BankUnited Inc (BKU) 2007 Q3 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen to the BankUnited third-quarter conference call. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the Company, we'll open up the conference for questions and answers after the presentation.

This conference call may contain certain forward-looking statements which are based on management's expectations regarding factors that may impact the Company's earnings and performance in future periods. Words and phrases such as will likely result, expect, will continue, anticipate, estimate, project, believe, intend, should, 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 materially differ from current management expectations included but are not limited to general business and economic conditions, either nationally or regionally; fiscal or monetary policies; significant weather events such as hurricanes, changes or fluctuations in the interest rate environment; a deterioration in credit quality and/or a reduced demand for credit; reduced deposit flows and loan demand; real estate values; competition from other financial service companies in our markets; legislative or regulatory changes including, among others, changes in accounting standards, guidelines and policies; the issuance or redemption of additional Company debt or equity; the concentration of operations in Florida; if Florida business or economic conditions decline; reliance on other companies for products and services; the impact of war and the threat and impact of terrorism; volatility in the market price of the Company's common stock; and other economic competitive, servicing capacity, governmental regulatory and technological factors affecting the Company's operations, price, products, and delivery of services. I will now turn the call over to Alfred Camner, Chairman and Chief Executive Officer of BankUnited.

Thank you. I wish you all a good afternoon and given the market conditions, I think all of you could use those wishes. Welcome to our BankUnited report of earnings for the third quarter of 2007. Joining me on today's call are Ramiro Ortiz, BankUnited President and Chief Operating Officer; Bert Lopez, our CFO; and Jim Foster, Senior Executive Vice President of Corporate Finance.

We will begin the call with a brief overview of our results for the quarter and spend the duration of our time together responding to questions.

Market conditions continue to fluctuate. In spite of this, BankUnited had a solid third quarter with earnings per share of $0.62, which is basically when compared to the same quarter last year. Net income for the quarter was $23.2 million compared to $23.8 million for the same quarter in 2006. Net income for the nine months ended June 30, 2007, was $75 million, up 25.6% from $59.7 million for the same period the previous year. This is a BankUnited record.

Basic and diluted earnings per share for the quarter were $0.65 and $0.62, respectively, the same as that of a year ago. Total assets grew to $14.5 billion, a 12.5% increase over the same period last year. Total loan balances reached $12.3 billion, a 17.1% increase and total deposits increased 18.9% over the same quarter last year.

We have had a lot of positive news this quarter, but there are definitely some challenges. It is important to reiterate that BankUnited is a bank -- a diversified full-service bank. We have 83 branches in coastal counties in Florida. We have $7 billion in deposits and full-service commercial and small business banking, online banking in residential lending areas. We are clearly undervalued in our estimation as a Florida franchise. We have taken advantage of Board-authorized buybacks and will continue to repurchase on a pace of approximately 1 million shares or more per quarter.

Credit quality has been a hallmark of our Company since the beginning. Our history shows that we've been able to maintain a low level of charge-offs even when non-performing assets increase. As a portfolio lender, we treat each loan as our own. It's important to remember that we have always underwritten our mortgages at the fully indexed rate. This is not the case with some other companies in our sector. In addition, we do not engage in sub prime lending and we do not provide home equity piggybacking of loans. There's been a lot written about non-performing assets, but we believe the real marker is net charge-offs. BankUnited's net charge-offs remain low, just 0.04% annualized of total loans. This a $1.1 million on a portfolio of $12.3 billion. All loans and foreclosure of residential real estate with weighted average current value LTV's a little over 79%.

As we work through this cycle, non-performing assets and net charge-offs will continue to increase for the next few quarters. However, we do not believe the expected increases will have a significant impact on earnings. During the quarter, the Company raised $184 million through the sale of $3.6 million, 6.75% HiMEDS equity units, which mandatorily convert a common equity in May 2010 at a maximum price of $32.76. When this transaction is taken into account our book value would be $23.29 per share in tangible equity. The tangible assets would be $6.59. We believe this pro forma non-GAAP financial measure is useful to investors in evaluating the Company's capital position.

There is no denying that the market is still challenging for all financial institutions, especially with those with substantial mortgage divisions. We are building a successful Florida bank complemented by a national residential mortgage lending business. In the last several years, we diversified our Company to become a well-rounded commercial retail bank with a wide range of products. Overall, we are maintaining our focus on balanced profitable growth.

This industry is cyclical. Our management team has been through down cycles in the past. We are prepared to work through the tough quarters and come out strong when the markets become more stable. I will now turn the call over to our President and Chief Operating Officer, Ramiro Ortiz, who will provide more details about our local market strategies.

Thank you, Fred. The third quarter of 2007 was a result of focused performance at all levels of the BankUnited team. We want to make clear the steps that we're taking to ensure the positive results continue as this difficult economic cycle involves. First, we have launched a number of new loan products and we will add more to meet the demand of our customers. We've said it before, but it bears repeating. We do not, nor have we ever, engaged in sub prime lending. Many of the loan products we have added diversify our product mix. We've also added and refined products in the commercial and small business banking area.

Secondly, we have slowed our expense run rate through a number of cost control methods which we have put in place.

Third, we're managing our growth and expect to expand our footprint at a more moderate pace in the next fiscal year. Over the past 24 months, we have opened 29 branches in four mortgage production offices. Moving forward, we will slow down our growth initiatives to allow the neighborhood micro market banking strategy to become further ingrained without the distraction of added expansion.

Fourth, we are closely managing our cost of funds and taking advantage of wholesale borrowings when appropriate.

And finally, we're seeing positive results from the asset retention programs we have initiated in the past few quarters. These activities and others have positively impacted our commercial, commercial real estate, small business, and mortgage lending areas.

During the quarter, we added two branches and entered Pinellas County on Florida's West Coast. Our 83 branch banking facilities are becoming the financial hubs of the neighborhoods they serve. That was our strategy. Branches opened in the past several quarters are performing and growing at a rapid rate. The internal benchmarks for cross-sell retention, and new household numbers continue to show impressive improvements.

We are successfully increasing market share within the state and within the neighborhoods we serve and our micro-market strategy continues to pay off. As a matter of fact, we've recently renamed our micro-market strategy the Neighborhood Banking Strategy, which better reflects our focus.

The evidence of our success is reflected by deposit growth. Total deposits for the third quarter reached $7 billion. That's an increase of almost 20% compared to the same period last year. Core deposits of $5 billion represent an 18.1% increase over the previous year. That's strong performance across the entire commercial bank.

Retail investment income out of our branches and private banking increased 89% from $900,000 third quarter '06 to $1.7 million third quarter of '07. There's a lot of momentum in this area as well as in all the areas that surround our branch system.

Commercial and commercial real estate loan balances were $1.2 billion at the end of the quarter. That compares with $1.1 billion the previous quarter. Our history of conservative credit standards has enabled us to avoid the pain being felt by other lenders. We have very little exposure to the condo development and conversion businesses, two areas that were especially hard hit in Florida.

