Good day, ladies and gentlemen and welcome to the BankUnited Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today’s conference is being recorded. At this time I would like to hand the conference over to Ms. Mary Harris, Senior Vice President of Marketing & Public Relations. Ma’am, you may begin.

Good morning and welcome. It's my pleasure to introduce our Chairman, President and CEO, John Kanas. But first, I'd like to remind everyone that this call contains 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. The company generally identifies forward-looking statements by terminologies such as outlook, believes, expects, potential, continues, may, will, could, should, seeks, approximately, predicts, intends, plans, estimate, anticipate, or the negative version of those words or other comparable words. Any forward-looking statements contained in 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 relating to the company’s operations, financial results, financial conditions, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if the company’s underlying assumptions prove to be incorrect, the company’s actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive. 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 results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 on the SEC’s website, www.SEC.gov. John?

Thanks Mary. Net income for the quarter just under $47 million, $46.6 million. $0.43 a share, generally in line with consensus expectations. New loans and leases grew as expected by about $1.2 billion for the quarter. That includes the addition of the SBA loans, the recent acquisition, so $174 million of that number is represented by those loans that we recently booked. Deposit growth was very strong for the quarter, just $985 million. Of the loan and lease growth for the quarter, with respect to geography, $526 million of that came from New York. $185 million of it came from Florida and just over $500 million came from the national platforms that would include both the operating leases and also the SBA Company recently on boarded. As the books stands today on our balance sheet, 35% of our loans reside in Florida, 33% in New York and 32% were derived from our national franchises. We have achieved about exactly the diversity that we’ve been aiming for, about a third of that. The pipeline as we go to the balance of the year is very, very strong and we continue to reiterate our expectation for growth of somewhere between $4 billion and $5 billion, probably closer to the upper end of that number. We’ve hired a bunch of new teams and that’s beginning to show, especially in Florida for the next quarter. We’ve hired teams in Jacksonville, Tampa and Orlando and they’re beginning to get some real traction. As I said, given what we are seeing today, we expect the total growth to be something over $4.5 billion for the year. The first six months of this year we’ve added 20 new lenders and private bankers in our key markets, nine of them in the Florida market, primarily in Jacksonville, Tampa and Orlando, five new lenders in New York and a couple of private bankers as well and two new lenders in UCBL and three additional private bankers in New York in the retail market and a market executive in Miami Dade. Deposit growth was concentrated this quarter. Of the $985 million, $833 million came from New York, $153 million from Florida. Asset quality remained strong. The ratio of non-performing loans to total loans at 46 basis points and non-performing assets, total assets of 29. There is a slight uptake in non-performers this quarter that relates to one loan that we put into non-performing. It is paying down actually rapidly as we liquidate collateral to get out of that thing. Our work up people think that it will by and large off the books certainly by the end of the year, if not probably by the end of next quarter. I’m going to run it over now to Raj and he’s going to give you an update.

Thanks, John. This quarter we closed the SBA transaction as John mentioned. The deal closed on May 1. We acquired about $250 million in loans, of which 82 were held for sale and the rest 174 are in the portfolio which John referred to. We booked a servicing asset of about $10 million. Goodwill from this transaction, even though we paid a premium of $20 million by the time we’re done with purchase accounting and allocating that premium, goodwill will come out at about $10 million. The original estimates were accretion spend. This should be a 2% to 3% accretive yield to us on earnings basis and there is some one-time expense flowing through, about $1 million roughly in this quarter. There’ll be some more one-time expense, sort of related to retention which will flow over the next two years, but the numbers are not that meaningful to BankUnited. The tangible earn back is looking even better given how little goodwill we bought. Turning to deposits, loan to deposit ratio is now at 94%. We’ve had a very robust deposit growth quarter, where we’ve covered about 80% of our loan growth with deposits. This might actually have been our biggest deposit quarter if you go back and look. Cost of deposits, steady at about 60 basis points. It was 59 last quarter. The deposits in New York are growing very strongly. New York now is roughly $3 billion in our three marquee branches and we expect that to continue to grow over the course of the next three or four years due to a number which will be a multiple of what it is right now. The long term goal is to make New York self-funded and I think we’ll get there in a fairly short order. I know there…

