Below is transcript of the BankUnited (NYSE:BKU)’s Fourth Quarter 2014 Earnings Conference Call, held on Thursday, January 22, 2015 at 9:00 a.m. ET. Forest Hill Capital, Lomas Capital Management and Elkhorn Partners was among BankUnited (NYSE:BKU) shareholders at the end of the third quarter.
BankUnited (NYSE:BKU) is a bank holding company with three wholly owned subsidiaries: BankUnited, National Association (the Bank) Herald National Bank (Herald), and BankUnited Investment Services, Inc. (BUIS), collectively, the Company.
Company Executives:
John Kanas, Chairman, President and Chief Executive Officer, BankUnited (NYSE:BKU)
Leslie Lunak, Chief Financial Officer, BankUnited (NYSE:BKU)
Raj Singh, Chief Operating Officer, BankUnited (NYSE:BKU)
Mary Harris, Senior Vice President of Marketing & Public Relations, BankUnited (NYSE:BKU)
Thomas Cornish, President of Florida, BankUnited (NYSE:BKU)
Analysts:
Jared Shaw, Wells Fargo Securities
Brady Gailey, KBW
Ken Zerbe, Morgan Stanley
Stephen Scouten, Sandler O’Neill
David Bishop, Drexel Hamilton
Joe Fenech, Hovde Group
Gerard Cassidy, RBC Capital Markets
Preeti Dixit, JPMorgan
Operator
Good day, ladies and gentlemen and welcome to the BankUnited Inc. 014 Fourth Quarter Earnings Conference Call. My name is Tahisha and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question and answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Mary Harris, Senior Vice President, Marketing & Public Relations. Please proceed.
Mary Harris, Senior Vice President of Marketing & Public Relations
Good morning. 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 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 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 ending December 31, 2013 available at the SEC’s website sec.gov. John?
John Kanas, Chairman, President and CEO
Morning everybody. We are happy to give you the results of the fourth quarter and the year. We’re also happy that RBC had their conference today. Certainly none of you would be here listening to us. I’m sure we’ll have a discussion about that as this conversation goes on. So we did a little better than we thought we would do in the fourth quarter, about $0.45 a share, $46.8 million which beat the consensus by about a penny. More importantly, we had a conversation with many of you at the end of the third quarter. We reported to you at that time that a lot of the loans that we expected to close in the third quarter slipped over into the fourth and that we anticipated that fourth quarter loan and lease growth would be somewhere between $1.2 billion and $1.4 billion. Actually it did a little better than that. The loans that slipped over into the fourth quarter did close, and the fourth quarter itself and quite frankly the momentum building and going into ‘15 is actually a little stronger than we had expected it to be. About a $1.5 billion of growth of those assets. That’s divided into New York about $770 million, Florida about $300 million and the national platform, the combination of all them, about a little over $400 million.
So if you want to look back on the year, $1.95 a share in earnings and with regards to the balance sheet and where we expected it to be and what we told you earlier this year, in summary we grew loans about $4 billion, a little bit more than $4 billion and we grew deposits to about $3 billion. And we said earlier this year that that was our goal to grow deposits about three quarters of the amount that we grow loans and eke up a little bit our loan to deposit ratio which is now at just a little bit over 90%, I guess about 92%. You should expect that same kind of trend to continue into ‘15. We intent to raise the loan to deposit ratio further and you’ll probably continue to see the growth in loans outstripping the growth in deposits, but fully recognizing that as the year unfolds and if we get the growth we expect in 2015, that we will turn more of our attention to deposit growth as the year goes by.
Competition remains crazy in both of these markets. Interest rate and margin compression is something that unfortunately plagues this entire industry and this very difficult, if not hostile, banking environment. Don’t expect that to change anytime soon. You know that we have always reported to you that because we have no idea where interest rates are going and have never been sure when or if they were going up, we continue to keep this balance sheet extremely neutral, give up some earnings to do it, but play the safe side of that and that’s worked out very well for us. Asset quality doesn’t really bear much of a discussion. It continues to be very strong. Non-performers to total loans 29 basis points. And you’ll see and I know that some of you have already asked questions but we’ve taken a pretty good shot at increasing loan loss reserve this quarter, consistent with the growth in this loan portfolio to try to remain conservative as time goes by. Deposits grew – it was actually $678 million, almost $700 million for the quarter and again we expect that to continue.
So overall, very, very happy with the quarter. We are in that period that period that we’ve described to you for the last couple of the years where the earnings are under pressure and will be for the next quarter or two, but clearly we can see our way through to the second half of the year such that EPS is on its way up in the second half of 2015, particularly, if we continue to get the kind of asset growth that we are experiencing. All indications are that that will continue. I’m going to turn it over to Raj now and then to Leslie and then we’ll come back for questions.
