DOCUMENT - 2014.06.30
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended June 30, 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
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
14817 Oak Lane, Miami Lakes, FL
 
33016
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (305) 569-2000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ý
 
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  ý
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
Class
 
August 5, 2014
Common Stock, $0.01 Par Value
 
101,623,175
 




BankUnited, Inc.
 
Form 10-Q
 
For the Quarter Ended June 30, 2014
 
TABLE OF CONTENTS
 
 
 
Page
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 6.
 
 
 



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) 
 
June 30,
2014
 
December 31,
2013
ASSETS
 

 
 

Cash and due from banks:
 

 
 

Non-interest bearing
$
36,362

 
$
45,976

Interest bearing
18,708

 
14,590

Interest bearing deposits at Federal Reserve Bank
320,638

 
190,075

Federal funds sold
3,442

 
2,108

Cash and cash equivalents
379,150

 
252,749

Investment securities available for sale, at fair value (including covered securities of $205,769 at December 31, 2013)
4,091,547

 
3,637,124

Non-marketable equity securities
163,774

 
152,066

Loans held for sale
1,525

 
194

Loans (including covered loans of $1,168,012 and $1,483,888)
10,578,190

 
9,053,609

Allowance for loan and lease losses
(75,471
)
 
(69,725
)
Loans, net
10,502,719

 
8,983,884

FDIC indemnification asset
1,084,678

 
1,205,117

Bank owned life insurance
213,715

 
206,759

Equipment under operating lease
199,567

 
196,483

Other real estate owned (including covered OREO of $20,700 and $39,672)
21,015

 
40,570

Deferred tax asset, net
78,580

 
70,626

Goodwill and other intangible assets
68,737

 
69,067

Other assets
203,316

 
232,010

Total assets
$
17,008,323

 
$
15,046,649

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Demand deposits:
 

 
 

Non-interest bearing
$
2,312,104

 
$
2,171,335

Interest bearing
750,985

 
676,079

Savings and money market
5,073,669

 
4,402,987

Time
3,899,973

 
3,282,027

Total deposits
12,036,731

 
10,532,428

Federal Home Loan Bank advances and other borrowings
2,698,788

 
2,414,313

Other liabilities
258,232

 
171,210

Total liabilities
14,993,751

 
13,117,951

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 101,650,857 and 101,013,014 shares issued and outstanding
1,017

 
1,010

Paid-in capital
1,344,106

 
1,334,945

Retained earnings
595,161

 
535,263

Accumulated other comprehensive income
74,288

 
57,480

Total stockholders' equity
2,014,572

 
1,928,698

Total liabilities and stockholders' equity
$
17,008,323

 
$
15,046,649

 



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

3
 


Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED
(In thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Interest income:
 

 
 

 
 

 
 

Loans
$
164,184

 
$
154,760

 
$
327,967

 
$
299,851

Investment securities available for sale
25,741

 
30,196

 
50,567

 
60,201

Other
1,808

 
1,142

 
3,761

 
2,421

Total interest income
191,733

 
186,098

 
382,295

 
362,473

Interest expense:
 
 
 
 
 
 
 
Deposits
17,467

 
14,158

 
33,562

 
29,039

Borrowings
8,388

 
7,890

 
16,391

 
15,597

Total interest expense
25,855

 
22,048

 
49,953

 
44,636

Net interest income before provision for loan losses
165,878

 
164,050

 
332,342

 
317,837

Provision for (recovery of) loan losses (including $897, $(2,951), $1,693 and $1,849 for covered loans)
7,192

 
4,881

 
15,595

 
16,848

Net interest income after provision for loan losses
158,686

 
159,169

 
316,747

 
300,989

Non-interest income:
 
 
 
 
 
 
 
Income from resolution of covered assets, net
12,170

 
20,580

 
25,231

 
39,770

Net loss on indemnification asset
(5,896
)
 
(17,683
)
 
(22,800
)
 
(29,370
)
FDIC reimbursement of costs of resolution of covered assets
1,112

 
2,261

 
2,240

 
5,125

Service charges and fees
4,186

 
3,379

 
8,191

 
6,721

Gain (loss) on sale of loans, net (including gain (loss) related to covered loans of $(366), $(4,311), $18,928, and $(5,082))
(9
)
 
