Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q
 
ý                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended June 30, 2018
OR 
o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from              to 
Commission File Number: 001-35039 

BankUnited, Inc.
(Exact name of registrant as specified in its charter) 
Delaware
 
27-0162450
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
14817 Oak Lane, Miami Lakes, FL
 
33016
(Address of principal executive offices)
 
(Zip Code)
 Registrant’s telephone number, including area code: (305) 569-2000 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý  No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ý
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  ý 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
Class
 
August 3, 2018
Common Stock, $0.01 Par Value
 
105,352,328
 


Table of Contents

BANKUNITED, INC.
Form 10-Q
For the Quarter Ended June 30, 2018
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 6.
 
 
 
 
 
 


i


GLOSSARY OF DEFINED TERMS

The following acronyms and terms may be used throughout this Form 10-Q, including the consolidated financial statements and related notes.
ACI
 
Loans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)
AFS
 
Available for sale
ALCO
 
Asset/Liability Committee
ALLL
 
Allowance for loan and lease losses
AOCI
 
Accumulated other comprehensive income
ARM
 
Adjustable rate mortgage
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
BKU
 
BankUnited, Inc.
BankUnited
 
BankUnited, National Association
The Bank
 
BankUnited, National Association
Bridge
 
Bridge Funding Group, Inc.
Buyout loans
 
FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations
CET1
 
Common Equity Tier 1 capital
CECL
 
Current expected credit loss
CME
 
Chicago Mercantile Exchange
CMOs
 
Collateralized mortgage obligations
Commercial Shared-Loss Agreement
 
A commercial and other loans shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
Covered assets
 
Assets covered under the Loss Sharing Agreements
Covered loans
 
Loans covered under the Loss Sharing Agreements
EVE
 
Economic value of equity
FASB
 
Financial Accounting Standards Board
FDIA
 
Federal Deposit Insurance Act
FDIC
 
Federal Deposit Insurance Corporation
FHLB
 
Federal Home Loan Bank
FHA loan
 
Loan guaranteed by the Federal Housing Administration
FICO
 
Fair Isaac Corporation (credit score)
FNMA
 
Federal National Mortgage Association
FRB
 
Federal Reserve Bank
FSB Acquisition
 
Acquisition of substantially all of the assets and assumption of all of the non-brokered deposits and substantially all of the other liabilities of BankUnited, FSB from the FDIC on May 21, 2009
GAAP
 
U.S. generally accepted accounting principles
GDP
 
Gross Domestic Product
GNMA
 
Government National Mortgage Association
HTM
 
Held to maturity
IPO
 
Initial public offering
ISDA
 
International Swaps and Derivatives Association
LIBOR
 
London InterBank Offered Rate
Loss Sharing Agreements
 
Two loss sharing agreements entered into with the FDIC in connection with the FSB Acquisition

ii


LTV
 
Loan-to-value
MBS
 
Mortgage-backed securities
MSA
 
Metropolitan Statistical Area
MSRs
 
Mortgage servicing rights
Non-ACI
 
Loans acquired without evidence of deterioration in credit quality since origination
Non-Covered Loans
 
Loans other than those covered under the Loss Sharing Agreements
NYTLC
 
New York City Taxi and Limousine Commission
OCC
 
Office of the Comptroller of the Currency
OREO
 
Other real estate owned
OTTI
 
Other-than-temporary impairment
PSU
 
Performance Share Unit
Pinnacle
 
Pinnacle Public Finance, Inc.
RSU
 
Restricted Share Unit
SBA
 
U.S. Small Business Administration
SBF
 
Small Business Finance Unit
SEC
 
Securities and Exchange Commission
Single Family Shared-Loss Agreement
 
A single-family loan shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
TCJA
 
The Tax Cuts and Jobs Act of 2017
TDR
 
Troubled-debt restructuring
UPB
 
Unpaid principal balance
VA loan
 
Loan guaranteed by the U.S. Department of Veterans Affairs


iii

Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except share and per share data)
 
June 30,
2018
 
December 31,
2017
ASSETS
 

 
 

Cash and due from banks:
 

 
 

Non-interest bearing
$
10,937

 
$
35,246

Interest bearing
368,319

 
159,336

Cash and cash equivalents
379,256

 
194,582

Investment securities (including securities recorded at fair value of $7,093,068 and $6,680,832)
7,103,068

 
6,690,832

Non-marketable equity securities
278,739

 
265,989

Loans held for sale
46,829

 
34,097

Loans (including covered loans of $451,350 and $503,118)
21,869,723

 
21,416,504

Allowance for loan and lease losses
(134,971
)
 
(144,795
)
Loans, net
21,734,752

 
21,271,709

FDIC indemnification asset
200,783

 
295,635

Bank owned life insurance
261,758

 
252,462

Equipment under operating lease, net
591,267

 
599,502

Goodwill and other intangible assets
77,740

 
77,796

Other assets
675,379

 
664,382

Total assets
$
31,349,571

 
$
30,346,986

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Demand deposits:
 

 
 

Non-interest bearing
$
3,315,550

 
$
3,071,032

Interest bearing
1,621,940

 
1,757,581

Savings and money market
10,590,438

 
10,715,024

Time
6,650,022

 
6,334,842

Total deposits
22,177,950

 
21,878,479

Federal Home Loan Bank advances
5,071,000

 
4,771,000

Notes and other borrowings
402,799

 
402,830

Other liabilities
598,389

 
268,615

Total liabilities
28,250,138

 
27,320,924

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 106,241,116 and 106,848,185 shares issued and outstanding
1,062

