BankUnited Inc (BKU) 2004 Q2 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen to the BankUnited Financial second quarter 2004 earnings conference call. At this time, I wouldd like to inform you that this conference is being recorded and all that participants are in a listen-only mode. At the reqest 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 and performance in future periods. Words and phrases such as will likely result, expect, will continue, anticipate, estimate, projects, believe, intend, should, may, can, plan, target and similar expressions are intended to identify forward-looking statements.

Actual results or performance could differ from those implied or contemplated by such statements. Factors that could cause future results and performance to vary materially from current management expectations include: but are not limited to general business economic conditions, fiscal and monetary policies, war and terrorism, changes in interest rates, deposit flows, loan demand and real estate values, competition with other providers of financial products and services, the issuance for redemption of values, additional company equity or debt and the marketprice of our common stocks changes in accounting, principles, policies or guidelines, changes in legislation or regulation, reliance on other companies for products and services and other economic competitive governmental regulatory and technological factors affecting the company's operations, pricing, products and services.

I will now turn the conference over to Mr. Alfred Camner, Chairman and CEO of BankUnited. Go ahead, sir.

Thank you for joining us today on our conference call. Second quarter, fiscal year 2004. Together with me today are Ramiro Ortiz, BankUnited's President and Chief Operating Officer and Bert Lopez, Financial Officer. We're proud to report our 13th consecutive quarter of increased earnings.

Continued growth in total and especially core deposits, substantial increases in our loan portfolio are evidence of BankUnited's consistent, steady performance in the primary business areas. Net income for the quarter was $12 million, up 25% from the same period last year. Basic earnings: 40 cents per share and diluted earnings were 37 cents per share for the quarter compared with 37 and 35 for the same period last year.

Earnings per share include the dilutive effects of 3.9 million shares of class A common stock issued in May, 2003 secondary stock offering. In addition, we are especially proud of our increasing our assets to 7.7 billion, which are up 16% from March 31, 2003. Overall, BankUnited continues to show strength in nearly every important category.

Loan growth in the commercial areas continues to improve. You see the increase in core deposits and middle market lending activities as a positive reflection on our efforts to deepen relationships with existing customers, especially in the middle market. Ramiro will discuss that more shortly. Our micro market neighborhood banking strategy is also gaining traction and we are pleased with the results.

We are cautiously optimistic on future loan generation and as Bert will highlight, we continue to take steps to positively impact net interest margin. The investment community has responded favorablely to our strategy.

Our market capitalization reached $889 million, up 97% over the same time last year. In addition, we raised $120 million in a successful offering of convertible senior notes. I will now turn the call over to our Chief Operating Officer, Ramiro Ortiz, who will discuss specific operating results.

Thank you, Fred. We are pleased to report another quarter of steady growth. We believe this growth reflects our experienced management team executing our strategies. This is especially evident in the area of core deposits, small business banking, commercial banking and commercial real estate lending.

Local decision making, a strong management team and planned additions to the branch network will enable us to continue to capitalize on this strategy. Just as important, we've achieved this growth without compromising our credit standards. In the area of loan production: total loan originations were $827 million for the quarter.

That's up 26% over the same quarter last year. Residential loan originations were $496 million and that's up 5% over the same quarter last year. Although industrywide mortgage loan originations are down from peak levels, our robust pipeline provides us with a certain level of confidence that loan production will remain strong in the upcoming quarter.

Our residential line of business focused on purchase transactions rather than refinancings. This has enabled us to mitigate the effect of certain industry-wide trends, for example, the slowdown of the re-fi boom. Consumer loan production was 102 million and that's up 6% over the same quarter in the previous year.

A real highlight for the quarter was our commercial real estate loan production, which rose dramatically from the same time last year to 181 million for the quarter. That's up 158% from the same quarter last year. Commercial loan production was $48 million for the quarter.

That's up 152% from the same time last year. We're especially pleased with this number because it signals success in our focus on the middle market. Like I mentioned earlier, we defined the middle market in our South Florida footprint as companies in the $5 to $55 million in revenue.

