BankUnited Inc (BKU) 2008 Q3 法說會逐字稿

Good afternoon, and welcome ladies and gentlemen, to the BankUnited Third Quarter Conference Call.

As a reminder, the Company has posted a slide presentation to its website that it will be using on today's call.

This conference call and presentation may contain certain forward-looking statements based on the management's expectations of the Company's earnings and performance in future periods.

Actual results of the performance can differ from those implied and contemplated by such statements.

Please read the forward-looking statements in the earnings press release the Company issued today.

I will now turn the call over to Alfred Camner, Chairman and Chief Executive Officer of BankUnited.

Please proceed.

Thank you for joining us.

With me on the call today are President and Chief Operating Officer, Ramiro Ortiz; Chief Financial Officer, Bert Lopez; and Senior Executive Vice President of Corporate Finance, Jim Foster.

We'll begin with a discussion of our results for the quarter and how we are aggressively dealing with non-performing assets.

We have included a detailed slide presentation which we will refer to during the call.

We're sorry that we're going to be unable to have a question-and-answer session with you today.

As many of you are aware, there have been a number of articles in the media discussing our capital-raising efforts, including a possible private-equity investment.

I would also remind you that we are under the rules of public offering.

As a result, our investment advisors; JPMorgan, KBW, and UBS; have advised us that we should not conduct a question-and-answer session so as not to disturb the progress we have made in our capital raise.

This quarter was a mix of strong results from our core banking operations, offset by expected continued deterioration in the mortgage portfolio.

Today we reported a loss of $117.7 million, primarily attributable to the loan loss provision of $130 million.

This compares to a loss of $65.8 million last quarter and earnings of $23.2 million in the third fiscal quarter of 2007.

Ramiro will go into more detail about our core bank results in a few minutes.

As for our capital levels, the Tier I capital ratio is 7.6% and the risk-based capital ratio is 13.8%.

The bank has more than $1 billion in capital.

[Distributed] capital of the holding company contributed an additional $80 million to the bank.

Our loan loss reserve currently stands at $309-plus million, compared to $45 million at June 30, 2007.

This equates to 2.52% of total loans and is the necessary step to take while the economy continues to drag.

Until we see trends that the real estate economy is improving, we will continue to be prudent and increase loan loss reserves.

Our slide presentation details the characteristics of the loan portfolio for both performing and non-performing assets.

Bert will go through those details shortly.

We are aggressively managing performing assets.

Our modifications team actually has completed more than 2,000 loan modifications in the previous 21 months.

And now our loss mitigation team is adding to those totals.

One of the important risk management steps we took was to require mortgage insurance on loans originated with an LTV greater than 80%.

As of June 30, 2008, approximately 40% of our non-performing loans were covered by mortgage insurance.

We have announced today a mortgage assistance program, which is our MAP toward reaching thousands of our option-arm borrowers so that they may readily switch their mortgages to traditional loan products.

In so doing, we will create a benefit; not only to our many borrowers, a large portion of whom are in the Florida market; but likewise we will be benefiting our bank by lowering its overall perceived risk profile.

Ramiro will further discuss this program later in the call.

Our borrowers were originally underwritten at the fully indexed rate and they have above average FICO scores.

Based on these facts, and our past success at modifying loans, we anticipate that the results of this program, our MAP program, will be significant.

These results are not where we want to be, but we are nevertheless pleased with our core bank's continued productivity.

In all the negative mortgage noise out there, our solid banking franchise has often been overlooked.

And in that regard, I'm now going to turn the call over to Ramiro to talk to you about our core bank activities.

Thank you, Fred.

And we do have good news about the core bank.

The fact that our team achieved these goals in one of the most challenging banking cycles I've seen in my almost 40-year career, speaks to their tenacity and dedication to our customers.

When people are inundated with negative messages, it's bound to cause jitters.

It takes a special kind of a banker, a special kind of experience, to handle this day in and day out; and I can't begin to tell you how proud I am of our team.

