BankUnited, Inc.

Good day and thank you for standing by. Welcome to the Bank United Financial fourth quarter and fiscal year 2023 earnings call. At this time, all participants are on 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 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 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, Kevin. Good morning, and thank you for joining us today. 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 conditions, business prospects, growth strategy, and liquidity, including as impacted by external circumstances outside the company's direct control, such as adverse events impacting the financial services industry. 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 statement. 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 31, 2022, and any subsequent quarterly report on Form H-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. Good morning, everyone, and thank you for joining us for the earnings call. About nine months ago, right after March Madness, at the first quarter earnings, we kind of laid out for you what our short-term strategic imperatives are. And they roughly were, you know, if we could summarize them by, let's say, improve the balance sheet, do then improve the P&L, and improve the balance sheet means on the left side of the balance sheet, you know, rely less on resi and bonds and more CNI and CRE growth. On the right side of the balance sheet, rely more on core funding, defend DDA, and, you know, And if you did all that, margin would expand and, of course, keep expenses in check and keep credit front and center given that we're at uncertain times. So over the last couple of quarters, we kind of laid out for you how we did against those data goals. I'm happy to announce the fourth quarter of 2023 was the continuation of that story. Deposits grew nicely, $426 million, despite the fact that includes a couple hundred million of brokered coming down. So excluding brokered, our deposits grew $604 million. NIDDA was down for a seasonal adjustment. It literally happened in the last two, three days of the quarter. Average DDA were actually down only $28 million, but period end were down more. And on wholesale funding, it came down as it did last quarter. FHLB brokered, everything was down. And on the left side of the balance sheet, just like last quarter, RESI loans came down $172 million. Bonds also came down $100, but we had growth in our core segments, CNI and CRE as well. I was actually... At the beginning of the quarter, I was seeing like it might be a flat quarter for CRE, but it also grew. So total between C&I and CRE, we grew $476 million. On credit, oh, by the way, you know, all of this led to margin expansion again. So margin expanded from 256 last quarter to 260. And if we keep doing this, margin will keep expanding. And we'll talk about it next year in a little bit. Let me just go through the rest of the fourth quarter first. NPAs, on the credit side, NPAs take down from 40 basis points to 37 basis points. And if you exclude SBA loans, then it's actually 25 basis points. So NPAs are getting to a place where they're so low that it'll be harder to drive them down. Charge-offs, nine basis points for the year. If you compare that to last year, I think we were at 22 basis points, if I remember right. So charge-offs for the full year have been You know, fantastic. And we built reserve again a little bit this quarter. I'm sorry, I still keep calling it reserve. I mean ACL. Everyone knows what you mean. Yeah. 82 basis points. It was 80 basis points last quarter. Criticized assets did increase this quarter, as you would expect this time in the cycle. But overall, on credit, with charge-ups being where they are, NPAs being where they are, and our reserve, or ACL being where it is, I'm sleeping very well at night. Capital is robust. SEC 1 is now 11-4, and TCE to TA also is now at 7%. Unrealized losses in the securities portfolio improved by over $100 million, and the AOCI net of tax improved by $50 million. So, by the way, there were a couple of sort of notable items in the P&L which we highlighted in the article. The FDIC assessment, which you guys all knew about, about $35 million. And also, we sold some rail cars this quarter, and that was a $6.5 million charge. This actually helps us avoid some expenses in the coming quarters, you know, The $6.5 million is significantly less than the expenses that we avoid if we had not sold these rail cars. So some retrofitting expenses. So I'm happy about that as well. So what are we seeing in the marketplace? The marketplace, you know, dare I say we're seeing a soft landing where we're seeing sort of the perfect sort of thing which we're all worried that the Fed will never be able to achieve, but it might be actually achieving that. On Main Street, we're not seeing a slowdown. We're not seeing a slowdown either in loan demand or in margins. We're not seeing concerns in the credit beyond the day-to-day concerns that we always have. So we're seeing a pretty decent economy, especially in Florida, we're seeing a pretty strong economy and beginning to feel more optimistic than even three months ago. With that in mind, I would say that, you know, for 2024 guidance, what we will say to you is given what we see in the economy and the rate environment, it feels like this year, you know, the strategy is going to stay the same, by the way. It's to improve the left side of the balance sheet like I just described we've been doing over the last couple of quarters, the last three quarters, and also improving the right side of the balance sheet. So we finished our planning for the year just a couple of weeks ago. And what it comes out to is high single-digit growth in deposits, not including brokers. So brokers would actually want to take down, continue to take down FHLV. And on the lending side, again, on the CNICRA front, high single-digit growth. RENDI will continue to shrink, probably similar to the amount that it shrank this year, if it were to take. And NIDDA is where the focus will remain. And we'd like NIDDA... get back over 30%. It's hard to say when that will happen, but we certainly are gearing the whole company up to shoot for that, to get back over 30% over time. It may not happen in a year, it may happen in a couple of years, but that still will be the most important thing we'll be chasing. Margins should continue to improve. The first quarter will probably be flattish, give or take one or two basis points. But after that, margin is a steady increase up into all of this year and into next year. And expenses will be mixing with this in terms of expense growth. Am I missing anything? Or you can fill in if I'm missing anything else. And in terms of capital, at least, you know, this is a question that will come up with the very first questions. I might as well answer it. So for the time being, we stay on the sidelines of share repurchases. At the February board meeting, we'll talk about it again with the board. I think in the short term, that's going to be our stand. In the medium term, it will probably change. But we need to see a little more time before we get back into capital repurchase. There is a dividend discussion that is coming up in February, and I do expect the board to act positively on that.