Since March 31, 2003, we've added 69 new commercial relationships. Now, think about this, this is better than one per week. This was achieved while continuing to expand and strengthen existing customer relationships.

These increases contributed to loan portfolio growth of $381 million to $4.6 billion. This included an increase in residential mortgage loan balances of 216 million, an increase in commercial loan balances of 31 million and an increase in commercial real estate loan balances of 117 million. We expect to keep the pipeline strong because of a good Florida economy.

I'll again emphasize we are not sacrificing credit quality to achieve this growth. Our credit quality standards speak for themselves. This growth is being accomplished by a veteran team of market seasoned local professionals, both on the lending side and on the approval side.

Our average tenure for our average commercial loan and average commercial real estate loan officer is 15 to 20 years in the South Florida marketplace. Core deposits grew 9% in the quarter to reach $1.6 billion. That's up 24% over the same quarter in fiscal 2003.

Noninterest bearing deposits were up 14% for the quarter to 235 million. That's an increase of 62% from the same time last year. Total deposits increased to 3.4 billion up from 3.1 billion at the same time last year. Approximately 93% of the increase in total deposits is attributable to an increase in core deposits.

At the end of the quarter, core depotstes made up approximately 47% of total deposits compared to 43% for the same quarter last year. Noninterest income was 5.1 million for the quarter. This figure includes an increase of $1.2 million from commissions on sales of investment products sold through the branches.

That's up 23% from the previous quarter and up 80% from the same time last year. These results are consistent with our strategy to increase noninterest income related to sales of investment products through our branch network. Our growth in core deposits and strong improvement in investment sales clearly indicate that our micro market neighborhood banking strategy is working. And we are clearly leveraging a broader product mix combined with local service.

This gives us a significant competitive advantage. Continued growth in our core business areas and an emphasis on relationship banking while making prudent investments in infrastructure will have a positive effect on our overall profitability going forward. I will now turn the call over to CFO Bert Lopez who will discuss our financial indicators for the quarter. Bert?

Thank you, Ramiro and we do have a lot to be proud of this quarter. Our net interest margin improved to 199 this quarter, up from 191 in the previous quarter. And up from 196 same quarter last year.

This improvement is a result of a slowdown in mortgage loan prepayments due to increased mortgage rates, a decrease in our cost of deposits that we priced at a lower rates and reduced debt expense. Which was partially offset by the issuance of $120 million of convertible senior notes. Although BankUnited's margin benefited from overall lower levels of prepayments, they did increase at the end of the quarter when mortgage rates dipped. And we'll probably see some of this effect going into the months of April and May.

However, the improvement of the net interest margin is an ongoing process and we're taking the following steps to ensure we attain the desired results. We're implementing strategies to increase loan originations across all areas and diversify the loan portfolio. This quarter's strong increase in loan balance is evidence we're moving in the right direction. We're originating loans that are slower to prepay. And offer significant cross-sell opportunities.

We're continuing to increase the percentage of mortgage loan production in our adjustable rate mortgages. We're lowering our overall debt. This quarter for instance we refinanced $200 million of 5.4% medium-term notes. We are schedule -- we have a significant amounts of certificates of deposits scheduled to reprice at lower rates in the coming year.

We have $1.1 billion of those certificates of deposits that we'll reprice in the next 12 months at a 2.86 rate. Our CDs that we're repricing in the first six months is $646 million at a 2.89 rate. We should see a significant improvement in those repricings. And we have an ongoing focus on growing noninterest bearing deposits and core deposits as liability yields on deposits decrease.

In fact, our deposits grew, as Ramiro mentiones, 62% year-over-year and 14% quarter-to-quarter. Which reflects the strong focus. Our noninterest income was down 16% from the previous quarter. This was primarily due to the effect of a $1.1 million life insurance benefit reflected in the March 2003 quarter's numbers. Without this one-time insurance payment, noninterest income is actually up 3%.

