Q2 2022 BankUnited Inc Earnings Call

Speaker 2: You.

Speaker 3: Good day and thank you for standing by. Welcome to the Bank United 2022 Second Quarter 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 one on your telephone. 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. You may begin.

Speaker 4: Thank you, Latanya. Good morning and thank you for joining us today at our second quarter 2022 results conference call. On the call this morning, our Roch thing, our chairman, president and CEO , Leslie Lunak, our chief financial officer, and town corner sir chief operating officer. And town corner sir chief operating officer.

Speaker 4: Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning that the private security's litigation reform act of 19.95 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.

Speaker 4: 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, and other financial

Speaker 4: 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 10K for the year ended December 31, 2021.

Speaker 5: compared to 79 times a share for the previous quarter. So happy about the numbers. Really excited about, you know, long growth, which came in very strong at $780 million. That's excluding, of course, the PPP runoff, which is a little bit.

Speaker 5: More importantly, of that $780, 553 million of that was in the commercial segment. So very healthy and broad-based growth.

Speaker 5: On the other side of the balance sheet, average non-interest DDA, grew $370 million, though, period, and there was a decline of $80 million. If you remember, period, and there's all those noise in our numbers. Last quarter, we had mentioned to you, there was a couple of hundred million dollars that came in on the last day of the quarter and left on the first day of the fall of this quarter. So if you would just for that, we still had DDA growth, which I'm happy about, because yeah.

Speaker 5: in this environment to grow DDA gets harder than it was a year ago or two years ago. But we're happy with the way the teams have performed and it's very much in line with our expectations and with the guidance that we've given you. March and expanded, even better than we had thought. It is at 2563 basis points, up from 250 basis points last quarter and just to remind you with the second quarter of last year, I think we were at 237 basis points. So a very nice trajectory, NII, better symptoms.

Speaker 5: grew 16.8 million, which again we're happy about. The rate environment obviously is changing rapidly, deposit pricing, as I've said in the last call, bottomed out in the first quarter and now we'll keep increasing at least some of the effects to our deposit price average is at 30 basis points for the quarter, it was 17 last quarter. But overall, like I said, margin expanded because of course we're benefiting.

Speaker 5: on the other side of the balance sheet from Fred Moose. Credit, again, nothing but good news. Curricized classified, again declined by 181 million this quarter. I believe last quarter it was roughly 150 million. NBL's also declined, excluding the guaranteed portion of non-acroll SBA loans. That incorporation stands at 42 basis points. Information stands at 42 basis points.

Speaker 5: Charjobs came in at 23 basis points. Again, put it in perspective last year. The whole year we ran at about 29 basis points.

Speaker 5: Capital, as we accept to you, many times in the past, people would be off-agingistic. When we see weakness in the stock price, we will lean in and be more aggressive with our buybacks, which is exactly what we did last quarter. We announced and largely completed $150 million authorization. And I think for the year, we have now bought back $326 million of stock, which roughly is like 10% of our market cap. So...

Speaker 5: We think this is a good opportunity to step in and be aggressive and be more. We think this is a good opportunity to step in and be more.

Speaker 5: In terms of guidance, I think we'll kind of stick with all the guidance we gave you with terms of long growth. We're seeing pretty decent pipelines like what we just saw this quarter happened. And I fully expect next quarter and the quarter after that, that trend to continue in terms of guidance we gave you on margin. We're sticking by it. Marching should expand from where it is through happy expanded as much as it did. And we all.

Speaker 5: we remain pretty optimistic about that as well. Expenses also, Leslie will talk about it. You know, we're happy where we came out. So no real change to our guidance. You know, we still remain focused on growing DDA. That is, at the end of the day, the long-term, you know, single driver of success is community-branded core, commercial DDA. And we're executing on that, pipelines are good. Overall deposit growth will be lower than our long growth. The number of hits that it would be in high single digits.

Speaker 5: and the positive growth, the positive growth will be in, you know, low single digits. So we're not changing any of that. In terms of, you know, I didn't make remarks on the environment. You know, you'd start my comments with that. Let me do that before handing it over to top.

Speaker 5: You know, we are obviously in uncertain times, but I take a somewhat optimistic view of this. I actually—

Speaker 5: This is a definition of getting old. I'll recycle a joke that I probably told you guys many times over. The optimist and the pessimist walking down the street and the optimist says the pessimist.

