BankUnited, Inc.

Good morning, and thank you for joining us today for Bank United, Inc.' 's second quarter 2024 results conference call. On the call this morning are Raj Singh, Chairman, President, and CEO, Leslie Lunak, Chief Financial Officer, and Tom Cornish, 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 reflect 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 such as adverse events impacting the financial services industry. 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, 2023, and any subsequent quarterly report on Form 10-Q or current report on Form 8-Q, 8-K, which are available at the SEC's website, www.sec.gov. With that, I'd like to now turn the call over to Mr. Raj Singh.

Thank you. Welcome everyone to our earnings call. Thank you for joining us. I'll start out by saying this really has been an outstanding quarter. You know, there's always some variability on how things will end when you're coming towards the end of the quarter, and sometimes things fall your way, sometimes they don't. This quarter, I think everything fell our way, whether you look at loans, deposits, NIDDA, whether you look at cost of deposits, margin, expenses, credit, capital, liquidity, I mean, I really couldn't have asked for a better end to the quarter. And just as we were celebrating, of course, India won the World Cup on the last day of the quarter. So like I said, I really couldn't have asked for more. I still haven't stopped celebrating. So thank you, Team India, for making my day. Let me quickly go into the numbers, and I'll highlight a few, and then Tom and Leslie will jump in with more details. Just to highlight, of course, EPS came in at 72 cents. I think I checked a couple of days ago. Consensus was around 65 cents. Margin, as we've been telling you for some time, that we expect margin to grow, which it did very nicely. I think last quarter we were at 257. We're up to 272 this quarter, so very happy about that. That margin grew simply because we are seeing success at transforming the balance sheet, both on the left and right side of the ledger here. So talking of the right side first, deposits, deposit costs actually came down for the first time. So last quarter we told you we're kind of getting to the place where deposit costs will not grow. Happy to report that actually we dropped deposit costs from 318 down to 309. you know, if you peel the onion back a little bit more, you know, a lot of that drop really came, not all of the drop came from DDA growth, which was phenomenal this quarter. But if you look at interest-bearing deposit costs, while they were up a little bit from 421 to 426, it's also beginning to plateau out. Last quarter, by the way, they were up 17 basis points. This quarter, up only five basis points. But overall, deposit costs were down from 318 to 309. We're very happy about that. Deposit growth, which is the big story here, non-broker deposits grew by 1.3 billion this quarter, and off that 1.3 billion, 826 million was non-interest DDA, which is just a very, very solid number. That's, by the way, on top of a pretty solid DDA growth that we had in the previous quarter as well. I think for the first half of the year, NIDDA is up 1.2 billion. So that transformation that I'm talking about to the right side of the balance sheet is well underway. But of course, the job is not done. We're going to keep at it and keep improving the deposit mix. We did take this opportunity to pay down more of the broker than we had originally planned. So net off pay down in broker, our deposit growth was $736 million. If you look at wholesale funding, if you define wholesale funding as brokered and FHLB combined, we brought that down by $1.2 billion this quarter. I had Leslie just yesterday look at this. Where was this wholesale funding a year ago or a year and a half ago, and when were we at this level or lower? You really have to go back to the beginning of this rate cycle, so early 2022. to see numbers as low as this. So despite the fact that we're still at 5.5% Fed funds rate, we've taken our wholesale funding down all the way back to when the Fed was at zero. So that's quite an achievement in a short period of time, basically in the last year. Asset mix also improved, just as we had been guiding to. While REZI declined by $212 million, our corporate business, commercial business, small business, CRE, everything grew. And if you combine all of that, the growth was $589 million in those categories. Resi, like I said, declined a little over $200 million. And the leasing business continued to run off as it has been for several quarters now. Overall, credit strength trends are still solid. Actually, this is the first quarter in some time where our criticized and classifieds declined just a little bit. But, you know, we've been proactive in risk rating credits down over the last few quarters. So this quarter, actually, the trend went the other way just a little bit. There was some migration in Office CRE. We actually had NPAs go up a little bit. The most notable are two loans in Office CRE, which amount to about $50 million, one in New York, one in Florida. But we're fully reserved for this, and none of this came as a surprise. We've been tracking this for quite some time. and feel pretty good about the results that we've already taken on these loans. In terms of, you know, Leslie will talk more to you about expenses, but even in fee income, I just wanted to point out that we've been making investments over the course of the last couple of years that have not been very noticeable, but they're beginning to now pop up. We're having good success with commercial cart. We're having good success with capital markets products. stuff that we've launched over the course of the last couple of years. And the