BankUnited Inc (BKU) 2015 Q1 法說會逐字稿

(Operator Instructions).

As a reminder this conference call is being recorded.

At this time which with like to hand the conference over to Mary Harris, senior Vice President of Marketing and Public Relations.

Ma'am, you may begin.

Good morning and welcome.

It's my pleasure to introduce our Chairman, President and CEO, John Kanas.

But first I would 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 such as outlook, beliefs, expect, potential continues may well, could, should, seek, approximately predicts intense, plans estimates, anticipate for 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 achieve.

Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to the Company's operations, financial results, financial condition, business prospects, growth strategy, and liquidity.

If one or more of these or other risks or uncertainties materialize or if the Company's underlying assumptions proves 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 no 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 end December 31, 2014 available at the SECs web site.

I'll hand it over to John.

John?

Good morning, everybody.

Thanks for dialing in.

Once again, we have turned out a very decent quarter that's been consistent with our expectations in terms of both loan and deposit growth in earnings $0.44 a share on a diluted per share basis.

As we have been predicting out ahead of ourselves for the last two years we are in the period that we've always referred to as a trough period we're in it now and expect to continue to be in the trough into the second quarter.

Based on the performance that we have seen this quarter and what is stacking up for the balance of the year we continue to expect to see meaningful improvement as the second half of the year unfolds.

Growth across the asset categories was completely in line with what we expected for the quarter although, this first quarter is usually light.

Just under $950 million worth of loan and lease growth and about $750 million worth of deposit growth during the period.

$550 million of the loan growth came from New York.

$185 million from Florida, and another $200 million or so from a combination of all of the national platforms.

Big nonfinancial news for the quarter was the fact that we entered into an agreement to buy CertusHoldings to acquire from CertusHoldings to acquire the small business finance unit.

We are completely on track with the integration of that business.

We expect a regulatory approval from the SBA any day and will close this quarter on that transaction.

We're already working with those folks on a day to day basis and have expectations that-that Company will build volume relatively quickly as the rest of the year goes by.

Our net interest income increased a little bit out in $72 million for the quarter.

The margin account was on a taxable equivalent basis was just a little bit over 4%, about where are we had predicted it to be compared to [4.26] last quarter.

We've had some additions to the sell side -- to the selling group, the sales group I should say in both Florida and in New York we've added a total of just under 20 people this quarter.

We have branched out as we had told you earlier in the year that we would into Jacksonville, Florida, Tampa, and Orlando.

This quarter we added teams in all three of those markets as well as a team at our franchise finance subsidiary and a new commercial banking team in New York in addition to the new commercial banking team we're on the verge of closing a deal with another team that we expect to be in place by the end of this quarter.

So, we are as we have said, south Florida which was the engine for growth in the state earlier on continues to expand at an impressive rate.

The real estate market continues to improve and that growth is show itself in other parts of State of Florida as well.

So we are actively beginning to spread out our sales teams throughout the state.

New York in terms of -- in terms of economy, in terms of its own economy, New York City continues to be exceedingly healthy.

You've seen some of the other commentaries from other banks that do business up here.

We are seeing no signs of slowing down in growth in either of these markets and we continue to be impressed by the asset quality performance.

You can see that asset quality for the quarter continues to be modest rather the problem loans continue to be modest, only 34 basis points of nonperforming loans and nonperforming loans over representing the reserves representing over 200% of the non-performers.

So all in all, solid performance, solid growth, continuation of the loan quality trends that we've seen in the past and an expectation after next quarter that we will begin to see in improvement on the EPS line.

I'm going to now turn this over to Raj, and he can give you a little bit more granular details.

Raj?

Yes.

Thanks, John.

I will talk about the deposits really quick and then jump a little bit into more detail on the Certus transaction even though John has covered it very well.

This is a good quarter for us for deposit growth perspective.

Deposits grew about $750 million.

The loan to deposit ratio is now at 93%.

So we keep inching up slowly but there is still room to grow as we always said in the previous calls.

Cost of deposits for this quarter excluding any hedge accounting or accretion was about 55 basis points.

We should expect it to remain in that level and the growth to stay at about the same level over the course of the next few quarters.

In terms of geography New York this quarter from deposit growth had a great quarter, grew $536 million which if you actually compare it to its loan growth this was a kind of a self-funded quarter which is a first for New York.