Speaker 5: Look around you life couldn't get any better the pessimist says well that's exactly what I'm afraid of That's where the environment that we're in It depends on you know beauties and the eyes of the holder If I was to be analytical about it and say you know where do we fall on that optimism pessimism spectrum the one being

Speaker 5: totally pessimistic and 10 being totally optimistic, we're somewhere in the six, six and a half range. That's the average view of the management team. There are opportunities, we're cautiously optimistic. There clearly are signals coming from Wall Street of trouble that might be ahead maybe six months or so down the road, and we will monitor that carefully and change that attitude. But right now I see slightly more.

Speaker 5: optimism than pessimism. But we're being very careful, right? And Long Road is strong. Martians are better than we've seen in the recent past. And we had an event just three days ago, Monday.

Speaker 5: with our top clients in New York. And 60 of these people were together. We were there with them all the entire day. We got to speak with people from various industries.

Speaker 5: Overall, I'd say they were even more optimistic than what I am being. So there is concern about the economy. We have to be careful. But there are also opportunities that we can tap into in this environment. So cautiously optimistic and always opportunistic. That's what I would say is the stance of the management team. With that, let me pass it over to Tom. He'll get a little deeper into the numbers.

Speaker 6: Good, thanks a lot, Raj. Maybe before we dig into the numbers.

Speaker 6: a few comments on Roger's view on opportunities that we're thinking about and investments that we made over the previous quarter because the second quarter was a pretty busy quarter in terms of activities for us from a growth initiative investment perspective. So we've talked before about both the Dallas and Atlanta offices. I'd start with Atlanta where our goal is to have a full sale banking team in that market both from corporate banking.

Speaker 6: relationships and the pipeline for business in Atlanta and the opportunities that we're looking at, I think, are matching our expectations when we talked about going into this market. So we're happy with that. We've got our Dallas branch up and running, and we are seeing good deposit activity out of our business operations in the Texas market. And Texas continues to be a strong growth opportunity for us.

Speaker 6: In the future, beyond that, we made several different investment position hires in the second quarter that I think are notable. We bought in a head of a sponsor finance team. We had never had a specific initiative to focus on sponsor finance relationships. We've done that. We're happy with our early traction in that. We added a position to focus on environmental enhancements and alternative fuel type opportunities.

Speaker 6: within our client base. We're excited about that opportunity. We've added to our commercial banking team in the Jacksonville market. We like Jacksonville a great deal, and like the growth opportunities in Jacksonville, our wholesale team has done well there, predominantly focused on corporate banking and Crete, so we've added a commercial banking segment to that area as well.

Speaker 6: We've added a couple of positions to our New York commercial private banking team. We have added to our HOA teams during the quarter and also bought in an experienced salesperson on the deposit side to focus on multinational relationships in the Florida market and Florida is a big multinational market. So we had a pretty strong quarter in terms of investing in areas where we see opportunities in the economy.

Speaker 6: both from an industry segment and a geographic perspective. So a little bit more detail about some of the numbers at Roger articulated earlier. As he said, um...

Speaker 6: Total loans grew by $780 million. For the quarter, the majority of that was in the commercial segment, which grew by $553 million. That includes four CNI in the mortgage warehouse business. Commercial growth was led in the CNI segment with $474 million of growth. Mortgage warehouse was at $116 million. Couple of comments there. I think when we look at the commercial growth.

Speaker 6: through the quarter in the commercial and industrial segment. Commitments grew by 7.5% for the quarter. Loans grew by 6.9%. Year to date, that line item has grown by 13.2%. And we've seen really good growth across all segments that flow into the CNI area. It's been predominantly led by corporate banking, but we've seen really good growth in commercial banking and small business lending.

Speaker 6: and not only is it broad among all of the segments in the CNI world, but it's also, you know, broad among a number of industries that we serve no one industry drove at. It was probably, if you look at the additional supplemental information in compare to the last quarter, you can see that growth was among a number of the different industries that we serve as. The other point I would make is that growth was really exclusively driven by.

Speaker 6: new business, our overall line utilization is remained, you know, pretty flat from a CNI perspective and actually even the growth in the mortgage warehouse business where it's pretty historical low points in utilization on those facilities. So it's really a new business driven kind of quarter from a CNI and from a mortgage warehouse perspective. Create declined slightly, pretty flat for the quarter, $26 million.

Speaker 6: The line, we had a couple of large transactions that were closing that we thought by the end of the court that didn't close to the following quarter. I would also point out within the Cree book, we did see...

Speaker 6: Nice growth within the industrial segment. We agree with the industrial segment, which is an area focused for us by $118 million for the quarter, and we have started to select the focus on doing more construction lending in that group by 37 million in the quarter. So we had about $145 million of growth within the crease segment and some of the specialty segments were really focused pretty hard on. On to some other areas, bridge to climb somewhat pretty much as we...

