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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                

For the quarterly period ended September 30, 2022

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

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  ☐  No  ☒ 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 

Class

Trading Symbol

Name of Exchange on Which Registered

Common Stock, $0.01 Par Value

BKU

New York Stock Exchange

The number of outstanding shares of the registrant common stock, $0.01 par value, as of October 31, 2022 was 77,270,109.

---

BANKUNITED, INC.

Form 10-Q

For the Quarter Ended September 30, 2022

TABLE OF CONTENTS

						Page
			Glossary of Defined Terms			ii
PART I.			FINANCIAL INFORMATION
ITEM 1.			Financial Statements (Unaudited)
			Consolidated Balance Sheets			1
			Consolidated Statements of Income			2
			Consolidated Statements of Comprehensive Income			3
			Consolidated Statements of Cash Flows			4
			Consolidated Statements of Stockholders’ Equity			6
			Notes to Consolidated Financial Statements			7
ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
ITEM 3.			Quantitative and Qualitative Disclosures About Market Risk			61
ITEM 4.			Controls and Procedures			61
PART II.			OTHER INFORMATION
ITEM 1.			Legal Proceedings			61
ITEM 1A.			Risk Factors			62
ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds			62
ITEM 6.			Exhibits			63
SIGNATURES						64

i

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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.

ACL						Allowance for credit losses
AFS						Available for sale
ALCO						Asset/Liability Committee
ALM						Asset Liability Management
AOCI						Accumulated other comprehensive income
ARM						Adjustable rate mortgage
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
BFG						Bridge Funding Group, Inc.
BKU						BankUnited, Inc.
BOLI						Bank Owned Life Insurance
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
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CECL						Current expected credit losses
CET1						Common Equity Tier 1 capital
C&I						Commercial and Industrial loans, including owner-occupied commercial real estate
CLO						Collateralized loan obligations
CMBS						Commercial mortgage-backed securities
CME						Chicago Mercantile Exchange
CMOs						Collateralized mortgage obligations
COVID-19						Coronavirus disease of 2019
CRE						Commercial real estate loans, including multi-family; non-owner occupied commercial real estate; and construction and land
DSCR						Debt Service Coverage Ratio
EVE						Economic value of equity
FASB						Financial Accounting Standards Board
FDIA						Federal Deposit Insurance Act
FHA						Federal Housing Administration
FHLB						Federal Home Loan Bank
FICO						Fair Isaac Corporation (credit score)
FRB						Federal Reserve Bank
GAAP						U.S. generally accepted accounting principles
GDP						Gross Domestic Product
GNMA						Government National Mortgage Association
HPI						Home price indices
ISDA						International Swaps and Derivatives Association
LGD						Loss Given Default
LIBOR						London InterBank Offered Rate
LTV						Loan-to-value

ii

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MBS						Mortgage-backed securities
MSA						Metropolitan Statistical Area
MWL						Mortgage warehouse lending
Non-OOCRE						Non-owner occupied commercial real estate
NRSRO						Nationally recognized statistical rating organization
OOCRE						Owner occupied commercial real estate
OREO						Other real estate owned
PCD						Purchased credit-deteriorated
PD						Probability of default
Pinnacle						Pinnacle Public Finance, Inc.
PPNR						Pre-tax, pre-provision net revenue
PPP						Small Business Administration’s Paycheck Protection Program
REIT						Real Estate Investment Trust
SBA						U.S. Small Business Administration
SEC						Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate
S&P 500						Standard & Poor's 500 Index
TDR						Troubled-debt restructuring
Tri-State						New York, New Jersey and Connecticut
UPB						Unpaid principal balance
VA loan						Loan guaranteed by the U.S. Department of Veterans Affairs
WARM						Weighted-average remaining maturity

iii

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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)

			September 30, 2022						December 31, 2021
ASSETS
Cash and due from banks:
Non-interest bearing			$	18,380					$	19,143
Interest bearing			707,758						295,714
Cash and cash equivalents			726,138						314,857
Investment securities (including securities recorded at fair value of $9,787,427 and $10,054,198)			9,797,427						10,064,198
Non-marketable equity securities			261,784						135,859
Loans			24,266,732						23,765,053
Allowance for credit losses			(130,671)						(126,457)
Loans, net			24,136,061						23,638,596
Bank owned life insurance			308,176						309,477
Operating lease equipment, net			579,693						640,726
Goodwill			77,637						77,637
Other assets			707,978						634,046
Total assets			$	36,594,894					$	35,815,396
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Demand deposits:
Non-interest bearing			$	8,794,109					$	8,975,621
Interest bearing			2,341,342						3,709,493
Savings and money market			12,513,398						13,368,745
Time			3,700,226						3,384,243
Total deposits			27,349,075						29,438,102
Federal funds purchased			—						199,000
FHLB advances			5,295,000						1,905,000
Notes and other borrowings			721,045						721,416
Other liabilities			748,789						514,117
Total liabilities			34,113,909						32,777,635
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 77,599,408 and 85,647,986 shares issued and outstanding			776						856
Paid-in capital			381,411						707,503
Retained earnings			2,506,539						2,345,342
Accumulated other comprehensive loss			(407,741)						(15,940)
Total stockholders' equity			2,480,985						3,037,761
Total liabilities and stockholders' equity			$	36,594,894					$	35,815,396

 

1

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

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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,
			2022						2021						2022						2021
Interest income:
Loans			$	244,884					$	194,689					$	645,669					$	602,544
Investment securities			77,109						38,243						174,928						114,418
Other			4,031						1,413						8,364						4,613
Total interest income			326,024						234,345						828,961						721,575
Interest expense:
Deposits			53,206						14,273						85,569						53,965
Borrowings			36,982						24,950						73,498						77,937
Total interest expense			90,188						39,223						159,067						131,902
Net interest income before provision for credit losses			235,836						195,122						669,894						589,673
Provision for (recovery of) credit losses			3,720						(11,842)						35,546						(67,365)
Net interest income after provision for credit losses			232,116						206,964						634,348						657,038
Non-interest income:
Deposit service charges and fees			6,064						5,553						17,920						15,870
Gain (loss) on investment securities, net			135						(664)						(16,125)						5,856
Lease financing			13,180						13,212						39,958						39,222
Other non-interest income			3,693						7,377						9,070						27,583
Total non-interest income			23,072						25,478						50,823						88,531
Non-interest expense:
Employee compensation and benefits			66,097						57,224						195,646						172,971
Occupancy and equipment			11,719						11,760						34,630						35,127
Deposit insurance expense			4,398						3,552						11,794						15,224
Professional fees			3,184						2,312						8,702						6,363
Technology			19,813						16,687						54,715						49,279
Depreciation of operating lease equipment			12,646						12,944						37,841						37,995
Other non-interest expense			20,248						13,563						48,503						42,756
Total non-interest expense			138,105						118,042						391,831						359,715
Income before income taxes			117,083						114,400						293,340						385,854
Provision for income taxes			29,233						27,459						72,576						96,125
Net income			$	87,850					$	86,941					$	220,764					$	289,729
Earnings per common share, basic			$	1.13					$	0.94					$	2.73					$	3.12
Earnings per common share, diluted			$	1.12					$	0.94					$	2.71					$	3.12

2

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

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BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(In thousands)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Net income			$	87,850					$	86,941					$	220,764					$	289,729
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available for sale:
Net unrealized holding gain (loss) arising during the period			(117,300)						(16,205)						(470,249)						(24,764)
Reclassification adjustment for net securities gains realized in income			(258)						(606)						(2,906)						(5,679)
Net change in unrealized gains (losses) on securities available for sale			(117,558)						(16,811)						(473,155)						(30,443)
Unrealized gains (losses) on derivative instruments:
Net unrealized holding gain (loss) arising during the period			30,495						1,263						74,540						16,930
Reclassification adjustment for net (gains) losses realized in income			(283)						10,359						6,814						32,603
Net change in unrealized gains (losses) on derivative instruments			30,212						11,622						81,354						49,533
Other comprehensive income (loss)			(87,346)						(5,189)						(391,801)						19,090
Comprehensive income (loss)			$	504					$	81,752					$	(171,037)					$	308,819

3

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

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BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

			Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities:
Net income			$	220,764					$	289,729
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion, net			(5,444)						(16,294)
Provision for (recovery of) credit losses			35,546						(67,365)
(Gain) loss on investment securities, net			16,125						(5,856)
Equity based compensation			18,178						17,510
Depreciation and amortization			57,737						56,122
Deferred income taxes			13,647						7,835
Proceeds from sale of loans held for sale			589,681						651,840
(Increase) decrease in other assets			259,044						(128,937)
Increase in other liabilities			111,863						148,437
Net cash provided by operating activities			1,317,141						953,021
Cash flows from investing activities:
Purchases of investment securities			(2,713,761)						(4,378,200)
Proceeds from repayments and calls of investment securities			1,514,500						1,980,551
Proceeds from sale of investment securities			798,205						1,348,346
Purchases of non-marketable equity securities			(336,375)						(16,199)
Proceeds from redemption of non-marketable equity securities			210,450						56,480
Purchases of loans			(2,000,568)						(3,681,706)
Loan originations and repayments, net			872,339						3,907,957
Proceeds from sale of loans, net			21,327						210,525
(Acquisition) disposition of operating lease equipment, net			23,256						(44,179)
Other investing activities			(34,639)						(13,270)
Net cash used in investing activities			(1,645,266)						(629,695)

4

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

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BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

			Nine Months Ended September 30,
			2022						2021
Cash flows from financing activities:
Net increase (decrease) in deposits			(2,089,027)						620,457
Net increase (decrease) in federal funds purchased			(199,000)						19,000
Additions to FHLB borrowings			4,075,000						1,231,001
Repayments of FHLB borrowings			(685,000)						(1,921,000)
Dividends paid			(60,082)						(65,114)
Repurchase of common stock			(336,533)						(136,686)
Other financing activities			34,048						38,322
Net cash provided by (used in) financing activities			739,406						(214,020)
Net increase in cash and cash equivalents			411,281						109,306
Cash and cash equivalents, beginning of period			314,857						397,716
Cash and cash equivalents, end of period			$	726,138					$	507,022
Supplemental disclosure of cash flow information:
Interest paid			$	138,143					$	125,834
Income taxes (refunded) paid, net			$	(117,145)					$	247,798
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans to loans held for sale			$	613,243					$	832,903
Dividends declared, not paid			$	19,361					$	20,676
Unsettled securities trades, net			$	—					$	154,285
Obligations incurred in acquisition of affordable housing limited partnerships			$	65,000					$	—

5

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

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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 Loss						Total Stockholders’ Equity
Balance at June 30, 2022			77,944,216						$	779					$	387,583					$	2,438,050					$	(320,395)					$	2,506,017
Comprehensive income			—						—						—						87,850						(87,346)						504
Dividends ($0.25 per common share)			—						—						—						(19,361)						—						(19,361)
Equity based compensation			4,300						—						4,647						—						—						4,647
Forfeiture of unvested shares and shares surrendered for tax withholding obligations			(34,999)						—						(30)						—						—						(30)
Repurchase of common stock			(314,109)						(3)						(10,789)						—						—						(10,792)
Balance at September 30, 2022			77,599,408						$	776					$	381,411					$	2,506,539					$	(407,741)					$	2,480,985
Balance at June 30, 2021			93,238,553						$	932					$	1,011,786					$	2,173,698					$	(24,873)					$	3,161,543
Comprehensive income			—						—						—						86,941						(5,189)						81,752
Dividends ($0.23 per common share)			—						—						—						(20,676)						—						(20,676)
Equity based compensation			9,756						1						3,554						—						—						3,555
Forfeiture of unvested shares and shares surrendered for tax withholding obligations			(13,007)						(1)						(76)						—						—						(77)
Repurchase of common stock			(3,185,976)						(32)						(129,391)						—						—						(129,423)
Balance at September 30, 2021			90,049,326						$	900					$	885,873					$	2,239,963					$	(30,062)					$	3,096,674

			Common Shares Outstanding						Common Stock						Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
Balance at December 31, 2021			85,647,986						$	856					$	707,503					$	2,345,342					$	(15,940)					$	3,037,761
Comprehensive loss			—						—						—						220,764						(391,801)						(171,037)
Dividends ($0.75 per common share)			—						—						—						(59,567)						—						(59,567)
Equity based compensation			496,361						5						15,592						—						—						15,597
Forfeiture of unvested shares and shares surrendered for tax withholding obligations			(199,339)						(2)						(5,234)						—						—						(5,236)
Repurchase of common stock			(8,345,600)						(83)						(336,450)						—						—						(336,533)
Balance at September 30, 2022			77,599,408						$	776					$	381,411					$	2,506,539					$	(407,741)					$	2,480,985
Balance at December 31, 2020			93,067,500						$	931					$	1,017,518					$	2,013,715					$	(49,152)					$	2,983,012
Comprehensive income			—						—						—						289,729						19,090						308,819
Dividends ($0.69 per common share)			—						—						—						(63,481)						—						(63,481)
Equity based compensation			568,936						6						10,772						—						—						10,778
Forfeiture of unvested shares and shares surrendered for tax withholding obligations			(197,639)						(3)						(5,790)						—						—						(5,793)
Exercise of stock options			1,569						—						25						—						—						25
Repurchase of common stock			(3,391,040)						(34)						(136,652)						—						—						(136,686)
Balance at September 30, 2021			90,049,326						$	900					$	885,873					$	2,239,963					$	(30,062)					$	3,096,674

6

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

September 30, 2022

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 58 banking centers located in 12 Florida counties, 4 banking centers located in the New York metropolitan area, and 1 banking center located in Dallas, Texas at September 30, 2022. The Bank also offers certain commercial lending and deposit products through national platforms and regional wholesale banking offices.

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, 2021 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 nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected in future periods.

The Company has a single operating segment and thus a single reportable segment. While management monitors the revenue streams of its various business units, the business units serve a similar base of primarily commercial clients, providing a similar range of products and services, managed through similar processes and platforms. The Company’s chief operating decision maker makes company-wide resource allocation decisions and assessments of performance based on a collective assessment of the Company’s operations.

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.

The most significant estimate impacting the Company's consolidated financial statements is the ACL.

New Accounting Pronouncements Adopted During the Nine Months Ended September 30, 2022

ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible debt and convertible preferred stock by reducing the number of accounting models for these instruments, resulting in fewer embedded conversion features being separately recognized from the host contract. Additionally, this ASU revises the criteria for determining whether contracts in an entity's own equity meet the scope exception from derivative accounting, which will change the population of contracts that are recognized as assets or liabilities. The amendments in this ASU also revise certain aspects of the guidance on calculating earnings per share with respect to convertible instruments and instruments that may be settled in the entity's own shares. The Company adopted this ASU on January 1, 2022, with no material impact on the Company's consolidated financial position, results of operations, and cash flows.

ASU No. 2022-01, Fair Value Hedging—Portfolio Layer Method (Topic 815). This ASU expands the portfolio layer method of hedge accounting prescribed in ASU No. 2017-12 to allow multiple hedged layers of a single closed portfolio and to include portfolios of both prepayable and non-prepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same accounting method to similar hedging strategies. The ASU also specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on accounting and disclosure of hedge basis adjustments and specifies how hedge basis adjustments should be considered in determining credit losses for assets in the designated closed portfolio. This ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2022. The Company adopted this ASU upon its release in March 2022 with no material impact on the Company's consolidated financial position, results of operations, and cash flows.

7

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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

Accounting Pronouncements Not Yet Adopted

ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326). This ASU eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors. The ASU enhances disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, updates certain requirements related to accounting for credit losses under ASC 326 and requires disclosure of current-period gross write offs of financing receivables by year of origination. The ASU is effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company is currently completing its evaluation of the impact of adoption of this ASU, however, the impact of adoption on the Company's consolidated financial position, results of operations, and cash flows is not expected to be material. Adoption will lead to additional and revised disclosures in the Company's financial statements.

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 September 30,												Nine Months Ended September 30,
c			2022						2021						2022						2021
Basic earnings per common share:
Numerator:
Net income			$	87,850					$	86,941					$	220,764					$	289,729
Distributed and undistributed earnings allocated to participating securities			(1,343)						(1,112)						(3,258)						(3,701)
Income allocated to common stockholders for basic earnings per common share			$	86,507					$	85,829					$	217,506					$	286,028
Denominator:
Weighted average common shares outstanding			77,912,320						92,053,714						81,039,561						92,787,824
Less average unvested stock awards			(1,221,971)						(1,208,304)						(1,230,396)						(1,218,416)
Weighted average shares for basic earnings per common share			76,690,349						90,845,410						79,809,165						91,569,408
Basic earnings per common share			$	1.13					$	0.94					$	2.73					$	3.12
Diluted earnings per common share:
Numerator:
Income allocated to common stockholders for basic earnings per common share			$	86,507					$	85,829					$	217,506					$	286,028
Adjustment for earnings reallocated from participating securities			6						2						9						5
Income used in calculating diluted earnings per common share			$	86,513					$	85,831					$	217,515					$	286,033
Denominator:
Weighted average shares for basic earnings per common share			76,690,349						90,845,410						79,809,165						91,569,408
Dilutive effect of certain share-based awards			433,472						182,448						308,608						152,675
Weighted average shares for diluted earnings per common share			77,123,821						91,027,858						80,117,773						91,722,083
Diluted earnings per common share			$	1.12					$	0.94					$	2.71					$	3.12

Potentially dilutive unvested shares totaling 1,213,029 and 1,205,136 were outstanding at September 30, 2022 and 2021, respectively, but excluded from the calculation of diluted earnings per common share because their inclusion would have been anti-dilutive.

8

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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

Note 3    Investment Securities

Investment securities include investment securities available for sale, marketable equity securities, and investment securities held to maturity. The investment securities portfolio consisted of the following at the dates indicated (in thousands):

			September 30, 2022
			Amortized Cost						Gross Unrealized												Carrying Value (1)
									Gains						Losses
Investment securities available for sale:
U.S. Treasury securities			$	109,441					$	—					$	(13,509)					$	95,932
U.S. Government agency and sponsored enterprise residential MBS			2,049,680						432						(48,813)						2,001,299
U.S. Government agency and sponsored enterprise commercial MBS			612,022						57						(76,813)						535,266
Private label residential MBS and CMOs			2,893,779						562						(306,755)						2,587,586
Private label commercial MBS			2,693,231						124						(109,467)						2,583,888
Single family real estate-backed securities			505,288						14						(27,247)						478,055
Collateralized loan obligations			1,094,064						208						(34,749)						1,059,523
Non-mortgage asset-backed securities			106,672						1						(6,550)						100,123
State and municipal obligations			122,966						1						(9,443)						113,524
SBA securities			145,216						545						(4,135)						141,626
			10,332,359						$	1,944					$	(637,481)					9,696,822
Investment securities held to maturity			10,000																		10,000
			$	10,342,359																	9,706,822
Marketable equity securities																					90,605
																					$	9,797,427

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

			December 31, 2021
			Amortized Cost						Gross Unrealized												Carrying Value (1)
									Gains						Losses
Investment securities available for sale:
U.S. Treasury securities			$	114,385					$	173					$	(2,898)					$	111,660
U.S. Government agency and sponsored enterprise residential MBS			2,093,283						12,934						(8,421)						2,097,796
U.S. Government agency and sponsored enterprise commercial MBS			861,925						5,287						(10,313)						856,899
Private label residential MBS and CMOs			2,160,136						3,575						(14,291)						2,149,420
Private label commercial MBS			2,604,690						7,843						(8,523)						2,604,010
Single family real estate-backed securities			474,845						5,031						(2,908)						476,968
Collateralized loan obligations			1,079,217						598						(1,529)						1,078,286
Non-mortgage asset-backed securities			151,091						1,419						—						152,510
State and municipal obligations			205,718						16,559						—						222,277
SBA securities			184,296						2,027						(2,728)						183,595
			9,929,586						$	55,446					$	(51,611)					9,933,421
Investment securities held to maturity			10,000																		10,000
			$	9,939,586																	9,943,421
Marketable equity securities																					120,777
																					$	10,064,198

(1)At fair value except for securities held to maturity.

