DOCUMENT - 2014.09.30
 
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 September 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
 
November 4, 2014
Common Stock, $0.01 Par Value
 
101,652,745
 




BankUnited, Inc.
 
Form 10-Q
 
For the Quarter Ended September 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) 
 
September 30,
2014
 
December 31,
2013
ASSETS
 

 
 

Cash and due from banks:
 

 
 

Non-interest bearing
$
46,593

 
$
45,976

Interest bearing
18,763

 
14,590

Interest bearing deposits at Federal Reserve Bank
280,042

 
190,075

Federal funds sold
2,746

 
2,108

Cash and cash equivalents
348,144

 
252,749

Investment securities available for sale, at fair value (including covered securities of $205,769 at December 31, 2013)
4,304,329

 
3,637,124

Non-marketable equity securities
159,049

 
152,066

Loans held for sale
2,119

 
194

Loans (including covered loans of $1,099,927 and $1,483,888)
11,085,776

 
9,053,609

Allowance for loan and lease losses
(78,868
)
 
(69,725
)
Loans, net
11,006,908

 
8,983,884

FDIC indemnification asset
1,023,079

 
1,205,117

Bank owned life insurance
214,320

 
206,759

Equipment under operating lease
242,448

 
196,483

Other real estate owned (including covered OREO of $18,216 and $39,672)
18,531

 
40,570

Deferred tax asset, net
98,113

 
70,626

Goodwill and other intangible assets
68,575

 
69,067

Other assets
195,124

 
232,010

Total assets
$
17,680,739

 
$
15,046,649

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Demand deposits:
 

 
 

Non-interest bearing
$
2,579,163

 
$
2,171,335

Interest bearing
857,910

 
676,079

Savings and money market
5,411,565

 
4,402,987

Time
3,985,269

 
3,282,027

Total deposits
12,833,907

 
10,532,428

Federal Home Loan Bank advances and other borrowings
2,593,648

 
2,414,313

Other liabilities
213,015

 
171,210

Total liabilities
15,640,570

 
13,117,951

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 101,665,975 and 101,013,014 shares issued and outstanding
1,017

 
1,010

Paid-in capital
1,348,964

 
1,334,945

Retained earnings
626,761

 
535,263

Accumulated other comprehensive income
63,427

 
57,480

Total stockholders' equity
2,040,169

 
1,928,698

Total liabilities and stockholders' equity
$
17,680,739

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Interest income:
 

 
 

 
 

 
 

Loans
$
171,591

 
$
158,332

 
$
499,558

 
$
458,183

Investment securities available for sale
27,816

 
27,993

 
78,383

 
88,194

Other
1,815

 
1,359

 
5,576

 
3,780

Total interest income
201,222

 
187,684

 
583,517

 
550,157

Interest expense:
 
 
 
 
 
 
 
Deposits
19,432

 
15,248

 
52,994

 
44,287

Borrowings
8,541

 
8,318

 
24,932

 
23,915

Total interest expense
27,973

 
23,566

 
77,926

 
68,202

Net interest income before provision for loan losses
173,249

 
164,118

 
505,591

 
481,955

Provision for (recovery of) loan losses (including $(900), $(2,837), $793 and $(988) for covered loans)
5,387

 
2,604

 
20,982

 
19,452

Net interest income after provision for loan losses
167,862

 
161,514

 
484,609

 
462,503

Non-interest income:
 
 
 
 
 
 
 
Income from resolution of covered assets, net
14,525

 
24,592

 
39,756

 
64,362

Net loss on FDIC indemnification
(16,958
)
 
(18,377
)
 
(39,758
)
 
(47,747
)
FDIC reimbursement of costs of resolution of covered assets
1,411

 
2,040

 
3,651

 
7,165

Service charges and fees
4,236

 
3,634

 
12,427

 
10,355

Gain (loss) on sale of loans, net (including gain (loss) related to covered loans of $3,667, $(4,286), $22,595, and $(9,368))
3,789

 
(4,081
)
 
