BankUnited, Inc. Reports First Quarter 2019 Results

BankUnited, Inc. (the "Company") BKU today announced financial results for the quarter ended March 31, 2019.

For the quarter ended March 31, 2019, the Company reported net income of $66.0 million, or $0.65 per diluted share compared to $85.2 million, or $0.77 per diluted share, for the quarter ended March 31, 2018. Non-loss share diluted earnings per share, as previously reported,⁽¹⁾ for the quarter ended March 31, 2018 was $0.54.

The annualized return on average stockholders' equity for the three months ended March 31, 2019 was 9.05%, while the annualized return on average assets was 0.82%.

Rajinder Singh, Chairman, President and Chief Executive Officer, said, "As we approach our tenth anniversary, we are excited to embark on the next chapter of BankUnited's journey to becoming a premier regional commercial and small business bank. We have launched a new enterprise-wide program, BankUnited 2.0, focused on finding efficiencies and improving effectiveness while simultaneously continuing to invest in technology and product capability to meet our customers' evolving needs."

(1) Non-loss share diluted earnings per share is a non-GAAP financial measure. See section entitled "Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measurements to their comparable GAAP financial measurements.

Quarterly Highlights

• For the quarter ended March 31, 2019, total deposits increased by $205 million, of which $143 million was non-interest bearing demand deposits. Non-interest bearing demand deposits represented 15.9% of total deposits at March 31, 2019, compared to 14.0% at the end of 2017.

• Loans and leases, including equipment under operating lease, grew by $390 million during the quarter. At March 31, 2019, commercial real estate loans represented 34% of total loans and C&I loans represented 44% of the portfolio. By comparison, at the end of 2017, commercial real estate loans represented 38% of total loans while C&I loans accounted for 42% of the portfolio.
• As expected, net interest income decreased by $56.9 million to $190.9 million for the quarter ended March 31, 2019 from $247.8 million for the quarter ended March 31, 2018. The net interest margin, calculated on a tax-equivalent basis, was 2.54% for the quarter ended March 31, 2019 compared to 4.01% for the immediately preceding quarter ended December 31, 2018 and 3.56% for the quarter ended March 31, 2018. The most significant reason for the declines in net interest income and the net interest margin was the decrease in accretion on residential ACI loans (formerly covered loans).
• During the quarter ended March 31, 2019, the Company repurchased approximately 1.1 million shares of its common stock for an aggregate purchase price of approximately $40 million, a weighted average price of $35.91 per share.
• Book value per common share grew to $29.71 at March 31, 2019 from $29.49 at December 31, 2018 while tangible book value per common share increased to $28.92 from $28.71 over the same period.
• As previously disclosed, the Single Family Shared-Loss Agreement between BankUnited N.A. ("the Bank") and the FDIC was terminated on February 13, 2019.

Loans and Leases

Loans, including premiums, discounts and deferred fees and costs, totaled $22.4 billion at March 31, 2019 compared to $22.0 billion at December 31, 2018.

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

The residential portfolio grew by $100 million for the quarter ended March 31, 2019. Continued runoff of the New York multi-family portfolio led to a decline of $49 million in multi-family loans for the quarter ended March 31, 2019. Non-owner occupied commercial real estate loans grew by $120 million for the quarter ended March 31, 2019, driven primarily by growth in the Florida portfolio. Commercial and industrial loans, inclusive of owner occupied commercial real estate, grew by $144 million for the quarter ended March 31, 2019, reflecting growth in both our Florida and New York footprints. Growth of $90 million in the national commercial lending platforms, including equipment under operating lease, included $41 million in growth at Bridge Funding Group and a $63 million increase in mortgage warehouse outstandings, partially offset by declines in the Pinnacle Public Finance and Small Business Finance portfolios.

Asset Quality and Allowance for Loan and Lease Losses

For the three months ended March 31, 2019 and 2018, the Company recorded provisions for loan losses of $10.3 million and $3.1 million, respectively. The provision for the quarter ended March 31, 2018 included $2.8 million related to taxi medallion loans.