Our fee income, which includes loan fees, deposit fees and other fees, excluding loan servicing fees, though, reached $2.5 million, which was a 2% increase from the same quarter last year. Our noninterest income from the sale of assets in the form of loans and securitized loans originated for sales was $700,000, down 1.9 million from the same time last year and down 1.2 million from the previous quarter.

This decrease is tied to the decrease in mortgage loans originated for sale and a decrease in the profit margins of such sales. Which is typical of the industry at this time. The portfolio of residential loan service for other stood at 1.1 billion at March 31, 2004.

As a result of prepayments in this portfolio, we provided for an amortization of $1.1 million on mortgage servicing rights, compared to $1.5 million for the December quarter. This amortization offset by fees earned on these loans of $0.8 million resulted in a net loss of $0.3 million in the loan servicing fees category. In addition, we recorded a $1.2 million impairment charge for the quarter, based on the current valuation of the mortgage servicing assets.

Also in noninterest income and to partially offset the impairment charge, noninterest income includes a gain of $1.1 million of sales and investments securities and other assets during the quarter. That was compared to a loss of $36,000 for the same quarter last year. The area of expenses and efficiency ratios, we, of course, strive to closely manage the impact of growth on expenses while continuing to invest in infrastructure, new offices and new talent.

Our efficiency ratio was 52.9% for this quarter, down from 58.8% for the same quarter last year. This due to strong growth in net interest income, which increased 16% over the same quarter last year. Without the debt reduction -- redemption expense or the life insurance benefit we mentioned earlier, the efficiency ratio for the December quarter -- I'm sorry, for the March 2003 quarter would have been 55.6%.

So, we're still down even after the adjustments from 55.6 to 52.9. Noninterest expense increased $100,000 or 1/2 of 1% from the same quarter last year. Noninterest expense for the March 2003 quarter included a $1.8 million charge related to the redemption of trust preferred securities.

Without this occurrence, expenses related to normal operations would have shown a 9% increase over the previous year due primarily to the company's expansion. On a quarter-to-quarter basis, our noninterest expense was -- as reported grew 10.9%. However, in the December quarter we had a FASB 133 amortization adjustment -- or mark-to-market adjustment of 1.33 million.

Without this adjustment, expenses grew from quarter-to-quarter 3.7%. Our asset quality continues to be strong. Nonperforming assets as a percentage of total assets improved to 33 basis points at the end of the quarter, down from 41 basis points at the end of the previous quarter. The net analyzed charge-off ratio for the quarter remained at .05% or 5 basis points, the same as our previous quarter.

The allowance for loan losses as a percentage of loans increased as a percentage of nonperforming loans, increased to 103% at March 31, 2004 compared to 58% at the same time last year. We're pleased with this trend but we realize, obviously, that there is no guarantee that it will continue.

Our overall allowance for loan losses as a perecentage of total loands stands at a prudent 48 basis points compared to 53 for the same time last year. And during the quarter, our provision for loan losses increased 1.2 million from 975,000 at December 31, 2003. We provided nearly twice as much in provision as we had charge-offs as charge-offs reached $660,000 for the quarter.

Although the levels of charge-offs remain steady, the amount of nonperforming assets is consistent growth in the portfolio of loan balances. And while our overall reserve levels may be considered generally low, we feel this current allowance is appropriate because of the composition of the loan portfolio, which is over 90% secured by real estate assets. Finally, BankUnited strives to maintain a strong capital position in excess of regulatory requirements.

Our core and risk-based capital were 7.2% and 15.5% respectively at the end of the quarter. And this does not include any -- any downstreaming of money from our $120 million convertible debt offering, which we completed at the end of February. And our book value net per common share now stands at $15.77 for quarter, up from $14.23 for this annual time last year. Let me turn the call back over Fred.

Thanks Bert, Fred. We're now ready for questions moderator if you could please open the call up to that.