numbers are beginning to be noticeable, and I'm very happy about that. And a big shout out to the teams who've worked on this over the last two years. Capital, liquidity are all robust. Tangible book value continues to grow. The mark on the bond portfolio continues to come down. So like I said, nothing but good news, and I'm very happy with how things turned out. In terms of guidance, not much in terms of, you know, we're not changing strategies mid-year. We've got to keep our heads down and keep delivering, DDA growth is still the most important thing for the success of the company. Let me take a minute to mention this billion two of growth that we've had in DDA. A large part of this has come from bringing in new customers. This doesn't happen without bringing in new clients and we've had a lot of success with broad-based, both New York, Florida, and our national businesses And when you look at pipelines, which Tom will talk about, we feel very optimistic about continuing that growth. It has also been helped by some seasonality, as we have talked to you in the past about. The first half of the year, seasonality helps us. The second half of the year, not so much. Towards the end of the year, it actually hurts us. I think similar trends will happen again. So I don't think you will see that billion dollars a quarter type of DDA growth for one reason only, which is seasonality. But other than that, in terms of the core growth, you should expect a similar level of new relationships coming on for at least the next six months that we can foresee based on our pipeline. What else, Leslie? Am I missing anything? Oh, yes, one very important topic. Also, while we're doing all this, we built this bank by attracting like-minded people who want to be part of a sort of organic growth story. And this whole bank has been built on bringing in people like that over the years. Our most recent add to our team that we announced a couple of months ago is Ernie Diaz, who's not in the room with me here. But Ernie came to us from TD Bank, where he was head of the consumer bank, ran the entire retail footprint, ran the wealth management business, the auto finance business. And before that, he's done just about every job at the bank. So we're very happy that someone of his caliber would join us. He's been with the bank, like I said, only a couple of months, but he's already bringing ideas to the table that we probably wouldn't have thought of if he wasn't with us. So a big welcome to Ernie, and I'm happy that the people are choosing to join Bank United. Let me turn this over to Tom, and he'll go over the numbers in a little more detail, and then we'll move to Leslie after that.

Great, Raj. Thank you. So, as Raj mentioned, total deposits were up 736 million for the quarter, including the reduction in brokered, non-brokered deposits grew total by 1.3 billion, NIDDA by 826 million, and NIDDA is up 11 percent quarter over quarter. As Raj alluded to, as we look forward, the pipelines, I think, remain, you know, very robust across all of the operating teams. New account business, I think, looks very good for the quarter. As he mentioned, the back book is always subject to seasonality and issues, but I think the new relationship pipeline continues to look very strong for not only the third quarter, but we track opportunities out 180 days kind of into the fourth quarter. We are taking some advantage of this and looking at reducing some rates on higher-price deposits. Some of these were relationships or deposits that we increased during the financial disruption of the previous year. And, you know, we think now is a good time as we are moving down cost of funds and continuing to increase deposits at the clip we're doing to take advantage of that and look at opportunities to reduce some very specific relationships and, you know, higher-rate-type deposits. On the loan side, overall loans were up $402 million quarter over quarter. Again, core C&I and CREE segments growing $589 million in total, $475 million for the C&I segments, $114 million for CREE. Mortgage warehouse was also up $83 million, and consistent with our strategy, residential was down $212 million, and the leasing in municipal finance subs were also down. I would say that when we look at the growth for the quarter, both on the CNI side and on the CREE side, you can see from the information that you can pick up in the supplemental data, it was pretty broad-based growth across, you know, segments. I would say seven or eight of our largest CNI segments all grew for the quarter. The ones where we have our practice teams, where we have our geographies, predominantly focused. We saw a nice broad base growth. If you look at Cree for the quarter, it grew within the asset segments, you know, that we're predominantly focused on now, which would be, you know, industrial multifamily and urban kind of core retail grocery anchor type business. And so you'll see the overall distribution of the Cree portfolio largely stayed almost exactly as it was for the previous quarter. except with some growth in everything with the exception of, obviously, office. We did not grow. But overall, very, very healthy quarter fours. Commercial pipeline looks very good going into Q3. We continue to expect high single growth in the core commercial portfolios for the year, consistent with prior guidance. More CNI than Cree. Resi, municipal, and equipment finance will continue to decline. The operating lease equipment portfolio declined by 62 million this quarter, and we took advantage of some opportunities to selectively sell some assets as we've been moving away from that business. I was looking at it yesterday. Over the last two years, we've declined our lease exposure from 702 million to 266 million over that