Raj Singh, Chief Operating Officer
Thanks John. I’ll repeat a lot of what John has said in terms of deposit growth. Deposit growth was consistent with the last few quarters. $678 million of which about $177 million was DDA and the rest, most of it was MMDA and savings. We had almost no growth in time deposits this quarter. Loan deposit ratio is now at 92%. It’s inching up as we had designed it to and we will keep growing this further up. We expect 2015 also to have loan growth to be a little higher than deposit growth, which will get our loan to deposit ratio to drift upwards. DDA now stands at 27%, money markets and savings at 43% and time deposits at 30%. So the mix of deposits, while it will change ever so slightly is not going to change by leaps and bounds from here on. The cost of funds, excluding hedge accounting costs and accretion cost is 56 basis points, it’s fairly stable. It’s been right around there for the last several quarters and we expect it to hover in that neighborhood through 2015. We do use FHLB as another source of funding as you’ve seen this quarter and we’ll continue to use it. We have plenty of capacity over there that will be our plug as we grow the balance sheet further.
On the M&A landscape, I’m sure there’ll be questions and I’ll just leave it for that. There’s nothing in terms of a deal that is in the pipeline to talk about, but the M&A environment stays fairly active, dialogues stay active, which is an encouraging sign. Most encouraging is to see deals actually getting announced like the one that was announced this morning. But nothing imminent from our perspective we just keep talking to a number of people. I’ll turn it over to Leslie.
Leslie Lunak, Chief Financial Officer
Good morning everybody. Thanks Raj. Just to give you a quick recap of the quarterly results and a little bit more color on some of our expectations for 2015. We saw net interest income stay pretty flat this quarter to what it was last quarter in spite of the declining impact of sales from the zero carrying value pool. And we should see a good increase over the comparable period of the prior year. We should see that number probably stay flat for a quarter and then we’ll see a significant upward trajectory there. This quarter we hit what we think of as a milestone. Total interest income from new loans for the quarter is now in excess of interest income generated by the covered loan portfolio. That’s an inflection point we’ve been expecting and waiting for and we finally reached that inflection point. Pressure on NIM continues due to the run off of the covered assets. We ended the year with NIM of 4.26%. We had given you guidance of between 4% and 4.25% in the quarter so we were right there. For next year I would say we are probably looking at NIM for the year somewhere between 3.8% and 4%. It will continue to decline but at a much slower rate of decline than we’ve seen over recent quarters.
Provision for the quarter as John said, just to echo on his comments, we see a higher provision. Our provisioning is related largely to the growth of the loan portfolio, keeping pace with that growth. And we see the impact of that as John said, provisioning conservatively in the fourth quarter. I want to emphasize we are seeing no deterioration whatsoever. You can see from our statistics and our asset quality, or no indication of that. In line with our previous guidance to you, core non-interest expense, excluding the amortization of the indemnification asset increased about 9% for 2014. I think we had guided you to around 10%. I would say for 2015, those increases will moderate still being in the single-digits, probably a little bit more moderate increase than we saw this year.
ETR for the fourth quarter was low. Had a positive impact on earnings for the quarter. That was really due to some changes in certain state income tax positions that we took that gave us a favorable benefit for the fourth quarter and had a positive impact on our earnings. And ETR going forward for 2015 for the full year probably will be between 32% and 33%. And what else can I tell you? FDIC asset amortization, everybody asked about that, it will probably be pretty flat for ‘15 with what it was for ‘14 and then we’ll see it decline after that, just echo John’s comments one more time. While ETF for the first half of ‘15 will probably be lower than it was for the first half of ’14. The second half will be significantly better than what we saw in the second half of 2014. And more importantly, the trajectory will be very positive as we go into the second half of 2015. I’ll turn it back to john for concluding comments and then we’ll open it up for questions.
John Kanas, Chairman, President and CEO
All in all, we’re very pleased. The year has come out just about exactly where had hoped and predicted that it would have. Before we kick off the questions, no, we don’t lend into the oil business. I’m ready for questions.
John Kanas – Chairman, President and CEO
With that answer we’ll take questions.
Question and Answer Session
Operator
Your first question will come from the line of Jared Shaw from Wells Fargo Securities. Please proceed.
Jared Shaw, Wells Fargo Securities
Hi good morning. Thanks for taking in my question. Looking at the net interest income, Leslie you said flat for the first quarter then upwards. So really starting the second quarter you think that we can start seeing that inflection in the growth in NII?
