BankUnited Inc (BKU) 2013 Q1 法說會逐字稿

Welcome to the BankUnited 2013 first quarter earnings call.

My name is John and I'll be the operator for today's call.

(Operator Instructions).

I will now turn the call over to Mary Harris, Senior Vice President of Marketing and Public Relations.

Good morning and welcome.

It's my pleasure to introduce our Chairman, President and Chief Executive Officer John Kanas but first 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 reflects 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 that this 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 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 this forward-looking information should not be regarded as a representation by the company that the 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 conditions, business prospects, growth strategy and liquidity.

If one or more of these other 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 forward-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 by 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, 2012 or at the SEC's website, www.SEC.gov.

I'll hand the call over to John.

John?

Good morning, everybody.

Raj Singh is here with me.

Leslie Lunak is here, our newly appointed CFO, and John Bohlsen is with us, not in body, but in voice from New York.

We, obviously, are very pleased with the quarter, $0.47 is a decent beak to the estimates which have been moving around recently but generally, $0.44, $0.45.

And personally, it's even more gratifying because the, well, we opened four new banking centers in New York and have continued to add to staff in New York.

So this quarter contains virtually zero in revenues from the New York operation but pretty well loaded with up front and ongoing expenses.

Also, we had to deal with a large loan that got a great deal of publicity down here in Florida this quarter.

Universal Health Services, which we had $15 million or $16 million-- I guess $16 million piece of.

We charged-- it's a massive fraud.

It's been all over the papers down here.

The FBI's involved and there are expectations of people getting -- people going to jail over this.

It's a multi bank credit where we had $16 million -- we took almost $7 million in charge-offs and reserves, to be cautious, another $5.5 million, give or take.

And so the only thing remaining on our balance is what's represented by basically cash.

I think we've been conservative there.

We hope to get some of that reserve charge back but we took advantage of this quarter to put this issue behind us.

We're pretty well flushed out in terms of teams of people in New York.

We're probably at 50 or 60 people in chairs and another 10 or 15 people who will be joining us strategically over the balance of this quarter.

Significantly, the Herald Bank deal, although it was small, it did involve a full-blown data conversion, and that has been successfully completed in March.

So Herald Bank is no more.

It's part of BankUnited and it is completely converted under the BankUnited system.

Loan growth -- you see if we add together loan growth plus the equipment under operating lease growth for the quarter, a little over $400 million, first quarter typically a relatively low growth quarter, was last year, and we expect it on a comparison basis it will be this year, as well.

Deposits at $8.7 billion, up a little bit.

Remember that there's not a big push for deposits in this institution, loan to deposit ratio still hovering around 65%.

So we've got lots of room to add there when necessary.

Margin came in almost exactly where we expected it to come in.

Slight compression from the prior quarter at 593.

And the message that we bring to you is not unlike the message that you're getting from almost every other mid size bank in the country and that is margin compression, margin compression.

And so the difference at BankUnited is that we are seeing a significant amount of asset growth, which is helping, but certainly not enough to mitigate the inevitable compression of margin over time as long as the government continues to keep the lid on interest rates which, frankly, we think will go on for longer than many people believe.

We think that -- we've had a good look now at what could be expected out of New York.

I'll remind you that what we said was that after we're in operation for two full quarters in New York, that we would expect loan growth out of those four locations to approximate the amount of loan growth that's coming out of the hundred branches in Florida.

I would tell you that we now believe that certainly we can verify that statement.

We think it's probably -- it's probably conservative.

We think, we -- I expect loan growth in this quarter alone in New York to be over $200 million and, frankly, having just spoken to the loan guys 15 or 20 minutes ago, we think that that's very conservative.

So you will start to see tangible evidence of the growth of this franchise in New York by the end of this quarter without fail.

Deposit growth in the second quarter, $150 million, $200 million, probably $300 million, $400 million by the end of this year.

Ultimately, once New York is up and running, we think that it will be somewhere between 75% and 90% funded by the New York deposits themselves.

Earnings at $48.2 million.

Net interest income slightly compressed.

Operating expenses increasing on trend, as with everyone else.

This environment is hostile for banks.

It continues to put pressure on us and every other bank that makes loans that takes deposits.

I expect that, until New York kicks in fully, that this will continue to put pressure on our margin, as well.

The prospects for growth of loan assets in Florida and New York are stronger than ever.

The south Florida market continues to amaze.

