Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
Commission file number: 001-35039
 
BankUnited, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
27-0162450
(I.R.S. Employer
Identification No.)
14817 Oak Lane, Miami Lakes, FL
(Address of principal executive offices)
 
33016
(Zip Code)
Registrant's telephone number, including area code: (305) 569-2000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or 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 ý
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2017 was $3,551,584,938.
The number of outstanding shares of the registrant's common stock, $0.01 par value, as of February 26, 2018, was 106,017,421.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the 2018 annual meeting of stockholders are incorporated by reference in this Annual Report on Form 10-K in response to Part II. Item 5 and Part III. Items 10, 11, 12, 13 and 14.
 


Table of Contents

BANKUNITED, INC.
Form 10-K
For the Year Ended December 31, 2017
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 





i


GLOSSARY OF DEFINED TERMS

The following acronyms and terms may be used throughout this Form 10-K, including the consolidated financial statements and related notes.
ACI
 
Loans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)
AFS
 
Available for sale
ALCO
 
Asset/Liability Committee
ALLL
 
Allowance for loan and lease losses
AOCI
 
Accumulated other comprehensive income
ARM
 
Adjustable rate mortgage
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
ATM
 
Automated teller machine
Basel Committee
 
International Basel Committee on Banking Supervision
BHC Act
 
Bank Holding Company Act of 1956
BHC
 
Bank holding company
BKU
 
BankUnited, Inc.
BankUnited
 
BankUnited, National Association
The Bank
 
BankUnited, National Association
Bridge
 
Bridge Funding Group, Inc.
CET1
 
Common Equity Tier 1 capital
CECL
 
Current expected credit loss
CFPB
 
Consumer Financial Protection Bureau
CME
 
Chicago Mercantile Exchange
CMOs
 
Collateralized mortgage obligations
Commercial Shared-Loss Agreement
 
A commercial and other loans shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
Covered assets
 
Assets covered under the Loss Sharing Agreements
Covered loans
 
Loans covered under the Loss Sharing Agreements
CRA
 
Community Reinvestment Act
DIF
 
Deposit insurance fund
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EVE
 
Economic value of equity
Failed Bank
 
BankUnited, FSB
FAA
 
Field Attorney's Advice
FASB
 
Financial Accounting Standards Board
FDIA
 
Federal Deposit Insurance Act
FDIC
 
Federal Deposit Insurance Corporation
FHLB
 
Federal Home Loan Bank
FICO
 
Fair Isaac Corporation (credit score)
FNMA
 
Federal National Mortgage Association
FRB
 
Federal Reserve Bank
FSB Acquisition
 
Acquisition of substantially all of the assets and assumption of all of the non-brokered deposits and substantially all of the other liabilities of BankUnited, FSB from the FDIC on May 21, 2009
GAAP
 
U.S. generally accepted accounting principles
GDP
 
Gross Domestic Product

ii


GLB Act
 
The Gramm-Leach-Bliley Financial Modernization Act of 1999
HAMP
 
Home Affordable Modification Program
HTM
 
Held to maturity
IPO
 
Initial public offering
IRS
 
Internal Revenue Service
ISDA
 
International Swaps and Derivatives Association
LIBOR
 
London InterBank Offered Rate
LIHTC
 
Low Income Housing Tax Credits
Loss Sharing Agreements
 
Two loss sharing agreements entered into with the FDIC in connection with the FSB Acquisition
LTV
 
Loan-to-value
MBS
 
Mortgage-backed securities
MSA
 
Metropolitan Statistical Area
MSRs
 
Mortgage servicing rights
Non-ACI
 
Loans acquired without evidence of deterioration in credit quality since origination
Non-Covered Loans
 
Loans other than those covered under the Loss Sharing Agreements
NYTLC
 
New York City Taxi and Limousine Commission
OCI
 
Other comprehensive income
OCC
 
Office of the Comptroller of the Currency
OFAC
 
U.S. Department of the Treasury's Office of Foreign Assets Control
OREO
 
Other real estate owned
OTTI
 
Other-than-temporary impairment
Proxy Statement
 
Definitive proxy statement for the Company's 2017 annual meeting of stockholders
PSU
 
Performance Share Unit
Pinnacle
 
Pinnacle Public Finance, Inc.
Re-Remics
 
Resecuritized real estate mortgage investment conduits
RSU
 
Restricted Share Unit
SAR
 
Share Appreciation Right
SBA
 
U.S. Small Business Administration
SBF
 
Small Business Finance Unit
SEC
 
Securities and Exchange Commission
Single Family Shared-Loss Agreement
 
A single-family loan shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
TDR
 
Troubled-debt restructuring
Tri-State
 
New York, New Jersey and Connecticut
UPB
 
Unpaid principal balance
USDA
 
U.S. Department of Agriculture
VIEs
 
Variable interest entities
2010 Plan
 
2010 Omnibus Equity Incentive Plan
2014 Plan
 
2014 Omnibus Equity Incentive Plan
401(k) Plan
 
BankUnited 401(k) Plan


iii


Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," "project," "predict," "will" and similar expressions identify forward-looking statements.
These forward-looking statements are based on management's current views with respect to future results, and are subject to risks and uncertainties. Forward-looking statements are based on beliefs and assumptions made by management using currently available information, such as market and industry materials, historical performance and current financial trends. These statements are only predictions and are not guarantees of future performance. The inclusion of forward-looking statements should not be regarded as a representation by the Company that the future plans, estimates or expectations contemplated by a forward-looking statement will be achieved. Forward-looking statements are subject to various risks and uncertainties and assumptions, including those relating to the Company's operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, the Company's actual results could differ materially from those contemplated by a forward-looking statement. These risks and uncertainties include, without limitation:
the impact of conditions in the financial markets and economic conditions generally;
credit risk, relating to our portfolios of loans, leases and investments overall, as well as loans and leases exposed to specific industry conditions;
real estate market conditions and other risks related to holding loans secured by real estate or real estate received in satisfaction of loans;
an inability to successfully execute our fundamental growth strategy;
geographic concentration of the Company's markets in Florida and the New York metropolitan area;
natural or man-made disasters;
risks related to the regulation of our industry;
inadequate allowance for credit losses;
interest rate risk;
liquidity risk;
loss of executive officers or key personnel;
competition;
dependence on information technology and third party service providers and the risk of systems failures, interruptions or breaches of security;
failure to comply with the terms of the Company's Loss Sharing Agreements (as defined below) with the FDIC (as defined below);
inadequate or inaccurate forecasting tools and models;
ineffective risk management or internal controls;
a variety of operational, compliance and legal risks; and
the selection and application of accounting methods and related assumptions and estimates.
Additional factors are set forth in the Company's filings with the Securities and Exchange Commission, or the SEC, including this Annual Report on Form 10-K.
Forward-looking statements speak only as of the date on which they are made. The Company expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
As used herein, the terms the "Company," "we," "us," and "our" refer to BankUnited, Inc. and its subsidiaries unless the context otherwise requires.

iv


PART I
Item 1. Business
Overview
BankUnited, Inc., with total consolidated assets of $30.3 billion at December 31, 2017, is a 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 services to individual and corporate customers through 87 banking centers located in 15 Florida counties and 6 banking centers in the New York metropolitan area. The Bank also provides certain commercial lending and deposit products through national platforms. The Company has built, primarily through organic growth, a premier commercially focused regional bank with a long-term value oriented business model serving primarily small and medium sized businesses. We endeavor to provide, through our experienced lending and relationship banking teams, personalized customer service and offer a full range of traditional banking products and services to both our commercial and retail customers.
The FSB Acquisition and the Loss Sharing Agreements
On May 21, 2009, BankUnited entered into the "Purchase and Assumption Agreement" with the FDIC, Receiver of BankUnited, FSB, and acquired substantially all of the assets and assumed all of the non-brokered deposits and substantially all other liabilities of the Failed Bank from the FDIC in the FSB Acquisition.
Concurrently with the FSB Acquisition, the Bank entered into two loss sharing agreements with the FDIC, covering certain legacy assets, including the entire legacy loan portfolio and OREO and certain purchased investment securities. We refer to assets covered by the Loss Sharing Agreements as covered assets or, in certain cases, covered loans. The Loss Sharing Agreements do not apply to assets acquired, purchased or originated subsequent to the FSB Acquisition. At December 31, 2017, the covered assets, consisting of residential loans and OREO, had an aggregate carrying value of $506 million. The total UPB of the covered assets at December 31, 2017 was $1.1 billion. The carrying value of the related FDIC indemnification asset at December 31, 2017 was $296 million.
The following charts illustrate the percentage of total assets represented by covered assets and the FDIC indemnification asset at December 31, 2017 and 2010, reflecting the change in balance sheet composition over time:
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-coverednoncoveredrevised-new.jpg
Pursuant to the terms of the Loss Sharing Agreements, the covered assets are subject to a stated loss threshold whereby the FDIC will reimburse the Bank for 80% of losses up to a $4.0 billion stated threshold and 95% of losses in excess of the $4.0 billion stated threshold. The Bank will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid the Bank a reimbursement under the Loss Sharing Agreements. The FDIC's obligation to reimburse the Company for losses with respect to the covered assets began with the first dollar of loss incurred. We have received reimbursements of $2.7 billion for claims submitted to the FDIC under the Loss Sharing Agreements as of December 31, 2017.
The Loss Sharing agreements consist of the Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement. The Single Family Shared-Loss Agreement provides for FDIC loss sharing and the Bank's reimbursement for recoveries to the FDIC for ten years from May 21, 2009, or through May 21, 2019, for single family residential and home equity loans and related OREO. The Commercial Shared-Loss Agreement provided for FDIC loss sharing for five years from May 21, 2009, or through May 21, 2014, and for the Bank's reimbursement for recoveries to the FDIC for eight years from May 21, 2009, or through the quarter ended June 30, 2017, for all other covered assets.

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Under the terms of the Purchase and Assumption Agreement with the FDIC, the Bank may sell up to 2.5% of the covered loans based on the UPB at the date of the FSB Acquisition, or approximately $280 million, on an annual basis without prior consent of the FDIC. Any losses incurred from such loan sales are covered under the Loss Sharing Agreements. Any loan sale in excess of this annual threshold requires approval from the FDIC to be eligible for loss share coverage. However, if the Bank seeks to sell residential loans in excess of the agreed 2.5% threshold in the nine months prior to the stated termination date of loss share coverage (May 21, 2019) and the FDIC refuses to consent, then the Single Family Shared-Loss Agreement will be extended for two years only with respect to the loans requested to be included in such sales. The Bank will have the right to sell all or any portion of such loans without FDIC consent at any time within the nine months prior to the extended termination date, and any losses incurred will be covered under the Single Family Shared-Loss Agreement. If exercised, this final sale mechanism ensures no residual credit risk in our covered loan portfolio that would otherwise arise from credit losses occurring after the termination date of the Single Family Shared-Loss Agreement.
Our Market Areas
Our primary banking markets are Florida and the Tri-State market of New York, New Jersey and Connecticut. We believe both represent long-term attractive banking markets. In Florida, our largest concentration is in the Miami metropolitan statistical area; however, we are also focused on developing business in other markets in which we have a presence, such as the Broward, Palm Beach, Orlando, Tampa and Jacksonville markets. We operate several national commercial lending platforms, purchase residential loans on a national basis through established correspondent channels and have a national commercial deposit business.
According to estimates from the United States Census Bureau and SNL Financial, from 2014 to 2017, Florida added over 1.2 million new residents, the second most of any U.S. state, and had a total population of 21.1 million and a median household annual income of $53,657 in 2017. The Florida unemployment rate decreased to 3.7% at December 31, 2017. The Case-Shiller home price index for Florida reflected a year over year increase of 6% at September 30, 2017. According to CoStar Commercial Repeat-Sale Indices, commercial real estate values in the South region reflected a year over year increase of 14% at December 31, 2017. According to a report published in December, 2017 by the University of Central Florida, personal income in Florida is expected to average 4.1% growth from 2017 to 2021 while Florida's Real Gross State Product is forecast to expand at an average annual rate of 3.4% from 2017 to 2021.
We had six banking centers in metropolitan New York at December 31, 2017 serving the Tri-State area. Four banking centers were in Manhattan, one in Long Island and one in Brooklyn. According to SNL Financial, at December 31, 2017, the Tri-State area had approximately $2.0 trillion in deposits, with the majority of the market concentrated in the New York metropolitan area. The Tri-State area had a total population of 32.3 million and a median household annual income of $70,847 in 2017, while the unemployment rate decreased to 4.3% at December 31, 2017. According to CoStar Commercial Repeat-Sale Indices, commercial real estate values in the Northeast region reflected a year over year increase of 11% at December 31, 2017.
Through two commercial lending subsidiaries of BankUnited, we engage in equipment, franchise and municipal finance on a national basis. The Bank also originates small business loans through programs sponsored by the SBA and to a lesser extent the USDA and provides mortgage warehouse finance on a national basis. We refer to our commercial lending subsidiaries, our small business finance unit, our mortgage warehouse lending operations and our residential loan purchase program as national platforms. We also offer a suite of commercial deposit and cash management products through a national platform.
Products and Services
Lending and Leasing
General—Our primary lending focus is to serve small and middle-market businesses and their executives with a variety of financial products and services, while maintaining a disciplined credit culture.
We offer a full array of lending products that cater to our customers' needs including small business loans, commercial real estate loans, equipment loans and leases, term loans, formula-based loans, municipal and non-profit loans and leases, commercial lines of credit, residential mortgage warehouse lines of credit, letters of credit and consumer loans. We also purchase performing residential loans through established correspondent channels on a national basis.
We have attracted and invested in experienced lending teams from competing institutions in our Florida, Tri-State and national markets, resulting in significant growth in our non-covered loan portfolio. At December 31, 2017, our loan portfolio included $20.9 billion in non-covered loans, including $16.7 billion in commercial and commercial real estate loans and $4.2 billion in residential and other consumer loans. Continued loan growth in both the Florida and Tri-State markets and across our national lending and leasing platforms is a core component of our current business strategy.

