BankUnited, Inc. — FY2020 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2020, filed February 26, 2021. BankUnited is a bank holding company with $35.0 billion in consolidated assets, focused on commercial banking in Florida and the New York tri-state area, with additional national lending platforms.
Financial performance and position
| Metric | FY2020 / Dec. 31, 2020 | FY2019 / Dec. 31, 2019 |
|---|---|---|
| Total assets | $35.0 billion | $32.9 billion |
| Net interest income | $751.8 million | $752.8 million |
| Net interest margin, tax-equivalent | 2.35% | 2.47% |
| Net income | $197.9 million | $313.1 million |
| Diluted EPS | $2.06 | $3.13 |
| Provision for credit losses | $178.4 million | $8.9 million |
| Deposits | $27.5 billion | $24.4 billion |
| Loans, net | $23.6 billion | $23.0 billion |
| Cash from operating activities | $864.2 million | $635.7 million |
- Return on average assets was 0.57% and return on average common equity was 6.90%. Pre-tax, pre-provision net revenue (PPNR, non-GAAP) increased to $427.8 million from $412.9 million.
- Net charge-offs were 0.26% of average loans, versus 0.05%. Non-performing loans were 1.02% of total loans, versus 0.88%; non-performing assets were $247.6 million, versus $208.7 million.
- The allowance for credit losses (ACL) rose to $257.3 million, or 1.08% of loans, from $108.7 million, or 0.47%. The increase reflects CECL adoption and COVID-19-related changes in the economic outlook and borrower risk.
- At year-end, BankUnited, Inc. reported CET1 and total risk-based capital ratios of 12.57% and 14.66%; the Bank reported 13.93% and 14.76%. Both were above regulatory “well-capitalized” thresholds.
- Cash and cash equivalents were $397.7 million. FHLB advances were $3.12 billion, federal funds purchased were $180 million, and notes and other borrowings were $722.5 million. The company reported 30-day and one-year liquidity ratios of 234% and 312%, respectively.
Material changes versus the prior period
- Net income fell 36.8%, primarily as the credit-loss provision increased sharply. Net interest income was nearly flat, but lower asset yields reduced the net interest margin.
- Deposits grew by $3.1 billion, including $2.7 billion of non-interest-bearing demand deposits; total deposits increased about 13%. Loans grew $711 million, including $782 million of PPP loans, while investment securities increased $1.4 billion.
- Average deposit cost declined to 0.77% from 1.63%. Total borrowings declined approximately $1.0 billion, notwithstanding issuance of $300 million of 5.125% subordinated notes in June 2020.
- CECL was adopted January 1, 2020, increasing the ACL by $27.3 million at adoption and reducing retained earnings by $23.8 million. Comparisons of credit-loss expense with 2019 are therefore affected by both the accounting change and the pandemic.
- Fourth-quarter 2020 net income was $85.7 million, or $0.89 diluted EPS; the quarter included a $1.6 million recovery of credit losses, following provisions in the first three quarters.
Outlook, management commentary, and risks
- Management expected lending production to remain muted, at least through the first half of 2021, with potential growth in the second half depending on the pandemic and economic recovery. This is conditional commentary, not formal earnings guidance.
- Management said liquidity remained sufficient and stress tests indicated capital above well-capitalized thresholds under severe scenarios. It also noted uncertainty around future credit losses, criticized assets, and the timing of any deterioration after borrower deferrals and government assistance end.
- COVID-19-sensitive exposures include hotels, retail, franchise finance, and certain commercial borrowers. At year-end, $794 million of loans were on deferral or modified, about 3% of total loans; commercial criticized and classified balances had risen substantially.
- Other material risks include concentrations in Florida and the New York tri-state area; commercial real estate values and rent regulation; low interest rates and margin pressure; LIBOR transition; deposit and funding liquidity; operating-lease equipment values, particularly energy-related railcars; cybersecurity and third-party technology dependence; and extensive banking regulation.
- The company paid $0.92 per share in 2020 dividends. It suspended repurchases in March 2020 and reinstated the program in January 2021, with approximately $44.9 million of authorization remaining. Future dividends and repurchases remain discretionary and subject to regulatory and financial conditions.
- Unrecognized tax benefits were $414.2 million at year-end; the filing states that amounts potentially decreasing within the following 12 months could range from zero to $358.7 million. Management considered material legal-proceeding losses remote. KPMG issued unqualified opinions on the financial statements and internal control; its critical audit matter was the commercial-loan ACL estimate.
Important facts for investors to verify
- Whether criticized/classified loans, deferrals, and modifications convert into delinquencies, non-accruals, or charge-offs as relief programs expire, and whether the ACL remains adequate.
- Performance and collateral trends in hotel, retail, franchise-finance, commercial real estate, and New York rent-regulated multifamily exposures.
- Deposit composition and stability, uninsured deposit levels ($17.4 billion reported), and continued access to contingent borrowing capacity.
- Prospective net interest margin under sustained low rates, asset repricing, deposit-cost changes, and the transition from LIBOR.
- Resolution of the substantial uncertain-tax-position balance, and the actual pace of PPP forgiveness and recognition of remaining origination fees.
- Execution of the stated 2021 lending outlook, and the capital and regulatory implications of dividends and resumed share repurchases.