New York always had more loans than deposits, but over the long-term everyone stated our desire is for New York to be fully self-funded.

So the first quarter that it came pretty close to being self-funded.

DBA grew about $81 million overall.

Most of the growth within money market and savings are about 550 million and time deposits grew a 115.

In terms of the Certus transaction, this is a deal we talked about in the past.

It was in the making for several months and we finally announced it a few weeks ago and we expect to close it sometime over the next few days but certainly in the second quarter.

The only approval we need for this deal is the approval from the SBA and the USDA.

We have to need OCC or fed approval and soon as we have those approvals we will be closing.

We will close and convert and integrate this transaction on the same day.

So the conversion already is in progress, all of the planning is done, and on the very first day everything will be converted.

We're also talking to people beyond just what we're acquiring in terms of enhancing this teams and we're having good success over there as well, we look to enhance what we have purchased in terms of management and in terms of sales and producers.

So that will also happen shortly after we close.

I will turn it over to Leslie.

Thanks, Raj.

As John said, we saw increase this quarter in net interest income.

Marginally or modestly when compared to the immediately preceding quarter and more markedly when compared to the comparable quarter of the prior year despite the declining impact of sales from our zero caring value pool.

We continue to expect quarterly growth in net interest income to re-emphasize what John said, this quarter or next quarter we find ourselves in what we would consider a trough in quarterly EPS but we do continue to expect noticeable increases in the back half of 2015.

Pressure on NIM continues due primarily to the runoff of covered assets as expected our guidance for NIM for the year remains unchanged.

We expect the rate of decline to flatten and then to start to stabilize a little bit going forward.

We did see the cost of interest bearing liabilities come down this quarter primarily due to the re-pricing of some higher rate CDs and FHLB advances.

In line with the previous guidance we continue to expect single digit growth in non-interest expense for 2015 and with respect to provisioning again I would reiterate that we expect the allowance to remain relatively constant as a percentage of loans for the foreseeable future and that's the way I'd look at that.

Those are highlights from a financial performance and forward-looking guidance.

John, anything you'd like to say in the way of wrap up before we --

No.

I just think in summary, these two markets continue to perform as we expected they would in a stellar fashion.

South Florida is creating all of its own traffic jams with the construction cranes all over the beach and all over the city of Miami.

And New York continues to -- the expansion in New York that really started in earnest a couple of years ago in Manhattan spread rapidly to the boroughs.

So Brooklyn and Queens are very busy markets these days as is the Bronx.

So we're seeing activity from all of the boroughs as well as Manhattan and our New York guys are very optimistic about loan trends going into the rest of the year.

So with that, I think we're ready to take some question.

(Operator Instructions).

Brady Gailey, KBW.

Hey.

Good morning, guys.

Good morning, Brady.

Yes.

One thing I noticed about the link quarter loan growth was you all purchased a lesser amount of resi-mortgages.

Was just that a blip or do you think the run rate for the resi-mortgages will decline from here?

Brady, as you know, over the course of last six or eight quarters we've been purchasing less and less.

Having said that, this quarter was especially low.

Part of it was so much volatility in the market around rates and so while I would say that the general direction is that we will be buying less and less the first quarter may have been very low.

Okay.

Okay.

All right.

And then when you look - we keep talking about when the trough there is if you look at the street estimates it has earnings growing two or three pennies next quarter.

Do you think that is appropriate or do you think earnings still has maybe one more quarter of downside until we start seeing some growth?

Yes, I think they're overly optimistic by a quarter.

I would tell you that this quarter is a little better than I thought it was going to be, but I don't see an improvement coming up in the second quarter but we continue to reiterate our feelings toward the back half of the year.

I wouldn't think that's accurate for the second quarter.

Okay.

Okay.

And then do you all have any prepayment penalty fees that are flowing through your non-covered loan yield?

We do, Brady, but they haven't gotten to the point yet that they are material in anyway.

Okay.

Okay.

Okay.

Great.

Thanks, guys.

Ken Zerbe, Morgan Stanley

Okay, thanks.

A couple of questions, just in terms of the loan growth, John I knew you mentioned you hired 20 people I think it was this quarter, how much are your go forward loan growth?

So the $45 billion relies on new hires.

