BankUnited(BKU) - 2023 Q1 - Quarterly Report

FORM 10-Q Registrant Information This section provides BankUnited, Inc.'s fundamental registrant details, including corporate information and common shares outstanding - BankUnited, Inc. is a Delaware-incorporated company headquartered in Miami Lakes, Florida, and is classified as a large accelerated filer[56] Registrant Information | Metric | Data | | :--- | :--- | | Common Shares Outstanding as of April 28, 2023 | 74,406,617 shares | | Common Stock Par Value | $0.01 | | Registered Exchange | New York Stock Exchange | PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements as of March 31, 2023, showing slight asset growth, decreased deposits, increased FHLB advances, and lower net income Consolidated Balance Sheets As of March 31, 2023, total assets increased to $37.19 billion, a slight rise from $37.03 billion on December 31, 2022, while total deposits decreased and FHLB advances significantly increased Consolidated Balance Sheets (Thousands of Dollars) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $37,189,203 | $37,026,712 | | Net Loans | $24,734,102 | $24,738,042 | | Total Deposits | $25,722,898 | $27,509,334 | | FHLB Advances | $7,550,000 | $5,420,000 | | Total Stockholders' Equity | $2,481,394 | $2,435,981 | Consolidated Statements of Income Net income for the three months ended March 31, 2023, was $52.88 million, a 21.2% decrease year-over-year, driven by higher interest expenses and increased provision for credit losses Consolidated Statements of Income (Thousands of Dollars) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Interest Income on Loans | $308,795 | $191,562 | | Interest Expense on Deposits | $133,630 | $11,857 | | Interest Expense on Borrowings | $78,912 | $15,465 | | Provision for Credit Losses | $19,788 | $7,830 | | Net Income | $52,882 | $67,150 | | Basic Earnings Per Share | $0.71 | $0.79 | | Diluted Earnings Per Share | $0.70 | $0.79 | Consolidated Statements of Comprehensive Income Comprehensive income for the three months ended March 31, 2023, was $116.1 million, a significant improvement from a comprehensive loss of $74.61 million in the prior year, primarily due to increased unrealized gains on available-for-sale securities Consolidated Statements of Comprehensive Income (Thousands of Dollars) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Income | $52,882 | $67,150 | | Net Unrealized Gains (Losses) on Available-for-Sale Investment Securities | $74,380 | $(176,958) | | Net Unrealized Gains (Losses) on Derivative Instruments | $(11,159) | $35,199 | | Other Comprehensive Income (Loss) | $63,221 | $(141,759) | | Comprehensive Income (Loss) | $116,103 | $(74,609) | Consolidated Statements of Cash Flows Net cash from operating activities for the three months ended March 31, 2023, significantly decreased to $141.37 million, while net cash from investing activities turned positive, and net cash from financing activities substantially reduced Consolidated Statements of Cash Flows (Thousands of Dollars) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $141,368 | $457,290 | | Net Cash Provided by (Used in) Investing Activities | $96,224 | $(579,622) | | Net Cash Provided by Financing Activities | $93,759 | $504,967 | | Net Increase in Cash and Cash Equivalents | $331,351 | $382,635 | | Cash and Cash Equivalents at End of Period | $903,998 | $697,492 | Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $2.48 billion as of March 31, 2023, with comprehensive income partially offset by common stock repurchases and dividend payments Consolidated Statements of Stockholders' Equity (Thousands of Dollars) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Common Stock | $744 | $757 | | Additional Paid-in Capital | $269,353 | $321,729 | | Retained Earnings | $2,585,981 | $2,551,400 | | Accumulated Other Comprehensive Loss | $(374,684) | $(437,905) | | Total Stockholders' Equity | $2,481,394 | $2,435,981 | | Common Stock Repurchases | $(55,022) | N/A (Repurchased this period) | - The adoption of ASU 2022-02 had a positive impact of $1.336 million on retained earnings[96] Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering accounting policies, earnings per share, investment securities, loans, income taxes, derivatives, equity, fair value, commitments, and deposits Note 1 Basis of Presentation and Summary of Significant Accounting Policies The company operates as a single segment national bank holding company, with recent accounting standard updates impacting credit loss allowance and retained earnings - The company operates with a single operating and reportable segment, with management allocating resources and assessing performance based on the overall company operations[69] - The adoption of ASU 2022-02 resulted in a $1.8 million reduction in the allowance for credit losses and a $1.3 million cumulative