BankUnited Inc (BKU) 2004 Q3 法說會逐字稿

Good afternoon and welcome ladies and gentlemen to the BankUnited Third Quarter Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded 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 and performance in future periods. Words and phrases such as “will likely result,” “expect,” “will continue,” “anticipate,” “estimate,” “project,” “believe,” “intend,” “should,” “may,” “can,” “plan,” “target,” and similar expressions are intended to identify the 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 or redemption of additional company equity or debt; volatility in the market price of our common stock; changes in accounting principles, policies or guidelines, changes in legislation or regulation; reliance on other companies for products and services; attracting and retaining key personnel; 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. Please go ahead, sir.

Thank you for joining us today on our conference call for the third quarter fiscal year 2004. With me are Ramiro Ortiz, BankUnited's President and Chief Operating Officer and Bert Lopez, Financial Officer.

It was another great quarter for BankUnited. We are very proud to report our 14th consecutive quarters of increased earnings. Our performance was fueled by very strong loan growth. Residential was strong and corporate lending was strong as well real estate area More business lending activity again exceeded expectations, not because of our focus on micro-market and our ability to drill down into local markets, maintaining high standards credit quality. We are pleased with this continued evidence of consistent steady performance of our core business area.

Net income for the quarter with 13 million, up 35% from the same period last year. Basic earnings were 43 cents per share and diluted earnings were 41 cents per share for the quarter compared with 35 and 33 for the same period last year. The 9 months in the June 30, 2004, net income was 36.6 million, up 31% from 28 million for the same period in the prior year. Basic and diluted earnings per share for the 9 months was $1.22 and $1.14 compared to $1.07 and 99 cents for the same period in the prior year.

Asset increased to 8.3 billion, up 18% from June 2003. BankUnited remains largest bank headquartered in Florida based on assets.

Overall BankUnited continues to show strength in nearly every important category. Loan growth in the commercial areas continues to improve, because of the continued increase in core deposits and direct lending is a positive reflection of our efforts to deepen relationships with existing customers, especially in the middle market. Ramiro will provide more information about this shortly.

We have some exciting activities from the drawing board for the next 2 quarters. We will soon expand our footprint beyond Miami Dade, Broward, Palm Beach and Collier counties, with the impending opening of our first office in Martin County. Neighborhood banking strategy is especially well suited area.

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 consistent steady growth. This progress reflects a long-term viability of our strategies; this is especially evidenced in the area of core deposits, small business banking, commercial banking relationships, and commercial real estate lending. Our focus on deepening commercial borrowing relationships has contributed to this quarter and will contribute deposit of earnings growth in future periods. We are confident that we are making progress in our goal to become the primary bank for our commercial and commercial real estate clients. Our branch expansion program continues to move at a brisk pace. 4 new branches have been opened up for this fiscal year. In addition, our focus on cross-selling initiatives are beginning to yield results. We intend to increase this activity in all areas of the bank.

The area of loan production, total loan originations were $1.2 billion for the quarter, up 66% over the same quarter last year. As you can imagine, we are very proud of this number. Residential mortgage loan originations were 883 million and that’s up 68% over the same quarter last year, notwithstanding the strong re-fi activity. We expect the mortgage pipeline to remain strong and we will continue to emphasize originations of purchase home mortgages as opposed to refinancing.

A significant highlight for the quarter is our commercial real estate loan production, which rose to a 137 million and that’s up 370% from the same quarter last year. Commercial loan production was $79 million for the quarter and that’s up 412% over the same quarter in 2003. This growth is a result of our concentrated efforts to develop deeper relationships with middle market companies. We have now displaced all of our commercial participations with full relationships with our last $24 million payoff. Going forward, our commercial growth will be fully reflected in the balance sheet and everyone of these quarters, I update you on new relationships will evidence our strategies in terms of commercial and commercial real estate and we started our commercial strategy, it was March 31, '03. Since then through June 30, '04, we have added 85 brand new commercial relationships, full relationships. This was over a 66-week period. When we think about it, we continue at a pace of better than one a week and I'll tell you again, though Fred don't like to hear this, I still think there is sort of (phonetic) low hanging fruit and I don't know if we can continue at this pace. You might ask yourselves are you growing this portfolio prudently, and remember that our team is made up of veteran bankers who average 20 years in this market work place. Our typical credit discussion starts with I've been banking the XYZ company for 15 years in my prior life.

On the commercial real estate side, this fiscal year we have added 21 brand new relationships and again these are full relationships. Consumer loan production was $135 million for the quarter, and while its down 22% from the same quarter last year, it is up 33% over the preceding quarter and growing with momentum and traction. These increases contributed to total loan portfolio growth of $532 million to 5.2 billion. This included an increase in residential mortgage loan balances of 457 million and an increase in commercial real estate loan balances of 69 million. We are cautiously optimistic that a strong Florida economy and a rebounding national economy will hope keep this pipeline strong.

