BankUnited, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. BankUnited, Inc. is a bank holding company whose subsidiary serves retail and commercial customers through Florida and New York branches and national lending platforms.
Financial results and position
| Metric | Q1 2021 | Comparison |
|---|---|---|
| Net income (diluted EPS) | $98.8 million ($1.06) | Net loss of $31.0 million ($0.33) in Q1 2020; $85.7 million ($0.89) in Q4 2020 |
| Net interest income, GAAP | $196.2 million | $180.6 million in Q1 2020 |
| Net interest margin, tax-equivalent | 2.39% | 2.35% in Q1 2020; 2.33% in Q4 2020 |
| Provision for credit losses | $28.0 million recovery | $125.4 million provision in Q1 2020; $1.6 million recovery in Q4 2020 |
| Non-interest income / expense | $30.3 million / $123.2 million | $23.3 million / $118.9 million in Q1 2020 |
| PPNR, non-GAAP | $103.3 million | $85.0 million in Q1 2020; $105.3 million in Q4 2020 |
| Cash and cash equivalents | $1.05 billion | $397.7 million at December 31, 2020 |
| Total loans / deposits | $23.36 billion / $27.73 billion | Loans down $505 million and deposits up $236 million from year-end |
| Allowance for credit losses | $220.9 million; 0.95% of loans | $257.3 million; 1.08% at year-end |
| Borrowings | $3.02 billion FHLB advances; $721.8 million notes and other borrowings | No federal funds purchased outstanding, versus $180 million at year-end |
Operating cash flow was $386.4 million, compared with $63.5 million in Q1 2020. Cash rose by $652.1 million during the quarter. The Bank’s regulatory capital ratios were 14.75% CET1 and 15.49% total risk-based capital; management said capital exceeded well-capitalized requirements and internal targets. Book value per share was $32.83 and tangible book value per share was $32.00.
Changes and operating trends
- Year-over-year earnings improved from a loss to a profit, reflecting a substantially lower credit-loss provision and reduced funding costs. Tax-equivalent net interest income rose to $200.4 million from $185.2 million; the average cost of total deposits fell to 0.33% from 1.36%.
- The credit-loss recovery reflected an improved economic forecast. The ACL declined $36.4 million from year-end, mainly for pass-rated loans, while the ACL on non-pass-rated loans increased.
- Non-interest income rose year over year, including increased customer-derivative revenue and investment-security gains; lease-financing income and gains on loan sales declined. Technology and deposit-insurance expenses increased.
- Non-interest-bearing demand deposits increased $957 million in the quarter and reached 29% of deposits, versus 25% at year-end. Time deposits fell approximately $1.0 billion.
- Commercial loans declined $739 million; overall loans were down $505 million. PPP loans increased to $912 million, including second-draw originations.
Outlook, risks and contingencies
- Management gave no formal earnings or financial forecast. It said loan production could increase by the second half of 2021, contingent on the pandemic and economic recovery. If recovery follows the company’s forecast, management expects criticized and classified assets to decline over the rest of 2021; it cautioned that they could instead remain elevated or increase.
- COVID-19 continued to create uncertainty for borrowers, credit quality and the allowance. Loans on deferral were $126 million; loans modified under the CARES Act were $636 million. Combined, these represented $762 million, or 3% of loans. Management warned that delinquencies, charge-offs and non-performing assets could rise as relief periods end.
- Commercial criticized and classified loans totaled approximately $2.6 billion, down about $75 million from year-end, but migration from special mention to substandard accruing continued. Hotel, retail, and other pandemic-affected exposures remain areas to monitor. Commercial real estate is concentrated in Florida and the Tri-State area.
- Non-performing assets decreased to $236.4 million from $247.6 million at year-end. The reported $629 million of government-insured residential loans more than 90 days past due is substantially excluded from non-performing loans because of the government guarantee.
- Estimated uninsured deposits were $18.4 billion. Management reported no unusual deposit outflows or liquidity stress; the Bank’s 30-day and one-year liquidity ratios were 253% and 377%, respectively, against a 100% policy threshold.
- Interest-rate sensitivity models showed forecast net interest income increasing under modeled rising-rate scenarios; results depend on assumptions about rates, customer behavior and prepayments. The company also reported $4.52 billion of lending-related commitments, which are not necessarily expected to be fully funded.
- Management considered the impact of ordinary-course legal proceedings remote as to material financial effect. No material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the improved economic outlook and credit-loss recovery are sustainable, and how changes in borrower performance affect the ACL.
- Developments in commercial criticized loans, especially hotel, retail, rent-regulated multifamily and franchise-finance exposures, and the status of deferrals and modifications.
- Whether loan growth resumes as management anticipated, and the effects of PPP forgiveness, runoff and mortgage-warehouse utilization.
- The stability and cost of deposits, including uninsured deposit concentrations, and the company’s liquidity and capital levels.
- Interest-rate effects on net interest margin, securities valuations and hedge-related amounts; the filing notes that $45.7 million of net derivative losses in AOCI was expected to be reclassified to earnings over the next 12 months.