10-Q
 
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, 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
 
October 28, 2015
Common Stock, $0.01 Par Value
 
103,524,426
 


Table of Contents

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

 
 

Cash and due from banks:
 

 
 

Non-interest bearing
$
25,262

 
$
46,268

Interest bearing
51,619

 
33,979

Interest bearing deposits at Federal Reserve Bank
195,533

 
100,596

Federal funds sold
3,867

 
6,674

Cash and cash equivalents
276,281

 
187,517

Investment securities available for sale, at fair value
4,661,446

 
4,585,694

Investment securities held to maturity
10,000

 
10,000

Non-marketable equity securities
217,945

 
191,674

Loans held for sale
50,791

 
1,399

Loans (including covered loans of $854,117 and $1,043,864)
15,431,385

 
12,414,769

Allowance for loan and lease losses
(118,285
)
 
(95,542
)
Loans, net
15,313,100

 
12,319,227

FDIC indemnification asset
798,223

 
974,704

Bank owned life insurance
225,089

 
215,065

Equipment under operating lease, net
401,754

 
314,558

Other real estate owned (including covered OREO of $9,136 and $13,645)
9,676

 
13,780

Deferred tax asset, net
154,050

 
117,215

Goodwill and other intangible assets
78,408

 
68,414

Other assets
340,908

 
211,282

Total assets
$
22,537,671

 
$
19,210,529

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Demand deposits:
 

 
 

Non-interest bearing
$
2,723,347

 
$
2,714,127

Interest bearing
1,362,471

 
899,696

Savings and money market
7,260,978

 
5,896,007

Time
4,551,096

 
4,001,925

Total deposits
15,897,892

 
13,511,755

Federal Home Loan Bank advances and other borrowings
4,093,816

 
3,318,559

Other liabilities
335,395

 
327,681

Total liabilities
20,327,103

 
17,157,995

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 103,529,759 and 101,656,702 shares issued and outstanding
1,035

 
1,017

Paid-in capital
1,399,003

 
1,353,538

Retained earnings
780,011

 
651,627

Accumulated other comprehensive income
30,519

 
46,352

Total stockholders' equity
2,210,568

 
2,052,534

Total liabilities and stockholders' equity
$
22,537,671

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 

 
 

Loans
$
190,294

 
$
171,591

 
$
545,683

 
$
499,558

Investment securities
30,889

 
27,816

 
85,393

 
78,383

Other
2,715

 
1,815

 
7,338

 
5,576

Total interest income
223,898

 
201,222

 
638,414

 
583,517

Interest expense:
 
 
 
 
 
 
 
Deposits
23,959

 
19,432

 
65,818

 
52,994

Borrowings
10,988

 
8,541

 
29,939

 
24,932

Total interest expense
34,947

 
27,973

 
95,757

 
77,926

Net interest income before provision for loan losses
188,951

 
173,249

 
542,657

 
505,591

Provision for (recovery of) loan losses (including $1,073, $(900), $667 and $793 for covered loans)
17,819

 
5,387

 
34,387

 
20,982

Net interest income after provision for loan losses
171,132

 
167,862

 
508,270

 
484,609

Non-interest income:
 
 
 
 
 
 
 
Income from resolution of covered assets, net
12,364

 
14,525

 
41,261

 
39,756

Net loss on FDIC indemnification
(15,988
)
 
(16,958
)
 
(53,024
)
 
(39,758
)
FDIC reimbursement of costs of resolution of covered assets
134

 
1,411

 
841

 
3,651

Service charges and fees
4,637

 
4,236

 
13,580

 
12,427

Gain on sale of loans, net (including gain related to covered loans of $9,288, $3,667, $26,711 and $22,595)
11,301

