BankUnited, Inc. Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. BankUnited, Inc. is a savings and loan holding company headquartered in Miami Lakes, Florida, operating 81 branches across 13 Florida counties. The company's financial results are significantly influenced by its 2009 acquisition of assets from the FDIC, which includes Loss Sharing Agreements covering approximately 84% of its loan portfolio. The quarter was marked by the company's Initial Public Offering (IPO) on February 2, 2011.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Income (Loss) | $(67.7) million | $60.7 million |
| Earnings Per Share (Basic/Diluted) | $(0.72) | $0.65 |
| Net Interest Income | $112.3 million | $92.5 million |
| Net Interest Margin | 5.76% | 4.89% |
| Non-Interest Income | $64.3 million | $82.5 million |
| Non-Interest Expense | $204.3 million | $65.7 million |
| Total Assets | $10.81 billion | $11.26 billion (Avg) |
| Total Loans (Net) | $3.69 billion | $3.88 billion (Dec 31, 2010) |
| Stockholders' Equity | $1.44 billion | $1.16 billion (Mar 31, 2010) |
| Allowance for Loan Losses | $61.6 million | $58.4 million (Dec 31, 2010) |
Material Changes vs. Prior Period
- Net Loss vs. Net Income: The company reported a net loss of $67.7 million compared to net income of $60.7 million in Q1 2010. This reversal was primarily driven by a one-time, non-cash compensation charge of $110.4 million related to the vesting and exchange of Profits Interest Units (PIUs) in conjunction with the IPO.
- Expense Surge: Non-interest expense increased by $138.6 million to $204.3 million. This includes the $110.4 million PIU charge, an additional $9.5 million in share-based compensation, and a $16.0 million increase in OREO (Other Real Estate Owned) related expenses and impairments due to continued home price depreciation.
- Net Interest Income Growth: Net interest income rose $19.8 million to $112.3 million, driven by a higher average yield on loans (12.10% vs. 9.44%) due to accretion on acquired credit-impaired loans and a decrease in interest expense on deposits.
- Non-Interest Income Decline: Non-interest income decreased $18.2 million to $64.3 million. This was caused by a $34.8 million drop in accretion on the FDIC indemnification asset and a $37.1 million decrease in income from the resolution of covered assets, partially offset by a $49.4 million increase in net gain on the indemnification asset.
- Balance Sheet Shifts: Total assets decreased $61.1 million from the prior quarter. Investment securities grew by $500 million as cash from loan resolutions was deployed, while the FDIC indemnification asset decreased by $240.3 million due to claims filed.
Guidance, Outlook, and Risks
- Capital Position: The IPO generated net proceeds of $99.5 million, increasing stockholders' equity by $183.4 million. The company remains "well-capitalized" with a Tier 1 leverage ratio of 10.62% and a Total risk-based capital ratio of 44.92%.
- Asset Quality: Non-performing assets to total assets ratio was 2.01%. Non-performing loans to total loans was 0.94%. The company notes that substantially all non-performing assets are covered by FDIC Loss Sharing Agreements, which mitigate loss exposure.
- FDIC Indemnification: The company expects accretion on the FDIC indemnification asset to continue declining as projected cash flows from acquired loans improve, reducing the expected reimbursement from the FDIC.
- Market Risks: The company faces risks related to the resolution of covered assets, including continued home price deterioration in Florida affecting OREO valuations. Interest rate risk is managed via swaps, with sensitivity analysis showing acceptable levels of risk in rising rate scenarios.
- Unusual Items: The $110.4 million compensation expense is a non-recurring, non-deductible item that significantly distorted the effective tax rate to (72.6%) for the quarter.
Investor Verification Checklist
- PIU Compensation Impact: Verify the non-cash nature of the $110.4 million expense and confirm it did not negatively impact the company's actual capital position or liquidity.
- FDIC Loss Sharing Status: Review the remaining threshold of the FDIC Loss Sharing Agreements ($4.0 billion) and the current balance of the indemnification asset ($2.43 billion) to assess future income stability.
- OREO Resolution Costs: Monitor the trend in OREO impairment and foreclosure expenses, which increased significantly due to local real estate market conditions.
- Loan Portfolio Composition: Confirm the ratio of covered loans (84.2%) to non-covered loans to understand the extent of FDIC protection versus new origination risk.
- Deposit Run-off: Track the continued decline in time deposits ($495.2 million decrease) and the shift toward lower-cost core deposits.