 
1,068

Paid-in capital
1,455,554

 
1,498,227

Retained earnings
1,592,157

 
1,471,781

Accumulated other comprehensive income
50,660

 
54,986

Total stockholders' equity
3,099,433

 
3,026,062

Total liabilities and stockholders' equity
$
31,349,571

 
$
30,346,986

 

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 

 
 

Loans
$
288,264

 
$
249,409

 
$
562,264

 
$
485,771

Investment securities
56,092

 
46,054

 
106,077

 
89,773

Other
4,499

 
3,372

 
8,290

 
6,829

Total interest income
348,855

 
298,835

 
676,631

 
582,373

Interest expense:
 
 
 
 
 
 
 
Deposits
65,298

 
39,514

 
121,659

 
74,242

Borrowings
28,294

 
19,732

 
51,900

 
37,949

Total interest expense
93,592

 
59,246

 
173,559

 
112,191

Net interest income before provision for loan losses
255,263

 
239,589

 
503,072

 
470,182

Provision for loan losses (including $294, $1,653, $567 and $2,432 for covered loans)
8,995

 
13,619

 
12,142

 
25,719

Net interest income after provision for loan losses
246,268

 
225,970

 
490,930

 
444,463

Non-interest income:
 
 
 
 
 
 
 
Income from resolution of covered assets, net
4,238

 
8,361

 
7,555

 
15,666

Net loss on FDIC indemnification
(1,400
)
 
(2,588
)
 
(5,015
)
 
(9,336
)
Deposit service charges and fees
3,510

 
3,252

 
6,997

 
6,455

Gain (loss) on sale of loans, net (including $(2,002), $(3,447), $(298) and $(1,565) related to covered loans)
768

 
(404
)
 
4,269

 
4,154

Gain on investment securities, net
2,142

 
627

 
2,506

 
2,263

Lease financing
17,492

 
13,141

 
31,594

 
26,780

Other non-interest income
5,223

 
7,504

 
12,053

 
12,055

Total non-interest income
31,973

 
29,893

 
59,959

 
58,037

Non-interest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
65,537

 
60,388

 
132,573

 
120,059

Occupancy and equipment
18,985

 
19,251

 
37,817

 
37,860

Amortization of FDIC indemnification asset
44,250

 
45,663

 
84,597

 
90,126

Deposit insurance expense
4,623

 
5,588

 
9,435

 
11,063

Professional fees
2,657

 
4,785

 
5,532

 
9,825

Telecommunications and data processing
3,900

 
3,745

 
7,585

 
7,029

Depreciation of equipment under operating lease
9,476

 
8,733

 
18,792

 
16,750

Other non-interest expense
11,819

 
12,282

 
26,733

 
24,280

Total non-interest expense
161,247

 
160,435

 
323,064

 
316,992

Income before income taxes
116,994

 
95,428

 
227,825

 
185,508

Provision for income taxes
27,094

 
29,021

 
52,690

 
56,808

Net income
$
89,900

 
$
66,407

 
$
175,135

 
$
128,700

Earnings per common share, basic
$
0.82

 
$
0.60

 
$
1.60

 
$
1.18

Earnings per common share, diluted
$
0.82

 
$
0.60

 
$
1.59

 
$
1.17

Cash dividends declared per common share
$
0.21

 
$
0.21

 
$
0.42

 
$
0.42


The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
89,900

 
$
66,407

 
$
175,135

 
$
128,700

Other comprehensive income (loss), net of tax:
 
 


 
 
 
 

Unrealized gains on investment securities available for sale:
 
 


 
 
 
 

Net unrealized holding gain (loss) arising during the period
(13,106
)
 
8,092

 
(40,430
)
 
24,269

Reclassification adjustment for net securities gains realized in income
(1,875
)
 
(379
)
 
(2,592
)
 
(1,369
)
Net change in unrealized gains on securities available for sale
(14,981
)
 
7,713

 
(43,022
)
 
22,900

Unrealized gains on derivative instruments:
 
 


 
 
 
 

Net unrealized holding gain (loss) arising during the period
9,846

 
(8,598
)
 
29,639

 
(8,167
)
Reclassification adjustment for net losses realized in income
(535
)
 
1,556

 
155

 
3,305

Net change in unrealized gains on derivative instruments
9,311

 
(7,042
)
 
29,794

 
(4,862
)
Other comprehensive income (loss)
(5,670
)
 
671

 
(13,228
)
 
18,038

Comprehensive income
$
84,230

 
$
67,078

 
$
161,907

 
$
146,738



The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 

 
 

Net income
$
175,135

 
$
128,700

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and accretion, net
(69,157
)
 
(49,408
)
Provision for loan losses
12,142

 
25,719

Income from resolution of covered assets, net
(7,555
)
 
(15,666
)
Net loss on FDIC indemnification
5,015

 
9,336

Gain on sale of loans, net
(4,269
)
 
(4,154
)
Gain on investment securities, net
(2,506
)
 
(2,263
)
Equity based compensation
12,272

 
9,705

Depreciation and amortization
31,391

 
29,837

Deferred income taxes
24,074

 
24,983

Proceeds from sale of loans held for sale
86,118

 
92,660

Loans originated for sale, net of repayments
(73,633
)
 
(71,499
)
Other:
 
 
 
Decrease in other assets
15,625

 
9,022

Increase (decrease) in other liabilities
25,242

 
(58,035
)
Net cash provided by operating activities
229,894

 
128,937

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchase of investment securities
(1,730,173
)
 
(1,658,461
)
Proceeds from repayments and calls of investment securities
691,220

 
608,060

Proceeds from sale of investment securities
836,317

 
427,923

Purchase of non-marketable equity securities
(166,813
)
 
(99,238
)
Proceeds from redemption of non-marketable equity securities
154,063

 
111,563

Purchases of loans
(604,278
)
 
