Edgar Filing: BankUnited, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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

For the transition period from to

Commission File Number: 001-35039

BankUnited, Inc.

(Exact name of registrant as specified in its charter)

Delaware		27-0162450
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14817 Oak Lane, Miami Lakes, FL		33016
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (305) 569-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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

Class		November 6, 2013
Common Stock, $0.01 Par Value		100,926,893 Shares

BankUnited, Inc.

Form 10-Q

For the Quarter Ended September 30, 2013

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Stockholders’ Equity	8
	Notes to Consolidated Financial Statements	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	77

ITEM 4.	Controls and Procedures	77

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	78

ITEM 1A.	Risk Factors	78

ITEM 6.	Exhibits	78

SIGNATURES		79

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(In thousands, except share and per share data)

	September 30,			December 31,
	2013			2012
ASSETS
Cash and due from banks:
Non-interest bearing	$	42,360		$	61,088
Interest bearing	16,854			21,507
Interest bearing deposits at Federal Reserve Bank	463,311			408,827
Federal funds sold	3,154			3,931
Cash and cash equivalents	525,679			495,353
Investment securities available for sale, at fair value (including covered securities of $206,666 and $226,505)	3,871,948			4,172,412
Non-marketable equity securities	149,816			133,060
Loans held for sale	844			2,129
Loans (including covered loans of $1,550,974 and $1,864,375)	7,806,563			5,571,739
Allowance for loan and lease losses	(59,619		)	(59,121		)
Loans, net	7,746,944			5,512,618
FDIC indemnification asset	1,265,037			1,457,570
Bank owned life insurance	206,296			207,069
Other real estate owned (including covered OREO of $47,546 and $76,022)	48,510			76,022
Deferred tax asset, net	79,954			62,274
Goodwill and other intangible assets	69,240			69,768
Other assets	343,746			187,678
Total assets	$	14,308,014		$	12,375,953

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Demand deposits:
Non-interest bearing	$	1,680,004		$	1,312,779
Interest bearing	632,159			542,561
Savings and money market	4,429,034			4,042,022
Time	3,106,906			2,640,711
Total deposits	9,848,103			8,538,073
Short-term borrowings	6,015			8,175
Federal Home Loan Bank advances and other borrowings	2,363,745			1,916,919
Other liabilities	204,337			106,106
Total liabilities	12,422,200			10,569,273

Commitments and contingencies

Stockholders’ equity:
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 100,860,270 and 95,006,729 shares issued and outstanding	1,009			950
Preferred stock, par value $0.01 per share, 100,000,000 shares authorized; 5,415,794 shares of Series A issued and outstanding at December 31, 2012	—			54
Paid-in capital	1,327,164			1,308,315
Retained earnings	504,702			413,385
Accumulated other comprehensive income	52,939			83,976
Total stockholders’ equity	1,885,814			1,806,680
Total liabilities and stockholders’ equity	$	14,308,014		$	12,375,953

