BankUnited Inc (BKU) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the BankUnited 2012 third-quarter earnings call.

My name is Carissa, and I will be your operator for today.

At this time, all participants are in a listen-only mode.

Later we will conduct the question and answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Ms. Mary Harris, Senior Vice President, Marketing and Public Relations.

Please proceed.

Thank you.

Good morning, and welcome, everyone.

Before we start, I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance.

The Company generally identifies forward-looking statements by terminology such as outlook, believes, expects, potential, continued, may, will, could, should, seeks, approximately, predicts, intends, plans, estimates, anticipates or the negative version of those words or other comparable words.

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

The inclusion of the forward-looking information should not be regarded as a representation by the Company that the statements are subject to various risks and uncertainties and assumptions relating to the Company's operations, financial results, financial conditions, business prospects, growth strategy, and liquidity.

If one or more of these or other 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 the statements.

These factors should not be construed as exhaustive.

The Company does not undertake any obligation to publicly update or review any forward-looking statements 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 Company's Annual Report on Form 10-K for the year ended December 31, 2011, available at the SEC's website.

It's now my pleasure to turn the call over and introduce BankUnited's Chairman, President, and CEO, John Kanas.

John?

Good morning, everybody.

Presumably, you all had a chance to take a look at our numbers first thing this morning.

We continue to enjoy the recovery that has surprised many of us in South Florida, particularly centered around Miami and Dade.

The economy continues to show very significant improvements, starting with the real estate sector and now spreading out to the contiguous industries surrounding real estate.

Net income was strong, or just under $50 million, $0.48 a share.

That, by the way, for those of you who are doing the math, that's a core of $0.45.

I think consensus was $0.44, so a little better than consensus.

$0.03 in here are security gains; that represents the sale of -- Doug will tell you more information later, but over $100 million worth of securities that during the quarter the regulators determined were not (technical difficulty) at the bank level.

It's unfortunate for us, and actually resulted in a little bit of the margin compression you saw this quarter.

Those securities were yielding on a taxable equivalent basis over [7].

But we did still, even so, our margin compression was a little bit less than we had guided for.

So, for the nine months, net income about $149 million, $1.44 a share.

Returns, very respectable return equity of $11.96, $163 million in assets.

Balance sheet grew to about $12.7 billion, mostly as a result of the fact that we continued to see more loan growth than we have a runoff.

New loans for the quarter about $361 million to total about $3.3 billion, a little bit less than the last quarter for a couple of reasons.

The [new residential] portfolio is obviously owing to a rate environment seeing a higher amount of runoff.

And we've actually had fewer residential purchases during the quarter.

But the annualized growth rate for the nine months is still 121%.

We also had some large deals on the commercial side that we will flip over into the fourth quarter.

So we are seeing a continuation of the loan growth we saw earlier in the year, reflecting two things.

One, the aforementioned strength in the economy and also our ability to continue to gain market share in this market.

So commercial loans alone grew by about $257 million, totaling $2.4 billion.

For the quarter and for the nine months, growth in new loans obviously outpaced the resolution of covered loans, which resulted in the net growth of the portfolio -- loan portfolio.

Total portfolio at the end of September at about $5.3 billion, and covered loans are now just about 39% of the total loan portfolio.

Asset quality obviously remains very strong.

Non-performers the total loans (technical difficulty) that compared to 0.57 in June and 0.92 a year ago.

While we continue to put our shoulder behind the wheel of Florida, we are at the same time preparing for the expansion of our franchise in New York.

Those (technical difficulty) locations are on track for the openings sometime after the first of the year actually, specifically, after 1 February.

And we are in the process of -- are pretty well done in building out the credit structure behind Herald.

We also allowed for runoff of some loans in the Herald portfolio that we deemed were loans that we (technical difficulty) want to go forward with, so that's also part of the (technical difficulty) during the quarter with regard to loan growth.

All in all, solid; a little better than we thought.

Florida continues to surprise us on the positive side, and a lot of very anxious people here to get going building our New York franchise (technical difficulty).

We spent a lot of time, John Bolton and I particularly spent a lot of time interviewing (technical difficulty) people that will join our team.

Obviously, non-Capital One people who will join our team later next year, and we continue to be impressed by the interest on the part of not only customers, but on the part of employees who would like to be part of our story.

So we look forward to that with a great deal of enthusiasm, as we've reported to you before.

