BankUnited, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Bank United Inc. Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Susan Greenfield, Corporate Secretary. Please go ahead, ma'am.

Thank you, Josh. Good morning, and thank you for joining us today on our second 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 reflects 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 around 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 relating to the company's operations, financial results, financial condition, business process, 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 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, 2019, and any subsequent quarterly report on Form 10Q or current report on Form 8K, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.

Thank you, Susan. Welcome, everyone, to our earnings call. Thanks for giving us your time. Let me make a few comments about the environment before we get into the quarter. You know, three months make a big difference. This is not a traditional economic downturn. It's not caused by anything other than, you know, the virus. It is still a very serious situation, but we feel a lot better today than we did 90 days ago. There have been some encouraging signs in the economy over the last three months, whether it's employment data from May and June or retail sales or home sales or capital markets generally, but there is still a lot of uncertainty. Unemployment is still very high. There are mixed signals about certain sectors in CREs. The virus, obviously, is still not contained, and there are a number of states that are reporting high levels, including Florida. The impact of all of this then gets further compounded by the fact that we are 100 days away from election, and the political, you know, scenario in the country will make it even harder to read where the economy is headed in the next 100 days and beyond. But overall, we are much more optimistic today, but I would still say we are cautiously optimistic than we were three months ago. When all this started, we started having board meetings early on. It was actually on a weekly basis to inform our board, but then eventually every two weeks. And in one of the early board meetings, a question was brought up, which I want to share with the shareholders. which was about, you know, how are we going to deal with this crisis over the course of the next year or so and what are the principles around which we will react to all this. And three principles were already laid on the table, which we have, you know, used in doing everything that we're doing in the bank. First is intellectual honesty with yourself, which is to say, you know, don't try and be overly optimistic and say, oh, this is okay, it will all be fine. So be intellectually honest with yourself. Second, be transparent with all stakeholders. That includes, of course, shareholders, but also includes our regulators, rating agencies, even our customers, our employees. Be transparent. Provide more information than usual. And don't try and hide anything. Third, be proactive. Or put differently, don't try to kick the can down the road, because eventually you're going to have to deal with the issues. So be proactive and deal with them early. Get in front of the issues rather than behind them. So we've used these three principles. in all the decisions that we've made over the course of the last three, I guess, four months now. And with that, let me quickly turn into what the earnings were for the quarter. We reported $76.5 million of earnings this quarter, 80 cents per share. This compares to 81 cents per share last year. This time, the annualized ROE and ROA was 11.6% and 90 basis points for ROA. We told you last time when we spoke to you that the PPNR would trend favorably. We told you that NIM will increase, the cost of funds will decline, will probably be the biggest decline in the history of the company. We told you operating expenses would trend downwards, and all of those things have happened. PPNR is up $37 million, or 44% quarter over quarter. Ten of that, $37 million came from net interest income, 15 came from non-interest income, and 12 came from expenses. Leslie will get into the details of all that. But overall, across the board, all P&L items went the right way. Unlike peers, most we have reported declines in NIM. Our NIM actually improved from $235 to $239, as we had indicated three months ago. driven mostly because of cost of deposits. Our total cost of deposits declined 56 basis points from last quarter. So we went from 136 down to 80. And on a spot basis, at the end of the quarter on June 30th, our APYR deposits was already down to 65 basis points, and into July it continues to drop. So next quarter you can expect another drop in cost of deposits. Maybe not 56 basis points, but it will be a nice drop again. And that trend, we expect that to continue into all of this year into early next year. Provision also declined to $25.4 million from $125.4 million last quarter. Leslie will get into all the details around provision and reserve. But at a high level, you know, I would say that our reserve bill from the end of December, so, you know, for the year, we have more than doubled our reserves. And then now, you know, I think this was 130% increase. We quickly yesterday looked at our peers, and we looked at banks between $10 and $100 billion to see just how much reserve bill people have actually done, and the average or the median was somewhere around 60%. So this is what I'm reporting to in terms of getting in front of these issues and taking your medicine early, which we did in the first quarter, which is what resulted in the loss that we posted last quarter. Quickly switching to some balance sheet items, non-interest DBA grew by $1.3 billion, 28% basically, not annualized, just 28% quarter over quarter. Now DBA stands at 23% of total deposits. Last quarter I think we were at 18%, so, you know, very healthy trend. Average non-interest DBA was up also by $944 million compared to last quarter. Interest-earning assets were also up for the quarter. Loans and leases grew by $656 million, and securities portfolio grew by $819 million. And again, Leslie will get you a little more detail on that. We also saw a very substantial recovery in the unrealized loss on securities in the second quarter. So if you remember, in the first quarter, we had a $250 million mark, a negative mark, obviously, on the securities portfolio. And we had... talked about how that was recovering nicely and that over the course of months we expected to claw all of that back. We're happy to report that we've clawed most of it back. We're down to only 2.6 million, so from negative 250 to negative 2.6, that's almost a 99% comeback in a three-month