(636,876
)
Loan originations, repayments and resolutions, net
152,848

 
(167,525
)
Proceeds from sale of loans, net
115,560

 
98,421

Proceeds from sale of equipment under operating lease
49,892

 
2,269

Acquisition of equipment under operating lease
(56,132
)
 
(52,180
)
Other investing activities
(16,404
)
 
(8,727
)
Net cash used in investing activities
(573,900
)
 
(1,374,771
)
 
 
 
(Continued)


The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from financing activities:
 

 
 

Net increase in deposits
299,471

 
1,286,950

Additions to Federal Home Loan Bank advances
2,201,000

 
2,820,000

Repayments of Federal Home Loan Bank advances
(1,901,000
)
 
(3,110,000
)
Dividends paid
(45,996
)
 
(45,549
)
Exercise of stock options
7,727

 
61,519

Repurchase of common stock
(54,399
)
 

Other financing activities
21,877

 
12,961

Net cash provided by financing activities
528,680

 
1,025,881

Net increase (decrease) in cash and cash equivalents
184,674

 
(219,953
)
Cash and cash equivalents, beginning of period
194,582

 
448,313

Cash and cash equivalents, end of period
$
379,256

 
$
228,360

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
171,379

 
$
108,036

Income taxes paid, net
$
18,677

 
$
41,298

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Transfers from loans to other real estate owned and other repossessed assets
$
7,574

 
$
3,602

Transfers from loans to loans held for sale
$
22,094

 
$
5,190

Dividends declared, not paid
$
22,916

 
$
23,034

Unsettled purchases of investment securities
$
272,500

 
$


The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
(In thousands, except share data)
 
Common
Shares
Outstanding
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
Balance at December 31, 2017
106,848,185

 
$
1,068

 
$
1,498,227

 
$
1,471,781

 
$
54,986

 
$
3,026,062

Cumulative effect of adoption of new accounting standards

 

 

 
(8,902
)
 
8,902

 

Comprehensive income

 

 

 
175,135

 
(13,228
)
 
161,907

Dividends

 

 

 
(45,857
)
 

 
(45,857
)
Equity based compensation
654,420

 
6

 
10,336

 

 

 
10,342

Forfeiture of unvested shares and shares surrendered for tax withholding obligations
(207,720
)
 
(2
)
 
(6,347
)
 

 

 
(6,349
)
Exercise of stock options
291,689

 
3

 
7,724

 

 

 
7,727

Repurchase of common stock
(1,345,458
)
 
(13
)
 
(54,386
)
 

 

 
(54,399
)
Balance at June 30, 2018
106,241,116

 
$
1,062

 
$
1,455,554

 
$
1,592,157

 
$
50,660

 
$
3,099,433

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
104,166,945

 
$
1,042

 
$
1,426,459

 
$
949,681

 
$
41,247

 
$
2,418,429

Comprehensive income

 

 

 
128,700

 
18,038

 
146,738

Dividends

 

 

 
(46,073
)
 

 
(46,073
)
Equity based compensation
591,999

 
6

 
7,380

 

 

 
7,386

Forfeiture of unvested shares and shares surrendered for tax withholding obligations
(262,080
)
 
(3
)
 
(7,176
)
 

 

 
(7,179
)
Exercise of stock options
2,304,108

 
23

 
61,496

 

 

 
61,519

Balance at June 30, 2017
106,800,972

 
$
1,068

 
$
1,488,159

 
$
1,032,308

 
$
59,285

 
$
2,580,820

 


The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018



Note 1    Basis of Presentation and Summary of Significant Accounting Policies
BankUnited, Inc. is a national bank holding company with one wholly-owned subsidiary, BankUnited, collectively, the Company. BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporate customers through 87 banking centers located in 15 Florida counties and 5 banking centers located in the New York metropolitan area at June 30, 2018. The Bank also offers certain commercial lending and deposit products through national platforms.
In connection with the FSB Acquisition, BankUnited entered into two loss sharing agreements with the FDIC. The Loss Sharing Agreements consisted of the Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement. Assets covered by the Loss Sharing Agreements are referred to as covered assets or, in certain cases, covered loans. The Single Family Shared-Loss Agreement provides for FDIC loss sharing and the Bank’s reimbursement for recoveries to the FDIC through May 21, 2019 for single family residential loans and OREO. Loss sharing under the Commercial Shared-Loss Agreement terminated on May 21, 2014. The Commercial Shared-Loss Agreement continued to provide for the Bank’s reimbursement of recoveries to the FDIC through June 30, 2017 for all other covered assets, including commercial real estate, commercial and industrial and consumer loans, certain investment securities and commercial OREO. 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 related to the covered assets up to $4.0 billion and 95% of losses in excess of this amount, beginning with the first dollar of loss incurred.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, these do not include all of the information and footnotes required for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in BKU’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected in future periods. 
Certain amounts presented for prior periods have been reclassified to conform to the current period presentation.
Accounting Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.
Significant estimates include the ALLL, the amount and timing of expected cash flows from covered assets and the FDIC indemnification asset, and the fair values of investment securities and other financial instruments. Management has used information provided by third party valuation specialists to assist in the determination of the fair values of investment securities.
New Accounting Pronouncements Adopted
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), superseded the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this update affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services and require expanded disclosure about revenue from contracts with customers that are within the scope of the standard. Revenue from financial instruments and lease contracts are generally outside the scope of Topic 606 as are revenues that are in the scope of ASC 860 "Transfers and Servicing", ASC 460 "Guarantees" and ASC 815 "Derivatives and Hedging". The Company adopted this standard in the first quarter of 2018 with respect to contracts not completed on the date of adoption using the modified retrospective transition method. Substantially all of the Company's revenues are generated from activities outside the scope of Topic 606; existing revenue recognition policies for contracts with