Investment securities held to maturity at September 30, 2022 and December 31, 2021 consisted of one State of Israel bond maturing in 2024. Accrued interest receivable on investments totaled $26 million and $16 million at September 30, 2022 and December 31, 2021, respectively, and is included in other assets in the accompanying consolidated balance sheets.

At September 30, 2022, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments when applicable, were as follows (in thousands):

			Amortized Cost						Fair Value
Due in one year or less			$	1,500,564					$	1,423,985
Due after one year through five years			6,082,491						5,801,161
Due after five years through ten years			1,911,964						1,725,139
Due after ten years			837,340						746,537
			$	10,332,359					$	9,696,822

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 $3.9 billion and $4.0 billion at September 30, 2022 and December 31, 2021, respectively.

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BANKUNITED, INC. AND SUBSIDIARIES

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September 30, 2022

The following table provides information about gains and losses on investment securities for the periods indicated (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Proceeds from sale of investment securities AFS			$	87,436					$	548,290					$	798,205					$	1,348,346
Gross realized gains on investment securities AFS			$	352					$	821					$	4,058					$	7,683
Gross realized losses on investment securities AFS			(3)						(6)						(131)						(60)
Net realized gain			349						815						3,927						7,623
Net unrealized losses on marketable equity securities recognized in earnings			(214)						(1,479)						(20,052)						(1,767)
Gain (loss) on investment securities, net			$	135					$	(664)					$	(16,125)					$	5,856

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):

			September 30, 2022
			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			$	9,559					$	(480)					$	86,373					$	(13,029)					$	95,932					$	(13,509)
U.S. Government agency and sponsored enterprise residential MBS			1,351,890						(23,657)						515,107						(25,156)						1,866,997						(48,813)
U.S. Government agency and sponsored enterprise commercial MBS			321,279						(19,599)						193,727						(57,214)						515,006						(76,813)
Private label residential MBS and CMOs			1,530,765						(134,382)						1,004,759						(172,373)						2,535,524						(306,755)
Private label commercial MBS			1,831,435						(61,419)						657,575						(48,048)						2,489,010						(109,467)
Single family real estate-backed securities			339,472						(18,424)						80,875						(8,823)						420,347						(27,247)
Collateralized loan obligations			706,698						(26,217)						314,073						(8,532)						1,020,771						(34,749)
Non-mortgage asset-backed securities			99,227						(6,550)						—						—						99,227						(6,550)
State and municipal obligations			87,329						(9,443)						—						—						87,329						(9,443)
SBA securities			37,304						(328)						78,622						(3,807)						115,926						(4,135)
			$	6,314,958					$	(300,499)					$	2,931,111					$	(336,982)					$	9,246,069					$	(637,481)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

			December 31, 2021
			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			$	49,328					$	(591)					$	47,102					$	(2,307)					$	96,430					$	(2,898)
U.S. Government agency and sponsored enterprise residential MBS			436,744						(4,549)						401,022						(3,872)						837,766						(8,421)
U.S. Government agency and sponsored enterprise commercial MBS			247,323						(4,084)						163,380						(6,229)						410,703						(10,313)
Private label residential MBS and CMOs			1,552,946						(13,933)						23,355						(358)						1,576,301						(14,291)
Private label commercial MBS			1,338,288						(6,085)						171,490						(2,438)						1,509,778						(8,523)
Single family real estate-backed securities			154,552						(2,908)						—						—						154,552						(2,908)
Collateralized loan obligations			318,555						(445)						319,192						(1,084)						637,747						(1,529)
SBA securities			496						—						99,599						(2,728)						100,095						(2,728)
			$	4,098,232					$	(32,595)					$	1,225,140					$	(19,016)					$	5,323,372					$	(51,611)

The Company monitors its investment securities available for sale for credit loss impairment on an individual security basis. No securities were determined to be credit loss impaired during the three and nine months ended September 30, 2022 and 2021. At September 30, 2022, the Company did not have an intent to sell securities that were in unrealized loss positions and it was not more likely than not that the Company would be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. In making this determination, the Company considered its current and projected liquidity position, its investment policy as to permissible holdings and concentration limits, regulatory requirements and other relevant factors.

At September 30, 2022, 579 securities available for sale were in unrealized loss positions. The amount of impairment related to 96 of these securities was considered insignificant both individually and in the aggregate, totaling approximately $0.9 million and no further analysis with respect to these securities was considered necessary.

The basis for concluding that AFS securities were not credit loss impaired and no ACL was considered necessary at September 30, 2022 is further discussed below.

Unrealized losses were generally attributable to rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. Continuing uncertainty with respect to the trajectory of the economy and geopolitical events have also led to market uncertainty, producing some yield curve dislocations.

U.S. Government Agency and Government Sponsored Enterprise Securities

At September 30, 2022, five U.S. treasury, 149 U.S. Government agency and sponsored enterprise residential MBS, 27 U.S. Government agency and sponsored enterprise commercial MBS, and 15 SBA securities were in unrealized loss positions. The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. As such, there is an assumption of zero credit loss and the Company expects to recover the amortized cost basis of these securities.

Private Label Securities:

None of the impaired private label securities had missed principal or interest payments or had been downgraded by a NRSRO at September 30, 2022. The Company performed an analysis comparing the present value of cash flows expected to be collected to the amortized cost basis of impaired securities. This analysis was based on a scenario that we believe to be generally more conservative than our reasonable and supportable economic forecast at September 30, 2022, and incorporated assumptions about voluntary prepayment rates, collateral defaults, delinquencies, severity and other relevant factors as described further below. Our analysis also considered the structural characteristics of each security and the level of credit enhancement provided by that structure.

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September 30, 2022

Private label residential MBS and CMOs

At September 30, 2022, 115 private label residential MBS and CMOs were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, voluntary prepayment rates, loss severity, delinquencies and recovery lag. In developing those assumptions, we took into account collateral quality measures such as FICO, LTV, documentation, loan type, property type, agency availability criteria and performing status. We also regularly monitor sector data including home price appreciation, forbearance, delinquency and prepay trends as well as other economic data that could be indicative of stress in the sector. Our September 30, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 3% compared to weighted average credit support of 18%. As of September 30, 2022, 94% of impaired securities in this category, based on carrying value, were externally rated AAA, 1% were rated AA and 5% were rated A.

Private label commercial MBS

At September 30, 2022, 109 private label commercial MBS were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, voluntary prepayment rates, loss severity, delinquencies and recovery lag. In developing those assumptions, we took into account collateral quality and type, loan size, loan purpose and other qualitative factors. We also regularly monitor collateral watch lists, bankruptcy data, defeasance data, special servicing trends, delinquency and other economic data that could be indicative of stress in the sector. Our September 30, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 7% compared to weighted average credit support of 43%. As of September 30, 2022, 84% of impaired securities in this category, based on carrying value, were externally rated AAA, 12% were rated AA and 4% were rated A.

Single family real estate-backed securities

At September 30, 2022, 16 single family rental real estate-backed securities were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, delinquencies and recovery lag. We regularly monitor sector data including home price appreciation, forbearance, delinquency and prepay trends as well as other economic data that could be indicative of stress in the sector. Our September 30, 2022 analysis projected weighted average collateral losses for this category of 8% compared to weighted average credit support of 50%. As of September 30, 2022, 63% of impaired securities in this category, based on carrying value, were externally rated AAA, 14% were rated AA and one security was not externally rated.

Collateralized loan obligations

At September 30, 2022, 26 collateralized loan obligations were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, and delinquencies, calibrated to take into account idiosyncratic risks associated with the underlying collateral. In developing those assumptions, we took into account each sector’s performance pre-, during and post the 2008 financial crisis. We regularly engage with bond managers to monitor trends in underlying collateral including potential downgrades and subsequent cash flow diversions, liquidity, ratings migration, and any other relevant developments. Our September 30, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 9% compared to weighted average credit support of 42%. As of September 30, 2022, 77% of the impaired securities in this category, based on carrying value, were externally rated AAA, 19% were rated AA and 4% were rated A.

Non-mortgage asset-backed securities

At September 30, 2022, seven non-mortgage asset-backed securities were in unrealized loss positions. These securities are backed by student loan collateral. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, delinquencies, voluntary prepayment rates and recovery lag. In developing assumptions, we took into account collateral type, delineated by whether collateral consisted of loans to borrowers in school, refinancing, or a mixture. Our September 30, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 4% compared to weighted average credit support of 23%. As of September 30, 2022, 51% of the impaired securities in this category, based on carrying value, were externally rated AAA, and 49% were rated AA.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

State and Municipal Obligations

At September 30, 2022, 14 state and municipal obligations were in unrealized loss positions. Our analysis of potential credit loss impairment for these securities incorporates a quantitative measure of the underlying obligor's credit worthiness provided by a third-party vendor as well as other relevant qualitative considerations. As of September 30, 2022, 61% of the impaired securities in this category, based on carrying value, were externally rated AAA, 16% were rated AA, and 23% were rated A.

Note 4    Loans and Allowance for Credit Losses

Loans consisted of the following at the dates indicated (dollars in thousands):

			September 30, 2022												December 31, 2021
			Total						Percent of Total						Total						Percent of Total
Residential and other consumer:
1-4 single family residential			$	6,999,868					28.8		%				$	6,338,225					26.7		%
Government insured residential			1,849,343						7.6		%				2,023,221						8.5		%
Other consumer loans			4,673						—		%				6,934						—		%
			8,853,884						36.4		%				8,368,380						35.2		%
Commercial:
Multi-family			962,546						4.0		%				1,154,738						4.9		%
Non-owner occupied commercial real estate			4,368,686						18.1		%				4,381,610						18.4		%
Construction and land			246,202						1.0		%				165,390						0.7		%
Owner occupied commercial real estate			1,919,074						7.9		%				1,944,658						8.2		%
Commercial and industrial			5,786,907						23.9		%				4,790,275						20.2		%
PPP			10,191						—		%				248,505						1.0		%
Pinnacle			932,187						3.8		%				919,641						3.9		%
Bridge - franchise finance			254,137						1.0		%				342,124						1.4		%
Bridge - equipment finance			310,035						1.3		%				357,599						1.5		%
Mortgage warehouse lending			622,883						2.6		%				1,092,133						4.6		%
			15,412,848						63.6		%				15,396,673						64.8		%
Total loans			24,266,732						100.0		%				23,765,053						100.0		%
Allowance for credit losses			(130,671)												(126,457)
Loans, net			$	24,136,061											$	23,638,596

Premiums, discounts and deferred fees and costs, excluding the non-credit related discount on PCD loans, totaled $65 million and $67 million at September 30, 2022 and December 31, 2021, respectively.

The following table presents the amortized cost basis of residential PCD loans and the related amount of non-credit discount, net of the related ACL, at the dates indicated (in thousands):

			September 30, 2022						December 31, 2021
UPB			$	101,396					$	124,963
Non-credit discount			(47,122)						(59,759)
Total amortized cost of PCD loans			54,274						65,204
ACL related to PCD loans			(441)						(476)
PCD loans, net			$	53,833					$	64,728

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

Included in loans, net are direct or sales type finance leases totaling $663 million and $652 million at September 30, 2022 and December 31, 2021, respectively. The amount of income recognized from direct or sales type finance leases for the three and nine months ended September 30, 2022 and 2021 totaled $4.6 million, $13.6 million, $4.4 million and $14.2 million, respectively, and is included in interest income on loans in the consolidated statements of income.

During the three and nine months ended September 30, 2022 and 2021, the Company purchased residential loans totaling $425 million, $2.0 billion, $1.4 billion and $3.7 billion, respectively.

At September 30, 2022 and December 31, 2021, the Company had pledged loans with a carrying value of approximately $11.1 billion and $10.6 billion, respectively, as security for FHLB advances and Federal Reserve discount window capacity.

At September 30, 2022 and December 31, 2021, accrued interest receivable on loans totaled $115 million and $98 million, respectively, and is included in other assets in the accompanying consolidated balance sheets. The amount of interest income reversed on non-accrual loans was not material for the three and nine months ended September 30, 2022 and 2021.

Allowance for credit losses

The ACL was determined utilizing a 2-year reasonable and supportable forecast period. The quantitative portion of the ACL was determined using a single third-party provided economic scenario. The qualitative component was informed by alternate scenarios. Activity in the ACL is summarized below for the periods indicated (in thousands):

			Three Months Ended September 30,
			2022																		2021
			Residential and Other Consumer						Commercial						Total						Residential and Other Consumer						Commercial						Total
Beginning balance			$	9,010					$	121,229					$	130,239					$	11,909					$	163,733					$	175,642
Provision (recovery)			2,384						369						2,753						(2,127)						(9,427)						(11,554)
Charge-offs			—						(4,280)						(4,280)						(290)						(4,528)						(4,818)
Recoveries			1						1,958						1,959						4						341						345
Ending balance			$	11,395					$	119,276					$	130,671					$	9,496					$	150,119					$	159,615

			Nine Months Ended September 30,
			2022																		2021
			Residential and Other Consumer						Commercial						Total						Residential and Other Consumer						Commercial						Total
Beginning balance			$	9,187					$	117,270					$	126,457					$	18,719					$	238,604					$	257,323
Provision (recovery)			2,576						30,830						33,406						(8,929)						(56,594)						(65,523)
Charge-offs			(412)						(35,518)						(35,930)						(304)						(34,908)						(35,212)
Recoveries			44						6,694						6,738						10						3,017						3,027
Ending balance			$	11,395					$	119,276					$	130,671					$	9,496					$	150,119					$	159,615

The ACL increased by $4.2 million at September 30, 2022 compared to December 31, 2021, remaining largely consistent as a percentage of total loans. The provision for credit losses for the nine months ended September 30, 2022 was largely offset by net charge-offs. The more significant factors impacting the provision for credit losses for the nine months ended September 30, 2022, included increases in specific reserves and qualitative loss factors, loan growth, the decline in criticized and classified assets, and changes in certain assumptions including prepayment speeds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

The following table presents the components of the provision for (recovery of) credit losses for the periods indicated (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Amount related to funded portion of loans			$	2,753					$	(11,554)					$	33,406					$	(65,523)
Amount related to off-balance sheet credit exposures			967						280						2,267						(640)
Amount related to accrued interest receivable			—						(568)						(127)						(838)
Amount related to AFS debt securities			—						—						—						(364)
Total provision for (recovery of) credit losses			$	3,720					$	(11,842)					$	35,546					$	(67,365)

Credit quality information

Credit quality of loans held for investment is continuously monitored by dedicated residential credit risk management and commercial portfolio management functions. The Company also has a workout and recovery department that monitors the credit quality of criticized and classified loans and an independent internal credit review function.

Credit quality indicators for residential loans

Management considers delinquency status to be the most meaningful indicator of the credit quality of residential and other consumer loans, other than government insured residential loans. Delinquency statistics are updated at least monthly. LTV and FICO scores are also important indicators of credit quality for 1-4 single family residential loans other than government insured loans. FICO scores are generally updated at least annually, and were most recently updated in the third quarter of 2022. LTVs are typically at origination since we do not routinely update residential appraisals. Substantially all of the government insured residential loans are government insured buyout loans, which the Company buys out of GNMA securitizations upon default. For these loans, traditional measures of credit quality are not particularly relevant considering the guaranteed nature of the loans and the underlying business model. Factors that impact risk inherent in the residential portfolio segment include national and regional economic conditions such as levels of unemployment and wages, as well as residential property values.

1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on delinquency status: 

			September 30, 2022
			Amortized Cost By Origination Year
			2022						2021						2020						2019						2018						Prior						Total
Current			$	940,289					$	3,195,017					$	932,886					$	327,797					$	182,832					$	1,365,697					$	6,944,518
30 - 59 Days Past Due			12,277						15,401						3,502						785						201						3,805						35,971
60 - 89 Days Past Due			2,546						2,280						144						256						165						—						5,391
90 Days or More Past Due			—						—						2,194						2,688						2,673						6,433						13,988
			$	955,112					$	3,212,698					$	938,726					$	331,526					$	185,871					$	1,375,935					$	6,999,868

			December 31, 2021
			Amortized Cost By Origination Year
			2021						2020						2019						2018						2017						Prior						Total
Current			$	2,884,761					$	1,062,348					$	395,453					$	224,175					$	342,414					$	1,352,844					$	6,261,995
30 - 59 Days Past Due			32,307						2,705						5,482						1,942						5,831						4,825						53,092
60 - 89 Days Past Due			605						—						1,750						1,988						—						1,307						5,650
90 Days or More Past Due			1,407						—						609						5,100						1,064						9,308						17,488
			$	2,919,080					$	1,065,053					$	403,294					$	233,205					$	349,309					$	1,368,284					$	6,338,225

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September 30, 2022

1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on LTV: 

			September 30, 2022
			Amortized Cost By Origination Year
LTV			2022						2021						2020						2019						2018						Prior						Total
Less than 61%			$	240,569					$	1,318,562					$	361,529					$	78,834					$	43,294					$	478,325					$	2,521,113
61% - 70%			241,581						868,908						234,386						81,008						49,465						327,164						1,802,512
71% - 80%			470,272						989,789						342,737						166,165						88,649						526,731						2,584,343
More than 80%			2,690						35,439						74						5,519						4,463						43,715						91,900
			$	955,112					$	3,212,698					$	938,726					$	331,526					$	185,871					$	1,375,935					$	6,999,868

			December 31, 2021
			Amortized Cost By Origination Year
LTV			2021						2020						2019						2018						2017						Prior						Total
Less than 61%			$	1,222,510					$	399,512					$	89,078					$	54,301					$	111,540					$	476,170					$	2,353,111
61% - 70%			791,935						269,739						92,282						59,425						66,641						343,654						1,623,676
71% - 80%			899,400						395,726						212,649						111,276						145,413						518,817						2,283,281
More than 80%			5,235						76						9,285						8,203						25,715						29,643						78,157
			$	2,919,080					$	1,065,053					$	403,294					$	233,205					$	349,309					$	1,368,284					$	6,338,225

1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on FICO score:

			September 30, 2022
			Amortized Cost By Origination Year
FICO			2022						2021						2020						2019						2018						Prior						Total
760 or greater			$	640,164					$	2,546,333					$	733,174					$	216,297					$	98,803					$	981,367					$	5,216,138
720 - 759			225,564						492,806						137,272						64,058						46,719						224,357						1,190,776
719 or less			89,384						173,559						68,280						51,171						40,349						170,211						592,954
			$	955,112					$	3,212,698					$	938,726					$	331,526					$	185,871					$	1,375,935					$	6,999,868

			December 31, 2021
			Amortized Cost By Origination Year
FICO			2021						2020						2019						2018						2017						Prior						Total
760 or greater			$	2,230,259					$	803,026					$	245,942					$	125,713					$	254,750					$	937,285					$	4,596,975
720 - 759			562,763						194,068						91,276						53,576						54,080						219,561						1,175,324
719 or less			126,058						67,959						66,076						53,916						40,479						211,438						565,926
			$	2,919,080					$	1,065,053					$	403,294					$	233,205					$	349,309					$	1,368,284					$	6,338,225

Credit quality indicators for commercial loans

Factors that impact risk inherent in commercial portfolio segments include but are not limited to levels of economic activity, health of the national and regional economy, industry trends, patterns of and trends in customer behavior that influence demand for our borrowers' products and services, and commercial real estate values. Internal risk ratings are considered the most meaningful indicator of credit quality for commercial loans. Internal risk ratings are generally indicative of the likelihood that a borrower will default, are a key factor influencing the level and nature of ongoing monitoring of loans and may impact the estimation of the ACL. Internal risk ratings are updated on a continuous basis. Generally, relationships with balances in excess of defined thresholds, ranging from $1 million to $3 million, are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. Loans exhibiting potential credit weaknesses that deserve management’s close attention and that could result in deterioration of repayment prospects at some future date if not checked or corrected are categorized as special mention. Loans with well-defined credit weaknesses, including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow from current

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operations, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves, are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors has not been charged off, will be assigned an internal risk rating of doubtful. 

