BankUnited, Inc. Reports Second Quarter 2013 Results, Strong Loan Growth

BankUnited, Inc. Reports Second Quarter 2013 Results, Strong Loan Growth

MIAMI LAKES, Fla.--(BUSINESS WIRE)-- BankUnited, Inc. (the "Company") (NYS: BKU) today announced financial results for the second quarter of 2013.

For the quarter ended June 30, 2013, the Company reported net income of $54.0 million, or $0.52 per diluted share, as compared to $48.9 million, or $0.48 per diluted share, for the quarter ended June 30, 2012.

For the six months ended June 30, 2013, the Company reported net income of $102.2 million, or $0.99 per diluted share, generating an annualized return on average stockholders' equity of 11.15% and an annualized return on average assets of 1.62%. The Company reported net income of $99.2 million, or $0.96 per diluted share, for the six months ended June 30, 2012.

John Kanas, Chairman, President and Chief Executive Officer, said, "The New York franchise is off to a very strong start. Combined with the remarkable recovery in the South Florida market, BankUnited is beginning to hit on all cylinders."

Performance Highlights

• New loans grew by $1.1 billion during the second quarter of 2013. For the six months ended June 30, 2013, new loans increased by $1.4 billion to $5.1 billion, an annualized growth rate of 79%.

• Deposits increased to $9.0 billion at June 30, 2013, with interest and non-interest bearing demand deposits totaling $2.2 billion, or 24% of total deposits.

• The net interest margin, calculated on a tax-equivalent basis, was 6.14% for the quarter ended June 30, 2013.

• We opened two additional banking centers in Manhattan during the second quarter of 2013, which was the first full quarter of operations for our New York franchise, bringing the total number of banking centers to four. One new branch opened in Florida during the quarter ended June 30, 2013.

• The cost of deposits continued to trend downward to 0.64% for the second quarter of 2013 from 0.70% for the immediately preceding quarter.

• Book value and tangible book value per common share were $18.43 and $17.74, respectively, at June 30, 2013.

Capital

BankUnited, Inc.'s capital position remains robust. The Company and its banking subsidiary exceed all regulatory guidelines required to be considered well capitalized. The Company's regulatory capital ratios at June 30, 2013 were as follows:

Loans and Leases

Loans, net of premiums, discounts and deferred fees and costs, increased to $6.8 billion at June 30, 2013 from $5.6 billion at December 31, 2012. New loans grew by $1.4 billion to $5.1 billion at June 30, 2013 from $3.7 billion at December 31, 2012. Covered loans declined to $1.7 billion at June 30, 2013 from $1.9 billion at December 31, 2012.

For the quarter ended June 30, 2013, new commercial loans, including commercial loans, commercial real estate loans and leases, grew $744 million to $3.7 billion, reflecting the first full quarter of lending operations in New York, continued expansion of market share in Florida and growth of the leasing portfolio. New residential loans grew by $264 million to $1.3 billion during the second quarter of 2013, primarily as a result of the continuation of the Company's residential loan purchase program.

A comparison of portfolio composition at June 30, 2013 and December 31, 2012 follows:

Asset Quality

Asset quality remained strong. Credit risk continues to be limited, though to a declining extent, by the Loss Sharing Agreements with the FDIC. At June 30, 2013, covered loans represented 24% of the total loan portfolio, as compared to 33% at December 31, 2012.

The ratio of non-performing new loans to total new loans was 0.42% at June 30, 2013 and 0.43% at December 31, 2012. The ratio of total non-performing loans to total loans was 0.54% at June 30, 2013 as compared to 0.62% at December 31, 2012. At June 30, 2013, non-performing assets totaled $87.0 million, including $50.0 million of other real estate owned ("OREO"), as compared to $110.6 million, including $76.0 million of OREO, at December 31, 2012. At June 30, 2013, 75% of total non-performing assets were covered assets.

For the quarters ended June 30, 2013 and 2012, the Company recorded provisions for loan losses of $4.9 million and $2.7 million, respectively. Of these amounts, $(3.0) million and $(1.5) million, respectively, related to recoveries on covered loans, and $7.8 million and $4.2 million, respectively, related to provisions for new loans.

For the six months ended June 30, 2013 and 2012, the Company recorded provisions for loan losses of $16.8 million and $11.5 million, respectively. Of these amounts, $1.8 million and $0.1 million, respectively, related to covered loans, and $15.0 million and $11.4 million, respectively, related to new loans.

