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

 

OR

 

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

 

For the transition period from              to

 

Commission File Number: 001-35039

 

BankUnited, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-0162450

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

14817 Oak Lane, Miami Lakes, FL

 

33016

(Address of principal executive offices)

 

(Zip Code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  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

 

2



 

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.

 

3



 

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.

 

4



 

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.

 

5



 

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.

 

6



 

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.

 

7



 

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.

 

8



 

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):

 

9



 

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):

 

10



 

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

 

 

11



 

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

)

 

12



 

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

 

13



 

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):

 

14



 

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