BankUnited, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Bank United, Inc. Third Quarter Earnings Conference Call. At this time, all participants are in a 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 first speaker, to Susan Greenfield, Corporate Secretary. Thank you. Please go ahead.

Thank you, Dylan. Good morning, and thank you for joining us today on our third 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 Security 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 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 relating to the company's operations, financial results, financial condition, business prospects, growth strategies, and liquidity requirements. 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, www.sec.gov. With that, I'd like to turn the call over to Raj.

Thank you, Susan. Welcome, everyone, to the earnings call. It was 90 days ago when we last talked to you. We're still in the same format. I'm happy to be back in Melville, at least on a part-time basis. And Tom and Leslie are in Miami Lakes. It's nice to get away from our Zoom calls. Last we spoke, the environment, I just want to remind everyone where we were. It was July. We had seen the worst of the virus behind us. There was a recovery. New York was doing well. Florida was beginning to spike in cases. and spiked pretty sharply and we were quite nervous at that time. So the good news is that spike was controlled and numbers came down and we did not see an impact on the economy in Florida. The economic activity continued well. Here we are 90 days later. I feel like this is deja vu. We're seeing a different kind of spike. This time not so much in Florida, not so much in New York, but generally overall in the country. So I'm hoping this is just deja vu, and what follows on the economic front will also be deja vu, and we will not see much of an impact like it happened three months ago, and then this becomes a non-event economically speaking. But I'm also hoping that this is not Groundhog's Day, and we are not talking about this 90 days down the road again. So with that, I would like to just say that our stance generally in the economy is cautious optimism. There's a number of things that have gone in the right direction over the last quarter, if you compare what happens 2Q to 3Q. So we're very happy and optimistically looking at those numbers. At the same time, we are taking a big dollop of caution, given all the uncertainty that still exists with the virus, as well as the political realities. We have an election in less than a week. We have a stimulus bill that everyone's been talking about forever. It doesn't look like it's going to get done anytime soon. So there's a fair amount of uncertainty out there, which adds to our cautiousness. With that, I will quickly jump into our earnings, walk you through how we did over the last three months. We came with $66.6 million of earnings over the third quarter with $0.70 a share. If you compare it to last year, we were at $0.77 a share this quarter, and just compared to last quarter, we were at $0.80. I think the street expectations were in the low of mid-60s, so slightly better than expectations. Now, given the fact that this is about six months from the biggest shock to our economy in living history, I think that these are pretty decent numbers based on what has actually happened in 2020. Our PPNR continues to grow nicely year over year, though it did decline a little bit from last quarter, and Leslie will talk to you. There isn't any one big thing that points to it. It's just a million here, a million there, which adds up to a slight decline compared to last quarter. But over the longer term, compared to last year, our PPNR this time was $115 million. I think the third quarter of last year was $102 million. And for nine months, our PPNR was $323 compared to $309 for nine months last year. Of all this said, you know, from quarter to quarter, there can be volatility in, you know, good direction and bad direction. You shouldn't really look at any one quarter of annualized. You should at least have a 12-month view. And, you know, that kind of evens out seasonalities and add-on things that happen from time to time. The big story here before I talk about credit on the balance sheet is about deposits. We, again, had a very strong deposit growth order. But what's more important than just the total growth in deposits is really what kind of deposits came in. So we had DBA grow by $906 million. That's a 15% growth over the last quarter. And now our deposits, our DDA deposits stand at 26% of total deposits. If you remember, just two and a half years ago when we started pushing DDA, we were in the mid-teens. So it's a big change in our deposit portfolio for the better over the last two, two and a half years. Our cluster funds came down to 57 basis points at the 23 basis point drop. And, you know, of course, the changing mix helps, but we also, you know, the running off of the CD book, and also we took down a lot of money market and savings rates, which helped to reduce our cost of funds by 23 basis points. Now, that's 57 basis points for the quarter. We actually ended the quarter even lower, because that's the average at a point in time, let's say, I think the number was 49 basis points. Wave if you think I'm wrong. No, 49 basis points. So we did hit a four handle literally in the last day or the last two days of the quarter. So we're starting the fourth quarter already at 49 basis points. And based on what I can see so far, the first three, three and a half weeks of the quarter, we are the trends that you're seeing in third quarter continues. So you should expect growth. You should expect deviate growth. and you should expect a continual drop in cost-to-cost. Maybe not 23 basis points, but it will still be a pretty solid number. Let's talk a little bit about the loan portfolio and the kind of the balance sheet. The last quarter, we had reported 3.6 billion, or 50% of the loans had been granted the initial three-month deferral. So updated through October 25th, that's the last day that we could pick before we went pencil down. For commercial loans and September 30th for residential loans, residential data is a little bit older, 983 million or 4% of our loan portfolio was either on a 90-day deferral or had been