BankUnited Inc (BKU) 2005 Q1 法說會逐字稿

Good day everyone and welcome to today's BankUnited fiscal 2005 first quarter earnings conference call. Today's call is being recorded.

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 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 material from current management expectations include but are not limited to general business and 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.

At this time for opening remarks and introductions I would like to turn the conference to over Mr. Alfred Camner. Please go ahead Mr. Camner.

Thank you. Good afternoon and thanks for joining us today for our first quarter conference call for fiscal 2005. I am pleased to be joined today by BankUnited's President and Chief Operating Officer, Ramiro Ortiz and our Chief Financial Officer, Bert Lopez.

The first quarter marked our 16th consecutive period of record income, which is fueled by strong growth in loan production, total deposits and non-interest bearing deposits. Net income increased 26% from the same period one year ago to 14.5 million. Basic and diluted earnings rose to $0.48 and $0.45 per share, up from $0.39 and $0.36 for the same quarter last year. Total assets for the quarter grew to 8.9 billion, a 23% increase from the quarter ended December 31, 2003.

We started the quarter on a high note with our 20th anniversary celebration. We shared the celebration with our customers in each of our branches and kicked off our 20/20/20 promotion.

Throughout the quarter, our micro-market strategy proved to help us solidify relationships with our customers, who are increasingly selecting BankUnited as their bank of choice for all their financial needs. The neighborhood banking culture that we have created has served us well and has helped to strengthen our position as the largest bank headquartered in Florida. Moreover, our business strategy coupled with our financial performance has drawn favorable attention from our investment community. During the quarter we added several new analysts coverage. Our market capitalization increased to 966 million, up 25% from December 31, 2003.

I will now turn the call over to our Chief Operating Officer who will discuss the specific operating results, Ramiro.

Thank you, Fred. As Fred noted, our micro-market neighborhood banking strategy has provided us with a competitive advantage, especially in the areas of core deposits, commercial and commercial real estate lending. In the area of loan production, total loan originations reached a record $1.1 billion and that's up 52% from the same quarter last year. The most significant growth came from our residential loan originations, which includes our specialty consumer mortgage loans originated through our branch offices. Residential mortgage loans reached $869 million, a 64% increase from the same quarter last year.

Consumer loan production for the quarter was $56 million and that's up 36% from the same quarter's production last year. Our commercial real estate loan production for the quarter was $83 million and that's up 9.6% from the same quarter's production last year. And commercial loan production for the quarter was $61 million and that's up 5.4% for the same quarter's production last year.

Our commercial loan portfolio has now transitioned completely away from participations and is now 100% full relationships. At every one of these calls I give a kind of a running scorecard on how we're doing adding new relationships to the bank. Since we started our initiative in April of '03, we have added 105 brand new commercial relationships to the bank. Interestingly enough, the same period has 91 weeks that have gone by and we continue to do better than one brand new commercial relationship per week. And I will say what I have been saying for two years that we cannot continue this pace, but so far so good.

Our total loan portfolio for the quarter grew by a significant $566 million or 9.8% to $6.3 billion. This growth included a $535 million increase in residential mortgage loan balances, which we expect will continue to grow in our current economic climate. Total deposits grew to $3.7 billion compared with 3.3 billion for the same period last year. Core deposits, which comprised approximately 45% of total deposits now increased to $1.7 billion and that's up from 1.5 billion during the same period last year. Moreover, non-interest bearing deposits grew 27% from December 31, 2003, to 262 million during our first quarter of '05.

As Fred stated, we kicked off the quarter with a celebration of our 20th anniversary in a renewed commitment to the basics. Understanding our local markets, delivering products that customers need and building and solidifying our new and existing relationships.

During the quarter, we developed a new quality of service initiative. One which will cut across all divisions in the bank. This quarter we will formalize these values with the official rollout of the BankUnited service excellence program. This program will encourage and reward our employees for delivering outstanding levels of service to our clients. These ambitious standards are being developed and will include measurable benchmarks from which we may evaluate our performance.

I would now like to turn the call over to our Chief Financial Officer, Bert Lopez, who will discuss our financial indicators for the quarter.

Thank you, Ramiro. As we have said in the past our net interest margin is our biggest challenge and this quarter was no different. As the Fed increased rates rose than originally expected we experience the decrease in our margin due to a lagging effect of repricing of our monthly adjustable MTA residential loans.

