BankUnited, Inc. — Q1 2024 Form 10-Q
Business context and period: BankUnited is a national bank holding company serving individuals and commercial customers, principally in Florida, the New York metropolitan area and Dallas, with certain national lending and deposit platforms. This unaudited filing covers the three months ended March 31, 2024; year-over-year comparisons are to Q1 2023 unless otherwise noted.
Financial results and position
- Earnings: Net income was $48.0 million, down from $52.9 million; diluted EPS was $0.64 versus $0.70. Annualized return on average assets was 0.54% and return on average equity was 7.31%.
- Net interest income and margin: GAAP net interest income before provision was $214.9 million, versus $227.9 million. On a tax-equivalent basis, it was $218.9 million, down $13.2 million year over year. Tax-equivalent net interest margin was 2.57%, versus 2.62% a year earlier and 2.60% in Q4 2023. Higher asset yields did not fully offset increased deposit funding costs.
- Other income and expenses: Non-interest income increased to $26.9 million from $16.5 million, mainly because marketable equity securities produced an $0.8 million gain versus a $13.3 million loss in Q1 2023. Non-interest expense rose to $159.2 million from $152.8 million, including an additional $5.2 million FDIC special assessment. Income before taxes was $67.2 million versus $71.8 million.
- Balance sheet: At March 31, total assets were $35.1 billion, down from $35.8 billion at year-end 2023. Loans were $24.2 billion, down $407 million during the quarter; deposits were $27.0 billion, up $489 million. Stockholders’ equity was $2.64 billion, compared with $2.58 billion at year-end.
- Funding and debt: FHLB advances declined to $3.91 billion from $5.12 billion. Notes and other borrowings were $709 million, including senior notes due in 2025 and subordinated notes due in 2030. Average total deposit cost rose to 3.18% from 2.05% year over year, while the spot cost was 3.17% at quarter-end versus 3.18% at year-end.
- Cash flow: Operating activities provided $66.5 million, compared with $141.4 million in Q1 2023. Investing activities provided $487.5 million and financing activities used $721.1 million; cash and cash equivalents ended the quarter at $421.2 million, down from $588.3 million at year-end.
- Capital and shareholder returns: Company CET1 was 11.58%; Bank CET1 was 13.41%. Management reported pro forma CET1, including AOCI, of 10.3%. Book value and tangible book value per share were $35.31 and $34.27, respectively. The quarterly dividend increased to $0.29 per share; no Q1 share repurchases were reported.
Material changes, credit and liquidity
- Balance-sheet repositioning: Non-interest-bearing deposits grew $404 million and non-brokered deposits grew $644 million. Management reported wholesale funding, including FHLB advances and brokered deposits, down $1.4 billion. Loans declined, including $152 million in residential loans and $226 million across C&I and CRE, reflecting seasonality, paydowns and exits from some shared national credits.
- Credit: The allowance for credit losses rose to $217.6 million from $202.7 million; ACL coverage increased to 0.90% of loans from 0.82%. The provision for credit losses was $15.3 million, down from $19.8 million. Annualized net charge-offs were 0.02%. Non-performing assets were $118.9 million, or 0.34% of assets, versus $130.6 million, or 0.37%, at year-end.
- Credit watch: Criticized and classified commercial loans increased to $1.42 billion from $1.14 billion. Management cited risk-rating migration and higher qualitative reserves, particularly for office CRE; it said the loans in the substandard-accruing category continued to perform. CRE was 24% of loans. The $1.8 billion office portfolio had insignificant non-performing loans, but management noted office-market uncertainty and elevated the office CRE allowance ratio to 2.26%.
- Liquidity: Management reported $14.8 billion of same-day available liquidity, equal to 156% of estimated uninsured, uncollateralized deposits. An estimated 65% of deposits were insured or collateralized. Brokered deposits were $5.2 billion, public-funds deposits $3.1 billion, and estimated adjusted uninsured deposits $9.4 billion.
- Securities: The available-for-sale portfolio had a $498.4 million net unrealized loss at quarter-end, improved from $534.8 million at year-end, primarily due to higher interest rates and, in some cases, wider spreads. The company stated it did not intend, and was not more likely than not required, to sell securities before recovery; it reported no credit-loss impairment. Most securities were pledgeable, but the unrealized position remains relevant to capital and liquidity analysis.
Outlook, risks and contingencies
No quantified earnings or margin guidance is provided. Management’s near-term priorities are to grow core deposits and reduce higher-cost wholesale funding; shift assets toward core commercial lending; improve margin; maintain liquidity and capital; manage credit; and control expense growth. Management described deposit costs as showing signs of stabilizing and liquidity and capital as robust. Its rate-shock modeling was within policy limits, but actual outcomes may differ with market rates, deposit behavior, loan prepayments and balance-sheet changes.
Key disclosed risks include uncertain economic and interest-rate conditions, office and other CRE performance, borrower and collateral deterioration, and the possibility that ACL estimates change materially. Lending-related commitments totaled $5.41 billion, principally unfunded lines of credit; not all are expected to fund. Management said ordinary-course legal proceedings are unlikely to have a material adverse effect. The filing reported no material changes to the risk factors in the 2023 Form 10-K and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit costs stabilize and core, non-brokered deposit growth continues without materially weakening net interest margin.
- Trends in criticized/classified commercial exposures, especially office CRE risk migration, maturities and refinancing performance.
- Whether credit losses and the allowance remain consistent with portfolio conditions and the economic forecast.
- The liquidity and capital implications of uninsured deposits, brokered funding and the AFS securities unrealized loss position.
- Execution of loan-mix and expense priorities, including the effect of the FDIC assessment and any further changes in lease-financing activity.