Thank you, sir. The question and answer session will begin at this time. If you're using a speaker phone, please pick up the handset before pressing any numbers. Should you have a question, press star 1 on your push-button telephone. If you wish to withdrawl your question, please press star 2. Your question will be taken in the order that it is received. Please stand by for your first question. Our first question comes from Laurie Hunsicker. Please state your question.

Yeah, hi, Laurie Hunsicker, Friedman, Billings, Ramsey. Fred, congratulations, great quarter! We have three questions, just hoping you all could run us through. First, your servicing of 1.1 billion, just wanted to know where it was carried? Second, Bert, I was hoping you could give us some clarification on the margin. I guess as we look specifically at two things here, the 200 million that came off that was costing 540 that came off February 1, there were two months essentially where we didn't see the benefits. So I'm doing a rough back-in and calculating the June margin would have gone up by another 7 basis points.

And along those same lines, if I do the same kind of math on the continued repricing down of CDs assuming like a 75/80 basis points savings, I'm getting another 3 to 4 basis points of pickup. Which means that I start with the June margin somewhere in the magnitude of 210. I just wondered if -- if you could give us a little guidance there. And then last question, Ramiro, I have for you. As you know, Ryan and I are new to this name.

If you could just remind us, your loan growth and deposit growth has been fabulous. If you could just remind us of some of the new hires that you've done in the last year that have yielded these results and kind of where you see this going forward in terms of new hires. And also new branch openings, that would be great. Thanks.

Let me just preface one item before Bert starts answering a couple of your questions and then Ramiro. And that is that in terms of trying to judge what really our margin will be from quarter-to-quarter, there's no question that toward the end of the last quarter we had more prepays that I would say more than likely will continue partially into this quarter relating to the fact there was a very heavy re-fi done, I think everybody knows in February/March period -- months, nationally.

On the other hand, as Bert has mentioned and Ramiro's mentioned and I touched on, we have what we think is a very strong continued pipeline in the whole area of operations that continues to be doing well in term of loan production. Notwithstanding the concept of re-fis. So, with that I -- it sort of tempers, perhaps, projections that you might have in terms of our actual -- where our margin will be.

Because it's hard for us to predict, we can give you some direction within the realm of what we're allowed to give you under the rules and immediately our Investor Relations person will hit me over the head. Therefore, Bert will just try to address some of what you were asking and then Ramiro will come in on the other question.

Okay. Great.

Okay, Laurie. If we start off with the servicing rates, right now we're valuing them at 118 basis points.

Okay.

Remembering that this portfolio is still very young, we've really just built it up over the last year, year and three or six months, year, year and a half. So, most of the loans in there are originated to pretty low coupons to begin with.

Okay.

On the margin --

I'm sorry --

I'm going to break-in one second on that item. In terms -- you'll have to remember and I think some other people probably experienced this, too, rates were quite low as of the end of March and therefore the evaluation and the impairment charge does reflect the particularly low rates that happened just at that period.

You mark it right at the end of the quarter.

Yes.

So likely we'd see a recapture if rates stay up here?

Or at least less amortization. We have seen rates increase in a year at least up 56 basis points March 31, so, yeah, there is certainly an improvement in the evaluation of these loans now versus March 31.

And just one more question, what is your average krost right now? Your weighted average cost in the portfolio? Just roughly?

Cost on... The loans?

Yeah. The weighted average coupon, yeah.

Oh, the coupon, the coupon. It's about 5 5/8, 5 3/4.

Okay, great.

Laurie, in terms of the new hires, I guess as a consequence of my background, the market was expecting that when I would come in, I'd bring an entire SunTrust team and I didn't really do that. While we have brought in a few SunTrust people, we have really focused on putting together a very diverse team and we've got bankers really from every major bank in town.

But the one thing that we look for are veterans. These are folks that average 15 to 20 years in the marketplace, they all have a portfolio and they don't really want to work in the large bank, centralized type of an environment. The whole idea of working for a local bank where we make the decisions because we know the marketplace has a great deal of appeal.

This middle market success, you know, you don't win it with rookies, you win it with veterans. And our strategy was to do just that. To hire veteran lending officers well-known in the marketplace and who understand the marketplace.

