BankUnited, Inc. — 2017 Form 10-K Summary
Business context and reporting period
BankUnited is a commercially focused regional bank serving Florida and the New York metropolitan area, with additional national lending and deposit platforms. This filing covers the fiscal year ended December 31, 2017; quarterly figures are unaudited. Total assets were $30.3 billion at year-end.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Net interest income | $950.3 million | $870.4 million |
| Provision for loan losses | $68.7 million | $50.9 million |
| Non-interest income | $157.9 million | $106.4 million |
| Non-interest expense | $635.0 million | $590.4 million |
| Net income | $614.3 million | $225.7 million |
| Diluted earnings per share | $5.58 | $2.09 |
| Net interest margin, tax-equivalent | 3.65% | 3.73% |
- Earnings quality: 2017 net income included a $327.9 million discrete tax benefit. Excluding that benefit and related professional fees, management reported adjusted net income of $291.3 million, diluted EPS of $2.65, return on average assets of 1.01% and return on average equity of 11.08%. GAAP returns were 2.13% and 23.36%, respectively.
- Balance sheet and funding: Deposits were $21.9 billion, up $2.4 billion; loans, including premiums and deferred items, were $21.4 billion, up about $2.0 billion. The loan-to-deposit ratio was 98.04%. FHLB advances totaled $4.77 billion; notes and other borrowings were $402.8 million, including $400 million of 4.875% senior notes due 2025. Stockholders’ equity was $3.03 billion.
- Cash flow and liquidity: Operating cash flow was $318.6 million, compared with $308.5 million in 2016. Cash and equivalents ended the year at $194.6 million. Management reported a 173% 30-day liquidity ratio and 154% one-year liquidity ratio; available FHLB borrowing capacity was approximately $4.1 billion.
- Asset quality and capital: Non-performing loans were 0.81% of total loans, versus 0.70% in 2016; net charge-offs were 0.38% of average loans, versus 0.13%. The allowance for loan and lease losses was $144.8 million, or 0.68% of loans. The company’s CET1 ratio was 13.11%; management said the company and bank exceeded “well-capitalized” thresholds.
Material changes versus 2016
- Reported net income rose sharply, primarily because of the one-time tax benefit; adjusted net income excluding the benefit and related fees was $291.3 million.
- Net interest income increased, supported by loan and securities growth, but net interest margin declined 8 basis points to 3.65%. Funding costs rose faster than asset yields, while higher-yielding covered loans continued to run off.
- Non-covered loans and leases, including equipment under operating lease, grew by $2.2 billion. Deposits increased by $2.4 billion.
- Loan-loss provision increased to $68.7 million, including $58.2 million related to taxi medallion loans. The company recorded $56.6 million of taxi medallion charge-offs during 2017.
- The FDIC indemnification asset declined to $295.6 million from $515.9 million. The remaining Single Family Shared-Loss Agreement is scheduled to end in May 2019; management expects to sell substantially all remaining covered assets in 2019.
Outlook, commentary and risks
- Management’s 2018 priorities include growing core deposits, keeping the loan-to-deposit ratio below 100%, organic loan growth across Florida, the Tri-State region and national platforms, and maintaining disciplined underwriting. It expected deposit growth to exceed loan growth in 2018. No specific earnings or revenue guidance was provided.
- Management identified competition for deposits and loans, rising funding costs, continued margin pressure as covered loans run off, and regulatory uncertainty as challenges. It expected the corporate tax-rate change to reduce the effective tax rate to approximately 23%–24%.
- The $327.9 million tax benefit reflects expected federal, state and local refunds and estimated interest. Although the IRS issued advice supporting the company’s position, the audit and refund process had not been finalized, and federal claims remained subject to Joint Committee on Taxation review. The company gave no assurance as to timing or ultimate receipt.
- Taxi medallion lending remains a material credit concern: the $106 million portfolio was entirely on non-accrual at year-end, with values exposed to competition from ride-hailing services. Other key risks include real-estate and geographic concentration, interest-rate and liquidity risk, operational and cybersecurity exposures, and the scheduled end of FDIC loss-sharing protection.
- CECL was expected to take effect for the company in 2020. Management could not yet estimate its impact and warned it could materially increase the allowance and affect earnings and regulatory capital.
- The filing reported that hurricanes Irma and Harvey had not materially affected borrowers’ ability to repay as of year-end, while noting that ultimate effects remained uncertain. Legal proceedings were described as unlikely to have a material impact.
Important facts for investors to verify
- Whether and when the anticipated tax refunds are received, and whether additional tax claims or liabilities arise.
- Underlying earnings excluding the one-time tax benefit, and the sustainability of net interest margin as funding costs rise and covered assets run off.
- Further developments in taxi medallion collateral values, delinquencies, restructurings, charge-offs and reserves.
- Credit trends in commercial real estate, residential lending and equipment leasing, including any delayed hurricane-related effects.
- Execution of deposit-growth and loan-growth plans, liquidity and capital levels, and the financial impact of the 2019 FDIC loss-share termination and CECL adoption.