23,112

 
(8,782
)
Gain on investment securities available for sale, net (including loss related to covered securities of $(963) for the nine months ended September 30, 2013)
795

 
1,066

 
1,156

 
6,288

Other non-interest income
6,653

 
4,786

 
24,775

 
15,372

Total non-interest income
14,451

 
13,660

 
65,119

 
47,013

Non-interest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
50,003

 
44,117

 
149,008

 
130,219

Occupancy and equipment
17,782

 
16,571

 
52,245

 
46,994

Amortization of FDIC indemnification asset
17,948

 
12,354

 
48,883

 
21,784

(Gain) loss on other real estate owned, net (including (gain) loss related to covered OREO of $93, $(1,697), $(2,495) and $(7,120))
93

 
(1,697
)
 
(2,366
)
 
(7,120
)
Foreclosure and other real estate owned expense
1,408

 
2,803

 
3,896

 
7,432

Deposit insurance expense
2,452

 
1,926

 
7,015

 
5,587

Professional fees
3,106

 
4,831

 
9,663

 
17,212

Telecommunications and data processing
3,332

 
2,842

 
9,905

 
9,694

Other non-interest expense
12,809

 
12,870

 
39,765

 
33,101

Total non-interest expense
108,933

 
96,617

 
318,014

 
264,903

Income before income taxes
73,380

 
78,557

 
231,714

 
244,613

Provision for income taxes
19,813

 
24,248

 
74,333

 
88,070

Net income
$
53,567

 
$
54,309

 
$
157,381

 
$
156,543

Earnings per common share, basic (see Note 2)
$
0.51

 
$
0.52

 
$
1.51

 
$
1.52

Earnings per common share, diluted (see Note 2)
$
0.51

 
$
0.52

 
$
1.50

 
$
1.51

Cash dividends declared per common share
$
0.21

 
$
0.21

 
$
0.63

 
$
0.63



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 September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income
$
53,567

 
$
54,309

 
$
157,381

 
$
156,543

Other comprehensive income (loss), net of tax:
 
 
 

 
 
 
 

Unrealized gains on investment securities available for sale:
 
 
 

 
 
 
 

Net unrealized holding gain (loss) arising during the period
(14,898
)
 
(5,780
)
 
6,535

 
(40,173
)
Reclassification adjustment for net securities gains realized in income
(488
)
 
(654
)
 
(710
)
 
(3,862
)
Net change in unrealized gains on securities available for sale
(15,386
)
 
(6,434
)
 
5,825

 
(44,035
)
Unrealized losses on derivative instruments:
 
 
 

 
 
 
 

Net unrealized holding gain (loss) arising during the period
391

 
(6,263
)
 
(12,124
)
 
3,686

Reclassification adjustment for net losses realized in income
4,134

 
3,572

 
12,246

 
9,312

Net change in unrealized losses on derivative instruments
4,525

 
(2,691
)
 
122

 
12,998

Other comprehensive income (loss)
(10,861
)
 
(9,125
)
 
5,947

 
(31,037
)
Comprehensive income
$
42,706

 
$
45,184

 
$
163,328

 
$
125,506




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)

 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 

 
 

Net income
$
157,381

 
$
156,543

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Amortization and accretion, net
(204,056
)
 
(293,443
)
Provision for loan losses
20,982

 
19,452

Income from resolution of covered assets, net
(39,756
)
 
(64,362
)
Net loss on FDIC indemnification
39,758

 
47,747

(Gain) loss on sale of loans, net
(23,112
)
 
8,782

Increase in cash surrender value of bank owned life insurance
(2,264
)
 
(2,009
)
Gain on investment securities available for sale, net
(1,156
)
 
(6,288
)
Gain on other real estate owned, net
(2,366
)
 
(7,120
)
Equity based compensation
11,629

 
10,952

Depreciation and amortization
22,808

 
16,107

Deferred income taxes
(31,206
)
 
1,761

Proceeds from sale of loans held for sale
15,726

 
31,677

Loans originated for sale, net of repayments
(17,308
)
 