Commercial credit exposure based on internal risk rating:

			September 30, 2022
			Amortized Cost By Origination Year																																				Revolving Loans
			2022						2021						2020						2019						2018						Prior												Total
CRE
Pass			$	948,372					$	849,293					$	548,136					$	1,171,466					$	519,138					$	1,026,487					$	105,404					$	5,168,296
Special mention			—						—						—						1,775						—						1,089						—						2,864
Substandard			12,435						17,660						25,249						125,454						57,301						168,175						—						406,274
Total CRE			$	960,807					$	866,953					$	573,385					$	1,298,695					$	576,439					$	1,195,751					$	105,404					$	5,577,434
C&I (1)
Pass			$	1,438,322					$	845,448					$	490,571					$	724,835					$	428,081					$	906,089					$	2,527,448					$	7,360,794
Special mention			47						2,349						212						3,968						414						1,699						15,386						24,075
Substandard			1,248						13,212						27,708						109,133						24,240						111,475						18,809						305,825
Doubtful			—						21,958						—						—						—						—						3,520						25,478
Total C&I			$	1,439,617					$	882,967					$	518,491					$	837,936					$	452,735					$	1,019,263					$	2,565,163					$	7,716,172
Pinnacle
Pass			$	166,488					$	116,573					$	71,996					$	68,115					$	30,613					$	478,402					$	—					$	932,187
Total Pinnacle			$	166,488					$	116,573					$	71,996					$	68,115					$	30,613					$	478,402					$	—					$	932,187
Bridge - Equipment Finance
Pass			$	24,384					$	62,829					$	17,029					$	96,994					$	37,263					$	69,981					$	—					$	308,480
Substandard			—						—						—						1,555						—						—						—						1,555
Total Bridge - Equipment Finance			$	24,384					$	62,829					$	17,029					$	98,549					$	37,263					$	69,981					$	—					$	310,035
Bridge - Franchise Finance
Pass			$	40,586					$	33,743					$	39,793					$	60,311					$	11,320					$	7,713					$	—					$	193,466
Substandard			—						1,771						2,561						22,564						17,714						9,446						—						54,056
Doubtful			—						—						—						2,557						4,058						—						—						6,615
Total Bridge - Franchise Finance			$	40,586					$	35,514					$	42,354					$	85,432					$	33,092					$	17,159					$	—					$	254,137
Mortgage Warehouse Lending
Pass			$	—					$	—					$	—					$	—					$	—					$	—					$	622,883					$	622,883
Total Mortgage Warehouse Lending			$	—					$	—					$	—					$	—					$	—					$	—					$	622,883					$	622,883

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September 30, 2022

			December 31, 2021
			Amortized Cost By Origination Year																																				Revolving Loans
			2021						2020						2019						2018						2017						Prior												Total
CRE
Pass			$	869,852					$	619,056					$	1,283,401					$	676,151					$	455,965					$	986,427					$	119,308					$	5,010,160
Special mention			985						—						29,573						—						—						1,704						—						32,262
Substandard			—						14,227						187,284						55,944						115,944						285,917						—						659,316
Total CRE			$	870,837					$	633,283					$	1,500,258					$	732,095					$	571,909					$	1,274,048					$	119,308					$	5,701,738
C&I (1)
Pass			$	1,280,160					$	666,437					$	870,797					$	406,145					$	353,590					$	669,308					$	2,120,693					$	6,367,130
Special mention			6,051						19,861						39,647						17,185						1,854						11,640						20,093						116,331
Substandard			365						22,106						167,496						59,349						51,117						122,663						49,119						472,215
Doubtful			—						—						900						—						—						—						26,862						27,762
Total C&I			$	1,286,576					$	708,404					$	1,078,840					$	482,679					$	406,561					$	803,611					$	2,216,767					$	6,983,438
Pinnacle
Pass			$	143,063					$	113,785					$	88,206					$	36,761					$	177,258					$	360,568					$	—					$	919,641
Total Pinnacle			$	143,063					$	113,785					$	88,206					$	36,761					$	177,258					$	360,568					$	—					$	919,641
Bridge - Equipment Finance
Pass			$	73,190					$	18,763					$	108,990					$	43,826					$	23,684					$	48,471					$	—					$	316,924
Substandard			—						—						12,875						4,775						23,025						—						—						40,675
Total Bridge - Equipment Finance			$	73,190					$	18,763					$	121,865					$	48,601					$	46,709					$	48,471					$	—					$	357,599
Bridge - Franchise Finance
Pass			$	49,949					$	51,057					$	104,299					$	10,199					$	7,039					$	5,838					$	—					$	228,381
Substandard			—						7,351						39,588						30,134						8,660						8,018						—						93,751
Doubtful			—						—						7,718						12,274						—						—						—						19,992
Total Bridge - Franchise Finance			$	49,949					$	58,408					$	151,605					$	52,607					$	15,699					$	13,856					$	—					$	342,124
Mortgage Warehouse Lending
Pass			$	—					$	—					$	—					$	—					$	—					$	—					$	1,092,133					$	1,092,133
Total Mortgage Warehouse Lending			$	—					$	—					$	—					$	—					$	—					$	—					$	1,092,133					$	1,092,133

(1)Includes PPP loans

At September 30, 2022 and December 31, 2021, the balance of revolving loans converted to term loans was immaterial.

The following tables summarize the Company's commercial credit exposure based on internal risk rating, in aggregate, at the dates indicated (in thousands):

			September 30, 2022
			Multi-Family						Non-Owner Occupied Commercial Real Estate						Construction and Land						Owner Occupied Commercial Real Estate						Commercial and Industrial						PPP						Pinnacle						Bridge - Franchise Finance						Bridge - Equipment Finance						Mortgage Warehouse Lending						Total
Pass			$	807,537					$	4,131,403					$	229,356					$	1,791,869					$	5,558,734					$	10,191					$	932,187					$	193,466					$	308,480					$	622,883					$	14,586,106
Special mention			—						1,089						1,775						7,379						16,696						—						—						—						—						—						26,939
Substandard - accruing			152,871						219,370						9,544						99,635						133,641						—						—						46,100						1,555						—						662,716
Substandard non-accruing			2,138						16,824						5,527						20,191						52,358						—						—						7,956						—						—						104,994
Doubtful			—						—						—						—						25,478						—						—						6,615						—						—						32,093
			$	962,546					$	4,368,686					$	246,202					$	1,919,074					$	5,786,907					$	10,191					$	932,187					$	254,137					$	310,035					$	622,883					$	15,412,848

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			December 31, 2021
			Multi-Family						Non-Owner Occupied Commercial Real Estate						Construction and Land						Owner Occupied Commercial Real Estate						Commercial and Industrial						PPP						Pinnacle						Bridge - Franchise Finance						Bridge - Equipment Finance						Mortgage Warehouse Lending						Total
Pass			$	970,337					$	3,892,353					$	147,470					$	1,750,035					$	4,368,590					$	248,505					$	919,641					$	228,381					$	316,924					$	1,092,133					$	13,934,369
Special mention			—						26,088						6,174						14,010						102,321						—						—						—						—						—						148,593
Substandard -accruing			173,536						423,918						6,582						160,159						250,644						—						—						80,864						40,675						—						1,136,378
Substandard non-accruing			10,865						39,251						5,164						20,454						40,958						—						—						12,887						—						—						129,579
Doubtful			—						—						—						—						27,762						—						—						19,992						—						—						47,754
			$	1,154,738					$	4,381,610					$	165,390					$	1,944,658					$	4,790,275					$	248,505					$	919,641					$	342,124					$	357,599					$	1,092,133					$	15,396,673

The COVID 19 pandemic led to an increase in the level of criticized and classified commercial loans compared to pre-pandemic levels; while criticized and classified assets are evidencing a declining trend, those levels remain elevated.

Past Due and Non-Accrual Loans:

The following table presents an aging of loans at the dates indicated (in thousands):

			September 30, 2022																														December 31, 2021
			Current						30 - 59 Days Past Due						60 - 89 Days Past Due						90 Days or More Past Due						Total						Current						30 - 59 Days Past Due						60 - 89 Days Past Due						90 Days or More Past Due						Total
1-4 single family residential			$	6,944,518					$	35,971					$	5,391					$	13,988					$	6,999,868					$	6,261,995					$	53,092					$	5,650					$	17,488					$	6,338,225
Government insured residential			1,019,859						157,285						93,548						578,651						1,849,343						1,034,686						143,672						115,028						729,835						2,023,221
Other consumer loans			4,644						29						—						—						4,673						6,919						15						—						—						6,934
Multi-family			960,408						—						—						2,138						962,546						1,135,363						6,017						11,220						2,138						1,154,738
Non-owner occupied commercial real estate			4,350,062						7,640						2,222						8,762						4,368,686						4,359,671						2,727						29						19,183						4,381,610
Construction and land			232,322						—						12,868						1,012						246,202						160,183						492						4,369						346						165,390
Owner occupied commercial real estate			1,904,731						—						120						14,223						1,919,074						1,930,932						—						1,402						12,324						1,944,658
Commercial and industrial			5,744,035						22,520						649						19,703						5,786,907						4,763,976						2,114						11,016						13,169						4,790,275
PPP			8,628						—						970						593						10,191						247,740						765						—						—						248,505
Pinnacle			932,187						—						—						—						932,187						919,641						—						—						—						919,641
Bridge - franchise finance			243,280						1,031						—						9,826						254,137						331,397						—						6,735						3,992						342,124
Bridge - equipment finance			310,035						—						—						—						310,035						357,599						—						—						—						357,599
Mortgage warehouse lending			622,883						—						—						—						622,883						1,092,133						—						—						—						1,092,133
			$	23,277,592					$	224,476					$	115,768					$	648,896					$	24,266,732					$	22,602,235					$	208,894					$	155,449					$	798,475					$	23,765,053

Included in the table above is the guaranteed portion of SBA loans past due by 90 days or more totaling $32.2 million and $31.3 million at September 30, 2022 and December 31, 2021, respectively.

Loans contractually delinquent by 90 days or more and still accruing totaled $580 million and $730 million at September 30, 2022 and December 31, 2021, respectively, substantially all of which were government insured residential loans. These loans are government insured pool buyout loans, which the Company buys out of GNMA securitizations upon default.

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The following table presents information about loans on non-accrual status at the dates indicated (in thousands):

			September 30, 2022												December 31, 2021
			Amortized Cost						Amortized Cost With No Related Allowance						Amortized Cost						Amortized Cost With No Related Allowance
Residential and other consumer			$	18,660					$	118					$	28,553					$	1,684
Commercial:
Multi-family			2,138						2,138						10,865						10,865
Non-owner occupied commercial real estate			16,824						2,725						39,251						20,929
Construction and land			5,527						4,087						5,164						4,369
Owner occupied commercial real estate			20,191						7,615						20,453						4,457
Commercial and industrial			77,906						12,424						68,720						10,083
Bridge - franchise finance			14,571						1,868						32,879						16,808
			$	155,817					$	30,975					$	205,885					$	69,195

Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $41.8 million and $46.1 million at September 30, 2022 and December 31, 2021, respectively. The amount of interest income recognized on non-accrual loans was insignificant for the three and nine months ended September 30, 2022 and 2021. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their contractual terms was approximately $2.1 million and $5.2 million for the three and nine months ended September 30, 2022, respectively and $2.7 million and $8.0 million for the three and nine months ended September 30, 2021, respectively.

Collateral dependent loans:

The following table presents the amortized cost basis of collateral dependent loans at the dates indicated (in thousands):

			September 30, 2022												December 31, 2021
			Amortized Cost						Extent to Which Secured by Collateral						Amortized Cost						Extent to Which Secured by Collateral
Residential and other consumer			$	736					$	736					$	2,317					$	2,295
Commercial:
Multi-family			2,138						2,138						10,865						10,865
Non-owner occupied commercial real estate			15,274						14,142						29,001						28,486
Construction and land			4,433						4,433						4,715						4,715
Owner occupied commercial real estate			15,998						15,998						15,198						15,155
Commercial and industrial			59,365						43,874						45,015						37,020
Bridge - franchise finance			11,022						6,545						26,055						18,740
Total commercial			108,230						87,130						130,849						114,981
			$	108,966					$	87,866					$	133,166					$	117,276

Collateral for the multi-family, non-owner occupied commercial real estate and owner-occupied commercial real estate loan classes generally consists of commercial real estate. Collateral for construction and land loans is typically residential or commercial real estate. Collateral for commercial and industrial loans generally consists of equipment, accounts receivable, inventory and other business assets; owner-occupied commercial real estate loans may also be collateralized by these types of assets. Bridge franchise finance loans may be collateralized by franchise value or by equipment. Bridge equipment finance loans are secured by the financed equipment. Residential loans are collateralized by residential real estate. There have been no significant changes to the extent to which collateral secures collateral dependent loans during the nine months ended September 30, 2022.

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Foreclosure of residential real estate

The recorded investment in residential loans in the process of foreclosure was $451 million, of which $443 million was government insured, at September 30, 2022 and $208 million, of which $202 million was government insured, at December 31, 2021. The carrying amount of foreclosed residential real estate included in other assets in the accompanying consolidated balance sheet was insignificant at September 30, 2022 and December 31, 2021.

Troubled debt restructurings

The following table summarizes loans that were modified in TDRs during the periods indicated, as well as loans modified during the twelve months preceding September 30, 2022 and 2021 that experienced payment defaults during those periods (dollars in thousands):

			Three Months Ended September 30,
			2022																								2021
			Loans Modified in TDRs  During the Period												TDRs Experiencing Payment Defaults During the Period												Loans Modified in TDRs  During the Period												TDRs Experiencing Payment Defaults During the Period
			Number of TDRs						Amortized Cost						Number of TDRs						Amortized Cost						Number of TDRs						Amortized Cost						Number of TDRs						Amortized Cost
1-4 single family residential			1						$	96					—						$	—					—						$	—					—						$	—
Government insured residential			559						85,200						730						113,330						134						23,394						63						12,435
Owner occupied commercial real estate			1						417						—						—						—						—						—						—
Commercial and industrial			3						7,194						1						1,199						—						—						—						—
Bridge - franchise finance			4						6,615						4						6,615						—						—						—						—
			568						$	99,522					735						$	121,144					134						$	23,394					63						$	12,435

			Nine Months Ended September 30,
			2022																								2021
			Loans Modified in TDRs  During the Period												TDRs Experiencing Payment Defaults During the Period												Loans Modified in TDRs  During the Period												TDRs Experiencing Payment Defaults During the Period
			Number of TDRs						Amortized Cost						Number of TDRs						Amortized Cost						Number of TDRs						Amortized Cost						Number of TDRs						Amortized Cost
1-4 single family residential			10						$	5,385					—						$	—					—						$	—					—						$	—
Government insured residential			2,094						327,635						825						128,169						218						39,900						70						13,491
Non-owner occupied commercial real estate			—						—						—						—						1						2,810						—						—
Owner occupied commercial real estate			1						417						—						—						—						—						—						—
Commercial and industrial			17						41,222						1						1,199						—						—						—						—
Bridge - franchise finance			4						6,615						4						6,615						—						—						—						—
			2,126						$	381,274					830						$	135,983					219						$	42,710					70						$	13,491

TDRs during the three and nine months ended September 30, 2022 and 2021 generally included interest rate reductions and extensions of maturity. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material.

Note 5    Income Taxes

The Company’s effective income tax rate was 25.0% and 24.7% for the three and nine months ended September 30, 2022, respectively, and 24.0% and 24.9% for the three and nine months ended September 30, 2021, respectively. The effective income tax rates differed from the statutory federal income tax rate of 21% due primarily to the impact of state income taxes, partially offset by the benefit of income not subject to federal tax.

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September 30, 2022

Note 6    Derivatives and Hedging Activities

The Company has entered into interest rate swaps, caps and collars designated as cash flow hedges with the objective of limiting the variability of interest payment cash flows. The Company has also entered into interest rate swaps designated as fair value hedges designed to hedge changes in the fair value of outstanding fixed rate instruments caused by fluctuations in the benchmark interest rate.

The Company enters into interest rate derivative contracts with certain of its commercial borrowers to enable those borrowers to manage their exposure to interest rate fluctuations. To mitigate interest rate risk associated with these derivative contracts, the Company enters into offsetting derivative contract positions with primary dealers. These interest rate derivative contracts are not designated as hedging instruments; therefore, changes in the fair value of these derivatives are recognized immediately in earnings. For the three and nine months ended September 30, 2022 and 2021, the impact on earnings related to changes in fair value of these derivatives was not material.

The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. The Company manages dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its commercial borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company does not currently anticipate any significant losses from failure of interest rate derivative counterparties to honor their obligations.

The CME legally characterizes variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposures rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. The Company's clearing agent for interest rate derivative contracts centrally cleared through the CME settles the variation margin daily with the CME; therefore, those interest rate derivative contracts the Company clears through the CME are reported at a fair value of zero at both September 30, 2022 and December 31, 2021.