Raj, why don't you talk a little bit about the (technical difficulty).

Sure.

The story (technical difficulty) is sort of a continuation of the last -- the trends over the last few quarters.

Deposits are growing.

[Cost of funds] is coming down and the mix of deposits is getting better.

[Total] deposits grew to $8.5 billion.

Transaction deposits, which is (technical difficulty) interest-bearing checking totaled $1.7 billion, which is a little over 20% of our total deposit book.

This number will improve again when we enter the New York market.

Cost of funds continues to drop.

It was 84 basis points last quarter.

It's down to 78 basis points.

And as we look into the fourth quarter, we expect this trend to continue.

In fact, looking beyond (technical difficulty) 2013, we expect the trend to continue.

I mentioned a little bit about mortgage portfolios we purchased [last this] quarter.

And (technical difficulty) there is a portfolio runoff was larger than usual given the refi environment that we are in.

The legacy portfolio continues to perform as it has over the last several quarters, with delinquencies improving and severities are steady to slightly better.

The speed of (technical difficulty) of the covered TechNet (technical difficulty) portfolio keeps getting slower and slower every quarter.

The commercial loan portfolio is a little more sporadic given the (technical difficulty) in that portfolio, but the trends (technical difficulty).

I'll turn it over to Doug and Leslie to talk a little bit more about the P&L.

Sure.

Thanks, Raj, and as Raj mentioned, Leslie Lunak is with us.

And when we get to the questions and answers, any questions I don't like I'm going to turn directly to her.

In terms of talking about the margin for the quarter, it was 5.39% and for the nine months 5.72%.

Both of those are higher than our projections at the beginning of the year.

I think we had guided people for the year we expected to be at 5.55% or so.

I think last call we upped that to 5.65% or so.

We are now looking like for the year 2012, we expect to be in the low 5.70%'s for the year, so we expect the margin for the fourth quarter to be in the high 5.60%'s as we sit here today.

And as we talked before, there is an impact from the loan sale that we have planned in the fourth quarter that impacts the margin.

So that's why we see a spike -- a little bit of a spike in the fourth quarter.

So we're very happy with the way our margin is holding up, better than we had been projecting for folks.

Net interest income was $139 million, almost on par with the second quarter and up from a year ago.

A year ago it was $129 million.

Non-interest income continues to be impacted by lower accretion on the FDIC indemnification asset, which certainly is no surprise to those of you who have followed us.

And also, the net gain (loss) on indemnification asset, we're just getting better gains, if you will, on the resolution of some of these assets which then impacts on the other side, on the indemnification asset.

Our non-interest expense continues to benefit from lower OREO and foreclosure costs.

Capital obviously remains very, very strong.

I would just mention that, again, under the MPR's that are out there, if we were to fully implement those MPR's today, the tier 1 common equity ratio would be in excess of 25%.

So we obviously remain in a very, very positive capital position and advantageous capital position.

A couple of things I just want to mention in terms of stuff that has been in news.

We were very happy that the Bank was rated investment grade by Moody's during the quarter.

And also there's been a lot of -- some noise out there about the impact of Chapter 7 bankruptcies on the [1 to 4] family portfolios of some banks.

That's really not at all an issue for us.

In fact, our review of the portfolio indicated the impact was less than $250,000.

So for us, that really is a non-issue.

John, do you want to talk a little bit about going forward strategies or anything?

Yes.

As it has probably been well-established by now, this industry continues suffer for margin compression and for expenses that are mounting that relate to regulatory compliance costs.

It is causing everyone to think about their future.

Doug and I and Raj talk about this all the time.

I think there's about 6000 banks out there today that are all talking to each other, trying to decide what kind of amalgamations make sense.

We believe that -- and I know we've said this before -- but we believe that there will be a movement toward consolidation in this industry.

We continue to have multiple conversations going on in both Florida and in the Northeast.

Impossible, of course, to predict when any of these things may turn into transactions.

But it does appear that more and more people are feeling the pinch and getting more and more motivated toward some forms of non-organic growth, and we think we'll start seeing transactions sometime soon.

As Doug mentioned, one of the things that's been in the news that's not in our release, and that is the impact of the Chapter 7 bankruptcy issue promulgated by the OCC, and fortunately not having great impact on us.