(29,806
)
Realized tax benefits from dividend equivalents and equity based compensation
(1,483
)
 
(1,164
)
Other:
 
 
 
(Increase) decrease in other assets
(12,692
)
 
7,564

Increase in other liabilities
15,536

 
60,804

Net cash used in operating activities
(51,579
)
 
(42,803
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Purchase of investment securities available for sale
(1,115,488
)
 
(639,572
)
Proceeds from repayments of investment securities available for sale
253,947

 
547,362

Proceeds from sale of investment securities available for sale
203,360

 
323,801

Purchase of non-marketable equity securities
(40,050
)
 
(31,137
)
Proceeds from redemption of non-marketable equity securities
33,067

 
14,381

Purchases of loans
(613,703
)
 
(906,447
)
Loan originations, repayments and resolutions, net
(1,621,880
)
 
(1,119,449
)
Proceeds from sale of loans, net
542,741

 
85,821

Decrease in FDIC indemnification asset for claims filed
94,320

 
123,002

Purchase of bank owned life insurance
(7,700
)
 

Bank owned life insurance proceeds
2,403

 
2,782

Purchase of premises and equipment, net
(18,525
)
 
(16,194
)
Acquisition of equipment under operating lease
(51,922
)
 
(148,644
)
Proceeds from sale of other real estate owned
45,947

 
94,594

Net cash used in investing activities
(2,293,483
)
 
(1,669,700
)
 
 
 
(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)

 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from financing activities:
 

 
 

Net increase in deposits
2,301,489

 
1,310,075

Additions to Federal Home Loan Bank advances and other borrowings
2,600,000

 
2,425,000

Repayments of Federal Home Loan Bank advances and other borrowings
(2,431,308
)
 
(1,982,162
)
Dividends paid
(65,750
)
 
(43,430
)
Realized tax benefits from dividend equivalents and equity based compensation
1,483

 
1,164

Exercise of stock options
914

 
6,738

Other financing activities
33,629

 
25,444

Net cash provided by financing activities
2,440,457

 
1,742,829

Net increase in cash and cash equivalents
95,395

 
30,326

Cash and cash equivalents, beginning of period
252,749

 
495,353

Cash and cash equivalents, end of period
$
348,144

 
$
525,679

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
72,667

 
$
65,423

Income taxes paid
$
93,053

 
$
54,627

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Transfers from loans to other real estate owned
$
21,542

 
$
59,962

Disbursement of loan proceeds from escrow
$
52,500

 
$

Dividends declared, not paid
$
21,966

 
$
21,796

Acquisition of assets under capital lease
$
9,035

 
$
1,820



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

 

 

 

 

 
157,381

 
5,947

 
163,328

Dividends

 

 

 

 

 
(65,883
)
 

 
(65,883
)
Equity based compensation
692,029

 
7

 

 

 
11,622

 

 

 
11,629

Forfeiture of unvested shares
(93,951
)
 
(1
)
 

 

 
1

 

 

 

Exercise of stock options
54,883

 
1

 

 

 
913

 

 

 
914

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 
1,483

 

 

 
1,483

Balance at September 30, 2014
101,665,975

 
$
1,017

 

 
$

 
$
1,348,964

 
$
626,761

 
$
63,427

 
$
2,040,169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
95,006,729

 
$
950

 
5,415,794

 
$
54

 
$
1,308,315

 
$
413,385

 
$
83,976

 
$
1,806,680

Comprehensive income

 

 

 

 

 
156,543

 
(31,037
)
 
125,506

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

 
54

 
(5,415,794
)
 
(54
)
 

 

 
 
 

Dividends

 

 

 

 

 
(65,226
)
 

 
(65,226
)
Equity based compensation
104,585

 
1

 

 

 
10,951

 

 

 
10,952

Forfeiture of unvested shares
(43,607
)
 

 

 

 

 

 

 

Exercise of stock options
376,769

 
4

 

 

 
6,734

 

 

 
6,738

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 
1,164

 

 

 
1,164

Balance at September 30, 2013
100,860,270

 
$
1,009

 

 
$

 
$
1,327,164

 
$
504,702

 
$
52,939

 
$
1,885,814

 

 


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
September 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 101 branches located in 15 Florida counties and 6 banking centers located in the New York metropolitan area at September 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 nine months ended September 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, and the fair values of investment securities and other financial instruments. Management has used information provided by third party valuation specialists to assist in the determination of the fair values of investment securities.




