BankUnited(US:BKU)2024-02-19 16:00PART I Business BankUnited, Inc., a bank holding company with $35.8 billion in assets, provides comprehensive commercial and consumer banking services primarily in Florida, New York, and Dallas, operating under extensive regulatory oversight with a focus on relationship-based and digitally-enabled strategies, alongside human capital development - BankUnited, Inc. is a bank holding company with one direct wholly-owned subsidiary, BankUnited, N.A., reporting total consolidated assets of $35.8 billion at December 31, 202352 - The bank offers a full range of commercial lending and deposit services via banking centers in Florida, the New York metropolitan area, and Dallas, Texas, complemented by a wholesale products office in Atlanta52 - The company's core business strategy aims to establish a leading regional commercial and small business bank emphasizing service-oriented relationships and digital customer experiences52 Our Products and Services - Lending and leasing products target small, middle-market, and larger corporate businesses, encompassing commercial loans, commercial real estate financing, and national municipal and equipment financing via subsidiaries Pinnacle and Bridge385471 - The bank has reduced lending in the office sector, prioritizing warehouse/industrial, multi-family, and select retail sectors for commercial real estate loans72 - Deposit products comprise a full suite of commercial and consumer accounts, treasury management services, and programs such as CDARS for expanded FDIC insurance coverage75 - Credit risk is managed via a three-lines-of-defense framework: business lines for sourcing, credit administration for evaluation, and Credit Review for independent assessment405673 Our Markets and Competition - Primary banking markets include Florida (Miami-Dade, Broward, Palm Beach, Tampa, Orlando, Jacksonville) and the Tri-State area (New York, New Jersey, Connecticut), with recent wholesale and retail expansion into Atlanta and Dallas59 - The company encounters intense competition from diverse financial institutions, including national, regional, community banks, and non-bank FinTech companies, with key competitive factors being interest rates, customer service, and digital offerings78374 Regulation and Supervision - As a bank holding company and national bank, BankUnited, Inc. and BankUnited, N.A. are comprehensively regulated and supervised by the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC), respectively6381 - The company adheres to Basel III capital rules, mandating minimum ratios for CET1 (4.5%), Tier 1 (6.0%), and Total Capital (8.0%), plus a 2.5% capital conservation buffer, with both the holding company and bank being well-capitalized as of December 31, 20238990113 - The bank's dividend payments to the holding company are restricted by regulatory requirements, potentially affecting the holding company's debt servicing or shareholder dividend capacity94115 - The bank is subject to numerous consumer protection laws, including the Community Reinvestment Act (CRA), under which it achieved a "Satisfactory" rating in its October 2021 evaluation122143 - In Q4 2023, the bank recorded a $35.4 million special assessment from the FDIC due to earlier bank failures139 Human Capital Resources - As of December 31, 2023, the company employed 1,588 full-time and 28 part-time individuals, none of whom are covered by a collective bargaining agreement11 - The company fosters diversity and inclusion via its iCARE™ initiative; as of December 31, 2023, 40% of the Board of Directors were female and 40% were of diverse ethnicity, with approximately 56% of the total workforce being female128144 - In 2023, 204 employees completed career development programs such as Rising Leaders and EXCELerate, while the mentoring program engaged 280 employees, reporting 1,247 mentoring hours and a 4.7 out of 5-star rating4 Risk Factors This section outlines material risks and uncertainties impacting the company's business, encompassing strategic, credit, interest rate, liquidity, operational, regulatory, and general market factors, including challenges in strategy execution, credit losses, interest rate sensitivity, liquidity reliance, operational failures, and regulatory environment impacts - The report identifies material risks inherent in the company's business that could adversely affect its financial condition, results of operations, and stock value132 Strategic Risk - The company's execution of strategic priorities, including funding mix improvement, balance sheet re-positioning, credit and expense management, and capital maintenance, faces risks from competition, macroeconomic conditions, and market health175176 - Intense competition from national, regional, and FinTech entities in its core Florida and New York tri-state markets may negatively affect growth and profitability134177 - The business is vulnerable to disruptions from natural disasters, pandemics, and geopolitical