(4,115
)
 
19,323

 
(4,701
)
Gain on investment securities available for sale, net (including loss related to covered securities of $(963) for the three and six months ended June 30, 2013)

 
3,536

 
361

 
5,222

Other non-interest income
8,915

 
5,272

 
18,122

 
10,586

Total non-interest income
20,478

 
13,230

 
50,668

 
33,353

Non-interest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
49,556

 
43,027

 
99,005

 
86,102

Occupancy and equipment
17,496

 
15,381

 
34,463

 
30,423

Amortization of FDIC indemnification asset
15,194

 
7,150

 
30,935

 
9,430

(Gain) loss on other real estate owned, net (including (gain) loss related to covered OREO of $218, $(5,672), $(2,589) and $(5,423))
218

 
(5,672
)
 
(2,459
)
 
(5,423
)
Foreclosure and other real estate owned expense
1,508

 
3,256

 
2,488

 
4,629

Deposit insurance expense
2,311

 
1,724

 
4,563

 
3,661

Professional fees
3,127

 
6,959

 
6,557

 
12,381

Telecommunications and data processing
3,266

 
3,484

 
6,573

 
6,852

Other non-interest expense
13,944

 
10,188

 
26,956

 
20,231

Total non-interest expense
106,620

 
85,497

 
209,081

 
168,286

Income before income taxes
72,544

 
86,902

 
158,334

 
166,056

Provision for income taxes
24,001

 
32,894

 
54,520

 
63,822

Net income
$
48,543

 
$
54,008

 
$
103,814

 
$
102,234

Earnings per common share, basic (see Note 2)
$
0.46

 
$
0.52

 
$
0.99

 
$
1.00

Earnings per common share, diluted (see Note 2)
$
0.46

 
$
0.52

 
$
0.99

 
$
0.99

Cash dividends declared per common share
$
0.21

 
$
0.21

 
$
0.42

 
$
0.42



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

4
 


Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income
$
48,543

 
$
54,008

 
$
103,814

 
$
102,234

Other comprehensive income (loss), net of tax:
 
 
 

 
 
 
 

Unrealized gains on investment securities available for sale:
 
 
 

 
 
 
 

Net unrealized holding gain (loss) arising during the period
8,022

 
(40,858
)
 
21,433

 
(34,393
)
Reclassification adjustment for net securities gains realized in income

 
(2,172
)
 
(222
)
 
(3,208
)
Net change in unrealized gains on securities available for sale
8,022

 
(43,030
)
 
21,211

 
(37,601
)
Unrealized losses on derivative instruments:
 
 
 

 
 
 
 

Net unrealized holding gain (loss) arising during the period
(7,939
)
 
11,567

 
(12,515
)
 
9,949

Reclassification adjustment for net losses realized in income
4,089

 
3,163

 
8,112

 
5,740

Net change in unrealized losses on derivative instruments
(3,850
)
 
14,730

 
(4,403
)
 
15,689

Other comprehensive income (loss)
4,172

 
(28,300
)
 
16,808

 
(21,912
)
Comprehensive income
$
52,715

 
$
25,708

 
$
120,622

 
$
80,322




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

5
 


Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)

 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 

 
 

Net income
$
103,814

 
$
102,234

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization and accretion, net
(138,373
)
 
(203,328
)
Provision for loan losses
15,595

 
16,848

Income from resolution of covered assets, net
(25,231
)
 
(39,770
)
Net loss on indemnification asset
22,800

 
29,370

(Gain) loss on sale of loans, net
(19,323
)
 
4,701

Increase in cash surrender value of bank owned life insurance
(1,659
)
 
(1,569
)
Gain on investment securities available for sale, net
(361
)
 
(5,222
)
Gain on other real estate owned, net
(2,459
)
 
(5,423
)
Equity based compensation
7,274

 
6,663

Depreciation and amortization
14,931

 
10,193

Deferred income taxes
(18,504
)
 
12,158

Proceeds from sale of loans held for sale
10,296

 
17,927

Loans originated for sale, net of repayments
(11,407
)
 