We were took a bunch of folks yesterday over to the west coast of Florida and entertained 100 or 150 clients last night and actually are beginning to start to see some signs of life in the west coast, as well.

Nothing compared to what's going on in Miami and Dade, but certainly tangible evidence is stabilization in that market and significant evidence of the beginnings of growth.

We were in, in particular, we were in sort of the Naples, Bonita area last night and people are very encouraged by what they see going on.

The other thing that we accomplished during this quarter, we did that large secondary offering of about 22.5 million shares, had the impact of taking the private equity guys down to below 9%, 8.5% percent from their level of 14%

So we made some head way with our relationship with regularsas a result of that.

And also as we chip away at their location, we ease the concerns that some people have had about this company over the years that these guys are certainly going to hit the silk and sell their stock but it's certainly nothing -- something we don't worry about it all here.

We are all committed to the growth of this company and reducing their share of ownership in an organized and structured way over the next couple of years.

I think (inaudible)-- 1835, 1766 respectively as of the quarter and then, of course, the deposits continuing to come down 70 basis points versus the first quarter, I think, 73 or 74 basis points.

So chipping away at funding costs, struggling and hanging on by our finger nails like every other bank and trying to protect margins and try to grow.

We think that, to sort of preempt your questions, there's as much competition in New York as there is in Florida and probably as much in Los Angeles as well if we were there.

So banks are getting more and more competitive.

We're seeing -- we're seeing some irrational pricing of loans.

We're running into it everywhere and we are backing away from those situations where we see people going out on the fixed rate curve at rates that we think are dangerous at these levels.

So we -- while we will -- while we're committed to this growth, we're also committed to discipline with regard to pricing over time.

So I think I've exhausted what I have had to say to you for the moment.

Look forward to answering your questions.

Leslie, how about you?

I'll give you a brief overview of earnings for the quarter, some of the factors driving earnings for the quarter, and then take your questions.

As John said, we ended the quarter with a net interest margin of 593.

We do expect that to continue to compress as covered loans that are higher yielding continue to be replaced by new loan growth.

So we're still pretty consistent with our prior guidance where we see that coming down to around 525 or so by -- for the year on a year to date basis.

We did sell -- we did sell loans in the first quarter.

We told you that we were probably going to start doing those loan sales quarterly instead of annually.

We did sell loans in the first quarter this year that had some impact on our margin, about $10 million ran through the margin related to the loan sale.

Net impact on non interest income was negligible.

We expect that to continue and experience similar results for each of the next three quarters.

While margin is coming down, I do want to emphasize that net interest income due to loan growth is holding steady and we expect that to continue for the remaining quarters of this year.

We expect loan growth to outpace margin decline, or make up for at least margin decline, so that net interest income holds steady.

The provision for the quarter, as John says, reflects the charge off related to the universal healthcare loans.

Also buried in there is some benefit from release of reserves on our new bank residential portfolio as a result of loss factors relating to that portfolio coming down.

So you've got a little bit of positive offsetting that negative which is maybe why that number wasn't quite as big as some of you might have expected to see.

Another thing that we've talked about in the past that we see happening this quarter, the rate of accretion on the indemnification asset has gone negative.

We're now actually are amortizing rather than accreting that asset.

We had predicted that that was going to happen and, in fact, it has happened as predicted.

You see that.

Something that has gotten a lot of press this quarter as some other banks is whether this new accounting standard is going to impact our accounting for that asset.

The answer is no.

Our previously existing accounting policies were completely consistent with the new standard.

There's been some press about that related to other banks and it had no impact on us.

Again, as John said, we do expect our operating expenses to go up the next three quarters of this year.

I think the run rate will go up by about $6 million a quarter based on our current estimates and most of that is New York.

Some of that isregulatory compliance costs.

Most of that is New York.

So you can expect to see that as we move forward.

We should see that hit next quarter, and then it should pretty much stabilize after that.

Only one other comment before we start questions, and Raj is here to answer any questions that you might have in his domain here, and so is John, but we might be the only bank in the United States that is not talking about reducing expenses.

And it's really not something that we have -- it's not a lever that we have chosen to pull because of the growth trajectory of this company.

We continue to believe that that growth is embedded in this company and will, and will turn out to be, I think probably, conservative estimates of growth, over the next two years.

So we -- while we are not spending lavishly, and we are being careful on the growth, on the expense line, there is certainly room there if growth should slow down in the coming years to start looking at that line.

