BankUnited Inc (BKU) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the first quarter 2012 BankUnited earnings conference call.

My name is Karissa and I will be your operator for today.(Operator Instructions).

I would now like to turn the conference over to your host for today's call, Ms Mary Harris, Senior Vice President of Marketing.

Please proceed.

Good morning, and welcome.

It's my pleasure to introduce our Chairman, President, and Chief Executive Officer John Kanas, and our Chief Financial Officer Doug Pauls.

But first I'd like to remind everyone that this call contains Forward-Looking Statements with the meaning of the Private Securities Litigation Reform Act of 1995 thatreflect the Company's current views with respect to, among other things, future events and financial performance.

The Company generally identifies Foward-Looking Statements by terminology such as "outlook", "believes", "expects", "potential", "continues", "may", "will", "could", "should", "seeks", "approximately", "predicts", "intends", "plans", "estimates", "anticipates", or the negative version of those words or other comparable words.

Any Foward-Looking Statements contained in this call are based on historical performance of the Company and its subsidiaries, or on the Company's current plans, estimates, and expectations.

The inclusion of this Foward-Looking information should not be regarded as representation by the Company that future plans, estimates, or expectations contemplated by the Company will be achieved .

Such Forward-Looking Statements are subject to various risks and uncertainties, and assumptions relating to the Company's operations, financial results, financial condition, business prospects, gross strategy, and liquidity.

If one or more of these risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, the Company's actual results may vary materially from those indicated in these Statements.

These factors should not be construed as exhaustive.

The Company does not undertake any obligation to publicly update or review any Foward-Looking Statement, whether as a result of new information, future developments, or otherwise.

A number of important factors could cause actual results to differ materially from those indicated by the Forward-Looking Statements.

Information on these factors can be found in the inner report on the Form 10-K, for the year ended December 31, 2011, available at the SEC 's website.

Now I will turn the call over to John Kanas.

Morning everybody, just for the record Raj Singh is here and so is John Bohlsen so when we get to the question period if you have a question for either of them they're sitting by me.

Obviously we are very pleased with this quarter.

The numbers speak for themselves and I'd remind you that over the past quarter we also implemented about a 20% increase in our dividend.

We, during the quarter, also completed the acquisition of Herald National Bank in New York, andthat is up and running under Raj's attentive care, and getting well-organized and ready for us to merge it into this Bank at sometime in the future.

Also during the quarter we completed the charter conversions.

The holding company from being a thrift holding company to becoming a bank holding company, and the Bank, BankUnited that is, from being a thrift institution to becoming an OCC Bank and also, of course, Herald as an OCC Bank.

We are particularly pleased with the continuation of the trend of the growth of loan assets.

You can see that even excluding Herald we grew just under $400 million for the quarter which is about on the screws from where we expected to be.

Sort of an interesting point, that for the first time as a result of this growth, and as a result of the fact that the shrinkage of the FDIC asset and the covered loans are just about $100 million this quarter, so for the first time now our covered loans are actually less than 50% of our total portfolio running at 49% down from where they were at quarter-end at the end of the year about 59%, so 49% versus 59%.

Deposits, obviously, showed continued growth.

The cost of deposits continues to come down and while the average for the quarter was 0.9 it's actuallycontinuing to decrease as the quarter unfolds and is probably, at this moment, probably closer to at 80 basis points than 90 basis points.

Demand deposits, as a result of our emphasis on commercial relationships, now represents almost 20% of total deposits, there were less than 2% when we came here and we are very pleased with the fact that that trend is continuing and in fact, picking up velocity.

Probably the most important thing for me, and for us here at the Bank, is that while this comes largely as a result of our very strong competitive position in Florida and the fact that a lot of the banks here are weakened and the larger banks have not really gotten their act together yet, we are seeing a significant influence from and noticeable improvement in the underlying economy, particularly in South Florida, particularly in Miami-Dade where almost three-quarters of our branches are located, so we did not expect to get that kind of help from the economy, but that growth that we're seeing is continuing to build and it would appear that it's going to continue to build for the balance of this year and on into next year.

