BankUnited(US:BKU)2023-10-31 16:00PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents BankUnited, Inc.'s unaudited consolidated financial statements, highlighting decreases in total assets, loans, and deposits, alongside a significant year-over-year decline in net income Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $35,389,664 | $37,026,712 | -$1,637,048 | | Loans, net | $24,160,213 | $24,738,042 | -$577,829 | | Investment securities | $8,886,484 | $9,755,327 | -$868,843 | | Total Liabilities | $32,865,594 | $34,590,731 | -$1,725,137 | | Total deposits | $26,112,666 | $27,509,334 | -$1,396,668 | | FHLB advances | $5,165,000 | $5,420,000 | -$255,000 | | Total Stockholders' Equity | $2,524,070 | $2,435,981 | +$88,089 | Consolidated Statements of Income Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $214,842 | $235,836 | $656,594 | $669,894 | | Provision for Credit Losses | $33,049 | $3,720 | $68,354 | $35,546 | | Net Income | $46,981 | $87,850 | $157,859 | $220,764 | | Diluted EPS | $0.63 | $1.12 | $2.11 | $2.71 | - Net income decreased significantly for both the three and nine-month periods ended September 30, 2023, compared to the same periods in 2022, primarily driven by a substantial increase in the provision for credit losses and higher interest expense14 Consolidated Statements of Comprehensive Income Comprehensive Income (Loss) (in thousands) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $46,981 | $87,850 | $157,859 | $220,764 | | Other Comprehensive Income (Loss) | ($34,634) | ($87,346) | $30,709 | ($391,801) | | Comprehensive Income (Loss) | $12,347 | $504 | $188,568 | ($171,037) | Consolidated Statements of Cash Flows Net Cash Flow by Activity (in thousands) | Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $593,716 | $1,317,141 | | Net cash provided by (used in) investing activities | $1,149,187 | ($1,645,266) | | Net cash provided by (used in) financing activities | ($1,923,665) | $739,406 | | Net (decrease) increase in cash | ($180,762) | $411,281 | Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $2.44 billion at December 31, 2022, to $2.52 billion at September 30, 2023, driven by net income of $157.9 million and comprehensive income of $30.7 million, partially offset by dividends paid ($59.7 million) and common stock repurchases ($55.2 million)23 Notes to Consolidated Financial Statements - The company adopted ASU No. 2022-02 in Q1 2023, which eliminated accounting guidance for Troubled Debt Restructurings (TDRs), resulting in a $1.8 million reduction to the Allowance for Credit Losses (ACL) and a $1.3 million net-of-tax cumulative-effect adjustment to retained earnings26 - The investment securities portfolio, primarily classified as available-for-sale (AFS), had a carrying value of $8.89 billion at September 30, 2023, down from $9.76 billion at year-end 2022, and was in a net unrealized loss position of $644.0 million, primarily due to rising interest rates374049 - The Allowance for Credit Losses (ACL) increased to $196.1 million (0.80% of total loans) at September 30, 2023, from $147.9 million (0.59% of total loans) at December 31, 2022, mainly due to a deteriorating economic forecast and an increase in specific reserves677377 - The company uses interest rate swaps, caps, and collars as cash flow and fair value hedges to manage interest rate risk, with the total notional amount of derivatives designated as hedging instruments at $3.14 billion as of September 30, 2023111167 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting net income decline due to higher credit loss provisions and funding costs, while highlighting strategic progress in deposits, liquidity, and capital strength Overview and Quarterly Highlights - Net income for Q3 2023 was $47.0 million ($0.63/share), a decrease from $87.9 million ($1.12/share) in Q3 2022, primarily due to an increased provision for credit losses driven by a less favorable economic forecast258 - Strategic priorities in Q3 2023 showed progress: non-brokered deposits grew by $484 million, FHLB advances declined by $810 million, and the loans-to-deposits ratio improved to 93.3% from 95.3% in the prior quarter245246219 - The net interest margin (tax-equivalent) expanded to 2.56% in Q3 2023 from 2.47% in Q2 2023, though it was down from 2.76% in Q3 2022259 - The company maintained strong liquidity with $14.4 billion in same-day availability and a robust capital position, with a CET1 ratio of 11.4% at the holding company level as of September 30, 2023261247 Results of Operations Net Interest Income and Margin (Tax-Equivalent) | Period | Net Interest Income | Net Interest Margin | | :--- | :--- | :--- | | Q3 2023 | $219.1M | 2.56% | | Q2 2023 | $218.1M | 2.47% | | Q3 2022 | $239.9M | 2.76% | | 9M 2023 | $669.4M | 2.55% | | 9M 2022 | $681.5M | 2.63% | - The provision for credit losses was $33.0 million for Q3 2023 and $68.4 million for the first nine months of 2023, with the increase primarily driven