But we are not -- we are not pulling that lever now and don't expect to be pulling that lever over the next couple years.

We're thrilled by the economic rebounds in both of our markets.

Manhattan is, as many of you know, Manhattan is booming at the moment.

John and I had lunch the other day with some of the biggest real estate owners and developers in Manhattan and the numbers that are coming out of that market are just staggering.

New York, by our measurement, is becoming more and more of an international city.

We are seeing prices for residential condominium units in New York, not speculative, but closed deals and sales that go far beyond what any of us ever expected to see ever and certainly not at this time.

We're seeing new construction starting in Miami-Dade, a couple of towers going up along Brickell Avenue.

And unlike the growth spurt that Miami experienced seven or eight years ago, this one is fueled by real sales and not speculative construction.

It's not possible down here, as you can imagine, to fund speculative condominium development.

So the money that's going into these new projects is fueled, for the most part, by contracts of sale.

So we are right in the middle of, I believe, two of the strongest markets on the east coast and expect to continue to enjoy that for the foreseeable future.

And that sort of is enough for us to talk about and now we'll be happy to start taking questions.

(Operator Instructions).

We do have a question from Rob Placet from Deutsche Bank.

Thanks.

Good morning.

First question as it relates to growth and commercial loans.

You obviously continue to see good growth but the pace declined in 1Q.

I was curious if you could talk to what drove this?

I'd assume there's some seasonality and maybe some general lumpiness in there or was there something more specific?

And then just an update on your outlook for loan growth down in Florida.

Should we just kind of -- is there upside to the pace that you've been running at the past few quarters?

Yeah.

Rob, as I said earlier, that the first quarter is traditionally a slightly slower growth quarter for us down here in Florida.

Some of that's driven by market activity.

Some of that's driven by the sheer volume of loans that we're putting through underwriting.

And so while we're anxious to show you these impressive growth numbers we're more anxious to make sure that we're putting the right assets on the books.

So a fair amount of loans that we would hope to close in the first quarter got pushed over into the second quarter because of the care that we take in putting them through an arduous underwriting process.

So there's certainly by no means do we expect to see loan growth slow in this market down south.

And whether it actually increases from here remains to be seen.

The evidence would imply that loan growth will be even greater in Florida this coming year but it's a little early to make those prognostications.

I'm certainly comfortable with the continued pace that we've seen.

Okay.

And then in terms of competition, obviously, things remain very competitive.

But just incremental, the last quarter, how much has competition picked up?

Well, in Florida, not much.

We saw, I think you heard me say this before, competition started to -- started to build probably the middle of last year when some of the institutions in Florida regained their health.

We haven't seen much of a change.

There's actually a fairly decent amount of market discipline down here.

We're competing -- while there are a couple hundred small banks, those small banks really are not in a position to grow so the competition of loan growth is coming out of the large regionals down here in Florida.

And they are, for the most part, disciplined market competitors and so we've really not seen much.

New York's a little by the different story.

We're seeing some crazy things happening in New York.

There are a couple competitors in New York that are breaking 3% on loans and this is not -- and by the way, this is not the trend but there are a few new participants in the New York market that we think are going overboard in their pricing.

And in their credit standards.

We're not going to play that game.

It will have no impact on our growth trajectory in New Yorkbecause the market's so big.

Remember it's--Manhattan alone is twice the size of the whole state of Florida.

So I would say that--owing to a couple of recent competitors in New York, we've probably seen a little bit of an uptick in competition.

But, frankly, not in the kind of loans that we'd be out there making anyway.

Okay.

Thanks very much.

Our next question is from Brady Gailey from KBW.

Good morning.

Just as a follow-up on that last question, of the new participants in New York that are doing crazy stuff, is that some of the larger national banks or is that more banks that are competing on the community bank level?

It is not coming from the larger national banks.

It's coming from new -- completely new participants and also from some institutions that have turned their attention recently to commercial loans and commercial real estate loans sort of as a new venture for them.

And they're setting a new low water mark in terms of pricing.

But I, frankly, don't expect that to continue.

Okay.

And, John, I'm always curious to get your thoughts on consolidation.

You still have city national down there in Miami.

Now you officially have all the handcuffs off in New York.

Can you give us an update on how you're thinking about buying other banks?

Yeah.

We continue to -- Raj and his whole team continue to work hard looking at a number transactions simultaneously.

