Table of Contents

 

 

 

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 March 31, 2014

 

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

 

(I.R.S. Employer

of incorporation or organization)

 

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

 

May 6, 2014

 

Common Stock, $0.01 Par Value

 

101,646,590 Shares

 

 

 

 



Table of Contents

 

BankUnited, Inc.

 

Form 10-Q

 

For the Quarter Ended March 31, 2014

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

1

 

 

Consolidated Statements of Income

 

2

 

 

Consolidated Statements of Comprehensive Income

 

3

 

 

Consolidated Statements of Cash Flows

 

4

 

 

Consolidated Statements of Stockholders’ Equity

 

6

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

74

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

74

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

75

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

75

 

 

 

 

 

ITEM 6.

 

Exhibits

 

75

 

 

 

 

 

SIGNATURES

 

76

 



Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(In thousands, except share and per share data)

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

Non-interest bearing

 

$

41,947

 

$

45,976

 

Interest bearing

 

13,050

 

14,590

 

Interest bearing deposits at Federal Reserve Bank

 

204,772

 

190,075

 

Federal funds sold

 

3,392

 

2,108

 

Cash and cash equivalents

 

263,161

 

252,749

 

Investment securities available for sale, at fair value (including covered securities of $209,255 and $205,769)

 

3,526,895

 

3,637,124

 

Non-marketable equity securities

 

153,649

 

152,066

 

Loans held for sale

 

1,420

 

194

 

Loans (including covered loans of $1,313,024 and $1,483,888)

 

9,973,810

 

9,053,609

 

Allowance for loan and lease losses

 

(70,028

)

(69,725

)

Loans, net

 

9,903,782

 

8,983,884

 

FDIC indemnification asset

 

1,131,424

 

1,205,117

 

Bank owned life insurance

 

214,794

 

206,759

 

Equipment under operating lease

 

208,559

 

196,483

 

Other real estate owned (including covered OREO of $29,164 and $39,672)

 

29,569

 

40,570

 

Deferred tax asset, net

 

77,196

 

70,626

 

Goodwill and other intangible assets

 

68,898

 

69,067

 

Other assets

 

172,305

 

232,010

 

Total assets

 

$

15,751,652

 

$

15,046,649

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Demand deposits:

 

 

 

 

 

Non-interest bearing

 

$

2,173,620

 

$

2,171,335

 

Interest bearing

 

709,569

 

676,079

 

Savings and money market

 

4,821,363

 

4,402,987

 

Time

 

3,419,226

 

3,282,027

 

Total deposits

 

11,123,778

 

10,532,428

 

Federal Home Loan Bank advances and other borrowings

 

2,473,508

 

2,414,313

 

Other liabilities

 

174,662

 

171,210

 

Total liabilities

 

13,771,948

 

13,117,951

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 101,663,937 and 101,013,014 shares issued and outstanding

 

1,017

 

1,010

 

Paid-in capital

 

1,339,996

 

1,334,945

 

Retained earnings

 

568,575

 

535,263

 

Accumulated other comprehensive income

 

70,116

 

57,480

 

Total stockholders’ equity

 

1,979,704

 

1,928,698

 

Total liabilities and stockholders’ equity

 

$

15,751,652

 

$

15,046,649

 

 

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

 

1



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

(In thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

Loans

 

$

163,783

 

$

145,091

 

Investment securities available for sale

 

24,826

 

30,005

 

Other

 

1,953

 

1,279

 

Total interest income

 

190,562

 

176,375

 

Interest expense:

 

 

 

 

 

Deposits

 

16,095

 

14,881

 

Borrowings

 

8,003

 

7,707

 

Total interest expense

 

24,098

 

22,588

 

Net interest income before provision for loan losses

 

166,464

 

153,787

 

Provision for loan losses (including $796 and $4,800 for covered loans)

 

8,403

 

11,967

 

Net interest income after provision for loan losses

 

158,061

 

141,820

 

Non-interest income:

 

 

 

 

 

Income from resolution of covered assets, net

 

