BankUnited Inc (BKU) 2005 Q3 法說會逐字稿

Good day everyone, and welcome to today's BankUnited fiscal 2005 third 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, could, plan, target and similar expressions are intended to identify forward-looking statements. Actual results or performance could differ from those implied or contemplated by such statements.

Factors that could cause future results and performance to vary materially from current management expectations include, but are not limited to, general business 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 laws for regulation, reliance on other companies for products and services, and other economic, competitive servicing capacity, governmental, regulatory and technological factors affecting the Company's operations, pricing, products and delivery of services.

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

Good afternoon. Thanks for joining us today on our conference call for the third quarter of fiscal year 2005. With me are Ramiro Ortiz, BankUnited's President and Chief Operating Officer, and Bert Lopez, our Chief Financial Officer.

First let me thank everyone for their flexibility. We typically do not release earnings this early in the month or this late in the week. Our vacation schedule necessitated a change, and thanks to our Finance and Accounting departments for getting our books closed quickly. Their efforts are appreciated.

During today's call we will review our Company's performance during the past quarter, and the steps we have taken to prepare for the future. In a way this quarter had a lot of noise. Disclosure and time constraints prohibit us from going into deep detail, but we will discuss the major points today. In the third quarter BankUnited incurred a net loss of 14.8 million as compared to 13 million in net income during the same quarter last year. This loss was primarily attributed to an after-tax charge of 24.6 million, related to the prepayment of high rate long-term Federal Home Loan Bank advances, and the settlement of certain related swaps. This debt had been a burden our balance that negatively impacted net interest margin and earnings for some time; however, the recent position of the yield curve made this a good time to prepay the advances and some related swaps at a substantially lower amount than that which would have applied in the past.

By prepaying 405 million in advances we expect to reduce future costs of borrowing and funding by 250 basis points or more. This action has taken -- was taken very late in the quarter, so very little of the positive effects have been felt.

We also elected to retain a greater amount of our loan production so that we would have -- we in turn then had a lower gain on sale numbers. Bert will discuss this shortly. We also made adjustments to our MTA loan products. These are loans tied to the Monthly Treasury Index. We expect that all these actions will have positive impacts on future net earnings.

Overall, in spite of our rapid growth, we are disciplined enough to consistently review and refine our strategic goals. The plans we make today will have a positive impact on earnings growth and stability in the future. Excluding losses relating to the Federal Home Loan Bank prepayments, net income for the quarter was 9.8 million, down 24.6% from the same quarter last year. Basic and diluted earnings were both minus $0.50 a share compared to $0.43 and $0.41 per share for the same quarter last year. Excluding the effect of the Home Loan Bank fees, basic and diluted earnings were $0.32 and $0.30 per share for the quarter.

For the nine-month period ended June 30, '05, net income was 13.3 million compared to 36.6 million for the same time last year. Excluding the effect of the Home Loan Bank prepayments, that income for the nine months ending June was 37.9 million, a 3.5 increase from the nine months ended June 30 '04. Basic and diluted earnings per share for the nine-month period were $0.43 and $0.41 respectively. Without the effect of the Home Loan Bank prepayments, basic and diluted earnings per share would have been $1.25 and $1.17.

During the third quarter we opened two new branches, bolstered our corporate and commercial pipelines, and continued to experience strong results in total deposits and loan production. Total assets during the quarter increased to 9.9 billion, up 20.4% from the same quarter last year. The Board of Directors declared a cash dividend on Class A Common Stock of $0.005 per share paid on June 30, '05. The Board anticipates that it will continue to declare and pay dividends on a quarterly basis, subject to its discretion.

Overall, we are optimistic. Subject to the usual stated caveats, we're confident that the moves we have made will have a positive effect, and that we will be back on track next quarter in terms of our earnings. I will now turn the call over to BankUnited's President and Chief Operating Officer, Ramiro Ortiz, who will share more details about our specific operating results.

We have made adjustments this quarter that will improve our Company's prospects for a successful and profitable future. We continue to be pleased with our neighborhood micromarket strategy, as evidenced by our results in DDA, commercial, commercial real estate, and consumer loan balances. We continue to gain traction. Since we launched our strategy in 2003 we have seen steady results of its progress every quarter. Total deposits were 4.2 billion, and that is 22.6% from the same quarter last year. Non-interest-bearing DDA deposits increased to 326 million, and that is up 37.3% from the period ending June 30, 2004.

BankUnited opened two branches during the third quarter, bringing our total network to 55 locations now in five counties. As we continue to expand into new markets on the East and West Coasts of Florida, we are on track to open five more locations by the end of this fiscal year, and another eight to ten branches in fiscal 2006. We have made investments in infrastructure and staffing to meet the demands of this growth.

We see these investments paying off as we experience strong deposit growth and robust loan production. We expect these trends will continue as we expand our branch network into new markets and increase our corporate and commercial relationships. We continue to track our commercial progress at a new relationship per week since we initiated the strategy in April of '03.

Total loans grew by 738 million at June 30, 2005, or 10.8% to 7.6 billion. This included a $652 million increase in residential mortgage loan balances and a $38 million increase in commercial and commercial real estate loan balances. These numbers reflect the strength of our branch network, the value of our micromarket strategy, and the focus of our team.

Thanks to a strong real estate market and a lot of hard work by our salesforce, residential mortgage loan originations, which include consumer mortgage loans originated through branch offices, were 1.1 billion for the quarter. And that is up 16.4% over the same period last year. Consumer loan production, which excludes consumer mortgages, was $89 million at June 30, 2004. And that represents a 97% increase over the same quarter last year, again reaffirming the success of our branching strategies.

Overall, we are very confident about the future. We are continuing to deliver on our promise in our marketplace to offer the highest level of personalized service, local decision-making power, coupled with the financial muscle of a $9.9 billion institution. The decisions we made to prepay our high rate debt puts us in a strong position for the future.

I will now turn the call over to our CFO, Bert Lopez, who will discuss other financial indicators for the quarter.

As Fred mentioned, we incurred a net loss for the quarter that was due to the $37.9 million in fees incurred for the prepayment of high rate Federal Loan Bank advances and related swaps. On June 17 we prepaid 305 million of long-term advances with a weighted average fixed rate of 6.03%. In addition, we prepaid $100 million of high rate long-term Federal Home Loan Bank advances and the related swaps, which had a floating-rate of three-month LIBOR plus 260 basis points. On an after-tax basis this reduced BankUnited's earnings for the third quarter by approximately $24.6 million.