I want to particularly note that deposits increased to $7.6 billion at June 30th, and that's up from $6.9 billion at March 31, 2008.

Core deposits increased to $5.3 billion at June 30, 2008; up from $5.1 billion in the previous quarter.

Non-CD deposits increased almost 2% over the previous year, to $2.4 billion.

This demonstrates tremendous confidence in our banking franchise by our customers.

Two quarters ago, we announced our strategic plan.

One step of the plan was shrinking the balance sheet.

For the June 30, 2008 quarter, total loans dropped to $12 billion, representing an annualized reduction rate of approximately 10%.

Now prepayments have slowed substantially as the overall credit markets contracted, but we expect that our decision to waive prepayment penalties and our MAP program will impact this number going forward.

Commercial and commercial real estate loan balances were $1.3 billion at the end of the quarter, compared to $1.2 billion at the end of the previous quarter.

The commercial portfolio continues to perform well, even in this difficult environment.

Consumer loan balances increased to $1.3 billion, from $1.1 billion the same quarter last year.

Residential loan balances decreased $320 million(Sic -- see press relase) during the quarter to $9.5 billion.

Bert will go through the detail of our loan portfolio during his part of the presentation.

We have once again dissected the portfolio by vintage, geography and loan type.

Fee income; which includes loan fees, deposit fees and other fees, was $3.7 million; and that's down slightly from the previous quarter.

Our investment and insurance area; they increased revenue year over year by almost $2 million.

We're seeing strong synergy between our neighborhood banking group in the branches and BUFS, our investment and insurance sales arms.

We expect this to continue.

Our internal cross-sell and retention measurements show continued improvement and deepening relationships and cross-sell relationships with customers.

I'm particularly excited about our mortgage assistance program that we developed where we literally prepare a roadmap to assist mortgage borrowers who need help.

We will help borrowers in different ways.

First and most importantly, on a case-by-case basis, our staff will be working with borrowers to fully understand and meet their individual needs.

No two mortgages are created alike.

We will waive any prepayment fees associated with the loans that are being refinanced, whether it's with us or with somebody else.

The transition to a traditional mortgage product will help stop the negative amortization.

We expect this program will help thousands and thousands of customers, most of whom are in the state of Florida.

I want to reiterate that overall our core bank continues to perform exceedingly well.

The relationships we've established with our customers have given us resiliency in this challenging time.

Customers are dealing with a barrage of negative news.

The importance and value of our banker's role as trusted advisors is evident now.

I'm proud of the team's efforts.

I will turn the call now over to Bert for a review of the financials.

Thank you, Ramiro.

As Fred mentioned earlier, for the quarter we had a net loss of $117.7 million or $3.35 per share.

Creating this loss was primarily that we recorded a provision for loan losses of $130 million, reflecting the nationwide deterioration in the housing market and our rising level of delinquencies.

We also took a charge of $25.1 million in other than temporary impairments, that's pre-taxed, which was on preferred securities, the government-sponsored entity and certain mortgage-backed securities.

Also you'll note in our results is an effective tax rate of 19% which reflects the valuation allowance on our present deferred tax asset of $21 million-- the $21 million was a valuation amount.

Of course we'll review this on a quarterly basis and we'll look at it again at the end of next quarter, which is the end of our fiscal year.

If I can move to page eight of the slide; as we look at the provision for loan loss, I mentioned was $130 million.

Net of charge-offs of $22.7 million.

The residential charge-offs totaled $22.4 million.

That was after $10.7 million in estimated recoveries from the mortgage insurance companies.

Consumer net charge-offs were a small $64,000, commercial and commercial real estate net charge-offs were $165,000.

Now for some of the non-performing asset numbers for the quarter; we ended total non-performing loans of $982 million, real estate-owned of $117 million, total non-performing assets of just under $1.1 billion.

Non-performing assets to total assets ratio went to 7.73%.

As a percentage of total loans, that was 7.99%.