13,061

 

19,190

 

Net loss on indemnification asset

 

(16,904

)

(11,687

)

FDIC reimbursement of costs of resolution of covered assets

 

1,128

 

2,864

 

Service charges and fees

 

4,005

 

3,342

 

Gain (loss) on sale of loans, net (including gain (loss) related to covered loans of $19,294 and $(772))

 

19,332

 

(586

)

Gain on investment securities available for sale, net

 

361

 

1,686

 

Other non-interest income

 

9,207

 

5,314

 

Total non-interest income

 

30,190

 

20,123

 

Non-interest expense:

 

 

 

 

 

Employee compensation and benefits

 

49,449

 

43,075

 

Occupancy and equipment

 

16,967

 

15,042

 

Amortization of FDIC indemnification asset

 

15,741

 

2,280

 

(Gain) loss on other real estate owned, net (including (gain) loss related to covered OREO of $(2,806) and $249)

 

(2,677

)

249

 

Foreclosure and other real estate owned expense

 

980

 

1,373

 

Deposit insurance expense

 

2,252

 

1,937

 

Professional fees

 

3,430

 

5,422

 

Telecommunications and data processing

 

3,307

 

3,368

 

Other non-interest expense

 

13,012

 

10,043

 

Total non-interest expense

 

102,461

 

82,789

 

Income before income taxes

 

85,790

 

79,154

 

Provision for income taxes

 

30,519

 

30,928

 

Net income

 

$

55,271

 

$

48,226

 

Earnings per common share, basic

 

$

0.53

 

$

0.48

 

Earnings per common share, diluted

 

$

0.53

 

$

0.47

 

Cash dividends declared per common share

 

$

0.21

 

$

0.21

 

 

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

 

2



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Net income

 

$

55,271

 

$

48,226

 

Other comprehensive income, net of tax:

 

 

 

 

 

Unrealized gains on investment securities available for sale:

 

 

 

 

 

Net unrealized holding gains arising during the period

 

13,411

 

6,465

 

Reclassification adjustment for net securities gains realized in income

 

(222

)

(1,036

)

Net change in unrealized gains on securities available for sale

 

13,189

 

5,429

 

Unrealized losses on derivative instruments:

 

 

 

 

 

Net unrealized holding losses arising during the period

 

(4,576

)

(1,618

)

Reclassification adjustment for net losses realized in income

 

4,023

 

2,577

 

Net change in unrealized losses on derivative instruments

 

(553

)

959

 

Other comprehensive income

 

12,636

 

6,388

 

Comprehensive income

 

$

67,907

 

$

54,614

 

 

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

 

3



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

55,271

 

$

48,226

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

Amortization and accretion, net

 

(72,539

)

(101,797

)

Provision for loan losses

 

8,403

 

11,967

 

Income from resolution of covered assets, net

 

(13,061

)

(19,190

)

Net loss on indemnification asset

 

16,904

 

11,687

 

(Gain) loss on sale of loans, net

 

(19,332

)

586

 

Increase in cash surrender value of bank owned life insurance

 

(1,083

)

(1,021

)

Gain on investment securities available for sale, net

 

(361

)

(1,686

)

(Gain) loss on other real estate owned, net

 

(2,677

)

249

 

Equity based compensation

 

3,529

 

3,380

 

Depreciation and amortization

 

7,381

 

4,825

 

Deferred income taxes

 

(14,507

)

3,849

 

Proceeds from sale of loans held for sale

 

2,070

 

8,672

 

Loans originated for sale, net of repayments

 

(3,258

)

(8,764

)

Realized tax (benefits) deficiency from dividend equivalents and equity based compensation

 

(615

)

66

 

Other:

 

 

 

 

 

(Increase) decrease in other assets

 

22,807

 

(13,572

)

Increase (decrease) in other liabilities

 

(7,572

)

5,166

 

Net cash used in operating activities

 

(18,640

)

(47,357

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of investment securities available for sale

 

(65,652

)

(389,836

)

