BankUnited Inc (BKU) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the BankUnited, Inc.'s second-quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

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

Good morning. It's my pleasure to introduce our 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, estimates, anticipates or the negative version of those words or other comparable words. Any forward-looking statements contained in this call are based on historical performance of the Company and its subsidiaries or on the Company's current plans, estimates and expectations.

The inclusion of this overlooking 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 assumption proves 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 statements whether as a result of new information, future developments or otherwise.

A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 or at www.SEC.gov.

John?

Good morning, everybody. We've managed to turn in another solid quarter, as you have seen this morning -- almost $57 million, or $0.52 a share at or above most analysts' expectations, compared to $46 million or $0.43 a share for the comparable quarter in the prior year.

Starting through six months, managed about -- almost $112 million at $1.03 a share versus [$93 million] last year. Net interest income continues to grow, increasing about 19% for the six months ended in June as compared to last year.

Earning assets, that is both loans and investments, grew by $1.6 billion in the quarter; $1.2 billion of that was loans. About $400 million of that from Florida -- just shy of $400 million of that from New York and just shy of $400 million came from our national platforms. Deposits -- we had a healthy deposit growth in the quarter of just under $720 million, and deposit growth was spread relatively equally as well between the North and the South.

Despite all of the talk about how deep we are in the economic cycle and all of the things that we were warned about, our asset quality indicators remain very favorable. We have yet to see any signs of credit deterioration or asset quality issues in any of our portfolio segments, with the exception of taxi medallion, which Leslie will talk to you about a little bit later. But we put up some more reserves for that again this quarter.

As we are seeing the financial position of our borrowers coming in strong as they have -- within the first six months of this year, turned in their financial statements expressing their performance for 2015. And that, by the way, is consistent both in Florida and in New York. Noncovered nonperforming loans were just 32 basis points of total assets as of the end of June.

So, very pleased with the quarter. We are very pleased with the general direction as we head into the second half of the year, but we are caused to pay attention to what's going on in the world around us. The operating environment for banks -- is no secret -- is getting tougher and tougher. New regulations and requirements under Dodd-Frank have made it more and more expensive to operate.

Interest rates are at, what, a 230-year low, and we have never been in this territory before. All of these things cause us to sit around and think about the growth trajectory of our Company in the future and where we want to put our money to work.

Regulators have been very public about this subject, and you have heard me say before that we are very sensitive to our relationship with regulators since it is probably the most important thing -- it's probably the most important asset that a bank has today.

We have found, particularly in New York and in the commercial real estate business in Florida as well, a very overzealous competition in the lending side. We told you last quarter that we will continue to grow loans briskly as long as that translates into more profitability, but when we see lending -- the lending environment get crazy, that we wouldn't be afraid to back off. And we are -- that is on the table for us for the second half of this year.

Let me read you something that the Controller just put out there -- the OCC put out their semiannual risk perspective just last week. The Controller said that commercial real estate portfolios have seen rapid growth particularly in small banks. At the end of 2015, 406 banks had CRE portfolios that had grown more than 50% from the prior three years. Of note, more than 180 of these banks have more than doubled their CRE portfolios during the past three years.

This is the operating sentence -- and we are actually seeing this on the ground. At the same time we are seeing this high growth, our exams found looser underwriting standards with less restricted covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and efficient stress testing practices.

The regulators are being very upfront about this -- these are public documents. We're reading about it more and more every day. And so it is causing us to -- we're taking a look at what regulators are saying and we're comparing it to what's actually happening on the ground. And we are most likely going to put our foot off the gas pedal a little bit in the second half with regard to loan growth. We have great expectations for deposit growth in the second half, but we are going to operate with a new level of caution as we go into the balance of the year.

Margins across the industry are strained, competition is fierce, and we don't really need to grow loans as aggressively as we have in the recent past in order to hit our target EPS numbers. We are very pleased with our ability to make this selection. Remember that you've always heard me say -- the extent to which we will grow loans is entirely within our own control, because we have New York, we have Florida, and our five subsidiary companies, all of which provide us with more loan demand than we need.

So is it time when we can get more particular about loans? We are beginning to see -- although it's in the very early stages -- an opportunity to actually increase pricing in some areas as a result of other banks pulling back in these areas as well.

So we should -- I'll let Raj and Leslie talk a little bit more about their sections, and then happy to answer questions about my comments later on in the presentation. Raj?

Thanks, John. Good morning, everyone. As John said, deposits grew $720-odd-million. The deposit growth was nicely spread out between Florida and New York. Florida grew about $421 million; New York grew about $297 million.

The national business line that we talked about last time was indeed launched in, I believe, end of April. The team is onboard. The business infrastructure has been laid down, products are being developed. We have not booked any business yet; it takes a little bit of time to get the right infrastructure in place, which is what we're doing.