When we projected that loan growth which was back in the early part of the first quarter, we didn't expect any new hires.

So that projection was without the new hires that we put on.

We think that they'll be additive.

Are you sticking with the $45 billion of loan growth this year?

Yes.

Okay.

And then just quick question --

If these people work out and their volumes come in early, they will make a positive contribution to our expectation but it's too a early to say.

So we're actual sticking to the loan growth estimates, yes.

Got it, okay.

And then just quick question on the amortization of the FDA fees that I think it's higher this quarter.

What point does that actually start to go down?

It is hard to --

We are still thinking.

No.

I hesitate only because it is hard to predict.

I think it will be slightly higher next quarter actually but remember on the flip side so will interest income from the covered loans.

I would continue to suggest that you focus on the net yield of the asset as a whole which will continue to be between 9 per and 10%.

We are seeing improved performance from the covered loans.

You may have notice we had a large transfer from non-accretable difference to accretable yield this quarter so that will result in higher amortization next quarter and higher interest income on the covered loans as well but the net of the two won't change materially.

Okay.

And then just -- sorry, last question on Florida looks like the Florida franchise had a little slower growth this quarter, was that just seasonal slow down because I know you mentioned lots of cranes down there?

Yes.

It's a blip.

Remember that we asked you not to look at quarter to quarter.

But we do think that as the cards fell this quarter that's particularly light for Florida not indicative of a trend.

Okay.

Thank you very much.

David Darst, Guggenheim Securities.

Good morning.

Hi, David.

Just following on the FDSC discussion, what's the updated level of expected amortization in total that you have?

David, I don't have that number right in front of me but it will be in the 10-Q when we file.

Okay.

But do you think it would go up from about the $300 million that you had at year end?

Probably, but I don't know how much.

Okay.

And then John maybe, could you comment on some of the average yield sizes you're seeing in multi-famly and if you're getting the opportunity to look at any large packages?

We get a chance to look at large packages all the time, David.

Generally speaking, it's not our first choice although some of the large packages are coming from our better customers that we know long time and we are taking part of some of the large credits.

But the upsize is about the same.

I'm looking at Tom Cornish sitting across the table from me.

I would say in Florida deal size, not any material differences at all?

No, I'd say particularly multi-family you generally looking at $10 million to $25 million in Florida in that sector.

There's nothing significant about the change in deal size of this quarter to any quarter.

And we continue to see and to answer your expected question -- we continue to see a lot of pressure on pricing particularly in the larger credits.

We don't see any over exuberance on the part of other banks with regard to structure on the larger credits.

We are seeing some of the smaller banks on smaller credits that are getting a little ambitious about both loan pricing and structure so we're being very careful in those areas, but the larger more sophisticated borrowers and the larger more sophisticated banks are sticking to their guns on structure of credit and we view that very positively.

Okay.

And then with the SBA acquisition, would we expect to see kind of on average at your available for sale loans would be about $200 million?

No, it will not be that large.

Okay.

It will be -- yes, in that business, maybe available for sale will be between $30 million and $50 million.

Yes.

Yes.

Okay.

And so I guess you'll bring over 200 million and then you'll have a sale and then you'll manage at a lower level?

That $200 million is the unguaranteed portion of those loans that are retained.

Okay.

Understand.

Or most of that.

Most of it.

Got it.

Yes.

The pipeline at any given time which will be held for sale will be between $30 million and $50 million.

Got it.

Okay.

Thank you.

Stephen Scouten, Sandler O'Neill.

Hey, guys.

Thanks for taking my questions.

Leslie, quick any on the NIM, when you said that the NIM should kind to begin to stabilize, are you saying about that on kind of a core basis or do you mean the reported NIM should begin to stabilize here this year?

So what I mean is the rate of decline will slow somewhat as the new loan portfolio continues to represent a larger portion of the total.

That's really a better way to put that.

Okay.

Got you.

And then just maybe on the M&A front and I apologize if you touched on this some already.

But just curious if the strong outperformance you guys have had in the shares here year-to-date if you anticipate that helping your ability to get a deal done or if you have any increased desire to get a deal done at this point in time or if it's still kind of as you said just as likely to buy is to sell and then kind of the same messaging?

Yes, kind of the same messaging.

We probably all tired of hearing us say the same thing for the last two years.

