BankUnited, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. BankUnited is a bank holding company operating through its national bank subsidiary, serving customers in Florida, the New York metropolitan area and Dallas, with additional commercial lending and deposit platforms.
Financial performance and position
- Net income: $52.9 million; diluted EPS was $0.70. Net income was $67.2 million and diluted EPS $0.79 in Q1 2022; the company reported $64.2 million and $0.82 per diluted share in Q4 2022.
- Net interest income: $227.9 million GAAP, up $19.2 million year over year and down $15.2 million sequentially. Tax-equivalent net interest income was $232.1 million.
- Net interest margin: 2.62% on a tax-equivalent basis, versus 2.50% in Q1 2022 and 2.81% in Q4 2022. Average cost of deposits rose to 2.05% from 0.17% a year earlier and 1.42% in Q4 2022.
- Credit costs and asset quality: Provision for credit losses was $19.8 million, versus $7.8 million in Q1 2022. The allowance for credit losses was $158.8 million, or 0.64% of loans, compared with 0.59% at year-end. Nonperforming loans were $114.2 million, 0.46% of loans; net charge-offs were 0.08% of average loans, annualized.
- Balance sheet: Assets were $37.2 billion; loans were $24.9 billion, essentially unchanged from year-end. Deposits were $25.7 billion, down $1.8 billion from year-end. Cash and cash equivalents were $904.0 million. Stockholders’ equity was $2.48 billion.
- Funding and debt: FHLB advances were $7.55 billion, up from $5.42 billion at year-end; notes and other borrowings were $720.8 million. The company ended the quarter with no federal funds purchased outstanding.
- Cash flow: Operating activities provided $141.4 million, compared with $457.3 million in Q1 2022. Investing activities provided $96.2 million and financing activities provided $93.8 million. Cash increased $331.4 million during the quarter.
- Capital: CET1 was 10.81% at the holding company and 12.52% at the Bank. Including AOCI, CET1 was 9.4% and 11.1%, respectively. Book value per share was $33.34; tangible book value per share was $32.30.
Material changes and notable items
- Interest income rose substantially year over year as asset yields increased, but higher deposit and borrowing costs more than offset asset-yield gains sequentially, reducing Q1 net interest margin.
- During the quarter, deposits declined $1.79 billion, including $671 million in non-interest-bearing demand deposits; time deposits increased $982 million. The week of March 13 saw $1.9 billion of outflows, largely from ten larger institutional customers. Management reported subsequent inflows of $245 million over the weeks of March 20 and March 27.
- Net losses on marketable equity securities were $13.3 million, primarily related to certain preferred equity investments. Other non-interest expense included $4.4 million of operational and fraud losses. Total non-interest expense rose to $152.8 million from $126.3 million a year earlier.
- The AFS securities portfolio’s net unrealized loss improved by approximately $100 million to $573.7 million. Management attributed unrealized losses primarily to higher interest rates and wider spreads, and stated it did not expect to sell securities to meet liquidity needs.
- The company repurchased 1.6 million shares for $55.0 million during Q1 and increased its quarterly dividend to $0.27 per share. It said share repurchases were suspended in light of the macroeconomic environment.
Outlook, liquidity, risks and contingencies
- Management described the business as stable, with strong liquidity and a robust capital base. Same-day available liquidity was approximately $9.4 billion at March 31 and $12.3 billion as of April 21, 2023. Available liquidity equaled 95% of estimated uninsured, uncollateralized deposits at quarter-end and 128% in April. These are management-reported measures, not a guarantee of future funding availability.
- Management activated its contingency funding plan, increased cash and pledged assets to the FHLB and Federal Reserve, promoted its insured reciprocal deposit program, and said it was reviewing concentration limits for larger deposits. Insured and collateralized deposits represented 62% of total deposits at quarter-end.
- Management said it believed liquidity was sufficient for the next 12 months. It also warned that deposit levels remain subject to uncertainty from monetary policy and banking-sector conditions, and that credit-loss estimates could change materially with economic conditions, borrower finances and collateral values.
- Risk factors include continued deposit outflows or shifts to higher-cost funding, pressure on margins and liquidity, interest-rate and securities valuation exposure, and potential regulatory changes or higher FDIC assessments following bank failures. The filing gives no specific earnings or margin guidance.
- Outstanding lending-related commitments were $6.57 billion. The company reported ordinary-course legal proceedings and stated that material adverse outcomes were considered remote.
Key facts for investors to verify
- Whether deposit flows and funding costs stabilized after the dates reported, and how any further migration to time or wholesale funding affects net interest margin.
- Availability and composition of liquidity, including collateral encumbrance, borrowing capacity and the continued reliability of management’s uninsured-deposit estimates.
- Capital levels including AOCI, and the effect of further changes in interest rates on securities values and regulatory capital.
- Credit trends, particularly criticized commercial loans, specific reserves, CRE exposures and the outlook underlying the allowance for credit losses.
- Whether preferred-equity investment losses, operational and fraud losses, and elevated deposit-related expenses recur or materially affect earnings.