by a deteriorating economic forecast and risk rating migration130 - Non-interest income increased to $27.7 million in Q3 2023 from $23.1 million in Q3 2022, mainly due to higher lease financing income, and increased to $69.7 million for the nine-month period from $50.8 million, driven by higher BOLI income and lease financing132134 - Non-interest expense rose to $445.1 million for the nine months ended Sep 30, 2023, from $391.8 million in the prior year period, driven by higher employee compensation, technology investments, deposit insurance expense, and costs related to depositor rebate programs135136 Analysis of Financial Condition - The investment strategy focuses on liquidity, high credit quality, and managing interest rate risk, with a short portfolio duration of 2.03 years as of September 30, 2023154 - The loan portfolio is primarily composed of commercial loans (65.6%) and residential loans (34.4%), with management intending to increasingly emphasize relationship-based loans accompanied by deposit business67253 - Non-performing assets (NPAs) remained low at 0.40% of total assets at September 30, 2023, while the Allowance for Credit Losses (ACL) to total loans ratio increased to 0.80% at quarter-end, reflecting a more cautious economic outlook262341 - The company maintains strong liquidity, with total same-day available liquidity of $14.4 billion and a ratio of available liquidity to uninsured/uncollateralized deposits of 161% at September 30, 2023387362 - Capital levels remain robust and exceed well-capitalized guidelines, with the CET1 risk-based capital ratio at 11.4% for the holding company and 13.2% for the Bank as of September 30, 2023247392 Quantitative and Qualitative Disclosures About Market Risk The company manages primary interest rate risk using income simulation and EVE models, indicating a liability-sensitive position with forecasted net interest income decreases in rising rate scenarios, partially hedged by derivatives Sensitivity of Net Interest Income (NII) and Economic Value of Equity (EVE) to Interest Rate Shocks (as of Sep 30, 2023) | Rate Shock (Basis Points) | Change in NII (Year 1) | Change in EVE | | :--- | :--- | :--- | | +200 | (4)% | (17)% | | +100 | (1)% | (8)% | | -100 | (1)% | +12% | | -200 | (3)% | +15% | - The company uses interest rate derivatives to hedge risk, having held $3.14 billion in notional value of derivatives designated as hedging instruments as of September 30, 2023, primarily pay-fixed interest rate swaps to hedge variable rate borrowings372410 - As of September 30, 2023, all financial instruments previously based on LIBOR have been successfully converted to an alternative reference rate, generally SOFR, completing the company's LIBOR transition400 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation conducted by management, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period374 - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls413 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal actions arising from the normal course of business, which management believes are remote to have a material impact on financial position, results, or cash flows - In the opinion of management, the likelihood is remote that the impact of ongoing legal proceedings, individually or in aggregate, would be material to the Company's consolidated financial position, results of operations, or cash flows212375 Risk Factors No material changes to risk factors from the 2022 10-K, except for new risks from March 2023 bank failures, potentially impacting regional bank liquidity, deposit flows, and leading to adverse regulatory changes or additional FDIC assessments - Recent failures of three regional banks have eroded customer confidence in the banking system, which may adversely impact liquidity and deposit flows for regional banks like BankUnited119376 - The cost of resolving recent bank failures is likely to result in an additional FDIC deposit insurance assessment, which will negatively impact the Company's earnings415 Unregistered Sales of Equity Securities and Use of Proceeds This section of the report did not contain any information regarding unregistered sales of equity securities or the use of proceeds - The report does not contain information on unregistered sales of equity securities or use of proceeds for the period405 Other Information During the third quarter of 2023, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023406 Exhibits This section lists the exhibits filed with the Form 10-Q, which include the CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002, and the XBRL Interactive Data Files List of Exhibits | Exhibit | Description | | :--- | :--- | | 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 | | 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 | | 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 | | 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 | | 101 | Interactive Data Files (XBRL) |