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Interest income:
Loans	$	158,332		$	137,039		$	458,183		$	415,957
Investment securities available for sale	27,993			32,149			88,194			99,247
Other	1,359			1,117			3,780			3,306
Total interest income	187,684			170,305			550,157			518,510
Interest expense:
Deposits	15,248			16,459			44,287			50,466
Borrowings	8,318			14,429			23,915			45,021
Total interest expense	23,566			30,888			68,202			95,487
Net interest income before provision for (recovery of) loan losses	164,118			139,417			481,955			423,023
Provision for (recovery of) loan losses (including $(2,837), $1,021, $(988) and $1,137 for covered loans)	2,604			6,374			19,452			17,866
Net interest income after provision for (recovery of) loan losses	161,514			133,043			462,503			405,157
Non-interest income:
(Amortization) accretion of FDIC indemnification asset	(12,354		)	3,432			(21,784		)	14,513
Income from resolution of covered assets, net	24,592			17,517			64,362			39,602
Net loss on indemnification asset	(18,377		)	(14,199		)	(47,747		)	(26,602		)
FDIC reimbursement of costs of resolution of covered assets	2,040			3,566			7,165			13,415
Service charges and fees	3,634			3,095			10,355			9,440
Gain (loss) on sale of loans, net (including loss related to covered loans of $(4,286) and $(9,368) for the three and nine months ended September 30, 2013)	(4,081		)	189			(8,782		)	698
Gain on investment securities available for sale, net (including loss related to covered securities of $(963) for the nine months ended September 30, 2013)	1,066			6,035			6,288			6,931
Mortgage insurance income	310			2,571			1,212			8,910
Other non-interest income	4,476			3,478			14,160			16,841
Total non-interest income	1,306			25,684			25,229			83,748
Non-interest expense:
Employee compensation and benefits	44,117			41,968			130,219			132,544
Occupancy and equipment	16,571			13,725			46,994			38,776
Impairment (recovery) of other real estate owned	(243		)	1,385			1,456			7,980
Gain on sale of other real estate owned	(1,454		)	(1,410		)	(8,576		)	(1,499		)
Other real estate owned expense	533			1,756			2,663			5,193
Foreclosure expense	2,270			3,060			4,769			9,671
Deposit insurance expense	1,926			2,040			5,587			5,136
Professional fees	4,831			3,850			17,212			11,452
Telecommunications and data processing	2,842			3,379			9,694			9,730
Other non-interest expense	12,870			7,469			33,101			25,388
Total non-interest expense	84,263			77,222			243,119			244,371
Income before income taxes	78,557			81,505			244,613			244,534
Provision for income taxes	24,248			31,948			88,070			95,776
Net income	54,309			49,557			156,543			148,758
Preferred stock dividends	—			921			—			2,762
Net income available to common stockholders	$	54,309		$	48,636		$	156,543		$	145,996
Earnings per common share, basic (see Note 2)	$	0.52		$	0.48		$	1.52		$	1.45
Earnings per common share, diluted (see Note 2)	$	0.52		$	0.48		$	1.51		$	1.44
Cash dividends declared per common share	$	0.21		$	0.17		$	0.63		$	0.51

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Net income	$	54,309		$	49,557		$	156,543		$	148,758
Other comprehensive income (loss), net of tax:
Unrealized gains on investment securities available for sale:
Net unrealized holding gain (loss) arising during the period	(5,780		)	26,888			(40,173		)	61,746
Reclassification adjustment for net securities gains realized in income	(654		)	(3,707		)	(3,862		)	(4,257		)
Net change in unrealized gains on securities available for sale	(6,434		)	23,181			(44,035		)	57,489
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period	(6,263		)	(3,630		)	3,686			(8,828		)
Reclassification adjustment for net losses realized in income	3,572			2,786			9,312			8,243
Net change in unrealized losses on derivative instruments	(2,691		)	(844		)	12,998			(585		)
Other comprehensive income (loss)	(9,125		)	22,337			(31,037		)	56,904
Comprehensive income	$	45,184		$	71,894		$	125,506		$	205,662

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	156,543		$	148,758
Adjustments to reconcile net income to net cash used in operating activities:
Amortization and accretion, net	(293,443		)	(344,852		)
Provision for loan losses	19,452			17,866
Income from resolution of covered assets, net	(64,362		)	(39,602		)
Net loss on indemnification asset	47,747			26,602
(Gain) loss on sale of loans, net	8,782			(698		)
Increase in cash surrender value of bank owned life insurance	(2,009		)	(2,561		)
Gain on investment securities available for sale, net	(6,288		)	(6,931		)
Gain on sale of other real estate owned	(8,576		)	(1,499		)
Equity based compensation	10,952			20,503
Depreciation and amortization	16,107			10,636
Impairment of other real estate owned	1,456			7,980
Deferred income taxes	1,761			(85,191		)
Proceeds from sale of loans held for sale	31,677			32,922
Loans originated for sale, net of repayments	(29,806		)	(29,975		)
Realized tax benefits from dividend equivalents and equity based compensation	(1,164		)	(954		)
Gain on acquisition	—			(5,288		)
Other:
(Increase) decrease in other assets	7,564			(1,538		)
Increase (decrease) in other liabilities	60,804			(32,562		)
Net cash used in operating activities	(42,803		)	(286,384		)