The following tables set forth certain information concerning the Company’s interest rate contract derivative financial instruments and related hedged items at the dates indicated (dollars in thousands):

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September 30, 2022

			September 30, 2022
									Weighted Average Pay Rate / Strike Price						Weighted Average Receive Rate / Strike Price						Weighted Average Remaining Life in Years
																											Notional Amount						Balance Sheet Location						Fair Value
			Hedged Item																																				Asset						Liability
Derivatives designated as cash flow hedges:
Pay-fixed interest rate swaps			Variability of interest cash flows on variable rate borrowings						2.36%						3-Month LIBOR						2.3						$	745,000					Other assets						$	1,263					$	—
Pay-fixed interest rate swaps			Variability of interest cash flows on variable rate borrowings						2.31%						SOFR						2.0						675,000												—						—
Pay-fixed interest rate swaps			Variability of interest cash flows on variable rate liabilities						1.22%						Fed Funds Effective Rate						1.9						400,000												—						—
Interest rate caps purchased, indexed to Fed Funds effective rate			Variability of interest cash flows on variable rate liabilities						0.88%												2.7						200,000						Other assets						16,119						—
Interest rate collar, indexed to 1-month SOFR(1)			Variability of interest cash flows on variable rate loans						5.58%						1.50%						3.9						125,000						Other liabilities						—						(886)
Derivatives designated as fair value hedges:
Pay-fixed interest rate swaps			Variability of fair value of fixed rate loans						1.94%						SOFR						1.8						100,000												—						—
Derivatives not designated as hedges:
Pay-fixed interest rate swaps									3.57%						1-Month LIBOR						4.2						1,401,769						Other assets / Other liabilities						25,608						(520)
Pay-variable interest rate swaps									1-Month LIBOR						3.57%						4.2						1,401,769						Other assets / Other liabilities						520						(102,423)
Pay-fixed interest rate swaps									4.20%						SOFR						6.2						495,554						Other assets / Other liabilities						27,771						(629)
Pay-variable interest rate swaps									SOFR						4.20%						6.2						495,554						Other assets / Other liabilities						630						(27,774)
Interest rate caps purchased, indexed to 1-month LIBOR															2.25%						3.0						42,920						Other assets						2,078						—
Interest rate caps sold, indexed to 1-month LIBOR									2.25%												3.0						42,920						Other liabilities						—						(2,075)
																											$	6,125,486											$	73,989					$	(134,307)

(1)The interest rate collar consists of a combination of zero-premium interest rate options. The Company sold a pay-variable cap with a strike price of 5.58%; sold a 0% floor; and purchased a receive-variable floor with a strike price of 1.50%.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

			December 31, 2021
									Weighted Average Pay Rate / Strike Price						Weighted Average Receive Rate / Strike Price						Weighted Average Remaining Life in Years
																											Notional Amount						Balance Sheet Location						Fair Value
			Hedged Item																																				Asset						Liability
Derivatives designated as cash flow hedges:
Pay-fixed interest rate swaps			Variability of interest cash flows on variable rate borrowings						2.35%						3-Month LIBOR						2.6						$	905,000					Other liabilities						$	—					$	(2,687)
Pay-fixed forward-starting interest rate swaps			Variability of interest cash flows on variable rate liabilities						0.87%						Fed Funds Effective Rate						2.5						200,000						Other liabilities						—						—
Interest rate caps purchased, indexed to Fed Funds effective rate			Variability of interest cash flows on variable rate liabilities						1.00%												3.5						200,000						Other assets						3,260						—
Derivatives not designated as hedges:
Pay-fixed interest rate swaps									3.57%						Indexed to 1-month LIBOR or SOFR						5.0						1,668,517						Other assets / Other liabilities						3,369						(15,347)
Pay-variable interest rate swaps									Indexed to 1-month LIBOR or SOFR						3.57%						5.0						1,668,517						Other assets / Other liabilities						51,947						(6,837)
Interest rate caps purchased, indexed to 1-month LIBOR															1.00%						4.0						25,000						Other assets						443						—
Interest rate caps sold, indexed to 1-month LIBOR									1.00%												4.0						25,000						Other liabilities						—						(443)
																											$	4,692,034											$	59,019					$	(25,314)

The following table provides information about the amount of loss related to derivatives designated as cash flow hedges reclassified from AOCI into interest expense for the periods indicated (in thousands):

												Three Months Ended September 30,												Nine Months Ended September 30,
																		2022						2021						2022						2021
Location of loss reclassified from AOCI into income:
Interest expense on borrowings																		$	(590)					$	(13,905)					$	(9,003)					$	(43,762)
Interest expense on deposits																		972						—						(205)						—
																		$	382					$	(13,905)					$	(9,208)					$	(43,762)

During the three and nine months ended September 30, 2022 and 2021, no derivative positions designated as cash flow hedges were discontinued and none of the gains and losses reported in AOCI were reclassified into earnings as a result of the discontinuance of cash flow hedges or because of the early extinguishment of debt. As of September 30, 2022, the amount of net gain expected to be reclassified from AOCI into earnings during the next twelve months was $35.6 million. See Note 7 to the consolidated financial statements for additional information about the reclassification adjustments from AOCI into earnings.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

The following table provides information about the amount of gain (loss) related to derivatives designated as fair value hedges recognized in earnings for the periods indicated (in thousands):

												Three Months Ended September 30,												Nine Months Ended September 30,																		Location of Gain (Loss) in Consolidated Statements of Income
																		2022						2021						2022						2021
Variability of fair value of fixed rate loans:
Fair value adjustment on derivatives																		$	1,929					$	—					$	3,826					$	—											Interest income on loans
Fair value adjustment on hedged items																		(1,985)						—						(3,970)						—												Interest income on loans
Loss recognized on fair value hedges (ineffective portion)																		$	(56)					$	—					$	(144)					$	—
Variability of fair value of fixed rate borrowings:
Fair value adjustment on derivatives																		$	—					$	(491)					$	—					$	(1,987)											Interest expense on borrowings
Fair value adjustment on hedged items																		—						491						—						1,986												Interest expense on borrowings
Loss recognized on fair value hedges (ineffective portion)																		$	—					$	—					$	—					$	(1)

Included in the table above are fair value hedges on fixed rate borrowings which matured during the year ended December 31, 2021.

The following table provides information about the hedged items related to derivatives designated as fair value hedges at the dates indicated (in thousands):

			September 30, 2022						December 31, 2021						Location in Consolidated Balance Sheets
Contractual balance outstanding of hedged item (1)			$	100,000					$	—					Loans
Cumulative fair value hedging adjustments			$	(3,970)					$	—					Loans

(1)This amount is included in the amortized cost basis of a closed portfolio of loans used to designate hedging relationships in a portfolio layer method hedge in which the hedged item is anticipated to be outstanding for the designated hedge period. At September 30, 2022, the amortized cost basis of the closed portfolio used in this hedging relationship was $1.1 billion.

Some of the Company’s ISDA master agreements with financial institution counterparties contain provisions that permit either counterparty to terminate the agreements and require settlement in the event that regulatory capital ratios fall below certain designated thresholds, upon the initiation of other defined regulatory actions or upon suspension or withdrawal of the Bank’s credit rating. Currently, there are no circumstances that would trigger these provisions of the agreements.

The Company does not offset assets and liabilities under master netting agreements for financial reporting purposes. Information on interest rate swaps and caps subject to these agreements is as follows at the dates indicated (in thousands):

			September 30, 2022
									Gross Amounts Offset in Balance Sheet						Net Amounts Presented in Balance Sheet						Gross Amounts Not Offset in Balance Sheet
			Gross Amounts Recognized																		Derivative Instruments						Collateral Pledged						Net Amount
Derivative assets			$	72,839					$	—					$	72,839					$	(2,035)					$	(67,982)					$	2,822
Derivative liabilities			(2,035)						—						(2,035)						2,035						—						—
			$	70,804					$	—					$	70,804					$	—					$	(67,982)					$	2,822

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

			December 31, 2021
									Gross Amounts Offset in Balance Sheet						Net Amounts Presented in Balance Sheet						Gross Amounts Not Offset in Balance Sheet
			Gross Amounts Recognized																		Derivative Instruments						Collateral Pledged						Net Amount
Derivative assets			$	7,072					$	—					$	7,072					$	(3,104)					$	(3,915)					$	53
Derivative liabilities			(18,034)						—						(18,034)						3,104						14,557						(373)
			$	(10,962)					$	—					$	(10,962)					$	—					$	10,642					$	(320)

The difference between the amounts reported for interest rate swaps subject to master netting agreements and the total fair value of interest rate contract derivative financial instruments reported in the consolidated balance sheets is related to interest rate derivative contracts not subject to master netting agreements.

Note 7    Stockholders’ Equity

Accumulated Other Comprehensive Income

Changes in other comprehensive income are summarized as follows for the periods indicated (in thousands):

			Three Months Ended September 30,
			2022																		2021
			Before Tax						Tax Effect						Net of Tax						Before Tax						Tax Effect						Net of Tax
Unrealized gains (losses) on investment securities available for sale:
Net unrealized holding gains (losses) arising during the period			$	(158,514)					$	41,214					$	(117,300)					$	(21,751)					$	5,546					$	(16,205)
Amounts reclassified to gain on investment securities available for sale, net			(349)						91						(258)						(814)						208						(606)
Net change in unrealized gains (losses) on investment securities available for sale			(158,863)						41,305						(117,558)						(22,565)						5,754						(16,811)
Unrealized gains (losses) on derivative instruments:
Net unrealized holding gains (losses) arising during the period			41,209						(10,714)						30,495						1,695						(432)						1,263
Amounts reclassified to interest expense on deposits			(972)						253						(719)						—						—						—
Amounts reclassified to interest expense on borrowings			590						(154)						436						13,905						(3,546)						10,359
Net change in unrealized gains (losses) on derivative instruments			40,827						(10,615)						30,212						15,600						(3,978)						11,622
Other comprehensive loss			$	(118,036)					$	30,690					$	(87,346)					$	(6,965)					$	1,776					$	(5,189)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

			Nine Months Ended September 30,
			2022																		2021
			Before Tax						Tax Effect						Net of Tax						Before Tax						Tax Effect						Net of Tax
Unrealized gains (losses) on investment securities available for sale:
Net unrealized holding losses arising during the period			$	(635,446)					$	165,197					$	(470,249)					$	(33,240)					$	8,476					$	(24,764)
Amounts reclassified to gain on investment securities available for sale, net			(3,927)						1,021						(2,906)						(7,623)						1,944						(5,679)
Net change in unrealized gains (losses) on investment securities available for sale			(639,373)						166,218						(473,155)						(40,863)						10,420						(30,443)
Unrealized gains (losses) on derivative instruments:
Net unrealized holding gains arising during the period			100,559						(26,019)						74,540						22,725						(5,795)						16,930
Amounts reclassified to interest expense on deposits			205						(53)						152						—						—						—
Amounts reclassified to interest expense on borrowings			9,003						(2,341)						6,662						43,762						(11,159)						32,603
Net change in unrealized gains (losses) on derivative instruments			109,767						(28,413)						81,354						66,487						(16,954)						49,533
Other comprehensive income (loss)			$	(529,606)					$	137,805					$	(391,801)					$	25,624					$	(6,534)					$	19,090

The categories of AOCI and changes therein are presented below for the periods indicated (in thousands):

			Three Months Ended September 30,
			Unrealized Gain (Loss) on Investment Securities Available for Sale						Unrealized Gain (Loss) on Derivative Instruments						Total
Balance at June 30, 2022			$	(352,738)					$	32,343					$	(320,395)
Other comprehensive income (loss)			(117,558)						30,212						(87,346)
Balance at September 30, 2022			$	(470,296)					$	62,555					$	(407,741)
Balance at June 30, 2021			$	50,167					$	(75,040)					$	(24,873)
Other comprehensive income (loss)			(16,811)						11,622						(5,189)
Balance at September 30, 2021			$	33,356					$	(63,418)					$	(30,062)

			Nine Months Ended September 30,
			Unrealized Gain (Loss) on Investment Securities Available for Sale						Unrealized Gain (Loss) on Derivative Instruments						Total
Balance at December 31, 2021			$	2,859					$	(18,799)					$	(15,940)
Other comprehensive income (loss)			(473,155)						81,354						(391,801)
Balance at September 30, 2022			$	(470,296)					$	62,555					$	(407,741)
Balance at December 31, 2020			$	63,799					$	(112,951)					$	(49,152)
Other comprehensive income (loss)			(30,443)						49,533						19,090
Balance at September 30, 2021			$	33,356					$	(63,418)					$	(30,062)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

Note 8    Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

The following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which those measurements are typically classified.

Investment securities available for sale and marketable equity securities—Fair value measurements are based on quoted prices in active markets when available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain preferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics, quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classified within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred stock investments for which level 1 valuations are not available, non-mortgage asset-backed securities, single family real estate-backed securities, private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities.

The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of the methodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation desk personnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robust price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from an additional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process. The results of price challenges are subject to review by executive management. Any price discrepancies are resolved based on careful consideration of the assumptions and inputs employed by each of the pricing sources.

Derivative financial instruments—Fair values of interest rate swaps, caps and collars are determined using widely accepted discounted cash flow modeling techniques. These discounted cash flow models use projections of future cash payments and receipts that are discounted at mid-market rates. Observable inputs that may impact the valuation of these instruments include benchmark swap rates and benchmark forward yield curves. These fair value measurements are generally classified within level 2 of the fair value hierarchy.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands):

			September 30, 2022
			Level 1						Level 2						Total
Investment securities available for sale:
U.S. Treasury securities			$	95,932					$	—					$	95,932
U.S. Government agency and sponsored enterprise residential MBS			—						2,001,299						2,001,299
U.S. Government agency and sponsored enterprise commercial MBS			—						535,266						535,266
Private label residential MBS and CMOs			—						2,587,586						2,587,586
Private label commercial MBS			—						2,583,888						2,583,888
Single family real estate-backed securities			—						478,055						478,055
Collateralized loan obligations			—						1,059,523						1,059,523
Non-mortgage asset-backed securities			—						100,123						100,123
State and municipal obligations			—						113,524						113,524
SBA securities			—						141,626						141,626
Marketable equity securities			90,605						—						90,605
Derivative assets			—						73,989						73,989
Total assets at fair value			$	186,537					$	9,674,879					$	9,861,416
Derivative liabilities			$	—					$	(134,307)					$	(134,307)
Total liabilities at fair value			$	—					$	(134,307)					$	(134,307)

			December 31, 2021
			Level 1						Level 2						Total
Investment securities available for sale:
U.S. Treasury securities			$	111,660					$	—					$	111,660
U.S. Government agency and sponsored enterprise residential MBS			—						2,097,796						2,097,796
U.S. Government agency and sponsored enterprise commercial MBS			—						856,899						856,899
Private label residential MBS and CMOs			—						2,149,420						2,149,420
Private label commercial MBS			—						2,604,010						2,604,010
Single family real estate-backed securities			—						476,968						476,968
Collateralized loan obligations			—						1,078,286						1,078,286
Non-mortgage asset-backed securities			—						152,510						152,510
State and municipal obligations			—						222,277						222,277
SBA securities			—						183,595						183,595
Marketable equity securities			120,777						—						120,777
Servicing rights			—						5,152						5,152
Derivative assets			—						59,019						59,019
Total assets at fair value			$	232,437					$	9,885,932					$	10,118,369
Derivative liabilities			$	—					$	(25,314)					$	(25,314)
Total liabilities at fair value			$	—					$	(25,314)					$	(25,314)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

Assets and liabilities measured at fair value on a non-recurring basis

Following is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified. 

Collateral dependent loans and OREO—The carrying amount of collateral dependent loans is typically based on the fair value of the underlying collateral, which may be real estate, enterprise value or other business assets, less estimated costs to sell when repayment is expected to come from the sale of the collateral. The carrying value of OREO is initially measured based on the fair value of the real estate acquired in foreclosure and subsequently adjusted to the lower of cost or estimated fair value, less estimated cost to sell. Fair values of real estate collateral and OREO are typically based on third-party real estate appraisals which utilize market and income approaches to valuation incorporating both observable and unobservable inputs.

Fair value measurements related to collateral dependent loans and OREO are generally classified within level 3 of the fair value hierarchy.

Operating lease equipment—Fair values of impaired operating lease equipment are typically based upon discounted cash flow analyses, considering expected lease rates and estimated end of life residual values, typically obtained from independent appraisals. These fair value measurements are classified within level 3 of the fair value hierarchy.

The following table presents the net carrying value of assets classified within level 3 of the fair value hierarchy at the dates indicated, for which non-recurring changes in fair value were recorded during the period then ended (in thousands):

			September 30, 2022						December 31, 2021
Collateral dependent loans			$	37,390					$	70,433
OREO			693						2,788
Operating lease equipment			—						11,429
			$	38,083					$	84,650

The following table presents the carrying value and fair value of financial instruments and the level within the fair value hierarchy in which those measurements are classified at the dates indicated (dollars in thousands):

									September 30, 2022												December 31, 2021
			Level						Carrying Value						Fair Value						Carrying Value						Fair Value
Assets:
Cash and cash equivalents			1						$	726,138					$	726,138					$	314,857					$	314,857
Investment securities			1/2						$	9,797,427					$	9,797,467					$	10,064,198					$	10,064,887
Non-marketable equity securities			2						$	261,784					$	261,784					$	135,859					$	135,859
Loans, net			3						$	24,136,061					$	22,779,267					$	23,638,596					$	24,088,190
Derivative assets			2						$	73,989					$	73,989					$	59,019					$	59,019
Liabilities:
Demand, savings and money market deposits			2						$	23,648,849					$	23,648,849					$	26,053,859					$	26,053,859
Time deposits			2						$	3,700,226					$	3,666,917					$	3,384,243					$	3,388,435
Federal funds purchased			2						$	—					$	—					$	199,000					$	199,000
FHLB advances			2						$	5,295,000					$	5,293,836					$	1,905,000					$	1,905,629
Notes and other borrowings			2						$	721,045					$	691,841					$	721,416					$	813,095
Derivative liabilities			2						$	134,307					$	134,307					$	25,314					$	25,314

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2022

Note 9    Commitments and Contingencies 

The Company issues off-balance sheet financial instruments to meet the financing needs of its customers. These financial instruments include commitments to fund loans, unfunded commitments under existing lines of credit, and commercial and standby letters of credit. These commitments expose the Company to varying degrees of credit and market risk which are essentially the same as those involved in extending loans to customers, and are subject to the same credit policies used in underwriting loans. Collateral may be obtained based on the Company’s credit evaluation of the counterparty. The Company’s maximum exposure to credit loss is represented by the contractual amount of these commitments.

Commitments to fund loans

These are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements. 

Unfunded commitments under lines of credit

Unfunded commitments under lines of credit include commercial, commercial real estate and consumer lines of credit to existing customers, for many of which additional extensions of credit are subject to borrowing base requirements. Some of these commitments may mature without being fully funded, so may not necessarily represent future liquidity requirements. 

Commercial and standby letters of credit

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 

Total lending related commitments outstanding at September 30, 2022 were as follows (in thousands):

Commitments to fund loans			$	618,765
Unfunded commitments under lines of credit			5,386,312
Commercial and standby letters of credit			113,730
			$	6,118,807

Legal Proceedings

The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations 

The following discussion and analysis is intended to focus on significant matters impacting and changes in the financial condition and results of operations of the Company during the nine months ended September 30, 2022 and should be read in conjunction with the consolidated financial statements and notes hereto included in this Quarterly Report on Form 10-Q and BKU's 2021 Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report on Form 10-K").

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” "future" and similar expressions identify forward-looking statements. These forward-looking statements are based on the historical performance of the Company 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 so contemplated 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, including as impacted by external circumstances outside the Company's direct control. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risk factors described in Part I, Item 1A of the 2021 Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K. 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.

Overview

Quarterly Highlights

In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios, including the ratio of non-performing loans to total loans, non-performing assets to total assets, trends in criticized and classified assets and portfolio delinquency and charge-off trends. We consider growth in and the composition of earning assets and deposits, trends in funding mix and cost of funds. We analyze these ratios and trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable financial institutions.