Proceeds from repayments of investment securities available for sale

 

76,525

 

172,694

 

Proceeds from sale of investment securities available for sale

 

119,824

 

68,019

 

Purchase of non-marketable equity securities

 

(10,350

)

(7,511

)

Proceeds from redemption of non-marketable equity securities

 

8,767

 

5,750

 

Purchases of loans

 

(179,384

)

(227,366

)

Loan originations, repayments and resolutions, net

 

(729,621

)

26,983

 

Proceeds from sale of loans, net

 

146,920

 

16,731

 

Decrease in FDIC indemnification asset for claims filed

 

41,048

 

42,688

 

Purchase of bank owned life insurance

 

(7,700

)

 

Bank owned life insurance proceeds

 

748

 

2,782

 

Purchase of premises and equipment, net

 

(16,352

)

(5,295

)

Acquisition of equipment under operating lease

 

(13,995

)

(32,950

)

Proceeds from sale of other real estate owned

 

22,832

 

31,673

 

Net cash used in investing activities

 

(606,390

)

(295,638

)

 

(Continued)

 

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

 

4



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

591,354

 

207,373

 

Additions to Federal Home Loan Bank advances and other borrowings

 

1,125,000

 

1,295,000

 

Repayments of Federal Home Loan Bank advances and other borrowings

 

(1,075,375

)

(1,201,930

)

Dividends paid

 

(21,833

)

 

Realized tax benefits (deficiency) from dividend equivalents and equity based compensation

 

615

 

(66

)

Exercise of stock options

 

914

 

890

 

Other financing activities

 

14,767

 

7,554

 

Net cash provided by financing activities

 

635,442

 

308,821

 

Net increase (decrease) in cash and cash equivalents

 

10,412

 

(34,174

)

Cash and cash equivalents, beginning of period

 

252,749

 

495,353

 

Cash and cash equivalents, end of period

 

$

263,161

 

$

461,179

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Interest paid

 

$

22,535

 

$

23,958

 

Income taxes paid

 

$

21,734

 

$

39,030

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

9,154

 

$

24,793

 

Disbursement of loan proceeds from escrow

 

$

52,500

 

$

 

Dividends declared, not paid

 

$

21,959

 

$

21,703

 

Unsettled securities trades

 

$

 

$

51,297

 

Acquisition of assets under capital lease

 

$

9,035

 

$

 

 

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

 

5



Table of Contents

 

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, 2013

 

101,013,014

 

$

1,010

 

 

$

 

$

1,334,945

 

$

535,263

 

$

57,480

 

$

1,928,698

 

Comprehensive income

 

 

 

 

 

 

55,271

 

12,636

 

67,907

 

Dividends

 

 

 

 

 

 

(21,959

)

 

(21,959

)

Equity based compensation

 

620,180

 

6

 

 

 

3,523

 

 

 

3,529

 

Forfeiture of unvested shares

 

(24,140

)

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

54,883

 

1

 

 

 

913

 

 

 

914

 

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 

 

615

 

 

 

615

 

Balance at March 31, 2014

 

101,663,937

 

$

1,017

 

 

$

 

$

1,339,996

 

$

568,575

 

$

70,116

 

$

1,979,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

48,226

 

6,388

 

54,614

 

Conversion of preferred shares to common shares

 

5,415,794

 

54

 

(5,415,794

)

(54

)

 

 

 

 

Dividends

 

 

 

 

 

 

(21,703

)

 

(21,703

)

Equity based compensation

 

 

 

 

 

3,380

 

 

 

3,380

 

Forfeiture of unvested shares

 

(13,380

)

 

 

 

 

 

 

 

Exercise of stock options

 

44,708

 

1

 

 

 

889

 

 

 

890

 

Tax deficiency from dividend equivalents and equity based compensation

 

 

 

 

 

(66

)

 

 

(66

)

Balance at March 31, 2013

 

100,453,851

 

$

1,005

 

 

$

 

$

1,312,518

 

$

439,908

 

$

90,364

 

$

1,843,795

 

 

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

 

6



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

Note 1   Basis of Presentation and Summary of Significant Accounting Policies

 

BankUnited, Inc. (“BankUnited, Inc.” or “BKU”), is a national bank holding company with one wholly-owned subsidiary, BankUnited, National Association (“BankUnited” or the “Bank”), 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 99 branches located in 15 Florida counties and 6 banking centers located in the New York metropolitan area at March 31, 2014.