The allowance for loan losses as a percentage of total loans went up to 2.52%, up from 1.61% at the end of March.

Coverage ratio stayed about the same at about 32%.

The charge-offs equated to an annualized charge-off ratio of 73 basis points versus 42 basis points at the end of March.

On page 10, you see our non-performing loans broken out by type.

Total non-performing loans as I mentioned, of $982 million; the vast majority of that, about 91% in the one-to-four residential.

For commercial and consumer and commercial consumer specialty, negligible amounts; we have about 88.1% of our non-performers in the commercial real estate area.

On the next page, we show the breakdown of the balances by product.

Total commercial and commercial real estate loans of $1.3 billion; presently we have about $77 million on non-performing status.

That's only five loans.

We did place a $36-million loan on non-performing this quarter, but we feel comfortable in its valuation and the collateral behind it; so again, only $77 million of non-performers against a $1.3 billion portfolio.

On page 12 we break out the slide that shows our residential loan portfolio documentation; the trends of the documentation type for performing portfolio as well as non-performing portfolio continues.

You see there the percentage of full docs at 17.4%; non-performers of full doc are only 9%.

Stated income/verified assets is very much in line at 43% and 45%.

We do have a slight deviation on the reduced doc for stated income/stated assets-- 30% of the portfolio, 30% of a note of the NPLs; and in the primary residence no doc, the same percentage of the portfolio to the NPL.

So the underwriting concept of underwriting the same level of risk after mitigating factors is holding true.

As a note, we have ceased all lending of the stated-income/stated asset stated income/verified assets and no docs that we were originally-- only full doc products presently.

On page 13 we have our mortgage insurance coverage.

We have about 20% of the portfolio covered by mortgage insurance.

29% of the '06 vintage is covered by mortgage insurance and about a third of the 2006 option -arm vintage is covered by mortgage insurance.

We continue to hold the insurance in strong companies you see there-- AIG at 48%, PMI at 19%, Republic covers 14% of our totals.

In the '06 vintage, 53% is AIG, 22% is Republic and PMI is at 11%.

Triad and MGIC are around 6.6% and 1.5% of the total.

Our REO activity continues to pick up.

We had a beginning balance of 266 units, we transferred in 213 units.

For the quarter, we had sales and pending contracts at the end of the quarter of 90 units.

That's up sharply from the previous quarter.

For the month of July, we had 50 sales for just for that month, which is on a pace to exceed the quarterly averages.

And we had a report from the asset disposition area of accelerating interest from buyers, not just interested buyers, but pre-qualified buyers who are actually making offers.

We also have seen a larger disposition of properties through short sales, prior to the foreclosure.

About an equal number of units were disposed of through these short sales.

Losses on short sales for the quarter were 14% and the severity overall for both REOs and those distributed through short sales, was 20.2% for the quarter, about on par with the 18% that we had for the prior quarter.

On page 15 we show our residential loan delinquency trend.

This maps out our first missed payments, second missed payments and third missed payments.

You see the continuing trend of the flattening out of the first missed payments.

It continues through the last few months.

This goes back for the fiscal year, so obviously it covers the holiday period which tends to be relatively difficult.

Then the two missed payments are starting to flatten out slightly and three missed payments are continuing to go up.

But we continue to see a flattening trend of the first missed payments which gives us some cautious optimism as to the level of delinquency.

With that, I'll turn it over to Fred for closing remarks.

I thank you all for being on the call today.

As we've mentioned, we have launched our MAP program.

Clearly this concept of looking to our option-arm borrowers and bringing them into traditional mortgage products we believe is an extremely important one.

It's important for them; it's a great opportunity for them and a great situation for us in terms of changing our overall risk profile and our perceived risk profile in terms of having option-arms as our loans.

There are thousands of customers that we're going to be reaching out to, both through our own staff and through some outsourcing.

And we believe this is going to be a program that will be extremely successful over the next months.

Thank you very much.

Thank you for your participation.

This concludes the presentation.

You may now disconnect.