The other thing that's not in our numbers is noninterest income as a result of mortgage origination which, as you know, has been a big part of the earnings statements that have come out in the last few days and also in the prior quarter.

We talked about that endlessly here and we thought about whether we should be in that business.

And if we should be in that business, how it is that we should enter that business.

And we have several conversations going on there that will lead to a decision on that very soon.

To be frank, I worry about how long that this story is going to go on and how much lower rates will go.

And we are sensitive to not building up a whole family of expenses that are non-variable that relate to this business because -- I mean, I personally am worried about two things.

I'm worried about the refi business drawing up.

I also worry about the government getting involved in this business and suddenly noticing how many billions of dollars the banks have made in this business in the last two quarters.

I'm starting to think like they thought about the student loans.

So we do -- we are very aware that that's been a very important part of some banks' profile in the last couple quarters, and are still thinking about where that belongs here.

And on the other hand, our core business, obviously, is doing very well.

While our FDIC [loss share] agreement was very valuable when we inked it three years ago, it's a lot more valuable today given the fact that interest rates are where they are, and that others are suffering tremendous margin compression and having a severe negative impact on earnings quickly.

So we are very much insulated from that, even as the (technical difficulty) agreement recedes, and as Raj said, it recedes slower now than it ever did.

So we are very fortunate to be in this position.

So, a solid quarter, good credit quality, decent reports all the way around.

The market continuing to improve in South Florida and we're feeling pretty good.

And I think, at that, I'll let (technical difficulty) open (technical difficulty) whatever questions you might have.

(Operator Instructions) Robert Placet, Deutsche Bank.

First question, just as we think about the drivers of expenses from here, I guess how much should we expect expenses to migrate higher, just given you can continue to invest in branches down in Florida and given your ramping in New York?

So I guess what is in the run rate currently, and how much will be incremental from here?

I'm going to let Doug and Leslie answer that, but just let me give you a sort of an overarching comment.

(technical difficulty) The new branch build-out in Florida is reaching its conclusion.

We are slowing down a lot this year and don't look out toward very much more expansion in physical branches down in Florida.

We are nearing 100 branches.

We are in the towns we want to be in.

We've moved a good deal of the branches from shopping centers into (technical difficulty) in the towns where we want to be.

We've built branches that are more in line with our commercial lending needs, and so that is winding down.

We've been (technical difficulty) in New York, obviously, as we build forward.

And so expenses in some parts, some areas the Bank will go (technical difficulty) [others have seen].

Doug, could you get more specific about that?

Well, look, we would expect comp expenses to go up a bit and we would expect occupancy as we do some stuff in New York.

We're also going to -- we think we're going to continue to benefit from a decrease in OREO and foreclosure expenses going forward.

So in general, looking at next year, it you are maybe 6%, something like that, in aggregate, as we sit here today.

I mean, we're still going through the budgeting process for next year, but that's pretty much what we're looking at.

Okay.

And any color you can add on how much the New York franchise will add to expenses with the backdrop that -- with the thought that you'll only be operating with a handful of branches, so maybe expenses there won't be as much as some expect or --?

I think we'd rather focus on the revenue that New York will generate, frankly.

As you say, Rob, we don't have to open a bunch of branches.

We think we can cover Manhattan with a small number and we expect to do tremendous growth.

So I mean, we can certainly talk off-line a little more specifically about expenses, if you want.

But for us, it's more a function focusing on the business we can drive there.

Right.

Got it.

And then, secondly, as it relates to your NIM Outlook for 4Q, you mentioned you'll have some uplift related to the expected loan sales in the quarter.

But I guess X the loan sales, so the uplift to mid or the high 5.60%'s range, how much is from the loan sales versus how much is kind of X that or in the core NIM?

Well, I think the loan still has a rather large impact in terms of the spike in the fourth quarter.

We've been pretty clear about that over the last couple of years in terms of the impact of that, especially last year.

So I think what you're really probably asking is where do you see the NIM going from here, and our guidance for next year would be similar to what we've been saying all along.

In the aggregate, for 2013 we would expect to be roughly 75 basis points lower.

Okay.

Great.

Thanks very much.

Brady Gailey.

Thanks, guys.

Just a follow-up on the comment about the 4Q bulk sale.

I know it has a positive effect on the margin.

I think it has a negative effect in fees.

But when you look at the bulk sale and all the moving parts, should we expect to see -- just through the accounting -- somewhat of a decline in the EPS number, just driven by that kind of one-time bulk sale event?

