BankUnited Inc (BKU) 2014 Q3 法說會逐字稿

Operator: Good day, ladies and gentlemen and welcome to the Q3 2014 BankUnited Inc. Earnings Conference Call. My name is Ian, and I will be your operator for today. (Operator Instructions). Now I'd like to turn the call over to Ms. Mary Harris, Senior Vice President of Marketing & Public Relations. Please proceed, ma'am.

Mary Harris: Good morning and welcome. It's my pleasure to introduce BankUnited's Chairman, President and CEO 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 terminologies such as outlook, believes, expects, potential, continues, may, will, could, should, seeks, approximately, predicts, intends, plans, estimate, anticipate, or the negative version of those words or other comparable words.

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

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 or 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 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 ending December 31, 2013 available at the SEC's website sec.gov. John?

John Kanas: Good morning everybody. Welcome to the third quarter conference call. BankUnited had a great quarter. We hit $0.51, just under $54 million for the quarter, $157.5 million for the nine months or $1.50 on a diluted share basis. Deposits grew about just under $800 million for the quarter, little better than we actually expected and the growth was experienced over the entire franchise pretty equally. New loans grew less than we expected for the quarter, but as you can see in the quote that we put up, we expect that will be made up in the fourth quarter, some of this is seasonal, some is just were closing that slipped over. So, if we had to take a stab at it, it now looks like the fourth quarter loan growth is going to come in somewhere between a $1.2 billion and $1.4 billion; and if that happens and we expect it will and you adjust for the $300 million for the car loans we sold last quarter, then we will -- we expect to hit just about exactly the $4 billion worth of loan growth that we predicted for the year.

The economic business climate I think speaks for itself in both of our markets. Florida continues to rage forward particularly in the South Florida. Pricing of loans of course as you know, because many of you have listened in a lot of earnings calls for banks, Mid-Cap Banks before this one in the last few days, pricing continues to be extremely competitive. Although our margin was a little bit better this quarter then we expected it would be. And we think actually for the year-end will be a little bit better than we expected it to be. In terms of where our loan growth came from about $200 million in New York, about $150 million in Florida and $278 million or so from our national platforms which includes about $43 million coming from operating leases.

New loans at June 30th and CRE includes owner occupied about 40% CRE about 35% C&I and 23% resi. Asset quality remains pristine in this

Company, non-performing loans to total loans at 0.25 basis points and reserves to non-performers at 290%.

So, very encouraging quarter, expectations remain in place for the balance of the year, and if we could get some movement to monitory policy we'd all be much happier. But as we move forward toward next year, as we predicted by the way some time ago, we think rates are going to be lower longer than a lot of people expect. So, for those who expect to get bailed out by better interest rate environment next year, I'm not sure that's going to happen. We're not counting on that, but our expectations for the balance of this year and into next year remain the same. So we're very pleased with what's going on this quarter and are very optimistic about the balance of the year.

So with that, I'm going to toss it over here it to Raj, who is sitting one side and Leslie on the other and we'll talk a little bit, Raj, talk deposit trends and the M&A landscape.

Rajinder Singh: All right. Thanks John. The deposit trends for this quarter were very positive, as John said. We came in a little higher than we expected to. More importantly, is the mix of the deposits improved materially. Of the $797 million in growth, $374 million was in the demand category, $85 million in time and the rest was money market savings. Loan to deposit ratio slipped back a little bit given that we had more deposit growth than loan growth this quarter. So, we're at 86%.

Also another important milestone that we keep an eye on internally is New York's loan growth. We would one day like it to be self funded. We're now at about 70% self funded in New York which is remarkable given that we've been in this market for only about a year and a half. The deposit cost was fairly stable. We expect it to remain stable going forward. Our mix of deposits, we now stand at 27% demand, 42% money market and 31% time. We'd like that to keep improving, but we're getting pretty mature in the mix and we're pretty happy about where what we are.

Developments on the M&A landscape, I think John and I -- there isn't much new to talk about than what we did last time. We are feeling optimistic about the landscape. There is more dialogue, there is nothing eminent from where we stand but clearly there is a lot more dialogue today than was happening six or nine months ago. And the regulatory landscape seems to be incrementally in a better place than it was six or nine months ago. So, we're feeling good about it, we have a lot of conversations but nothing to report, nothing concrete to report.

