BankUnited, Inc. Reports 2020 Results

MIAMI LAKES, Fla.–(BUSINESS WIRE)–BankUnited, Inc. (the “Company”) (NYSE: BKU) today announced financial results for the quarter and year ended December 31, 2020.

“Overall, this was an excellent quarter. We saw improvement in the economic outlook leading to a reduction in credit costs and continued to execute on our core strategy of improving the deposit mix, lowering the cost of funds and growing net interest income,” said Rajinder Singh, Chairman, President and Chief Executive Officer.

For the quarter ended December 31, 2020, the Company reported net income of $85.7 million, or $0.89 per diluted share, compared to $66.6 million, or $0.70 per diluted share, for the immediately preceding quarter ended September 30, 2020 and $89.5 million, or $0.91 per diluted share, for the quarter ended December 31, 2019. On an annualized basis, earnings for the quarter ended December 31, 2020 generated a return on average stockholders’ equity of 11.6% and a return on average assets of 0.96%.

For the year ended December 31, 2020, the Company reported net income of $197.9 million, or $2.06 per diluted share, compared to $313.1 million, or $3.13 per diluted share, for the year ended December 31, 2019. Results for the year ended December 31, 2020 were negatively impacted by the application of the Current Expected Credit Losses (“CECL”) accounting methodology, including the impact of COVID-19 on the provision for credit losses.

Financial Highlights

• Net interest income increased by $5.9 million compared to the immediately preceding quarter ended September 30, 2020 and by $8.1 million compared to the quarter ended December 31, 2019. The net interest margin, calculated on a tax-equivalent basis, was 2.33% for the quarter ended December 31, 2020 compared to 2.32% for the immediately preceding quarter. The net interest margin was 2.41% for the quarter ended December 31, 2019.
• The average cost of total deposits continued to decline, dropping by 0.14% to 0.43% for the quarter ended December 31, 2020 compared to 0.57% for the quarter ended September 30, 2020. The average cost of total deposits was 1.48% for the quarter ended December 31, 2019. On a spot basis, the average annual percentage yield (“APY”) on total deposits declined to 0.36% at December 31, 2020 from 0.49% at September 30, 2020 and 1.42% at December 31, 2019.
• For the quarter ended December 31, 2020, the Company recorded a net recovery of credit losses of $1.6 million compared to a provision for credit losses of $29.2 million for the immediately preceding quarter ended September 30, 2020. The reduction in the provision for credit losses reflected improvements in forecasted economic conditions, which offset the impact of some further downward risk rating migration and increases in specific reserves. The provision for credit losses was $178.4 million for the year ended December 31, 2020. At December 31, 2020, the allowance for credit losses (“ACL”) was $257 million, or 1.08% of the loan portfolio, compared to $274 million, or 1.15% at September 30, 2020. The reduction in the ACL as a percentage of loans was attributable primarily to charge-offs taken during the quarter, coupled with the lower provision for credit losses.
• Pre-tax, pre-provision net revenue (“PPNR”) was $105.3 million for the quarter ended December 31, 2020 compared to $104.1 million for the quarter ended December 31, 2019 and $115.1 million for the immediately preceding quarter ended September 30, 2020. PPNR for the quarter ended December 31, 2020 was impacted by year-end adjustments to certain compensation accruals. For the year ended December 31, 2020, PPNR improved to $427.8 million from $412.9 million for the year ended December 31, 2019.
• Average non-interest bearing demand deposits grew by $966 million for the quarter ended December 31, 2020 compared to the immediately preceding quarter and by $2.9 billion compared to the quarter ended December 31, 2019. At December 31, 2020, non-interest bearing demand deposits represented 25% of total deposits, compared to 18% of total deposits at December 31, 2019. Total deposits grew by $899 million and $3.1 billion during the quarter and year ended December 31, 2020, respectively, of which $219 million and $2.7 billion respectively was non-interest bearing. Higher cost time deposits continued to runoff, declining by $1.1 billion and $2.5 billion for the quarter and year ended December 31, 2020, respectively.
• Loans on deferral totaled $207 million or less than 1% of total loans at December 31, 2020. Loans modified under the CARES Act totaled $587 million at December 31, 2020. In the aggregate, this represents $794 million or 3% of the total loan portfolio at December 31, 2020, down from $3.6 billion or 15% of total loans that were granted an initial 90 day deferral as reported at the end of the second quarter. As of December 31, 2020, commercial loans on short-term payment deferral totaled $63 million and commercial loans subject to CARES Act modifications totaled $575 million or 3% of the total commercial portfolio. Residential loans still on deferral were $144 million and those modified under the CARES Act were $12 million, for a total of $156 million or 2% of the residential portfolio at December 31, 2020.
• Book value per common share and tangible book value per common share at December 31, 2020 increased to $32.05 and $31.22, respectively, from $31.01 and $30.17, respectively at September 30, 2020 and $31.33 and $30.52, respectively at December 31, 2019.