(16,956
)
Realized tax benefits from dividend equivalents and equity based compensation
(980
)
 
(334
)
Other:
 
 
 
(Increase) decrease in other assets
(13,434
)
 
6,129

Increase in other liabilities
5,506

 
20,443

Net cash used in operating activities
(51,515
)
 
(45,936
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Purchase of investment securities available for sale
(636,547
)
 
(634,827
)
Proceeds from repayments of investment securities available for sale
159,147

 
360,834

Proceeds from sale of investment securities available for sale
119,824

 
241,830

Purchase of non-marketable equity securities
(32,850
)
 
(19,212
)
Proceeds from redemption of non-marketable equity securities
21,142

 
9,881

Purchases of loans
(379,340
)
 
(575,162
)
Loan originations, repayments and resolutions, net
(1,391,119
)
 
(523,352
)
Proceeds from sale of loans, net
490,462

 
53,182

Decrease in FDIC indemnification asset for claims filed
66,704

 
73,636

Purchase of bank owned life insurance
(7,700
)
 

Bank owned life insurance proceeds
2,403

 
2,782

Purchase of premises and equipment, net
(12,693
)
 
(12,084
)
Acquisition of equipment under operating lease
(14,461
)
 
(47,866
)
Proceeds from sale of other real estate owned
37,325

 
73,045

Net cash used in investing activities
(1,577,703
)
 
(997,313
)
 
 
 
(Continued)



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

6
 


Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (Continued)
(In thousands)

 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from financing activities:
 

 
 

Net increase in deposits
1,504,310

 
492,879

Additions to Federal Home Loan Bank advances and other borrowings
1,915,162

 
1,890,000

Repayments of Federal Home Loan Bank advances and other borrowings
(1,640,794
)
 
(1,616,531
)
Dividends paid
(43,791
)
 
(21,703
)
Realized tax benefits from dividend equivalents and equity based compensation
980

 
334

Exercise of stock options
914

 
2,139

Other financing activities
18,838

 
14,330

Net cash provided by financing activities
1,755,619

 
761,448

Net increase (decrease) in cash and cash equivalents
126,401

 
(281,801
)
Cash and cash equivalents, beginning of period
252,749

 
495,353

Cash and cash equivalents, end of period
$
379,150

 
$
213,552

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
46,559

 
$
43,579

Income taxes paid
$
70,755

 
$
56,680

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Transfers from loans to other real estate owned
$
15,311

 
$
41,641

Disbursement of loan proceeds from escrow
$
52,500

 
$

Dividends declared, not paid
$
21,958

 
$
21,726

Unsettled securities trades
$
65,948

 
$

Acquisition of assets under capital lease
$
9,035

 
$



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

7
 


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

 

 

 

 

 
103,814

 
16,808

 
120,622

Dividends

 

 

 

 

 
(43,916
)
 

 
(43,916
)
Equity based compensation
634,180

 
6

 

 

 
7,268

 

 

 
7,274

Forfeiture of unvested shares
(51,220
)
 

 

 

 

 

 

 

Exercise of stock options
54,883

 
1

 

 

 
913

 

 

 
914

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 
980

 

 

 
980

Balance at June 30, 2014
101,650,857

 
$
1,017

 

 
$

 
$
1,344,106

 
$
595,161

 
$
74,288

 
$
2,014,572

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 

 

 
102,234

 
(21,912
)
 
80,322

Conversion of preferred shares to common shares
5,415,794

 
54

 
(5,415,794
)
 
(54
)
 

 

 
 
 

Dividends

 

 

 

 

 
(43,429
)
 

 
(43,429
)
Equity based compensation
28,763

 

 

 

 
6,663

 

 

 
6,663

Forfeiture of unvested shares
(24,610
)
 

 

 

 

 

 

 

Exercise of stock options
123,721

 
2

 

 

 
2,137

 

 

 
2,139

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 
334

 

 

 
334

Balance at June 30, 2013
100,550,397

 
$
1,006

 

 
$

 
$
1,317,449

 
$
472,190

 
$
62,064

 
$
1,852,709

 

 


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

8
 


Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 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 June 30, 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"). Loss sharing under the Commercial Shared-Loss Agreement terminated on May 21, 2014. The Commercial Shared-Loss Agreement continues to provide for the Bank’s reimbursement of 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. Gains realized on the sale of formerly covered investment securities are included in recoveries subject to reimbursement. 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 and six months ended June 30, 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.



