Good day, ladies and gentlemen, and welcome to the BankUnited 2012 Second Quarter Earnings Call. My name is Rachel and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mary Harris, Senior Vice President of Marketing and Public Relations. Please proceed.

Thanks, Rachel. Good morning, everyone. It's my pleasure to introduce our Chairman, President and Chief Executive Officer, 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 reflect the company’s current views with respect to among other things, future events, and financial performance. The company generally identifies forward-looking statements by terminology such as outlook, believes, expect, potential, continues, may, will, could, should, speaks, approximately, predicts, intends, plans, estimates, anticipates or the negative version of those words or other comparable words. Any forward-looking statements contained in this call are based on 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 condition, business prospects, growth strategy, and liquidity. If one or more of these other risks, or uncertainties materialize of 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 actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the Annual Report on a Form 10-K for the year ended December 31, 2011 available at the SEC's website, sec.gov. Mr. Kanas?

Thanks, Mary. Obviously -- good morning, everybody, obviously we are very, very pleased with the results of the last 90 days. We've been telling you this story for some time of the transition of a thrift institution in South Florida laboring under a number of issues, not the least of which was a very slack economy in South Florida. And as you can see this is unfolding exactly as we had hoped it would and actually doing a little bit better. The South Florida economy is definitely now making a contribution to the growth that we're experiencing as we continue to gobble up market share and take business away from our competitors down here. But we are definitely beginning to feel much more optimistic about the economy itself. You heard me say last time that the excess supply of condominiums in South Florida was being slowly but surely absorbed. That process has continued to a point where real estate values have not only stabilized but we've got 2 or 3 new buildings coming out of the ground just off Brickel [ph] Avenue in Miami. And I remind you that while we have almost 100 branches all over Florida, that 80% of our franchise is in and around Miami and Dade Counties. So for the quarter just under $49 million, $48.9 million. A little better than the consensus estimate of $44 million. For 6months, just under $100 million, $99.2 million, $0.96. The ROA for the quarter -- for the 6 months rather, 225 and 166 and balance sheet growth bringing the balance sheet to $12.4 billion. The real driving issue here for the quarter is the continuation of the growth of loans as we have been telling you for about 18 months as our brand grows stronger. And as we open new branches in commercial areas and as unfortunately weaker banks in Florida continue to fall behind, we are continuing to grow new relationships every day, new loans grew over $500 million in the last 90 days to just under $3 billion. New commercial loans -- of that portion, the new commercial loans grew $373 million to about $2.2 billion. So this is all new business since we got there. If you remember when we got to Florida I think the total of all commercial loans was -- of these loans were $240 million so the deposits were $240 million. [indiscernible] loans again this quarter outpaced the resolution of covered loans resulting in net growth of the loan portfolio of about $370 million. The total loan portfolio now has reached over $5 billion, $5.1 billion. And covered loans now, which were I think 58% at the end of the year are now about 43% of the loan portfolio. So the story continues to unfold here. Tangible book value rather at 1742 and tangible at 1668 making new highs. And we've actually seen a little bit of improvement, which in this balance sheet is saying something in asset quality since it's a minute number anyway but total of nonperformers are actually dropped from 0.68 to .57% this quarter. So all in all, I can't imagine us having had a better quarter. Everything is beginning to hit on all cylinders. The new branches are beginning to grow in their markets with the kind of deposits and loans that we want to see them originate. So we are very, very pleased. We're going to do this a little bit differently this morning. I have asked 2 of my partners to chip in a little bit and give you a little bit more detail about their areas of the bank. So, I'm going to turn it over to Raj for a minute to talk to you a little bit about a number of things, not the least of which is deposits growth and after that he's going to kick it over to Doug, who will talk to you about the rest of the details. Then we'll open up the line obviously for questions. Raj?