This is something we're going to build for the long-term and we will take our time to build it. But we do expect a fairly healthy amount of business to be done in this business line over the course of the second half of this year. So, hopefully, we will have numbers to talk about next time when we talk to you.

Loan to deposit ratio stands at right about 100%. As we have said in the past, our business plan shows us going a tad over 100%, and we're comfortable with that. Ideally, we would love to stay under 100%, but if we get to a 105% -- 110%, that's okay. But we are focusing more and more on deposit growth.

As John said, as we get more cautious with loans -- given these statements coming from the regulators and just the general volatility in the economic -- you know, with all the economic uncertainty we've had, we're focusing more on deposit growth. Deposit growth of $700 million or so this quarter versus $1.2 billion of loans, ideally, we would like to bring the deposit growth up closer to our loan growth.

Deposit pricing remains competitive, especially in Florida; cost of deposits is at 66 basis points for this quarter compared to 63 basis points. The cost to fund that -- we do expect out of our national business line should be lower, but we -- like I said, it's something we will be able to bring to you over the course of the next couple of quarters.

The -- normally, I talk about the taxi business. I'm actually going to have Leslie talk about that when presenting her section. But the highlight is nothing new to talk about; a little more reserves, a slightly smaller portfolio as amortization occurs, but no new news over there either.

I want to take a second to quickly talk about the national businesses that we have other than the deposit business. Clinical now stands -- which is our -- clinical is our municipal finance business, leasing business. It stands at $1.2 billion today. Bridge -- the small corporate finance business we have, is about $450 million. And the transportation equipment finance business also under Bridge is at $970 million, which includes about $480 million in operating leases.

We've had some management changes we've made recently at Bridge. And we're very excited about the future growth that we expect in that business.

The warehouse business, which is now a little over two years old, finally is coming together very nicely. We grew that business -- outstandings are at about $280 million this quarter. I think they were at about $100 million last quarter, so we've had some nice growth in that business.

The SPA business, which is our most recent add to our national portfolio, and been part of the BankUnited family for a little more than a year -- we're expecting about $220 million of volume in that business this year. Again, it's been with us for a year; we tend not to grow things very quickly right out of the box. We like to be in the business for a year or two before we really grow.

But the plan is, over time, as we get more comfortable as we go through an examination cycle or two, we will then grow that business as well. But it's doing very well. It's up from what it was doing when we bought it, and we will continue to hire BDOs and grow that business nicely over time.

On the M&A front really quick -- not much to talk about. M&A business, as you know, is a nice-to-have for us, not a need-to-have. While we look at a number of things, we are very selective in what we want to buy, and we are in no rush to get to [$50 million].

So, with that I will actually turn it over to Leslie, and she can talk a little more about the numbers.

Great. Good morning, everybody. As John said, solid quarter from an earnings perspective. We continue to see growth in net interest income with an increase of $33 million compared to the second quarter of 2015. As expected in this rate environment, pressure on NIM continues. NIM declined to 3.75% this quarter from 3.83% for the immediately preceding quarter and 3.95% for the comparable quarter of 2015. Nothing unexpected about that; again, primarily due to the continued increase in new loans as a percentage of the total portfolio as well as the cost of the senior debt that we issued late last year.

Yields on new loans is holding relatively stable in the mid-3's. The cost of interest-bearing liabilities ticked down slightly to 93 basis points this quarter from 95 for the immediately proceeding quarter. The driver of the increase in this over the 82 basis points we saw for the prior year is primarily, again, the senior notes that we issued late last year.

For vision this quarter, up to $14.3 million compared to $3.7 million for the immediately preceding quarter. And the increase is primarily related to higher loan growth for the quarter. We also added about $3.5 million to the reserve for taxi medallion loans.

Give you a little more color around the taxi portfolio, as Raj said, the total exposure now stands at around $200 million, down from $205 million at 3/31. I remind you that that represents just over 1% of loans and less than 1% of our total assets, and also remind you that about 95% of that portfolio is in New York.

As expected, we are continuing to modify these loans. To date, about $29 million is taxi medallion loans that have been modified in TDRs, and about $11 million of that was done in the second quarter. Overall, there hasn't been much change in credit quality indicators for the portfolio in terms of DSC and LTB from what we've spoken to you about before.

We saw a little further migration to the substandard category this quarter, but that was related primarily to a couple of larger relationships. Delinquencies are now up at $16.5 million compared to $13.3 million at 3/31, and our reserve is up to just over 7%, and it was sitting at just over 5% at 3/31. And that increase really corresponds to the uptick in substandard and delinquent loans.

Other than taxi, we aren't seeing any deteriorating trends in credit quality. Overall, as expected, we have seen very little variability in the ALLL as a percentage of loans. And we don't expect that to change materially in the near-term.

With regard to capital, as we've previously said, as the balance sheet grows, we will eventually find ourselves needing to augment capital. In terms of timing, we're going to be watching our pace of growth, the market, what's going on in the economy, what's going on in the political world, and we'll do something when the time is right, trying to balance all of those factors. We really haven't circled a specific date on the calendar yet.

