DOCUMENT - 2015.06.30
 
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, 2015
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, 2015
Common Stock, $0.01 Par Value
 
103,471,446
 



Table of Contents

BANKUNITED, INC.
Form 10-Q
For the Quarter Ended June 30, 2015
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,
2015
 
December 31,
2014
ASSETS
 

 
 

Cash and due from banks:
 

 
 

Non-interest bearing
$
40,576

 
$
46,268

Interest bearing
30,422

 
33,979

Interest bearing deposits at Federal Reserve Bank
91,649

 
100,596

Federal funds sold
2,213

 
6,674

Cash and cash equivalents
164,860

 
187,517

Investment securities available for sale, at fair value
4,797,700

 
4,585,694

Investment securities held to maturity
10,000

 
10,000

Non-marketable equity securities
203,070

 
191,674

Loans held for sale
61,212

 
1,399

Loans (including covered loans of $916,071 and $1,043,864)
14,326,993

 
12,414,769

Allowance for loan and lease losses
(107,385
)
 
(95,542
)
Loans, net
14,219,608

 
12,319,227

FDIC indemnification asset
859,972

 
974,704

Bank owned life insurance
224,642

 
215,065

Equipment under operating lease, net
418,253

 
314,558

Other real estate owned (including covered OREO of $8,739 and $13,645)
9,414

 
13,780

Deferred tax asset, net
83,277

 
117,215

Goodwill and other intangible assets
78,511

 
68,414

Other assets
271,274

 
211,282

Total assets
$
21,401,793

 
$
19,210,529

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Demand deposits:
 

 
 

Non-interest bearing
$
2,679,779

 
$
2,714,127

Interest bearing
1,372,116

 
899,696

Savings and money market
6,860,411

 
5,896,007

Time
4,334,385

 
4,001,925

Total deposits
15,246,691

 
13,511,755

Federal Home Loan Bank advances and other borrowings
3,743,697

 
3,318,559

Other liabilities
265,070

 
327,681

Total liabilities
19,255,458

 
17,157,995

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 103,475,912 and 101,656,702 shares issued and outstanding
1,035

 
1,017

Paid-in capital
1,394,103

 
1,353,538

Retained earnings
700,063

 
651,627

Accumulated other comprehensive income
51,134

 
46,352

Total stockholders' equity
2,146,335

 
2,052,534

Total liabilities and stockholders' equity
$
21,401,793

 
$
19,210,529

 

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,
 
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 

 
 

Loans
$
184,010

 
$
164,184

 
$
355,389

 
$
327,967

Investment securities
26,284

 
25,741

 
54,504

 
50,567

Other
2,340

 
1,808

 
4,623

 
3,761

Total interest income
212,634

 
191,733

 
414,516

 
382,295

Interest expense:
 
 
 
 
 
 
 
Deposits
21,855

 
17,467

 
41,859

 
33,562

Borrowings
9,801

 
8,388

 
18,951

 
16,391

Total interest expense
31,656

 
25,855

 
60,810

 
49,953

Net interest income before provision for loan losses
180,978

 
165,878

 
353,706

 
332,342

Provision for (recovery of) loan losses (including $45, $897, $(406) and $1,693 for covered loans)
8,421

 
7,192

 
16,568

 
15,595

Net interest income after provision for loan losses
172,557

 
158,686

 
337,138

 
316,747

Non-interest income:
 
 
 
 
 
 
 
Income from resolution of covered assets, net
13,743

 
12,170

 
28,897

 
25,231

Net loss on FDIC indemnification
(16,771
)
 
(5,896
)
 
(37,036
)
 
(22,800
)
FDIC reimbursement of costs of resolution of covered assets

 
1,112

 
707

 
2,240

Service charges and fees
4,492

 
4,186

 
8,943

 
8,191

Gain (loss) on sale of loans, net (including gain (loss) related to covered loans of $7,417, $(366), $17,423 and $18,928)
8,223

 
(9
)
 
18,389

 
19,323

Gain on investment securities available for sale, net
1,128

 

