BankUnited, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also reports quarterly results. BankUnited is a commercially focused regional bank operating primarily in Florida and the New York metropolitan area, with national lending and deposit platforms. It reported $32.2 billion in consolidated assets and 85 banking centers at year-end.
Financial performance and condition
| Metric | 2018 | 2017 |
|---|---|---|
| Net interest income | $1,050.1 million | $950.3 million |
| Non-interest income | $132.0 million | $157.9 million |
| Net income | $324.9 million | $614.3 million |
| Diluted EPS | $2.99 | $5.58 |
| Net interest margin, tax-equivalent | 3.67% | 3.65% |
| Return on average assets / equity | 1.05% / 10.57% | 2.13% / 23.36% |
| Deposits at year-end | $23.47 billion | $21.88 billion |
| Loans, net | $21.87 billion | $21.27 billion |
| Total assets | $32.16 billion | $30.35 billion |
- Net interest income increased 10.5%, supported by loan and securities growth and higher yields. Rising deposit and borrowing costs offset much of the benefit; average cost of total deposits rose to 1.28% from 0.83%.
- Net cash provided by operating activities was $824.3 million; investing activities used $2.04 billion and financing activities provided $1.40 billion. Cash and cash equivalents ended the year at $382.1 million. Operating cash flow includes significant non-cash ACI loan accretion; repayments and resolutions of covered loans are reported in investing cash flows.
- Year-end funding included $4.80 billion of FHLB advances, $175 million of federal funds purchased and $402.7 million of notes and other borrowings. Liquidity measures were above internal thresholds: the 30-day ratio was 210% and the one-year ratio was 165%. Available FHLB borrowing capacity was $3.7 billion.
- Asset quality improved: non-performing loans were 0.59% of total loans versus 0.81% in 2017; non-performing assets were 0.43% of assets versus 0.61%. The allowance for loan and lease losses was $109.9 million, or 0.50% of loans; net charge-offs were 0.28% of average loans.
- Both the Company and Bank exceeded regulatory well-capitalized thresholds. Company CET1 and total risk-based capital ratios were 12.57% and 13.08%; the Bank’s were 13.45% and 13.96%.
Material changes versus the prior period
- Reported net income fell 47% from 2017, but 2017 included a $327.9 million discrete tax benefit. Excluding that benefit and related professional fees, 2017 net income was $291.3 million and diluted EPS was $2.65; 2018 results therefore increased on that adjusted comparison.
- 2018 provision for loan losses declined to $25.9 million from $68.7 million, mainly as taxi-medallion provisions eased. The Company sold substantially all taxi-medallion loans in Q4, leaving $0.8 million outstanding.
- Deposits increased $1.6 billion, including $550 million of non-interest-bearing demand deposits. Non-covered loans and leases, including operating-lease equipment, grew by $965 million.
- The Company repurchased approximately 8.4 million shares for about $300 million. Stockholders’ equity declined $102 million to $2.92 billion, reflecting repurchases and dividends, partly offset by retained earnings.
- Q4 2018 net income was $52.4 million, compared with $417.8 million in Q4 2017, which included the discrete tax benefit. Q4 2018 included $12.6 million of loan-loss provision and $246.7 million of non-interest expense.
Outlook, management commentary, risks and unusual items
- Management’s stated priorities are disciplined credit underwriting, organic growth in Florida and the Tri-State region and national platforms, improving deposit mix, expense control, technology investment and selective acquisition opportunities. The filing gives no specific earnings or growth guidance.
- Management identified competitive loan and deposit markets, rising funding costs, a flat yield curve, and uncertainty as the economy moves through the credit cycle as challenges. Interest-rate changes, credit deterioration, real-estate conditions, geographic concentration, liquidity, operational and cyber risks are also highlighted.
- The final sale of covered loans and OREO occurred in Q4 2018. Accelerated accretion from updated sale timing and pricing assumptions contributed to covered-loan income. The FDIC indemnification asset was reduced to zero by year-end; the Single Family Shared-Loss Agreement terminated February 13, 2019, ending FDIC loss-sharing protection for retained assets.
- The 2018 effective tax rate was 21.8%. The Company received $293.0 million of federal tax refunds and $13.5 million of related interest during 2018 from the matter that generated the 2017 tax benefit. It continues to evaluate possible additional tax claims; the filing does not establish their amount or timing.
- CECL is scheduled for adoption January 1, 2020. Management could not reasonably estimate its impact and warned it may materially affect the allowance, capital and results. Lease accounting adoption on January 1, 2019 was expected to add approximately $104 million of lease liabilities and $95 million of right-of-use assets.
- Unrecognized tax benefits were $116.1 million at year-end, up from $59.2 million. Legal proceedings were described as routine, with management assessing a material adverse outcome as remote. The filing reports $3.97 billion of lending-related commitments, including $2.85 billion of undrawn credit lines.
Most important facts for investors to verify
- Compare 2018 earnings with 2017 on a consistent basis, excluding the exceptional 2017 tax benefit and related costs.
- Track deposit pricing, funding mix and net interest margin as rate conditions and competition change.
- Assess the quality and concentration of commercial real-estate, commercial-and-industrial and residential exposures, and the adequacy of reserves as CECL approaches.
- Evaluate credit and residual-value risk in equipment leasing, including exposure to energy-related lessees and railcars.
- Confirm the implications of the terminated FDIC loss-sharing agreement for remaining covered loans and future credit losses.
- Monitor capital and liquidity after share repurchases, dividends and any additional repurchases authorized in January 2019; consider the maturity and refinancing profile of funding.
- Follow the resolution of uncertain tax positions and any additional refund claims, and assess potential CECL and lease-accounting effects against subsequent disclosures.