BankUnited Inc (BKU) 2006 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the BankUnited Financial Corporation fiscal year and fourth-quarter earning conference call. [OPERATOR INSTRUCTIONS] 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, would, 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, events beyond our control, including natural disasters and significant weather events such as hurricanes, 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 or 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. Thank you.

I would now like to turn the conference over to Alfred Camner, Chairman and CEO.

All right, good afternoon, and welcome to BankUnited's report of fourth quarter and year end results for fiscal, 2006. Joining me on the call are Ramiro Ortiz, BankUnited's President and Chief Operating Officer; Bert Lopez, our CFO; and Jim Foster, Executive Officer of Corporate Finance. Those of you who were with us last quarter know that we've changed our format based on feedback we solicited during the summer. We'll provide you with a brief overview of our results and devote the balance of out time together to the question-and-answer session.

Fiscal 2006 proved to be another record year for BankUnited. We achieved outstanding results in almost every category. We are building a successful Florida bank complemented by a national residential mortgage lending business. This doesn't happen over night. It takes the leadership of a stable and experienced management team, it takes daily effort by dedicated employees who have an ownership stake in the organization. It takes the foresight and discipline to not waver in our credit standards or internal lending guidelines. We have all of those things.

For the quarter ended September 30, 2006, BankUnited had record net income of $24.2 million. For the fiscal year net income was 83.9 million compared to 27.5 million for the fiscal year ended September 30, 2005. Basic and diluted earnings per share for the fiscal year were 2.43 and 2.30 respectively as compared to $0.90 and $0.85 for the 2000 fiscal year. Solo assets grew 13.6 billion for the fiscal year, a 27% increase from the prior fiscal year and total loan production reached 6.9 billion as of September 30, 2006, and total deposits were 6.1 billion.

Net interest margin, an area that has received considerable focus by our company, reached $2.26 at the end of the quarter, an increase of 42 basis points from the same time last year. A lot of hard work has gone into improving our margin. We're especially proud because the improvement took place in an environment with a challenging yield curve. Many other of our banks in the country have reported compressed margins this period. Our residential lending business continues to grow despite reports of a slowing housing market. Our expertise in option ARM lending and unwavering price standards are reflected in the results. During fiscal year 2006, residential mortgage originations increased 43% to reach a record 5.7 billion at September 30.

In late September, federal agencies released guidelines for option mortgage lenders. We do not anticipate that those recommendations will have a significant impact on our operations because we already followed many of those practices for a number of years. Credit quality is a hallmark of our company and is a strong defense against changes in the economy. In contrast to other parts of the country, Florida continues to enjoy a steadily growing population and a low unemployment. Unemployment was just reported in Florida at 3.2%, a figure that is tops in the small group of states in the country right now.

Likewise, it's actually down in unemployment since last year at this time. This coupled with our credit standards gives us confidence in the integrity of our mortgage loan portfolio. Nonperforming assets at the end of the fiscal year were just 16 basis points. In comparison we've looked at banks with greater than 2 billion in assets that have reported generally in terms of their earnings this last few weeks and found that the average nationally appears to be around 37 basis points.

During the previous 12 months, we successfully completed a stock offering that raised approximately 150 million. These proceeds are helping to fuel our retail expansion in the investments and support and infrastructure needed to serve as a growing bank of our size. Our Board of Directors declared a seventh consecutive quarterly cash dividend for holders of class-a common stock in the fourth quarter. We will continue to pay cash dividends at the Board's discretion.

BankUnited is poised to continue performing in all our key benchmarks. The expansion of our branch network and business lines, the addition of new products, and our ability to complete successful loan sales position us well to maximize the opportunities created by consolidation of a number of local banks in the markets we serve. I'm now going to turn this call over to Ramiro Ortiz who will provide you more details on our local market strategy.

Thank you, Fred. Fiscal 2006 was a banner year for BankUnited. The micromarket consumer strategy continues to play an important role in our growth. Our neighborhood banking group expanded with 14 new branches and entered the new markets of Charlotte, Hillsboro, Manatee, and Sarasota counties on Florida's west coast. We ended the year with 75 branches in 11 counties. We plan to open an additional 10 to 12 branches both inside and outside our footprint by the end of the next fiscal year.