We continue to have conversations with people searching in earnest for a deal that builds value.

And while there's probably even more potential deals out there that are doable right now because we think that there this plenty of interest on the part of sellers, and having conversations these days.

We still haven't turned up anything that would build value here.

When we do, you will hear from us, but I can't say that there is anything imminent here.

Okay.

Thanks, guys.

I appreciate it.

Yes.

[David Etram], UBS.

Hi.

Thanks for taking the questions.

I was wondering if you maybe touch a little bit more on the deposit growth outlook and maybe specifically what you're seeing in New York and with some of these larger customers that maybe kind of being pushed out a little bit by some of the bigger bank?

Yes, we really haven't had this quarter really hasn't been impacted if at all I think by any of those deposits coming over from the specific banks that are driving frankly hundreds of billions of dollars of deposits out.

But we are engaged in lots of conversations with the types of accounts that are being pushed out of the large banks, some of which we he have no interest in but some of which we have a lot of interest in.

So while we expect -- we said to you before that the deposits in New York tend to be larger than they are in Florida because they're generally all commercial.

So we expect to see continued growth in where we would normally get commercial deposit growths from our commercial customers in New York.

And then on top of that as the year unfolds, I think that we'll start to see some help in that area from these accounts that are getting pushed out.

The big banks are being very, very aggressive about the with way they're pushing these deposits out and it's not that they're just charging them a fee to keep the deposits.

They've actually in some cases written letters to some of these guys and aid we're sending you a check on June 30th so you better fined the bank.

So we're able to have granular discussions with these people that are on our own terms and expect that we'll see some of that later in the year.

Right.

And then when you talk about the 20 sales people that were hired, how much of that expense is in the run rate here in 1Q and shall we expect a little bit of a further uplift going forward?

Not too much of it as in the 1Q run rate but it is encompassed in the guidance, I put out about single digit increases in non-interest expense.

Okay.

And while we've added on the salesmen line, we've succeeded in achieving some operating efficiencies in the retail banking side in the branch system in Florida and to be frank with you, I wouldn't be surprised if we saved as much as we're going to spend on those two.

Absolutely.

Okay, great.

Thanks.

Jared Shaw.

Hi, good morning.

Hi.

I'm just circling back on the loan rep.

when look at the $550 million that came out of New York, how much of that was multi-family versus other type of commercial lending?

Yes, hold on a second, Jared.

Hold on a second and we'll tell you.

So about $400 million of that was multi-family.

Okay.

And then as we look going forward, do you still expect with the growth you have in the Florida franchise and the new locations, what's the expectation for future loan growth in terms of the mix between Florida and New York and the national platform?

I would expect that loan growth in New York will continue to eclipse Florida by some amount but not as drastically as you are seeing this quarter.

Okay.

And then we should still expect to see that loan to deposit ratio potentially push up to the 100% level?

Yes, I mean it is our plan to push the loan to deposit ratio up getting closer to 100% but these levels that's going to take a while.

Okay.

And then finally you signed, circling back on the M&A side.

If you were to do a deal be more likely, not sure what we saw with the Certus acquisition or would you at some point like to add in more of a deposit rich --

Well, we're spending a great deal of time looking at things like the Certus acquisition.

Remember, just to sort of recap that, this is a Company that makes 20 million bucks a year and we bought them for after taxes we bought them for 20 million bucks.

So we would take as many of these as we could find.

So, when you can buy companies on these kind of multiples, they are certainly our first choice.

And there are other opportunities around and before somebody asks the question, yes, we've gotten calls from bankers on the GE stuff and so while right now the bankers are concentrating on the very large portfolios of GE, we think some of that stuff is going to break down into bite size, pieces, and smaller pieces.

So we are interested in looking at what might be available there but we haven't really seen anything yet as of interest.

So continuing to look at the non-bank stuff where the multiples or way more in our favor but it doesn't mean that we're not always paying attention to the possibility of a bank deal we just haven't seen anything that makes sense.

John, just to clarify, Certus makes about $20 million pre-tax.

Pre-tax, I'm sorry.

Actually it's pre-tax.

Right.

Thank you.

Steven Alexopoulos, JPMorgan.

Good morning, everyone.

Hi, Steven.

Good morning, Steven.