9
 



Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this update affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts, including leases and insurance contracts, are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. The amendments also require expanded disclosures concerning the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied retrospectively. Early application is not permitted. Management is currently evaluating the impact of adoption.

In April 2014, the FASB issued Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the definition of a discontinued operation and, thus, limit the circumstances under which a disposal may be reported as a discontinued operation. Under the amendments, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The amendments in this update were adopted by the Company in April 2014 and had no material impact on the presentation of the Company’s consolidated balance sheets, statements of income or statements of cash flows.
 


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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

Note 2   Earnings Per Common Share
 
The computation of basic and diluted earnings per common share is presented below for the periods indicated (in thousands, except share and per share data):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014

2013
Basic earnings per common share:
 

 
 

 
 

 
 

Numerator:
 

 
 

 
 

 
 

Net income
$
48,543

 
$
54,008

 
$
103,814

 
$
102,234

Distributed and undistributed earnings allocated to participating securities
(1,934
)
 
(2,124
)
 
(4,086
)
 
(5,258
)
Income allocated to common stockholders for basic earnings per common share
$
46,609

 
$
51,884

 
$
99,728

 
$
96,976

Denominator:
 

 
 

 
 

 
 

Weighted average common shares outstanding
101,651,265

 
100,484,614

 
101,489,190

 
98,315,096

Less average unvested stock awards
(1,205,669
)
 
(1,104,635
)
 
(1,092,262
)
 
(1,135,499
)
Weighted average shares for basic earnings per common share
100,445,596

 
99,379,979

 
100,396,928

 
97,179,597

Basic earnings per common share
$
0.46

 
$
0.52

 
$
0.99

 
$
1.00

Diluted earnings per common share:
 

 
 

 
 

 
 

Numerator:
 

 
 

 
 

 
 

Income allocated to common stockholders for basic earnings per common share
$
46,609

 
$
51,884

 
$
99,728

 
$
96,976

Adjustment for earnings reallocated from participating securities
4

 
2

 
9

 
1,225

Income used in calculating diluted earnings per common share
$
46,613

 
$
51,886

 
$
99,737

 
$
98,201

Denominator:
 

 
 

 
 

 
 

Average shares for basic earnings per common share
100,445,596

 
99,379,979

 
100,396,928

 
97,179,597

Dilutive effect of stock options and preferred shares
141,664

 
189,403

 
143,066

 
2,342,584

Weighted average shares for diluted earnings per common share
100,587,260

 
99,569,382

 
100,539,994

 
99,522,181

Diluted earnings per common share
$
0.46

 
$
0.52

 
$
0.99

 
$
0.99

 
The following potentially dilutive securities were outstanding at June 30, 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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Unvested shares
1,228,067

 
1,152,651

 
1,228,067

 
1,152,651

Stock options and warrants
6,386,424

 
6,733,410

 
6,386,424

 
6,733,410

 


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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

Note 3   Investment Securities Available for Sale
 
Investment securities available for sale consisted of the following at the dates indicated (in thousands): 

 
June 30, 2014
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
104,825

 
$
186

 
$

 
$
105,011

U.S. Government agency and sponsored enterprise residential mortgage-backed securities
1,466,591

 
40,542

 
(6,995
)
 
1,500,138

U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
80,079

 
150

 

 
80,229

Resecuritized real estate mortgage investment conduits (“Re-Remics”)
226,247

 
4,713

 
(19
)
 
230,941

Private label residential mortgage-backed securities and collateralized mortgage obligations ("CMOs")
222,542

 
56,041

 
(1,082
)
 
277,501

Private label commercial mortgage-backed securities
1,031,280

 
14,665

 
(3,664
)
 
1,042,281

Single family rental real estate-backed securities
146,000

 
58

 

 
146,058

Collateralized loan obligations
50,000

 

 

 
50,000

Non-mortgage asset-backed securities
158,963

 
6,707

 
(23
)
 