Net interest margin decreased this quarter to 1.67% from 175 basis points from the previous quarter. This number reflects the reclassification of loan prepayment fees totaling $1.4 million for this quarter, and $750,000 for the previous quarter from other interest -- from other income to interest income.

While GAAP allows us to place these fees in either category, given that these fees are compensation to us for not having the loan in the future, and the growing amount of these fees, it is appropriate to classify them within the margins. Excluding the effect of this reclassification, net interest margin would have been 160 basis points at June 30, and 172 basis points at March 31, 2005.

Other factors that impacted our margin include, first rising funding costs in response to increases in general market interest rates that pressure on competitive deposit pricing. Second, the lagging effect of increases in short-term interest rates related to adjustable-rate mortgages. A significant percentage of our loan portfolio is comprised of loans indexed with the Monthly Treasury Average. During this quarter the MTA index began increasing at a faster pace than it has in the recent past. It is currently increasing at almost the same rate as short-term interest rates.

Third, the trend of prepayment of mortgage loans. We have processes in place to reduce the level of prepayments, but recognize that this is an industrywide phenomenon that all banks and lenders are facing. As Ramiro mentioned, total deposits grew to $4.2 billion, a strong 23% increase over last year's balance. Core deposits, which include checking, savings, and money market accounts, remain level at $1.7 billion. This quarter BankUnited continued to emphasize its growth in time deposits, including lengthening of maturities, in anticipation of continued rising interest rates.

Loan production was a significant factor in BankUnited's growth this quarter also. Total loans grew by $738 million, or 10.8%, during the quarter to reach $7.6 billion, and are up 2.3 billion, or 45%, over last year's same quarter. This quarter's growth included $652 million increase in residential mortgage loan balances, and $38 million increases in commercial and commercial real estate loan balances.

This quarter we look at not to sell excesses mortgage loans, but may do so in the future. Total noninterest income was $3.7 million for the third quarter of 2005, down 37.9% from the same quarter last year. Because we record interest rate swaps as noninterest income, the decrease in this quarter is attributable to the $1.4 million charge on the settlement of swaps, which was related to the Federal Home Loan Bank debt repayment.

Fee income, which includes loan fees, deposit fees and other fees, was $2.2 million for the quarter, down .9% from the same quarter last year. Insurance and investment income for the third quarter was $1 million, down 22.5% for the preceding quarter, and down 11.5% from the same quarter last year. This reflects the typical ebbs and flows in this line of business as it reacts to interest rates and market conditions.

The portfolio of loans serviced for others stood at $1.2 billion at June 30, 2005. We earned $800,000 in fees on loans serviced for others, which was offset by $900,000 in amortization of mortgage servicing rights. In addition, we recorded a $130,000 impairment charge for the quarter based on a current evaluation of the mortgage servicing assets.

Noninterest expense increased $42.7 million for the quarter, or 190%, from the same quarter in the prior fiscal year. This number of course includes $36.5 million in pretax prepayment fees related to the Federal Home Loan Bank debt extinguishment. In addition, that number also includes a $1.2 million cumulative adjustment for prior periods upon review of our lease accounting practices. Due to the immateriality of these amounts to prior concurrent periods, BankUnited will not restate its financial results for prior periods.

The increase in noninterest expense also reflects our rapid expansion in the branch network and support areas, as well as ongoing efforts related to Sarbanes-Oxley compliance. The efficiency ratio for the quarter stood at 153.8%, an increase from 53.3% for the same quarter last year. If we exclude the Federal Home Loan Bank extinguishment and the lease expense adjustment, the efficiency ratio would have been 62.8%.

Our asset quality continues to be beyond stellar. Non-performing assets as a percentage of total assets decreased in the quarter to 10 basis points from 21 basis points for the previous quarter, and down from 25 basis points at June 30, 2004. Charge-offs for the quarter were only 651,000. And the net annualized charge-off ratio for the quarter improved to 4 basis points from 5 basis points for the preceding quarter. Of course, there can be no assurance that additional provisions for loan losses will not be required in future periods. The allowance for loan losses as a percentage of total loans was 33 basis points as of June 30 compared to 44 basis points as of June 30, 2004, and 36 basis points as of March 31, 2005.

While the current level is relatively low compared to the industry in general, we believe the allowance is prudent, given the composition of our loan portfolio, which is more than 90% secured by real estate, primarily residential properties. BankUnited continues to maintain a strong capital position which is in excess of regulatory requirements. Our core and risk-based capital ratios were 7.2% and 14.7% at June 30, 2005. And our book value for common share was $16.29, up from $15.18 at June 30, 2004.

I will now turn the call back over to Fred.

As you can see, we have definitely had a certain amount of noise for this quarter, and I'm sure many of you will have some questions. So, moderator, if you could please open the call for questions.

(OPERATOR INSTRUCTIONS). Laurie Hunsicker with FBR.

Just several questions, I guess regarding specific line items as we are running down, and maybe you can kind of start from the top here as far as net interest margin. Any comments on forward-looking margin? I guess we had from our calculation on the restructuring assumed that this quarter would actually include 2 of the 11 basis points of pickup, so the margin contraction here was a little bit of a surprise. Any thought in terms of a go forward basis? We will see the 9 basis points start to plant in next quarter. What else are we seeing in terms of our modeling, just if you can help us out a little there?

Bert and I will attempt to do the best we can in this. It is very difficult given all the caveats that we have to throw into this. But without getting into specifics, just practically nothing of the change relating to the Home Loan Bank advances in the last quarter, because it really -- there was only a few days where anything would have taken effect on a positive basis. So you're just talking about a few days out of the 90 or so.

In terms of going forward, I think what we have indicated is that we expect to be doing as much as 250 basis points or more in improved cost of funding in the future periods. So we think that will add significantly to our positive margin. Likewise, we have done some adjustments in some of our products, particularly involving MTA, which we believe likewise will improve that margin. I can't give you a number on that, but I believe you'll end up finding that too will add significantly to our margin going forward.

The whole emphasis of prepayment fees on the mortgages, we have now added that back to the margin. Because what is happening is as the market has changed we felt that, as a number of other institutions do, that that is more applicable since the FASB charges come off of the margin in the first place that the offset of that are the prepayment fees. So that clearly will have a strong margin effect.

And what has happened is -- and again we can't specifically quantify this for you -- but as time has gone on this last quarter we have noticed a trend that shows an increase in the prepayment fees against the amount of prepayment charges when you recapture the FASB and other costs on a prepayment of a mortgage. If you went back six months ago, it would not have been as a significant item. It will become more significant as we go forward.

