BankUnited, Inc. Reports 2023 Results

BankUnited, Inc. (the "Company") (NYSE:BKU) today announced financial results for the quarter and year ended December 31, 2023.

"We finished the year with continued improvement on both sides of our balance sheet, expanding margin and strong credit performance. We are benefiting from a strong economy in our primary market and are looking forward to 2024 with great optimism," said Rajinder Singh, Chairman, President and Chief Executive Officer.

For the quarter ended December 31, 2023, the Company reported net income of $20.8 million, or $0.27 per diluted share, compared to $47.0 million, or $0.63 per diluted share, for the immediately preceding quarter ended September 30, 2023 and $64.2 million, or $0.82 per diluted share, for the quarter ended December 31, 2022. For the year ended December 31, 2023, the Company reported net income of $178.7 million, or $2.38 per diluted share, compared to $285.0 million, or $3.54 per diluted share, for the year ended December 31, 2022. Results for the quarter ended December 31, 2023 were negatively impacted by $41.8 million of notable items impacting income before taxes, related to the FDIC special assessment and a loss on sale of operating lease equipment as detailed below.

Quarterly Highlights

• Two notable items totaling $41.8 million impacted income before income taxes for the quarter ended December 31, 2023 (in thousands):

The loss on sale of operating lease equipment of $6.5 million compares to a gain of $4.2 million on sale of operating lease equipment in the immediately preceding quarter, for a variance of $10.7 million.

• We continued to execute on near-term strategic priorities this quarter:
  • The net interest margin, calculated on a tax-equivalent basis, expanded this quarter to 2.60% from 2.56% for the immediately preceding quarter.
  • Non-brokered deposits grew by $604 million for the quarter ended December 31, 2023. Total deposits grew by $426 million.
  • Non-interest bearing deposits declined by $521 million for the quarter, to 26% of total deposits at December 31, 2023, from 28% at September 30, 2023. On an average basis, non-interest bearing deposits were relatively flat to the prior quarter, declining by only $28.5 million. Most of the period-end decline was attributable to quarter-end outflows related to seasonality in the residential real estate sector, impacting our title solutions vertical and other mortgage related deposits.
  • Residential loans declined by $172 million for the quarter, while our core C&I and commercial real estate portfolios grew by a total of $476 million. Since December 31, 2022, residential loans have declined by $692 million.
  • The amortized cost of the investment securities portfolio declined by $106 million during the quarter ended December 31, 2023 and has declined by $959 million since December 31, 2022.
  • Wholesale funding, including FHLB advances and brokered deposits, declined by $228 million for the quarter. We have paid down FHLB advances by $2.4 billion since March 31, 2023.
  • Liquidity remains ample. Total same day available liquidity was $13.6 billion, the available liquidity to uninsured, uncollateralized deposits ratio was 152% and an estimated 66% of our deposits were insured or collateralized at December 31, 2023.
  • Our capital position is robust. At December 31, 2023, CET1 was 11.4% at a consolidated level. Pro-forma CET1, including accumulated other comprehensive income, was 10.0% at December 31, 2023. The ratio of tangible common equity/tangible assets increased to 7.0% at December 31, 2023.
• For the quarter ended December 31, 2023, the provision for credit losses was $19.3 million compared to $33.0 million for the immediately preceding quarter. The ratio of the ACL to total loans increased to 0.82% at December 31, 2023, from 0.80% at September 30, 2023.
• The net charge-off ratio for the year ended December 31, 2023 was 0.09%. NPAs remained low, totaling $130.6 million at December 31, 2023, down from $140.5 million at September 30, 2023. The NPA ratio at December 31, 2023 declined to 0.37%, including 0.12% related to the guaranteed portion of non-performing SBA loans, from 0.40%, including 0.11% related to the guaranteed portion of non-performing SBA loans at September 30, 2023.
• As expected in the current macro-environment, the average cost of total deposits increased to 2.96% for the quarter ended December 31, 2023 from 2.74% for the immediately preceding quarter. This increase of 0.22% was smaller than the 0.28% increase in the cost of deposits for the quarter ended September 30, 2023, continuing the trend of a declining rate of increase in deposit costs. The yield on average interest earning assets increased to 5.70% for the quarter ended December 31, 2023 from 5.52% for the immediately preceding quarter.
• Our commercial real estate exposure is modest. Commercial real estate loans totaled 23.6% of loans at December 31, 2023, representing 169% of the Bank's total risk based capital. At December 31, 2023, the weighted average LTV of the CRE portfolio was 56.0% and the weighted average DSCR was 1.80. 58% of the portfolio was secured by collateral properties located in Florida and 25% was secured by properties in the New York tri-state area.
• We remain committed to keeping the duration of our securities portfolio short; the duration of the available for sale securities portfolio was 1.96 at December 31, 2023. Held to maturity securities were not significant.
• The net unrealized pre-tax loss on the securities portfolio improved by $109 million for the quarter ended December 31, 2023, now representing 6% of amortized cost. AOCI improved by $50 million.
• Book value and tangible book value per common share continued to grow, to $34.66 and $33.62, respectively, at December 31, 2023, compared to $33.92 and $32.88, respectively, at September 30, 2023 and $32.19 and $31.16, respectively, at December 31, 2022.