During the quarter we also experienced unanticipated effects of prepayments on our residential loan portfolio. We have implemented procedures that reduce these prepayments going forward. These two items coupled with competitive deposit pricing led to a decrease in our margins to 181 basis points versus 190 basis points last quarter and 191 basis points in the same quarter last year. As Ramiro mentioned, we continue to generate record amounts of residential loans particularly the monthly adjustable loans. The continued growth of these adjustable loans, which have now doubled to $2 billion from $1 billion at December 31, '03 should help our margin going forward.

Our total non-interest income rose 27% from the same period last year to $6.9 million. This growth included $2 million in gains from the sale of loans, investments and mortgage-backed securities. The same time last year, the sale of these assets totaled $1.2 million.

Our fee income which includes loan fees and deposit fees was $2.8 million in the first quarter, an increase of 9.5% from the same quarter last year. Non-interest expenses for the quarter increased 3.6 million or 19% from the same period last year. This increase is due prior to a $1.3 million improvement in the fair value adjustment of derivatives recorded during the quarter ended December 31, 2003. The fair value adjustments for derivatives were flat for this past quarter.

Our steady growth in revenue which we have been able to grow faster than our investments in branches, technology and personnel contributed to an efficiency ratio for the quarter of 50.2%, an improvement from 51.5% for the same quarter last year.

Our asset quality remains strong with non-performing assets as a percentage of total assets improving to 19 basis points down from 20 basis points in the prior quarter and down from 41 basis points from the same quarter a year ago. The net annual charge off ratio for the quarter remains flat at 5 basis points compared to the previous quarter. Our allowance for loan losses as a percentage of total loans of 39 basis points compared to 51 basis points for the same quarter last year.

With our positive asset trends, our provision for loan losses continues to exceed our charge-offs by a factor of 50%. Obviously there is no guarantee that additional provisions for loan loses will not be required in the future. As we previously announced, we made an irrevocable decision to repay the principal amount of our $120 million convertible debt in cash.

Thus we will not experience an EPS dilution from the inclusion of these convertible debt shares until our stock price crosses the conversion price of $38.06. Then, a portion of 3.15 million shares will be included in our EPS. As our price increases beyond the conversion price, as a point of reference, when our stock reaches $48, we will have a 2% dilution in total shares.

Finally, core and risk based capital were 7.3% and 15.2% respectively at the end of the quarter. Book value per common share is $16.39, an increase from $15.03 for the same period last year. I would now like to turn the call back to Fred.

Yes, thanks, Bert. Moderator, we are all set and ready to answer questions.

Certainly Mr. Camner. [Operator Instructions]. Our first question will come from Barry McCarver with Stevens Inc.

Good morning, guys and congratulations on the quarter.

Thank you.

Thank you.

I should say good afternoon, sorry.

Yeah.

Just a couple of quick housekeeping questions. I noticed that commercial, and commercial real estate loan growth versus the previous quarter and September quarter was down a little bit. Can you tell me what was going on there, any trends we might be seeing in commercial growth?

Not any particular trends. Business continued robust but I would not tell you, Barry, that there was anything either positive or negatively in terms of that. You are referring to specifically production, right?

Correct.

Yeah.

Barry, you are referring to balances? Because I think.

No, you are referring to production, right, Barry?

No...

Well, my question was is that the balance in the commercial line item versus the third quarter was down. I know had you production for the year and it's been outstanding. So I was a little surprised to see the balance come down.

No, those are cyclical payoffs, that, you know, balances change.

We had several projects that paid off at the end of the quarter. So we rotated to other projects that start building up. We have a lot of projects in line right now that you will start seeing the balances of those will go up and start bringing commercial balances up.

Can you tell us what the production was commercially in the quarter?

Commercial for the quarter was $61 million.

Okay. And then -

But Barry, I just wanted to underscore, that's just commercial loans. Commercial real estate production was $83 million for the quarter. What I want to understate was in balances you will see fluctuations as projects pay off and also in the commercial side we had a number of participations that are now totally off our books and what we have now are fully loaded relationships. But our production is as strong as it's ever been.