We quite some time ago, really way ahead a lot of people, went out and had included in our MTA products prepayment fees. There are things called soft and hard. And I don't want to get into all the details of this. We have continually in a sense hardened those, stretched out the time periods for the hardening of those, and even took some more moves in the last several months to even make that in a more positive sense. So there will be more of an offset as we go through future periods in terms of what happens with those charges. We believe that again has a positive effect in our margin going forward.

Bert, I don't know if you want to --.

Let me just add some numbers to Fred's discussion. If you look at our prepayment fees, we feel pretty comfortable they will continue to go up. We had $509,000 worth of prepayment fees in June of '04, 750,000 for the quarter of March of '05, and then this quarter 1.4 million. So there is a positive trend there.

And mostly because we look at our MTA portfolio, which is the piece that has the majority of the prepayment fees on them, now 75% of our MTA loans have prepayment fees on them. So should we experience some higher level of prepays we think we will be compensated.

Okay. And Bert, or maybe Fred, in terms of just going back to the margin, if we were just in terms of next quarter, given where we are in the yield curve and everything, to run margin somewhere in the 177, 178 range, is that et al. in the realm?

You are including then the improvement from the Federal Home Loan Bank advances?

Correct. I guess the reason I asked is if we look at your stock today. You all missed consensus. You missed our number pretty materially. And the problem with that, you guys giving guidance is if we are off in our numbers, it is you all that pay the price in terms of (multiple speakers) price performance. And I'm not trying to nail you down here in terms of where we want to be, I just -- in fine-tuning our model we are just kind of --.

We're optimistic that -- we would like to think we can possibly do better than what you're looking for. But that doesn't mean we will, and it is subject to 1,000 caveats. But we think there will be some pretty significant improvement in margin this quarter. There are lots of other things going on.

And in terms of numbers of where people that they were, and I referred to this as noise, what I did state and just want to make clear that we made a determinate figure -- we made a determination not to enter into more sales of loans this last quarter, because we thought going forward it would be a better situation that we hang onto those loans. And there are various reasons for those – for that determination. Clearly that increases the amount of balances, I guess, in a sense for this quarter, subject to determination that we may do some sales this quarter. But in terms of some expectations for fee, if you look at the prior quarter we had a much higher gain on sales.

Right, right. I'm looking. Right, the 1.9 million versus zero the last quarter (multiple speakers).

And there are a lot of things that have happened. Bert mentioned the lease situation. We did an accounting adjustment on some items relating to lease accounting, and we put that in this quarter without restating prior quarters. There are a number of things that have happened. Some of them much smaller than we are describing, and I can't go into the details of all those.

Actually just on the noninterest income line item, maybe just to sort of finish touching on that, so you said next quarter you may actually sell loans again?

It is very possible that we will have some sales this quarter. I can't say definitively we definitely well. I expect that we will have some sales. We will certainly have some sales we think in excess of where we were this last quarter.

In excess of the 2? Okay. I guess maybe when we look at the line together -- sales loan, sales securities, is it fair to look at those two categories and say, maybe that is at least $1 million in one way, shape, or form?

If you go back over a period of time, generally we end up reporting in excess of that number. This was probably a low number for us. But I can't tell you again that for sure we will report a higher number than that, but on a trend basis over a period time we have generally reported more than that.

And then going back to your loan fees line link quarter that went from 1.3 down to .6, can you just remind me why that was specifically?

The loan?

Loan fees within noninterest income. It went from last quarter 1.336 down to .592, unless I'm just looking at that wrong. Did I get that wrong?

Well, last quarter you would have had the 750,000 of prepayment fees in there. So apples to apples, we are at 592,000 this quarter, 586,000 last quarter. So we're up just slightly.

I guess, I mean just looking back on a -- even over the last six, seven quarters that line item has run at least $1 million. I guess why the massive shortfall this quarter?

Because of the prepayment fees that are now classified up in interest income.

That's a reclassification. That is the best way to put it.

I guess I misunderstood. I thought the reclassification was also in place last quarter?

No.

No, it was not. We just did this quarter. Last quarter it started getting to a larger number. This quarter it became such a number that we felt it really needed to be moved in tandem back into interest margin.

Oh, right, right, right, okay, I am with you, right. The margin was reclassed from 172 to 175. Okay, my mistake. I'm there. Okay.

And just so a little bit more explanation on that area. Our basic reasoning and concept here is that, as we discussed this in the past, the FASB cost on FASB 91 deferral requiring you to then recapture those, as well as certain other flux (ph) in connection with the origination of loan, it is appropriate that if a borrower prepays that that fee go ahead and offset those costs, because that is really the basic reason. And it had not been particularly material before. It is becoming a very material item, and we felt we needed to get it in the right position so it shows what is really happening with the loan.

And what Bert mentioned earlier is 75% or more of our MTA loans have these prepayment fees in them that -- those that don't generally are ones that have a much lower figure in terms of the total cost of origination. So the effect there is that if those prepay they don't have the same significant cost to us when they prepay. The ones that have a greater cost of prepayment recapture costs we in turn have prepayment fees involved with those.

I was just going to say just to give you an idea, while the 25% of those MTAs do not have prepay fees on them, that represents only 12% of the capitalized cost related to the total MTA. So it is about half of the composition of loan balances.

And then just going on down the income statement, the noninterest expenses, up in almost every single category. Is there anything as we look at it that is non-core? And obviously this is taking out the 36.5 of restructuring charges?

I think you have to take out obviously the 36.548 which is related to that. But also the lease charge for prior periods was 1 million 226. I think you have to reduce that out of there also. If you do that, you're at 27.548 for the quarter.

What about though just short sort of across the board that every single category was up? Is there anything else in there that we could say non-recurring? The lease charge fell into occupancy and equipment?

That's correct.

What was it -- like for example professional fees were? You know, it went from 1.3 to 2.2?

I think the largest -- again, there is a lot of things to go into it. But one of them is Bert mentioned Sarbanes-Oxley, and there is no question because we are September 30, we have to complete our compliance with Sarbanes-Oxley by September 30. And as you may know, there are a lot of audits and other fees in connection. So for example this quarter it was close to 400,000 in expenses just for that particular item.

Now as we get done through September 30, and the assumption is that we will do a good job of finishing that off, as you go forward those expenses ameliorate. Now to what degree I can't really tell you in total. We can't come up with exactly what that figure is. We think there will be a fairly significant drop-off in that type of expense, though you will have an ongoing and continuing responsibility under Sarbanes-Oxley. But because we are early period, a lot of heavy costs are really being charged these last several quarters.