Leslie Lunak, Chief Financial Officer
Yes. That’s accurate.
Jared Shaw, Wells Fargo Securities
Okay. And then looking at the provision this quarter, if we assume that loan growth stays consistent with where it was this quarter, should we continue to see provisioning at the same level? Was this all due to net new growth on the portfolio, or was there some type of a catch-up that you were trying to get the allowance bucket up to?
John Kanas, Chairman, President and CEO
Let me just — before she answers that, let me talk about the quarterly growth of loans because we got crossways with some of you last year. We think that the loan growth at this company in ’15 will be about where it was in ’14 — somewhere between $4 billion and $5 billion. But it’s impossible for us to predict accurately the quarters. Don’t expect, although it may happen, but don’t expect $1.5 billion in the first quarter, although we are starting out very strong. So remember that on a quarter-to-quarter basis. We try not to measure us on a quarter-to-quarter basis with regard to that asset growth. You may want to finish the answer to that.
Raj Singh, Chief Operating Officer
We actually don’t hold our people accountable on a quarter-by-quarter basis. So it’s very hard to smooth it out on a quarterly basis. So please, like we said last year, we’ll say it again this year, we manage through annual budgets, annual targets and we don’t try and artificially smooth things out quarter-by-quarter. There is seasonality in the business. There can be just hiccups at the end of the quarter. Things get pushed off into a following quarter like it happened for us between third and fourth quarter. So from a quarter-to-quarter basis, loan growth could be up or down, but we feel fairly good about the annual projection that we are giving you for 2015.
Leslie Lunak, Chief Financial Officer
Absolutely. With that, Jared back to further comments on the provision. There was some element of the provision in the fourth quarter that resulted from an increase in qualitative factors that we apply to the reserve. The way I would think about it going forward is I would expect the allowance as a percentage of loans to remain stable. And that’s how I would think about that, Jared.
Jared Shaw, Wells Fargo Securities
Okay. And then looking at the — you had mentioned that you feel comfortable with the loan-to-deposit ratio increasing as the loan growth continues to be significantly better than the deposit growth. At what point does that become something that you focus more on in terms of focusing more on the deposit side? I guess how high would you be willing to take that ratio?
John Kanas, Chairman, President and CEO
We already started focusing on that actually this year. We said before that we are willing to take that up a little over 100%% and that’s probably the proper capacity for us and it drives the earnings that we are expecting. But we are already thinking about because of the quarter to quarter basis, we expect to see this kind of growth in loans. We are already thinking about and have in fact tweaked some of our incentive plans toward deposit growth and away from loan growth just to balance the growth of both of these sides. But we are running a little bit over 100%, but I don’t know, I guess maybe start this year. We start this year in terms of loan to deposits probably just a little under 90%, right? We’re now at 92%.
Leslie Lunak, Chief Financial Officer
95% maybe.
John Kanas, Chairman, President and CEO
Yeah. So with all of the growth we had this year in loans, we still only increased that ratio from probably 85%, 86% to 92%. So we’ve got a long way to go.
Jared Shaw, Wells Fargo Securities
Okay. And then finally, just looking at M&A, could you just give us an update on your thoughts on that? And as you look at M&A is that — would you say is there a primary — are you looking to help with the deposits as a primary factor on M&A? Or are you looking to just overall expand the lending capacity and the size of the bank as you look at deals?
John Kanas, Chairman, President and CEO
Look, we continue to — this is everybody’s favorite subject, right? This is a subject that has been more talk about and less action than anything I can think of in the last five years. We continue to have active dialogue with a number of banks. We are in constant contact with people who we think make great partners for us one way or the other and complement the value and create new value. But frankly, with the stock trading at 26 or 27, barely 27 and other stocks under pressure, it’s not easy to get a deal done in here. I guess if I thought about over the last six months and the amount of time that Raj and I and the M&A team have spent, we probably spent more time looking at non-bank situations than bank situations. We are actively engaged in just about anything you can think of, but as Raj said, don’t look for an announcement next week on anything. Although we do have a number of situations that could materialize very quickly.
Jared Shaw, Wells Fargo Securities
Great. Thank you very much.
Operator
Your next question will come from the line of Brady Gaily from KBW. Please proceed.
Brady Gailey, KBW
Hey, good morning guys. About the margin, I just wanted to clarify. The 3.80% to 4% is that for the full year 2015, or is that by the end of 2015?
Leslie Lunak, Chief Financial Officer
Yes. That’s for the full year, Brady.
Brady Gailey, KBW
That’s full year? Okay. And then do you all have any sense, like when you put all this through the model and you look at the full-year 2015 EPS, do you think that will be above or below 2014 reported EPS?