impact adjustment to retained earnings[71] - ASU 2023-02, effective after December 15, 2023, is expected to expand the application of the proportional amortization method for tax credit structures, which the company currently uses for all its tax credit investments[72] Note 2 Earnings Per Common Share Basic and diluted earnings per share for the three months ended March 31, 2023, were $0.71 and $0.70, respectively, both lower than the prior year, primarily due to decreased net income Earnings Per Common Share | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Basic Earnings Per Share | $0.71 | $0.79 | | Diluted Earnings Per Share | $0.70 | $0.79 | | Weighted-Average Shares Used for Basic EPS | 73,561,121 | 83,772,066 | | Weighted-Average Shares Used for Diluted EPS | 74,008,702 | 83,909,770 | - 1,190,511 and 1,267,676 potentially dilutive unvested shares were excluded from diluted EPS calculations for the three months ended March 31, 2023, and 2022, respectively, as their inclusion would have been anti-dilutive[103] Note 3 Investment Securities Total investment securities were $9.47 billion as of March 31, 2023, with net unrealized losses on available-for-sale securities improving to $573.7 million, primarily due to interest rate changes Investment Securities (Thousands of Dollars) | Investment Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Available-for-Sale Investment Securities | $9,454,830 | $9,654,443 | | Held-to-Maturity Investment Securities | $10,000 | $10,000 | | Marketable Equity Securities | $68,769 | $90,884 | | Total Investment Securities | $9,533,599 | $9,755,327 | - Net unrealized losses on available-for-sale investment securities were $573.7 million as of March 31, 2023, an improvement from $674.2 million as of December 31, 2022[86] - The company does not intend to sell securities in an unrealized loss position to generate liquidity and expects to recover amortized cost[85] Available-for-Sale Investment Securities by Contractual Maturity (Thousands of Dollars) | Term | Amortized Cost | Fair Value | | :--- | :--- | :--- | | One year or less | $1,399,602 | $1,345,012 | | One year to five years | $5,563,191 | $5,343,463 | | Five years to ten years | $1,811,023 | $1,648,170 | | Ten years or more | $1,254,709 | $1,118,185 | | Total | $10,028,525 | $9,454,830 | Note 4 Loans and Allowance for Credit Losses Total loans were $24.89 billion as of March 31, 2023, with the allowance for credit losses increasing to $158.79 million, driven by deteriorating economic forecasts Loans and Allowance for Credit Losses (Thousands of Dollars) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Loans | $24,892,894 | $24,885,988 | | Allowance for Credit Losses | $(158,792) | $(147,946) | | Net Loans | $24,734,102 | $24,738,042 | - The allowance for credit losses as a percentage of total loans increased from 0.59% on December 31, 2022, to 0.64% on March 31, 2023, primarily due to deteriorating economic forecasts and increased specific reserves[5] Provision for Credit Losses (Thousands of Dollars) | Component of Provision for Credit Losses | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Funded Portion of Loans | $17,595 | $7,446 | | Off-Balance Sheet Credit Exposures | $2,193 | $384 | | Total Provision for Credit Losses | $19,788 | $7,830 | - Total loans 90 days or more past due and still accruing interest were $439 million as of March 31, 2023, with the vast majority being government-guaranteed residential loans[12] Note 5 Income Taxes The company's effective income tax rate was 26.4% for the three months ended March 31, 2023, higher than the prior year, mainly due to state income taxes Income Tax Rates | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Effective Income Tax Rate | 26.4% | 24.4% | | Statutory Federal Income Tax Rate | 21% | 21% | Note 6 Derivative Financial Instruments The company uses derivatives like interest rate swaps, caps, and floors for cash flow and fair value hedging to manage interest rate risk Derivative Instruments Notional Amounts (Thousands of Dollars) | Derivative Type | March 31, 2023 Notional Amount | December 31, 2022 Notional Amount | | :--- | :--- | :--- | | Total Cash Flow Hedges | $2,175,000 | $2,395,000 | | Total Fair Value Hedges | $100,000 | $100,000 | Cash Flow Hedge Reclassifications from AOCI to Interest Expense (Thousands of Dollars) | Reclassification Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Interest Expense on Borrowings | $7,497 | $(4,710) | | Interest Expense on Deposits | $5,049 | $(722) | | Interest Income on Loans | $(392) | $0 | | Total | $12,154 | $(5,432) | - Net gains of $37.1 million are expected to be reclassified from AOCI to earnings over the next twelve months as of March 31, 2023[174] Note 7 Stockholders' Equity Total stockholders' equity was $2.48 billion as of March 31, 2023, with other comprehensive income increasing