9
 



Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 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  
 September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014

2013
Basic earnings per common share:
 

 
 

 
 

 
 

Numerator:
 

 
 

 
 

 
 

Net income
$
53,567

 
$
54,309

 
$
157,381

 
$
156,543

Distributed and undistributed earnings allocated to participating securities
(2,130
)
 
(2,132
)
 
(6,215
)
 
(7,427
)
Income allocated to common stockholders for basic earnings per common share
$
51,437

 
$
52,177

 
$
151,166

 
$
149,116

Denominator:
 

 
 

 
 

 
 

Weighted average common shares outstanding
101,657,560

 
100,737,319

 
101,545,930

 
99,131,377

Less average unvested stock awards
(1,175,739
)
 
(1,085,044
)
 
(1,120,393
)
 
(1,118,496
)
Weighted average shares for basic earnings per common share
100,481,821

 
99,652,275

 
100,425,537

 
98,012,881

Basic earnings per common share
$
0.51

 
$
0.52

 
$
1.51

 
$
1.52

Diluted earnings per common share:
 

 
 

 
 

 
 

Numerator:
 

 
 

 
 

 
 

Income allocated to common stockholders for basic earnings per common share
$
51,437

 
$
52,177

 
$
151,166

 
$
149,116

Adjustment for earnings reallocated from participating securities
5

 
4

 
14

 
1,264

Income used in calculating diluted earnings per common share
$
51,442

 
$
52,181

 
$
151,180

 
$
150,380

Denominator:
 

 
 

 
 

 
 

Average shares for basic earnings per common share
100,481,821

 
99,652,275

 
100,425,537

 
98,012,881

Dilutive effect of stock options and preferred shares
140,006

 
196,190

 
142,035

 
1,626,264

Weighted average shares for diluted earnings per common share
100,621,827

 
99,848,465

 
100,567,572

 
99,639,145

Diluted earnings per common share
$
0.51

 
$
0.52

 
$
1.50

 
$
1.51

 
The following potentially dilutive securities were outstanding at September 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 September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Unvested shares
1,222,148

 
1,139,864

 
1,222,148

 
1,139,864

Stock options and warrants
6,386,424

 
6,408,702

 
6,386,424

 
6,408,702

 


10
 



Table of Contents

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

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

 
September 30, 2014
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
104,839

 
$
119

 
$

 
$
104,958

U.S. Government agency and sponsored enterprise residential mortgage-backed securities
1,465,555

 
34,708

 
(8,230
)
 
1,492,033

U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
110,614

 
44

 
(272
)
 
110,386

Resecuritized real estate mortgage investment conduits (“Re-Remics”)
199,116

 
4,041

 
(14
)
 
203,143

Private label residential mortgage-backed securities and collateralized mortgage obligations ("CMOs")
371,600

 
54,134

 
(1,241
)
 
424,493

Private label commercial mortgage-backed securities
1,088,961

 
9,073

 
(6,711
)
 
1,091,323

Single family rental real estate-backed securities
236,711

 

 
(1,500
)
 
235,211

Collateralized loan obligations
50,000

 

 
(230
)
 
49,770

Non-mortgage asset-backed securities
123,272

 
5,627

 
(40
)
 
128,859

Mutual funds and preferred stocks
96,369

 
16,640

 

 
113,009

State and municipal obligations
15,389

 
253

 

 
15,642

Small Business Administration securities
316,831

 
10,451

 
(48
)
 
327,234

Other debt securities
3,674

 
4,594

 

 
8,268

 
$
4,182,931

 
$
139,684

 
$
(18,286
)
 
$
4,304,329

 
 
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 $181 million, amortized cost of $112 million and gross unrealized gains of $70 million as of September 30, 2014.


