BankUnited Inc (BKU) 2017 Q2 法說會逐字稿

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

Second Quarter Earnings Conference Call.

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

I would now like to introduce your host for today's conference, Lisa Shim, Senior Vice President of BankUnited.

Please go ahead, ma'am.

Good morning, and thank you for joining us today on our second quarter 2017 earnings conference call.

On our call this morning are Raj Singh, our President and CEO; and Leslie Lunak, our Chief Financial Officer.

Before we start, I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflects the company's current views with respect to, among other things, future events and financial performance.

The company generally identifies forward-looking statements by terminology such as outlook, believe, 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 these 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 of these -- 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.

And with that, I'll like to turn the call over to Raj.

Thank you, Lisa.

Good morning, everyone.

Thank you for joining us for our second quarter earnings call.

We're very happy to announce the earnings for this quarter.

This quarter, everything fell in place.

Numbers came in very strong.

As you've already seen, I'm sure, net income at $66 -- a little over $66 million, EPS of about $0.60.

If you compare this to last year, I think we were over $56 million in earnings and $0.52 a share, which is a 17% increase in net income and a 15% increase in EPS.

So very happy about the bottom line.

Going up the -- into the P&L and delving into a few other things, net interest income increased a little over $25 million, that's about 12% increase from the same time last year.

And if you just compare it to last quarter, we increased by about $9 million.

The NIM, actually, for this quarter, came in at 3.76%, and Leslie will get into the details of what makes up in that NIM and she'll give you a guidance as well going forward for the rest of the year.

Deposits, a very strong story.

$853 million of growth in deposits, I'm very happy about that performance.

I'm also very happy to actually -- to let you know that came from everywhere in the company.

It's not that one geography or one business line contributed to it.

It was Florida, it was national business, it's the New York business, everyone came in and contributed to that $853 million of growth.

Interest-earning assets grew $1.1 billion, of which $836 million of that was growth in loans and leases.

So a very strong performance, especially as you compare it to the first quarter.

And as we said at the end of the first quarter, our business has become more seasonal and you expect that sort of slow growth in the first quarter going forward, and second quarter the growth comes back, as you can see it did.

Tangible book value per share, a number that I look at probably more than most people do, tangible book value per share grew 8.5% or so over the last 12 months and now stands at $23.44.

The loan portfolio, still it's a very diverse portfolio, geographically speaking, I think about 35% of it is Florida, 32% is New York, 33% is national.

So that rough breakdown of 1/3, 1/3, 1/3 continues.

The growth for this quarter on the loan side was also -- just like on the deposit side, the growth on the loan side is also very diverse.

It came from just about every part of the bank, all the different business lines.

And I'll just give you some highlights.

C&I, which probably had one of its strongest quarters, both Florida and New York grew about $347 million.

The warehouse business, where utilization dipped to a very low number in the first quarter, as expected, that utilization came back up, and we were up $137 million.

Bridge was actually flat for the quarter, not because of lack of production, we actually had a very strong production quarter, but we also saw a very high runoff -- or payoffs in that portfolio.

So Pinnacle, which has been in neutral for us for the last 6 months, as you know this is our tax-advantaged business, the municipal leasing business, which we run out of Arizona, actually they are back.

They grew $108 million and that was a very strong performance.

CRE grew about $90 million, but almost all of that growth, actually more than just the $90 million of growth, came from Florida.

New York was flat, actually it was down by $5 million or $6 million.

I expect that trend to continue.

And what we're seeing in the pipelines for our various business lines is this kind of growth, this $800 million-type growth number to continue over the next couple of quarters.

And we'll talk a little more about guidance a little later in the call.

Asset quality remains strong.

Our only sore point in asset quality is taxi as you all know.

Other than taxi, well, we did not see any signs of deterioration, any kind of systematic deterioration anywhere in any portfolio.

The nonperforming loan ratio is 69 basis points, 34 of that 69 basis points is attributable to taxi.

Likewise, our charge-offs are at 25 basis points, but 11 of that 25 basis points is directly related to the taxi portfolio, and Leslie will get more into our assumptions behind taxi in a minute.

Before I turn it over to Leslie, let me just talk about our strategy.