Our newest branch in West Palm Beach represents the latest step of our neighborhood micromarket strategy which involves using locally based decision makers and grassroot events to reflect the neighborhoods and enhance the overall banking experience of our clients. In existing branches throughout the state, we're deepening relationships with local schools, civic groups, and community organizations through partnered events and promotions.

As a result of all these efforts, our branches are increasingly becoming the central financial hubs in their markets. And all are contributing to our stellar financial results. The success of our strategy is evident in strong deposit and loan growth during the prior quarter and fiscal year. Deposits in the fourth quarter increased 28% compared to the same period last year. Core deposits of $4.4 billion represent a 26% increase over the previous year. These numbers highlight our increasing market share within the state and the success of our bankers at the local branch level.

Commercial, and commercial real estate balances grew to $1.2 billion. That's a 23% increase year-over-year. As we become more entrenched in our newer markets, we have strategically added lenders, small business bankers, and investment professionals to meet the needs of our customers and expand the reach of these business lines. Total loan originations during the fourth quarter were $1.7 billion, that's a 7% increase over the same quarter last year. For the fiscal year, total loans originations were $6.9 billion, and that's up 26% over the '05 fiscal year. After loan sales and repayments, total loans grew by $886 million, or 8% during the quarter and 3.4 billion or 42% for the year, to reach 11.4 billion as of September 30, 2006.

It was an outstanding year for us, and I'm really looking forward to fiscal '07. Our commercial, commercial real estate, and wholesale lending areas have strong pipelines, our neighborhood banking group continues to gain traction in the local markets we serve, in addition we are expanding our wealth management line of business with more focused initiatives that will add to our success in the coming years. We have a lot going for us in '07, and the entire management team is up to the challenge. For more details about our financial results, I'll now turn the call over to our CFO, Bert Lopez.

Thank you, Ramiro. I join Fred and Ramiro in celebrating our strong results for the previous quarter and the fiscal year. We've reached these record milestones in spite of an uneven economy and the messages of doom and gloom in the press. BankUnited's margin continued to expand reaching 226 basis points, up from 184 basis points same quarter last year, due to continued development of mortgage and other loan products, the success of our neighborhood banking strategies, and a lack of rate increases by the Federal Reserve. This coupled with the execution of programs implemented in prior quarters including those related to prepayments, Federal Home Loan Bank advances have shown the results we intended.

Our mortgage products continue to meet the needs of educated borrowers while adhering to federal guidelines and maintaining our strict underwriting and credit quality standards. We've included additional detail about our loan portfolio and the aggregate make-up of our option ARM loans in the press release. Our quarterly results showed a 70% increase in net income and a 43% net increase in earnings per share, which obviously includes a 5.75 million shares issued in our January offering.

As we previously mentioned, we continue to take advantage of a strong secondary market for residential loans and sold $470 million of residential loans with a gain of approximately $4.6 million during the quarter. We are particularly proud of our efficiency ratio for the quarter which dropped to 51% from 59% from the same quarter last year, while continuing our branch expansion. Our fiscal 2006 ratio was 52%, down from an adjusted 57% in our last fiscal year. Our nonperforming assets continue to remain low at just 16 basis points at September 30. We did increase reserves for loan losses during the quarter in consideration of possible challenges in the economy, and have previously noted participation in the EH TransEastern loan syndication.

The majority of the $4.6 million we provided for this quarter for loan loss reserve was related to this TransEastern loan. For the year we ended in the slight recovery position versus a small 3 basis point amount in charge-offs in 2005. Obviously we closely monitor the loan portfolio to manage our risk. We know our nonperforming assets are extremely low and that there's no guarantee these levels will be sustainable. I'd like to turn the call back over to Fred.

Thanks, Bert. The results of the past year provide us with a firm foundation for growth in 2007. As local banks have consolidated and out-of-town players try to make an impact in our markets, our neighborhood banking strategy gives us an edge. We understand the nuances of our customers and the communities that we are in, and we back it up with our product offerings with strong credit discipline. We are well positioned to expand upon our distinction as the largest bank headquartered in Florida. We're all set to open up for questions, moderator.

[OPERATOR INSTRUCTIONS] Our first question will come from Jennifer Thompson with Oppenheimer.

Good afternoon, everyone.

Hello, Jennifer.

In terms of the NIM expansion you saw this quarter, can you give us an idea of how much that could be credited to the MTA catchup because it seems like maybe you didn't get the full impact this quarter and there could be more to come?