Loans

A comparison of loan portfolio composition at the dates indicated follows (dollars in thousands):

Consistent with our balance sheet strategy, for the quarter ended December 31, 2023, residential loans declined by $172 million, while C&I grew by $399 million, CRE grew by $77 million and MWL grew by $25 million. Franchise, equipment and municipal finance declined by $52 million in aggregate.

Asset Quality and the Allowance for Credit Losses ("ACL")

The following table presents the ACL and related ACL coverage ratios at the dates indicated and net charge-off rates for the periods ended December 31, 2023, September 30, 2023 and December 31, 2022 (dollars in thousands):

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(1) Annualized for the nine months ended September 30, 2023.

The ACL at December 31, 2023 represents management's estimate of lifetime expected credit losses given an assessment of historical data, current conditions, and a reasonable and supportable economic forecast as of the balance sheet date. For the quarter ended December 31, 2023, the provision for credit losses was $19.3 million, including $16.3 million related to funded loans. Factors impacting the provision for credit losses and increase in the ACL for the quarter ended December 31, 2023 included the shift in balance sheet composition toward commercial loan categories that typically carry higher reserves and risk rating migration.

The following table summarizes the activity in the ACL for the periods indicated (in thousands):

Non-performing loans totaled $127.0 million or 0.52% of total loans at December 31, 2023, compared to $136.9 million or 0.56% of total loans at September 30, 2023. Non-performing loans included $41.8 million and $37.8 million of the guaranteed portion of SBA loans on non-accrual status, representing 0.17% and 0.16% of total loans at December 31, 2023 and September 30, 2023, respectively.

The following table presents criticized and classified commercial loans at the dates indicated (in thousands):

The increase in the substandard accruing category for the quarter ended December 31, 2023 included $74 million of C&I and $118 million of CRE. All of these loans are performing. The substantial majority of the increase was attributable to a small number of loans. Increasing operating costs, including insurance and interest costs, and higher vacancy rates for some office properties were contributing factors.

Net Interest Income

Net interest income for the quarter ended December 31, 2023 was $217.2 million, compared to $214.8 million for the immediately preceding quarter ended September 30, 2023 and $243.1 million for the quarter ended December 31, 2022. Interest income increased by $12.7 million for the quarter ended December 31, 2023 compared to the immediately preceding quarter, while interest expense increased by $10.3 million.

