BankUnited, Inc.

Good day and welcome to the Bank United first quarter 2023 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Corporate Secretary, Ms. Susan Greenfield. Please go ahead.

Thank you, Cherie. Good morning and thank you for joining us today on our first quarter 2023 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 limitations, 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 statement. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2022, 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 today. It's been an eventful quarter. We have a lot of information to share with you, so this call may be a little longer than usual. Let me start by saying, you know, making a simple statement. Our business is stable and growing. Our liquidity position is strong and our capital base is robust. These, you know, if all you take away from our call is just that, you know, that's sort of the most important thing in all the remarks that we will make. Let me elaborate a little bit on each one of those three things. March 13th, the week of March 13th was certainly disruptive. It cost us about a billion eight in deposit balances, but deposit flows basically the week after that returned to normal. In the last two weeks of the quarter, we actually saw a build of about 245 million in deposits, which is very normal for us. We obviously are building deposits late in the quarter, usually late in the month, but certainly late in the quarter. Our liquidity position, 62% of our deposits are either insured, FDIC insured, or are collateralized. And currently we have $12.3 billion in same-day availability, which equates to 128% ratio of uninsured and uncollateralized deposits. Our capital position, as you already know, is strong. Our SEC1 is 10.8%. At the bank level, it's 12.5%. We have suspended our buyback given all the volatility that we're seeing in the markets. We will revisit it again later in the year, the decision later in the year. And also, just, you know, the second ratio of 10.8%, if we were to actually put our AOCI mark through it, it would still solve to a 9.4%. And, of course, with the suspension of buyback now, the second ratio will start to accrete every month, every quarter. So based on just those things, I'll reiterate again, business is stable and growing, our liquidity position is strong, and capital base is robust. Let's talk a little bit about the quarter. And let me make some remarks about loans, and then really most of my comments will be about deposits, as you can imagine. From a loan perspective, this was, first quarter is our slow quarter. As you can go back and see many years, I think last year, last couple of years, it was a negative growth quarter. This quarter, it was basically flat. So there was nothing really interesting and exciting. It is our slowest quarter of the year, and it came in just as we had expected with basically flat numbers. There's some growth in CNI, you know, some reduction in DREZI, but that was all pretty much predictable. On the deposit side, I would say that the quarter, you could split it into two halves. You can talk about from January 1st all the way to the events of March 10th, March 11th, that weekend, and then what happened in the three weeks after that. So just before these events happened, so by March 10th, we were down about $277 million in deposits. And like I said a little bit earlier, you know, intra-month, intra-quarter, we're usually down, and then month-end and quarter-end, we usually see a build. So when I am standing on March 10th and looking at a negative 277, that generally means we will end the quarter at least flat and most likely up. So that's what we were expecting. We did see, of course, you know, shift from interest, non-interest bearing to interest bearing. So that trend was, you know, happening in January, February, and to March as well. But Before all of this chaos happened, it was looking like a fairly normal quarter, both on the lending side and on the deposit side. And then March 10th, 11th, 12th, that weekend happened. We saw outflows of about $1.8 billion in the very first few days. Most of it was on Monday. Some of it actually was on Tuesday and Wednesday. But by the end of that week, things had basically gone back to normal. Our nervousness was still high, but what we were seeing in the deposit flows, it went back to normal by the following Monday. And then from there on, while we were in heightened alert, we really did not see any unusual activity, except for that one week, for the week of March 13th. And like I said, as we always expect, deposits start to grow towards the end of the quarter, and we ended up where we did. We did a deep dive into exactly where that BillionAid came from, and it really came from 10 relationships. Two of those 10 relationships, I would say, surprised us. The eight did not because the eight, I would say, were in the category of institutional customers, often with fiduciary responsibilities, who decided that the regional bank sector, not Bank United, but regional bank sector was risky and they wanted to pull money out from all regional banks. Two were very core businesses where they didn't take money out completely, but they de-risked from us. And one client took out about half the money, the other one took out a little more. And that is core money, which was very profitable from a margin perspective and we're working hard to bring that money back or at least some of that money back. We also took a look at, you know, I asked Leslie, I said, okay, we get this 10. How about we look at the top 100 customers? You know, is there anything else happening in the sort of the other 100 customers? Leslie went back and said, you know what, nothing happened in the first 100 customers. We looked at customer by customer. We didn't see any flows. Nobody closed. Nobody pulled money out. I said, you know what, let's just go for 200 customers. Let's go another 100. And again, there was nothing that we found. So it was really limited to 10 clients. It was limited to, you know, it actually all was Monday and Wednesday for some reason. Most of it was Monday and Wednesday. And after that, it's been pretty normal. Now, I would like to make it clear that this money has not come back. And we are not, you know, engaging very strongly to bring that money back because, you know, this money kind of showed us exactly how non-strategic it was. And we probably shouldn't have had that much of this money here anyway. So we have not engaged in any meaningful way to try and bring back this money. And the comments I'll make about the pipeline and stuff we're doing there on will be separate, will be removed from this BillionAid, which I don't talk about in a different place. Let's see here. So in terms of our reaction, what we did that weekend and in that week, this shouldn't surprise anyone. I'm pretty sure every bank was doing this. We