BankUnited, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; filed February 24, 2022. BankUnited is a bank holding company headquartered in Florida, serving commercial and consumer customers primarily in Florida and the New York metropolitan area, with additional national lending platforms.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets at year-end | $35.8 billion | $35.0 billion |
| Net income | $415.0 million | $197.9 million |
| Diluted earnings per share | $4.52 | $2.06 |
| Net interest income, GAAP | $795.7 million | $751.8 million |
| Net interest margin, tax-equivalent | 2.38% | 2.35% |
| Net cash from operating activities | $1.22 billion | $864.2 million |
- Revenue and costs: Total non-interest income was $134.2 million, little changed from $133.2 million. Non-interest expense increased to $547.6 million from $457.2 million, including $44.8 million from discontinuing cash-flow hedges, higher employee costs and technology investment.
- Loans and securities: Loans were $23.8 billion, down $101 million year over year; residential loans grew $2.0 billion while commercial loans declined $2.1 billion. Investment securities increased $888 million to $10.1 billion.
- Deposits and funding: Deposits rose $1.9 billion to $29.4 billion. Non-interest-bearing demand deposits reached 30% of total deposits, versus 25% in 2020. Average deposit cost fell to 0.24% from 0.77%. Year-end FHLB advances were $1.9 billion; notes and other borrowings were $721 million, including $400 million of senior notes and $300 million of subordinated notes.
- Credit quality: The allowance for credit losses (ACL) declined to $126.5 million from $257.3 million, and the company recorded a $67.1 million recovery of credit losses versus a $178.4 million provision in 2020. Non-performing loans were $205.9 million, or 0.87% of loans, compared with $244.5 million, or 1.02%. Net charge-offs to average loans increased to 0.29% from 0.26%.
- Capital and shareholder returns: BankUnited and its parent exceeded regulatory “well-capitalized” thresholds. BankUnited’s CET1 ratio was 14.49%; the holding company’s was 12.60%. The company repurchased approximately 7.8 million shares for $318.5 million and paid $83.4 million in dividends. Tangible book value per share rose to $34.56 from $31.22.
Material changes and unusual items
- Earnings more than doubled, reflecting the swing from a large 2020 credit-loss provision to a 2021 recovery, lower funding costs and substantial one-time tax benefits. The 2021 effective tax rate was 7.66%, versus 20.66% in 2020.
- Fourth-quarter net income was $125.3 million. The quarter included $43.9 million of tax benefit from a Florida tax settlement covering 2009–2019 and a further $25.2 million benefit from reductions in unrecognized tax benefits as statutes of limitation expired.
- Other notable fourth-quarter pretax items totaled a net expense of $40.4 million: an $18.2 million gain on residential loan sales offset by a $44.8 million hedge-discontinuance loss, a $6.8 million special employee bonus, $4.2 million in tax-settlement professional fees and $2.8 million of equipment impairment.
- Criticized and classified loans declined $1.2 billion to $1.5 billion. Loans under short-term deferral or CARES Act modification fell to $205 million from $794 million.
Outlook, risks and contingencies
- Management said commercial loan pipelines had improved and expected commercial loan growth to accelerate in 2022, but provided no numerical earnings or growth guidance. It identified the uncertain rate environment, pandemic developments, competition, talent retention and technology execution as challenges.
- At year-end, reported liquidity measures exceeded internal thresholds: available liquidity to volatile liabilities was 328%, the 30-day total liquidity ratio 250%, the one-year ratio 347% and the liquidity stress-test coverage ratio 187%. Additional stated borrowing capacity included approximately $7.3 billion at the FHLB and $1.4 billion at the Federal Reserve discount window.
- Key exposures include concentrated commercial real estate and business lending in Florida and the New York tri-state region; commercial real estate collateral was 58% in Florida and 33% in the tri-state area. Uninsured deposits were estimated at $20.2 billion, about 69% of deposits.
- Other material risks include sensitivity of net interest income to interest rates, credit and collateral deterioration, operating-lease asset values (including energy-related equipment), cybersecurity and third-party technology dependencies, regulatory limits on bank dividends, and transition of remaining LIBOR-linked instruments. The company reported $18.1 billion of LIBOR exposure across financial instruments at year-end, including derivative notional amounts.
- Outstanding lending-related commitments totaled $4.49 billion, including $3.88 billion of unfunded credit lines. Management considered the potential impact of disclosed legal proceedings remote and not material. The financial statement and internal-control audits received unqualified opinions; the ACL was identified as a critical audit matter.
Important facts for investors to verify
- How much of 2021 earnings growth remains after excluding the $69.1 million of fourth-quarter tax benefits and other unusual items.
- Whether commercial loan growth resumes as anticipated and whether commercial criticized assets, delinquencies and charge-offs continue to improve.
- Whether the reduced ACL remains adequate given portfolio changes, economic forecasts and the lagging effects of pandemic relief programs.
- The stability and cost of funding, particularly the large uninsured-deposit base, and the company’s capacity to meet commitments and refinance short-term FHLB advances.
- Progress converting LIBOR exposures to replacement rates and the resulting effects on customers, hedges and net interest income.