As we discuss new credits, it is virtually impossible because of our combined experience where at least one of the decision makers, not to be familiar with the company or the principal in the company. And we think that gives us a significant competitive advantage, where out-of-state institutions may not have the market intelligence. In terms of branches, we've opened up three new branches so far this fiscal year and we'll have three more that will open up by the end of this fiscal year.

And just how many people have you added since you've joined? Approximately? How many senior lendors?

I don't know that the net number -- if you discount net new hires for new branches, the net new number probably would not be that much. I do not have the exact number. What we've done is reallocated and kept reallocating people and reshuffling people.

Okay. Okay. Great, thanks Ramiro.

Laurie, let me go back to the margin. We did pay off 200 million of the 5.4% notes February 1. But if you recall, we also established $120 million of convertible notes at about a 3 1/8 average rate.

Uh-huh.

So, obviously we don't pick up the entire 5 -- or the 5.4% improvement over the entire quarter. We really only had that out for just under a month. The CDs that you mentioned are repricing, the first six months we have 646 million that are repricing at a 2.98 rate.

So when we pick up the 75 basis points that will certainly help on the margin side. But what's occurring on -- on the asset side is a lot of the adjustable rate mortgages are -- are continuing to price down a little bit as rates have gone down. They will start pricing up, obviously, now that rates have gone up. But we need more of a prolonged uprate scenario for those to really begin pricing up.

And then the other wildcard, as Fred mentioned before us, unfortunately is the prepayments. We did see prepayments coming in the end of March. We will see the effects of that flowing through into April and to a lesser extent in May. But the prepayments can have a pretty strong effect on the margin numbers. So, we're -- we're hoping that we were up, we'd love to be at the 210 number. But really because of the prepayments, I think we will be beneath that.

We're cautionly optimistic of our overall direction. When Bert was mentioning the adjustable rate mortgages, one of the things that we're producing a great deal of is MTA product. It's a fairly large portion of our pipeline and we think that bodes well for our margin down the road. Of course it does have some teaser effect up front.

Okay. Thanks very much.

Our next question comes from John Pandtle of Raymond James and Associates. Please go ahead, sir.

Good afternoon, everyone. I have a couple of questions. The first is on the reserve issue. Could you help us understand if you continue to post pretty good loan growth, are you going to continue to, you know, essentially underprovide for the growth and bring down the reserve? Because just my math is that saved you about 4 cents in the quarter. You know, by bringing the reserve down a bit, if you could give us some guidance there, that would be helpful. And then on the CD pricing, what are you seeing competitively over the past few weeks in your market given the higher rates we've seen in the bond market? Thank you.

I'm just going to generally say and Bert can give the details on the reserve and that is that we essentially are keeping pace, in fact, we're probably a little ahead of the actual loan growth in terms of providing. What's happened is I think some of you remember back a little ways we had a couple of loans where we had made very substantial reserves and finished the recapture of the dollars behind those loans because we had almost completely recoveries, those particular reserves.

So, just following the rules the way we're supposed to be following the rules, you know, we're well of pace of where our reserve is supposed to be. Bert, I don't know if you had any other comment on that.

John, just to give you a little bit more color on that, we took a strong look at the reserve this quarter, obviously. We did have pretty significant growth on the commercial real estate and commercial balances. But when you look at the overall credit situation, we still look pretty good and as Fred mentioned, with the pronouncements that are out relating to GAAP and the SEC pronouncements.

We have to be pretty diligent in the way we provide and what reserve levels we maintain. But our nonperforming assets as a percentage of total assets is down to 33 basis points down from 64 last year same quarter. And our allowance for loan loss as a percentage of nonperforming loans now over 100%, it's down from 103%, that's up from 58% same time last year. And our charge-offs are still 5 basis points.