Total deposits grew to 3.4 billion at June 30, 2004 and that's up from 3.2 billion at the same time last year. Core deposits, which include checking, savings, and money market accounts grew to 1.7 billion and that's up 17% from June 30, 2003. These core deposits now comprise 48% of total deposits, an increase from 45% at the same time last year on a growing basis. Non-interest bearing deposits were up 37% for the quarter to 238 million and growing. We are extremely proud of these results. The micro-market neighborhood banking strategy is working. We continue to lever are broad product mix and service advantage over large out-of-state banks while our size provides us a competitive advantage over small banks and start ups. This consolidation continues between the super regional and the national players. Our local community focus and local decision-making separates BankUnited from other financial institutions. I will now turn the call over to CFO, Bert Lopez who will discuss our financial indicators for the quarter.

Thank you Ramiro. Once again, I think we have got a lot to be proud of this quarter. As we mentioned in the last quarter's earning call, we expected our margin to decrease this quarter due to a higher level of pre-payments on mortgage-backed securities, residential loans as a result of lower interest rates late in the March quarter. The interest margin did decrease to 186 basis points down from a 199 in the March quarter but up from the 181 basis point at same time last year.

And we have seen a slowdown in the pre-payments at the end of this quarter. But we hope that this continues to slow the pre-payments but this doesn't improve in our net interest margin going forward.

Non-interest income was $6.5 million for the quarter, up 27% from the prior quarter, down 35% in the same quarter last year in which we had a $4.3 million gain in the sales securities. After adjusting for this $4.3 million gain non-interest income was actually up slightly.

During the quarter, we didn't have -- we had no significant sales and investment securities or other assets. All of the income including loan fees, deposit fees, and loan servicing fees were $2.8 million in this June quarter as compared to 2.5 million in the March quarter. That represents an un-annualized 10.5% increase quarter-over-quarter. Insurance investment income included $1.1 million from commissions on sales investment products sold to the branches, an increase of 42% over the same quarter last year. This is a direct result of our efforts to actively expand the offerings in this area to our customers. Non-interest income from the sale of loans and securitized loans originated for sale was $1.1 million this quarter, down from 2.3 million in the same quarter last year. But a 57% increase over the March quarter $700,000 in revenue. The decrease from last year's expressive over heavy refinancing period and effects at that time as compared to this most recent quarter; and while the sales of loans have decreased, as Ramiro mentioned, our continued focus on originating loans purchase transaction had allowed us to achieve record production numbers. Our portfolio residential loan service for others stood at 1.2 billion as of June 30, 2004. As a result of the decrease in pre-payments, we did experience slower amortization on mortgages servicing rights during the quarter. We provided for amortization a $1 million of servicing right as compared to $1.1 million in the previous quarter and $1.9 million for the same quarter in 2003. Our non-interest expense was $22.6 million for this quarter, a decrease of $100,000 or one-half of 1% from the same quarter last year. Non-interest expense for that quarter included a $3.7 million charge related to redemption of trust preferred securities that we did during the June 2003 quarter. Without these expenses related normal operations would have shown an 18% increase over the previous year primarily due to our company's continued expansion.

In this quarter, we have a lower effective tax rate, as you recognized the $470,000 income tax refund. This is a one-time event and then the area of expenses and efficiency ratios strives to closely manage the impact of growth on expenses are continuing to invest in our technology, infrastructure, and new offices in a new talent. Efficiency ratio for this quarter was 53.3%, down from 59.1% in the same quarter last year. Without last year's combination of debt redemption expenses of 3.7 million [range] we mentioned $4.3 million gain in sales of investment securities. Efficiency ratio for the June quarter last year would have been [55.7%]. So, I would say that the improvement that came here old fashioned way. We increased our non-interest income 26% year-over-year. That's was the main [inaudible] we do in reducing it. On the asset quality [stock] side we had a particularly good show in this quarter.

Non-performing assets and the percentage of total assets improved to 25 basis points at the end of the quarter from 33 basis points at the end of the previous quarter and down [19] from June 2003's number of 75 basis points. Net annualized charge-offs ratio for the quarter remained at 5 basis points same as our previous quarter. The allowance for loan loss as a percentage of total non-performing loans increased to 130% at June 30, 2004 compared to 47.5% same time last year. We are pleased with this trend but we realize there is not guarantee that these low levels will be sustainable in the future. Our provision for loan losses remained at 1.2 million while our charge-offs for the quarter were $527,000. Allowance for loan losses as a percent of total loans [now stands] at 44 basis points as of June 30 compared with 64 basis points at the same time last year. While this level was relatively low for the banking industry in general, we believe the current allowance is appropriate because of the composition of our loan portfolio and our charge-offs levels loan portfolios which is 90% secured by real estate.