Total loan origination were $1.2 billion, and that's 20.6% higher than the most recent quarter, but down 32.6% from the same period last year. After loan sales and prepayments, total loans grew to $12.3 billion, a 17.1% increase over the same quarter last year. Although these loan growth percentages are smaller than what we've reported in previous quarters, we are remaining diligent in our credit standards and will not compromise quality to make up for volume.

New products continue to gain traction and our tightening of an already conservative credit standard brought some slowdown in originations. In addition, we've diversified our product mix and are seeing production shift to new products. The percentage of monthly option ARMs is declining. Pipelines are strong in our lending areas and we are pleased with the contributions of our newer branches. Our experienced management team and employees are focused on performing their way out of the cycle. The branch numbers may not be flashy, but they show a consistent pattern of success across all of our metrics. For more specific details about our financial results, I'll now turn the call over to our Chief Financial Officer, Bert Lopez.

Thank you, Romero. We continue to focus on activities that will provide incremental increases in margin, profitability, and return on capital. Our goal is balanced, profitable growth. It's not easy in this environment and a softening of the real estate market coupled with a challenging yield curve has added to this test. However, ongoing product refinements, measures to streamline processes and our commitment to expense control continue to show positive results.

As Romero mentioned, our residential production continues to shift away from the monthly option ARMs to other new products, primarily our 5/1 Select ARM with payment options. The balance of these monthly option ARMs now comprise 55% of our loan portfolio and 47% of our assets. We expect these percentages to decrease as we continue to focus on our new products. Also, these new products also have higher start rates and should generate lower levels of negative amortization.

There's been a great deal of discussion in the public in the last few days regarding home equity loans and lines. Just to give some detail regarding our home equity loans and lines portfolio at June 30th, 2007, they total approximately $403 million and comprise less than 3% of our total assets. These loans were generated for our branch system, are relationship-based, none were purchased, and none are piggybacks, because as we've mentioned in the past, we do not allow piggyback loans. Furthermore, as a matter of policy, the loan-to-value on these loans will not exceed 90%.

On this call, we're going to give some vintage information as a percentage of total loans on our residential loan portfolio, including our consumer specialty mortgages, which are also first mortgages on residential properties. In terms of the years, our vintage for 2003 and earlier again as a percentage of total loans is 13%. 2004 is 12%. 2005 is 19%. Our 2006 residential portfolios as a percent of total loans is 31%. And 2007 is now 12%. Again, these are numbers as a percentage of total loans.

Our margin continues to improve and reached 240 basis points this quarter, an increase of 22 basis points over the same period last year. We are especially proud of our increases in margin because they've taken place in an environment with a challenging yield curve and we continue to focus on lowering our funding costs. Although our portfolio grew, our negative amortization stayed flat at $46.4 million versus $46.0 million last quarter. We expect this quarterly amount to stay relatively flat due to the introduction of the aforementioned new products and also prepayments. At June 30th, the negative amortization totaled $222 million or 3% of our outstanding option ARM portfolio.

Our non-performing assets, as we announced earlier, increased $124 million or 86 basis points as of June 30th. This is up from 53 basis points at March 31st and from 11 basis points from the June 2006 quarter.

We have taken a look at the composition of our non-performers in terms of the relationship to the portfolio, specifically in the areas of geography, documentation type, collateral type, and vintages and our non-performers mirror that composition of our portfolio, so there's no particular area of our non-performers that are sticking out in contrast to their existence in the portfolio.

As Fred mentioned, we anticipate that NPAs will trend up, but again, the way our loans are underwritten, we do not expect a significant increase in losses.

We closely monitor our loan portfolio to manage our risk. In this quarter we made proactive changes to our collection areas. As is our history, we will continue to provide significantly more in provision for loan losses than charge-offs. This quarter, the provision reached $4.4 million versus $1.2 million last year in the June quarter and $4.0 million in the most recent March quarter. Our reserve for loan losses stood at 36 basis points during the third quarter compared to 35 the previous quarter and 31 basis points in the same quarter last year.

Non-interest income was $8.3 million, a decrease of 20% compared to the quarter ended June 30th, '06. This decrease is due primarily to the gain on sale issues we covered in the prerelease of July 12. The secondary market has long shown an appetite for BankUnited generated loans because of our stringent underwriting and conservative credit standards. However, we are in a fortunate position to be able to hold and service loans until we deem the gain on sale margins appropriate. Loan sales and securitizations will continue to be used as a balance sheet management tool when we are comfortable with market conditions.

Our fee income was up substantially, rising 19.4% to reach $3.6 million. This figure excludes the loan servicing fees. As Romero mentioned, our continuing emphasis on building our wealth management area yielded strong results this quarter as our revenue from investment insurance services increased 89% to $1.7 million.

During the quarter, we began to see the results of the expense control mandates we implemented a few quarters ago, particularly in the areas of employees' salaries, benefits, and commissions. After adjusting for a $1.2 million expense related to the early redemption of some of our trust preferred securities in the March quarter, our linked quarter expenses increased by approximately only $300,000 to $50.5 million or less than 1%. This is a significantly slower pace than previous quarters.

As Romero mentioned, we are slowing the pace of new branch openings and given that approximately one-third of our branches are less than two years old, we do expect to see some positive operating leverage as these branches mature. We will obviously continue to focus on expense controls.

Last quarter, we continued our stock buyback plan and repurchased more than 936,000 shares at an average price of $21.90. The Board of Directors has authorized a repurchase totaling $3.5 million of which we have $2.5 million left. Obviously these prices at current shares represent an excellent use of our capital and we plan to buy back approximately one million shares per quarter and will ask an authorization from the Board for additional shares under the buyback program. I'll now turn the call back over to Fred for closing comments.

Thanks, Bert. We are proud of this quarter's results, especially in light of what are obviously challenging economic situations. As we look forward to the fourth quarter, we are continuing on a path of moderate expansion. Our main goals for the next several months are to focus on balanced profitable activities and to give the bank to catch up with its growth over the last several years.

I would like to reiterate a few points. Many people in the market have said we do sub prime lending. No, we don't do sub prime lending. They've said we've had a portfolio with nothing but monthly NPA loans. Not true. We have a diversified portfolio with a large variety of loans. They say we're just a wholesale mortgage wonder, but that's not the case. We have a full-service bank with 83 branches in thriving, growing Florida Counties. We are well-positioned to expand upon our ranking as the largest bank headquartered in the state of Florida.

With that we're ready to open up our call to questions. If, moderator, if you would proceed.

(OPERATOR INSTRUCTIONS). Paul Miller, Friedman, Billings, Ramsey.