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Table of Contents

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


At September 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
$
463,631

 
$
481,548

Due after one year through five years
2,459,206

 
2,506,634

Due after five years through ten years
967,583

 
989,632

Due after ten years
196,142

 
213,506

Mutual funds and preferred stocks with no stated maturity
96,369

 
113,009

 
$
4,182,931

 
$
4,304,329


Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of September 30, 2014 was 4.1 years. The effective duration of the investment portfolio as of September 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 September 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 September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Proceeds from sale of investment securities available for sale
$
83,536

 
$
81,971

 
$
203,360

 
$
323,801

 
 
 
 
 
 
 
 
Gross realized gains
$
795

 
$
1,155

 
$
2,075

 
$
7,345

Gross realized losses

 
(89
)
 
(919
)
 
(94
)
Net realized gain
795

 
1,066

 
1,156

 
7,251

Other-than-temporary impairment (“OTTI”)

 

 

 
(963
)
Gain on investment securities available for sale, net
$
795

 
$
1,066

 
$
1,156

 
$
6,288

 
During the nine months ended September 30, 2013, OTTI was recognized on an intermediate term mortgage mutual fund investment which had been in a continuous unrealized loss position for 34 months.  Due primarily to the length of time the investment had been in a continuous unrealized loss position and an increasing measure of impairment, the Company determined the impairment to be other than temporary.  This security was covered under the Commercial Shared-Loss Agreement; 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 FDIC indemnification.”
 


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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 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): 

 
September 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
$
24,255

 
$
(208
)
 
$
302,103

 
$
(8,022
)
 
$
326,358

 
$
(8,230
)
U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
41,910

 
(272
)
 

 

 
41,910

 
(272
)
Re-Remics
1,688

 
(14
)
 

 

 
1,688

 
(14
)
Private label residential mortgage-backed securities and CMOs
60,612

 
(312
)
 
27,977

 
(929
)
 
88,589

 
(1,241
)
Private label commercial mortgage-backed securities
226,851

 
(1,228
)
 
238,030

 
(5,483
)
 
464,881

 
(6,711
)
Single family rental real estate-backed securities
219,211

 
(1,500
)
 

 

 
219,211

 
(1,500
)
Collateralized loan obligations
49,770

 
(230
)
 

 

 
49,770

 
(230
)
Non-mortgage asset-backed securities
3,021

 
(40
)
 

 

 
3,021

 
(40
)
Small Business Administration securities
21,420

 
(48
)
 

 

 
21,420

 
(48
)
 
$
648,738

 
$
(3,852
)
 
$
568,110

 
$
(14,434
)
 
$
1,216,848

 
$
(18,286
)
 
 
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 nine months ended September 30, 2014. As discussed above, one security was determined to be other-than-temporarily impaired during the nine months ended September 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 September 30, 2014, 61 securities were in unrealized loss positions. Unrealized losses on investment


13
 



Table of Contents

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

securities available for sale at September 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 21 of these securities was considered insignificant, totaling approximately $249 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 September 30, 2014, 13 U.S. Government agency and sponsored enterprise residential and commercial mortgage-backed securities were in unrealized loss positions. 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 September 30, 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 that would result in the Company recovering less than its amortized cost basis related to any of these securities as of September 30, 2014. 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 September 30, 2014, 13 private label commercial mortgage-backed securities were in unrealized loss positions. The amount of impairment of each of the individual securities was 3% 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.

Single family rental real estate-backed securities:
 
At September 30, 2014, six single family rental real estate-backed securities were in unrealized loss positions. The securities had been in an unrealized loss position for three months or less and the amount of impairment of each of the individual securities was 2% or less of amortized cost.  Given the limited duration and severity of impairment, the impairments were considered to be temporary.
    
