUnited and our ability to successfully manage this activity is evidenced by our consistently improving lending results. Residential lending area again contributed significantly to our overall loan origination growth results for the quarter. This reached $396 million, an increase of 94% from the results for this quarter last year. Our non-residential lending also is growing, with total non-residential originations increasing to $117 million this quarter, up 179% versus this time last year. Key to this area remains commercial and commercial real estate lending, which together increased to $91 million this quarter. This is more than triple the results from this time last year. Additionally, consumer lending, which includes our specialty residential products, is producing solid results having attained $79 million for this quarter, up 126% over last year.

I will now turn the call over to Bert, who will discuss our key ratios, as well as other financial performance details. Go ahead, Bert.

Thank you, Fred. As Fred mentioned earlier, a primary contributor to our overall success this quarter was the continual widening of our net interest margin, which grew to 2.20% this quarter for

in the corresponding period last year. We concentrated our efforts on maximizing the favorable interest rate levels of this and the recently past several quarters to aggressive re-price renew many of our higher priced, long-term liabilities to current interest rate levels. We believe that these actions, the benefits of which we're seeing immediately, will have a lasting positive impact for at least the next several quarters, even in light of possible future interest rate increases, particularly due to the long-term nature of many of our liabilities. We will continue these aggressive re-pricing renewing actions as long as current interest rates prevail to extend the longevity of the benefits.

Another significant factor in overall revenue growth this quarter was a strong increase in non-interest income, which reached $4.4 million this quarter, up 52% from $2.9 million in the corresponding period the prior year primarily due to increases in fee income from our BUSC subsidiary, which sells our annuities, mutual funds, and insurance products, service fees, and securitizations on loans for excess production. On a quarter-to-quarter basis, if you look at our non-interest income, taking out securities gains in the two quarters, we're actually up 10% on a

quarter basis. This increase in our non-interest income, together with the growth of our margin, has produced a significant increase in our net revenues for the quarter, up 11% on a

quarter basis and up 57% from the same quarter last year.

Fred also mentioned our improved efficiency ratio, which moved us 52% from 58% for this same time last year. This is particularly gratifying, given the growth in non-interest expenses taken to expand our advertising and to make further improvements in our infrastructure in technology. We will continue to prudently manage those expenses to ensure a positive return in the form of improved speed and quality of service, new customer relationships, increased physical presence, and heightened corporate awareness. Earlier Fred provided information on our lending activities. What is supporting all of this growth is our conservative credit culture that has been a hallmark of BankUnited. Managing high credit standards with strict lending criteria has allowed us to decrease our non-performing loans as a percentage of average loans 67 basis points from 74 in the immediately preceding quarter, and down from 70 basis points for the corresponding period in the prior year. While we are dedicated to maintaining superior credit quality, this quarter we did experience an increase our charge-offs, which grew to $2.3 million from $.9 million the same time last year. This increase was particularly due to one loan, however, we fully reserved for the projected losses of this loan in prior periods and are pleased to report that we've disposed of this asset with a slight recovery shortly following the end of the quarter. As such, we expect our charge-off ratio to realign itself to its normal level going forward. A significant factor in maintaining the stability and reduced risk of our loan portfolio is that well over 90% of our total loans are secured by real estate.

Before I turn the call back to Fred, there's just a few more items worth noting. Total assets have now reached $5.6 billion versus $4.8 billion at this time last year. We're maintaining our strong capital position, which is well in excess of regulatory requirements with core and risk-based capital ratios of 7.7% and 16.3% respectively. We are also pleased to announce that book value for common shares again increased, reaching $12.14 from $11.07 this time last year, translating to a growth of 10%. Fred?

Thanks, Bert. As you can see, this was another great quarter for us. All of our associates are dedicated to growing relationships and we're seeing the results of their efforts in the financials we were pleased to report. In order to ensure the continued commitment and enthusiasm of our team, we have established a strong sales and incentives program, which is company-wide and it is clearly paying off. It is our commitment to our team to consistently provide them with the tools necessary to gain new relationships. This is translated to expanded weekday and Saturday hours and growing branch network, which incidentally grew by another office just recently, as we opened a second location in the city of Plantation in Greater Fort Lauderdale area. Our other forthcoming office openings are anticipated soon in

and also in Coconut Creek. We have also supported our new products with a very aggressive advertising campaign, which is usually in all media outlets, including radio, television, newsprint, and direct mail. I think some of you may be familiar, but to remind you all that we have developed a tremendous branding campaign by using our local sports teams, NBA, hockey, various football, etc. And, all of this has helped make BankUnited a very recognized name in our community.

