BankUnited Inc (BKU) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the BankUnited, Inc.

2017 First Quarter Earnings Conference Call.

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

I would now like to introduce your host for today's conference, Mary Harris, Senior Vice President of Marketing and Public Relations.

You may begin.

Good morning, and welcome.

It's my pleasure to introduce our President and CEO, Raj Singh.

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 reflect the company's current views with respect to, among other things, future events and financial performance.

The company generally identifies forward-looking statements by 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 a historical performance of the company and its subsidiaries or on the company's current plans, estimates and expectations.

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

Such forward-looking statements are subject to various risks and uncertainties, 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 prove to be incorrect, the company's actual results may vary materially from those indicated in these statements.

These factors should not be construed as exhaustive.

The company does not undertake any obligation to publicly update or review any forward-looking 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, 2016, available at the SEC's website, sec.gov.

Raj?

Thanks, Mary.

Welcome, everyone.

Thank you for joining us on our first quarter earnings call.

We're very happy to announce a net income of $62.3 million, $0.57 a share.

This compares to just a little under $55 million or $0.51 a share we had at this time last year.

That, I think, comes to about 13%, 13.5% earnings growth; not bad in this environment.

Net interest income increased the same 12-month period, it went up by $24 million.

And if you just look at it from last quarter to this quarter, it was up a little more than $3 million.

For the first time in quite some time, we're actually reporting a NIM that went up from [ 3.67% ] to 3.70% on a quarter-over-quarter basis.

As you know, we have always been fighting the headwinds of loss share, which loss share has been a wonderful asset to have, but as it runs off, it creates a lot of pressure on our NIM, which is something which is unique to us and not shared amongst our peers, and so it's always good to see one of those headwinds subside, but also just the core business getting more profitable for a number of reasons and margin to move up even though it's only 3 basis points but something to take -- to pause and celebrate.

And lastly, we'll give you more in terms of projections for NIM for the rest of the year to give you guidance.

On the credit front, our challenges remain the same, which is taxi.

Our taxi portfolio has declined, and we continue to build reserves over there.

But outside of taxi, our credit trends are very strong.

Our nonperforming loan ratio is at 69 basis points.

I think 31 of those 69 basis points are attributable to taxi.

Our provision for this quarter was $12 million, of which $9.5 million was directly related to the taxi portfolio.

Just switching gears here, talking about the balance sheet.

This was a slower growth quarter for us than would be -- are generally delivered, and I'll walk through that.

Deposit growth came in at $433 million.

The weakness was on the loan side.

Loans and leases grew by $121 million.

And what I take a minute to describe what constitutes that low growth -- and there are 2 or 3 distinct factors.

One, it's sort of now in stories about 9 months old, which is, we have been slowing our exposure to CRE, mostly because of what we're hearing from the OCC and their concern with commercial real estate as an asset class across the board, and when you're primarily regulator's concerned about asset class, you should be concerned about it as well.

We did slow down CRE even more.

I think this is the first time ever we had a declining quarter in CRE, most of that came in New York.

Florida actually grew a little bit, but overall, we actually shrunk our CRE portfolio for the first time.

The second is actually a new item, mortgage warehouse lending, which is one of our newer subs or national business, not a sub, it's a national business.

There, while we continue to grow that business, it's a very seasonal business.

And first quarter, that business -- the utilization in those warehouse lines take a pretty dramatic dip.

It happened last year as well, but last year the business was so small that it didn't really register at the top of the house.

But now that the business has grown, we had $121 million drop in outstandings, even though commitments grew by almost $100 million.

I think the commitments were up $95 million, but outstandings were down $121 million.

Now as we go into second and third quarter when this business comes back on, we expect that trend to reverse and actually go beyond just $121 million, that it has declined.

We continue to be very excited about the business, we're growing it.

Commitments are being put on even as we speak.

We have, from what I understand, $100 million in closing just tomorrow scheduled for this quarter.

Tax exempt lending, as we talked at the last earnings call, has been in low gear simply because of uncertainty around corporate tax reform, and we've been taking it slow.

That impacts a little bit of lending in New York, where we do some [ taxi ] business, and it impacts all of Pinnacle which is our municipal finance subsidiary in Scottsdale.

So those businesses were flat, maybe grew a little bit but not nearly as much as we have done in the past.

And C&I, again, there's no -- the C&I is a cyclical business.