Finally, BankUnited strives to maintain a strong capital position in excess of regulatory requirements and our core and risk based capital were 7.2% and 15.6% respectively at the end of the quarter. Our book value per common share was $15.18, up from $14.86 this time last year. I'll now turn the call back over to Fred.

Thanks Bert. Before I open up the call for questions, I just want to make note of the fact that over the last year and a half there were approximately analysts or two had indicated that they felt that our growth in loan was flat even though at that time we had to go through these explanations relating to loan service by others and all those who are prepaying rapidly. We indicated at that time that we believe we are building a momentum up for loan productions that is continued. Over the last 18 months, we've continued to build and I think the results of this last quarter is an indication of supporting those from our credibility and telling you all that we felt this is an area we were going to be at and [inaudible]. So look for our momentum to continue on lot of ways. At this point, moderator if you could please open the call for questions.

Thank you. The question-and-answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press "*" "1" on your pushbutton telephone. You wish to withdraw your question, please press "*" "2". Questions will be taken in the order they are received. Stand by for your first question. Our first question comes from Arielle Whitman from Sandler O'Neill. Please state your question.

Hi guys. Nice growth in the loans and deposits. I'm wondering Bert, if you could comment more on the net interest margin and what we should expect if rates go up etcetera?

Of course, as we look forward on the margins, what we see is first and foremost improvements from this decrease in payments cost us about 18 basis points loan portfolio, that's --.

Okay, now was that 18 or the 19?

18, yes. So that should go down considerably and that will help us increase. Now, as we go forward, obviously, we were re-pricing both sides of the balance sheet. And we have some funding and some CDs that are coming due again. We've got about 1.1 billion in fees coming due next 12 months, that's 247 rate. That we think we have we have some re-pricing power on that. And also as you've seen that loan production continue to increase, I think as we put on more assets there is higher rates that will help the margin going forward also.

Let me add another comments on that, a lot of our production have some low teaser rates starting out because they are purely adjustable rate mortgages and most of our production today is adjustable rate mortgage. Now that's been the emphasis we've had. As you will see coming into these next months -- those mortgages turning into their actual credit margin rates, we'll see improvements from asset side. If rates continue up and they continue up as what they call the measured pace, and I am not sure what measured pace actually is equivalent to provide within reasonable range of not being as rapid as Fed did several years ago with extraordinary increases. That ultimately we believe is a benefit to us and you'll recollect that we have a series of convertible advances, that are on our books of approximately $700 million in size, and those are at higher rates, they were built-in at a -- some time ago and the truth is fairly simple higher rates actually brings us closer to those advances, no longer being the drag on our margins that they have been. Of course as we increase our size, we continue to grow away from that drag also.

And do you have any sort of goals with respect to the asset growth?

We haven't enunciated any specific goals, I can just tell you that we think we have strong momentum now and we expect to continue to see very strong growth of our assets in the next period and certainly over this next fiscal year for sure.

Okay. Thank you. Good quarter.

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

Yeah hi. Good afternoon. Several questions; just going back to net interest margins for a second, the loans that out at the low [inaudible] rate if we could kind of quantify that relative to your loan portfolio, and where they are and what they adjust to and how quickly, if we look at the loan mix right now?

I would have to come out with some general numbers but, you know, we produced what was it --?

About 70% of our production was --.

So if we [inaudible] net it would be about [inaudible].

Somewhere around 700-800 millions of [inaudible] rate was low 1 area.

I am sorry I couldn't hear you quite as well as.

That's 1-1.25.

1-1.25.

That's on an adjusted basis after a month so you have to average those out, we don't have the specific number for you. We probably gave you enough guidance, you figure out the number but basically there is an average there on at the rate basis, so approximately a third of that, I'm sure we would now be rolling each month hereafter into a higher margin.

And how quickly is there --

During this quarter -- everything we produced last quarter those kind of adjustable we will be rolling to a approximately 200 basis points higher.

Well the 200 basis --.

180-220. Depends on the -- is a range.

Okay, and those start adjusting-out you are saying 3 months out?

They, -- all of them within the 3 months of when we produce them last quarter will have then adjusted into a market rate.

Okay, thank you.

So, they approximately adjust every month 45 days.

Okay and all of these changes are all residential, is that correct?

Yes.

Okay and then can you just give a little bit more detail the growth out of your commercial and commercial real estate portfolio has been staggering in every single quarter, in recent quarters it's just been incredibly or like at a 40% annualized run rate. Can you just give us a breakdown in terms of what is C&I, what's commercial real estate, maybe just remind us what the average balances in this portfolios run? And then, I guess -- Oh! I am sorry, go ahead.