The increases in provisions related to new loans resulted from growth in the new loan portfolio and charge-offs, particularly related to one commercial relationship, partially offset by reduced general loss factors.

The provisions related to covered loans were significantly mitigated by offsetting increases or decreases in non-interest income recorded in "Net loss on indemnification asset."

The following tables summarize the activity in the allowance for loan and lease losses for the three and six months ended June 30, 2013 and 2012 (in thousands):

Deposits

At June 30, 2013, deposits totaled $9.0 billion compared to $8.5 billion at December 31, 2012. Demand deposits, including non-interest bearing and interest bearing deposits, comprised 24% of total deposits at June 30, 2013 and 22% of total deposits at December 31, 2012. The average cost of deposits was 0.64% for the quarter ended June 30, 2013 as compared to 0.84% for the quarter ended June 30, 2012 and 0.67% for the six months ended June 30, 2013 as compared to 0.87% for the six months ended June 30, 2012. The decrease in the average cost of deposits was attributable to both the growth in non-interest bearing deposits as a percentage of average total deposits and a decline in market rates of interest. Excluding the impact of hedge accounting and accretion of fair value adjustments, the average cost of deposits was 0.59% and 0.61%, respectively, for the three and six months ended June 30, 2013.

Net interest income

Net interest income for the quarter ended June 30, 2013 grew to $164.1 million from $145.8 million for the quarter ended June 30, 2012. Net interest income for the six months ended June 30, 2013 was $317.8 million as compared to $283.6 million for the six months ended June 30, 2012.

The Company's net interest margin, calculated on a tax-equivalent basis, was 6.14% for the quarter ended June 30, 2013 as compared to 5.92% for the quarter ended June 30, 2012. Net interest margin, calculated on a tax-equivalent basis, for the six months ended June 30, 2013 was 6.04% as compared to 6.00% for the six months ended June 30, 2012. Significant factors impacting the trend in net interest margin for the three and six months ended June 30, 2013 included:

• The tax-equivalent yield on loans declined for the quarter and six months ended June 30, 2013 compared to the corresponding periods in 2012, primarily because new loans, originated at yields lower than those on the covered loan portfolio, comprised a greater percentage of total loans.

• The yield on new loans decreased to 3.87% and 3.94%, respectively, for the quarter and six months ended June 30, 2013 compared to 4.49% and 4.55% for the quarter and six months ended June 30, 2012, primarily reflecting lower market interest rates.

• The yield on covered loans increased to 26.86% and 25.47%, respectively, for the quarter and six months ended June 30, 2013 from 20.50% and 19.99% for the quarter and six months ended June 30, 2012. The increase in the yield on covered loans resulted from (i) reclassifications from non-accretable difference to accretable yield, (ii) the inclusion in interest income for the quarter and six months ended June 30, 2013 of proceeds of $15.5 million and $25.8 million, respectively, from the sale of ACI residential loans from a pool with a carrying value of zero and (iii) an increase in the favorable impact of resolutions of covered commercial loans.

• The tax-equivalent yield on investment securities declined for the quarter and six months ended June 30, 2013 from the corresponding periods in 2012, reflecting the impact of lower prevailing market rates of interest and changes in portfolio composition.

• The average rate on interest-bearing liabilities declined for the quarter and six months ended June 30, 2013 from the corresponding periods in 2012, primarily due to declining market interest rates.

The Company's net interest margin has been impacted by reclassifications from non-accretable difference to accretable yield on ACI loans. Non-accretable difference at acquisition represented the difference between the total contractual payments due and the cash flows expected to be received on these loans. The accretable yield on ACI loans represented the amount by which undiscounted expected future cash flows exceeded the carrying value of the loans. As the Company's expected cash flows from ACI loans have increased since the FSB Acquisition (as defined below), the Company has reclassified amounts from non-accretable difference to accretable yield.

Changes in accretable yield on ACI loans for the six months ended June 30, 2013 and the year ended December 31, 2012 were as follows (in thousands):

Non-interest income

Non-interest income totaled $6.1 million and $23.9 million for the quarter and six months ended June 30, 2013 as compared to $21.7 million and $58.1 million for the quarter and six months ended June 30, 2012.

As anticipated, in 2013, the Company began amortizing the FDIC indemnification asset. In prior periods, we recorded accretion of discount on the FDIC indemnification asset. Non-interest income included amortization of the FDIC indemnification asset of $(7.2) million and $(9.4) million, respectively, for the quarter and six months ended June 30, 2013 compared to accretion of $4.3 million and $11.1 million, respectively, for the quarter and six months ended June 30, 2012. As the expected cash flows from ACI loans have increased as discussed above, expected cash flows from the FDIC indemnification asset have decreased.