Thanks, John. The story on the deposit side, right side of the balance sheet is very much what John said. It's a continuation of the story of a thrift becoming a commercial bank. Deposits are growing where deposits are $8.2 billion for the end of this quarter. But the more important story is actually not the growth in deposits but it's the continuous change of our deposit mix and our cost of funds. The transaction accounts, the DDA and interest bearing demand grew to $1.7 billion, which is now over 20% of our deposit book. The cost of funds declined to 84 basis points and continues to drop. In fact just last night I was looking at where it is as of last week and it has come down meaningfully from that number already this quarter. So we expect deposit funding to continue to drop for the remainder of 2012. Just also a reminder we have a lot of FHLB borrowing. Some of them are coming up for -- are maturing in the second half of 2012. I believe it's about $360 million, which is at 4.65%, which we'll obviously renew that funding at a much favorable pricing. Just to talk a little bit about mortgage, I run that as well. So on the mortgage portfolio, of the $501 million in loan growth that we got, $124 million of that was residential mortgages. As you know we like the jumbo space and we buy -- also originate but mostly buy jumbo paper all over the country. The portfolio has held up extremely well with which we have no delinquencies to speak of. And the legacy portfolio, which is again largely residential mortgages keeps improving every month, every quarter. We have better delinquency numbers. The delinquencies are dropping. Severities are stable to improving I would say. And that portfolio's runoff is slowing for all the right reasons. Doug?

Thanks, Raj. Just talking about the margin, the margin percentage for the quarter remained very strong at 5.82%. That's slightly higher than our projection at the beginning of the year that we've guided people to. We're seeing a couple of things impact that. Probably the biggest is our projections on our legacy commercial portfolio turned out to be very conservative and when we put our numbers together for the year even though that's a small portion of the legacy assets. They're very high yielding and they're coming in, the yields on those are coming in stronger and maintaining our margin. Previously we had guided people to margin for the year of about 555. We look like we've going to be slightly higher than that for the year now, maybe 10 basis points higher as we sit here today. In terms of dollars, net interest income was $146 million for the quarter, slightly higher than $138 million in the first quarter, which we believe is very positive to have the net interest income dollars grow and it's a reflection of our ability to continue to grow the balance sheet and put good earning assets on the books. Noninterest income, the biggest impact there continues to be lower accretion on the FDIC indemnification asset. We've talked about that before as our legacy loans have performed better. That means we'll get less cash from the FDIC and that affects that accretion. Noninterest expense, the biggest item there is our numbers are benefiting in terms of being lower because of lower OREO and foreclosure costs. As Raj mentioned, the legacy portfolio is performing better. So there are less units going into foreclosure and into OREO and as we've sold the OREO properties we're actually realizing better -- lower losses and bigger gains when we sell the properties. So that’s impacting all those numbers. In terms of capital, our capital levels remain very, very strong as you can see from the press release with the leverage ratio at 12:8. And both [indiscernible] capital numbers in excess of 30%. In terms of the impact of the MPRs recently published, these numbers are estimates in a sense that we're still going through the impact especially the risk weighted asset side, on our investment portfolio and our residential portfolio. But as we sit here today if this was fully implemented the Tier 1 capital ratio and the total capital ratio would both exceed 25% and probably even more importantly, the new common equity Tier 1 ratio would exceed 24%. So our capital position remains very, very strong and we believe as we move forward here should there be some opportunities for us to do some things our capital position should give us an advantage over some of our competitors. John, back to you.

Thank you, Doug. And that would be a full implementation of Basel III as if it were at the end of the period.

Right. Correct.