Go ahead finish the question.

Well just, you all had mentioned 20 new relationships on the commercial side this year, I wasn't sure if that was --?

The real estate side -- on the commercial real estates side Laurie, 21 new relationships, on the commercial side since we started our emphasis on commercial relationships which was March 31 '03. From March 31 '03, till June 30 '04, 85 branch banking new commercial relationships. I got to tell you so that's a lot -- normally if I heard somebody make that comment I'd be concerned about the credit quality. I would tell you though that by strategy, everyone in our lending team averages 20 years in the market. They know the market, they know the relationships, our Head of Credit Administration used to run the local OCC office, and while -- you never know what's going to happen tomorrow. At this point our credit quality is stellar and all of these relationships are known to somebody at a senior level in the bank. These are not relationships that we don't know.

Let me just give you a generality and then maybe Bert can give you a little more specific to add really the number of forces happening in terms of the market right now. On one hand, we have a number of entities who have created additional consolidation in the banking side and the markets, so you have the Union Planter situation and you have a Wachovia situation. These entities, to the extent they've consolidated or created even a figure into the all --overall continue to have some problems in terms of the kind of relationship they can have with what we think are the borrowers in the south Florida market, and there is a lot of room for us to even grow beyond as we are more and more becoming the Bank for people to turn to if they want to get local decision making and frankly get quick action in terms of the decisions because the process and I've described this before -- the processes of some of the others is so disparate that if we go to pass a loans you could be -- I have had this subscribed to meet my attorney, you could be talking to a attorney in San Francisco, an attorney in Jacksonville, an attorney in Tampa, an attorney in north Carolina -- all part of the same loan transaction -- you could be talking to ask many as 6-7 different offices to get a simple real estate loan passed. So that’s coming together, combined with the fact that very frankly the south Florida market, and Florida in general has been doing extraordinarily well. After 9/11 there were some pause, there was some difficulty in central Florida -- south Florida sales picked up faster and frankly now that the rest of the economy is picking up, you know we are in a little bit of dilemma, our biggest problem in a sense is fending off more request because we've become more restrictive in actuality in terms of way we look at loans and the type of loans we look at. Those are the demand that is here. The figure we used to give to the number of people moving to the state of Florida several years ago when we go around and give our little speech was a little over 600 people per day were moving to the state of Florida. That number today, according to the various authorities is now over a 1,000. So you know we are in a unique position to be part of that growth. Bert, do you have the actual --

Yeah. Laurie, let me give you and everyone else in the call some average balance numbers from this quarter. First, let me do June quarter of '03 commercial real estate in quarter '04. June of '03 commercial real estate average is $372 million for the quarter.

I'm sorry. Did you have period end?

I have period end also, yes.

Okay, yeah. And then mean average size of loan and I guess period end total balance. I'm sorry.

That's quite all right. Commercial real estate in June of '03 period end balance was $370 million, period end June balance 580 for '04.

Okay.

Commercial, the June of '03 number was 130 million period end, June of '04 166 million.

Now, let me add something to that Laurie, remember that I have been mentioning on different calls, we had a number of large participation in our commercial portfolio and that were displacing those with full relationships. On the commercial side, we've completely done that and the $166 million now represents full relationships and that includes $24 million of sales commercial side.

Okay, so what is roughly your average loan size running in each of this two portfolios?

In the commercial loan portfolio, I think it is bit lower, it is about 2 million -- 1.5 million to $2 million full relationships, commercial real estate is a little bit larger, and phase in higher single --

It's I'm sorry how much.

Higher single-digit. It’s up 7 or 8 million.

Yeah, but, I don’t know we have really a specific number for you, we can try to get that.

We will get that back to you Laurie.

Okay. Then I guess you generally mean where do you look to grow that too. You mentioned obviously that growth has been awesome, but it's possibly going to slowdown a little bit. Where is your target going in terms of higher loan that plays out?

We have not necessarily put the concept of having a specific loan mix right now. Our demand on the residential site is extremely heavy as you know from almost entirely lender. On the commercial side in the business volume, we have also tremendous demand, but we can’t really control that marketing basis by credit that is we determine that what's coming on board at this point. We review strictly on a credit basis and deal long run that protects us doing things when times aren’t it is they are now. They are probably more discriminating in that sense. We obviously have goals in terms of our officers what we like to [inaudible]. We ultimately as an executive committee do everything [inaudible] creditors number one criteria.

Okay.

We took lot of demand and we think that’s going to --.

But we will not sacrifice credit quality for the seek of growing our portfolio.

And I like to give you the target, we didn’t give you the target, the target I am trying to result in the long attitude in an organization therefore we don’t --

Okay. I guess just last thing if you could comment on you just announced the opening of branch in Martin County, can you just comment on your de novo strategy. How many branches you have planned to actually open and what your capital expenditures are going to be?