We are in -- careful how I say this.

We're increasingly optimistic that more opportunities will come around soon.

But, to be frank, this is an industry whose earnings are under pressure and but our -- by our measure, the banks that we look at are -- many of them are still being overly optimistic about-- When you look at a bank who's suggesting that interest rates are going to start to increase this summer and going forward and that's the underlying tenets of their earnings projections for the next couple years, you sort of scratch your head and say, "That's unlikely to happen."

So we think that there's still some realism that needs to get into this market with regard-- And translate itself into price.

But there are many, many more conversations going on now than we saw a year ago.

I think that something that you all need to focus on, and I've been saying this for some time, and that is the regulatory involvement with regard to M and A. And I point you to -- I point you to Bob [Annatisio]-- Nobody was looking for an announcement like that out of the blue, frankly, from the fed that held up, arguably, (inaudible)runs, in my view, one of the best bank franchises in the United States that was taking over what I view as a very weakened franchise should be something that regulators would applaud and stand up and try to approve on the spot.

And yet, after a prolonged period of application, eventually poured cold water on that and put it off for God knows how long.

You have to be careful and you have to be aware that regulators are very much involved in the process of consolidation in this industry and, in some cases, are using, are using that to further tighten the regulatory grip on institutions, good and bad.

All right.

Great.

Thanks for the color.

Our next question is from Ken Zerbe from Morgan Stanley.

Please go ahead.

Good morning this is actually [Mark] stepping in for Ken.

I had a quick question to clarify.

You said that you'd expect the income from resolution of covered assets to sort of stay at the level where you've seen it in the quarter.

Should we expect that for the loan sales that you continued to execute on over the coming quarters that they will exclusively come out of that pool that you carry at zero book value or should it be more of a mix like you have in prior years?

Hey, Mark.

So I think either maybe I misspoke.

Setting the loan sale aside, income from resolution of covered assets probably will continue to comprise a smaller and smaller portion of our earnings each quarter.

That's a trend we expect to continue.

There's a lot of lumpiness in that income stream and unexpected events can occur but we're projecting that to come down.

The loan sale, I would expect similar results to what we had in the first quarter provided pricing holds, maybe a little less if we get a little bit less -- less in the way of pricing.

We are not selling only loans from the zero carrying value pool.

It's just that net of indemnification, the sale loans from the other pools, had minimal impact on earnings this quarter and we would expect that to be the same in the future.

It's not that they're not being sold.

It's just that it doesn't have much of an impact.

Gotcha.

Thanks.

And then maybe one thing to follow up on the CNI question, you had a pretty significant drop in the CNI growth rate in the quarter.

Is that entirely due to what you've alluded to before, seasonality and factors like that?

That doesn't make you feel any -- any less comfortable with your loan growth guidance for the full year?

That is mostly seasonal and has to do with sort of the mechanical process of underwriting loans and getting them on the books.

Thank you very much.

As well as commitments and outstandings, John.

Yeah.

Exactly.

Which all point straight north, frankly, in Florida.

Our next question is from Matthew Clark from Credit Suisse.

Good morning.

On the pricing in New York, can you just give us a sense for what you're putting on the books, any new rates that you're putting on the books.

I think your overall yield on new loans is 403.

I think we talked about last quarter new rates coming -- new loans coming on around 3.5.

Just curious on what you're seeing in terms of actual pricing on multifamily and commercial real estate and the types of terms you're willing to do and not willing to do.

Big difference, by the way, in pricingin those categories.

Multifamily seems to be the most crowded category right now.

Everybody's falling all over themselves.

We're seeing people -- actually we're seeing people break three.

Actually, we've seen people commit to 275, which we think is crazy pricing.

But, John, I'm thinking mid threes, right, mostly in New York?

Yes.

I'd say closer to 375 right now.

I'm just looking at the list and I'd say the average is about 375.

And we're going out to-- most of the stuff is three to five years.

We haven't really started something much deeper than that.

Yeah.

It's -- remember, our loan generation in New York will be a mixed bag with -- not with a major component of multi family, although it will be significant.

We will eventually be significant players in multifamily, right now that's very crowded.

Okay.

And the growth that you offered up for the upcoming quarter in New York of $200 million plus, I guess is that excluding any residential purchases you might do in the tri state area?

Yeah.

That's New York.

That's not -- there's no residential purchases in that number.