Quarterly highlights include:

•Net income for the three months ended September 30, 2022 was $87.9 million, or $1.12 per diluted share, compared to $65.8 million or $0.82 per diluted share for the immediately preceding three months ended June 30, 2022 and $86.9 million, or $0.94 per diluted share, for the three months ended September 30, 2021. Net income for the nine months ended September 30, 2022 was $220.8 million, or $2.71 per diluted share, compared to $289.7 million, or $3.12 per diluted share, for the nine months ended September 30, 2021. Earnings for the nine months ended September 30, 2021 were favorably impacted by a $67.4 million recovery of the provision for credit losses.

•PPNR was $120.8 million for the three months ended September 30, 2022 compared to $111.5 million for the immediately preceding three months ended June 30, 2022 and $102.6 million for the three months ended September 30, 2021.

•The net interest margin, calculated on a tax-equivalent basis, expanded to 2.76% for the three months ended September 30, 2022 from 2.63% for the immediately preceding quarter and 2.33% for the three months ended September 30, 2021. Net interest income increased by $10.4 million compared to the immediately preceding three months ended June 30, 2022 and by $40.7 million compared to the three months ended September 30, 2021.

•In response to the rising interest rate environment, the average cost of total deposits increased to 0.78% for the three months ended September 30, 2022, from 0.30% for the immediately preceding three months ended June 30, 2022 and 0.20% for the three months ended September 30, 2021. The yield on average interest earning assets increased to 3.80% for the three months ended September 30, 2022 from 3.11% for the immediately preceding quarter and 2.79% for the three months ended September 30, 2021.

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•For the three months ended September 30, 2022, the Company recorded a provision for credit losses of $3.7 million compared to a provision of $24.0 million for the immediately preceding three months ended June 30, 2022 and a recovery of the provision for credit losses of $(11.8) million for the three months ended September 30, 2021. The ratio of the ACL to total loans was consistent with the prior quarter-end at 0.54%.

•Loans, excluding the runoff of PPP loans, grew by $186 million for the three months ended September 30, 2022. The C&I and commercial real estate portfolio segments grew by a total of $444 million. As expected given the market-wide decline in mortgage origination activity, mortgage warehouse loans declined by $194 million.

•Total deposits declined by $1.1 billion during the three months ended September 30, 2022. Non-interest bearing demand deposits declined by $851 million to 32% of total deposits, from 34% of total deposits at June 30, 2022. Year to date, non-interest bearing demand deposits declined by $182 million. Time deposits grew by $976 million during the three months ended September 30, 2022, reflecting a strategy to extend the term of deposits.

•The positive trend in levels of criticized and classified loans continued during the three months ended September 30, 2022, declining by $175 million; the annualized net charge-off ratio was 0.16% compared to 0.29% for the year ended December 31, 2021. The ratio of non-performing loans to total loans was 0.64% at September 30, 2022. The guaranteed portion of SBA loans on non-accrual status represented 0.17% of total loans and 27% of non-performing loans at September 30, 2022.

•Book value per common share and tangible book value per common share were $31.97 and $30.97, respectively, at September 30, 2022.

•In September 2022, the Company's Board of Directors authorized the repurchase of up to an additional $150 million in shares of its outstanding common stock. During the three months ended September 30, 2022, the Company repurchased approximately 0.3 million shares of its common stock for an aggregate purchase price of $10.8 million, at a weighted average price of $34.36 per share.

Hurricane Ian

In September 2022, Hurricane Ian made landfall on the southwest Florida coast. The Company did not sustain significant damage or disruption to facilities or operations. The Company had approximately $2.3 billion UPB, based on September 30, 2022 balances, of loans within a 20 county assessment area most impacted by the storm. As of October 25, 2022, we have contacted borrowers representing approximately 75% of this exposure. No borrowers reported severe impact from the storm; borrowers representing approximately $159 million in UPB reported mild or moderate impact on their properties or businesses. Based on information collected to date, we do not expect the impact of the storm to be material to our financial condition or results of operations.

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings. Net interest income is impacted by the mix of interest earning assets and interest bearing liabilities, the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yield curve, levels of non-performing assets and pricing pressure from competitors.

The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of interest bearing liabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds.

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The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrual loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included. Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes, at a federal tax rate of 21% (dollars in thousands):

			Three Months Ended September 30, 2022																		Three Months Ended June 30, 2022																		Three Months Ended September 30, 2021
			Average Balance						Interest (1)						Yield/ Rate (1)(2)						Average Balance						Interest (1)						Yield/ Rate (1)(2)						Average Balance						Interest (1)						Yield/ Rate (1)(2)
Assets:
Interest earning assets:
Loans			$	24,053,742					$	248,168					4.11		%				$	23,709,190					$	212,395					3.59		%				$	22,879,654					$	197,995					3.45		%
Investment securities (3)			9,981,486						77,840						3.12		%				10,477,600						55,488						2.12		%				10,452,255						38,939						1.49		%
Other interest earning assets			596,879						4,031						2.68		%				718,904						2,979						1.66		%				750,700						1,413						0.75		%
Total interest earning assets			34,632,107						330,039						3.80		%				34,905,694						270,862						3.11		%				34,082,609						238,347						2.79		%
Allowance for credit losses			(133,828)																		(127,864)																		(171,381)
Non-interest earning assets			1,703,371																		1,669,689																		1,856,608
Total assets			$	36,201,650																	$	36,447,519																	$	35,767,836
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits			$	2,306,906					$	4,104					0.71		%				$	2,576,257					$	1,742					0.27		%				$	3,038,038					$	1,701					0.22		%
Savings and money market deposits			13,001,566						39,838						1.22		%				13,052,566						15,213						0.47		%				13,554,572						10,029						0.29		%
Time deposits			3,255,869						9,264						1.13		%				2,812,988						3,546						0.51		%				2,866,746						2,543						0.35		%
Total interest bearing deposits			18,564,341						53,206						1.14		%				18,441,811						20,501						0.45		%				19,459,356						14,273						0.29		%
Federal funds purchased			153,905						833						2.12		%				115,146						155						0.53		%				70,054						15						0.08		%
FHLB advances			4,739,457						26,890						2.25		%				4,373,736						11,644						1.07		%				2,647,314						15,678						2.35		%
Notes and other borrowings			721,164						9,259						5.14		%				721,284						9,257						5.13		%				721,638						9,257						5.13		%
Total interest bearing liabilities			24,178,867						90,188						1.48		%				23,651,977						41,557						0.70		%				22,898,362						39,223						0.68		%
Non-interest bearing demand deposits			8,749,794																		9,419,025																		8,912,960
Other non-interest bearing liabilities			697,440																		654,162																		752,774
Total liabilities			33,626,101																		33,725,164																		32,564,096
Stockholders' equity			2,575,549																		2,722,355																		3,203,740
Total liabilities and stockholders' equity			$	36,201,650																	$	36,447,519																	$	35,767,836
Net interest income									$	239,851																	$	229,305																	$	199,124
Interest rate spread															2.32		%																2.41		%																2.11		%
Net interest margin															2.76		%																2.63		%																2.33		%

(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $3.3 million, $3.2 million and $3.3 million for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $0.7 million for all periods presented.

(2)Annualized.

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

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			Nine Months Ended September 30,
			2022																		2021
			Average Balance						Interest (1)						Yield/ Rate (1)(2)						Average Balance						Interest (1)						Yield/ Rate (1)(2)
Assets:
Interest earning assets:
Loans			$	23,706,606					$	655,114					3.69		%				$	23,139,389					$	612,756					3.54		%
Investment securities (3)			10,180,351						177,047						2.32		%				9,792,350						116,464						1.59		%
Other interest earning assets			663,189						8,364						1.69		%				1,063,476						4,613						0.58		%
Total interest earning assets			34,550,146						840,525						3.25		%				33,995,215						733,833						2.88		%
Allowance for credit losses			(130,258)																		(213,352)
Non-interest earning assets			1,682,618																		1,771,639
Total assets			$	36,102,506																	$	35,553,502
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits			$	2,658,558					7,215						0.36		%				$	3,017,301					7,069						0.31		%
Savings and money market deposits			13,150,357						62,704						0.64		%				13,299,066						33,463						0.34		%
Time deposits			3,129,247						15,650						0.67		%				3,520,674						13,433						0.51		%
Total interest bearing deposits			18,938,162						85,569						0.60		%				19,837,041						53,965						0.36		%
Federal funds purchased			152,028						1,046						0.92		%				26,245						17						0.09		%
FHLB advances			3,796,484						44,680						1.57		%				2,863,093						50,158						2.34		%
Notes and other borrowings			721,283						27,772						5.13		%				721,897						27,762						5.13		%
Total interest bearing liabilities			23,607,957						159,067						0.90		%				23,448,276						131,902						0.75		%
Non-interest bearing demand deposits			9,071,135																		8,194,570
Other non-interest bearing liabilities			650,936																		783,618
Total liabilities			33,330,028																		32,426,464
Stockholders' equity			2,772,478																		3,127,038
Total liabilities and stockholders' equity			$	36,102,506																	$	35,553,502
Net interest income									$	681,458																	$	601,931
Interest rate spread															2.35		%																2.13		%
Net interest margin															2.63		%																2.36		%

(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $9.4 million and $10.2 million for the nine months ended September 30, 2022 and 2021, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $2.1 million and $2.0 million for the nine months ended September 30, 2022 and 2021, respectively.

(2)Annualized.

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

Three months ended September 30, 2022 compared to the immediately preceding three months ended June 30, 2022

Net interest income, calculated on a tax-equivalent basis, was $239.9 million for the three months ended September 30, 2022, compared to $229.3 million for the three months ended June 30, 2022, an increase of $10.5 million. The increase in net interest income was comprised of an increase in tax-equivalent interest income of $59.2 million partially offset by an increase of $48.6 million in interest expense. The increase in interest income reflected higher yields on loans and investment securities. The increase in interest expense reflected a higher cost of interest bearing deposits in response to the rising interest rate environment.

The net interest margin, calculated on a tax-equivalent basis, was 2.76% for the three months ended September 30, 2022, compared to 2.63% for the three months ended June 30, 2022. Offsetting factors impacting the net interest margin for the three months ended September 30, 2022 compared to the immediately preceding three months ended June 30, 2022 included:

•The tax-equivalent yield on investment securities increased to 3.12% from 2.12%. This increase resulted primarily from the reset of coupon rates on variable rate securities as well as purchases of securities at higher yields.

•The tax-equivalent yield on loans increased to 4.11% from 3.59%. Factors contributing to this increase were the resetting of variable rate loans at higher coupon rates and originations of new loans at higher rates.

•The average rate paid on interest bearing deposits increased to 1.14% from 0.45%, primarily in response to the rising interest rate environment. Growth in time deposits as a percentage of interest bearing deposits also contributed to this increase, as we implemented a strategy to extend the term of interest bearing deposits.

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•The average rate paid on FHLB advances increased to 2.25% for the three months ended September 30, 2022, from 1.07% for the three months ended June 30, 2022, primarily in response to the rising interest rate environment.

Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021

Net interest income, calculated on a tax-equivalent basis, was $239.9 million for the three months ended September 30, 2022, compared to $199.1 million for the three months ended September 30, 2021, an increase of $40.7 million. Net interest income, calculated on a tax-equivalent basis, was $681.5 million for the nine months ended September 30, 2022, compared to $601.9 million for the nine months ended September 30, 2021, an increase of $79.5 million. The increases in net interest income were comprised of increases in tax-equivalent interest income of $91.7 million and $106.7 million partially offset by increases in interest expense of $51.0 million and $27.2 million for the three and nine months ended September 30, 2022, respectively, compared to the three and nine months ended September 30, 2021, respectively.

Increases in interest income for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, reflected increases in both the average balance of and yields on loans and rising yields on investment securities. Increases in interest expense for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, reflected the increased cost of interest bearing deposits related to the rising rate environment, partially offset by declines in the related average balances. For the comparative three-month periods, interest expense on FHLB advances increased mainly due to an increase in the average balance, while for the comparative nine-month periods, interest expense on FHLB advances declined due to a decrease in the weighted average rate, partially offset by an increase in the average balance.

The net interest margin, calculated on a tax-equivalent basis, was 2.76% for the three months ended September 30, 2022, compared to 2.33% for the three months ended September 30, 2021. The net interest margin, calculated on a tax-equivalent basis, was 2.63% for the nine months ended September 30, 2022, compared to 2.36% for the nine months ended September 30, 2021. Offsetting factors impacting the net interest margin for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021 included:

•The tax-equivalent yield on loans expanded to 4.11% and 3.69% for the three and nine months ended September 30, 2022, respectively, from 3.45% and 3.54% for the three and nine months ended September 30, 2021, respectively. Factors contributing to the increases in the tax-equivalent yield on loans for the three and nine months ended September 30, 2022, compared to the comparable periods in 2021 were largely consistent with those discussed above.

•The tax-equivalent yield on investment securities increased to 3.12% and 2.32% for the three and nine months ended September 30, 2022, respectively, from 1.49% and 1.59% for the three and nine months ended September 30, 2021, respectively. The reset of coupon rates on variable rate securities, purchases of higher-yielding securities and slowing prepayment speeds on securities purchased at a premium contributed to these increases in yields.

•The average rate paid on interest bearing deposits increased to 1.14% and 0.60% for the three and nine months ended September 30, 2022, respectively, from 0.29% and 0.36% for the three and nine months ended September 30, 2021, respectively, reflecting the increasing trend in the Fed's benchmark rate.

•The average rate paid on FHLB advances decreased to 2.25% and 1.57% for the three and nine months ended September 30, 2022, respectively, from 2.35% and 2.34% for the three and nine months ended September 30, 2021, respectively. The decreases resulted from the maturity of higher rate advances and the termination of certain cash flow hedges in the fourth quarter of 2021, coupled with the addition of FHLB advances at lower prevailing rates.

Provision for Credit Losses

The provision for credit losses is a charge or credit to earnings required to maintain the ACL at a level consistent with management’s estimate of expected credit losses on financial assets carried at amortized cost at the balance sheet date. The amount of the provision is impacted by changes in current economic conditions as well as in management's reasonable and supportable economic forecast, loan originations and runoff, changes in portfolio mix, risk rating migration and portfolio seasoning, changes in specific reserves, changes in expected prepayment speeds and other assumptions. The provision for credit losses also includes amounts related to off-balance sheet credit exposures and may include amounts related to accrued interest receivable and AFS debt securities.

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The following table presents the components of the provision for (recovery of) credit losses for the periods indicated (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Amount related to funded portion of loans			$	2,753					$	(11,554)					$	33,406					$	(65,523)
Amount related to off-balance sheet credit exposures			967						280						2,267						(640)
Amount related to accrued interest receivable			—						(568)						(127)						(838)
Amount related to AFS debt securities			—						—						—						(364)
Total provision for (recovery of) credit losses			$	3,720					$	(11,842)					$	35,546					$	(67,365)

The provision for credit losses for the three months ended September 30, 2022, included an increase related to the updated economic forecast, increases in specific reserves, loan growth and a $5 million provision related to the potential impact of Hurricane Ian, partially offset by decreases in certain qualitative factors and the impact of improving borrower financial results.

The provision for credit losses for the nine months ended September 30, 2022 was impacted by increases in specific reserves, the $5 million provision related to Hurricane Ian, loan growth, the decline in criticized and classified assets, and changes in certain assumptions, particularly prepayment speeds.

The provision for credit losses may continue to be volatile and the level of the ACL may change materially from current levels. Future levels of the ACL could be significantly impacted, in either direction, by changes in factors such as economic conditions or the economic outlook, in composition of the loan portfolio, in the financial condition of our borrowers and collateral values.

The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL and about factors that impacted the ACL for the three and nine months ended September 30, 2022.

Non-Interest Income

The following table presents a comparison of the categories of non-interest income for the periods indicated (in thousands):

									Three Months Ended September 30,												Nine Months Ended September 30,
															2022						2021						2022						2021
Deposit service charges and fees															$	6,064					$	5,553					$	17,920					$	15,870
Gain (loss) on investment securities:
Net realized gain on sale of securities AFS															349						815						3,927						7,623
Net unrealized loss on marketable equity securities															(214)						(1,479)						(20,052)						(1,767)
Gain (loss) on investment securities, net															135						(664)						(16,125)						5,856
Lease financing															13,180						13,212						39,958						39,222
Other non-interest income															3,693						7,377						9,070						27,583
															$	23,072					$	25,478					$	50,823					$	88,531

The unrealized losses on marketable equity securities reflected in the table above were attributable to the decline in the fair value of certain preferred stock investments resulting from rising market interest rates and widening spreads.

The most significant factors leading to the decrease in other non-interest income for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, were declines in BOLI revenue related to the rising interest rate environment and lower gains on sale of loans. Lower gains on sale of loans related to a less favorable environment for the re-pooling of GNMA early buyout loans, again related to the rising interest rate environment.

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Non-Interest Expense

The following table presents the components of non-interest expense for the periods indicated (in thousands):

									Three Months Ended September 30,												Nine Months Ended September 30,
															2022						2021						2022						2021
Employee compensation and benefits															$	66,097					$	57,224					$	195,646					$	172,971
Occupancy and equipment															11,719						11,760						34,630						35,127
Deposit insurance expense															4,398						3,552						11,794						15,224
Professional fees															3,184						2,312						8,702						6,363
Technology															19,813						16,687						54,715						49,279
Depreciation of operating lease equipment															12,646						12,944						37,841						37,995
Other non-interest expense															20,248						13,563						48,503						42,756
Total non-interest expense															$	138,105					$	118,042					$	391,831					$	359,715

Non-interest expense increased by $20.1 million and $32.1 million for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021. As expected, an increasing trend was reflected in the compensation and technology categories, as we continue to invest in people and technology to support future growth. Compensation expense also reflects increasing costs related to the competitive labor market and medical benefits. The increase in other non-interest expense includes a $2.3 million write-off of a technology investment during the three months ended September 30, 2022.

See Note 5 to the consolidated financial statements for information about income taxes.

Analysis of Financial Condition

Average interest-earning assets increased by $555 million to $34.6 billion for the nine months ended September 30, 2022 from $34.0 billion for the nine months ended September 30, 2021, reflecting increases in average balances of both loans and investment securities. Average interest bearing liabilities increased by $160 million. Average FHLB advances increased by $933 million. Average interest-bearing deposits declined by $899 million, while average non-interest bearing deposits increased by $877 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021; average total deposits was stable for the comparative nine-month periods. During the three months ended September 30, 2022, in response to the rising interest rate environment and quantitative tightening by the Fed, average interest bearing liabilities increased by $527 million, while average non-interest bearing demand deposits declined by $669 million.

