Ladies and gentlemen, thank you for standing by and welcome to the BankUnited, Inc First Quarter Fiscal Results Conference Call. At this time, all participant lines are in a listen-only mode. Please be advised that today’s conference may be recorded. I’d now like to hand the conference over to your host for today. Ms. Susan Greenfield. Please go ahead, ma’am.

Thank you, Liz. Good morning and thank you for joining us today on our first quarter results conference call. On the call this morning are Raj Singh, our Chairman, President and CEO; Leslie Lunak, our Chief Financial Officer; and Tom Cornish, our Chief Operating Officer. Before we start, I’d like to remind everyone that this call may contain 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. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company’s current plans, estimates, and expectations. 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, uncertainties and assumptions including, without limitation, those related to the company’s operations, financial results, financial conditions, business prospects, growth strategy, and liquidity including as impacted by the COVID-19 pandemic. 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 company’s Annual Report and Form 10-K for the year ended December 31, 2019 and subsequent quarterly report on Form 10-Q or current report on Form 8-K which are available at the SEC’s website www.sec.gov. With that, I’d like to turn the call over to Raj.

Thank you, Susan. Welcoming you in strange times. This is the first call that we’ve ever done where the management team is not together in one location. So Leslie and Tom are in Miami. I’m in New York and we’re doing this virtually. Also, I’ve never done a conference call that I’ve had more than one or two pieces of paper in front of me with some bullet points on them and today Leslie has put in front of me a 27-page deck and talking points that are several pages long. So forgive me for all the shuffling that you might hear on the call. Let’s do this. Instead of jumping straight into the earnings for the quarter, I would like to take five minutes of your time to talk about exactly give you a state of the union for BankUnited. What it is that we’ve been doing over the last six or seven weeks as the situation has evolved? What are we prioritizing and give you just the lay of the land and then we’ll get into the numbers and discuss in detail what the first quarter looks like? So let me start by first and foremost giving a big shout out to the BankUnited team. Every person who comes here calls this home and works hard. Crisis reveals character of people. I think that is true not just for people, it also reveals the true character of an organization. I’m very proud to say that what I’ve seen over the last six or seven weeks fills me with great pride that I’m leading this organization. People have come together, helped each other, worked ungodly hours while they were under an immense amount of personal stress. So, there are too many examples to get into, but I just want to give a big shout out and thank you to everyone in the company, not just people working in PPP or the branches or keeping our call centers up, but everyone. Right down to the person who’s making the sandwiches in the cafeteria all the way to the last day when we shut down the cafeteria. So big shout out and thank you. We have, as you can imagine, been going through this early in March. We made our employees’ wellbeing and safety our number one priority. We enabled 97% of our non-branch employees to work from home. We have extended our paid time off policy. We have increased our health benefits to cover any expense associated with COVID. We have not furloughed any employees. I’m a very superstitious person so I say this very carefully. We’ve recently been awarded by the South Florida Business Journal for being one of the Healthiest Employers in South Florida and I hope that we can claim this again next year. So far, we’ve had only one confirmed COVID case in the employee base. We do think there are a couple of others who could never get tested but have overcome COVID as well. It sounds a bit surprising, but only one confirmed COVID case, which is pretty good given what's going on. When you take care of your employees, they in turn take care of your customers, and if you take care of your customers, that takes care of the company. That’s sort of the chain that I follow. So quickly let me tell you what we’ve been doing to support our customers. The most obvious thing is offering the operational resilience that is needed in times like this. We activated our Business Continuity Plan. We’ve beefed up all the back office IT infrastructure that is needed to run the company from afar without any significant operational issues or customer service disruptions. And if you’re asking me how I felt about our ability to do this in the first week of March when we were preparing to do this, I was pretty nervous. But I’m happy to say that everything has gone without a glitch and the bank is working fine from an operational perspective. Our employees, several hundred of them, have worked tirelessly now for about three weeks to deliver the PPP program. I think as of last night we are close to or maybe over $700 million in loans that we’ve done through the PPP program. Our estimates are that we’ve helped retain about 85,000 or 86,000 jobs in our footprint through this program and we’re not done. There’s more going through as we speak; the team has been working around the clock and we will help a few hundred more small businesses before eventually the money runs out in the PPP. We have approved deferrals for many borrowers who have contacted us and asked for assistance because of the pandemic. And equally importantly, we have honored all our commitments whether they were lines to be passed or business that was in the pipeline where we made a commitment to closing a loan, we did not back away from anyone and that is equally important. We have paused temporary residential foreclosure actions. By the way, while all this is happening, I just want to clarify when I say 97% of our non-branch employees are working remotely, 76% of our branches are still open. They are open on a limited basis of course, drive-thrus, and appointment-only methods. But they are open and we’re serving clients. The traffic, as you can imagine, has gone down substantially. Also, from somewhere in the second week of March or mid-March we have made sure that we had enough liquidity to take care of any client needs in case somebody would need it. We continue to hold an excess amount of liquidity, but we now feel the time is right to start taking it down, and I think beginning next week, we’ll take down this excess liquidity that we’ve been sitting on to serve our clients. Now turning back internally. As you can imagine, we’re prioritizing risk management and credit quality. We’ve identified portfolios and borrowers that we believe will be under increased stress. I call these sort of portfolios that are in direct line of fire. We have reached out to every single borrower in these segments and we’ll talk in detail about what these segments are and how big they are. But we have reached out to all borrowers in these segments and in other segments, we’ve reached out to everyone over $5 million in exposure to understand exactly what the impact will be on our balance sheet. While we always do stress testing as a routine business for us, in this environment, we’ve significantly enhanced these processes you would expect us to. But through all of this, it's important to manage a crisis without forgetting what the long-term plan is and to keep those long-term objectives in mind. We’re doing that while we’re fighting the immediate economic crisis. I think the biggest question here that you probably have is, what does it mean for our balance sheet? I will start by saying our balance sheet is strong. I feel very good about our balance sheet, our capital levels, our liquidity levels, and at March 31, our regulatory ratios, no matter which you look at bank or holding company, they’re all significantly in excess of well-capitalized thresholds. We’re committed to our dividend which we very recently increased by 10%. I think it was in the middle of February. We did, however, stop our share buyback program. We had an authorization from, I think it was the fourth quarter; it was authorized at $150 million, we executed about $101 million and we stopped that program, and we’re going to put it aside at least until the dust settles on the economy. Questions that we have seen a lot of other banks seem to have been asked about presenting earnings in the last week or so, anticipating the same questions, we did some analysis for you. By the way, there is a slide deck as I said this time around. We never had a slide deck in our calls, but this time we have provided a lot more disclosure, and it’s a 27-page slide deck so from time-to-time I’ll make references to certain slides. I’m not going to flip every page, but I’ll make references. So for example, right now I’m talking about Page 4 on this slide deck, which takes the DFAST severely adverse scenario for 2018 and 2020 and runs that on the March 31, 2020 portfolio to see what the losses would be and by the way not just nine quarters of losses, but lifetime losses? DFAST is a nine-quarter exercise. But for this, we actually used lifetime losses and we’ve used those which we don’t think are really relevant. But nevertheless, these are questions we’ll probably be asked. We did that analysis anyway. We’ve used both the 2018 and 2020 DFAST severely adverse scenarios. And that’s okay. It’s one of the losses that are generated, and you can see them on Slide 4 and if those were to be used now, would we feel the well capitalized in our capital ratio hold up, and the answer is yes, they do? So quickly one question so I don’t forget again about liquidity which is the next slide. We have tons of liquidity. We currently have over $8 billion; I think it’s $8.5 billion of liquidity available. A lot of it is in cash. We will take some of the cash position down as we think things are settling down in the marketplace. With that let me switch over quickly and talk about the quarter. We’ve reported a net loss of $31 million, $0.33 a share, not surprising. This is driven in large part by the large provision that we took. The provision for the quarter was $125 million. This increased our credit losses to $251 million which is 1.08%. So, we used $109 million at December 31, we were at $109 million or 47 basis points. On January 1, under CECL that number bumped up to $136 million or 59 basis points and now at the end of March we’re at 1.08% or $251 million, and that was obviously the biggest driver in the $31 million loss that we’re posting this quarter. I will ask Leslie to give you some more detail around CECL and the assumptions that went into calculating that provision. But I will say before I hand it over to her, that we believe this, on March 31 our reserve estimate is based on both data that is current and conservative at that quarter-end, and it reflects our best estimate of lifetime incurred losses in the portfolio. In the second quarter, we will go through the same exercise. There are big areas that will impact our CECL estimate, but for the next quarter, we will have an update on the macroeconomic outlook, an update of our portfolio especially our high-risk sectors, and also the assessment of the impact of government stimulus because we’ve seen more stimulus this time around than we’ve ever seen in the history of the republic. So, $2.5 trillion counting in fiscal stimulus and god knows how much in monetary policy. But let me turn it over to Leslie, who can do a much better job of describing the underlying CECL than I can.