Yes, Brady.

I think it's a little hard to sit here today and say exactly what that's going to be.

I think what we've been telling people is, kind of look in terms of the same overall magnitude as happened last year in the fourth quarter.

We are still working our way through exactly what we're going to sell and we don't obviously know what the pricing is going to be.

But, yes, we would expect net income and EPS to be lower in the fourth quarter because of the impact of the loan sale.

And just, the one thing that I would mention -- and John and Raj and Leslie and I are still debating this going forward -- but we are considering in 2013 possibly selling loans throughout the year as opposed to just in the fourth quarter, so that we try and get -- start to build a more consistent trend of earnings.

It gets a little tough for you guys, obviously, and anyone who follows us, to sort through what the fourth quarter can be with this big sale.

So that's one of the things we are thinking about.

Okay.

And then a follow-up.

If you look at non-covered, non-purchased loan growth, it was about $270 million this quarter, down about $100 million from last quarter.

That $270 million, was any of that out of New York?

And could you just comment on the trajectory of the growth potential out of New York or over the next couple of quarters as you continue to gain steam in that market?

Yes.

None of that is New York (technical difficulty) in New York [it will] to speak of.

But that's all Florida.

(multiple speakers) I forgot about that.

That's right.

We drove a bunch of loans out of New York off the Herald balance sheet that we didn't feel comfortable with [living with].

How much, Doug?

$20 million, $30 million?

Yes, roughly $20 million.

They are about $20 million, $25 million.

So the net effect on that has been to shrink it a little bit [out of] New York.

With regard to how much we expect to do in New York, we've given a little bit of guidance on that in the past.

I mean, I don't want everybody to be -- to think that on February 1, this thing is going to balloon into a few billion dollars' worth of loan growth.

We are (technical difficulty) are hiring people and opening our branches on February 1. That's going to take the (technical difficulty) get under control.

We're going to really get rolling in a serious way in the early part of spring next year.

And we have said before that we would be very disappointed if we don't (technical difficulty) at least the kind of quarterly loan growth out of New York that we're getting out of Florida, and going into the first full year of operation (technical difficulty) second half of next year.

We would continue to stand by that.

I would think, from where I sit, that is conservative right now.

But we wouldn't put a number on it.

I would be very (technical difficulty) if we don't do at least what we've (technical difficulty).

Okay.

Thanks, guys.

Ken Zerbe.

Thanks.

Just on the preferred stock that you had to sell, I just want to make sure you still are holding some at the Bank.

But also kind of want to make sure, or just get a better sense for why you guys feel this is a good asset class to hold, because it seems that you're probably one of the only banks that have made any kind of material investment in preferred stock in the mid-cap bank space.

Thanks.

Ken, just to get a little bit technical, we do still hold preferred stock, but none at the Bank.

It's held at the Holding Company.

We like the asset class.

We are comfortable with it.

We feel that we can analyze these banks and feel comfortable about the asset class, and we love the yield.

When we did our initial analysis, we felt that these things had a lot more characteristics of debt than equity, and we felt that we can hold them at the Bank level.

The OCC disagrees with us, and we made a decision that we didn't want to take our entire portfolio that we held at the Bank and move it to the Holding Company.

We just didn't want that much concentration at the Holding Company.

So we moved some to the Holding Company and we sold, as Raj or John indicated earlier, about $100 million of preferred stock which resulted in a gain of roughly $6 million pretax.

I can't speak for everyone.

I would prefer to be holding the securities and grabbing the interest going forward rather than -- I think our overall strategic choice would have been to hold them rather than sell them.

But we just weren't -- we were concerned about concentration at the Holding Company.

And as I said, I think we'd like the asset class because we think we can understand it a bit.

Raj, you have any other insight on that?

(technical difficulty) Doug, and we have the capital at the Holding Company (technical difficulty)

Okay.

Great.

Thank you.

Okay.

And listen, we like the piece that you wrote.

We agreed with you on it.

(laughter)

No, it just surprises me that more banks aren't doing more of this, because within that 10% of the bank holding company capital, it seems that this is a very valid asset class that could generate more yield.

But again, I'm just surprised that more banks aren't doing more of this the way you guys are.

(technical difficulty) Everybody is gun shy of the regulators here.