The oversupply of real estate assets in the market has been well absorbed, mostly from Latin Americans that are rushing north to get money out of Latin America and making real estate investments in the Miami-area, and that has had the effect of spurring growth in the entire market.

The [interest margin], which we'll take questions on, is about just under 6% as a result of reclassifications.

Remember that we're comparing this quarter to last year 's first quarter which was a pretty noisy quarter with the $100 million or so charge in conjunction with our IPO.

So, all-in-all we are very pleased.

It is about right on the nose where we expected to see the quarter come in, and we're poised at this point, based on what we're seeing so far the second quarter for continuation of this trend through the balance of the year.

There has been, I'll prompt you before I get the question, there's been no M&A activity for us during the quarter, while we continue to prospect here in Florida and in other parts the country.

we still are believers that the organic growth that we are experiencing is far more reliable and profitable than anything that we can create as a result of an acquisition, at least at today 's prices.

So having covered, I think, everything that I care to comment about right now , let's take some

(Operator Instructions).

Your first question comes from the line of Ken Zerbe from Morgan Stanley.

Please proceed.

Great thanks.

John, you just mentioned.

obviously, that you continue to prospect for M&A in Florida, but can you address your appetite for acquisitions in New York?

Obviously, we are coming up in the end of the non-compete in August.

Just wonder what you're thinking about there.

Yes Ken, we are obviously aware that there are some M&A opportunities in the northeast.

Raj and his team are running numbers on any of those prospects all of the time.

At the moment, we don't see anything that is sort of earth shattering that represents a spectacular opportunity for us, but it is entirely plausible that we can turn something up in the northeast over the next year, and truthfully, we aren't zeroing in on anything at the moment, but we are looking at half a dozen situations in the northeast.

Quite frankly, they are still expensive.

We think that there's a number of institutions out there whose earnings are going the wrong way and we believe that their business models are, how do I say this (inaudible), that their business models are probably not well suited for today's rate environment, or competitive environment.

We understand that the cost of regulatory compliance for particularly the smaller banks are going to do nothing but go up and make this business even tougher for them, so we feel confident that over time there will be opportunity there, but we're, as you know, ready to be patient.

Understood, and how far outside of the New York metro-area would you consider, broad northeast or just more in New York?

Well, our strongest suit is New York and particularly centered around New York City.

Sure.

That doesn't mean that we aren't looking at and haven't looked at the things in the broad northeast-corridor to the extent that they could add strategically to the value of the company, we certainly looked at it, it wouldn't be our first choice, but certainly on our radar scan.

Alright, great.

Thanks a lot.

Your next question comes from the line of Robert Placet of Deutsche Bank.

Please proceed.

Hi, good morning, guys.

Keeping on the topic of New York, just in terms of your expansions.

You closed the Herald deal last quarter, but obviously you can't do much in New York until August,so what steps are you taking now to kind of prepare for your entry into that market?

Well, BankUnited has secured three branch locations in New York City, one at 36th?

35th and 6th

35th and 6th, yes John is sitting next to me, one at 48th and Park , and one at 57th and Lex, and so those are all in various stages of development.

I with say the one that is furthest ahead is 35th and 6th , and one or all of those will be ready at various times later this summer and on into the fall, but we're obviously being cautious about that in light of the litigation.

And so Raj is spending his time running Herald and cleaning it up and getting it ready for an integration with the rest of the bank, and Herald represents a decent-sized branch, eventually, when we make that merger happen.

We expect to be, we are certainly hopefully to be in full swing by the end of

Okay, great, and then just on your NIM outlooks, NIM declined meaningfully this quarter.

I wonder if you could just give us an update on your outlook for the NIM.

Yes that's, as you know, sort of a complicated issue in this balance sheet but Doug, why don't you take a crack at it.

I think the best way to look at it, we will have a little bit of volatility in the NIM, quarter-to-quarter, but if we look at last year, the overall NIM was 614, I believe, and as we sit here today, for the year, we expect the NIM to be between 550 and 560 which is certainly in line, it's actually better in terms of a year ago when we were in the IPO where we thought we would be with our NIM, and it's certainly in line with guidance that we have been giving over the last 3 to 6 months.