John Kanas, Chairman, President and CEO
It is going to be – this is about as unscientific as you can get, but when we put it through the model and look at it, considering that it will be weaker in the first half and stronger in the second half, probably comes out pretty close to ’15 — I’m sorry to ’14.
Brady Gailey, KBW
Yes. Okay. And then on the rate sensitivity, I know you are trying to keep it neutral, but it seems like in a year or so, with your growth, you are going to have to start matching loan growth with deposit growth. And at the pace you all are growing, maybe you have to start paying up for some of that deposit growth. And maybe you are really a smidge liability-sensitive. How do you think about the funding issue as you start to get to kind of a stable loan to deposit ratio going forward?
Leslie Lunak, Chief Financial Officer
So Brady, that probability of having to pay up a little bit for deposits when we reach that point is factored into our modeling. And even given that in the rate environment that underlies our model which is a modest increase in rates beginning in late ’15 and some flattening of the curve, even given that, we still see net interest income growing in that rate environment. The existing balance sheet is almost entirely rate neutral and the dynamic balance sheet is slightly asset sensitive, Brady, even with factoring that in.
Brady Gailey, KBW
Okay. That’s helpful. And then finally, we’ve seen Susquehanna go. We just saw City National go. A lot of these banks are larger banks that are selling. It seems like with your currency where it is, it’s going to be hard for you all to really be a buyer. But how — I know you all tested the waters there for a week a couple of years ago, but how do you all think about potentially selling this company given the increased activity in kind of this mid-cap, larger-bank M&A space?
John Kanas, Chairman, President and CEO
We’ve said this before, we’re owners and managers here. So we sit here – and we don’t think about buying or selling frankly. We think about creating more value. We are quite agnostic toward the way that we create a transaction. So we’ve looked at — quite frankly we’ve looked at all kinds of things that you might think of them as mergers of equals. You might think of them as acquisitions. You might think of them as sales depending upon how the structures come to be. But we are realists here and we understand that this is a hostile banking environment and not likely to get much better. And I think that mid-cap banks who basically take deposits and make loans for a living, are going to be under a lot of pressure and continue to be under a lot of pressure. We hope that everybody else understands that as well and that some of these conversations that are not just dialogue will turn into value creating transactions.
I will say this though about that. I think I talked briefly about it last time. It’s quite apparent that the regulators are squeezing the large institutions to get smaller. And the result of that and we are not seeing in our, what I would call a particularly meaningful way, but it is measurable. Mid-cap banks are starting to enjoy some of that spillover from the large banks. We are opening some accounts, a lot of accounts actually, particularly up in New York that are migrating out of the large institutions as the large institutions migrate away from some businesses that — and not necessarily on the lending side, but mostly on the deposit side — that they have no need for since they are having to shrink their asset portfolios. I will say that the bad news is, crummy margins out over of this year and I don’t know how you can make an argument for anything more than that. But I think the good news is, and we are seeing it, I think others are seeing it as well, we get a shot at some business that we’ve never seen before and I think that will be helpful.
Brady Gailey, KBW
Alright. Great. Thanks for the color, John.
Operator
Your next question will come from the line of Ken Zerbe from Morgan Stanley. Please proceed.
Ken Zerbe, Morgan Stanley
Great. Thank you. Good morning. A question on loan growth, a more conceptual question, though. A couple years ago, I guess, when you started talking about the $4 billion to $5 billion of loan growth, it seems that you were hitting that, or pretty close to it, pretty much right out of the gate. And when I think about — obviously building off Florida a little bit, obviously building out your New York presence much more aggressively, I would have naturally assumed there probably would have been more of a ramp-up in loan growth, right? So less back then, a little more now, just as you’ve really sort of hit your stride. But it still seems that the growth went from zero to 60 very fast, and you were very constant thereafter. Why don’t we see more of a ramp-up in loan growth? Thanks.
John Kanas, Chairman, President and CEO
Raj and I are scrambling for the microphone to answer this, so go ahead.
Raj Singh, Chief Operating Officer
I wrestled it away from him so. There is a more nuanced story to the loan growth than just the highlight number. This is net loan growth, it’s not production, let me say this first. If you see our gross production year-to-year which we don’t get into that detail, it is actually up significantly, between ’13 to ’14 and also over ’14 to ’15. We also have more runoff. Two years ago we never had to worry about runoff, we have portfolio was brand new and our runoff now is catching up because loans we booked three years ago, people are selling the property, they are financing and moving on, which is natural. So while production is up, runoff is up as well and that’s one part of the answer. The other is, we have within our — as we are growing into our capital base, we are becoming a little more stingy with what kind of access we want to put on our balance sheet and how we want to allocate that capital.
