BankUnited, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Bank United, Inc. first quarter financial results conference call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then 1 on your touch-tone telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star, then 0 to reach an operator. I'd now like to hand the conference over to your host today, Ms. Susan Greenfield. Please go ahead, ma'am.

Thank you, Liz. Good morning, and thank you for joining us today on our first quarter results conference call. On the call this morning are Raj Singh, our chairman, president, and CEO, Leslie Lunak, our chief financial officer, and Tom Cornish, our chief operating officer. Before we start, I'd like to remind everyone that this call may contain 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. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries, or on the company's current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates, or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, including, without limitations, those related to the company's operations, financial results, financial condition, business prospects, growth strategy, and liquidity, including as impacted by the COVID-19 pandemic. The company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2019, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Raj.

Thank you, Susan. We're coming to you in strange times. This is the first call that we've ever done where the management team is not together in one location. So Leslie and Tom are in Miami, I'm in New York, and we are doing this virtually. Also, I've never done a conference call where I've had more than one or two pieces of paper in front of me with some bullet points on them. And today, Leslie has put in front of me a 27-page deck and talking points that are several pages long. So forgive me for all the shuffling that you might hear on the call. Let's do this. Instead of jumping straight into the earnings for the quarter, I would like to take five minutes of your time to first talk about exactly, you know, give you kind of a state of the union for Bank United. What is it that we've been doing over the last six or seven weeks as the situation has evolved? What are we prioritizing? And give you just a lay of the land, and then we'll get into the numbers and discuss in detail what first quarter was like. So let me start by first and foremost giving a big shout out to the Bank United team. Every person who comes here calls this home and works hard. You know, a crisis reveals character of people. I think that is true not just for people but also reveals a true character of an organization. I'm very proud to say that what I have seen over the last six or seven weeks it really fills me with great pride that I'm leading this organization. People have come together, helped each other, worked ungodly hours while they were under immense amount of personal stress. So there are too many examples to get into, but I just want to give a big one shout out to everyone in the company, not just people working in PPP or the branches keeping our call centers up, but everyone, you know, right down to the person who's making sandwiches in the cafeteria all the way to the last day when we shut down the cafeteria. So a big shout out and thank you, a big thank you. We have, as you can imagine, going through this early in March, we made our employees' well-being and safety our number one priority. We enabled 97% as of now, 97% of our employees are working from home. This is 97% of our non-branch employees, of course. We have extended our paid time off policy. We have increased our health benefits to cover any expense associated with COVID. We have not furloughed any employees. I'm a very superstitious person, so I say this very carefully. We were recently awarded by South Florida Business Journal an award for being one of the healthiest employers in South Florida. And I hope that we can claim this again next year. So far, we've had only one confirmed COVID case in the employee base. We do think there are a couple of others who could never get tested but have overcome COVID as well. It sounds like it, but only one confirmed COVID case, which is pretty good given what is going on. When you take care of your employees, they in turn then take care of their customers. And if you take care of your customers, that takes care of the company. That's sort of the chain that I follow. So quickly, let me tell you what we've been doing to support our customers. The most obvious thing is offering the operational resilience plan, we beefed up all the back office IT infrastructure that is needed to run the company from afar with no really any significant operational issues or customer service disruptions. And if you had asked me this, you know, how I felt about our ability to do this in the first week of March when we were preparing to do this, I was pretty nervous, but I'm happy to say that everything has gone without a glitch and the bank is working fine from an operational perspective. Our employees, several hundred of them, have worked tirelessly now for about three weeks to deliver the PPP program. We, I think as of last night, are close to 700 or maybe over 700 million in loans that we've done through the PPP program. And our estimates are that we've helped retain about 85 or 86,000 jobs in our footprint through this program. And we're not done. There's more going through as we speak. The team has been working around the clock and we will help a few hundred more small businesses before eventually the money runs out in the VPP. We have approved deferrals for many borrowers who have contacted us and asked for assistance because of the pandemic. And equally importantly, we have honored all our commitments, whether they were lines that we've had or business that was in the pipeline where we had made a commitment to close another loan. We did not back away from anyone. and that is equally important. We have waived select fees, and we have also temporarily