Before I turn it over to questions and I know there'll be some about New York and obviously we're anxious to answer those questions, but let me just reframe for you how the settlement with Capital One worked and what the mechanism is and how it affects us going forward. And I know it's gotten plenty of publicity and many of you read it but it is a little confusing. So the settlement is as follows. John Bohlsen and I wrote a $20 million check to Capital One. That was personally the most painful part of our settlement. And secondly the old non-compete that we were under does expire on August 7th as it was intended to do. And a new non-compete was created for the stump period between August 8th and the end of January. Actually, terminates on February 1st. Under the old agreement we couldn't do any business in New York at all. Under the new agreement we can do all the business in New York that we want to beginning in August provided that we do not take any business away from Capital One, that we do not solicit or hire any of Capital One's employees, that we continue to manage Herald as a unique and separate subsidiary of the holding company managed by Raj. And we can't open our branches, which are under construction until February 1st. So we will begin to do business in New York for the balance of the year although it will be muted slightly until we can open the branches and move forward full force in hiring all of the teams that we expect to hire in New York City. And also I am hopeful that -- and I know Raj mentioned to you that our margin's coming down quite quickly -- or rather our deposit costs are coming down rather quickly. As a thrift, which this has been until we got to Florida this is on the lower end of deposit cost for a thrift. But it's on the higher end of deposit costs if it were completely a commercial bank. We think this will be helped a lot by New York because we expect that a lot of the liability growth that we'll get in New York will come in the form of interest free commercial demand deposit. So we're looking forward to a continuation of that trend of cheaper deposit costs, which gives us even more room to protect margin going forward. That being said, I guess we're ready to take questions.

[Operator Instructions] Your next question comes from the line of Robert Placet from Deutsche Bank.

Good morning. Just first question as it relates to your outlook for new loan growth. I believe your previous expectations were for, I guess, $2 billion on a year-end basis give or take. Now that you're roughly over 50% of that already and the transitioning down in Florida it seems like you guys should be able to improve off of that. Just any thoughts on outlook from here?

I'm not sure that we're ready to say that in Florida alone that the growth would exceed that number. We're still pretty comfortable with that kind of an estimate of loan growth. We don't know the impact of the continued improvement of the South Florida economy. We don't know how strong it's going to be and I wouldn't be ready to raise it. Remember that in a balance sheet this size, $2 billion worth of loan growth is a hefty growth and we're being very, very cautious on the backside of this. As you've heard me say before the first people we hired when we got to Florida were credit people because we understood that we would be up a lot of volume in this area and so we're trying to be delicately careful here as we go forward. We could certainly do a lot more business if we wanted to bring down our credit standards but we certainly have no intention of doing that. Or our prices down.

Okay. Great. And then just as we look at your fee income obviously you saw a decline this quarter mostly related to income from covered assets. But as you think about your core fee income going forward I was wondering if you could just speak generally about how you're thinking about growing fee income over time and what kind of revenue mix do you see having between net interest income and fee income kind of over the longer term?

As we continue to develop the commercial banking business and especially in New York we expect to see a significant growth in fees generated from treasury management and cash management products that are very desirable and we are very competitive with here in New York. So we expect to see a continuation of a trend of increased fee income. But this is never going to be a fee income driven institution. This is a spread bank and while we are certainly hopeful and are always looking for opportunities to grow fee income, this is -- it's simply not part of our strategic plan going forward. We've looked at all of the obvious things that other banks have looked at that provide fee income opportunities. And while it's entirely possible that we'll find one, we are really not overly optimistic that we'll turn something like that up.

Your next question comes from the line of Brady Gailey from KBW.

I wanted to dive into the margin a little bit with Doug. So, Doug, the new guidance is 565 for this year. If you run the math that backs into a margin in the back half of this year of about 540, which just seems really low compared to where you're running now. So I guess if you could just confirm that and then maybe offer some guidance for what you think the margin's going to do next year.