Okay. A couple of further questions, I guess, first on deposit pricing. I noticed in the balances that looks like savings went down. CDs went up pretty sharply. Is that -- what's deposit pricing look like from your competitors in the marketplace?

We think it is fairly competitive in the marketplace. I am not sure how it is experienced in some other areas in the country. We in a sense follow brokers CD rates and see what, you get a feel for what people do elsewhere. And you know, essentially, there is a certain amount of competitiveness going on, particularly on the shorter end now.

Bert, in terms of what you talked about in the press release I think on the call here today too, the lagging effect that the rising rates is going to have on your loans versus what it's doing to your deposit rates, how do you feel about the margin in the next couple of quarters?

I think we really give you kind of a range. Could be slightly down. We think it might be somewhat up, but the fact is that as we look out and really have a feel, and I think those that have adjustable rate mortgages as we do, in a sense, when the feds raised their rates in December and to the extent they raised them in consecutive periods, we already had some kind of a built-in lag that has occurred and that lag now will continue.

If they accelerate it, then the lag would widen. If they don't, then we'll continue at approximately this gap, you know up or down a little bit. But essentially the market right now is anticipating on a LIBOR basis each of the increases going forward and they kind of have it built in somewhat the 3 to 3-1/2 and I think more recently more around the 3-1/2 side for the year.

So we feel pretty well the kind of gap that we have is already in place on that, if that accelerates higher than 3-1/2, the GAAP against the adjustable rate mortgage and the MTAs could grow a little bit. If it stays at that pace, eventually that means they will skip one period of increase and actually will start catching up. So we sort of in this last three-month period, that's when the gap has occurred and that's where we are in these particular mortgages. On the other hand, there are other areas that we think are opportunities for us as we go forward.

One other thing I should mention about the adjustable rates and MTAs that have also affected our margin. We might as well go into detail since you raised the margin because other people will have questions. One is because we had such a heavy production of adjustable rate mortgages for the period, the reality is that those mortgages were all put on at teaser rates. And that initially increased in actualality the lower margin situation because as you can imagine, if they go on initially at the teaser rate figure, the cost of funds is going to initially be a little bit higher than that. So that had a temporary adverse impact. If we stay at a steady pace of adding on, then that situation has already been in the numbers and starts disappearing.

Secondly, as our balances do increase and they do roll into the higher rates, that's going to improve our margin going forward. Thirdly, and this is probably the most honest thing I can give everybody who is on this telephone call, we've dropped the ball a little bit this last period. With the end of the overall refi period, our varying programs and we usually emphasize in terms of kind of a guarding against prepayments seemed to disappear a little bit in the organization because we had so much emphasis on all the loans we were producing and we needed to recognize that there were a couple points in this last quarter where there was a little bit of a dip. And in those dips, some people took advantage to do some refis.

We should have been on guard in that. The ways that we normally have special modification programs that avoid the prepayment hurt that we got. So when Bert referred to unanticipated level of prepays, that actually in terms of the margin difference for us against our forecast really resulted in about a half of the margin decrease. We don't expect that will happen to us again. We are much more on guard and we are not going to let that ball drop again.

Okay. Thanks a lot, guys.

Jennifer Thompson with Oppenheimer has the next question.

Hi. I had a question regarding if you could just remind us of your plans for new branch openings, if there have been any changes to what you talked about in the past and your thoughts about going into new markets.

No. Ramiro can add into this. Briefly, what I have been saying is we are going to be somewhere between 10 to 14 offices this year opened. And we are going up the east coast of Florida and we expect to move up the west coast of Florida and we are doing some fill-in offices in Dade, Broward and Palm Beach area and Naples.

There is nothing to add. He covered it pretty well.

Okay. And just your thoughts on your ability to, if you needed to control expenses a little bit more going forward, boosting a positive operating leverage. Do you feel like you have the flexibility in some of your business lines to reign in expenses if revenue growth was not to your expectations?

Yeah, I think we do. Although right now our focus has been on revenue enhancement, not expense control. That's not to say we have ignored that. But as you are expanding at the rate that we're expanding, there are a number of infrastructural needs that you need to boost up to keep up with the expansion. But if we were in a jam, Jennifer, we could ratchet expenses back.