Thanks Raj. I’ll try. So I’m going to refer you to Slide 8 in the supplemental deck that talks a little bit about our CECL methodology. Fundamentally for the substantial majority of our portfolio segment, we’re using econometric models that forecast PDs, LGDs and expected losses at the loan level, and those were then aggregated by portfolio segment. Our March 31 estimate was largely driven by the Moody’s March Mid-Cycle Pandemic Baseline forecast that was issued on March 27. This forecast assumes an approximate 20% decline in GDP in Q2. Unemployment reaching about 9% in Q2. The VIX approaching 60 and year-over-year decline in the S&P 500 approaching close to 30%. The forecast path assumes recovery beginning in the second half of 2020, with unemployment levels remaining elevated into 2023. I know there’s been a lot of focus on GDP and unemployment and all of the discussions taking place around the CECL forecast and those are certainly important reference points. But I do want to remind you that these are very complex models and there are, in fact, hundreds, if not thousands, of national, regional and MSA level economic variables and data points that inform our loss estimates. Some of the more impactful ones are listed on the right side of Slide 8 for you. Another thing I want to point out about our CECL estimate at March 31 is that we did not make a qualitative overlay. We don’t think our models really take into account fully the impact of all of the government assistance that’s been provided to our clients—PPP, other deferral programs that we might have in place. We did not make a qualitative overlay for that at March 31. The reason we didn’t is we felt it was premature to really be able to address those factors at March 31 and as Raj pointed out, that’s something we’ll take into account when we consider our second quarter estimate. I want to refer you now to Slide 9.