And by the way, as I sit here I'm watching John on the teleprompter in New York and he's pointing his thumbs up on the $200 million number.

John's actually closer to that than me.

I think-- If you ask John--Probably, John, you'd say that's on the pessimistic side, right, the conservative side?

Yeah.

I'm -- I'm very enthusiastic about the growth here in New York right now.

We've put a lot of -- I'm just looking at the pipeline and see we've closed already.

We're in great shape for this quarter.

Yes.

Okay.

And lastly, any update on when we might see trough earnings?

When will I see what, I'm sorry?

Trough, to the bottom, I think.

Yes.

I think we're going to see that end of this year.

Yes.

Yes, that got pushed out slightly from where we originally thought it would be by a number of things.

One was the change in pricing that we got on some of the loans that we're selling and also the fact that we -- we're a little bit behind -- we were a little bit behind in getting going in New York because of the litigation matters that we had to deal with.

But that's now behind us.

We invite you, by the way, those guys that are in New York to stop by and take a look at what we built.

We built banking centers New York City, not really branches.

48th and Park is probably the closest thing to an actual branch but 35th and Sixth, Herald Square and 57th and Lexington are really banking centers where we will house, obviously, a branch but more importantly a number of teams of both commercial bankers and private bankers who are busy out of those locations.

So we believe that people's banking habits have changed dramatically over the last five years.

That it is very rare to see long lines of people in branches anymore owing to the fact that so many people both consumers, by the way, and commercial customers have opted to electronic methods of transacting with banks.

So we think that that -- that helps us a lot.

There's not a need to go into New York and build 40 branches.

Probably over the next few years, if we end up building three or four more, at least in Manhattan, that'd be a lot.

Right now we're going to concentrate on what we have.

Okay.

Great.

Thanks, guys.

Our next question is from Herman Chan from Wells Fargo Securities.

Please go ahead.

Thanks.

John, you mentioned the underwriting process in Florida.

Can you talk about how you expect to operate the credit underwriting process for the New York operations and give some color on the hires you've made there?

Yeah.

We've brought back a fellow named Jim [Stagnari] who worked with John and I in New York for, I don't know-- John, how many years was Stagnari with us?

Fifteen years.

Fifteen years.

So the chief underwriter in the New York market is Jim, who spent 15 years, at least, with us.

And then before us with other banks in New York.

And he heads that underwriting team?

He was a Chief Credit Officer of North Fork Bank.

Yes.

He was a Chief Credit Officer.

So that is, we're not trying to, we are not trying to make the New York loans from Florida, and conversely, we're not trying to make Florida loans from New York

Underwriting is localized into (inaudible) markets.

Understood.

Thanks.

And Raj, I guess, can you talk about the credit strategy for New York?

I think John mentioned that the New York operations would be predominantly funded by New York deposits.

Talk about the build out there,expectations for costs of the deposits relative to the higher cost of deposits you had in Florida.

Thanks.

The deposit franchise that we expect to build in New York will be predominantly commercial and maybe a little bit of small businessand virtually no consumer.

And the cost of funds, once it matures it will probably start off a little high but then we'll have to put out a strong rate to start the franchise.

But eventually as it matures we expect the cost of funds to be meaningfully lower than the cost of funds in Florida or put another way, if you look at the cost of funds of just the commercial business in Florida and compare it to New York, it will be very similar.

And that cost of funds in Florida right now is in the 30 to 35 basis points.

I don't have the exact number but it's in the 30s versus a total cost of funds which is in the high 60s right now.

Understood.

Thank you very much.

Our next question is from Gerard Cassidy from RBC.

Hi, John.

Good morning, Gerard.

Can you give us some color on the growth that you're expecting in New York?

Do you sense -- I know you just mentioned there will be some multifamily in therebut are you finding that the growth is coming from customers of large national banks or are there other community banks?

And if you had to estimate at the end of the second quarter, will 90% of the growth be commercial real estate related, 10% commercial (inaudible) related?

I don't know.

John, for this quarter, what would your answer be to that?

I would say, Gerard, you're about right.

Most of the growth right now would be in the commercial real estate side with multifamily.

The CNI side will be a little bit slower in growth and a lot of it will be commitments more than it will be outstandings.

It will grow really quickly.

Thinking about multifamily as being in the commercial real estate category, which is the where the regulators tend to think of it.