I mean, even though you hold it at the holding company level, everybody is very sensitive to their attitude towards these things.

I, frankly -- we would have never sold these things if it weren't for their attitude toward this investment.

Understood.

All right.

Thank you.

Erika Penala, Bank of America.

Good morning.

I just had one follow-up question.

John, I appreciate all the color that you gave us in terms of the conversations that you've been having with potential targets.

My question is your commentary in Florida seems positive.

On the other hand, clearly, the revenue environment for the banks feel like it's just getting worse.

Is it fair to assume that perhaps the opportunities where credit is getting better, i.e., the Southeast, the bid-ask continues to be wide and maybe got wider as credit is getting better for the stand-alone banks?

And perhaps really more the acquisition opportunities could lie in the Northeast in terms of where your conversations are going today.

Well, the bid-ask is not getting wider in the Southeast, Erica.

In fact, it's (technical difficulty) getting narrower, as more and more people suffer under the burden of collapsing margins and regulatory pressure, particularly in the smaller institutions.

And I think you can see that as you pore through the releases this quarter and the releases that are yet to come.

So I think that -- and, frankly, our experience is people are paying more attention to this and getting, in my view, more realistic.

I think that's true in the Northeast as well, but look, this is an industry that's under a great amount of pressure.

And to deny it would be silly.

The overarching (technical difficulty) the Fed threatens to pour more liquidity into this system and drive rates down even further, which will have a further negative impact on banks, and on some banks' balance sheets a lot more than others.

And I think that there is a very distinct attitude among banks our size toward thinking about consolidation in one form or another.

I think we're going to look through the whole panoply of consolidation forms.

We're going to see MOEs and we're going to see acquisition, and were' going to see people throwing their hands up.

And as we get reminded every time we turn the TV on, the big event coming up here in early November and lots of people are paying attention to that with regard to where the economy is likely to go and where the country is likely to go, in the next couple of years.

And I think all of that is going to have impact on this industry.

It's amazing that we haven't seen a lot more consolidation already, and I talked about that before.

And I think that's because it's tough for people to get their heads around new valuations in this business.

But it will happen, and it will happen whether the incumbent gets in or the White House changes hands.

So, no, I think the opportunities are every bit as many as they were six months ago, probably more.

But we are being very -- as most buyers are, I think, being very, very cautious about this right now.

So is this the first time since -- is this the first time that you've observed the bid-ask spreads narrowing in your time at BankUnited?

No.

No.

I think if you went back to years ago, and people were starting at 2 times book and willing to have a meal over that.

And a year ago it was 1.5 books, and it's been substantially reduced in some institutions down from there.

So I think this has been a gradual process as people are getting used to the new valuations in this industry.

So, no, we've seen this continuing as we predicted would happen.

These things seem to be getting cheaper.

And so picking the right entry point here is an art, not a science, and we're going to continue to contemplate that move.

Got it.

Thank you.

Gerard Cassidy, RBC.

Hey, John, how are you?

Sticking with the M&A theme for a moment, what are you guys seeing on the loan marks?

I know you've been very conservative over the years in what you think the loans are worth.

Are those loan marks improving at all when you guys get to look at other banks?

I don't know.

It's kept us from doing deals up until now.

I don't know, Raj, is it getting better?

Are people more in touch with reality, you think, out there in things were looking at?

I think loan marks, per se, haven't really (technical difficulty) as much as the pricing expectation or (technical difficulty) expectation of owners of the bank.

That has actually (technical difficulty).

But again, Gerard, it's a very wide field.

There are (technical difficulty) banks and there are dead banks and there's everything in between.

So it's a generalization.

Clearly, when the banks are clean, the bid-ask on the correct mark, it's much, much lower.

It's when things are iffy that (technical difficulty).

So I can't generalize that.

Yes, I think while realism on the valuation has crept in here over time, on the part of potential sellers, that's the good news.

The bad news is there is another issue that enters the M&A thinking, and that is the regulatory risk.

And we are not really sure where regulators stand with regard to their attitude toward consolidation.

If you take a look at some of the deals that have occurred here over the last year, the regulatory process is pretty drawn out.

It's not a fait accompli that regulators are going to routinely bless the types of such consolidation that we've seen before, particularly among larger institutions.

So while loan marks might be a little bit more realistic and sellers (technical difficulty) might be a little bit more realistic, there is the elephant in the room, is regulatory attitude toward this process going forward.