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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


customers that are within the scope of the standard are consistent with the principles in Topic 606. Therefore, there was no impact at adoption to the Company's consolidated financial position, results of operations, or cash flows.
ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in the ASU addressed certain aspects of recognition, measurement, presentation and disclosure of certain financial instruments. The main provisions of this ASU that are applicable to the Company are to (1) eliminate the available for sale classification for equity securities and require investments in equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, provided that equity investments that do not have readily determinable fair values may be re-measured at fair value upon occurrence of an observable price change or recognition of impairment, (2) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and (3) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments also clarified that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity's other deferred tax assets, which is consistent with the Company's previous practice. The Company adopted this ASU in the first quarter of 2018 using the modified retrospective transition method. The cumulative effect adjustment to reclassify unrealized gains on equity securities from AOCI to retained earnings totaled $2.2 million, net of tax, at adoption. Unrealized losses on equity securities recognized in earnings totaled $0.4 million and $1.0 million, respectively, for the three and six months ended June 30, 2018.
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This amendment provided guidance on eight specific cash flow classification issues where there had been diversity in practice. The provisions of this ASU that are expected to be applicable to the Company include requirements to: (1) classify cash payments for debt prepayment or extinguishment costs to be classified as cash outflows for financing activities, (2) classify proceeds from settlement of insurance claims on the basis of the nature of the loss and (3) require cash payments from settlement of bank-owned life insurance policies to be classified as cash flows from investing activities. The Company adopted this ASU for the first quarter of 2018; the provisions of the ASU were generally consistent with the Company's existing practice, therefore, adoption did not have an impact on the Company's consolidated cash flows.
ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU allowed a reclassification from AOCI to retained earnings of stranded tax effects in AOCI resulting from enactment of the TCJA that reduced the statutory federal tax rate from 35 percent to 21 percent. The Company’s existing accounting policy was to release stranded tax effects only when the entire portfolio of the type of item that created them is liquidated. This ASU was early adopted effective January 1, 2018 and a cumulative-effect adjustment was recorded to reclassify stranded tax effects totaling $11.1 million from AOCI to retained earnings.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for leases with terms longer than one year. Accounting applied by lessors is largely unchanged by this ASU. The ASU also will require both qualitative and quantitative disclosures that provide additional information about the amounts recorded in the consolidated financial statements. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2018. Early adoption is permitted; however, the Company does not intend to early adopt this ASU. The most significant impact of adoption is expected to be the recognition, as lessee, of new right-of-use assets and lease liabilities on the Consolidated Balance Sheet for real estate leases currently classified as operating leases. Under a package of practical expedients that the Company plans to elect, the Company will not be required to (i) re-assess whether expired or existing contracts contain leases, (ii) re-assess the classification of expired or existing leases, (iii) re-evaluate initial direct costs for existing leases or (iv) separate lease components of certain contracts from non-lease components. The Company also plans to elect the transition method that allows entities the option of applying the provisions of the ASU at the effective date without adjusting the comparative periods presented. Management is in the process of finalizing its evaluation of the impact of adoption of this ASU on its processes and controls. The Company has substantially completed its review of contractual arrangements for embedded leases. The Company has acquired and implemented software to facilitate calculation and reporting of the lease liability and right-of-use asset. Certain accounting policy decisions have been made including use of the incremental borrowing rate to determine the discount rate and assumptions around inclusion of

8

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


renewals in lease terms. Based on the population of lease contracts existing at June 30, 2018 and an incremental borrowing rate determined as of that date, the Company estimates that a lease liability and related right-of-use asset of approximately $100 million and $90 million, respectively, will be recognized on adoption at January 1, 2019. The amounts actually recognized will be based on terms of contracts in place and an incremental borrowing rate determined at the date of adoption. The Company does not expect the impact of adoption to be material to its consolidated results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. The ASU introduces new guidance which makes substantive changes to the accounting for credit losses. The ASU introduces the CECL model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. This includes loans, loan commitments, standby letters of credit, net investments in leases recognized by a lessor and HTM debt securities. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions and reasonable and supportable forecasts, and is generally expected to result in earlier recognition of credit losses. The ASU also modifies certain provisions of the current OTTI model for AFS debt securities. Credit losses on AFS debt securities will be limited to the difference between the security's amortized cost basis and its fair value, and will be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis. The ASU also provides for a simplified accounting model for purchased financial assets with more than insignificant credit deterioration since their origination. The ASU requires expanded disclosures including, but not limited to, (i) information about the methods and assumptions used to estimate expected credit losses, including changes in the factors that influenced management's estimate and the reasons for those changes, (ii) for financing receivables and net investment in leases measured at amortized cost, further disaggregation of information about the credit quality of those assets and (iii) a rollforward of the allowance for credit losses for AFS and HTM securities. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2019. Early adoption is permitted; however, the Company does not intend to early adopt this ASU. Management is in the process of evaluating the impact of adoption of this ASU on its consolidated financial statements, processes and controls and is not currently able to reasonably estimate the impact of adoption on the Company's consolidated financial position, results of operations or cash flows; however, adoption is likely to lead to significant changes in accounting policies related to, and the methods employed in estimating, the ALLL. It is possible that the impact will be material to the Company's consolidated financial position and results of operations. To date, the Company has completed a gap analysis, adopted and is in the process of executing a detailed implementation plan, established a formal governance structure, selected and implemented credit loss models for key portfolio segments, chosen loss estimation methodologies for key portfolio segments, and selected a software solution to serve as its CECL platform.
Revenue From Contracts with Customers
Revenue from contracts with customers within the scope of Topic 606 "Revenue from Contracts with Customers", is recognized in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services as the related performance obligations are satisfied. The majority of our revenues, including revenues from loans, leases, investment securities, derivative instruments and letters of credit and from transfers and servicing of financial assets, are excluded from the scope of Topic 606. Deposit service charges and fees is the most significant category of revenue within the scope of the standard. These service charges and fees consist primarily of monthly maintenance fees and other transaction based fees. Revenue is recognized when our performance obligations are complete, generally monthly for account maintenance fees or when a transaction, such as a wire transfer, is completed. Payment is typically received at the time the performance obligation is satisfied. The aggregate amount of revenue that is within the scope of Topic 606 from sources other than deposit service charges and fees is not material.
Investment Securities
Investment securities include debt securities and marketable equity securities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Debt securities that the Company may not have the intent to hold to maturity are classified as available for sale at the time of acquisition and carried at fair value with unrealized gains and losses, net of tax, excluded from earnings and reported in AOCI. Marketable equity securities with readily determinable fair values are reported at fair value with unrealized gains and losses included in earnings. Equity securities that do not have readily determinable fair values are reported at cost and re-measured at fair value upon occurrence of an observable price change or recognition of impairment.