165,647

Mutual funds and preferred stocks
110,917

 
20,082

 
(35
)
 
130,964

State and municipal obligations
15,460

 
146

 
(54
)
 
15,552

Small Business Administration securities
328,550

 
10,709

 
(44
)
 
339,215

Other debt securities
3,638

 
4,372

 

 
8,010

 
$
3,945,092

 
$
158,371

 
$
(11,916
)
 
$
4,091,547

 
 
December 31, 2013
 
Covered Securities
 
Non-Covered Securities
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
 
 
Gains
 
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
As discussed in Note 1, FDIC loss sharing on covered investment securities ended on May 21, 2014. Investment securities formerly covered under the Commercial Shared-Loss Agreement had an aggregate fair value of $204 million, amortized cost of $130 million and gross unrealized gains of $73 million as of June 30, 2014.


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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014


At June 30, 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
Cost
 
Fair
Value
Due in one year or less
$
453,015

 
$
504,186

Due after one year through five years
2,295,366

 
2,326,472

Due after five years through ten years
924,482

 
951,438

Due after ten years
161,312

 
178,487

Mutual funds and preferred stocks with no stated maturity
110,917

 
130,964

 
$
3,945,092

 
$
4,091,547


Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of June 30, 2014 was 3.8 years. The effective duration of the investment portfolio as of June 30, 2014 was 1.9 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 ("FRB") totaled $0.9 billion at June 30, 2014 and 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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Proceeds from sale of investment securities available for sale
$

 
$
122,515

 
$
119,824

 
$
241,830

 
 
 
 
 
 
 
 
Gross realized gains
$

 
$
4,501

 
$
1,280

 
$
6,190

Gross realized losses

 
(2
)
 
(919
)
 
(5
)
Net realized gain

 
4,499

 
361

 
6,185

Other-than-temporary impairment (“OTTI”)

 
(963
)
 

 
(963
)
Gain on investment securities available for sale, net
$

 
$
3,536

 
$
361

 
$
5,222

 
During the three months ended June 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 was 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”.
 


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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

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): 

 
June 30, 2014
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agency and sponsored enterprise residential mortgage-backed securities
$
48,304

 
$
(2,993
)
 
$
273,584

 
$
(4,002
)
 
$
321,888

 
$
(6,995
)
Re-Remics
2,822

 
(19
)
 

 

 
2,822

 
(19
)
Private label residential mortgage-backed securities and CMOs
19,670

 
(49
)
 
29,218

 
(1,033
)
 
48,888

 
(1,082
)
Private label commercial mortgage-backed securities
35,941

 
(99
)
 
240,219

 
(3,565
)
 
276,160

 
(3,664
)
Non-mortgage asset-backed securities
29,483

 
(23
)
 

 

 
29,483

 
(23
)
Mutual funds and preferred stocks
20,215

 
(35
)
 

 

 
20,215

 
(35
)
State and municipal obligations
6,903

 
(54
)
 

 

 
6,903

 
(54
)
Small Business Administration securities
30,645

 
(44
)
 

 

 
30,645

 
(44
)
 
$
193,983

 
$
(3,316
)
 
$
543,021

 
$
(8,600
)
 
$
737,004

 
$
(11,916
)
 
 
December 31, 2013
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized 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
)
 
The Company monitors its investment securities available for sale for OTTI on an individual security basis. No securities were determined to be other-than-temporarily impaired during the six months ended June 30, 2014. As discussed above, one security was determined to be other-than-temporarily impaired during the three months ended June 30, 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 June 30, 2014, 39 securities were in unrealized loss positions. Unrealized losses on investment securities available for sale at June 30, 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 13 of these securities was considered insignificant, totaling


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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

approximately $124 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 mortgage-backed securities:
 
At June 30, 2014, eight U.S. Government agency and sponsored enterprise residential mortgage-backed securities were in unrealized loss positions. These securities evidenced unrealized losses ranging from less than 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 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 June 30, 2014, six 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 June 30, 2014. These securities evidenced unrealized losses ranging from less than 1% to 8% of amortized cost. One of these securities had been in an unrealized loss position for 36 months and had an unrealized loss of $80 thousand. 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 limited 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 June 30, 2014, nine private label commercial mortgage-backed securities were in unrealized loss positions. The amount of impairment of each of the individual securities was 2% or less 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.  Given the limited severity of impairment and the expectation of timely recovery of outstanding principal, the impairments were considered to be temporary.
    