Thank you very much. Can you talk a little bit about the market for pay option ARMs? We're seeing right now that there's a lot of discussion out there that because the CDO market is frozen up, and Fitch and Moody's and whatnot are changing how they're going to underwrite mortgages, underwrite the securitizations, that there's not a lot of demand for mortgages in the mortgage market right now. Even Countrywide said their HELOC loans, they can't sell things below AA into the market at this point. Is the market still open for pay option ARMs and are you still getting decent gain on sale on them?

I think the way to answer this is that -- let me go back quickly. I think some people have had some concepts and not totally understand where we've been coming from. In December, we had very large sales of option ARMs. We announced it at that time that we thought the prices were quite high and we took advantage of that and sold a very large quantity, over $500 million at the point. We did likewise a very large quantity in the beginning of January, likewise announcing as we went along that we did do because we felt that the pricing would not be maintained.

We mention in our release that while we've had positive indications over this last quarter at different times, we didn't think they were sufficient for us to sell. But we've also gone through a transition ourselves. The monthly MTA is really a very small portion of our production at this point and we believe it will be a continuing declining piece of the production of the Company. So we primarily, this last quarter, originated for portfolio in the recognition that we felt the market was not good. We believe that's where the market will be with the kind of volatility that's going on over the next several quarters. There are going to be ups and downs. There may be opportunities for people to have those sales, but it's really not that important to us at this stage. That particular area of production is primarily portfolio. We're not looking for sales.

So I mean -- are you doing more the traditional 5/1s now to put in the portfolio? I mean I'm just a little --

We are doing what would be a variation of some of the products that you have probably seen in what is the Golden West division of Wachovia, and that is that we've been doing products that already have fixed concepts. They have much higher start rates. They have a lot less NegAm involved, but they've given people payment options within that category. It's a totally -- really, for us, a portfolio of product at this point. And we are extremely satisfied with the returns it would give us. In a lot of ways, it's much -- a far better credit product. I'm sure in a concept that if we gathered enough of it together, there might very well be a market for it right now, but we haven't particularly looked to do that. We've kept our production at a very tight credit concept presently, and it really relates to some degree the amount of growth that we anticipate versus the amount of prepays we anticipate.

We have never really been a lender that was looking as just strictly a mortgage banker. There are a lot of other entities out there that are mortgage bankers. We are a portfolio lender. We've always said that we had an excess; sometimes it was 25%, sometimes it was 30% excess that we would sell off.

We do sell some products into conduits automatically. Those are 5/1s primarily, also conforming products. We will do that regularly because we feel we have to be full-service not only in terms of how we develop our relationships with wholesale brokers out in the market, but also with our customers. So we have those products available for them and we do feed off into those conduits.

So those loan sales you saw this last quarter for fixed-rates and for the standard 5/1s, those were basically sold off on a conforming or a conduit basis. And those were the sales you actually saw.

Thank you very much.

John Pancari, J.P. Morgan.

Good afternoon. I wanted to see if you can give me a little bit of your insight as to if you are looking at about a 79% LTV ratio on your loans in foreclosure, in your view, given the contact you have had with your customer base, why are you seeing the rate of the spike in your non-performers if there is that much, and then the move and all to foreclosure, if there's that much equity left in the property?

There's a variety of reasons and it gets into a lot of detail. Basically, the primary reason that we find is a generality that has been true of every other cycle. It's overextension by borrowers. What's happened is that the extent that was an overextension by them, and it could be things that relate to job, what they took on as burdens originally when they made -- gathered the loan in, so on. It could be health, divorce, job, loss. There are a lot of items to go into it. To us, it's pretty well cyclical. What happened is in the past couple of years, it was absorbed by the fact that somebody could run out and get a substantial refi. On the back end, they could turn around, and they could get some kind of home equity loan to cover it, or they could sell the property if they were way over their head. Clearly, a lot of those options have been taken away from the people, so you're going to go through a normal cyclical basis. And most of our situations really fall into those categories.

In Florida, there is a little added part and that relates to property taxes and insurance increases. The state legislature has addressed those. They've got a ways to go, but they have definitely ameliorated the situation. But there's still some more they have to do and they know it. But essentially, people have found -- some of them have found that they can't afford what they were doing.

Now, we always underwrote based upon fully indexed. So you're really seeing -- to some degree, a certain amount of normality in the cyclical period. I think that's different from a lot of other people because a lot of others have disproportionate situations developing. In sub prime they have problems. They have problems in home equity. And they had situations where they qualified people at 1% start rates. To me, that was always a crazy situation, always a problem, never understood it. The other thing they did is they didn't verify employments. We standardly verify employments even our stated income and apply a reasonable test to whether the income reported made sense in terms of the employment.

So our underwriting has been difference. Our experience as to how our defaults are coming in, we feel is a lot different than some of the things we have seen reported, particularly by some major companies recently. So there's quite a different situation going on.

Why, then, you have that equity behind there? When people fall short on something relating to their credit, they can't run out and get the loans. Everybody has tightened credit around the country. Everyone has had some tightening now. So what they could have done six months, a year ago, it's going to be a lot tougher for those people to go out and get a home equity line to get a refi, so forth.

What you're going to see every lender do, we're going to be doing and that's why to some degree, NPAs are going to be rising. You are going to see what I call the workout phase. In this kind of cycle, you are going to see payment plans for some people where we feel it's appropriate. The regulators are really directing that we all do that. So that's going to have an effect in the residential area on what you see as NPAs.

That's why we tell people particularly to focus in on what the situation is as to charge-offs, what our exposures are in that regard. And that terms, we've indicated that we feel pretty good that our charge-offs will be relatively low and certainly a lot lower than a lot of companies right now.

Okay. And Fred, on that front, I know you indicated that you are steadily increasing your loan loss reserves just given the rise in NPAs and given what you are seeing in the markets. What type -- what reserve level would you have in mind do you think is more adequate in your calculation and your assessments at this point?

I think our reserves that we've been doing have been adequate. I believe because of the old liquidity is developing in the market, that more than likely, we will pick up those reserves in any event, and that we will probably use the ill-liquidity in the market as a basis to get us past the SEC questions of what you're allowed to do. Because we've been restricted -- the fact that we've had such low loss, and continue to have such low losses has been made it difficult for us to increase reserves, but we're going to be looking to increase those reserves as we go down the road, understanding that now the ill-liquidity situation that's certainly been demonstrated in the last couple of days gives us an opportunity to add to reserves.

Okay thank you.

Dave Bishop, Stifel.

That's a new one. Good afternoon, gentlemen. Question for you. In terms of I think in the past you given [exposure] but haven't seen it in a while. And I don't know if you could do it by vintage, but how close, like in terms of the highest level in terms of loans behind the eight ball in terms of the NegAms, what's the high in terms of the loan-to-value in terms of the NegAm cap versus the NegAm cap I think it's 106, 107 or so? Any sort of color you can give there by vintage or just overall portfolio?