halted new residential foreclosure actions. By the way, while all of this is happening, I just want to clarify, when I say 97% of our employees, non-branch employees, are working remotely, 76% of our branches are still open. They're open on a limited basis, of course, drive-throughs and appointment-only methods, but they are open and we are serving clients. The traffic, as you can imagine, has gone down substantially. Also, we have from somewhere in the second week of March or mid-March, we have made sure that we had enough liquidity to take care of any client needs in case somebody would need it. We continue to hold an excessive amount of liquidity. but we now feel the time is right to start taking it down, and I think beginning next week we will take down this excess liquidity that we've been sitting on to serve our clients. Now, turning back internally, as you can well imagine, we're prioritizing risk management and credit quality and credit quality risk management. We have identified portfolios and borrowers that we believe will be under an increased stress in the environment. I call these sort of the sort of, you know, you're in direct line of fire type of portfolios. we have reached out to every single borrower in these segments, and we will talk in detail about what these segments are and how big they are, but we have reached out to all borrowers in these segments, and in other segments, we have reached out to everyone over $5 million in exposure to understand exactly what the impact will be to our balance sheet. While we always do stress testing so that it's a routine business for us, in this environment, we have significantly enhanced these processes you would expect us to. But through all of this, it's important, you know, while you're managing a crisis, not to forget what the long-term plan is and to keep those long-term core strategic objectives in mind. And we're doing that while we're fighting the immediate economic crisis. So, again, so I think the biggest question here that you probably have is, what does it mean for our balance sheet? I will start by saying our balance sheet is you'll see at March 31st, our regulatory ratios, no matter which you look at, bank, holding company, they're all significantly in excess of well-capitalized thresholds. We are committed to our dividend, which we very recently increased by 10%. I think it was in the middle of February. We did, however, stop our share buyback program. We had an authorization from, I think it was the fourth quarter, it was authorized $150 million. We executed about $101 million, and we stopped that, and we're going to put it aside at least until the dust settles on the economy. A question that we have seen a lot of other bank teams have been asked who have presented earnings in the last week or so, anticipating the same question, we did some analysis for you. By the way, there's a slide deck, like I said, this time around. We've never had a slide deck in our calls, but this time we have provided a lot more disclosure, and there's a 27-page slide deck. So from time to time, I'll make references to certain slides. I'm not going to flip every page. but I will make the references. So, for example, right now I'm talking about page four in the slide deck, which takes the DFAST severely adverse scenario for 2018 and 2020 and runs that on the March 31st 2020 portfolio to see what the would be, and by the way, not just nine quarters of losses, but lifetime losses. You know, DFAS is a nine quarter exercise, but for this, we actually used lifetime losses. And we had used those, which we don't think are really relevant, but nevertheless, since that question will probably be asked, we did that analysis anyway. We used both 2018 and 2020 DFAS, severely adverse scenario. and said, okay, what are the losses that are generated? And you can see them on slide four. And if those were to be used now, would we still be well capitalized and our capital ratios hold up? And the answer is yes, they do. Quickly, one question so I don't forget again about liquidity, which is the next slide. We have tons of liquidity. We currently have over $8 billion, I think it's $8.5 billion of liquidity, same-day liquidity available. A lot of it is in cash. We will take some of the cash position down as we think things are settling down in the marketplace. But with that, let me switch over quickly and talk about the quarter. We reported a net loss of $31 million, 33 cents a share. Not surprising, this is driven in large part to the large provision that we took. The provision for the quarter was, excuse me, $125 million. This increased our credit losses to 251 million, which is 1.08%. So we used to be, at December 31st, we were at 109 million, or 47 basis points. On January 1st under CECL, that number bumped up to 136 million or 59 basis points. And now at the end of March, we are at 1.08% or 251 million. And that obviously was the biggest driver in the $31 million loss that we are posting this quarter. I will ask Leslie to give you some more detail around CECL and the assumptions that went into calculating that provision. But I will say, before I hand it over to her, is that we believe this, on March 31st, our reserve estimate is based on both data that is current and conservative at that core end, and it reflects our best estimate of lifetime credit losses in the portfolio. In second quarter, we will go through the same exercise. There are three big areas which will impact our CECL estimate for the next quarter, which is going to be an update of the macroeconomic outlook, an update of our portfolio, especially our high-risk sectors, and also the assessment of the impact of government stimulus because we've seen more stimulus this time around than we've ever seen in the history of the republic. So two and a half trillion in accounting and fiscal stimulus and God knows how much in the monetary side. But let me turn it over to Leslie, who can do a much better job of describing the underlying CECL assumptions than I can.