BankUnited, Inc. Reports 2022 Results

BankUnited, Inc. (the “Company”) (NYSE: BKU) today announced financial results for the quarter and year ended December 31, 2022.

"We finished 2022 strong, with good growth, margin expansion and the launch of Atlanta and the Dallas branch. We're optimistic going into 2023," said Rajinder Singh, Chairman, President and Chief Executive Officer.

For the quarter ended December 31, 2022, the Company reported net income of $64.2 million, or $0.82 per diluted share, compared to $87.9 million, or $1.12 per diluted share for the immediately preceding quarter ended September 30, 2022 and $125.3 million, or $1.41 per diluted share, for the quarter ended December 31, 2021. For the year ended December 31, 2022, the Company reported net income of $285.0 million, or $3.54 per diluted share, compared to $415.0 million, or $4.52 per diluted share, for the year ended December 31, 2021.

Quarterly Highlights

• BankUnited was ranked #1 in comprehensive innovation, #2 in bank reputation among customers and #9 in bank reputation among non-customers in an annual survey by the American Banker and RepTrak, published in November 2022. The survey encompassed 41 large, regional and nontraditional banks.
• Pre-tax, pre-provision net revenue ("PPNR") was $121.4 million for the quarter ended December 31, 2022, compared to $120.8 million for the immediately preceding quarter ended September 30, 2022 and $63.8 million for the quarter ended December 31, 2021. PPNR for the quarter ended December 31, 2021 was impacted by certain significant notable items, further discussed below in the section titled "Non-interest income and Non-interest expense."
• Loans grew by $619 million for the quarter ended December 31, 2022. The core C&I and commercial real estate portfolio segments grew by a total of $722 million. For the year ended December 31, 2022, excluding the decline in PPP loans, total loans grew by 6% or $1.4 billion.
• Total deposits grew by $160 million during the quarter ended December 31, 2022. Not unexpectedly in the current interest rate environment, non-interest bearing demand deposits declined by $756 million to 29% of total deposits, while interest bearing deposits grew by $916 million.
• The net interest margin, calculated on a tax-equivalent basis, expanded to 2.81% for the quarter ended December 31, 2022, from 2.76% for the immediately preceding quarter and 2.44% for the quarter ended December 31, 2021. Net interest income increased by $7.2 million, compared to the immediately preceding quarter ended September 30, 2022 and by $37.1 million compared to the quarter ended December 31, 2021. Net interest income for the year ended December 31, 2022 grew by 15% compared to the prior year, while the net interest margin expanded by 30 basis points year-over-year.
• In response to the rising interest rate environment and tightening liquidity, the average cost of total deposits rose to 1.42% for the quarter ended December 31, 2022, from 0.78% for the immediately preceding quarter ended September 30, 2022 and 0.19% for the quarter ended December 31, 2021. The yield on average interest earning assets increased to 4.60% for the quarter ended December 31, 2022, from 3.80% for the immediately preceding quarter and 2.81% for the quarter ended December 31, 2021.
• For the quarter ended December 31, 2022, the Company recorded a provision for credit losses of $39.6 million compared to provisions of $3.7 million and $0.2 million for the quarters ended September 30, 2022 and December 31, 2021, respectively. Despite the decline in non-performing loans, we built reserves during the quarter in light of a worsening baseline economic forecast and a heightened level of uncertainty regarding the trajectory of the economy. The provision for credit losses for the quarter ended December 31, 2022 was also impacted by loan growth and an increase in certain specific reserves. The ratio of the ACL to total loans increased to 0.59%, from 0.54% at September 30, 2022.
• During the quarter ended December 31, 2022, the Company repurchased approximately 1.9 million shares of its common stock for an aggregate purchase price of $64.7 million, at a weighted average price of $33.92 per share.

Loans

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

Total loans grew by $619 million for the quarter ended December 31, 2022. In the aggregate, the core C&I and commercial real estate portfolio segments grew by $722 million. The commercial and industrial segment, including owner-occupied commercial real estate, grew by $599 million for the quarter, while commercial real estate loans grew by $123 million. As expected, the remaining commercial segments declined during the quarter while the residential portfolio grew modestly.

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

Non-performing loans totaled $105.0 million or 0.42% of total loans at December 31, 2022, down from $156.4 million or 0.64% of total loans at September 30, 2022 and $205.9 million or 0.87% of total loans at December 31, 2021. Non-performing loans included $40.3 million, $41.8 million and $46.1 million of the guaranteed portion of SBA loans on non-accrual status, representing 0.16%, 0.17% and 0.19% of total loans at December 31, 2022, September 30, 2022 and December 31, 2021, respectively.

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

The following table presents the ACL and related ACL coverage ratios at the dates indicated and net charge-off rates for the periods ended December 31, 2022, September 30, 2022, and December 31, 2021 (dollars in thousands):

The ACL at December 31, 2022 represents management's estimate of lifetime expected credit losses given our assessment of historical data, current conditions and a reasonable and supportable economic forecast as of the balance sheet date. For the quarter ended December 31, 2022, the Company recorded a provision for credit losses of $39.6 million, including $40.4 million related to funded loans. The most significant factor impacting the provision for credit losses for the quarter ended December 31, 2022 was the economic forecast and uncertainty about the trajectory of the economy, which impacted both the quantitative and qualitative portions of the ACL. New loan production and increases in certain specific reserves also impacted the provision for the quarter.

