UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 24, 2018 (October 24, 2018)
BankUnited, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 001-35039 | 27-0162450 | ||
(State of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
14817 Oak Lane
Miami Lakes, FL 33016
(Address of principal executive offices) (Zip Code)
(305) 569-2000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
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Item 2.02 Results of Operations and Financial Condition.
On October 24, 2018, BankUnited, Inc. (the “Company”) reported its results for the quarter ended September 30, 2018. A copy of the Company’s press release containing this information and slides containing supplemental information related to the release are being furnished as Exhibit 99.1 and Exhibit 99.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
Item 8.01 Other Events
On October 24, 2018, the Company announced that its board of directors had authorized a new share repurchase program under which the Company may repurchase up to $150 million in shares of its outstanding common stock. The new repurchase program replaces the Company's prior repurchase program, pursuant to which the Company repurchased 3.8 million shares of its common stock for an aggregate purchase price of $150 million. Any repurchases under the new repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, the Company’s capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number | Description | ||
October 24, 2018 | |||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: | October 24, 2018 | BANKUNITED, INC. | |
/s/ Leslie N. Lunak | |||
Name: | Leslie N. Lunak | ||
Title: | Chief Financial Officer | ||
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EXHIBIT INDEX
Exhibit Number | Description | ||
October 24, 2018 | |||
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Exhibit 99.1
BANKUNITED, INC. REPORTS THIRD QUARTER 2018 RESULTS
Miami Lakes, Fla. — October 24, 2018 — BankUnited, Inc. (the “Company”) (NYSE: BKU) today announced financial results for the quarter ended September 30, 2018.
For the quarter ended September 30, 2018, the Company reported net income of $97.3 million, or $0.90 per diluted share compared to $67.8 million, or $0.62 per diluted share, for the quarter ended September 30, 2017, a 45% increase in diluted earnings per share. For the nine months ended September 30, 2018, the Company reported net income of $272.5 million, or $2.49 per diluted share, compared to $196.5 million, or $1.79 per diluted share, for the nine months ended September 30, 2017.
Non-loss share earnings per share(1) for the trailing four quarters ended September 30, 2018 increased by 28% to a total of $2.39 from a total of $1.87 for the preceding four quarters.
The annualized return on average stockholders’ equity for the nine months ended September 30, 2018 was 11.80% compared to 10.21% for the nine months ended September 30, 2017, while the annualized return on average assets was 1.19% compared to 0.92% for the same periods.
Rajinder Singh, President and Chief Executive Officer, said, "Results for this quarter were marked by strong growth in both GAAP and non-loss share EPS and by continued success increasing non-interest bearing DDA balances."
Performance Highlights
• | Net interest income increased by $10.7 million to $252.0 million for the quarter ended September 30, 2018 from $241.3 million for the quarter ended September 30, 2017. Interest income increased by $48.3 million, driven by increases in the average balances of loans and investment securities outstanding as well as increases in yields on interest earning assets. Interest expense increased by $37.6 million, driven primarily by increases in average interest bearing deposits and an increase in the cost of interest bearing liabilities. For the nine months ended September 30, 2018, net interest income increased by $43.6 million to $755.0 million from $711.4 million for the nine months ended September 30, 2017. |
• | The net interest margin, calculated on a tax-equivalent basis, was 3.51% for the quarter ended September 30, 2018 compared to 3.60% for the immediately preceding quarter ended June 30, 2018 and 3.62% for the quarter ended September 30, 2017. Significant factors contributing to the decline in the net interest margin from the comparable quarter of the prior year were (i) an increase in the cost of interest bearing liabilities; (ii) the impact on tax equivalent yields of the reduction in the statutory federal income tax rate; and (iii) although yields on all categories of interest earning assets increased, non-covered loans and investment securities were added to the balance sheet at yields lower than the existing yield on earning assets, which is impacted by the yield on covered loans. |
• | The provision for loan losses for the quarter ended September 30, 2018 totaled $1.2 million compared to $37.9 million for the quarter ended September 30, 2017. The provision for the quarter ended September 30, 2017 included $32.7 million related to taxi medallion loans. |
• | Non-covered loans and leases, including equipment under operating lease, grew by $211 million during the quarter ended September 30, 2018. For the nine months ended September 30, 2018, non-covered loans and leases grew by $708 million. |
• | For the quarter ended September 30, 2018, total deposits increased by $127 million, of which $98 million was non-interest bearing demand deposits. Total deposits increased by $427 million for the nine months ended September 30, 2018, of which $343 million was non-interest bearing demand deposits. |
• | Book value per common share grew to $29.63 at September 30, 2018 from $28.32 at December 31, 2017 while tangible book value per common share increased to $28.88 from $27.59 over the same period. |
(1) Non-loss share earnings per share is a non-GAAP measure. See section entitled "Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measurements to their comparable GAAP financial measurements.
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• | During the quarter ended September 30, 2018, the Company completed the $150 million share repurchase program authorized by its Board of Directors, repurchasing 2.4 million shares for an aggregate purchase price of $96 million. During the nine months ended September 30, 2018, the Company repurchased approximately 3.8 million shares of its common stock for an aggregate purchase price of $150.0 million. |
• | On October 23, 2018 the Board of Directors of the Company authorized the repurchase of up to an additional $150 million in shares of its outstanding common stock. Any repurchases will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, the Company’s capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. |
Capital
The Company and its banking subsidiary continue to exceed all regulatory guidelines required to be considered well capitalized. The Company’s and BankUnited, N.A.'s regulatory capital ratios at September 30, 2018 were as follows:
BankUnited, Inc. | BankUnited, N.A. | ||||
Tier 1 leverage | 9.5 | % | 10.3 | % | |
Common Equity Tier 1 ("CET1") risk-based capital | 13.2 | % | 14.3 | % | |
Tier 1 risk-based capital | 13.2 | % | 14.3 | % | |
Total risk-based capital | 13.8 | % | 14.9 | % | |
Loans and Leases
Loans, including premiums, discounts and deferred fees and costs, totaled $21.9 billion at September 30, 2018 compared to $21.4 billion at December 31, 2017. Non-covered loans grew to $21.6 billion while covered loans declined to $360 million at September 30, 2018.