With that, we'll go to questions. Moderator, could you please ask for questions?

Thank you. The question and answer session will begin now. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press "one," followed by "four" on your pushbutton phone. If you would like to withdraw your question, please press "one," followed by "three." Your question will be taken in the order it is received. Please standby for your first question. First question comes from

. Please state your affiliation followed by your question.

Can you hear me?

Mr.

your line is live. Our next question comes from Jim

. Please state your affiliation followed by your question.

How are you guys?

Fine. Good.

A couple of quick questions for you. I was wondering first of all, Bert, if you guys might be able to make any kind of a comment on what your average cost of funds was in the quarter in terms of deposit and borrowing costs and then looking at the wholesale component of your liabilities, the CDs and the borrowings, clearly making some very strong progress in terms of developing core deposits, but still have a lot of wholesale that could conceivably depending on the duration and the average cost of those liabilities give you more room to ratchet down your

funding costs, are you willing to share any data with regards to what your CD portfolio and your borrowings portfolio look like in terms of what the cost is there, as well?

Sure. Let me give you some of the numbers for the CDs and - or the overall deposits and the overall borrowings. For this quarter, our cost of interest-bearing deposits was 3.7% versus 5.85 this time last year. Our overall cost of borrowing was 4.38 versus 6.08 this time last year. So, you see we've had some excellent improvement in being able to drive down some of those costs. Going forward, we still have some liabilities, particularly CDs that can re-price. We continue to re-price those. We have about 20% of the portfolio still remaining to re-price in the next three to four months. So, we should see some additional benefit from that re-pricing trend. In terms of basis points, we should see improvements anywhere from 50 to 60 basis points on those CDs that are re-pricing.

OK. And, from there on out it really becomes a function of mix in terms of generating margin improvements on the go forward basis?

, I'm cutting in for Bert on this.

Sure.

It's really twofold. It's one that as you continue your sales and strong sales endeavors, you not only try to improve the mix of the types of liabilities from the office side, which clearly has more room to benefit even beyond just simply rolling CDs, because it gives you more of an opportunity in terms of your customer relationships to develop not only core deposits, but ultimately relationship type deposits that end up being better cost for us.

But, secondly, the other thing that ultimately gives us an advantage in terms of driving margin is that we're producing more and more loans through our offices, which gives us higher margin opportunities, so the yields on those would give us a chance to increase that margin ultimately from the asset side, as well. And, I think for those of you that are familiar, we still have approximately a third of our portfolio that represents loans we had purchased at an earlier time and as that continues to roll and we continue to change the mix and grow and add on our own assets, that'll also give us opportunities to improve that margin.

OK. Good deal. A couple of quick follow-ups, if I might. Obviously, you're being afforded a nice opportunity to spend on growth initiatives, considering the overall improvement with your earnings capacity. Any comments on what sort of run rate or what sort of growth rate we should try and look for from a non-interest expense perspective or an operating expense perspective?

Jim, I think you'll see those level off and come down a little bit. We had some large expenses this last quarter on the advertising as we continued our push, as Fred mentioned, into the different branding campaigns. Also, we had an increase in some salaries, as we had the increase due to some of the loan production of last quarter that was paid out this quarter. So, while that won't go down as much, I think you'll see some of the other expenses decrease. So, for our run rate I would use where we are at this quarter, maybe decreasing slightly going forward.

OK. All right. And what are you guys thinking on capital right now? Do you feel like you're pretty well set up in terms of supporting future growth?

For right now, we feel pretty comfortable where we are at our capital position. We have a lot of room to grow, but there's no question that we are growing rapidly as well, so, we constantly review that situation. We have really chosen, without a particular opportunity that stares us in the face that we think is tremendous, we have really chosen to grow internally and we expect to be opening more branches. I believe we'll be making some announcements soon, also having some areas outside just the Dade, Broward, and Palm Beach area, some time in the next thirty days we'll probably be announcing the area we'll be going into and we just feel that given all the sales culture we have right now and all the products we have available to sell through our offices, and realizing that we're adding on to those products really almost weekly,

available concepts, checking accounts for example that we didn't even have available a month ago, there is a lot of tremendous opportunity for us to keep developing distribution channels. So, we have a good comfort with our capital presently, but we're always looking at it in terms of our growth rate.