I don't think that's -- we've emphasized regularly expenses. Bert is very involved in that and as a matter of fact he recently had a brand-new task assigned to his area in the special committee he's chairing that has two developments. One is to produce additional Avenues of methodologies in terms of increasing real estates. The second - part of that responsibility now which is a strong one is to keep after Ramiro and I and the other officers in the company to make sure we keep those expenses down while we are in the process of expanding.

Let me just add to that. Bert has been asked to chair a profitability enhancement committee that will cut across all division lines. Nothing is sacred. There are no sacred cows. And the job is to squeeze out more earnings for the company in a way that's consistent with our strategy.

Great, thanks very much.

Moving on to Laurie Hunsicker with FBR.

Hi, good afternoon. Most of my questions have been answered but I just wondered if we could follow up on some of them. In terms of branch openings, Bert, I have from my notes last quarter that you all were looking to do somewhere in the neighborhood of 8 to 10 for 2005 and now you are saying that's 10 to 14. Has there been a change?

No. It may be that one is fiscal and the other is calendar, for the rest of the calendar year.

The 10 to 14?

We are talking about December-- that will run through December right now.

Got it.

10 to 14 will go through December '05.

That's probably the differential. And then this is also -- I was wondering if you could back. I mean your expenses did increase a fair amount this quarter and obviously will that continue with branch expansion. Just wondered, was there any non-recurring in there and can you give us in sort of guidance on where we might see that expense line run?

Laurie, there really wasn't anything that was not non-recurring. Actually this quarter was more normal if you will than the same quarter last year because of that derivative turnaround. No we are running pretty much at this rate. The committee that Fred and Ramiro mentioned is charged with not only short-term expenses and improvement but also long-term improvements. I think the 22-7 as a run rate is pretty good. Obviously we are going to focus on trying to bring that down. But again with the branches, technology, and increasing in our production, we do expect expense levels about that level.

Laurie, keep in mind that even in spite of all of that, you have got an efficiency ratio of 50.2.

Yeah, your efficiency looks beautiful. I am just looking link quarter you were up 4%, 4.2%. You know, if we continue to sort of build in the fact that you are opening new branches, what is a good -- okay, so 22.7 is a good base case starting. But in other words as we look at this and we kind of model out that you're going to track at that 50% efficiency ratio range, I am guessing that expenses are going to grow now like about 3% link quarter. Does that sound right?

Yeah, I think that might be the high end. There is one other item that's about 500,000, Laurie. I should have mentioned it when you asked the question. I was comparing back to the same quarter last year. Last quarter we had a reduction in our professional fees of about $500,000 quarter-to-quarter. So you can say the fees were understated last quarter by about 500,000. So this quarter is a better run rate. When you factor that out, we probably increased about 2, 2.2% growth quarter-to-quarter. So I would say three is probably the high end. Hopefully we can keep to something below that.

So you're saying in the September quarter you had $500,000.

Less of professional fees. The number in the September quarter is 372,000, the number for the December quarter is 848,000.

Got it.

So there was sort of a onetime adjustment in that last quarter, but when you start to back in just under 500,000, then we are talking about an increase of about 450,000 or a little bit over 2%.

Also, this quarter does include pretty well the cost as we see it for today's world of compliance of Sarbanes-Oxley, of the Sarbanes-Oxley internal audit and controls and etc, and a lot of that basically built into the number you see now this quarter.

And actually Fred that brings me to something else. South Florida Business Journal ran an article back on January 7th saying that apparently there will be several Miami-Dade county banks hit with poor compliance or anti-money laundering. I am assuming you are not there but I thought I would ask.

No, we haven't been cited. And well we are not allowed to give out exam information directly, we've had exams in between and further, we think we've done a -- I think a pretty admirable job at this point in terms of how we have addressed these issues. We addressed them last year. We created a -- specifically a Patriot Act BSA committee throughout the bank, including the committee on the board of directors, a committee within the bank itself.

We have special people who are attached in terms of review of all our situations with regard to those areas and have been ongoing really for quite some time now. So we feel fairly comfortable. We can never give you 100% assurance about anything because in this world today, it is difficult to do that. We have a very extensive set up built in internally and it is a whole area that we've emphasized a great deal now for really almost a year's time.