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Commercial loans—Our commercial loans, which are generally made to growing small business, middle-market and larger corporate entities, include equipment loans, secured and unsecured lines of credit, formula-based loans, mortgage warehouse lines, letters of credit, SBA product offerings and business acquisition finance credit facilities.
Commercial real estate loans—We offer term financing for the acquisition or refinancing of properties, primarily rental apartments, mixed-use commercial properties, industrial properties, warehouses, retail shopping centers, free-standing single-tenant buildings, office buildings and hotels. Other products that we provide include real estate secured lines of credit, and, to a limited extent, acquisition, development and construction loan facilities and construction financing. We make commercial real estate loans secured by both owner-occupied and non-owner occupied properties. Construction lending is not a primary area of focus for us; construction and land loans comprised 1.5% of the loan portfolio at December 31, 2017.
National Commercial Lending Platforms—Through the Bank's two commercial lending subsidiaries, we provide municipal, equipment and franchise financing on a national basis. Pinnacle, headquartered in Scottsdale, Arizona, provides financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacle offers a full array of financing structures on a national basis including equipment lease purchase agreements and direct (private placement) bond refundings and loan agreements. Bridge offers large corporate and middle market businesses equipment leases and loans including direct finance lease and operating lease structures through its equipment finance division. Bridge offers franchise equipment, acquisition and expansion financing through its franchise division. Bridge is headquartered in Baltimore, Maryland. In 2015, we acquired SBF, enabling us to expand our small business lending platform on a national basis. SBF offers an array of SBA, and to a lesser extent, USDA loan products. We typically sell the government guaranteed portion of the loans SBF originates, and retain the unguaranteed portion in portfolio. We also engage in residential mortgage warehouse lending on a national basis.
Residential mortgages—The non-covered residential loan portfolio is primarily comprised of loans purchased on a national basis through select correspondent channels. This national purchase program allows us to diversify our loan portfolio, both by product type and geographically. Residential loans purchased are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. We do not originate or purchase negatively amortizing or sub-prime residential loans.
Home equity loans and lines of credit are not a significant component of the non-covered loan portfolio.
Consumer loans—We offer consumer loans to our customers for personal, family and household purposes, including auto, boat and personal installment loans. Consumer loans are not a material component of our loan portfolio.
Loan servicing—At December 31, 2017, we serviced residential mortgage loans with a UPB of $2.0 billion. Our mortgage servicing portfolio includes servicing rights acquired in bulk and in flow transactions, as well as retained servicing on residential loans originated and sold into the secondary market prior to the termination of our retail residential mortgage origination channel in 2016. We anticipate growing this business at a moderate pace, depending on market conditions, to take advantage of existing mortgage servicing capacity.
We service SBA loans originated and sold into the secondary market by SBF. We anticipate that this servicing business will expand as SBF continues to originate and sell loans. At December 31, 2017, we serviced $546 million of SBA loans.
The balance of servicing assets was not material to the Company's consolidated financial statements at December 31, 2017.
Credit Policy and Procedures
BankUnited, Inc. and the Bank have established asset oversight committees to administer the loan portfolio and monitor and manage credit risk. These committees include: (i) the Enterprise Risk Management Committee, (ii) the Commercial Loan Committee , (iii) the Credit Risk Management Committee, (iv) the Asset Recovery Committee, (v) the Criticized Asset Committee and (vi) the Residential Credit Risk Management Committee. These committees meet at least quarterly.
The credit approval process provides for prompt and thorough underwriting and approval or decline of loan requests. The approval method used is a hierarchy of individual lending authorities for new credits and renewals. The Credit Risk Management Committee approves authorities for lending and credit personnel, which are ultimately submitted to our Board for ratification. Lending authorities are based on position, capability and experience of the individuals filling these positions. Authorities are periodically reviewed and updated.
BankUnited has established in-house borrower lending limits which are significantly lower than its legal lending limit of approximately $488 million at December 31, 2017. In-house lending limits at December 31, 2017 ranged from $75 million to $100 million. These limits are reviewed periodically by the Credit Risk Management Committee and approved annually by the Board of Directors.

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Deposits
We offer traditional deposit products including checking accounts, money market deposit accounts, treasury management services, savings accounts and certificates of deposit with a variety of terms and rates. We offer commercial and retail deposit products across our primary geographic footprint and certain commercial deposit and treasury management services on a national platform. Our deposits are insured by the FDIC up to statutory limits. Demand deposit balances are concentrated in commercial and small business accounts. Our service fee schedule and rates are competitive with other financial institutions in our markets.
Investment Securities
The primary objectives of our investment policy are to provide liquidity, provide a suitable balance of high credit quality and diversified assets to the consolidated balance sheet, manage interest rate risk exposure, and generate acceptable returns given the Company's established risk parameters.
The investment policy is reviewed annually by our Board of Directors. Overall investment goals are established by our Board, Chief Executive Officer, Chief Financial Officer, and members of the ALCO. The Board has delegated the responsibility of monitoring our investment activities to ALCO. Day-to-day activities pertaining to the investment portfolio are conducted within the Company's Treasury division under the supervision of the Chief Investment Officer and Chief Financial Officer.
Risk Management and Oversight
Our Board of Directors oversees our risk management process, including the company-wide approach to risk management, carried out by our management. Our Board approves the Company's business plan, risk appetite statement and the policies that set standards for the nature and level of risk the Company is willing to assume. The Board and its established committees receive reports on the Company's management of critical risks and the effectiveness of risk management systems. While our full Board maintains the ultimate oversight responsibility for the risk management process, its committees, including the audit committee, the risk committee, the compensation committee and the nominating and corporate governance committee, oversee risk in certain specified areas.
Our Board has assigned responsibility to our Chief Risk Officer for maintaining a risk management framework to identify, manage, monitor and mitigate risks to the achievement of our strategic goals and objectives and ensure we operate in a safe and sound manner in accordance with the Board approved policies. We have invested significant resources to establish a robust enterprise-wide risk management framework to support the planned growth of our Company. Our framework is consistent with common industry practices and regulatory guidance and is appropriate to our size, growth trajectory and the complexity of our business activities. Significant elements include a Risk Appetite Statement and risk metrics approved by the Board, ongoing identification and assessments of risk, executive management level risk committees to oversee compliance with the Board approved risk policies and adherence to risk limits, and ongoing testing and reporting by independent internal audit, credit review, and regulatory compliance groups. Executive level oversight of the risk management framework is provided by the Enterprise Risk Management Committee which is chaired by the Chief Risk Officer and attended by the senior executives of the Company. Reporting to the Enterprise Risk Management Committee are sub-committees dedicated to guiding and overseeing management of critical categories of risk, including the Credit Risk Management, Asset/Liability, Compliance Risk Management, Operational Risk Management, Corporate Disclosure, Enterprise Data, Ethics, BSA/AML, and Loss Share Compliance committees.
Marketing and Distribution
We conduct our banking business through 87 banking centers located in 15 Florida counties as well as 6 banking centers in the New York metropolitan area as of December 31, 2017. Our distribution network also includes 89 ATMs, fully integrated on-line banking, mobile banking and a telephone banking service. We target growing companies and commercial and middle-market businesses, as well as individual consumers.
In order to market our products, we use local television, radio, digital, print and direct mail advertising as well as a variety of promotional activities.
Competition
Our markets are highly competitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of the country's largest commercial banks. We compete with other state, national and international financial institutions located in our market areas as well as savings associations, savings banks and credit unions for deposits and loans. In addition, we compete with financial intermediaries such as consumer finance companies, mortgage banking

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companies, insurance companies, securities firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. Our largest banking competitors in the Florida market include Bank of America, BB&T, JPMorgan Chase, PNC, Regions Bank SunTrust Banks, TD Bank and Wells Fargo and a number of community banks. In the Tri-State market, we also compete with, in addition to the national and international financial institutions listed, Capital One, Signature Bank, New York Community Bank, Valley National Bank, M&T Bank and numerous community banks.
Interest rates on both loans and deposits and prices of fee-based services are significant competitive factors among financial institutions generally. Other important competitive factors include convenience, quality of customer service, availability of on-line, mobile and remote banking products, community reputation, continuity of personnel and services, and, in the case of larger commercial customers, relative lending limits and ability to offer sophisticated cash management and other commercial banking services. While we continue to provide competitive interest rates on both depository and lending products, we believe that we can compete most successfully by focusing on the financial needs of growing companies and their executives and commercial and middle-market businesses, offering them a broad range of personalized services and sophisticated cash management tools tailored to their businesses.
Regulation and Supervision
The U.S. banking industry is highly regulated under federal and state law. These regulations affect the operations of BankUnited, Inc. and its subsidiaries.
Statutes, regulations and policies limit the activities in which we may engage and the conduct of our permitted activities and establish capital requirements with which we must comply. The regulatory framework is intended primarily for the protection of depositors, borrowers, customers and clients, the FDIC insurance funds and the banking system as a whole, and not for the protection of our stockholders or creditors. In many cases, the applicable regulatory authorities have broad enforcement power over bank holding companies, banks and their subsidiaries, including the power to impose substantial fines and other penalties for violations of laws and regulations. Further, the regulatory system imposes reporting and information collection obligations. We incur significant costs relating to compliance with these laws and regulations. Banking statutes, regulations and policies are continually under review by federal and state legislatures and regulatory agencies, and a change in them, including changes in how they are interpreted or implemented, could have a material adverse effect on our business. Although the current U.S. presidential administration has expressed support for regulatory reform, it is unclear what impact, if any, this will have on the laws, regulations and policies affecting the supervision of banking organizations.
The material statutory and regulatory requirements that are applicable to us are summarized below. The description below is not intended to summarize all laws and regulations applicable to us.
Bank and Bank Holding Company Regulation
BankUnited is a national bank. As a national bank organized under the National Bank Act, BankUnited is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the OCC. BankUnited is subject to certain commitments made to the OCC, in conjunction with its conversion to a national bank in 2012, regarding its business and capital plans.
Any entity that directly or indirectly controls a bank must be approved by the Federal Reserve Board under the BHC Act to become a BHC. BHCs are subject to regulation, inspection, examination, supervision and enforcement by the Federal Reserve Board under the BHC Act. The Federal Reserve Board's jurisdiction also extends to any company that is directly or indirectly controlled by a BHC.
BankUnited, Inc., which controls BankUnited, is a BHC and, as such, is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the Federal Reserve Board.
Broad Supervision, Examination and Enforcement Powers
A principal objective of the U.S. bank regulatory system is to protect depositors by ensuring the financial safety and soundness of banking organizations. To that end, the banking regulators have broad regulatory, examination and enforcement authority. The regulators regularly examine the operations of banking organizations. In addition, banking organizations are subject to periodic reporting requirements.
The regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization's operations are unsatisfactory. The regulators may also take action if they determine that the banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things:

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enjoin "unsafe or unsound" practices;
require affirmative actions to correct any violation or practice;
issue administrative orders that can be judicially enforced;
direct increases in capital;
direct the sale of subsidiaries or other assets;
limit dividends and distributions;
restrict growth;
assess civil monetary penalties;
remove officers and directors; and
terminate deposit insurance.
The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject BankUnited, Inc., the Bank and their subsidiaries or their officers, directors and institution-affiliated parties to the remedies described above and other sanctions.
Notice and Approval Requirements Related to Control
Banking laws impose notice, approval, and ongoing regulatory requirements on any stockholder or other party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution. These laws include the BHC Act, the Change in Bank Control Act, and the Home Owners' Loan Act. Among other things, these laws require regulatory filings by individuals or companies that seek to acquire direct or indirect "control" of an FDIC-insured depository institution. The determination of whether an investor "controls" a depository institution is based on all of the facts and circumstances surrounding the investment. As a general matter, a party is deemed to control a depository institution or other company if the party owns or controls 25% or more of any class of voting stock. Subject to rebuttal, a party may be presumed to control a depository institution or other company if the investor owns or controls 10% or more of any class of voting stock. Ownership by affiliated parties, or parties acting in concert, is typically aggregated for these purposes. If a party's ownership of BankUnited, Inc. were to exceed certain thresholds, the investor could be deemed to "control" the Company for regulatory purposes. This could subject the investor to regulatory filings or other regulatory consequences.
In addition, except under limited circumstances, BHCs are prohibited from acquiring, without prior approval:
control of any other bank or BHC or all or substantially all the assets thereof; or
more than 5% of the voting shares of a bank or BHC which is not already a subsidiary.
Permissible Activities and Investments
Banking laws generally restrict the ability of BankUnited, Inc. to engage in activities other than those determined by the Federal Reserve Board to be so closely related to banking as to be a proper incident thereto. The GLB Act expanded the scope of permissible activities for a BHC that qualifies as a financial holding company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to a financial activity. Those activities include, among other activities, certain insurance and securities activities. BHCs and their subsidiaries must be well-capitalized and well-managed in order for the BHC and its nonbank affiliates to engage in the expanded financial activities permissible only for a financial holding company. BankUnited, Inc. is not a financial holding company.
In addition, as a general matter, the establishment or acquisition by BankUnited, Inc. of a non-bank entity, or the initiation of a non-banking activity, requires prior regulatory approval. In approving acquisitions or the addition of activities, the Federal Reserve Board considers, among other things, whether the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.

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Regulatory Capital Requirements and Capital Adequacy
The federal bank regulators view capital levels as important indicators of an institution's financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. The final supervisory determination on an institution's capital adequacy is based on the regulator's assessment of numerous factors. Both BankUnited, Inc. and BankUnited are subject to regulatory capital requirements.
The Federal Reserve Board has established risk-based and leverage capital guidelines for BHCs, including BankUnited, Inc. The OCC has established substantially similar risk-based and leverage capital guidelines applicable to national banks, including BankUnited. BankUnited, Inc. and BankUnited are subject to capital rules implemented under the framework promulgated by the International Basel Committee on Banking Supervision (the "Basel III Capital Rules"). While some provisions of the rules are tailored to larger institutions, the Basel III Capital Rules generally apply to all U.S. banking organizations, including BankUnited, Inc. and BankUnited.
The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios:
(i)
4.5% based upon CET1;
(ii)
6.0% based upon tier 1 capital; and
(iii)
8.0% based upon total regulatory capital.
A minimum leverage ratio (tier 1 capital as a percentage of average total assets) of 4.0% is also required under the Basel III Capital Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer of 2.5% above these required minimum capital ratio levels, to be phased in at annual increments of 0.625% that began in 2016. Banking organizations that fail to maintain the minimum required capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers, with distributions and discretionary bonus payments being completely prohibited if no capital conservation buffer exists, or in the event of the following: (i) the banking organization's capital conservation buffer was below 2.5% (or the minimum amount required) at the beginning of a quarter; and (ii) its cumulative net income for the most recent quarterly period plus the preceding four calendar quarters is less than its cumulative capital distributions (as well as associated tax effects not already reflected in net income) during the same measurement period.
The enactment of the Basel III Capital Rules increased the required capital levels of BankUnited, Inc. and BankUnited. The Basel III Capital Rules became effective as applied to BankUnited, Inc. and BankUnited on January 1, 2015, with a phase in period from January 1, 2015 through January 1, 2019.
Company-Run Stress Testing
Under Section 165(i) of the Dodd-Frank Act and the stress testing rules of the Federal Reserve Board and OCC, each BHC and national bank with more than $10 billion and less than $50 billion in total consolidated assets must annually conduct a company-run stress test to estimate the potential impact of three scenarios provided by the agencies on its regulatory capital ratios and certain other financial metrics. BankUnited, Inc. and the Bank are required to publicly disclose a summary of the results of these forward looking, company-run stress tests that assesses the impact of hypothetical macroeconomic baseline, adverse and severely adverse economic scenarios. In 2018, BankUnited, Inc. and the Bank will submit the results of their company-run stress test to the Federal Reserve Board and OCC by July 31 and will publish a public summary of the results between October 15 and October 30.