 
3,150

 
361

Lease financing
7,044

 
4,692

 
13,281

 
8,563

Other non-interest income
3,199

 
4,223

 
5,468

 
9,559

Total non-interest income
21,058

 
20,478

 
41,799

 
50,668

Non-interest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
51,845

 
49,556

 
101,324

 
99,005

Occupancy and equipment
18,934

 
17,496

 
37,104

 
34,463

Amortization of FDIC indemnification asset
26,460

 
15,194

 
48,465

 
30,935

Other real estate owned expense, net (including loss (gain) related to covered OREO of $222, $218, $693 and $(2,589))
1,053

 
1,726

 
2,277

 
29

Deposit insurance expense
3,163

 
2,311

 
6,081

 
4,563

Professional fees
2,680

 
3,127

 
5,978

 
6,557

Telecommunications and data processing
3,345

 
3,266

 
6,816

 
6,573

Other non-interest expense
15,968

 
13,944

 
29,547

 
26,956

Total non-interest expense
123,448

 
106,620

 
237,592

 
209,081

Income before income taxes
70,167

 
72,544

 
141,345

 
158,334

Provision for income taxes
23,530

 
24,001

 
48,251

 
54,520

Net income
$
46,637

 
$
48,543

 
$
93,094

 
$
103,814

Earnings per common share, basic (see Note 2)
$
0.44

 
$
0.46

 
$
0.88

 
$
0.99

Earnings per common share, diluted (see Note 2)
$
0.43

 
$
0.46

 
$
0.87

 
$
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,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
46,637

 
$
48,543

 
$
93,094

 
$
103,814

Other comprehensive income, net of tax:
 
 


 
 
 
 

Unrealized gains on investment securities available for sale:
 
 


 
 
 
 

Net unrealized holding gain (loss) arising during the period
(11,142
)
 
8,022

 
1,845

 
21,433

Reclassification adjustment for net securities gains realized in income
(683
)
 

 
(1,906
)
 
(222
)
Net change in unrealized gains on securities available for sale
(11,825
)
 
8,022

 
(61
)
 
21,211

Unrealized losses on derivative instruments:
 
 


 
 
 
 

Net unrealized holding gain (loss) arising during the period
9,640

 
(7,939
)
 
(3,067
)
 
(12,515
)
Reclassification adjustment for net losses realized in income
3,891

 
4,089

 
7,910

 
8,112

Net change in unrealized losses on derivative instruments
13,531

 
(3,850
)
 
4,843

 
(4,403
)
Other comprehensive income
1,706

 
4,172

 
4,782

 
16,808

Comprehensive income
$
48,343

 
$
52,715

 
$
97,876

 
$
120,622



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,
 
2015
 
2014
Cash flows from operating activities:
 

 
 

Net income
$
93,094

 
$
103,814

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization and accretion, net
(83,758
)
 
(138,373
)
Provision for loan losses
16,568

 
15,595

Income from resolution of covered assets, net
(28,897
)
 
(25,231
)
Net loss on FDIC indemnification
37,036

 
22,800

Gain on sale of loans, net
(18,389
)
 
(19,323
)
Increase in cash surrender value of bank owned life insurance
(1,877
)
 
(1,659
)
Gain on investment securities available for sale, net
(3,150
)
 
(361
)
(Gain) loss on other real estate owned
693

 
(2,459
)
Equity based compensation
7,224

 
7,274

Depreciation and amortization
19,477

 
14,931

Deferred income taxes
33,124

 
(18,504
)
Proceeds from sale of loans held for sale
73,358

 
10,296

Loans originated for sale, net of repayments
(51,364
)
 
(11,407
)
Realized tax benefits from dividend equivalents and equity based compensation
(208
)
 
(980
)
Other:
 
 
 
Increase in other assets
(20,116
)
 
(13,434
)
Increase in other liabilities
3,433

 
5,506

Net cash provided by (used in) operating activities
76,248

 
(51,515
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Net cash paid in business combination
(277,553
)
 

Purchase of investment securities
(1,071,655
)
 
(636,547
)
Proceeds from repayments and calls of investment securities available for sale
284,891

 
159,147

Proceeds from sale of investment securities available for sale
474,914

 
119,824

Purchase of non-marketable equity securities
(68,359
)
 
(32,850
)
Proceeds from redemption of non-marketable equity securities
56,963

 
21,142

Purchases of loans
(435,433
)
 
(379,340
)
Loan originations, repayments and resolutions, net
(1,227,595
)
 
(1,391,119
)
Proceeds from sale of loans, net
98,611

 
490,462

Decrease in FDIC indemnification asset for claims filed
29,079

 
66,704

Purchase of premises and equipment, net
(16,025
)
 