Okay. And then I, just one last question. And I guess Bert and Fred, this goes to both of you. But margin and I know this has been asked but if you could just touch on, you mentioned, Bert, there was some initiatives that were implemented to help going forward, specifically what those were. And then, number two, if you could just walk us through what your adjustment rate mortgages are coming on at. What is the teaser rate? How quickly do those reprice up, if you could just take us generally through that, that would be great, thanks.

I am going to speak on the teaser rate, first. I think the teaser rate varies in the 1, 1.5 area generally on the MTAs. You know, but we have some other types of teasers that would vary up to the 3.5 area. But the largest portion of them are coming on approximately at 1%. And what was that, you said --

How quickly do they tease up?

Laurie, I want to mention it was a one-month teaser.

It is a one-month teaser.

So they will go to a fully indexed rate the second month.

Yes. So that's one of the reasons we feel that the heavy production we have been having of this type of product, that our margins should get some benefit from that. What was the other question, you --

Yes, Bert, I thought I heard this right. You said you had implemented several initiatives that will help margin going forward.

One of the things that I -- the answer, I was the one that said that. I guess Bert generalized, but one of the think that's very important for us is we have and we did have during refis a program that relates to prepayments where we don't like to lose a customer. And what happened was that because refis had gotten so heavy at one time, we were really doing very well at retaining customers. And then when they sell off sharply, unfortunately, in the middle of our organization, the emphasis seemed to relax and we really dropped the ball in that regard. And the last two months of the year picked up and realized that was going on and December we have re-instituted procedures to get back to where we were, which is that we don't like to lose customers.

So if we go back to what we had originally had as a forecasting concept of what prepays should be, if you look at last quarter, that would have restored as much as half the margin reduction that we had and hopefully we will have done a good job this quarter. And as a result from that alone you will see some margin improvement.

But, there was nothing initiatives have done in terms of the funding side or anything like that?

Well, there are things we do but it is far more complicated than that on a funding basis. But there is not like one major thing that we would point to and say this is, you know, what we've done in specifics. We have a fairly large amount of overnight funding and that's generally part of the match against the MTAs because they are monthly and there are a lot of ways of looking at that.

But essentially the gap that I was explaining, the gap with that's really occurred by the Fed having increased in December and having LIBOR anticipating where rates are going through the predictions this year, which is already generally I think most of the comments are about 350 now. That anticipation is already created essentially the gap where we are and the lag where we are right now. So unless there is an acceleration of those increases, we don't expect that lag or gap to get particularly larger.

Okay. Great, thanks.

We will now hear from James Ackor with RBC Capital.

Yes, good afternoon. Couple of questions. First of all, obviously you guys are experiencing rapid balance sheet growth and are growing your branch network or have plans to grow your branch network pretty aggressively as well. Is there any potential need for capital in order to support this type of structural and balance sheet growth going forward?

We feel we are in pretty good shape. We did that convertible issue last year. We also have done some moderate amounts of trust preferreds in the last quarter. And we think that carries us for quite a bit of time.

Okay. Good. In terms of the branch openings, 11 to -- or 10 to 14, could you characterize the east coast versus west coast my initial impression or my previous impression was 2 to 3 on the west coast out of that total.

I am just going to give a generalization because a lot depends on the opening schedules in terms of when build out can be done and so forth. So we meet on that every two weeks and surprisingly it can change pretty sharply every two weeks at times. You know, permits, etc. Just as a generalization, about one-third are going to be on the west coast, one-third on the east coast that is above our present market area and then one-third will be in our present market area.

Okay, great, thanks a lot.

Yes.

Sam Caldwell with KBW(ph) has the next question.

Hi, yes, good afternoon. My question is regarding the MDS portfolio. I noticed it was down almost 250 million compared to last quarter. Is that because of the rapid loan growth and if you continue to experience rapid loan growth is that likely to continue? And if the loan growth were to slow, would you also slow the runoff in that?

I think in terms of the runoff we haven't looked to particularly replace that much of it. Here and there we do replace a little bit. But I do think you will see some -- and we mentioned this last quarter. We believe that during this period that we will also do some additional securitizations in some large amounts. So you may see the actual portfolio grow, but it will be mostly our own product.

On the other hand, there is no question that our rapid loan growth opportunities has allowed us to tap some of that runoff and we were asked questions about the margin before. As that occurs down the road, clearly that's another area where our margin possibilities are pretty significant.