Looking forward to the rest of 2016, we expect continued NIMs compression. On the last call, I think we guided to a range of 3.6% to 3.8% for the full year. And given where we see the yield curve today and what we see happening there, probably be towards the lower end of that range.

Continue to predict noninterest expense growth, excluding the FDIC asset amortization in the high-single digits. As I said, not seeing anything that would lead us to predict material changes in the level of the ALLL as a percentage of loans or in the level of nonperforming assets. Even with somewhat lower growth projections, as John alluded to, we still anticipate increasing EPS in the back half of 2016, and we're not worried about our EPS estimates for this year.

That's all I've got. I'll turn it back over to John. Any --?

Leslie, I just want to clarify.

Yes.

When we say capital, we're still talking debt capital.

Absolutely. Yes. Good point, Raj.

You have -- that summarizes our comments. Let's take questions.

Operator?

(Operator Instructions) Brady Gailey, KBW.

So, John, your comments about taking your foot off the accelerator from a loan growth point of view -- in the past, you all have guided to this $4 billion to $5 billion number this year. Is that -- are you lowering that guidance at all?

It will be less than we originally thought earlier in the year. We are purposefully getting fussier about loans. We're see opportunities -- look, we are watching everything. We're watching the political situation, we're watching the Fed. We are trying to gauge when and if the Fed will raise interest rates. We are watching the behavior of our competitors.

And we're just not willing, Brady, to meet some of the terms and conditions that some banks are willing to lend money out at today. So we will cut back from the $4 billion to $5 billion. But remember that was a 30% increase in loan growth for the year -- give or take -- 29%, something like that. We're not going to do 30%. We are going to do less than 30%.

But you heard what both Leslie and Raj said -- we don't anticipate backing off so much that it will have an impact on our EPS. Okay. That's another way of saying, at these levels, those aren't very profitable any more. And so we're being very careful.

And to be frank with you, maybe I'm getting old and conservative, but you have to be a fool not to listen to what the regulators are saying, particularly when they are saying it as long as they are and as loud as they are. One could argue that they are wrong. Regulators believe that we are deep into a credit cycle and that there is, in fact, a bubble forming, particularly like they're talking about commercial real estate.

I hope they're wrong. I think they're wrong, by the way, but we don't know. (laughter) I mean, none of us are clairvoyant and we don't know what's going to happen in the future. So it's a good time to be cautious. It's -- we don't need to be overly aggressive between here and Christmas, and so we're going to be cautious.

Okay. Yes, that makes sense. Then, from a CRE to capital point of view, I know you all were kind of approaching the 300% level. What is that ratio updated for 2Q?

In 2Q, it's still at 300%, I think.

Yes.

Yes. But remember, as we reminded you last time, we have a business plan in front of the regulators that provides for us to go and do over 300%. We have not -- it's impossible to tell whether we will, depending upon what we do in the second half of the year. But I mean, if we do go over, it's going to be basis points. It's not -- you know, we're not going from 300% to 600% or something. So, it's not something we are particularly focused on at the moment.

All right. And then last question for me. John, you've mentioned how the operating environment keeps getting tougher and tougher. We know you've thought about selling the Company before. How do you think about selling BankUnited versus remaining independent?

Bring me a $50 offer, Brady, and we'll talk about it. (laughter) Look, we -- that issue before when investment bankers got out in front of us when we were still owned by private equity, is old news and was not us trying to go out and sell the Company.

Our view towards selling this Company or using it to buy another company, or merging it with something of similar size, is the same as every thinking CEO who is running a bank this size is -- we look for opportunities to improve shareholder value. And we have said before that can come in any form.

We're not going to hang a sign on the place; some people, by the way, have. Some banks are quite aggressively for sale these days. We think that we occupy some of the most valuable real estate in the United States, and our growth prospects for the future are better than most. So it's not our first choice, but we are open to any and every way that we can improve shareholder returns.

Ebrahim Poonawala, Bank of America Merrill Lynch.

So I guess just switching gears to expenses, I was wondering if, John or Raj, I mean, I think if you can talk about in terms of sort of the opportunity in terms of having operating leverage, and what -- given sort of your outlook on growth and probably rates staying lower for longer, where can, like, realistically the efficiency ratio head over the next three to four quarters?

So, I think the efficiency ratio, obviously to your point, is a product of revenue as much as it is a product of expenses. So it's going to be influenced by what happens with rates. I think we will see, if we look at expenses as a percentage of (technical difficulty) assets, I think we'll see that coming down, which may be a better barometer of what's really happening on the expense line. But as I said, we are still looking at high-single digit operating expense increase for this year's compared to last year.

As far as revenue is concerned, (multiple speakers) we're not backing off saying we are not going to grow --

Right.