C&I is now becoming our largest business line just like CRE used to be.

And C&I tends to be cyclical.

First quarter is always the slowest because a lot of that underwriting is dependent upon getting financial statements for the previous year which don't usually come in that early in the year.

In fact, I had somebody look at C&I lending, what it did for us this quarter last year.

I think we were down almost $100 million first quarter of '16.

This time, we're flat, and we're seeing a pretty decent pipeline for the remainder of the year.

Quickly jumping to growth expectations because that's sort of the obvious question, which I know will be the first one that comes up.

What I would say, loans and deposit pipelines are strong.

It's too early in the year for us to revise the guidance that we gave you 3 months ago, so we're going to say stand with it.

We expect strong growth in C&I into second and third quarter.

We expect strong growth in mortgage warehouse lending.

Even tax exempt lending, we see that coming back, though not quite as strong as previous years, but it will come back, it will be better than the last couple of quarters.

CRE should be flat going into the second quarter, maybe up modestly but not a lot.

The growth from CRE will be more back ended and will be in third and fourth quarter based on the pipeline that we see.

And I also want to -- before I pass this over to Tom.

I just want to say we continue to -- our growth for loans or deposits it really is dependent on hiring more people, hiring more producers and teams.

And we are actively doing that, we don't make a big fuss about it, but we quietly keep adding.

Just yesterday, we've added a team in C&I in New York in the Westchester area.

We're adding people in the deposits team in New York.

We've added -- even international businesses, we've added quite aggressively in Bridge, our leasing subsidiary as well as in SBF, we added 2 BDOs.

So we continue to grow through bringing on talent from our competitors and that's sort of the primary driver of growth.

One last comment I'd like to make before I hand it over to Tom, on the macro environment.

The macro environment is healthy.

Last time, you've heard me say, I think I opened the call by saying what a difference 3 months make.

I guess this quarter, I would say it feels more like hurry up and wait.

Nothing has really changed in the general environment, economies in New York and Florida are healthy.

More importantly, the political dialogue that we're hearing at the national level is all very positive, but it's mostly talk, it hasn't really converted into any kind of action.

But we're very optimistic this all leads to good action, whether it's a corporate tax reform or regulatory reform or infrastructure spending, or what have you, all good things for the bank, not just us, but for any bank.

So with that, I will actually like to hand this over to Tom Cornish, our Chief Operating Officer, you can get a little more detail into loans and deposit activity.

Thanks, Raj.

Just a little bit more detail on both the new loan portfolio, we continue to be pleased with our overall diversification.

It's well across all of our platforms.

Right now, it stands at 35% or $6.5 billion in Florida, 33% or $6.3 billion in New York, and 32% national or $6 billion.

So we continue to see good opportunities across all of our platforms, and I think our diversification is a big plus for us.

A little bit more detail on activity for the quarter.

To amplify some of Raj's comments, we had good growth in residential, $228 million for the quarter.

Raj mentioned the mortgage warehouse declined by $121 million.

A strong quarter for Bridge for our leasing company.

In Baltimore, it grew by $74 million, which was probably their best quarter over the last few quarters.

As Raj mentioned, the C&I business was reasonably flat for Q1 and that's typical.

We see strong opportunities as we look at the pipeline going forward in both the C&I and business banking segments in both the New York and Florida marketplace.

And the Florida CRE business grew slightly by $60 million, while we did experience some decline in New York, and that's both performed basically the way we thought that they would, and as Raj mentioned, we're being conservative in that particular area.

A little bit on deposits, a few comments on the deposit side.

As Raj mentioned, we grew deposits by $433 million.

It's a good deposit quarter across all platforms, helped our loan-to-deposit ratio which improved.

We do continue to see significant pricing competition, it's in all markets, Florida probably even more so than any other markets.

And despite good growth, we are fighting the battle of maintaining deposit margins in that business, they eek by a few points, but overall a very good deposit quarter for us.

Now we'll go to Leslie.

Yes.

As Raj said, net interest income continues to grow, and we did see the NIM increase linked quarter from 3.67% to 3.70% a few drivers there.

The yield on both covered and noncovered loans was up this quarter, and notably, the yield on noncovered loans is up linked-quarter from $356 million to $362 million.

The yield on securities was up from 2.87% to 3.01% linked quarter.

A few drivers there; we had some floating-rate securities on which coupons adjusted up, and some changes in portfolio composition.