Preferred stocks:

At June 30, 2014, six investments in one financial institution preferred stock were in unrealized loss positions. These investments had been in unrealized loss positions for less than three months and the amount of impairment was less than 1% of amortized cost. Given the limited duration and severity of impairment and results of the Company’s analysis of the financial condition of the issuer, the impairments were considered to be temporary.

State and municipal obligations:

At June 30, 2014, one municipal security was in an unrealized loss position. This security had been in an unrealized loss position for less than three months and the amount of impairment was less than 1% of amortized cost. Given the limited duration and severity of impairment, the impairment was considered to be temporary.

Small Business Administration securities:

At June 30, 2014, one Small Business Administration security was in an unrealized loss position. This security had been in an unrealized loss position for less than three months and the amount of impairment was less than 1% of amortized cost. The timely payment of principal and interest on this security is guaranteed by this U.S. Government agency. Given the limited severity and duration of impairment and the expectation of timely payment of principal and interest, the impairment was considered to be temporary.



15
 



Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 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. Residential loans acquired in the FSB Acquisition are covered under the Single Family Shared-Loss Agreement (the “covered loans”). Loans originated or purchased since the FSB Acquisition (“new loans”) are not covered by the Loss Sharing Agreements and, effective May 21, 2014, commercial and consumer loans acquired in the FSB Acquisition are no longer 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): 

 
June 30, 2014
 
Non-Covered Loans
 
Covered Loans
 
 
 
Percent of Total
 
New Loans
 
ACI
 
ACI
 
Non-ACI
 
Total
 
Residential:
 

 
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
2,095,666

 
$

 
$
963,904

 
$
64,931

 
$
3,124,501

 
29.6
%
Home equity loans and lines of credit
1,526

 

 
33,521

 
117,387

 
152,434

 
1.5
%
 
2,097,192

 

 
997,425

 
182,318

 
3,276,935

 
31.1
%
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
1,436,944

 
25,525

 

 

 
1,462,469

 
13.9
%
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
880,228

 
37,125

 

 

 
917,353

 
8.7
%
Non-owner occupied
1,357,811

 
37,312

 

 

 
1,395,123

 
13.2
%
Construction and land
184,834

 
224

 

 

 
185,058

 
1.7
%
Commercial and industrial
2,894,774

 
1,267

 

 

 
2,896,041

 
27.5
%
Lease financing
392,684

 

 

 

 
392,684

 
3.7
%
 
7,147,275

 
101,453

 

 

 
7,248,728

 
68.7
%
Consumer
21,760

 
140

 

 

 
21,900

 
0.2
%
Total loans
9,266,227

 
101,593

 
997,425

 
182,318

 
10,547,563

 
100.0
%
Premiums, discounts and deferred fees and costs, net
42,358

 

 

 
(11,731
)
 
30,627

 
 
Loans net of premiums, discounts and deferred fees and costs
9,308,585

 
101,593

 
997,425

 
170,587

 
10,578,190

 
 
Allowance for loan and lease losses
(68,184
)
 

 

 
(7,287
)
 
(75,471
)
 
 
Loans, net
$
9,240,401

 
$
101,593

 
$
997,425

 
$
163,300

 
$
10,502,719

 
 
 


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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

 
December 31, 2013
 
Non-Covered Loans
 
Covered Loans
 
 
 
Percent of Total
 
New Loans
 
ACI
 
ACI
 
Non-ACI
 
Total
 
Residential:
 

 
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
1,800,332

 
$

 
$
1,057,012

 
$
70,378

 
$
2,927,722

 
32.4
%
Home equity loans and lines of credit
1,535

 

 
39,602

 
127,807

 
168,944

 
1.9
%
 
1,801,867

 

 
1,096,614

 
198,185

 
3,096,666

 
34.3
%
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
1,097,872

 
8,093

 
33,354

 