Leslie, just one second. I just got a text from someone saying the call cut off for about 20 seconds and they couldn’t hear you for the first 20 seconds. So you may want to just repeat what you said because those are important points. I want to make sure everyone gets those.

Okay, so that’s the start on CECL. Maybe I’ll do it better this time, hopefully I won’t contradict myself. So again, I’m referring to Slide 8 in the deck about our CECL methodology, so fundamentally for the substantial majority of our portfolio segment we used econometric models that forecast PDs, LGDs and expected losses at the loan level, which again were aggregated by portfolio segment. Our March 31 estimate was largely driven by the Moody’s March Mid-Cycle Pandemic Baseline forecast that was issued on March 27, that forecast assumes an approximate 20% decline in GDP in Q2, unemployment reaching about 9% in Q2, the VIX approaching 60 and year-over-year decline in S&P 500 approaching close to 30%. The forecast has assumed recovery beginning in the second half of 2020 with unemployment levels remaining elevated into 2023. And while there’s been a lot of focus on GDP and unemployment and the discussions taking place around the CECL forecasts and those are certainly important reference points. These are complex models and they’re in fact hundreds, if not thousands of national, regional and MSA level economic variables and data point that informed the loss estimates, and some of the more impactful ones of those are listed for you on Slide 8. I also want to mention briefly that we did not incorporate in our CECL estimate at 3/31 any significant qualitative overlay related to the impact of direct government assistance, PPP, and deferral programs that we may put in place. At 3/31, we felt we just didn’t have enough data to properly mention the impact of those, so we did not reduce our reserve levels to take those into account, and as Raj mentioned that something we’ll be considering in more detail in Q2. Now I’ll refer you back to the deck and look at Slide 9.

Leslie, just one second. I just got a text from someone saying that the call cut off for about 20 seconds and they couldn’t hear you for the first 20 seconds. So, you may want to just repeat what you said because I said those are important points. I want to make sure everyone gets those.

Okay, so that’s the start on CECL. Maybe I’ll do it better this time, hopefully I won’t contradict myself. For the substantial majority of our portfolio segment, we used econometric models that forecast probabilities of default, loss given default, and expected losses at the loan level, which again are aggregated by portfolio segment. Our March 31 estimate was largely driven by the Moody’s March Mid-Cycle Pandemic Baseline forecast that was issued on March 27, that forecast assumes an approximate 20% decline in GDP in Q2, unemployment reaching about 9% in Q2, the VIX approaching 60, and year-over-year decline in the S&P 500 approaching close to 30%. The forecast has assumed recovery beginning in the second half of 2020 with unemployment levels remaining elevated into 2023. While there’s been a lot of focus on GDP and unemployment and the discussions taking place around the CECL forecasts and those are certainly important reference points, these are complex models and there are indeed hundreds of national, regional, and MSA level economic variables and data points that inform our loss estimates. Some of the more impactful variables are listed on the right-hand side of Slide 8 for your reference. Additionally, we did not incorporate any significant qualitative overlays into our CECL estimate. We didn't feel we had enough data to properly assess those impacts at March 31. As Raj mentioned, we’ll have to update our analysis in Q2.

Thanks Leslie. Let’s talk PPNR, pre-provision pretax net revenue. It came in at $85 million this quarter and that compares to $104 million last quarter. So what was that delta effect of $19 million? We have three buckets. First, NII was down about $5 million and that really is for two reasons—one margin subtracted by six basis points from 241 to 235, and the reason for that is that asset yield came down faster, while deposit pricing really wasn’t changed much until pretty late in the quarter. You will see a very meaningful impact on deposit pricing going forward. But for this quarter, that base risk between how assets are priced versus deposits, there was a gap of a few weeks which is what caused margin to come down. Also, the first quarter is not a very strong asset growth quarter for us. The nature of our business is that the first quarter tends to be our slowest quarter, so we didn’t see significant asset growth. So, combining little to no asset growth along with a margin that contracted 6 basis points leads to a $5 million reduction in NII. Also, in fee income, last quarter we had $7.5 million or so of securities gains while this quarter we had $3.5 million of securities losses, which produces an $11 million swing in fee income. By the way, the $3.5 million securities losses this quarter include $5 million of unrealized losses on equity securities. We haven’t sold them, but the accounting makes it hit the P&L. Lastly, expenses increased again this quarter due to timing, as first quarter expenses are always higher because of HSA contributions, 401(k) contributions, and all that stuff hitting in the first quarter, which drove expenses higher. If you compare it to expenses from a year ago, that’s probably a better way to compare, as those expenses were obviously much lower. So, what does that really mean for the next quarter? While for next quarter, we expect asset growth to pick up, if for no other reason we’re doing a lot of PPP loans and we’ll probably do some mainstream lending loans. We expect margins to expand. Deposit prices have come down very aggressively not just in mid-March, but also at the beginning of May, and this should feed into margin, and we’re very positively biased towards our margin into the second quarter and beyond. Expenses should come down as well because everything I mentioned will be left behind after the first quarter and naturally expenses will improve next quarter. That’s about all the guidance we’ll be able to give you. But I think it’s important to mention these things in some level of detail. I mentioned a little bit about the PPP program; I think you could rename BankUnited for the month of April as BankPPP because that’s what all we’ve been doing. To give you a little comparison, we haven’t actually [indiscernible] where we probably do roughly about 200 units of business in a year. We’re now in the process of trying to do over 3,000 loans through the SBA in less than a month. It’s been a large operational challenge that people across the company have been recruited to help with. And so far, we’ve already closed close to $700 million of loans and we’re not done yet. We still have a few more loans to close over the course of today and tomorrow until the money runs out. We’re also on a case-by-case basis providing deferrals to borrowers who will be impacted by the pandemic, and that started somewhere in the middle of March. Those requests have tapered off somewhat in the last week or two, and Tom can elaborate on that. But before that, Tom, why don’t you spend a little time talking about loans and deposits and provide a little more detail around that.

