BankUnited, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. BankUnited is a bank holding company whose subsidiary provides banking and lending services through Florida, New York metropolitan-area and Dallas banking centers, as well as national commercial lending and deposit platforms.
Financial results and key metrics
Amounts are in millions of dollars unless stated otherwise.
| Metric | Q2 2022 | Comparable period / change |
|---|---|---|
| Net interest income (GAAP) | $225.4 | $198.3 in Q2 2021; up $27.1 |
| Net interest margin (tax-equivalent) | 2.63% | 2.37% in Q2 2021; 2.50% in Q1 2022 |
| Provision for credit losses | $24.0 expense | $27.5 recovery in Q2 2021; $7.8 expense in Q1 2022 |
| Non-interest income | $13.5 | $32.8 in Q2 2021 |
| Non-interest expense | $127.4 | $118.5 in Q2 2021 |
| Net income | $65.8 | $104.0 in Q2 2021; $67.2 in Q1 2022 |
| Diluted EPS | $0.82 | $1.11 in Q2 2021; $0.79 in Q1 2022 |
For the six months ended June 30, net income was $132.9 million, or $1.60 per diluted share, versus $202.8 million, or $2.17, in 2021. Six-month net interest income was $434.1 million versus $394.6 million; tax-equivalent net interest margin was 2.57% versus 2.38%. The prior-year six-month earnings benefited from a $55.5 million provision recovery.
Q2 pre-provision net revenue (PPNR), a non-GAAP measure, was $111.5 million, compared with $112.6 million in Q2 2021 and $96.6 million in Q1 2022. The filing attributes rising net interest income to higher loan and securities yields and balances; management also reported increasing deposit costs as market rates rose.
Financial position, funding and asset quality
- At June 30, total assets were $36.55 billion, loans were $24.10 billion, and investment securities were $10.10 billion. Total loans grew $335 million from year-end 2021; excluding PPP loans, they grew $554 million. Q2 loan growth excluding PPP was $780 million.
- Deposits were $28.46 billion, down $977 million from December 31, 2021. Non-interest-bearing deposits were $9.65 billion, or 34% of deposits. Estimated uninsured deposits were $20.0 billion.
- FHLB advances rose to $4.01 billion from $1.91 billion at year-end; notes and other borrowings were $721 million. Cash and cash equivalents were $514 million.
- Six-month cash flows: $1.06 billion provided by operations, $1.43 billion used in investing, and $571 million provided by financing. Cash increased $199 million from year-end.
- Stockholders’ equity was $2.51 billion, down from $3.04 billion at year-end. Book value per share was $32.15 and tangible book value per share was $31.16. The company repurchased 8.03 million shares for $325.7 million during the first half; 6.10 million shares were repurchased in Q2 at an average $39.94.
- The allowance for credit losses (ACL) was $130.2 million, or 0.54% of loans, versus $126.5 million and 0.53% at year-end. Q2 net charge-offs were $18.4 million; the six-month annualized net charge-off ratio was 0.23%.
- Non-performing loans were $144.0 million, or 0.60% of loans, down from $205.9 million and 0.87% at year-end. Commercial criticized and classified loan levels continued to decline, though management said they remained elevated versus pre-pandemic levels.
- Bank capital ratios were 8.83% Tier 1 leverage, 13.33% CET1 and 13.79% total risk-based capital. The company reported that it and the Bank exceeded regulatory well-capitalized guidelines and internal targets.
Material changes, outlook and risks
- Q2 net income fell year over year, primarily against a prior-year quarter that included a large credit-loss recovery; the 2022 quarter also had higher credit-loss provisioning, lower non-interest income and higher operating expenses.
- Available-for-sale securities had a $476.7 million net unrealized loss at June 30, largely attributed to rising rates and wider spreads. AOCI loss increased to $320.4 million from $15.9 million at year-end. Management said it did not intend to sell the securities, did not expect to be required to sell them before recovery of amortized cost, and identified no credit impairment.
- Net losses on investment securities included a $9.3 million Q2 fair-value decline in certain preferred stock investments. Lower other non-interest income also reflected reduced BOLI revenue and gains on loan sales.
- Management’s ACL estimate used a two-year reasonable-and-supportable forecast, with a baseline scenario for the quantitative estimate and downside-scenario considerations in qualitative reserves. Management cautioned that the ACL could change materially as economic conditions and forecasts evolve.
- In modeled parallel rate shocks at June 30, a +100 basis-point move increased forecast net interest income by 3.0% in year one and 5.5% in year two; a -100 basis-point move reduced it by 3.0% and 7.1%, respectively. These are model estimates, not guidance, and depend on assumptions about rates, customer behavior and prepayments.
- Liquidity measures were within policy limits: available liquidity to volatile liabilities was 242%, and the liquidity stress-test ratio was 189%. The company said it expected to meet cash needs over the next 12 months from its stated funding sources. No specific earnings or financial guidance was provided.
- Other risks include economic uncertainty, inflation, rate and spread movements, geographic and commercial real-estate concentrations, and possible indirect effects of the Russia-Ukraine conflict. Management assessed ordinary-course legal proceedings as unlikely to be material. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether deposit balances, deposit pricing and reliance on $4.01 billion of FHLB advances remain consistent with the reported liquidity position, particularly given $20.0 billion of estimated uninsured deposits.
- How the securities portfolio’s unrealized losses, collateral values, liquidity and potential recovery develop as rates and spreads change, and whether any securities sales become necessary.
- Whether loan growth, criticized/classified credits, charge-offs and the ACL remain consistent with management’s economic assumptions and downside overlays.
- How much future earnings benefit from asset repricing is retained after deposit-cost increases, and how results compare with the filing’s interest-rate sensitivity scenarios.
- The effect of substantial share repurchases on capital, per-share measures and future flexibility; confirm updated regulatory capital and liquidity ratios in subsequent filings.