-- we're a growth company; we will still grow. I think I will repeat what John said -- that 30% level growth, while that may not be what happens in the second half, but it will still be a very healthy growth number. We are still talking about growing the balance sheet; it's just that we are trying to be more selective.

Because at the end of the day, while loan growth has been a proxy for value creation, I think a better metric is eventually earnings growth. And we're getting more and more focused on everything that drives earnings -- long-term's earnings growth, EPS growth -- whether it's deposits, whether it's expenses, whether it's loan growth.

Securities portfolios. Securities portfolios have grown, what, Leslie? About $1 billion? Or a little less than $1 billion this quarter -- or this year?

Yes.

That also generates revenue growth.

And a lot of liquidity as well.

And a lot of liquidity too. And it's not like we're extending the portfolio; we're still keeping it short. So we're looking at multiple levers of growth fundamentally here.

As you shorten the securities portfolio, like --

Yes. This quarter, we actually shortened duration and increased yield somewhat on --

You know, in the last few weeks, you've heard a lot -- the last few days you've heard a lot of people talking about expense control. If you're running a bank in markets where there's no growth and no growth opportunity in the future, and margins aren't going to improve and regulatory costs are going to continue, then you can talk about aggressively controlling expenses.

We're not there. As a growing company, while it may grow slower over the next couple of quarters than you're used to seeing, we are not giving up on growth certainly in this Company. And I had to laugh at some of the comments that CEOs made this quarter -- Richard Davis for one, who described that he's hanging on by his fingernails waiting for things to change. Aren't we all?

I mean we're waiting for rates to improve; we're waiting for better margins; we're waiting for a more robust economy. We're waiting for lots of things that have not yet materialized, but they could be game-changers if they come particularly early on in the cycle.

Understood. And Leslie, if I heard you correctly, you did say you still expect you guys will meet The Street estimate, which was about $2.14 ahead of the quarter?

What I said -- I mean, I -- we've never put out point-specific EPS guidance, and I'm not going to start now. But I don't think that estimate is unreasonable.

Yes. We're not worried about that.

We're not worried about -- we, internally, what we're saying is that even running down loan growth for the second half to a lower level is -- earnings will come in about where we thought they were going to come in.

Yes.

Well, if I can sort of tag in one more just in terms of M&A, as a buyer, I know the seller is the same, but Raj, you said -- I mean, you look to be selective; you have been very selective so far. What would make sense for you? Is it more in terms of an asset portfolio acquisition, a non-bank financial? Or would a depository deal actually make sense?

It's hard to see a depository making sense for us, because almost anything we look at on the depository side will bring us very close, if not over, [$50 billion], and we are in no rush to get to being [a semi].

But what has made sense in the past, and will probably make sense in the future, are these ad hoc deals, add-ons to our business lines, where we buy something small which has the characteristics of a business that we like that we can grow safely and soundly. And we continue to look in that space.

I don't see us buying a big portfolio of loans coming out of a bigger financial institution which may be shedding them. Instead I look to small platforms, small businesses, small teams of people who are highly motivated and good at what they do, and can come on with $200 million or $300 million, and one day become four or five, 10 times the size of that. That's the typical M&A model we've used, and used quite successfully over the years.

Understood. Thanks for taking my questions.

Stephen Scouten, Sandler O'Neill.

A question for you all on the securities yield. I know you just mentioned you took down the duration, but still saw an increase in the yields. Is there anything new that you guys are doing there? Or any changes in strategies that allowed for that dynamic to occur?

No. (multiple speakers) It's just opportunities we were able to find. We are very focused on liquidity in that portfolio. We did add some to our liquidity portfolio. Just able to optimize the mix a little bit this quarter.

It's been a very -- in the fixed income market, as you know. First quarter was China, second quarter was Brexit. And who knows what will happen in the future. But volatility in the fixed income market creates opportunities and we monitor them very closely. But there's new asset class, no new securities. Everything that we've purchased has been stuff that we've always been buying.

Yes. No change in strategy.

Okay. And as it pertains to the growth rate for the year, obviously, I know you said it's going to be potentially lower than the $4.5 billion to $5 billion or what have you, and you're tracking year-to-date maybe at about $3.4 billion in growth, is that a pretty good proxy kind of what the year-to-date growth has been? Or I mean, could it be even slower than what you've seen on a year-to-date basis?

It's too early to say. I mean, I don't expect it's going to be slower than that, but it is too early to put a number on this thing. We -- as I said, it's completely within our control. We're also looking at deposit growth. We expect robust deposit growth for the balance of the year, and we are watching both sides of the balance sheet here as we grow.

Okay. And then just lastly, as it pertains to your relationship with regulators that you spoke to and just kind of their area of focus, anything in particular that they, in your discussions with them, feel more concerned about? And specifically, I've heard from some banks that maybe there's a 17-ish-percent threshold on multifamily that they're looking to, and obviously you guys are above that. So any specific areas of concern or, in particular, any comments on multifamily exposure?