John Kanas: Yes, we get a lot of questions on comments, I made on last quarter with regard to regulatory attitude toward M&A, and we stand by that. Everything that we're seeing coming out of the regulators, both completely publicly and semi-privately indicate that the regulatory attitude toward M&A in the mid-cap space is very well balanced right now, certainly not steeped against consolidation. So, over time I think that will have the effect of seeing more activity here, although it's as never quick as we like, but I certainly think that that attitude is prevalent right now and should result in some activity at least into next year.

Leslie is going to talk about earnings trends and expectations.

Leslie Lunak: Thanks, John. Obviously, a strong quarter from an earnings perspective. Earnings were positively impacted this quarter by couple of things. One is better than expected pricing on our quarterly residential loan sales. Pricing on those sales continues to improve and impact us positively. The effective tax rate was low this quarter because of the release of some reserves for uncertain tax positions. As we've disclosed in the past, we had an expectation that that would happen in the third quarter of this year and that met our expectations.

Net interest income increased this year quarter-over-quarter, and we're happy to see that. That's a result of the growth of the balance sheet and that's kind of a milestone we've been looking for is that inflection point and we're starting to see that happen. Pressure on NIM obviously continues due to the run off of the covered assets coupled with the sustained low rate environment that we find ourselves in. However, we saw little bit less of a decrease in the NIM this quarter than we thought we might, so that's a positive sign about the stabilization of what's going on in terms of the rates that we're booking new loans. So, we think for the year ended 12/31/14, NIM maybe a little bit higher or towards the high side of the range that we've guided to. Although by the end of the year, we still think it will be down to between 4, 4.25.

The provision for the quarter primarily corresponds to loan growth. We did have reduction in some specific reserves for some non-performing assets that resolved favorably during the quarter. So, that had a positive impact on provisioning for the quarter. Going forward, we may see a modest increase in provisioning over time as we move through the credit cycle, but we don't expect any major changes there. Continue to expect that core non-interest expense will run about 10% higher for the year for 2014 than it was for 2013. And we'll have more guidance about that and the NIM for 2015 on our fourth quarter earnings call.

Non-interest expense continues to be impacted by amortization of the FDIC indemnification asset that will probably increase in the fourth quarter as we had again transfers from non-accretable difference to accretable yield. And we just continue to reiterate our expectation that we are going to have this trough in EPS coming in 2015. And again I don't like to try to be pinned down as to what quarter we're going to see the bottom of that, but it is still ahead of us.

John, you have anything you want to add to that?

John Kanas: Despite all our warnings, we continue to do better than we think we'd like to do. So, we think most of you had, in fact I think all of you had the impact of the lower tax basis in this quarter, because we've reported it before. So, we look at it as $0.06 beat. We're very optimistic about the balance of the year. I don't want to be accused of suddenly turning optimistic in my view toward the world, and certainly I think that rates are going to continue to be a challenge. But our markets are growing handsomely and our people are feeling quite optimistic as we finish out the year.

So with that, I think we'll open it up.

Operator: Thank you. (Operator Instructions). And your first question comes from the line of Ken Zerbe at Morgan Stanley. Please go ahead, Ken.

Ken Zerbe: Great, thanks. Guys, I just want ask question about loan growth here. Obviously, I heard what you're saying; you're going to hit the low-end of the $4 billion for the year. But when really think out a year or two or three years in the future, there is a pretty big difference between $4 billion versus $5 billion of loan growth on your net interest income over time. Given what you're seeing in the market, are we now at a point where we should be thinking about long-term guidance not in the $4 billion to $5 billion range, but instead at the maybe $4 billion range, does that make sense?

John Kanas: No. Look, first of all, it's very hard to predict this. And as we said last quarter, we're getting fussier with our loan decisioning because of the rates and terms, there is a lot of competition at both ends of this market. We stick by our prognostications for this year and next year. We did a little -- we worked very hard to get this kind of loan growth even though, we're mining if you will three or four different markets. We did a little study recently that said for the first half of the year, we added about $550 million worth of loans in the New York market. So we did a study just to see how much territory our lenders are covering in order to get that kind of loan growth, and our internal study showed that we looked at $13.2 billion worth of loan requests in that six month period to make $550 million worth of loans that we actually put on the book. So, it is a time when banks are scrambling very hard to put on assets. And so we having to work hard to hit our goals, but no, I wouldn't back off on our projections.

Ken Zerbe: Okay. And then --

John Kanas: By the way, there are a couple of new lending groups both in New York and in Florida, stuff that we've been working on for the last couple of months. And we think that's going to be a net positive going into next year as well.

Ken Zerbe: Understood. And then on the $1.2 billion to $1.4 billion of loan growth you expect for the fourth quarter, how much variability is around that? And I ask that because I don't know how well the market is going to take the slower loan growth this quarter, and I just want to make sure that you can actually achieve that target without meaningfully falling short?