 
3,789

 
29,690

 
23,112

Gain on investment securities available for sale, net
2,343

 
795

 
5,493

 
1,156

Lease financing
12,673

 
4,122

 
25,954

 
12,685

Other non-interest income
3,709

 
2,531

 
9,177

 
12,090

Total non-interest income
31,173

 
14,451

 
72,972

 
65,119

Non-interest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
55,316

 
50,003

 
156,640

 
149,008

Occupancy and equipment
19,103

 
17,782

 
56,207

 
52,245

Amortization of FDIC indemnification asset
28,409

 
17,948

 
76,874

 
48,883

Other real estate owned expense, net (including loss (gain) related to covered OREO of $493, $93, $1,186 and $(2,495))
1,191

 
1,501

 
3,468

 
1,530

Deposit insurance expense
3,615

 
2,452

 
9,696

 
7,015

Professional fees
4,095

 
3,106

 
10,073

 
9,663

Telecommunications and data processing
3,451

 
3,332

 
10,267

 
9,905

Other non-interest expense
17,089

 
12,809

 
46,636

 
39,765

Total non-interest expense
132,269

 
108,933

 
369,861

 
318,014

Income before income taxes
70,036

 
73,380

 
211,381

 
231,714

Provision (benefit) for income taxes
(32,267
)
 
19,813

 
15,984

 
74,333

Net income
$
102,303

 
$
53,567

 
$
195,397

 
$
157,381

Earnings per common share, basic (see Note 2)
$
0.96

 
$
0.51

 
$
1.84

 
$
1.51

Earnings per common share, diluted (see Note 2)
$
0.95

 
$
0.51

 
$
1.83

 
$
1.50

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,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
102,303

 
$
53,567

 
$
195,397

 
$
157,381

Other comprehensive income (loss), net of tax:
 
 


 
 
 
 

Unrealized gains on investment securities available for sale:
 
 


 
 
 
 

Net unrealized holding gain (loss) arising during the period
(5,281
)
 
(14,898
)
 
(3,436
)
 
6,535

Reclassification adjustment for net securities gains realized in income
(1,417
)
 
(488
)
 
(3,323
)
 
(710
)
Net change in unrealized gains on securities available for sale
(6,698
)
 
(15,386
)
 
(6,759
)
 
5,825

Unrealized losses on derivative instruments:
 
 


 
 
 
 

Net unrealized holding gain (loss) arising during the period
(18,139
)
 
391

 
(21,206
)
 
(12,124
)
Reclassification adjustment for net losses realized in income
4,222

 
4,134

 
12,132

 
12,246

Net change in unrealized losses on derivative instruments
(13,917
)
 
4,525

 
(9,074
)
 
122

Other comprehensive income (loss)
(20,615
)
 
(10,861
)
 
(15,833
)
 
5,947

Comprehensive income
$
81,688

 
$
42,706

 
$
179,564

 
$
163,328



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,
 
2015
 
2014
Cash flows from operating activities:
 

 
 

Net income
$
195,397

 
$
157,381

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization and accretion, net
(123,007
)
 
(204,056
)
Provision for loan losses
34,387

 
20,982

Income from resolution of covered assets, net
(41,261
)
 
(39,756
)
Net loss on FDIC indemnification
53,024

 
39,758

Gain on sale of loans, net
(29,690
)
 
(23,112
)
Increase in cash surrender value of bank owned life insurance
(2,324
)
 
(2,264
)
Gain on investment securities available for sale, net
(5,493
)
 
(1,156
)
(Gain) loss on other real estate owned
1,085

 
(2,366
)
Equity based compensation
12,045

 
11,629

Depreciation and amortization
30,744

 
22,808

Deferred income taxes
(24,445
)
 
(31,206
)
Proceeds from sale of loans held for sale
119,877

 
15,726

Loans originated for sale, net of repayments
(86,086
)
 
(17,308
)
Realized tax benefits from dividend equivalents and equity based compensation
(276
)
 
(1,483
)
Other:
 
 
 
(Increase) decrease in other assets
1,426

 
(12,692
)
Increase in other liabilities
24,753

 
15,536

Net cash provided by (used in) operating activities
160,156

 
(51,579
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Net cash paid in business combination
(277,553
)
 
—

Purchase of investment securities
(1,435,456
)
 
(1,115,488
)
Proceeds from repayments and calls of investment securities available for sale
424,128