Is it possible that 2.168 million number could run back to about $1 million a quarter? I guess what we're trying to do is kind of get a core run rate. Because right now the operating earnings I am calculating are just so light of where I had you guys.

It is very difficult for me to give you that kind of guidance. If Bert could work up something, he will try to let you know. And then we will of course let everyone know. I just don't know whether we can get it. There are so many items that go into that category that we have to examine that pretty heavily.

Fred, is there any more expenses that will be forthcoming going into the September quarter?

The September quarter will have some expenses, most of them are still in the basis that we have additional branches opening, but those -- a lot of that expense has already started, so there will be some additional pick up there. And as we go forward into next year, we have said that we will end up with between 8 to 10 additional offices during the year. They become a diminishing amount. I mean, almost humorously we were having a discussion here that Sarbanes-Oxley is going to cost us more than the lease expense of new branches. (technical difficulty) this last year. So I guess a larger institution is able to absorb that. We are somewhere in between. And it kind of hits us a little more than some of the bigger guys. We just have to live with it and move forward with it. It has been a kind of a drag the last several quarters. I think we've got to get other people to be able to ask questions.

Absolutely. Absolutely.

You will be able to talk to Bert directly. Everybody always calls Bert anyway.

Thanks very much.

Sam Coldwell (ph) with KPW.

My question was on the MTA adjustments you guys are talking about making. You talked about some of the things you that have done. Have you changed the teaser rate on those -- on the MTA product yet?

Without going into specifics, what we did do is there are some things relating to the way our product was out in the market that was costing us additional dollars over some other of the MTAs in terms of our competition. This goes back to the way our documents were originally drawn and how we originally had done some marketing of this. We have altered that to going forward. So while we will still have a teaser, in fact we will have a significant we believe pick up in our -- or you can put it another way, a significant situation where we will earn in earlier points interest on the MTA loans as opposed to what right now is a widening deduction.

It wasn't as important before, our rates were real low. It has become important now. It was a significant figure for last quarter. It therefore should work in a very significant pick up with us this quarter. And that is the best way I can do it, because without knowing the total volumes in this sector, I can't really peg a number to it. But --.

Okay, what about (multiple speakers).

generalization.

Okay but today (multiple speakers).

We think it is at least in the vicinity of $1 million or more.

To net interest income? I'm sorry.

Yes, yes.

But how does that look to the consumer though. Is there a teaser rate on this product now? It was 1% at some point in the past. Has that changed and --?

Our average has been something above 1%, and that is not going to significantly change. It is the period of allocation that will change. This is more in conformity with others in the market. I can't go into too much detail on it. It is a little more complicated than this. But in any event from an ultimate view of recording the income we will be in position this quarter to report income at a (multiple speakers).

My next question was on the branches. You talked about five branches by the end of the fiscal year, so that is five branches that are opening this quarter I understand?

Yes.

That is the way I am understanding that. Okay.

There will be five in this quarter. Most of those have some amount of expense already -- some of it started up already in this last quarter with bringing on people --.

That was my question.

Who were already trained for opening the branches. Some of those branches will open up really very shortly. Some of them will open up toward the end of the quarter.

That's helpful. Thank you.

I don't think you're going to see a big expense disruption as a consequence of the new branches in this coming quarter.

Yes, it seemed like there was quite a bit of expenses, even if you exclude obviously the FHLB and the lease. I calculated that expenses were up 30% link quarter annualized, which seemed like a pretty big jump. And I just wanted to know how much of that was related to the new branches?

It is all over. There are a lot of things, but yes, some of the new branches are already in that number.

And obviously Sarbanes-Oxley was also (multiple speakers).

Yes.

Gary Tenner with SunTrust Robinson Humphrey.

I probably don’t know if you missed this, Bert, but I wonder if you could be a little more specific on the net negative impacts from the margin from the prepays, I guess net of moving the prepayment penalties up into the top line?

And also as it pertains to not selling the mortgages this quarter as you did last quarter, just a little deeper into the rationale for that. Are we to assume that most of the mortgages you kept on balance sheet were of the variable rate type? And maybe you could just talk about the percentage of net new mortgage loans that are MTA versus other types of product?

Let me start at the back and work forward. The majority of the loans that we kept were MTAs. We were producing anywhere from 80 to 85% of our total production in MTA loans. So we kept those on the books from the earning asset side just to help to manage -- or the interest income portion of our income statement. I apologize, your second question was related to --?

Just be a little more specific as to the negative impact of the prepayment to the margin.

As you say, the prepayment penalties helped us about 6 basis points this quarter. And that just about offset the additional prepayment that we saw coming this quarter compared to last quarter. So it was almost within a couple of basis points of each other was a push.

On a sequential basis it was 6 basis points worse than the March quarter, is that what you were saying?

What he is asking is what is the effect (multiple speakers). Tell me if I got this right. What you're trying to ask on this is if the prepayment -- the actual prepayments – the cost of prepayments, how much would that affect margin?

Right about 7 basis points. So we covered about 6 basis points for the prepayment fees.

Okay. That's fine. And then finally, you said 80 to 85% of the MTA origination this quarter. Can you quantify the impacts of the margin this quarter of that production as far as fees or rates go?

I think part of that is what we have been trying to explain. Bert would have to work up that number for you. But it is a very significant number that will be reduced we believe going forward by changes in product concept by at least one-third. So that is a fairly large figure. And that figure is over -- we think that figure will end up being over $1 million of savings or additional revenue that will occur this quarter. And it could be a fairly significant figure above that $1 million.

But since we can't tell you exactly what our production is this quarter coming up, it would be difficult. If we go back and look at the prior quarter we would probably have to work that figure up as to what the total teaser effect was for the quarter, but it was substantial. It definitely was a drag on margin. The change we made in the product will ameliorate that particular situation quite a bit. As I said by least we think $1 million and maybe a lot more.

I appreciate that. And just one -- just to make sure that I understand that 100%. You're saying that the negative impact to dollars of interest revenue this quarter, or for the June quarter, was at least $3 million and on the teaser rate versus a run rate against that product?

I haven't made the actual calculation, so I hesitate to put it that way, because the actual calculation I have generally made is the change that we have will have improved -- it should improve revenue somewhere in the 1 million plus area or more. And I -- but to say exactly what the total was, maybe we can get that calculation and we will let everybody know what the teaser effect was for the quarter. But I think you are probably right.