As you know, about a year ago -- actually, exactly a year ago, we had said that we're going to do a few things, one is slow down commercial real estate, specifically multifamily lending; and concentrate more on all our other lines of businesses.

That strategy continues.

It has not changed.

There were 2 things that at that time we had hoped for, that in 1 year's time, that we would have 2 things happen: one, as banks get pulled back from the New York multifamily market that we would see much better spreads in pricing by this time; and second, that the regulatory concerns around New York multifamily, sort of on an industry-wide basis, would have gone down over the course of 12 months.

Neither of those 2 things have happened.

Surprisingly, as banks have pulled back, and banks have indeed pulled back a lot from New York multifamily, we're seeing a lot of competition from nonbanks in this space.

And spreads today are actually tighter than they were a year ago.

So New York multifamily -- and concerns from our primary regulator and my assumption is on other regulators as well still say fairly heightened.

And as a result, I think you should expect us to do New York multifamily business but not to -- we'll not be growing that asset class, it'll probably be shrinking over the course of next 12 to 24 months.

But all of our other business lines, including other CRE, especially in Florida, we expect to grow over the course of next 2 quarters, 3, 4, 5 quarters.

We see the economy fairly healthy, both in New York and in Florida.

Despite the logjam in Washington, the economy seems to be doing just fine.

And to the extent that we get some good legislation out of Washington, it'll do even better.

So only other thing that I will actually throw out here, before I turn this to Leslie, is to talk a little bit about competition.

On the asset side -- on the lending side, while competition is always robust, it's not irrational.

It is -- it has been about the same over the last 2 or 3 years.

On the deposit side, competition is picking up.

And as the Fed keeps moving, we expect that to keep ratcheting up.

So when I sit back over here and think about -- the things that I worry about, I worry about deposit competition much more than I worry about loan competition.

And you -- as we've said to you again and again in the past is, we want deposit growth to at least match loan growth and hopefully actually outstrip loan growth, this quarter, we did by it a little bit.

Our loan-to-deposit ratio stands at 97.5%, which is a good place to be.

We don't want to be over 100%, or if we do go over 100%, not too much over 100%.

I'd rather prefer to be at 90% than at 100%.

But that's -- deposit competition is what I worry about, not loan competition.

With that, I will turn this over to Leslie, who'll walk you in a little more detail through the numbers.

Thanks, Raj.

As Raj pointed out, net interest income continues to grow.

The NIM increased linked-quarter to 3.76% from 3.70%.

I'm going to break that down a little bit for you and give some guidance going forward.

We saw the yield on noncovered loans increase from $362 million to $378 million.

The primary drivers of that are increases in benchmark rates on our floating rate loans and new production coming in at rates that are higher than the existing portfolio, which is a good sign.

Yield on securities, up from 3.01% to 3.05% linked-quarter, mainly driven by coupon rate adjustments.

Probably won't see that again next quarter given the tight spreads in the market right now.

Our investment activity this quarter has been primarily adding agencies to our liquidity pool at a little bit lower yields than that.

Cost of deposits was up from 72 basis points to 79 basis points linked-quarter.

We would expect this to go up again next quarter, given the June rate hike.

Cost of the FHLB advances was up marginally due somewhat to rate increases and a little bit more to some hedging that we did this quarter, extending out some of those maturities.

We do expect NIM to continue to face pressure from the runoff of covered loans as well as rising deposits costs and a flatter yield curve, so we don't expect that uptick in NIM to continue next quarter.

We are going to update our guidance for the year.

We expect the full-year NIM to land between 3.6% and 3.7%.

The combined yield on the FDIC asset, I'll address, because you guys always ask me.

It was about 12.3% for this quarter, and based on our most recent cash flow forecast, we expect that to actually be between 13% and 14% for the full year.

So a little bit lower than we thought right at the beginning of the year, but not much.

Our guidance for increases in noninterest expense for the full year is unchanged at high single digits.

That's updates on guidance.

I'll talk a little bit about the taxi portfolio because I know that you guys are going to have questions about that, so I'll try to anticipate some of those.

The first thing I'll say is our methodology for reserving for this portfolio has not changed.

We continue to use a cash-flow-based methodology as the cornerstone of our reserve calculations.

We think that is appropriate because our resolution strategy for the portfolio continues to be a cash-flow-based resolution strategy rather than a liquidation-based resolution strategy, so we are comfortable with that methodology.

