BankUnited, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021 unless stated otherwise. BankUnited is a national bank holding company operating primarily in Florida and the New York metropolitan area, with commercial lending and deposit platforms serving customers nationally.
Financial results and key metrics
| Metric | Q1 2022 | Comparable period / change |
|---|---|---|
| Net income | $67.2 million; diluted EPS $0.79 | $98.8 million; $1.06 diluted EPS in Q1 2021 |
| Net interest income, GAAP | $208.6 million | $196.2 million in Q1 2021 |
| Net interest income, tax-equivalent | $212.3 million | $200.4 million in Q1 2021; $209.8 million in Q4 2021 |
| Net interest margin, tax-equivalent | 2.50% | 2.39% in Q1 2021; 2.44% in Q4 2021 |
| Return on average assets / equity | 0.76% / 9.0%, annualized | Not provided here on a comparable basis |
| Total assets | $36.33 billion | $35.82 billion at year-end 2021 |
| Total loans / loans, net | $23.37 billion / $23.24 billion | $23.77 billion / $23.64 billion at year-end 2021 |
| Total deposits | $28.54 billion | $29.44 billion at year-end 2021 |
| Allowance for credit losses (ACL) | $125.4 million; 0.54% of loans | $126.5 million; 0.53% at year-end 2021 |
| Cash and cash equivalents | $697.5 million | $314.9 million at year-end 2021 |
| Stockholders’ equity | $2.86 billion | $3.04 billion at year-end 2021 |
Interest expense declined to $27.3 million from $49.2 million in Q1 2021, supporting higher net interest income despite lower interest income. Total non-interest income was $14.3 million, down from $30.3 million, including a $10.5 million unrealized loss on marketable equity securities and an $0.8 million net loss on loan sales. Non-interest expense rose to $126.3 million from $123.2 million, primarily reflecting higher employee compensation and technology costs. The provision for credit losses was $7.8 million versus a $28.0 million recovery in Q1 2021.
Operating cash flow was $457.3 million, compared with $386.4 million in Q1 2021. Investing activities used $579.6 million, while financing activities provided $505.0 million. The company repurchased 1.9 million shares for $82.1 million and paid $19.9 million in dividends during the quarter.
At March 31, total borrowings included $3.40 billion of FHLB advances, $199 million of federal funds purchased, and $721 million of notes and other borrowings. The FHLB balance increased $1.49 billion during the quarter. The company and the Bank exceeded regulatory well-capitalized thresholds: holding-company CET1 and total risk-based capital ratios were 12.53% and 14.25%; Bank ratios were 14.52% and 14.98%, respectively.
Material changes and management commentary
- Net income fell year over year, chiefly reflecting the prior-year credit-loss recovery and lower non-interest income; Q1 2022 also included higher credit-loss provision. Q4 2021 earnings were affected by a $69.1 million discrete tax benefit and a $44.8 million pre-tax loss from discontinued hedges, complicating sequential comparisons.
- Net interest margin expanded year over year and sequentially as funding costs fell. Average deposit cost was 0.17%, versus 0.33% in Q1 2021. Management noted that deposit outflows were concentrated in accounts expected to be price-sensitive as rates rise.
- Deposits declined by $897 million, but non-interest-bearing demand deposits grew $688 million and reached 34% of deposits, versus 30% at year-end. Loans declined $395 million overall; excluding PPP runoff, they declined $227 million. Residential and other consumer loans grew, while mortgage warehouse lending fell $391 million as refinancing slowed.
- Criticized and classified loans declined $280 million during the quarter. Non-performing loans fell to $150.8 million, or 0.65% of loans, from $205.9 million, or 0.87%, at year-end. Management said it would expect criticized and classified loans to continue declining if the recovery follows its current expectations, while noting economic uncertainty could interrupt that trend.
- Available-for-sale securities had a $235.3 million net unrealized loss at quarter-end, largely attributed to rising rates and widening spreads. AOCI declined $141.8 million during Q1. Management reported no credit impairment, did not intend to sell securities in significant loss positions, and did not expect to be required to sell them before recovery of amortized cost.
- Liquidity measures were above policy thresholds: available liquidity to volatile liabilities was 309% and the liquidity stress-test ratio was 188%. Management stated liquidity needs over the next 12 months were expected to be met from available funding sources. The Bank and holding company reported capital above regulatory requirements.
Outlook, risks, and contingencies
The filing provides no specific earnings or revenue guidance. Management described ongoing monitoring of COVID-19 effects, inflation, geopolitical events, rising interest rates, and the evolving economic outlook. The ACL estimate uses a two-year reasonable-and-supportable forecast and remains subject to substantial judgment; management cautioned that future ACL levels could change materially in either direction. Commercial lending and securities results are exposed to economic conditions, borrower performance, property values, interest rates, deposit competition, and market liquidity. The filing identifies possible adverse effects from the Russia-Ukraine conflict and related sanctions, cyber risks, or further escalation.
Outstanding lending-related commitments totaled $5.07 billion, primarily unfunded lines of credit. Management considered the likelihood of material impact from legal proceedings remote. The filing also discloses interest-rate and LIBOR-transition risks; $16.26 billion of instruments referenced LIBOR at quarter-end, with SOFR identified as the preferred alternative rate.
Important facts for investors to verify
- Whether deposit balances and mix remain resilient as rates rise, especially given the $19.8 billion estimated uninsured deposit balance and reported price-sensitive outflows.
- How net interest margin and funding costs respond to rate changes, deposit repricing, and the mix of FHLB funding.
- Whether unrealized securities losses remain non-credit-related and whether liquidity conditions permit the company to hold affected securities until recovery.
- Trends in criticized and classified loans, non-performing assets, mortgage warehouse utilization, and the adequacy of the ACL under changing economic assumptions.
- The effects of share repurchases and dividends on capital, including the May 2022 authorization for an additional $150 million of repurchases.