A comparison of non-covered loan and lease portfolio composition at the dates indicated follows:
September 30, 2018 | June 30, 2018 | December 31, 2017 | ||||||||||||||||||
Residential and other consumer loans | $ | 4,563,578 | 21.0 | % | $ | 4,448,660 | 20.6 | % | $ | 4,196,080 | 19.8 | % | ||||||||
Multi-family | 2,762,998 | 12.8 | % | 2,861,559 | 13.4 | % | 3,218,953 | 15.4 | % | |||||||||||
Non-owner occupied commercial real estate | 4,567,589 | 21.4 | % | 4,526,922 | 21.2 | % | 4,474,801 | 21.5 | % | |||||||||||
Construction and land | 244,619 | 1.1 | % | 255,393 | 1.2 | % | 310,484 | 1.5 | % | |||||||||||
Owner occupied commercial real estate | 2,091,978 | 9.7 | % | 2,046,266 | 9.6 | % | 2,012,742 | 9.7 | % | |||||||||||
Commercial and industrial | 4,708,545 | 21.9 | % | 4,594,857 | 21.5 | % | 4,137,827 | 19.9 | % | |||||||||||
Commercial lending subsidiaries | 2,620,097 | 12.1 | % | 2,684,716 | 12.5 | % | 2,562,499 | 12.2 | % | |||||||||||
$ | 21,559,404 | 100.0 | % | $ | 21,418,373 | 100.0 | % | $ | 20,913,386 | 100.0 | % | |||||||||
Equipment under operating lease, net | $ | 661,677 | $ | 591,267 | $ | 599,502 | ||||||||||||||
Residential and other consumer loans grew by $115 million for the quarter ended September 30, 2018. Multi-family loans declined by $99 million for the quarter ended September 30, 2018, primarily due to continued run-off of the New York portfolio, which decreased by $91 million. Commercial and industrial loans, inclusive of owner occupied commercial real estate, grew by $159 million for the quarter ended September 30, 2018, driven largely by growth in the Florida portfolio. Loans and leases for the commercial lending subsidiaries increased slightly, reflecting growth of $70 million in equipment under operating lease, largely offset by a decline in balances outstanding at Pinnacle Public Finance.
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Asset Quality and Allowance for Loan and Lease Losses
For the quarters ended September 30, 2018 and 2017, the Company recorded provisions for loan losses of $1.2 million and $37.9 million, respectively, substantially all of which related to non-covered loans. For the nine months ended September 30, 2018 and 2017, the Company recorded provisions for loan losses of $13.3 million and $63.6 million, respectively, substantially all of which related to non-covered loans. The Company recorded net recoveries of $1.0 million and a provision of $32.7 million related to taxi medallion loans for the quarters ended September 30, 2018 and September 30, 2017, respectively. For the nine months ended September 30, 2018 and 2017, the provision related to taxi medallion loans totaled $13.0 million and $49.6 million, respectively.
Significant factors impacting the decrease in the provision for loan losses related to non-covered loans for the quarter and nine months ended September 30, 2018 as compared to the quarter and nine months ended September 30, 2017 were (i) lower loan growth; (ii) a net decrease in the provision related to certain quantitative and qualitative loss factors; (iii) a decrease in the provision related to taxi medallion loans; (iv) a decrease in the provision related to the impact of hurricanes during the third quarter of 2017; partially offset by (v) an increase in the provision related to specific reserves for loans other than taxi medallion loans.
Non-covered, non-performing loans totaled $206.1 million or 0.96% of total non-covered loans at September 30, 2018, compared to $172.0 million or 0.82% of total non-covered loans at December 31, 2017. Non-performing taxi medallion loans comprised $80.2 million or 0.37% of total non-covered loans at September 30, 2018 and $106.1 million or 0.51% of total non-covered loans at December 31, 2017. At September 30, 2018 and December 31, 2017, the entire taxi medallion portfolio was on non-accrual status.
The ratios of the allowance for non-covered loan and lease losses to total non-covered loans and to non-performing, non-covered loans were 0.58% and 60.51%, respectively, at September 30, 2018, compared to 0.69% and 84.03%, at December 31, 2017. The annualized ratio of net charge-offs to average non-covered loans was 0.21% for the nine months ended September 30, 2018, compared to 0.38% for the year ended December 31, 2017. The annualized ratio of charge-offs of taxi medallion loans to average non-covered loans was 0.09% for the nine months ended September 30, 2018, compared to 0.29% for the year ended December 31, 2017. The most significant factors impacting the decline in the ratio of the allowance for non-covered loan and lease losses to total non-covered loans were (i) a decrease in certain loss factors, (ii) a decline in total criticized, classified and impaired loans, which typically carry higher reserves on a percentage basis, as a percentage of total loans and (iii) the impact of charge-offs on the ratio.