modified or was in some process of being modified. So those three buckets add up to $983 million. Now, as you all know, a significant portion of our residential portfolio, even though they are technically have a deferral, they're actually still paying as usual. So if I back those loans out, then that 983 drops to 788, or 3.3% of loans that fall into one of these three buckets. So that compares, once again, to 15% who were granted the initial 90-day deferral. Quickly, going to the P&L, and again, like I said, we will dig deeper into this. NIM declined by seven basis points from 239 to 232, largely because the investment portfolio came down and all our excess liquidity was deployed in the investment portfolio rather than in the loan portfolio. The investment portfolio grew by $607 million and loans declined by $69 million. Loan demand is fairly weak. With the exception of anything to do with residential, there, of course, we saw growth for the warehouse business and the residential business as well. Provision was $29.2 million this quarter. That compares to 25.4 last quarter, so basically in line. Reserves were now at 115, 1.15%. They were at 112 basis points last quarter, so again, you know, pretty steady. Book value has increased to $31.01, which is basically very close to where we were before COVID started. So, December 31st, we were at $31.33. So, we're pretty close back to it. Part of what helped here was obviously we saw continued improvement in the OCI. If you remember, we had a pretty big mark on the investment portfolio in March. We had a negative $250 million round numbers mark. That had improved to just negative $2.5 million last quarter, and now we're up positive $62 million. So all of that helps picking up book value and tangible book value. Capital, set one capital was 12.1% at Holco, 13.5% at the bank. We, of course, are here to pay our 23-cent dividend. If you recall, we had to increase the dividend in February. And even before we get a question on share repurchase, we are not yet buying back stock. We still think we need more optimism and more stability out there before we turn to share repurchases as an option. I think that will be a discussion point at the board meeting in November and probably again in February, but I would think that will probably be at least until first quarter before we move on this, given what we're seeing over the next few weeks. There's still a lot of moving parts to the economy. NTAs. Let's quickly get into some credit ratios. The NTA ratio was down just a little bit from two 58 basis points compared to 60 last quarter. If you carve out the guaranteed portion of SBA loans, it was 46 basis points compared to 47 last quarter. NPLs, again, were at 84 basis points. But again, if you exclude the guaranteed portion of SBA loans, they were at 66 basis points. So, year-to-date net charge-offs are running at 25 basis points. We took $24 million in charge-offs this quarter. 22 of that 24 was one credit that we had been talking to you about for some time. This credit had gotten to work out around this time last year. We have been collecting nicely every month. We were bringing this balance down. But as COVID hit, payments stopped. And to be honest, what started as a credit loss is beginning to look more and more like a fraud loss. So we're pursuing the guarantors and we're in litigation. But we've taken a fairly big charge off and we're fully reserved for this loan. Risk rating migration, we'll continue to see risk rating migration this quarter. particularly in the substandard accruing category. We take pride in basically the fact that when you see risk, we call it out. We don't try and kick the can down the road. So that's the directions we've given our risk people. If you think there are signs of stress, whether it's in cash flow or revenue or liquidity or leverage or anything, you call it the way you see it. So that's, you know, you will see that in the numbers. Quickly, in terms of just operational matters, we are still pretty much remote. We did start very collectively opening up a couple of our offices in Long Island and Westchester. We did allow about 20% of people to return, more as testing the waters than anything else. It is voluntary, and people, you know, employees who want to come back can come back, and of course we're taking all kinds of precautions to make sure everyone is safe. But a large part of our employee base is in Miami Lakes, and we haven't done that, and it will probably be at least a month or two before we do anything in Miami Lakes. There's no reason to be heroic in terms of bringing everyone back, so that's my stand on that front. Not much of an update on 2.0. The low-hanging fruit on the expense side, as you know, has already been harvested, and we'll continue to go after more expense where we can. On the revenue side, we did launch the commercial card program. It was delayed by just a few weeks. It was launched in August. I'm surprised, given, you know, everything that's happening, we were able to hold that timeline. And also on credit management and payment side, we're increasing that suite of products. So all is well on 2.0. And in an environment like this, the priorities that I have asked the team to focus on, one, obviously, is credit. We have to manage our credit book. And two... is in the long term, you know, we have to keep building our DDA book. We want to be an operating bank, not just a place where people park money. And you're seeing that. This is not just accidental that that level of growth is coming in. Of course, the environment is helping, but there is a lot of investments that have been made over the last year or two, a lot of effort that was put in that is paying off. And, you know, that $900 million of BDA growth, this is the quarter in which we're supposed to have life growth because PPP money was running off. And some of it did run off, and some of it will run off, you know, in the future. But despite that, to see nearly a billion dollars of BDA growth in an environment where we're all, you know, hiding under our beds and not really going out and, you know, socializing with clients, that's a pretty impressive number. So... With that, let me turn it over to Tom, who will talk to you a little more about the balance sheet, and then Leslie will take over from there.