Jennifer, that's correct. We took a look at the impact from this quarter, remembering that the -- the pause occurred in early August. We -- and our loan systems run about a month behind in terms of resetting the rate. We really didn't get a big part of the lack of increase in this quarter's numbers. So we expect to be able to get some of that back in the future quarters. We did see an increase in the rate of the MTA, about 10 basis points this past month. And it should continue to increase on into the future.

I think we've said in the past that generally the MTA is going to be moving between 10 to as high at times as 14 points. And so what, in -- in the way you bill and change and adjust the mortgages, you have a certain lag period, that lag period now is moving forward, and so each month that the Fed hasn't adjusted any further rates we're going to keep adding on to our margin situation.

Okay. So that's -- you're saying 10 this past month is what you saw?

This past month we saw 10. For the quarter we saw an average increase in the MTA of 42 basis points.

And how much would that compare to the funding side of it?

We had three-month LIBOR we used as a proxy went up 21 basis points. When we look at the bigger picture of the balance sheet, we had the adjustable assets going up 26 basis points -- I'm sorry, 31 basis points. We had some improvement due to the prepay fees that we collect. So we had a total of 37 basis points improvement on the asset side. Our deposits and funding went up by about 12 basis points. Our borrowings went up about 17 basis points. So we already have a lot of the repricing into the borrowings.

Okay. And then if I could ask about the TransEastern loan, could you just update us in terms of where it stands now, your exposure, what went into NPL's. And you said most of the increase in the provision was due to that. What do you expect going forward from that loan in particular?

Well, I -- I'm going to just briefly mention something. For us, we were kind of surprised that there was a publishing of our particular name tied with this loan because we are an extremely small part of the overall credit. For us, we took a -- what we thought was a very prudent move, I think we're probably ahead of a number of banks, and we went ahead and took some reserves against that loan for this quarter. Although the loan is actually current.

And in that sense, we feel we've pretty well reserved for any possibilities, it could always just be possible that we need a little bit of a moderate additional reserve depending on information as it flows through. But we're kind of puzzled because we've had so few I guess commercial loans over the years of any significance, have problems that I don't know why this particular loan was blown up so much. But in any event, Bert will give you some members, and Ramiro can also comment on it.

Just to add on to what Fred is saying, -- I guess, Jennifer, on the TransEastern BankUnited won the raffle from the press in terms of visibility. I would describe this as not the tail wagging the dog, but almost a hair on the tail that's wagging the dog. We're one of 40 banks in this syndicated credit. To give you more detail on this, basically we have three credits outstanding. We have a $7 million fully secured revolver. We have a $7 million fully secured term loan. And we've got 3 million in the senior mezzanine which is unsecured.

We have properly reserved against all three of those loans. The parent company has a conditional guarantee on TransEastern, and the lead bank has represented to the bank group that there are no problems with the parent. The parent has a net worth of almost $1 billion. At this point there are no monetary defaults in this loan.

Jennifer, as mentioned earlier, we took a pretty proactive position in this loan. And of that 4.6 million that we put up for provision, about $2.9 million of that is related to the TransEastern loan. So the remainder is for the growth and the additional provision on the remainder of the portfolio. But as I mentioned, we were pretty conservative and took a proactive approach.

Okay. So none of the NPL increase was related to Transeastern? Is that correct?

Small piece -- a very small piece. We put up -- we have the 3 million mezzanine piece, and we put that in there. But again, it's very possible from what I've seen of reports from other banks and what we've heard from some of the other syndicate people, we may be ahead of where anybody else is on doing this.

I know I've seen some public reporting by some entities, which I will not name who apparently had no addressing of this whatsoever. So I -- because this was put in the newspapers, I guess or in a release and then analysts reported on this, and et cetera, we're sitting here talking about a problem loan that is just not that significant to us in terms of our operations. But so be it. We're happy to answer these questions.

Great. Thank you very much.

Your next question is from Lori Hunsicker with Friedman, Billings, Ramsey.

Good morning. Just to follow-up on Jennifer's question, as far as the going forward loan loss provision, then it's safe to assume that we're kind of starting at a base of 1.7 1.8 million per quarter and then growing?

I would generally say that's fairly close, up or down several hundred thousand from what you are talking about. We are going to where we think is appropriate, be precautionary because we do know overall there still is a slowdown in the country, and the question is where is that really going to land, the old debate, hard, soft, et cetera. So we will probably continue to lean over, to put reserves in to the extent the rules allow us to.