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Investment Securities

The following table shows the amortized cost and carrying value, which, with the exception of investment securities held to maturity, is fair value, of investment securities at the dates indicated (in thousands):

			September 30, 2022												December 31, 2021
			Amortized Cost						Carrying Value						Amortized Cost						Carrying Value
U.S. Treasury securities			$	109,441					$	95,932					$	114,385					$	111,660
U.S. Government agency and sponsored enterprise residential MBS			2,049,680						2,001,299						2,093,283						2,097,796
U.S. Government agency and sponsored enterprise commercial MBS			612,022						535,266						861,925						856,899
Private label residential MBS and CMOs			2,893,779						2,587,586						2,160,136						2,149,420
Private label commercial MBS			2,693,231						2,583,888						2,604,690						2,604,010
Single family real estate-backed securities			505,288						478,055						474,845						476,968
Collateralized loan obligations			1,094,064						1,059,523						1,079,217						1,078,286
Non-mortgage asset-backed securities			106,672						100,123						151,091						152,510
State and municipal obligations			122,966						113,524						205,718						222,277
SBA securities			145,216						141,626						184,296						183,595
Investment securities held to maturity			10,000						10,000						10,000						10,000
			$	10,342,359					9,706,822						$	9,939,586					9,943,421
Marketable equity securities									90,605												120,777
									$	9,797,427											$	10,064,198

Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, provide us with attractive yields. Relatively short effective portfolio duration helps mitigate interest rate risk. Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of September 30, 2022 was 4.7 years and the effective duration of the portfolio was 2.0 years.

The investment securities available for sale portfolio was in a net unrealized loss position of $635.5 million at September 30, 2022, compared to a net unrealized gain position of $3.8 million at December 31, 2021. Net unrealized losses at September 30, 2022 included $1.9 million of gross unrealized gains and $637.5 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at September 30, 2022 had an aggregate fair value of $9.2 billion. The unrealized losses resulted primarily from rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. Continuing uncertainty with respect to the trajectory of the economy and geopolitical events have also led to market uncertainty, producing some yield curve dislocations. None of the unrealized losses were attributable to credit loss impairments.

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The ratings distribution of our AFS securities portfolio at September 30, 2022 is depicted in the chart below:

We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether we expect to recover the amortized cost basis of the investments in unrealized loss positions. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of which varies depending on the circumstances pertinent to each individual security:

•Whether we intend to sell the security prior to recovery of its amortized cost basis;

•Whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis;

•The extent to which fair value is less than amortized cost;

•Adverse conditions specifically related to the security, an industry or geographic area;

•Changes in the financial condition of the issuer or underlying loan obligors;

•The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization;

•Failure of the issuer to make scheduled payments;

•Changes in credit ratings;

•Relevant market data;

•Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level.

We do not intend to sell securities in significant unrealized loss positions at September 30, 2022. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity.

We regularly engage with bond managers to monitor trends in underlying collateral including potential downgrades and subsequent cash flow diversions, liquidity, ratings migration, and any other relevant developments.

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The following table presents subordination levels and average internal stress scenario losses for select portfolio segments at September 30, 2022:

															Subordination																		Weighted Average Stress Scenario Loss
			Rating						Percent of Total						Minimum						Maximum						Average
Private label CMBS			AAA						83.8		%				30.0						98.8						44.0						7.1
			AA						12.1		%				29.3						92.9						43.6						7.6
			A						4.1		%				24.7						69.1						37.0						9.0
Weighted average									100.0		%				29.7						96.9						43.7						7.2
CLOs			AAA						78.1		%				41.3						61.1						44.9						9.0
			AA						18.2		%				30.9						40.5						34.8						8.4
			A						3.7		%				24.9						28.2						26.2						8.4
Weighted average									100.0		%				38.8						56.2						42.4						8.9
Private label residential MBS and CMO			AAA						94.0		%				2.2						95.6						17.5						2.3
			AA						0.9		%				18.7						32.8						23.7						5.4
			A						5.1		%				21.4						25.1						22.4						5.4
Weighted average									100.0		%				3.3						91.4						17.8						2.5
Single family real estate-backed securities			AAA						67.5		%				34.5						72.6						53.0						6.0
			AA						12.7		%				51.6						55.3						53.5						9.8
			NR						19.8		%				39.8						39.8						39.8						10.6
Weighted average									100.0		%				37.7						63.9						50.5						7.4

For further discussion of our analysis of impaired investment securities AFS for credit loss impairment see Note 3 to the consolidated financial statements.

We use third-party pricing services to assist us in estimating the fair value of investment securities. We perform a variety of procedures to ensure that we have a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing written documentation of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailed assumptions used to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation of the nature of the significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challenge process that includes a review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primary pricing services utilize observable inputs when available, and employ unobservable inputs and proprietary models only when observable inputs are not available. As a matter of course, the services validate prices by comparison to recent trading activity whenever such activity exists. Quotes obtained from the pricing services are typically non-binding.

The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities are classified within level 1 of the hierarchy.

For additional discussion of the fair values of investment securities, see Note 8 to the consolidated financial statements.

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The following table shows the weighted average prospective yields, categorized by scheduled maturity, for AFS investment securities as of September 30, 2022. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21%:

									Within One Year												After One Year Through Five Years												After Five Years Through Ten Years												After Ten Years												Total
U.S. Treasury securities									0.69		%										—		%										—		%										—		%										0.69		%
U.S. Government agency and sponsored enterprise residential MBS									3.59		%										3.63		%										3.60		%										3.30		%										3.61		%
U.S. Government agency and sponsored enterprise commercial MBS									2.69		%										3.63		%										2.44		%										2.25		%										2.63		%
Private label residential MBS and CMOs									3.18		%										3.20		%										3.19		%										3.57		%										3.27		%
Private label commercial MBS									4.47		%										4.71		%										1.99		%										3.29		%										4.52		%
Single family real estate-backed securities									1.36		%										3.93		%										2.13		%										—		%										3.81		%
Collateralized loan obligations									5.17		%										5.47		%										5.56		%										—		%										5.43		%
Non-mortgage asset-backed securities									3.32		%										3.32		%										4.13		%										—		%										3.74		%
State and municipal obligations									3.17		%										4.12		%										4.49		%										3.99		%										4.18		%
SBA securities									2.78		%										2.70		%										2.59		%										2.44		%										2.69		%
									3.65		%										4.17		%										3.27		%										3.33		%										3.86		%

Loans

The loan portfolio comprises the Company’s primary interest-earning asset. The following table shows the composition of the loan portfolio at the dates indicated (dollars in thousands):

			September 30, 2022												December 31, 2021
			Total						Percent of Total						Total						Percent of Total
Residential and other consumer loans			$	8,853,884					36.4		%				$	8,368,380					35.2		%
Multi-family			962,546						4.0		%				1,154,738						4.9		%
Non-owner occupied commercial real estate			4,368,686						18.1		%				4,381,610						18.4		%
Construction and land			246,202						1.0		%				165,390						0.7		%
Owner occupied commercial real estate			1,919,074						7.9		%				1,944,658						8.2		%
Commercial and industrial			5,786,907						23.9		%				4,790,275						20.2		%
PPP			10,191						—		%				248,505						1.0		%
Pinnacle			932,187						3.8		%				919,641						3.9		%
Bridge - franchise finance			254,137						1.0		%				342,124						1.4		%
Bridge - equipment finance			310,035						1.3		%				357,599						1.5		%
Mortgage warehouse lending			622,883						2.6		%				1,092,133						4.6		%
Total loans			24,266,732						100.0		%				23,765,053						100.0		%
Allowance for credit losses			(130,671)												(126,457)
Loans, net			$	24,136,061											$	23,638,596

For the nine months ended September 30, 2022, total loans grew by $502 million, while total loans, excluding PPP loans, grew by $740 million.

Growth in residential and other consumer loans for the nine months ended September 30, 2022 totaled $486 million. Commercial and industrial loans, including owner-occupied commercial real estate, grew by $971 million for the nine months ended September 30, 2022. Most of the remaining commercial portfolio segments showed declines during the nine months ended September 30, 2022. MWL declined by $469 million for this period, with utilization declining to 32% at September 30, 2022, from 56% at December 31, 2021, as rising rates have led to lower refinancing and mortgage origination activity. PPP loans declined by $238 million during the nine months ended September 30, 2022, resulting primarily from full or partial forgiveness from the SBA.

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Residential mortgages and other consumer loans

The following table shows the composition of residential and other consumer loans at the dates indicated (in thousands):

			September 30, 2022						December 31, 2021
1-4 single family residential			$	6,999,868					$	6,338,225
Government insured residential			1,849,343						2,023,221
Other consumer loans			4,673						6,934
			$	8,853,884					$	8,368,380

The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased through established correspondent channels. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. The loans have terms ranging from 10 to 30 years, with either fixed or adjustable interest rates. At September 30, 2022, $1.1 billion or 15% were secured by investor-owned properties.

The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations. During the nine months ended September 30, 2022 and 2021, the Company purchased $475 million and $1.3 billion, respectively, of government insured residential loans. The balance of buyout loans totaled $1.8 billion at September 30, 2022. The Company is not the servicer of these loans.

The following charts present the distribution of the 1-4 single family residential mortgage portfolio at the dates indicated:

The following table presents the five states with the largest geographic concentrations of 1-4 single family residential loans, excluding government insured residential loans, at the dates indicated (dollars in thousands):

			September 30, 2022												December 31, 2021
			Total						Percent of Total						Total						Percent of Total
California			$	2,253,304					32.2		%				$	2,056,100					32.4		%
New York			1,413,066						20.2		%				1,293,825						20.4		%
Florida			512,666						7.3		%				494,043						7.8		%
Illinois			352,295						5.0		%				306,388						4.8		%
Virginia			299,953						4.3		%				280,898						4.4		%
Others			2,168,584						31.0		%				1,906,971						30.2		%
			$	6,999,868					100.0		%				$	6,338,225					100.0		%

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Commercial loans and leases

Commercial loans include a diverse portfolio of commercial and industrial loans and lines of credit, loans secured by owner-occupied commercial real-estate, multi-family properties and other income-producing non-owner occupied commercial real estate, a limited amount of construction and land loans, SBA loans, mortgage warehouse lines of credit, PPP loans, municipal loans and leases originated by Pinnacle and franchise and equipment finance loans and leases originated by Bridge.

The following charts present the distribution of the commercial loan portfolio at the dates indicated (dollars in millions):

(1) Included in C&I are $10 million of PPP loans at September 30, 2022.

Commercial real estate loans include term loans secured by non-owner occupied income producing properties including rental apartments, mixed-use properties, industrial properties, retail shopping centers, free-standing single-tenant buildings, office buildings, warehouse facilities, hotels and real estate secured lines of credit.

The following table presents the distribution of commercial real estate loans by property type at September 30, 2022 (dollars in thousands):

			Amortized Cost						Percent of Total						FL						New York Tri State						Other
Office			$	1,879,047					33		%				58		%				25		%				17		%
Multi-family			1,102,430						20		%				50		%				49		%				1		%
Warehouse/Industrial			1,101,804						20		%				62		%				20		%				18		%
Retail			924,673						17		%				62		%				29		%				9		%
Hotel			436,943						8		%				81		%				12		%				7		%
Other			132,537						2		%				67		%				24		%				9		%
			$	5,577,434					100		%				60		%				29		%				11		%

Geographic distribution in the table above is based on location of the underlying collateral property.

The Company’s commercial real estate underwriting standards most often provide for loan terms of five to seven years, with amortization schedules of no more than thirty years.Construction and land loans, included by property type in the table above, represented 1.0% of the total loan portfolio at September 30, 2022. The multi-family portfolio includes $398 million of New York loans collateralized by properties with some or all of the units subject to rent regulation at September 30, 2022.

Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and not-for-profit entities and include equipment loans, secured and unsecured working capital facilities, formula-based loans, trade finance, SBA product offerings, business acquisition finance credit facilities, credit facilities to institutional real estate entities such as REITs and commercial real estate investment funds, and commercial credit cards. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may have multi-year maturities. The Bank also provides financing to state and local governmental entities generally within our geographic markets. Commercial

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loans included loans meeting the regulatory definition of shared national credits totaling $4.1 billion at September 30, 2022, the majority of which were relationship based loans to borrowers in Florida and the New York tri-state area. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.

The following table presents the exposure in the C&I portfolio, excluding PPP loans, by industry, at September 30, 2022 (dollars in thousands):

			Amortized Cost						Percent of Total
Finance and Insurance			$	1,470,997					19.1		%
Educational Services			781,135						10.1		%
Wholesale Trade			653,646						8.5		%
Manufacturing			631,634						8.2		%
Information			516,127						6.7		%
Real Estate and Rental and Leasing			485,462						6.3		%
Utilities			472,015						6.1		%
Health Care and Social Assistance			409,575						5.3		%
Transportation and Warehousing			396,198						5.1		%
Construction			313,222						4.1		%
Retail Trade			293,644						3.8		%
Professional, Scientific, and Technical Services			278,014						3.6		%
Other Services (except Public Administration)			234,361						3.0		%
Public Administration			224,467						2.9		%
Administrative and Support and Waste Management			176,605						2.3		%
Arts, Entertainment, and Recreation			159,755						2.1		%
Accommodation and Food Services			153,235						2.0		%
Other			55,889						0.8		%
			$	7,705,981					100.0		%

Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment and franchise financing on a national basis using both loan and lease structures. Pinnacle provides essential-use equipment financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacle offers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond re-fundings and loan agreements. Bridge has two operating divisions. The franchise finance division offers franchise acquisition, expansion and equipment financing, typically to experienced operators in well-established concepts. The franchise finance portfolio is made up primarily of quick service restaurant and fitness concepts comprising 46% and 50% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment financing through a variety of loan and lease structures.

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The following table presents the franchise portfolio by concept at September 30, 2022 (dollars in thousands):

			Amortized Cost						Percent of Bridge -Franchise Finance
Restaurant concepts:
Burger King			$	35,134					13.8		%
Dunkin Donuts			13,037						5.1		%
Ram Restaurant and Brewery			12,889						5.1		%
Other			55,942						22.0		%
			$	117,002					46.0		%
Non-restaurant concepts:
Planet Fitness			$	81,757					32.3		%
Other Fitness Concepts			44,069						17.3		%
Other			11,309						4.4		%
			137,135						54.0		%
			$	254,137					100.0		%

Geographic Concentrations

The Company's commercial and commercial real estate portfolios are concentrated in Florida and the Tri-state area. 60% and 29% of commercial real estate loans were secured by collateral located in Florida and the Tri-state area, respectively; while 34% and 25% of all other commercial loans were to borrowers in Florida and the Tri-state area, respectively.

Operating lease equipment, net

Operating lease equipment, net of accumulated depreciation, totaled $580 million at September 30, 2022, including off-lease equipment, net of accumulated depreciation of $72 million.

The chart below presents operating lease equipment by type at the dates indicated:

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At September 30, 2022, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year leases are scheduled to expire was as follows (in thousands):

Years Ending December 31:
2022			$	63,796
2023			67,813
2024			45,824
2025			62,625
2026			79,127
Thereafter through 2034			188,639
			$	507,824

Asset Quality

Commercial Loans

We have a robust credit risk management framework, an experienced team to lead the workout and recovery process for the commercial and commercial real estate portfolios and a dedicated internal credit review function. Loan performance is monitored by our credit administration, portfolio management and workout and recovery departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of smaller balance commercial loans may be monitored collectively. The credit quality and risk rating of commercial loans as well as our underwriting and portfolio management practices are regularly reviewed by our internal independent credit review department.

We believe internal risk rating is the best indicator of the credit quality of commercial loans. The Company utilizes a 16-grade internal asset risk classification system as part of its efforts to monitor and maintain commercial asset quality. The special mention rating is considered a transitional rating for loans exhibiting potential credit weaknesses that could result in deterioration of repayment prospects at some future date if not checked or corrected and that deserve management’s close attention. These borrowers may exhibit declining cash flows or revenues or increasing leverage. Loans with well-defined credit weaknesses that may result in a loss if the deficiencies are not corrected are assigned a risk rating of substandard. These borrowers may exhibit payment defaults, inadequate cash flows from current operations, operating losses, increasing balance sheet leverage, project cost overruns, unreasonable construction delays, exhausted interest reserves, declining collateral values, frequent overdrafts or past due real estate taxes. Loans with weaknesses so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors have not been charged off, are assigned an internal risk rating of doubtful.

The following table summarizes the Company's commercial credit exposure, based on internal risk rating, at the dates indicated (dollars in thousands):

			September 30, 2022																														June 30, 2022												December 31, 2021
			Amortized Cost						Percent of Commercial Loans																																										Amortized Cost						Percent of Commercial Loans						Amortized Cost						Percent of Commercial Loans
Pass			$	14,586,106					94.6		%																																								$	14,257,586					93.3		%				$	13,934,369					90.5		%
Special mention			26,939						0.2		%																																								89,153						0.6		%				148,593						1.0		%
Substandard accruing			662,716						4.3		%																																								787,399						5.2		%				1,136,378						7.4		%
Substandard non-accruing			104,994						0.7		%																																								117,518						0.8		%				129,579						0.8		%
Doubtful			32,093						0.2		%																																								7,971						0.1		%				47,754						0.3		%
			$	15,412,848					100.0		%																																								$	15,259,627					100.0		%				$	15,396,673					100.0		%

Our internal risk ratings at September 30, 2022 continued to be influenced by the impact of the COVID-19 pandemic as sustained operating cash flows of some borrowers has yet to fully recover, although that impact continues to decline. Management took what it believed to be a proactive and objective approach to risk rating the commercial loan portfolio at the onset of the pandemic. Levels of criticized and classified loans, particularly in the special mention and substandard accruing categories, increased over the course of 2020 as a direct result of the impact of the COVID-19 pandemic. Throughout 2021 and the nine months ended September 30, 2022, levels of criticized and classified loans declined in response to the trajectory of the economic recovery and lessening impact of the pandemic.

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The following table provides additional information about special mention and substandard accruing loans, at the dates indicated (dollars in thousands). Non-performing loans are discussed further in the section entitled "Non-performing Assets" below.

			September 30, 2022																														June 30, 2022												December 31, 2021
			Amortized Cost						% of Loan Segment																																										Amortized Cost						% of Loan Segment						Amortized Cost						% of Loan Segment
Special mention:
CRE
Hotel			$	1,088					0.2		%																																								$	2,045					0.4		%				$	760					0.1		%
Office			1,654						0.1		%																																								1,660						0.1		%				27,001						1.5		%
Other			122						0.2		%																																								129						0.1		%				4,501						3.7		%
			2,864																																																3,834												32,262
Owner occupied commercial real estate			7,379						0.4		%																																								9,065						0.5		%				14,010						0.7		%
Commercial and industrial			16,696						0.3		%																																								76,254						1.4		%				102,321						2.1		%
			$	26,939																																															$	89,153											$	148,593
Substandard accruing:
CRE
Hotel			$	45,877					10.5		%																																								$	50,169					10.9		%				$	200,486					36.7		%
Retail			99,893						10.8		%																																								83,539						9.3		%				140,081						13.0		%
Multi-family			152,871						15.9		%																																								188,032						18.5		%				173,536						15.0		%
Office			73,506						3.9		%																																								60,675						3.3		%				83,121						4.6		%
Industrial			980						0.1		%																																								983						0.1		%				1,009						0.1		%
Other			8,658						6.5		%																																								8,630						5.6		%				5,803						2.2		%
			381,785																																																392,028												604,036
Owner occupied commercial real estate			99,635						5.2		%																																								111,082						5.8		%				160,159						8.2		%
Commercial and industrial			133,641						2.3		%																																								207,272						3.8		%				250,644						5.2		%
Bridge - franchise finance			46,100						18.1		%																																								53,633						20.4		%				80,864						23.6		%
Bridge - equipment finance			1,555						0.5		%																																								23,384						7.0		%				40,675						11.4		%
			$	662,716																																															$	787,399											$	1,136,378

Operating Lease Equipment, net

Operating leases with a carrying value of assets under lease totaling $18 million, were internally risk rated substandard at September 30, 2022. On a quarterly basis, management performs an impairment analysis on assets with indicators of potential impairment. Potential impairment indicators include evidence of changes in residual value, macro-economic conditions, an extended period of time off-lease, criticized or classified status, or management's intention to sell the asset at an amount potentially below its carrying value. There were no impairment charges recognized during the three and nine months ended September 30, 2022 and 2021.