I'm frankly a little confused, because we seem to be getting mixed signals in that regard from time to time.

No doubt.

I agree with you on the regulatory process, definitely mixed signals.

Raj, talking about the investment portfolio for a moment, I know we can all talk about different outlooks for the economy and who wins the election in November.

If, for some reason, the economy gains more steam next year because of a stronger housing market across the United States, and if rates were to start to rise at the long end of the curve by the end of next year going into 2014, what kind of extension would you see in your duration in the securities portfolio, if rates go up 50 or 100 basis points at the long end of the curve?

I want to start by reminding everyone that our duration on the loan -- on our securities portfolio is fairly low.

It's about a little over a year and a half.

Yes.

1.8.

1.8.

Sorry.

So, versus a lot of our peers, who have taken a lot more risk on securities portfolio.

If rates do go up, which I hope they do for many reasons, I don't think we have the same level of risk in our securities portfolio that you would expect at a typical bank our size.

John, if you want to quantify that, I can't do the math in my head.

Well, I think just in general terms, you're absolutely right, Raj, Gerard, most regional banks and stuff that we read are already over 3 in terms of their duration.

We are at 1.8.

We have a ton of floating-rate stuff.

So yes, we would see some extension, obviously, but we think, nothing that we are not comfortable with.

We've been pretty clear that we've made the decision to run this pretty conservatively from that aspect.

We do recognize we probably left some money on the table, but we have -- just positions us better going forward, which is what we are comfortable with.

So we can certainly -- I can pull out some stuff and give you some more specifics off-line if you'd like.

But to Raj's point, we are not going to extend the way most bank portfolios are.

And frankly, the other thing to think about, too, is, going forward, assuming that the economy improves in the way that you indicated, we expect to do a lot of lending and very little additional buying for the investment portfolio, so.

Got you.

No, you're right about your duration is much lower.

Yours is more like the money center banks than it is a regional bank.

Just curious, what are you guys buying today in your securities portfolio?

What type of securities, in terms of duration and yield, what are you guys getting these days?

Well, the last quarter I think the asset class we focused on (technical difficulty) CLO's, buying AAA CLO's.

And we're getting (technical difficulty) correct me if I'm wrong, [150 to 175] at that range.

Roughly.

Okay and finally --

Nothing to write home about.

I know.

You guys obviously are doing quite well in Southern Florida on the loan growth side.

Are you seeing any -- obviously, you've been down there for a handful of years now.

Are you seeing any increased competition from banks that have kind of gotten up on their feet and they were wobbly before and now they are stronger?

Or is it no, because people are still digging out of the mess that they are in?

There is a little bit of both, but it's undeniably more competition, particularly in the C&I space.

By the way, both banks that are up on their feet and not quite so wobbly and also by the banks that are wobbly as they chase yield.

And the whole industry is being driven by the government into riskier assets as this interest rate environment continues to unfold.

And we are very mindful of the fact that we need to be vigilant about this, because we are working our way back toward a time when, although nobody seems to be concerned about credit issues now -- and, frankly, starting with the regulators.

The regulators are paying much more attention to other things right now.

So it's probably time to start.

It's early, I guess, but it's time to start worrying about credit issues as people get more and more aggressive.

You know, two years ago nobody was competing with us in Florida.

A year ago, we were getting rate competition, and now we're getting rate competition and structure competition, as John would probably tell you.

And we've backed away from some deals during this quarter and last quarter that we just wouldn't do at the price or the terms that other people would do them at.

So I think it's fair that that's the category should be watched.

John and others, thank you very much.

Thank you.

Herman Chen.

Thanks.

In terms of potential acquisitions, can you talk about your interest in terms of asset size especially in Florida?

Would it be safe to say assume that the ideal acquisition would be larger than the Herald deal?

Yes, Herman, we came here thinking we bought a bunch of $300,000 and $400,000 banks, but to be frank -- $300 million or $400 million banks.

But to be frank, between the regulatory environment and the legal environment and all the regulations surrounding these deals and the expenses associated with them, nobody makes any money on those things but the lawyers.

So it's tough to justify doing those small deals anywhere, either in the Southeast or the Northeast.

So I think, as most people are, we are focusing more on larger transactions that -- whose cost would justify the transaction (technical difficulty).

There is no particular assets [on it].