I was thinking the savings this quarter is pretty much the same amount as what it cost us last quarter, given the change in volume on production. So I think we stick with the $1 million number or slightly above in terms of the impact last quarter, and we should see the benefit this quarter.

But that is not the -- what he is asking for is what the total teaser impact is.

He's suggesting it is over 3 million and that you will have to calculate -- I think that's correct. I think your figure is correct, but I don't really know. I've got to work it up and get it out to everybody.

James Acker with RBC Capital Markets.

I have got a question. I guess I am going to beat the dead horse, which is the margin. And Bert and I have had this conversation a million times in terms of being structurally low. We did a run this afternoon on banks with 1 billion in assets or more across the country that were publicly traded. There are roughly 300 of those banks. And you guys ranked -- the only bank in the country of any size with a lower margin than you guys is State Street.

And I have struggled with trying to figure out why it is that the margin is consistently so low. And I understand that there are forces at hand that are industry specific, not just BankUnited specific. But have you guys done any profitability analysis that which did would suggest maybe if you're only going to get 150 bips worth of margin, or 160 bips worth of margin on certain production, does it make -- considering you're such a huge production machine, would it make sense to sell more of this stuff, and just say instead of growing the balance sheet for the sake of growth, just crank up the origination machine and become more of a mortgage bank in some respects? Or maybe not grow the balance sheet and use capital to buy back stock? It just seems like if you're going to continually to get these really razor thin margins it is debatable as to whether or not it the proper thing to do with the capital.

We do those things. We ran those studies. I guess in terms of margin we were surprised this year to some degree at the tightness in margin given the effect of increases we have tried to do some things to anticipate further increases. We have wanted a product, and we have substantially picked the MTA in advance as one that relatively we would keep up with the typical types of that increases. Notwithstanding that they refer to them as measured 25 every time you meet is one of the faster times -- sets of increases they have ever had.

So I suppose it gets back to our statements that I would gather some day the Fed would pause, but we don't know for sure they will pause. But we believe intrinsically they will pause, and then the margin will pop quite a bit. In the meantime what has happened is, and Bert mentioned, is the index now moves as rapidly as the Fed is measuring their increases now -- I guess they could accelerate those even though there hasn't been any reportable inflation of any consequences recently.

So it is a tough item. We try to do that in terms of measuring. Yes, we made a conscious decision not to sell some loans last quarter, given all the other things we were doing. We added those into balances. They will certainly add into revenue this quarter, and additionally we probably will have some sales this quarter. The ultimate mix of sales and how much we retain will depend certainly on market conditions and what we feel comfortable with in terms of our production.

We have not suffered for production, that's for sure. So -- and I know others have had that problem. We have also had some things that were peculiar to us relating to the margin. We described one of them today where we basically had altered some of our MTA products. And we think that is going to assist the margin in terms of this particular product.

And likewise, we had not in the past reported in terms of this product we're able to get significant prepayment fees, and that -- initially prepayments very heavily hit us in terms of their effect on margin. Now that we are approaching more and more where if someone prepays they are more likely to be in a document as a prepayment fee, we think that is going to have a positive effect, or I should say reduce a negative effect, in a way that also will end up adding to that margin.

I believe people will probably overall be more pleased with margin for this quarter. What is very difficult for us, given all the caveats and like that we're supposed to have to tell you exactly what that margin is going to be. We think we have done a number of things this last quarter to the overall improve our margin. I should also mention that while we were discussing MTA, obviously part of our margin problem was the drag on a lot of the Home Loan Bank advances. And that in itself, as we said, will have a significant effect in a number of the next quarters in terms of improving our margin. So hopefully you all will enjoy this call a lot more and I will too in September, or I should say in October.

Kevin Wink (ph) with Holenis Capital (ph).

On the topic of us possibly enjoying the call more in October, I just wanted to clarify on the prepayment of the 405 million, the 250 basis points, you are expecting it to flow through in its entirety in the current quarter?

That is an annualized number -- I mean that is what it is per -- that is the differential, the margin differential on what we were paying, as to what we believe the alternative funding that we have in place now relating to that amount of debt. So we think it is at least 250 basis points. It may really be more than that. You technically don't designate funding item versus funding item, but effectively it should show at least the savings in funding costs of 250 basis points.

Just to quantify that, it is about 9 to 10 basis points to the margin annually. But also obviously since each quarter is annualized, it would show a differential of that in each quarter. So that is part of the reason why we hope this will be a better call in October.

I know there's a lot of moving parts with what is going on with your business. But if you look at the improvement in funding costs on the prepayment, that is on a quarterly basis about $0.05 a quarter. If you look at the swap expense and the extraordinary lease expense, that is about another $0.06 to $0.07. You put those together that is roughly $0.12 of positive effect in a subsequent quarter. On a quarter that you just earned $0.30 to say $0.32 that is apparently troubling to everyone. So that gets you a lot better than this current quarter. Are there things that I am potentially missing that other people are upset about?

I don't know what other things they are upset about but that -- I could not argue particularly with your numbers. I think there are other things that are flowing in and out that could always make that a little less, or it could make it a lot more.

One topic that was explored by a few others though was the expense growth. And for your overall strategic plan of opening branches and building business through a greater market presence, what are your overall qualitative feelings of how your expenses are growing? At this point do you feel that --?

Our expenses are growing too rapidly. There are varying reasons for that. One is we have just -- we have grown a lot, and we have incurred again over the last six to nine months a certain amount of fat that we have to trim in the process of moving forward in the next level that we're doing. And we are well aware of that. And we have reinstituted some things back in, including very strong hiring controls that Ramiro has instituted that basically have to cross his desk and so forth. So that we can reallocate some of the people in terms of employees and associates who are onboard that they be allocated to their most productive situations. So it is something that happens. It happened a little too much for us over the last six to nine months.

And so we recognize we need to control that. And we have done a number of things in place and a number of items in terms of a committee that has been working on meeting. It gives cost control and expense reduction concepts that we adopt, which we think will have a more positive effect over this next year. But I can't -- we don't put those in the numbers right now.

I can assure you that we are all very cognizant of the expense growth but keep in mind also that there was a lot of things hitting us at the same time, not only did you have the branch growth but Sarbanes-Oxley, the majority of that expense being absorbed this quarter.

I want to just make a general comment. The whole compliance area, Sarbanes Oxley, BSA, everybody has gone through all sorts of things. We have we believe been ahead of the curve compared to a lot of institutions who had problems. And as a result of being ahead of the curve, you occur a lot of costs And expense. Some of it stays built-in. Other pieces of it go away as you go forward because you have now created the infrastructure to take care of those areas. And I think thus far we have been very successful in that regard. And that is our goal is to keep it that way.