Contributing factors impacting the increase in the provision for loan losses for the quarter ended March 31, 2019 as compared to the quarter ended March 31, 2018 included (i) increases related to the relative impact on the provision of changes in certain quantitative and qualitative loss factors; (ii) an increase in the provision related to specific reserves; and (iii) higher loan growth, offset by the reduction in the provision related to taxi medallion loans.

Non-performing loans totaled $133.2 million or 0.60% of total loans at March 31, 2019, compared to $129.9 million or 0.59% of total loans at December 31, 2018. The ratios of the allowance for loan and lease losses to total loans and to non-performing loans were 0.51% and 86.12%, respectively, at March 31, 2019, compared to 0.50% and 84.63%, at December 31, 2018. The annualized ratio of net charge-offs to average loans was 0.10% for the three months ended March 31, 2019, compared to 0.28% for the year ended December 31, 2018, of which 0.18% related to taxi medallion loans.

The following table summarizes the activity in the allowance for loan and lease losses for the periods indicated (in thousands):

Charge-offs related to taxi medallion loans totaled $5.4 million for the quarter ended March 31, 2018.

Deposits

At March 31, 2019, deposits totaled $23.7 billion compared to $23.5 billion at December 31, 2018. The average cost of total deposits was 1.67% for the quarter ended March 31, 2019, compared to 1.52% for the immediately preceding quarter ended December 31, 2018, and 1.04% for the quarter ended March 31, 2018.

Net interest income

Net interest income for the quarter ended March 31, 2019 decreased to $190.9 million from $247.8 million for the quarter ended March 31, 2018. Interest income decreased by $5.9 million, primarily due to a decrease in both the yield on and average balance of formerly covered residential ACI loans. Interest expense increased by $51.0 million due to increases in both average interest bearing liabilities and the cost of funds.

As expected, the Company's net interest margin, calculated on a tax-equivalent basis, decreased to 2.54% for the quarter ended March 31, 2019, from 4.01% for the immediately preceding quarter ended December 31, 2018 and 3.56% for the quarter ended March 31, 2018.

The most significant factor impacting the decrease in net interest margin for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was the decrease in accretion on formerly covered residential ACI loans. Both the average balance of and yield on these loans declined. The decline in the average balance resulted from the sale of a substantial portion of the loans during 2018. The yield on the remaining loans declined to 33.00% for the three months ended March 31, 2019 from 65.22% for the three months ended March 31, 2018, due primarily to changes in assumptions about the remaining period over which accretable yield would be realized, attributable to management's decision to retain certain loans beyond expiration of the Single Family Shared-Loss Agreement.

Other offsetting factors contributing to the decline in the net interest margin included:

• The tax-equivalent yield on loans other than formerly covered residential loans increased to 4.24% for the three months ended March 31, 2019, from 3.83% for the three months ended March 31, 2018. The most significant factor contributing to this increased yield was the impact of increases in benchmark interest rates.
• The tax-equivalent yield on investment securities increased to 3.64% for the three months ended March 31, 2019 from 3.04% for the three months ended March 31, 2018.
• The average rate on interest bearing liabilities increased to 2.10% for the three months ended March 31, 2019, from 1.37% for the three months ended March 31, 2018, reflecting higher average rates on both interest bearing deposits and FHLB advances. Increases in the cost of interest bearing liabilities primarily reflect increases in market interest rates.

Non-interest income

Non-interest income totaled $36.3 million for the three months ended March 31, 2019 compared to $28.0 million for the three months ended March 31, 2018.

Significant factors contributing to the increase in non-interest income for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 included (i) an increase of $5.4 million in gain on investment securities; and (ii) an increase of $3.1 million in lease financing income. Gains on investment securities for the three months ended March 31, 2019 related to sales of securities in the course of managing the Company's liquidity position and to increases in the fair values of certain marketable equity securities.

Non-interest expense

Non-interest expense totaled $126.7 million for the three months ended March 31, 2019 compared to $161.8 million for the three months ended March 31, 2018. The most significant component of the decrease in non-interest expense was the $40.3 million decrease in amortization of the FDIC indemnification asset. The FDIC indemnification asset was amortized to zero during the fourth quarter of 2018 in light of the expected termination of the Single Family Shared-Loss Agreement.