 

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 two loss sharing agreements with the FDIC (the “Loss Sharing Agreements”). The Loss Sharing Agreements consist of a single family shared-loss agreement (the “Single Family Shared-Loss Agreement”), and a commercial and other loans shared-loss agreement, (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 through May 21, 2019 for single family residential loans and other real estate owned (“OREO”). The Commercial Shared-Loss Agreement provides for FDIC loss sharing through May 21, 2014 and the Bank’s reimbursement for recoveries to the FDIC through May 21, 2017 for all other covered assets, including commercial real estate, commercial and industrial and consumer loans, certain investment securities and commercial OREO. The assets covered under the Loss Sharing Agreements are 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, 2013 filed with the SEC.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2014 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 (in thousands except share and per share data):

 

7



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Basic earnings per common share:

 

 

 

 

 

Numerator:

 

 

 

 

 

Net income

 

$

55,271

 

$

48,226

 

Distributed and undistributed earnings allocated to participating securities

 

(2,145

)

(3,019

)

Income allocated to common stockholders for basic earnings per common share

 

$

53,126

 

$

45,207

 

Denominator:

 

 

 

 

 

Weighted average common shares outstanding

 

101,325,157

 

96,121,473

 

Less average unvested stock awards

 

(977,439

)

(1,166,706

)

Weighted average shares for basic earnings per common share

 

100,347,718

 

94,954,767

 

Basic earnings per common share

 

$

0.53

 

$

0.48

 

Diluted earnings per common share:

 

 

 

 

 

Numerator:

 

 

 

 

 

Income allocated to common stockholders for basic earnings per common share

 

$

53,126

 

$

45,207

 

Adjustment for earnings reallocated from participating securities

 

3

 

1,109

 

Income used in calculating diluted earnings per common share

 

$

53,129

 

$

46,316

 

Denominator:

 

 

 

 

 

Average shares for basic earnings per common share

 

100,347,718

 

94,954,767

 

Dilutive effect of stock options and preferred shares

 

144,483

 

4,526,162

 

Weighted average shares for diluted earnings per common share

 

100,492,201

 

99,480,929

 

Diluted earnings per common share

 

$

0.53

 

$

0.47

 

 

The following potentially dilutive securities were outstanding at March 31, 2014 and 2013 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 March 31,

 

 

 

2014

 

2013

 

Unvested shares

 

1,271,715

 

1,175,011

 

Stock options and warrants

 

6,386,424

 

6,569,128

 

 

Note 3   Investment Securities Available for Sale

 

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

 

8



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

 

 

March 31, 2014

 

 

 

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

 

$

 

$

 

$

 

$

 

$

1,478,796

 

$

38,306

 

$

(8,297

)

$

1,508,805

 

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

 

 

 

 

 

9,390

 

 

(202

)

9,188

 

Resecuritized real estate mortgage investment conduits (“Re-Remics”)

 

 

 

 

 

246,485

 

5,106

 

(18

)

251,573

 

Private label residential mortgage-backed securities and CMOs

 

114,903

 

57,244

 

(77

)

172,070

 

119,140

 

791

 

(1,449

)

118,482

 

Private label commercial mortgage-backed securities

 

 

 

 

 

838,777

 

9,560

 

(7,940

)

840,397

 

Non-mortgage asset-backed securities

 

 

 

 

 

166,671

 

6,350

 

(89

)

172,932

 

Mutual funds and preferred stocks

 

15,419

 

13,909

 

 

29,328

 

95,571

 

6,122

 

 

101,693

 

State and municipal obligations

 

 

 

 

 