Bridge had exposure to the energy industry of $259 million at September 30, 2022. The majority of the energy exposure was in the operating lease equipment portfolio where energy exposure totaled $226 million.

Residential Loans

Our residential mortgage portfolio, excluding GNMA buyout loans, consists primarily of loans purchased through established correspondent channels. Most of our purchases are of performing jumbo mortgage loans which have FICO scores above 700, primarily are owner-occupied and full documentation, and have a current LTV of 80% or less although loans with LTVs higher than 80% may be extended to selected credit-worthy borrowers. We perform due diligence on the purchased loans for credit, compliance, counterparty, payment history and property valuation.

We have a dedicated residential credit risk management function, and the residential portfolio is monitored by our internal credit review function. Residential mortgage loans are not individually risk rated. Delinquency status is the primary measure we use to monitor the credit quality of these loans. We also consider original LTV and most recently available FICO score to be

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significant indicators of credit quality for the 1-4 single family residential portfolio, excluding government insured residential loans.

The following charts present information about the 1-4 single family residential portfolio, excluding government insured loans, by FICO distribution, LTV distribution and vintage at September 30, 2022:

FICO scores are generally updated at least annually, and were most recently updated in the third quarter of 2022. LTVs are typically based on valuation at origination since we do not routinely update residential appraisals.

At September 30, 2022, the majority of the 1-4 single family residential loan portfolio, excluding government insured residential loans, was owner-occupied, with 80% primary residence, 5% second homes and 15% investment properties.

1-4 single family residential loans excluding government insured residential loans past due more than 30 days totaled $55 million and $76 million at September 30, 2022 and December 31, 2021, respectively. The amount of these loans 90 days or more past due was $14 million and $17 million at September 30, 2022 and December 31, 2021, respectively.

Note 4 to the consolidated financial statements presents additional information about key credit quality indicators and delinquency status of the loan portfolio.

Non-Performing Assets

Non-performing assets generally consist of (i) non-accrual loans, including loans that have been modified in TDRs or CARES Act modifications and placed on non-accrual status, (ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding PCD loans for which management has a reasonable basis for an expectation about future cash flows and government insured residential loans, and (iii) OREO and other non-performing assets.

The following table and charts summarize the Company's non-performing loans and non-performing assets at the dates indicated (dollars in thousands):

			September 30, 2022												December 31, 2021
Non-accrual loans:
Residential and other consumer:
1-4 single family residential			$	18,660											$	26,988
Other consumer loans			—												1,565
Total residential and other consumer loans			18,660												28,553
Commercial:
Multi-family			2,138												10,865
Non-owner occupied commercial real estate			16,824												39,251
Construction and land			5,527												5,164
Owner occupied commercial real estate			20,191												20,453
Commercial and industrial			77,906												68,720
Bridge - franchise finance			14,571												32,879
Total commercial loans			137,157												177,332
Total non-accrual loans			155,817												205,885
Loans past due 90 days and still accruing			593												24
Total non-performing loans			156,410												205,909
OREO and other non-performing assets			923												2,275
Total non-performing assets			$	157,333											$	208,184
Non-performing loans to total loans (1)			0.64		%										0.87		%
Non-performing assets to total assets (1)			0.43		%										0.58		%
ACL to total loans			0.54		%										0.53		%
ACL to non-performing loans			83.54		%										61.41		%
Net charge-offs to average loans (2)			0.16		%										0.29		%

(1)    Non-performing loans and assets include the guaranteed portion of non-accrual SBA loans totaling $41.8 million or 0.17% of total loans and 0.11% of total assets, at September 30, 2022, and $46.1 million or 0.19% of total loans and 0.13% of total assets, at December 31, 2021.

(2)    Annualized for September 30, 2022.

Contractually delinquent government insured residential loans are typically GNMA early buyout loans and are excluded from non-performing loans as defined in the table above due to their government guarantee. The carrying value of such loans contractually delinquent by 90 days or more was $579 million and $730 million at September 30, 2022 and December 31, 2021, respectively.

See "Results of Operations - Provision for Credit Losses" above and “Analysis of the Allowance for Credit Losses” below for further discussion of trends in the Provision for Credit Losses and the ACL.

The following chart presents trends in non-performing loans and non-performing assets. Levels of non-performing loans and non-performing assets have returned to below pre-pandemic levels.

The following chart presents trends in non-performing loans by portfolio sub-segment (in millions):

Commercial loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process of collection. Residential and consumer loans, other than government insured pool buyout loans, are generally placed on non-accrual status when they are 90 days past due. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractual principal and interest is reasonably assured. Residential loans are generally returned to accrual status when less than 90 days past due. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.

TDRs

A loan modification is considered a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise grant. These concessions may take the form of temporarily or permanently reduced interest rates, payment abatement periods, restructuring of payment terms or extensions of maturity at below market terms. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.

Under inter-agency and authoritative guidance and consistent with the CARES Act, short-term deferrals or modifications related to COVID-19 were typically not categorized as TDRs. Additionally, section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, effectively suspended the guidance related to TDRs codified in ASC 310-40 until January 1, 2022, the date the CARES Act expired.

The following table summarizes loans that had been modified in TDRs at the dates indicated (dollars in thousands):

			September 30, 2022																		December 31, 2021
			Number of TDRs						Amortized Cost						Related Specific Allowance						Number of TDRs						Amortized Cost						Related Specific Allowance
Residential and other consumer (1)			2,421						$	388,437					$	136					449						$	79,524					$	87
Commercial			35						61,543						6,862						16						29,309						1,377
			2,456						$	449,980					$	6,998					465						$	108,833					$	1,464

(1)    Includes 2,397 government insured residential loans modified in TDRs totaling $380.1 million at September 30, 2022, and 435 government insured residential loans modified in TDRs totaling $76.4 million at December 31, 2021.

See Note 4 to the consolidated financial statements for additional information about TDRs.

Loss Mitigation Strategies

Criticized or classified commercial loans in excess of certain thresholds are reviewed quarterly by the Criticized Asset Committee, which evaluates the appropriate strategy for collection to mitigate the amount of credit losses and considers the appropriate risk rating for these loans. Criticized asset reports for each relationship are presented by the assigned relationship manager and credit officer to the Criticized Asset Committee until such time as the relationships are returned to a satisfactory credit risk rating or otherwise resolved. The Criticized Asset Committee may require the transfer of a loan to our workout and recovery department, which is tasked to effectively manage the loan with the goal of minimizing losses and expenses associated with restructure, collection and/or liquidation of collateral. Commercial loans with a risk rating of substandard, loans on non-accrual status, loans modified as TDRs and assets classified as OREO or repossessed assets are usually transferred to workout and recovery. Oversight of the workout and recovery department is provided by the Criticized Asset Committee.

Our servicers evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, or foreclosure, and pursue the alternative most suitable to the consumer and to mitigate losses to the bank.

In response to the COVID-19 pandemic and its potential economic impact to our customers, we implemented a short-term program that complied with interagency guidance and the CARES Act under which we provided temporary relief, and in some cases longer term modifications, on a case by case basis to borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. The CARES Act expired effective January 1, 2022. At September 30, 2022, the amount of loans remaining under CARES Act modification was not significant.

Analysis of the Allowance for Credit Losses

The ACL is management's estimate of the amount of expected credit losses over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. This estimate encompasses information about historical events, current conditions and reasonable and supportable economic forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Given the current emerging level of economic uncertainty, the complexity of the ACL estimate and level of management judgment required, we believe it is possible that the ACL estimate could change, potentially materially, in future periods. Changes in the ACL may result from changes in current economic conditions, our economic forecast, loan portfolio composition and circumstances not currently known to us that may impact the financial condition and operations of our borrowers, among other factors.

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Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. For loans that do not share similar risk characteristics with other loans such as collateral dependent loans and TDRs, expected credit losses are estimated on an individual basis. Expected credit losses are estimated over the contractual terms of the loans, adjusted for expected prepayments, generally excluding expected extensions, renewals, and modifications.

For the substantial majority of portfolio segments and subsegments, including residential loans other than government insured loans, and most commercial and commercial real estate loans, expected losses are estimated using econometric models. The models employ a factor based methodology, leveraging data sets containing extensive historical loss and recovery information by industry, geography, product type, collateral type and obligor characteristics, to estimate PD and LGD. Measures of PD for commercial loans incorporate current conditions through market cycle or credit cycle adjustments. For residential loans, the models consider FICO and adjusted LTVs. PDs and LGDs are then conditioned on the reasonable and supportable economic forecast. Projected PDs and LGDs, determined based on pool level characteristics, are applied to estimated exposure at default, considering the contractual term and payment structure of loans, adjusted for prepayments, to generate estimates of expected loss. For criticized or classified loans, PDs are adjusted to benchmark PDs established for each risk rating. The ACL estimate incorporates a reasonable and supportable economic forecast through the use of externally developed macroeconomic scenarios applied in the models.

A single economic scenario or a probability weighted blend of economic scenarios may be used. The models ingest numerous national, regional and MSA level variables and data points. At September 30, 2022 and December 31, 2021, we used a single externally provided baseline scenario in calculating the quantitative portion of the ACL. At September 30, 2022, we incorporated a downside scenario to inform the amount of qualitative reserves.

Commercial Real Estate Model

Variables with the most significant impact on the commercial real estate model include unemployment at both national and regional levels, the CRE property forecast by property type and sub-market, 10-year treasury yield, Baa corporate yield and real GDP growth, at the national level. Increases in unemployment and yields within the commercial real estate model generally result in increases in the ACL. Increases in real GDP growth and improvements in the CRE property forecasts reduce the reserve.

Commercial Model

Variables with the most significant impact on the commercial model include a stock market volatility index, the S&P 500 index, unemployment at both national and regional levels, and a variety of interest rates and spreads. Increases in the unemployment rate, the stock market volatility index, and the Baa corporate yield increase the reserve, while increases in real GDP growth and the steepening of the yield curve reduce the reserve.

Residential Model

Variables with the most significant impact on the residential model include HPI and unemployment at regional levels, real GDP growth, and a 30-year mortgage rate. Increases in the unemployment rate and the 30-year mortgage rate increase the reserve, while increases in real GDP growth and HPI reduce the reserve.

The length of the reasonable and supportable forecast period is evaluated at each reporting period and adjusted if deemed necessary. Currently, the Company uses a 2-year reasonable and supportable forecast period in estimating the quantitative portion of the ACL. After the reasonable and supportable forecast period, the models effectively revert to long-term mean losses on a straight-line basis over 12 months.

For certain less material portfolios including loans and leases to state and local government entities originated by Pinnacle, small balance commercial loans and consumer loans, the WARM method is used to estimate expected credit losses. Loss rates are applied to the exposure at default, after factoring in amortization and expected prepayments. Expected credit losses for the funded portion of mortgage warehouse lines of credit are estimated based primarily on the Company's historical loss experience. All loss estimates are conditioned as applicable on changes in current conditions and the reasonable and supportable economic forecast.

The Company expects to collect the amortized cost basis of government insured residential loans and PPP loans due to the nature of the government guarantee, so the ACL is zero for these loans.

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Qualitative factors

Qualitative adjustments are made to the ACL when, based on management’s judgment, there are factors impacting expected credit losses not taken into account by the quantitative calculations. Potential qualitative adjustments are categorized as follows:

•Economic factors;

•Credit policy and staffing;

•Concentrations;

•Model imprecision; and

•Other factors deemed appropriate by management that may materially impact the amount of expected credit losses.

See Note 1 to the consolidated financial statements of the Company's 2021 Annual Report on Form 10-K for more detailed information about our ACL methodology.

The following table provides an analysis of the ACL, provision for credit losses related to the funded portion of loans and net charge-offs by loan segment for the periods indicated (dollars in thousands):

			Residential and Other Consumer Loans						Multi-family						Non-owner Occupied Commercial Real Estate						Construction and Land						Owner Occupied Commercial Real Estate						Commercial and Industrial						Pinnacle						Bridge - Franchise Finance						Bridge - Equipment Finance						Total
Balance at December 31, 2020			$	18,719					$	39,827					$	61,507					$	3,284					$	28,797					$	62,197					$	304					$	36,331					$	6,357					$	257,323
Provision for (recovery of) credit losses			(8,929)						(28,940)						(34,063)						(2,210)						(3,601)						27,718						(125)						(13,166)						(2,207)						(65,523)
Charge-offs			(304)						(6,470)						(2,697)						—						(453)						(15,703)						—						(9,585)						—						(35,212)
Recoveries			10						233						155						—						91						2,538						—						—						—						3,027
Balance at September 30, 2021			$	9,496					$	4,650					$	24,902					$	1,074					$	24,834					$	76,750					$	179					$	13,580					$	4,150					$	159,615
Balance at December 31, 2021			$	9,187					$	1,512					$	26,268					$	1,031					$	21,638					$	46,312					$	170					$	16,746					$	3,593					$	126,457
Provision for (recovery of) credit losses			2,576						54						1,374						512						(2,882)						29,621						(32)						3,791						(1,608)						33,406
Charge-offs			(412)						—						(9,179)						(233)						(2,870)						(10,248)						—						(12,988)						—						(35,930)
Recoveries			44						—						3,014						—						617						2,438						—						625						—						6,738
Balance at September 30, 2022			$	11,395					$	1,566					$	21,477					$	1,310					$	16,503					$	68,123					$	138					$	8,174					$	1,985					$	130,671
Net Charge-offs to Average Loans (1)
Nine Months Ended September 30, 2021			0.01		%				0.60		%				0.07		%				—		%				0.02		%				0.30		%				—		%				2.63		%				—		%				0.19		%
Nine Months Ended September 30, 2022			0.01		%				—		%				0.19		%				0.16		%				0.16		%				0.17		%				—		%				5.74		%				—		%				0.16		%

(1) Annualized.

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The following table shows the distribution of the ACL at the dates indicated (dollars in thousands):

			September 30, 2022												June 30, 2022																		December 31, 2021
			Total						%(1)						Total						%(1)																		Total						%(1)
Residential and other consumer			$	11,395					36.4		%				$	9,010					36.7		%																$	9,187					35.2		%
Multi-family			1,566						4.0		%				2,831						4.2		%																1,512						4.9		%
Non-owner occupied commercial real estate			21,477						18.1		%				26,856						17.7		%																26,268						18.4		%
Construction and land			1,310						1.0		%				1,507						0.9		%																1,031						0.7		%
CRE			24,353												31,194																								28,811
Owner occupied commercial real estate			16,503						7.9		%				20,309						7.9		%																21,638						8.2		%
Commercial and industrial			68,123						26.5		%				60,530						26.0		%																46,312						25.8		%
Pinnacle			138						3.8		%				142						4.1		%																170						3.9		%
Bridge - franchise finance			8,174						1.0		%				6,259						1.1		%																16,746						1.4		%
Bridge - equipment finance			1,985						1.3		%				2,795						1.4		%																3,593						1.5		%
			94,923												90,035																								88,459
			$	130,671					100.0		%				$	130,239					100.0		%																$	126,457					100.0		%

(1)Represents percentage of loans receivable in each category to total loans receivable.

The following table presents the ACL as a percentage of loans at the dates indicated:

			September 30, 2022						June 30, 2022												December 31, 2021
Residential and other consumer			0.13		%				0.10		%										0.11		%
Commercial:
Commercial real estate			0.44		%				0.57		%										0.51		%
Commercial and industrial			1.01		%				0.99		%										0.84		%
Pinnacle			0.01		%				0.01		%										0.02		%
Bridge - franchise finance			3.22		%				2.38		%										4.90		%
Bridge - equipment finance			0.64		%				0.84		%										1.00		%
Total commercial			0.77		%				0.79		%										0.76		%
			0.54		%				0.54		%										0.53		%

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Significant offsetting factors contributing to the change in the ACL during the three months ended September 30, 2022 are depicted in the chart below (in millions):

Changes in the ACL during the three months ended September 30, 2022

Overall, the ACL as a percentage of loans remained consistent at 0.54% at September 30, 2022, compared to June 30, 2022. The qualitative portion of the ACL declined for the quarter ended September 30, 2022, as in management's judgment, the economic forecast underlying the quantitative estimate better captured the expected future trajectory of the economy; additionally, higher qualitative loss factors applied to certain portions of the portfolio more susceptible to the impact of the COVID -19 pandemic were reduced. These reductions in qualitative components were partially offset by a $5 million increase related to the potential impact of Hurricane Ian.

The ACL for residential and other consumer segment increased by $2.4 million during the three months ended September 30, 2022, from 0.10% to 0.13% of loans. The increase in the ACL for this segment was primarily driven by the economic forecast, particularly a decline in the HPI and increases in forecasted mortgage and unemployment rates.

The ACL for the CRE portfolio sub-segment, including multi-family, non-owner occupied CRE and construction and land, decreased by $6.8 million during the three months ended September 30, 2022, from 0.57% to 0.44% of loans. The decrease in the ACL for CRE was driven mainly by a decrease in qualitative loss factors, and to a lesser extent, improved borrower financial performance, partially offset by an increase in quantitative loss factors. The increase in quantitative loss factors resulted from a decline in forecasted GDP, and increases in forecasted unemployment and interest rates, offset by improved rental and vacancy rates across asset classes.

The ACL for the commercial and industrial sub-segment, including owner-occupied commercial real estate, increased by $3.8 million during the three months ended September 30, 2022, from 0.99% to 1.01% of loans. The increase was primarily attributable to an increase in specific reserves and a deteriorating economic forecast, partially offset by a decrease in qualitative loss factors

The ACL for the BFG franchise finance portfolio segment increased by $1.9 million during the three months ended September 30, 2022, from 2.38% to 3.22% of loans primarily due to an increase in specific reserves.

The ACL for the BFG equipment finance portfolio segment decreased $0.8 million during the three months ended September 30, 2022, from 0.84% to 0.64% of loans, primarily due to risk rating updates.

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The estimate of the ACL at September 30, 2022 was informed by economic scenarios published in September 2022, economic information provided by additional sources, information about borrower financial condition and collateral values and other relevant information. The economic forecast used in modeling the quantitative ACL as of September 30, 2022, was a third-party provided baseline forecast. Some of the assumptions and data points informing the reasonable and supportable economic forecast used in estimating the quantitative ACL at September 30, 2022 included:

•Labor market assumptions, which reflected national unemployment at 3.7% for the fourth quarter of 2022, and 4.1% and 3.8% by the end of 2023 and 2024, respectively;

•Annualized growth in GDP at 0.6% for the fourth quarter of 2022, and 1.4% and 2.6% for 2023 and 2024, respectively;

•S&P 500 bottoming out in the fourth quarter of 2022 with a decline of 14.3%, and forecasting gains of 5% and 1.6% by end of 2023 and 2024, respectively.