The Company's net interest margin, calculated on a tax-equivalent basis, increased by 0.04% to 2.60% for the quarter ended December 31, 2023, from 2.56% for the immediately preceding quarter ended September 30, 2023. Factors impacting the net interest margin for the quarter ended December 31, 2023 were:

• The tax-equivalent yield on loans increased to 5.69% for the quarter ended December 31, 2023, from 5.54% for the quarter ended September 30, 2023. This increase reflects the origination of new loans at higher rates, re-positioning of the portfolio and to a lesser extent, the resetting of variable rate loans to higher coupon rates.
• The tax-equivalent yield on investment securities increased to 5.73% for the quarter ended December 31, 2023, from 5.48% for the quarter ended September 30, 2023. Factors leading to this increase included the reset of coupon rates on variable rate securities and retrospective accounting adjustments related to prepayment speeds on certain securities.
• The average cost of interest bearing deposits increased to 4.04% for the quarter ended December 31, 2023 from 3.76% for the quarter ended September 30, 2023, a continuing response to the higher interest rate environment.
• The reduction in the proportion of total funding comprised of more expensive wholesale funding also contributed to the increase in the net interest margin.

Non-interest income and Non-interest expense

Non-interest income totaled $17.1 million for the quarter ended December 31, 2023, compared to $27.7 million for the quarter ended September 30, 2023. The decrease compared to the quarter ended September 30, 2023 was primarily attributable to a $6.5 million loss on sale of lease equipment during the quarter ended December 31, 2023 compared to a $4.2 million gain on sale of lease equipment during the prior quarter.

Non-interest expense totaled $190.9 million for the quarter ended December 31, 2023, compared to $147.1 million for the immediately preceding quarter ended September 30, 2023. The increase over the prior quarter was primarily attributable to a $35.4 million FDIC special assessment recorded during the quarter ended December 31, 2023. The increase in compensation and benefits for the quarter ended December 31, 2023 compared to the immediately preceding quarter primarily resulted from an increase in the Company's stock price, impacting the value of liability-classified share based compensation awards.

Earnings Conference Call and Presentation

A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Friday, January 26, 2024 with Chairman, President and Chief Executive Officer, Rajinder P. Singh, Chief Financial Officer, Leslie N. Lunak and Chief Operating Officer, Thomas M. Cornish.

The earnings release and slides with supplemental information relating to the release will be available on the Investor Relations page under About Us on www.bankunited.com prior to the call. Due to recent demand for conference call services, participants are encouraged to listen to the call via a live Internet webcast at https://ir.bankunited.com. To participate by telephone, participants will receive dial-in information and a unique PIN number upon completion of registration at https://register.vevent.com/register/BI50a5352f746b4dc890465ca3d32e6db9. For those unable to join the live event, an archived webcast will be available in the Investor Relations page at https://ir.bankunited.com approximately two hours following the live webcast.

About BankUnited, Inc.

BankUnited, Inc., with total assets of $35.8 billion at December 31, 2023, is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida that provides a full range of banking and related services to individual and corporate customers through banking centers located in the state of Florida, the New York metropolitan area and Dallas, Texas, and a comprehensive suite of wholesale products to customers through an Atlanta office focused on the Southeast region. BankUnited also offers certain commercial lending and deposit products through national platforms. For additional information, call (877) 779-2265 or visit www.BankUnited.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company's current views with respect to, among other things, future events and financial performance.

The Company generally identifies forward-looking statements by terminology such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "could," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," "forecasts" or the negative version of those words or other comparable words. Any forward-looking statements contained in this press release are based on the historical performance of the Company and its subsidiaries or on the Company's current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations contemplated by the Company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, including (without limitation) those relating to the Company's operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the Company's direct control, such as but not limited to adverse events or conditions impacting the financial services industry. If one or more of these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, the Company's actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K, which are available at the SEC's website (www.sec.gov).

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Non-GAAP Financial Measures

Tangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capital position and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful basis for comparison to other financial institutions as it is a metric commonly used in the banking industry. The following table reconciles the non-GAAP financial measurement of tangible book value per common share to the comparable GAAP financial measurement of book value per common share at the dates indicated (in thousands except share and per share data):

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