Cash flows from investing activities:
Net cash paid in business combination	—			(1,626		)
Purchase of investment securities available for sale	(639,572		)	(1,017,933		)
Proceeds from repayments of investment securities available for sale	547,362			478,117
Proceeds from sale of investment securities available for sale	323,801			256,609
Maturities and calls of investment securities available for sale	—			71,123
Purchase of non-marketable equity securities	(31,137		)	(34,652		)
Proceeds from redemption of non-marketable equity securities	14,381			38,270
Purchases of loans	(906,447		)	(501,608		)
Loan originations, repayments and resolutions, net	(1,119,449		)	(124,236		)
Proceeds from sale of loans, net	85,821			—
Decrease in FDIC indemnification asset for claims filed	123,002			408,551
Bank owned life insurance proceeds	2,782			—
Purchase of premises and equipment, net	(16,194		)	(23,695		)
Acquisition of equipment under operating lease	(148,644		)	—
Proceeds from sale of other real estate owned	94,594			151,089
Net cash used in investing activities	(1,669,700		)	(299,991		)

(Continued)

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

	Nine Months Ended September 30,
	2013			2012
Cash flows from financing activities:
Net increase in deposits	1,310,075			658,060
Additions to Federal Home Loan Bank advances and other borrowings	2,425,000			1,470,000
Repayments of Federal Home Loan Bank advances and other borrowings	(1,980,002		)	(1,475,388		)
Increase (decrease) in short-term borrowings	(2,160		)	415
Increase in advances from borrowers for taxes and insurance	25,444			22,203
Dividends paid	(43,430		)	(49,867		)
Realized tax benefits from dividend equivalents and equity based compensation	1,164			954
Exercise of stock options	6,738			2,899
Net cash provided by financing activities	1,742,829			629,276
Net increase in cash and cash equivalents	30,326			42,901
Cash and cash equivalents, beginning of period	495,353			303,742
Cash and cash equivalents, end of period	$	525,679		$	346,643

Supplemental disclosure of cash flow information:
Interest paid	$	65,423		$	110,459
Income taxes paid	$	54,627		$	228,064

Supplemental schedule of non-cash investing and financing activities:
Transfers from loans to other real estate owned	$	59,962		$	123,054
Assets received in satisfaction of loans	$	—		$	4,772
Dividends declared, not paid	$	21,796		$	17,486
Acquisition of assets under capital lease	$	1,820		$	—
Unsettled securities trades	$	—		$	135,713
Conversion of Series A preferred stock to common stock	$	54		$	—
Exchange of common stock for Series A preferred stock	$	—		$	54
Equity consideration issued in business combination	$	—		$	39,861

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

(In thousands, except share data)

	Common Shares Outstanding		Common Stock			Preferred Shares Outstanding		Preferred Stock			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balance at December 31, 2012	95,006,729		$	950		5,415,794		$	54		$	1,308,315	$	413,385		$	83,976		$	1,806,680
Comprehensive income	—		—			—		—			—		156,543			(31,037		)	125,506
Conversion of preferred shares to common shares	5,415,794		54			(5,415,794	)	(54		)	—		—			—			—
Dividends	—		—			—		—			—		(65,226		)	—			(65,226		)
Equity based compensation	104,585		1			—		—			10,951		—			—			10,952
Forfeiture of unvested shares	(43,607	)	—			—		—			—		—			—			—
Exercise of stock options	376,769		4			—		—			6,734		—			—			6,738
Tax benefits from dividend equivalents and equity based compensation	—		—			—		—			1,164		—			—			1,164
Balance at September 30, 2013	100,860,270		$	1,009		—		$	—		$	1,327,164	$	504,702		$	52,939		$	1,885,814