(12,693
)
Acquisition of equipment under operating lease
(111,136
)
 
(14,461
)
Proceeds from sale of other real estate owned
9,764

 
37,325

Other investing activities
(11,481
)
 
(5,297
)
Net cash used in investing activities
(2,265,015
)
 
(1,577,703
)
 
 
 
(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 (Continued)
(In thousands)
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from financing activities:
 

 
 

Net increase in deposits
1,734,942

 
1,504,310

Additions to Federal Home Loan Bank advances and other borrowings
3,230,000

 
1,915,162

Repayments of Federal Home Loan Bank advances and other borrowings
(2,805,918
)
 
(1,640,794
)
Dividends paid
(44,288
)
 
(43,791
)
Realized tax benefits from dividend equivalents and equity based compensation
208

 
980

Exercise of stock options
33,151

 
914

Other financing activities
18,015

 
18,838

Net cash provided by financing activities
2,166,110

 
1,755,619

Net increase (decrease) in cash and cash equivalents
(22,657
)
 
126,401

Cash and cash equivalents, beginning of period
187,517

 
252,749

Cash and cash equivalents, end of period
$
164,860

 
$
379,150

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
56,772

 
$
46,559

Income taxes paid
$
19,159

 
$
70,755

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Transfers from loans to other real estate owned
$
6,091

 
$
15,311

Disbursement of loan proceeds from escrow
$

 
$
52,500

Dividends declared, not paid
$
22,338

 
$
21,958

Unsettled purchases of investment securities available for sale
$
25,249

 
$
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
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
Balance at December 31, 2014
101,656,702

 
$
1,017

 
$
1,353,538

 
$
651,627

 
$
46,352

 
$
2,052,534

Comprehensive income

 

 

 
93,094

 
4,782

 
97,876

Dividends

 

 

 
(44,658
)
 

 
(44,658
)
Equity based compensation
605,115

 
6

 
7,218

 

 

 
7,224

Forfeiture of unvested shares
(35,240
)
 

 

 

 

 

Exercise of stock options
1,249,335

 
12

 
33,139

 

 

 
33,151

Tax benefits from dividend equivalents and equity based compensation

 

 
208

 

 

 
208

Balance at June 30, 2015
103,475,912

 
$
1,035

 
$
1,394,103

 
$
700,063

 
$
51,134

 
$
2,146,335

 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

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, 2015


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, 2015.
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, 2014 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, 2015 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 ("ALLL"), the amount and timing of expected cash flows from covered assets and the FDIC indemnification asset, and the fair values of investment securities, other financial instruments and assets acquired in business combinations. Management has used information provided by third party valuation specialists to assist in the determination of the fair values of investment securities and certain assets acquired in business combinations.

9

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

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,
c
2015
 
2014
 
2015
 
2014
Basic earnings per common share:
 
 
 
 
 

 
 
Numerator:
 
 
 
 
 

 
 
Net income
$
46,637

 
$
48,543

 
$
93,094

 
$
103,814

Distributed and undistributed earnings allocated to participating securities
(1,810
)
 
(1,934
)
 
(3,582
)
 
(4,086
)
Income allocated to common stockholders for basic earnings per common share
$
44,827

 
$
46,609

 
$
89,512

 
$
99,728

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
103,444,183

 
101,651,265

 
102,841,376

 
101,489,190

Less average unvested stock awards
(1,174,496
)
 
(1,205,669
)
 
(1,094,366
)
 
(1,092,262
)
Weighted average shares for basic earnings per common share
102,269,687

 
100,445,596

 
101,747,010

 
100,396,928

Basic earnings per common share
$
0.44

 
$
0.46

 
$
0.88

 
$
0.99

Diluted earnings per common share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Income allocated to common stockholders for basic earnings per common share
$
44,827

 
$
46,609

 
$
89,512

 
$
99,728

Adjustment for earnings reallocated from participating securities
5

 
4

 
10

 
9

Income used in calculating diluted earnings per common share
$
44,832

 
$
46,613

 
$
89,522

 
$
99,737

Denominator:
 
 


 
 
 
 
