BankUnited, Inc.

Good day, and thank you for standing by. Welcome to the Bank United fourth quarter and fiscal year 2022 earnings call. At this time, all participants are in a 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 11 on your telephone, and you will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Greenfield, Corporate Secretary. Please go ahead.

Thank you, Michelle. Good morning, and thank you for joining us today on our fourth quarter fiscal year 2022 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, 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 limitation, those relating to the company's operations, financial results, financial condition, business prospects, growth strategy, and liquidity, including as impacted by external circumstances outside the company's direct control. 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. These factors should not be construed as exhaustive. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31st, 2021, 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. Thank you for joining us. So we announced earnings this morning. EPS for the quarter came in at $0.82. For the fiscal year, $3.54. Let me get quickly into the components, the key components that you will find in the release. Loans. Loan quote came in at $619 million. If you look at our meat and potato businesses, commercial NCRE, it actually grew $722 million. So we're very happy about what the lending teams were able to get done this quarter. Deposits, which are under a lot of pressure across the system, we actually grew deposits a little bit, $160 million, though NIDDA did decline given the rate environment and how Fed Funds is. So NIDDA declined. was $756 million. DDA now stands at about 29% of our total deposits. When we started this DDA growth journey five, six years ago, I think we were at 14%. Just before the pandemic, we were at about 18% DDA. Today, we're at 29%, so I feel pretty good about it. Despite the reduction in DDA that we saw this year, we're still in a pretty decent place. Margin expanded again, though a little less than in previous quarters, as we had highlighted to you. Margin came in at 281. It was up from 276 in the prior quarter. So for the year, I think margin grew by 30 basis points, which is right in line with what we had guided to you at this call last year. Before I talk about provision, let me talk a little bit about credit quality. Criticized classified assets continue to come down as they have over the last many, many quarters. Our NPLs are actually now at 42 basis points. They were 64 last quarter, and this includes a guaranteed portion of SBA loans. If you back that out, NPLs are now down to 26 basis points. Just before this call, I asked Leslie to check for me what the NPLs were before the pandemic hit. And, you know, NPL today in dollars are at $105 million. And before the pandemic hit, we were at $205 million. So NPL today are half of what they were. And so from a credit quality perspective, from the portfolio, you know, the last two years, we've been sort of, you know, consciously and subconsciously been getting ready for whatever slowdown is coming. And we feel pretty good about where we are. whatever comes our way. Having said that, we are more pessimistic about or more cautious about the environment than we were three months ago. So we did tweak our assumptions and increased our reserve. We took our reserve up from 54 basis points to 59 basis points. We, of course, had growth in the portfolio. All of that added up to a provision of just under $40 million. Also, the buyback continued as we had promised last time. We had bought back, I think in fourth quarter, $65 million. We had already bought 10 from this authorization in the previous quarter. That leaves us $75 million in this authorization, which we'll continue to execute as we see fit. Quickly, let me talk about the environment, and then we'll talk about guidance for next year. The environment, 2023, this is the year of the slowdown and possibly even a mild recession. That seems to be the consensus out there. The curve is inverted, as everyone can see. The Fed wants to take short-term rates up closer to 5%, and the 10-year stubbornly wants to go closer to 3%. So it's an inverted yield curve, and it's expected to stay inverted all through this year, probably into next year as well. Last year, the Fed... slammed on the brakes. This year, they're not slamming on the brakes. It looks like they still have some pressure on the brakes. And they'll probably take the foot off the pedals sometime this year. But it's unlikely, at least based on what the Fed is saying, that they will step on the gas pedals. The market disagrees, and only time will tell eventually how things play out. We build all of our internal models and projections and everything based on whatever the future curve is telling us. Labor costs, while they were very high last year, I would say they're still higher than usual, but they are moderating somewhat based on some weakness that we're seeing in certain sectors. So that is good news that labor costs seems to be getting back to normal, but it's not back to normal yet. On the other side, there is good news. Margins are better than we've seen. Lending margins, loan pricing is very rational. We're getting paid for taking credit risk pretty much across the board from the safest to across the spectrum. Any kind of asset you want to participate in, margins are 50, 70, 80, 90 basis points better than they were just nine months ago. And most importantly, Fed is succeeding in its mission of controlling inflation. That was very important. Three or six months ago, this looked like a pretty crazy place that the economy was in. But the Fed is finally having success. And eventually, that will also have an impact on this inverted vehicle. Inverted vehicles are not good for bank margins. So as the Fed finishes this tightening process, and gets to the other side, it will be a better rate environment for banks. But right now, it's in the vertical curve, which is tough. Last year, we gave you guidance around loans, deposits, margins, and so on. We said loans would grow mid to high single digits. They grew 6% in total, 13% for CNI and CRE, our main, like I said, bread and butter categories. Deposits, we said mid-single digits, but starting in January of last year, nobody foresaw what the Fed was about to do. I don't think even the Fed foresaw what they eventually did. So we missed on that. Margin, we said, would expand a bit by 30 basis points, came in exactly as we expected. Expenses, we said, would grow mid to high single digits and did, 7.5% growth in expenses. And, you know, the end result was, oh, we also said we would buy back stock, and we did, a little over $400 million worth of stock. And I grew 15% based on, you know, I actually, one of the metrics I asked this morning, you know, I often look at 2019 as sort of a year to compare things to because 20 and 21 were pretty messy. with large provisions and reversing provision and so on. And the really clean year is 2019. And I often ask about, just like I said about NPLs, what were NPLs at the end of 19 versus today where they are? I ask about margin also. And our margin has, despite the difficult rate environment, our margin is significantly better than it was in 2019. which is sort of an end result of all the hard work that has gone into improving the franchise. You know, cost of funds, while it is elevated at 142 base, cost of deposits 142 basis points, it is 142 basis points in an environment of, you know, north of 4% Fed funds rates soon to get to 5%. So it is, you know, a lot of progress has been made on the balance sheet, whether you look at credit metrics or profitability metrics, Yes, there is a lazy part of the balance sheet still sitting there, very large securities portfolio, large resi portfolio, which will sort of wind its way down over time. But overall, I think the balance sheet is in a much better place than it was before the pandemic. This year, given everything I've said about the environment, I think we're looking at loans going at mid-single digits, deposits doing the same, margins still expanding, though not as much as it did last year. And expenses, again, very similar to last year, expense growth. Buyback will continue. We will get this $75 million done over the course of the next few weeks. And on all likeliness, the board will authorize another $150 after that. A quick reminder, you know, it's been now nine months since we launched our Atlanta presence. I am extremely happy with how that has panned out. We did open a branch in Dallas, but we did not truly acquire a team on the commercial banking side. We are in the market for that now. So Dallas will be the project for this year in terms of having full capability in Dallas, not just a branch. Atlanta is off to the races. I'm very happy with that. And I think going forward, we will look... to opportunities like Dallas, like Atlanta, and continue to grow this, and this will become part of our ongoing strategy. So with that, I don't want to take away all the talking points here. I'll leave some for Tom. Tom, I'll pass it over to you, and then you can pass it to Leslie.