But just for all of you in terms of credit quality at times like this, and this is no different than I've said many times in the past, when we reach a period when we note that the economy slowed, the Fed's raised rates, et cetera, I being a former workout attorney, one of the principal ones probably in south Florida at any time, what I do is I end up having the collection of workout people report directly to me on really about every 10 days so we can monitor what's happening and how things are going. And to make sure that everything is done in the most expeditious manner. And frankly, our reviews of what's occurred thus far in foreclosures and otherwise collections recovery would indicate that we feel pretty comfortable.

Given that circumstance, we do not anticipate that our numbers relating to nonperformings will necessarily get any higher than they have been in the last three or four years. There are periods and cyclicality that you have that obviously you're going to have some ups and downs. But our number was so low I would still expect some kind of increases from just the general economy we have. But we don't foresee much in the way of any losses.

You always pop in that a loan here and there is fraudulent anecdotally. One of our people reported to me that somebody took down the bearing wall in their house and we might lose money on that loan. I mean, right now we've done survey of all of our builders. I guess we're primarily in Dade, Broward, and some in Palm Beach. So for the most part particularly in Dade and Broward, actually the economy's quite strong.

The state as a whole is quite strong in terms of employment. The amount of building that's going on, even though housing has obviously slowed, and a number of the builders have cut back until they absorb inventory, the reality is there are a lot of commercial projects going on. And a lot of state public projects going on. For example, they passed in the last couple of years a law that requires class sizes to be, I think it's like 20 in a class, 20 people to a class.

So a lot of school districts are building a lot more school classroom facilities. As an example, again, anecdotally the University of Miami has a close to $1 billion building program that's starting up. There's just so much that's going on in the state because even as housing may slow and temporarily we may have larger inventories in some areas of the state, the reality is that the commercial side and the public facilities side has to keep catching up with the substantial amount of growth of population in the state.

Laurie, then for a run rate, I think you're in the right area of that 1.7 million plus or minus a couple hundred thousand. Fred had said while the economy continues pretty strongly we're aware that we're in a cycle, and we intend to be, as we've demonstrated this quarter, pretty proactive in terms of recognizing any type of credit items. And I think you'll see a continued conservative stance going forward. And just to also point out we're able to do this, put a larger provision in. And we still have -- mostly because we had revenues grow nicely and we still had record results.

Right. Right. And just wonder, can you comment on the $21.5 million of nonperforming assets, how much of that is commercial?

I believe it's about--?

Three--.

I'm going to say approximately three or four give or take a little bit.

So it's pretty much all that mezzanine piece then, that's it?

Yes.

Yes.

Yes. By far. We -- we have historically every once in a while we've had a larger commercial something that becomes a problem loan. Even though we've grown the commercial side of this company quite a bit. Basically that hasn't changed. And then this particular instance, not only do we feel we are very well secured, but frankly, I'm not sure it would have reached this point except for some problems in the lead lender addressing this loan, and that lead lender has with respect to a largest portion of this loan has resigned. It's a well-known lender, but we're not going to talk about them.

Laurie, we have $3.1 million in the commercial line of business in term of nonperforming. It's less than $100,000 on the consumer side. The remainder is the residential piece, which obviously is secured by real estate and pretty well secured.

Okay. Great. Then just one last question. You had mentioned branch plans for next year are 10 to 12. And I had in my notes from last quarter 12 to 14. Is there a slowdown or just a timing issue, or are you guys just deciding to delay it slightly or did I just have my notes wrong from last quarter?

In a way it's a combination of all those things. What happened was that, yes, we have some delays in a few -- there are a few that we had negotiated and decided that we weren't going to necessarily proceed with those. So we felt that we wanted to give a different number. It could end up being 12, it could end up being 10. There's no question that there is some going forward into what will end up being the next fiscal year. Just a timing--.

Mostly timing, Laurie.

Okay. Great. Thank you all very much.

Your next question is from [James Reckart] with Sterne Agee.

Bert, I don't know if you have this figure at your disposal, but are you able to tell us what your net unrealized loss on your securities portfolio is?

Yes, it was $30 million pretax or about -- that would be about $19 million post tax.

Okay.

That's down from 50 million pretax, 30 million post tax last quarter.