Weighted average shares for basic earnings per common share
102,269,687

 
100,445,596

 
101,747,010

 
100,396,928

Dilutive effect of stock options
863,380

 
141,664

 
763,202

 
143,066

Weighted average shares for diluted earnings per common share
103,133,067

 
100,587,260

 
102,510,212

 
100,539,994

Diluted earnings per common share
$
0.43

 
$
0.46

 
$
0.87

 
$
0.99

The following potentially dilutive securities were outstanding at June 30, 2015 and 2014, 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,
 
2015
 
2014
 
2015
 
2014
Unvested shares
1,202,969

 
1,228,067

 
1,202,969

 
1,228,067

Stock options and warrants
1,851,376

 
6,386,424

 
1,851,376

 
6,386,424

 

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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

Note 3    Investment Securities
Investment securities available for sale consisted of the following at the dates indicated (in thousands):
 
June 30, 2015
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
U.S. Treasury securities
$
54,940

 
$
308

 
$

 
$
55,248

U.S. Government agency and sponsored enterprise residential mortgage-backed securities
1,353,079

 
31,391

 
(2,461
)
 
1,382,009

U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
100,639

 
708

 
(1
)
 
101,346

Resecuritized real estate mortgage investment conduits (“Re-Remics”)
135,525

 
2,623

 

 
138,148

Private label residential mortgage-backed securities and collateralized mortgage obligations ("CMOs")
679,743

 
50,744

 
(2,963
)
 
727,524

Private label commercial mortgage-backed securities
986,538

 
11,850

 
(1,272
)
 
997,116

Single family rental real estate-backed securities
555,445

 
261

 
(3,802
)
 
551,904

Collateralized loan obligations
309,602

 
1,104

 
(100
)
 
310,606

Non-mortgage asset-backed securities
81,513

 
3,448

 

 
84,961

Preferred stocks
75,895

 
8,587

 

 
84,482

State and municipal obligations
96,868

 
262

 
(435
)
 
96,695

Small Business Administration ("SBA") securities
251,700

 
7,726

 
(66
)
 
259,360

Other debt securities
3,783

 
4,518

 

 
8,301

 
$
4,685,270

 
$
123,530

 
$
(11,100
)
 
$
4,797,700

 
December 31, 2014
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
U.S. Treasury securities
$
54,924

 
$
43

 
$

 
$
54,967

U.S. Government agency and sponsored enterprise residential mortgage-backed securities
1,501,504

 
29,613

 
(6,401
)
 
1,524,716

U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
101,089

 
769

 

 
101,858

Re-Remics
179,664

 
3,613

 
(5
)
 
183,272

Private label residential mortgage-backed securities and CMOs
350,300

 
54,222

 
(543
)
 
403,979

Private label commercial mortgage-backed securities
1,156,166

 
10,254

 
(4,935
)
 
1,161,485

Single family rental real estate-backed securities
446,079

 
468

 
(3,530
)
 
443,017

Collateralized loan obligations
174,767

 

 
(435
)
 
174,332

Non-mortgage asset-backed securities
96,250

 
3,824

 
(6
)
 
100,068

Preferred stocks
96,294

 
9,148

 

 
105,442

State and municipal obligations
15,317

 
385

 

 
15,702

SBA securities
298,424

 
10,540

 
(236
)
 
308,728

Other debt securities
3,712

 
4,416

 

 
8,128

 
$
4,474,490

 
$
127,295

 
$
(16,091
)
 
$
4,585,694



11

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

Investment securities held to maturity at June 30, 2015 and December 31, 2014 consisted of one State of Israel bond with a carrying value of $10 million. Fair value approximated carrying value at June 30, 2015 and December 31, 2014. The bond matures in 2024.
At June 30, 2015, 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
$
497,286

 
$
511,266

Due after one year through five years
2,583,970

 
2,630,865

Due after five years through ten years
1,176,355

 
1,202,951

Due after ten years
351,764

 
368,136

Preferred stocks with no stated maturity
75,895

 
84,482

 
$
4,685,270

 
$
4,797,700

Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of June 30, 2015 was 3.6 years. The effective duration of the investment portfolio as of June 30, 2015 was 1.4 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 and to secure borrowing capacity at the Federal Reserve Bank ("FRB") totaled $1.0 billion at June 30, 2015 and December 31, 2014
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,
 
2015
 
2014
 
2015
 
2014
Proceeds from sale of investment securities available for sale
$
139,997


$

 
$
474,914

 
$
119,824

 
 