Balance at December 31, 2011	97,700,829		$	977		—		$	—		$	1,240,068	$	276,216		$	18,019		$	1,535,280
Comprehensive income	—		—			—		—			—		148,758			56,904			205,662
Exchange of common shares for preferred shares	(5,415,794	)	(54		)	5,415,794		54			—		—			—			—
Equity consideration issued in acquisition	1,676,060		17			—		—			39,844		—			—			39,861
Dividends	—		—			—		—			—		(52,432		)	—			(52,432		)
Equity based compensation	359,379		3			—		—			20,500		—			—			20,503
Forfeiture of unvested shares	(49,831	)	—			—		—			—		—			—			—
Exercise of stock options	201,895		2			—		—			2,897		—			—			2,899
Tax benefits from dividend equivalents and equity based compensation	—		—			—		—			954		—			—			954
Balance at September 30, 2012	94,472,538		$	945		5,415,794		$	54		$	1,304,263	$	372,542		$	74,923		$	1,752,727

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

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

Note 1 Basis of Presentation and Summary of Significant Accounting Policies

The consolidated financial statements include the accounts of BankUnited, Inc. (“BankUnited, Inc.” or “BKU”), a national bank holding company and its wholly-owned subsidiaries, BankUnited, National Association (“BankUnited” or the “Bank”), and BankUnited Investment Services, Inc. (“BUIS”), collectively, the Company. BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporate customers through 98 branches located in 15 Florida counties and 5 branches located in the New York metropolitan area as of September 30, 2013. BUIS was a Florida insurance agency providing wealth management and financial planning services. The operations of BUIS were discontinued in May 2013 and were not significant to the consolidated results of operations or financial position of the Company for any period presented.

On May 21, 2009, BankUnited acquired substantially all of the assets and assumed all of the non-brokered deposits and substantially all of the other liabilities of BankUnited, FSB from the Federal Deposit Insurance Corporation (“FDIC”) in a transaction referred to as the “FSB Acquisition.” Neither the Company nor the Bank had any substantive operations prior to May 21, 2009. In connection with the FSB Acquisition, BankUnited entered into Loss Sharing Agreements with the FDIC (“Loss Sharing Agreements”) that cover single family residential mortgage loans, commercial real estate, commercial and industrial and consumer loans, certain investment securities and other real estate owned (“OREO”), collectively referred to as the “covered assets.” Pursuant to the terms of the Loss Sharing Agreements, the covered assets are subject to a stated loss threshold whereby the FDIC will reimburse BankUnited for 80% of losses related to the covered assets up to $4.0 billion and 95% of losses in excess of this amount, beginning with the first dollar of loss incurred.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in BKU’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected in future periods.

Certain amounts presented for prior periods have been reclassified to conform to the current period presentation.

Accounting Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.

Significant estimates include the allowance for loan and lease losses, the amount and timing of expected cash flows from covered assets and the FDIC indemnification asset, the fair values of investment securities and other financial instruments and the valuation of OREO. Management has used information provided by third party valuation specialists to assist in the determination of the fair values of investment securities and OREO.

Note 2 Earnings Per Common Share

The computation of basic and diluted earnings per common share is presented below for the periods indicated (in thousands, except share and per share data):

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Basic earnings per common share:
Numerator:
Net income	$	54,309		$	49,557		$	156,543		$	148,758
Preferred stock dividends	—			(921		)	—			(2,762		)
Net income available to common stockholders	54,309			48,636			156,543			145,996
Distributed and undistributed earnings allocated to participating securities	(2,132		)	(3,536		)	(7,427		)	(10,505		)
Income allocated to common stockholders for basic earnings per common share	$	52,177		$	45,100		$	149,116		$	135,491
Denominator:
Weighted average common shares outstanding	100,737,319			94,196,429			99,131,377			94,856,763
Less average unvested stock awards	(1,085,044		)	(746,934		)	(1,118,496		)	(1,184,068		)
Weighted average shares for basic earnings per common share	99,652,275			93,449,495			98,012,881			93,672,695
Basic earnings per common share	$	0.52		$	0.48		$	1.52		$	1.45
Diluted earnings per common share:
Numerator:
Income allocated to common stockholders for basic earnings per common share	$	52,177		$	45,100		$	149,116		$	135,491
Adjustment for earnings reallocated from participating securities	4			2,615			1,264			15
Income used in calculating diluted earnings per common share	$	52,181		$	47,715		$	150,380		$	135,506
Denominator:
Average shares for basic earnings per common share	99,652,275			93,449,495			98,012,881			93,672,695
Dilutive effect of stock options and preferred shares	196,190			5,613,427			1,626,264			187,582
Weighted average shares for diluted earnings per common share	99,848,465			99,062,922			99,639,145			93,860,277
Diluted earnings per common share	$	0.52		$	0.48		$	1.51		$	1.44