Sure. Thanks, Raj. This quarter, net income was pretty much in line flat to the prior quarter. That was in line with our expectations and what we’ve been communicating with you. We did see an increase in net interest income of $8.3 million or 5% compared to the immediately preceding quarter and we continue to expect quarterly growth in net interest income. NIM continues to be under pressure as the new loan book comprises an ever increasing proportion of the total book, declined to 395 this quarter from 402 in the immediately preceding quarter. We are seeing as expected the rate of decline in the NIM slow down a little bit. On average this quarter, coupon on originations was very marginally lower than the prior quarter, but that was mainly because it’s reflective of a higher proportion of floating rate loans. So on balance, we didn’t really see much of a shift in pricing this quarter as compared to the past quarter. Cost of funds, cost of interest bearing liabilities remained consistent at 82 basis points. That’s come down from a year ago, mainly due to rollover in repricing of what had been some higher rate time deposits in FHLB advances that has been on the balance sheet. We still expect NIM for the year 2015 to be between that 380 and 384 range, probably between 380 and 390 for the year as a whole. In line with our previous guidance, we continue to anticipate that EPS will increase at now moving into the third and fourth quarter of this year as we’ve been communicating all along and we can bet what we continue to see. Consistent with our prior communications, we expect high single digit growth in non-interest expense for the year 2015 compared to the year 2014. And that is inclusive of additional costs that have come on board related to the SBF acquisition and these new teams that we’ve onboarded and we still think we’ll be in high single digit growth and that’s excluding the amortization of the FDIC indemnification assets. We do expect for next quarter both the rate of amortization on the indemn asset and the yield on covered loans will increase. Our expectations around the allowance remain unchanged. Compared to previous guidance, we expect that in the near time to stay relatively consistent or trend just slightly upward as an overall percentage of loans outstanding. From an interest rate risk perspective, the existing balance sheet remains neutral. Nothing really has moved the needle materially on that front. We have seen a slight downward shift in overall duration this quarter, but not enough to represent an overall change in the outlook there or in the neutral position that we’ve communicated to you in the past. John, anything you want to say in that wrap up here?

Yeah. This is --- we are where we expected to be. We appear to have turned the corner. These last two quarters have been less than stellar in terms of earnings per share and if everything goes the way we expect it to go for the next two quarters, we think that you will be happy with those results. Growth continues unabated in both of these markets. We’re seeing no sign of economic erosion even in Florida. We are vigilant and continue to watch work New York. Although our credit market very competitive, still offers more than enough opportunity for us to put on this loan growth and achieve deposit growth that’s consistent with credit requirements and our pricing requirements. So we are very pleased with where we are and we look forward to the balance of this year optimistically. Having said that, let’s take some questions.

[Operator Instructions] Our first question comes from the line of Steven Alexopoulos of JPMorgan. Your line is open. Please go ahead.

Hey, good morning everyone. Maybe I’ll start -- so we now have the earnings drop behind us. I’m just curious, so as we think about earnings from covered loans really moving away and earnings from the originator loans really starting to dominate. From this point, how are you thinking about – should we see a more gradual rise in earnings? Should we see a more steeper ramps in earnings given your comments John around loan growth picking in the back half of the year? What are you thinking about that?

I’m going to let Leslie give you a more finite answer, but we’re comfortable with what expectations are and what analysts’ expectations are for the balance of the year and that gives you a reasonable picture. This is not a hockey stick. I mean this doesn’t start today and go straight up, but it certainly goes up for the balancing and you will see that in the third quarter and then again in the fourth quarter. If you look at analyst estimates for the year, we believe that if everything happens the way it appears that it’s going to then we’ll be on our money.

I would echo that. I think that’s a good summation.

Okay. I’m curious, in Astoria’s release last night, they talked about irrational competition in New York City market. They saw their loan portfolio shrink again, talking about basically multifamily and CRE being re-fied away and you guys had most of your growth actually in New York City. Can you talk about the competitive landscape there? Is it changing your appetite at all for multifamily or New York or CRE?

That has never changed and we’ve been in that market for 35 years and I have been in, most of our lenders have been. That’s never changed. It’s the most competitive market in the world, but it’s the most robust market in the world. You heard me say before that there are a number of banks that have recently entered that business, probably including Astoria and others who have never been in New York before. They don’t really get a shock at the credits that have had relationships with us for 25 and 30 years and other banks like us. So I think that if you were a newcomer in town and you’re having to deal with the B&C credits and the very smaller loans, you’ve probably seen that kind of competition pretty aggressively. We don’t play in that market and we don’t really see that as much.

As competitive as the market is, it’s been fairly stable over the last few quarters. We wouldn’t say that it’s gotten any worse or better. It’s been pretty steady.

And the one thing that Signature spoke of was very recently increasing their pricing on Multifamily. Could you talk about what you guys have done there? Thanks.

Yeah, I don’t know that we’ve been able to -- Look, I only get to see the largest loans that come across my desk and I would say that I have seen some better pricing on some of those than I have seen in the past. I’m not ready to call that a trend that we’re able to get better pricing, but again all of these things are different. Remember that everybody has a different definition of multifamily. If your definition of multifamily is something that fits in a small box, it is 100% residential and it has a certain expectation for debt service coverage and is a certain size, then pricing tends to fill the box as well. We have always tried to diversify the portfolio a little bit. So a lot of our deals will be deals that are maybe 80% residential and 20% commercial. We traffic in relationships that we’ve had for many, many years where we’ll go ahead with the guy and help them to buy a building that’s not cash flowing today. So we get a little bit more big on the deal until it is cash flowing or refinances away from us to a different lender or an insurance company, a different bank or an insurance company. So I think that everybody who makes comments about multifamily lending is talking about a variation of the same assets, but they’re not all exactly the same.

