BankUnited Inc (NYSE:BKU) Q2 2020 Earnings Conference Call - Final Transcript

Jul 29, 2020 • 09:00 am ET

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BankUnited Inc (NYSE:BKU) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] Our first question comes from Stephen Scouten with Piper Sandler. You may proceed with your question.

Analyst
Stephen Scouten

Yeah, good morning. Thanks.

Executive
Leslie N. Lunak

Morning, Steven.

Analyst
Stephen Scouten

I'm curious, maybe first, on the expense run rate. I mean, a really impressive quarter-over-quarter change there. I know your guidance kind of previously, which, obviously, no one could be too specific, but it was just for expenses to be down year-over-year. So wondering if you could dig deeper into the salaries, migrations and what really caused that, if it was FTE reductions or more just the things you noted in the release? And then just lastly, if there was a FAS 91 impact within salaries as well.

Executive
Leslie N. Lunak

Yeah. So, I think the salary reduction, the most significant component of that, Stephen, is, in fact, FTE reductions year-over-year. There's a little bit of an element of that, as I mentioned in my remarks, that's reduced variable compensation. As to the FAS 91. If you look at Q2 compared to Q1, yes, there were a little bit more FAS 91 costs deferred in Q2 because of PPP. However, year-over-year, that actually went the other way. There was significantly more FAS 91 deferrals in '19 than in '20 because loan growth was higher in '19. And I don't have, I'm sorry, I don't have those exact numbers in front of me, but that's...

Analyst
Stephen Scouten

No, that's okay. Yeah, no, that's really helpful. Okay. And maybe just the one other question really I have is, so you guys gave a ton of detail on the migrations and the movements in the loan loss reserve, which is extremely helpful. But I guess maybe generically, how would you respond to kind of maybe a feeling if somebody looked at your reserve on a stand-alone basis, call it, the 1.27% without the PPP and the mortgage warehouse, the debt on an absolute basis, may look below peers. Would you just kind of highlight, I guess, all that you already said and say that you believe the risk rating changes are the lagging indicator? Or how can you maybe frame that up for us?

Executive
Rajinder P. Singh

I think you have to take into account the portfolio mix. So when you compare bank A to bank B, there's often a very big difference in portfolio mix. We have a big resi portfolio. We have other large portfolios that are not really impacted by this. So the municipal portfolio is hardly reserve or against that. That's $1.5 billion. So if you normalize for those things, then you will -- that explains it more than anything else. We've always said our portfolio was never really created for high yield. It doesn't have the high-yield components. In other words, it doesn't have the high-risk components, which is why you see that difference. If we had a couple of billion dollars of construction loans or some other leverage loans, a couple of billion of that, you would see a much higher reserve.

Executive
Leslie N. Lunak

Yeah. I would echo that. I think it's