The capital expenditure as we give you an approximation for office, but essentially most this must be in line type offices or smaller offices, and we expect to open this next year or somewhere 8.

I am sorry, did you say 8?

8 to 10.

8 to 10.

8 t o10. Okay and when you say next year that’s not calendar year that’s your September '05 fiscal year?

That's saying with -- yes in '05. That was essentially in '05.

And how many do you plan to open --?

Quite some offices opening up this quarter, which we mentioned, so using a front-to-date through '05, we expect somewhere in the -- expecting about 3 offices open this quarter another office to open by calendar year and year-end [inaudible].

I am sorry you know you guys keep cutting out. I don't know if that’s sound or not but you said those 3 this quarter and what did you say following up?

Bert is saying, he believes by December there will be at least 4 new offices opened.

By December okay. And what is roughly the capital expenditure then per branch or similar to ever how you look it at?

We will spend about $400,000 to $600,000 for offices, as Fred mentioned some of these line offices are less than those branches, we typically leased the properties and cabinets [inaudible]

Hello, I am sorry.

Laurie could you hear that?

No, Actually it's really weird. I think you guys are cutting may be I’ll tell you we will follow up with you after the call. That's really up for my questions. Thanks very much.

Okay. Great. Thank you.

Thank you. Our next question comes from Jim Ackor from RBC Capital Markets.

Good afternoon, guys.

Hello, Jim.

I think the only thing Laurie left out was, how was weather down there. Actually, she did asked most of my questions, I guess for modeling purposes, Bert, any thoughts on tax rate, going forward, it seems like you guys have been pulling one-time items pretty consistently here for the last couple of quarters.

Yeah, we haven't had some in the last couple of quarters, but obviously we did have one this quarter. I think, we’ll revert back to the 35%, it would take a percentage point by going forward. This particular time, we did have the opportunity to request a refund on a tax return and obviously we took advantage of that.

Okay, so 35% is going to get it done. Now, the other question that I had was, in the line of the SouthTrust deal, have you guys given any thought to some of the divestitures that maybe required as a result of that transaction? And have you given any thought or kind of business opportunities aside from the divestitures, might be presented as a result of this transaction?

For us this transaction is only opportunity, we are looking at branch opportunities in terms of the divestiture and in terms of commercial opportunity, it presents more upheaval in the customer base and we suspect -- a matter of fact we are already benefiting from that in terms of some commercial relationships that have come our way, that may not have come our way, in a different world.

Any indications that you might be able to hire talent? As well Ramiro?

There's always balance available I think at over the short haul, our commercial team in Dade County is pretty well set. There maybe a higher or two opportunity in Broward and Palm Beach County. But it won't be a mass number of lenders we're pretty well set right now.

Okay.

I have always believed Jim, that talented people are available you go ahead and stretch and you bring them on board. Having said that our team is pretty well set.

Good. Thanks a lot you guys.

Thank you. Our next question comes from John Pandtle from Raymond James. Please state your question.

Good afternoon guys.

Hi, John.

Good afternoon.

My questions revolve around sustainability of balance sheet growth, which you have seen here recently and before we get there, the residential mortgages the two portfolios and put on the balance sheet this quarter. Do you have a mix between -- a little more color on the arm product you know what percentage of those if any were hybrids, where you won five [inaudible] arms?

Yeah. I will correct on this, but I think the adjustable that are monthly are running about 70%, while we are producing somewhere about 15%, is the number of the hybrids and the balance are some 15 years -- small amount of 15 year and 30 year [inaudible]. We don’t produce very much of that now.

Okay. Second question looking that your deposit growth slowed in the quarter at least sequentially and looks like you made up the difference with wholesale borrowings, so the loan to deposit ratio jumped from 138 to 153%. If you could walk through the mix of incremental funding on the wholesale side in terms of reprising period and duration and just counting your thoughts on that loan to deposit ratio, you have been relying more on wholesale and a rising rate environment?

Well we are getting shorter and shorter in terms of our borrowings other then what we already had which we mentioned before the 700 million which have been somewhat of a drag on our margin. We have insured for the most part of our borrowings and from a deposit side, there is lot a scrappy around during the June and September quarters in Florida for deposits and generally we don’t look to grow as much from the overall total deposit side, we just at a little bit seasonal and a lot of people beat each other up on a competition basis, so we normally expect this year a lot more growth deposits in the December period lending through March.

Okay, do you have any sort of specific numbers again and in terms of duration of the wholesale borrowings average?

I think, Bert would have to get that to you, but you know -- we because our portfolio is becoming more and more monthly adjustable. We're going to more and more borrowings that match effectively with that type of situation.