David, we don't have very many loans that are reaching their cap. We only have literally two loans that are the 111% basis. Most of them are obviously around a 3% level. We haven't gone back. We haven't disclosed the LTDs of those loans. But again, as Romero mentioned, one of the things that we will do is with our asset retention team, we will go back to those borrowers as they get closer to the 115% cap and then we will work with them to see what their options are in terms of refinancing to another loan or resetting them back into MTA if the credit is obviously good.

Okay, so it sounds like on average then, it's somewhere closer to maybe 103 as opposed to maybe 110 or 107 or 108 even --

No, that's correct. The average is 103.

Okay.

We have very few loans that are really reach any of the upper levels or where we get to the point, the cap situation.

We've never had a loan hit that 115 cap. We've had them reach the other cap of five years, but never hit the 115 cap. And again, as they get close, we have other options for them that will help them get into another loan if the credit is good.

And then one follow-up if I can, do you have the actual dollar amount of the total loan sales this quarter?

It's approximately $124 million. And again, most of those came through the program that Fred mentioned, which was the 5/1 program through our conduit and conforming loans.

Great, thank you.

Jennifer Thompson, Oppenheimer.

I was wondering if you could just expand a little bit about the comments regarding slowing expansion in 2008, particularly if you could give us any kind of idea of how you are thinking about branch expansion versus say what you expect to do this year and how would that impact expenses, obviously, but would it be a focus on slowing loan growth as well?

We expect both to happen, Jennifer. We expect our loan growth to be significantly less than it has been in the past. We've risen quite a bit in the last several years. And likewise, the same on branches. So really, I expect the branch openings to be at the kind of low end of the two, four or so area.

And as far as the loan growth, some of that will depend on the rate of prepayments that come in in the market over this year. But nevertheless, it will still be significantly below what we have done the last couple of years.

Let me just add a little bit of color to that. We have been very, very pleased with everything that has come out of the bank branches. And to that extent, that production and so forth will continue and get better. Our investment services, deposit growth, will continue. And then a lot of focus on the basics and that is cross-sell, customer retention and those types of metrics will continue to be an area of focus. The only thing that is going to change out of the branch area is a slowdown of new branch openings and allow us the ability to absorb what already has opened up.

And remembering, Jennifer, that we've got approximately a third of our branches are less than two years old. So as they approach that breakeven point, certainly as they surpass it, because the expenses are already in our income statement, we should continue to generate some positive leverage from that.

And I'll add one more just anecdotal comment, Jennifer. I have now started my annual branch visitation schedule and I got to tell you that I could not be more energetic and more optimistic after visiting the first few branches that I have visited.

That's good news. So the low-end being somewhere in the 2 to 4 range for the full year? Is that right? Full fiscal year?

Yes.

I'm sorry, calendar year, right?

Fiscal '08.

Oh, fiscal '08?

(multiple speakers) is probably going to be in the 2 to 4 range in new offices. There are certainly more opportunities than that, but I think really what we're trying to do is get a focus internally. We have a lot of great programs going on and to some degree, the rapid expansion, as much as we've done this last couple of years, we need a little bit of a pause so that we can really deeply embed a lot of the really great programs that our people in that area have put together. And so there will be more production in a sense and a better mix of products, more wealth management so forth going through the offices and we want to be able to have everybody really focus on it this year. And given where the market is in any event, this is a good time to do it.

Okay great. One more question. Can you give us any color on the loans that are going delinquent non-performing? How would you characterize the reasons you are seeing for these loans going bad? And to what extent do you believe that it has anything to do with any kind of rate resets which I know you said have been pretty low.

It's practically nothing to do with the rate resets. It's just simply -- the generality would be what you see in any cycle and that's overextension. You could cut that a lot of different ways. It all comes down to that.

People a lot of times come in. We underwrite them that they can take care of paying for the loan. We do it at the adjusted up rate, but that doesn't mean they are not going to incur other expenses, go out and spend money on something else. Maybe after they come to us, they went and got another mortgage. But that's been in a relatively low number of cases in the foreclosures I've seen.

Generally, less than 20% have second mortgages at this point and it may actually be much lower than that. So what we really see is that people just simply got overextended. This is -- if you go through a typical cycle, it's pretty standard. And that's all the kind of reasons -- divorces, debts, loss of job, change of jobs, training for new jobs. Somebody showed me a couple of payment plans the other day and one of them was a fellow who is -- and was going to become a policeman but he hadn't yet become a policeman and he was just about to start in a couple of weeks time and so they had him on a payment plan. Another person five months unemployed, three job offers now. They were put on a payment plan. You know, not everybody is in that position.

So, when you look at it overall, for our portfolio, it's more the normal kind of things you see in a cyclical period. And the outs aren't there. People can't run out and get that second mortgage. They can't run out and get a complete refi in this type of credit market and they can't go out and readily sell the house. There's no quick sell of a house right now. I think that's obvious to anybody. So we have to work through that where we can and the people that are earnest and want to work at it, we're going to try to ultimately put them on payment plans. While a lot of them aren't going to be in that position and that's normal to the cycle.

What's to understand about our portfolio is that it is not a disproportionate situation. We are not sitting here as some are with a chunk of loans like a sub prime or what was referred to the other day by some large entity as their prime loans, which turned out to be loans that even had 500 FICOs that are second mortgages. We don't have that. That's not our stuff.

We have what we believe is very strong underwriting. We have good LTVs. And where we can, we're going to work with borrowers. Where it doesn't work out, we're going to have to foreclose and we're going to end up selling those houses. And we're going to have room on the sale so that we really expect very little in the way of losses. We just don't look for significant losses out of this portfolio. And the numbers on the foreclosures thus far with appraisals that we've been doing bear that out.

Jennifer, let me just add something else to it. When you take a look at our NPA portfolio or our foreclosure portfolio, the proportions literally mirror the entire portfolio. This is very important. That tells us that we don't really have a product issue. It's just the cycle that we're going through. And in a cycle like this, you tough it out and you get through it.

Great. Thanks very much.

Jefferson Harralson, KBW.

Thank you, guys. I was hoping you could take your originations this quarter and break them out between the fixed pay option ARM and the variable rate option ARM and other originations?

Yes, the building that we originated through the wholesale and the branches breaks down to be about 33% for the quarter. The monthly option ARMs and then the remainder is typically the 5/1 option ARM that would have pay options on it and then also our consumer specialty mortgages we do through the branches. So about a third of the monthly.

We saw that trend decreasing through the quarter. For instance, the June percentage of monthly option ARM was only 25%. So we saw that decreasing 10 through the quarter. And that's why we said we do believe we will see that decreasing trend ongoing.

No clue. And Jefferson, this is important because everything we've seen that trend is decreasing.