The cost of deposits is up 3 basis points from 69 basis points to 72 linked-quarter.

That really corresponded to the Fed's moves.

I think you'll see probably more impact of that next quarter as a lot of those increases came very late in the quarter after the Fed's move in March.

Cost of FHLB advances increased primarily due to extension of some maturities.

We did some hedging there and moved some maturities out a little bit that drove the cost of that up, but long term, we think that's going to serve us well.

Guidance for the year for NIM remains unchanged, still likely to be near the midpoint of that 3.4% to 3.6% range that we put out on the last call.

And also no change in the guidance we put out for the combined yield on the FDIC asset and the covered loans, I know you guys all ask about that, and most of that improvement will be towards the back half of the year as the balance of that (inaudible) asset continues to decline.

Also no change in our high single digits guidance for increases in noninterest expense for the year.

We're looking right now at somewhere around 8% being the most likely place where that's going to land.

As Raj said, we're not seeing any signs of any kind of systemic deterioration in credit quality.

Everything continues to look good outside of the continuing challenges that you're all aware of with the taxi medallion portfolio.

And I will give you some details on that in just a minute.

As we said, increase in the provision for the quarter really was primarily driven by $9.5 million related to those taxi medallion loans.

Our ALLL to loans ratio remained relatively consistent with the nonperforming loans, coverage ratio increasing slightly, and you can as I said before, continue to expect that ALLL to loans ratio to gradually increase over the course of the year.

I'll provide a few details on what's happening in the taxi portfolio because I know you're going to want that information.

Total exposure is now $169 million, down about $10 million from 12/31.

$5.9 million of that was charge-offs.

98% of that exposure is now in New York, and about 53% individual medallions and 47% corporate, among those loans that are directly collateralized by medallion.

To date, $87.4 million have been modified in TDRs.

That's about 52% of the portfolio, and 21% of that was done this quarter.

$84 million of that -- of the taxi medallion loans mature in 2017; $31 million of those have already been modified in TDR, and once typically just in the form of a short-term extension, so probably see those extensions continue as the loans come due this year.

With respect to values, we did a regular update of information that's put out by the TLC, as well as portfolio-specific data.

Based on that quarterly update, we have lowered our estimated collateral value for corporate medallions to $530,000 and for individual medallions to $520,000.

Primary drivers of that, as you know, our valuation methodology is based on modeling the valuation that cash flows generated from operation of the medallion can support.

We compare those kind of as a sanity check to recent sales, but there are so few sales that we believe that cash flow methodology gives us a more accurate valuation than simply looking at sales.

The primary drivers are the reductions in the number of daily trips, lower second shift achievement and updates to some of our assumptions about expenses, particularly credit card fees.

Our average sale prices for September to March were $489,000 on the individual side, there was 1 outlier in there that's been well-publicized at $241,000, and that was a guided to our understanding decided to leave the country and just kind of dumped his medallion, that's what we hear about that, we think that's an outlier.

And the average for -- in the corporate space has been $594,000.

Delinquencies of 60 days or greater are down to $9.9 million, that was the number was sitting at $33 million at December 31.

That's mainly due to the one large relationship we've been talking about on the last couple of calls, was restructured, brought fully current and is now paying as agreed.

So that relationship attributed for the decline in the delinquencies.

To date, charge-offs totaled $17.1 million, $5.9 million of which were in the most recent quarter.

And those charge-offs are really predicated by the decline in values, just taking partial charge-offs on existing loans.

Reserve allocated to medallion loans stood at 8.3% or about $14.2 million at 3/31, that's up from about a 6% overall reserve value at the prior quarter, driven by the decrease in valuations and increased probabilities of default.

83% are rated substandard at 7/31, up from 77% at 12/31.

$59.4 million or 35% of the book is now on nonaccrual, and that held pretty constant before we were at 12/31 on nonaccruals.

And we remain in possession of 5 medallions, that count has not changed.

A quick comment on income taxes.

I think by now, everybody's used to seeing this in quarterly results but our -- we did book a benefit related to the change in accounting standards around the treatment of excess tax benefits realized upon the exercise of options or vesting of shares -- and that was $2.6 million.

The ETR for the remaining quarter should be back up between 33% and 34%.

That's what I have to say.

I'll turn it back over to Raj at this point, for some closing remarks before we take questions.

Sure.

Listen, we stayed and stand very optimistic about the environment.