 
 
 
 
 
 
Gross realized gains
$
1,128

 
$

 
$
3,625

 
$
1,280

Gross realized losses

 

 
(475
)
 
(919
)
Gain on investment securities available for sale, net
$
1,128

 
$

 
$
3,150

 
$
361


12

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

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, 2015
 
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
$
10,087

 
$
(58
)
 
$
261,622

 
$
(2,403
)
 
$
271,709

 
$
(2,461
)
U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
241

 
(1
)
 

 

 
241

 
(1
)
Private label residential mortgage-backed securities and CMOs
240,416

 
(2,434
)
 
12,131

 
(529
)
 
252,547

 
(2,963
)
Private label commercial mortgage-backed securities
257,350

 
(929
)
 
62,825

 
(343
)
 
320,175

 
(1,272
)
Single family rental real estate-backed securities
470,999

 
(3,802
)
 

 

 
470,999

 
(3,802
)
Collateralized loan obligations
49,900

 
(100
)
 

 

 
49,900

 
(100
)
State and municipal obligations
67,720

 
(435
)
 

 

 
67,720

 
(435
)
SBA securities
26,686

 
(66
)
 

 

 
26,686

 
(66
)
 
$
1,123,399

 
$
(7,825
)
 
$
336,578

 
$
(3,275
)
 
$
1,459,977

 
$
(11,100
)
 
December 31, 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
$
7,058

 
$
(34
)
 
$
300,057

 
$
(6,367
)
 
$
307,115

 
$
(6,401
)
Re-Remics

 

 
335

 
(5
)
 
335

 
(5
)
Private label residential mortgage-backed securities and CMOs
60,076

 
(189
)
 
14,653

 
(354
)
 
74,729

 
(543
)
Private label commercial mortgage-backed securities
103,900

 
(1,150
)
 
239,456

 
(3,785
)
 
343,356

 
(4,935
)
Single family rental real estate-backed securities
233,012

 
(3,530
)
 

 

 
233,012

 
(3,530
)
Collateralized loan obligations
49,565

 
(435
)
 

 

 
49,565

 
(435
)
Non-mortgage asset-backed securities
2,796

 
(6
)
 

 

 
2,796

 
(6
)
SBA securities
49,851

 
(236
)
 

 

 
49,851

 
(236
)
 
$
506,258

 
$
(5,580
)
 
$
554,501

 
$
(10,511
)
 
$
1,060,759

 
$
(16,091
)
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 during the six months ended June 30, 2015 or 2014.  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, 2015, 62 securities were in unrealized loss positions. The amount of impairment related to sixteen of these securities was considered insignificant, totaling approximately $120 thousand and no further analysis with

13

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

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, 2015, eight U.S. Government agency and sponsored enterprise residential mortgage-backed securities were in unrealized loss positions. The unrealized losses 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 of each of the individual securities was 5% or less 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, 2015, ten private label residential mortgage-backed securities were in unrealized loss positions.  The unrealized losses were primarily due to widening credit spreads and an increase in medium and long-term market rates subsequent to acquisition. 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 June 30, 2015. 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, 2015, ten private label commercial mortgage-backed securities were in unrealized loss positions. The unrealized losses were primarily attributable to an increase in medium and long-term market interest rates subsequent to the date the securities were acquired and widening credit spreads. The amount of impairment of each of the individual securities was less than 1% 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 June 30, 2015, twelve single family rental real estate-backed securities were in unrealized loss positions. The unrealized losses were primarily due to widening credit spreads, leading to increased extension risk. The securities had been in unrealized loss positions for less than twelve months and the amount of impairment of each of the individual securities was less than 2% of amortized cost.  Management's analysis of the credit characteristics and levels of subordination for each of the securities is not indicative of projected credit losses. Given the limited duration and severity of impairment and the absence of projected credit losses, the impairments were considered to be temporary.
Collateralized loan obligations:
At June 30, 2015, one collateralized loan obligation was in an unrealized loss position, due to widening credit spreads. The amount of impairment was less than 1% of amortized cost. Given the limited severity of impairment and the results of independent analysis of the credit quality of loans underlying the security, the impairment was considered to be temporary.
State and municipal obligations:
At June 30, 2015, four state and municipal obligations were in unrealized loss positions. These securities had been in unrealized loss positions for less than three months and the amount of impairment of each of the individual securities was less than 3% of amortized cost. Given the limited severity and duration of impairment, the impairment was considered to be temporary.