due to unrealized gains on available-for-sale securities Stockholders' Equity (Thousands of Dollars) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Stockholders' Equity | $2,481,394 | $2,435,981 | | Accumulated Other Comprehensive Loss | $(374,684) | $(437,905) | Components of Other Comprehensive Income (Loss) (Net of Tax, Thousands of Dollars) | Component | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Unrealized Gains (Losses) on Available-for-Sale Investment Securities | $74,380 | $(176,958) | | Net Unrealized Gains (Losses) on Derivative Instruments | $(11,159) | $35,199 | | Total Other Comprehensive Income (Loss) | $63,221 | $(141,759) | Note 8 Fair Value Measurements The company regularly measures the fair value of assets and liabilities, primarily using market and income approaches, with most classified as Level 2 - Fair value measurements for investment securities and derivative financial instruments primarily use market and income approaches, classified based on observable inputs[210][233] Fair Value Measurements (Thousands of Dollars) | Asset Category | March 31, 2023 Fair Value | Fair Value Level | | :--- | :--- | :--- | | U.S. Treasury Securities | $118,383 | Level 1 | | Marketable Equity Securities | $68,769 | Level 1 | | U.S. Government Agency and Government-Sponsored Enterprise Residential MBS | $1,980,533 | Level 2 | | Derivative Assets | $83,206 | Level 2 | | Derivative Liabilities | $(99,473) | Level 2 | - Fair value measurements for collateral-dependent loans and OREO are typically classified as Level 3, based on the fair value of the underlying collateral less estimated selling costs[214][237] Note 9 Commitments and Contingencies Total outstanding loan-related commitments were $6.57 billion as of March 31, 2023, exposing the company to credit and market risks, though legal proceedings are not expected to be material Loan-Related Commitments (Thousands of Dollars) | Commitment Type | March 31, 2023 | | :--- | :--- | | Loan Commitments | $478,149 | | Unfunded Commitments Under Lines of Credit | $5,928,956 | | Commercial and Standby Letters of Credit | $161,092 | | Total Loan-Related Commitments | $6,568,197 | - The company is involved in legal proceedings arising in the normal course of business, which management believes are unlikely to have a material adverse effect on its consolidated financial condition, results of operations, or cash flows[243] Note 10 Deposits Total deposits were $26.41 billion as of March 31, 2023, with a weighted-average rate of 2.05%, significantly higher than the prior year, reflecting a shift from non-interest-bearing to interest-bearing deposits Average Deposit Balances and Rates (Thousands of Dollars) | Deposit Type | Three Months Ended March 31, 2023 Average Balance | Three Months Ended March 31, 2023 Average Rate | | :--- | :--- | :--- | | Non-Interest-Bearing Demand Deposits | $7,458,221 | 0% | | Interest-Bearing Demand Deposits | $2,283,505 | 1.87% | | Savings and Money Market Deposits | $12,145,922 | 3.06% | | Time Deposits | $4,526,480 | 2.81% | | Total Deposits | $26,414,128 | 2.05% | - As of March 31, 2023, public fund deposits totaled $3.6 billion, and brokered deposits totaled $5.2 billion[246] Time Deposits by Maturity (Thousands of Dollars) | Time Deposit Maturity | March 31, 2023 | | :--- | :--- | | 2023 | $3,534,369 | | 2024 | $1,306,729 | | 2025 | $97,271 | | 2026 | $310,548 | | 2027 | $1,032 | | Thereafter | $28 | | Total | $5,249,977 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results as of March 31, 2023, highlighting decreased net income, increased assets and equity, and strategic responses to banking industry events Forward-Looking Statements This section contains forward-looking statements reflecting current views on future events and financial performance, subject to risks and uncertainties that may cause actual results to differ materially - Forward-looking statements are based on historical performance and current plans, estimates, and expectations, but are subject to various risks and uncertainties affecting operations, financial results, condition, business prospects, growth strategies, and liquidity[223] - The company undertakes no obligation to publicly update or review any forward-looking statements, whether due to new information, future developments, or otherwise[223] Recent Industry Developments Recent regional bank failures caused industry-wide volatility, impacting bank valuations, liquidity, deposit outflows, and customer confidence, prompting BankUnited to implement various response measures - Recent failures of three regional banks caused industry-wide concern and volatility, impacting bank valuations, liquidity, deposit outflows, and customer confidence[126] - BankUnited activated its contingency funding plan, enhanced daily monitoring and reporting of liquidity trends and deposit