BankUnited, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the quarter and nine months ended September 30, 2021; balance-sheet comparisons are with December 31, 2020. BankUnited is a bank holding company operating through its national bank, with Florida and New York-area banking centers and national commercial lending platforms.
Financial performance and position
| Metric | Q3 2021 / Sep. 30, 2021 | Comparable period / prior date |
|---|---|---|
| Net income | $86.9 million; diluted EPS $0.94 | Q3 2020: $66.6 million; $0.70 per diluted share. Q2 2021 net income was $104.0 million. |
| Nine-month net income | $289.7 million; diluted EPS $3.12 | Nine months 2020: $112.1 million; $1.17 per diluted share. |
| Net interest income | $195.1 million GAAP; $199.1 million tax-equivalent | GAAP: $187.5 million in Q3 2020; tax-equivalent: $202.4 million in Q2 2021 and $192.0 million in Q3 2020. |
| Net interest margin | 2.33% tax-equivalent | 2.37% in Q2 2021; 2.32% in Q3 2020. |
| Non-interest income / expense | $25.5 million / $118.0 million | Q3 2020: $36.3 million / $108.6 million. |
| Cash flow | Nine-month operating cash flow $953.0 million; ending cash and cash equivalents $507.0 million | Operating cash flow was $634.9 million for the first nine months of 2020. |
| Assets, loans and deposits | Total assets $35.3 billion; loans $22.8 billion; deposits $28.1 billion | At Dec. 31, 2020: $35.0 billion, $23.9 billion and $27.5 billion, respectively. |
| Funding and debt | FHLB advances $2.43 billion; notes and other borrowings $721.5 million; federal funds purchased $199.0 million | FHLB advances were $3.12 billion at Dec. 31, 2020. Senior notes principal: $400 million due 2025; subordinated notes principal: $300 million due 2030. |
| Capital and liquidity | Company CET1 ratio 13.40%; Bank CET1 ratio 14.87%. Bank liquidity ratios: available liquidity/volatile liabilities 317%; 30-day 259%; one-year 396%; stress-test coverage 211%. | Management reported capital above regulatory well-capitalized guidelines and liquidity measures within policy limits. |
Material changes versus comparable periods
- Q3 net income rose year over year, supported by lower credit-loss provisioning and lower funding costs, partially offset by lower non-interest income and higher expenses. Nine-month net income also increased substantially as the prior-year period included a large credit-loss provision.
- Q3 provision for credit losses was a recovery of $11.8 million, versus a $29.2 million provision in Q3 2020. The nine-month recovery was $67.4 million, compared with a $180.1 million provision in 2020. Management attributed the recovery chiefly to improving economic forecasts, borrower performance and portfolio mix.
- Q3 net interest margin eased from Q2 as asset yields and average loans declined and PPP fee recognition was lower. Lower deposit costs and a shift toward non-interest-bearing deposits partly offset those pressures.
- Loans declined $1.1 billion from year-end, while investment securities rose $1.2 billion. Residential and government-insured residential balances increased; commercial balances contracted as runoff and prepayments exceeded production. Deposits rose $620 million from year-end, including $2.1 billion growth in non-interest-bearing demand deposits, while time deposits fell $1.6 billion.
- Non-interest expense increased year over year, notably employee compensation and technology spending. The company repurchased 3.19 million shares for $129.4 million during Q3. Stockholders’ equity was $3.10 billion at quarter-end, compared with $2.98 billion at year-end.
Outlook, commentary and risks
- Outlook: No formal earnings or margin guidance is provided. Management expected commercial loan production to increase in Q4 2021, while noting that execution depends partly on the pandemic and economic recovery. It expected liquidity needs over the next 12 months to be met through existing funding sources.
- Credit and COVID-19: Criticized and classified loans declined $856 million in the first nine months and $240 million in Q3. Non-performing loans were 1.21% of total loans at September 30. Loans under short-term deferral or CARES Act modification totaled $285 million, down from $497 million at June 30. Management cautioned that pandemic effects may emerge later and credit costs, delinquencies and non-performing assets could rise; ACL estimates remain judgmental and may change materially.
- Portfolio exposures: Commercial real estate is concentrated in Florida and the New York tri-state area; hotels and retail remain areas to monitor. Residential loans have significant California and New York concentrations. The company also disclosed $19.7 billion of estimated uninsured deposits and $4.43 billion of lending-related commitments.
- Interest-rate and investment risks: Management identified a low-rate environment, asset-yield pressure and prepayment effects as margin headwinds. The securities portfolio had $31.9 million of gross unrealized losses at quarter-end, which management attributed primarily to interest-rate changes; it reported no securities as credit-loss impaired and did not expect to need to sell them before recovery.
- Post-quarter items: In October, the Bank settled Florida tax matters for 2009–2019 and recorded a $43.9 million tax benefit, net of federal impact. It also expected an approximately $25 million Q4 tax benefit from expiration of certain statutes of limitation. In October, the Board authorized up to $150 million of additional share repurchases, alongside $58.3 million remaining under the prior program at September 30.
- Management said legal proceedings were not expected to have a material impact and reported no material change in previously disclosed risk factors. Disclosure controls were concluded to be effective.
Important facts for investors to verify
- Whether improving commercial credit quality and economic assumptions support the reduced ACL, and how deferral expirations affect subsequent delinquencies, charge-offs and non-performing loans.
- Whether commercial loan production recovers as management expected, and whether residential growth and securities deployment can sustain net interest income and margin.
- The performance and concentration risks of commercial real estate, including hotel and rent-regulated multifamily exposures, and the sizable uninsured deposit base.
- The timing and final amount of the disclosed tax benefits, and the effect of continuing share repurchases on capital and per-share measures.
- Whether reported liquidity and regulatory capital remain adequate under changing deposit, funding-cost and interest-rate conditions.