Great, thanks Raj. Happy to. So, let’s start off with deposits where we continue to make good progress on our deposit growth initiatives. As you can see, deposits grew for the quarter by $606 million and just over 50% of that, or $305 million, was non-interest DDA which now stands at 18.4% of total deposits compared to 15.9% a year ago. As we’ve discussed in all of these calls, growing non-interest DDA is one of the most important things that we’re trying to do in the bank right now. Unlike what some other banks have reported, most of this DDA growth was really core DDA growth. It wasn’t related to draws on lines of credit, and I’ll go into a little bit more detail about that later. We’ve consistently been moving down deposit pricing as the Fed has reduced rates. The cost of total deposits declined by 12 basis points this quarter from 1.48 to 1.36. Additional moves by the fed in late March had minimal impact on our ability to move the cost of funds down further in Q1. But as Raj mentioned, you’ll see that impact much larger in Q2. To give you a better idea of this, the stock rate on total interest-bearing deposits, including our certificates of deposit, declined by 36 basis points from December 31, 2019 to March 31, 2020, and then by another 27 basis points through April 17, 2020. So, a total of 63 basis points decline during that period of time. If you go to Slide 7 in the deck, you’ll get a little bit more information and detail on that. On the loan side, as Raj mentioned, loans are relatively flat for the quarter with net growth of $29 million. There were some parts of the portfolio where we actually saw very good growth. The C&I business had total growth of $353 million which was a solid quarter for that segment. Mortgage warehouse outstanding also increased by $84 million, but offsetting that, our CRE book declined by $315 million, which is pretty much in line with what we expected, primarily driven by the continued decline in New York’s multi-family which was $249 million. Unlike a lot of banks, particularly some of the larger banks, we’ve not experienced any real growth in line utilization since the onset of this crisis. The majority of our C&I growth, as I mentioned, was not as a result of draws. Our utilization ratio which we track consistently throughout this process really hasn’t moved too much during this entire period, only by a few percentage points through the total period of time and has generally remained in line with our three-year averages, excluding the mortgage warehouse business. So with that, I’ll turn it over to Raj for some discussion on credit quality trends.

Thanks. I would like you to flip to Page 16. This is what I was talking about in the beginning of the call. These are the segments that we have sort of circled around and said these are the portfolios that will have increased stress based on our estimation. This is retail in the CRE book, retail in the C&I book, franchise finance that we’ve talked about in the last six months, hotels for obvious reasons, airlines, cruise lines, and energy. So, in total it’s about 14% of our portfolio, and what we’ve tried to show you here is, as of March what part of these individual portfolios were pass-rated and what were classified, criticized, and non-performing. So now let me say something which is obvious, but I’ll mention it anyway. Just because we have highlighted these portfolios, I’m not trying to say that loans in these portfolios will go bad. We expect a large portion of these loans will be just fine. Sponsors with deep pockets will be able to bear the brunt of the pain. But in terms of monitoring, we are calling these portfolios as ones to monitor on a heightened basis because we think they are in harm’s way more than other parts of the portfolio. But with the same logic, let me say it doesn’t mean that anything that is outside of this portfolio is all fine. We have to monitor everything because there will be second, third, and fourth order impacts in other parts of business as well and we will monitor them too. But this is where the heightened monitoring will be. So, it’s too early to really see the impact of the COVID situation on risk rating migration. You can see that with the exception of the franchise finance portfolio, substantially most of these segments are pass-rated at March 31. We did move a lot in the franchise portfolio into those lower categories in the quarter. Let me talk a little bit about NPAs and charge-offs. NPAs and NPLs for this quarter were basically flat. NPAs were down a little bit, a couple of basis points, and NPLs were also down a few basis points from 88 basis points to 85 basis points. And to remind you, these numbers of NPAs and NPLs are reported in the down three portion of non-accrual SBA loans, so keep that in mind. The criticized and classified this quarter went up by $269 million. $207 million of that $269 million was in the franchise portfolio, and 90% of that $207 million was really attributable to COVID as that played itself out in the month of March. Charge-offs were 13 basis points elevated from last quarter mostly because of one credit in the BFG equipment where we took that charge-off, and we’re already seeing recoveries from that situation this quarter. So, more detailed metrics are towards the end of the slide at Page 22, 23, 24, and 25. So, I encourage you to spend some time on those as well. Tom, I mentioned these portfolios for heightened monitoring; why don’t you spend a few minutes and just get into them with a little more detail.