9

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


Note 2    Earnings Per Common Share
The computation of basic and diluted earnings per common share is presented below for the periods indicated (in thousands, except share and per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
c
2018
 
2017
 
2018

2017
Basic earnings per common share:
 
 
 
 
 

 
 
Numerator:
 
 
 
 
 

 
 
Net income
$
89,900

 
$
66,407

 
$
175,135

 
$
128,700

Distributed and undistributed earnings allocated to participating securities
(3,463
)
 
(2,483
)
 
(6,676
)
 
(4,805
)
Income allocated to common stockholders for basic earnings per common share
$
86,437

 
$
63,924

 
$
168,459

 
$
123,895

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
106,170,834

 
106,827,077

 
106,347,378

 
106,325,244

Less average unvested stock awards
(1,222,436
)
 
(1,144,135
)
 
(1,165,750
)
 
(1,102,836
)
Weighted average shares for basic earnings per common share
104,948,398

 
105,682,942

 
105,181,628

 
105,222,408

Basic earnings per common share
$
0.82

 
$
0.60

 
$
1.60

 
$
1.18

Diluted earnings per common share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Income allocated to common stockholders for basic earnings per common share
$
86,437

 
$
63,924

 
$
168,459

 
$
123,895

Adjustment for earnings reallocated from participating securities
12

 
7

 
23

 
15

Income used in calculating diluted earnings per common share
$
86,449

 
$
63,931

 
$
168,482

 
$
123,910

Denominator:
 
 


 
 
 
 
Weighted average shares for basic earnings per common share
104,948,398

 
105,682,942

 
105,181,628

 
105,222,408

Dilutive effect of stock options and executive share-based awards
522,997

 
455,135

 
519,598

 
537,491

Weighted average shares for diluted earnings per common share
105,471,395

 
106,138,077

 
105,701,226

 
105,759,899

Diluted earnings per common share
$
0.82

 
$
0.60

 
$
1.59

 
$
1.17

Included in participating securities above are unvested shares and 3,023,314 dividend equivalent rights outstanding at June 30, 2018 that were issued in conjunction with the IPO of the Company's common stock. These dividend equivalent rights expire in 2021 and participate in dividends on a one-for-one basis.
The following potentially dilutive securities were outstanding at June 30, 2018 and 2017, but excluded from the calculation of diluted earnings per common share for the periods indicated because their inclusion would have been anti-dilutive: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Unvested shares and share units
1,644,336

 
1,521,817

 
1,644,336

 
1,521,817

Stock options and warrants
1,850,279

 
1,850,279

 
1,850,279

 
1,850,279

 

10

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


Note 3    Investment Securities
Investment securities include investment securities available for sale, marketable equity securities, and investment securities held to maturity. The investment securities available for sale portfolio consisted of the following at the dates indicated (in thousands):
 
June 30, 2018
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
Investment securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
34,769

 
$
7

 
$
(18
)
 
$
34,758

U.S. Government agency and sponsored enterprise residential MBS
1,802,758

 
22,052

 
(3,548
)
 
1,821,262

U.S. Government agency and sponsored enterprise commercial MBS
240,835

 
820

 
(1,736
)
 
239,919

Private label residential MBS and CMOs
882,864

 
11,133

 
(14,739
)
 
879,258

Private label commercial MBS
1,093,409

 
7,146

 
(4,518
)
 
1,096,037

Single family rental real estate-backed securities
578,314

 
1,090

 
(3,490
)
 
575,914

Collateralized loan obligations
1,242,541

 
2,422

 
(148
)
 
1,244,815

Non-mortgage asset-backed securities
198,818

 
1,911

 
(1,722
)
 
199,007

State and municipal obligations
463,995

 
5,388

 
(3,510
)
 
465,873

SBA securities
459,876

 
8,854

 
(540
)
 
468,190

Other debt securities
1,552

 
4,029

 

 
5,581

 
$
6,999,731

 
$
64,852

 
$
(33,969
)
 
$
7,030,614

 
December 31, 2017
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
Investment securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
24,981

 
$

 
$
(28
)
 
$
24,953

U.S. Government agency and sponsored enterprise residential MBS
2,043,373

 
16,094

 
(1,440
)
 
2,058,027

U.S. Government agency and sponsored enterprise commercial MBS
233,522

 
1,330

 
(344
)
 
234,508

Private label residential MBS and CMOs
613,732

 
16,473

 
(1,958
)
 
628,247

Private label commercial MBS
1,033,022

 
13,651

 
(258
)
 
1,046,415

Single family rental real estate-backed securities
559,741

 
3,823

 
(858
)
 