15,531

 

 

(34

)

15,497

 

Small Business Administration securities

 

 

 

 

 

289,210

 

9,869

 

(6

)

299,073

 

Other debt securities

 

3,601

 

4,256

 

 

7,857

 

 

 

 

 

 

 

$

133,923

 

$

75,409

 

$

(77

)

$

209,255

 

$

3,259,571

 

$

76,104

 

$

(18,035

)

$

3,317,640

 

 

 

 

December 31, 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

 

$

 

$

 

$

 

$

 

$

1,548,671

 

$

34,191

 

$

(8,559

)

$

1,574,303

 

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

 

 

 

 

 

27,132

 

 

(355

)

26,777

 

Re-Remics

 

 

 

 

 

267,525

 

4,261

 

(1

)

271,785

 

Private label residential mortgage-backed securities and CMOs

 

119,434

 

56,539

 

(110

)

175,863

 

135,750

 

329

 

(1,824

)

134,255

 

Private label commercial mortgage-backed securities

 

 

 

 

 

814,114

 

7,638

 

(12,980

)

808,772

 

Non-mortgage asset-backed securities

 

 

 

 

 

172,329

 

6,676

 

(11

)

178,994

 

Mutual funds and preferred stocks

 

15,419

 

6,726

 

 

22,145

 

125,387

 

4,015

 

(1,870

)

127,532

 

Small Business Administration securities

 

 

 

 

 

295,892

 

13,045

 

 

308,937

 

Other debt securities

 

3,542

 

4,219

 

 

7,761

 

 

 

 

 

 

 

$

138,395

 

$

67,484

 

$

(110

)

$

205,769

 

$

3,386,800

 

$

70,155

 

$

(25,600

)

$

3,431,355

 

 

At March 31, 2014, 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

 

$

500,736

 

$

526,446

 

Due after one year through five years

 

1,908,357

 

1,965,395

 

Due after five years through ten years

 

780,054

 

799,600

 

Due after ten years

 

93,357

 

104,433

 

Mutual funds and preferred stocks with no stated maturity

 

110,990

 

131,021

 

 

 

$

3,393,494

 

$

3,526,895

 

 

                                                Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of March 31, 2014 was 3.7 years. The effective duration of the investment portfolio as of March 31, 2014 was 2.0 years. The model results are based on assumptions that may differ from actual results.

 

9



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

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 (“FRB”) totaled $1.0 billion at March 31, 2014 and $0.9 billion at December 31, 2013.

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Proceeds from sale of investment securities available for sale

 

$

119,824

 

$

119,316

 

 

 

 

 

 

 

Gross realized gains

 

$

1,280

 

$

1,689

 

Gross realized losses

 

(919

)

(3

)

Net realized gain

 

$

361

 

$

1,686

 

 

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):

 

 

 

March 31, 2014

 

 

 

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

 

$

310,662

 

$

(8,297

)

$

 

$

 

$

310,662

 

$

(8,297

)

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

 

9,188

 

(202

)

 

 

9,188

 

(202

)

Re-Remics

 

3,951

 

(18

)

 

 

3,951

 

(18

)

Private label residential mortgage-backed securities and CMOs

 

39,297

 

(1,004

)

8,052

 

(522

)

47,349

 

(1,526

)

Private label commercial mortgage-backed securities

 

254,830

 

(6,106

)

41,013

 

(1,834

)

295,843

 

(7,940

)

Non-mortgage asset-backed securities

 

33,114

 

(89

)

 

 

33,114

 

(89

)

State and municipal obligations

 

15,497

 

(34

)

 

 

15,497

 

(34

)

Small Business Administration securities

 

2,021

 

(6

)

 

 

2,021

 

(6

)

 

 

$

668,560

 

$

(15,756

)

$

49,065

 

$

(2,356

)

$

717,625

 

$

(18,112

)

 

 

 

December 31, 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

 

$

414,361

 

$

(8,559

)

$

 

$

 

$

414,361

 

$

(8,559

)

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

 

26,777

 