Sure, thanks Raj. So, I’ll refer you to Slide 14 in the deck which provides additional details around the level of deferrals in the segment. Through April 20 we have received requests for deferrals from almost 800 commercial borrowers and approved modifications for about 500 of those borrowers totaling a little over $2 billion. We’ve also processed about $500 million in residential deferrals excluding the early by our portfolio, which would represent about 10% of that portfolio. These deferrals typically take the form of 90-day principal and/or interest payment deferrals for commercial loans and those payments are generally due at maturity. For residential borrowers, these payments are typically at the end of the deferral period consistent with deferral programs being offered by the GSEs now. We’ll obviously be reassessing each of these loans at the end of the 90 days and looking at making the best decisions we can at that point in time. As you can see, the largest amount of commercial deferrals is in the commercial real estate portfolio, particularly the hotel sub-segment where 90% of the borrowers by dollars have requested and have been approved for deferrals, followed by the retail sub-segment. We have also received a high level of deferral requests from borrowers in the franchise finance portfolio as we’ve mentioned, where 74% of the borrowers have been approved for deferrals. Other C&I portfolio sub-segments where we’re seeing higher levels of deferral requests include accommodation and food services, arts and entertainment, recreation, and retail trade. At this point and as of today, modification requests appear to be slowing over the last 10 to 15 days. Starting on Slide 17, we provide a deeper dive into some of the higher-risk portfolio sub-segments. In the retail segment, the CRE book contains no significant exposure to big box or large shopping malls. We estimate that about 60% of the CRE retail exposure is supported by businesses that we would categorize as essential or moderately essential, and the remainder that we would categorize as non-essential businesses. Within this segment, the LTV's average 57.5%, with 84% total and below the 65% level. Retail exposure in the C&I book is well diversified, with the largest concentration being to gas station and convenience store owner-operators. Referring you to Slide 18, we see further breakdown of the franchise portfolio which is a diverse portfolio by concept and geography. We saw over $200 million increase in criticized and classified in this segment during the first quarter. Approximately 90% of these downgrades were directly related to the COVID-19 crisis. I’ll also mention that in the current environment the fitness sector, which up until now has been the better-performing sector in this book, is coming under stress as most of these are now closed with the social distancing guidelines. Some restaurant concepts may fare better, particularly those with heavy drive-thru exposure and good digital strategies. On Slide 19, you can see that most of the hotel book represents well-known flags and is within our footprint. Clearly revenues in this segment have declined dramatically with the social distancing measures and travel restrictions that are currently in place. LTVs in this segment average 54%, and 78% of the segment has an LTV under 65%. And finally, referring to Slide 20, our energy exposure particularly in the loan portfolio remains minimal. The majority of this exposure relates to railcars in our operating lease portfolio. So, with that, I’ll go back to Leslie for a little more detail on the quarter.

Thanks Tom. I want to take a minute to discuss the unrealized losses on the securities portfolio that impacted other comprehensive income and our GAAP capital at March 31. I’ll remind you that these unrealized losses do not impact regulatory capital and I’ll be referring to Slides 26 and 27 in the deck for this part of the discussion. The available for sale securities portfolio was in a net unrealized loss position at $250 million at March 31. These unrealized losses were mainly attributable to market dislocations and widening spreads reflecting the reaction in the markets to the COVID crisis. As you can see on Slide 26, 90% of the available for sale portfolio is in government agencies or is rated AAA. At March 31, we stressed the entire non-agency portfolio at the individual security level modeling collateral losses that we believe to be consistent with levels reflecting the trough of the 2008 global financial crisis. Based on that analysis, none of the securities in this portfolio are expected to take credit losses. The majority of the unrealized losses, as you can see, are in the private label CMBS and CLO portfolio. On Slide 27, we show you the ratings distribution for these portfolio segments along with levels of credit enhancement compared to stressed losses illustrating the high credit quality of these bonds. We also priced the March 31 portfolio as of April 22, and you can see the results of that on Slide 26. Although unrealized losses remain significant, you can see the valuations have started to come back and recover somewhat. I also want to point out that none of our holdings have been downgraded since the onset of the COVID crisis. To provide a little more color around the NIM, it declined by 6 basis points this quarter from 241 to 235 compared to the immediately preceding quarter. To get a little bit into the components of that, the yield on interest earning assets declined by 18 basis points reflecting a decline of 9 basis points in the yield on loans and a 37 basis point decline in the yield on investment securities. These declines were related to declines in benchmark interest rates and also reflected the turnover of portfolios at lower prevailing rates. The decline in the yield on securities reflects the short duration of that portfolio and, to an extent, increases in prepayment fees which contributed about 5 basis points to the decline. The cost of interest-bearing liabilities declined by 14 basis points quarter-over-quarter. I’ll remind you that reductions in deposit cost that we have implemented in response to the fed reducing rates in late March were not fully felt this quarter. A couple of items I want to mention that impacted non-interest income and non-interest expense for the quarter. Raj already pointed out the unrealized losses on a marketable equity security negatively impacted non-interest income this quarter. The largest contributor to a $6.8 million decline in the other non-interest income line compared to the immediately preceding quarter was a reduction in income related to our customer swap program and this is really attributable to a lower level of activity in that space during the quarter. Employee compensation and benefits actually increased by $3 million compared to the immediately preceding quarter and as Raj pointed out, there are seasonal items that impact comp in the first quarter. A better comparison might be that the first quarter of the prior year and compensation expense declined by $6.3 million compared to the first quarter of 2019. With that, I’ll turn it back over to Raj.