•HPI growth of 5.7% in 2022, and declines of 3.3% and 1.7% by the end of 2023 and 2024, respectively.

Additional variables and assumptions not explicitly stated, including but not limited to residential and commercial property forecasts, also contributed to the overall impact economic conditions and the economic forecast had on the ACL estimate. Furthermore, while the variables presented above are at the national level, many of the variables are regionalized at the market and submarket level in the models.

For additional information about the ACL, see Note 4 to the consolidated financial statements.

Deposits

Average balances and rates paid on deposits were as follows for the periods indicated (dollars in thousands):

			Three Months Ended September 30,																								Nine Months Ended September 30,
			2022												2021												2022												2021
			Average Balance						Average Rate Paid						Average Balance						Average Rate Paid						Average Balance						Average Rate Paid						Average Balance						Average Rate Paid
Demand deposits:
Non-interest bearing			$	8,749,794					—		%				$	8,912,960					—		%				$	9,071,135					—		%				$	8,194,570					—		%
Interest bearing			2,306,906						0.71		%				3,038,038						0.22		%				2,658,558						0.36		%				3,017,301						0.31		%
Savings and money market			13,001,566						1.22		%				13,554,572						0.29		%				13,150,357						0.64		%				13,299,066						0.34		%
Time			3,255,869						1.13		%				2,866,746						0.35		%				3,129,247						0.67		%				3,520,674						0.51		%
			$	27,314,135					0.78		%				$	28,372,316					0.20		%				$	28,009,297					0.41		%				$	28,031,611					0.26		%

The estimated amount of uninsured deposits at September 30, 2022 and December 31, 2021 was $18.9 billion and $20.2 billion, respectively. Time deposit accounts with balances of $250,000 or more totaled $528 million and $603 million at September 30, 2022 and December 31, 2021, respectively. The following table shows scheduled maturities of uninsured time deposits as of September 30, 2022 (in thousands):

Three months or less			$	156,607
Over three through six months			95,259
Over six through twelve months			248,884
Over twelve months			10,038
			$	510,788

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Borrowings

In addition to deposits, we utilize FHLB advances as a funding source; the advances provide us with additional flexibility in managing both term and cost of funding and in managing interest rate risk. FHLB advances are secured by qualifying residential first mortgage and commercial real estate loans, and MBS. The following table presents information about the contractual balance of outstanding FHLB advances as of September 30, 2022 (dollars in thousands):

			Amount						Weighted Average Rate
Maturing in:
2022 - One month or less			$	4,095,000					2.83		%
2022 - Over one month			875,000						3.27		%
2023			325,000						3.15		%
Total contractual balance outstanding			$	5,295,000

The table above reflects contractual maturities of outstanding advances and does not incorporate the impact that interest rate swaps designated as cash flow hedges have on the duration or cost of borrowings.

The table below presents information about outstanding interest rate swaps hedging the variability of interest cash flows on the FHLB advances included in the table above, as of September 30, 2022 (dollars in thousands):

			Notional Amount						Weighted Average Rate
Cash flow hedges maturing in:
2022			$	50,000					2.99		%
2023			255,000						2.35		%
2024			535,000						2.40		%
2025			425,000						2.28		%
2026			130,000						1.93		%
Thereafter			25,000						2.50		%
			$	1,420,000					2.33		%

See Note 6 to the consolidated financial statements for more information about derivative instruments.

Outstanding notes payable and other borrowings consisted of the following at the dates indicated (in thousands):

			September 30, 2022						December 31, 2021
Senior notes:
Principal amount of 4.875% senior notes maturing on November 17, 2025			$	400,000					$	400,000
Unamortized discount and debt issuance costs			(2,793)						(3,400)
			397,207						396,600
Subordinated notes:
Principal amount of 5.125% subordinated notes maturing on June 11, 2030			300,000						300,000
Unamortized discount and debt issuance costs			(5,012)						(5,400)
			294,988						294,600
Total notes			692,195						691,200
Finance leases			28,850						30,216
Notes and other borrowings			$	721,045					$	721,416

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Liquidity and Capital Resources

Liquidity involves our ability to generate adequate funds to support planned interest earning asset growth, meet deposit withdrawal and credit line usage requests, maintain reserve requirements, conduct routine operations, pay dividends, service outstanding debt and meet other contractual obligations.

BankUnited's ongoing liquidity needs have historically been met primarily by cash flows from operations, deposit growth, the investment portfolio and FHLB advances. FRB discount window borrowings provide an additional source of contingent liquidity. For the nine months ended September 30, 2022 and 2021, net cash provided by operating activities was $1.3 billion and $953 million, respectively.

Available liquidity includes cash, borrowing capacity at the Federal Home Loan Bank of Atlanta and the Federal Reserve Discount Window, Federal Funds lines of credit and unpledged agency securities. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Bank's amortizing securities and loan portfolios, and the sale of investment securities. Management also has the ability to exert substantial control over the rate and timing of loan production, and resultant requirements for liquidity to fund new loans.

The ALM policy establishes limits or operating thresholds and guidelines for a number of measures of liquidity which are typically monitored monthly by the ALCO and quarterly by the Board of Directors. The primary measures used to dimension liquidity risk are the ratio of available liquidity to volatile liabilities and a liquidity stress test coverage ratio. Other measures employed to monitor and manage liquidity include but are not limited to a 30-day total liquidity ratio, a one-year liquidity ratio, a wholesale funding ratio, concentrations of large deposits, a measure of on-balance sheet available liquidity, the ratio of FHLB advances to total assets and the ratio of non-interest bearing deposits to total deposits, which is reflective of the quality and cost, rather than the quantity, of available liquidity. At September 30, 2022, BankUnited was in compliance with the limits prescribed by the ALM policy.

The ALM policy stipulates that BankUnited’s liquidity is within policy limits if the available liquidity/volatile liabilities ratio and liquidity stress test ratios exceed 100%. At September 30, 2022, BankUnited’s available liquidity/volatile liabilities ratio was 222% and the liquidity stress test ratio was 168%. The Company has a comprehensive contingency liquidity funding plan and conducts a quarterly liquidity stress test, the results of which are reported to the risk committee of the Board of Directors.

As a holding company, BankUnited, Inc. is a corporation separate and apart from its banking subsidiary, and therefore, provides for its own liquidity. BankUnited, Inc.’s main sources of funds include management fees and dividends from the Bank, access to capital markets and, to a lesser extent, its own securities portfolio. There are regulatory limitations that may affect the ability of the Bank to pay dividends to BankUnited, Inc. Management believes that such limitations will not impact our ability to meet our ongoing near-term cash obligations.

Macro factors, including the initiation of quantitative tightening by the Fed, have recently led to reduced deposit levels across the banking system. BankUnited's total deposits declined by $1.1 billion during the quarter ended September 30, 2022, and there is uncertainty as to the future impact of monetary policy on deposit levels both system-wide and at BankUnited. We believe that we have sufficient on-balance sheet and contingent liquidity, through the sources described above, to satisfy our liquidity needs and cash requirements over the next twelve months.

Pursuant to the FDIA, the federal banking agencies have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. At September 30, 2022 and December 31, 2021, the Company and the Bank had capital levels that exceeded both the regulatory well-capitalized guidelines and all internal capital ratio targets.

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The following table provides information regarding regulatory capital for the Company and the Bank as of September 30, 2022 (dollars in thousands):

			Actual												Required to be Considered Well Capitalized												Required to be Considered Adequately Capitalized												Required to be Considered Adequately Capitalized Including Capital Conservation Buffer
			Amount						Ratio						Amount						Ratio						Amount						Ratio						Amount						Ratio
BankUnited, Inc.:
Tier 1 leverage			$	2,822,240					7.71		%				N/A (1)						N/A (1)						$	1,464,536					4.00		%				N/A (1)						N/A (1)
CET1 risk-based capital			$	2,822,240					11.35		%				$	1,616,539					6.50		%				$	1,119,142					4.50		%				$	1,740,888					7.00		%
Tier 1 risk-based capital			$	2,822,240					11.35		%				$	1,989,586					8.00		%				$	1,492,190					6.00		%				$	2,113,935					8.50		%
Total risk-based capital			$	3,235,818					13.01		%				$	2,486,983					10.00		%				$	1,989,586					8.00		%				$	2,611,332					10.50		%
BankUnited:
Tier 1 leverage			$	3,202,664					8.78		%				$	1,824,177					5.00		%				$	1,459,341					4.00		%				N/A						N/A
CET1 risk-based capital			$	3,202,664					12.94		%				$	1,608,190					6.50		%				$	1,113,362					4.50		%				$	1,731,896					7.00		%
Tier 1 risk-based capital			$	3,202,664					12.94		%				$	1,979,310					8.00		%				$	1,484,483					6.00		%				$	2,103,017					8.50		%
Total risk-based capital			$	3,316,242					13.40		%				$	2,474,138					10.00		%				$	1,979,310					8.00		%				$	2,597,845					10.50		%

(1) There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.

Upon adoption of ASU 2016-13 on January 1, 2020, the Company elected the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.

We believe we are well positioned, from a capital perspective, to withstand a severe downturn in the economy. We continue to evolve our stress testing framework and adapt it to evolving macro-economic conditions as necessary. The majority of our commercial portfolio is subject to quarterly stress test analysis. On an annual basis, we also run a rigorous stress test of our entire balance sheet and, where applicable, we incorporate considerations for evolving macro-economic themes.

We have an active shelf registration statement on file with the SEC that allows the Company to periodically offer and sell in one or more offerings, individually or in any combination, our common stock, preferred stock and other non-equity securities. The shelf registration provides us with flexibility in issuing capital instruments and enables us to more readily access the capital markets as needed to pursue future growth opportunities and to ensure continued compliance with regulatory capital requirements. Our ability to issue securities pursuant to the shelf registration is subject to market conditions.

Interest Rate Risk

A principal component of the Company’s risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is interest rate risk, including the risk that assets and liabilities with similar re-pricing characteristics may not reprice at the same time or to the same degree. A primary objective of the Company’s asset/liability management activities is to maximize net interest income, while maintaining acceptable levels of interest rate risk. The ALCO is responsible for establishing policies to manage exposure to interest rate risk, and to ensure procedures are established to monitor compliance with these policies. The policies established by the ALCO are approved at least annually by the Board of Directors or its Risk Committee.

Management believes that the simulation of net interest income in different interest rate environments provides the most meaningful measure of interest rate risk. Income simulation analysis is designed to capture not only the potential of all assets and liabilities to mature or reprice, but also the probability that they will do so. Income simulation also attends to the relative interest rate sensitivities of these items, and projects their behavior over an extended period of time. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also of proposed strategies for responding to them.

The income simulation model analyzes interest rate sensitivity by projecting net interest income over twelve and twenty-four month periods in a most likely rate scenario based on consensus forward interest rate curves versus net interest income in alternative rate scenarios. Management continually reviews and refines its interest rate risk management process in response to changes in the interest rate environment, the economic climate and observed customer behavior. Currently, our interest rate risk policy framework is based on modeling instantaneous rate shocks of plus and minus 100, 200, 300 and 400 basis point shifts.

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We also model a variety of yield curve slope and dynamic balance sheet scenarios. We continually evaluate the scenarios being modeled with a view toward adapting them to changing economic conditions, expectations and trends.

The following table presents the impact on forecasted net interest income compared to a "most likely" scenario in parallel rate shock scenarios of plus 100, 200, 300 and 400 basis points at September 30, 2022 and December 31, 2021, as well as minus 100 and 200 basis points scenario at September 30, 2022. At September 30, 2022, the most likely rate scenario incorporated a bear flattening yield curve and floored all indices at 0%. We did not apply a falling rate scenario at December 31, 2021 due to the low prevailing interest rate environment at that time.

			Down 200						Down 100						Plus 100						Plus 200						Plus 300						Plus 400
Model Results at September 30, 2022 - increase (decrease)
In year 1			(8.1)		%				(4.0)		%				1.2		%				1.3		%				1.6		%				1.7		%
In year 2			(11.4)		%				(4.2)		%				3.4		%				5.5		%				7.2		%				7.5		%
Model Results at December 31, 2021 - increase
In year 1			N/A						N/A						2.5		%				3.9		%				4.3		%				4.2		%
In year 2			N/A						N/A						6.6		%				11.5		%				15.8		%				20.4		%

Management also simulates changes in EVE in various interest rate environments. The following table illustrates the modeled change in EVE in the indicated scenarios at September 30, 2022 and December 31, 2021:

			Down 200						Down 100						Plus 100						Plus 200						Plus 300						Plus 400
Model Results at September 30, 2022 - increase (decrease):			2.9		%				3.0		%				(3.0)		%				(7.2)		%				(10.9)		%				(14.2)		%
Model Results at December 31, 2021 - increase (decrease):			N/A						N/A						0.4		%				(1.0)		%				(3.2)		%				(5.0)		%

Many assumptions were used by the Company to calculate the impact of changes in interest rates, including the change in rates. Actual results may not be similar to the Company’s projections due to several factors including the timing and frequency of rate changes, market conditions, changes in depositor behavior and loan prepayment speeds and the shape of the yield curve. Actual results may also differ due to the Company’s actions, if any, in response to changing rates and conditions.

Derivative Financial Instruments

Interest rate derivatives designated as cash flow or fair value hedging instruments are one of the tools we use to manage interest rate risk. These derivative instruments are used to mitigate exposure to changes in interest cash flows on variable rate liabilities and to changes in the fair value of fixed rate financial instruments, in each case caused by fluctuations in benchmark interest rates, as well as to manage duration of liabilities. The fair value of derivative instruments designated as hedges is included in other assets and other liabilities in our consolidated balance sheets. Changes in fair value of derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings, as is the offsetting gain or loss on the hedged item. At September 30, 2022, outstanding interest rate swaps, caps and collars designated as cash flow hedges had an aggregate notional amount of $2.1 billion and outstanding interest rate swaps designated as fair value hedges had an aggregate notional amount of $100 million.

Interest rate swaps and caps not designated as hedges had an aggregate notional amount of $3.9 billion at September 30, 2022. These interest rate swaps and caps were entered into as accommodations to certain of our commercial borrowers. To mitigate interest rate risk associated with these derivatives, the Company enters into offsetting derivative positions with primary dealers.

See Note 6 to the consolidated financial statements for additional information about derivative financial instruments.

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LIBOR Transition

The Company has implemented and is in the process of executing a detailed plan to facilitate the transition from LIBOR to alternative reference rates, with SOFR being the preferred alternative to LIBOR. A discussion of the Company's LIBOR transition plan and activities appears in the "LIBOR Transition" section in the MD&A of the Company's 2021 Annual Report on Form 10-K.

The following table presents information about the Company's exposure to instruments that reference LIBOR as of September 30, 2022 (in thousands):

			Maturing
			Prior to June 30, 2023						After June 30, 2023						Total
Investment securities			$	—					$	3,821,646					$	3,821,646
Loans			479,767						4,760,961						5,240,728
Interest rate derivative contracts (1)			312,966						3,278,819						3,591,785
			$	792,733					$	11,861,426					$	12,654,159

(1)Represents notional amount.

Impact of the COVID-19 Pandemic

A detailed discussion of the effects the COVID-19 pandemic had during 2021 on our Company appears in the "Impact of the COVID-19 Pandemic and Our Response" section in the MD&A of the Company's 2021 Annual Report on Form 10-K.

2021 and 2022 were characterized broadly by recovery of the U.S. economy from the impact of the COVID-19 pandemic. The actual and expected impact of the pandemic on our financial condition and results of operations continues to decline. Levels of criticized and classified assets remain elevated at September 30, 2022, when compared to pre-pandemic levels although they continue to trend downward. The composition of the balance sheet at September 30, 2022 and corresponding levels of net interest income reflect the opportunity cost of the decline in commercial loans and the increase in residential loans and securities that occurred over the course of the pandemic. Historically, commercial loans have generally tended to be higher yielding assets than residential loans and securities. During the first quarter of 2022, we welcomed our employees back to the office, adopting a hybrid work model for most non-branch employees. This model will likely continue to evolve over the near to medium term.

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Non-GAAP Financial Measures

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

						Three Months Ended September 30, 2022						Three Months Ended June 30, 2022						Three Months Ended September 30, 2021
Income before income taxes (GAAP)						$	117,083					$	87,468					$	114,400
Plus: Provision for (recovery of) credit losses						3,720						23,996						(11,842)
PPNR (non-GAAP)						$	120,803					$	111,464					$	102,558

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 basis for comparison to other financial institutions as it is a metric commonly used in the banking industry. 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 the dates indicated (in thousands except share and per share data): 

			September 30, 2022						December 31, 2021
Total stockholders’ equity			$	2,480,985					$	3,037,761
Less: goodwill and other intangible assets			77,637						77,637
Tangible stockholders’ equity			$	2,403,348					$	2,960,124
Common shares issued and outstanding			77,599,408						85,647,986
Book value per common share			$	31.97					$	35.47
Tangible book value per common share			$	30.97					$	34.56

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

See the section entitled “Interest Rate Risk” included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective.

During the quarter ended September 30, 2022, there were no changes in the Company's internal control over financial reporting, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

 The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based upon currently available information and the advice of legal counsel, the likelihood is remote

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that the impact of these proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.

Item 1A.   Risk Factors

Geopolitical factors such as the conflict between Russia and Ukraine or similar events could negatively impact our business and results of operations.

We are monitoring the impact of the conflict between Russia and Ukraine on our business. While we do not currently expect that the conflict will have a direct material impact on our business, financial condition or results of operations, collateral effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions, including retaliatory acts like cyber-attacks and sanctions against other countries, or escalation or further spread of the conflict could adversely affect the global economy or domestic markets, including ours.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

						Issuer Purchases of Equity Securities
Period						Total number of shares purchased(1)						Average price paid per share						Total number of shares purchased as part of publicly announced plans or programs						Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (2)(3)
July 1 - July 31, 2022						—						$	—					—						$	758,337
August 1 - August 31, 2022						—						$	—					—						$	758,337
September 1 - September 30, 2022						314,109						$	34.36					314,109						$	139,965,810
Total						314,109						$	34.36					314,109

(1) The total number of shares purchased during the periods indicated includes shares purchased as part of a publicly announced program.

(2) On May 2, 2022, the Company's Board of Directors authorized the repurchase of up to an additional $150 million in shares of its outstanding common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued without prior notice at any time. The authorization does not require the Company to acquire any specified number of common shares. The Company completed its repurchases pursuant to the May 2 authorization in September 2022.

(3) On September 13, 2022, the Company's Board of Directors authorized the repurchase of up to an additional $150 million in shares of its outstanding common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued without prior notice at any time. The authorization does not require the Company to acquire any specified number of common shares.

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Item 6. 

Exhibits

Exhibit Number

Description

Location

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

101.INS

The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document

Filed herewith

101.SCH

XBRL Taxonomy Extension Schema

Filed herewith

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

Filed herewith

101.DEF

XBRL Taxonomy Extension Definition Linkbase

Filed herewith

101.LAB

XBRL Taxonomy Extension Label Linkbase

Filed herewith

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

Filed herewith

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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 thereunto duly authorized this 1st day of November 2022.

			/s/ Rajinder P. Singh
			Rajinder P. Singh
			Chairman, President and Chief Executive Officer
			/s/ Leslie N. Lunak
			Leslie N. Lunak
			Chief Financial Officer

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