BankUnited, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone quarterly filing; fourth-quarter figures are included where relevant. BankUnited is a commercially focused bank holding company operating primarily in Florida and the New York metropolitan area, with national lending platforms.
Financial results and position
| Metric | 2015 | 2014 |
|---|---|---|
| Total assets, year-end | $23.9 billion | $19.2 billion |
| Net interest income | $745.7 million | $677.1 million |
| Net income | $251.7 million | $204.2 million |
| Diluted EPS | $2.35 | $1.95 |
| Net interest margin, tax-equivalent | 3.94% | 4.61% |
| Deposits, year-end | $16.9 billion | $13.5 billion |
| Loans, net, year-end | $16.5 billion | $12.3 billion |
| Stockholders’ equity, year-end | $2.24 billion | $2.05 billion |
- Reported 2015 net income included a $49.3 million discrete tax benefit tied to additional tax basis claimed on certain assets from the 2009 FDIC-assisted acquisition. Excluding this benefit and related professional fees, diluted EPS was $1.90, return on average assets was 0.95%, and return on average equity was 9.38%.
- Provision for loan losses was $44.3 million, versus $41.5 million in 2014. Net charge-offs were 0.10% of average loans; the year-end allowance for loan and lease losses was $125.8 million, or 0.76% of loans.
- Operating cash flow was $217.9 million, compared with cash used of $49.7 million in 2014. Investing activities used $4.61 billion, while financing activities provided $4.47 billion. Cash and cash equivalents ended the year at $267.5 million.
- Year-end borrowings included $4.01 billion of FHLB advances and $400 million principal amount of senior notes issued in November 2015. The notes carry a 4.875% coupon and mature in 2025; carrying value was $392.3 million after issuance costs and discount.
- Regulatory capital ratios remained above “well-capitalized” thresholds: the holding company reported 12.58% CET1 and 13.36% total risk-based capital; the Bank reported 14.04% CET1 and 14.81% total risk-based capital.
- Reported liquidity measures were 168% for the 30-day liquidity ratio and 165% for the one-year ratio. The Bank also reported $2.6 billion of available FHLB borrowing capacity, $179 million of unused Federal Reserve capacity, and $70 million of unused Federal funds lines.
- Quarter four 2015 net income was $56.3 million and diluted EPS was $0.52, versus $46.8 million and $0.45, respectively, in fourth quarter 2014.
Material changes versus 2014
- Net income rose 23%, but the improvement included the discrete tax benefit; reported effective tax rate fell to 15.2% from 30.4%.
- Net interest income increased, largely with loan growth, while net interest margin fell 67 basis points to 3.94%. Management attributed margin pressure to the growing share of lower-yielding new loans and runoff of higher-yielding acquired loans.
- Loans grew $4.2 billion and deposits grew $3.4 billion. New commercial lending was the principal growth driver.
- Non-interest expense rose to $506.7 million from $426.5 million, including higher FDIC indemnification asset amortization, compensation, deposit insurance costs, and lease-related depreciation.
- The Small Business Finance unit was acquired in May 2015 for approximately $278 million; the transaction added loans and servicing assets and generated $10.4 million of goodwill.
- Covered assets fell to approximately $814 million from $1.05 billion. The FDIC indemnification asset declined to $739.9 million from $974.7 million.
Outlook, risks, and unusual items
- Management expected net interest margin and spread to continue declining, though at a decreasing rate, as acquired higher-yielding loans run off and new loans are added at prevailing market rates. No specific earnings or growth guidance was provided.
- Management cited continued opportunities in organic growth across Florida, the Tri-State region, and national platforms; potential acquisitions; deposit-mix optimization; and possible operating-efficiency gains. It also cited low rates, competitive conditions, regulatory uncertainty, and economic uncertainty as challenges.
- Taxi medallion exposure was approximately $212 million, substantially concentrated in New York City. Management reported declining medallion values amid competition from app-based ride services; approximately 40% of directly secured loans had estimated current loan-to-value above 100%, and about 45% had estimated debt-service coverage below 1.00. The Bank stopped originating new taxi medallion loans.
- Other material risks include credit losses in the growing non-covered portfolio, real-estate and geographic concentration, interest-rate and liquidity risk, cybersecurity and third-party systems, regulatory compliance, and execution and integration risks from growth or acquisitions.
- FDIC loss-sharing coverage for commercial assets ended in May 2014; the single-family agreement continues through May 2019. Compliance failures could jeopardize coverage. The company had received $2.7 billion of FDIC reimbursements through year-end 2015.
- The company reported $2.32 billion of lending-related commitments, principally unfunded lines of credit. Management considered the likelihood of material loss from ordinary-course legal proceedings remote.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective as of December 31, 2015.
Investor verification points
- Reconcile reported earnings and EPS to results excluding the $49.3 million tax benefit, and assess whether the benefit is nonrecurring.
- Track margin, asset yields, funding costs, and the pace of runoff in acquired loans; reported margin included substantial acquisition-accounting accretion.
- Review taxi medallion loan performance, collateral valuations, criticized classifications, allowance adequacy, and potential troubled debt restructurings.
- Assess loan-growth underwriting, non-covered asset quality, concentrations in commercial real estate and national lending platforms, and the adequacy of reserves for a relatively young portfolio.
- Review FHLB advance maturities, deposit concentrations and maturities, senior-note terms, and the sustainability of liquidity and dividend capacity.
- Monitor remaining FDIC loss-share coverage, expected indemnification-asset collections and amortization, and obligations to reimburse the FDIC for recoveries on formerly covered assets.