The following table summarizes the activity in the allowance for loan and lease losses for the periods indicated (in thousands):
Three Months Ended September 30, 2018 | Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||
ACI Loans | Non-ACI Loans | Non-Covered Loans | Total | ACI Loans | Non-ACI Loans | Non-Covered Loans | Total | ||||||||||||||||||||||||
Balance at beginning of period | $ | — | $ | 590 | $ | 134,381 | $ | 134,971 | $ | 1,812 | $ | 2,737 | $ | 151,099 | $ | 155,648 | |||||||||||||||
Provision (recovery) | — | (50 | ) | 1,250 | 1,200 | — | 261 | 37,593 | 37,854 | ||||||||||||||||||||||
Charge-offs | — | (740 | ) | (12,340 | ) | (13,080 | ) | — | — | (36,028 | ) | (36,028 | ) | ||||||||||||||||||
Recoveries | — | 214 | 1,435 | 1,649 | — | 38 | 1,061 | 1,099 | |||||||||||||||||||||||
Balance at end of period | $ | — | $ | 14 | $ | 124,726 | $ | 124,740 | $ | 1,812 | $ | 3,036 | $ | 153,725 | $ | 158,573 | |||||||||||||||
Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||
ACI Loans | Non-ACI Loans | Non-Covered Loans | Total | ACI Loans | Non-ACI Loans | Non-Covered Loans | Total | ||||||||||||||||||||||||
Balance at beginning of period | $ | — | $ | 258 | $ | 144,537 | $ | 144,795 | $ | — | $ | 2,100 | $ | 150,853 | $ | 152,953 | |||||||||||||||
Provision | — | 517 | 12,825 | 13,342 | 1,812 | 881 | 60,880 | 63,573 | |||||||||||||||||||||||
Charge-offs | — | (979 | ) | (35,001 | ) | (35,980 | ) | — | (55 | ) | (61,034 | ) | (61,089 | ) | |||||||||||||||||
Recoveries | — | 218 | 2,365 | 2,583 | — | 110 | 3,026 | 3,136 | |||||||||||||||||||||||
Balance at end of period | $ | — | $ | 14 | $ | 124,726 | $ | 124,740 | $ | 1,812 | $ | 3,036 | $ | 153,725 | $ | 158,573 | |||||||||||||||
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Charge-offs related to taxi medallion loans totaled $0.7 million and $35.3 million for the quarters ended September 30, 2018 and 2017, respectively, and $14.2 million and $47.1 million for the nine months ended September 30, 2018 and 2017. The majority of charge-offs for the quarter ended September 30, 2018 related to one commercial relationship.
Deposits
At September 30, 2018, deposits totaled $22.3 billion compared to $21.9 billion at December 31, 2017. The average cost of total deposits was 1.35% for the quarter ended September 30, 2018, compared to 1.19% for the immediately preceding quarter ended June 30, 2018, and 0.87% for the quarter ended September 30, 2017. The average cost of total deposits was 1.19% for the nine months ended September 30, 2018, compared to 0.80% for the nine months ended September 30, 2017.
Net interest income
Net interest income for the quarter ended September 30, 2018 increased to $252.0 million from $241.3 million for the quarter ended September 30, 2017. Net interest income was $755.0 million for the nine months ended September 30, 2018, compared to $711.4 million for the nine months ended September 30, 2017. Increases in interest income were partially offset by increases in interest expense. The increases in interest income were primarily attributable to increases in the average balances of loans and investment securities and related average yields. Interest expense increased due to increases in average interest bearing deposits and the cost of funds.
The Company’s net interest margin, calculated on a tax-equivalent basis, was 3.51% for the quarter ended September 30, 2018, compared to 3.62% for the quarter ended September 30, 2017. Net interest margin, calculated on a tax-equivalent basis, was 3.56% for the nine months ended September 30, 2018, compared to 3.69% for the nine months ended September 30, 2017.
Significant offsetting factors impacting the declines in net interest margin for the quarter and nine months ended September 30, 2018, compared to the quarter and nine months ended September 30, 2017, included:
• | The tax-equivalent yield on loans increased to 5.47% and 5.39%, respectively, for the quarter and nine months ended September 30, 2018, compared to 5.15% for both the quarter and nine months ended September 30, 2017, reflecting increased yields on both non-covered and covered loans. |
• | The tax-equivalent yield on non-covered loans was 4.05% and 3.94%, respectively, for the quarter and the nine months ended September 30, 2018, compared to 3.79% and 3.73% for the quarter and nine months ended September 30, 2017. The most significant factor contributing to the increased yield on non-covered loans was the impact of increases in benchmark interest rates. |
• | The tax-equivalent yield on covered loans increased to 79.67% and 71.46%, respectively, for the quarter and nine months ended September 30, 2018 from 56.70% and 53.54% for the quarter and nine months ended September 30, 2017, reflecting continued improvements in expected cash flows from ACI loans. |
• | The tax-equivalent yield on investment securities increased to 3.41% and 3.26%, respectively, for the quarter and nine months ended September 30, 2018 from 3.14% and 3.07% for the quarter and nine months ended September 30, 2017. |
• | Tax-equivalent yields on non-covered loans and investment securities and the net interest margin were each negatively impacted by approximately 0.08% for the quarter ended September 30, 2018 as compared to the quarter ended September 30, 2017 as a result of the reduction in the statutory federal income tax rate. For the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, the tax rate change negatively impacted the net interest margin by approximately 0.08%. |
• | Growth of non-covered loans and investment securities at yields lower than the overall yield on interest earning assets, which is impacted by the yield on covered loans. |
• | The average rate on interest bearing liabilities increased to 1.74% and 1.57%, respectively for the quarter and nine months ended September 30, 2018, from 1.17% and 1.08% for the quarter and nine months ended September 30, 2017, 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 and extension of the duration of FHLB advances. |
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Non-interest income
Non-interest income totaled $38.7 million and $98.7 million, respectively, for the quarter and nine months ended September 30, 2018 compared to $53.3 million and $111.4 million, respectively, for the quarter and nine months ended September 30, 2017.
The most significant factors contributing to these decreases in non-interest income included (i) decreases of $26.5 million and $26.3 million, respectively, in gain on investment securities and (ii) increases of $10.5 million and $10.7 million, respectively, in gain on sale of covered loans, inclusive of the impact of FDIC indemnification for the quarter and nine months ended September 30, 2018, as compared to the corresponding periods in the prior year. During the quarter ended September 30, 2018, under the terms of the Purchase and Assumption Agreement with the FDIC, the Company sold approximately $154 million in unpaid principal balance of covered residential loans. Decreases in gain on investment securities primarily reflected gains recognized in the quarter ended September 30, 2017 from the sale of certain securities formerly covered under the Commercial Shared-Loss Agreement and originally acquired at significant discounts in the FSB Acquisition.