Regarding earnings inflicting in the second half, Leslie, I think used the term expected noticeable increase.

When we think about the second half we know there's less drag coming from covered.

Is that really the only source of this expected ramp or whatever term you'd like to use in earnings or are you also expecting a pickup in the core business in the second half?

It really is coming from that, it's coming from balance sheet growth and additional net interest income produced by the new asset portfolio.

That's really what it's about the new book having grown to the point that it is more than replacing the net interest income that is being run off from the covered portfolio.

So it is really balance sheet growth.

Okay.

And Leslie, when you think about the headwinds from the covered, thinking about once we see the turn in a more gradualism or deep, do you see the headwinds really lessening significantly in the back half?

So I'm not sure exactly what you mean by headwinds?

In other words, what holding back earnings during the quarter, right.

In terms of when we move forward, in terms of getting this lift and how material the lift could about I guess is what I'm trying to get a sense?

The lift is really coming from growth in net interest income resulting from growth in the new loan portfolio.

The covered portfolios continues to contribute positively not negatively to earnings just on a lesser amount every quarter.

Right.

That is why I mean earnings from that portfolio are declining, right?

Are declining, correct.

And we're just reaching the point that incremental earnings from the new portfolio are outstripping that rate of decline.

And to put our final point to it the declining earnings from the covered loans that decline is slower and slower every quarter.

Right.

If not straight line and so that the decline is happening slower and slower and build up of earnings from the new portfolio is happening faster and faster.

So that's the inflection we are talking about.

Yes.

And Leslie, just on the margin you're still looking for full year margin, you've done at the 380-4% range?

Yes.

Right.

And then finally, last night in the earnings release Astoria reported that they saw a pretty big slowdown on multi-family, I've then fell a lot deciding a competitive environment and they're choosing to stay disciplined rather than loosing standards.

Can you talk about what you're seeing there and maybe what your pipeline has done for the end of the year?

Thanks.

We're certainly not seeing any slowdown in that area.

In fact, the New York guys are quite optimistic about loan growth for the balance of the year.

As we said before, there's always a lot of crazy competitors our there and lots of deals that we pass up but in the market the size of New York especially when you include the boroughs there is more than adequate loan growth to go around to make us feel confident in achieving the numbers that we expect to achieve this year.

Is the pipeline up, John, from your end?

Yes.

It is.

Okay.

Thanks for the color.

Yes.

Pretty noticeably, by the way.

David Bishop, Drexel Hamilton.

Thank you.

Good morning.

Good morning.

Good morning.

Circling back to the teams you hired this quarter, on the commercial side, can you give us some color in terms of maybe the geographic regions, maybe some of the product segments those guys are focused on?

To talk about Florida a little bit, Tom is here from Florida and John both from New York.

Tom, talk about the guys in Florida.

Sure, it's different in different markets.

In Jacksonville we bought a team to focus on upper end middle market commercial business and commercial real estate business.

So we've update a group from one bank that focuses on both of those segments long time Jacksonville bankers that we think are going to give us an excellent lift on both sides of that business model .

In Orlando, we bought in a guy that was one of the lead commercial real estate bankers across the state for one of the major institutions in Florida who has both significant client commercial real estate relationships in Orlando, Tampa and Jacksonville.

Particularly in some specialized type product areas for us as John mentioned at end of the month we'll have a liftout of a business banking team that is a another Orlando competitor that's a smaller kind of segment group size, predominantly $5 million to $35 million revenue type clients.

We added a project finance person in the state of Florida to cover the entire state out of Miami doing significant public sector project, work a guy who was working for an investment banking company who was one of leading project finance people in the state of Florida.

So it's a little different in each market that you go across in the state of Florida.

But each is either bringing us a geographic footprint opportunity that we did not have before where they're bringing us product capability that we are optimistic about the growth and we didn't have before.

And in New York some of the people that are coming onboard actually aren't even here yet.

There's a couple of guys that we're just finishing negotiations with.

One who I think has signed on today coming from a major bank in New York City with a team of his own that will bring in yet a different variety of deposit business than we are accustomed to seeing.

And John I see that we added some folks in UCBL as well.

Yes, some subsidiaries that we've added quite a few folks in the business side of it and in New York we've really filled in some of the spots we needed to fill in.