It's hard to do think about doing a deal under $2 billion.

It's a lot easier to think about doing deals that are substantially larger or even the size that we are or higher.

Remember that our market cap is substantially greater than a lot of institutions that are of greater in asset size than we are.

So our opportunities are widespread.

Got it.

Thank you.

(Operator Instructions) David Peppard, Janney.

Good morning, guys.

How are you?

Looking at your deposit market shares down in Florida and a lot of the MSAs that you guys operate in, you don't have a top five market share in any of those MSAs.

And as we look forward to next year and the opportunities in New York, do you see that ability to have a deeper penetration of Florida while also balancing growth in New York?

Or is a lot of the focus on going to shift up into the Northeast?

And, you know, the franchise that you have in Florida both on the commercial lending side and the deposit side are going to kind of stayed stable where it is now?

You know, you were cut off a little bit there, David and -- but I think you're asking what we can expect in terms of growth of market share, both in the Southeast and the Northeast.

Our theory on deposit market share has always been the same, and that is we would like a little piece of a big thing for a long time.

So we are not consumed with the idea that we have a large market share in a particular market.

We would rather be in a very large market, which Miami is and Manhattan is, and have a small market share that continues to be able to grow.

So I'm going to remind you that [North Fork] when we were $50 billion or $60 billion, we probably had a 4% market share in New York, but it was very, very profitable market share.

So we really concentrate on profitable deposit market share rather than on market share in general, and we are certainly not chasing deposit growth with rate down in Florida.

Although we got a special in some of the new branches we've opened this year, and that's actually kept our deposit costs up higher than they normally would be in Florida, which is why I think Raj said [safely], you can see that continue to come down.

But sadly, the deposit-generating business is not very profitable anymore, given what you can borrow money at.

And you can see that on some banks are using borrowings substantially more than they're using deposits to fund loan growth, because the margins are much greater.

So we're trying to balance that, but we don't really think about what our overall market share is compared to others in any given market.

Our priority is of getting lending market share, not deposit market share.

I don't know if you guys went over this already, but did you guys disclose the average yield on new loans for the quarter?

Doug, you've got this?

I do.

It's, all-in, around [3.65].

All right.

I appreciate it, guys.

Thank you.

And there are no further questions.

At this time I'd like to turn the call back over to Mr. Kanas for closing remarks.

So in summary, forgive us for continuing to be a boring story here.

But we are, as we said we would be two or three years ago, predictable, solid, a balance sheet that's not likely to blow up whatever happens in the economy.

We continue to be cautious.

We might argue that we are overly cautious, but maybe I'm getting old.

But I think these are times when caution is the byword.

There are a lot of uncertainties out here with regard to the industry and with regard to the macroeconomic environment surrounding the industry, not the least of which is the political uncertainty.

So, as I think most reasonable thinkers are in this business, we are sitting back on the sidelines watching with everyone else to see what's going to happen, and when something makes sense on the M&A line, you'll see an announcement by us.

But you won't see an announcement just for the sake of making an announcement.

And frankly, I think those, particularly in the Southeast, to have moved aggressively earlier are paying price for it.

Even some of the FDIC deals that looked attractive a year or two ago turned out to be not so.

And so we are being careful.

We look forward to going to New York.

To answer your question of how much we are going to do in New York, the answer is I don't know.

But the reception that we seem to be getting in talking to people is very, very encouraging, both from employees and customers who we've known very well over the years.

And I think we'll get more than our share of the market when we get to New York.

But let's be realistic.

That's not going to be a high-margin business either.

The old fallback in New York is going to be multifamily lending, which was a lot more attractive business two or three years ago than it is today, where we are seeing rates and the low 3%'s.

And we would expect to be frank with you, if banks keep being as aggressive as they are, that could break there.

So we're not going to be able to make it doing just multifamily lending in New York, for sure.

It's going to have to be a mixture of commercial lending and commercial real estate lending and C&I, all of which we are prepared to develop in that market.

So I think we're being very realistic about our expectations and we're trying to get that point across to you and make everybody feel comfortable with our thinking.

As you know, those of you who know Raj and Doug and I for years, we (technical difficulty) much.

Our thinking is an open book and we are going to try to do what makes sense here.

Having said all of that, appreciate your call, appreciate your interest in the Company, and look forward to talking to you again in 90 days.

Bye.

Thank you very much.

This concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.