Having said that Steve, what Signature Bank said yesterday on their call of moving rates up, base rates up by an eighth, it’s a good sign.

Yeah, I know and this scenario because –

They’re not going the other way and I would agree more with Signature than I would with -- apparently what Astoria said.

Okay, excellent. Thanks for all the color.

Thank you. Our next question comes from the line of Brady Gailey of KBW. Your line is open, please go ahead.

Hey, good morning guys. Leslie, your comments about the way to look at the yield of the IA in the covered loan book and I think it was around 9.5% in the second quarter. You all have been saying that it should be around that 9% to 10% range. I think I heard you say that that yield should trend up a little bit from Q2. Is that?

No. It will stay -- the combined yield will stay in that 9% to 10% range. What you’ll see is both pieces go up in Q2. The rate of amortization on the indemn asset will go up and the yield on the covered loans will go up, but I think you’ll still see that combined, 9% to 10%

Okay, got you. And then I think I’m looking at this right, but you all for the first time had a re-class from accretible to non- accretible in the second quarter. It’s just I don’t think we’ve seen that before. I wonder what drove that.

Brady, I’ll answer that at a high level and if you want to dig into it a little bit more, give me a call later, but it really had to do with changing in the modeling of the timing of cash flows. And I’d be happy to go into that in a little more detail with you if you want to give me a call later.

Okay and then lastly, can you all just update us on your plan? I know you all talked a lot about maybe raising some non-common capital at some point over the next year. So can you just give us your updated thoughts on potential capital raise?

We’ve been watching that for the last two quarters and we would reiterate what we said before. Late this year, early next year if everything happens as we expect, there’ll be a need for us to start getting serious about some -- probably some debt, but obviously whatever is cheapest. But that’s either late 2015, or early 2016 event as we expected it would when we announced that early this year.

Okay. Thanks John.

Thank you. Our next question comes from the line of Jared Shaw of Wells Fargo Securities. Your line is open. Please go ahead.

Hi, good morning. Just circling back a little bit on the multi family, could you update us with what the quarter end balances were on multifamily? And then as you were looking at originations this quarter, did you have the opportunity to look at some larger packages of either individual loans or packages of loans?

Leslie is riffling through papers here trying to give you that number. Give us a second.

The balance at quarter end in multifamily was about $2.3 billion in New York and about $450 million in Florida. What else did you ask?

Are you asking did we see bigger packages? What was your …? Q – Jared Shaw: Right. Yeah. Were you able to look at larger loans, larger packages of loans and …?

No, not particularly, no. Q – Jared Shaw: Okay and then when you look at Florida, it looks like a little bit of a slowdown in Florida. Was that intentional or was that more market driven or is that your waiting as these new teams come online and some of that could be more back half of the year loaded?

Yeah. There are two things. The pipeline for Florida by the way going into the third quarter is very strong, much stronger than this quarter. Much of that is driven by the new people that we brought on. At the same time we have backed away a little bit particularly in the south Florida, east coast area, Miami from some of the large credits as they’ve come back for renewal and as more pricing competition and more term competition. We’ve backed out of a couple of deals that we felt were too thin for us and let them go, but I think you heard me say last quarter, we began early this year to start to spread out our loan origination mechanism across the state and we are finding that we are getting a very, very strong early indication from areas like Tampa, Orlando and Jacksonville. A lot of that yes is attributable to the new folks that we brought on. So generally speaking I think Florida will probably surprise on the upside for the balance of the year. Q – Jared Shaw: So as we look more longer term you still feel comfortable with that one third, one third, one third mix between the markets?

Yes, it’s a little hard to look out beyond the next year or two because New York is such a huge market and it has the potential grow so much faster, but we are in control of that. So we will -- as it looks right now, yes, but we might opt to change that mix over time.

It’s a little bit market driven too. So if the competition is too much in any one geography or any one product segment, you will see us pull back a little bit. So to guess where competition will be this time next year it’s very hard.

Or market conditions.

Or market, yeah. So a third, a third would be sort of ideal from our perspective, but we don’t try and solve for it. It just happens to fall where it does.

Okay, thanks. And then let’s see, looking at the comp expenses this year. What portion of added teams were already included in comp for the quarter? Should we expect to see a continued move up next quarter?

So most of those 20 or so people that John talked about were pretty much included in the Q2 run rate. I think we are still continuing to have some conversations.

We certainly hope to on board some more people over time, but I think the bulk of them are in.