For the year ended December 31, 2022 the provision for credit losses totaled $75.2 million, compared to a recovery of the provision of $(67.1) million for the year ended December 31, 2021. The provision for 2022 reflected consideration of emerging economic uncertainty and increasing probability of a recession, while the recovery for 2021 reflected the release of reserves built at the time of onset of the COVID-19 pandemic.

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

Net Interest Income

Net interest income for the quarter ended December 31, 2022 was $243.1 million, compared to $235.8 million for the immediately preceding quarter ended September 30, 2022 and $206.0 million for the quarter ended December 31, 2021. Interest income increased by $75.5 million for the quarter ended December 31, 2022, compared to the immediately preceding quarter while interest expense increased by $68.2 million.

The Company’s net interest margin, calculated on a tax-equivalent basis, increased by 0.05% to 2.81% for the quarter ended December 31, 2022, from 2.76% for the immediately preceding quarter ended September 30, 2022. Factors impacting the net interest margin for the quarter ended December 31, 2022 included:

• The tax-equivalent yield on investment securities increased to 4.33% for the quarter ended December 31, 2022, from 3.12% for the quarter ended September 30, 2022. This increase resulted from the reset of coupon rates on variable rate securities and to a lesser extent, purchases of higher yielding securities.

• The tax-equivalent yield on loans increased to 4.72% for the quarter ended December 31, 2022, from 4.11% for the quarter ended September 30, 2022. The resetting of variable rate loans to higher coupon rates and origination of new loans at higher rates contributed to the increase.

• The average rate paid on interest bearing deposits increased to 2.06% for the quarter ended December 31, 2022, from 1.14% for the quarter ended September 30, 2022, in response to the rising interest rate environment and tightening liquidity conditions. Time deposits grew as a percentage of interest bearing deposits as we deployed a strategy to extend the term of interest bearing deposits.

• The average rate paid on FHLB advances increased to 3.44% for the quarter ended December 31, 2022, from 2.25% for the quarter ended September 30, 2022, primarily in response to the rising interest rate environment.

Non-interest income and Non-interest expense

Non-interest income totaled $26.8 million for the quarter ended December 31, 2022, compared to $23.1 million for the quarter ended September 30, 2022 and $45.6 million for the quarter ended December 31, 2021. During the quarter ended December 31, 2021, the Company sold a portfolio of single-family residential loans for a gain of $18.2 million.

Non-interest income totaled $77.6 million for the year ended December 31, 2022, compared to $134.2 million for the year ended December 31, 2021. The year-over-year decline is primarily attributable to (i) the gain on sale of residential loans in the fourth quarter of 2021 discussed above, (ii) a $19.7 million decline in the fair value of certain preferred stock investments included in net loss on investment securities for the year ended December 31, 2022, and (iii) a decline in "other" non-interest income related primarily to lower BOLI revenue.

Non-interest expense totaled $148.5 million for the quarter ended December 31, 2022, compared to $138.1 million for the immediately preceding quarter ended September 30, 2022 and $187.9 million for the quarter ended December 31, 2021. Non-interest expense totaled $540.3 million and $547.6 million for the years ended December 31, 2022 and 2021, respectively. Non-interest expense for the quarter and year ended December 31, 2021 included a loss of $44.8 million on discontinuance of cash flow hedges. Quarter-over-quarter and year-over-year increases in employee compensation and benefits and in technology expense reflected labor market dynamics and continued investment in people and technology to support future growth.

Provision (benefit) for income taxes

The effective income tax rate was 21.5% and 24.0% for the quarter and year ended December 31, 2022, compared to (97.2)% and 7.7% for the quarter and year ended December 31, 2021. The effective income tax rate for both the quarter and year ended December 31, 2021 was positively impacted by $69.1 million in discrete tax benefits recognized in the fourth quarter of 2021.

Earnings Conference Call and Presentation

A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Thursday, January 19, 2023 with Chairman, President and Chief Executive Officer, Rajinder P. Singh, Chief Financial Officer, Leslie N. Lunak and Chief Operating Officer, Thomas M. Cornish.

The earnings release and slides with supplemental information relating to the release will be available on the Investor Relations page under About Us on www.bankunited.com prior to the call. Due to recent demand for conference call services, participants are encouraged to listen to the call via a live Internet webcast at https://ir.bankunited.com. To participate by telephone, participants will receive dial-in information and a unique PIN number upon completion of registration at https://register.vevent.com/register/BI9a423dcb6b32467695ab75bc2d26717e. For those unable to join the live event, an archived webcast will be available in the Investor Relations page at https://ir.bankunited.com approximately two hours following the live webcast.

About BankUnited, Inc.

BankUnited, Inc., with total assets of $37.0 billion at December 31, 2022, is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida with 54 banking centers in 12 Florida counties, 4 banking centers in the New York metropolitan area, and 1 banking center located in Dallas, Texas.

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 external circumstances outside the Company's direct control. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K, which are available at the SEC’s website (www.sec.gov).

Non-GAAP Financial Measures

PPNR is a non-GAAP financial measure. Management believes this measure is relevant to understanding the performance of the Company attributable to elements other than the provision for credit losses and the ability of the Company to generate earnings sufficient to cover estimated credit losses, particularly in view of recent volatility of the provision for credit losses. This measure also provides a meaningful basis for comparison to other financial institutions since it is commonly employed and is a measure frequently cited by investors and analysts. The following table reconciles the non-GAAP financial measure of PPNR to the comparable GAAP financial measurement of income before income taxes at the dates indicated (in thousands):

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