Thanks for your general comments. One final question, a somewhat conceptual question. There was another question on the call about the low interest margin for the overall bank. And I might look at that as an opportunity however. But what are your thoughts without asking for any sort of schedule, whether it is a few quarters or a few years, but what are your thoughts over time as to what you can do with the net interest margin for the book of business that you can generate from your market area?

We should be above 2. We should be comfortably above 2. And the reality is that some things have held us back. We have through some good work in our finance area discovered some of those things that were starting to impinge on our margin, which we fixed in terms of product reforms.

Clearly the advances were a substantial drag on margin, while diminishing as a totality they were hurting us quite a bit. But the number one thing nevertheless is going to be that we have a product that we know lagged for a certain period of time behind the Fed increases. So at some point that becomes a very big positive for us. And thus far it would appear that the index is going to relatively now keep pace with Fed increases until they decide they're not increasing anymore. And unless we are entering into the Jimmy Carter period, I assume we're not that far off from when the Fed is going to cease its increases, or at least skip some of its increase dates. They are doing it every meeting. If they just skip one there is a very significant margin gain. And they eventually skip more than one in a year then there is an even greater margin gain.

I believe that somewhere, we would have to look at the calculation, but I believe that the indexes will show you somewhere over 50 basis points ultimately. And that relates to the MTA products which forms a larger and larger portion of our portfolio. And we felt pretty comfortable about how that has been going.

John Pandtle with Raymond James.

I had a couple of questions. Last quarter you provided some detailed guidance in terms of each month how much you expect that the MTA index to increase. Could you share with us what you expect for the September quarter?

This is just our forecast, and it is a computed forecast. I should say interpolated forecast. But we're looking at about 12 basis points per month at least for the three months. At least that is what it will average out to be. So we're looking for at least about 36 and then possibly 40 for the quarter.

The Fed is up 25 now, probably another 25. It is 50 maybe 75. I guess where I am struggling -- I understand the positive onetime incremental benefit of the FHLB prepayment, the 9 basis points. But if we take that out and just look at 165 as a starting place, there was a better balance this quarter between how much the MTA went up and what the Fed did, yet the margin was still down. So I am struggling and a little perplexed how that margin is going to be the core margin before the FHLB benefit. How that is not going to be down.

I think what we have tried to explain is that the way our products worked the increasing rates against the teaser having much greater effect than probably some other institutions' products. And we have conformed those products to read in a different fashion. And therefore what happened is that we believe there was probably in this last quarter over $1 million of revenue we should have gained on an upfront basis that we didn't. And we you know done product adjustments. There are other things we did to the products too, but that is in line in a sense or gives you an idea of additional revenue we might have had.

Right. Clearly that will help you going forward, but not on the loans that you have already originated.

But once those loans are originated and we pass the drag that they created that's the end of the drag from that. But that drag was larger than it really should have been. Now that we have made the adjustments to the product it won't be as large a drag.

On the total MTA portfolio could you tell us A., how big it is, and B., what is the current fully indexed spread over matched funding cost for the portfolio?

The portfolio sits now at just about 3.4 billion of MTA loans. It is about 60% -- 61% of our residential loans. And in terms of the full indexed rate, we're getting about a 603 on average on the income side. And then it is -- we match that with a basket of different funding costs. But we're sitting at about a 3 -- I am just working through the numbers -- 360 (multiple speakers).

That would be up 365 on that.

We're guessing it is about 365.

We have to give you the figure, but we think it is somewhere -- call it 365 or 375.

Just to clarify, I know that over the past few quarters you had made the comment which you reiterated on this call that --.

The other thing is -- well, there is premium amortization I can't give you off of that. But when you do the premium amortization the real effect of the premium amortization is primarily over -- not the anticipated CPR because the anticipated CPR is calculated in for our forecasting, but in fact it is what you actually have in prepayments and how much did they affect that. So I --.

That's the thing. That 235 spread, if you just calculated off the numbers you provided with the above your historical guidance, which was a spread of 200 to 220.

Right. Well, then you've got those figures. And that is basically probably the right figure.

And to clarify, again, you have reiterated on this call, you have said it before that if the Fed stops raising rates, or merely pauses, there is positive margin impact with this MTA product. But given the fact that the loans reprice off the one year treasury, that also has an impact on the margins. So do you also need a wider or a steeper yield curve for this product to work from a margin and earnings standpoint?

When we have done studies in the past, basically the one year to some degree within a relative degree has a certain -- keep it up with essentially what is your LIBOR costing. So the answer is that it pretty well -- you always want a steeper yield curve for other reasons, but relating to prepayments -- but essentially one year versus the cost (indiscernible) that we have isn't that dramatically different. So the catch-up is there. The main thing that raises our cost of funds is that the very short end is rising at the rate of 25 every meeting, and then between 12 to 17 basis points now is the index funds increase. You get a stop. You get at least two months of -- or somewhere between 24 and 39 something basis points catch-up that occurs at -- that takes care the part the you had already lagged. The lag is over 50 basis points right now. I don't know I -- do you happen to know exactly what it is. It is 40 something (multiple speakers)?

As a final question, in this point it sounds like you do not have any designs on slowing down the growth in this MTA product despite the negative margin impact?

It doesn't have really a -- I don't want you to understand it has a negative margin impact. I think you will see as we go forward that it has a more positive impact. I think some of the things and how the market has developed and how some of our products worked had a little more negative effect on us.

So adjusting that product -- and we hope to make some additional adjustments we think we will continue to have more positive (technical difficulty). The one thing I will say, there has been (technical difficulty) in the market is that from a point of the teaser we ultimately to some degree are subject to what the big guys do, because our ability to grow -- that is the easy part because we just get a little piece of the market compared to let's say a Win (ph) or a Countrywide (ph). Those fellows have not yet raised their teaser. We believe at some point they will raise that teaser. So that will have a positive impact. I can't tell you in fact they definitely will raise that teaser.

Barry McCarver with Stevens.

I think all my questions have been answered.

Salvatore Dimartino with Bear Stearns.

I just have a question. Could you talk about what the trend of the prepayments were over the quarter? I think last quarter you mentioned that you saw a surge in prepays in the month of March. Did that spill over into April?