No, the only thing that we hear from the regulators both publicly and privately is this target range -- this 300% thing that many banks are operating significantly higher than, and we're still -- Leslie just stuck a note in front of me -- we're at 287%, I guess. No. There's nothing else magic here and no other conversations about anything else.

What they've said to us, Stephen, is very consistent with what they've said before.

It's -- right. Our private conversations mirror almost exactly what the Controller is saying publicly.

Perfect. Thanks so much, guys. I appreciate it.

Yes.

Dave Rochester, Deutsche Bank.

So just to try to understand where you think loan growth can go -- I know you said it's too soon to put a real range on it, but if you could just maybe give us some color on what the loan pipeline looks heading into this quarter in the 3Q versus how it looked heading into 2Q, that might be helpful.

Yes. We have -- I'll repeat -- nobody is going to be satisfied with these answers because a lot of people equate loan growth with the profitability growth, which is not necessarily the case.

We have the potential for a very robust pipeline everywhere. We are going to be more selective this quarter and next quarter, at least as -- at least for the rest of 2016, as we watch what happens here.

So, we are watching our competitors. We're -- for people who are loan growth junkies and don't like the fact that our loan growth slows down even if our profitability doesn't, I would offer this -- our job here is to preserve and create value over the very long-term, not one quarter at a time.

And so we are in volatile economic times where regulators are sounding the alarm to the entire industry. And we don't want to ignore them. And so I think that -- I think the people who ignore what the regulators are saying publicly here, do it at their own peril.

Okay. So, it sounds like the loan growth could be whatever you want. You're going to be more selective.

That's another way to say it -- that's right. (laughter) It could be whatever we want.

That's right.

And now I guess, given the increased regulatory scrutiny you talked about -- you know, we've heard and we're hearing from you today, and we've heard from other banks -- that they've seen some banks already pulled to the sideline. They've seen underwriting standards tighten. They've seen shortening of I/O periods, LTV's downticking a little hit; exit tests on loans sitting tighter.

And so it just -- it seems like the market is becoming more rational. At least that's what we're hearing, because the scrutiny has been in the market for the last -- call it six to nine months. Wouldn't that make it easier for you guys to find opportunities that are more palatable for you from an underwriting standpoint?

That is precisely what we're seeing. We think that over the next six months or so, we are going to see other banks react to this -- some who maybe pull back even more. And we think that there might be better opportunity to make loans six months from now than there is today. That is, i.e., higher rates, better terms and conditions, and loan qualities that are more consistent with what we've seen in the past. So what we're saying is, we are going to step back from the front line here and I think that we'll do better as this issue unfolds.

Now just to be clear, the regulators haven't indicated to you that you need to slow growth in those areas -- is that right?

No, we are still way under 300% -- we're still under 300%.

Got you. And I know you were doing a lot of prep work this quarter, just to make sure you could cross through that 300%. Is all the expense associated with that, which sounded like it was pretty minimal, in the run rate at this point? And are you effectively ready to cross through that if you need to or you want to?

We've done -- we believe we've done all the work necessary to cross. We haven't -- and as I said, the business plan that is in front of the regulators earlier in the year, provided that we would cross 300%. But let me say I'm not sure we will.

Okay. And then are you comfortable with the EPS -- the consensus EPS for the year? Because you are going to make up for the slower loan growth and stronger securities growth? Is that how you are going to make up for it?

It's not that we're going to fill the loan bucket with bonds dollar for dollar; that's not how we're thinking about it. As John said earlier, given the skinny margins on these loans and provisioning you have to do and whatnot, a little bit slower loan growth doesn't have a material impact on our earnings expectations for the rest of this year. So again I'm not going to put a point estimate out there in terms of forward guidance about EPS, but I don't think the estimate that's out there right now is unreasonable.

And with the slower growth you are talking about on the loan side, does that mean that your capital need at the end of this year might actually be a little bit smaller?

It's a possibility. As I said earlier, we're going to continue to evaluate that -- probably on a daily basis, frankly, to be honest with you, as time goes forward. And given the trajectory of growth and what we see in the markets, we will go when the time is right. But that's certainly possible; yes.

Okay. Great. Thanks, guys.

Jared Shaw, Wells Fargo.

This is actually Timur Braziler filling in for Jared. Most of my questions have been answered, but I think you had said during the call that there's actually a couple of geographies where you are actually able to increase the yield you are getting on some lending categories. Can you maybe elaborate a little bit on that, which geographies is specific? And is there opportunity to enter new geographies where you currently don't do business?

I don't think I said that. (laughter) If I did, I misspoke. No.

I thought as others are pulling back, there's other opportunities to enter markets, what I got from you?

What we're saying in general and in the future, we think that there will be better loan opportunities as other banks tighten up their quality standards.