Okay and then finally, John if you could just give a little comment on your thoughts on M&A and the opportunity to do some additional deals and what type of deals those could potentially look like, given where you are seeing the market, whether it’s more laying deals like a service or whether it’s a depository type structure.

We continue to observe this market. We were happy to see Joe Harding’s deal get approved, yesterday the CIT One West deal. We were watching that very closely. We are watching a number of other transactions that are before the regulators right now to see when and if they get approved and what are the conditions of their approval. That makes a big difference to us. Some of the recent approvals that we have seen have come along with some commitments from the acquirers that are pretty daunting frankly. So in terms of the opportunities, we continue to have oh my God, five, six, seven different conversations all at once with people who we think at some point make a lot of sense to be partners of ours in the future, but not now. Our stock we believe is at a low ebb frankly because I understand that -- I know, our stock has done well but we’ve been -- we’ve done well with the rising tide of all mid-cap bank stocks over the last six months. But in terms of relative valuations, we haven’t really improved. We think that when we start showing the market, this turn in earnings and showing the market that what we have prognosticated happens, that our currency gets stronger and most likely that would lead to us getting a little bit more serious towards looking at these transactions. But frankly, I guess the way for us to put it is, M&A for this company is nice to have, but it’s not a need to have when you are growing a $5 billion a year and able to control that growth in these two markets. It would take a lot in an M&A deal of value for it to take our attention away from the growth that we are getting organically.

Great, thank you. I appreciate the color.

Thank you. Our next question comes from the line of Ken Zerbe of Morgan Stanley. Your line is open, please go ahead.

Thanks. Hey John, just following up on your comments about Florida. It sounded like, and correct me if I’m wrong, but it sound like that sort of on a same store sales basis, that it was just harder to continue to grow loans in Florida because of the competition. So hiring people is the answer which as new markets, new people, that that’s where the growth comes from. Is that right that it’s necessary to add more people in order to continue to grow in Florida?

No. I probably didn’t explain that well, Ken. Almost all of our growth in Florida, because that’s where we hired lenders, came from that Miami market, Miami Dade. That’s where we started and that was the frontier of the recovery in Florida. It started in Miami. And you’ve heard me say before that it’s now spread out to the rest of the state. So what we’ve done is as economic improvement makes its way across the state, we started adding teams of people in different markets and are finding that some of those markets offer as good an opportunity if not better than what we are currently seeing in Miami Dade. Miami Dade, look it’s the New York City of Florida, but it’s an extremely competitive market. We also, what we are doing and I don’t know if I explained that very well, some of these deals that we are backing out on, in earlier times, going back two and three years, we took pieces of larger credits in Miami that we were in syndicates of Florida loans. We are backing away from some of those things. We don’t need them anymore. So we are finding it’s easier to originate loans in other parts of Florida or certain types of loans in other parts of Florida than it is in Miami at our price levels, at our expected price levels.

John, I might add some color to that, this is Tom.

Tom, of course. Go ahead, Tom.

When you look at Florida for the second quarter, we actually grew commercial real estate loans by $213 million, which was the largest quarter we’ve had in the last two years. Our small business lending portfolio was up about 30. The off number was really the larger corporate portfolio where we stepped back away from our Shared National Credits that probably cost us $75 million in outstandings because we were comfortable with that exposure level and when the deals got redialed, they got oversubscribed and the existing level that we were in at was cut back. We also stepped away from a large foreign currency syndicated transaction that wasn’t exceptionally profitable for us, but did come with a strong depository relationship and we backed out of that, but kept the depository relationship. So the origination line in the large corporate book for the second quarter was right in line with where it’s been for the last six quarters. What we saw was an anomaly as it related to these net pay downs, some sales of some properties and some other things, but the origination topline continues to be very strong as we head into the third quarter, both within the core south Florida market as well as the other markets around Florida. We’re seeing – we’ll probably have $100 million portfolio in Jacksonville by the end of the third quarter. We’re seeing good growth around the rest of the state and I think this second quarter just had some noise in it because of positions that we’re now taking on some of these Shared National Credits where the underwriting as they redial these deals is getting more and more looser from our perspective and we can back away from that.

Another way to look at this is, is the rebalancing in Florida to loans that we would prefer to do.

Got it. Okay. That helps. And then Leslie a quick question for you. The amortization of the FDIC indemnification asset over the next couple quarters, not to ask you to spell it out, but did you say it was going to go up in third quarter?

I did. I did, Ken and I can’t really comment on the fourth quarter and I know that sounds -- we run those cash flows every quarter. So no.

Understood. I guess is there a time where it should naturally peak?

Yes, but it’s difficult to predict exactly when that will be. That will happen, but it’s difficult to predict the quarter in which that will occur.

Got it, but are we talking somewhere in the next year or?