Speaker 6: You know, anticipated particularly in the franchise finance area, where we're cautious in that segment and not necessarily seeing risk adjusted returns that kind of fit into where we want to go strategically. We did see some nice growth in the pinnacle portfolio during the quarter and residential grew by 228 million during the quarter. So overall a really good growth quarter. And as we look into Q3.

Speaker 6: Pipelines in all areas have stayed very strong, kind of at the Q2 kind of pipeline numbers that we were looking at going into the second quarter. So we're pleased with what we see within the book as it relates to the pipeline. On to deposits, consistent with previous guidance, total deposits and total NIDDA were pretty stable quarter over quarter. Average non-interest bearing deposits grew by 371 million for the quarter. As you might recall, in our last quarter call we pointed out about the $200 million that

Speaker 6: is a level that we're pretty comfortable with at this point. So with that, we'll turn it over to Leslie for more detail comments. Next order.

Speaker 5: We haven't announced what our betas are or what we would be given your total assumption that we expect margin. You're never right, obviously, on what they are. Anyone can do that to cancel it and it's running around at 20%. But overall, I would say that we would be positioned to balance sheet is that we expect margin to expand from here. I would say that we're still pretty confident that the betas will be lower than they were in the last rate high peak cycle, but how much lower? I mean, just the fact that last time we had like 12 or 15% sort of in that range, DVA, and now we have 34%. That will cost lower betas overall. So we're starting up in a much better place. We're starting the bottom of 17 basis points last time the bottom was like 50 basis points in terms of our deposit cost. We're starting at a better place. We have more DVA. We work very hard at this, but it is one of the hardest things to predict. Yes. I know that's a very helpful question. Thanks for the color there. I know we talked about my best along. Over the past handful of quarters, you guys have been wildly active. The past handful of quarters. I mean, should we just assume the baseline at this point is just the Bob-Bibath continue and that's...

Speaker 5: you know, big magnitude, as long as evaluations kind of stay put. So we have a board meeting coming up in August . This is going to be one of the topics of discussion. In the past when we've taken authorizations to boards, they've been like five-minute discussions and very quickly the authorization comes through. I think this time it will be a more interesting discussion.

Speaker 5: mostly because we're seeing better pipelines. If you have excess capital, you want to deploy it in organic growth, do you want to do buybacks, you want to do something else with it.

Speaker 5: six months ago, we were not seeing the level of pipeline that we're seeing today.

Speaker 5: But at the other hand, we're also seeing a stock price, which is very, very attractive. So, you've got to balance it. I understand the economies in a more prepared place today than in the past, which is bearing on this stock price, but it's also creating this opportunity of a really low stock price, but I'm also looking at a great pipeline. So I think it's going to be more than a five minute discussion this summer. I don't want to...

Speaker 5: pre-empt that. Let that happen in in in August and then we'll announce what what the board where the board comes out.

Speaker 5: Yeah, it makes sense. And then, you know, outside of growth, you know, do you see any other constraints, maybe to be an active to this extent on the buyback, you know, how do you think about, you know, capital levels? No. No. There's actually capital clearly, but if you can, you know, deploy it organically and how facts with also a creating, right? So it's a dynamic equation you ever saw. You can read capital, but at the same time you're growing, margins are better, what will be the best way to out?

Speaker 7: in a good quarter.

Speaker 8: Thank you....

Speaker 9: Thank you.

Speaker 3: And our next question comes from Steven Scouton, with Piper Sandler, your lines open.

Speaker 5: Hey, good morning, everyone. Thanks for taking the question. I guess I would love some color on where you saw new loan yields in the quarter. Obviously, we can see what the average did. It looks like you had some nice movement higher there. But I'm just wondering what you're seeing relative to what we've seen on the from rate hikes. And if you feel like you're getting paid for credit risk today, if the spreads are maintaining where they have been overall, you're getting paid for the credit risk. Thank you. Thank you. Thank you.

Speaker 5: I'll have Leslie just take the details on this, but as a general matter, I will say the spreads are better.

Speaker 5: spreads out better in our loan business, spreads out better in our securities business, of our portfolio. The overall, given the fact that the largest participant in the marketplace has announced that they want to be a seller and not a buyer, which is a fact.

Speaker 5: You should not be surprised that spreads are better today than they were with the last few years.

Speaker 5: So some businesses more so than others, but as a general matter, spreads out better.

Speaker 10: Yeah, it's even in terms of where new loan yields are coming on. There's obviously a wide range, but on average new commercial loan yields for the quarter as a whole, a little bit higher at the end of the quarter, obviously, we're coming on at about 4.30. It's a little bit higher at the end of the quarter, obviously, we're coming on at about 4.30.