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Prompt Corrective Action
Under the FDIA, the federal bank regulatory agencies must take "prompt corrective action" against undercapitalized U.S. depository institutions. U.S. depository institutions are assigned one of five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," and are subjected to differential regulation corresponding to the capital category within which the institution falls. As of December 31, 2017, a depository institution was deemed to be "well capitalized" if the banking institution had a total risk-based capital ratio of 10.0% or greater, a tier 1 risk-based capital ratio of 8.0% or greater, a CET1 risk-based capital ratio of 6.5% and a leverage ratio of 5.0% or greater, and the institution was not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific level for any capital measure. Under certain circumstances, a well-capitalized, adequately-capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. A banking institution that is undercapitalized is required to submit a capital restoration plan. Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory agencies, including: termination of deposit insurance by the FDIC, restrictions on certain business activities, and appointment of the FDIC as conservator or receiver. As of December 31, 2017, BankUnited, Inc. and BankUnited were well capitalized.
Source of strength
The Dodd-Frank Act and Federal Reserve Board policy require all companies, including BHCs, that directly or indirectly control an insured depository institution to serve as a source of strength for the institution. Under this requirement, BankUnited, Inc. in the future could be required to provide financial assistance to BankUnited should it experience financial distress. Such support may be required at times when, absent this statutory and Federal Reserve Policy requirement, a BHC may not be inclined to provide it.
Regulatory Limits on Dividends and Distributions
Federal law currently imposes limitations upon certain capital distributions by national banks, such as certain cash dividends, payments to repurchase or otherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. The Federal Reserve Board and OCC regulate all capital distributions by BankUnited directly or indirectly to BankUnited, Inc., including dividend payments.
BankUnited may not pay dividends to BankUnited, Inc. if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage capital ratio requirements, or in the event the OCC notified BankUnited that it was in need of more than normal supervision. Under the FDIA, an insured depository institution such as BankUnited is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become "undercapitalized." Payment of dividends by BankUnited also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice.
BankUnited is subject to supervisory limits on its ability to declare or pay a dividend or reduce its capital unless certain conditions are satisfied.
In addition, it is the policy of the Federal Reserve Board that BHCs should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that BHCs should not maintain a level of cash dividends that undermines the BHC’s ability to serve as a source of strength to its banking subsidiaries.
Reserve Requirements
Pursuant to regulations of the Federal Reserve Board, all banking organizations are required to maintain average daily reserves at mandated ratios against their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank.
Limits on Transactions with Affiliates and Insiders
Insured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other related parties. Section 23A of the Federal Reserve Act imposes quantitative limits, qualitative requirements, and collateral requirements on certain transactions by an insured depository institution with, or for the benefit of, its affiliates. Transactions covered by Section 23A include loans, extensions of credit, investment in securities issued by an affiliate, and acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act requires that most types of transactions by an insured

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depository institution with, or for the benefit of, an affiliate be on terms at least as favorable to the insured depository institution as if the transaction were conducted with an unaffiliated third party.
The Federal Reserve Board's Regulation O and OCC regulations impose restrictions and procedural requirements in connection with the extension of credit by an insured depository institution to directors, executive officers, principal stockholders and their related interests.
The Volcker Rule
The Volcker Rule generally prohibits "banking entities" from engaging in "proprietary trading" and making investments and conducting certain other activities with "covered funds."
Although the rule provides for some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including BankUnited, Inc. and BankUnited. Banking entities with total assets of $10 billion or more that engage in activities subject to the Volcker Rule are required to establish a six-element compliance program to address the prohibitions of, and exemptions from, the Volcker Rule.
Corporate governance
The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies, including BankUnited, Inc. The Dodd-Frank Act (1) grants stockholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for compensation committee members; (3) requires companies listed on national securities exchanges to adopt incentive-based compensation claw-back policies for executive officers; and (4) provides the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company's proxy materials.
Interchange Fees
The Dodd-Frank Act gave the Federal Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by a payment card issuer that, together with its affiliates, has assets of $10 billion or more and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve Board has adopted rules under this provision that limit the swipe fees that a debit card issuer can charge a merchant for a transaction.
Examination Fees
The OCC currently charges fees to recover the costs of examining national banks, processing applications and other filings, and covering direct and indirect expenses in regulating national banks. The Dodd-Frank Act provides various agencies with the authority to assess additional supervision fees.
FDIC Deposit Insurance
The FDIC is an independent federal agency that insures the deposits of federally insured depository institutions up to applicable limits. The FDIC also has certain regulatory, examination and enforcement powers with respect to FDIC-insured institutions. The deposits of BankUnited are insured by the FDIC up to applicable limits. As a general matter, the maximum deposit insurance amount is $250,000 per depositor.
Additionally. FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The amount of a particular institution's deposit insurance assessment is based on that institution's risk classification under an FDIC risk-based assessment system. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. Deposit insurance assessments fund the DIF. The Dodd-Frank Act changed the way an insured depository institution's deposit insurance premiums are calculated and increased the minimum for the DIF reserve ratio from 1.15% to 1.35%. The Dodd-Frank Act also made banks with $10 billion or more in total assets responsible for the increase. Effective in the third quarter of 2016, regular assessment rates for all banks were reduced; however, banks with total assets of $10 billion or more began paying an assessment surcharge equal to 4.5 cents per $100 of their assessment base in excess of $10 billion. The surcharge will continue until such time the DIF reserve ratio exceeds 1.35%. Future changes to our risk classification or to the method for calculating premiums generally may impact assessment rates, which could impact the profitability of our operations.

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Depositor Preference
The FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. Insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including BankUnited, Inc., with respect to any extensions of credit they have made to such insured depository institution.
Federal Reserve System and Federal Home Loan Bank System
As a national bank, BankUnited is required to hold shares of capital stock in a Federal Reserve Bank. BankUnited holds capital stock in the Federal Reserve Bank of Atlanta. As a member of the Federal Reserve System, BankUnited has access to the Federal Reserve discount window lending and payment clearing systems.
BankUnited is a member of the Federal Home Loan Bank of Atlanta. Each FHLB provides a central credit facility primarily for its member institutions as well as other entities involved in home mortgage lending. Any advances from a FHLB must be secured by specified types of collateral. As a member of the FHLB, BankUnited is required to acquire and hold shares of capital stock in the FHLB of Atlanta. BankUnited is in compliance with this requirement.
Anti-Money Laundering and OFAC
Under federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification in their dealings with non-U.S. financial institutions and non-U.S. customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial institutions. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution's compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed "cease and desist" orders and civil money penalty sanctions against institutions found to be violating these obligations.
The U.S. Department of the Treasury's OFAC is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If BankUnited, Inc. or BankUnited finds a name on any transaction, account or wire transfer that is on an OFAC list, BankUnited, Inc. or BankUnited must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.
Consumer Laws and Regulations
Banking organizations are subject to numerous laws and regulations intended to protect consumers. These laws include, among others:
Truth in Lending Act;
Truth in Savings Act;
Electronic Funds Transfer Act;
Expedited Funds Availability Act;
Equal Credit Opportunity Act;
Fair and Accurate Credit Transactions Act;
Fair Housing Act;
Fair Credit Reporting Act;
Fair Debt Collection Act;

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Gramm-Leach-Bliley Act;
Home Mortgage Disclosure Act;
Right to Financial Privacy Act;
Real Estate Settlement Procedures Act;
laws regarding unfair and deceptive acts and practices; and
usury laws.
Many states and local jurisdictions have consumer protection laws analogous, and in addition to, those listed above. These federal, state and local laws regulate the manner in which financial institutions deal with customers when taking deposits, making loans, or conducting other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general, and civil or criminal liability. The creation of the CFPB by the Dodd-Frank Act has led to enhanced enforcement of consumer financial protection laws.
CFPB
The CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank and thrift consumers. For banking organizations with assets of $10 billion or more, such as BankUnited, Inc. and the Bank, the CFPB has exclusive rule making and examination, and primary enforcement authority under federal consumer financial law. In addition, states are permitted to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB.
The Community Reinvestment Act
The CRA is intended to encourage banks to help meet the credit needs of their service areas, including low and moderate-income neighborhoods, consistent with safe and sound operations. The bank regulators examine and assign each bank a public CRA rating.
The CRA requires bank regulators to take into account the bank's record in meeting the needs of its service area when considering an application by a bank to establish or relocate a branch or to conduct certain mergers or acquisitions. The Federal Reserve Board is required to consider the CRA records of a BHC's controlled banks when considering an application by the BHC to acquire a banking organization or to merge with another BHC. If BankUnited, Inc. or BankUnited applies for regulatory approval to make certain investments, the regulators will consider the CRA record of target institutions and BankUnited, Inc.'s depository institution subsidiaries. An unsatisfactory CRA record could substantially delay approval or result in denial of an application. The regulatory agency's assessment of the institution's record is made available to the public. Following its most recent CRA examination in September 2015, BankUnited received an overall rating of "Satisfactory."
Employees
At December 31, 2017, we employed 1,698 full-time employees and 65 part-time employees. None of our employees are parties to a collective bargaining agreement. We believe that our relations with our employees are good.
Available Information
Our website address is www.bankunited.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) are available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this Annual Report. In addition, the SEC maintains a website that contains reports and other information filed with the SEC. The website can be accessed at http://www.sec.gov.

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Item 1A.   Risk Factors
Risks Related to Our Business
Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
Deterioration in business or economic conditions generally, or more specifically in the principal markets in which we do business, could have one or more of the following adverse effects on our business, financial condition and results of operations:
A decrease in demand for our loan and deposit products;
An increase in delinquencies and defaults by borrowers or counterparties;
A decrease in the value of our assets;
A decrease in our earnings;
A decrease in liquidity; and
A decrease in our ability to access the capital markets.
Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject, or in reducing the potential for losses in connection with such risks.
Our enterprise risk management framework is designed to identify and minimize or mitigate the risks to which we are subject, as well as any losses stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diversified set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited in their ability to anticipate the existence or development of risks that are currently unknown and unanticipated. The ineffectiveness of our enterprise risk management framework in mitigating the impact of known risks or the emergence of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely impact our financial condition and results of operations.
Our business is highly susceptible to credit risk on our non-covered assets.
As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that the collateral securing the payment of their loans, if any, may be insufficient to ensure repayment. Credit losses are inherent in the business of making loans. We are also subject to credit risk that is embedded in our securities portfolio. Our credit standards, procedures and policies may not prevent us from incurring substantial credit losses, particularly if economic or market conditions deteriorate. It is difficult to determine the many ways in which a decline in economic or market conditions may impact the credit quality of our assets. The Single Family Shared-Loss Agreement only covers a small percentage of assets, and credit losses on assets not covered by the Single Family Shared-Loss Agreement could have a material adverse effect on our operating results.
Our allowance for loan and lease losses may not be adequate to cover actual credit losses.
We maintain an allowance for loan and lease losses ("ALLL") that represents management's estimate of probable incurred losses inherent in our credit portfolio. This estimate requires management to make significant assumptions and involves a high degree of judgment, which is inherently subjective, particularly as our non-covered loan portfolio has not yet developed an observable loss trend through a full credit cycle. Management considers numerous factors in determining the amount of the ALLL, including, but not limited to, historical loss severities and net charge-off rates of BankUnited and other comparable financial institutions, internal risk ratings, loss forecasts, collateral values, delinquency rates, the level of non-performing, criticized, classified and restructured loans in the portfolio, product mix, underwriting and credit administration policies and practices, portfolio trends, concentrations, industry conditions, economic trends and other factors considered by management to have an impact on the ability of borrowers to repay their loans.
If management's assumptions and judgments prove to be incorrect, our current allowance may be insufficient and we may be required to increase our ALLL. In addition, regulatory authorities periodically review our ALLL and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Adverse economic conditions could make management's estimate even more complex and difficult to determine. Any increase in our ALLL will result in a decrease in net income and capital and could have a material adverse effect on our financial condition and results of operations. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Analysis of the Allowance for Loan and Lease Losses" and "Management's Discussion and Analysis of

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Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Allowance for Loan and Lease Losses."
The FASB has recently issued an ASU that will result in a significant change in how we and other financial institutions recognize credit losses and may have a material impact on our financial condition and results of operations or on the industry more broadly.

In June 2016, the FASB issued an ASU, "Financial Instruments- Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the current "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the CECL model. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The adoption of the CECL model may materially affect how we determine our ALLL and could require us to significantly increase our ALLL, resulting in an adverse impact to our financial condition, regulatory capital levels and results of operations. Moreover, the CECL model may create more volatility in the level of our ALLL. We are not yet able to reasonably estimate the impact that adoption of the CECL model will have on our financial condition, regulatory capital levels or results of operations. The ASU will be effective for us for fiscal years beginning after December 15, 2019.

Additionally, uncertainty exists around whether adoption of the CECL model by the financial services industry more broadly will have an impact on loan demand, how loan products are structured, the availability and pricing of credit in the markets or regulatory capital levels for the industry.
We depend on the accuracy and completeness of information about clients and counterparties.
In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.
The credit quality of our loan portfolio and results of operations are affected by residential and commercial real estate values and the level of residential and commercial real estate sales and rental activity.
A material portion of our loans are secured by residential or commercial real estate. The ability of our borrowers to repay their obligations and our financial results may therefore be adversely affected by changes in real estate values. Commercial real estate valuations in particular are highly subjective, as they are based on many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, occupancy rates, the level of rents, interest rates and, in many cases, the results of operations of businesses and other occupants of the real property. The properties securing income-producing investor real estate loans may not be fully leased at the origination of the loan. A borrower's ability to repay these loans is dependent upon stabilization of the properties and additional leasing through the life of the loan or the borrower's successful operation of a business. Weak economic conditions may impair a borrower's business operations, lead to elevated vacancy rates or lease turnover, slow the execution of new leases or result in falling rents. These factors could result in further deterioration in the fundamentals underlying the commercial real estate market and the deterioration in value of some of our loans. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing at reasonable interest rates, the level of supply of available housing, governmental policy regarding housing and housing finance and general economic conditions affecting consumers.
We make credit and reserve decisions based on current real estate values, the current conditions of borrowers, properties or projects and our expectations for the future. If real estate values or fundamentals underlying the commercial and residential real estate markets decline, we could experience higher delinquencies and charge-offs beyond that provided for in the ALLL.
Our portfolio of loans secured by taxi medallions is exposed to fluctuations in the demand for taxi services and valuation of the underlying collateral.
We have a portfolio of loans secured by taxi medallions, substantially all of which are in New York City. The introduction of application-based mobile ride-hailing services, such as Uber, has caused a more competitive landscape for these services, resulting in reduced ridership and utilization of taxis and a reduction in the pool of drivers willing to drive taxis. Consequently, the reduced income generated from the operation of taxi medallions has caused significant declines in the market value of