The following potentially dilutive securities were outstanding at September 30, 2013 and 2012 but excluded from the calculation of diluted earnings per common share for the periods indicated because their inclusion would have been anti-dilutive:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Unvested shares	1,139,864	973,322	1,139,864	973,222
Stock options and warrants	6,408,702	6,963,394	6,408,702	6,963,394
Convertible preferred shares	—	—	—	5,415,794

Note 3 Investment Securities Available for Sale

Investment securities available for sale consisted of the following at the dates indicated (in thousands):

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

	September 30, 2013
	Covered Securities									Non-Covered Securities
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value

U.S. Government agency and sponsored enterprise residential mortgage-backed securities	$	—	$	—	$	—		$	—	$	1,529,106	$	35,561	$	(5,824	)	$	1,558,843
U.S. Government agency and sponsored enterprise commercial mortgage-backed securities	—		—		—			—		27,292		162		(159		)	27,295
Resecuritized real estate mortgage investment conduits (“Re-Remics”)	—		—		—			—		422,552		5,467		(392		)	427,627
Private label residential mortgage-backed securities and CMOs	124,505		55,164		(90		)	179,579		146,576		590		(1,514		)	145,652
Private label commercial mortgage-backed securities	—		—		—			—		534,762		8,502		(12,409		)	530,855
Collateralized loan obligations	—		—		—			—		373,755		311		(554		)	373,512
Non-mortgage asset-backed securities	—		—		—			—		148,733		5,430		(37		)	154,126
Mutual funds and preferred stocks	15,419		3,748		—			19,167		125,243		3,137		(1,603		)	126,777
Small Business Administration securities	—		—		—			—		307,236		13,359		—			320,595
Other debt securities	3,520		4,400		—			7,920		—		—		—			—
	$	143,444	$	63,312	$	(90	)	$	206,666	$	3,615,255	$	72,519	$	(22,492	)	$	3,665,282

	December 31, 2012
	Covered Securities									Non-Covered Securities
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value

U.S. Treasury and Government agency securities	$	—	$	—	$	—		$	—	$	34,998	$	157	$	(1	)	$	35,154
U.S. Government agency and sponsored enterprise residential mortgage-backed securities	—		—		—			—		1,520,047		64,476		—			1,584,523
U.S. Government agency and sponsored enterprise commercial mortgage-backed securities	—		—		—			—		58,518		1,898		—			60,416
Re-Remics	—		—		—			—		575,069		10,063		(90		)	585,042
Private label residential mortgage-backed securities and CMOs	143,739		58,266		(185		)	201,820		243,029		3,437		(201		)	246,265
Private label commercial mortgage-backed securities	—		—		—			—		413,110		19,982		—			433,092
Collateralized loan obligations	—		—		—			—		252,280		908		—			253,188
Non-mortgage asset-backed securities	—		—		—			—		233,791		7,672		(117		)	241,346
Mutual funds and preferred stocks	16,382		1,439		(361		)	17,460		125,127		7,066		—			132,193
State and municipal obligations	—		—		—			—		25,127		249		(23		)	25,353
Small Business Administration securities	—		—		—			—		333,423		6,187		—			339,610
Other debt securities	3,723		3,502		—			7,225		9,164		561		—			9,725
	$	163,844	$	63,207	$	(546	)	$	226,505	$	3,823,683	$	122,656	$	(432	)	$	3,945,907