Don't forget we started here two years ago with just about set ourselves up now to be in good shape but on letting side both C and I as well as commercial real estate.

Yes.

And we'll continue to add particularly in New York we're going to continue to add people for the rest if this year.

Great.

Appreciate the color.

Jo Fenech, Hovde Group.

Good morning, guys.

John, a number of your competitors in Florida some of the smaller guys have started to talk about overheating in South Florida.

We heard the condo market in Dade County from somebody specifically yesterday multi-family in South Florida we've heard for few quarters.

Now if you talk about what you guys are seeing, you guys have been a little bit more optimistic about where you think we are here in the cycle.

Anything troubling you're seeing or the concerns still in your view a little overstated?

We said this for the last two years that we are always on the edge of our chair in Florida because Tom have seen this a lot for a lot longer than we have in his experience over the last 25 years in banking in Florida.

Florida is heating up like crazy.

They are building condos on every square inch of ground.

We called on a customer the other day in Sunny Isles and couldn't find a place to park for all of construction cranes.

For the most part these condos are all sold and pre-sold.

There's a lot more equity in the deals than we saw in the early 2000's when every real estate broker was had a deposit down on five condominium units.

I remind you, we're not in that business.

We are not financing any of that new construction.

We don't finance the high rise stuff.

It doesn't mean we wouldn't do a small peace of one for a big customer one has to days.

That's not our business.

We make our money in our customers other people who are the support industries that surround construction and the general economy in Miami and Dade.

So look for us to be banking the accountants and lawyers and the staff people and all of the subs that work on these things and they have so much work lined up for the next couple of years that is hard to imagine them slowing down much.

It's not hard to imagine that I think on the front line that sooner or later they stop building these high rise condos down there because I don't know how many we tried to figure out how many are under construction in town compared to what's been absorbed, but it is impressive to take a look at it.

But look, this is Florida.

It is a boom bust state.

We know that you can't keep up at this pace forever and I would agree if a bank in Florida has told you that they are worried about overheating, we are in that camp, we're worried about overheating, too, but you always worry about overheating in Florida.

We are not seeing anything in particular though that gives us pause at the moment.

Okay.

And then John, appreciate your comments on your appetite for additional things to do in the specialty finance or the non-bank arena.

Question is how big is too big?

In other words, is there a certain cap in terms of how much you'd like to see the nontraditional or specialty finance piece comprise your balance sheet?

Yes, we obviously don't want to see it become the tail wagging the dog.

But at this time for these smaller companies it is hard not to be attracted to them when we can get loan yields that are significantly better than we can through bank directly and see opportunities to buy them at these prices, but we talked about this.

We're roughly at 10% give or take off our balance sheet.

So we still think it is a very small amount.

And like John said, it's not really a core business but it is a nice thing to have diversify our portfolio and not to dependent only on commercial real estate and C and I in to markets.

So we don't see this growing to some large 40%, 50% of our balance sheet but a 10%, 15% sounds okay.

If this ended up that's exactly what I would have said.

If this ended up being even 20% of our balance sheet someday and we continue to see opportunities with these kind of numbers, it wouldn't trouble me.

What we really sort of the global business strategy here is when we can find smart people who are expert in a particular category and have been able to demonstrate their expertise over long periods of time and over several economic cycles and it allows us to be less dependent on the kind of the commodity businesses which is probably the most obvious commodity business is the multi-family lending business in New York where pricing pressure continues to mount, then we'll take advantage of those trends.

But don't look for that business to be 40% or 50% of the company.

Okay.

I was just a little surprised to hear you talk about the G.E. portfolio because I guess my thought with you guys historically is that you're not fans of buying portfolios of assets you like businesses so I just maybe thought that the GE businesses were too big.

Don't miss understand.

We're looking at teams of people.

I shouldn't even say that, we're not even doing that yet.

What we have told bankers who called us about this is that when you get teams of people who are managing bite-size pieces of assets in businesses that we can understand and grow as partners with these people would be happy to take a look.

I'm not sure we'll ever see anything like that.

If you look at our track history, we buy something very small and intend to grow it to many times its size.

Whether UCBL, whether it was Pinnacle Finance, whether it's Bridge, Bridge was, we didn't even buy it, we just a left out of small thing or the small business platform we're in the middle of buying.