Having said that, the valuation that we are using to calculate our reserve did come down this quarter to $432,000.

Our cash flow template actually solves for around $480 million, but we discount that by 10% in recognition of the declining trends that we've been experiencing, so we landed at $432 million for the quarter.

Our methodology and our valuations, as you know, are something that we carefully reevaluate on a quarterly basis.

Total exposure is now $160 million, down from $169 million at 3/31, for a reduction of $9 million, and $5.9 million of that was charge-offs.

Exposure remains constant, 98% is in New York, 54% individual and 46% corporate medallions, although the distinction between the two is really becoming very blurred.

To date, $116 million worth of taxi medallion loans have been modified in TDRs, that's 73% of the portfolio.

$29 million of that was done this quarter, and obviously, we expect that to continue.

Total delinquencies in the portfolio, all things considered, remain relatively low at $13.9 million.

Charge-offs to date, total about $23 million, $5.9 million of which were taken in the most recent quarter.

Those charge-offs, as well as the valuation decline, were predicated by a decline in ridership or in number of trips per cab.

Reserve allocated to medallion loans stood at 9.8% or about $15.7 million at 6/30.

We still only have 5 medallions in inventory.

We've foreclosed on a total of 5 medallions to date.

So that's kind of an update on the taxi portfolio, and I'll turn it back over to Raj for closing remarks.

Yes, I'm -- again, I'll end by saying, we're very happy with the performance of the bank this quarter.

Not just the total performance but the fact that it was so broad-based, the fact that every business line came in at plan or above plan.

And we're very happy with where we are, happy to see where the pipelines are and the momentum that the company has.

And with that, I will turn it over to the operator, and we'll take questions.

(Operator Instructions) Our first question is from the line of Dave Rochester of Deutsche Bank.

How much of the deposit growth this quarter came from your large deposit team you brought in last year?

And can you talk about the progress of that team?

And just remind us how large their book of business was before they joined you?

I don't think we have disclosed by business line, what the deposit levels are.

Last quarter, I did say that they had a slow quarter in the first quarter of '17.

They did have a pretty strong quarter this time.

So they are very much on track to deliver what they had originally signed up for.

But I would say what I said a few minutes ago, that the deposit growth was very broad-based.

New York, Florida and the national team all came in very strong this quarter.

Yes.

And sorry if I missed it, but what was your updated guidance for deposit growth this year?

Deposit growth, David, is the hardest thing to actually give guidance on, to be honest.

And that's -- what I would say is, my expectation is similar numbers toward loans and deposits that we've done this quarter.

But loan growth, I can look into pipelines and can feel very strong about that.

Deposit pipelines are very, very hard to predict.

And that's where, by the way, competition is getting frothy on the deposit side, not so much on the loan side.

So that's another reason why it's hard to give deposit guidance.

But my expectation would be similar numbers.

Let's just leave it at that.

Well, to your point on the deposit pricing competition, where are you seeing most of that?

Is that still on the retail side, in Florida?

Or are you seeing it on the institutional side as well?

Retail side has always been very competitive, given Florida -- the makeup of Florida demographics.

But I think competition is on commercial as well.

So -- but there is a difference between the cost of new money -- what it takes to bring in new money versus what it takes to actually hold onto existing money.

So the -- so if I look at betas, which I know you guys love to talk about, on existing money, they're fairly low, and they're much lower right now than our ALM assumptions.

But when I look at the marginal cost of bringing in new money, that is where the competition is.

It doesn't -- I'm not yet worried about what it takes to keep an account, I'm worried about what it takes to bring a new account in, that's where the competition has gone up.

Got you.

And then just one last one for me.

The new loan yield was up about 16 bps in 2Q, that was much bigger than I would have expected.

Was the bigger increase there -- I know you talked about higher loan yields coming in, but was there any pickup in prepayment penalty income or anything like that in the quarter as well?

Any loan fees that may have bumped that up a little bit?

There was a little bit of that in there, Dave.

We had a little bit of nonaccrual interest recoveries, but the bulk of the increase is due to rate adjustments and production coming in at a little bit higher yields than we've experienced in the past.

And so where would you say the new loan yield is or the loan yield on new production is today, post-hike, in the current environment?