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medallions, increased defaults on loans secured by taxi medallions and an increase in TDRs, due to borrowers' inability to repay these loans at maturity. Management has provided for estimated losses incurred through December 31, 2017; however, further declines in demand for taxi services or further deterioration in the value of medallions may result in higher delinquencies, additional TDRs and losses beyond that provided for in the ALLL.
Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the underlying real estate, we may be subject to the increased costs and risks associated with the ownership of commercial or residential real property, which could have an adverse effect on our business or results of operations.
A significant portion of our loan portfolio is secured by residential or commercial real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans, in which case, we are exposed to the risks inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including:
general or local economic conditions;
environmental cleanup liability;
neighborhood values;
interest rates;
commercial real estate rental and vacancy rates;
real estate tax rates;
operating expenses of the mortgaged properties;
supply of and demand for properties;
ability to obtain and maintain adequate occupancy of the properties;
zoning laws;
governmental rules, regulations and fiscal policies; and
hurricanes or other natural or man-made disasters.
These same factors may impact the ability of borrowers to repay their obligations that are secured by real property.
Our business is susceptible to interest rate risk.
Our business and financial performance are impacted by market interest rates and movements in those rates. Since a high percentage of our assets and liabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes in rates, in the shape of the yield curve or in spreads between different types of rates can have a material impact on our results of operations and the values of our assets and liabilities. Changes in the value of investment securities available for sale and certain derivatives directly impact equity through adjustments of accumulated other comprehensive income and changes in the values of certain other assets and liabilities may directly or indirectly impact earnings. Interest rates are highly sensitive to many factors over which we have no control and which we may not be able to anticipate adequately, including general economic conditions and the monetary and tax policies of various governmental bodies, particularly the Federal Reserve Board.
Our earnings and cash flows depend to a great extent upon the level of our net interest income. Net interest income is the difference between the interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings. The recent persistent low level of market interest rates, flattening of the yield curve and narrow spreads has limited our ability to add higher yielding assets to the balance sheet. If this prolonged period of low rates continues beyond current forecasts, interest rates increase more slowly than expected, the yield curve flattens or inverts, or a negative interest rate environment emerges in the United States, downward pressure on our net interest margin may be exacerbated, negatively impacting our net interest income in the future. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or reprice more quickly than interest earning assets in a period of rising rates, an increase in interest rates could reduce net interest income. When interest earning assets mature or reprice more quickly than interest bearing liabilities, falling interest rates could reduce net interest income. Additionally, an increase in interest rates may, among other things, reduce the demand for loans and our deposit products, decrease loan repayment rates and negatively affect borrowers' ability to meet their obligations. A decrease in the general level

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of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securities portfolios. Competitive conditions may also impact the interest rates we are able to earn on new loans or are required to pay on deposits, negatively impacting both our ability to grow deposits and interest earning assets and our net interest income.
We attempt to manage interest rate risk by adjusting the rates, maturity, repricing, mix and balances of the different types of interest-earning assets and interest bearing liabilities and through the use of hedging instruments; however, interest rate risk management techniques are not precise, and we may not be able to successfully manage our interest rate risk. Our ability to manage interest rate risk could be negatively impacted by longer fixed rate terms on loans being added to our portfolio or by unpredictable behavior of depositors in various interest rate environments. A rapid or unanticipated increase or decrease in interest rates, changes in the shape of the yield curve or in spreads between rates could have an adverse effect on our net interest margin and results of operations.
A failure to maintain adequate liquidity could adversely affect our financial condition and results of operations.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities and withdrawals and other cash commitments under both normal operating conditions and under extraordinary or unpredictable circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include a downturn in economic conditions in the geographic markets in which our operations are concentrated or in the financial or credit markets in general. Our access to liquidity in the form of deposits may also be affected by the liquidity needs of our depositors and by competition for deposits in our primary markets. A substantial portion of our liabilities consist of deposit accounts that are payable on demand or upon several days' notice, while by comparison, the majority of our assets are loans, which cannot be called or sold in the same time frame. Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition.
We may not be successful in executing our fundamental business strategy.
Organic growth and diversification of our business are essential components of our business strategy. Commercial and consumer banking, for both loan and deposit products, in our primary markets is highly competitive. Our ability to achieve organic growth is also dependent on economic conditions in our primary markets. There is no guarantee that we will be able to successfully or profitably execute our organic growth strategy.
While acquisitions have not historically been a primary contributor to our growth, we opportunistically consider potential acquisitions of financial institutions and complementary non-bank businesses. There are risks that may inhibit our ability to successfully execute such acquisitions. We compete with other financial institutions for acquisition opportunities and there are a limited number of candidates that meet our acquisition criteria. Consequently, we may not be able to identify suitable candidates for acquisitions.
If we do identify suitable candidates, there is no assurance that we will be able to obtain the required regulatory approvals in order to acquire them. If we do succeed in consummating future acquisitions, acquisitions involve risks that the acquired businesses may not achieve anticipated revenue, earnings, synergies or cash flows or that the other strategic benefits of the acquisitions may not be realized. There may also be unforeseen liabilities relating to the acquired businesses or arising out of the acquisitions, asset quality problems of the acquired entities, difficulty operating in markets in which we have had no or only limited experience and other conditions not within our control, such as adverse personnel relations, loss of customers because of change in identity, and deterioration in local economic conditions.
In addition, the process of integrating acquired entities will divert significant management time and resources. We may not be able to integrate successfully or operate profitably any financial institutions or complementary businesses we may acquire. We may experience disruption and incur unexpected expenses in integrating acquisitions. Any acquisitions we do make may not enhance our cash flows, business, financial condition, results of operations or prospects and may have an adverse effect on our results of operations, particularly during periods in which the acquisitions are being integrated into our operations.
Lastly, growth, whether organic or through acquisition is dependent on the availability of capital and funding. Our ability to raise capital through the sale of stock or debt securities may be affected by market conditions, economic conditions or regulatory changes. There is no assurance that sufficient capital or funding will be available in the future, upon acceptable terms or at all.

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Risks related to our Single Family Shared-Loss Agreement with the FDIC may result in significant losses.
A significant portion of BankUnited's revenue continues to be derived from the covered assets. The Single Family Shared-Loss Agreement with the FDIC provides that a significant portion of losses related to the covered assets will be borne by the FDIC. Under the Single Family Shared-Loss Agreement, we are obligated to comply with certain loan servicing standards, including requirements to participate in loan modification programs. A failure to comply with these standards or other provisions of the Single Family Shared-Loss Agreement could result in covered assets losing some or all of their coverage. BankUnited's compliance with the terms of the Single Family Shared-Loss Agreement is subject to audit by the FDIC through its designated agent. The required terms of the agreement are extensive and failure to comply with any of the guidelines could result in a specific asset or group of assets losing their loss sharing coverage. See "Item 1. Business—The FSB Acquisition."
As discussed in “Item 1. Business - The FSB Acquisition”, the Single Family Shared-Loss Agreement is scheduled to terminate as soon as May 2019. At the time of termination, certain aspects of our exit from the Single Family Shared-Loss Agreement will be subject to agreement with the FDIC, which may be beyond our control. Commensurate with the termination of the Single Family Shared-Loss Agreement, we may sell all or a portion of the remaining covered assets and revenue generated from such covered assets is expected to cease. Our business, financial condition and results of operations following termination of the Single Family Shared-Loss Agreement and the resolution of the related covered assets will be more dependent on our ability to execute on our underlying business strategy.
The geographic concentration of our markets in Florida and the New York metropolitan area makes our business highly susceptible to local economic conditions.
Unlike some larger financial institutions that are more geographically diversified, our operations are concentrated in Florida and the New York metropolitan area. Additionally, a significant portion of our loans secured by real estate are secured by commercial and residential properties in these geographic regions. Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in these regions or by changes in the local real estate markets. Disruption or deterioration in economic conditions in the markets we serve could result in one or more of the following:
an increase in loan delinquencies;
an increase in problem assets and foreclosures;
a decrease in the demand for our products and services; or
a decrease in the value of collateral for loans, especially real estate, in turn reducing customers' borrowing power, the value of assets associated with problem loans and collateral coverage.
The effects of adverse weather events such as Hurricanes Irma and Harvey or other natural or man-made disasters may negatively affect our geographic markets or disrupt our operations, which could have an adverse impact on our results of operations.
Our geographic markets in Florida and other coastal areas are susceptible to severe weather, including hurricanes, flooding and damaging winds. A significant portion of our loans are to borrowers whose businesses are located in or secured by properties located in the state of Florida, which was impacted by Hurricane Irma in September 2017. In addition, the Bank has a limited number of customers and collateral properties located in areas of Texas that were impacted by Hurricane Harvey in August 2017.
Weather events such as Hurricanes Irma and Harvey, or other natural or man-made disasters or terrorist activities, can disrupt our operations, result in damage to our facilities and negatively affect the local economies in which we operate. These events may lead to a decline in loan originations, reduce or destroy the value of collateral for our loans, particularly real estate, negatively impact the business operations of our customers, and cause an increase in delinquencies, foreclosures and loan losses. These events may also lead to a decline in regional economic conditions and prospects in certain circumstances. Our business or results of operations may be adversely impacted by these and other negative effects of such events.
Although we currently believe that Hurricanes Harvey and Irma did not materially impact the ability of the substantial majority of our borrowers to repay their loans, it is premature to conclude with certainty as to the ultimate impact of these hurricanes on our level of loan losses, our business or the results of our operations.
The Bank is generally named as a loss payee on hazard and flood insurance policies covering collateral properties and carries casualty and business interruption insurance. These policies could partially mitigate losses that the Bank may sustain due to the effects of these hurricanes or other natural or man-made disasters that may occur in the future; however, the timing

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and amount of any proceeds that we may recover from insurance policies is uncertain and may not be sufficient to adequately compensate us for losses that we experience due to these hurricanes and other natural or man-made disasters.
Our portfolio of assets under operating lease is exposed to fluctuations in the demand for and valuation of the underlying assets.
Our equipment leasing business is exposed to asset risk resulting from ownership of the equipment on operating lease. Asset risk arises from fluctuations in supply and demand for the underlying leased equipment. We are exposed to the risk that, at the end of the lease term or in the event of early termination, the value of the asset will be lower than expected, resulting in reduced future lease income over the remaining life of the asset or a lower sale value. Demand for and the valuation of the leased equipment is sensitive to shifts in general and industry specific economic and market trends, governmental regulations and changes in trade flows from specific events such as natural or man-made disasters. A significant portion of our equipment under operating lease consists of rail cars used directly or indirectly in oil and gas drilling activities. Although we regularly monitor the value of the underlying assets and the potential impact of declines in oil and natural gas prices on the value of railcars on operating lease, there is no assurance that the value of these assets will not be adversely impacted by conditions in the energy industry.
Our reported financial results depend on management's selection and application of accounting policies and methods and related assumptions and estimates.
Our accounting policies and estimates are fundamental to our reported financial condition and results of operations. Management is required to make difficult, complex or subjective judgments in selecting and applying many of these accounting policies. In some cases, management must select an accounting policy or method from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in us reporting materially different results than would have been reported under a different alternative.
From time to time, the Financial Accounting Standards Board and SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in a restatement of prior period financial statements. See Note 1 to the consolidated financial statements for more information about pending accounting pronouncements that may have a material impact on our reported financial results.
Our internal controls may be ineffective.
Management regularly monitors, evaluates and updates our internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, can provide only reasonable, not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our financial condition and results of operations.
We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services.
We believe that our continued growth and future success will depend in large part on the skills of our senior management team. We believe our senior management team possesses valuable knowledge about and experience in the banking industry and that their knowledge and relationships could be difficult to replicate. The composition of our senior management team and our other key personnel may change over time. Although our President and Chief Executive Officer has entered into an employment agreement with us, he may not complete the term of his employment agreement or renew it upon expiration. Other members of our senior management team are not subject to employment agreements. Our success also depends on the experience of other key personnel and on their relationships with the customers and communities they serve. The loss of service of one or more of our executive officers or key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.

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We face significant competition from other financial institutions and financial services providers, which may adversely impact our growth or profitability.
The primary markets we currently serve are Florida and the New York metropolitan area. Consumer and commercial banking in these markets is highly competitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of the country's largest commercial banks. We compete with other state and national financial institutions located in Florida, New York and adjoining states as well as savings and loan associations, savings banks and credit unions for deposits and loans. In addition, we compete with financial intermediaries, such as consumer finance companies, marketplace lenders, mortgage banking companies, insurance companies, securities firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Increased competition among financial services companies may adversely affect our ability to market our products and services. Also, technology has lowered barriers to entry and made it possible for banks to compete in our market without a retail footprint by offering competitive rates, as well as non-banks, including online providers, to offer products and services traditionally provided by banks. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may offer a broader range of products and services as well as better pricing for certain products and services than we can.
Our ability to compete successfully depends on a number of factors, including:
the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe and sound banking practices;
the ability to attract and retain qualified employees to operate our business effectively;
the ability to expand our market position;
the scope, relevance and pricing of products and services offered to meet customer needs and demands;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service; and
industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could harm our business, financial condition and results of operations.
The inability of BankUnited, Inc. to receive dividends from its subsidiary bank could have a material adverse effect on the ability of BankUnited, Inc. to make payments on its debt, pay cash dividends to its shareholders or execute share repurchases.
BankUnited, Inc. is a separate and distinct legal entity from the Bank, and a substantial portion of its revenue consists of dividends from the Bank. These dividends are the primary funding source for the dividends paid by BankUnited, Inc. on its common stock and the interest and principal payments on its debt. In addition, any stock repurchases made by BankUnited, Inc., including under the share repurchase program announced in January 2018, may depend in whole or in part upon dividends from the Bank. Various federal and state laws and regulations limit the amount of dividends that a bank may pay to its parent company. In addition, our right to participate in a distribution of assets upon the liquidation or reorganization of a subsidiary may be subject to the prior claims of the subsidiary’s depositors and other creditors. If the Bank is unable to pay dividends, BankUnited, Inc. might not be able to service its debt, pay its obligations, pay dividends on its common stock or make share repurchases.
We rely on analytical and forecasting models that may prove to be inadequate or inaccurate, which could adversely impact the effectiveness of our strategic planning and our results of operations.
The processes we use to forecast future performance and estimate expected credit losses, the effects of changing interest rates, sources and uses of liquidity, cash flows from the covered assets, real estate values, and economic indicators such as unemployment on our financial condition and results of operations depend upon the use of analytical and forecasting tools and models. These tools and models reflect assumptions that may not be accurate, particularly in times of market stress or other

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unforeseen circumstances. Furthermore, even if our assumptions are accurate predictors of future performance, the tools and models they are based on may prove to be inadequate or inaccurate because of other flaws in their design or implementation. If these tools prove to be inadequate or inaccurate, our strategic planning processes, earnings and capital may be adversely impacted.
Tax refunds relating to the discrete income tax benefit recognized by the Company in the fourth quarter of 2017 have not yet been finalized by applicable taxing authorities and the Company cannot provide assurances as to when or if they will be received.
During the fourth quarter of 2017, the Company recognized a discrete income tax benefit of $327.9 million related to a matter that arose during an ongoing audit of the Company's 2013 federal income tax return. The discrete income tax benefit recognized includes expected refunds of federal income tax of $295 million, as well as estimated interest on the federal refund and estimated refunds from certain state and local taxing jurisdictions. Although the Company expects to receive the federal tax refund following completion of the audit and has concluded that the requirements for accounting recognition of the benefit have been met, the Company cannot provide assurances as to when or if it will ultimately receive the refund (or the related state and local refunds) because the IRS has not yet finalized its entire internal process, or provided the Company with a notice of proposed adjustment or revenue agent report and the refund claims are subject to review by the Joint Committee on Taxation. The Company is continuing to evaluate whether it has claims in other state jurisdictions and whether it may have any claims for federal or state income taxes relating to tax years prior to 2012. The Company cannot provide assurances as to when or to what extent it may have any claims relating to such other state and local taxing jurisdictions or in respect of prior tax years. Any delays or failures to receive the federal income tax refund or related refunds from state and local taxing jurisdictions could have an adverse effect on our financial condition or operating results.
Changes in taxes and other assessments may adversely affect us.
The legislatures and taxing authorities in the tax jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes to which we and our customers are subject. For example, the Tax Cuts and Jobs Act was enacted in December 2017. This legislation made significant changes to the U.S. Internal Revenue Code, many of which are highly complex and may require interpretations and implementing regulations. The effects of these changes and any other changes that result from such interpretations and implementing regulations or enactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon our business.
Tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense, filing returns and establishing the value of deferred tax assets and liabilities for purposes of its financial statements, the Company must make judgments and interpretations about the application of these inherently complex tax laws. If the judgments, estimates and assumptions the Company uses in establishing provisions, preparing its tax returns or establishing the value of deferred tax assets and liabilities for purposes of its financial statements are subsequently found to be incorrect, there could be a material effect on our results of operations.
Operational Risks
We are subject to a variety of operational, legal and compliance risks, including the risk of fraud or theft by employees or outsiders, which may adversely affect our business and results of operations.
We are exposed to many types of operational risks, including legal and compliance risk, the risk of fraud or theft by employees or outsiders and operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled technology. The occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.