We like to buy very small things that have growth potential and where we feel the management team is strong enough in a business that we like to understand.

Okay.

Fair enough.

Yes.

We'll never do a multibillion dollar portfolio acquisition.

No, that's not us.

Okay.

And then just lastly, just a clarification on the earnings progression you talked about earlier.

You talked about maybe second quarter earnings expectations, John, being a little too optimistic.

Does that mean we've got to rethink how the trajectory will look coming off second quarter earnings or is that blip just specific for some reason to the second quarter results and it just means the ramp will be steeper going to the back half of the year?

I guess I'm just wondering is if you think the second quarter expectations are too high or street expectations for the back half of the year too high as well?

So I don't think we're saying anything that we haven't been saying for quite some time now that we expected a trough in earnings for the first two quarters of this year and then we expected to see an increase in quarterly EPS in the back half to the extent that the street is forecasting that upward trajectory to begin in the second quarter, that's not consistent with what we've been messaging all along.

The better way to say this is what we've said consistently is we think when you add them all up 2015 earnings we're looking all a lot like 2014 earnings.

But the second half is going to be a lot stronger than the first half and that will build into 2016.

Okay.

Thanks.

Gerard Cassidy, RBC.

Good morning, John.

Hi, Gerard.

For a minute there, I thought you were buying $79 billion worth of assets.

Thank God no.

Not hardly.

One question for you.

Can you give us some color, you did talk a little bit about the structure of some of the deals you're seeing is weakening compared to maybe a year ago.

Could you give us some color on what part of the structure of loan under that you're seeing today that is weakening?

And you shouldn't I mean overestimate that.

What we're really saying is that smaller banks who are dealing with smaller customers are getting more aggressive and are more willing to compromise structure as well as rate than larger banks are for larger structures.

So we're seeing some of that $3 million and $4 million and $5 million loans even smaller than that where we're competing with small community banks where they're willing to do things we're not willing to do and so we are turning down a number of those deals.

Okay.

And when you have looked at potential acquisitions of depositors what are the hot buttons that you want to make sure you've got it identified for the regulators when you might consider doing one and then bringing it to their attention?

You mean from the standpoint of regulators Gerard or from our own --

No, from the regulators.

So if you were to find a depository that made sense, it was accretive and you guys were all comfortable with it, what do you know today that you have to make sure is done, the T's across as I see dotted before you bring the regulators in to take a look?

Yes, it's same OBS.

It's the same stuff as it's always been the case.

We have sadly we have all gotten to sit here in the bleachers and watch painfully what happened to M and T and what's happening to some other banks as they wind their way through the regulatory quagmire.

And look, you both buying bank and selling bank today have to be clean in the CRA area and they have to be clean and aggressive in the money laundering business.

You have to have the back office so support all of the systems that regulators are requiring and it doesn't matter really what size you are because the bar is very high for banks.

So for instance, if we were to look at a bank that in our view wasn't up to regulatory standard, we would bring that in to the regulators and ask them about that.

That would be hot button and we would have to convince regulators that we're going to be able to bring them up to regulatory standard quickly or the regulators would probably not be happy.

As I've told you before that the market that regulators have been very forth right with us and other banks and said look, green light if you guys find something that makes sense but it is the same old trip wires that have been really part of this business for the last two or three years.

And we don't expect that is going to lit up anytime soon.

Thank you.

And then Raj, can you share with us he interest sensitivity of the balance sheet if we do see the Fed funds rate rise 50 basis points by the end of the year long into the curve maybe goes up by a similar amount, what type of impact would that have on that interest revenue for you guys?

Gerard, I'm going to have Leslie answer that.

Yes.

Gerard, the existing balance sheet is very interest rate risk neutral.

That hasn't changed and that's been consistent for some period of time now.

What we would see if we saw rates move would be an increase in net interest income but driven more by balance sheet growth than by repricing of the existing balance sheet which as I said is very neutral.

Sensitivity base that comes from assets that are not on the balance sheet, yes.

Correct.

So rates are higher that would go on the balance sheet of higher rates and hence create more earnings.

But if you just look at the static balance sheet the way it stands right now is neutral.

Okay.

And I remind you all that rates have gone about what we thought.

Remember that we've been sitting here for the last year or two saying not so fast, I'm not sure that we believe rates are going to go up as quickly as some people have.