Thanks Leslie. We’ll try and wrap this up and open this up for Q&A. So, let me say regarding guidance, we’re withdrawing our guidance that we gave you at the last earnings call. We generally have a pretty good idea of what we’re seeing in the business and the economies where we operate. We can look out about six months or so, but at this time, it is very hard to look out even a month or two. So, to try and give you guidance at such an uncertain time is very hard. What we can say is we are—you’ll see a growth in PPP loans like I said we’re up to somewhere to $800 million when it’s done. In terms of mainstream lending facilities, we’re still waiting on a lot of details on that, but we hope to do some of those loans but it’s hard to tell you how much we will be able to do or we would even want to do. Even the deposit growth can be hard to predict. But our priority is the deposit side and we’ll maintain which is grow DDA and bring down cost of funds. NIM will expand with yields coming down from what we’re seeing, and in fact, I would even go as far as to say that NIM for the full year will be higher than what you saw for this quarter, and that's our expectation. Any question that you ask about CECL, the only thing we can say about CECL is provisioning going forward into the second quarter and the rest of the year, it will be very volatile given the fact that the economic environment is extremely volatile. And very importantly, we have not lost sight, once again, I will say we’ve not lost sight of what we’re trying to build in the long-term. We are actually fighting this healthcare crisis in the short-term. But in the medium and long-term, we’re still focused on building what we set out to build. So whether it is BankUnited 2.0 or all the other things you’re working on, they continue, some initiatives around BankUnited 2.0 especially around revenue have been pushed out by a couple of months simply because it’s—new products that are being launched, it’s going to be hard to try and launch them in the next couple of months when we are going through social distancing as we are. But overall, the numbers don’t change and it just gets pushed out a little more. With that, I’ll turn it over to the operator to take some questions.

[Operator Instructions] our first question comes from the line of Jared Shaw with Wells Fargo Securities. Your line is now open.

You were just starting on the credit side when you look at the franchise finance; specifically, what percentage of those credits have some type of protection from PPP or are anticipated to have some protection from government assistance?

Tom?

Yes, right now we’re obviously still in the process of working through all of the loans that Raj mentioned. A portion will—it’s difficult to until we finish processing all the loans to say the exact numbers. But we’re certainly seeing a fairly high level either come through us or in many cases the franchise credits are a bit different than some of our normal credits. In this being part of the national group of client bases, many do not actually have—they’re in Utah or California or wherever they are. So, the only PPP applications that we see are the ones that are actually applying through us, whereas the vast majority of them are applying through banks that might be the community banks in their own local neighborhoods. But I would say, we will probably see a very large percentage of them either apply and receive PPP assistance through us or through other banks that they bank with in their communities.

Okay, and then when you look at the growth in criticized loans—are you classifying any of the loans that are in deferral or if they go through the formal deferral applications? Are they excluded from being classified at this point?

So, Jared, each time we process one of these deferrals we do review the risk rating of the loan. So, a number of the franchise loans that we spoke that were downgraded this quarter were the subject of deferrals, and that’s not to say that every loan that receives a deferral will be downgraded; that’s not the case. But we do review the risk rating every time we process one of these deferrals, so you’re seeing some of that reflected in those downgrades.

Okay, excellent. And then just shifting a little bit, looking at the deposit growth. I mean the strong DDA deposit growth that you saw this quarter—are you starting to hit your stride there and do you think that’s going to be sustainable and should we be looking at DDA as a percentage of total deposits continuing to march higher, all things being equal?

As I see the deposit numbers right now, I feel pretty good about DDA growth, though some of that we’re seeing so far this month is probably from PPP loans that we funded that are sitting as DDA. But overall, the momentum in DDA growth continues and that priority still remains a top priority.

Our next question comes from Brady Gailey with KBW. Your line is now open.

If you look at the activity under the SBA, PPP, say with around two you do $800 million, I think most banks have seen fees off of that production of around 3% or a little under 3%. So, 3% of $800 million, that’s about $24 million, is that the right way to think about the earnings potential from your involvement in PPP?

Leslie?