562,706

Collateralized loan obligations
720,429

 
3,252

 

 
723,681

Non-mortgage asset-backed securities
119,939

 
1,808

 

 
121,747

Marketable equity securities
59,912

 
3,631

 

 
63,543

State and municipal obligations
640,511

 
17,606

 
(914
)
 
657,203

SBA securities
534,534

 
16,208

 
(60
)
 
550,682

Other debt securities
4,090

 
5,030

 

 
9,120

 
$
6,587,786

 
$
98,906

 
$
(5,860
)
 
$
6,680,832

Marketable equity securities, recorded at fair value, totaled $62.5 million and $63.5 million, at June 30, 2018 and December 31, 2017, respectively. Investment securities held to maturity at June 30, 2018 and December 31, 2017 consisted of one State of Israel bond with a carrying value of $10 million maturing in 2024. Fair value approximated carrying value at June 30, 2018 and December 31, 2017.

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


At June 30, 2018, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments of mortgage-backed and other pass-through securities, were as follows (in thousands):
 
Amortized Cost
 
Fair Value
Due in one year or less
$
735,040

 
$
740,310

Due after one year through five years
3,512,471

 
3,524,379

Due after five years through ten years
2,374,418

 
2,384,147

Due after ten years
377,802

 
381,778

 
$
6,999,731

 
$
7,030,614

Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of June 30, 2018 was 4.8 years. The effective duration of the investment portfolio as of June 30, 2018 was 1.5 years. The model results are based on assumptions that may differ from actual results. 
The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at the FRB totaled $2.2 billion and $2.6 billion at June 30, 2018 and December 31, 2017, respectively.
The following table provides information about gains and losses on investment securities for the periods indicated (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Proceeds from sale of investment securities available for sale
$
569,387


$
166,368

 
$
836,317

 
$
427,923

 
 
 
 
 
 
 
 
Gross realized gains:
 
 


 
 
 
 
Investment securities available for sale
$
2,554

 
$
656

 
$
6,041

 
$
2,292

Gross realized losses:
 
 


 
 
 
 
Investment securities available for sale
(4
)
 
(29
)
 
(2,514
)
 
(29
)
Net realized gain
2,550

 
627

 
3,527

 
2,263

 
 
 
 
 
 
 
 
Net unrealized losses on marketable equity securities recognized in earnings
(408
)
 

 
(1,021
)
 

 
 
 
 
 
 
 
 
Gain on investment securities, net
$
2,142

 
$
627

 
$
2,506

 
$
2,263


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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeded fair value for investment securities available for sale in unrealized loss positions, aggregated by investment category and length of time that individual securities had been in continuous unrealized loss positions at the dates indicated (in thousands):
 
June 30, 2018
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
U.S. Treasury securities
$
14,838

 
$
(18
)
 
$

 
$

 
$
14,838

 
$
(18
)
U.S. Government agency and sponsored enterprise residential MBS
334,733

 
(2,869
)
 
12,361

 
(679
)
 
347,094

 
(3,548
)
U.S. Government agency and sponsored enterprise commercial MBS
97,975

 
(1,736
)
 

 

 
97,975

 
(1,736
)
Private label residential MBS and CMOs
721,684

 
(14,544
)
 
4,178

 
(195
)
 
725,862

 
(14,739
)
Private label commercial MBS
277,920

 
(4,518
)
 

 

 
277,920

 
(4,518
)
Single family rental real estate-backed securities
295,632

 
(3,490
)
 

 

 
295,632

 
(3,490
)
Collateralized loan obligations
364,004

 
(148
)
 

 

 
364,004

 
(148
)
Non-mortgage asset-backed securities
125,669

 
(1,722
)
 

 

 
125,669

 
(1,722
)
State and municipal obligations
242,677

 
(3,179
)
 
16,367

 
(331
)
 
259,044

 
(3,510
)
SBA securities
105,816

 
(505
)
 
13,797

 
(35
)
 
119,613

 
(540
)
 
$
2,580,948

 
$
(32,729
)
 
$
46,703

 
$
(1,240
)
 
$
2,627,651

 
$
(33,969
)
 
December 31, 2017
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
U.S. Treasury securities
$
24,953

 
$
(28
)
 
$

 
$

 
$
24,953

 
$
(28
)
U.S. Government agency and sponsored enterprise residential MBS
471,120

 
(1,141
)
 
13,028

 
(299
)
 
484,148

 
(1,440
)
U.S. Government agency and sponsored enterprise commercial MBS
26,265

 
(344
)
 

 

 
26,265

 
(344
)
Private label residential MBS and CMOs
330,068

 
(1,858
)
 
5,083

 
(100
)
 
335,151

 
(1,958
)
Private label commercial MBS
81,322

 
(258
)
 

 

 
81,322

 
(258
)
Single family rental real estate-backed securities
94,750

 
(858
)
 

 

 
94,750

 
(858
)
State and municipal obligations
30,715

 
(49
)
 
60,982

 
(865
)
 
91,697

 
(914
)
SBA securities
21,300

 
(10
)
 
15,427

 
(50
)
 
36,727

 
(60
)
 
$
1,080,493

 
$
(4,546
)
 
$
94,520

 
$
(1,314
)
 
$
1,175,013

 
$
(5,860
)
The Company monitors its investment securities available for sale for OTTI on an individual security basis. No securities were determined to be other-than-temporarily impaired during the six months ended June 30, 2018 or 2017. The Company does not intend to sell securities that are in significant unrealized loss positions at June 30, 2018 and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis, which may be at maturity.