Non-interest expense
Non-interest expense totaled $170.8 million and $493.9 million, respectively, for the quarter and nine months ended September 30, 2018 compared to $156.7 million and $473.7 million for the quarter and nine months ended September 30, 2017. The most significant components of non-interest expense are employee compensation and benefits and amortization of the FDIC indemnification asset. Employee compensation and benefits increased by $7.3 million and $19.8 million for the quarter and nine months ended September 30, 2018, compared to the quarter and nine months ended September 30, 2017, mainly due to an increase in the number of employees and compensation increases.
Amortization of the FDIC indemnification asset was $48.3 million and $132.9 million, respectively, for the quarter and nine months ended September 30, 2018, compared to $45.2 million and $135.4 million for the quarter and nine months ended September 30, 2017. The amortization rate increased to 103.87% and 76.73% for the quarter and nine months ended September 30, 2018 from 46.62% and 41.19% for the quarter and nine months ended September 30, 2017. As the expected cash flows from ACI loans have increased, expected cash flows from the FDIC indemnification asset have decreased, resulting in continued increases in the amortization rate. Although the amortization rate increased, total amortization expense declined for the nine months ended September 30, 2018 due to the reduction in the average balance of the indemnification asset.
Provision for income taxes
The effective income tax rate was 18.0% and 21.4% for the quarter and nine months ended September 30, 2018, compared to 32.2% and 31.2% for the quarter and nine months ended September 30, 2017. These declines in the effective income tax rate were primarily attributable to the reduction of the statutory corporate federal income tax rate from 35% to 21%, effective January 1, 2018. Additionally, the effective income tax rate differed from the statutory federal income tax rate of 21% in both periods due primarily to income not subject to tax, offset by state income taxes.
Covered loans and the FDIC indemnification asset
As the Company’s expected cash flows from ACI loans have improved since the FSB Acquisition, the Company has reclassified amounts from non-accretable difference to accretable yield, resulting in increases in the yield on covered loans. Non-accretable difference at acquisition represented the difference between the total contractual payments due and the cash flows expected to be received on ACI loans. The accretable yield on ACI loans represented the amount by which undiscounted expected future cash flows exceeded the recorded investment in the loans.
Changes in accretable yield on ACI loans for the nine months ended September 30, 2018 and the year ended December 31, 2017 were as follows (in thousands):
Balance, December 31, 2016 | $ | 675,385 | |
Reclassifications from non-accretable difference, net | 81,501 | ||
Accretion | (301,827 | ) | |
Balance, December 31, 2017 | 455,059 | ||
Reclassifications from non-accretable difference, net | 78,561 | ||
Accretion | (249,609 | ) | |
Balance, September 30, 2018 | $ | 284,011 | |
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At September 30, 2018, total future estimated amortization of the FDIC indemnification asset was approximately $82 million.
The estimates of expected cash flows from ACI loans underlying the balance of accretable yield and future estimated amortization of the FDIC indemnification asset reflected above as of September 30, 2018 were predicated on the assumption that a final sale of all of the remaining covered loans would occur in the second quarter of 2019. Based on preliminary discussions with the FDIC that have taken place subsequent to September 30, 2018, there is a reasonable possibility that a portion of these loans may be retained by the Bank and that the sale of any loans not retained may occur earlier than the second quarter of 2019. If a decision is made to retain a portion of the covered loan portfolio and the timing of sale of the remaining loans is accelerated, we expect the amount of estimated future amortization of the FDIC indemnification asset to increase and the timing of that amortization to be accelerated. Additionally, we expect that the balance of accretable yield will increase, in part due to expected collection of additional contractual interest, and that accretion will occur over a longer period of time reflective of the expected lives of the retained loans. Loss share coverage with respect to any loans retained is expected to terminate no later than May 21, 2019.
Impact of Hurricane Michael
In October, 2018, Hurricane Michael made landfall in the Florida panhandle as a category 4 hurricane, impacting some areas of Florida and the southeastern United States with significant wind damage, flooding and power outages. While the Company does not have physical operations in areas significantly impacted by the storm, some of the Company's borrowers may have been impacted. The Company is in the process of assessing the potential impact of the hurricane on the value of collateral underlying our loans and the ability of borrowers to repay their obligations to the Bank. Uncertainty remains as to the ultimate impact of the storm on the allowance for loan and lease losses.
Earnings Conference Call and Presentation
A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Wednesday, October 24, 2018 with 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 7741909. A replay of the call will be available from 12:00 p.m. ET on October 24th through 11:59 p.m. ET on October 31st by calling (855) 859-2056 (domestic) or (404) 537-3406 (international). The pass code for the replay is 7741909. An archived webcast will also be available on the Investor Relations page of www.bankunited.com.
About BankUnited, Inc. and the FSB Acquisition
BankUnited, Inc., with total assets of $31.5 billion at September 30, 2018, is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida with 86 banking centers in 15 Florida counties and 5 banking centers in the New York metropolitan area at September 30, 2018.
On May 21, 2009, BankUnited acquired substantially all of the assets and assumed all of the non-brokered deposits and substantially all other liabilities of BankUnited, FSB from the FDIC, in a transaction referred to as the FSB Acquisition. Concurrently with the FSB Acquisition, BankUnited entered into two loss sharing agreements, or the Loss Sharing Agreements, which covered certain legacy assets, including the entire legacy loan portfolio and OREO, and certain purchased investment securities. Assets covered by the Loss Sharing Agreements are referred to as “covered assets” (or, in certain cases, “covered loans”). The Loss Sharing Agreements do not apply to subsequently purchased or originated loans or other assets. Effective May 22, 2014 and consistent with the terms of the Loss Sharing Agreements, loss share coverage was terminated for those commercial loans and OREO and certain investment securities that were previously covered under the Loss Sharing Agreements. Pursuant to the terms of the Loss Sharing Agreements, the covered assets are subject to a stated loss threshold whereby the FDIC will reimburse BankUnited for 80% of losses, including certain interest and expenses, up to the $4.0 billion stated threshold and 95% of losses in excess of the $4.0 billion stated threshold. The Company’s estimate of cumulative losses on the covered assets, as of September 30, 2018, is approximately $3.5 billion. The Company has received $2.7 billion from the FDIC in reimbursements under the Loss Sharing Agreements for claims filed for incurred losses as of September 30, 2018.