Collateralized loan obligations and non-mortgage asset-backed securities:

At September 30, 2014, one collateralized loan obligation and one non-mortgage asset-backed security were in unrealized loss positions. These securities had been in unrealized loss positions for less than three months and the amount of impairment was 1% or less of amortized cost. Given the limited duration and severity of impairment, the impairments were considered to be temporary.

Small Business Administration securities:

At September 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.



14
 



Table of Contents

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

Note 4   Loans and Allowance for Loan and Lease Losses
 
The Company’s loan portfolio includes 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 under 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): 

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

 
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
2,281,342

 
$

 
$
915,189

 
$
60,475

 
$
3,257,006

 
29.5
%
Home equity loans and lines of credit
1,680

 

 
26,584

 
109,250

 
137,514

 
1.2
%
 
2,283,022

 

 
941,773

 
169,725

 
3,394,520

 
30.7
%
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
1,505,723

 
24,859

 

 

 
1,530,582

 
13.8
%
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
957,657

 
37,008

 

 

 
994,665

 
9.0
%
Non-owner occupied
1,452,444

 
32,374

 

 

 
1,484,818

 
13.4
%
Construction and land
137,412

 
1,994

 

 

 
139,406

 
1.3
%
Commercial and industrial
3,049,280

 
1,329

 

 

 
3,050,609

 
27.6
%
Lease financing
436,714

 

 

 

 
436,714

 
4.0
%
 
7,539,230

 
97,564

 

 

 
7,636,794

 
69.1
%
Consumer
21,204

 
51

 

 

 
21,255

 
0.2
%
Total loans
9,843,456

 
97,615

 
941,773

 
169,725

 
11,052,569

 
100.0
%
Premiums, discounts and deferred fees and costs, net
44,778

 

 

 
(11,571
)
 
33,207

 
 
Loans net of premiums, discounts and deferred fees and costs
9,888,234

 
97,615

 
941,773

 
158,154

 
11,085,776

 
 
Allowance for loan and lease losses
(73,079
)
 

 

 
(5,789
)
 
(78,868
)
 
 
Loans, net
$
9,815,155

 
$
97,615

 
$
941,773

 
$
152,365

 
$
11,006,908

 
 
 


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Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 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 September 30, 2014 and December 31, 2013, the unpaid principal balance (“UPB”) of ACI loans was $2.7 billion and $3.3 billion, respectively.

During the three and nine months ended September 30, 2014 and 2013, the Company purchased 1-4 single family residential loans totaling $234 million, $614 million, $331 million, and $906 million, respectively.
 
At September 30, 2014, the Company had pledged real estate loans with UPB of approximately $6.9 billion and recorded investment of approximately $5.4 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 nine months ended September 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
135,521

Accretion
(262,562
)
Balance, September 30, 2014
$
1,031,531

 


16
 



Table of Contents

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

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): 

 
Three Months Ended September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
UPB of loans sold
$
71,301

 
$
62,963

 
$
205,570

 
$
165,201

 
 
 
 
 
 
 
 
Cash proceeds, net of transaction costs
$
52,279

 
$
32,639

 
$
138,726

 
$
85,821

Recorded investment in loans sold
36,241

 
23,694

 
106,163

 
56,196

Net pre-tax impact on earnings, excluding gain (loss) on FDIC indemnification
$
16,038

 
$
8,945

 
$
32,563

 
$
29,625

 
 
 
 
 
 
 
 
Gain (loss) on sale of covered loans
$
3,667

 
$
(4,286
)
 
$
4,624

 
$
(9,368
)
Proceeds recorded in interest income
12,371

 
13,231

 
27,939

 
38,993

 
$
16,038

 
$
8,945

 
$
32,563

 
$
29,625

 
 
 
 
 
 
 
 
Gain (loss) on FDIC indemnification
$
(4,068
)
 
$
5,626

 
$
(2,823
)
 
$
11,794

 

For the three and nine months ended September 30, 2014 and 2013, covered 1-4 single family residential loans with UPB of $16 million, $45 million, $26 million, and $76 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 gain or 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 nine months ended September 30, 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