Brady, the -- as we've talked before, projecting our margin can be a little bit difficult because of a couple of factors that can cause some volatility. One of which as I mentioned before we're probably a little conservative on the commercial portion of the legacy portfolio. And as we've also talked about before is we have one large residential pool that's carried basically at zero. So any cash flow from that pool goes into the margin and that can cause some volatility. So as I sit here today I think that the 565 I feel very comfortable with. Could it be higher? Yes, it could but I tend to be hopefully a little conservative on these things. So I would stick with those numbers. And next year again as we project out we do project our margin to go down similar to what we've talked about before in terms of magnitude. Probably as I sit here today in the neighborhood of 70 to 80 basis points, something like that. And again that's simply a function of putting on a lot of new assets at much lower yields than the legacy assets that will run off. Obviously we'll be able to have some impact on that with driving down our funding costs but we still believe the margin will go down next year.

Okay. Great. And then another one for John. John, as a function of your new non-compete with Capital One, which I guess you flip from the old to the new here in a couple of weeks, as you have the ability to announce a New York acquisition but not close it until I think sometime early next year, there's a lot of speculation on whether you're going to grow organically or via acquisition. I guess if you could just provide a little color on if you did elect to grow through deals, what sort of deals are you interested in? Are you going to go to the thrift route like you did at Northfork? And I guess a comment on size and would you do a deal as large as say an Astoria?

Spoken like a guy who owns Astoria. You're right and I should have mentioned it. The other important part of our new deal with Capital One is that we could negotiate and announce an acquisition anywhere in the United States including New York, New Jersey, and Connecticut any time after August 7th. So we're free to make acquisitions. We simply can't close on an acquisition before February 1st of 2013 and frankly in today's regulatory environment that wouldn't be possible anyway. So we are examining the possibilities of doing that. Now with regard our strategy there, look, we're looking at all of the obvious candidates in the northeast. Many banks are under tremendous pressure on the margin line and you're starting to see numbers even getting below 2%. We think that those institutions will be forced to do something strategic one of these days. However, we don't think pricing is right there yet. We think that unfortunately there seems to be very little good news in the future for those kind of banks and thrifts. So we don't have any targets in mind. I will tell you that, and we found this to be the case in Florida as well, the idea of thinking about doing a very small institution is very unattractive today owing to the restrictions on the regulatory side, the costs, the transaction costs of getting small deals done make them very unattractive. So we do think about larger institutions more than we think about -- that would be institutions of $5 billion and greater rather than under $5 billion, although that’s not to say we couldn't get attracted to a smaller institution but it would have to make a lot of strategic sense as well as financial sense. So we don't have anything particular in mind but we are watching very carefully the performance of a number of institutions in the northeast and look, everybody's talking about this right. This is the biggest subject in banking today is consolidation and everybody is amazed that it hasn't come to pass yet. But I believe that there will be an inflection point someplace in the future when there'll be a massive amount of consolidation in this industry particularly in banks in that mid-tier category. And we certainly expect to be a player.

Okay. And then lastly a quick one, private equity, I think their top 4 guys they own over half the stock. They roll off of lock up restriction I think sometime in the next couple of days, maybe July 28th. Is that something that you're nervous about from a stock price point of view?

Actually I'm glad you brought that up. Raj, do you want to comment on this?

They had rolled off their lock ups last year in July. What they're rolling off this July is their ability to settle in the open market, which they'll be obviously limited under SEC rules of how much they can do. Given the volume in our stock, nobody's expecting for them to start selling 5,000 shares a day. But they could have done a secondary any time in the last 12 months and in the future also but they have chosen not to because -- it's their call. They have not approached us at all about trying to do a secondary.

It's safe to say and I'm in touch with obviously these guys all the time, it's safe to say there's no interest in doing a secondary at these price levels.

Your next question comes from the line of Ken Zerbe from Morgan Stanley.

Sure. Question on the loan, sort of your average loan yields that you're putting on today. I know there's a lot of SEC noise we're hearing now but if you were to take an average of everything you're writing today, where's that coming on at?

Around 375 for the quarter.

Okay. And how's that trended over the last quarter or 2?

Probably in the fourth quarter of last year I believe it was low 4s. So it's come down a little bit.