(355

)

 

 

26,777

 

(355

)

Re-Remics

 

11,037

 

(1

)

 

 

11,037

 

(1

)

Private label residential mortgage-backed securities and CMOs

 

79,048

 

(1,696

)

10,303

 

(238

)

89,351

 

(1,934

)

Private label commercial mortgage-backed securities

 

511,778

 

(12,980

)

 

 

511,778

 

(12,980

)

Non-mortgage asset-backed securities

 

1,516

 

(11

)

 

 

1,516

 

(11

)

Mutual funds and preferred stocks

 

67,513

 

(1,870

)

 

 

67,513

 

(1,870

)

 

 

$

1,112,030

 

$

(25,472

)

$

10,303

 

$

(238

)

$

1,122,333

 

$

(25,710

)

 

10



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

The Company monitors its investment securities available for sale for other-than-temporary impairment (“OTTI”) on an individual security basis. No securities were determined to be other than temporarily impaired at March 31, 2014 and 2013. 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 March 31, 2014, 36 securities were in unrealized loss positions. Unrealized losses on investment securities available for sale at March 31, 2014 were primarily attributable to an increase in medium and long-term market interest rates subsequent to the date the securities were acquired.  The amount of impairment related to 12 of these securities was considered insignificant, totaling approximately $155 thousand and no further analysis with respect to these securities was considered necessary. The basis for concluding that impairment of the remaining securities was not other-than-temporary is further described below:

 

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

 

At March 31, 2014, nine U.S. Government agency and sponsored enterprise residential and commercial mortgage-backed securities were in unrealized loss positions. All of these securities were in unrealized loss positions for less than 12 months.  These securities evidenced unrealized losses ranging from 1% to 8% 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:

 

At March 31, 2014, five private label residential mortgage-backed securities 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 March 31, 2014.  Three of these securities were in unrealized loss positions for less than twelve months and one for 13 months.  These securities evidenced unrealized losses ranging from 1% to 6% of amortized cost.  The remaining security had been in an unrealized loss position for 33 months and the unrealized loss of $74 thousand amounted to 7% 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 March 31, 2014, nine private label commercial mortgage-backed securities were in unrealized loss positions.  Eight of these securities were in unrealized loss positions for less than twelve months and one for 15 months.  The amount of impairment ranged from less than 1% to 4% 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 are more significantly impacted by changes 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.

 

Non-mortgage asset-backed securities:

 

At March 31, 2014, one non-mortgage asset-backed security was in an unrealized loss position.  This security had been in an unrealized loss position for less than 3 months and the amount of impairment was less than 1% of amortized cost. This security was 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 impairment was considered to be temporary.

 

11



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

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. Loans acquired in the FSB Acquisition 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):

 

 

 

March 31, 2014

 

 

 

Covered Loans

 

Non-Covered Loans

 

 

 

Percent of

 

 

 

ACI

 

Non-ACI

 

ACI

 

New Loans

 

Total

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

$

1,005,247

 

$

67,876

 

$

 

$

1,938,321

 

$

3,011,444

 

30.3

%

Home equity loans and lines of credit

 

38,100

 

122,745

 

 

1,448

 

162,293

 

1.6

%

 

 

1,043,347

 

190,621

 

 

1,939,769

 

3,173,737

 

31.9

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

19,288

 

 

8,102

 

1,259,376

 

1,286,766

 

12.9

%

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

27,372

 

1,272

 

10,104

 

775,601

 

814,349

 

8.2

%

Non-owner occupied

 

38,200

 

 

1,949

 

1,181,545

 

1,221,694

 

12.3

%

Construction and land

 

213

 

 

 

160,266

 

160,479

 

1.6

%

Commercial and industrial

 

1,524

 

3,470

 

 

2,626,055

 

2,631,049

 

26.5

%

Lease financing

 

 

 

 

352,785

 

352,785

 

3.6

%

 

 

86,597

 

4,742

 

20,155

 

6,355,628

 

6,467,122

 

65.1

%

Consumer

 