period of time, and we're going to continue with that strategy. The loan-to-deposit ratio, improved from 89.6% to 88.7%. Let's dig a little bit deeper into CREE and talk about office as well. You can look at slides 12 through 15 in the supplemental deck where we've added some additional disclosure. So overall, big picture, you know, our CREE exposure remains, I think, relatively modest to 24%. of total loans, CRE to total risk-based capital is 165%. I think compared to others in our peer group in the 10 to $100 billion range, you know, their numbers were 35% and 222% respectively. So overall, you know, we've continued to keep the CRE portfolio kind of within the risk parameters that we've always focused on. And that 24% and 165 is kind of a number that we're comfortable with. At June 30th, the weighted average LTV or decree portfolio was 56%, and the weighted average DSCR was 1.77. 56% of the portfolio was in Florida, and 27% is in the New York tri-state area. Spent a little bit more time on office. As I told you on the last call, we track every single office loan. They're all right in front of me. Right now, when we break it down by sub-market and follow all the sub-markets, just in general, I would say if we look at this quarter over last quarter, we have Cree office loans in 16 different sub-markets that the company operates in. The credit statistics this quarter compared to last quarter were better in nine of the 16 sub-markets that we're in. and they were better in seven of the eight submarkets where we have exposure greater than $100 million. So it was a positive quarter as we look at tracking the credit metrics across the different business segments that we're in. And that was really primarily for one reason. Occupancy generally remained pretty strong across the portfolio, but what we really saw was abatement roll-off. And so, you know, a lot of the leasing activity, obviously, over the last couple of years has, you know, contained abatement periods of time. And during that abatement period of time, we don't, you know, we don't count that in the NOI. And we saw, you know, pretty broad improvement in debt service coverage ratios this quarter in the major segments that we're in, largely because of improving abatement situations. So specifically, We have $1.8 billion in office with 58% in Florida, which is predominantly suburban, 24% in the New York tri-state area. Of that, $309 million of the total CRE portfolio is medical office, which really has pretty different debt service coverage ratios and debt yield dynamics from an industry perspective. The construction portfolio also includes an additional $87 million in office-related exposure, $84 million of that is in Manhattan. Neither of those are ground-up construction. They're really renovation of existing buildings. The weighted average LTV of the stabilized office portfolio was 66%, and the weighted average debt service coverage ratio was 1.59 as of June 30th. There's also additional breakdown of those numbers by geography on slide 12. $402 million of the office loans mature in the next 12 months. $191 million of this This fixed rate rent rollover in the next 12 months is 9% of the office portfolio, so we have relatively light rent rollover in the next 12 months. With respect to the stabilized New York tri-state portfolio, 43% is in Manhattan. This is approximately $180 million and has a 96% occupancy and lease rollover in the next 12 months of 6%. We continue to see some encouraging signs in the Manhattan market. If you look at total leasing for the first half of the year, It was 15.5 million square feet, which was up about 9% over the previous year, predominantly in Class A space. And this is certainly not at the level prior to the pandemic, but we have seen a consistent improvement in the leasing activity in Manhattan over the last two years. This was the strongest quarter that we've seen increases over the last 12 months. Demand and demographics continues to be generally favorable in Florida. We are seeing a couple of weak spots in certain segments in the Orlando market, predominantly suburban North Orlando, where we have one of the loans Raj mentioned. There are some charts on slide 16 that give you a further geographic breakdown of the Florida and New York tri-state portfolio by sub-market. I would say that all other markets in Florida you know, are pretty strong. I was mentioning to Leslie this morning that I looked at the Tampa numbers for the quarter, and there's over 1.4 million square feet of lease space, and only 6 percent of that was sublease activity. So, you're generally seeing sublease activity go down, you know, fairly consistently in Florida. You're seeing more positive absorption in most of the markets, and virtually all the major submarkets in Florida for second quarter saw year-over-year rent increases. Modest, but year-over-year rent increases. We did have some CRE loans, as Raj mentioned, with the non-accrual this quarter for the first time. Non-performing CRE loans totaled $51 million as of June 30th. Total criticized and classified loans increased by $88 million during the quarter. This was all in the, predominantly in the office segment. Overall, the portfolio continues to perform comparatively well and is generally characterized by strong sponsors, long-term asset owners, low basis in the assets who continue to support the underlying properties. To date, concerns generally seem to be very asset-specific, renovating periods and delays and completing build-out of lease space, and in some cases, lower occupancy levels contributed to whatever risk migration we did have. And overall, we continue to believe the ultimate loss content from this portfolio will be very manageable for us. So with that, I'll turn it over to Leslie.