Income from resolution of covered assets, net was $20.6 million and $39.8 million, respectively, for the quarter and six months ended June 30, 2013 compared to $14.8 million and $22.1 million for the quarter and six months ended June 30, 2012. This increase in income resulted mainly from higher income from commercial recoveries and lower losses from residential foreclosure resolutions.

Loss on the sale of covered loans was $4.3 million and $5.1 million for the quarter and six months ended June 30, 2013. No covered loans were sold during the quarter and six months ended June 30, 2012.

Net loss on indemnification asset was $(17.7) million and $(29.4) million, respectively, for the quarter and six months ended June 30, 2013, compared to $(12.5) million and $(12.4) million for the quarter and six months ended June 30, 2012. Significant factors impacting the changes from 2012 to 2013 included increased income from resolution of covered assets, net, the loss on sale of covered loans, reduced OREO impairment and more favorable results from the sale of OREO as discussed further below.

Declines in FDIC reimbursement of costs of resolution of covered assets and mortgage insurance income reflect the lower volume of covered loan resolution activity.

Gains on investment securities available for sale for the quarter ended June 30, 2013 related primarily to sales of securities to fund loan originations. Securities gains for the six months ended June 30, 2013 also included gains from the sale of securities in conjunction with the merger of Herald National Bank ("Herald") into BankUnited.

Other non-interest income was $9.7 million for the six months ended June 30, 2013 compared to $13.4 million for the six months ended June 30, 2012. The most significant factor impacting the decrease for the six months ended June 30, 2013 was $5.3 million of bargain purchase gain on the acquisition of Herald included in other non-interest income for the six months ended June 30, 2012.

Non-interest expense

Non-interest expense totaled $78.3 million and $158.9 million, respectively, for the quarter and six months ended June 30, 2013 as compared to $83.0 million and $167.1 million for the quarter and six months ended June 30, 2012.

Employee compensation and benefits for the three and six months ended June 30, 2013 as compared to the three and six months ended June 30, 2012 reflected decreases of $3.4 million and $9.8 million, respectively, in equity-based compensation resulting primarily from the vesting in 2012 of instruments issued in conjunction with the Company's initial public offering of common stock in 2011. These decreases were largely offset by increased compensation costs related to the Company's growth and expansion. Occupancy and equipment expense increased to $15.4 million and $30.4 million, respectively, for the quarter and six months ended June 30, 2013 from $13.2 million and $25.1 million for the quarter and six months ended June 30, 2012 due primarily to the expansion and refurbishment of our branch network in both New York and Florida as well as technology enhancements.

For the quarter and six months ended June 30, 2013, the aggregate of foreclosure and OREO expense was $3.3 million and $4.6 million, respectively, as compared to $5.1 million and $10.0 million for the quarter and six months ended June 30, 2012. For the quarter and six months ended June 30, 2013, the net amount of (gain) loss on sale of OREO and impairment of OREO was $(5.7) million and $(5.4) million, respectively, as compared to $1.6 million and $6.5 million for the quarter and six months ended June 30, 2012. These changes continue the trend from prior periods, reflective of lower levels of OREO and foreclosure activity and an improving real estate market.

Earnings Conference Call and Presentation

A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Wednesday, July 24, 2013 with Chairman, President and Chief Executive Officer, John A. Kanas, and Chief Financial Officer, Leslie N. Lunak.

The earnings 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 (888) 713-4211 (domestic) or (617) 213-4864 (international). The name of the call is BankUnited, and the confirmation number for the call is 51063862. Participants may pre-register for the call on the Investor Relations page on www.bankunited.com. A replay of the call will be available from 11:00 a.m. ET on July 24 through 11:59 p.m. ET on July 31 by calling (888) 286-8010 (domestic) or (617) 801-6888 (international). The pass code for the replay is 92667953. 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. is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida with $13.1 billion of assets, 98 banking centers in 15 Florida counties and 4 banking centers in the New York metropolitan area at June 30, 2013.

The Company was organized by a management team led by its Chairman, President and Chief Executive Officer, John A. Kanas, on April 28, 2009. 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 ("new loans") or other assets. 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 current estimate of cumulative losses on the covered assets is approximately $4.4 billion. The Company has received $2.4 billion from the FDIC in reimbursements under the Loss Sharing Agreements for claims filed for incurred losses as of June 30, 2013.

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 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, 2012 available at the SEC's website (www.sec.gov).