So it's a real mixed bag for us but, as I said, we're not overly dependent on multifamily in the beginning because of the tremendous pricing pressures that we're seeing.

That will change over time but right now that's, that's-- and in terms of where these things are coming from, this is all, folks, at least so far, I would say 95% of this is just folks that have banked with John and I for decades that are coming back.

Some of them remained where they were when we left and some of them ventured off into other institutionsand are coming back, are coming back to us.

Remember, these tend to be very large customers in New York on the deposit side as well as the loan side so it doesn't take -- it doesn't take a lot of transactions to move the needle significantly there.

But we're very impressed with the reception -- frankly, we've been trying to move slowly in hiring people because we started out in New York with no customers.

And John and I both look at each other last week saying, "We better get going here" because we're now getting too big a pipeline of requests and we need to step up the hiring a little bit more this quarter to make sure that we don't fall behind.

So very encouraging so far and I don't see any reason why that should change.

From the early start, what's the average size would you guys estimate you'll have in New York in terms of per loan average when you put these loans on the books?

We're looking at about $5 million-- right now, John, it's about $5 million is the average size in the commercial loans, the commercial real estate.

Yes.

And that will (inaudible) as we move into different categories over time.

The CNI loans tend to be small and the real estate loans tend to be large.

Sure.

And then Raj you mentioned about having higher rates, initially, into New York to gather those deposits.

How much higher are they versus the average rate that you see in that marketplace?

Oh, not higher than what -- we're not trying to compete with the absolute top end of the market.

I'm just saying that initially what you will see rates of deposit costs, in the New York platform you should expect that to come down over time.

You go out and try and sell a money market account and a small [DDA] and hope that DDA then grows and work it.

So the balance changes and the cost of funds come down.

That's typically how any new branch will get launched so I expect to see more of the same but it's not like we're going to go out with 1% money market rates.

That's not the point.

To sort of clarify further, it's-- And Raj is right.

It has more to do with the mechanics of getting these relationships going.

They bring over their interest bearing accounts first and then the non interest bearing DDA accounts build up over time as we close the loans and start doing more business with these individual customers.

Speaking of deposits, Raj, do you guys have a mobile app for your customers and if you do what percentage of your customer base is using the mobile app to make -- move money around in their account?

It's not a significant number.

It's more a retail product as we have not been focused on growing retail deposits.

So we do offer mobile banking but it's not something we're pushing.

Fine.

And then finally, John, can you give us some more color?

I know the situation in Tampa was a fraud, as you pointed out, but maybe give us a little background on how you guys got involved in the organization?

Was it an existing relationship that one of your loan officers had and brought over or what happened there?

Yes.

I'm going to ask for John's help on this one but this thing has been written about widely down here.

The individual behind this credit, up until the time he -- up until the time that the place was closed down by the FBI, was a very, very prominent doctor in Florida, a very politically, very powerful guy.

A very wealthy individual, somebody who was very highly thought of in this community and, John, I--

It's a ten year old company.

We've got everybody over there right now.

DOJ and the FBI and whatever.

We based our loan on what, really, was a fraudulent statement back in December of 2011.

And we discovered all this fairly recently and everyone's in there right now trying to get to the bottom of it.

How did this get to us, John, do you remember this?

It was a shared national credit, basically.

We were the lead bank on it and one of our lenders was familiar with them and, obviously, we're looking for business in that, St.

Petersburg, Tampa area and they looked good.

It was a very good credit.

So these are the types of things in lending you really can't do too much about.

You try to do as much of the underwriting effectively as you can but if it's a fraud, it's a fraud.

We've actually taken that loan, Gerard, and spread it out on a table and got all the lenders around and said, "Okay let's do the post mortem here.

What did we do wrong?

And how could we have avoided this thing?"

And, to be frank, this is one of those things that's one in a million where, honestly, I support the lender here.

There's not much -- this would have been a tough one to see coming based on you just don't expect, in a company like this, that was so visible down here in Florida and that so many people knew about, to be completely fraudulent.

In a regulated industry.

In a regulated industry like healthcare.

So this thing-- it was shocking to us.

And the OCC has been with us, John, since the beginning on this so they're very well aware of this and they've been working with us.

Yes.

I just want to repeat what John said.

While this was a shared national credit,this was not some participation we bought.

We actually led this loan.

Well, clearly our mistake but they say if you want to sort of -- we always look back on these things and say, "What's the lesson learned here?" The lesson learned is if somebody's going to completely fabricate a story it's tough to figure it out in the beginning.

