BankUnited, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filing dated February 28, 2020. BankUnited is a commercially focused regional bank headquartered in Florida, with primary markets in Florida and the New York metropolitan area and additional national lending and deposit platforms. It reported $32.9 billion in consolidated assets.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Net income | $313.1 million | $324.9 million |
| Diluted EPS | $3.13 | $2.99 |
| Net interest income | $752.8 million | $1,050.1 million |
| Net interest margin, tax-equivalent | 2.47% | 3.67% |
| Provision for loan losses | $8.9 million | $25.9 million |
| Non-interest income | $147.2 million | $132.0 million |
| Non-interest expense | $487.1 million | $740.5 million |
| Operating cash flow | $635.7 million | $824.3 million |
- Fourth-quarter 2019 net income was $89.5 million and diluted EPS was $0.91, versus $52.4 million and $0.50 in fourth-quarter 2018.
- Return on average assets was 0.95%; return on average common equity was 10.63%. Reported net income was below 2018, but diluted EPS rose; management cited 2018 non-loss-share diluted EPS of $2.36 for comparison, making 2019 EPS 33% higher on that basis.
- Year-end loans were $23.2 billion, up $1.2 billion; deposits were $24.4 billion, up $920 million. Non-interest-bearing deposits increased 19% and represented 18% of deposits.
- Total assets were $32.9 billion; cash and cash equivalents were $214.7 million; investment securities were $7.8 billion. The loan-to-deposit ratio was 95.07%.
- Year-end FHLB advances were $4.48 billion; notes and other borrowings were $429.3 million, including $400 million of 4.875% senior notes due 2025. Total liabilities were $29.9 billion and stockholders’ equity was $3.0 billion.
- Capital ratios remained above well-capitalized thresholds: company CET1 12.32% and total risk-based capital 12.79%; Bank CET1 12.89% and total risk-based capital 13.36%.
- Liquidity measures were strong at year-end: 30-day liquidity ratio 181%, one-year ratio 191%, $5.3 billion of unencumbered securities, and available FHLB borrowing capacity of $4.3 billion.
- Annual dividends were $0.84 per share. The company repurchased about 4.5 million shares for $154 million during 2019; $146.0 million remained under its $150 million authorization at year-end.
Changes versus the prior year
- Net interest income and tax-equivalent margin fell sharply, principally because accretion income on formerly FDIC-covered residential loans declined as the Single Family Shared-Loss Agreement ended in February 2019. Interest income on those loans fell $305.2 million year over year.
- Funding costs rose: the average cost of interest-bearing liabilities increased to 2.09% from 1.66%, while the average cost of total deposits increased to 1.63% from 1.28%. Deposit-cost declines began in the second half of 2019.
- Recurring operating expenses, a company-defined non-GAAP measure, declined 4% to $420.0 million. Reported non-interest expense also declined, largely because 2018 included $261.8 million of FDIC indemnification asset amortization, which ended after the asset was fully amortized.
- Credit metrics weakened in some areas: non-performing loans increased to 0.88% of loans from 0.59%; non-performing assets rose to 0.63% of assets from 0.43%. The allowance declined to 0.47% of loans from 0.50%, while net charge-offs fell to 0.05% of average loans from 0.28%.
- Growth was led by residential and consumer loans, commercial real estate outside multifamily, commercial and industrial loans, and mortgage warehouse lending. The New York multifamily portfolio declined $368 million.
- Investment securities fell to $7.8 billion from $8.2 billion, while securities-sale gains increased to $21.2 million from $3.2 million.
Outlook, management commentary and risks
- Management said BankUnited 2.0 remained on track to deliver, by mid-2021, an incremental annual pre-tax impact of $40 million in cost reductions and $20 million in additional revenue. Initiatives included organizational changes, treasury-management pricing, deposit and small-business efforts, branch optimization, automation, and a commercial card program planned for 2020.
- Management expects the New York multifamily portfolio to continue declining in 2020 as older vintages mature. It identified low rates, a flat yield curve, tight spreads, funding costs above many peers, competition, and economic uncertainty as challenges. No specific earnings or margin guidance was provided.
- The company expected CECL adoption on January 1, 2020 to increase the allowance by approximately $25–$30 million and the reserve for unfunded commitments by $5–$6 million. It intended to use the regulatory capital phase-in. These were estimates, not final adoption results.
- Credit concentrations and sensitivities include Florida and the New York metro area, real estate lending, rent-regulated New York multifamily loans, and equipment leases. The filing identifies $1.30 billion of New York multifamily loans secured by properties with rent-regulated units. It also notes pressure in quick-service restaurant franchise exposures and energy-related equipment, including railcars.
- Management reported a Department of Justice subpoena received in October 2019 seeking documents about the Bank’s former taxi medallion business; the company said it was cooperating. Management considered other ordinary-course legal proceedings unlikely to have a material effect.
- At year-end, gross unrecognized tax benefits were $407.1 million, including $368.9 million of net federal and state tax benefits that, if recognized, would affect the effective tax rate. The company said possible reductions in certain state tax contingencies over the next 12 months ranged from zero to $44.5 million.
- Other key risks include interest-rate and liquidity risk, credit-loss estimation and CECL uncertainty, local economic and real-estate weakness, regulatory constraints on dividends, cybersecurity and third-party systems, and the transition away from LIBOR.
Important facts for investors to verify
- Whether earnings and margin performance can be sustained after the loss-share-related income stream ended, and whether deposit costs continue to ease.
- CECL’s actual adoption impact compared with the disclosed allowance and unfunded-commitment estimates.
- Trends in non-performing loans, criticized and classified credits, specific reserves, and coverage—particularly the large Florida commercial loan, SBA non-accruals, franchise finance, and New York rent-regulated multifamily portfolio.
- Progress and realized savings and revenue from BankUnited 2.0 against the mid-2021 targets, including execution of branch and technology initiatives.
- Resolution or further developments concerning the DOJ subpoena and the material tax contingencies.
- Capital, liquidity, deposit mix, and repurchase activity, including regulatory limits on upstream dividends and the use of remaining buyback authorization.