were hearing things about how the FHLB system is getting taxed and posting collateral is an issue and so on. So we did not see that actually on our end. We drew down $2 billion in cash on that Monday morning without any issue. We posted collateral with the Fed at the FHLB and stayed in constant communication with our regulators, with, of course, FED and the FHLB. We equipped our RMs and branch personnel with all the information that they needed. We offered ICS reciprocal programs, which we've always done in the past. It has never really been much of a product of interest, but we did offer that more widely. We held, obviously, lots of employee calls. And, you know, so it was basically communications one-on-one is what we were doing most of that week. It did, for a period of time, slow down the sale process. Everyone was distracted in sort of the middle of March towards, you know, all the way into end of March. But I'm happy to say, and I'll get into this in a little more detail, that it has not derailed in any way the pipeline that we were working on. That was my biggest fear, like, you know, when this was happening, you know, on one hand it was what's happening with deposits that we have currently, and the second question was what will this mean for going forward in terms of the pipeline that we have, will we be able to protect it or not? And I'm happy to actually say that not only have we been able to protect it, but grow that pipeline. And a few more comments in a couple more minutes. Let me say, deposit growth is hard, it's challenging, but it's also the number one strategic priority for the company. And when I say deposit growth, I mean core deposit growth. The pipeline that I just talked about in a little bit, you know, we do pipeline reviews all the time, both in the lending side and the deposit side. We did one actually just before this crisis happened in mid-March. We did one in early March. And I spent a good part of yesterday going through our pipeline reviews in preparation for this meeting. The numbers today are significantly better and higher than the numbers a month ago, which is why I was feeling very good yesterday. There's a couple of reasons for it. One is just some delayed activity which didn't fall off completely but just got delayed. But one large part for that healthy pipeline is that out of this chaos comes also an opportunity. You know, we've had a couple of really large banks fail, and others were struggling, and they're throwing off a lot of business. And while, you know, we don't completely follow the, you know, don't have a perfect overlap, let's say, with Silicon Valley Bank, and I'm not sure we're going to benefit from that, there was some overlap between the kinds of business we have and Signature had. That actually, I think, was also part of the reason why we saw the pain But also that is what is creating an opportunity. There's a lot of talent and a lot of business that has been thrown off. And I have actually interviewed more producers in the last month than I did all of last year. And so while it is a moment of caution, it is also a moment of opportunity, and we have to capitalize on that. So the pipelines for deposits look healthier than they did a week before this happened. And we are doing everything to capitalize on them. And this was done based on a very detailed review, account by account, relationship by relationship. By the way, I did tell my team members or my entire producing staff that we're no longer in the business of home runs. We're only in the business of singles and doubles. What this means is we have to build more granular. But we've been saying this actually for the last couple of years. But now it is even more important. that this business that is being thrown off is a lot of big-ticket business being thrown off. That's not what we're interested in. It's core middle market, small business, which we want to build the pipelines on and the business on over the long term. So let me talk a little bit about guidance. So in terms of the costs, like I said, we feel pretty good about the pipeline that we have of core business. Put aside the billionaires that left aside. I mean, there is probably some part, like I said, of this billionaire which will be good and strategic and would like to bring back. but I'm not very excited about bringing a lot of, or any of this, very lumpy price sensitive. We always knew this was price sensitive, but in this black swan event, it also showed us that it's very nervous money also. So I'm not sure there's much we can do with that kind of nervous money, so I'm not looking to bring this back, at least not in the way that it was here before. On the lending side, The economy is doing just fine. I mean, my comments generally, you know, I always talk about credit, but I don't really have much to talk about credit. So I'll just leave it at saying that credit is fine, and that's not what we're losing sleep on. Especially, you know, Florida is doing phenomenally well. Loan pipelines are healthy. But we are going to be careful in what kind of loans we do. We're going to do loans where we have the full relationship, and just credit-only transactional business we're not going to do or we're going to, you know, de-emphasize. The REZI portfolio shrunk this quarter. You should expect it to keep shrinking over the course of the rest of the year. The last, you know, through the pandemic, when we were nervous about doing a lot of commercial business, but we had deposit inflows, you know, the place where we put that money was the bond portfolio and REZI. And we have gotten heavy in those classes, and I think you should expect both, just like you saw this quarter, Securities run down and the resi portfolios run down over the course of the rest of the year. CNI will grow, given the pipelines that we're seeing, and fairly healthy. I think at some point, if the economy really slows down and we do enter a recession, then maybe not. But right now, I don't see that, so I am predicting good CNI growth. CRE, I would say, somewhere in the middle, probably stay flattish. And Overall, you know, Leslie will talk about margin and she'll walk you through that because I left the more fun stuff for Leslie's comments. Yeah. Wow's here. I took some notes before this call to make sure I covered everything. You know, we did increase the dividend by two cents this quarter, as we did this time last year as well, in February of last year. We did buy back $55 million of stock until we stopped it. There's a little bit of room left in the authorization, but like I said, our buyback will remain suspended until we see more stability in the economy and in the liquidity situation that the banking industry finds itself in. Let me see. That's it. I'm going to pass it over to to Tom, who will go through a little more detail on the numbers before Leslie will finish and then we'll take questions.