Okay. The other quick question I had was just on could you -- a little more on the provision expense. How should we be thinking about that in relation to the new loan originations that you're putting on. Because it seems that loan growth is very strong. Your provision expense is very low. I know it only relates to the new loan originations but is this a good level if we were just to divide sort of gross provision expense to gross new loan originations and keep that going forward? Is that a fair assessment?

I would say yes, Ken. We talked a little bit about this before. Right now we're in a position where because we're so new and we don't have our own loss history, we're actually using peer group loss history in terms of booking the provision. We believe, although we can't guarantee this, but we believe out in a year or 2 when we get to use our own loss history that that provision level may in fact be lower. But for right now for the foreseeable future I think what you just described is a good way to look at it.

Your next question comes from the line of Herman Chan of Wells Fargo Securities.

It appears that some of the larger competitors in the Florida markets are on the mend. So how would you characterize the competitive landscape at this point maybe relative to a year ago?

It's about the same. We're seeing certain banks competing in certain asset categories. When we get up to loans that are $30 million or $40 million we see TD [ph] a lot and they're good competitors in that space. In the smaller loans below that space we see BB&T[ph] occasionally. And the small banks unfortunately continue to weaken further in Florida and there's relatively no competition from them anymore. We see JPMorgan once in awhile in sort of the commodity product, very small end, small business loans, $50,000 to $100,000 when they do specials here and there. We don't see Wells Fargo much at all. So I would say it's about the same.

Great. And in terms of your hiring strategy in New York, you mentioned you couldn't take some Capital One employees. But I wanted to get your thoughts on the hiring process now that the new non-compete is extended.

We're in touch with, obviously we're in touch with lots of people in New York who would like to join with us. We're not in touch with any Capital One employees now but we will be able to start that conversation after January. And so we expect to slowly start gearing up for New York beginning on August 8th and then you could expect that to accelerate after the turn of the year.

Remember we're opening -- we have 3 branches opening there. We have three branches under construction, 37th and 6th, 48th and Park and 57th and Lexington. And then we have Herald, which will merge into BankUnited sometime in the first quarter. So essentially it's 4 branches but they won't be typical branches. They're larger branches for us because we expect to do an inordinate amount of business out of those branches. And until -- while we need to hire obviously we need to hire a staff, it doesn't number in 100s in New York. To fully staff up all 4 locations in terms of adding to the staff that we already have at Heralds, it's probably 50 or 60 people, right? So it's not huge.

Your next question comes from the line of Erika Penala, Bank of America.

It's Russell Gunther on for Erika. Just quick question on the commercial growth, understanding the lock up coming off in the next couple of weeks. Do you have any updated thoughts on what you might be able to contribute on an organic basis in New York in 2012 and then how this might ramp up in 2013 with the branches open and ability to hire?

I really don't want to -- me personally I know. And I know what I think we're going to do but I'm not ready to sort of make that a public announcement yet because it's obviously conditioned upon a number of things happening. Doug, do you have a comment on that?

For 2012, Russell, we don't have a whole lot in there for New York given the settlement with Capital One and even though we can do some business. I think it's safe to say we're going to be very careful until we get to the end of January next year and then we'll go full bore. So not much in 2012. Once we get up and running in 2013 I think we've talked in the past how we think that within 2 to 3 quarters of getting ramped up that we can be producing the type of growth on a quarterly basis that we're doing in Florida, which took us basically 2 years to get to this level. So that's what we've said publically and, John, at this point I don't see any reason to change that.

Yes. I agree.

[Operator Instructions] Okay. We have a further question and it's from Joseph Fenech from Sandler O'Neill.

Question for Doug. Doug, the reclassifications from non accretable difference to accretable yield that's sort of really been the wildcard here in forecasting the margin. You talked about the legacy commercial portfolio yields being better. Does the updated margin guidance that you guys provided include an estimate of potential further reclassifications or is that sort of excluded and it's kind of a bonus when it does happen?