conflicts, potentially leading to increased loan losses and deposit outflows136376 - The loss of key senior management personnel could harm the business due to the difficulty in replicating their knowledge and experience153180 Credit Risk - The business is inherently exposed to credit risk, where borrowers may default, and the Allowance for Credit Losses (ACL) might be insufficient to cover actual losses, particularly during economic downturns158184361 - A substantial part of the loan portfolio is secured by commercial and residential real estate, exposing the company to property value declines, especially in the office sector due to remote work trends162187 - Geographic concentration in Florida and the New York Tri-State area renders the business highly vulnerable to regional economic downturns or real estate market disruptions163188 Interest Rate Risk - The company's earnings heavily rely on net interest income, which is sensitive to market interest rate fluctuations; rapid or unexpected changes in rates, yield curve shape, or spreads could negatively impact the net interest margin16190 - Interest rate risk management techniques are imprecise, relying on models with depositor behavior assumptions that may not accurately predict future rate movement impacts363 Liquidity Risk - Inadequate liquidity could hinder the ability to fulfill customer loan requests, deposit withdrawals, and other cash commitments, potentially disrupting normal operations7192 - The 2023 regional bank failures diminished customer confidence and resulted in elevated deposit outflows, leaving the company vulnerable to similar events that could prompt material, unexpected withdrawals5167 - A substantial portion of deposits are commercial and uninsured, potentially increasing their susceptibility to outflows during periods of stress168364 - The Federal Reserve Bank and FHLB serve as crucial liquidity sources; any compromise in their availability could materially harm the business19193 Operational Risk - The company depends on analytical and forecasting models for strategic planning and risk management, which may prove inadequate or inaccurate8226 - Reliance on third-party service providers for critical infrastructure, including core banking and IT systems, introduces inherent operational risks, where a third-party failure could significantly disrupt business17173200 - The business faces exposure to cybersecurity incidents, such as data breaches and denial-of-service attacks, which could harm its reputation, lead to financial losses, and attract regulatory scrutiny201230382 - Failure to adapt to technological advancements could negatively affect the company's competitiveness in attracting loans and deposits20232 Regulatory, Legal and Compliance Risk - Operating in a highly regulated environment implies that changes in laws or non-compliance can be costly, leading to fines, penalties, and restrictions on business activities9204 - The 2023 regional bank failures are anticipated to prompt new laws and regulations, especially concerning capital, liquidity, and bank mergers, potentially increasing costs and affecting profitability236 - Noncompliance with the Bank Secrecy Act and other anti-money laundering regulations could result in substantial fines and limitations on expansion plans208238 - Future bank failures might necessitate the company paying higher FDIC insurance premiums, which could adversely affect earnings212240 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None370 Cybersecurity The company outlines its comprehensive cybersecurity risk management strategy, integrated into its overall risk program, featuring layered security, continuous threat assessment, and regular testing, with Board oversight and a dedicated Materiality Assessment Team, reporting no material incidents in the last three fiscal years - The company maintains a comprehensive cybersecurity program with processes for threat detection, assessment, and management, integrated into its overall risk management framework247265 - Cybersecurity governance involves oversight by the Board's Risk Committee and leadership from a Chief Information Security Officer (CISO) with over 30 years of experience250267 - A Materiality Assessment Team (MAT), consisting of the CISO, CIO, CRO, CFO, CAO, and General Counsel, is tasked with determining the materiality of cybersecurity incidents251268 - The company has not experienced any material cybersecurity incidents over the past three fiscal years266 Properties BankUnited's corporate headquarters is in leased office space in Miami Lakes, Florida, with 53 banking centers operated across Florida, New York, and Texas as of December 31, 2023, all deemed adequate for current and foreseeable operational needs - The company's corporate headquarters is located in leased office space in Miami Lakes, Florida, operating 53 banking centers across Florida, New York, and Texas as of December 31, 2023252 Legal Proceedings The company is involved in various legal