200

 

 

 

295,448

 

295,648

 

3.0

%

Total loans

 

1,130,144

 

195,363

 

20,155

 

8,590,845

 

9,936,507

 

100.0

%

Premiums, discounts and deferred fees and costs, net

 

 

(12,483

)

 

49,786

 

37,303

 

 

 

Loans net of premiums, discounts and deferred fees and costs

 

1,130,144

 

182,880

 

20,155

 

8,640,631

 

9,973,810

 

 

 

Allowance for loan and lease losses

 

 

(7,312

)

 

(62,716

)

(70,028

)

 

 

Loans, net

 

$

1,130,144

 

$

175,568

 

$

20,155

 

$

8,577,915

 

$

9,903,782

 

 

 

 

12



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

 

 

December 31, 2013

 

 

 

Covered Loans

 

Non-Covered Loans

 

 

 

Percent of

 

 

 

ACI

 

Non-ACI

 

ACI

 

New Loans

 

Total

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

$

1,057,012

 

$

70,378

 

$

 

$

1,800,332

 

$

2,927,722

 

32.4

%

Home equity loans and lines of credit

 

39,602

 

127,807

 

 

1,535

 

168,944

 

1.9

%

 

 

1,096,614

 

198,185

 

 

1,801,867

 

3,096,666

 

34.3

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

33,354

 

 

8,093

 

1,097,872

 

1,139,319

 

12.6

%

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

49,861

 

689

 

5,318

 

712,844

 

768,712

 

8.5

%

Non-owner occupied

 

93,089

 

52

 

1,449

 

946,543

 

1,041,133

 

11.5

%

Construction and land

 

10,600

 

729

 

 

138,091

 

149,420

 

1.7

%

Commercial and industrial

 

6,050

 

6,234

 

 

2,266,407

 

2,278,691

 

25.3

%

Lease financing

 

 

 

 

337,382

 

337,382

 

3.7

%

 

 

192,954

 

7,704

 

14,860

 

5,499,139

 

5,714,657

 

63.3

%

Consumer

 

1,679

 

 

 

213,107

 

214,786

 

2.4

%

Total loans

 

1,291,247

 

205,889

 

14,860

 

7,514,113

 

9,026,109

 

100.0

%

Premiums, discounts and deferred fees and costs, net

 

 

(13,248

)

 

40,748

 

27,500

 

 

 

Loans net of premiums, discounts and deferred fees and costs

 

1,291,247

 

192,641

 

14,860

 

7,554,861

 

9,053,609

 

 

 

Allowance for loan and lease losses

 

(2,893

)

(9,502

)

 

(57,330

)

(69,725

)

 

 

Loans, net

 

$

1,288,354

 

$

183,139

 

$

14,860

 

$

7,497,531

 

$

8,983,884

 

 

 

 

At March 31, 2014 and December 31, 2013, the unpaid principal balance (“UPB”) of ACI loans was $3.1 billion and $3.3 billion, respectively.

 

During the three months ended March 31, 2014 and 2013, the Company purchased 1-4 single family residential loans totaling $179 million and $227 million, respectively.

 

At March 31, 2014, the Company had pledged real estate loans with UPB of approximately $6.5 billion and recorded investment of approximately $4.7 billion as security for FHLB advances.

 

Covered loan sales

 

During the periods indicated, the Company sold covered 1-4 single family residential loans to third parties on a non-recourse basis. The following table summarizes the impact of these transactions (in thousands):

 

13



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

UPB of loans sold

 

$

70,188

 

$

32,258

 

 

 

 

 

 

 

Cash proceeds, net of transaction costs

 

$

45,897

 

$

16,731

 

Recorded investment in loans sold

 

36,087

 

7,265

 

Net pre-tax impact on earnings, excluding gain (loss) on indemnification asset

 

$

9,810

 

$

9,466

 

 

 

 

 

 

 

Gain (loss) on sale of covered loans

 

$

1,323

 

$

(772

)

Proceeds recorded in interest income

 