Brady, one thing I’ll remind you is that these fees are being deferred just like any other loan origination fee and are being recognized over the term of these loans. Obviously, to the extent that these loans are forgiven, the remaining unrecognized fee will get swept in through the margin at the time that the loan is forgiven, so it’s hard to mention the timeframe over which these fees are going to hit the P&L until we understand a little bit better when and how many of these loans are going to be forgiven. Obviously, that 3% is probably in the range of what’s average for this portfolio in the aggregate. But the timing of income recognition is still pretty uncertain.

Brady, another data point I would give you is that the average ticket size that we’re seeing is in the range of $260,000 to $270,000. I mean we’re still not done with the program, so it might move a little bit, but it’s under $300,000 on average, and there is obviously a distribution from very, very small $2,000 and $3,000 loans to pretty much larger ones. But the average is about $260,000 or $270,000 in that range.

All right, that’s helpful. And then I appreciate all the color on CECL. I know Moody’s came out with their April baseline which instead of having unemployment at 9%, I think it’s up to a little over 12%. I know some of the banks have been talking about what the April baseline impact could be to loan loss reserves. Any idea how much BankUnited's reserves would have to increase considering the April baseline for Moody’s?

So, Brady, what I can say about that is, by June 30 I don’t know what the forecast is going to look like, but I’m pretty sure the April baseline is going to be in the garbage can. I don’t know if it’s going to be better or worse at June 30 than it is at April, but our second quarter provision and reserve levels will be based on what these forecasts look like at the end of June, not what they looked like on April 15. We did not completely recalculate our provision based on that April 15 baseline. Obviously, if that holds, running that forecast through will result in an increase in reserves, as I mentioned earlier. The impact of PPP, government stimulus, deferrals, and whatnot will pull in the opposite direction. So, all I can say right now is that the number on our balance sheet at March 31, 2020 is our best estimate at that date of lifetime losses coming off that portfolio, and we will update the estimate in June based on what the world looks like at that time.

Okay. And then lastly for me, Raj, you laid out BankUnited 2.0 before anybody even knew what the Coronavirus is. We’re at a different backdrop today with more earnings pressure than we thought, evident by this quarter. But is there an opportunity to revisit BankUnited 2.0 on the expense side and potentially try to harvest some more expense savings out of the franchise in the future?

I think there will be; I don’t think it is going to be this quarter. I think right now everyone, when I think about the capacity of the bank—the number that I gave you, we’re trying to do 3,000 loans in a month when we usually do 200 in a year. It tells you how much just physical work there is, but this will pass and as we get out onto the other side. We will look at everything and if there are opportunities, we will go and have them absolutely.

Our next question comes from Lana Chen with BMO Capital Markets. Your line is now open.

Couple questions. One on just on the expense side. I guess last quarter you gave guidance saying expenses could be pretty flat this year versus last year. Since expenses are one thing that you can’t control, is that still a reasonable estimate, Leslie?

Go ahead, Leslie.

Lana, there’s just a lot in the hopper right now and a lot of things going on. If I had to give my best guess right now, I would say they would probably be down. But I’m a little hesitant to quantify that very specifically because we’re in such an unprecedented time. But if I had to give my best estimate, I would say they would be down somewhat from last year.

Okay, thank you. And the guidance around NIM for the second quarter does that include the impact of the PPP loans which are lower yielding?

Yes.

It does.

Okay, and Leslie just wanted to really say the disclosure on the loan portfolios are I think one of the best that we’ve seen with banks so far this quarter, so really appreciate it. On the CRE side, if I look at the reserve allocated to CRE, it seems relatively low to me, and I know that you guys have had very low losses in that portfolio typically. But if I look at where some of the potential COVID disclosures are in the hotel CRE and retail CRE and how much has been deferred of those portfolios, I’m curious why the reserve allocated to CRE isn’t higher at this point.

So, I’ve spent a lot of time looking into that question, Lana, believe it or not. The hotel portfolio did get penalized pretty significantly when we ran the models this quarter as a part of that CRE, and some of the other portfolios they’re actually lower. But really Lana, I would attribute that to the LTV cushion that we have throughout that portfolio, which is probably what’s driving those reserves to be a little bit lower than you might have guessed. But we’re still very confident on our model that at the loan level we’ve dug in pretty deep, but I think the driver is that we have a pretty significant LTV cushion going in across the spectrum of that portfolio.

Our next question comes from Dave Bishop with D.A. Davidson. Your line is now open.

Probably the same question in terms of the reserve, but maybe in the equipment finance portfolio. I think that actual reserve came down a bit; just curious in terms of the methodology there and why that is as well.

So, methodology is the same. We’re running these at the loan level through these econometric models. I would say that’s just reflective of the fact that for the most part we’re sitting in that portfolio—loans to some pretty strong borrowers and some pretty strong companies with stronger balance sheets.

Got it. And Leslie, I think of the preamble you walked through and I might have missed a slide here. But the impact under the various DFAST scenarios, is that broken out in one of the slides or?

Yes, Dave, it’s on Slide 4.

So why not you give some other details that I cannot find, just go over that again?