John Kanas: You mean are we making it up?

Ken Zerbe: How much are you making up of it?

John Kanas: We're not making anything up. We think that if everything goes well, it will be a $1.4 billion give or take. And if things don't go so well, it will be $1.1 billion, $1.2 billion rather. So, we're pretty firm on something falling between those two numbers.

Ken Zerbe: Got you. Okay. And then just last question --

John Kanas: I mean that's based frankly on what we've already closed in the month of October. And what is in the closing pipeline for the next two months, so it's not a guess.

Leslie Lunak: Yes. That's based on a very granular scrub of the pipeline.

John Kanas: Right. Loan-by-loan.

Ken Zerbe: Got you. Understood. Okay. And then just last question on the zero carrying value pool, I think that was a fair bit higher than what we expected or the gains from that. Leslie, how much is still left that actually can be realized?

Leslie Lunak: Nothing, there is $5 million worth of total unpaid principle balance left in that pool and most of those loans for one reason or another aren't saleable. So, it's de minimis if anything is left.

Ken Zerbe: Great, okay. Thank you very much.

Operator: Thank you for your question. We have another question for you it's from Rob Placet at Deutsche Bank. Please go ahead Rob.

Rob Placet: Hi, good morning. Related to that, to the last question I was curious if you can give us an update for your outlook for net interest income in 4Q just given the benefit from the loan sales this quarter that will go away but obviously continue to grow earning assets. So, are you still expecting kind of stable net interest income? Thank you.

Leslie Lunak: Yes, yes. I would say relatively stable, yes. I don't expect a large increase, but I would say relatively stable, yes.

Rob Placet: Okay, great. And then second as it relates to expenses, I was curious what's in the run rate of expenses right now in terms of spending for the brand -- for the build out in New York, as well as what's in the run rate as it relates to compliance and regulatory related costs and what's (Inaudible)?

Leslie Lunak: Sure. We'll have better guidance for 2015 and forward out on our fourth quarter call and so I really don't want to put specific guidance out there yet with respect to 2015. But there is always going to be some incremental add in terms of compliance and regulatory cost because they don't seem to be in a mood to stop writing regulations. But we don't have any major undertakings. There is no major holes that have to filled, no major systems that have to be added, no major projects that we're undertaking. So, I think the majority of it is already built into the run rate and we'll have more specific guidance next quarter.

John Kanas: Yes, to be frank with you, I think you've heard me say this before, we have paid a lot of attention to run rate of non-interest expense in this company for the last 4, 5 years. We're starting to pay attention to it now as we move into 2015 especially and we think we're going to have a couple of challenged quarters early in 2015. So, we're looking over expenses pretty carefully in this Company and expect to have an impact on -- that will have an impact on the expense line starting almost immediately.

Rob Placet: Okay. Thanks.

Operator: Thank you, Rob. We have another question for you and this one is from Brady Gailey at KBW. Please go ahead.

Brady Gailey: Good morning guys.

Leslie Lunak: Good morning, Brady.

Brady Gailey: So, if you look at -- if you look at over the last year at the amount of loan growth that's been coming out of New York, it's trended down. It's gone from $700 million a quarter to $400 million to $300 million to $200 million. So, it looks like kind of a notable trend. I guess can you just expand a little more on what is driving the lower loan growth, and maybe which specific loan categories?

John Kanas: Yes, I would start by saying don't annualize the $200 million this quarter because frankly in the month of August nobody is home in New York. And so there is a lot of slippage from the third quarter. And the fourth quarter historically for us is always the strongest quarter particularly in New York. But I'm going to say it's the same answer everybody else is giving I'm sure Brady. And that is there is a lot of people slinging money around in New York at cheap prices. And we're just not going to play some of those games that other people willing to do that while it will make you all happy right now, we don't think you will like the long-term results of that. So we're being more cautious than we ever were. And there is a lot of competition in that New York market especially in that CRE area, the multi-family business. So, we're watching a lot of these results of these banks that are coming off this quarter and breaking 3% margins. We think that when you start doing that you're not leaving a lot of room for mistakes in the future. So, it's a long answer to more competition and a finite amount of loan applications coming into that market. We think that we'll continue to get our share probably a little bit more than our share going into next year. But there is no secrete here, everybody is going to tell you the same thing. People are under pricing and beginning to scale back on loan covenants, and it's a dangerous game.