We're very -- looking forward to the rest of this year.

All of our businesses are doing well.

There are some that are growing slower than others.

We have changed our strategy a bit over the last 9 months, but we feel that where we are today in terms of our business mix is a better business mix than we were about a year ago.

The environment is strong, economic conditions in Florida and New York are all very positive and getting better.

If we can get a little more action in Washington, things will get even better, whether it's corporate tax reform, regulatory reform or a number of things that Washington is working on.

And competition on the other hand, I will say, as Tom mentioned on the deposit side, I will actually add that to the loan side as well, competition remains intense.

We are as an industry very, very fond of killing each other on spreads and margins, and nothing has changed over there.

I wouldn't say it's any worse, maybe on the deposit side because rates are moving, there's a lot of activity and it feels worse, but competition for loans deposits and all of our markets is intense.

With that, I will open it up for questions, and operator, you can take it away.

(Operator Instructions) Our first question comes from Steven Alexopoulos from JPMorgan.

I want to start on the CRE concentration, Raj.

Where do you stand in terms of meeting the requirements to move above the 300% threshold?

We have done an enormous amount of work in the last 9 or 12 months.

Our CRE concentration level right now is 275%, 277%.

So we are -- we have plenty of room between here and 300%.

And that's not what is holding our growth back.

We could, I think, we did a projection just yesterday of how much we will grow before we get to 300%, and we can do $1 billion of growth or more by the end of the year, and still not reach 300%.

So that's not what is holding us.

In terms of the progress that we've made, I mean, we've come a long way in terms of building all of the infrastructure that is required of a bank to go over 300%, but at the end of the day, that's still -- we're [ underexamined ], even as we speak, if you look at some of that infrastructure and get the report back from the OCC that the infrastructure is up to their liking.

We have not yet received that final clearance.

But I couldn't tell you whether it will happen in a month or 2 months because I don't know.

Okay.

On the mortgage warehouse, what were those balances at the end of the quarter?

And what was the mix of purchase in refi?

Purchase and refi mix, actually, I don't have in front of me.

But the balance of the outstandings were, and Leslie you can correct me, if I'm wrong, but the balances at the end of March, outstanding were $203 million.

And in December, they were $325 million or so.

So I could be off by a couple of million dollars.

It's a $121 million decline.

Commitments, on the other hand, in December were $538 million, and in March, they were $633 million so a growth of about $95 million.

And Raj, just a final one on deposits.

You commented on the balances from that larger team that you lifted out last year where we stand.

And when we think about deposit costs here, following up on all your commentary on competition being so intense, can you talk about your ability to lag here as rates go up on deposit costs?

Sure.

So let me talk about the national deposit business.

Again, I'm giving you approximate numbers, I don't have the exact number.

But they're around $1 billion, and they complete their -- that business completes its first year anniversary, I think, next month or end of this month.

So in about a year, they're $1 billion or a little more than $1 billion.

The growth this first quarter was slower than it has been in the prior 8 or 9 months, but that's just a matter of when business gets booked or doesn't get booked.

As an example, I've seen what the numbers are for this quarter, the second quarter, they've already booked enough business in the second quarter than they did in all of the first quarter.

So it's just choppiness, it can't be very smooth.

The -- actually, Leslie is putting a number in front of me, she's saying that the originated business in that to date is about $850 million, not $1 billion, so a little less than $1 billion.

The pipeline over there is actually very, very strong.

And so in terms of cost of funds, anytime you start a new business, the cost of funds generally is higher.

So right now, their cost of funds is higher than Florida as well as New York.

New York is significantly lower.

But that's because you don't lead with DDA.

Nobody gives you their DDA.

They give you their money market first, and then you earn the DDA.

So DDA is beginning to get booked, and when it does, that cost of funds should come down over the course of this year.

In terms of lagging interest rates, when they move -- I think I've said that in the past, that we will be able to lag rates in the early moves of the Fed, but as more and more moves happen, I think rates will move faster, and the lag period will be shorter and shorter.

So December move for example, we probably had a half-dozen customers call us, and we had to react to them and, not right away, but slower.

And in March, we got more phone calls, and if there's a rate move in June or September or whenever, later in the year, we'll probably get more.

So the lag there will shrink as more and more rates move happen.

Our next question comes from Brady Gailey of KBW.