That’s a bonus when it does happen at this point. We've been saying consistently for the last year that we expected those reclasses to drop. They were very significant in 2009 and 2010. And so far this year the reclassification is $50 million and we really don't have any reclassifications built in going forward. So to the extent that happens that would be an addition to the margin.

Okay. And then, John, just on the New York expansion, first I know you said in the past that your organic growth strategy is going to be centered in Manhattan. But would you look at doing stuff outside the city in terms of new offices or what have you? Or is the organic strategy from the standpoint of branch presence strictly relegated to Manhattan?

We'll have a couple of locations on Long Island. We're going to have one in Melville, which is where we have a holding company office right now and probably 1 or 2 other locations on Long Island since that's sort of the home of where we started and we expect to do a fair amount of business there. But nothing significant. But that's not to say that if an institution were to become available and it was financially -- and met our targets financially and strategically that we couldn't end up with something of a franchise on Long Island or Westchester. But we haven’t seen it yet.

Okay. So that's where I was going with that question. So you could do a deal on Long Island as sort of a complement to the organic strategy in Manhattan?

That's right.

Okay. And then lastly, John, in terms of acquisitions in Florida, you said in the past that you've looked at a lot of stuff down there. If the price were right would you still consider doing something in Florida or with your preference for larger deals in New York, does that mean that you've kind of turned away from Florida somewhat just to keep as much dry powder as possible for a larger deal up here or is Florida and the southeast still on the table?

Florida is very much on the table but I think I don't need to remind you that Florida's got 230 or 240 banks and they're generally very small institutions. So there are only a handful of institutions in Florida who are really big enough to be attractive to us and we are very interested in those institutions and continue to watch them carefully. And would be very interested in adding them to our Florida franchise. But to be frank with you, not at the price levels that we see. So we just don't see the opportunity there. And it's obvious, right? We're the largest bank in Florida except for EverBank, which is a different animal. So there's not a great deal of opportunity to do anything meaningful there. But if something were to come along we'd be a player.

Thank you for your questions. I would now like to turn the call over to John Kanas for closing remarks.

Just in closing we're delighted with this performance taking you back to when we went public a year and a half ago. We did not expect Florida to improve this much this fast. We thought it would be 2 or 3 more years before we'd see this kind of stabilization. So we're getting a real bonus out of the South Florida market. Our lenders have done a tremendous job. Remember we hired about 150 new people last year in the loan side alone that are really now beginning to ramp up and crank in this new business. And as we get new business we get more new business in Florida and we're just couldn't be happier with the way that's going. We have a lot of room in the cost of deposit side, which we expect will help to mitigate margin pressure. In the future we are obviously very excited about getting into New York and while it's to some degree a wildcard in terms of how quickly it will grow, you probably know and can sense and have talked to me individually that I'm very excited about New York. I think it's going to be a big deal for us to be frank with you. We are very optimistic about the balance of the year and expect to continue this kind of performance. Now, that's all the good stuff. The bad stuff is the macroeconomic environment and nobody knows where we're going but the fed seems to have promised us very low interest rates for a very long period of time, which is going to continue to put margin pressure on the industry. While it hurts us, it hurts us a lot less than it does any of the target institutions that we think will have to sell in this environment because of the protection that we have from our loss share agreement. So we can sit here for a long time and take a few punches from low margin while we think others around us won't be in as an advantageous a position as we are. So we would like to look forward to a time when interest rates in the market move up because the economy in the United States is robust. But I must say that I'm not optimistic that we're going to see that any time soon. And we don't count on that in our prognostications for BankUnited. Short of that, we sit here with a lot of earnings, a lot of capital, a lot of excess capacity in human beings and technology and waiting for the right opportunity to do something smart. Thank you very much for your attention. And for your interest in the company. And look forward to seeing you individually over the next few weeks. Thanks very much.

Thank you for your participation today in this conference call. This concludes the presentation. You may now disconnect. Good day.