Okay, okay. Yes, I showed about 34 million last quarter, but I'll figure out the difference. And then -- I think we had spoken on this a couple quarters ago. About your loan sales, and at that point I believe you were selling at least some portion of the loans you were selling you were retaining some credit risk on. Can you -- can you touch on, if that's still the case. And then also maybe you could sort of ballpark what the balance of loans sort of off balance sheet that you would have that exposure to.

I'm not sure what the reference was to. We generally have various flow and other agreements with acquirers of the loans that are pretty well across the board. We -- if anything I guess in some degree we err on always -- in terms of the credit, having a really good portfolio set up. And one of the reasons we also get an excellent price in the market on what we're doing right now is because their experience with our loans has been really top-notch. So there may have been some confusion that you got from some other comment in the past. But the credit quality situation is paramount as to how we bring that into portfolio.

Yes.

James, I think there must have been some confusion because the only thing I can think of is that last year we did securitization in September of last year. And what we did do is we sold all the loans in the securitization and retained a piece of the securitization. But we don't have anything either from a securitization standpoint or when we sell loans where we have any liability due to credit. I mean, you have your normal reps and warranties as you do in any transaction, but we don't retain any of the credit exposure when we sell our loans.

Okay, yes. I thought -- maybe I guess I must be confused. I thought there was some discussion of sort of the market putting, I guess -- thinking there's more risk in loans than you guys. So you were retaining--.

It's probably the other way around, to the contrary, sometimes what we would rather have in our portfolio is what we end up in our portfolio and what the market particularly would want we may also have furnished to the market because we have an overall -- I mean, the largest thing we do is originate portfolio. But it follows that we do sell pieces of this, and part of that relates to risk management. But the risk management for our viewpoint is to make even our portfolio more secure. And we at the same time satisfy what's a fairly -- I think our product is so well received now in the market that we get a fairly high figure on the sale of it.

All right. Thank you.

James, before you go, I just want to clarify something. Maybe I confused you on the unrealized losses. There's a $50 million item last quarter pretax which is about $34 million--.

34. Okay, that's what I had. Thank you.

You're welcome.

Your next question is from David Bishop with Stifel Nicolaus.

Bert, quick question for you. Looks like the prepay levels continue to bump along relatively low levels, about 13% this quarter.

Yes.

Curious as to what you would attribute that relatively low rate -- I know some of the competitors of some of these option ARM products out there are experiencing relatively higher levels of prepay speeds despite implementation of some onerous penalties. Any sort of thoughts on that in terms of--?

Well, I don't know if anybody has anything they have -- but let me just jump in on this one. Basically one relates to how we go about underwriting a loan and to whom we end up having as borrowers. That's just a process. Secondly, we do have very large amounts of the loan production we have that has prepayment fee situations. Thirdly, we have historically always been lower because of how we go about lending, lower than a lot of national entities.

It really gets back to the ultimate strategy, what we are. If I am a WaMu, I am so giant it's difficult to be selective. For our purposes, we've talked about that we just needed a little tiny piece of any market that we go into, and that helps satisfy where we are. And so in terms of our underwriting standards and how we look at loans and produce them, that's an important item for us. So I think that gives you a combination of items that relate to why we have a lower prepay.

Now the last thing is that we also have an excellent department that works at retention because there's a tendency in any of the markets -- and I learned this a long time ago the hard way -- there are always be around markets that are looking to solicit your customers. And they come back and try to get that loan away from you. So while some of them do succeed for the most part, we're sort of ready and we have a good department that works retentions situation. So all those combined put us in position to have a pretty low number. And we've been fairly optimistic about the maintenance of these numbers. We do recognize there are circumstances where that could pick up somewhat down the road. But still, you'll find us more than likely below national.

The next lender that you probably get compared to in the past has been -- they don't technically exist, they are now Wachovia, but have been Golden West, on similar types of products. They generally ran 1/3 of prepay setup. So this is one of the things that's helped us a great deal. And how we approach our portfolio and our making income.

Okay. That being said, does that change how you view funding that -- because obviously with those slowing down, it's going to imply that a greater proportion, there's a font of the balance sheet. Does that change your funding methodology there in terms of deposits versus wholesale borrowings or vice-versa?

I think that's just one component of it. Obviously we have had pretty strong production, we have a pretty active loan sales program. So the combination of those three really determines at what asset level size we'll be at. The funding piece, deposits versus wholesale just continues down the track that we've been mentioning for the last couple of years, where we've committed to expanding the branch network to not only add value to the franchise but also to pick up different branch locations, different funding sources, geographically throughout Florida.