actions arising from normal business operations, with management assessing that the outcomes are unlikely to materially impact its financial position, results of operations, or cash flows - The company is engaged in various legal actions stemming from its normal course of business, though management deems the likelihood of a material impact from these proceedings to be remote269 Mine Safety Disclosures This section is not applicable to the company - None270 PART II Market for Common Equity, Stockholder Matters and Issuer Purchases BankUnited's common stock trades on the NYSE as "BKU"; the company declared $1.08 per share in total quarterly dividends in 2023, an increase from $1.00 in 2022, with a $100 investment growing to $126.65 by December 31, 2023, underperforming the S&P 500 and KBW Nasdaq Regional Banking Indices - The company's common stock trades on the NYSE under the symbol "BKU"; as of February 16, 2024, there were 74,371,130 shares outstanding and 573 stockholders of record22272 Dividend per Share | Dividend per Share | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Quarterly Dividend | 0.27 | 0.25 | | Annual Dividend | 1.08 | 1.00 | Index Performance | Index | 12/31/2018 ($) | 12/31/2023 ($) | | :--- | :--- | :--- | | BankUnited, Inc. | 100.00 | 126.65 | | S&P 500 Index | 100.00 | 207.21 | | KBW Nasdaq Regional Banking Index | 100.00 | 139.66 | Reserved This item is reserved and contains no information Management's Discussion and Analysis Management discusses the company's financial condition and results for the year ended December 31, 2023, highlighting navigation of a challenging macroeconomic environment, strategic priorities to improve funding and net interest margin, a net income of $178.7 million or $2.38 per diluted share, and robust capital and liquidity with a 11.4% CET1 ratio and $13.6 billion available liquidity - The company's vision is to be a leading regional commercial and small business bank, with near-term strategic priorities focused on enhancing the funding profile through core deposit growth, optimizing the asset mix by transitioning from residential to higher-yielding commercial loans, and managing expenses298302 - The macroeconomic environment, including 2023 regional bank closures and restrictive monetary policy, resulted in deposit outflows and increased reliance on costlier wholesale funding, thereby pressuring the net interest margin281299 Key Financial Metrics | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income (Millions) | 178.7 | 285.0 | | Diluted EPS ($) | 2.38 | 3.54 | | Return on Average Equity (%) | 7.01 | N/A | | Return on Average Assets (%) | 0.49 | N/A | - The net interest margin decreased to 2.56% in 2023 from 2.68% in 2022 due to an unfavorable funding mix shift, though it expanded in the second half of 2023325 - Asset quality remained robust, with a net charge-off ratio of 0.09% for 2023 and a non-performing asset to total assets ratio of 0.37% at year-end285293 - The company maintained a strong capital position with a CET1 ratio of 11.4% and ample liquidity, reporting total same-day available liquidity of $13.6 billion at December 31, 2023309333 Critical Accounting Policies and Estimates - The Allowance for Credit Losses (ACL) represents the most significant accounting estimate, requiring complex and subjective judgments concerning historical loss experience, economic forecasts, collateral values, and other factors313334336 Results of Operations - Tax-equivalent net interest income decreased to $890.8 million in 2023 from $928.7 million in 2022, primarily due to a $666.3 million increase in interest expense exceeding the $628.4 million increase in interest income340 - The provision for credit losses was $87.6 million in 2023, up from $75.2 million in 2022, mainly attributable to changes in economic forecasts, new commercial loan production, and risk rating migration324353 - Non-interest income increased to $86.8 million in 2023 from $77.6 million in 2022, primarily driven by higher BOLI income and lending-related fees346357 - Non-interest expense increased to $636.0 million in 2023 from $540.3 million in 2022, largely due to a $35.4 million FDIC special assessment and higher employee compensation347358 - The effective tax rate was 24.64% in 2023, compared to 24.03% in 20221060 Analysis of Financial Condition - Total assets decreased to $35.8 billion at year-end 2023 from $37.0 billion at year-end 2022717 - The investment securities portfolio decreased to $8.9 billion from $9.8 billion, with a short effective duration of 1.97 years; the portfolio held a net unrealized loss position of $534.8 million, an improvement from a $674.2 million loss at year-end 2022106310651066 - Total loans remained relatively stable at $24.6 billion, with a portfolio mix shift showing core C&I and CRE loans growing by $719 million while residential loans declined by $692 million, aligning with strategic goals506 - Total deposits decreased by $971 million to $26.5 billion, marked