Okay. So the securitizations that you are talking about, is that securitization with the MTA product or what?

It will be securitizations of different products, mostly adjustables. As you know, with rare exceptions relating to some of our consumer products, when we made fixed rates, we sell those off. And we are not out to make fixed rates. We as a philosophy do not turn down requests for fixed rates, because we feel we have to service our customers all the way.

Okay, thank you.

[Operator Instructions] We will now hear in Jed Gore (ph) with Sinova Capital (ph).

Thank you for taking my questions, good quarter. I was just interested in the cost of your interesting bearing deposits in the quarter, this quarter versus last. Trying to get a sense of the deposit pricing and how you are doing and hopefully lagging your deposit pricing a little bit.

We had an increase of about 3 basis points on an overall cost of deposits quarter-to-quarter. We were at 214 this quarter -- I apologize. We are at 212 this quarter versus 209 last quarter, so there was a modest increase. We try to hold on as much as possible here and there. We have run some campaigns, the main people in the market who really run campaigns will be AmTrust, Colonial Bank, I guess ValTrust is disappearing and WaMu. Those are the -- and Sun (inaudible) Savings. But those are the ones who generally run what you call the higher rate campaigns.

So the 15 basis points - thank you for answering the question. So the 15 basis point increase in the cost of interest bearing liability is mostly your non-deposit cost going higher. Do you guys use swaps to hedge that?

Yeah, that's borrowing, the overnight borrowings. We have some hedges out there. It is complicated. We have some hedges in different ways, but basically as I said, the more we become MTA lenders, the more we track that with relatively short-term borrowings, anything from overnight through up to one year. And there is a mixture we do and we meet regularly on that as to how we create that mixture. But the ultimate effect of that is that if LIBOR as it is right now is anticipating rate increases so it runs higher than the actual Fed fund's rate. That initially creates a lag or gap and that lag and gap is what you already see that's in our numbers for this last quarter.

I'm sorry. So you are actually charging, I guess the rate on the loan is based off of fed funds or LIBOR?

It is based off of MTA but the actual history of this, if you went and look, is that if LIBOR moves upward and MTA comes along behind it --

Got it.

-- you create a historical gap. We're almost at the high end of that historical gap. And the only way it would increase a little bit larger would be if the feds started doing 50 at a time instead of 25 at a time.

So would the - when the feds done, do you think that your normalized net interest yield would be closer to 2%?

I will let Bert answer that in a second while he thinks about that. Let me just say this, if they skipped one increase --

Right.

-- it is our estimate but this is a generality because it is more an economic generality. The MTA mortgage would then relatively catch up to the LIBOR and the gap would have narrowed significantly. It might still be some gap but not anywhere like it is right now or the lag, however you want to call it.

To answer your question, yes, it should move up towards the 2% because one of the things that will occur and, Fred mentioned it, is that as the rates -- the frequency of the rates decrease or the actual rate decrease, increases of the -- sorry. The rate of the increases decreases we kind of have a wave that comes behind. As the MTA continues to catch up even though our funding cost have leveled up, -- level off, we should see a pick up on the asset side and with a leveling off of the funding cost here we should see the margin improve.

Great, thank you for answering my question.

Okay.

Moving on to Gary Tenner with SunTrust Robinson Humphrey.

My questions largely have been answered. I just wondered if you could give us an idea of the magnitude of the portfolio that is still at the teaser rate as of quarter end?

That would probably be a guess; it would probably be close to 200 million.

Yeah, it would be about one month's production.

It would be close to 200 million. Somewhere a little bit less I would think of 200 million. And that number I'm giving you may not be totally accurate because I'm only referring mostly to the MTAs. There is some other -- it would be up or down 20 million from that and then if you add, people, please, I am given you very big generalities here. If you add on to that what's 3, 1, 5, 1, that would be in addition to this. But we don't have as many of those. Most of our production over the last several months has been MTA.

Okay, thank you.

Our next question will come from Al Savastano with Janney Montgomery Scott.

Good afternoon, guys. How are you?

Good afternoon.

Couple questions here for you. Ideally, what would the loan mix be between commercial and consumer?

Well, by consumer you mean just commercial and commercial real estate versus everything else?

Yeah, that's a good way of looking at it.