But just so you have an understanding, so there maybe a [mistake]. We've continuously over the last almost two years been a steady tightening of credit and we've been going through that process and we did it again in January in a very substantial way, we did it again in May in a very substantial way because what we are looking at as to what is coming in our portfolio, and we really always have geared our homes primarily to what goes into the portfolio. To the extent that we have a conduit, we may feed somewhat into the conduit. But the reality is our major emphasis is to have a portfolio of loans.

Clearly in a market where prices have come down somewhat in the houses, and where credit is tightened across the board, our position is that we could then even be tighter because it's that old statement that we've made all along that we only want a little piece of any particular market. So we can even have better FICOs than the next person who tightened. That, in a sense, is the same thing with LTVs. We've had stricter LTV situations and we've been doing that all along over the last two years, which is one of the reasons we believe we are in a substantial lag compared to a lot of other entities out there when they are reporting both NPAs and certainly charge-offs.

The reason that we are not reporting what they are reporting and well behind them is because we felt our underwriting was much stricter from the get go, Including the very concept that many of these big entities were out there making 1% start-rate loans and underwriting the people with 1%. You can qualify anybody at 1%.

You think that $1 billion in quarterly originations is sustainable?

Some of it will depend on whether we still do and have the conduit production. So that's part of it.

Since the monthly option ARM is a much smaller piece of this, depending on how interest rates move at this stage, I would say that we have very good opportunities and continue to have good opportunities into new products. As we said, they are very similar to the Wachovia-type products, but with actually a better asset liability situation to them.

And given that, I think that product will continue to predominate, will be an excellent product in the market, will still be favored. And so the answer is generally, yes.

It's plus or minus a number because obviously, the difference is that really runs to our benefit is that a lot of the secondary market situations that everybody keeps worrying about that have been cut off affect us less except for this viewpoint. We will now get much better pricing because the people out there who still have any kind of crazy pricing are really basically out of the market. So it leaves portfolio lenders and some of the larger liquid lenders out in the market to make loans and we are all going to get better pricing. We're all going to get better credit.

And can you keep originating $1 billion a quarter and buying back a million shares in a quarter from a capital standpoint?

The $1 billion a quarter is a number that's variable for us because a piece of that is getting sold in any event. It really relates on our prepayments. If our prepayments are lower, it's going to have very little affect in terms that we may not produce as much. We may reduce some production and be tighter. It really depends on our prepayments. If prepayments pick up some, then we're going to be in the other direction.

We have a lot of room because of our capital ratios and that's why we tried to give you the mandatory convertible to understand that.

We've got plenty of room in terms of the bank ratios. The bank ratios are way above that and we could easily add capital anytime we wanted to.

But we're not looking for a great deal of growth this year. We really are going to be significantly less than growth. We believe there has to be some pickup in prepays. So given that pickup in prepays, we feel we're going to be in a very balanced situation.

The last one, can you talk about the dollar amount of loans that you have modified this quarter and thanks for answering the question. Thanks.

In general, what we've done this quarter, we increased it over last quarter, but we have approximately 150, $160 million of modified loans this quarter. And that, as I mentioned, is higher than it was a quarter before.

That, primarily, by the way, relates to when we reach a period where their prepayment fee situations come to an end. Those are generally targeted and then we look at loans we would like to retain. We try to retain our best customers and that's the nature of the modification procedure.

Thanks a lot.

John Pandtle, Raymond James.

Thank you for taking the question. The question related to the net charge-offs in the quarter. Could you tell us what percentage of those were related to pay option mortgage?

Let me just break that down a little bit for you, John. Of the $1.1 million, $400,000 and that was related to one particular loan where we have some structural damage in the home, so as an abundance of caution, we went ahead and charged that down. So the remaining $700,000, that's all residential or the vast majority is residential. And it would again, mirror the portfolio in terms of charge-offs in relation back to the portfolio if it was option ARMs or if it was a more conventional loan. But again, $700,000 excluding the charge-offs for the structural damage is not a huge number. It's just a couple of basis points on loans.

Right. And then Bert, of the $700,000, what was the balance of loans that that was associated with, just a get a sense of the loss severity that the $700,000 would represent?

You mean how much did we write off for those specific loan? There's no one particular loan that had very much write off. We have a standard practice that we write automatically down by 10%. As soon as it goes into REO, it's written down 10%. So, in some cases, it went down. We also have a policy, which I don't want to get into all the details, relates to the PMI and in actuality, we write off the PMI so we don't actually up the loan for the PMI. We cut it down for the PMI and then we go and ask for the PMI money later on. So that's an adjustment I can't give you, but that $700,000 loss might not have been even half that, but I can't give you the exact amount. I don't know if you understand that. We have a very conservative procedure, so --

I guess it begs another question, just so I understand. When you say in the foreclosed properties you have a loan to value of 79%, is that before or after market down 10%? Is that LTV off the original appraisal?

No, that's off the current appraisal, and that's obviously before we write it down because we write it down once we take title to the property and obviously the vast majority of the foreclosures we don't take title to the property. There's just a handful of loans that went into the OREO this quarter. But as Fred mentioned, the write-down relates to when we take that property, we will look at it as the lower of --what we will record at the lower of the book value or market value minus 10%. So that's where you're generating the $700,000 or a portion of the $700,000. And if we looked at the properties, it would not generate much per property.

Okay. And then as, another question just on, from an accounting standpoint, if you put someone on a payment plan for credit reasons, does that get -- will those be classified as restructured or renegotiated loans that would ultimately show up in NPAs?

Our present system situation hasn't really gotten to that point. So the NPAs you are seeing right now actually include all the payment plans. We know that others don't do that. We haven't really gotten to the point of going through and finalizing the accounting procedures on that, and therefore, when you saw the NPAs of the 86, it includes all the payment plans.

Oh, it does? Okay.

Yes it does. And I'm not telling you we will do that in the future because we really need -- we've had so few of these situations in the past, that we haven't -- we don't have completely the accounting procedures in that. It was, and therefore, it's possible there will be adjustments in the future relating to payment plans. And some payment plans will go into the NPAs and other payment plans will not depending on the actual cap rules. But presently, all payment plans went into the NPAs.

John, obviously if you follow FAS 114 and 118 on troubled debt restructuring, we have not had payment plans that are significantly large in terms of their change to qualify for TDRs, but when we do, we would have those obviously listed on the TFRs restructured and they would be included in the NPAs.

(technical difficulty) my last question just to clear up some market speculation. Do you guys have exposure to Lennar? And if so, how big is that exposure?

We don't specify how large our exposure is to Lennar, but of the public homebuilders we have, that is our largest exposure, which is to Lennar. Lennar is a company with a huge amount of capital in cash, so we know the people well and we feel extremely comfortable with Lennar.

John, our total public homebuilder exposure is -- it's very, very, very modest.

Good. Thank you.

Jim Ackor, RBC Capital.