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Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process transactions and our large transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We also may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control which may give rise to disruption of service to customers and to financial loss or liability. The occurrence of any of these events could result in a diminished ability to operate our business as well as potential liability to customers and counterparties, reputational damage and regulatory intervention, which could adversely affect our business, financial condition or results of operations.
We are dependent on our information technology and telecommunications systems. Systems failures or interruptions could have an adverse effect on our financial condition and results of operations.
Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems. We rely on these systems to process new and renewal loans, gather deposits, provide customer service, facilitate collections and share data across our organization. The failure of these systems could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
We are dependent on third-party service providers for certain aspects of our business infrastructure and information and telecommunications systems.
We rely on third parties to provide key components of our business infrastructure and major systems including, but not limited to, core banking systems such as loan servicing and deposit transaction processing systems, our electronic funds transfer transaction processing, cash management and online banking services. While we select and monitor the performance of third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, failure of a vendor to provide services for any reason or poor performance of services, or the termination of a third-party software license or service agreement on which any of these systems is based, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business. In many cases, our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. Financial or operational difficulties of a third party vendor could also adversely affect our operations if those difficulties interfere with the vendor's ability to serve us effectively or at all. Replacing these third party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.
Failure by us or third parties to detect or prevent a breach in information security or to protect customer privacy could have an adverse effect on our business.
In the normal course of our business, we collect, process and retain sensitive and confidential client and customer information. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and / or human errors, or other similar events, especially because, in the case of any intentional breaches, the techniques used change frequently or are not recognized until launched, and cyber-attacks can originate from a wide variety of sources, including third parties.
We provide our customers the ability to bank remotely, including online, via mobile devices and over the telephone. The secure transmission of confidential information over the Internet and other remote channels is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks, designed to disrupt key business services such as customer-facing web sites. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. Any cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.

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In addition, we interact with and rely on financial counterparties for whom we process transactions and who process transactions for us and rely on other third parties, as noted above. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins and other cyber security breaches described above. The cyber security measures that they maintain to mitigate the risk of such activity may be different from our own, and in many cases we do not have any control over the types of security measures they may choose to implement. We may also incur costs as a result of data or security breaches of third parties with whom we do not have a significant direct relationship. As a result of financial entities and technology systems becoming more interdependent and complex, a cyber incident, information breach or loss, or technology failure that compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us.
We have taken measures to implement safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. We have a comprehensive set of information security policies and protocols and a dedicated information security division that reports to the Chief Risk Officer, with oversight by the Risk Committee of the Board of Directors. The Risk Committee receives regular reporting related to information security risks and the monitoring and management of those risks.
Failure to keep pace with technological changes could have a material adverse impact on our ability to compete for loans and deposits, and therefore on our financial condition and results of operations.
Financial products and services have become increasingly technology-driven. To some degree, our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our larger competitors have greater resources to invest in technology than we do and may be better equipped to market new technology-driven products and services. The widespread adoption of new technologies, including internet services and payment systems, could require us to incur substantial expenditures to modify or adapt our existing products and services.
The soundness of other financial institutions, particularly our financial institution counterparties, could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the stability and actions of other financial services institutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty and other relationships. We have exposure to an increasing number of financial institutions and counterparties. These counterparties include institutions that may be exposed to various risks over which we have little or no control.
Adverse developments affecting the overall strength and soundness of the financial services industry as a whole and third parties with whom we have important relationships could have a negative impact on our business even if we are not subject to the same adverse developments.
Reputational risks could affect our results.
Our ability to originate new business and maintain existing customer relationships is highly dependent upon customer and other external perceptions of our business practices. Adverse perceptions regarding our business practices could damage our reputation in the customer, funding and capital markets, leading to difficulties in generating and maintaining accounts as well as in financing them. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, employee relations, corporate governance and acquisitions and from actions taken by government regulators and community organizations in response to those activities. Adverse developments with respect to external perceptions regarding the practices of our competitors, or our industry as a whole, or the general economic climate may also adversely impact our reputation. These perceptions about us could cause our business to be negatively affected and exacerbate the other risks that we face. In addition, adverse reputational impacts on third parties with whom we have important relationships may adversely impact our reputation. Adverse reputational impacts or events may also increase our litigation risk. We carefully monitor internal and external developments for areas of potential reputational risk and have established governance structures to assist in evaluating such risks in our business practices and decisions.
Risks Relating to the Regulation of Our Industry
We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.
We are subject to extensive regulation, supervision, and legal requirements that govern almost all aspects of our operations, see Item 1 "BusinessRegulation and Supervision." The Dodd-Frank Act, which imposes significant regulatory and compliance

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requirements on financial institutions, is an example of this type of federal regulation. Intended to protect customers, depositors, the DIF, and the overall financial stability of the United States, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions that BankUnited can pay to BankUnited, Inc., restrict the ability of institutions to guarantee our debt, and impose specific accounting requirements on us. Banking regulators may also from time to time focus on issues that may impact the pace of growth of our business and operations, such as commercial real estate lending concentrations. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. In addition, federal banking agencies, including the OCC and Federal Reserve Board, periodically conduct examinations of our business, including compliance with laws and regulations. Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines, remedial actions, administrative orders and other penalties, any of which could adversely affect our results of operations and capital base.
Further, federal, state and local legislators and regulators regularly introduce measures or take actions that would modify the regulatory requirements applicable to banks, their holding companies and other financial institutions. Changes in laws, regulations or regulatory policies could adversely affect the operating environment for the Company in substantial and unpredictable ways, increase our cost of doing business, impose new restrictions on the way in which we conduct our operations or add significant operational constraints that might impair our profitability. We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on our business, financial condition or results of operations.
Failure to comply with the business plan filed with the OCC could have an adverse effect on our ability to execute our business strategy.
In conjunction with the conversion of its charter to that of a national bank, BankUnited was required to file a business plan with the OCC, and is required to update the business plan annually. Failure to comply with the business plan could subject the Bank to regulatory actions that could impede our ability to execute our business strategy. The provisions of the business plan restrict our ability to engage in business activities outside of those contemplated in the business plan or to expand the level of our growth beyond that contemplated in the business plan without regulatory non-objection.
Our ability to expand through acquisition or de novo branching requires regulatory approvals, and failure to obtain them may restrict our growth.
We may identify opportunities to complement and expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses. We must generally receive federal regulatory approval before we can acquire an institution or business. In determining whether to approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, our financial condition, our future prospects, and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios and levels, the competence, experience, and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the acquiring institution's record of compliance under the CRA) and the effectiveness of the acquiring institution in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell or close branches as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
In addition to the acquisition of existing financial institutions, as opportunities arise, we may continue de novo branching as a part of our internal growth strategy and possibly enter into new markets through de novo branching. De novo branching and any acquisition carries with it numerous risks, including the inability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo branches may impact our business plans and restrict our growth.

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Financial institutions, such as BankUnited, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The federal Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements, and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the U.S. Treasury Department's Office of Foreign Assets Control.
In order to comply with regulations, guidelines and examination procedures in this area, we dedicate significant resources to the ongoing execution of our anti-money laundering program, continuously monitor and enhance as necessary our policies and procedures and maintain a robust automated anti-money laundering software solution. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of financial institutions that we may acquire in the future are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our expansion plans.
We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful challenge to an institution's performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions on expansion activity. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation.
The FDIC's restoration plan and any future related increased assessments could adversely affect our earnings.
As a result of economic conditions and the enactment of the Dodd-Frank Act, the FDIC increased the deposit insurance assessment rates and thus raised deposit premiums for insured depository institutions. If the current level of deposit premiums are insufficient for the DIF to meet its funding requirements in the future, further special assessments or increases in deposit insurance premiums may be required. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures in the future, we may be required to pay FDIC premiums higher than current levels. Any future additional assessments or increases in FDIC insurance premiums may adversely affect our results of operations.
We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be

23

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mishandled or misused, we could be exposed to litigation or regulatory sanctions under personal information laws and regulations. Concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues. Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our operations and financial condition.
Unfavorable results from ongoing stress analyses may adversely affect our ability to retain customers or compete for new business opportunities.
Under the Dodd-Frank Act, the Company is required to annually conduct a company-run stress test to estimate the potential impact of three macroeconomic scenarios provided by the Federal Reserve on our regulatory capital ratios and certain other financial metrics. The Company is required to publicly disclose a summary of the results of these forward looking, company-run stress tests that assess the impact of hypothetical macroeconomic baseline, adverse and severely adverse economic scenarios provided by the Federal Reserve Board. The stress testing and capital planning processes may, among other things, require us to limit any dividend or other capital distributions we may make to stockholders or increase our capital levels, modify our business and growth strategies or decrease our exposure to various asset classes, any of which could have a material adverse effect on our financial condition or results of operations.
Although the stress tests are not meant to assess our current condition, our customers may misinterpret and adversely react to the results of these stress tests. Any potential misinterpretations and adverse reactions could limit our ability to attract and retain customers or to effectively compete for new business opportunities. The inability to attract and retain customers or effectively compete for new business may adversely affect our business, financial condition or results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
At December 31, 2017, BankUnited leased 139,572 square feet of office and operations space in Miami Lakes, Florida. This space includes our principal executive offices and operations center. At December 31, 2017, we provided banking services at 87 banking center locations in 15 Florida counties. Of the 87 banking center properties, we leased 286,643 square feet in 83 locations and owned 20,347 square feet in four locations. Additionally, we leased 39,243 square feet of office space, of which 11,227 square feet is vacant, and 5,580 square feet of warehouse space.
At December 31, 2017, BankUnited leased 25,306 square feet of banking services space in New York City at five locations and 2,000 square feet of banking services space in Melville, New York at one location. We also leased 84,419 square feet of office space in New York in 10 locations, of which 10,048 square feet have been subleased.
At December 31, 2017, we leased 10,619 square feet of office and operations space in Baltimore, Maryland to house Bridge and 5,572 square feet of office and operations space in Scottsdale, Arizona to house Pinnacle. We also leased 7,964 square feet of office and operations space in various states used by SBF.
We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.
Item 3.   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.
Item 4. Mine Safety Disclosures
None.

24

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PART II - FINANCIAL INFORMATION
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of Record
Shares of our common stock trade on the NYSE under the symbol "BKU". The last sale price of our common stock on the NYSE on February 26, 2018 was $41.21 per share.
The following table shows the high and low sales prices for our common stock for the periods indicated, as reported by the NYSE:
 
2017
 
2016
 
High
 
Low
 
High
 
Low
1st Quarter
$
41.00

 
$
34.35

 
$
35.94

 
$
29.72

2nd Quarter
$
37.80

 
$
32.33

 
$
36.28

 
$
27.85

3rd Quarter
$
36.14

 
$
30.37

 
$
33.06

 
$
28.64

4th Quarter
$
41.64

 
$
32.34

 
$
38.47

 
$
28.13

As of February 26, 2018, there were 551 stockholders of record of our common stock.
Equity Compensation Plan Information
The information set forth under the caption "Equity Compensation Plan Information" in our definitive proxy statement for the Company's 2018 annual meeting of stockholders (the "Proxy Statement") is incorporated herein by reference.
Dividend Policy
The Company declared a quarterly dividend of $0.21 per share on its common stock for each of the four quarters of 2017 and 2016 resulting in total dividends for 2017 and 2016 of $92.2 million and $90.0 million, respectively, or $0.84 per common share for each of the years ended December 31, 2017 and 2016. Dividends from the Bank are the principal source of funds for the payment of dividends on our common stock. The Bank is subject to certain restrictions that may limit its ability to pay dividends to us. See "Business—Regulation and Supervision—Regulatory Limits on Dividends and Distributions". The quarterly dividends on our common stock are subject to the discretion of our board of directors and dependent on, among other things, our financial condition, results of operations, capital requirements, restrictions contained in financing instruments and other factors that our board of directors may deem relevant.

The accompanying notes are an integral part of these consolidated financial statements.
25

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Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on an initial investment of $100 in our common stock between December 31, 2012 and December 31, 2017, with the comparative cumulative total return of such amount on the S&P 500 Index and the S&P 500 Bank Index over the same period. Reinvestment of all dividends is assumed to have been made in our common stock.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-document-20_chartx38277a02.jpg
Index
12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/31/2016

12/31/2017

BankUnited, Inc.
100.00

137.80

125.32

158.85

170.46

188.66

S&P 500
100.00

132.39

150.51

152.59

170.84

208.14

S&P Bank
100.00

135.72

156.78

158.10

196.54

240.87

Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

26

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Item 6.    Selected Consolidated Financial Data
You should read the selected consolidated financial data set forth below in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the audited consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K. The selected consolidated financial data set forth below is derived from our audited consolidated financial statements.
 