Now from my head, I remember a number on the borrowing side, it’s a little bit over 2, you know lot of that has to do with about 700 million that Fred mentioned, that was the anchor and there are convertible advances. There are about 4.5 almost 5 in terms of duration. So blended it is right about below 2s.

Okay, I’ll follow-up. I’ll come back and let’s --

What we may do is give everybody a specific figure. We’ll try to get that out maybe in the 10-Q something that will break out the original convertible advances and taking back several years ago that resulted in a longer duration because if you move those out of there, the duration is pretty short. So, I think what we would try to do is break that out and give that as a number for everybody.

Thank you.

Thank you. Our next question comes from Gary Tenner from SunTrust. Please state your question.

Hi guys. Question for you -- actually I have just two questions, first of based on what you are seeing in your pipe line and your plans, is it fair to expect more of a delta now through the last quarter over this fiscal year and into next year what's the delta between loan growth and on asset growth to get through better overall mix in the portfolio?

Gary, you are thinking in terms of continuing growing the loan balances in step with the earnings asset. I suppose this is the security balances?

Well, yeah, exactly we are growing more of a loan mix or your [re-tailoring] assets?

Well the mix, again, it is people say our residential is extremely strong, our commercial is extremely strong, but I don’t have a specific target in terms of the commercial business side because, as I said, we put credit as the absolute number one criteria. So, given that and given our various feelings at any one time that's something that is more difficult for me to tell you. In terms of securities versus loans we expect that the loans will continue to grow quite a bit and we don’t really expect growth in securities; though it is possible that through securitizations during this next year of some of our portfolio that may confuse the issue a little bit because you may some of our actual portfolio loans being securitized. And they are -- therefore they would -- part of the securities portfolio. We are not looking to actively grow the securities portfolio from a focus of buying securities in the market.

Okay, so excluding the securitization issue you would expect the average loan growth number to be in excess of other asset number to a greater --?

We expect substantial -- right now in our pipeline we expect substantial growth in loans.

Okay, okay. It is good. And just quickly on the personal expense just wondered if you could -- and I may have missed it when you were going through the numbers, but the linked quarter increase in personal expense is that related to overall production, I guess, something was behind that I need to it [entertain it]?

Gary, that's a good question. We should talked a little bit more about it but the -- we had an adjustment in terms of our FASB adjustment and that comes within FASB 91; that comes within the personal range about a million one. So, the personal number in total for this quarter is probably overstated by about a million one. It was adjusted further down in the expense that was [washed] to the total expenses and within the category it is overstated by about a million one.

Okay, but for the full expense line and there was nothing unusual there?

No, it was just scenario, it was not unusual.

No. It was just continued growth and extension of our branches and adding new town as Ramiro mentioned earlier.

Okay. Alright. Thank you.

Thank you. Our next question comes from Al Savastano from FTN. Please state your question.

Hi. Good afternoon guys. How are you doing?

Hey, awful.

Give me a rough guess of how your personal deposit growth has been now, and last quarter and may be last year?

[Source of fund] -- deposit growth.

Al, we can barely hear you. Did you say commercial deposit growth?

I'm sorry, yes. Your commercial business deposits -- just wanted to see how the growth has been?

No, we don't break it out between commercial and retail. They all set in the branches, obviously, in the small business side. On the commercial and commercial real estate side we've had some pretty strong growth upwards of 15% of [four to] quarter but I don't have this specifically broken out.

We could try to start developing those numbers for everybody. It's little more difficult because a lot of deposits come into the offices and are not broken out specifically against that when we come up with our totals that go into the balance sheet. While people have running things -- it's not an internal number that comes off our data processing sort of.

Okay. Thank you.

Yes.

Thank you. Our next question comes from Jefferson Harralson from KBW. Please state your question.

Thanks. I want to start up a little bit on John Pandtle's question. He talked - and was referring to the increase in the residential loans in the quarter. As most of that 500 million the MTA product, is that what you were referring to when you referred to the adjustable rate part?

For the most part it is MTA, yes.

Okay. And could you comment on what percentage of your loan portfolio is now MTA and what percentage is NRA?

Sure, we will start with the NRA. We've got about a billion one of the total portfolio in NRA loans. The MTA product is just slightly under a billion in total for the portfolio. Total loan portfolio is $5 billion, but those obviously are residential numbers. As the total residential loans is up4.3 billion. Now those two categories make up just shy of half of our portfolio.

And how did the MTA and the NRA fair throughout the quarter as rates are moving around? Do you think that the reductions in these two categories are going to follow up in a big way as rates go up?