So related to commercial real estate, are there any specific asset classes within CRE in either Florida or New York that you've kind of changed your position and you are a lot more conservative as far as growing those or strategically shrinking them?

We are -- actually, it's more by geography than by asset classes.

It just so happens, New York is where -- as you can see, that's what shrunk, not Florida.

So New York is where we're being more cautious.

And it just so happens that a vast majority of what we do in New York happens to be multifamily.

And multifamily is also the thinnest margin product that we have within the commercial real estate portfolio.

So when we put that in low gear, if there is something you want to slow down, it is your thinnest margin product you want to slow down, so that is the one -- New York geography and multifamily, those are the things that -- that's where the impact is.

Okay.

And then what are the dynamics that is leading to so much of your loan growth coming in the back half of this year versus the first half?

Some of it is seasonality, like I said.

On C&I, New York C&I, Florida, even business banking, New York and Florida, also mortgage warehouse lending, that also is all seasonality.

When it comes to CRE, going from a negative quarter that we had in the first quarter, to a flat, which we're expecting, flat to slightly up in the second quarter.

It's really the third and fourth quarter that we're expecting to do more business.

We are, even in the CRE space, despite the slowdown, we are actually interviewing candidates, producers, both in New York and Florida.

And to diversify, at least in New York, to diversify a little bit, our product offering and not just be a multifamily lender, but be a more holistic CRE lender.

So it's not going to be the kind of CRE growth that you have seen in '14 and '15, 2014, 2015 from us which is hundreds of millions of dollars of growth every quarter.

It will be less than that, but it will not be -- it will be a contributor to total loan growth in the second half of the year.

If you put that all together, the growth is more in the second half rather than the first half.

Okay.

And then Raj, have your thoughts on M&A changed over the last 90 days?

Not really.

The next question comes from Stephen Scouten of Sandler O'Neill.

Just maybe following up on Brady's question.

I know you sort of mentioned the seasonality and the pickup in the back of the year.

But to the degree to let's say, for instance, the OCC maybe didn't give you the green light on CRE, I mean, could those numbers be at risk in the back half of the year?

Is that a significant driver as well?

And if so, would you have to wait another year for them to come back for the exam?

Or what would be the potential time line if that didn't come through in the near-term?

So let me draw a very clear distinction here.

One is OCC's concern about commercial real estate in general and multifamily in particular; that has nothing to do with BankUnited, that just has to do with just their opinion about CRE as an asset class, and multifamily is a sub-asset class.

That gives us pause and is the reason why we have the break supply right now.

In terms of the risk infrastructure that is being built to go over 300%, you're absolutely right.

The OCC has to come in and give us a green light that we can go over 300%.

We could go from the 277% or 276% of capital that we're at to 299.9% of capital, and that could be $1 billion-plus of growth.

That is not -- that infrastructure greenlight is not standing in our way to get that $1 billion, $1 billion-plus of growth.

What is standing in the way is concerns that we are hearing from the OCC about the asset class itself.

And to some extent, I actually understand the concerns.

Cap rates, especially in New York, especially in multifamily, are at historical lows, and we are in an environment where rates are beginning to move up.

And if rates do move up more aggressively in the next year or 2, you could have some risk, right?

Now our LTVs in the portfolio are super low, so there have to be a very dramatic change in valuations for us to have any credit exposure of any substance, but nevertheless, cash flows will come under stress.

And I understand where the OCC is coming from.

So they're 2 very distinct things and I want to make sure that you guys don't mix up those 2 things.

Yes.

No, that's really helpful to make that distinction, thanks, Raj.

And then on the new loan yields, what are you guys seeing?

I know you mentioned competition remains strong, but can you give us idea on what new loans were doing -- new loan yields were doing this quarter versus last quarter maybe?

Yes.

While Leslie looks up that number on her laptop, let me just say that in the fixed-term market, right, the CRE market, 5-year, which is where we really play, rates have moved up nicely.

We were in the high 3s till about a month ago, or maybe 3 weeks ago.

And now the 5-year, the 10-year have all sort of backed up by almost 30 basis points, we're back in the mid-3s; still not as bad as it was before the election when we were in the low 3s, but the pricing has moved back.

Spreads are pretty tight and not just in loans, spreads are tight even in the bond world, where we've been very opportunistic picking up the right bonds when spreads widen out.

But right now, the spreads are pretty tight across the board.

I would say, I did look up the chart on my laptop while Raj was talking.