At December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollars in thousands)
Consolidated Balance Sheet Data:
 
 
 

 
 

 
 

 
 

Cash and cash equivalents
$
194,582

 
$
448,313

 
$
267,500

 
$
187,517

 
$
252,749

Investment securities available for sale, at fair value
6,680,832

 
6,073,584

 
4,859,539

 
4,585,694

 
3,637,124

Loans, net
21,271,709

 
19,242,441

 
16,510,775

 
12,319,227

 
8,983,884

FDIC indemnification asset
295,635

 
515,933

 
739,880

 
974,704

 
1,205,117

Equipment under operating lease, net
599,502

 
539,914

 
483,518

 
314,558

 
196,483

Total assets
30,346,986

 
27,880,151

 
23,883,467

 
19,210,529

 
15,046,649

Deposits
21,878,479

 
19,490,890

 
16,938,501

 
13,511,755

 
10,532,428

Federal Home Loan Bank advances
4,771,000

 
5,239,348

 
4,008,464

 
3,307,932

 
2,412,050

Notes and other borrowings
402,830

 
402,809

 
402,545

 
10,627

 
2,263

Total liabilities
27,320,924

 
25,461,722

 
21,639,569

 
17,157,995

 
13,117,951

Total stockholder's equity
3,026,062

 
2,418,429

 
2,243,898

 
2,052,534

 
1,928,698

Covered assets
505,722

 
616,600

 
813,525

 
1,053,317

 
1,730,182

 
Years Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollars in thousands, except per share data)
Consolidated Income Statement Data:
 
 
 

 
 

 
 

 
 

Interest income
$
1,204,461

 
$
1,059,217

 
$
880,816

 
$
783,744

 
$
738,821

Interest expense
254,189

 
188,832

 
135,164

 
106,651

 
92,611

Net interest income
950,272

 
870,385

 
745,652

 
677,093

 
646,210

Provision for loan losses
68,747

 
50,911

 
44,311

 
41,505

 
31,964

Net interest income after provision for loan losses
881,525

 
819,474

 
701,341

 
635,588

 
614,246

Non-interest income
157,904

 
106,417

 
102,224

 
84,165

 
68,049

Non-interest expense
634,968

 
590,447

 
506,672

 
426,503

 
364,293

Income before income taxes
404,461

 
335,444

 
296,893

 
293,250

 
318,002

Provision (benefit) for income taxes (1)
(209,812
)
 
109,703

 
45,233

 
89,035

 
109,066

Net income
$
614,273

 
$
225,741

 
$
251,660

 
$
204,215

 
$
208,936

Share Data:
 
 
 
 
 

 
 

 
 

Earnings per common share, basic
$
5.60

 
$
2.11

 
$
2.37

 
$
1.95

 
$
2.03

Earnings per common share, diluted
$
5.58

 
$
2.09

 
$
2.35

 
$
1.95

 
$
2.01

Cash dividends declared per common share
$
0.84

 
$
0.84

 
$
0.84

 
$
0.84

 
$
0.84

Dividend payout ratio
14.99
%
 
39.85
%
 
35.75
%
 
43.06
%
 
41.73
%


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As of or for the Years Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollars in thousands, except per share data)
Other Data (unaudited):
 
 
 
 
 

 
 

 
 

Financial ratios
 
 
 
 
 

 
 

 
 

Return on average assets
2.13
%
 
0.87
%
 
1.18
%
 
1.21
%
 
1.55
%
Return on average common equity
23.36
%
 
9.64
%
 
11.62
%
 
10.13
%
 
11.16
%
Yield on earning assets (2)
4.58
%
 
4.51
%
 
4.64
%
 
5.33
%
 
6.54
%
Cost of interest bearing liabilities
1.12
%
 
0.93
%
 
0.84
%
 
0.87
%
 
0.94
%
Tangible common equity to total assets
9.72
%
 
8.39
%
 
9.07
%
 
10.33
%
 
12.36
%
Interest rate spread (2)
3.46
%
 
3.58
%
 
3.80
%
 
4.46
%
 
5.60
%
Net interest margin (2)
3.65
%
 
3.73
%
 
3.94
%
 
4.61
%
 
5.73
%
Loan to deposit ratio (3)
98.04
%
 
99.72
%
 
98.50
%
 
91.89
%
 
85.96
%
Tangible book value per common share
$
27.59

 
$
22.47

 
$
20.90

 
$
19.52

 
$
18.41

Asset quality ratios
 
 
 
 
 

 
 

 
 

Non-performing loans to total loans (3) (4)
0.81
%
 
0.70
%
 
0.44
%
 
0.32
%
 
0.39
%
Non-performing assets to total assets (5)
0.61
%
 
0.53
%
 
0.35
%
 
0.28
%
 
0.51
%
Non-performing non-covered assets to total assets (5) (6)
0.60
%
 
0.51
%
 
0.26
%
 
0.17
%
 
0.16
%
ALLL to total loans
0.68
%
 
0.79
%
 
0.76
%
 
0.77
%
 
0.77
%
ALLL to non-performing loans (4)
83.53
%
 
112.55
%
 
172.23
%
 
239.24
%
 
195.52
%
Non-covered ALLL to non-covered non-performing loans (4)
84.03
%
 
113.68
%
 
199.82
%
 
275.47
%
 
246.73
%
Net charge-offs to average loans
0.38
%
 
0.13
%
 
0.10
%
 
0.15
%
 
0.31
%
Non-covered net charge-offs to average non-covered loans
0.38
%
 
0.13
%
 
0.09
%
 
0.08
%
 
0.34
%
 
At December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
Capital ratios
 
 
 

 
 

 
 

 
 

Tier 1 leverage
9.72
%
 
8.41
%
 
9.35
%
 
10.70
%
 
12.42
%
CET1 risk-based capital
13.11
%
 
11.63
%
 
12.58
%
 
N/A

 
N/A

Tier 1 risk-based capital
13.11
%
 
11.63
%
 
12.58
%
 
15.45
%
 
21.06
%
Total risk-based capital
13.78
%
 
12.45
%
 
13.36
%
 
16.27
%
 
21.93
%
 
 
 
 
 
 
 
 
 
 
(1)
Includes discrete income tax benefits of $327.9 million and $49.3 million recognized during the years ended December 31, 2017 and 2015, respectively.
(2)
On a tax-equivalent basis, at a federal income tax rate of 35%.
(3)
Total loans include premiums, discounts, deferred fees and costs and loans held for sale.
(4)
We define non-performing loans to include non-accrual loans, and loans, other than ACI loans, that are past due 90 days or more and still accruing. Contractually delinquent ACI loans on which interest continues to be accreted are excluded from non-performing loans. Effective January 1, 2016, we are no longer reporting accruing TDRs as non-performing.
(5)
Non-performing assets include non-performing loans, OREO and other repossessed assets.
(6)
Ratio for non-covered assets is calculated as non-performing non-covered assets to total assets.

28

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations 
The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of BankUnited, Inc. and its subsidiary (the "Company", "we", "us" and "our") and should be read in conjunction with the consolidated financial statements, accompanying footnotes and supplemental financial data included herein. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections entitled "Forward-looking Statements" and "Risk Factors." We assume no obligation to update any of these forward-looking statements.
Overview
Performance Highlights
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, 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, particularly for the non-covered portfolio, including the ratio of non-performing loans to total loans, non-performing assets to total assets, and portfolio delinquency and charge-off trends. We consider growth in 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.
Performance highlights include:
Net income for the year ended December 31, 2017 was $614.3 million, or $5.58 per diluted share, compared to $225.7 million, or $2.09 per diluted share, for the year ended December 31, 2016. Earnings for the year ended December 31, 2017 generated a return on average stockholders' equity of 23.36% and a return on average assets of 2.13%.
The Company recognized a discrete income tax benefit of $327.9 million during the year ended December 31, 2017, inclusive of an expected federal benefit of $295.0 million, estimated state benefits of $24.2 million and estimated interest of $8.7 million. Excluding the effect of this discrete income tax benefit and related professional fees, net income for the year ended December 31, 2017 was $291.3 million, diluted earnings per share was $2.65, return on average stockholders' equity was 11.08% and return on average assets was 1.01%.
Net interest income for the year ended December 31, 2017 was $950.3 million, an increase of $79.9 million over the prior year. The net interest margin, calculated on a tax-equivalent basis, was 3.65% for the year ended December 31, 2017 compared to 3.73% for the year ended December 31, 2016. Significant factors contributing to the decline in the net interest margin included the continued run-off of high-yielding covered loans, the growth of non-covered loans and investment securities at yields lower than the yield on total earning assets and an increase in the cost of interest bearing liabilities.
The following chart provides a comparison of net interest margin, the interest rate spread, the average yield on interest earning assets and the average rate paid on interest bearing liabilities for the years ended December 31, 2017 and 2016 (on a tax equivalent basis):
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-chart-6a6f197b78ad7308661a03.jpg

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Non-covered loans and leases, including equipment under operating lease, grew by $2.2 billion to $21.5 billion for the year ended December 31, 2017. During the year ended December 31, 2017, non-covered commercial loans grew by $1.4 billion; equipment under operating lease grew by $60 million; and non-covered residential and other consumer loans grew by $700 million. The Florida region and our national platforms contributed $1.0 billion and $1.2 billion, respectively, to non-covered loan and lease growth for the year ended December 31, 2017, while the New York region remained relatively flat. The following charts compare the composition of our loan and lease portfolio by portfolio segment and of our non-covered loan and lease portfolio by region at December 31, 2017 and 2016:
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-loansandleases.jpg
 
(1)
Commercial real estate loans include multifamily, non-owner occupied commercial real estate and construction and land loans.
(2)
Includes equipment under operating leases.

30

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Asset quality remained strong. At December 31, 2017, 96.8% of the commercial loan portfolio was rated "pass" and substantially the entire non-covered residential portfolio was current. The ratio of non-performing, non-covered loans to total non-covered loans was 0.82% and the ratio of non-performing, non-covered assets to total assets was 0.60% at December 31, 2017. Non-performing taxi medallion loans comprised 0.51% of total non-covered loans and 0.35% of total assets at December 31, 2017. A comparison of our non-covered, nonperforming assets ratio to that of our peers at December 31, 2017, 2016 and 2015 is presented in the chart below:
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-chart-6effdee6b95e2d19557a03.jpg
Total deposits increased by $2.4 billion for the year ended December 31, 2017 to $21.9 billion. The average cost of total deposits increased to 0.83% for the year ended December 31, 2017 from 0.66% for 2016. The following charts illustrate the composition of deposits at December 31, 2017 and 2016:
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-depositsa03-new.jpgBook value per common share grew to $28.32 at December 31, 2017, a 22.0% increase from December 31, 2016. Tangible book value per common share increased by 22.8% over the same period, to $27.59 at December 31, 2017. These increases were impacted by the discrete income tax benefit recognized in the year ended December 31, 2017.

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The Company’s and the Bank's capital ratios exceeded all regulatory “well capitalized” guidelines. The charts below present the Company's and the Bank's regulatory capital ratios compared to regulatory guidelines as of December 31, 2017 and 2016:
BankUnited, Inc:
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-bankunitedcapitalratiosa01.jpgBankUnited, N.A.:
https://cdn.kscope.io/ab722ca6ba36fc67c5b4064d91933088-bankunitednacapitalratiosrvn.jpg
Strategic Priorities
Management has identified the following strategic priorities for our Company:
Our strategic focus emphasizes safety and soundness, long-term profitability and sustainable balance sheet growth.

32

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Growth in core deposit relationships, further optimization of our deposit mix and management of the cost of funds, while targeting a loan to deposit ratio of under 100%. We anticipate deposit growth exceeding loan growth for 2018.
Continued organic loan growth in Florida and the Tri-State markets, both of which we believe to be attractive banking markets, as well as across our national lending platforms. We seek to maintain a loan portfolio diversified across geographies and product classes, predicated on a culture of disciplined credit underwriting.
Focus on a scalable and efficient operating model.
We will opportunistically evaluate potential strategic acquisitions of financial institutions and complementary businesses.
Challenges confronting our Company include:
Competitive market conditions for both loans and deposits in our primary geographic footprint may impact our ability to execute our balance sheet growth and profitability strategy.
Managing the cost of funds while growing deposits in a competitive, rising interest rate environment presents a strategic challenge.
Adding interest earning assets to the balance sheet at current market rates as higher yielding covered loans run off is likely to continue to put pressure on our net interest margin.
Uncertainty about the regulatory environment may present challenges in the execution of our business strategy and the management of non-interest expense. For additional discussion, see "Item 1. Business—Regulation and Supervision."
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity, subjectivity and sensitivity involved in their application.
Note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies.
Allowance for Loan and Lease Losses
The ALLL represents management's estimate of probable loan losses inherent in the Company's loan portfolio. Determining the amount of the ALLL is considered a critical accounting estimate because of its complexity and because it requires significant judgment and estimation. Estimates that are particularly susceptible to change that may have a material impact on the amount of the ALLL include:
the amount and timing of expected future cash flows from ACI loans and impaired loans;
the value of underlying collateral, which impacts loss severity and certain cash flow assumptions;
the selection of proxy data used to calculate loss factors;
our evaluation of loss emergence and historical loss experience periods;
our evaluation of the risk profile of various loan portfolio segments, including internal risk ratings; and
our selection and evaluation of qualitative factors.
Note 1 to the consolidated financial statements describes the methodology used to determine the ALLL.

33

Table of Contents

Accounting for Acquired Loans and the FDIC Indemnification Asset
A significant portion of the covered loans are residential ACI Loans. The accounting for ACI loans requires the Company to estimate the timing and amount of cash flows to be collected from these loans and to continually update estimates of the cash flows expected to be collected over the lives of the loans. Similarly, the accounting for the FDIC indemnification asset requires the Company to estimate the timing and amount of cash flows to be received from the FDIC in reimbursement for losses and expenses related to the covered loans; these estimates are directly related to estimates of cash flows to be received from the covered loans. Estimated cash flows impact the rate of accretion on covered loans and the rate of amortization on the FDIC indemnification asset as well as the amount of any ALLL to be established related to the covered loans. These cash flow estimates are considered to be critical accounting estimates because they involve significant judgment and assumptions as to their amount and timing.
Covered 1-4 single family residential and home equity loans were placed into homogenous pools at the time of the FSB Acquisition; the ongoing credit quality and performance of these loans is monitored on a pool basis and expected cash flows are estimated on a pool basis. At acquisition, the fair value of the pools was measured based on the expected cash flows to be derived from each pool. For ACI pools, the difference between total contractual payments due and the cash flows expected to be received at acquisition was recognized as non-accretable difference. The excess of expected cash flows over the recorded fair value of each ACI pool at acquisition was recognized as accretable yield. The accretable yield is accreted into interest income over the life of each pool.
We monitor the pools quarterly by updating our expected cash flows to determine whether any changes have occurred in expected cash flows that would be indicative of impairment or necessitate reclassification between non-accretable difference and accretable yield. Initial and ongoing cash flow expectations incorporate significant assumptions regarding prepayment rates, the timing of resolution of loans, the timing and amount of loan sales and related pricing, frequency of default, delinquency and loss severity, which is dependent on estimates of underlying collateral values. Changes in these assumptions could have a potentially material impact on the amount of the ALLL related to the covered loans as well as on the rate of accretion on these loans and the corresponding rate of amortization of the FDIC indemnification asset. Prepayment, delinquency, default curves and loss severity used to forecast pool cash flows are derived from roll rates generated from the historical performance of the ACI residential loan portfolio observed over the immediately preceding four quarters, or the immediately preceding twelve quarters as it relates to loss severity from loan sales.
Fair Value Measurements
The Company measures certain of its assets and liabilities at fair value on a recurring or non-recurring basis. Assets and liabilities measured at fair value on a recurring basis include investment securities available for sale, servicing rights, and derivative instruments. Assets that may be measured at fair value on a non-recurring basis include impaired loans, OREO and other repossessed assets, loans held for sale, goodwill, impaired long-lived assets, and assets acquired and liabilities assumed in business combinations. The consolidated financial statements also include disclosures about the fair value of financial instruments that are not recorded at fair value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to determine fair value measurements are prioritized into a three level hierarchy based on observability and transparency of the inputs, summarized as follows:
Level 1—observable inputs that reflect quoted prices in active markets for identical assets,
Level 2—inputs other than quoted prices in active markets that are based on observable market data, and
Level 3—unobservable inputs requiring significant management judgment or estimation.
When observable market quotes are not available, fair value is estimated using modeling techniques such as discounted cash flow analyses and option pricing models. These modeling techniques utilize assumptions that we believe market participants would use in pricing the asset or the liability.
Particularly for estimated fair values of assets and liabilities categorized within level 3 of the fair value hierarchy, the selection of different valuation techniques or underlying assumptions could result in fair value estimates that are higher or lower than the amounts recorded or disclosed in our consolidated financial statements. Considerable judgment may be involved in determining the amount that is most representative of fair value.
Because of the degree of judgment involved in selecting valuation techniques and underlying assumptions, fair value measurements are considered critical accounting estimates.