When you take a look at the overall credit quality, while we did drop a couple of basis points in reserve coverage, when you look at a portfolio, it's comprised over 90% secured by real estate, while we'd like to -- to put in more, certainly, there are other constraints we have to follow. And when all is said and done, we thought this was a prudent amount. We did cover our charge-offs by a factor of almost 2-1. So we are adding to the reserve and our credit qualities remain rather stellar. So, I think overall we're at a pretty good reserve level.

John,terms of your pricing question we're seeing CD pricing virtually all over the place. As you know, our focus is on core deposits and that's where most of our growth came from.

Okay. And as a quick follow-up, Bert, do you have the unrealized position in the bond portfolio at the end of the quarter? And then kind of a feel for where it would be today?

Sure. We were at a pretax number of $11.4 million at March 31. That's up from a $440,000 negative mark at December 31. If we take a look at the MBS portfolio, duration is about 211 as of 3/31. We shock it up 100 basis points, we go to 2.5. So, I -- we're already up in -- in that area, probably 70 basis points in the two to three-year category. So, we'd have the resulting change in the numbers so we'd be down a couple million.

Okay. Thank you.

Our next question comes from Jim Ackor of RBC Capital markets. Please state your question.

Good afternoon, guys.

Good afternoon.

Good afternoon.

Ramiro, a question for you, a little bit more specific than Laurie's question with regard to hiring trends. I know you have been talking in the past about a desire to add to the commercial lending team, specifically, and bulk up your team further up the coast from Miami. I was wondering if you could just give us an update on where you stand and what we should expect over the next couple of quarters?

Yes, I think we're pretty well set in terms of our team in Dade County. I would tell you that that team would compete -- as a matter of fact, does compete very favorably against our competitors in Dade County. We've got a little more work to do in Broward County. I would see us bringing in another one or two seasoned experience lendor maybe for Broward County.

We're doing okay in Broward County. Palm Beach County is where we have a lot of work to do and we're going to get to it but we're just not ready. I like to go one step at a time. Dade County I think is clicking now at A-plus. Broward County by the end of next quarter, maybe earlier in the next quarter will be clicking the way I want it to. I see us focusing on Palm Beach County, probably towards the tail end of this fiscal year, start of the next fiscal year. Does that help you?

Yes, it does, thank you very much.

Our next question comes from Sal DiMartino, of Bear Stearns. Please state your question.

Hi, good afternoon, guys, great quarter.

Hi, Sal.

Good afternoon.

Most of my questions have been asked but I was wondering if you can discuss how much of the deposit growth this quarter came from the retail side and how much is coming in from your small business middle market initiatives?

The answer is both but I -- I don't know if we've got our percentage breakdown.

Sal, we're going to have to get back to you with that exact number.

Okay.

We don't have that handy. But the answer, in a general sense, is that we're pleased with the results out of both business lines.

Great.

But we will have to get back to you with the specifics.

It's pretty well across-the-board that we've had improvement.

Great, thank you.

Our next question comes from Al Savastano. Please state your question.

Great quarter, guys.

Thanks!

Thank you.

Three kind of housekeeping questions. First, what's your MSR valuation reserve? At the end of the quarter.

We don't carry a reserve. We write it down to the 118 basis points. So, there isn't a separate reserve.

So, there's going to be nothing to be able to recapture?

No.

Okay. Good. How about your core deposit yields for the quarter versus last quarter?

We don't have them broken out. We just have total deposit yields.

Okay. Let me ask it differently. Are you getting the deposit growth because you're a little aggressive on rates or is this more of a -- kind of growth because you're --

We're pretty well in the middle of the market.

Both.

I mean there sometimes we'll run some campaigns here and there, but we have not run what you would deem to be aggressive campaigns that some other competitors have run.

No.

But, you know, the -- in general, except for a few major entities out there, the market has kind of been pretty steady and when Ramiro refers to the people in the branches and as we continue to develop an -- an improved our overall service levels and the people who are doing the job out there, we find that relationship situation that Ramiro keeps referring to is bringing in deposits on a core basis.