Yes, what came in, in the first quarter, on average, was between 4 and 4.25.

And that's across all the different business lines, so obviously it varies pretty dramatically by product type.

But on average, that's where it came on in the quarter.

Low 4s.

Low 4s, yes.

Our next question is from Gailey Brady of KBW.

Yes, it's Brady Gailey.

So Raj, when you look at loan growth for the year, I know you've been talking about a $3 billion number, but I think if I heard you correctly, that you expect this $800 million-ish run rate to kind of be the run rate for the next couple of quarters.

If you put that all together, that means you're growing loans this year closer to a, like, $2.5 billion mark.

Is that the right way to think about loan growth for you guys?

I think so.

Our original estimates were that, in the second half of the year, we would actually pick up CRE in a big way.

But like I said a few minutes ago, I don't see us picking up multifamily lending instead.

The credit box that we're now operating under is even tighter, which will tell -- which tells me we'll probably do less production than we will have runoff.

So you will probably see declining balances over the next few quarters in New York multifamily.

So yes, that's the adjustments that we're making.

Okay.

And then on capital, I know in the past you all talked about maybe raising some non-common capital, like some debt, early to mid-next-year, is that -- does that still feel like the right time frame when you all will need additional capital?

I would say that's probably too early, based on what we see today.

It's probably sort of end-of-next-year type, that's maybe a better estimate than the first half.

Yes, I would agree.

Okay.

And then it feels like your commercial real estate to capital ratio probably went down this quarter.

I know it was 2.77% last quarter, but what was that number as of 2Q?

2.74%.

2.74% right now.

Okay.

Then the tax rate, I think Leslie, you've talked about 33% or so, is that still the right amount?

Yes, I think that's still reasonable, looking forward, Brady.

Our next question is from Steven Alexopoulos of JPMorgan.

Raj, I wanted to follow up on the commentary that you made about regulatory concern persisting on the multifamily in New York City.

First, what was the concentration of CRE?

Where do we end that in the quarter?

We're at 2.74% at the end of this quarter.

Okay.

And I know that you guys had been working to prepare to cross the $300 million.

Given your commentary, is that off the table now?

At least any time over the near term?

I would say so, yes.

Got you.

So the way we should think about the revision of loans, basically coming down originally $4 billion to $5 billion, then down to $3 billion, now down $2.5 billion, is really that multifamily CRE piece is just not going to be growing and will likely be contracting moving forward?

I would say multifamily will be contracting.

CRE other than multifamily will grow, but not at a very rapid clip.

Yes, okay.

And then on the deposits, you guys had strong growth in time deposits in the quarter.

Give color on the promotions that you ran.

And will this -- I know you're saying growth is diverse, but you're seeing a lot of growth in time, is that really going to be the primary funding source going forward?

No.

I wouldn't say so.

I mean, we do run promotions from time to time, they generally last about 4 to 6 weeks.

So it all depends on what we're seeing in the marketplace when we see an opportunity to step in and do a quick promotion and gather.

So it's more sort of you're in and out of the market, trying to gather deposits.

So I think at 30% or so, I forget where we are, but that's sort of the place we want to be.

We don't want to be leaning too heavily on time deposits.

I would expect growth to be broad-based.

I'd love for it to be in DDA, all of it, but that's -- we pay our people a lot more for bringing in DDA than we do for bringing in money market, and we pay them the least for bringing in time deposits.

But we have promotions from time to time in each asset class, and demand deposit is obviously what we try and sell the most.

So no, you shouldn't expect time to be the sole driver.

Not at all.

Okay.

And then one final one.

Leslie, I appreciate all the color on taxi, that's really helpful.

What are your thoughts on a signature-type move, right?

They move the whole balance into nonaccrual to just put the issue behind them, what are your thoughts on a strategy like that?

We evaluate that every quarter.

We'll continue to evaluate that every quarter.

We look at a lot of different scenarios and model different things out.

But as I said, right now we're comfortable that our reserving methodology lines up with our resolution strategy, and that's where we are for now and we'll evaluate it every quarter going forward.

Our next question is from Stephen Scouten of Sandler O'Neill.

I had a couple of questions on 2 of the national portfolios.

I guess, first on mortgage warehouse, about a, I don't know, $250 million swing quarter-over-quarter versus it being down in 1Q.

