BankUnited, Inc. — FY2011 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2011; fourth-quarter figures are identified separately where provided. BankUnited is a Florida-focused commercial and consumer bank with 95 branches in 15 counties and $11.3 billion in assets at year-end. Its legacy acquired assets are subject to FDIC loss-sharing agreements. The company completed an IPO in February 2011.
Key financial metrics
| Metric | 2011 | 2010 |
|---|---|---|
| Total assets, year-end | $11.32 billion | $10.87 billion |
| Net interest income | $499.2 million | $389.5 million |
| Net interest margin | 6.14% | 5.05% |
| Provision for loan losses | $13.8 million | $51.4 million |
| Non-interest income | $163.2 million | $297.8 million |
| Non-interest expense | $455.8 million | $323.3 million |
| Net income | $63.2 million | $184.7 million |
| Cash and cash equivalents, year-end | $303.7 million | $564.8 million |
| Deposits, year-end | $7.36 billion | $7.16 billion |
| FHLB advances, year-end | $2.24 billion | $2.26 billion |
- 2011 diluted EPS was $0.62, compared with $1.99 in 2010. Fourth-quarter net income was $41.3 million versus $27.8 million a year earlier.
- Operating cash flow was negative $248.5 million; investing cash flow was negative $235.9 million and financing cash flow was positive $223.4 million. Cash declined by $261.0 million during the year. Cash flow includes substantial non-cash acquisition-accounting accretion and FDIC-related items.
- Bank regulatory capital remained above required well-capitalized thresholds: Tier 1 leverage ratio 10.77%, Tier 1 risk-based ratio 34.59% and total risk-based ratio 35.86%.
- Management reported liquid assets equal to 12.1% of total assets, above its 2.5% policy minimum. The Bank had $564.8 million of FHLB borrowing capacity and $113.5 million of unused Federal Reserve borrowing capacity at year-end.
- Non-performing assets were $152.6 million, or 1.35% of assets, down from $232.5 million, or 2.14%, in 2010. The allowance for loan losses was $48.4 million; net charge-offs were 0.62% of average loans.
Material changes versus 2010
- Net interest income increased $109.7 million and net interest margin rose 109 basis points, driven mainly by higher yields and accretion on acquired loans and lower deposit costs.
- Net income fell $121.6 million. Employee compensation included a $110.4 million IPO-related equity-compensation charge that was not tax-deductible; the effective tax rate increased to 67.2% from 40.9%.
- Non-interest income fell $134.6 million, primarily as FDIC indemnification-asset accretion and gains from covered-asset resolutions declined. These FDIC-related items made up 71% of non-interest income in 2011.
- New loans grew by $1.2 billion, primarily commercial, while legacy covered loans continued to run off. New loans represented 41.3% of loans at year-end, versus 13.7% in 2010.
- Investment securities increased to $4.18 billion from $2.93 billion, as cash from loan resolutions and FDIC claims was redeployed. Time deposits declined as the company shifted toward lower-cost transaction, savings and money-market deposits.
- OREO declined to $123.7 million from $206.7 million. However, OREO impairment and sale losses increased, reflecting continued weakness in property markets.
Outlook, commentary and risks
- Management planned to deploy excess liquidity into lending in 2012, including existing commercial products and new indirect auto, floor-plan and leasing platforms; it also expected continued covered-loan resolution and deposit-mix improvement.
- Management cautioned that Florida’s weak economy, falling home prices, elevated unemployment and constrained loan demand could pressure credit quality and margins. It also expected pressure as higher-yielding covered assets are resolved and replaced at prevailing lower rates.
- The FDIC loss-sharing arrangements cover specified legacy assets, generally reimbursing 80% of losses up to the $4.0 billion stated threshold and 95% above it, subject to agreement terms and servicing requirements. The indemnification asset was $2.05 billion at year-end; claims submitted totaled $1.9 billion.
- Key risks include Florida real-estate and geographic concentration, credit losses on non-covered loans, FDIC reimbursement timing or loss of coverage if agreement requirements are breached, interest-rate exposure, foreclosure delays, changing regulation and integration of acquisitions.
- The company had received regulatory approvals for its planned Herald National Bank acquisition and national-bank charter conversion. It expected to close on February 29, 2012; Herald had approximately $524 million of assets. The estimated purchase price was approximately $62 million, subject to final determination.
- The board declared a 2011 dividend of $0.56 per share. A further $0.17-per-share dividend was approved on February 28, 2012. Bank dividend payments to the parent remain subject to regulatory restrictions and approval.
- KPMG issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.
Important facts for investors to verify
- How much of reported earnings and net interest margin depends on acquired-loan accretion and FDIC-related accounting, and how those contributions may change as covered assets run off.
- The collectability, timing and remaining coverage under the FDIC indemnification asset and loss-sharing agreements, including compliance with servicing requirements.
- Credit quality and reserve adequacy in the newer, non-covered commercial portfolio as it seasons; review delinquencies, criticized loans, charge-offs and allowance assumptions.
- Liquidity and funding exposure, especially the maturity and refinancing of $1.145 billion of FHLB advances due in 2012 and the level of large time deposits.
- The effect of ongoing low rates, asset repricing and acquisition integration on margins, expenses, capital and the ability to sustain dividends.