And Al, let me just remind you that noninterest bearing deposits were up 62% year-over-year and 14% up quarter-over-quarter. I use that as a real measuring tool as to whether our strategies are working. I would say it's a combination of everything. We're not the market leader for sure in terms of pricing, but we're competitive. But our noninterest bearing deposit growth has been very, very nice.

Very good. Last question, if we back out the $1.8 million in expense for the quarter, is that a good run rate going forward?

The 1.3 million?

1.3, I'm sorry.

Yeah, let me clarify that though. The 1.3 actually was a savings that occurred in the December quarter. So our expenses were understated by about 1.3. I think in the March quarter expenses that would be a good run rate going forward.

Gotcha. Thank you.

Our next question comes from Donald [Guiste], please state your question.

This is a two-part question and it comes from the perspective of a private investor. And I'm looking out over let's say the next two or three years. What further regional expansion do you see? By that I mean, you've been kind of marching up and down the coast on the East Coast. Do you have any West Coast expansion plans? I know you have something in the Naples area. And what about further north on the East Coast?

Yeah, very specifically I think we pretty well indicated in the market that we expect some additional expansion at some point over on the West Coast. We recently opened an additional office in the Naples area. And it's possible either within the Naples area or perhaps somewhere north of there we could be opening something additional in the relative near-term.

And then on the other hand we are paying a lot of attention to the East Coast. And believe that the cranes that are in the skies, all up and down Dade, Broward, Palm Beach Counties, well there are a lot of those cranes also north of Palm Beach, where ours at the moment our farthest north branch is. And we expect to have some offices up in those areas. They will be going into -- we think are some areas that will give us real strong opportunities in terms of what constitution is up there now.

Yeah, I just returned from a couple of months in Bravard County. I've been going there a number of years. I was absolutely astonished at the amount of primarily home construction. Huge areas being developed that were empty land and so forth and I do see names of banks up there, but I just haven't seen BankUnited up there yet. Just curious about that.

I can't tell you specifically, Bravard, but both Ramiro and I and other people in our marketing area and our branch area have taken trips up the East Coast as well as some up the West Coast. We've been looking at areas -- and for people who are listening to this on the -- the rest of the conference call, the state -- I would say is -- what I would refer to as a mini boom in -- when you look at our commerical loans and so forth, there is a lot of extraordinary strong demand for housing.

Some of it condominium, but a lot of it just single family housing and this has been an excellent opportunity for us. We're very mindful, we meet constantly and we actually pick out areas where we get uncomfortable if we think there's some overbuilding going on. But for the most part, the concepts that we have, which is that essentially if you- if there's a X number of presales before we put dollars into construction loans and so forth going on, we've been sticking pretty well to those kinds of principles and there's just a very strong demand going on in the -- in this state now.

Some of it from south of the -- in terms of Latin America, some of it from abroad. Actually even in Europe. And of course, the normal senior citizen movement. But in addition what we're also seeing is a lot of people who are approaching retiree age now, professionals, business people, so forth, who are looking for homes, second homes, third homes in the Florida area and as the county's been picking up nationally, what was already a strong situation is becoming an even stronger now in terms of demand. And it does make us quite optimistic as to our position as the major local bank now, the largest local bank in the state.

You've just described Bravard County.

Okay.

And the second part of that question is when you look at expansion, do you consider possibly doing acquisitions of existing smaller banks in these -- in these areas?

We've always looked for acquisitions but everything depends on pricing and the type of situation that makes sense for us in terms of distribution points and frankly for the most part as everybody can recognize, the value of Florida franchise, in most instances, is extremely high. People are paying substantial amounts above book for them and unless we find one that makes sense for us, you know, it's not as likely, but it's always possible that we will come across one. Bert I think has an answer to one of the earlier questions on core deposit figures.

Again, addressing the -- Al Savastano's question, our core deposits, let me break them down. Our noninterest bearing rates were about flat to where they were last quarter. Our money market deposits are down in terms of rates. And savings were about flat. We did pick up about 10 basis points on the repricing of CDs overall for the quarter this last quarter. So, as you can see, the effect on the margin is been positive, particularly from the CD repricing and we're not paying up to bring in core deposits.