Would you expect that kind of run rate to be able to persist in terms of the growth?

Or would it be more flattish?

I guess, what you're seeing in trends in terms of overall mortgage demand?

And then maybe some color too on Pinnacle, and if the growth you saw this quarter is sustainable there as well?

Okay.

Let me take the mortgage warehouse first.

You really have to look at 2 different things.

One is sort of the underlying commitment growth and the other is the new utilizations.

Commitment growth is really a fundamental driver of long-term growth in that business.

We grew, I think, $100 million, Leslie, in commitments this quarter?

And the previous quarter, also, we had roughly $100 million of growth.

And we expect that level of growth to continue in that business in the foreseeable future.

Utilization is a different story and that's where -- we don't control utilization but we try and predict it.

We do know utilization goes down a lot from December through March and then it starts to build up into June, stays pretty steady through September and then slightly down towards December and then, again, sharper up in the first quarter of the following year.

Now having said that, the mortgage business itself has contracted, because the refi boom has basically disappeared post the election.

So we're seeing a lot more volatility in that utilization rate this year than we did last year.

We're trying to benchmark it to our history over the last couple of years that we've been in the business.

So there's a lot more volatility and it's been pretty hard to predict.

But the trend, I would say, should roughly be -- the low point being March, the high point being June and September and then slightly down in December.

That's what you should expect, but it's hard for me to give you exact numbers, because honestly, we don't know what the numbers will be.

There is -- the business has been -- it is a little different this year than it was last.

But our underlying trends are very strong.

We're growing the business, we're bringing in new clients and we're growing the book of business to a much larger number over the next 2 years.

On Pinnacle.

Pinnacle also is a seasonal business.

The second quarter is generally a very strong quarter for Pinnacle.

We do a lot of business with school districts.

When kids go away for vacation, that's when a lot of business happens, and that's why you see the $108 million of growth.

Third quarter is also usually okay, though we're seeing a slightly softer pipeline in it right now, and fourth quarter, first quarter are generally lighter.

So I think overall, this year will probably come in similar or slightly less growth than we had last year.

But we're also keeping our eye, very closely, on what the corporate tax reform might eventually end up being, which is a pretty big driver of what -- how much we want to grow this business.

But that is also a seasonal business, more concentrated in the sort of the middle of the year than towards the end of the year.

Okay, that's really helpful.

And as it pertains to the kind of shift in conversation around New York multifamily and maybe a belief that you would've been able to grow it in the back half of the year and now probably it'll shrink a little bit.

Was there anything specific coming from regulators that led you to have a different view on this throughout the remainder of the year?

Or is it just kind of general environment?

Like you said, you had previously thought you might be able to test 300%, now it doesn't seem that way.

So is there anything specific you can speak to that changed that outlook?

Yes, I think it's less to do with 300% than to do with just the regulators' unease with the New York multifamily valuations.

And in a rising rate environment, regulators are concerned, so those cap rates are going to come down.

And as those cap rates come down, they will create credit risk at the time of maturity of these loans.

That's really where this is coming from.

It's not from a weakness in the economy, New York economy, or the cash flows might be weak or anything.

It's just that the rates are higher.

2 years down the road, when a loan has -- reaches its 5-year mark, it'll be very difficult to refinance that loan.

That's what their concern is, and it's a new kind of concern.

Typically, when you do CRE lending, you worry about, is the economy strong enough?

And will the cash flow of that property stay up?

That's not the concern.

The bigger concern is, what happens to cap rates when the interest rates are 100, 200, 300 basis points higher 2 years down the road or 3 years down the road?

And I understand that, I get it.

And we do have a large concentration of multifamily loans.

They're not the most profitable from a product perspective, if you look at them, they are a tight margin business.

Our competition ends up being very often GSEs, and it's hard to compete with GSEs with their cost of capital being low as it is.

Increasingly, we're seeing competition from insurance companies, life insurance companies.

Remember, the curve is fairly flat, which means the borrower -- going out 5 years, you might as well go out 7 or 10 years.

And when we go to 10 years, we can't -- as a bank, we can't play in that space, and that's where life insurance companies step in and it becomes very hard.

That's really what's happening.

Over the last quarter that's what we saw.