As you know we will fully deploy our capital sometime by the end of this year or early next year. As that happens, we’ve pulled back from certain asset classes. We don’t buy as many residential loans as we used to through the corresponding channel. That’s a pretty good example. We were doing probably twice as much of that six quarters ago than we’re doing today. There were business that we’ve exited completely like the auto business, which would have been by now easily $0.5 billion size portfolio for us. We are responding to where we are in our evolution. We’re trying to at the end of the day solve for risk adjusted return on equity and of course growth as well. But the elements of that growth are different from a year from now than they are today. It’s not fair to say we went from zero to 60 and we stayed at 60. Yes, we went from zero to 60, but that 60 is actually very different than a year ago what it was, or two years ago what it was.
Ken Zerbe, Morgan Stanley
Got it, alright. That helps. And then just a follow-up question. On the first quarter loan growth, John, you kind of alluded a couple times the first quarter could be very strong. Do you want to — can you put any numbers around that?
John Kanas, Chairman, President and CEO
No dear. It’s too early because of all of the issues we talked about before, how these things slide over. I mean I do know that there some things frankly that slid over from the fourth quarter because of the way the holidays fill. If you had a holiday on a Thursday and so we have some closings set for Friday that slipped into Monday, which puts them into ’15. You’ve got some of that and there’s a strong pipeline. I’m sitting here looking at Tom Cornish, who we were talking about this morning and Tom is seeing a very strong pipeline here in Florida, stronger than we’ve seen in the past. I don’t want to put numbers on it on a quarter-to-quarter basis, but we are comfortable with our prognostication 45 for the year.
Ken Zerbe, Morgan Stanley
Great. Alright. Thank you.
Operator
Our next question will come from the line of Stephen Scouten from Sandler O’Neill. Please proceed.
Stephen Scouten, Sandler O’Neill
Hey guys. Good morning. Thanks for taking my call. A couple clarifying questions, one for you, Leslie. In regards to the indemnification asset amortization, you said it would be largely flat in ’15 versus ’14. So would this quarter kind of be the peak of where you expect that number to be on a quarterly basis?
Leslie Lunak, Chief Financial Officer
Probably, this quarter or next quarter. But again I say that with a little bit of reservation in my voice because that can change based on our quarterly update, quarterly updated cash flow forecast for the covered loans. But sitting here today, that’s how I would be looking at that and then lower amortization after ’15 going forward. I think another way to think about this and I’ve said that before, is if you look at the combined yield on the indemnification asset and the covered loans, it should stay between 9% and 10%. There is a sanity check on the overall picture.
Stephen Scouten, Sandler O’Neill
Okay. And when does that real inflection point occur due to the level of yield amortization and kind of how that accounting works? Is it what you are saying? Into ’16 you’re really start to see that inflect downward due to the way it’s weighted, or is it more pronounced later on?
Leslie Lunak, Chief Financial Officer
With respect to the indemnification asset, yes.
Stephen Scouten, Sandler O’Neill
Okay, great. And then on the M&A, John, you mentioned that you guys are spending some more time on non-bank versus bank acquisitions. Can you give us an idea of what the breadth of those opportunities or even the types of things that you are looking at as it relates to non-bank acquisitions?
John Kanas, Chairman, President and CEO
No. We have a number of delicate conversations going on. It’s not wealth management. I’m not a big believer in wealth management, although it seems this morning disproved my theory on that with 2.5 times book for Russell Goldsmith. They are not a wealth management company, but they are — we are struggling like everybody is. And looking at the yield on assets, competition for loans, the probability that that funding costs are going to go up at some point at some time, and we are thinking about — we are thinking globally and widely about what it is we can do to protect that margin and maybe even improve on it going to next year. That’s about all I can say.
Stephen Scouted, Sandler O’Neill
Okay. Fair enough. And the new loan yield at 3.52%, is that a level we think can kind of remain in line? Or do you expect — I guess in your 3.80% to 4% NIM modeling for ’15, do you expect further compression there?
Leslie Lunak, Chief Financial Officer
Stephen, we don’t really expect further compression. That’s driven in large part by product mix. It’s a little bit difficult to predict. But I would — my best guess today is it would remain relatively stable although product mix could drive that up or down.
John Kanas, Chairman, President and CEO
We are seeing an interesting trend this quarter. Tom and I were just talking about this morning with some of our larger real estate borrowers opting for variable rate rather than fixed rate loans, which hurts that – it hurts that margin and you can see it in there. But that may turn out to be very good for us depending upon when and how much rates do go up.