Okay. And then as we look at the multifamily category in the first six months of the year, is that directly related to this new commentary on paring back because of the competitive pressures?

Oh, you mean is it reflected in the second quarter? No, not really. I mean, we had very good multifamily loan growth in the second quarter.

Yes.

It's -- I mean, we've started to think about this earlier in the year, and we said to you last quarter -- at the end of last quarter -- that we could very well slow down loan growth if we determined that it doesn't add to profitability or that we have to drop our quality standards so low that we're uncomfortable making those loans. And that's -- so what we're saying is we haven't -- that's not in the numbers yet, but you should expect to see that in the second half.

Okay. Great. And then one last one. Maybe just talk a little bit about the lending environment in Southern Florida and how that's changed over the past few months?

Actually nothing much has changed in the lending environment. If you're asking about asset quality, we're very pleased with asset quality in South Florida. There's been some publicity about an oversupply of high-end condos on the beach in Miami. We're not in that business, although it certainly impacts the overall economy down there.

But the overall economy in South Florida is booming, and there are no signs of weaknesses, other than that one, that anybody is talking about down there. And we're seeing more loan demand and more robust deposit growth than we've seen in a while down there.

Great. Thank you.

Ken Zerbe, Morgan Stanley.

First question -- just in terms of the margin, I get that your guidance is now at the lower end, so call it 3.6% roughly for the full year. But just given it's been so strong for the first half of the year -- presumably due to all the FDIC noise -- how does it fall so much in second half? Like, well, is it just -- is there something with (multiple speakers) -- go ahead.

Yes. It's two things, Ken. And hopefully, I'm wrong about that, but -- (laughter) and it will come in better, but that's what it looks like right now. It is continued run-off of the FDIC asset, obviously. And also, just we've seen a lot of flattening of the curve and we've built that into our projections. So --.

And that applies to your existing portfolio or -- I mean, the core portfolio, that that's the (multiple speakers) --?

(multiple speakers) -- has more of an effect on what we're putting on the balance sheet than it does on what's already there, other than if long-term rates -- you know, if rates don't go up, the existing stuff won't reprice up. But that obviously has more of an impact on the new assets we're putting on the portfolio than it does on the existing portfolio. But it's a combination of the flattening curve, and less probability of an increase in rates and the run-off of the FDIC. That is all of those things working together.

Got it. Okay. And then tax rate, is it -- obviously, it's been high for two quarters. Do you expect it to remain at the current level? Or trail lower?

It's in the 33's this quarter, somewhere 30-something, and I think it will stay around that range for the foreseeable future.

Got it. Okay. Thank you.

David Eads, UBS.

Just to confirm on that last point on the NIM, the NIM at the acquired portfolio is running at about 2.5% here recently. Is that what you -- do you expect to see more pressure from there? Or do you think the kind of puts and takes kind of leave you at about the same spot there?

Well, I mean we don't put estimates of what the NIM is out by portfolio, so that's your estimate; that's fine. But again, we had guided last quarter to a range of 3.6% to 3.8%. Now I think, given where the yield curve is, we are probably going to be more towards the lower end of that range. I still think we'll be within that range that we guided to, but more towards the lower end. And it's a function of -- the change in my guidance from last quarter is a function of the yield curve.

All right. And just to confirm some of the color you guys have given about the competitive environment, is the view that there's a difference that maybe Florida might be more -- getting more on the aggressive side of things than New York on the multifamily?

Absolutely not, no. No. (multiple speakers) If anything, maybe the opposite.

Okay. And then maybe -- I hate to kind of beat the horse about the consensus being reasonable, but I would think the slower loan is going to have a greater impact on the 2017 outlook, and there, I think consensus is looking for kind of mid-to-upper-single -- or sorry, mid-to-upper-teens earnings growth at this point. Is that where there might be a little bit of a trailing off of the growth rate as a result of this slowdown in loan growth?

Too early to say. We're -- as I said earlier, we're watching deposit growth as well. If deposit growth remains robust, what I said about the next two quarters doesn't necessarily apply to the entire year next year. So we don't know what's going to happen with rates, we don't know what's going to happen with the whole economic cycle between now and then. So it's too early to say.

All right. Thanks.

Joe Fenech, Hovde Group.

I know you said M&A was more nice-to-have, not a need-to-have, Raj, but does that change at all in light of the comments on the loan growth? Does M&A take one more prominence in the strategic planning if your concerns about loan growth extend into next year?

No, it does not. If we were a company that was not growing or shrinking or stagnating, then yes. But we're still talking about being a very fast growing bank compared to our peers. We're talking about struggling back loan growth just a tad, given the conditions that we're seeing in the market and the sentiment we're hearing publicly from regulators about the state of CRE.

That's all this is. It does not really change the fundamental strategy of the Company. We will still grow and we will probably still grow faster than most banks out there. And we will still create operating leverage, and we will be more focused on the bottom line.