We saw CMBs, Gulf lenders, and we saw life insurance companies really dominating the market, not the usual banks that we compete with.

So regulatory concern is more around that issue, that the valuations of these properties are too high and the refi risk they bring to the table.

And we're -- we get it, we're reacting to that.

Okay.

Yes, that's really helpful.

And maybe one last one for me on the -- kind of the loan loss reserve and the provision taken in the quarter.

It seemed like relative to the nice growth you had in the quarter that maybe ex the taxi provisioning, that provisions were a little light on that new production.

What are you guys thinking about in terms of providing for new growth?

Is that still kind of a 70 bps kind of thought process?

Or how are you thinking about that?

And why were the provisions maybe a little lighter than I would've expected on the growth?

So first of all, it definitely varies by product type in terms of provisioning on new production.

But aside from that, I think a couple of things happened.

We had net charge-off rates that we use to determine the quantitative portion of our reserve continue to come down, that had an impact this quarter.

My overall guidance, though, hasn't changed.

I think over the medium term to maybe not 1 quarter but over the next year or 2, I would expect the allowance to creep up as a percentage of loans.

I wouldn't expect anything dramatic to happen there, I would just expect a gradual increase in the allowance as percentage of loans.

So nothing has changed about our outlook there.

Our next question is from the line of Ken Zerbe of Morgan Stanley.

Just starting off, in terms of New York City, it seems that where you are at now conceptually is very different than sort of where you wanted to be or what the strategy was, say, 2, 3, 4, 5 years ago.

Does it make sense at some point just to say, you know what?

This is not what you signed up for in New York, so let's just pull out of New York and focus on other areas?

Like, exit New York a little more aggressively than you are currently.

I don't think so.

I think New York, we always keep talking about multifamily but there is a fair amount of other business we have here.

C&I business, this quarter in New York, I think had its best quarter or the second best in the last 3 or 4 years that we've been in that business.

We just hired more producers in C&I in the Westchester market, who, by the way, came on in the -- in this quarter and already have booked loans in the very first month they were with us.

So we are growing the C&I business.

The business banking, while that's a smaller portfolio because of the smaller loans, some of our most profitable business in the franchise is that portfolio.

It's only $300 million, $400 million, both in loans and deposits, but it's very, very profitable.

I think the cost of funds over there is in the 25 or 28 basis points range.

And it's just that CRE, yes, is a large part of that and multifamily is a large part of that CRE, but responding to changing conditions, whether they are market conditions or regulatory conditions, that's part of the game.

And -- part of creating a diverse balance sheet is actually having these many different business lines and then sometimes you emphasize one business line and deemphasize another one.

I wouldn't be comfortable putting just everything in Florida and saying, oh, we're basically a CRE and C&I lender in South East -- in the -- in South Florida.

That would not be diverse, and I don't think we're going to go there.

Got it.

And then it kind of leads into my second question though.

It does seem that you guys have sort of your hands in different pots around the country, around different products, whether it's purchasing loans or purchasing resi or Pinnacle or C&I in Florida.

When you think about it, when you do take a step back, and where are you most excited about the growth opportunities?

Like -- or when somebody summarizes sort of where they see the growth over the next 12 months, does it come primarily from one or another area?

Or is it just still a, I want to say, diverse area of growth?

Yes, I couldn't pick one area, but I could pick about half of our business lines that fall into the category of -- the next 12 months looks like smooth sailing.

And the other half, I would say, that market conditions are tough and -- or regulatory conditions are tough.

So I would say, C&I Florida, C&I New York, business banking Florida, business banking New York, mortgage warehouse lending, they all fall into the category of -- I'm expecting a lot out of these businesses in the next 6 to 12 months or beyond.

Pinnacle has done really well this quarter, but the corporate tax rate issue still looms on that business.

Bridge, while it has had a great quarter in terms of production, I am -- the runoff has surprised us in that portfolio.

And CRE, we've talked about that, [acknowledged it already].

Resi -- resi is a business that is closer to the bond business than anything else.

That -- the credit spreads in that can go up and down on a quarterly basis.

Last 2 quarters, tight -- the spreads have been tightening.

And in the bond business, they've been really tight.

So I'm glad we're not growing our bond business in this environment because fixed income has been a very, very difficult place to invest and then the bonds have been very difficult place to invest in over the last 6 months.