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.
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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, 2017 which is available at the SEC’s website (www.sec.gov).
Contact
BankUnited, Inc.
Investor Relations:
Leslie N. Lunak, 786-313-1698
llunak@bankunited.com
Source: BankUnited, Inc.
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BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except share and per share data)
September 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Cash and due from banks: | |||||||
Non-interest bearing | $ | 11,644 | $ | 35,246 | |||
Interest bearing | 268,155 | 159,336 | |||||
Cash and cash equivalents | 279,799 | 194,582 | |||||
Investment securities (including securities recorded at fair value of $7,217,403 and $6,680,832) | 7,227,403 | 6,690,832 | |||||
Non-marketable equity securities | 273,427 | 265,989 | |||||
Loans held for sale | 37,179 | 34,097 | |||||
Loans (including covered loans of $359,767 and $503,118) | 21,919,171 | 21,416,504 | |||||
Allowance for loan and lease losses | (124,740 | ) | (144,795 | ) | |||
Loans, net | 21,794,431 | 21,271,709 | |||||
FDIC indemnification asset | 152,517 | 295,635 | |||||
Bank owned life insurance | 262,987 | 252,462 | |||||
Equipment under operating lease, net | 661,677 | 599,502 | |||||
Goodwill and other intangible assets | 77,729 | 77,796 | |||||
Other assets | 746,487 | 664,382 | |||||
Total assets | $ | 31,513,636 | $ | 30,346,986 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities: | |||||||
Demand deposits: | |||||||
Non-interest bearing | $ | 3,413,610 | $ | 3,071,032 | |||
Interest bearing | 1,587,812 | 1,757,581 | |||||
Savings and money market | 10,588,075 | 10,715,024 | |||||
Time | 6,715,793 | 6,334,842 | |||||
Total deposits | 22,305,290 | 21,878,479 | |||||
Federal funds purchased | 175,000 | — | |||||
Federal Home Loan Bank advances | 4,946,000 | 4,771,000 | |||||
Notes and other borrowings | 402,780 | 402,830 | |||||
Other liabilities | 609,678 | 268,615 | |||||
Total liabilities | 28,438,748 | 27,320,924 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 103,793,325 and 106,848,185 shares issued and outstanding | 1,037 | 1,068 | |||||
Paid-in capital | 1,364,864 | 1,498,227 | |||||
Retained earnings | 1,667,092 | 1,471,781 | |||||
Accumulated other comprehensive income | 41,895 | 54,986 | |||||
Total stockholders' equity | 3,074,888 | 3,026,062 | |||||
Total liabilities and stockholders' equity | $ | 31,513,636 | $ | 30,346,986 | |||
8
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Interest income: | |||||||||||||||
Loans | $ | 293,543 | $ | 253,815 | $ | 855,807 | $ | 739,586 | |||||||
Investment securities | 59,319 | 51,851 | 165,396 | 141,624 | |||||||||||
Other | 4,855 | 3,777 | 13,145 | 10,606 | |||||||||||
Total interest income | 357,717 | 309,443 | 1,034,348 | 891,816 | |||||||||||
Interest expense: | |||||||||||||||
Deposits | 75,257 | 45,919 | 196,916 | 120,161 | |||||||||||
Borrowings | 30,492 | 22,260 | 82,392 | 60,209 | |||||||||||
Total interest expense | 105,749 | 68,179 | 279,308 | 180,370 | |||||||||||
Net interest income before provision for loan losses | 251,968 | 241,264 | 755,040 | 711,446 | |||||||||||
Provision for (recovery of) loan losses (including ($50), $261, $517 and $2,693 for covered loans) | 1,200 | 37,854 | 13,342 | 63,573 | |||||||||||
Net interest income after provision for loan losses | 250,768 | 203,410 | 741,698 | 647,873 | |||||||||||
Non-interest income: | |||||||||||||||
Income from resolution of covered assets, net | 3,134 | 6,400 | 10,689 | 22,066 | |||||||||||
Net gain (loss) on FDIC indemnification | 3,090 | (4,838 | ) | (1,925 | ) | (14,174 | ) | ||||||||
Deposit service charges and fees | 3,677 | 3,251 | 10,674 | 9,706 | |||||||||||
Gain (loss) on sale of loans, net (including $5,037, $0, $4,739 and $(1,582) related to covered loans) | 8,691 | 2,447 | 12,960 | 6,601 | |||||||||||
Gain on investment securities, net | 432 | 26,931 | 2,938 | 29,194 | |||||||||||
Lease financing | 14,091 | 13,287 | 45,685 | 40,067 | |||||||||||
Other non-interest income | 5,620 | 5,848 | 17,673 | 17,903 | |||||||||||
Total non-interest income | 38,735 | 53,326 | 98,694 | 111,363 | |||||||||||
Non-interest expense: | |||||||||||||||
Employee compensation and benefits | 65,612 | 58,327 | 198,185 | 178,386 | |||||||||||
Occupancy and equipment | 18,887 | 18,829 | 56,704 | 56,689 | |||||||||||
Amortization of FDIC indemnification asset | 48,255 | 45,225 | 132,852 | 135,351 | |||||||||||
Deposit insurance expense | 5,375 | 5,764 | 14,810 | 16,827 | |||||||||||
Professional fees | 5,240 | 2,748 | 10,772 | 12,573 | |||||||||||
Telecommunications and data processing | 4,187 | 3,452 | 11,772 | 10,481 | |||||||||||
Depreciation of equipment under operating lease | 9,870 | 8,905 | 28,662 | 25,655 | |||||||||||
Other non-interest expense | 13,372 | 13,455 | 40,105 | 37,735 | |||||||||||
Total non-interest expense | 170,798 | 156,705 | 493,862 | 473,697 | |||||||||||