At September 30, 2013, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments of mortgage-backed and other pass-through securities, were as follows (in thousands):

	Amortized		Fair
	Cost		Value

Due in one year or less	$	496,559	$	522,532
Due after one year through five years	1,948,189		2,000,144
Due after five years through ten years	981,367		999,316
Due after ten years	191,922		204,012
Mutual funds and preferred stocks with no stated maturity	140,662		145,944
	$	3,758,699	$	3,871,948

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of September 30, 2013 was 4.3 years. The effective duration of the investment portfolio as of September 30, 2013 was 1.8 years. The model results are based on assumptions that may differ from actual results.

The carrying value of securities pledged as collateral for Federal Home Loan Bank (“FHLB”) advances, public deposits, interest rate swaps, securities sold under agreements to repurchase and to secure borrowing capacity at the Federal Reserve Bank totaled $0.9 billion at September 30, 2013 and December 31, 2012.

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012

Proceeds from sale of investment securities available for sale	$	81,971		$	117,355	$	323,801		$	256,609

Gross realized gains	$	1,155		$	6,035	$	7,345		$	7,229
Gross realized losses	(89		)	—		(94		)	(298		)
Net realized gain	1,066			6,035		7,251			6,931
Other-than-temporary impairment (“OTTI”)	—			—		(963		)	—
Gain on investment securities available for sale, net	$	1,066		$	6,035	$	6,288		$	6,931

During the nine months ended September 30, 2013, OTTI was recognized on an intermediate term mortgage mutual fund investment which had been in a continuous unrealized loss position for 34 months. Due primarily to the length of time the investment had been in a continuous unrealized loss position and an increasing measure of impairment, the Company determined the impairment to be other than temporary. This security is covered under the Loss Sharing Agreements, therefore, the impact of the impairment was significantly mitigated by an increase of $770 thousand in the FDIC indemnification asset, reflected in the consolidated statement of income line item “Net loss on indemnification asset”.

The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeded fair value for investment securities in unrealized loss positions, aggregated by investment category and length of time that individual securities had been in continuous unrealized loss positions, at the dates indicated (in thousands):

	September 30, 2013
	Less than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses

U.S. Government agency and sponsored enterprise residential mortgage-backed securities	$	395,950	$	(5,824	)	$	—	$	—		$	395,950	$	(5,824	)
U.S. Government agency and sponsored enterprise commercial mortgage-backed securities	17,641		(159		)	—		—			17,641		(159		)
Re-Remics	93,820		(392		)	—		—			93,820		(392		)
Private label residential mortgage-backed securities and CMOs	82,175		(1,514		)	1,405		(90		)	83,580		(1,604		)
Private label commercial mortgage-backed securities	307,952		(12,409		)	—		—			307,952		(12,409		)
Collateralized loan obligations	143,469		(554		)	—		—			143,469		(554		)
Non-mortgage asset-backed securities	16,392		(37		)	—		—			16,392		(37		)
Mutual funds and preferred stocks	67,567		(1,603		)	—		—			67,567		(1,603		)
	$	1,124,966	$	(22,492	)	$	1,405	$	(90	)	$	1,126,371	$	(22,582	)

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

	December 31, 2012
	Less than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses

U.S. Treasury and Government agency securities	$	5,000	$	(1	)	$	—	$	—		$	5,000	$	(1	)
Re-Remics	42,018		(16		)	8,833		(74		)	50,851		(90		)
Private label residential mortgage-backed securities and CMOs	53,537		(185		)	6,080		(201		)	59,617		(386		)
Non-mortgage asset-backed securities	—		—			10,566		(117		)	10,566		(117		)
Mutual funds and preferred stocks	—		—			15,082		(361		)	15,082		(361		)
State and municipal obligations	2,902		(23		)	—		—			2,902		(23		)
	$	103,457	$	(225	)	$	40,561	$	(753	)	$	144,018	$	(978	)