Brady Gailey: Okay. And then as it relates to the $4 billion of annual growth in 2014, if I look at total period end loan growth through the third quarter, you're at about $2.3 billion. But I guess in your $4 billion guidance, you're also including the growth in operating leases, which is not in the loan book, is that right?

Leslie Lunak: No, actually that's not part of the $4 billion. The $4 billion is just the loan book, the loan line. What the difference is there is that $300 million in indirect auto loans that we sold that we're adding back so the 2.3 becomes 2.6. Does that make sense?

Brady Gailey: Yes, okay. And then finally, the tax rate, now that we have this noise kind of behind us, what do you think, a 35% tax rate going forward is appropriate?

Leslie Lunak: Yes, that's pretty close, other than we'll have the same phenomenon in the third quarter of next year that's the last chunk of its reserve release, the last piece of that statute of limitation expires next year. So we'll have noise in the third quarter again next year, but yes probably.

John Kanas: Positive noise.

Leslie Lunak: Positive noise, same in this quarter. But yes, 35% from a modeling perspective with the exception of that one quarter should be pretty close. Then we'll have again, if that changes, we'll have some guidance out there for you at the end of fourth quarter, but that's sounds about right to me.

Brady Gailey: Okay, great. Thanks guys.

Operator: Thank you very much. We have another question for you. This one is from Steven Alexopoulos from JPMorgan. Please go ahead, Steven.

Steven Alexopoulos: Good morning everyone. Maybe starting, can you guys maybe flag the loans that the balance that did not close into the third quarter that are slipping into the fourth quarter?

John Kanas: I don't understand. What do you mean flag them?

Steven Alexopoulos: So, I'll give you an example. So Signature, right, in New York City July and August were very slow but they booked $500 million of loans in September, reported a really solid quarter because of what they made up. So you guys are citing seasonal factors. I imagine this is part of it. So is there a balance of loans that you expected to close that are scheduled to close or maybe already closed in the quarter, so we can get a sense of what's falling into the fourth quarter from the third quarter.

John Kanas: Without getting too granular here, I can tell you this that for the first three weeks in October, we've had extraordinary dollar amounts of closings, way more than we would have expected to have and that's all what's falling over from the end September. I wouldn't put a specific dollar amount. I mean we know what it is that fell over into the fourth quarter. I think it is clear that a lot of stuff fell over from September to October, and based on that number which we now know and what we have scheduled to close, we make that projection for the fourth quarter.

Steven Alexopoulos: Okay. On like People's United specifically on their call, they talked about similar to what you talked about John, competitive environment reaching the level where they're walking away from loans but they actually took their loan growth guidance down on that. Now, are you flagging this stuff because you're just pointing out that it's rough out there or are you walking away from more and more loans that it is going to impact the loans that you're booking and we should rethink some of this guidance?

John Kanas: We're not expecting loan growth or our prognosis for loan growth to slow. This competitive environment is existed for some time. This isn't particularly new and at least the last -- for all of 2014 it's been tough, we just -- our lenders are working harder and covering a lot more territory to book the amount of loans that they're booking. So, no, I don't expect that loan growth will slow as a result of this. Remember these markets are growing dramatically and they're very healthy and particularly the national franchises are teed up to have a big year next year. So, remember, we're un like Signature, we're not drawing from just the New York market. And if we were drawing from just the New York market, I don't think I'd still bring down our growth projections for next year because they were up. They're about a third of what we expect total loan growth to be. So, no, I think we're fine with what we've told.

Steven Alexopoulos: And how many new forward resi loan purchases be in terms of the fourth quarter number you're guiding to?

John Kanas: Raj?

Rajinder Singh: It should be in line with what we've been doing, though we will have -- our origination business has picked up and we had a pretty solid quarter this quarter, and we expect to do even more next quarter.

John Kanas: Originations have actually picked up quite a bit.

Leslie Lunak: Yes.

Steven Alexopoulos: And then maybe one final one for Leslie, looking at the I think it's 28.7% yield on the covered now which was popped up from the loan sales. What do you think is the reasonable range or rate for that going forward?

Leslie Lunak: So, I mean, honestly, it's probably going to be in the 26% to 28% range because we continue to have transfers from non-accretable difference to accretable yield. And again, we'll have more specific guidance for 2015 on our fourth quarter call.

John Kanas: Right. We'll get a better look at it in about three months.

Leslie Lunak: We're in, right now in the thick of our annual intensive budgeting and forecasting process and that's why I'm equivocating about putting much forward guidance out there right now, I want us to get through that and finish it up and be able to give you something a little bit that I feel little bit more comfortable with on the next call.