Speaker 10: Okay, and where did that kind of compare ballpark to what you saw last quarter? Maybe if you have a frame of reference there. I think it's up, I don't have that number in front of me. It's up considerably. And you know, it's a little bit of a, it's not a great comparison because we didn't have as much production last quarter. So, or as much growth last quarter. So that was a smaller set of loans, but it's up considerably at, you know, over 100 basis points over what we saw on average last quarter. But I think the more, more important comparison.

Speaker 10: is that it's significantly higher than the previous average yield, you know, higher than the back growth. And that inflection point can finally turn. That's going to be.

Speaker 5: Yeah, that's helpful. Okay. And then thinking about the positive costs, and you guys have talked about one, the whole plan on non-intersparing and that movement has been tremendous over the last couple of years. But I'm just, I'm kind of wondering, you know, what you guys are seeing competitively, especially on money markets.

Speaker 5: I mean, I think your loan deposit ratio is 84%, still traditionally low, but then maybe higher than the industry average. So just kind of wondering how you think those competitive pressures could push on money market deposits in particular.

Speaker 5: Yeah, it's a pretty big range depending on what business you're talking about. So in our branches, we are not seeing as much competition yet. We don't compete fairly online, but we monitor online. We're seeing obviously very, very aggressive competition there. And in commercial, it's a big range, small business and core middle market. It's still a very modest level of competition. And we are seeing a lot of competition on the online. So it's a big range, small business and core middle market.

Speaker 5: but in some larger corporate and some bigger depositors that we're seeing, that competition emerged very quickly. So if you take our book, we've seen a pretty wide spread of where we've had to move and very aggressively and on the other hand, a large part of the book we haven't moved at all. So it's a pretty wide spread. We're not competing on the retail side. What we don't have is we're not focused.

Speaker 5: different types of customers are and what they're demanding and getting in the marketplace.

Speaker 10: I would also say that even, I'm sorry, and I were talking about this just before the call, looking forward our willingness to raise deposit rates will be dependent to some extent on spreads that we're seeing on the asset side of the balance sheet. Okay, we are.

Speaker 10: Seeing really...

Speaker 10: healthy, wide spreads on new business on the asset side of the balance sheet. That gives us the flexibility to be able to pay a little bit more for funding than if we don't see that. So that's also going to enter into the future equation in terms of what happens with the cost of funding. So that's what kind of...

Speaker 10: or as we're seeing on the left side of the balance sheet.

Speaker 5: Yeah, yeah, that makes sense. And I think in the last quarter, I'm looking at this right, it was maybe plus 2.6% on the active sensitivity and enough 100 base points scenario. But I know you said you're a little bit ahead of your deposit bill to projection. So any material change there, is that still kind of the ballpark range?

Speaker 10: I think you'll see a little bit.

Speaker 10: more probably asset sensitivity when we release those numbers this quarter, but still philosophically, we manage to a relatively neutral level. And I think all of the volatility that we have seen over the past couple of years in some of the predictions about volatility to come. And some of the predictions about volatility to come.

Speaker 10: in terms of rates has only reinforced my belief that our board's mandate to continue to manage to a relatively neutral position is wise. So you probably won't see us all of a sudden make a big bet on rates. We never have.

Speaker 10: I don't think you will. To Raj's point, our deposit betas have

Speaker 10: are lower than what we have been modeling. And that is still true.

Speaker 10: but difficult to predict how we're going to behave in the future.

Speaker 5: Yep, yep. And then maybe just last question for me. I think you guys noted some of that stock expense. It was maybe somewhat temporary, a temporary help. And then I know Tom noted some new hires and so forth. Can you maybe remind us what that overall expense guidance was and what a good starting point for third quarter might be? Yeah, we had guided to a mid to high single digit increase for the full year over the full year last year after adjusting for some really weird one time things in last year's fourth quarter. And we still think that's good guidance.

Speaker 5: Got it. Okay. And so probably just a couple of million quarter of a quarter, that was that temporary effect, nothing over the material.

Speaker 10: Yeah, I would say that's probably in the right ballpark.

Speaker 5: Okay, great. Thank you guys for the color. Appreciate it.

Speaker 3: I would now like to turn the call to miss this thing for closing remarks.

Speaker 5: We must be competing with other earnings. Is that 20 people coming out to the morning? Yes, that's a long list. That's fine. I'll take that as good news. Thank you very much everyone for joining us. We're happy about the quarterly printed. And look forward to the next quarter and the quarter thereafter. Thank you for your time. We'll talk to you again in three months. Bye.

Speaker 3: This concludes today's conference call. Thank you for participating. You may now disconnect.

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