The Company monitors its investment securities available for sale for OTTI on an individual security basis. As discussed above, one security was determined to be other than temporarily impaired during the nine months ended September 30, 2013. No securities were determined to be other than temporarily impaired during the nine months ended September 30, 2012. The Company does not intend to sell securities that are in significant unrealized loss positions and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. At September 30, 2013, 65 securities were in unrealized loss positions. Generally, increases in unrealized losses on investment securities available for sale arising during the nine months ended September 30, 2013 were attributable to an increase in medium and long-term market interest rates during the period and in certain cases, widening credit spreads and increases in liquidity premiums in response to rate volatility. The amount of impairment related to five of these securities was considered insignificant, totaling approximately $28 thousand and no further analysis with respect to these securities was considered necessary. The basis for concluding that impairment of the remaining securities is not other-than-temporary is further described below:

U.S. Government agency and sponsored enterprise residential and commercial mortgage-backed securities:

At September 30, 2013, 13 U.S. Government agency and sponsored enterprise residential and commercial mortgage-backed securities were in unrealized loss positions. All of these securities had been in unrealized loss positions for six months or less. The amount of impairment of each of the individual securities was less than 3% of amortized cost. The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. Given the limited severity and duration of impairment and the expectation of timely payment of principal and interest, the impairments were considered to be temporary.

Private label residential mortgage-backed securities and CMOs and Re-Remics:

At September 30, 2013, 17 private label residential mortgage-backed securities and Re-Remics were in unrealized loss positions. These securities were assessed for OTTI using third-party developed credit and prepayment behavioral models and CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The results of these assessments were not indicative of credit losses related to any of these securities as of September 30, 2013. Thirteen of the securities had been in unrealized loss positions for five months or less and three for eleven months or less. These securities evidenced unrealized losses ranging from less than 1% to 5% of amortized cost. The remaining security had been in an unrealized loss position for 27 months and evidenced an unrealized loss of 8% of amortized cost. The market for this security is thin and the market price is adversely affected by lack of liquidity. This bond is considered an odd lot which can be detrimental to potential bids for the security. Given the generally limited duration and severity of impairment and the expectation of timely recovery of outstanding principal, the impairments were considered to be temporary.

Private label commercial mortgage-backed securities:

At September 30, 2013, 12 private label commercial mortgage-backed securities were in unrealized loss positions. Eleven of these securities had been in unrealized loss positions for five months or less and one for nine

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

months; the amount of impairment ranged from less than 1% to 6% of amortized cost. These securities were assessed for OTTI using third-party developed models, incorporating assumptions consistent with the collateral characteristics of each security. The results of this analysis were not indicative of expected credit losses. Securities in this class generally have longer durations than the portfolio as a whole, so were more significantly impacted by the increase in rates. Given the limited severity and duration of impairment and the expectation of timely recovery of outstanding principal, the impairments were considered to be temporary.

Collateralized loan obligations:

At September 30, 2013, seven collateralized loan obligations were in unrealized loss positions. These securities had been in unrealized loss positions for five months or less and the amount of impairment was less than 1% of amortized cost. These securities were assessed for OTTI using internally developed models, incorporating market convention assumptions consistent with the collateral characteristics of each security. The results of this analysis were not indicative of expected credit losses. Given the limited severity and duration of impairment and the expectation of timely recovery of outstanding principal, the impairments were considered to be temporary.

Non-mortgage asset-backed securities:

At September 30, 2013, two non-mortgage asset-backed securities were in unrealized loss positions. These securities had been in unrealized loss positions for four months or less and the amount of impairment of each of the individual securities was less than 1% of amortized cost. These securities were assessed for OTTI using a third-party developed credit and prepayment behavioral model and CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The results of this analysis were not indicative of expected credit losses. Given the limited severity and duration of impairment and the expectation of timely recovery of outstanding principal, the impairments were considered to be temporary.