For the quarter, our production was, for the most part between, 3.75% and 4% is where the majority of it came in.

Some of the business banking stuff was actually coming in at 4-plus, but for the most part, we were seeing between 3.75% and 4% this quarter, which is up a little bit from the prior quarter where it was close to -- I would say, probably up 25 bps on the average.

Yes.

I would also on the C&I space in particular, many banks today are looking carefully at their CRE exposures that is causing a higher level of competition from a rate perspective, and virtually all of the C&I businesses nationwide and especially in the markets we're in.

Okay, that's great.

Maybe one last one for me.

I mean I know you guys have told us for several quarters, let's not focus so much on the loan growth but think about earnings growth and growing the company in that respect.

What do you think are the maybe the low-hanging fruit, or the things you'll focus on most to get the returns higher?

I mean we've got the ROE maybe 82 basis points this quarter, so what can you guys do to maybe move that closer to a 1% ROA in time?

Yes.

I think it's still about trying to leverage the capital that we have.

We're still not a fully-levered company.

We don't expect to issue any new capital this year.

It would probably be early or mid-part of next year, so we continue to grow the balance sheet and lever our capital, that's the primary driver.

If you can get some margin expansion, the yield curve is a much better place post elections than it has been for many years before that, though the last two weeks it flattened up again a little bit, but a steeper yield curve helps.

And as we get more selective about growth, we are hoping to get slightly better pricing despite what Tom said, despite the competition being strong, we are -- when you don't have very, very aggressive loan growth targets, you can be a little better with picking better pricing and letting go loans and business that is on the margin.

Our next question comes from Ken Zerbe of Morgan Stanley.

I guess, Raj, I heard you mention that it's still too early to revise your loan growth guidance for the year.

But just thinking about this quarter, I mean really very limited growth, like is it even physically possible for you guys to hit the $3 billion of loan growth for the full year given your cautious commentary?

I think it is possible.

It's not as easy as it was 3 months ago when we put this out.

It's harder, but I don't want to change that at this point of time.

Is there -- I guess what would change?

I mean just meaning if the environment is tough and your cautious on CRE and all the things we've heard sort of over and over again from a lot of banks, like I get that your pipelines are a little bit stronger, but is it just your pipelines?

Or is there some more fundamental reason for why you would want to accelerate loan growth, in particular CRE?

Let me not oversell the acceleration of CRE.

We're not -- I'll say that again, we're not looking at doing hundreds of millions of dollars of growth in third and fourth quarter.

All I'm saying is that we don't expect to have a negative quarter.

Next quarter, will be flat to up a little bit, and third and fourth quarter we'll have modest growth.

The growth that I'm expecting more is from other business lines, whether it's C&I Florida, C&I New York, which both have very strong pipelines because we've been focusing on them for the last 6 or 9 months.

Whether it's mortgage warehouse lending, which we've been developing over the course of the last 2 years, or leasing companies where we had a pretty decent quarter, and we've made -- we've hired pretty aggressively over the course of the last couple of quarters.

So we made those investments, and we do expect them to pay off.

Again, I will say that, yes, achieving the $3 billion number that we put out seems harder today than it did 3 months ago because we had a weak first quarter, but it's still -- I wouldn't put that in the category of it's not doable.

Understood.

Okay, and then just last question.

In terms of the new producers that you're hiring, like how much do each of these teams or people actually add to growth?

And how long does it take them to ramp up?

It's different by different business lines.

It's very different, hard to answer that question.

We hired for example, 2 people in SPF, they're -- the ramp up time maybe just a couple of months.

But somebody else hired in C&I, we have a team that started yesterday, that may take them 6 months to ramp up.

It's hard to say, every business line has a different sales cycle.

And so it's business line by business line, it's a very different answer.

Our next question comes from Jared Shaw from Wells Fargo Securities.

When you look at the CRE move this quarter, were there any sales of loans in the New York market?

Or was that all just amortization?

It was amortization.

It was payoffs, it was some refis.

But interestingly, in the refis, we look at our competitors who are [ refining ] these loans out from BankUnited, and we tracked that just to understand who we're competing against, and I would tell you that, that roster of competitors has changed quite dramatically in the last year.

The usual suspects were not there this quarter.

It was an entirely different set of competitors who were [ refining ] loans out of our portfolio.

Was it mostly nonbank competitors?

Or were they just maybe different...?