If I had to guess now, I would say yes.

Okay, but there’s a range. Understood.

Yes.

All right, thank you very much.

Thank you. Our next question comes from the line of Stephen Scouten of Sandler O'Neill. Your line is open. Please go ahead.

Hey, good morning guys. Thanks for taking my questions here. I missed some of your earlier comments, John on the open so I apologize if anything is redundant here. But what are you guys doing specifically to prepare for the potential overriding rate environment, specifically on the deposit side? Just as I continue to look at that prospect, if I’m screening it right, about 6.2% of your loans repriced through the year. So it seems like there could actually be some issues maybe on that first move for you guys. Can you speak to that a little bit?

Let me let Leslie go first and then I’ll give you my take on it.

So Stephen in terms of preparing for that on the deposit side, we have done some things to promote some term there. We’ve also -- I think you got a look at the liability side of the balance sheet as a whole and we’ve extended out some of the term of our wholesale funding, our FHLD advances using derivatives to prepare for that as well. And we did see this quarter both duration of assets come down and duration of liabilities lengthen a little bit. So we’re chipping away at that, but again I remind you the balance sheet is pretty neutral. So we are not exposed one way or the other materially to movements in rate with respect to the existing balance sheet.

It’s very difficult to predict what’s happening. We haven’t seen rates move up in eight or nine years. So nobody really knows what’s going to happen. I will tell you from my experience, I’ve been around this business a long time. My guess is the consumer deposits is going to go up a lot faster than commercial deposits are. And if you look at our deposit growth, it’s principally commercial deposits. In New York, it’s 95% commercial deposits. So while every bank is going to have to contend with this and deal with it, my personal belief is that we’ll get a little bit of a break there because these commercial relationships are tied into the bank in many ways. They’re treasury management and cash management. Customers they’re tied in many of them through credit arrangements. And so we think it will get a little bit of a breather there. But listen, I believe and have publicly stated that deposit pricing is going to go up pretty quick when the Fed finally moves. And for that reason, I don’t think it’s – I don’t think as many people have stated this, higher rates mean higher bank profits across the board, I think that is a drastic oversimplification of the industry that’s reflected in the way that all bank stocks have performed exceedingly well in the last six months. I think that I think is a mistake. I think you weed through and see which ones will benefit from it and which ones might actually be punished by it.

I’ll add to that. It’s not just one element which is deposits or the balance sheet. The FHLB borrowings that are termed out to four and five years, securities portfolio that is -- has a duration of one four or one five kept very short for a very long period of time. Even our deposit portfolio, a piece of our deposit portfolio we synthetically extended. That’s why our cost of funds looks a few basis points higher than what we actually pay the customer. So we’ve used all the tools that are available to us. If you look at our deposit mix by the way, we sometimes take some heat from the analyst community because our CDs are at 30% or -- I forget the exact number, but somewhat about 30% of our deposit base and that is by design. We’re trying to have some term built in because at the end of the day as John said, my market and savings accounts, their betas are largely unknown. We don’t know what customer behavior will be when rates just start to move, but when you have a CD, whether it’s 12 months or 18 months, at least for that period of time you know exactly how that is going to behave.

Okay, yeah that makes sense. And then just one question on the potential pace of growth and I’m assuming this is in a national portfolio, and I also assume that this press release is relatively immaterial, but just want to get some color on this team, maybe the dealer finance team that the left. What portion of your growth there today constitute and is this anything that will diminish the forward growth at all?

The dealer finance team, are you referring to the indirect auto team that we let go last year?

I don’t think so. There was a press release from Signature a couple of days ago that said that they had taken a team from dealer finance. I mean maybe that is what it is and I’m just now knowing it.

That is what it is. That’s a business we opted to get out because we don’t think the risk reward is appropriate in that business.

Perfect. That’s great.

We’re happy for the team that they landed.

Sounds good. Thanks guys. I appreciate it.

Thank you. Our next question comes from the line of David Eads of UBS. Your line is open. Please go ahead.

Maybe just following up on the balance sheet there. We saw the securities book ticked up a bit. Was that putting where the increased efforts, the borrowings to work or should we expect that to grow with the balance sheet or what are you thinking about there?

David, that was just really opportunistic on our part with some of the dislocation that’s been in the bond market over the last quarter or so. We just saw more opportunities to put some money to work and we took advantage of them. So there’s no real plan to grow the bond portfolio, but we found some things we felt that made sense to do.

As the G-SIFI banks restructure their balance sheets, there’s opportunities in the liability side and also in the asset side for mid-cap banks and we’ve seen this, Leslie has mentioned -- we’ve seen some very interesting opportunities in the asset side coming in in the form of bonds where our larger brethrens are being forced to shrink their balance sheets and get rid of both sides at the same time. So we’ve been able to get some very nice yields that we have never seen before.