Mutual funds:

At September 30, 2013, three investments in one mutual fund were in unrealized loss positions. These investments had been in unrealized loss positions for five months or less and the amount of impairment was less than 4% of amortized cost. The majority of the underlying holdings of the mutual fund are either explicitly or implicitly guaranteed by the U.S. Government. Given the limited severity and duration of impairment, the impairments were considered to be temporary.

Preferred stocks:

At September 30, 2013, six investments in two financial institution preferred stocks were in unrealized loss positions. These securities had been in unrealized loss positions for five months or less and the amount of impairment was less than 4% of amortized cost. Given the limited duration and results of the Company’s analysis of the financial condition of the issuers of the financial institution preferred stocks, the impairments were considered to be temporary.

Note 4 Loans and Allowance for Loan and Lease Losses

A significant portion of the Company’s loan portfolio consists of loans acquired in the FSB Acquisition. Substantially all of these loans are covered under BankUnited’s Loss Sharing Agreements (the “covered loans”). Loans originated or purchased since the FSB Acquisition (“new loans”) are not covered by the Loss Sharing Agreements. Covered loans may be further segregated between those acquired with evidence of deterioration in credit quality since origination (“Acquired Credit Impaired” or “ACI” loans) and those acquired without evidence of deterioration in credit quality since origination (“non-ACI” loans).

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

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

September 30, 2013

	September 30, 2013
	Covered Loans						Non-Covered Loans								Percent of
	ACI			Non-ACI			ACI		New Loans			Total			Total
Residential:
1-4 single family residential	$	1,101,579		$	75,563		$	—	$	1,604,404		$	2,781,546		35.7	%
Home equity loans and lines of credit	42,108			135,019			—		1,657			178,784			2.3	%
	1,143,687			210,582			—		1,606,061			2,960,330			38.0	%
Commercial:
Multi-family	35,516			636			8,043		658,275			702,470			9.0	%
Commercial real estate	148,201			359			6,652		1,436,063			1,591,275			20.4	%
Construction and land	11,295			742			—		78,096			90,133			1.2	%
Commercial and industrial	6,361			6,786			—		1,954,853			1,968,000			25.3	%
Lease financing	—			—			—		324,993			324,993			4.2	%
	201,373			8,523			14,695		4,452,280			4,676,871			60.1	%
Consumer	1,617			—			—		149,840			151,457			1.9	%
Total loans	1,346,677			219,105			14,695		6,208,181			7,788,658			100.0	%
Premiums, discounts and deferred fees and costs, net	—			(14,808		)	—		32,713			17,905
Loans net of premiums, discounts, deferred fees and costs	1,346,677			204,297			14,695		6,240,894			7,806,563
Allowance for loan and lease losses	(3,345		)	(10,743		)	—		(45,531		)	(59,619		)
Loans, net	$	1,343,332		$	193,554		$	14,695	$	6,195,363		$	7,746,944

	December 31, 2012
	Covered Loans					Non-Covered Loans							Percent of
	ACI		Non-ACI			ACI		New Loans		Total			Total
Residential:
1-4 single family residential	$	1,300,109	$	93,438		$	—	$	920,713	$	2,314,260		41.5	%
Home equity loans and lines of credit	52,499		157,691			—		1,954		212,144			3.8	%
	1,352,608		251,129			—		922,667		2,526,404			45.3	%
Commercial:
Multi-family	56,148		716			—		307,183		364,047			6.5	%
Commercial real estate	173,732		910			4,087		794,706		973,435			17.5	%
Construction and land	18,064		829			—		72,361		91,254			1.6	%
Commercial and industrial	14,608		11,627			—		1,334,991		1,361,226			24.4	%
Lease financing	—		—			—		225,980		225,980			4.1	%
	262,552		14,082			4,087		2,735,221		3,015,942			54.1	%
Consumer	2,239		—			—		33,526		35,765			0.6	%
Total loans	1,617,399		265,211			4,087		3,691,414		5,578,111			100.0	%
Premiums, discounts and deferred fees and costs, net	—		(18,235		)	—		11,863		(6,372		)
Loans net of premiums, discounts, deferred fees and costs	1,617,399		246,976