No, we actually think in terms of rates going north of -- we think the MTA will continue to be a primary product. And while there is more competition in the market, it seems to just fair very well. And from the view point of NRA, you know, that varies but the fact continues on as far as our thought is concerned in some other areas into our debt. People in Latin America as well as others in Europe, but certainly particularly in Latin America continue to move funds and looked to have assets in Florida. And it's basic, as we have described in the past from the view point of Latin America, it is that there is lack of complete stability in many of the countries brings people to their country and well and they individually do better to bring funds out; then the things turns fully as they sometimes do is; for example, Venezuela, you'll see even more money arriving. And on the other hand, there is no place in the world that you can get a condo overlooking the water at the times of prices that you can; and Florida or for that [meaning matter] looking at the things around the Orlando area, which is also popular and that brings people from Europe to buy in Florida. But, I don't know if we are going to have any significant growth in NRA portfolios. It’s something -- it's one of our products, it is not the item that we are trying to grow substantially. The MTA we expect that to continue to be a larger and larger part of our portfolio.

Jefferson, as late as Monday our pipeline was very, very strong.

Okay, and lastly the teaser rates you were talking about that is associated with the MTA product?

Yes, that is a low teaser that's really -- it's a product similar to we are [washing] mutual; also uses in that portfolio and so as a number of other lenders are out their now with it a country wide doing it, a number of the majors are now in that product.

Alright, thanks a lot.

Jefferson, it is Bert, just to clarify something may be a little bit confusing. We do had just under a billion about 900 million of MTA products and I also gave you the 1.1 billion of NRA, but I should point out that in that 1.1 billion of NRA there is also 600 million of MTA. So total MTA is about 1.5 billion, the remainder you get just 2 billion or about half the portfolio is other NRA.

Alright, thanks a lot, that’s helpful.

Thank you. Our next question comes from Donald Graze (phonetic) Private Investors.

By the way, before we go on and we get this question, Bert, will put out some of these things we have been talking about just to make sure that everybody has clear what the numbers are. We will put that out as part of the 10-Q we are going to put up.

Okay.

Yeah. This is Don Graze (phonetic), Private Investors. As a long-time investor and a long-time seasonal visitor to Florida, I am really intrigued by these statistics of the increase in the numbers of people moving to Florida. I assume that’s a net moving in because some come in and some move out and so on and so forth. Pretty staggering figure when you see over a short time, a 67% increase in that number. How does the statewide factor compare if you are able to measure this through the colonies, the areas in which you are doing business?

Are you saying where are the concentrations in the growth?

Yeah. Is there --.

What's dramatically happening in Florida and which also accounts for our belief that as we have nicely covered the soft part of tricounty markets but it will continue to increase our presence in those that market. Up the East coast of Florida, there is substantial growth going on, likewise on the West coast of Florida you can start in Naples where we are already, and you will see going right up there through and even North of Pastel (phonetics) which is North of Tampa incredible growth and then more recently we are hearing from some people the nominations of general Orlando area, now participating as well as growth but there is some counties north of Orlando that have paced up very substantially, as well. It's just for somebody who wants to take a trip through the area, you know, a couple of counties the north of Palm Beach on down to Dade and Miami area. The number of cranes in the sky is remarkable and what's interesting about what's happened is that with everything there is a certain amount of speculation that occurs in some of the condominium products that go on the market, and actually some of the builders themselves are voluntarily moving 30% down deposit just to even place out some of the speculative buying and essentially we pretty well kept to the rule that when we decide to fund the condominium as an example that it almost -- all the loan is covered before we've actually started putting our dollars into the project. Almost all of it is covered by presales and the demand is significant. That is it is there, it has been continuing, and it's become more dramatic because the North-East and the Mid-West are in an economic recovery. And where we would carry a lot by Latin America and Europe and so forth, as well as also in United States now that those are even recovering more. There is more and more people looking for retirements or second home and so on.

And a disproportion share of the Florida population Don resides in our South Florida footprint. The last number I recall seeing is 44%. So just for

They are all in front of me --.

That population resides here

They are all in front of me 90-95 well I'm trying to figure. Well it sounds like our company is very well positioned to continue to benefit from this moving of people and I keep hearing and reading about the baby bloom generation is just in early stages of beginning to decide that they want to live somewhere else other than where they are presently and that presumably there is -- this number of a 1,000 a day is probably going to continue to grow over next decade or so?

We are certainly optimistic. Thanks Don.

Thank you.

Thank you. Just to remind you ladies and gentlemen if you do have a question please press "*", "1" on your touchtone telephone at this time.

And your next question comes again from John Pandtle from Raymond James.

Okay, I did have a couple of follow-up questions, Bert do you have the aggregate dollars swing, the change in the mark-to-market in the securities portfolio from the end of March to the end of June?

Yeah, aggregate dollars after-tax was about 32 million, around 32. We were at $11 million gain we went to a $21 million loss.

Okay, and do you have any sense of where it is today? Rates are a little lower than at the end of the quarter?