And then that helps us quite a bit when we're going to go ahead and look at different areas, to be able to pick up deposits. We don't a disintermediation amongst the entire footprint. If we had been concentrated, for instance, just in southeast Florida, for instance. So we start with the basic funding piece, but the whole -- the wholesale borrowings versus the deposit piece we take off from there.

Got it. And one final question, I noticed income from insurance investments ticked down somewhat this quarter. Any sort of commentary there? Down about 30%-some.

It has slowed down, we've invigorated the whole wealth management discipline. There's a new focused effort. We have a new manager that we -- we actually -- we've reinvested that whole area. We've got a new manager with a lot of experience. There are very specific referral goals in every single branch. And you'll see, I'm confident that you're going to see that pick up in the coming months.

Yes. We should say that Ramiro's referring that we really are looking to expand our overall private banking and wealth management area. We have a top-notch person right now who's come on board recently. We made an announcement of that, and he's leading up that area. And we look for that situation to be quite profitable down the road.

Great. Thank you.

[OPERATOR INSTRUCTIONS] Your next question is from Jim Ackor with RBC Capital Markets.

Good afternoon, guys.

Hey, Jim.

Bert, can you give us the monthly progression in the wholesale borrowings cost during the quarter. I mean, I guess what is the cost right now, or what's the average cost in the quarter, and considering LIBOR's no longer going up, should we expect that portion of your interest-bearing liability portfolio to stabilize in terms of what it's costing you in the upcoming quarter?

Well, I mean, the answer generally is yes, there's going to be a certain stability of that. The largest piece of what we do is the home loan banks. And when you look at there, I mean, you can go across the board now, and it's -- except for the short term it's basically almost totally flat curve to slightly inverted. And we have other situations where we borrow. And of course we fund a lot with the opening of offices and expansion of deposits.

We did a lot of expansions and deposits last year. So we expect to keep doing that. It's important for us to build a franchise as we go along here. The asset side we've been blessed with a situation of being able to put assets on our books, which in another sense permit us to keep growing in a fairly rapid sense with our franchise around the state.

Jim, in general, we should see some relief on the Federal Home Loan Bank balances. To give you an idea, we have about $4 billion in advances coming due over the next 12 months, and that's at a 484 rate. We've actually seen the calls for advances in the last month or so decrease as there's been less upward pressure on LIBOR. Some of that funding has become pretty attractive.

So even with the items coming up for renewal, I think we will see a stabilization of that -- of the cost of that funding. The other piece in there, there's about another 1.1 billion of repos that are now sitting at about 507. So those obviously are adjusting to market. And as the market pricing has come down in the shore end, we should see a little bit of relief there.

The other thing that we should mention if we're going to talk about cost of funds right now, is with respect to deposits, the entities that have been purchased in the state, Golden West, Harbor, Fidelity, for the most part, not completely, but for the most part have run varying campaigns. Some of them different from one they've ever done in their lives. And really to the extent of some really outlandish rates.

One of them I believe ran 6% money that was in an acquisition situation. So as they're absorbed and you can't purchase account anymore once you've done the closing, their rates go down, and we've already noticed that the largest one of those has already started dropping their rates to equal Wachovia's much lower rates.

One of the challenges for us this quarter was combating those higher rates. I mean, just add some numbers to it. We had one competitor out at 13 month for 580. We had a competitor out there at six months at 575. And those rates are anywhere from 20 to 40 basis points, through the alternative funding of the Federal Home Loan Bank or repo.

So our challenge this quarter was to maintain discipline and not go chasing those rates. We do that for a good customer where necessary. But we didn't as a whole chase those rates. And as Fred mentioned, while one week does not make a trend, we did see some alleviation in those higher rates this past week. So we're hopeful that trend will continue, and it should after the large acquisitions already closed and the other acquisitions are set to close later this quarter.

Great. I've got one follow-up for Fred and/or Ramiro. With regard to the loan portfolio, if you guys might talk a little bit about your exposure to land loans as well as residential construction loans.

It's not clear to me exactly how big those portfolios are, and I was wondering given what happened with TransEastern, which I think was a little bit of a surprise. But in some of the headlines talking about some of the weakness in some of the real estate markets down there, are you seeing any sort of migration in the classification of any of these loans? Anything popping up on the watch list?