14

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

Small Business Administration securities:
At June 30, 2015, one Small Business Administration security was in an unrealized loss position. 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 of impairment and the expectation of timely payment of principal and interest, the impairment was considered to be temporary.
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 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 originated or purchased by the Company subsequent to the FSB Acquisition are referred to as "New Loans."
Loans consisted of the following at the dates indicated (dollars in thousands):
 
June 30, 2015
 
Non-Covered Loans
 
Covered Loans
 
 
 
Percent of Total
 
New Loans
 
ACI
 
ACI
 
Non-ACI
 
Total
 
Residential:
 

 
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
2,736,406

 
$

 
$
785,216

 
$
50,530

 
$
3,572,152

 
25.0
%
Home equity loans and lines of credit
2,198

 

 
8,050

 
81,397

 
91,645

 
0.6
%
 
2,738,604

 

 
793,266

 
131,927

 
3,663,797

 
25.6
%
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
2,759,002

 
24,699

 

 

 
2,783,701

 
19.5
%
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
1,187,857

 
23,551

 

 

 
1,211,408

 
8.5
%
Non-owner occupied
2,105,622

 
25,739

 

 

 
2,131,361

 
14.9
%
Construction and land
253,208

 
2,008

 

 

 
255,216

 
1.8
%
Commercial and industrial
2,578,351

 
1,165

 

 

 
2,579,516

 
18.1
%
Commercial finance subsidiaries
1,632,415

 

 

 

 
1,632,415

 
11.4
%
 
10,516,455

 
77,162

 

 

 
10,593,617

 
74.2
%
Consumer
32,372

 
12

 

 

 
32,384

 
0.2
%
Total loans
13,287,431

 
77,174

 
793,266

 
131,927

 
14,289,798

 
100.0
%
Premiums, discounts and deferred fees and costs, net
46,317

 

 

 
(9,122
)
 
37,195

 
 
Loans including premiums, discounts and deferred fees and costs
13,333,748

 
77,174

 
793,266

 
122,805

 
14,326,993

 
 
Allowance for loan and lease losses
(104,815
)
 

 

 
(2,570
)
 
(107,385
)
 
 
Loans, net
$
13,228,933

 
$
77,174

 
$
793,266

 
$
120,235

 
$
14,219,608

 
 
 

15

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

 
December 31, 2014
 
Non-Covered Loans
 
Covered Loans
 
 
 
Percent of Total
 
New Loans
 
ACI
 
ACI
 
Non-ACI
 
Total
 
Residential:
 

 
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
2,486,272

 
$

 
$
874,522

 
$
56,138

 
$
3,416,932

 
27.6
%
Home equity loans and lines of credit
1,827

 

 
22,657

 
101,142

 
125,626

 
1.0
%
 
2,488,099

 

 
897,179

 
157,280

 
3,542,558

 
28.6
%
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
1,927,225

 
24,964

 

 

 
1,952,189

 
15.8
%
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
1,008,930

 
34,440

 

 

 
1,043,370

 
8.4
%
Non-owner occupied
1,753,317

 
30,762

 

 

 
1,784,079

 
14.4
%
Construction and land
167,713

 
2,007

 

 

 
169,720

 
1.4
%
Commercial and industrial
2,402,064

 
1,229

 

 

 
2,403,293

 
19.4
%
Commercial finance subsidiaries
1,456,751

 

 

 

 
1,456,751

 
11.8
%
 
8,716,000

 
93,402

 

 

 
8,809,402

 
71.2
%
Consumer
26,293

 
14

 

 

 
26,307

 
0.2
%
Total loans
11,230,392

 
93,416

 
897,179

 
157,280

 
12,378,267

 
100.0
%
Premiums, discounts and deferred fees and costs, net
47,097

 

 

 
(10,595
)
 
36,502

 
 
Loans including premiums, discounts and deferred fees and costs
11,277,489

 
93,416

 
897,179

 
146,685

 
12,414,769

 
 
Allowance for loan and lease losses
(91,350
)
 

 

 
(4,192
)
 
(95,542
)
 