Steven Alexopoulos: Okay. Thanks for the all the color.

Operator: Thank you. And we have another question for you this one is from Jared Shaw at Wells Fargo Securities. Please go ahead Jared.

Jared Shaw: Hi, good morning. Thank you for taking the question. Just following up a little bit on the New York discussion, would you say that was it more of the terms or the rates the change in terms or the lower rates that have caused you to be a little more cautious in New York if you have to pick one?

John Kanas: The answer is yes. It's everything Jared. I mean we've seen some ridiculous bidding on loans, obviously rate is probably the single biggest driver. But in terms people are extending longer than we'd like to extend. Remember that -- Raj what did we say, how much of our CRE book is under five years.

Rajinder Singh: Multifamily for example, I think 92% loans we booked this year are under five years.

John Kanas: And a lot of guys are going out much further and fixing rates much further. I just -- that's been around a long time, I have seen this show before. I don't think that's the smart thing to be doing right now. We continue to believe that rates aren't going to move a lot and help the banking sector all the next year. And everything we say and everything we've said so far this year is based on the interest rate environment continuing to be hostile to (Inaudible). If I'm wrong and everybody else is right and rates are going to move in our favor next year, then we're going to do lot better than we think. But we continue to believe rates are going to be about where they are and not help us.

Jared Shaw: So as we look at the incremental growth or the expected incremental growth coming forward then we should assume that the spreads are continue to contract --

John Kanas: Absolutely.

Jared Shaw: -- in that market on the rate side on the rate side.

Leslie Lunak: We did see stability from the second quarter to the third quarter.

John Kanas: I mean it's stable from second to third. But I mean, I think as time goes by if these guys keep doing this and they keep driving rates down further and further I think for the whole damn sector you're going to see skinnier and skinnier margins.

Jared Shaw: Okay.

John Kanas: It will hit us less than most people, but it's going to hit us as well.

Jared Shaw: And, Leslie, looking at the trend from accretable or from non-accretable to accretable, the pace of that change. Is that sustained, I know you said you're still looking at that going out for 2015. But should we expect to see that generally starting to slowdown or is it still sustainable for a little while here?

Leslie Lunak: So, that's very difficult to predict because it's entirely dependent on the performance of the cover loan portfolio. We've never attempted to predict the -- we don't forecast any transfers from non-accretable to accretable let me put it that way. We update our cash flows quarterly and we transfer if appropriate. But when we forecast, we don't predict future improvement in the performance of the covered loan portfolio. You can run it different ways, if you choose to and model it different ways, but we do not predict future trend. We never count on our forecast future transfers from non-accretable to accretable. They have continued to happen, but we don't forecast them. We assume they're not going to.

Jared Shaw: Okay.

Rajinder Singh: We never have in the past.

Leslie Lunak: Yes, we assume they're not going to.

Jared Shaw: Thanks. And then finally on the hiring pipeline for new lending groups, what should we expect sort of going forward? Are you actively seeking to continue to grow or is that more opportunistic as opportunities come to you?

John Kanas: No, we're continuing to seek opportunities to grow. We're broadening out our market reach in Florida. There is some markets in Florida that we haven't really been involved in at all that we think presents some great opportunities for BankUnited and we have conversations going on with some folks that are going to help us to spread out our network a little bit wider in Florida. And of course in New York we're always talking to people that we think can bring value to us and we have a number of those conversations going on right now that look pretty optimistic. We'll bringing some more teams in New York over the next couple of months.

Jared Shaw: Great. Thank you very much.

Operator: Thank you for your question. And we have another question for you. This one is from the line of Joe Fenech at Hovde Group. Please go ahead.

Joe Fenech: Good morning guys. On the loan growth I know others have reported in New York that the quarter was seasonally slow and you guys talked about that. But I guess I was surprised to see a corresponding slowdown in Florida as well. John, can you talk a little bit more about Florida specifically and what's the cause of the slowdown may have been in the third quarter?

John Kanas: Remember that August and September are pretty slim in Florida as well. It's a slow time of the year. A lot of our full time Florida residents are just coming back into the market having left for the summer. So, there is a seasonal element to Florida. And we've also seen -- we just had a few deals slip over in Florida from one month to the other. But for those of you want to take this quarter and sort of project it, it'd be mistake. I think this is an aberration.