Income before income taxes | 118,705 | 100,031 | 346,530 | 285,539 | |||||||||||
Provision for income taxes | 21,377 | 32,252 | 74,067 | 89,060 | |||||||||||
Net income | $ | 97,328 | $ | 67,779 | $ | 272,463 | $ | 196,479 | |||||||
Earnings per common share, basic | $ | 0.90 | $ | 0.62 | $ | 2.50 | $ | 1.79 | |||||||
Earnings per common share, diluted | $ | 0.90 | $ | 0.62 | $ | 2.49 | $ | 1.79 | |||||||
Cash dividends declared per common share | $ | 0.21 | $ | 0.21 | $ | 0.63 | $ | 0.63 | |||||||
9
BANKUNITED, INC. AND SUBSIDIARIES
AVERAGE BALANCES AND YIELDS
(Dollars in thousands)
Three Months Ended September 30, | ||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||
Average Balance | Interest (1) | Yield/ Rate (1)(2) | Average Balance | Interest (1) | Yield/ Rate (1)(2) | |||||||||||||||||
Assets: | ||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||
Non-covered loans | $ | 21,311,706 | $ | 216,746 | 4.05 | % | $ | 19,710,115 | $ | 187,928 | 3.79 | % | ||||||||||
Covered loans | 408,182 | 81,302 | 79.67 | % | 518,026 | 73,452 | 56.70 | % | ||||||||||||||
Total loans | 21,719,888 | 298,048 | 5.47 | % | 20,228,141 | 261,380 | 5.15 | % | ||||||||||||||
Investment securities (3) | 7,118,626 | 60,677 | 3.41 | % | 7,002,615 | 55,046 | 3.14 | % | ||||||||||||||
Other interest earning assets | 507,318 | 4,855 | 3.80 | % | 545,224 | 3,777 | 2.75 | % | ||||||||||||||
Total interest earning assets | 29,345,832 | 363,580 | 4.94 | % | 27,775,980 | 320,203 | 4.60 | % | ||||||||||||||
Allowance for loan and lease losses | (137,784 | ) | (160,231 | ) | ||||||||||||||||||
Non-interest earning assets | 1,859,619 | 1,699,912 | ||||||||||||||||||||
Total assets | $ | 31,067,667 | $ | 29,315,661 | ||||||||||||||||||
Liabilities and Stockholders' Equity: | ||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||
Interest bearing demand deposits | $ | 1,592,908 | 4,550 | 1.13 | % | $ | 1,590,206 | 3,415 | 0.85 | % | ||||||||||||
Savings and money market deposits | 10,483,248 | 38,520 | 1.46 | % | 9,968,512 | 21,964 | 0.87 | % | ||||||||||||||
Time deposits | 6,728,915 | 32,187 | 1.90 | % | 6,290,056 | 20,540 | 1.30 | % | ||||||||||||||
Total interest bearing deposits | 18,805,071 | 75,257 | 1.59 | % | 17,848,774 | 45,919 | 1.02 | % | ||||||||||||||
Federal funds purchased | 89,218 | 445 | 2.00 | % | — | — | — | % | ||||||||||||||
FHLB advances | 4,772,902 | 24,743 | 2.06 | % | 4,924,325 | 16,946 | 1.37 | % | ||||||||||||||
Notes and other borrowings | 402,782 | 5,304 | 5.27 | % | 402,828 | 5,314 | 5.28 | % | ||||||||||||||
Total interest bearing liabilities | 24,069,973 | 105,749 | 1.74 | % | 23,175,927 | 68,179 | 1.17 | % | ||||||||||||||
Non-interest bearing demand deposits | 3,369,393 | 3,036,046 | ||||||||||||||||||||
Other non-interest bearing liabilities | 520,118 | 468,735 | ||||||||||||||||||||
Total liabilities | 27,959,484 | 26,680,708 | ||||||||||||||||||||
Stockholders' equity | 3,108,183 | 2,634,953 | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 31,067,667 | $ | 29,315,661 | ||||||||||||||||||
Net interest income | $ | 257,831 | $ | 252,024 | ||||||||||||||||||
Interest rate spread | 3.20 | % | 3.43 | % | ||||||||||||||||||
Net interest margin | 3.51 | % | 3.62 | % | ||||||||||||||||||
(1) | On a tax-equivalent basis where applicable |
(2) | Annualized |
(3) | At fair value except for securities held to maturity |
10
BANKUNITED, INC. AND SUBSIDIARIES
AVERAGE BALANCES AND YIELDS
(Dollars in thousands)
Nine Months Ended September 30, | ||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||
Average Balance | Interest (1) | Yield/ Rate (1)(2) | Average Balance | Interest (1) | Yield/ Rate (1)(2) | |||||||||||||||||
Assets: | ||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||
Non-covered loans | $ | 21,073,130 | $ | 622,039 | 3.94 | % | $ | 19,169,479 | $ | 535,926 | 3.73 | % | ||||||||||
Covered loans | 460,485 | 246,811 | 71.46 | % | 560,934 | 225,194 | 53.54 | % | ||||||||||||||
Total loans | 21,533,615 | 868,850 | 5.39 | % | 19,730,413 | 761,120 | 5.15 | % | ||||||||||||||
Investment securities (3) | 6,932,504 | 169,645 | 3.26 | % | 6,569,553 | 151,337 | 3.07 | % | ||||||||||||||
Other interest earning assets | 503,378 | 13,145 | 3.49 | % | 557,623 | 10,606 | 2.54 | % | ||||||||||||||
Total interest earning assets | 28,969,497 | 1,051,640 | 4.85 | % | 26,857,589 | 923,063 | 4.59 | % | ||||||||||||||
Allowance for loan and lease losses | (141,047 | ) | (157,015 | ) | ||||||||||||||||||
Non-interest earning assets | 1,905,278 | 1,754,499 | ||||||||||||||||||||
Total assets | $ | 30,733,728 | $ | 28,455,073 | ||||||||||||||||||
Liabilities and Stockholders' Equity: | ||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||
Interest bearing demand deposits | $ | 1,604,666 | 12,902 | 1.07 | % | $ | 1,564,229 | 8,913 | 0.76 | % | ||||||||||||
Savings and money market deposits | 10,610,889 | 100,891 | 1.27 | % | 9,557,907 | 55,741 | 0.78 | % | ||||||||||||||
Time deposits | 6,507,726 | 83,123 | 1.71 | % | 5,988,433 | 55,507 | 1.24 | % | ||||||||||||||