We don't price it at the end of every month, but we should probably -- should be a little bit higher in terms of less loss right now than we were at June 30.

Okay, and that -- this leads into my next question, the tangible capital ratio went from 5.8 to 5.2, in the quarter, looks like return on tangible equity of about 12%, you wrote on the balance sheet 13%, can you help us with the math, because I would think something has to give there, either more capital or slower balance sheet growth, especially, if the rates continued to rise?

Well, let me, I guess, Bert can give you specific numbers, but let me cover a couple of things. One is that, from our viewpoint, we have substantial amount of available additional capital for the bank in the holding company which was incurred primarily through the convertible issue we did back few months back, and so that takes us to our impression -- with perhaps some minor borrowings basically it takes us well over $10 billion in growth in terms of are projections and so we have a lot of room in terms of portfolio growth and as we've mentioned we certainly have a lot of portfolio growth going on -- I don’t know in terms of the tangible I -- the duration of the securities portfolio is short and clearly there was a spike in interest rates at the very end of the quarter in comparison to earlier periods, so it had a tendency to show a greater loss but the reality of the portfolio overall is relatively short so given where rates are today I would expect that that would have moved back to some degree and of course the pay-downs are continuing in terms of duration of that portfolio I think it was slightly over 2 years it's not an item that is really a major thing for us from a capital viewpoint.

Okay and then finally you know the reserve ratio you touched on it and then I understand the risk or weighted measure that you are looking at but you had added roughly 5 cents to the quarter -- I mean is there an absolute level you know of the reserve as a percent of loans that you are not going to go below, and how do you know, how much more incremental benefit do you think you can get through the lower reserve?

I don’t know -- in the terms that you are describing that the fact is -- it is always difficult from the accounting viewpoint We follow what are the GAAP and SEC rules, as we understand them and therefore we think that we've done a very good job in terms of reserve on those circumstances. There are entities that are older and we are you know not just strictly as we once were a wholesaler savings and loan that have larger reserves and if I have noticed anything this past quarter it seemed like a lot a people were recapturing a lot of the reserves and actually a number of them seemed to reduce their reserves. But they have historically higher reserves. We have a history that we are able to rely on, whether they'd actually ever need those reserves, somebody could question. We try to be pretty reasonable about how we do our and it is -- even though we had very good growth from the commercial side, the realty is that we are still growing very heavily on the residential and our historical losses in the residential loan is extremely small, and therefore we are doing our best to keep our reserve up.

And John, let me just add to that, as you take a look at the various factors that go into the consideration of the reserve computation our charge-offs are about flat, and been that way for the last few years. We’re providing actually twice as much in provision than in our charge-offs. The mix of our loans is see it a little more toward residential. Our portfolio as a whole is more than 90% secured by real estate. Our coverage ratios on non-performing loans now about a 130%. And when you factor all those in together I think the reserve level that we said are pretty reasonable justified based on the different factors we consider in there. In this environment as Fred, mentioned with various regulation, we have to be very prudent and make sure that we're keeping the right level of reserves and we feel pretty comfortable with where we are right now

Okay, thank you.

Thank you. Our next question comes from Barry Shalman (phonetic), a private investor.

Hi, guys.

Hi Barry.

How are you all doing?

Good.

First of all thanks for a great quarter and so far a great fiscal year. Fred, I think it was a first quarter of the fiscal in the conference call that you were asked about the possibility of instituting a dividend policy. Is that -- and you were telling us I thought the January quarter is that you are going to take a look at that? The reason why I am asking you because you looked at and decided not to or do you have--?

Its something our Board continues to review. We do review but also Barry look at it in terms of light -- in light of the circumstances, not on growth that we have and the growth opportunities we have. We have philosophically believe very strongly and taking franchise growth opportunities when they present themselves primarily on a de novo basis. So, I insist something we keep looking at, and we will keep looking at -- I can't tell you which we are going to ultimately go with and now this will come to a fiscal yearend coming up, I think as things are it’s a good chance that we put all the caveats in on that list, but we would be finishing strong this year and I am sure the Board will take another very strong look again.

Okay. That's all I got. Thanks again guys.

Thank you.

Thank you.

Okay. There are no further questions in queue. I will turn the conference back to Camner to conclude.

Thank you very much everyone. We appreciate the following and all the questions we tried to give some more details if necessary for few of them. We had an excellent quarter. We are quite optimistic as to how things are in our markets and how our management team has really developed quite a bit of momentum. Since Ramiro has come on Board, we have had a steady progressive building, almost sense of geometric building where we are going and how we are going to reach our goals of continuing to build the most successful part of franchise. Thank you very much.

Thank you ladies and gentlemen. If you wish to access the replay for this call, you may do so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 366138. This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.