Joe Fenech: Okay. And then guys on the expense side, more of a bigger picture question for you. We see Signature at around $25 billion in assets spending a lot of money on regulatory compliance this year, First Niagara at $33 billion doing the same and then First Republic obviously and they're larger than that. That would suggest I guess as you guys push above $20 billion if there is another round of expense-build to come. Is that fair to say or do you all feel like you're doing those things now and we won't need to see a similar rate of expense build when you all push up to that level?

John Kanas: That is not -- look, Leslie said it, regulators are never running out of ideas for new regulations. But based on what exists today and what we know is coming, remember this that this is brand new bank. 215 of our systems out of 215 systems in this bank have been replaced in last four years. And all the systems that we've replaced in this Company were geared toward what we thought was necessary on the regulatory side to run a much bigger organization. So, this money has been spent by us over the last four years and don't expect to see any big pops in the next couple of years. Remember this is an $18 billion Company. We're not bumping up against $50 billion anywhere and by the way that $50 billion could change by the time we get there, we're hopeful that the $50 billion is $100 million or higher. So, nothing that we expect.

Joe Fenech: Okay. And then last question John you all talked and Raj in the past about your interest in that City National franchise that sold in Florida to the Chilean bank, but you haven't seen all that much interested in much else in Florida. I guess with pricing now on Florida properties heading higher coupled with the lack of interest and prices were lower, is it fair to say that from an M&A standpoint that's probably unlikely that you do something in Florida going forward?

John Kanas: Yes, it's fair to say that. I mean we continue to look at ideas in Florida, we continue -- there is a steady stream of opportunities that come our way down there but we haven't seen anything that makes any sense frankly based on the loan growth that we expect to achieve on our own. And the price expectations that we set. I said before, it's more likely that if we ever do turn up a deal, it will be in the Northeast than in Florida. That's not to say next month, somebody could come along in Florida and provide us with a great opportunity that I can't imagine at the moment. But right now we just don't see it. And we've seen a lot of deals trades, small banks trade in Florida, we've looked at them all and we just can't come near the pricing.

Joe Fenech: Okay, fair enough. Thanks guys.

Operator: Thank you. And we have another question for you. This one is from Stephen Scouten of Sandler O'Neil. Please go ahead, Stephen.

Stephen Scouten: Good morning, guys. Thanks. Don't want to really beat the dead horse on loan growth. But I do have one question about, John, you mentioned --

John Kanas: Go ahead, ask us again.

Stephen Scouten: Obviously, I know you still feel good about that $4 billion to $5 billion number it sounded like in 2015. But you have mentioned kind of having three year plan with regulators at any given point. So would that $4 billion to $5 billion number also be true out into 2016 or are you comfortable with commenting out there at this point of time?

Rajinder Singh: The plan of the regulators is for higher loan growth than the $4 billion to $5 billion, and incrementally higher every year.

Stephen Scouten: Okay, super. And then on the new lending teams that John you referenced in New York and Florida, can you frame that up at all in terms of the opportunity there or the size of those teams or any further detail you'd be willing to give there?

John Kanas: No, we're involved in conversations with people right now, so I don't want to talk too much. There is three or four people we are looking at Florida that I think represented big opportunity for us and there is more than that in New York. But we're not at the stage of committing on either side of that yet, so I don't want to.

Rajinder Singh: And I just want to add to that, John. It's not just the teams we're bringing in, the teams that we brought in 6 or 9 or 12 months ago, they are not yet at their full speed.

John Kanas: They're not even closer.

They're not even close. I spent time with one team about couple of days ago looking at what they are booking for this year and what they're going to book next year, next year's numbers are twice of what they are this year. So this is -- we're in planning season right now, we're doing our budgets and stuff for next year. We fee; pretty comfortable with even the teams that we have on the ground that they haven't yet achieved their full potential. We've been in New York less than a year and a half, so it's still early.

Stephen Scouten: Okay, great. And then Leslie maybe one for you here on the NIM, I think you had said you still think fourth quarter NIM would get down in that 4.25 range. I just want to make sure I heard you right there? And also would you assume that the new loan yields kind of stay in this 358 range that you saw this quarter?

Leslie Lunak: Correct on both counts. You heard me correctly and that's what we're assuming for the time being, yes.

Stephen Scouten: Okay. Thanks a lot.

Operator: Thank you. We have another question for you. This one is from the line of Lana Chan and they are with BMO Capital Markets. Please go ahead.

Lana Chan: Thanks. Good morning.

Leslie Lunak: Good morning, Lana.

Lana Chan: Good morning. Could you give us some color in terms of the multi-family pricing that you guys are putting on under five years, what you're seeing?

John Kanas: Yes, lousy. Hold on, Leslie has probably got some detail.