Total interest bearing deposits | 18,723,281 | 196,916 | 1.41 | % | 17,110,569 | 120,161 | 0.94 | % | ||||||||||||||
Federal funds purchased | 30,066 | 445 | 1.97 | % | — | — | — | % | ||||||||||||||
FHLB advances | 4,665,799 | 66,028 | 1.89 | % | 4,889,578 | 44,262 | 1.21 | % | ||||||||||||||
Notes and other borrowings | 402,809 | 15,919 | 5.27 | % | 402,821 | 15,947 | 5.28 | % | ||||||||||||||
Total interest bearing liabilities | 23,821,955 | 279,308 | 1.57 | % | 22,402,968 | 180,370 | 1.08 | % | ||||||||||||||
Non-interest bearing demand deposits | 3,327,521 | 3,034,682 | ||||||||||||||||||||
Other non-interest bearing liabilities | 498,368 | 443,430 | ||||||||||||||||||||
Total liabilities | 27,647,844 | 25,881,080 | ||||||||||||||||||||
Stockholders' equity | 3,085,884 | 2,573,993 | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 30,733,728 | $ | 28,455,073 | ||||||||||||||||||
Net interest income | $ | 772,332 | $ | 742,693 | ||||||||||||||||||
Interest rate spread | 3.28 | % | 3.51 | % | ||||||||||||||||||
Net interest margin | 3.56 | % | 3.69 | % | ||||||||||||||||||
(1) | On a tax-equivalent basis where applicable |
(2) | Annualized |
(3) | At fair value except for securities held to maturity |
11
BANKUNITED, INC. AND SUBSIDIARIES
EARNINGS PER COMMON SHARE
(In thousands except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
c | 2018 | 2017 | 2018 | 2017 | |||||||||||
Basic earnings per common share: | |||||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 97,328 | $ | 67,779 | $ | 272,463 | $ | 196,479 | |||||||
Distributed and undistributed earnings allocated to participating securities | (3,771 | ) | (2,525 | ) | (10,444 | ) | (7,331 | ) | |||||||
Income allocated to common stockholders for basic earnings per common share | $ | 93,557 | $ | 65,254 | $ | 262,019 | $ | 189,148 | |||||||
Denominator: | |||||||||||||||
Weighted average common shares outstanding | 105,063,770 | 106,809,381 | 105,914,807 | 106,488,396 | |||||||||||
Less average unvested stock awards | (1,178,982 | ) | (1,101,485 | ) | (1,170,209 | ) | (1,102,381 | ) | |||||||
Weighted average shares for basic earnings per common share | 103,884,788 | 105,707,896 | 104,744,598 | 105,386,015 | |||||||||||
Basic earnings per common share | $ | 0.90 | $ | 0.62 | $ | 2.50 | $ | 1.79 | |||||||
Diluted earnings per common share: | |||||||||||||||
Numerator: | |||||||||||||||
Income allocated to common stockholders for basic earnings per common share | $ | 93,557 | $ | 65,254 | $ | 262,019 | $ | 189,148 | |||||||
Adjustment for earnings reallocated from participating securities | 13 | 6 | 37 | 21 | |||||||||||
Income used in calculating diluted earnings per common share | $ | 93,570 | $ | 65,260 | $ | 262,056 | $ | 189,169 | |||||||
Denominator: | |||||||||||||||
Weighted average shares for basic earnings per common share | 103,884,788 | 105,707,896 | 104,744,598 | 105,386,015 | |||||||||||
Dilutive effect of stock options and executive share-based awards | 499,431 | 365,286 | 512,801 | 479,459 | |||||||||||
Weighted average shares for diluted earnings per common share | 104,384,219 | 106,073,182 | 105,257,399 | 105,865,474 | |||||||||||
Diluted earnings per common share | $ | 0.90 | $ | 0.62 | $ | 2.49 | $ | 1.79 | |||||||
12
BANKUNITED, INC. AND SUBSIDIARIES
SELECTED RATIOS
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Financial ratios (5) | ||||||||||||
Return on average assets | 1.24 | % | 0.92 | % | 1.19 | % | 0.92 | % | ||||
Return on average stockholders’ equity | 12.42 | % | 10.21 | % | 11.80 | % | 10.21 | % | ||||
Net interest margin (4) | 3.51 | % | 3.62 | % | 3.56 | % | 3.69 | % | ||||
September 30, 2018 | December 31, 2017 | |||||||||||
Non-Covered | Total | Non-Covered | Total | |||||||||
Asset quality ratios | ||||||||||||
Non-performing loans to total loans (1) (3) | 0.96 | % | 0.94 | % | 0.82 | % | 0.81 | % | ||||
Non-performing assets to total assets (2) | 0.68 | % | 0.70 | % | 0.60 | % | 0.61 | % | ||||
Allowance for loan and lease losses to total loans (3) | 0.58 | % | 0.57 | % | 0.69 | % | 0.68 | % | ||||
Allowance for loan and lease losses to non-performing loans (1) | 60.51 | % | 60.47 | % | 84.03 | % | 83.53 | % | ||||
Net charge-offs to average loans (5) | 0.21 | % | 0.21 | % | 0.38 | % | 0.38 | % | ||||
(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 and nine 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 September 30, 2018 (in thousands except share and per share data):
Total stockholders’ equity | $ | 3,074,888 | ||
Less: goodwill and other intangible assets | 77,729 | |||
Tangible stockholders’ equity | $ | 2,997,159 | ||
Common shares issued and outstanding | 103,793,325 | |||
Book value per common share | $ | 29.63 | ||
Tangible book value per common share | $ | 28.88 | ||
13
Exhibit 99.2
Forward-Looking Statements
This communication 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 communication 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, 2017 which is available at the SEC’s website (www.sec.gov).