Yes, Slide 4 shows you that under the 2018 DFAST severely adverse projected lifetime losses would be $575 million, and our current reserve at $251 million sits at 44% of that. I know that is a kind of metric or a barometer that a lot of the analyst community has been looking at this earnings season. The 2020 DFAST severely adverse losses are projected at $445 million and our reserve sits at 56% of that. I will say, I understand why people are looking at this metric because everybody is searching for anything they can to try to provide a comparison from bank to bank. But I do want to emphasize that the purpose of the CECL and the purpose of DFAST are very, very different. The DFAST scenarios are not forecasts; they’re hypothetical scenarios that were designed by the Fed for stress-testing purposes. So, I don’t know that there is really a proper comparison between DFAST losses and the losses that we expect to realize in the current environment, it’s tenuous at best. But I do understand why people want to look at this.

Okay, great. Appreciate that detail. And then it sounds like you guys have obviously a lot of confidence directionally in terms of net interest margin. It sounds like on a core basis, just curious, you gave some good color in terms of the deposit side, the funding side. On the asset side, just curious what you’re seeing there—impact and maybe a floor is taking hold, why isn’t there maybe a bigger impact in terms of the asset side than what’s happening in the Fed rate cuts?

On the asset side, the spreads are wide, right? Based on which asset class some are wide more than others, but they’re fluctuating quite a bit. What I’m still nervous about is while the healthcare data is beginning to trend better, capital markets are beginning to trend better, rates are down, and the market is up, spreads are tightening a little bit in the fixed income market. I’m still not calling that the main street recession is behind us or that we’ve wound out. I drove this morning and I took a long way down here just to see what it feels like. I think we’re somewhere at the bottom, but we may be a few weeks away or a few days away from it. Things haven’t opened up yet. So, when it comes to doing more of your business, you got to be a little bit careful. Obviously, right now we’re just doing PPP, but that’s a different animal, and we’ll do mainstream lending which is also a different animal. But just going out and saying okay everything is fine, let’s pretend everything is okay and underwrite loans the way we were three months ago, I think that’s a little too early. We might be there next quarter, maybe sooner. But we’re not there today, so we’re not leaning into gaining risk and saying let’s grow the portfolio like nothing happened. It’s hard to get an appraisal. You can look at our cash flow from businesses from last year; it means nothing right now. So, that’s why we haven’t said much about spread. Of course, spreads are much wider, and across the board we can do better business. But I think about the long-term aspects of what the transaction could be; it will cause a lot of harm and do a lot of damage to the economy and to various businesses. There’s a silver lining to a recession, which is once the recession is behind us, the new business cycle starts, and the best kind of business you can do is always better in the first two or three years of the next business cycle. The last three or four years all the things that we’ve been suffering from—irrational competition, tight spreads, non-bank players—all that stuff gets fixed post-recession. But to get there, you’ve to first get through it. I’m not willing to call that it is behind us; I’m hoping that next quarter when I talk to you guys, I’ll be able to call it. But right now, we’re still in the middle of it and we need to see this economy open up. We need to see people get back to work. We need to see some social activity even if it’s not anywhere near the levels—but we haven’t yet, we’re at the very front edge.

Dave, I’ll make one more comment on your back to your question about the NIM. As LIBOR came down ahead of fed funds, we saw a lot of our assets repriced earlier in the first quarter. We saw a very little impact of the work we get at the end of the quarter and into April and repricing deposits in our first quarter NIM, and we expect the repricing down of deposits that we’ve been aggressively engaged in late March in the first half of April to have more of an impact on the second quarter NIM. So, that is also part of the reason for our confidence or our expectation, I should say that the NIM will probably expand in the second quarter.

Dave, I would also add that we’re moving into the market today from a new business perspective. There’s clearly plenty of spread and loans we don’t want to make; there’s a lot there out there. What we’re doing today beyond the PPP program tends to be new credit for existing clients, that is long-standing clients that have strong financial positions and are generally in essential-related businesses—that’s what we’re seeing today. This is also a time, I think, to be as Raj said, careful around credit quality and making sure that we’re not straying into areas that could be problematic. As we see recovery, that will probably change as well. But right now, our credit posture is fairly selective within our existing client base and within essential businesses.

Got it. One final housekeeping question, maybe some guidance in terms of the effective tax rate.

I think it’s probably going to be relatively stable with what you saw this quarter, somewhere around 23%. I don’t think I see anything unusual coming in the effective tax rate.

I’m showing no further questions in queue at this time. I would like to turn the call back to Mr. Singh for closing remarks.

Listen, guys, this has been a tough quarter. We are living through unprecedented times. The balance sheet, the company is strong. We will do fine through this. We’re like I said—we’re not calling that we’re on the other side of this; hopefully, I can say that in the next call. But everyone in BankUnited is hard at work trying to take care of our clients. The relationships that you build during tough times are the ones that last the longest. So, I keep telling the salespeople this is your opportunity to shine in these relationships and what you do to help them through this time. They will remember this and they will be with the bank forever. Lastly, I would say while we are dealing with a crisis at hand, we’re absolutely focused on the long-term as well, and we haven’t lost our sight on that. So, with that, I thank you everyone for joining us and we’ll talk to you again in three months. Thanks, bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.