Thank you. Good afternoon, guys. A couple of questions. In looking at the loan portfolio, shows 138 million in construction loans and then 309 million in land loans. These are areas where there is a fairly intense amount of speculation industry-wide and certainly it's having an impact on how the market perceives your Company from a risk perspective.

Can you give us some sort of breakdown in terms of what the construction loan portfolio looks like in terms of residential versus commercial, condo versus single family home? And then, on the land loans, can you just give us some color as to what the quality of that portfolio looks like and where the primary exposure is in terms of who you are actually lending money to?

The residential piece, and I'm really talking off the top of my head, is about two-thirds of that exposure. The land loans are represented by companies and folks that have deep pockets.

Is this the homebuilder component, Ramiro?

A piece of it. A piece of it is a homebuilder component.

Let me -- I guess essentially, we, a while back, tightened on what we were willing to do with respect to both home loans, builders and so forth. So, our list is kind of restricted overall. Their people have been through cycles before. Some of them have extraordinarily deep pockets. Some of them have statements that are absolutely extraordinary in terms of their cash and net worth positions. So, for the most part, it's deep pocket situations. We only have a few that I would even say of any of these on the commercial side that actually would appear in any way on what we call our watchlist and that's basically it.

Very, very, very little condo exposure. Very, very little, Jim.

Yes, and the condo exposure would be the low rise, medium-rise condos. We don't have any exposure to the luxury high-rise condo construction segment. And there's been a lot of questions about office buildings. We have a very, very minimal exposure to any kind of office building, either in the construction or in the permanent financing area.

Can you give us any kind of feel for what the delinquency ratios or non-performing ratios look like in these two portfolios and what the migration trends have looked like over the course of the past couple of quarters in terms of loans?

Well, the delinquency ratio in this area is basically zero except for one loan previously announced at a long time ago, which, by the way, by a settlement agreement, that loan, known as the Transeastern loan, that was announced originally publicly, because I've been stuck with it forever. Our matter has been settled and we will actually be totally reinstating that loan because of what's happened and the new collateral that's been presented.

So, other than that, we've got a couple loans on what we call watchlist that could become down the road defaults. We don't think they are significant. Loans go in and out of default watchlist. And we have one other commercial loan that we did that was probably our most serious on our watchlist, actually, is paid off since the end of the quarter. And therefore, basically we don't have any delinquencies of any consequence related in the commercial area or in the commercial loan area, the real estate area, including with respect to any construction loans.

Jim, just to add a number to that, of the $1.2 billion of commercial and commercial real estate loans, we only have $3 million in non-performing, and that's the loan that Fred mentioned, the Transeastern and that itself, has a 60% reserve on it.

And I've got to remind you that at the end of the day, we are a bank, so we do make these loans, but right now, the delinquency rate there is zero.

Yes, and I know there are a couple of banks that may have reported in the last few days that they had problems. We, essentially, have practically no exposures. We just have a couple of loans in there, what I would call their difficult market areas and they are not on any deep pocket loans, but they are extremely well collateralized loans. So they are not in that category for us. So I -- we are aware that there are certain areas and certain pockets in the state that have had some serious problems, but that's not where our loans are.

And just a final follow-up. With regard to regulatory exams, can you tell us when your last one was or when your next one might be upcoming in terms of the evaluation on the loan portfolio?

You mean when do we have --?

The last safety and soundness exam, the exit was a few months ago.

Okay.

And they're typically on a 12 to 15-month rotation.

Perfect. Thank you.

Gary Gordon, Portales Partners.

Thanks. Most of my questions have been answered, but two quick things. One, can you talk a little about some of the steps you are taking on expense control? And two, you mentioned some material credit standard tightening in January and May. Maybe one or two examples of the things they're doing to tighten.

In terms of expense control, the specifics, for the most part, are headcount and it's just very, very, very difficult to get an addition to staff right now. We are constantly evaluating what our folks are doing and reallocating staff throughout the entire division. And this is really literally division by division, we're looking at processes, streamlining processes where applicable. A lot of the processes that are in place went back several years ago. We reexamined what we were doing, does it still apply. As the climate changes and production changes and so forth we are constantly reallocating people from one area to another.

In terms of the credit tightening, it's the usual LTVs. We like people to have more skin in the game. We've tightened down significantly on investor properties. I would say, Gary, that it's the normal typical things that people do.

We've gotten -- in terms of tightening, we just have had a continued concept of getting better LTVs, getting higher FICO scores, and getting more in a sense proof of what people have and what they've got involved in terms of their life. I think everybody has been doing this and to the extent everybody else has been doing it, we've been doing it more so. I believe a lot of what you're seeing others announce, we probably did quite some time ago. And each step of the way, we just -- if they get tighter, then we get a lot tighter.

And that relates probably back to the question about what is our production and how we look at our production for the year. One of the reasons we've been willing to add some loans on is because we are getting, as we go along here, we're going to get better and better pricing and we're going to get better and better credits.

And that's what the market is going to give us. So to us, that, in a sense, is a good deal. Really, that's where we are. It's hard to get -- we can get a lot more specific as it relates to the whole concept of when you do the loans there's a whole matrix involved. But just about anything on that matrix relating to the loan type to the LTV to what the person wants, and what they need to qualify gets tougher and tougher. We know everybody else in the market is doing it. We are doing it more so.

An interesting phenomenon, Gary, that we have benefited from is that during the go-go years, a lot of folks on calls like this were criticizing us because our non-performers were so low, and they were suggesting that our underwriting standards were too tight and that we were leaving money on the table. Well, fortunately, we did that. And right now, on the commercial and commercial real estate side, things are looking pretty well.

Gary, just a real quick item. I don't want to leave anyone the impression that we just made those two changes in tightening credit. It's a continual process where we have formally a meeting every month, but there's a number of informal meetings that occurred throughout the week and we will make changes as we see fit. Certainly we don't do this every quarter or even every month. It happens more frequently than that as conditions warrant.

Yes, and by the same token, and I don't mean to speak out of both sides of my mouth, one of the things that as we had tightened credit, we used to tell in the marketplace that while we were a little more conservative, we would be consistent with borrowers during the difficult times and a factor that is really helping us out and will continue to help us in the future is that all of our good clients were available for them and were making loans for them. And they appreciate that because others that during the go-go years had the spigot wide open now have the spigot completely shut.

Thank you very much.

Donald [Geiss], Private Investor.

Good afternoon. The -- I'm a private investor. I've owned BankUnited stock since the early 1998, so I've seen my share of ups and downs. Haven't seen anything like what's happening right now and what's happening right now seems to me to be happening in the face of some of the finest results from the business over a long period of time, which has been my perspective, a long period of time.

I don't crunch the numbers. I've owned a number of banks over a long period of time. It's been good to me, and your bank has been another one that's been good to me.