So it's worked out very well for us that this balance sheet has been as neutral as it is.

But, we are still not convinced that certainly we are not convinced I'm not that we're going to see a rate rise in June and I'm not even totally sure we will see Fed take action this year.

So for those who need -- remember that all of our prognostications that we made earlier this year are based on the fact that we don't have any friendlier interest rate environment that we have today.

If we be friendlier interest rate environment that would be a parallel shift in rates and new assets come out a better yields that would an obviously a big net positive to us but we have not counted that in our estimate for earnings this year.

Great.

And then finally Raj, you talked in the past about the digital channel that you guys have developed and the industry has developed through smartphones.

Can you just give us an update on any metrics you may have, the amount of customers that are using that channel to access their accounts or make deposits and how important is it?

Is it more important today?

Are people actually deciding which bank to use based on the digital the channel?

Have you seen any of that?

Gerard, it is obviously a very important channel going forward more important than it has been two years ago.

What it is driving is it's driving less and less traffic into the branch.

We see that every day, we measure it every year, year over year, fewer, fewer customers walk into a branch.

So you may have picked up on this when John said about 15 minutes ago that while we're hiring people our total expenses won't rise because we are actually shrinking in the branches.

That's the direct result of the fact that people are using our branches less and using online technology more which is letting us pull some expenses pack on the branch system.

And maybe we will see that even more.

It will not be is surprising to see us with a smaller footprint over the next couple of years as we consolidate some of the branches because of less traffic.

So, other than that we have not put out any metrics as to how many people are online and how many are using bill pay and so on.

But it is in general terms I will say that trend is up in a very strong meaningful way.

And once somebody signs on especially if they sign on and start using something like bill pay online they become a sticky customer.

And so we aggressively pursue people to become bill pay customers and over time we expect that to pay back itself through less use of branches and for us to take expenses out of the branch side.

It's option rate is certainly a lot faster than some of the prior advances in technology like AT 's and internet banking.

This option rate is much quicker than most people expected.

But remember that this is the most of this discussion centers around consumers although our commercial customers are using various forms of technology like remote deposit capture and other things that have made the delivery system to them a lot more efficient than it would have been through the branch system.

And in summary what we're saying here is the branch system is rapidly becoming a very expensive and outmoded means of delivery of services and I think that trend will continue here and throughout the industry and nothing is going stop that.

I think especially since I think this quarter that the millennial population eclipsed the baby boomers.

So those people aren't going to be standing in line at branches any time soon.

Totally agree.

Thank you, guys.

Lana Chan, BMO Capital Markets.

Thank you.

Good morning.

Just wanted to follow up on the decline in the new loan yields of this quarter especially on the multi-family in New York.

Can you talk about what the pricing was in that portfolio and get in the volatility in rates during the quarter have you had to drop to below 3%?

Typically no, the coupon rates on the loans we put out and I don't have the statistics for multi-family alone in front of me right now but the coupon rates that we put on this quarter were actually surprisingly exactly equal to what we put on last quarter.

And they're on average just the slightly lower than the yield on the new loan portfolio as a whole.

So we've seen that pretty much stablize actually Lana in terms of the rates on the business we're putting on.

Yes, it's actually in New York wrap a little bit.

We've not broken three but we've seen plenty of competition who is and that's what I talked about earlier.

Okay.

And my second question was on the tax rate just a little bit lower than what I was expecting in the first quarter.

Leslie, any guidance in terms of go forward on the tax rate?

I think for the year this year it will be between 33% and 34% and a little bit lower in the third quarter because of the planned release systems N48 reserves.

Should it be similar to tax rate in third quarter of last year?

I don't remember what that was?

About 25%.

So I'll stick to between 33% and 34% for the year.

In the third quarter of this year, probably, yes.

Okay.

You know that's when you have --

Yes, probably.

Okay.

Thank you.

Thank you.

I show no further questions on queue at this time.

Good.

So in summary, good quarter.

Growth as we expected.

Margin about where we thought it would be.

Optimistic continue to be very optimistic in both markets for the balance of this year and look forward to talking to you in about 90 days.

Thank you, everybody.

Ladies and gentlemen, thanks for participating in today's conference.

This concludes our program.

You may all disconnect.

Have a wonderful day.