Leslie Lunak: I mean for CRE in New York overall this quarter they range between on average 3 and 3.5. I don't want to try to get much more granular than that because obviously there is variability, but that's the range of what we're putting on.

John Kanas: It depends on term, depends on the deal, depends on things like that. But there is a lot of people breaking free on loans in New York and that's getting into dangerous territory.

Rajinder Singh: A lot of people are also going over 5 years. There is a lot of 7 and 10 year deals that are happening that we shy away from.

Lana Chan: And with the recent decline in the long-end of the curve, do you think that that's going to put even more pressure on the pricing?

John Kanas: Yes, I do, of course. Sure. How could it not, right?

Lana Chan: Okay. And then just my second question on the national platform loans is there a seasonality in that business as well because I would have thought that third quarter for some of those businesses would be seasonally stronger?

John Kanas: I don't think so, Lana. Remember that's the combination of three different companies and different parts of the company in three different businesses. And while there might be a bit of seasonality in Pinnacle which is a third of that. I don't think so.

Lana Chan: Okay. And Leslie just, I don't know if I missed it, but did you disclose what the non-accretable balance is as of September 30th?

Leslie Lunak: Off the top of my head, I think it's just over $1 billion, but it will be in our 10-Q when we put it out there.

Lana Chan: All right. Thank you.

Operator: Thank you. We have another question for you. This one is from David Bishop at Drexel Hamilton. Please go ahead David.

David Bishop: Hi, good morning guys. I promise no more loan questions here. How about talking about the deposit there, obviously you said you guys are sort of reaching that inflection point from a self funded basis at least in New York City. Any change in the strategy for deposit pricing there quarter-to-quarter there just curious what you're thinking there?

John Kanas: I'm going to let Raj give you a more granularity, but I would tell you that we're seeing a phenomenon in deposit growth that I've not seen before and that is that as the regulatory pressure mounts on the very largest organizations to shrink and that's been emphasized by [Dudley] statements this week. We're finding that Mid-Cap Banks like ours are a very interesting alternative to the large banks. So we're starting to get deposit growth from a public company, small and large public companies and other non real estate companies that are opting out of the large bank territory and are feeling the pressure that the larger banks don't want those deposits anymore. So, I personally think that there is great opportunity for us that we've never seen before going out into the next couple of years to be the beneficiaries of that effort on the part of the largest banks to squeeze out some of their businesses. And Raj?

Rajinder Singh: There is no material change in deposit strategy so to say. We do try different products every now and then and we'll try different categories, earlier in the summer we tried, this was second quarter we tried on the CD side for a few weeks. This quarter we have not tried any specific new products. There is another product we're working on which will be in the interest checking realm that may launch towards the end of the year. But those are products plays that we have, I wouldn't call it any massive change in strategy.

David Bishop: Okay. Just to add just looking at the pricing trends, at least on the saving deposits a little bit of a tick up 4 basis points. So I don't know if there is anything in terms of pricing there just having to compete a little bit more aggressively maybe with some of these other depositories out there.

Rajinder Singh: Yes, we do money market promotions, at times they run for about 90 days or 120 days that can move the needle a little bit every now and then. But nothing too dramatic. You should expect deposit pricing to kind of hover in the same range.

David Bishop: And then John, I just want to make sure, I heard you right. In terms of the systems and the back office systems on the platform. You said that -- could that support a $50 billion bank or when there is no large investments looming to sort of get you to that size?

John Kanas: Yes, probably higher. We selected systems here starting four years, five years ago when we got here that. And a lot of them, in fact the core systems for instance is a system that was running Norfolk, Norfolk was 60 plus billion when we sold it. And this is the modern version of that core system which is -- I mean manufacturers claim it will go to $100 billion. So, our -- everything that we have in place that we know of without any further requirements under Dodd-Frank that have not yet been disclosed, our systems are capable of.

David Bishop: Okay. Thank you.

Operator: Thank you for your question. We have one more question here. It's from the line of David Darst at Guggenheim Securities. Please go ahead, David.

David Darst: Hi, good morning. John, you made some comments I guess about some expenses in early 2015. So, do you expect to see -- are there several projects that you have got to complete or is there other areas to redirect expenses to kind of offset that expected growth?

John Kanas: I think maybe you misunderstood me. What I said is we haven't paid much attention to expenses in this Company and we're starting to and so that we expect the growth of non-interest expense to slow down, as a result of that. I didn't talk about any projects. There is no uptick in expenses that I'm expecting.