They were different banks, but there were also GSEs.

Okay.

It's -- that interesting.

And then when you look at the rail car business and the increase in the depreciation this quarter, was there any accelerated depreciation there?

Or was that standard?

And then can you give as an update on the split of railcars in terms of how many have been brought up to the most current standards?

No.

Nothing unusual happened in depreciation this quarter.

As you know, last quarter, we did take an impairment.

Everything this quarter is just due to growth in the portfolio and normal activity.

There has been -- I don't have all the specific details of numbers of cars, and whatnot in front of me today, but nothing has changed about those dynamics in any significant sense since what we've put out last quarter.

Ok great, thank you.

You can check our 10-Q, the details will be in there.

Our next question comes from Lana Chan from BMO Capital Markets.

Two-part question on expenses.

One, there was a bump-up in personnel this quarter.

How much of that was seasonal, like cycle et cetera?

Linked-quarter, all of it.

If you compare this quarter to last quarter, compensation and benefits, the increase was all attributable to the payroll taxes, the 401(k)s, the seeding -- we seed everybody's HSA accounts at the beginning of the year, so all of that really contributed -- almost all of the increase linked-quarter was based on that.

If you're comparing to the same quarter a year ago, it's more just general a year's worth of increases in equity comp and bonuses and salaries and that sort of thing.

But linked-quarter is all those first quarter events.

Okay.

So that line item should go back to maybe around the $57 million level?

I don't have the numbers in front of me, but yes, it should normalize.

You will though, Lana, also have the impact as we go through 2017, as some of that asset personnel that Raj was talking about, which will impact that as well.

Yes.

But overall, our guidance, we're not changing on the expense growth.

Right.

It will still be on the high-single digits.

Right, right.

And that leads to my second question.

In terms of the expense, guidance has been pretty steady and unchanged for some time now despite all this infrastructure spending that you've had to do for CRE.

Could you, I mean, talk about how much you think or what specifically you've done on that front, the risk infrastructure?

And how much you think that it's added to your expense growth?

It really isn't, Lana, it's not adding that much in terms of dollars to the total expense line.

I mean, yes, we have increased staffing in some of these areas, credit review, underwriting, portfolio management, staffing has increased but that has always been built into our forecast in our prognostication.

It didn't come as a surprise to us that we were going to be augmenting staff in those areas, so that's always been in the numbers that we've given you.

This is a lot of effort, a lot of people are spending a lot of time and effort, but we're not spending millions of dollars on software and that sort of thing.

That's not what this is.

Our next question comes from David Eads from UBS.

Just a quick one on kind of back half of the year ramp in CRE.

I realize it's not going to be dramatic, but the growth, is that anticipated to be primarily New York City multifamily?

Or is that a -- do you think some of the diversification efforts can contribute in within that second half ramp?

I think you will see growth, both in Florida and New York, and you will see more diverse growth than you've seen in the past.

All right.

And then can you talk a little bit about the resi mortgage portfolio?

It grew nicely this quarter.

What you're seeing there and kind of what the prospects for further growth in that portfolio are?

What you're seeing is the net number, net of run off obviously.

So higher rates make for lower prepayment [ fees ], that helps.

And that business is, on a quarter-to-quarter or month-by-month basis can be fairly volatile based on the rate environment.

So it's a little harder to predict, but when we see opportunity in that market, we will step up.

But I want to point out that lower prepayment [ fees ] is obviously quite helpful for the existing portfolio.

All right.

Great.

And maybe, Leslie, you talked about the -- still having expectation for the ramp in kind of the net yield on the acquired portfolio.

Should we expect that to come from lower FDIC amortization or even higher -- high yield?

Which side is that going to kind of net to a better overall yield?

So sitting here today, it will be both, but more of it will come from lower amortization.

But again, we rerun those cash flows quarterly, and we'll continue to update that quarterly.

Our next question comes from David Bishop from FIG Partners.

Most of my questions have been answered, but just curious, Raj and the rest of the team, maybe if the business conditions in Florida, just curious what you're seeing there?

And there's been some decent end market acquisitions there.

Are you on the prowl to add significantly in terms of the talent level in that market?

Actually, Tom will speak to that.

Yes, we are.

We have plans to augment our corporate banking team in the state.

We have several positions and people that we're talking to right now and we're looking at more people on the deposit-gathering side as well.