We haven't seen migration in terms of those loans into classified loans. We do a few public home builders our largest exposure to Lennar. We feel fairly good about that. Land exposure, we manage that portfolio pretty tightly. We've got portfolio limits. They're modest, very modest. And again, only to borrowers with very deep pockets, and with carrying capacity.

If that's helpful to you overall, I just -- our number-one -- our call it risk exposure is really to Lennar. We have a very close relationship with them. They are headquartered down here. We know a lot of the people. They know us. So in that respect, we do have some off balance sheet-type transactions that involve Lennar that we're extremely comfortable with.

And that's most of our land exposure is with Lennar, and it's modest.

And I would say for most people following things, Lennar is one of the best operating companies, if not the best in the housing area.

Okay. Great. Thanks a lot.

Your next question is from Al Savastano with Janney Montgomery Scott.

Good afternoon, guys, how are you?

Hi, Al.

Question for you. Have you considered share repurchase program at all since your stock's having a good day today but it's still off about $6 from its high or so. And given where your price to book multiple is.

We -- while we have availability to do some purchasing, when we've gone into blackout periods, sometimes that's when we end up with some type of low. Happened last year. The truth is that we have a Board meeting during this week, and we expect to present to the Board this very question, and a discussion, and I believe we will have some announcement after that relating to what we feel comfortable in doing with respect to a repurchasing program. But that will depend on the Board meeting.

Right now we're authorized to do a million shares. We have recently taken down fundings on a trust preferred basis that we have not yet allocated those funds for exactly what we're going to do with them. So we've definitely had some things in mind, but we really have to wait until we've had further Board discussions to decide where we go with that.

Great. And just on an unrelated question, Bert, could you give us an idea of how much prepayment penalties are in the margin?

In terms of basis points? That totals an improvement of 2 basis points. In terms of actual dollars, we have prepay of $4.9 million for this quarter up from $4.4 million last quarter.

Okay, thank you.

You're welcome.

Your next question is from Barry McCarver with Stephens, Inc.

Good afternoon, guys. I think you got most of my questions, but -- and I'm sorry if I missed it, but could you give us a little bit more color on the gain on sale of loans during the quarter and what a more appropriate run rate might be going forward?

I think you're basically going to see something in the vicinity of what we did this last quarter going forward. It clearly could be up or down, and some of the market figures change. But you are going to see a healthy portion of loan sales occurring. We've had really excellent acceptance in the market.

So we have generally said that you would look to us to be selling somewhere of about 1/3, plus or minus 5 points or so any particular quarter. But about 1/3 of what we've produced. And we've gone into this before. Part of that is how we go about shaping our portfolio. And so we are -- I would figure that that kind of scenario will continue as we go forward.

Barry, particularly so in light of what was a very strong market. We saw very healthy prices being paid for our MTA loans. On a consistent basis you saw our gains for the loans we sold at average, just under 100 basis points. That's comparable to what we've seen in the past quarters. Even through last week, that secondary market was still strong. So that will shape part of our thinking going forward also obviously.

That's very helpful. Thank, guys.

Thank you.

Your next question is from Sal DiMartino with Bear Stearns

Hi, guys.

Hi, Sal.

Just a clarification on the TransEastern loans. I think you said that 2.9 million of the 4.6 million loan loss provision was attributable to TransEastern.

That's correct.

Correct.

And how much of the increase in nonperformers was attributable to TransEastern?

It would have been 3 million.

Great. Thank you.

Your next question is from [Greg Powell] with Bernstein.

Hi. Hi, a couple of questions. First, how much deferred interest was in your -- did you recognize this quarter?

We had 31.6 million.

Okay. And second, could you elaborate a little bit on this off balance sheet arrangement you have with Lennar. I'm not sure exactly what that means.

No. It's not off balance for us. What's very popular or involved with one of the homebuilders, almost every one of them as far I know does this. Is that they work out situations in terms of their development of land processes, and building, and they shape some of them as off balance sheet for themselves. But it's not off balance sheet for us.

So it would be one of these joint ventures and you've loaned into it?

Yes.

Yes, and we always have some kind of a guarantee, they're varying kinds of guarantees that are involved. We only have done these with just a couple of very major companies who have -- obviously are super balance sheets.