Okay. And just to put a final point on it -- NIM towards the bottom end of the range, loan growth below the current consensus forecast -- you know, you say you're not worried about estimates for the year. I know you touched on the investment book and some possibilities there, but just struggling to see how you get there. Is there something else we're not thinking about that gets better to make up for the shortfall in the areas you mentioned?

I mean I think that's it. We're still talking very healthy earning asset growth for the year. We're still talking positive operating leverage, and I think it will get us there.

Okay. And then last one for me. Just, John, given your comments on loan growth, I guess sitting in our seat, would you be concerned about others that operate in your markets that stick to their loan growth projections amidst these comments from the regulators? In other words, do you think we're going to see this type of commentary without exception across the spectrum of banks that are either approaching or over the 300% threshold?

I don't want to fall into that trap, but we are all reading the same thing and we are all regulated by the same regulators. I mean, some are OCC banks, some are Fed banks, but -- and I think I said to you last time that we saw that the OCC was generally holding their banks to a higher standard than the Fed banks and the FDIC banks.

I believe that has now changed. And I think that the Fed banks are being held to a standard that is at least similar to, if not the same, as the OCC banks. So I don't know what they're all going to do, but I think it's a fool's game to ignore what regulators are saying at a time like this. And, as I said before, you do it at your own risk.

Okay. Thanks.

Brian Horey, Aurelian.

Thanks for taking my question. Leslie, I think last quarter, you said that you had a 10% reserve on the TDRs in the taxi portfolio. Has that changed at all this quarter?

I don't think the number on the TDRs specifically has changed materially, no. The total reserve did go up a little bit because we did have some additional TDRs in a couple of loans migrate on the risk rating spectrum. But I don't think the reserve on the TDRs has changed materially as a percentage.

Okay. And are any of the -- is any part of the taxi book in the doubtful category at this point?

No.

No.

Okay. Thanks very much.

Remember that we don't have any -- we don't have the Chicago loans. We have almost exclusively New York loans, and they have proven to perform much differently.

Okay. Thank you.

Lana Chan, BMO Capital Markets.

Just a follow-up on the margin in terms of the components. The -- what was the new loan pricing -- or the existing loan pricing on multifamily in the New York market in the second quarter?

It really hasn't changed, Lana. We have not seen any real variability in pricing recently at all. So, that's still probably a [3.25%] market on average and --.

What we're saying is we think that we will get better pricing there in the future but not now.

Okay. And on the deposit side, it seems like your cost of deposits have moved up a bit over the last six months year-over-year. Are you expecting further creep-up of that, given your comments about better deposit growth in the back half of the year?

Depends on where the deposits come from, Lana. Generally speaking, the consumer deposits in Florida are more expensive than in New York. If the new private banking teams in New York do what we expect they are going to do in the next six quarters, then there's a real possibility that deposit costs will come down. But we can't prove that until they actually deliver. All indications are that they are going to have a material impact on deposit pricing on the deposit side, but that remains to be seen.

Okay. And just one more question on the taxi. Was there any change in terms of your methodology on cash flow modeling on the taxi portfolio this quarter for the DFAST stress test?

No.

No. No change. And actually we expect new data to be released by the TLC for the first six months of 2016 probably before the end of next quarter, and we will take a fresh look. But nothing has changed about our methodology.

Okay. And sorry just one last question. On the provision going forward, any guidance on that in terms of relative to the second quarter?

I don't think any -- I don't think you'll see any material change in ALLL as a percentage of loans provisioning. We expect to relate primarily to the pace of growth, so we'll provide for new growth.

Okay. Thank you.

When the growth slows, the (inaudible).

Okay.

Gerard Cassidy, RBC.

In regards to your comments on the underwriting standards in the markets in New York and Florida, et cetera, how is it, at the national level, your businesses that you are growing at that -- in those areas, how are the competitive forces with your -- in those businesses?

I think Raj could probably answer that one.

Yes. I would say that things are better on the national front. From time to time, we also will see some irrational behavior from a competitor or two, but it's usually short-lived. And it gets back to rational behavior very quickly. So, in the taxi business, for example, we did see some -- not from a credit point of view, but from a pricing point of view -- some bizarre behavior in -- I think it was the month of May.

So for a month, we were losing every deal because we were losing it by [aging] taxi. (multiple speakers) We were losing every deal and there was irrationality on the pricing front for a month or a month and a half. And then it went away, and we're back and things are just fine now.

So from time to time, we will see that. I would call it credit irrationality or I would call it pricing irrationality, but it's less so in the national space than it is in New York and Florida.

And regarding your national businesses, could you rank them just in order of where you see the best opportunity for growth? Is it the mortgage warehouse business versus the municipal business, et cetera?

They are in different phases of their evolution. The municipal finance business, which is at $1.2 billion today, is now almost six years old. So, it's in a different point of where it is coming from, right?

