BankUnited, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; filed February 20, 2024. BankUnited is a bank holding company operating through BankUnited, N.A., with $35.8 billion in consolidated assets. Its relationship-focused commercial and small-business banking franchise is concentrated in Florida and the New York tri-state area, with additional operations in Texas and nationally.
Financial performance and condition
- Earnings: 2023 net income was $178.7 million, or $2.38 per diluted share, versus $285.0 million, or $3.54, in 2022. Return on average assets was 0.49% and return on average equity was 7.01%.
- Fourth quarter: Net income was $20.8 million, or $0.27 per diluted share, versus $64.2 million, or $0.82, in fourth-quarter 2022. Fourth-quarter non-interest expense included a $35.4 million FDIC special assessment.
- Revenue and margins: GAAP net interest income before credit-loss provision was $873.8 million, down from $913.0 million in 2022. Tax-equivalent net interest margin was 2.56%, compared with 2.68%. Management reported sequential margin expansion to 2.60% in fourth-quarter 2023. Average earning-asset yield rose to 5.39%, while average total deposit cost increased to 2.55% from 0.65%.
- Credit costs and asset quality: Provision for credit losses was $87.6 million, compared with $75.2 million in 2022. The allowance for credit losses was $202.7 million, or 0.82% of loans, versus $147.9 million, or 0.59%. Net charge-offs were 0.09% of average loans, down from 0.22%; non-performing assets were $130.6 million, or 0.37% of assets, compared with $107.0 million, or 0.29%.
- Balance sheet: Total assets were $35.8 billion, down from $37.0 billion. Loans were $24.6 billion, versus $24.9 billion; core C&I and CRE balances grew by $719 million while residential loans declined by $692 million. Deposits fell $971 million to $26.5 billion. Non-interest-bearing deposits declined $1.2 billion.
- Cash flow: Net cash provided by operating activities was $657.5 million, compared with $1.29 billion in 2022. Cash and cash equivalents ended the year at $588.3 million. Management attributed the lower operating cash flow primarily to derivative settlement fluctuations, lower early-buyout loan resecuritizations, and income-tax payment timing.
- Liquidity and funding: Same-day available liquidity was $13.6 billion. Available liquidity was 152% of estimated uninsured, uncollateralized deposits, and 66% of deposits were estimated insured or collateralized. FHLB advances were $5.1 billion at year-end; the company reported $4.6 billion of available FHLB capacity and $7.4 billion of unused Federal Reserve capacity.
- Debt and capital: Notes and other borrowings totaled $709.0 million, including senior notes due 2025 and subordinated notes due 2030. Consolidated CET1 was 11.4%; pro forma CET1 including AOCI was 10.0%. The company and Bank were categorized as well-capitalized. Stockholders’ equity was $2.58 billion.
- Shareholder returns: The company paid $1.08 per share in 2023 dividends, up from $1.00 in 2022, and repurchased approximately 1.6 million shares for $55.0 million. Book value per share was $34.66; tangible book value per share was $33.62.
Material changes versus 2022
- Net income declined by about 37%, reflecting margin pressure, higher funding costs, increased provision expense and the FDIC special assessment.
- Interest income rose substantially as assets repriced at higher rates, but interest expense increased faster, driven by deposit repricing and greater use of FHLB funding. The unfavorable funding mix reduced annual net interest margin.
- Year-end deposits declined, with a shift from non-maturity and non-interest-bearing balances toward time deposits. Average FHLB advances increased year over year, although management reported paying down $2.4 billion after March 2023 and reducing wholesale funding in the second half.
- The loan mix shifted toward core commercial lending and away from residential mortgages and investment securities. Criticized and classified commercial loans increased to $1.14 billion from $740.5 million.
- Unrealized losses on available-for-sale securities improved: the net pre-tax loss was $534.8 million at year-end, compared with $674.2 million in 2022. Management attributed the losses primarily to interest rates and stated it did not expect to sell securities to meet liquidity needs.
- Non-interest expense rose to $636.0 million from $540.3 million, notably due to the FDIC assessment and increased depositor rebate and commission program costs.
Outlook, risks and unusual items
- No specific earnings or balance-sheet guidance is provided. Near-term priorities are to grow core deposits, reduce higher-cost wholesale funding, improve asset mix and net interest margin, maintain liquidity and capital, manage credit, and control expense growth.
- Management said deposit flows and market conditions had stabilized considerably after the early-2023 regional bank turmoil; loan and deposit pipelines were described as healthy. It noted uncertainty remains around monetary policy, economic conditions and banking regulation.
- Credit risks include rising operating costs and interest rates, CRE refinancing pressures, office vacancy and valuation uncertainty, and increased criticized/classified assets. CRE was 23.6% of loans; office loans totaled $1.8 billion. Management reported a 56.0% weighted-average CRE LTV and 1.80 weighted-average DSCR.
- Other key risks include competition for deposits, uninsured commercial deposits and rapid deposit outflows, interest-rate and liquidity exposure, geographic concentration in Florida and the New York tri-state area, and operational, cybersecurity, regulatory and climate-related risks.
- The $35.4 million FDIC special assessment was recorded in fourth-quarter 2023; the FDIC expected to collect the assessment over eight quarterly periods beginning in 2024. Further deposit-insurance cost increases remain possible.
- Management said ordinary-course legal proceedings are not expected to have a material adverse effect. The independent auditor issued an unqualified opinion on the financial statements and internal controls; the allowance for credit losses was identified as a critical audit matter.
Important facts for investors to verify
- Whether deposit balances and mix continue to improve, and whether wholesale funding and deposit costs decline as intended.
- Trends in net interest margin and earnings as rates, deposit pricing and balance-sheet composition change.
- Performance of criticized and classified loans, especially office and other CRE exposures, and whether the allowance remains adequate.
- Liquidity availability under stress, including the usability of pledged collateral and Federal Reserve and FHLB borrowing capacity; review uninsured and large-depositor concentrations.
- Effects of the FDIC assessment and other expense pressures on future profitability, and the sustainability of dividends and repurchases within regulatory capital constraints.
- Reconciliation of reported liquidity and capital measures, including pro forma CET1 with AOCI, to the company’s filings and applicable regulatory definitions.