by a $1.2 billion decline in non-interest bearing demand deposits, indicating a customer shift towards higher-yielding alternatives327631 - FHLB advances decreased to $5.1 billion from $5.4 billion at year-end 2022717 Asset Quality - Non-performing assets (NPAs) increased to $130.6 million (0.37% of total assets) at year-end 2023 from $107.0 million (0.29% of total assets) at year-end 2022, yet remain below pre-pandemic levels293559 - Criticized and classified commercial loans increased due to higher borrower operating costs and evolving commercial real estate market dynamics, especially in the office sector547 - The Allowance for Credit Losses (ACL) to total loans ratio increased to 0.82% at December 31, 2023, from 0.59% at the prior year-end, reflecting changes in economic forecasts, risk rating migration, and portfolio composition shifts308609 - The ACL for the CRE office portfolio significantly increased to 1.10% of loans from 0.45% at year-end 2022, reflecting market headwinds588 Liquidity and Capital Resources - The company maintained a strong liquidity position, with total same-day available liquidity of $13.6 billion at December 31, 2023, and a ratio of available liquidity to uninsured, uncollateralized deposits of 152%284639 - Following the March 2023 banking events, management activated its contingency funding plan and enhanced liquidity monitoring, which remains in effect621 Capital Ratios | Capital Ratio | Dec 31, 2023 (%) | Dec 31, 2022 (%) | | :--- | :--- | :--- | | CET1 risk-based capital | 11.4 | 11.0 | | Tier 1 risk-based capital | 11.4 | 11.0 | | Total risk-based capital | 13.4 | 12.7 | | Tier 1 leverage | 7.9 | 7.5 | - Book value per common share increased to $34.66 and tangible book value per common share increased to $33.62 at year-end 2023330 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by the ALCO using income simulation models to project net interest income under various scenarios, with a +200 basis point rate shock modeled to increase net interest income by 2.1% in year one, and a -200 basis point shock decreasing it by 4.7%, both within policy limits, also utilizing derivative instruments for hedging - The principal market risk is interest rate risk, managed by the ALCO through policies and monitoring procedures, including income simulation and Economic Value of Equity (EVE) analysis645665 Impact on Net Interest Income | Interest Rate Shock (bps) | Impact on Net Interest Income (Year 1, %) | | :--- | :--- | | +200 | +2.1 | | +100 | +1.0 | | -100 | -1.6 | | -200 | -4.7 | - The company employs derivative financial instruments, including interest rate swaps and caps, to manage interest rate risk by mitigating exposure to changes in cash flows on variable-rate liabilities and fair value changes of fixed-rate instruments650 Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for 2021-2023, including Balance Sheets, Income, Comprehensive Income, Cash Flows, and Stockholders' Equity, along with Management's Report on Internal Control and Deloitte & Touche LLP's unqualified opinions on both financial statements and internal controls, supplemented by detailed notes on accounting policies and specific accounts - The section includes the audited consolidated financial statements and accompanying notes for the fiscal years ended December 31, 2023, 2022, and 2021654 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023657 - Deloitte & Touche LLP, the independent registered public accounting firm, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting703712 Notes to Consolidated Financial Statements - The notes offer detailed information on significant accounting policies, encompassing basis of presentation, use of estimates (especially the ACL), fair value measurements, and principles of consolidation725750752 - Note 4 provides a detailed breakdown of the loan portfolio by class and an analysis of the Allowance for Credit Losses (ACL), indicating an increase in the ACL to $202.7 million at year-end 2023 from $147.9 million at year-end 2022863914 - Note 10 details the use of derivative instruments for hedging, with a total notional amount of $3.6 billion for designated hedging instruments as of December 31, 2023671 - Note 13 confirms that as of December 31, 2023, both the Company and the Bank exceeded all "well capitalized" regulatory capital requirements468 Changes in and Disagreements with Accountants The company reports no changes in or disagreements with its accountants regarding accounting principles, financial statement disclosure, or auditing scope or procedure - None1097 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting during the fourth quarter - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 20231103 - There were no material changes to internal control over financial reporting during the fourth quarter of 20231104 Other Information This section is not applicable - Not applicable1115 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable - Not applicable1115