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


At June 30, 2018, 147 securities were in unrealized loss positions. The amount of impairment related to 32 of these securities was considered insignificant both individually and in the aggregate, totaling approximately $313 thousand and no further analysis with respect to these securities was considered necessary. The basis for concluding that impairment of the remaining securities was not other-than-temporary is further described below:
U.S. Government agency and sponsored enterprise residential and commercial MBS
At June 30, 2018, thirty-two U.S. Government agency and sponsored enterprise residential MBS and six U.S. Government agency and sponsored enterprise commercial MBS were in unrealized loss positions. Impairment of these securities was primarily attributable to increases in market interest rates subsequent to the date of acquisition. The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. Given the expectation of timely payment of principal and interest the impairments were considered to be temporary.
Private label residential MBS and CMOs
At June 30, 2018, twenty-eight private label residential MBS and CMOs were in unrealized loss positions, primarily as a result of an increase in medium and long-term market interest rates subsequent to acquisition. These securities were assessed for OTTI using credit and prepayment behavioral models that incorporate CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The results of these assessments were not indicative of credit losses related to any of these securities as of June 30, 2018. Given the expectation of timely recovery of outstanding principal the impairments were considered to be temporary.
Private label commercial MBS
At June 30, 2018, fourteen private label commercial MBS were in unrealized loss positions, primarily as a result of an increase in market interest rates. These securities were assessed for OTTI using credit and prepayment behavioral models incorporating assumptions consistent with the collateral characteristics of each security. The results of this analysis were not indicative of expected credit losses. Given the expectation of timely recovery of outstanding principal the impairments were considered to be temporary.
Single family rental real estate-backed securities
At June 30, 2018, ten single family rental real estate-backed securities were in unrealized loss positions. The unrealized losses were primarily due to increases in market interest rates since the purchase of the securities. Management's analysis of the credit characteristics, including loan-to-value and debt service coverage ratios, and levels of subordination for each of the securities is not indicative of projected credit losses. Given the absence of projected credit losses the impairments were considered to be temporary.
Collateralized loan obligations:
At June 30, 2018, two collateralized loan obligations were in unrealized loss positions. The amount of impairment of each of the individual securities was less than 1% of amortized cost. These securities were assessed for OTTI using credit and prepayment behavioral models incorporating assumptions consistent with the collateral characteristics of each security. The results of this analysis were not indicative of expected credit losses. Given the limited severity of impairment and the expectation of timely recovery of outstanding principal, the impairments were considered to be temporary.
Non-mortgage asset-backed securities
At June 30, 2018, four non-mortgage asset-backed securities were in unrealized loss positions, due primarily to increases in market interest rates subsequent to the date of acquisition. The amount of impairment each of the individual securities was 2% or less of amortized cost. These securities were assessed for OTTI using credit and prepayment behavioral models incorporating assumptions consistent with the collateral characteristics of each security. The results of this analysis were not indicative of expected credit losses. Given the limited severity of impairment and the expectation of timely recovery of outstanding principal, the impairment were considered to be temporary.

14

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


State and municipal obligations
At June 30, 2018, fifteen state and municipal obligations were in unrealized loss positions. The impairments are primarily attributable to increases in market interest rates and changes in statutory tax rates. All of the securities are rated investment grade by nationally recognized statistical ratings organizations. Management's evaluation of these securities for OTTI also encompassed the review of credit scores and analysis provided by a third party firm specializing in the analysis and credit review of municipal securities. Given the absence of expected credit losses, the impairments were considered to be temporary.
SBA Securities
At June 30, 2018, four SBA securities were in unrealized loss positions. The amount of impairment of each of these securities was less than 1% of amortized cost. These securities were purchased at a premium and the impairment was attributable primarily to increased prepayment speeds. The timely payment of principal and interest on these securities is guaranteed by this U.S. Government agency. Given the limited severity of impairment and the expectation of timely payment of principal and interest, the impairments were considered to be temporary.
Note 4    Loans and Allowance for Loan and Lease Losses
The Company segregates its loan portfolio between covered and non-covered loans. Non-covered loans include loans originated since the FSB acquisition and commercial and consumer loans acquired in the FSB acquisition for which loss share coverage has terminated. Covered loans are further segregated between ACI and non-ACI loans.
Loans consisted of the following at the dates indicated (dollars in thousands):
 
June 30, 2018
 

 
Covered Loans
 
 
 
Percent of Total
 
Non-Covered Loans
 
ACI
 
Non-ACI
 
Total
 
Residential and other consumer:
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
4,257,026

 
$
431,413

 
$
23,166

 
$
4,711,605

 
21.6
%
Government insured residential
111,761

 

 

 
111,761

 
0.5
%
Home equity loans and lines of credit
1,855

 

 
331

 
2,186

 
%
Other consumer loans
18,600

 

 

 
18,600

 
0.1
%
 
4,389,242

 
431,413

 
23,497

 
4,844,152

 
22.2
%
Commercial:
 
 
 
 
 
 
 
 
 
Multi-family
2,859,179

 

 

 
2,859,179

 
13.1
%
Non-owner occupied commercial real estate
4,538,272

 

 

 
4,538,272

 
20.7
%
Construction and land
255,864

 

 

 
255,864

 
1.2
%
Owner occupied commercial real estate
2,048,478

 

 

 
2,048,478

 
9.4
%
Commercial and industrial
4,605,253

 

 

 
4,605,253

 
21.1
%
Commercial lending subsidiaries
2,676,268

 

 

 
2,676,268

 
12.3
%
 
16,983,314

 

 

 
16,983,314

 
77.8
%
Total loans
21,372,556

 
431,413

 
23,497

 
21,827,466

 
100.0
%
Premiums, discounts and deferred fees and costs, net
45,817

 

 
(3,560
)
 
42,257

 
 