I noticed that there is a high ratio of institutional ownership of BankUnited common stock. I'm somewhat surprised and maybe you can give me some insight into this, that presumably the institutional investors are the professionals that crunch the numbers and look at all of the aspects of owning the share of a particular company. And yet, we have a huge drop in value now on our Class A shares, presumably driven by the institutions or let's say the professional investors. Could you give me some insight into this? Am I missing something?

I'm not one of these people to rant and rave about this particular item, but the S&L reporting system shows that we are 160% owned by institutions, which is fairly difficult to be done. And the reason for that is that unfortunately, some of our really good institutions have been more than willing to lend their stockout to hedge funds that short us. And a lot of the market action that occurs at times with respect to our stock is certainly that. And it particularly is higher in between the period, reporting periods, which NASDAQ recently shortened, but which we realize and I think NASDAQ is beginning to realize they need to even shorten more.

And I also note that some Senate committee and senators also believe that they need to shorten it more, because it's become very obvious that you can't have a company owned 160%. It just isn't going to work very well and particularly in the banking world.

So Donald, we know you are a long investor, probably a little frustrated like we are because we are reporting compared to many actually pretty good numbers and certainly a lot less loss problems than a lot of people are reporting. There are many entities out there with 10, 12, 20 times what our losses are and so on. So it's a little frustrating for us.

We know our market cap has allowed some of this to happen, and that's essentially my answer to the question. It doesn't mean that we wouldn't be down compared to where we were last year because just about every bank's stock is down. And certainly anybody in the mortgage business is down right now. But ours has kind of suffered given our Florida franchise and how strong a bank setup that we have. We're really essentially one-third bank approximately and sort of two-thirds a residential operation. And the bank gets no credit at all. And it's a little frustrating for all of us.

But basically, that 160% is quite a surprise to most people when they look at it and they say how does somebody get them 160%. So, that's the best I can give you right now, Donald, which you can talk to some of our analysts that are on this call, but I'm not sure they can explain it. Some of them have represented the long side of the Street and some of them have presented represented the short side of the Street. Thanks, Don.

Thank you for the explanation. I saw that 160% a little earlier today when I was looking at it and I must say I didn't have any idea how that 160 -- I figured it was an error somewhere, but now I understand it.

It probably violates federal regulations, but the problem is that the federal regulators are so mowed under they don't have time to go and check it.

That's a minor thing.

It's just one of those things, so eventually they will get around to doing it and some of our friendly shorts will be hearing from them.

Well, as one who lived and invested through the S&L mess of the mid-1980s and I survived that, I'm going to survive. In fact, I've been entering some orders, some buy orders here today, so --

Well, thank you.

Thank you. Keep up the good work!

Matthew Kelley, Sterne Agee.

On the 33% of the $1 billion in MTA production during the quarter, was the market for that that you decided not to sell into? What were those spreads that you turned down?

Well, I think a generality and it probably takes more specifics to understand. The spread itself, some of the bids were pretty good bids. But what has happened in the market for us and for some of the other people who are producing, we have to consider our cost of production in the realm of this as well. And we had a positive. The positive was what we would call less than 40 basis points. And generally, in the realm of that, I wasn't really us comfortable.

Generally -- the other thing I want to make an emphasis on, maybe two things for all of you. One is that because people are having such a difficult time getting loans out in the market and this relates to everybody tightening credit and the regulators dumping on people and all this other stuff going on. As a result of that, when somebody goes to get a loan and they go to a broker, the broker doesn't send it to three lenders anymore. They send it to 15 lenders, maybe more. And so a lot of us are sitting there having to kick out a lot of loans, and we kick out a great deal of loans. As a result, we've been going through a process where we have to become more efficient. It's costing us more money to produce a loan and we are in the process of streamlining that, getting it more cost-efficient. That's an important factor.

The second thing for everybody to understand is that there is a volatility. The volatility is obvious. You wouldn't see what was happening today if we hadn't had the volatilities that are going on in the secondary market. So for a moment in time, you have one quote. By the time you can put it altogether, you're going to have the same quote. So you could have been talking to somebody five days before Bear Stearns announced their problem and as you are about to wrap something up, Bear Stearns announces their problem!

So it's very, very difficult to do a sale that makes any sense at this point in this market with the kind of volatility that's going on. We believe, and I said this to a few people who have called us. We believe that the truth has to come out. And the truth is that there are entities. Some of them reported today. There are more to be reported. They need to tell the truth, get it out on the table, announce what write-offs are going to have this year and what they're going to get done. And when they get this over with, then we will start having a stabilization of the market.

But if we keep doing this piecemeal, my belief is that by that usual date of truth, December 31, everybody will finally get it out on the table and they will tell how many loans they have, that are second mortgages, they are never going to collect a dime.

I watch my foreclosures and while we don't have that many second mortgages, I have noted that only in I believe one case thus far, has one of those well-known lenders that some of you would recognize their names, has stepped up and paid off the loan with their second mortgage. They are just writing them off. And I think you are going to find out that somebody is going to have to -- just like a big entity just recently did -- they're going to have to finally come and tell us all that they have got to write them off.

The market seems to believe that you might be one of those companies that has something else to tell to the world. And I think any kind of assurance you can give us on, or guidance on, where some of these credit metrics may be headed on NPAs or charge-offs would be incredibly helpful. And understanding that you provided guidance back in February on an NPA basis. But could you just talk for a minute on where you see some of those metrics heading in a realistic type of discussion on what could be the worst-case scenario on charge-offs, that you went back and looked at some of your data points over the last 15 or 20 years and then 40 basis points was your higher watermark back in '94. Is that a level that (multiple speakers) repeated?

We at this point would be extremely surprised if it got to that level. We can't guarantee those things; that's obvious. But that represented a period of time deep in the California recession and the California recession but then was probably pretty deep for everybody. So, and that was primarily a California piece of portfolio. That is a number that I've seen some people approach.

At the moment, our appraisals and the information that we are receiving coming in on our loans does not indicate something in that realm. If we reach that point, that would not significantly damage our earnings in the first place. So, but at the moment, we don't look at reaching that point.

Matt, let me just put some numbers to that, because, maybe even going back to Donald Geiss' question about some of the things that the market is penalizing for. On the credit side, we understand everybody's concern about it, but to put it in perspective, if you take that 40 basis point charge-off and right now we are at 4 and we can't lose sight of that and we're at the fact that our NPAs with current LTVs are at 79%, so we don't expect a lot of losses there, don't expect a lot of losses going forward. But shock it and say it's 40 basis points.

Forty basis points on our $9 billion of residential loans would yield us $36 million in charge-offs after-tax will be $24 million in charge-offs. We made $84 million last year, so we had the revenue stream to absorb that. It would be painful, absolutely. It would be catastrophic? No. Does it warrant some of the pressures and concerns from the credit side? We don't think so.