Okay. Don, do you have any more questions?

No, thanks very much and keep up the good work.

Thanks.

Our next question comes from Laurie Hunsicker of FBR. Please state your question.

Yeah, hi, good morning. Just one last follow-up. If you could just address -- when we look at the liabilities side, on the FHLB borrowings, that's just a higher number right now in terms of your funding. Has there been any talk -- some of these are higher costing in terms of doing a one-time restructuring? Could you just comment broadly?

There are pieces of that portfolio that we may ultimately, at the right moment, prepay. We've discussed this a little bit in the past, but rates haven't been in position in our estimation to allow it in a fashion that makes sense. However, there are pieces that may be getting close to that position and it's something ongoing. We just -- we basically have a conversation about it every alco meeting.

We'd look at it as a huge plus. Your balance sheet just seems so sensitized to an expanding margin it would...

There are pieces of it that would be a benefit at certain points and -- and it's hard for me to go into all the details of that. There are pieces of it that would be very difficult to come to some sense for us. And, in fact, technically, if rates moved upwards, our part of the concept that we actually benefit from upward moving rates. So, it's a little -- it's far more complicated than what I just said, but that's the generallality to explain it.

Okay. I just wandered, Fred, if we look at borrowings as a percentage of total liabilities right now, it sits at 44%. Do you have a goal maybe in the next 12 months to shrink that to a certain level? Or do you look at it that way?

No, part of it relates to loan demand and what appears to have been for us very strong loan demand this last quarter and what believe may continue over to this next quarter to the quarter beyond that. Part of it relates to how fast we feel comfortable growing deposits and what the competition is out in the market at any one one time because as some of the questions would indicate, we try not to be in a position we have to pay up for deposits.

So, we're constantly balancing that. Therefore, we don't have a specific goal with respect to borrowings as opposed to meeting the appropriate amounts of demand on the asset side in terms of doing that funding but not putting us in a position to pay up in the sense of deposit costs.

Great, thanks.

As a reminder, should you have a question, please press star 1 at this time. Our next question comes from John Pandtle. Please state your question.

Thank you. A couple of follow-up questions. The first, Bert, could you share with us the margin at the end of the quarter?

The margin, you say for the last month?

Yes.

We -- I don't have that specific number here.

Okay. What was the trend monthly in terms of the progression?

Well, the trend -- I think we generally said that with higher prepays at last month, that the trend would be for the margin to be tighter and we expect some of that to continue into the next month. And -- and this all relates, I mean you all can probably figure that out from a national statistics relates to the prepays from refinancing that would be occurring in the end of January, February and beginning of March period that occurred nationally.

Okay. And then -- and then secondly, with your funding strategy, a little more incremental reliance on -- on wholesale funding, what are you thicking about in terms of your interest rate expectations over the next few quarters?

We generally have tried to position ourselves with the concept that interest rates would be going up, we're sort of in a generallity program that short-term rates will be moving probably at some point after the election, upward. It's possible that they could go a little earlier than that, but in general, the way we set up our asset liability management is on the concept that interest rates will be going up this year. And we really have positioned ourselves for that. Okay, thanks again.

If there are no further questions, I will now turn the conference back to Mr. Alfred Camner. Please go ahead, sir.

We greatly appreciate everyone listening to our story today. We've had a lot -- a lot of positive movement in terms of continuing along the lines of our goals, of particular importance to us was our strong loan growth this quarter and our ability to really build the portfolio internally. As you know a number of years ago we used to purchase loans out in the market.

I -- I see a number of banks and institutions going back to buying loans in the open market. We felt that it was our concept and our target to be in position that we could generate our own assets. That's what we're doing, that's what we're accomplishing and we're quite happy with the trend there and we believe a lot of that trend will continue. So, we feel we've presented a good quarter for everybody and we look forward to continuing to work hard for the future. Thank you very much.

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