period. Now, there are still some unrealized losses in the CMBS and CLO asset class, and they're continuing to get better. and all this have been very comfortable with the portfolio. Book value increased by $2.59 this quarter. So, you know, overall, couldn't be happier with the performance. Capital, our capital position remains robust. Our set fund ratio is 12.2 at the Holco and 13.4 at the bank. Oh, yes, we did issue $300 million in Holco sub-debt this quarter, at 5 and an 8, and, you know, that helps our total capital ratio, which now stands at 14.3%. The dividend, we, in evaluating our dividend, we, of course, look at two things. We look at our capital adequacy, and we look at our sort of medium-term or near-term and medium-term earnings. We feel good about both those things, and so we paid out a 23-cent dividend in the second quarter. And management at this time expects to recommend the same going forward. A few remarks about credit. And Tom and Leslie will get into it more deeply. But as we discussed with you, you know, we've been very proactive in identifying the subsegments and the borrowers that will, in our estimation, be impacted by COVID-19 more than others. So that strategy has not changed. Our ratios, NPAs, NPLs, are basically flat to prior quarter end, down marginally compared to December 31st. At June 30th, NPA ratio was 60 basis points, but again, if you exclude the guaranteed portion of XPA loans, it was 47 basis points. NPLs were at 86 basis points, but again, if you exclude the guaranteed portion of XPA loans, then it's 67 basis points. The efforts we've made to assist borrowers with PPP loans and all the deferrals are likely helping to mitigate and keep these numbers down. Annualized charge-off for the quarter was 20 basis points. The majority of this was linked to one loan in the franchise portfolio. This loan had been showing weakness before COVID. but it got resolved or worked out in the middle of the pandemic. You know, they filed for bankruptcy just before, I think it was in February, so just before the pandemic kicked off, the worst time to work out a loan, which limited our workout solution. So that's actually a large part of the charge of just that one loan. As you know, we've been very accommodating in granting 90-day deferrals. We had started to do that in the last week of March. Most of our deferrals came in over a three-week period from last week of March and the first two weeks of April, and then it really tapered off after that. We initially granted deferrals on $3.6 billion in loans, about 15% of our portfolio. However, far fewer people are asking now for a re-deferral. So the requests that we've received so far for re-deferrals is only $748 million. So think of it as early on, 15% of our portfolio or 3.6 billion asked for a deferral. And now when it comes time, because we only did 90-day deferrals. We did not do anything more than that. So now that 90 days are expiring or have expired for a lot of these, the requests are coming in at a much lower clip. Only 748 million or 3%. So that's a big drop. And this is a very important number. I want to stress on this because these are hard numbers. This is indicative of customer behavior. These are not our estimates or a model telling us anything. This is actually what customers are doing. So I see that as a very positive number. Of course, it changes. But, you know, where we are at the end of July, this is actually a very good place to be. with the re-deferral rate. We did see an increase in special mention and substandard accruing loans. We did a deep dive in the commercial portfolio this quarter, and we reached out to individual borrowers, especially those who we thought were impacted. And we've increased monitoring of the portfolio to a totally different level, something we had never done or never thought of doing. until three months ago, but now we're monitoring this on a weekly basis, a monthly basis. And we use all this information to relist the portfolio. So this increase, think of it as lagging the CECL numbers, because while CECL is essentially a modeling exercise, which we did at the end of March, this is a very manual exercise. This is literally, you have to pick up a loan file, read it, analyze, make a judgment about whether the risk has gone up or not, and then re-rate. So this happened over the course of the quarter, and in some ways it's catching up to the reserve that we put up at the end of the last quarter. So going forward, strategy, quickly. You know, this quarter, let's talk a little bit about this quarter. You know, our safety and wellness of our employees is a primary, you know, the number one focus, and I'm happy to say everyone is fine. There have been some cases of COVID positives, but, you know, nobody is seriously ill, and the bank operationally is working just fine. There are no issues on liquidity. There was a lot more focus around the entire system last quarter, but I think the Fed and everyone else has done a great job. Liquidity is not an issue at all anywhere. We directed much of our efforts this quarter towards PPP. And to say that it was a Herculean task in the month of April would be an understatement. We did do 3,600 loans in a month. Just thinking about it, I even get surprised now, even though we have achieved that, it was just an unbelievable task. The BU 2.0, which has been an ongoing initiative for the last year and a half, continues to move forward. As we told you last quarter, we are going to overshoot on the expense side, and on the revenue side, there will be some delays simply because launching some of these new efforts, new revenue efforts, does become a little hard when everybody's locked down, and it's hard to get in front of new clients. But in terms of expenses, I think our target was $40 million. We're already at $47, and there's probably still some more that will come. And in terms of revenue, our numbers are still pretty good in terms of what we are shooting for, $20 million, but the timing is delayed. We are, just to talk about some of the high-level initiatives, we are launching the commercial credit cards this quarter. The small business initiatives are also proceeding. We are going to launch automated underwriting platform later this year. That was a little bit delayed. and other initiatives include we did sign a fee-generating agreement with Goldman Sachs this quarter just a few days ago, and also a strategic shift in direction towards more treasury management and enhancing those products is all on track. We've also launched a new customer derivative program, which also will generate revenue on the commercial side. So overall, very happy with where we are. Let me turn it over to Tom, who can walk you through in a little more detail loans, deposits, credit, and so on.