• On January 20, 2021, the Company’s Board of Directors reinstated the share repurchase program that the Company suspended on March 16, 2020. Authorization to repurchase up to approximately $44.9 million in shares of its outstanding common stock remains under the share repurchase program. Any repurchases under the program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, the Company’s capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time

Loans and Leases

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

Growth in residential and other consumer loans for the quarter was mainly attributable to GNMA early buyout loans. At December 31, 2020, September 30, 2020 and December 31, 2019, the residential portfolio included $1.4 billion, $1.1 billion and $676 million, respectively, of GNMA early buyout loans. Residential activity for the quarter included purchases of approximately $472 million in GNMA early buyout loans, offset by approximately $142 million in re-poolings and paydowns. Residential and other consumer loans, excluding GNMA early buyout loans, grew by approximately $77 million.

In the aggregate, commercial loans declined by $321 million for the quarter ended December 31, 2020 as the environment remained challenging for production and our approach to new lending remained disciplined. The largest decline was in the multi-family segment which decreased by $171 million for the quarter, driven primarily by $151 million in runoff of the New York portfolio. Loans and operating lease equipment at Bridge declined by a total of $124 million during the quarter.

During the quarter ended December 31, 2020, the Company began processing forgiveness applications with the SBA, resulting in a $48 million decline in PPP loans.

Mortgage warehouse commitments totaled $2.1 billion at December 31, 2020, an increase of 60% compared to $1.3 billion at December 31, 2019. Line utilization was 62% at December 31, 2020 compared to 59% at December 31, 2019.

Asset Quality and the Allowance for Credit Losses

The following table presents information about non-performing loans, loans on deferral and CARES Act modifications at December 31, 2020 (dollars in thousands):

In the table above, “currently under short-term deferral” refers to loans subject to either a first or second 90-day payment deferral at December 31, 2020 and “CARES Act modification” refers to loans subject to longer-term modifications that, were it not for the provisions of the CARES Act, would likely have been reported as TDRs. Non-performing loans may include some loans that have been modified under the CARES Act.

Non-performing loans totaled $244.5 million or 1.02% of total loans at December 31, 2020, compared to $200.3 million or 0.84% of total loans at September 30, 2020 and $204.8 million or 0.88% of total loans at December 31, 2019. The largest increases in non-performing loans during the quarter ended December 31, 2020 were in the multi-family, franchise finance and residential sub-segments, while non-performing commercial and industrial loans declined. Non-performing loans included $51.3 million, $43.6 million and $45.7 million of the guaranteed portion of SBA loans on non-accrual status, representing 0.22%, 0.18% and 0.20% of total loans at December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

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

The following table presents the ACL at the dates indicated, related ACL coverage ratios, as well as net charge-off rates for the years ended December 31, 2020 and 2019 (dollars in thousands):

The ACL at December 31, 2020 represents management’s estimate of lifetime expected credit losses from the loan portfolio given our assessment of historical data, current conditions and a reasonable and supportable economic forecast as of the balance sheet date. The estimate was informed by Moody’s economic scenarios published in December 2020, economic information provided by additional sources, data reflecting the impact of recent events on individual borrowers and other relevant information. The decline in the ACL from September 30, 2020 to December 31, 2020 related primarily to charge-offs taken during the quarter, coupled with the lower provision for credit losses.

For the quarter ended December 31, 2020, the Company recorded a net recovery of credit losses of $1.6 million, which included a provision of $1.2 million related to funded loans offset by a recovery of $2.9 million related to unfunded loan commitments as well as immaterial components related to accrued interest receivable and an AFS debt security. The provision for credit losses reflected improvements in forecasted economic conditions, which largely offset the impact of risk rating migration and increases in certain specific reserves.

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

$13.8 million of the charge-offs recognized during the quarter ended December 31, 2020 related to $57.6 million of non-performing loans that were sold during the quarter, or held for sale at quarter-end.

Net interest income

Net interest income for the quarter ended December 31, 2020 was $193.4 million compared to $187.5 million for the immediately preceding quarter ended September 30, 2020 and $185.3 million for the quarter ended December 31, 2019. While average interest earning assets have increased quarter-over-quarter and year-over-year, average interest bearing liabilities have continued to decline as average non-interest bearing demand deposits have grown.

Interest income decreased by $3.5 million for the quarter ended December 31, 2020 compared to the immediately preceding quarter, and by $58.3 million, compared to the quarter ended December 31, 2019. Interest expense decreased by $9.3 million compared to the immediately preceding quarter and by $66.3 million compared to the quarter ended December 31, 2019. Decreases in interest income resulted from declines in market interest rates including the impact of repayment of assets originated in a higher rate environment, partially offset by increases in average interest earning assets. Declines in interest expense reflected decreases in market interest rates, the impact of our strategy focused on lowering the cost of deposits and improving the deposit mix and declines in average interest bearing liabilities.