But that can change tomorrow.

So I'm going back to your question, there isn't 1 or 2 places that I'm calling upon for growth.

I think it's 6 places that seem to be in the sweet spot and others that are in sort of in the medium category, and CRE is probably in the neutral.

Our next question is from Jared Shaw of Wells Fargo Securities.

Just on the taxi first, can you just remind us, you said that you brought the value based on cash flows to $480 million, where was that before this quarter?

No, we brought -- okay, let me clarify.

The cash flow model calls for $480 million.

What we're actually using is $432 million because we haircut that by 10% in recognition of the fact that trends are declining, so I just want to make sure I was clear about that.

We've always done that 10% haircut.

And we've always done the 10% haircut.

So last quarter, we were at $520 million, less the 10%, would have been $468 million.

Okay.

As then, as the -- and you said you had a handful of medallions in OREO.

Once you actually get the medallion in, do you then shift more to a liquidation value for the medallions you actually have versus the ones that are -- you're still working with?

Yes, but those numbers are totally immaterial right now.

Okay.

Yes, I'm just trying to -- so as they come in, though, you are bringing them in to more of the liquidation value?

Yes, so we said that.

Those numbers are totally immaterial right now.

So...

And then on the lease depreciation trends, as we go forward, should we expect to see continued, sort of a consistent increase in the cost of the lease depreciation, as you have some of those bigger pools start to approach lease termination dates?

I don't really think the fact that they're approaching their termination dates has anything to do with it.

It just really has to do more with the mix of deals in the -- on the balance sheet, where some of them -- and the various residual values.

But it's -- pretty much it's straight line.

So the fact that they're approaching their termination date really doesn't have anything to do with it.

Okay.

So the growth that we're seeing there, like, this quarter is more a function of the growth of the lease portfolio versus any change in thoughts on the evaluation?

Correct, correct, correct.

Okay.

And then finally for me.

Just looking at the securities portfolio, it looks like you may have put on some larger balances towards the end of quarter.

Is that what you were saying more with the agencies?

And so should we expect to see, on a full quarter basis, the yields on the securities maybe come under a little pressure in third quarter?

Yes, I think that's accurate.

We did add mostly to the liquidity pool this quarter and brought on more agencies than anything else.

So that's probably a fair statement, yes.

Okay.

And then in terms of just period-end over period-end, we should expect to see the securities stay relatively similar to where they are in second quarter?

Depends.

It depends.

I mean, really, Raj referenced the fact that the market has been tough lately, spreads have been very tight.

We're opportunistic in the way we manage the bond portfolio, so if we see the opportunity to put something on, we will.

So that's a hard question to answer.

Our next question is from Lana Chan of BMO Capital Markets.

Most of my questions have been answered, but I just want to follow up on what your (inaudible) think about the deposit competition.

Could you give us a sense in terms of how much (inaudible) new deposit rates are being (inaudible) rates?

I think you mentioned that in your comments?

Well, the existing book is hard to describe because there are so many tranches of the existing book.

But new money, for example, these days 12-month money on our CDs are probably in the 1.30%, 1.35% range in Florida, that's how tough the competition is.

From time to time, we have large competitors.

I wouldn't name them but just 3 days ago, I was solicited by a very large broker/dealer here in New York, offering 1.9% on an 11-month CD, which I think is absolutely -- you've got to be out of your mind to be offering that, but I was offered that by a bank here in New York.

So I don't think that is actually the fair way to look at it.

I think most of the competition is in the 1.30% range, 1.30%, 1.35% for a 12-month CD.

And for money markets, it's not that different.

Maybe it's a little lower, maybe it's 1.20% or 1.10%, in that range, but that's where the retail competition is.

Commercial, it's different.

It's hard to actually (inaudible) about because we have accounts coming in on as low as 60 basis points and others that are coming in as high as 110 basis points.

It all depends on what we're able to negotiate and what the needs of clients are.

Okay.

And any update in terms of outlook for new team hires, either on the deposit or the lending side?

How the sort of pipeline is for opportunities there?

We made an offer this morning, or I approved an offer this morning for a lender in Florida.

Like I said, we've hired 2 C&I lenders in New York not that long ago, about 6 weeks ago, in Westchester.