That spilled over, and basically in a level basis if you look at it, the overall amount in the quarter were higher than the last quarter. But what has happened is that we seem to have sort of reached an approximate plateau. I can't say that if you had a sharply inverted yield curve that that wouldn't change. But the nature of it is that to the extent now that we're having prepays, the products that didn't have as much in the way of prepayment fee requirements in order to prepay are going away to some degree compared to the amount of products that we have that has prepayments fees requirements.

And so that seems to be having an effect on our level of prepays, plus we're now collecting when we do get the prepays larger amounts of fees that are significantly offsetting the costs that are incurred when somebody prepays a mortgage. So there is a narrowing situation in terms of the negative effect. And as we continue to cycle through, we think that will narrow possibly even some more. And therefore prepays, unless they accelerate dramatically, will have less of a negative impact.

And just if I can ask another question. Is this a fair assessment that if payments continue to increase you will get compensated with the I guess yield maintenance? And if they slow down you should see a little bit of widening of the margin?

I'm sorry. I missed actually about the first four words.

I wanted to know if this is a fair assessment. If prepayments in your MTA portfolio increase, or continue to increase, you'll be -- you'll still get paid, if you will, through the yield maintenance. And if they slow, you should see a widening of the margin.

If they slow, we will see a widening of the margin. If they accelerate significantly it would hurt our margin, but to a much lesser extent than previously because the prepayments fees will reduce that impact. And if there is just like increases or decreases, it will be exactly that, it won't have a greater effect either way.

Okay, thank you.

We have sort of kind of reached a level that unless it goes up quite a bit in the way of prepayments, we seem to be in a better position now.

Corey Shipman (ph) with The Stanford Group.

This is actually Kevin Reynolds jumping in for Corey. But I had a conceptual question if I could given sort of the size of the balance sheet, the prepayments that you did, or the restructuring this quarter, and the amount of growth that you have seen, in your opinion over the long run what do you think would create more value for shareholders? Would it be shrinking the balance sheet a little bit and improving the profitability and then growing off of a lower base? Or would it be to raise capital over time some time down the line to support this growth rate, but maintaining the margins that you are seeing right now?

It is actually somewhere in between. It is not shrinking the balance sheet particularly, but growing in a way and with a production concept, which we have reached and we think they're getting closer to that point where we can begin tweaking the kinds of production we have to become more profitable. And given that the market at some point -- when we started MTAs there was only one other entity doing MTAs basically, maybe two others, and that was essentially going less (indiscernible). We expect to be able to do more things with our products that will ultimately enhance the profitability now going forward, because we feel we have reached a point where our production will allow us to do that in terms of satisfying our needs. It will also allow us, given certain circumstances and at the right time, to be able to do a certain amount of sales that could enhance profitability as well.

But I guess that is in a sense the answer. We don't think shrinking particularly does it. We think we are in a unique situation -- this state, everybody knows about its growth. We can all have a discussion about housing. But everybody knows about the growth of this state, the number of people who are moving into this state. We believe that we should continue to increase the franchise in this state. We are increasing that franchise in terms of some those offices into areas where we believe that we will be in a better position to control cost of funds. It will give us more opportunities to control our cost of funds.

There are a lot of things going on. As we go up the East Coast, as an example into some areas where people have much better margins than our own, I guess we will eat away at their margins a little bit, but maybe our margins will improve some. So we are in the process of doing that.

I know some of you are followers of Golden West. And in the past Golden West has been able to have more than one market so that they can adjust their rates on funds in a much easier fashion. We feel that at the end of this next year and probably during this coming year we're going to be in a position to have a much better ability to work some markets in one way in terms of our cost of funds as opposed to disability of other markets in terms of our cost of funds.

I think there are a lot of things going on. We have been trying to study what some others have accomplished. And we need to get smarter in some ways. We think our execution needs to get a little better. And we feel we are on the right path to accomplishing those things. But there is no question our franchise will continue to grow this year. The opportunity is enormous. For anybody who hasn't come down here, it is -- the cranes in the sky from of South Miami to way north of Stewart, Vero Beach, etc., and somewhere down the West Coast are extraordinary. But it is also just single-family housing. And even though we do a certain amount of condo lending, most of our loans are really in single-family housing. And then we do a lot of commercial loans. Commercial business has all been expanding. You couldn't asked for a better scenario. It allows us to be conservative, very conservative but to grow.

Along those lines, let me just sort of ask it another way, and kind of point out something at least from my view. It looks like the market right now is maybe fairly valuing about half of your balance sheet. If you forget about price to book or price to earnings, and look at the market values in relation to your asset base. And as you start to look to move into some of those other markets that may give you better control over your margin, your cost of funds, is it -- the question I guess I'm getting at, and maybe you answered it a little bit differently, is it really about redeploying capital out of low margin earning assets, maybe non-core if you will, into other types of assets over time that will be additive to your profitability, and thereby increase the value of the balance sheet that you got? Or am I just looking at it completely the wrong way?

No, I don't think you are. I think we evaluated that in a lot of different ways. We pick the MTAs to be a primary product at the moment in terms of growing residential. The people started writing a lot of articles about that and how you look at those. But because of the strong markets we're in, and the ability to produce loans, I think we will get to a better position in terms of pricing some of that product that we are subject to, as I mentioned before, what some of the very largest do.

But there are other ways of getting a little bit more out of it. We believe that there is a lot of benefit here in coming up with these kind of products. And the risks up to now, and historically in terms of how we look at it, suffering a lot of losses because that is always the downside of being a bank is suffering losses on a credit side. We think we have an extremely strong, extremely conservative portfolio. We look that to be proved out. It has been proved out for quite some time now.

If you look at our situation, and maybe and some people would say we need to take some more risk, and that is something we evaluate too. We I think got no more than 28 or 30 or so foreclosures going on on our residential portfolio. Jake and I may not have the exact number, it might be up or down a few. But essentially we are very conservative in some ways. But we look at the products. We are in a number of areas. We grow our commercial as well. Our commercial has been doing I think very well. We probably could double it tomorrow, but we are conservative. So we try to redeploy those assets.

We recognize, and there has been a cost factor here for everybody to understand, we recognize that we are growing in a state that has extraordinary growth. We think the opportunities are extraordinary. We think there are areas that certainly can use more competition. We think they will be beneficial to us. So a lot of our emphasis coming into this year and next year is to get that growth up and going into some other places that will help us become a more profitable institution down the road. The growth is not just to grow, it is to take advantage of situations and to become more profitable down the road. We have made some moves this quarter that we think help us do so.

Donald Guise (ph), a private investor.