I think we mentioned before on calls we don't technically have an ideal because our basic concept is Ramiro in terms of what happens on the commercial and commercial real estate side is we produce what we think is prudently possible. I mean there is no question that right now we could double this production. And probably could even double it and most people would be thinking we are doing great and et cetera. But we just continue to be very selective. We feel the market's very, very strong in the commercial and commercial real estate area right now.

And so we are in position to increase it and continue to increase it and continue to increase that area. But we don't think that's going to grow as fast as the residential side where we also have extremely strong demand.

Al, we are you know we have a high quality problem and the high quality problem is that the demand for residential loans continues to be very, very, very strong. And if I were to try to keep up with that residential demand on the commercial or the commercial real estate front, two years from now you guys would be throwing me out of town. You would be applauding me now and two years from now you would run me out of town. So we are kind of taking on the residential side what the market will give us because we don't want to walk away from the earnings that that produces and then we continue to grow our commercial and commercial real estate portfolios in a prudent manner and we let credit quality be the governor, if you will, on that growth.

And as I mentioned, that also has an extremely strong demand factor right now. The entire South Florida market for anybody who hasn't been down here is booming. We are trying to be careful because there is a certain amount of specing that does go on when you get this much of a boom underway. And I have mentioned before in prior calls as a result of the hurricanes something over $30 billion that's additional in terms of aid, insurance payments, et cetera, that's coming into the state and it's probably going to be spent over the next 18 months to 2.5 years. So that also is creating even more demand throughout the state for construction funds, for all sorts of things, relating to financial services.

So we are just extremely optimistic about the Florida economy. But we still as Ramiro said, that credit guides what we do and we are selective. We try to be very careful about that because there is always a time when you know these reaches an end and people have fall-offs and we'd like to be the fellows that you all look at and say, they had few credit problems, not a lot of credit problems when that happens.

Even if you can get good credits, does that kind of imply that you are going to grow commercial loans very slowly?

No.

I wouldn't say we are growing it very slowly. We have been bringing in better than one new commercial relationship per week over the last two years. I have never been associated with that kind of growth. What's happening is that the residential piece is growing so much faster and trying to keep up with the residential piece is probably not a smart idea for us.

Okay.

And the other thing, just to mention is a couple major in terms of balances, a couple major relationships because of their financing and also in one case because the company went actually private, it was a public company. It was a well-known company related to Lennar. We had lines to pay down at the end of the quarter. So it makes it look that the balances are smaller but those lines you know one of those probably would go back up again but the other one will not.

And I feel confident Al that you will see nice increases in the balances going forward.

Okay. Great. Two or three more questions. On the borrowing side again, I apologize if you mentioned this before, you generally funding you said overnight to one year?

Well, yeah. I mean, they are matched fundings, yeah.

On the MTA portions.

Yes. And I mean obviously on LIBOR, adjusted also. In LIBOR lending we also fund the same way.

Okay. And then just a couple number of questions. What was the amount of the unrealized gain in your available for sale portfolio at the end of the quarter?

It was actually a loss and after-tax was $13 million. That's down from $21 million at September 30th.

You are talking about the securities portfolio?

Yes. That's a net number, correct?

Net as to gains and losses?

Yes.

Yes, yes.

Okay.

Yes. Yeah. And just so it would be understood and it will end up being in our 10-Q, a piece of that is Fannie Mae, Freddie Mac preferred stock.

And how much did you write that down? Or you didn't write that down?

We wrote it -- we only adjusted into the comprehensive income or through the balance sheet. We haven't done that through the income statement.

Great. Last question. Bert if you can give us little guidance on the effective tax rate for fiscal '05.

We usually target anywhere from 31 to 33. Most of the guidance has been at the higher end of 33.We are just at about 32 at this quarter. So I still I feel pretty comfortable going with the 32 to 33 for future quarters.

The other thing we should mention in terms of, just to reiterate from the past, our duration on our securities portfolio is somewhere in the little over two year area.

Thank you.

Make that 2.5 year.

We will now hear from Donald Guise(ph).