Stephen Scouten, Sandler O’Neill
Fair enough. And then one last clarifying question on the provision and I know, Leslie, you said maybe it will stay relatively flat on a percentage basis of loans. But, as I look at it, it appeared to be at about 1.5% of new loan production, or net new loan production. Is that kind of another way to think of it, or was that elevated?
Leslie Lunak, Chief Financial Officer
Not really, Stephen, I think you’d be much better served by looking at the — looking at it, the allowance as a percentage of loans. There’s so many moving parts running through the provision in any quarter with changes — our reserve is based on peer group net charge off rates. As those change, as specific reserves move in and out, I think the better way for you to think about it is targeting that allowance as a percentage of loans.
Stephen Scouten, Sandler O’Neill
Okay. Perfect. Well, thanks guys for the clarification, and congrats on the strong loan growth.
Operator
Your next question will come from the line of David Bishop from Drexel Hamilton. Please proceed.
David Bishop, Drexel Hamilton
Hey, good morning. A quick question in terms of the division of loan growth into 2015, obviously a little bit more weighted to New York this quarter. Looking forward, do you think it’s going to be relatively more balanced though throughout 2015?
Raj Singh, Chief Operating Officer
It’s hard to say. It is somewhat the function of the competitive landscape. It can change quite dramatically from quarter to quarter.
John Kanas, Chairman, President and CEO
Yeah, we said this before. If you realize how huge the markets are that we are in, and how small we are, it gives us the ability to sort of cherry pick where we want our growth to be based on the loan types and the yields that we see. It just happened this quarter where we saw more opportunities in New York that fit the box for us. But that could turn around and be — it could go the other way in Florida the next quarter or the quarter after that. Obviously New York is a much, much larger market. I suppose over time, we expect to see New York grow in terms of dollars at a greater rate, but it’s too close to call over the short term.
David Bishop, Drexel Hamilton
And, Leslie, circling back, I think you gave some guidance in terms of expense growth. And just maybe circling back to the fourth quarter, saw a little bit of a downtick in compensation expenses. Obviously we will have a first-quarter build for and such, but is that a relatively good run rate to build the expense base off of?
Leslie Lunak, Chief Financial Officer
Yeah. I think so. It’s just the first quarter will be a little higher, but we’ll have — my best guidance, again we had about a 9% increase which was in line with the 10% that we had guided to last year. I would say it will be in the single digits again this year overall and clearly comp and not get into the two main components of that. I think we’ll be in the single digits again probably a little bit moderated from what we saw in 2014 in terms of rate of overall growth.
David Bishop, Drexel Hamilton
Great. Thank you.
Operator
Your last question will come from the line of Joe Fenech from Hovde Group. Please proceed.
Joe Fenech, Hovde Group
Good morning guys. John, you were one of the first, I think, to allude to the possibility of this pickup in midsize bank M&A, it was a few quarters ago now. From when you made those comments, is your sense that regulators attitude have softened even further and that situations like M&T are now more company specific as opposed to being more of a harbinger for regulators’ attitudes towards M&A generally? Has it gotten even better from when you first made those comments three quarters ago?
John Kanas, Chairman, President and CEO
The second answered first, I think that situations like M&T are very much bank specific. Everybody freaked out when that first happened and thought Oh my God, Oh my God and me too by the way. Does this mean the regulators aren’t going to approve anything anymore? And as this story of M&T has unfolded publicly, it’s become quite clear that this was a very specific situation. With regard to whether regulators are softening their — I mean I would characterize them right now as being extremely neutral. They are in favor of deals that make sense. And we’ve had many, many conversations with them and other banks have as well and gotten the green light on things that made sense. I think one thing is sure: regulators are far more involved in the M&A world than they ever were before. They want to be in earlier. They want to know what you are thinking. They want to see your models and they have a lot to say. But frankly in terms of where they stand today, I view them as very neutral and certainly not impeding the process.
Joe Fenech, Hovde Group
Okay, and then either Raj or Leslie I guess, credit looked fine. You guys have talked in the past, or Raj specifically, about the reserve being dictated by sort of the loan losses for the peer group because you all didn’t have the sufficient loss history. That doesn’t seem to have changed. My impression was that the reserve could have even drifted lower. So just wondering if there has been a shift in rationale there at all.
John Kanas, Chairman, President and CEO
Let me — she is going to give you the technical answer, but let me just tell you that we are growing the way we’re growing. It’s important to me that this company maintains a conservative attitude towards this — for regulators and for investors and for me. So when you’re growing at this rate, you could expect to — in my view I don’t mind overshooting a little bit there rather than undershooting.