OK. Great. Thanks very much for the time.

Thank you.

Our next question comes once again from

. Please state your affiliation, followed by your question.

I guess last time I didn't - I have no technology skills, so I may have disconnected it. First off, thank you for doing such a great job. We appreciate it on behalf of myself and my family. But, as I see how well you've done and all the wonderful things you've done the last several years, I worry about what could go wrong and I was wondering if you could address that.

Well, I think our greatest emphasis, in terms of concern of what could go wrong, has always been from the credit side and, frankly, since the Fed had raised rates over a year ago when they had done them rapidly, we had significantly tightened our credit all the way across the board and it hit a lot of our small business production, tightened up a lot of our commercial production, so forth. And, we continue to actually have a tight credit policy. Our numbers in commercial loans and some of the consumer areas and small business, so on, probably would be much larger right now if we had kept a looser credit situation.

But we're always concerned now - we're still concerned, even though there's been some recovery after 9/11 and what was otherwise a developing recession in any event. We're still concerned about that future and, frankly, we haven't really particularly loosened credit until we get a firmer concept of where things are going from the economy. That's the one thing we always worry about the most, and so we've kept a pretty tight credit rating as a result of that worry. That certainly is our biggest concern.

With that being said, Fred, as far as business opportunities

go forward in your market areas with the tightened credit controls, is there still enough credits out there to allow you to grow as we've seen?

Yeah, we think there's a lot and a lot of things have happened recently that we've been able to benefit from.

Bank, for example left south Florida and a lot of their relationships, as well as some of their lenders, have joined us. The Hamilton Bank, as you know, fell and they actually had some excellent relationships over there that had nothing to do with their Latin America situation, where they had problems, and we've ended up with a number of those relationships. So, we see continued opportunity.

When we advertise now, our logo is essentially "Banking by locals for locals." And the reality is there's a lot of truth to that. We feel we're really the only retail bank in Florida presently that's not a major regional or national bank that can offer a wide variety of products, make those available to the customers, continue to expand that product base, and still has local decision-making and the touch of giving local service, making the customers feel that the decisions are not being made off in Carolina or California, etc. So, we think that opportunity is tremendous and we continue to press it forward.

Thanks a lot. Keep up the good work guys.

Thank you.

Thank you. Our next question comes from Scott

. Please state your affiliation, followed by your question.

Good afternoon. A couple of questions for you. On the overall structure of the balance sheet, I know you've moved from being pretty much a low margin kind of wholesale

to be more community bank-oriented and you've had great success on the deposit side and you've seen

deposits grow rapidly. On the loan side, it's still heavily weighted toward residential mortgage. Is that going to continue or do you have any goals in mind as far as the split between residential mortgage and commercial loans?

We have not - we have purposely not set a specific goal relating to commercial in the sense of saying what exactly is the relationship going to be between commercial and residential and we've really done that because we feel that puts a pressure on our credit officer to make decisions he shouldn't make. So, we've really looked at it in a different way. Our people on the commercial side continue to produce more commercial loans. They do it, though, under some pretty strict credit standards. Nevertheless, they've had significant increases. The other thing that's not as readily apparent is while we do have a large amount of our loans still secured by residential, on the consumer side that's likewise true. A great deal is secured by residential. We think, given the economy, that's a good situation, but nevertheless that's an area that is rapidly increasing for us and we believe you're going to see significant gains in the consumer area, which ultimately gives us higher margin opportunities. So, we've looked at both those; we've pressed them forward, but we still make sure our credit officer has the last say.

OK, and then just a follow-up question. In the loan portfolio, from the Fourth Quarter, I should say from December to the March quarter, it looked like there were some declines in the

balance and I apologize, I missed the first ten minutes of the call, so I apologize if it was discussed early on. But, it looked like both single-family mortgages which declined by

quarter by about $90 million and commercial real estate loans are down about $50 million. Is that reflective of anything and just pulling back in the market tightening credit standards?