The Company’s net interest margin, calculated on a tax-equivalent basis, increased by 0.01% to 2.33% for the quarter ended December 31, 2020, from 2.32% for the immediately preceding quarter ended September 30, 2020. Offsetting factors contributing to the increase in the net interest margin for the quarter ended December 31, 2020 compared to the immediately preceding quarter ended September 30, 2020 included:

• The average rate paid on interest bearing deposits decreased to 0.58% for the quarter ended December 31, 2020, from 0.75% for the quarter ended September 30, 2020. This decline reflected continued initiatives taken to lower rates paid on deposits in response to declines in general market interest rates and the re-pricing of term deposits. We expect the cost of interest bearing deposits to continue to decline; at December 31, 2020, approximately $1.0 billion or 21% of the time deposit portfolio, with an average rate of 1.61%, has not yet repriced since March 2020 when the Fed last cut rates. The majority of these CDs will mature in the first quarter of 2021.
• The tax-equivalent yield on investment securities decreased to 1.82% for the quarter ended December 31, 2020 from 2.00% for the quarter ended September 30, 2020. This decrease resulted from the impact of purchases of lower-yielding securities, prepayments of higher yielding mortgage-backed securities and decreases in coupon interest rates on existing floating rate assets.
• The tax-equivalent yield on loans decreased to 3.55% for the quarter ended December 31, 2020, from 3.61% for the quarter ended September 30, 2020. Factors contributing to this decrease included the impact of runoff of loans originated in a higher rate environment, originations at lower prevailing market rates and interest income reversed on loans placed on non-accrual during the quarter.
• The average rate paid on FHLB and PPPLF borrowings increased to 2.07% for the quarter ended December 31, 2020, from 1.95% for the quarter ended September 30, 2020, reflecting the maturity of short-term, lower rate FHLB advances and the payoff of all PPPLF borrowings.
• The increase in average non-interest bearing demand deposits as a percentage of average total deposits also positively impacted the cost of total deposits and the net interest margin.

The Company’s net interest margin, calculated on a tax-equivalent basis, was 2.35% for the year ended December 31, 2020, compared to 2.47% for the year ended December 31, 2019. The decline in the yield on interest earning assets outpaced the reduction in cost of interest bearing liabilities for the period. The offsetting factors discussed above with respect to the yields on loans and securities, the average rate paid on deposits and the growth in non-interest bearing demand deposits also impacted the net interest margin for the year ended December 30, 2020 compared to the prior year. Declines in market interest rates had a significant impact on year-over-year changes in yields earned on interest earning assets and rates paid on interest bearing liabilities.

Non-interest expense

Non-interest expense totaled $123.3 million for the quarter ended December 31, 2020 compared to $108.6 million for the immediately preceding quarter ended September 30, 2020 and $119.0 million for the quarter ended December 31, 2019. Non-interest expense totaled $457.2 million and $487.1 million for the year ended December 31, 2020 and 2019, respectively, a decline of approximately 6%.

• Compensation and benefits increased by $12.5 million for the quarter ended December 31, 2020 compared to the immediately preceding quarter. This increase included an increase of $6.6 million in variable compensation accruals related to stronger than initially anticipated operating results over the second half of the year; a $2.2 million vacation accrual related to rollover vacation days provided to employees in response to COVID-19; and an increase of $2.5 million in the accrual related to liability classified share awards stemming from an increase in the stock price.
• Cost reductions stemming from our BankUnited 2.0 initiative contributed to the declining trend in occupancy and equipment expense and other non-interest expense.
• The increasing trend in technology and telecommunications expense is reflective of investments in digital and data analytics capabilities and in the infrastructure to support cloud migration.
• The increasing trend in deposit insurance expense reflects an increase in the assessment rate.
• For the quarter and year ended December 31, 2020, non-interest expense included approximately $2.8 million and $4.8 million, respectively, in costs directly related to our response to the COVID-19 pandemic.

   

Earnings Conference Call and Presentation

A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Thursday, January 21, 2021 with Chairman, President and Chief Executive Officer, Rajinder P. Singh, and Chief Financial Officer, Leslie N. Lunak.

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 http://ir.bankunited.com/. The dial in telephone number for the call is (855) 798-3052 (domestic) or (234) 386-2812 (international). The name of the call is BankUnited, Inc. and the conference ID for the call is 9281414. A replay of the call will be available from 12:00 p.m. ET on January 21st through 11:59 p.m. ET on January 28th by calling (855) 859-2056 (domestic) or (404) 537-3406 (international). The conference ID for the replay is 9281414. An archived webcast will also be available on the Investor Relations page of www.bankunited.com.

About BankUnited, Inc.

BankUnited, Inc., with total assets of $35.0 billion at December 31, 2020, is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida with 70 banking centers in 14 Florida counties and 4 banking centers in the New York metropolitan area at December 31, 2020.

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 limitations) those relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by the COVID-19 pandemic. 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.

Contacts

BankUnited, Inc.

Investor Relations:

Leslie N. Lunak, 786-313-1698

llunak@bankunited.com

Read full story here