We are in discussions with some deposit producers, though it's not far off enough yet to say that we will definitely be able to get them on.

That's here in New York.

And we have positions open both in Florida and in the national business as well to bring on selectively one or two people when we find the right person.

So we're open.

We are looking to bring on producers just about across the board.

The lender that I'm talking about that we made an offer to this morning happens to be a CRE lender, actually, in Florida.

So it's -- it goes to my point earlier, that we will grow CRE, though not very aggressively, but we will grow CRE, especially the right kind of CRE.

Just -- we will probably not be growing New York multifamily, but other forms of CRE will be growing.

Our next question is from David Eads of UBS.

Thanks for that color you just gave on the deposit kind of price -- the margin of the deposit price.

I'm just curious, did this earning credit rate have a real impact for you guys?

Sure.

I mean, I -- what I was talking about was not ECR.

ECR, that -- again, it's a fairly complicated discussion because it's not just about ECR, then it's also about the cost of individual items.

We (inaudible) see a lot of pressure.

So that's -- when you talk about commercial loan deposit pricing, ECR is an element of that.

And...

Nothing is changing there.

Go ahead.

We aren't really seeing a lot of pressure there.

We aren't really seeing anything in that world that's changing in any significant way recently.

Over there, it's also about capabilities and the customer using the bank for services.

So there is less price sensitivity over there versus -- and just if somebody is straight up parking money with you where the price sensitivity is higher.

Okay.

And then maybe just kind of looking out a little bit longer term, and not asking for any kind of guidance beyond '17, but when we think about the way you're kind of changing the strategy and deemphasizing multifamily, is that conducive to maybe having a higher NIM outlook over the next year or two?

Or is that probably just going to be driven more by the deposit competition and the -- where the yield shakes out on the acquired loans?

Again, like you said, without giving guidance for next year, if I was to just make the statement that New York multifamily is a tight margin business, if we deemphasize tighter margin business and emphasize better margin business, that should solve to higher margins over the long term.

Our next question is from David Bishop of FIG Partners.

Sticking with the -- just most of my questions have been answered, but in terms of the multifamily market as it pertains to New York, Raj, I think you noted you'd expected maybe spreads to widen from a year ago.

How far away are you from a pricing or spread basis to maybe where you do entertain growing that portfolio?

Honestly, I'd hoped that by this time, the spreads would be 50 posts basis points wider than what they were last year.

And when I look at them, and we looked at them as recently as last week, they were either the same or even tighter, which is bizarre because I know so many competitors have stepped back.

But new competitors have stepped in and nothing has changed in the marketplace.

So that's only part of the question -- part of the answer.

Part of -- the other part is the regulatory concerns around that asset class, and they haven't changed either.

So it's not just about pricing, that's maybe half the story, the other half of the story is regulatory concerns.

Our next question is from Joe Fenech of Hovde Group.

On that note, it's been confusing to try to reconcile what seems to be the elephant in the room here on these different earnings calls, and that's the apparent inconsistency in how different regulators evaluate what's supposed to be inter-agency guidance on CRE concentration.

The OCC just seems to be much more onerous.

Is it just as simple as that?

Or are there other factors to consider here in evaluating this issue from bank to bank?

And how do you think this issue resolves over time?

Do the seemingly different approaches converge?

Or does it just kind of continue on as is?

It's a tough one for me to answer because we interact only with the OCC, I'm not sure where the FDIC or the Fed is.

I'm reading the tea leaves as much as you are with other banks.

But I think there is, generally, some consensus at least out there amongst regulators and various agencies that CRE concentration is an issue.

I think multifamily as one asset class within that CRE sort of world, is sort of the second issue on top of just the CRE concentration.

And it's hard for me to say what the Fed and the FDIC, where their head is at.

I can only tell you where the OCC is at.

Thank you, and that concludes our Q&A session for today.

I'd like to turn the call back over to Mr. Singh for any further remarks.

No, I just want to thank everyone for joining us.

Once again, this is a good quarter for us.

We're all happy and celebrating.

And then in about 20 minutes' time, we will go back to digging the next well, which is third quarter.

But hope to talk to you again in 90 days.

Thanks.

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

This does concludes today's program, and you may all disconnect.

Everyone, have a great day.