flows, and optimized same-day available liquidity[250] - The company is re-evaluating its concentration limits for certain types of large deposits[250] Quarterly Highlights Net income for the three months ended March 31, 2023, was $52.9 million, with diluted EPS of $0.70, while total deposits decreased by $1.79 billion, and the company paused stock repurchases Quarterly Highlights | Metric | Three Months Ended March 31, 2023 | Three Months Ended December 31, 2022 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | :--- | | Net Income (Millions of Dollars) | $52.9 | $64.2 | $67.2 | | Diluted Earnings Per Share | $0.70 | $0.82 | $0.79 | | Total Deposit Decrease (Billions of Dollars) | $1.79 | N/A | N/A | | Provision for Credit Losses (Millions of Dollars) | $19.8 | $39.6 | $7.8 | | ACL as % of Total Loans | 0.64% | 0.59% | N/A | | Net Unrealized Losses on Available-for-Sale Investment Securities (Millions of Dollars) | $574 | $674 | N/A | | Book Value Per Share | $33.34 | $32.19 | N/A | | Tangible Book Value Per Share | $32.30 | $31.16 | N/A | | Common Stock Dividend | $0.27 | $0.25 | N/A | - As of March 31, 2023, the bank's same-day available liquidity was approximately $9.4 billion, increasing to $12.3 billion as of April 21, 2023[251] - The company has paused stock repurchase activity in response to the current macroeconomic environment[254] Results of Operations This section analyzes the company's operating results for the first quarter of 2023, detailing the impact of rising funding costs on net interest income, increased credit loss provisions, and changes in non-interest income and expenses Net Interest Income Net interest income for the three months ended March 31, 2023, was $232.1 million, a decrease from the prior quarter but an increase year-over-year, with net interest margin declining due to higher funding costs Net Interest Income and Yields (Thousands of Dollars) | Metric | Three Months Ended March 31, 2023 | Three Months Ended December 31, 2022 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | :--- | | Net Interest Income (Tax-Equivalent) | $232,112 | $247,227 | $212,302 | | Net Interest Margin | 2.62% | 2.81% | 2.50% | | Tax-Equivalent Yield on Loans | 5.10% | 4.72% | 3.36% | | Tax-Equivalent Yield on Investment Securities | 4.95% | 4.33% | 1.73% | | Average Rate on Interest-Bearing Deposits | 2.86% | 2.06% | 0.24% | | Average Rate on FHLB Advances | 4.27% | 3.44% | 1.11% | - A $780 million decrease in average non-interest-bearing demand deposits and a $313 million increase in average cash balances led to a shift in funding sources towards higher-cost interest-bearing deposits and FHLB advances, negatively impacting net interest margin by 0.14%[258] Provision for Credit Losses The provision for credit losses significantly increased to $19.79 million for the three months ended March 31, 2023, primarily due to deteriorating economic forecasts and higher specific reserves Provision for Credit Losses (Thousands of Dollars) | Component of Provision for Credit Losses | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Funded Portion of Loans | $17,595 | $7,446 | | Off-Balance Sheet Credit Exposures | $2,193 | $384 | | Total Provision for Credit Losses | $19,788 | $7,830 | - The primary drivers for the increase in the provision for credit losses were deteriorating economic forecasts and increased specific reserves[130] - Future levels of the provision for credit losses may fluctuate significantly due to changes in economic conditions, economic outlook, loan portfolio composition, borrower financial condition, and collateral values[262] Non-Interest Income Total non-interest income for the three months ended March 31, 2023, was $16.54 million, an increase from the prior year, despite net investment securities losses, driven by higher income from company-owned life insurance Non-Interest Income (Thousands of Dollars) | Non-Interest Income Component | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Deposit Service Charges and Fees | $5,545 | $5,960 | | Net Investment Securities Losses | $(12,549) | $(7,868) | | Lease Financing | $13,109 | $13,415 | | Other Non-Interest Income | $10,430 | $2,794 | | Total Non-Interest Income | $16,535 | $14,301 | - Investment securities losses were primarily attributable to losses on certain preferred stock investments[160] - The increase in other non-interest income was primarily due to higher income related to company-owned life insurance (COLI) assets, as well as increased loan-related fees and gains on the sale of repurchased loans[264] Non-Interest Expense Total non-interest expense significantly increased to $152.78 million for the three months ended March 31, 2023, driven by higher compensation, technology costs, and deposit insurance fees Non-Interest Expense (Thousands of Dollars) | Non-Interest Expense Component | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Salaries and Employee Benefits | $71,051 | $67,088 | | Deposit Insurance Expense | $7,907 | $3,403 | | Technology Expense | $21,726 | $17,004 | | Other Non-Interest Expense | $26,855 | $12,445 | | Total Non-Interest Expense | $152,780 | $126,324 | - Salaries and employee benefits and technology expenses increased, reflecting labor market dynamics and investments in personnel and technology for future growth[131] - Deposit insurance expense increased by $4.5 million, reflecting higher assessment rates[265] Income Taxes The company's effective income tax rate for the three months ended March 31, 2023, was 26.4%, an increase from 24.4% in the prior year, mainly due to state income tax impacts - As of March 31, 2023, the company's effective income tax rate was 26.4%, higher than the 24.4% in the prior year[140] Analysis of Financial Condition This section analyzes the company's financial condition as of March 31, 2023, covering investment and loan portfolios, asset quality, deposits, borrowings, liquidity, capital resources, and interest rate risk management Investment Securities As of March 31, 2023, the investment securities portfolio had an amortized cost of $10.04 billion and a fair value of $9.46 billion, with net unrealized losses improving by $100 million from the prior quarter Investment Securities (Thousands of Dollars) | Investment Category | March 31, 2023 Amortized Cost | March 31, 2023 Book Value | | :--- | :--- | :--- | | U.S. Treasury Securities | $129,140 | $118,383 | | U.S. Government Agency and Government-Sponsored Enterprise Residential MBS | $2,028,070 | $1,980,533 | | Private Label Residential MBS and CMOs | $2,825,107 | $2,525,482 | | Total Investment Securities | $10,038,525 | $9,464,830 | | Marketable Equity Securities | N/A | $68,769 | - Net unrealized losses on available-for-sale investment securities were $573.7 million, an improvement of $100 million from $674.2 million as of December 31, 2022[289] - The company does not intend to sell securities in an unrealized loss position and expects to recover amortized cost[162] - The investment strategy focuses on ensuring adequate liquidity, maintaining a balance of high credit quality and diversified assets, managing interest rate risk, and generating acceptable returns within established risk parameters[305] Loans Total loans were $24.89 billion as of March 31, 2023, remaining largely flat quarter-over-quarter, with a decrease in residential loans offset by a net increase in commercial loans Loan Portfolio Composition (Thousands of Dollars) | Loan Type | March 31, 2023 Total | March 31, 2023 % of Total Loans | | :--- | :--- | :--- | | 1-4 Family Residential | $7,133,615 | 28.6% | | Government Guaranteed Residential | $1,656,129 | 6.7% | | Non-Owner Occupied Commercial Real Estate | $5,346,895 | 21.5% | | Commercial and Industrial Loans | $6,617,716 | 26.5% | | Total Loans | $24,892,894 | 100.0% | - A $111 million decrease in residential loans was offset by a $118 million net increase in commercial loans, resulting in total loans remaining largely flat quarter-over-quarter[312] - Commercial real estate loans are primarily concentrated in Florida (60%) and the New York Tri-State area (26%)[348] 1-4 Family Residential Loan Geographic Distribution (Thousands of Dollars) | Geographic Distribution | March 31, 2023 Total | % of Total | | :--- | :--- | :--- | | California | $2,266,711 | 31.8% | | New York | $1,404,958 | 19.7% | | Florida | $524,294 | 7.3% | | Other | $2,258,969 | 31.6% | Operating Lease Equipment, net Net operating lease equipment was $526 million as of March 31, 2023, including $50 million in net derecognized lease equipment, with a significant exposure to the energy sector Operating Lease Equipment (Thousands of Dollars) | Operating Lease Equipment Type | March 31, 2023 | | :--- | :--- | | Transportation Equipment | $215,000 | | Other Equipment | $311,000 | | Total | $526,000 | - The Bridge division has $244 million in energy sector exposure, with $215 million primarily concentrated in oil industry railcars within the operating lease equipment portfolio[327] Operating Lease Equipment by Lease Expiration Year (Thousands of Dollars) | Lease Expiration Year | March 31, 2023 Book Value | | :--- | :--- | | 2023 | $70,969 | | 2024 | $51,221 | | 2025 | $89,035 | | 2026 | $78,662 | | 2027 | $25,304 | | 2034 and thereafter | $161,232 | Asset Quality The company maintains a robust credit risk management framework, with non-performing assets totaling $113.64 million and the allowance for credit losses increasing to 0.64% of total loans due to economic forecast deterioration Commercial Loans The company continuously monitors commercial loan credit quality using a 16-grade internal asset risk classification system, with special mention and substandard accruing loans increasing as of March 31, 2023 