David Darst: Okay, got it. And then, as you look at hiring in the teams in New York, are you trying to diversify away from some of the commercial real estate multi-family, do more C&I?

John Kanas: Yes. I mean we're looking at both. We're looking at lots of different areas of lending. And obviously, we sit around lot thinking about diversifying away from some of the areas that are the most competitive right now. And we're looking at a couple of opportunities that we think are very interesting for us. But we are being very careful and moving very slowly to pick the right people. We're not interested in getting into businesses we don't understand unless we're in business with people who have spent their life in that business. So, we're looking at some of those things. And then we're looking at obviously expanding in the areas that we're currently involved in as well.

David Darst: Okay, great. Thank you.

Operator: Thank you. And we have a question here. It's from the line of Gerard Cassidy of RBC. Please go ahead, Gerard,

Gerard Cassidy: Hi, John. How are you?

John Kanas: I knew we would hear from you this morning. Good morning.

Gerard Cassidy: A lot of people on the call today that's good, a lot of interest.

John Kanas: Yes.

Gerard Cassidy: Can you share with us, remind us of your capital plans, what you might need to do in terms of raising capital in the next 6 months to 12 months?

John Kanas: Yes, I'll give you the overall and maybe these two would want to give you more granularly answer. But I think we're good until late 2015. And then if we continue to grow at the rate we expect to grow at by late 2015 third or fourth quarter, we're going to start thinking very intently about capital. If you remember, we have all common stock. So, there is no plan to raise common. I would -- and obviously we would raise the cheapest capital we could probably starting with a little debt and then working our way toward partial debt partial equity instruments and then equity later. But in terms of 2015, we think of perhaps a debt offering late in 2015.

Gerard Cassidy: Great. And then Raj you're talking about sitting down with some of the folks, the teams that you've hired and they're getting up to speed. What you guys estimate in terms of how long does it take once you hire a team to get to the full potential?

Rajinder Singh: Gerard, it's very different based on what team you're talking about and what business you're talking about. This was a very particular national business that we have. It took a while to launch, we've brought this team on actually summer of last year. They didn't book their first loan until first quarter of this year. And now where I see where they are, I expect them to do more business in fourth quarter than they've done in the last three quarters, and next year it looks even better. We'll double that business. So but that is not typical. There may be another business under John Bolson where somebody gets up to speed faster or slower. So you can't generalize this. It's different by geography, it's different by team it's different by people.

Gerard Cassidy: Speaking of the people, obviously you've mentioned on the call about potentially hiring more people going forward. Have you lost any in the team you've hired since you came on board, I am assuming not, but --

Rajinder Singh: No.

Gerard Cassidy: Okay. I didn't think so.

Rajinder Singh: No. I think if I think really hard we may have lost a lender three years ago because he came in with the expectation that we will do a lot of national syndicated lending and that was not the case (Inaudible) -- remember we lost him like before the IPO, but we have not lost any one.

John Kanas: That was not mutual.

Gerard Cassidy: Can you share with us your conversations with regulators, with your very strong growth today. What are they saying about it and obviously I know you've got good relationships with them, but what are they sharing with you?

John Kanas: Remember, Gerard, that because we are a new charter we have a three year business plan in front of the regulators all the time that they have to bless. And I think Raj already said to you that embedded in our three year business plan out from here is a continuation of the trend of loan growth higher next year and higher the year after that. And the regulators have approved our plans going forward. So without getting into any more detail about conversations with regulators I think that probably says it all.

Gerard Cassidy: Great. Thank you.

Operator: Thank you for your question. I would now like to turn the call over to John Kanas for closing remarks.

John Kanas: I suppose I should talk loan growth. Yes. We're a little surprised that we had some slippage for the quarter, but I do think we'll make it up in the fourth quarter. And we're very optimistic about loan growth in 2015 based on some of the things that Raj has said and other conversations we've had with our people and a continued growth in both of our markets. So look, we're in this boat with everybody else. Interest rates are historically low. This is a very difficult time to be lending money and making money at lending money. The trick here is to keep expenses down, keep your funding costs down and we spend a great deal of time thinking about both of those things. We continue to emphasize that our prognosis for the balance of this year and into 2015 remain the same, it might even do a little bit better. So, all in all we're very happy with the quarter. I know you all like growth, and I know you'd like to see even more. But our job is to balance growth with risk and profitability and that's what we will continue to do. So, I thank you for your time this morning and look forward to speaking to you individually. Bye.

Operator: Thank you for joining today's conference. This concludes your presentation, and you may now disconnect. Good bye.