And that's what (inaudible)-- And this guy -- This story is not over.

The FBI and Department of Justice is in there now and the word locally is that people are going to do time over this one.

Tough to side step those, obviously.

Obviously a big mistake on our part.

But, look, when you're making loans, once in a while, lightning will strike you.

Thank you for the color.

Really appreciate it.

Our next question is from Joe Fenech from Sandler O'Neill.

Good morning.

Leslie, just a point a clarification.

You said that you expected expenses to go up $6 million a quarter but then I thought I heard you say up $6 million in the second quarter and then level off.

I'm assuming you meant the latter?

Can you just clarify that?

Yes.

Joe, that would be right.

Okay.

Then on the margin, Leslie, you said margin of 525 expected for the year.

Does that include the expected impact from loan sales and also do you factor in any further anticipated reclassifications from non accretable to accretable or would that just kind of be gravy on top?

It does include the expected impact from loan salesas we expect them to materialize today.

Obviously, that could be somewhat volatile.

We are not projecting significant additional increases from that to accretable, although that could happen.

That margin is 525 for the year or that's what you expect to trend down to by the fourth quarter?

For the year so it will trend down to just north of five for the fourth quarter based on our current projection.

Okay.

Then on the loan growth, John, so $200 million -- I want to clarify this,so $200 million this quarter from New York and then two quarters out, am I correct in saying you're reiterating your prior target of about $500 million a quarter and you're saying that's conservative.

Is that right?

We're saying that the $200 million prognostication for this quarter is, according to our lenders, probably conservative.

And it's probably too early it say whether the $400 million or $500 million sort of run rate of growth out later this year is conservative.

I will say this.

If the trend continues that that could be a conservative.

And if New York stays healthy and continues to grow that could be conservative.

It's too early to sort of over promise there but we are extremely comfortable with the estimates that we've made going back as much as a year ago.

They hold true today and many of us are feeling like we might do better.

And then matching that level of growth per quarter in Florida for the foreseeable future?

Sure.

Okay.

Thanks guys.

Our next question is from Erika Penala from Bank of America

Good morning, guys, this is [Ibrahim] on behalf of Erika.

Just one final follow-up question, John, I guess.

In terms of the New York expansion.

It looks like you've got the infrastructure in place.

But just tying that in with the expense guidance to sort of flatten out from the back half of the year, should we expect that you're sort of done in terms of bringing on talent and hiring in New York for now or can there still be additions, especially from the standpoint of bringing on new revenue producers which could lead to, yes, high expenses but high revenues all the way?

Eighty percent of the top level staffing is done in New York.

There's a few more top level people that we're talking to right now that we expect to hire in the next 30 to 60 days.

But -- and as always, the revenue follows those people, you know, a quarter or two later.

But 80% of that is done.

Our market manager, market president is hired.

The head of real estate lending is hired.

We are in communication with a lot of CNI lenders that will be joining us but haven't announced those yet and are in the process of putting together underwriting for CNI lending, and we're in negotiation with those people who are well-known to us.

I have not hired them yet.

So we're pretty far along the way there.

Got it.

Thank you very much.

And that was our last question.

I'll turn it back over to you if you have any final remarks.

I think in summary here is BankUnited is performing extremely well given the particularly difficult environment for banks who make their money on the margin line.

What defines us and sets us apart from the rest of the industry is the -- is the fortuitous fact that we're into the big growth markets on the east coast and that the imputed growth rate of this balance sheet, and the change in this balance sheet over time, are more optimistic than you might find in most banks this size.

So no relief for margin pressure as I see it for the whole industry or us and anyone else.

Significant amount of asset growth coming for us.

Hopefully some news in the M and A line this year.

We're aware, as many of you are, that a lot of people are thinking along the lines.

And there is embedded opportunity there as this industry, hopefully, consolidates around us and we find opportunities to control expenses through consolidation and a very, very healthy balance sheet.

Strong capital metrics, continued healthy relationships with regulators which many of you heard me say before is much more important than it's ever been in this industry.

And a lot of optimism coming from our customer facing people in both the New York and in the Miami markets.

So another good quarter and on track for what we expected to -- where we expected to be by this time last year and look forward to -- look forward to the remainder of 2013.

Thank you very much for calling in and listening to our story and look forward to seeing you on the road along the way.

Thanks.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.