Commercial Loan Internal Risk Ratings (Thousands of Dollars) | Internal Risk Rating | March 31, 2023 Amortized Cost | March 31, 2023 % of Commercial Loans | | :--- | :--- | :--- | | Pass | $15,314,776 | 95.2% | | Special Mention | $101,781 | 0.6% | | Substandard Accruing | $596,054 | 3.7% | | Substandard Non-Accruing | $82,840 | 0.5% | | Doubtful | $7,699 | 0% | | Total Commercial Loans | $16,103,150 | 100.0% | - The increase in special mention loans was primarily related to a multi-family loan that was downgraded during the quarter and subsequently paid off in April[325] Residential Loans The residential loan portfolio consists primarily of high-quality jumbo loans for owner-occupied properties, with credit quality monitored by delinquency status, original LTV, and FICO scores - The residential loan portfolio primarily consists of high-quality jumbo loans purchased through correspondent channels, predominantly for owner-occupied properties, with FICO scores above 700 and LTVs typically below 80%[328] - Credit quality is primarily monitored through delinquency status, original LTV, and FICO scores[357] - As of March 31, 2023, 1-4 family residential loans 30 days or more past due (excluding government-guaranteed loans) totaled $65 million, with $15 million being 90 days or more past due[359] Non-Performing Assets Total non-performing loans were $113.64 million as of March 31, 2023, representing 0.46% of total loans, with the allowance for credit losses covering 140.88% of non-performing loans Non-Performing Assets (Thousands of Dollars) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Non-Accrual Loans | $113,641 | $104,426 | | Loans 90 Days Past Due and Still Accruing | $439 | $593 | | Total Non-Performing Loans | $114,080 | $105,019 | | OREO and Other Non-Performing Assets | $0 | $1,932 | | Total Non-Performing Assets | $113,641 | $106,951 | | Non-Performing Loans as % of Total Loans | 0.46% | 0.42% | | Non-Performing Assets as % of Total Assets | 0.31% | 0.29% | | ACL as % of Total Loans | 0.64% | 0.59% | | ACL as % of Non-Performing Loans | 140.88% | 140.88% | - Government-guaranteed residential loans (typically GNMA early buy-out loans) are excluded from non-performing loans due to their government-guaranteed nature[361] Loss Mitigation Strategies The company employs loss mitigation strategies for defaulted residential loans, including modifications, short sales, or foreclosures, and manages substandard commercial loans through a criticized asset committee to minimize losses - The company assesses each defaulted residential loan to determine the most effective loss mitigation strategy, including modifications, short sales, or foreclosure, to minimize bank losses[364] - The Criticized Asset Committee regularly reviews and manages substandard commercial loans to minimize losses and expenses[335] Analysis of the Allowance for Credit Losses The allowance for credit losses (ACL) increased to $158.79 million, or 0.64% of total loans, as of March 31, 2023, driven by specific reserves, economic forecast changes, and new loan originations Allowance for Credit Losses (Thousands of Dollars) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Allowance for Credit Losses | $158,792 | $147,946 | | ACL as % of Total Loans | 0.64% | 0.59% | - The increase in ACL was primarily driven by increased specific reserves, changes in economic forecasts, and new loan originations, partially offset by net charge-offs and a reduction in certain qualitative loss factors[344][392] - The ACL estimate is based on an econometric model that utilizes historical loss and recovery information, adjusted for reasonable and supportable economic forecasts[388] ACL Change Drivers (Millions of Dollars) | ACL Change Driver | December 31, 2022 | March 31, 2023 | | :--- | :--- | :--- | | Beginning Balance | $147.9 | N/A | | Economic Forecast Changes | N/A | $6.8 | | Specific Reserve Changes | N/A | $3.5 | | Net New Loans | N/A | $10.7 | | Qualitative Adjustments | N/A | $(5.0) | | Net Charge-offs | N/A | $(4.2) | | Other | N/A | $(0.9) | | Ending Balance | N/A | $158.8 | Deposits Total deposits were $25.72 billion as of March 31, 2023, with a diversified portfolio and no exposure to venture capital or cryptocurrency, and estimated uninsured deposits of $13 billion - The company's deposit portfolio is diversified, with no deposits from venture capital or cryptocurrency-related businesses[396] - The largest deposit industry is title solutions, totaling approximately $2 billion, spread across over 8,000 accounts and 950 relationships[396] Deposit Composition (Thousands of Dollars) | Metric | March 31, 2023 | | :--- | :--- | | Total Deposits | $25,722,898 | | Estimated Uninsured Deposits | $12,961,274 | | Less: Pledged Deposits | $(2,866,453) | | Less: Affiliate Deposits | $(231,159) | | Adjusted Uninsured Deposits | $9,863,662 | | Estimated Insured and Pledged Deposits | $15,859,236 | | Insured and Pledged Deposits as % of Total Deposits | 62% | Borrowings Total FHLB advances were $7.55 billion as of March 31, 2023, primarily for liquidity and interest rate risk management, alongside senior and subordinated notes totaling $692.88 million Borrowings (Thousands of Dollars) | Borrowing Type | March 31, 2023 | | :--- | :--- | | Total FHLB Advances | $7,550,000 | | Senior Notes | $397,624 | | Subordinated Notes | $295,255 | | Finance Leases | $27,908 | | Total Notes and Other Borrowings | $720,787 | - FHLB advances increased as of March 31, 2023, in response to recent banking industry events, primarily consisting of short-term advances to provide maximum liquidity management flexibility[377] Cash Flow Hedges by Maturity (Thousands of Dollars) | Cash Flow Hedge Maturity | Notional Amount | Weighted-Average Rate | | :--- | :--- | :--- | | 2023 | $35,000 | 2.82% | | 2024 | $535,000 | 2.40% | | 2025 | $425,000 | 2.28% | | 2026 | $130,000 | 1.93% | | Thereafter | $25,000 | 2.50% | | Total | $1,150,000 | 2.32% | Liquidity and Capital Resources The company maintains strong liquidity through operating cash flow, deposits, investments, and FHLB advances, with capital levels exceeding regulatory "well-capitalized" standards - The bank's same-day available liquidity was approximately $9.4 billion, including cash, FHLB borrowing capacity, FRB borrowing capacity, and unpledged securities[382] - As of March 31, 2023, the bank's available liquidity to volatile liabilities ratio was 169% (average), with a liquidity stress test coverage of 150%[383] Capital Ratios | Capital Metric | BankUnited, Inc. (March 31, 2023) | BankUnited (March 31, 2023) | | :--- | :--- | :--- | | CET1 Risk-Weighted Capital Ratio | 10.81% | 12.52% | | Tier 1 Risk-Weighted Capital Ratio | 10.81% | 12.52% | | Total Risk-Weighted Capital Ratio | 12.55% | 13.11% | | Tier 1 Leverage Ratio | 7.40% | 8.58% | - Both the company and the bank's capital levels exceed regulatory "well-capitalized" standards[431] Interest Rate Risk The company manages interest rate risk using an income simulation model to assess sensitivity to various rate scenarios, projecting potential changes in net interest income over one and two years - The company manages interest rate risk through an income simulation model that assesses sensitivity by forecasting net interest income under various interest rate scenarios[434] Net Interest Income Sensitivity to Interest Rate Shocks | Interest Rate Shock Scenario | One-Year Net Interest Income Change (March 31, 2023) | Two-Year Net Interest Income Change (March 31, 2023) | | :--- | :--- | :--- | | Down 300 Basis Points | (12)% | (20)% | | Down 200 Basis Points | (5)% | (9)% | | Down 100 Basis Points | (2)% | (3)% | | Up 100 Basis Points | 1% | 2% | | Up 200 Basis Points | 0% | 2% | | Up 300 Basis Points | (1)% | 2% | | Up 400 Basis Points | (2)% | 0% | Derivative Financial Instruments and Hedging Activities The company uses interest rate derivatives to manage interest rate risk by hedging cash flow variability of variable-rate liabilities and fair value changes of fixed-rate financial instruments - Interest rate derivatives are used to hedge cash flow variability of variable-rate liabilities and fair value changes of fixed-rate financial instruments, as well as to manage liability duration[437] Derivative Instruments Designated as Hedges (Thousands of Dollars) | Derivative Type | Notional Amount | Weighted-Average Pay/Strike Rate | Weighted-Average Receive/Strike Rate | Weighted-Average Remaining Term (Years) | | :--- | :--- | :--- | :--- | :--- | | Fixed Pay Interest Rate Swaps (Borrowings) | $475,000 | 2.34% | 3-Month LIBOR | 2.9 | | Fixed Pay Interest Rate Swaps (Borrowings) | $675,000 | 2.31% | Daily SOFR | 1.5 | | Fixed Pay Interest Rate Swaps (Liabilities) | $400,000 | 1.22% | Fed Funds Effective Rate | 1.4 | | Variable Pay Interest Rate Swaps (Loans) | $200,000 | Term SOFR | 3.72% | 3.1 | | Interest Rate Caps (Liabilities) | $200,000 | 0.88% | N/A | 2.2 | | Interest Rate Collars (Loans) | $125,000 | 5.58% | 1.50% | 3.4 | | Fixed Pay Interest Rate Swaps (Loans) | $100,000 | 1.94% | Daily SOFR | 1.3 | | Total | $2,175,000 | N/A | N/A | N/A | LIBOR Transition The company is executing a detailed plan to transition from LIBOR to alternative reference rates, primarily SOFR, with most LIBOR-related exposures maturing after June 30, 2023 - The company has developed and is executing a detailed plan to facilitate the transition from LIBOR to alternative reference rates, with SOFR as the preferred rate[440] LIBOR-Related Instruments by Maturity (Thousands of Dollars) | LIBOR-Related Instrument | Maturing Before June 30, 2023 | Maturing After June 30, 2023 | Total | | :--- | :--- | :--- | :--- | | Investment Securities | $0 | $3,551,397 | $3,551,397 | | Loans | $57,395 | $2,884,759 | $2,942,154 | | Interest Rate Derivative Contracts (Notional Amount) | $4,782 | $1,748,985 | $1,753,767 | | Total | $62,177 | $8,185,141 | $8,247,318 | Non-GAAP Financial Measures This section provides a reconciliation of tangible book value per share, a non-GAAP financial measure, to its GAAP equivalent, which management deems relevant for understanding capital and performance - Tangible book value per share is a non-GAAP financial measure that management believes is relevant for understanding the company's capital position and performance, providing a basis for comparison with other financial institutions[442] Reconciliation of Non-GAAP Financial Measures (Thousands of Dollars, except per share data) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Stockholders' Equity | $2,481,394 | $2,435,981 | | Less: Goodwill and Other Intangible Assets | $77,637 | $77,637 | | Tangible Stockholders' Equity | $2,403,757 | $2,358,344 | | Common Shares Issued and Outstanding | 74,423,365 | 75,674,587 | | Book Value Per Share | $33.34 | $32.19 | | Tangible Book Value Per Share | $32.30 | $31.16 | ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section references the detailed disclosures on interest rate risk within management's discussion and analysis, emphasizing the company's strategies for assessing and hedging market risk - This section references the detailed disclosures on interest rate risk within management's discussion and analysis[444] ITEM 4. Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of disclosure controls and procedures as of the reporting period, concluding they were effective, with no significant changes to internal controls over financial reporting - Company management assessed the effectiveness of disclosure controls and procedures and concluded they were effective[419] - There were no significant changes in the company's internal control over financial reporting during the quarter[444] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business, which management believes are unlikely to have a material adverse effect on its financial condition or operations - The company is involved in various legal proceedings arising in the normal course of business[420] - Management believes these proceedings are unlikely to have a material adverse effect on the company's consolidated financial condition, results of operations, or cash flows[420] ITEM 1A. Risk Factors Recent bank failures have caused significant market volatility, adversely affecting regional banks' liquidity, customer confidence, and stock prices, potentially leading to unfavorable regulatory changes - Recent bank failures have caused significant market volatility, adversely affecting the liquidity, customer confidence, and stock prices of regional banks, including BankUnited[422][445] - These events may lead to unfavorable changes in the regulatory environment, including increased capital or liquidity requirements, or higher deposit insurance assessments, which could materially impact the company's business[446] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased approximately 1.63 million common shares for $55 million during the quarter, but has since paused repurchase activity, with $20.6 million remaining under the authorized plan Unregistered Sales of Equity Securities and Use of Proceeds | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased Under Publicly Announced Plans | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans | | :--- | :--- | :--- | :--- | :--- | | January 1 - January 31, 2023 | 934,888 | $33.89 | 934,888 | $43,531,065 | | February 1 - February 28, 2023 | 94,920 | $34.97 | 94,920 | $40,211,428 | | March 1 - March 31, 2023 | 604,437 | $32.44 | 604,437 | $20,603,265 | | Total | 1,634,245 | $33.42 | 1,634,245 | N/A | - The company has paused stock repurchase activity[254] - The company's Board of Directors authorized an additional $150 million common stock repurchase program on September 13, 2022, which has no time limit and may be suspended or terminated at any time[451] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q report, including CEO and CFO certifications under the Sarbanes-Oxley Act and XBRL taxonomy extension files - Exhibits include CEO and CFO certifications filed under Sections 302 and 906 of the Sarbanes-Oxley Act[452] - Exhibits also include XBRL taxonomy extension schema, calculation linkbase, definition linkbase, label linkbase, and presentation linkbase files[452] SIGNATURES Signatures This report was signed on May 2, 2023, by authorized representatives, including Chairman, President, and CEO Rajinder P. Singh and Chief Financial Officer Leslie N. Lunak - This report was signed on May 2, 2023[453] - Signatories include Rajinder P. Singh, Chairman, President, and Chief Executive Officer, and Leslie N. Lunak, Chief Financial Officer[427][449]