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Notes 1, 4, 12 and 16 to our consolidated financial statements contain further information about fair value estimates.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.
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 relative 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, 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 and by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets. 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 requirements and is impacted by competition for deposits in the Company's markets and the availability and pricing of other sources of funds.
Net interest income is also impacted by the accounting for ACI loans acquired in conjunction with the FSB Acquisition. ACI loans were initially recorded at fair value, measured based on the present value of expected cash flows. The excess of expected cash flows over carrying value, known as accretable yield, is recognized as interest income over the lives of the underlying loans. Accretion related to ACI loans is expected to continue to positively impact net interest income, the net interest margin and interest rate spread until termination of the Single Family Shared-Loss Agreement, although the magnitude of the positive impact on the net interest margin and interest rate spread is expected to decline as ACI loans comprise a declining percentage of total loans. The proportion of total loans represented by ACI loans is declining as the ACI loans are resolved and new loans are added to the portfolio. ACI loans represented 2.4%, 3.0% and 4.6% of total loans, including premiums, discounts and deferred fees and costs, at December 31, 2017, 2016 and 2015, respectively.
The impact of ACI loan accounting on net interest income makes it difficult to compare our net interest margin and interest rate spread to those reported by other financial institutions.

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The following table presents, for the years ended December 31, 2017, 2016 and 2015, 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 and restructured 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 35.0% (dollars in thousands):
 
2017
 
2016
 
2015
 
Average
Balance
 
Interest (1)
 
Yield/
Rate
(1)
 
Average
Balance
 
Interest (1)
 
Yield/
Rate
(1)
 
Average Balance
 
Interest (1)
 
Yield/
Rate
(1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest earning assets:
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Non-covered loans
$
19,478,071

 
$
730,701

 
3.75
%
 
$
17,282,886

 
$
617,863

 
3.58
%
 
$
13,339,708

 
$
478,072

 
3.58
%
Covered loans
544,279

 
300,540

 
55.22
%
 
721,268

 
301,614

 
41.82
%
 
923,909

 
291,717

 
31.57
%
Total loans
20,022,350

 
1,031,241

 
5.15
%
 
18,004,154

 
919,477

 
5.11
%
 
14,263,617

 
769,789

 
5.40
%
Investment securities (2)
6,658,145

 
201,363

 
3.02
%
 
5,691,617

 
161,385

 
2.84
%
 
4,672,032

 
121,221

 
2.59
%
Other interest earning assets
543,338

 
14,292

 
2.63
%
 
541,816

 
12,204

 
2.25
%
 
481,716

 
10,098

 
2.10
%
Total interest earning assets
27,223,833

 
1,246,896

 
4.58
%
 
24,237,587

 
1,093,066

 
4.51
%
 
19,417,365

 
901,108

 
4.64
%
Allowance for loan and lease losses
(156,471
)
 
 
 
 
 
(139,469
)
 
 
 
 
 
(108,875
)
 
 
 
 
Non-interest earning assets
1,758,032

 
 
 
 
 
1,923,298

 
 
 
 
 
1,985,421

 
 
 
 
Total assets
$
28,825,394

 
 
 
 
 
$
26,021,416

 
 
 
 
 
$
21,293,911

 
 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing demand deposits
$
1,586,390

 
12,873

 
0.81
%
 
$
1,382,717

 
8,343

 
0.60
%
 
$
1,169,921

 
$
5,782

 
0.49
%
Savings and money market deposits
9,730,101

 
80,397

 
0.83
%
 
8,361,652

 
51,774

 
0.62
%
 
6,849,366

 
37,744

 
0.55
%
Time deposits
6,094,336

 
77,663

 
1.27
%
 
5,326,630

 
59,656

 
1.12
%
 
4,305,857

 
47,625

 
1.11
%
Total interest bearing deposits
17,410,827

 
170,933

 
0.98
%
 
15,070,999

 
119,773

 
0.79
%
 
12,325,144

 
91,151

 
0.74
%
FHLB advances
4,869,690

 
61,997

 
1.27
%
 
4,801,406

 
47,773

 
0.99
%
 
3,706,288

 
40,328

 
1.09
%
Notes and other borrowings
402,921

 
21,259

 
5.28
%
 
403,197

 
21,287

 
5.28
%
 
58,791

 
3,685

 
6.27
%
Total interest bearing liabilities
22,683,438

 
254,189

 
1.12
%
 
20,275,602

 
188,833

 
0.93
%
 
16,090,223

 
135,164

 
0.84
%
Non-interest bearing demand deposits
3,069,565

 
 
 
 
 
2,968,192

 
 
 
 
 
2,732,654

 
 
 
 
Other non-interest bearing liabilities
443,019

 
 
 
 
 
435,645

 
 
 
 
 
305,519

 
 
 
 
Total liabilities
26,196,022

 
 
 
 
 
23,679,439

 
 
 
 
 
19,128,396

 
 
 
 
Stockholders' equity
2,629,372

 
 
 
 
 
2,341,977

 
 
 
 
 
2,165,515

 
 
 
 
Total liabilities and stockholders' equity
$
28,825,394

 
 
 
 
 
$
26,021,416

 
 
 
 
 
$
21,293,911

 
 
 
 
Net interest income
 
 
$
992,707

 
 
 
 
 
$
904,233

 
 
 
 
 
$
765,944

 
 
Interest rate spread
 
 
 
 
3.46
%
 
 
 
 
 
3.58
%
 
 
 
 
 
3.80
%
Net interest margin
 
 
 
 
3.65
%
 
 
 
 
 
3.73
%
 
 
 
 
 
3.94
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
On a tax-equivalent basis. The tax-equivalent adjustment for tax-exempt loans was $29.4 million, $23.3 million and $15.9 million, and the tax-equivalent adjustment for tax-exempt investment securities was $13.1 million, $10.5 million and $4.4 million for the years ended December 31, 2017, 2016, and 2015, respectively.
(2)
At fair value except for securities held to maturity.
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017, reducing the statutory corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. Had this reduction in the federal income tax rate been applied in the determination of the tax-equivalent adjustments above for the year ended December 31, 2017, the yield on non-covered loans and total loans would have been reduced by 0.07%, the yield on investment securities would have been reduced by 0.09% and the yield on total interest earning assets, the interest rate spread and the net interest margin would each have been reduced by 0.08%.

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Increases and decreases in interest income, calculated on a tax-equivalent basis, and interest expense result from changes in average balances (volume) of interest earning assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated. The effect of changes in volume is determined by multiplying the change in volume by the previous year's average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous year's volume. Changes applicable to both volume and rate have been allocated to volume (in thousands):
 
2017 Compared to 2016
 
2016 Compared to 2015
 
Change Due
to Volume
 
Change Due
to Rate
 
Increase
(Decrease)
 
Change Due
to Volume
 
Change Due
to Rate
 
Increase
Interest Income Attributable to:
 
 
 
 
 
 
 
 
 
 
 
Loans
$
104,562

 
$
7,202

 
$
111,764

 
$
191,052

 
$
(41,364
)
 
$
149,688

Investment securities
29,733

 
10,245

 
39,978

 
28,484

 
11,680

 
40,164

Other interest earning assets
29

 
2,059

 
2,088

 
1,383

 
723

 
2,106

Total interest income
134,324

 
19,506

 
153,830

 
220,919

 
(28,961
)
 
191,958

Interest Expense Attributable to:
 
 
 
 
 
 
 
 
 
 
 
Interest bearing demand deposits
1,626

 
2,904

 
4,530

 
1,274

 
1,287

 
2,561

Savings and money market deposits
11,064

 
17,559

 
28,623

 
9,235

 
4,795

 
14,030

Time deposits
10,017

 
7,990

 
18,007

 
11,600

 
431

 
12,031

Total interest bearing deposits
22,707

 
28,453

 
51,160

 
22,109

 
6,513

 
28,622

FHLB advances
779

 
13,444

 
14,223

 
11,151

 
(3,706
)
 
7,445

Notes and other borrowings
(28
)
 

 
(28
)
 
18,184

 
(582
)
 
17,602

Total interest expense
23,458

 
41,897

 
65,355

 
51,444

 
2,225

 
53,669

Increase (decrease) in net interest income
$
110,866

 
$
(22,391
)
 
$
88,475

 
$
169,475

 
$
(31,186
)
 
$
138,289

Year ended December 31, 2017 compared to year ended December 31, 2016
Net interest income, calculated on a tax-equivalent basis, was $992.7 million for the year ended December 31, 2017 compared to $904.2 million for the year ended December 31, 2016, an increase of $88.5 million. The increase in net interest income was comprised of an increase in tax-equivalent interest income of $153.8 million, offset by an increase in interest expense of $65.4 million.
The increase in tax-equivalent interest income was comprised primarily of a $111.8 million increase in interest income from loans and a $40.0 million increase in interest income from investment securities.
Increased interest income from loans was attributable to a $2.0 billion increase in the average balance and a 0.04% increase in the tax-equivalent yield to 5.15% for the year ended December 31, 2017 from 5.11% for the year ended December 31, 2016. Offsetting factors contributing to the increase in the yield on loans included:
The tax-equivalent yield on non-covered loans increased to 3.75% for the year ended December 31, 2017 from 3.58% for the year ended December 31, 2016. The most significant factor contributing to the increased yield on non-covered loans was increases in market interest rates.
Interest income on covered loans totaled $300.5 million and $301.6 million for the year ended December 31, 2017 and 2016, respectively. The tax-equivalent yield on those loans increased to 55.22% for the year ended December 31, 2017 from 41.82% for the year ended December 31, 2016, reflecting improvements in expected cash flows for ACI loans, as well as an increase in higher-yielding pools as a percent of total covered loans. The increase in yield largely offset the impact of the decline in the average balance of covered loans outstanding.
The impact on the overall yield on loans of increased yields on both covered and non-covered loans considered individually was largely offset by the continued increase in lower-yielding non-covered loans as a percentage of the portfolio. Non-covered loans represented 97.3% of the average balance of loans outstanding for the year ended December 31, 2017 compared to 96.0% for the year ended December 31, 2016.

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The average balance of investment securities increased by $1.0 billion for the year ended December 31, 2017 from the year ended December 31, 2016 while the tax-equivalent yield increased to 3.02% from 2.84%. The increase in tax-equivalent yield primarily reflects resetting of coupon rates on floating-rate securities. The tax-equivalent yield was reduced by 5 basis points in 2017 as a result of a retrospective adjustment to the amortization of premiums on SBA securities.
The components of the increase in interest expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016 were a $51.2 million increase in interest expense on deposits and a $14.2 million increase in interest expense on FHLB advances.
The increase in interest expense on deposits was attributable to an increase of $2.3 billion in average interest bearing deposits and an increase in the average cost of interest bearing deposits of 0.19% to 0.98% for the year ended December 31, 2017 from 0.79% for the year ended December 31, 2016. These cost increases were generally driven by the growth of deposits in competitive markets and a rising short-term interest rate environment.
The increase in interest expense on FHLB advances was primarily a result of an increase in the average cost of advances of 0.28% to 1.27% for the year ended December 31, 2017 from 0.99% for the year ended December 31, 2016. The increased cost was driven by increased market rates and, to a lesser extent, an extension of maturities through interest rate swaps.
The net interest margin, calculated on a tax-equivalent basis, for the year ended December 31, 2017 was 3.65% as compared to 3.73% for the year ended December 31, 2016. The interest rate spread decreased to 3.46% for the year ended December 31, 2017 from 3.58% for the year ended December 31, 2016. The declines in net interest margin and interest rate spread resulted primarily from the cost of interest-bearing liabilities increasing by more than the yield on interest earning assets. This difference was driven primarily by the decline in covered loans as a percentage of total loans. Future trends in the net interest margin will be impacted by changes in market interest rates, including changes in the shape of the yield curve, by the mix of interest earning assets, including the decline in covered loans as a percentage of total loans, and by the Company's ability to manage the cost of funds while growing deposits in competitive markets.
Year ended December 31, 2016 compared to year ended December 31, 2015
Net interest income, calculated on a tax-equivalent basis, was $904.2 million for the year ended December 31, 2016 compared to $765.9 million for the year ended December 31, 2015, an increase of $138.3 million. The increase in net interest income was comprised of an increase in tax-equivalent interest income of $192.0 million, offset by an increase in interest expense of $53.7 million.
The increase in tax-equivalent interest income was comprised primarily of a $149.7 million increase in interest income from loans and a $40.2 million increase in interest income from investment securities.
Increased interest income from loans was attributable to a $3.7 billion increase in the average balance outstanding partially offset by a 0.29% decrease in the tax-equivalent yield to 5.11% for the year ended December 31, 2016 from 5.40% for the year ended December 31, 2015. Offsetting factors contributing to the overall decline in the yield on loans included:
Non-covered loans originated at lower market rates of interest comprised a greater percentage of the portfolio for the year ended December 31, 2016 than for 2015. Non-covered loans represented 96.0% of the average balance of loans outstanding for the year ended December 31, 2016 compared to 93.5% for the year ended December 31, 2015.
The tax-equivalent yield on non-covered loans remained unchanged at 3.58% for the years ended December 31, 2016 and 2015.
Interest income on covered loans totaled $301.6 million and $291.7 million for the years ended December 31, 2016 and 2015, respectively. The tax-equivalent yield on those loans increased to 41.82% for the year ended December 31, 2016 from 31.57% for the year ended December 31, 2015.
The average balance of investment securities increased by $1.0 billion for the year ended December 31, 2016 from the year ended December 31, 2015 while the tax-equivalent yield increased to 2.84% for the year ended December 31, 2016 from 2.59% for the year ended December 31, 2015. The increase in tax-equivalent yield reflects (i) changes in portfolio composition, including growth in the municipal portfolio, (ii) resetting of rates on floating-rate securities and (iii) net purchases of securities at wider spreads.
The components of the increase in interest expense for the year ended December 31, 2016 as compared to the year ended December 31, 2015 were a $28.6 million increase in interest expense on deposits, a $7.4 million increase in interest expense on FHLB advances and a $17.6 million increase in interest expense on notes and other borrowings, reflecting the issuance of $400 million in senior notes in November 2015.