Professional fees increased by $5.0 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in professional fees was primarily attributable to consulting services related to our BankUnited 2.0 initiative and the implementation of CECL.

Provision for income taxes

The effective income tax rate was 26.8% for the three months ended March 31, 2019, compared to 23.1% for the three months ended March 31, 2018. An increase in state income taxes contributed to the increase in the effective tax rate. The effective income tax rate differed from the statutory federal income tax rate of 21% for the three months ended March 31, 2019 due primarily to income not subject to tax, offset by state income taxes.

Earnings Conference Call and Presentation

A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Wednesday, April 24, 2019 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. The call may be accessed via a live Internet webcast at www.bankunited.com or through a dial in telephone number at (855) 798-3052 (domestic) or (234) 386-2812 (international). The name of the call is BankUnited, Inc. and the confirmation number for the call is 2969278. A replay of the call will be available from 12:00 p.m. ET on April 24th through 11:59 p.m. ET on May 1st by calling (855) 859-2056 (domestic) or (404) 537-3406 (international). The pass code for the replay is 2969278. 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 $32.7 billion at March 31, 2019, is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida with 80 banking centers in 14 Florida counties and 5 banking centers in the New York metropolitan area at March 31, 2019.

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" 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. 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, 2018 which is available at the SEC's website (www.sec.gov).

(1) On a tax-equivalent basis where applicable

(2) Annualized

(3) At fair value except for securities held to maturity

(1) We define non-performing loans to include non-accrual loans, and loans, other than ACI loans and government insured residential loans, that are past due 90 days or more and still accruing. Contractually delinquent ACI loans and government insured residential loans on which interest continues to be accreted or accrued are excluded from non-performing loans.

(2) Non-performing assets include non-performing loans, OREO and other repossessed assets.

(3) Total loans include premiums, discounts, and deferred fees and costs.

(4) On a tax-equivalent basis.

(5) Annualized for the three month periods.

Non-GAAP Financial Measures

Tangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capital position and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful base for comparison to other financial institutions. The following table reconciles the non-GAAP financial measurement of tangible book value per common share to the comparable GAAP financial measurement of book value per common share at March 31, 2019 (in thousands except share and per share data):

Non-loss share diluted earnings per share is a non-GAAP financial measure. Management believes disclosure of this measure provides readers with information that may be useful in understanding the impact of the covered loans and FDIC indemnification asset on the Company's earnings for periods prior to the termination of the Single Family Shared-Loss Agreement. The following table reconciles this non-GAAP financial measurement to the comparable GAAP financial measurement of diluted earnings per common share for the three months ended March 31, 2018 (in millions except share and per share data. Shares in thousands):

Supplemental Calculations

Calculation of Loss Share Contribution and Non-Loss Share Earnings Per Share

Non-Loss Share Earnings are calculated by removing the total Loss Share Contribution from Net Income. The Loss Share Contribution is a hypothetical presentation of the impact of the covered loans and FDIC indemnification asset on earnings for each respective quarter, reflecting the excess of Loss Share Earnings over hypothetical interest income that could have been earned on alternative assets (in millions except share and per share data):

(1) See section entitled "Supplemental Calculations - Calculation of Hypothetical Interest Income on Alternate Assets" below for calculation of these amounts and underlying assumptions.

(2) An assumed marginal tax rate of 26.5% was applied.

Calculation of Hypothetical Interest Income on Alternate Assets

The hypothetical interest income calculated below reflects the estimated income that may have been earned if the average balance of covered loans and the FDIC indemnification asset were liquidated and the proceeds assumed to be invested in securities at the weighted average yield on the Company's investment securities portfolio as reported. Historically, cash received from the repayment, sale, or other resolution of covered loans and cash payments received from the FDIC under the terms of the Shared Loss Agreement have generally been reinvested in non-covered loans or investment securities. There is no assurance that the hypothetical results illustrated below would have been achieved if the covered loans and FDIC indemnification asset had been liquidated and proceeds reinvested (dollars in millions):

(1) Calculated as the simple average of beginning and ending balances reported for each period.

(2) The weighted average yield on the Company's investment securities as reported for the applicable quarter.

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