Great. And then just to clarify, when we look at the increase in other non-interest expense this quarter, I think you indicated about $1 million of that was related to the deal and non-recurring, but then we should expect some level, sort of immaterial transaction related costs over the next couple of years. Is that the right way to think about it?

Yes. It was about $1 million this quarter and there will be some retention payments which will be coming over the next eight quarters, but if I look at it on a quarterly basis, I’d say it’s immaterial to the bank’s numbers.

Okay, thanks.

Thank you. Our next question comes from the line of Joe Fenech of Hovde Group. Your line is open. Please go ahead.

Morning. On the taxi medallion business, Raj, what do you think you all have done differently? Is it just geographic positioning in that New York seems to be holding up better or do you think you were conservative than others? Why do you think you’re not seeing the issues that some other people are seeing?

We were focused on New York. Like I said, 94%, 95% of the portfolios is New York. I think we took our foot of the pedal, gas pedal early. We really have kept this thing flat for quite some time now, for several quarters. We also insisted on amortizing loans. I know there’s a market for amortizing and there’s also a market for I/O loans. While we have some I/Os, it’s less than 20%. I think it's just early on we made some choices. Of course, the market is in disarray as we speak, but I think we’ll fare okay given the kind of coverage ratios, debts service coverage ratios we have. And that’s where have to focus on, more than half the portfolio being over two, that’s about as safe as you can get in commercial leading these days.

Our folks who handle this business have been in this business for many, many years and seen it come and go. And I would credit them by saying they reacted quickly here. And you probably, the best example of that is the percentage of loans that have debt service coverage over two times of this portfolio. Look, this is a very interesting asset class. It’s going to morph here over the next couple of years. Nobody really knows what's going to happen, but I'd be willing to bet that ours hold up better than most.

Okay. And back to Steve’s question on the earnings ramp. As we think about longer term profitably potential, it would seem that the key would be getting efficiency down. Raj, you talked about this in the past and what you were all able to do at North Fork. In New York, it would seem that’s going to be easier to do with the branch light model, I'll call it, but in Florida, with more of a traditional branch presence, it would seem to be tougher to do that. Can you talk about that maybe conceptually, how you think about efficiency and overall profitability potential longer term?

Sure. Florida, yes, it will be—we will never be able to get the level of efficiency that we will have both in New York as well as our national business. Having said that, that doesn’t mean that it will not be more efficient than our competition. We have not grown our loans, our branch network for some time now. In fact, we might even shrink it over the next couples of years, but we are continuing to grow the footings, both loans and deposits. As our growth comes on on top of a fixed expense base, we will see efficiencies, operating efficiency generate out of Florida as well. It just would not be of the level of New York. We can’t have -- in New York, it will be okay to expect a $3 billion branch or a $4 billion branch. That’s not going to happen in Miami, but our branch size in Miami or in Florida in general are pretty big compared to our competition.

But structurally, as you put it all together Raj, do we see an efficiency, overall efficiency with the four handle on it or is that too aggressive to expect?

I think it’s hard to guess a couple of years out, but I would say four handle probably is achievable, but three handle is not. But it all depends also on how the cost structure of the industry evolve, what other things we have to spend money on over the next two or three years. But in a vacuum I'd say, yes, four handle should be achievable.

Okay and then one more for me. John, building on a prior question on M&A, there was a larger deal in Florida that you all acknowledged having interest in a few years ago and that still hasn’t closed. I won’t to ask you about that one specifically, but obviously pricing in Florida has risen pretty dramatically since that deal was announced and you couldn’t get to the pricing then to make it make sense. Is it fair to say that if we didn’t see you do something a few years ago, when pricing was lower, that whole bank transactions are probably less likely in Florida for you or is that too strong a statement?

That’s fair statement. The one you’re talking about is City National and that was one that, it was unique for us because it’s right across the street from us and we thought the cost save opportunities in that deal were really sort of very, very impressive to put it that way. But it is fair to say that if we couldn’t get there at the price two years ago, we’re not likely to pay a higher price for that company today, unless there’s something materially change in that company and I don’t think so. As a general statement, it's fair to say that it is not likely that you see us buy one of these smaller franchises in Florida. They just don’t seem to makes any sense. We look for the opportunity here that nobody else seems to be able to find and we look for -- everybody is in search of the sort of mythical transformation deal that we all talk about, but we just don’t see it right now. For the time being, we are very happy to just keep growing on an organic basis.

Thank you. Our next question comes from the line of David Darst of Guggenheim partners. Your line is now open. Please go ahead.

Your deposit growth in New York is really accelerating. Is that maybe the right volume run rate that we should see going forward based on the capacity you’ve got now?