 
Loans, net
$
11,186,139

 
$
93,416

 
$
897,179

 
$
142,493

 
$
12,319,227

 
 
Through three subsidiaries, the Bank provides commercial and municipal equipment financing utilizing both loan and lease structures. At June 30, 2015 and December 31, 2014, the commercial finance subsidiaries portfolio included a net investment in direct financing leases of $447 million and $458 million, respectively.
During the three and six months ended June 30, 2015 and 2014, the Company purchased 1-4 single family residential loans totaling $266 million, $435 million, $200 million and $379 million, respectively.
At June 30, 2015, the Company had pledged real estate loans with UPB of approximately $7.9 billion and recorded investment of approximately $6.7 billion as security for FHLB advances.
At June 30, 2015 and December 31, 2014, the UPB of ACI loans was $2.3 billion and $2.6 billion, respectively. 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, 2015 and the year ended December 31, 2014 were as follows (in thousands):
Balance, December 31, 2013
$
1,158,572

Reclassifications from non-accretable difference
185,604

Accretion
(338,864
)
Balance, December 31, 2014
1,005,312

Reclassifications from non-accretable difference
45,235

Accretion
(143,766
)
Balance, June 30, 2015
$
906,781


16

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

Loan sales
During the periods indicated, the Company sold covered 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,
 
2015
 
2014
 
2015
 
2014
UPB of loans sold
$
62,708

 
$
64,081

 
$
118,121

 
$
134,269

 
 
 
 
 
 
 
 
Cash proceeds, net of transaction costs
$
50,916

 
$
40,550

 
$
98,611

 
$
86,447

Recorded investment in loans sold
43,499

 
33,835

 
81,188

 
69,922

Net pre-tax impact on earnings, excluding gain (loss) on FDIC indemnification
$
7,417

 
$
6,715

 
$
17,423

 
$
16,525

 
 
 
 
 
 
 
 
Gain (loss) on sale of covered loans, net
$
7,417

 
$
(366
)
 
$
17,423

 
$
957

Proceeds recorded in interest income

 
7,081

 

 
15,568

 
$
7,417

 
$
6,715

 
$
17,423

 
$
16,525

 
 
 
 
 
 
 
 
Gain (loss) on FDIC indemnification, net
$
(5,928
)
 
$
1,565

 
$
(14,046
)
 
$
1,245

 
For the three and six months ended June 30, 2014, covered 1-4 single family residential loans with UPB of $13 million and $29 million 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 six months ended June 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 six months ended June 30, 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 FDIC indemnification
$
(2,085
)
 

17

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2015

During the three months ended June 30, 2014, the Company made the decision to terminate its indirect auto lending activities and sold indirect auto loans with a recorded investment of $302.8 million. The total impact of this transaction on pre-tax earnings was not material.
Allowance for loan and lease losses 
Activity in the ALLL is summarized as follows for the periods indicated (in thousands):
 
Three Months Ended June 30,
 
2015
 
2014
 
Residential
 
Commercial
 
Consumer
 
Total
 
Residential
 
Commercial
 
Consumer
 
Total
Beginning balance
$
13,202

 
$
86,446

 
$
188

 
$
99,836

 
$
13,929

 
$
52,991

 
$
3,108

 
$
70,028

Provision for (recovery of) loan losses:
 
 
 
 
 
 
 
 
 
 
14

 
 
 
 
ACI loans

 

 

 

 

 
14

 

 
14

Non-ACI loans
62

 
(17
)
 

 
45

 
999

 
(116
)
 

 
883

New loans
781

 
7,604

 
(9
)
 
8,376

 
265

 
8,301

 
(2,271
)
 
6,295

Total provision
843

 
7,587

 
(9
)
 
8,421

 
1,264

 
8,199

 
(2,271
)
 
7,192

Charge-offs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACI loans

 

 

 

 

 
(14
)
 

 
(14
)
Non-ACI loans
(630
)
 

 

 
(630
)
 
(911
)
 

 

 
(911
)
New loans

 
(884
)
 

 
(884
)
 

 
(631
)
 
(547
)
 
(1,178
)
Total charge-offs
(630
)
 
(884
)
 

 
(1,514
)
 
(911
)
 
(645
)
 
(547
)
 
(2,103
)
Recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-ACI loans
14

 
17

 

 
31

 
3

 

 

 
3

New loans

 
591

 
20

 
611