Loans including premiums, discounts and deferred fees and costs
21,418,373

 
431,413

 
19,937

 
21,869,723

 
 
Allowance for loan and lease losses
(134,381
)
 

 
(590
)
 
(134,971
)
 
 
Loans, net
$
21,283,992

 
$
431,413

 
$
19,347

 
$
21,734,752

 
 
 

15

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


 
December 31, 2017
 

 
Covered Loans
 
 
 
Percent of Total
 
Non-Covered Loans
 
ACI
 
Non-ACI
 
Total
 
Residential and other consumer:
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
4,089,994

 
$
479,068

 
$
26,837

 
$
4,595,899

 
21.5
%
Government insured residential
26,820

 

 

 
26,820

 
0.1
%
Home equity loans and lines of credit
1,654

 

 
361

 
2,015

 
%
Other consumer loans
20,512

 

 

 
20,512

 
0.1
%
 
4,138,980

 
479,068

 
27,198

 
4,645,246

 
21.7
%
Commercial:
 
 
 
 
 
 
 
 
 
Multi-family
3,215,697

 

 

 
3,215,697

 
15.0
%
Non-owner occupied commercial real estate
4,485,276

 

 

 
4,485,276

 
21.0
%
Construction and land
310,999

 

 

 
310,999

 
1.5
%
Owner occupied commercial real estate
2,014,908

 

 

 
2,014,908

 
9.4
%
Commercial and industrial
4,145,785

 

 

 
4,145,785

 
19.4
%
Commercial lending subsidiaries
2,553,576

 

 

 
2,553,576

 
12.0
%
 
16,726,241

 

 

 
16,726,241

 
78.3
%
Total loans
20,865,221

 
479,068

 
27,198

 
21,371,487

 
100.0
%
Premiums, discounts and deferred fees and costs, net
48,165

 

 
(3,148
)
 
45,017

 
 
Loans including premiums, discounts and deferred fees and costs
20,913,386

 
479,068

 
24,050

 
21,416,504

 
 
Allowance for loan and lease losses
(144,537
)
 

 
(258
)
 
(144,795
)
 
 
Loans, net
$
20,768,849

 
$
479,068

 
$
23,792

 
$
21,271,709

 
 
Included in non-covered loans above are $30 million and $34 million at June 30, 2018 and December 31, 2017, respectively, of ACI commercial loans acquired in the FSB Acquisition.
Through two subsidiaries, the Bank provides commercial and municipal equipment and franchise financing utilizing both loan and lease structures. At June 30, 2018 and December 31, 2017, the commercial lending subsidiaries portfolio included a net investment in direct financing leases of $794 million and $738 million, respectively.
During the three and six months ended June 30, 2018 and 2017, the Company purchased 1-4 single family residential loans totaling $271 million, $604 million, $297 million and $637 million, respectively. Purchases for the three and six months ended June 30, 2018 included $72 million and $112 million, respectively, of government insured residential loans.
At June 30, 2018, the Company had pledged real estate loans with UPB of approximately $10.3 billion and recorded investment of approximately $9.9 billion as security for FHLB advances.

16

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


At June 30, 2018 and December 31, 2017, the UPB of ACI loans was $0.9 billion and $1.1 billion, respectively. The accretable yield on ACI loans represents the amount by which undiscounted expected future cash flows exceed recorded investment. Changes in the accretable yield on ACI loans for the six months ended June 30, 2018 and the year ended December 31, 2017 were as follows (in thousands):
Balance at December 31, 2016
$
675,385

Reclassifications from non-accretable difference, net
81,501

Accretion
(301,827
)
Balance at December 31, 2017
455,059

Reclassifications from non-accretable difference, net
60,490

Accretion
(167,761
)
Balance at June 30, 2018
$
347,788

Covered loan sales
During the periods indicated, the Company sold covered residential loans to third parties on a non-recourse basis. The following table summarizes the impact of these transactions (in thousands): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
UPB of loans sold
$
64,306

 
$
69,143

 
$
125,349

 
$
123,737

 
 
 
 
 
 
 
 
Cash proceeds, net of transaction costs
$
54,773

 
$
53,007

 
$
109,629

 
$
98,421

Recorded investment in loans sold
56,775

 
56,454

 
109,927

 
99,986

Loss on sale of covered loans, net
$
(2,002
)
 
$
(3,447
)
 
$
(298
)
 
$
(1,565
)
 
 
 
 
 
 
 
 
Gain on FDIC indemnification, net
$
1,601

 
$
2,759

 
$
243

 
$
1,257

 

17

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2018


Allowance for loan and lease losses 
Activity in the ALLL is summarized as follows for the periods indicated (in thousands):
 
Three Months Ended June 30,
 
2018
 
2017
 
Residential and Other Consumer
 
Commercial
 
Total
 
Residential and Other Consumer
 
Commercial
 
Total
Beginning balance
$
10,832

 
$
126,644

 
$
137,476

 
$
11,790

 
$
139,491

 
$
151,281

Provision for (recovery of) loan losses:
 
 
 
 
 
 
 
 
 
 
 
Covered loans
294

 

 
294

 
1,658

 
(5
)
 
1,653

Non-covered loans
(574
)
 
9,275

 
8,701

 
93

 
11,873

 
11,966

Total provision
(280
)
 
9,275

 
8,995

 
1,751

 
11,868

 
13,619

Charge-offs:
 
 
.

 
 
 
 
 
 
 
 
Covered loans
(224
)
 

 
(224
)
 

 

 

Non-covered loans
2

 
(12,046
)
 
(12,044
)
 

 
(10,237
)
 
(10,237
)
Total charge-offs
(222
)
 
(12,046
)
 
(12,268
)
 

 
(10,237
)
 
(10,237
)