Mortgage warehouse, just -- about two years old, and it's really just started growing this year. So, on a percentage basis, you will probably see -- you know, you are seeing much higher growth there, but because it's just brand new. Pinnacle, which is the oldest, is growing, dollarwise, probably the most, but on a percentage basis, the least. So we don't try -- it really is a hard one to call out, Gerard, because it does vary quite a bit from quarter to quarter.

And then on the mortgage warehouse business, Raj, as you take more market share as you become a bigger player, how much of an influence is the pickup in refi activity, assuming it continues? Or -- I think mortgage originations came out and they're up 16% year-over-year in the applications. Is that very important as part of that business? Or somewhat important?

Yes, it is. It is important. It certainly is a tailwind that helps us. There are other factors also that we have to be very careful about. There's a lot of regulation that is changing in the mortgage space, especially as it has to do with disclosures, and so there are some headwinds. But there is also the benefit of a refi boom that we are going through, which is a nice tailwind.

So, overall, the business is healthy. Mortgage warehouse is a good space; we like the business. We've been deliberately very slow in launching it and growing it in the first couple of years, but we feel comfortable where we are now willing to grow it. Again, don't expect anything crazy out of it, but a nice steady growth from here on.

Great. Thank you.

Our final question comes from Steven Alexopoulos with JPMorgan. Your line is open.

Not to beat a dead horse, because I know everybody has been asking you, but the more you answer the questions on what type of loan growth, the more questions I'm getting on it. So what I'm trying to understand is, the update of you on loan growth. And as long as I've covered the industry, it's basically always been hyper-competitive. And, John, as long as I've known you, you've always been skeptical of what other banks were doing. What's changing here to drive the reduced appetite for loan growth?

Well, Steve, two things, principally. The relative profitability of loans at this level, when competitors are being irrational about terms and conditions and pricing, and that's -- I'm not sure what that's reflective of, other than the fact that the market is paying for loan growth in all banks. So some banks are very aggressive about lending, and they are willing to put on loan growth at all costs -- we're not.

And sort of secondarily over our shoulder is this idea that the regulators are concerned about the rapid buildup of loan growth in the industry in general. And I think we would be fools to ignore the signal coming through them.

So, look, if we were to -- at whatever we grow between now and Christmas, we will be a -- we will be one of the standout growth stories of all mid-cap banks in the United States. So, don't take from this conversation the idea that we're going to stop growing. Take from this conversation that we are trying to be circumspect here. We are trying to be intelligent. We're looking at all the forces that come to bear on us in our balance sheet, and we're stepping back and saying, you are paying us to create value long-term. And sometimes that means modifying your behavior.

And so when it's -- when you are not getting paid to take a risk, you were a fool to take a risk -- because there's a -- in our family, there's an expression that is usually said in German, and I can't repeat it because it's in German -- it says that it's nice to dance but sometimes nice to sit down. We're not going to sit down, but we're not going to dance every dance between now and January 1st.

And we're going -- we expect -- I expect -- I may be wrong, but I expect that the environment and the relative profitability of making loans is going to get better over the next six months. And for loans that we might make at a certain rate today, we could get a higher rate if we wait a while. And so, we think we'd be fools not to do that. And we don't need to do that in order to keep up our growth trajectory of earnings and any of the other metrics that we measure ourselves against.

Okay. And regarding the New York City commercial real estate, following up on your point that the FDIC banks might be held to the same standard as the OCC banks, I would think that would be a positive for you guys. Is that what you are referring to? Okay.

Absolutely. Because the idea that the other banks have been held to a lower standard has only very recently changed. And so we think that there will be impact from that that we'll feel over the next few months.

Okay. And then finally, regarding the 300% concentration threshold, even though growth might be slower, do you still think it's likely that you do cross that this year?

It's going to be right on the cusp, I think. Yes -- maybe not by a lot.

Okay. Okay. I appreciate the follow-ups. Thanks, guys.

And that concludes the Q&A session. I will now turn the call back over to John Kanas for closing remarks.

Look, everybody on this call including me wishes that we could report on different market conditions than exist today. Interest rates are near zero; the economy is in the seventh or eighth year of expansion. There is political uncertainty everywhere, both in this country and outside of this country. And so risks exist that we have to take into consideration when we're managing this Company.

And we are managing this company for the long-term for safety and soundness and profitability. And so it is incumbent upon it -- look, some of you are going to run out of the room and say, I don't know, it's not going to grow as fast, I don't want to own stock any more. Okay, fine. You'll be back, by the way.

Because we expect that by being -- by holding to a higher standard, eventually we will be paid a bigger dividend. And so, don't write us off in terms of a growth company, but we are not going to lead the way into uncharted waters.

Anybody else have anything to say? Okay. Thanks, everybody. Appreciate it.

Thanks.

Thank you, ladies and gentlemen. That does conclude today's call conference. You may all disconnect, and everyone have a great day.