As a private investor I have a shareholder value orientation. I'm glad that we've got the conversation (technical difficulty). I will continue to give keep you away from this numerical colonoscopy (indiscernible) here. Last week you made a couple of -- you announced a couple of changes. One organizational changes. One of which was to form a law firm practice group. I'm not familiar with the concept of a law firm practice group in a bank like ours. Could you expand on that a little bit and tell me how that will eventually enhance shareholder value?

I'm very happy to turn the stage back over to Ramiro. And I just want to announce that I have been told by our people, given other things, that after your question we're going to end up taking just a couple more questions. So Ramiro, please answer this question.

That is a new line of business for us. We think there is a lot of profit potential in that. And what that is it is as part of our private banking initiative private bankers that are going to focus on the legal community, and that is banking not only to law firms, but the individual attorneys as well. We were able to hire a very experienced private banker who has done this most of her career -- has a great track record. And we anticipate that we're going to make a lot of money in that particular line of business. Basically it is an expansion of our private banking services.

And you are addressing yourselves into a different group of people that perhaps would -- that would be investors at the local -- at the neighborhood banks, or in other words you have a whole new marketplace that you are addressing.

Right. But the expense growth for that is really minimal. It is not a whole new team or anything like that. It is an experienced private banker who has done that and has specialized in that most of her career. And the focus is, let's address the services and the needs of the legal community in South Florida.

It is something in our private banking area we will be able now to get more involved in with, as Ramiro is talking about, experienced direction in terms of making those kinds of contacts in the legal community. There's a lot to gain in terms of lower-cost deposits.

But I don't want you to think that it is a whole line of business, and the expense is that are associated with that. It really is a new initiative that will only add loans and deposits and investment revenue to our balance sheet.

The other change you mentioned last week was the project manager for the SARBOX requirements. Is that going to be -- is that ever going to be a profit center or is that going to continue to be an expense?

I don't know, if we get really good at it then maybe we can offer it to others. I would outsource it. It is a very painful process, a lot of time for everybody.

It is just a very expensive process. I would like to think that the worst of that is behind us. We're wrapping this thing up, and there were a lot of expenses up front that were required as part of this thing. The idea of a project manager is to make sure that we have one person solely focused on this, and this is not the part-time job of 22 other people.

And you sign your names to it, so you've got to have one place you can look.

Right, yes.

Jed Gore (ph) with DeNovo Capital.

Just real quick, so I really understand what is going on. Your -- the MTA's you are ere carrying, you're getting a 6% yield as they reprice? And in essence with, for instance, a 15 year fixed-rate loan now at 5.15, as your MTAs reprice they are getting refi-ed away in essence. Is that really what is happening?

No, not really, because the payment schedules are much lower than somebody would have to go on a 15 year. On a 15 year also -- I mean there are two things about a 15 year. The 15 year may have normally an interest rate that is lower, but the actual amortization schedule of payments required for 15 years is substantially higher than in MTA. And even if you produce and say there is a 30 year you're still back at the same thing, the Schedules are significantly different.

I guess my question is what is the substitute products that these loans that are repricing upward, then refi-ing into?

When they refi, actually I think mostly what we have seen has been that they have been -- if I lose a loan I might lose it to Wham (ph) who will put them in another MTA. And what has happened is that because we have had prepayment fees situations -- something over one-third of our loans that they actually right now are prepaying are actually situations where people are selling their homes. And you have a certain amount of movement going on where people are moving up to other homes and selling, and so that has an effect. About two-thirds of the loans prepaying go to other kinds of products. But most of the products are similar to the same product they are coming out of.

From a competitive dynamic then there is really nothing to think -- there is no reason to think that the prepays were necessarily slow, except that you put prepay penalties on the book as it exists now -- some 70% of it or whatever.

We think prepays are somewhere -- we believe probably prepays will be somewhere in this area. If the yield curve inverted quite a bit, where your 15 year or the 30 year got to such a low payment figure, not just nominal interest rate figure, that would have an effect. It would clearly have an effect. And I guess we would become more of a mortgage banker than we are a portfolio lender combined with selling certain excess amounts of loans. But that is up to you all. You guys are the economists and analysts as to whether you think there is going to be (technical difficulty).

Listen, an hour and a half on the conference call, I appreciate you taking my question. Thank you.

Last question.

Albert Savastano with Janney Montgomery Scott.

Just two quick questions here. Bert, could you tell me how long the teaser rate period is?

One month.

Now. It was longer.

What was it?

It was averaging 47 days. It is a long explanation.

Okay, that's fine. 47 days works. And if you can just please review, Bert, the underwriting criteria on the MTA products?

Generally, and I can't get in a lot of specifics, but that is not really Bert's thing, I guess it is a little bit more my area and Ramiro's, but generally when you underwrite you underwrite with a payment adjustments and a concept of coming up on payments. But the actual time period in terms of payment adjustments is depending on the rate. And approximately where we are today, we would probably be in the 3.5 year -- the actual recast was 5 years.

And then I will just add to that. The recast period would occur either five years, or if the balance were reached, 115% of its original balance the recast would occur. But just some other characteristics of a loan, they are pretty low LTV's. I don't think we have mentioned the LTV of the portfolio. The MTAs what it averages is 74%. So it is pretty conservative. And unlike others, we originate this at -- we qualify folks at the full index rate.

Does that help you with your --?

Yes, do you originate loans with an over percent -- greater than 80 percent LTV?

A small portion with insurance. And that is a pretty small part of what happens. Because Bert just told you the average is in the lower 70 area. We don't have too much over 80. We try to keep the product pretty well we think in the right place with the right people. Nothing is perfect of course, but our underwriting is directed to the concept that we want to make sure the people can pay their mortgages.

This will conclude the question and answer session. Mr. Camner, I will turn the conference back over to you.

I appreciate everybody being on again. I understand there's a lot of noise here. We have tried to clarify some of it. Some of you will probably be calling Bert, and then depending on how those questions come, we may try to issue to all of you some information. But we essentially believe that we have made a lot of moves this last quarter that should significantly improve our margin going forward and put us in a better position for this coming year.

And we will continue our track, and what we think it is a forward-looking concept of having an expansion -- I will use the feds thing -- we will have a measured expansion this year. But nevertheless we think we're in a much better position now. I feel very confident about that, and how we're going to address the coming year in terms of our earnings and ability to cover the cost of that expansion and still ultimately shows some progress.

Thank you very much, and good day.

Once again, ladies and gentlemen, this will conclude today's conference call. We thank you for your participation, and you may disconnect at this time.