That’s fair to say. It’s going to be choppy. There will be quarters when we’ll do more than that, quarters when we’ll do less than that. But I think if we look back on a quarter to quarter basis over what’s happened since we got to New York two years ago, you get the drift of what we can expect for deposit growth out of that market. Remember, we are a tiny spec in a trillion dollar deposit market in Manhattan. We are almost completely in control of how much that grows.

Okay and then just as you look at the deposited opportunity in places like Jacksonville and Tampa and Orlando, those are new loan production offices. Are those teams bringing in deposit in as well as relationships?

They are bringing in some deposits, but we frankly haven’t concentrated on that yet. That, I think is the next step for us in Florida. I expect that there’s opportunity there that we haven’t really thought about yet, but we are. There’s opportunities we haven’t achieved there but there’s certainly room for us to grow in the deposit side in those markets.

Okay and then one more. If you were to kind of take out the earnings from the covered loans would your ALCO profile still be relatively neutral or would it be any more asset sensitive or liability sensitive?

I mean frankly, we haven’t done a lot of analysis around that because the reality is that covered loans are on the balance sheet. We really haven’t done a lot of analysis around what that would look like without it.

I can’t -- I don’t know. I think that’s true, David.

The covered loans are not very long. Even though they are residential, remember they cliff in 2019, so regardless of what the underlying asset might be.

It probably wouldn’t be that different but we haven’t done a lot of specific analysis on that.

When you think of this one asset rate, they all come due in 2019 because there’s no tail risk on our FDIC. Remember everything gets put through, so I don’t know.

I gather it wouldn’t be much different.

Okay, got it. Great, thank you. Nice quarter. Operator: Thank you. Our next question comes from the line of Gerard Cassidy of RBC Capital Markets. Your line is open. Please go ahead.

Hi, John, can you hear me?

Yeah, got you Gerard.

Question, I don’t know if it's for you or for Raj, but can you give us some color on the small business lending operation that is now on board, what you guys see for it over the next 12 months? You’ve had incredible success with that municipal business you bought some years back out of Arizona. Could it mirror that growth?

For the first 12 months that we generally get into a business, we try not to step on the accelerator. The matching orders to the team that we have brought in is to just keep the business steady, get it operationally well situated in the BankUnited infrastructure and growth will come after that. The first year do not expect any kind of growth that is spectacular or anything. It will probably be just modest growth. From there on, we will grow this, but remember this is not a balance sheet intensive business. This is a sales business. While the municipal business just grew from zero to nearly $1 billion over five years, the originations will grow over time, but the balance sheet will not grow. It will just generate more fee income.

That’s right. I think you’ll see volumes grow in this business after we get everybody situated, but it’s going to -- it doesn’t grow the balance yet.

But Gerard, it's hard to give you an answer, like three years from now will this be three times the origination value we’re not. We’ll see. We try not to set very long term goals for our people. The short term goal is to just operationally stabilize and bring it to BankUnited’s risk infrastructure, which is what they’re doing right now. There’s an industry wide issue in SBA lending which you may have heard from others, which will probably kick in in August. The SBA is running out of funding and if congress doesn’t move between now and …

There was something yesterday I think.

It hasn’t happened.

No.

A lot of guys were on the call this morning also. They are running out of funding and if they don’t act, there will be no funding starting sometime in August and through the end of September, which means the business will slow down and then it picks up again, October 1 when new funding becomes available. While there’s consensus in congress and in senate to get more funds appropriated for SBA, procedurally it is the middle of the summer. It’s been hard for our politicians in Washington to get it done.

So maybe Donald Trump can solve these problems.

Possibly. Regarding the sale of the loans, if I recall, are you likely to sell the guaranteed portion of the SBA loan which is 70% or 75% of the origination. Is that right?

That is correct. That’s what we’ve been doing since we bought the company, yes.

And now the gain on sales margins around -- would you settle 118, 119? Is that the pricing?

It's in the mid-teens. Every sale is a little different, but let’s say it's in the mid-teens.

Okay, great. And then I believe one of your old 10ks, might have been the 2011 one, you put in that tier 1 leverage number that you agreed to adhere to. I think it was 8%. If I read it correctly back then, I thought it was just for like a three year period. Are you still in an agreement, on official agreement with the regulators that you have to maintain that or is it more of a handshake that you just don’t want to go near it?

Raj and I are looking at each other trying to figure out how to answer.

Like what we’re allowed to say.

Whatever agreement we have with the regulators, then still exists.

Great. Okay, that’s fine. And then finally on the deposit growth, how hard is it to get those non-interest bearing demand accounts vis-a-vis interest bearing term deposits or the money markets savings accounts?