Let me give you -- the only other guidance I can give you is that Golden West in the worst of the California and I've always felt we had actually better underwriting than they have had historically. But given, that they were an excellent company, without a doubt. Their highest figure was about 20-sih basis point area. So that might have been slightly less than that. And so if I was saying something at the moment, I don't see a reason, given what they went through in California that if you even so that kind of thing were happening country-wide that necessarily we should be any higher than that particular phase.

At that time in California though, there were several things going on as well. Not only did they have a problem, but they also had a pretty heavy dislocation in terms of employment. So it was not only a so-called housing bubble that was extreme, and that was a really extreme housing bubble at the time, but there were other factors going on as well in that market. And yet their figures ultimately ended up -- I believe it was somewhere 18 to 20 basis points in losses. Higher NPAs, but that was their loss figure.

Let me just add one thing. We are not hiding anything. Would we be surprised? Of course. But we're not hiding anything. Our credit culture has been a conservative one on all lines of business, and I got to tell you, 40 basis point I think everybody around here would be drop dead shocked.

Okay. If I could just ask one more question. What are the prepayments right now? Maybe if you could kind of break it down by the vintages that you provided earlier on the call, and give us a sense of where those could be going as we try to think about how much net growth there will be over the coming year.

You mean where prepaids will actually go?

Yes, I mean prepay rates.

You know, we're running --

They've got to go up from here. We don't think they're going to get as high as some of the other entities out there. They never have been for us like in the 30s. We are right now in the 14s. I think you've got to sort of split the difference and say, they've got to have some increase through here, particularly if -- clearly in this kind of market and given the kinds of actions you've seen the last few days and what's going on in the bond market, prepaids have to pick up some, just by their rates. So they're going to go up some. We just never have had really high -- it's been many, many years, back in the old days if you go back to an old California day in the I think it was the early 90-ish period, there was one period at a time when you used to have the old six-month adjustables, those have very rapid prepays. The characteristic of the loan was horrendous.

The types of loans we have now and the circumstances of what we have would not indicate sharply higher prepays. They would indicate moderately higher prepays.

Okay, thank you.

In the interest of time, our last question comes from Al Savastano, Fox-Pitt.

How are you? Could you give us an idea of what you did to change your collection practices and what kind of impact you think that will have going forward?

Well, it really starts with management focus. I can tell you that Fred and I are focused on this thing almost on a daily basis. We get daily updates on everything that goes on in that area. I have a daily management meeting at 5 o'clock in terms of monitoring progress on the different projects that are associated with that area.

We've strengthened our technology. We've strengthened the people. We've hired a very experienced person who has been through this before to oversee that area. We've got additional talent coming in next month. But overall, I would tell you it's much, much, much deeper focus on the part of management. I can tell you that Fred personally reviews the foreclosure list every two weeks. When you get the chairman asking about a property in Tennessee, that tends to get everybody's attention. In addition to that, the technology is improving. The way we accept payments is improving. A huge amount of attention has been placed on that area.

We have had some catch-up. I don't want to -- I want you all to understand this and I don't want to put anything pretty about it. We've had to do some catch-up because it's been so long since we have had a lot of collection activity. There are things we needed to do. A lot of places you can just pick up the phone and make your payment by phone. We are in the process of installing that and that's important. It's important that you can get through our call center faster and we are working on getting that done. It's important that you can pay on line. We are working on that right now.

We think most everything that we need to have in place on a collection basis will pretty well be done through the end of the fiscal year. A few things, for example, the online may really take into around October. But this is a critical thing because there are areas that we needed to update and it's been a process. You just can't do them overnight. They're technological items that you've got to get installed and our people are working fast.

I was at the collection center a few days ago and popping all around us were reps from telephone companies and reps from computer people and so forth, and they're all working at it and getting it installed. So, to be honest, it's hindered somewhat our collection process. In today's world, things have changed. The bigger guys were a little bit ahead of us in that and I didn't have a realization initially. It took us a while to understand some of those things. When you get somebody on the phone, it's no principle. When you do a collection, you want to get the payment from that person immediately. And we need to now make sure we get that payment immediately because you don't want it to go somewhere else. That's how you keep your loan current.

This implied that the growth rate in NPAs could possibly slow over the next several quarters?

I'm sorry. Say it --

Does this imply with an improved collection effort that the growth rate in NPAs will slow over the next couple of quarters?

I think the picture is more confused. What I've tried to explain to everybody, and of course, some of it relates to the question that was asked about accounting and not, the regulators and the political pressure is that you do and I believe the cycle and particularly in terms of the kinds of borrowers we have, and they would be different for people who are sitting there on second mortgages there's nothing they can do about; that's not our situation.

So, you do more workouts. You do more payment plans. Some of those payment plans will result in a higher level of NPAs. Other payment plans will not ultimately appear on the NPAs. So different lenders have been doing different things with respect to how they have been going about in giving you their numbers with respect to NPA.

The question that was asked us at the moment, I will call us a pure NPA because we have no adjustments for accounting etc. that a lot of people are doing. So, the answer is that yes, our collection effort, I don't believe we would have been above 80 if our collection effort were fully, as I would call it, modernized this last quarter and had all the payment options and so forth.

As we go forward, that means we're going to do better at the collection effort. We are also going to do better at creating payment plans. We're going to do better at helping people who deserve to be helped. And in that process, some of those are going to add to NPAs. Some of them are going to decline the NPAs. So it's a mixed bag.

This is a cycle. It's happening. I have emphasized it. It's not disproportionate. We don't have the sub prime. We don't have the second mortgages. We don't have a bunch of loans we didn't fully index, underwrite, so forth. So ours are really -- most everything that comes through, there are a few examples; I've got a few flippers here and there that pop up and we see them on the list. But basically, most of our stuff is very standard old-fashioned collections.

I think that's it for questions for now. I really appreciate everybody on the phone. We've been trying to accommodate everybody. People like to call us in between -- we try to keep the calls going because we want you all to understand something.

Number one, we are a bank. I know a lot of emphasis is on the residential. I can understand it in terms of this market. I know a lot of people keep putting emphasis on the monthly option ARM; that's been a very declining part of our overall situation. And otherwise, we have historically had very conservative underwriting. We don't feel we've gotten away from that. We feel that that is going to bring us through. Some other people, some other entities very well-known in the market have been popping up and suddenly reporting things. We feel we've been giving you our story all along just as it is . And you know, we look to have moderate growth this year. We're not looking to expand as rapidly as we did before. We believe that given that we are an [ept] company with $7 billion plus in Florida deposits, a complete Florida franchise, that we are extraordinarily undervalued right now. And in the end, the market is going to see that and it's going to be coming back in our fashion.

So I thank you all. Anymore we can do for you, you're welcome to call us anytime. We definitely are open for additional questions. Once in a while, give us time to run the business, but we're nevertheless, here for you. Thank you very much.

Ladies and gentlemen, this concludes the BankUnited third-quarter conference call. Thank you for your participation. You may now disconnect.