Joe Fenech, Hovde Group
Okay. Fair enough. And then you guys talked a little bit last quarter about a seasonal slowdown in Florida. Can you talk about what loan growth looked like specifically in Florida in the fourth quarter and looking out into this year?
John Kanas, Chairman, President and CEO
I don’t know. Tom Cornish is sitting here with me. He’s got a lot more years of experience in Florida than I do, and he’s running the whole state for us there. What would you say the answer that question?
Thomas Cornish, President of Florida for BankUnited, Inc.
Yeah, I think if you look at Florida for the fourth quarter, we had about $300 million. I think that was a pretty good number as we think about what’s happening around the state and in different markets. Different markets are growing at different rates, but when John talks about how big the market is, we have a significant market share in middle market and commercial real estate and business banking in the South Florida market. But when we looked at the Tampa, Orlando, Jacksonville, West coast markets, all of those markets have somewhat trailed to south Florida market in terms of Economic growth. But we’ve invested a lot and we are going to invest a lot in the teams in each of those markets this year. I think as you – as we look at Florida, the opportunity for the entire state recovering at the same pace that South Florida has recovered over the last couple of years and the investment that we are going to make in different markets and different teams, some we’ve already made and some over the course of the rest of this year, I think the overall picture in Florida is very good.
John Kanas, Chairman, President and CEO
Yeah, I’ve said this to some of you guys before. You should get down here. We talk about this a lot, but it’s really — it bears looking at it. The snapback in economic growth down here is extraordinary. You can’t get down Brickell Avenue for the construction cranes. And there is a huge difference with — look, we are not being naïve. We know that Florida has always been a boom-and-bust state and it is — there is always that issue. But the big difference between what we are seeing in Florida now and what we saw in 2003, 2004, 2005, it was ramping up toward 2008, 2009 when things blew up is — those are the days when every real estate broker in town had a deposit down on four different condo units in buildings that never got built and leverage was coming out of everybody’s ears and there was no equity in these deals. Very, very different situation down here in South Florida today. These buildings are put up mostly with equity. They’re in the hands of very solid developers. Many of them coming out of the north and northeast, and, all of the other positive factors that are driving South Florida, that is the migration of money out of Latin America still continues unabated. This is really something. If you haven’t been down here to see this, you really should invest $500 on a Southwest ticket and get down and take a look at it. But if you do, make a reservation in the restaurant two weeks ahead of time.
Joe Fenech, Hovde Group
Okay. And two more quick ones, guys. Any update on capital? Thoughts on, like, the timing and form of any potential action there, given the growth you are expecting this year?
Raj Singh, Chief Operating Officer
Like we’ve said in the past, we expect to deploy our current capital maybe towards the end of the year. Might even be first quarter of ’16 when we get back into the market to raise more capital. And when we do, since we have no other form of capital other than common, in all likeliness we will be raising other forms of capital, not common. It will be probably sub-debt or senior debt or the cheapest form of capital. It looks like towards the end of ’15, possibly even early ’16.
Leslie Lunak, Chief Financial Officer
Yeah, I would echo that.
Joe Fenech, Hovde Group
Okay. And then just last one. Leslie, on the margin question, will it be at about sort of a forward run rate level, you think, making little or no noise by year end from the purchase accounting? Or will that normalization process with the margin bleed into ’16, do you think?
Leslie Lunak, Chief Financial Officer
I think it would bleed into 2016 to some extent but to a much lesser extent that we have seen in the past.
Joe Fenech, Hovde Group
Okay, alright. Thank you guys.
Operator
We’re taking a couple more of questions that came through. You will have your first question from Gerard Cassidy from RBC. Please proceed.
Gerard Cassidy, RBC Capital Markets
I apologize. I jumped on late. Can you guys give us some color? I just heard you talk about the way the underwriting is being done in condos in southern Florida is more conservative. Tying to that, in the crazy days of 2004 and 2005 in Florida, there were a lot of non-local banks that were lending into that market. Can you give us some color on — are you running into banks from California or overseas that are in the Florida market, or is it primarily the folks that are down there?
John Kanas, Chairman, President and CEO
I might answer, but Tom probably even better. What’s your answer to that Tom?
Tom Cornish, President of Florida for BankUnited
Yeah, I would say — first of all it would be important to distinguish while we enjoy seeing all this growth in the condo market and the construction in the condo market, we are not actually a player in those specific markets. We think those real estate markets are more volatile than markets that we want to be in. But to the point of whose financing it, you are seeing much less out-of-market banks involved in the financing of it. More longer term players are in the market and more local banks are in the markets and some institutional players. But we don’t in any great extent, even though we are not in those deals, we hear about them. We see them in the marketplace. We don’t see the participation of California banks or Chicago banks or other banks financing those condos to the extent that we saw during the last downturn.