1
Non-Loss Share Earnings
(1) | Non-loss share EPS and EPS, loss share contribution are non-GAAP measures. See section entitled "Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measurements to their comparable GAAP financial measurements. |
(2) | Loss Share Contribution is defined as the excess of Loss Share Earnings (generally defined as accretion on covered loans net of amortization of the FDIC indemnification asset) over the hypothetical amount of interest income that could have been earned if the average balance of covered loans and the indemnification asset were instead assumed to be invested in securities at the weighted average yield earned on the Company’s investment securities portfolio as reported for each respective quarter, net of related income taxes. See section entitled "Calculation of Loss Share Contribution and Non-Loss Share Earnings Per Share" below for details of the calculation. |
(3) | See section entitled "Calculation of Loss Share Contribution and Non-Loss Share Earnings Per Share" below for details of the calculation. |
(4) | EPS for the quarter ended December 31, 2017 is shown net of discrete income tax benefit and related professional fees. EPS, net of discrete income tax benefit and related professional fees is a non-GAAP financial measure. See section entitled "Non-GAAP Financial Measures" below for reconciliation of this measure to the GAAP measure of earnings per common share, diluted. |
2
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.
(1) | See section entitled "Calculation of Hypothetical Interest Income on Alternate Assets" below for calculation of these amounts and underlying assumptions. |
(2) Net income and Diluted earnings per common share for the three months ended December 31, 2017 is presented net of non-GAAP adjustments to remove a discrete income tax benefit and related professional fees recognized in that period. See section entitled "Non-GAAP Financial Measures" below.
(3) Calculation variances of $0.1 million in the table above are due to rounding.
(4) An assumed marginal tax rate of 39.5% was applied to the quarter ended December 31, 2017 and all prior periods; a marginal rate of 26.5% was applied to subsequent periods reflecting the reduction of the statutory federal income tax rate.
3
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 for each respective quarter. 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 in the respective quarters.
(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.
4
Non-GAAP Financial Measures
Net income and diluted earnings per common share, in each case excluding the impact of Loss Share Contribution, as defined in the section entitled "Non-Loss Share Earnings" above, are non-GAAP financial measures. Management believes disclosure of these measures 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. The following table reconciles these non-GAAP financial measurements to the comparable GAAP financial measurements of net income and diluted earnings per common share for the periods indicated.
(1) | Net income and Diluted earnings per common share for the three months ended December 31, 2017 are net of non-GAAP adjustments to remove a discrete income tax benefit and related professional fees recognized in that period. See below for reconciliation of these non-GAAP financial measurements to their comparable GAAP financial measurements. |
(2) | Net impact on diluted earnings per share of Loss Share Contribution (non-GAAP) adjusted for rounding. |
(3) | Calculation variances of $0.1 million in the table above are due to rounding. |
5
Non-GAAP Financial Measures (continued)
Net income and earnings per diluted common share, in each case excluding the impact of a discrete income tax benefit and related professional fees are non-GAAP financial measures. Management believes disclosure of these measures enhances readers' ability to compare the Company's financial performance for the three months ended December 31, 2017 to that of other periods presented. The following table reconciles these non-GAAP financial measurements to the comparable GAAP financial measurements of net income and earnings per diluted share for the three months ended December 31, 2017 (in thousands except share and per share data):
Net income excluding the impact of a discrete income tax benefit and related professional fees: | |||
Net income (GAAP) | $ | 417,794 | |
Less discrete income tax benefit | (327,945 | ) | |
Add back related professional fees, net of tax of $1,802 | 4,995 | ||
Net income excluding the impact of a discrete income tax benefit and related professional fees (non-GAAP) | $ | 94,844 | |
Diluted earnings per common share, excluding the impact of a discrete income tax benefit and related professional fees: | |||
Diluted earnings per common share (GAAP) | $ | 3.79 | |
Less impact on diluted earnings per common share of discrete income tax benefit and related professional fees, before allocation to participating securities (non-GAAP) | (3.04 | ) | |
Less impact on diluted earnings per common share of discrete income tax benefit and related professional fees allocated to participating securities (non-GAAP) | 0.12 | ||
Diluted earnings per common share, excluding the impact of a discrete income tax benefit and related professional fees (non-GAAP)(1) | $ | 0.86 | |
Impact on diluted earnings per common share of discrete income tax benefit and related professional fees: | |||
Discrete income tax benefit and related professional fees, net of tax | $ | 322,950 | |
Weighted average shares for diluted earnings per share (GAAP) | 106,071,934 | ||
Impact on diluted earnings per common share of discrete income tax benefit and related professional fees, before allocation to participating securities (non-GAAP) | $ | 3.04 | |
Impact on diluted earnings per common share of discrete income tax benefit and related professional fees allocated to participating securities: | |||
Discrete income tax benefit and related professional fees, net of tax, allocated to participating securities | $ | (12,354 | ) |
Weighted average shares for diluted earnings per share (GAAP) | 106,071,934 | ||
Impact on diluted earnings per common share of discrete income tax benefit and related professional fees allocated to participating securities (non-GAAP) | $ | (0.12 | ) |
(1) | Amount for the three months ended December 31, 2017 adjusted for rounding. |
6