 
1,139,319

 
12.6
%
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
712,844

 
5,318

 
49,861

 
689

 
768,712

 
8.5
%
Non-owner occupied
946,543

 
1,449

 
93,089

 
52

 
1,041,133

 
11.5
%
Construction and land
138,091

 

 
10,600

 
729

 
149,420

 
1.7
%
Commercial and industrial
2,266,407

 

 
6,050

 
6,234

 
2,278,691

 
25.3
%
Lease financing
337,382

 

 

 

 
337,382

 
3.7
%
 
5,499,139

 
14,860

 
192,954

 
7,704

 
5,714,657

 
63.3
%
Consumer
213,107

 

 
1,679

 

 
214,786

 
2.4
%
Total loans
7,514,113

 
14,860

 
1,291,247

 
205,889

 
9,026,109

 
100.0
%
Premiums, discounts and deferred fees and costs, net
40,748

 

 

 
(13,248
)
 
27,500

 
 
Loans net of premiums, discounts and deferred fees and costs
7,554,861

 
14,860

 
1,291,247

 
192,641

 
9,053,609

 
 
Allowance for loan and lease losses
(57,330
)
 

 
(2,893
)
 
(9,502
)
 
(69,725
)
 
 
Loans, net
$
7,497,531

 
$
14,860

 
$
1,288,354

 
$
183,139

 
$
8,983,884

 
 

At June 30, 2014 and December 31, 2013, the unpaid principal balance (“UPB”) of ACI loans was $2.9 billion and $3.3 billion, respectively.

During the three and six months ended June 30, 2014 and 2013, the Company purchased 1-4 single family residential loans totaling $200 million, $379 million, $348 million, and $575 million, respectively.
 
At June 30, 2014, the Company had pledged real estate loans with UPB of approximately $6.6 billion and recorded investment of approximately $5.1 billion as security for FHLB advances.

The accretable yield on ACI loans represents the amount by which undiscounted expected future cash flows exceed recorded investment. Changes in the accretable yield on ACI loans for the six months ended June 30, 2014 and the year ended December 31, 2013 were as follows (in thousands): 

Balance, December 31, 2012
$
1,286,066

Reclassifications from non-accretable difference
282,952

Accretion
(410,446
)
Balance, December 31, 2013
1,158,572

Reclassifications from non-accretable difference
103,523

Accretion
(175,860
)
Balance, June 30, 2014
$
1,086,235

 


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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2014

Accretable yield at June 30, 2014 included expected cash flows from a pool of 1-4 single family residential loans whose carrying value had been reduced to zero.  The UPB of loans remaining in this pool was $27 million at June 30, 2014.

Loan sales

During the three months ended June 30, 2014, the Company made the decision to terminate its indirect auto lending activities and sell the existing portfolio of indirect auto loans. The Company sold indirect auto loans with a recorded investment of $302.8 million. and received cash proceeds, net of transaction costs, of $303.0 million. The Company recognized a gain on the sale totaling $0.2 million, which was recoded in "Gain (loss) on sale of loans, net" in the accompanying statements of income for the three and six months ended June 30, 2014. The total impact of this transaction on pre-tax earnings was a net increase of $1.8 million, inclusive of the gain on sale, exit costs and elimination of the related allowance for loan losses.
 
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): 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
UPB of loans sold
$
64,081

 
$
69,980

 
$
134,269

 
$
102,238

 
 
 
 
 
 
 
 
Cash proceeds, net of transaction costs
$
40,550

 
$
36,451

 
$
86,447

 
$
53,182

Recorded investment in loans sold
33,835

 
25,238

 
69,922

 
32,502

Net pre-tax impact on earnings, excluding gain on indemnification asset
$
6,715

 
$
11,213

 
$
16,525

 
$
20,680

 
 
 
 
 
 
 
 
Gain (loss) on sale of covered loans
$
(366
)
 
$
(4,311
)
 
$
957

 
$
(5,082
)
Proceeds recorded in interest income
7,081

 
15,524

 
15,568

 
25,762

 
$
6,715

 
$
11,213

 
$
16,525

 
$
20,680

 
 
 
 
 
 
 
 
Gain on indemnification asset
$
1,565