Gerard Cassidy, RBC Capital Markets
And how about outside that market or the condo market, just in the markets you are lending into, the commercial and commercial real estate mortgage markets. Are you seeing players that weren’t around two years ago that are now coming into the market? Or is it the regular — the guys that have been there for a number of years?
Tom Cornish, President of Florida for BankUnited
Well, it’s a combination I think of two things. It’s number one, the number of players that are here as indigenous banks in Florida that were not here two years ago is greater. So we have more banks that are headquartered in other parts of the country that are here. What I would call the local market competition has become more than it was two years ago. And I’d say the second piece of that, particularly in the commercial real estate area is we’re seeing a significant resurgence from CMBS market, from long term government sponsored entity markets. We have seen a lot more of this than we’ve seen two years ago so when you reflect back on Raj’s comments about the difference between production and growth, we are in a more natural real estate phase where your institutional players in the market have now returned, and so that’s a competitive difference form where the market would have been two or three years ago.
John Kanas, Chairman, President and CEO
And some of the government sponsored programs are important. It seems to me like the last three or four meetings I’ve had with some of our larger customers, they are doing deals financed by EB-5 money. That’s prolific in Florida and in New York. There is no lack of resource.
Gerard Cassidy, RBC Capital Markets
And one final question. I think, Tom you touched on this about investing in people in the upcoming year in Florida. John, you’ve had great success in hiring teams of people over the years to come work for BankUnited. What’s the outlook for 2015? Do you need to or do you want to hire groups again, or can you do it? Is it tougher today now that the other banks have kind of come back and are on stronger footing?
John Kanas, Chairman, President and CEO
It’s probably a little tougher today, I would argue that it’s easier for us than many banks down here because of performance and the relative visibility of this company. Tom is on the trail of a number of different teams down here that would help us to spread our efforts a little more broadly in the state of Florida. And you could expect to see us getting a couple of very productive teams down here very quickly. We’re doing the same thing in New York. We have a number of conversations going on with people whom we have known for many years, who will be joining us over the next two, three, four months. Somebody asked a question before about this big ramp up we had in the beginning. Remember that a lot of the people that we hired in the beginning were folks that worked with me for many, many years and they had a tremendous glut of business that was sitting on the desk waiting to get underwritten and waiting to get funded. Once that was done, the growth rate settles down to a more reasonable rate and so now it’s time to add more people who can bring in their new business and we are doing that in New York and in Florida. You’ll see the effects of that this year.
Raj Singh, Chief Operating Officer
I’ll actually add to that, the national businesses also we are looking at it. There’s a team I’m talking to tomorrow that we are hopeful that we can find a way to work with them, which would be very, very good for us and for the team. Nationally also we stay active.
Gerard Cassidy, RBC Capital Markets
Great. Thank you.
Operator
And your last question will come from the line of Steven Alexopoulos from JPMorgan. Please proceed.
Preeti Dixit, JPMorgan
Hi everyone. This is actually Preeti Dixit on for Steve. Most of my questions have been answered. Just one quick modeling one, Leslie. Was there anything unusual or seasonal in the lease financing income this quarter? And I know the portfolio of assets under lease continues to grow. So is this a good run rate to build off of?
Leslie Lunak, Chief Financial Officer
I think generally speaking, yes it is.
Preeti Dixit, JPMorgan
Okay. Great. That’s all we had. Thank you.
John Kanas, Chairman, President and CEO
That was our last question I guess?
Operator
Yes, that was our last question.
John Kanas, Chairman, President and CEO
Okay. In closing, I appreciate all you guys and gals who follow our company and are interested in it. I think that you’ll be very pleased with our performance in the coming year. We are excited to get started. We would love to see a much deeper yield curve. It would help things a lot and I could be even more optimistic. But all of the things that we’ve sat here and told you about today that represent our best guesses as to what’s going to happen, don’t anticipate any friendlier interest rate environment than what we have today. If we should get a friendlier interest rate environment, then all bets are off and we can do better than we are predicting. But we are excited and continue enjoying the benefit of the tremendous growth in both of the markets — all three of the markets that we serve and expect that to continue into 2015. Thank very much everybody.
Raj Singh, Chief Operating Officer
The weather is 78 degrees and sunny and we welcome you to come to stay with us.
Operator
Ladies and gentlemen, that will conclude today’s’ conference. Thank you for your participation. You may now disconnect. Have a great day.