Scott, actually, overall loans went up about 3% on

quarter basis. The - one of the reasons, and we should have mentioned this earlier, that the mortgage loans decrease is that we securitized some of the loans that we had purchased earlier to lower our purchase loan balance and to securitize those and move them into the investment portfolio. And that was about $78 million dollars worth of securitizations. The commercial real estate side dropped just slightly, and that's really just a function of the cyclical nature of each loan. Those are typically construction loans, which don't have any type of permanent financing. So, those loans fund up, then the projects are completed, the borrower secures permanent financing, and then the loan balance is dropped. And some of those can be pretty sizable and that's what generated the fluctuation in those balances.

OK, so then the lending money dollar loan quarter decrease in single family, $78 million of that could be attributable to the securitization?

Right.

OK. Thank you very much.

I should also that are involved in loans to some very well recognized entities that are headquartered in south Florida, but are really national concerns, and some of those likewise for their own purposes a quarter in reduce balances on their lines of credit and they're really fairly substantial lines nationally, which we have pieces of.

Our next question comes from Donald

. Please state your affiliation, followed by your question.

Before I ask a couple of questions, I would like to comment. Three years ago this month, almost to the day, we had a conference call and your efficiency ratio was 72% and one of the questions I asked was are you planning to do some things there and the answer to the question was "yes." Well, you've driven that down now, according to your latest report, to 52%. That's noteworthy and that's a very significant result, especially with all the businesses growing the way it is. That begs the question then, do you expect to keep driving this figure even lower and, if the answer is yes, how?

Yeah, I think the - this is a discussion we have quite a bit internally. Clearly, we do have a significant growth pattern going and we have invested a lot in infrastructure costs, which of course includes technology. For example, approximately a year ago, we put over a million dollars into just a technological system relating to the mortgage delivery. But, the reality is that we are undergoing a call it side campaign internally that's forthcoming to further squeeze some expense out even though probably a lot of people would say we are crazy. But, from my viewpoint, when you've gone through three years of transition and grown as rapidly as we have, there is some natural areas where you develop here and there some fat and we want to see if we can find those little areas and time 'em out. So, we hope to see, not just from the revenues side, some benefit in a sense more on that ratio, but also hopefully you'll see some on the expense side.

You appear to be getting into the area where it's pretty tough to risk injuring the business in a sense in certain ways by driving that cost down, especially if it's people oriented. Anyway, that's a job well done and very good result. Next question I have is, do you have any plans to buy any of your preferred stocks to reduce the cost of that debt?

Actually, there has been that going on at periods at different times and while we don't have a steady, regular program per se we periodically find opportunities where we do go in and buy that and what you probably will see is that our total amount of trust preferred has not been reduced because we have participated recently, over the last year, in some pools, trust preferreds, which are at a much lower cost to us. So, the actual cost of the total amount of trust preferred we have has been going down.

Some of that has to do with the tax status so none of the cost

government participate in some of the cost of the dividends?

Yeah, we get full deduction for those dividends.

are really equivalent to interest payments for Federal tax purposes.

OK. And last question is, being from Ohio, I only get to Florida a couple of times a year and we recently were on the west coast and noticed there's a lot of growth in the Sarasota, Tampa Bay area up along that part of the coast and, other than you have an office in Naples, do you have any plans to expand the bank's presence over on the west side?

That is one of the locations we're very seriously looking at and it's very possible in that regard you would see an announcement during the next thirty days about moving towards that.

OK. That's all I have and thank you very much and keep up the good work.

By the way, we

there is tremendous growth on the west coast. In a sense surprising, considering everything else that you think of nationally, what's happened nationally, but that just keeps going. OK. Operator. I don't know if there's any additional questions.

If there are any further questions, please press "one," followed "four" on your pushbutton phone at this time. Sir, it appears we have no further questions.

OK. We thank everybody for attending today and of course, as always, if anybody has some additional questions they need or additional details, they can get in touch with Bert Lopez, our CFO. Thank you very much.

Ladies and gentleman, I would like to inform you that this call is available for rebroadcast beginning today, April 23rd, and closing on Apri 26th. To access these rebroadcasts, please dial into 1.800.428.6059.51 with the PIN number 239671. That concludes our conference for today. Thank you all for participating and have a nice day. All parties may disconnect now.