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The most significant factor contributing to the increase in interest expense on deposits was an increase of $2.7 billion in average interest bearing deposits. The average cost of interest bearing deposits increased by 0.05% to 0.79% for the year ended December 31, 2016 from 0.74% for the year ended December 31, 2015, generally driven by growth of deposits in competitive markets.
The increase in interest expense on FHLB advances was driven by an increase in the average balance of $1.1 billion, partially offset by a decrease in the average rate paid on these borrowings. The average rate paid on FHLB advances decreased by 0.10% to 0.99% for the year ended December 31, 2016 from 1.09% for the year ended December 31, 2015, primarily driven by a contraction in maturities.
The net interest margin, calculated on a tax-equivalent basis, for the year ended December 31, 2016 was 3.73% as compared to 3.94% for the year ended December 31, 2015. The interest rate spread decreased to 3.58% for the year ended December 31, 2016 from 3.80% for the year ended December 31, 2015. The declines in net interest margin and interest rate spread resulted primarily from lower yields on loans and the cost of the senior notes, as discussed above.
Provision for Loan Losses
The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the ALLL at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. The determination of the amount of the ALLL is complex and involves a high degree of judgment and subjectivity. Our determination of the amount of the allowance and corresponding provision for loan losses considers ongoing evaluations of the credit quality of and level of credit risk inherent in various segments of the loan portfolio and of individually significant credits, levels of non-performing loans and charge-offs, historical and statistical trends and economic and other relevant factors. See “Analysis of the Allowance for Loan and Lease Losses” below for more information about how we determine the appropriate level of the allowance.
For the years ended December 31, 2017, 2016 and 2015, we recorded provisions for loan losses of $67.4 million, $52.6 million and $42.1 million, respectively, related to non-covered loans. The amount of the provision is impacted by loan growth, portfolio mix, historical loss rates, the level of charge-offs and specific reserves for impaired loans, and management's evaluation of qualitative factors in the determination of general reserves.
The increase in the provision for loan losses related to non-covered loans for the year ended December 31, 2017 compared to 2016 included an increase of $46.3 million in the provision related to taxi medallion loans. The provision related to taxi medallion loans totaled $58.2 million for the year ended December 31, 2017 compared to $11.9 million for the year ended December 31, 2016. The increased provision related to taxi medallion loans was partially offset by (i) decreases in quantitative and qualitative loss factors, (ii) the impact of lower loan growth and (iii) a decrease in provisions for classified and specifically reserved loans.
The most significant factors contributing to the increase in the provision for loan losses related to non-covered loans for the year ended December 31, 2016 compared to 2015 were (i) an increase in the provision related to taxi medallion loans, (ii) an increase in the provision related to impaired loans in other portfolio segments and (iii) an increase in the relative impact on the provision of changes in quantitative and qualitative loss factors, partially offset by the impact of lower loan growth in 2016.
The provision for loan losses related to covered loans was not material for any period presented.

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Table of Contents

Non-Interest Income
The following table presents a comparison of the categories of non-interest income for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Non-interest income related to the covered assets
 
$
24,262

 
$
5,026

 
$
23,415

Service charges and fees
 
20,864

 
19,463

 
17,876

Gain on sale of non-covered loans
 
10,183

 
10,064

 
5,704

Gain on investment securities available for sale, net
 
33,466

 
14,461

 
8,480

Lease financing
 
53,837

 
44,738

 
35,641

Other non-interest income
 
15,292

 
12,665

 
11,108

 
 
$
157,904

 
$
106,417

 
$
102,224

Refer to the section titled "Impact of the Covered Loans, the FDIC Indemnification Asset and the Loss Sharing Agreements" below for further information about non-interest income related to the covered assets.
Year over year increases in services charges and fees correspond to the growth in deposits and loans.
Gains on sale of non-covered loans for the years ended December 31, 2017, 2016 and 2015 related primarily to sales of the guaranteed portions of SBA loans by SBF, which was acquired on May 1, 2015.
Gain on investment securities available for sale, net for the year ended December 31, 2017 primarily reflected gains from the sale of securities formerly covered under the Commercial Shared-Loss Agreement, which were originally acquired at significant discounts in the FSB Acquisition. Other gains on investment securities available for sale related to sales of securities in the normal course of managing liquidity, portfolio duration and yield.
Year over year increases in income from lease financing generally corresponded to the growth in the portfolio of equipment under operating lease.
Non-Interest Expense
The following table presents the components of non-interest expense for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
2017
 
2016
 
2015
Employee compensation and benefits
$
237,824

 
$
223,011

 
$
210,104

Occupancy and equipment
75,386

 
76,003

 
76,024

Amortization of FDIC indemnification asset
176,466

 
160,091

 
109,411

Deposit insurance expense
22,011

 
17,806

 
14,257

Professional fees
23,676

 
14,249

 
14,185

Telecommunications and data processing
13,966

 
14,343

 
13,613

Depreciation of equipment under operating lease
35,015

 
31,580

 
18,369

Other non-interest expense
50,624

 
53,364

 
50,709

 
$
634,968

 
$
590,447

 
$
506,672

Non-interest expense as a percentage of average assets was 2.2%, 2.3% and 2.4% for the years ended December 31, 2017, 2016 and 2015, respectively. Excluding amortization of the FDIC indemnification asset, non-interest expense as a percentage of average assets was 1.6%, 1.7% and 1.9% for the years ended December 31, 2017, 2016 and 2015, respectively. The more significant changes in the components of non-interest expense are discussed below.
Employee compensation and benefits
As is typical for financial institutions, employee compensation and benefits represents the single largest component of recurring non-interest expense. Employee compensation and benefits for the year ended December 31, 2017 increased by $14.8 million compared to the year ended December 31, 2016. The increase for the year ended December 31, 2017 primarily reflected

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Table of Contents

increased headcount in support of growth and general increases in compensation levels. Employee compensation and benefits for the year ended December 31, 2016 increased $12.9 million compared to the year ended December 31, 2015. This increase reflected general increases in salaries and the cost of benefits as well as changes in the composition of the employee base.
Amortization of FDIC indemnification asset
See the section titled "Impact of Covered Loans, the FDIC Indemnification Asset and the Loss Sharing Agreements" below for more information about amortization of the FDIC indemnification asset.
Deposit insurance expense
Deposit insurance expense totaled $22.0 million, $17.8 million and $14.3 million respectively, for the years ended December 31, 2017, 2016 and 2015. These increases primarily reflected the growth of the balance sheet, the large bank surcharge imposed by the FDIC, which began in the third quarter of 2016, and increases in certain components of the Bank's assessment rate.
Professional fees
Professional fees increased by $9.4 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to $6.8 million in accounting and advisory fees related to the discrete income tax benefit recognized in 2017.
Depreciation of equipment under operating lease
Depreciation of equipment under operating lease increased by $3.4 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016 and by $13.2 million for the year ended December 31, 2016 compared with the year ended December 31, 2015. These increases generally corresponded to the growth in the portfolio of equipment under operating lease. Depreciation of equipment under operating lease for the year ended December 31, 2016 also included impairment of $4.1 million related to a group of tank cars impacted by new safety regulations.
Other non-interest expense
The most significant components of other non-interest expense are advertising and promotion, costs related to lending activities and deposit generation, OREO and foreclosure related expenses, insurance, travel and general office expense.
Impact of the Covered Loans, FDIC Indemnification Asset and the Loss Sharing Agreements
The accounting for covered loans, the indemnification asset and the provisions of the Loss Sharing Agreements impact our financial condition and results of operations. The more significant ways in which our financial statements are impacted are:
Interest income and the net interest margin reflect the impact of accretion related to the covered loans;
Non-interest expense includes the effect of amortization of the FDIC indemnification asset;
The Residential Shared-Loss Agreement affords the Company significant protection against future credit losses related to covered assets. The impact of any provision for loan losses related to the covered loans, losses related to covered OREO and expenses related to resolution of covered assets is significantly mitigated by loss sharing with the FDIC;
Under the acquisition method of accounting, the assets acquired and liabilities assumed in the FSB Acquisition were initially recorded on the consolidated balance sheet at their estimated fair values as of the acquisition date. The carrying amounts of covered loans and the FDIC indemnification asset continue to be impacted by acquisition accounting adjustments. The carrying amount of covered loans, particularly ACI loans, is materially less than their UPB. Additionally, no ALLL was recorded with respect to acquired loans at the FSB Acquisition date;
Non-interest income includes gains and losses associated with the resolution of covered assets and the related effect of indemnification under the terms of the Single Family Shared-Loss Agreement. The impact of gains or losses related to transactions in covered assets is significantly mitigated by FDIC indemnification; and
ACI loans that are contractually delinquent may not be reflected as non-accrual loans or non-performing assets due to the accounting treatment accorded such loans under ASC section 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality."

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The following table summarizes the net impact on pre-tax earnings of transactions in the covered assets for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Interest income on covered loans
 
$
300,540

 
$
301,614

 
$
291,717

Amortization of FDIC indemnification asset
 
(176,466
)
 
(160,091
)
 
(109,411
)
 
 
124,074

 
141,523

 
182,306

Income from resolution of covered assets, net
 
27,450

 
36,155

 
50,658

Gain (loss) on sale of covered loans, net
 
17,406

 
(14,470
)
 
34,929

Net loss on FDIC indemnification
 
(22,220
)
 
(17,759
)
 
(65,942
)
Other, net
 
1,058

 
(4,215
)
 
2,824

 
 
23,694

 
(289
)
 
22,469

Net impact on pre-tax earnings of transactions in the covered assets
 
$
147,768

 
$
141,234

 
$
204,775

 
 
 
 
 
 
 
Combined yield on covered loans and indemnification asset (1)
 
12.98
%
 
10.42
%
 
10.20
%
 
(1)
The combined yield on the covered loans and the FDIC indemnification asset presented above is calculated as the interest income on the covered loans, net of the amortization of the FDIC indemnification asset, divided by the average combined balance of the covered loans and FDIC indemnification asset.
Interest income on covered loans and amortization of the FDIC indemnification asset
The yield on covered loans increased to 55.22% for the year ended December 31, 2017 from 41.82% and 31.57% for the years ended December 31, 2016 and 2015, respectively. See "Net Interest Income" above for further discussion of trends in interest income and yields on the covered loan portfolio.
The FDIC indemnification asset was initially recorded at its estimated fair value at the date of the FSB Acquisition, representing the present value of estimated future cash payments from the FDIC for probable losses on covered assets. As projected cash flows from the ACI loans have improved, the yield on the loans has increased accordingly and the estimated future cash payments from the FDIC have decreased. This change in estimated cash flows from the FDIC is recognized prospectively, consistent with the recognition of the estimated increased cash flows from the ACI loans. As a result, the FDIC indemnification asset is being amortized to the amount of the estimated future cash payments from the FDIC. The average rate at which the FDIC indemnification asset was amortized increased to 42.90% for the year ended December 31, 2017 from 25.14% and 12.68% for the years ended December 31, 2016 and 2015, respectively, corresponding to the increases in the yield on covered loans.
The yield on covered loans will continue to increase if estimated cash flows from the ACI loans continue to improve; correspondingly, the rate of amortization on the FDIC indemnification asset will continue to increase if estimated future cash payments from the FDIC decrease. The amount of amortization is impacted by both the change in the amortization rate and the decrease in the average balance of the indemnification asset. As we continue to submit claims under the Residential Shared-Loss Agreement and recognize periodic amortization, the balance of the indemnification asset will continue to decline. See Note 6 to the consolidated financial statements for a rollforward of the FDIC indemnification asset for the years ended December 31, 2017, 2016 and 2015.
The following table presents the carrying value of the FDIC indemnification asset, expected future amortization of the asset, and the estimated future cash flows from the FDIC at December 31, 2017 and 2016 (in thousands):
 
2017
 
2016
FDIC indemnification asset
$
295,635

 
$
515,933

Less expected amortization
(140,830
)
 
(245,350
)
Amount expected to be collected from the FDIC
$
154,805

 
$
270,583


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The amount of expected amortization will be amortized to non-interest expense using the effective interest method over the period during which cash flows from the FDIC are expected to be collected, which is limited to the lesser of the contractual term of the Single Family Shared-Loss Agreement and the expected remaining life of the indemnified assets.
The table below presents, at December 31, 2017, estimated future accretion on covered loans and estimated future amortization of the FDIC indemnification asset, through the expected termination date of the Single Family Shared-Loss Agreement (in thousands):
Future estimated accretion on covered loans
$
444,976

Future estimated amortization of the indemnification asset
(140,830
)
Net estimated cumulative impact on future pre-tax earnings
$
304,146

These amounts are based on current estimates of expected future cash flows from the covered loans and the FDIC; actual results may differ from these estimates. We are currently forecasting the sale of substantially all of the then remaining covered assets in 2019, consistent with the expected termination date of the Single Family Shared-Loss Agreement. Concurrently, we expect the balance of the FDIC indemnification asset to decline to zero.
Non-interest income related to the covered assets
The most significant components of non-interest income related to the covered assets are Income from resolution of covered assets, Gain (loss) on sale of covered loans and the related Loss on indemnification asset.
Covered loans may be resolved through prepayment, short sale of the underlying collateral, foreclosure, sale of the loans or charge-off. For loans resolved through prepayment, short sale or foreclosure, the difference between consideration received in resolution of the loans and the allocated carrying value of the loans is recorded in the consolidated statement of income line item “Income from resolution of covered assets, net.” Both gains and losses on individual resolutions are included in this line item. For loans resolved through sale of the loans, the difference between consideration received and the allocated carrying value of the loans is recorded in the consolidated statement of income line item "Gain (loss) on sale of loans, net. Losses from the resolution of covered loans increase the amount recoverable from the FDIC under the Single-Family Shared Loss Agreement. Gains from the resolution of covered loans reduce the amount recoverable from the FDIC under the Single-Family Shared Loss Agreement. These additions to or reductions in amounts recoverable from the FDIC related to the resolution of covered loans are recorded in non-interest income in the line item “Net loss on FDIC indemnification” and reflected as corresponding increases or decreases in the FDIC indemnification asset. The amount of income or loss recorded in any period will be impacted by the amount of covered loans resolved, the amount of consideration received, and our ability to accurately project cash flows from ACI loans in future periods.
For each of the years ended December 31, 2017, 2016 and 2015, the substantial majority of Income from resolution of covered assets, net, resulted from payments in full. The year over year decreases in Income from resolution of covered assets, net reflected decreases in both the number of resolutions and the average income per resolution.
As explained further in the section entitled "The FSB Acquisition" under Item 1, the Bank may sell up to approximately $280 million of covered loans on an annual basis without the prior consent of the FDIC. Any losses incurred, as defined, from such loan sales are covered under the Single Family Shared-Loss Agreement.
The following table summarizes the gain (loss) recorded on the sale of covered residential loans and the impact of related FDIC indemnification for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
2017
 
2016