Okay great, thanks.

Your next question comes from the line of Brady Gailey from KBW.

Please proceed.

John, if you look at the press release, you speak pretty positively about what's going on in South Florida.

I was just wondering if that will translate into better loan growth.

When you look in the back half of this year, you're running around $400 million.

Do you think that ticks up from here with the improvement in the economy?

It's kind of hard to say.

Remember that, and you should be aware that my comments are really about South Florida.

We're not seeing that spill-over particularly into Northern Florida or even the West Coast.

We are seeing a noticeable improvement in the Tampa-area, a slight uptick in the Orlando-area, but not much, almost negligible, Broward County doing better, but less than Miami-Dade, soit's hard to say how quickly this is going to spread to the rest of Florida.

We're certainly encouraged that this underscores our ability to meet our growth targets in loans this year and possibly exceed it, it's hard to say.

Remember that we're people-junkies, and so we're always interviewing people who we could add to the team here that we could rely on to help us build quality assets and to the extent we're able to nail down a few of those going forward, that could make a material difference.

A couple of weeks ago we hired a young lady names Rosary Falaro who was, for 17 or 18 years, the head of the private banking group at City National Bank here in Miami, and she and some of her partners will make a meaningful contribution to the balance sheet for both assets and liabilities over the balance of this year, and there are other people around like that we're talking to.

That could make a big difference to us, but all in all, obviously, we're encouraged, and we hope that the trend continues.

Okay, and when you look in New York, come August, take away the opportunities you will have to acquire, when you look at it on an organic-growth basis, do you think you can see a similar level of loan growth out of New York that you are seeing in Florida, around that $300 to $400 million, or is it just too early to quantify that?

It's early, obviously, and it's difficult to predict.

I will tell you that if in the first two years in business in Manhattan that we showed only that kind of loan growth on a quarter- -to-quarter basis, in New York I would be disappointed.

Alright, thanks.

Your next question comes from the line of David Peppard of Janney Capital Markets.

Please proceed.

Good morning gentlemen, quickly, given the core deposit growth you continue to experience, how do you expect to put that funding to work for the rest of this year?

Well,

We expect to lend it out.

Yes, we expect to lend it out.

If you extent the trend line of loan growth, give or take $2 billion worth of loan growth for the balance of the year, and I think hopefully that is going to absorb it.

In this kind of a market, to be frank with you, increasing deposits is not exactly rocket science, here or any place else in the United States, because at the moment, because of the rate environment, the banks aren't valuing deposits.

We think that that is shortsighted.

We think that the day will come again when liabilities, deposit liabilities, will be a strong component of the value of any strategic franchise, so we are using this opportunity to be aggressive and trying to garner as much deposit growth in Florida, particularly cheap deposit growth and non-interest-bearing demand deposits, as we can, and we're going to push that as hard as we can.

Even if we push deposit growth to a point where it outpaces loan growth, I still think that that's a very valuable component to our balance sheet and we will continue, but, right now, the short answer is, based on the trajectory of loan growth, I would say that we're going to absorb it.

How does the loan pipeline breakdown between commercial real estate and commercial business pan out, and what is the structure of some of these loans that are you getting right now?

Commercial real estate is a smaller component than we expected it to be by now.

We're only now beginning to get comfortable with commercial real estate.

I don't have the precise numbers but it's around 25% in commercial real estate and the rest of it, sort of traditional C&I lending.

Remember that we're hiring relationship managers from other institutions to bring those relationships that many of them have had for 15 or 20, or even 25 years over from other banks, and they tend to bring over whatever they specialize in and, for the most part, we're hiring people who specialize in commercial loans.

So (inaudible) we could do a lot more commercial real estate lending.

We have demand for it here, we're just being super cautious and waiting to make sure that we're getting the right signals from this market before we get any more ambitious in that area.

So it sounds like most of the loan growth is stealing market share, as opposed to true organic loan growth, how exactly are you taking the market share from your competitors?

Yes (inaudible), and it's by putting BankUnited out in front of the talented bankers in Florida, and convincing them that this is the place where they ought to come to finish out their careers.

Frankly, it's not hard to do.