I am a long time investor with you folks, I've been very happy with results and I am just looking at some old notes here from these conference calls and I note there have been a lot of very much optimistic, a lot of good things happening, numbers coming right. You are doing a lot of things very, very well. My question for any of you that want to answer it, is there any single thing that makes you wake up at night sometimes and think, "boy if this happens, we are going to have a problem? Is there any --what could be have a significant negative effect on the business that might occur within the context of your business?

Yes, well, within the context of the business, we feel pretty comfortable about where we are. We think we have done a lot of things. We're in the organizations to demonstrate discipline. So at this point our normal things are is there something about the economy we all don't know? Does the Fed raise rates twice as fast as they are now because suddenly we had inflation. It doesn't seem that way but there is a lot of pricing in commodities that certainly indicate that. And then the number one thing always is that we are always concerned about is terrorism. It hit our economy once and who knows what will happen there. So I don't think any chief executive doesn't worry about that one. They just put it aside because there is not a heck of a lot you can do about it.

Okay.

Anything else, Donald?

Just a comment. I recently received your annual report and I have seen hundreds and hundreds of annual reports over an investing career. And I must say, this is a probably the most distinctive one I have ever seen. I look at it and I think, you know, this is probably part of your promotion, your advertising that you do in your local markets. If it isn't, it out toto be. You have a really nice product this year.

Thank you, Donald.

Thank you. And it is also something we are using with our business lines as well. Thank you very much.

Thank you.

[Operator Instructions]. And we will now hear from Erwin Katz of Raymond James.

Hi, guys, how are you? I think you really touched on where I was going to go, Fred I think you touched it with the, you know guys know me a long time and asset quality is really critically important. That's why I have been a long-term investor with you guys, you always watched us it so carefully, I've never worried about it with you. But we are blessed here in Florida to have a lot of growth and all those types of things but I continue to get concerned about speculative buyers of real estate and what that does and recently I was reading some articles concerning -- they are saying Florida has got lots of people moving here. We have lots of people coming here to retire, coming to work and they were talking about the speculative buying of condos in southeast Florida.

And I was down there over this past weekend and I continue to see the stuff down on Brickell Avenue and those thing make me a little nervous. I guess my question is: my sense is your loan -- your loans on those type of things are being very cautious. But are you running into losing deals because other banks are not as cautious as you are, they are forcing you to maybe do one thing or another that you may or may not want to do?

Yeah, I wouldn't say banks but other investment types, insurance companies, pension funds and so forth. That kind of money is chasing these projects pretty aggressively, Erwin. But banks for the most part continue to underwrite pretty conservatively. There isn't a banker in town that when I speak to them about those sorts of things don't have the same concerns that we have.

You know, Erwin there are always a couple deals you may lose like that. But overall at the moment everybody has kept pretty well, a decent discipline in terms of pre-sale requirements. What's interesting and for a lot of builders that we finance, this is one of the reasons we say we try to be selective, they themselves in a number of projects have instituted protections to avoid over speculation in their project.

We tend toward doing a certain amount of tract housing financing combined with -- we do some high-rise condos. But when we do the high-rise condos we generally look to have one are with people who are really strong track records who have been through other cycles before and know some of the pitfalls would involved. And likewise, their location ,that's the old saying in real estate, location, location, location and that the location of those projects we do are in really top-notch areas in our estimation. So as an example, you mentioned Brickell Avenue, we don't do, right now, financing of condos on Brickell Avenue.

Erwin I would also add to that out of state banks, out of state banks are coming in more aggressively, bidding up some of these situations. And they are just not as close to the market as some of our local banks are and they're underwriting on a much more aggressive manner.

Thanks a lot guys.

That does conclude the questions at this time. Mr. Camner I will turn the conference back to you for any closing or additional remarks.

Thank you. I appreciate everyone who's had an opportunity to listen to us today. We of course make ourselves available as we have in the past for additional questions with always the reminder that a certain amount of things in life we have to put in press releases when we have those talks. But in any event, we're continuing to be optimistic as we describe the Florida economy in particular. It is doing well. It has got a lot of strong demand and momentum going. Our customers seem to be doing as well also. And all of this has given us a lot of opportunity. We continue to seek those opportunities and to fulfill our mission which hopefully for all of us is to make more money for our stockholders and to do it in a prudent manner. Thank you again for being on this call.

Thanks Mr. Camner. That does conclude today's conference. On behalf of BankUnited, I'd would like to thank you for your participation.