And Greg, they're very modest. And the exposure is modest.

Less than 10 million?

In that -- just a little bit north of that, but in that range.

Okay. Thanks a lot.

Your next question is from [David Walred] with Trustco.

Could we -- if we just went back to the capital management, you talked about share buybacks and you mentioned dividend in your prepared remarks. Can you -- have you given thought to bumping up the dividend given the large shored interest in the name?

David, we couldn't hear the last part you said. Could we give consideration to bumping up the dividend it light of?

The large shore interest in the name.

Oh. We have periodic discussions with the Board also on that, but generally we haven't looked to use the dividend per se because we clearly have been in a growth mode overall. But there's no question that -- and from a viewpoint of stock buybacks that we have seen our stock with the kind of strength in our numbers going forward would indicate that it's very possible we will be doing some buybacks.

I want to correct one thing that Ramiro just said. When he was making a reference to 10 million, he was referring to several particular items but the actual commitments are over that. And I would say they're more in the 30 to 40 million area is our total exposures. But again, all those situations that are directly involved -- something that Lennar has brought to us as their -- a form of their guarantee on it.

Okay.

Can I help you with anything else?

No, that's it. Thanks.

Your next question is from Gary Tenner with SunTrust Robinson Humphrey.

Quick question. Bert, I wonder if you could let us know what amount if any of previously capitalized interest was actually recognized during the quarter? In other words, came in the door either from a monthly payment or from a loan repayment?

Of the -- okay.

The net increase quarter to quarter was about $32 million, as you said. I guess what was the gross and then the net.

The -- the gross was -- the net was actually 32 million. The gross was about 3 million higher than that. So to answer your question, about $3 million came back off due to either loan repayments or -- either outright loan repayments or principal repayments by the borrower.

Okay. Perfect. Thank you.

Thank you. And in the interests of time we will take one final question, and that will be a follow-up from Sal DiMartino with Bear Stearns.

Hi, guys. Just real quick, a question on loan growth. Just, how sustainable is the current pace of loan growth given all the cross currents in the economy, and also how much of your loan growth is now coming from outside of Florida?

I have to give -- I'll have to check the figures on how much is outside of Florida? I think we had an overall percentage--.

Outside of Florida is about 45%.

But that's all residential.

Yes, it's all residential. It doesn't -- that's not including -- that's just talking about the percentage of residential as opposed to the percentage of total loans. We do a lot more loans in this -- in the state.

I'm sorry, what I was giving was the production of our residential loans, about 57% of our production comes from Florida, about about 45% comes from outside of Florida. In total balances in terms of what we have on the portfolio our Florida balances are in the mid to high 60s in terms of a percentage of assets outside of Florida.

Okay. And what was the rest of that question, I'm sorry.

Yes, I guess, you had very strong loan growth this quarter and last quarter, and we're wondering sort of all the cross currents in the economy, and, you know, maybe a possible slowing in certain markets. How sustainable do you think this loan growth is?

This -- this gets back to our basic strategy. We have right now a fairly strong pipeline, but we're cognizant of the fact that there is some slowing that has to happen at some point. But on the other hand, we just announced recently opening an office in the cover of the New England area. So it may be that some of it will slow in some areas, but we will pick back up some of that volume in another area.

We expect to announce another office in the very near future. And as we try to state before, because we're not the biggest, we can pick and choose our markets, and if we get a small piece of the market, that sustains us for the needs that we have in terms of our asset portfolio growth. So we're fairly optimistic about that.

This can always vary by a month or so, if it takes a little longer to get with an office to its prime level. But never -- so we may have some ups and downs, it's not a perfect line. But we believe that we're in pretty good shape to sustain a pretty good growth in loans as well as continue percentage of sales loans that we -- as I mentioned earlier.

Okay. Thank you.

Thank you. Are there any further closing remarks?

I want to thank everyone today who's listened in to our story. We had a lot of optimism about where we're going, how we're getting there. Management team has really come together and is working very hard and continuing the efforts, building a top-notch franchise in Florida.

We're always aiming that way. It's always our goal. We really think that we have developed a number-one franchise. And likewise across the board, all of our areas are working well, our employees have done extremely well, the officers have been great leaders, and we're looking forward to another good quarter in the future. Thank you very much.

Thank you. This does conclude today's BankUnited Financial Corporation fiscal year and fourth quarter earnings conference call. You may now disconnect.