Excess capital, excess earnings, a lot of over-capacity in almost every category.

As you can imagine, a great relationship with the regulators, virtually no non-performing loans, and a public company that allows us to offer these employees a share in the equity-ownership of the company which is a very important component.

If you knew us when we were managing North Fork, that was our incentive plan, were a very, very important part of our success in New York, andit does two things.

It builds the camaraderie and the employee base that translates into greater results and an ambitious workforce, and it also creates a sense of partnership with all of us.

There's 240 or 250 or so of our employees today who are actually equity-owners and are watching these quarterly numbers as closely as you are, and believe me that makes a difference.

What is the yield you were getting on new loan growth this quarter?

The commercial loan average was what , 380?

Yes, high 3's.

High 3's in commercial loans.

Generally small business loans, probably more on the order of 5, 5 to 6, and commercial real estate more on the order of 6.

Okay, thank you.

Your next question comes from the line of Erika Penala of Bank of America Merrill Lynch.

Hi, this is actually Connor Fitzgerald for Erika.

Come on, I wanted to talk to Erika, Conner, where is she?

She is on a plane to California but she says hello.

Sorry to disappoint.

Just quickly on New York, I know you said that $400 million a quarter would be a disappointment, but do you think you can see that type of growth right out of the gate of is there going to be a lag-time as you build up your footprint?

It's going to take a quarter or two for us to get organized, but within two quarters we should be at that pace at least.

Got it.

And then, a couple of other banks that have reported so far have talked about pricing in the southeast kind of stabilizing broadly, I knowyou touched on what you're getting on new originations, but what are kind of seeing in terms of pricing pressure on new originations?

From competitor banks down here?

Yes.

(inaudible) people are kind of beating each other up pretty badly on price.

There's a finite amount of business to go around down here and, particularly as the economy improves, managers are under pressure to perform and under pressure to create loan growth, so there's clearly more competition on the price line than there was a year ago.

That has not particularly translated into credit structure yet,we don't see anybody getting crazy and doing improperly structured credits yet, but to be frank with you, I have been in this business a long time, if the economy keeps heating up down here, we will see that too, and then we will have to be disciplined to make sure not to fall into that trap.

Great, thanks for taking my questions.

Sure.

(Operator Instructions).

And your next question comes from the line of Herman Chan of Wells Fargo.

Please proceed.

Hi, John, you mentioned the hire of the City National team, can you give an update on the pipeline for new producer hires both in New York and Florida?

Thanks.

It's a little hard to say, Herman.

In Florida, City National had about $1 billion in their private banking area.

We try not to be overly optimistic about how much of that business that we can eventually grab, but

I think we grabbed, 20% or 25% of that business pretty quickly, and that pipeline is beginning to grow at at least that level, a little bit better right now.

In New York, a different story.

In New York, depending upon who we are able to attract to come to work for us, the pipeline there could get very big, very quickly, understanding that the loan relationships in New York are much bigger and the deposit relationships in New York are much bigger, and we are very familiar with both the market and the customers in that market, so expect that growth will not disappoint for sure in the northeast.

And to be frank with you, growth in Florida looks like it won't disappoint either.

We are optimistic about that going forward.

It's not, by the way, it's not just the private banking group that came over, but over the last year John's hired 100-some,

Yes, almost 200.

almost 200 people in the lending discipline area, and all of them come with relationships, customer relationships, that translate into new business for us.

Some of it comes over the first month, some of takes six to eight or nine months, some of it takes a year to get here, if it's a complicated relationship.

But we're now starting to see larger customers and larger relationships knocking on our door and coming our way.

John and I met with a couple over the last month or two, and particularly we're seeing some action down here in the Melby family lending arena where we see a big opportunity in Florida, that haven't done anything in that space yet so I've been around long enough to know not to over-promise to you guys or myself, but it's hard not to be excited about this.

Great, thanks for taking my question.

And there are no further questions at this time.

I'd like to turn the call back over to Mary Harris for closing remarks.

Thank you everyone for participating in today 's call, have a great day.

Thank you.

Thank you for your participation.

You may now disconnect.

Have a wonderful day .