8,487

 

10,238

 

 

 

$

9,810

 

$

9,466

 

 

 

 

 

 

 

Gain (loss) on indemnification asset

 

$

(320

)

$

1,216

 

 

Covered 1-4 single family residential loans with UPB of $16 million and $20 million, respectively, were sold from a pool of ACI loans with a zero carrying value.  Proceeds of the sale of loans from this pool, representing realization of accretable yield, were recorded in interest income. The loss on the sale of loans from the remaining pools, representing the difference between the recorded investment and consideration received, was recorded in “Gain (loss) on sale of loans, net” in the accompanying consolidated statements of income.

 

During the three months ended March 31, 2014, in accordance with the terms of the Commercial Shared-Loss Agreement, the Bank requested and received approval from the FDIC to sell certain covered commercial and consumer loans.  These loans were transferred to loans held for sale at the lower of carrying value or fair value, determined at the individual loan level, upon receipt of FDIC approval and sold in March 2014.  The reduction of carrying value to fair value for specific loans was recognized in the provision for loan losses.  The following table summarizes the pre-tax impact of these sales, as reflected in the consolidated statements of income for the three months ended March 31, 2014 (in thousands):

 

Cash proceeds, net of transaction costs

 

$

101,023

 

 

 

 

 

Carrying value of loans transferred to loans held for sale

 

86,521

 

Provision for loan losses recorded upon transfer to loans held for sale

 

(3,469

)

Recorded investment in loans sold

 

83,052

 

Gain on sale of covered loans

 

$

17,971

 

 

 

 

 

Loss on indemnification asset

 

$

(2,085

)

 

Allowance for loan and lease losses

 

Activity in the allowance for loan and lease losses (“ALLL”) is summarized as follows for the periods indicated (in thousands):

 

14



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

March 31, 2014

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

March 31, 2013

 

 

 

Residential

 

Commercial

 

Consumer

 

Total

 

Residential

 

Commercial

 

Consumer

 

Total

 

Beginning balance

 

$

15,353

 

$

52,185

 

$

2,187

 

$

69,725

 

$

19,164

 

$

39,543

 

$

414

 

$

59,121

 

Provision for (recovery of) loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACI loans

 

 

1,974

 

324

 

2,298

 

 

(1,403

)

 

(1,403

)

Non-ACI loans

 

(1,650

)

148

 

 

(1,502

)

7,164

 

(961

)

 

6,203

 

New loans

 

450

 

6,033

 

1,124

 

7,607

 

(5,727

)

12,771

 

123

 

7,167

 

Total provision

 

(1,200

)

8,155

 

1,448

 

8,403

 

1,437

 

10,407

 

123

 

11,967

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACI loans

 

 

(4,867

)

(324

)

(5,191

)

 

(1,826

)

 

(1,826

)

Non-ACI loans

 

(233

)

(490

)

 

(723

)

(1,000

)

(105

)

 

(1,105

)

New loans

 

 

(2,186

)

(363

)

(2,549

)

 

(8,194

)

(20

)

(8,214

)

Total charge-offs

 

(233

)

(7,543

)

(687

)

(8,463

)

(1,000

)

(10,125

)

(20

)

(11,145

)

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-ACI loans

 

9

 

26

 

 

35

 

11

 

936

 

 

947

 

New loans

 

 

168

 

160

 

328

 

 

113

 

20

 

133

 

Total recoveries

 

9

 

194

 

160

 

363

 

11

 

1,049

 

20

 

1,080

 

Ending balance

 

$

13,929

 

$

52,991

 

$

3,108

 

$

70,028

 

$

19,612

 

$

40,874

 

$

537

 

$

61,023

 

 

The impact of provisions for (recoveries of) losses on covered loans is significantly mitigated by increases (decreases) in the FDIC indemnification asset, recorded in the consolidated statement of income line item “Net loss on indemnification asset.”

 

The following table presents information about the balance of the ALLL and related loans at the dates indicated (in thousands):

 

 

 

March 31, 2014