Remembering that there’s very little difference today between interest bearing and non-interest bearing, it’s subtle to say the least, but look, it's a lot of work. Those come only as a result for our private bankers and our commercial bankers’ mining relationships. Those are operating accounts that come from relationships that have to migrate away from some place and migrate to us. Now many of those are relationships that we’ve all -- John’s sitting here with me and between John and I have fired up in New York for 25 years and relationships that our bankers in Florida have had and Tom Cornish has had in another life in Florida as well. Those they don’t just walk in. You don’t just open up a branch and people walk in and start throwing non-interest bearing deposits at you, that’s for sure, which is why we spend more money on people and less money on buildings and branches probably as a strategy and we’ll always continue to do that.

And one final question, John. I remember when your private equity investors were involved in the organization the regulators, I don’t know if prohibited is too strong of a word, but you really couldn’t do business with them. And I remember LeFrak is a huge real estate guy in New York. Are you able to do business with your old private equity guys that are no longer on the board or owning the stocks?

Yeah. All of those things fell away when the private equity guys got out of the investment. We’re completely free to do business with them. Remember that was pretty constraining when you consider that between Carlyle and Blackstone, they own half of New York, for crying out. We are free to do business with them or any of their -- and lots of Florida as well. Yeah, that’s all gone.

Thank you. Our next question comes from the line of Lana Chan of BMO Capital Markets. Your line is open, please go ahead.

Hi, most of my question has been answered, but just Leslie, could you clarify for the third quarter the tax benefit expected and what the tax rate would be?

It should be in a similar range to what it was last year, Lana, somewhere in the $5 million range and we are looking at an effective tax rate for the third quarter of probably 26%, 27%.

Great, thank you. And I think Tom mentioned a couple of times Shared National Credits. How big is your exposure to SNCs?

No. These are not what you would normally think of as Shared National Credits. These are syndicated credits that were larger Florida companies than we wanted to deal with on our own. We refer to them as Shared National Credits because some of them are national companies, but I don’t know what our exposure is. It’s very small, less than $1 billion.

Thank you. Our next question comes from the line of Dave Bishop of Drexel Hamilton. Your line is open. Please go ahead.

Great. Good morning. Hey, most of my questions have been asked as well, but John if we look at the deposit competition of Florida, I don’t if you have this, the number available, but what’s the percentage there of non-interest bearing DDA versus maybe the New York deposit base and what’s the opportunity there to grow that segment?

Yes, we are -- hold on. Non-interest deposits in Florida are about $2 billion. Non-interest deposits in New York are about $600 million. That is trending towards change because the deposits that are growing in New York tend to be 90%, 95% commercial. So over time that will change meaning that New York will get even better, but we don’t expect that Florida will get worse over time. So Florida is still -- we should make it clear that Florida is still a very, very important market for us, both for assets and liabilities and we have great expectations for Florida over the next couple of years. We have great expectations for New York as well, but we don’t want to downplay Florida. It is impressive in its recovery. It is broad-based now in its recovery. The real estate recovery is different from other real estate recoveries that we have seen in Florida. There is more commercial business coming to Brickell Avenue in Miami than we have ever seen before. And there is way less leverage in the state, in general in real estate than there was. So Florida is an impressive market and we don’t mean to, just because we keep talking about New York and the opportunities in New York, we don’t mean to imply in any way that Florida doesn’t represent great opportunity for us in the next couple of years.

Hey John, could I clarify the SNC question for a second. The overall commitment base in Florida for Shared National Credits is just about $1 billion and of that $1 billion, about $400 million are credits that we actually lead that we typically view as clog deals because we are the agent and it’s a small number of banks, but from a regulatory perspective they’re actually classified as Shared National Credits. So the commitment level is about $1 billion. The outstandings are about $650 million and our outstandings are predominantly focused about 50% on credits that we are actually the agent bank.

And if you could, going back to our earlier conversations about loans in Florida, you can see that over time, it would be our choice to replace some of these with the smaller loans that are coming directly from the market that we are now seeing tremendous demand for in those tertiary markets like Tampa and Jacksonville. It’s not a big piece of what we do, but we certainly don’t expect to grow that, in fact probably shrinking.

Thank you and that does conclude our Q&A session for today. I’d like to turn the conference back over to Mr. John Kanas for closing any remarks.

So in summary, about as expected this quarter, we are where we thought we would be when we sat down and talked to you at the end of the fourth quarter last year and talked about what we thought 2015 was going to lay out like. Probably maybe a little bit more growth in New York than we expected to see. Solid economic growth in all markets. Waiting to see when -- with everybody else, what happens with the Fed and when it moves and what the impact will be on us as well as the industry. Generally view that as a plus and while we did not expect any help on the margin line as a result of rising rates, it is entirely possible and some in fact believe probable that we will get some. We are as anxious as you are to roll out the second half of this year and are very, very pleased with where we sit today and look out over that. Really nice pipeline already. It’s early in the quarter and we can really already see a nice pipeline building. So our expectation levels are high and look forward to the next report. Thank you everybody for calling in. Bye, bye. Thanks.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day.