Generally, market conditions are pretty strong in all the Florida major metropolitan markets that we're active in, and we want to expand in each one of them.

As you know, M&A, in your neighborhood, always create opportunities, both with clients and the people.

And we will look out for those opportunities.

Got it.

And then Leslie, maybe a housekeeping item.

I saw the increase in the share count -- average share count, just curious what drove that?

Two things; primarily, John Tanis, as you know, exercised $2.2 million very deep in the money options, and we also had our annual grant of share-based awards to our employees, so both of those things.

But probably, the biggest part that you may not be expecting was John's option exercise.

Our next question comes from Erik Zwick from Stephens Inc.

Maybe first, Leslie, a question just on the net interest margin with it coming in at 3.70% in the first quarter and you're maintaining expectations for the full year kind of in the mid point of that 3.4% to 3.6% range.

What are the factors that you expect will push it lower in future quarters?

It would be increasing deposit costs based on how we're modeling things.

We are expecting, as Raj said earlier, if that continues to move that can have an impact on our deposit costs, and we model with very conservative betas so that's why we haven't increased the overall NIM guidance, I would say is the main reason.

It's too early in the year to revise NIM guidance.

Yes.

We'll say the same thing that we said to you on the loan side.

Yes.

Sure, that makes sense.

And maybe a second one for Leslie.

Looking at the fee revenue, very strong results in lease financing this quarter, what drove those results and is that a sustainable level of going forward?

Again, I think, we did had some growth in that portfolio this quarter, and that was the main driver.

So I think you will continue to see, not necessarily 1 quarter to another because there can a little bit of transaction volatility, but you will see a modest upward trajectory over time in that line item is what we expect.

Okay.

And maybe a bigger picture question for Raj.

From an efficiency standpoint, and I know you made some comments about levering up the balance sheet to improve profitability.

But how would you characterize your branch network today, especially with regards to Florida?

Are there any branches that are underperforming or have low deposit balances that you would consider consolidating or selling?

We constantly look at, on an annual basis, we look at our branch network.

And we look at not just the size of the branch, but activity in those branches which has been on a constant decline across the banking industry.

And when we do that, we always look for opportunities to rightsize our branch footprint.

I think last year we were down about 5 branches.

And this year, we're already down 2 branches and we'll continue to look at any branch -- I wouldn't call them underperforming, I'd just say where our customer traffic doesn't warrant having a branch, then we can consolidate and create some efficiencies and also respond to just changed customer behavior.

We'll continue to do that this year and into next year.

Were those 2 closed this year in Florida?

Yes.

Our next question comes from Dave Roch from Georgia (sic) [ Deutsche ] Bank.

Raj, a real quick one on CRE.

You mentioned you can grow about $1 billion and remain below 300%.

But given your comments earlier, it sounds like you're not planning on growing that much in CRE this year, as you go for the $3 billion target.

Is that fair?

And if that's the case, when you guys actually think you're going to hit the 300%?

Our business plan, the most recent one, I think, which is about 2 or 3 months old, shows us sustained under 300%, just under 300% for the rest of this year into next year.

Got you.

And then just following on the yield discussion earlier, where are your securities purchase rates currently for which you're buying?

It really varies by product type within the bond portfolio.

We've got a wide variety of securities in the portfolio, so I think that's a difficult question to answer at a macro level.

We manage the portfolio very actively and that could really -- what you get on an agency is very different than what you get on a CLO versus an SBA, that's a really different question and can vary from day to day.

Any sense for what that purchase rate was in the first quarter, just overall?

I don't have that in front of me right now.

Okay.

And just one last one real quick.

You talked about the FDIC asset yield, and you're comfortable with the guide.

But are you thinking the 14% to 14.5% is more like a back half of 2017 level?

Or are you still thinking you could hit that for the full year?

Right.

We will -- currently, our forecast shows we will hit that for the year, but the real increase in net yield is more weighted towards the back half.

So yes, currently, our cash flow forecast show that it will be higher than that at the end -- as we get to the end of the year.

Got you.

You see the higher yield in the back half, and then you get the potential decline in the FDIC [ asset ] expense at the same time?

Yes.

I'm showing no further questions.

I would now like to turn the call back over to Mr. Singh for any closing remarks.

Thank you, everyone, for joining us.

We look forward to speaking to you again in 3 months.

Thanks.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program.

You may now disconnect.

Everyone, have a wonderful day.