 
253,947

Proceeds from sale of investment securities available for sale
799,450

 
203,360

Purchase of non-marketable equity securities
(106,609
)
 
(40,050
)
Proceeds from redemption of non-marketable equity securities
80,338

 
33,067

Purchases of loans
(678,075
)
 
(613,703
)
Loan originations, repayments and resolutions, net
(2,066,388
)
 
(1,621,880
)
Proceeds from sale of loans, net
152,820

 
542,741

Decrease in FDIC indemnification asset for claims filed
46,307

 
94,320

Purchase of premises and equipment, net
(20,421
)
 
(18,525
)
Acquisition of equipment under operating lease, net
(151,677
)
 
(51,922
)
Proceeds from sale of other real estate owned
13,709

 
45,947

Other investing activities
(18,376
)
 
(5,297
)
Net cash used in investing activities
(3,237,803
)
 
(2,293,483
)
 
 
 
(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)
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from financing activities:
 

 
 

Net increase in deposits
2,386,146

 
2,301,489

Additions to Federal Home Loan Bank advances and other borrowings
5,630,000

 
2,600,000

Repayments of Federal Home Loan Bank advances and other borrowings
(4,856,327
)
 
(2,431,308
)
Dividends paid
(66,626
)
 
(65,750
)
Realized tax benefits from dividend equivalents and equity based compensation
276

 
1,483

Exercise of stock options
33,162

 
914

Other financing activities
39,780

 
33,629

Net cash provided by financing activities
3,166,411

 
2,440,457

Net increase in cash and cash equivalents
88,764

 
95,395

Cash and cash equivalents, beginning of period
187,517

 
252,749

Cash and cash equivalents, end of period
$
276,281

 
$
348,144

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
89,626

 
$
72,667

Income taxes paid
$
19,249

 
$
93,053

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Transfers from loans to other real estate owned and other repossessed assets
$
13,656

 
$
21,542

Disbursement of loan proceeds from escrow
$
—

 
$
52,500

Dividends declared, not paid
$
22,355

 
$
21,966

Proceeds from sale of equipment under operating lease held in escrow
$
52,237

 
$
—

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
—

 
—

 
—

 
195,397

 
(15,833
)
 
179,564

Dividends
—

 
—

 
—

 
(67,013
)
 
—

 
(67,013
)
Equity based compensation
662,928

 
6

 
12,039

 
—

 
—

 
12,045

Forfeiture of unvested shares
(39,706
)
 
—

 
—

 
—

 
—

 
—

Exercise of stock options
1,249,835

 
12

 
33,150

 
—

 
—

 
33,162

Tax benefits from dividend equivalents and equity based compensation
—

 
—

 
276

 
—

 
—

 
276

Balance at September 30, 2015
103,529,759

 
$
1,035

 
$
1,399,003

 
$
780,011

 
$
30,519

 
$
2,210,568

 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

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, 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 97 branches located in 15 Florida counties and 6 banking centers located in the New York metropolitan area at September 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 nine months ended September 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
September 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  
 September 30,
 
Nine Months Ended 
 September 30,
c
2015
 
2014
 
2015
 
2014
Basic earnings per common share:
 
 
 
 
 

 
 
Numerator:
 
 
 
 
 

 
 
Net income
$
102,303

 
$
53,567

 
$
195,397

 
$
157,381

Distributed and undistributed earnings allocated to participating securities
(4,016
)
 
(2,130
)
 
(7,578
)
 
(6,215
)
Income allocated to common stockholders for basic earnings per common share
$
98,287

 
$
51,437

 
$
187,819

 
$
151,166

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
103,503,425

 
101,657,560

 
103,064,484

 
101,545,930

Less average unvested stock awards
(1,176,288
)
 
(1,175,739
)
 
(1,121,973
)
 
(1,120,393
)
Weighted average shares for basic earnings per common share
102,327,137

 
100,481,821

 
101,942,511

 
100,425,537

Basic earnings per common share
$
0.96

 
$
0.51

 
$
1.84

 
$
1.51

Diluted earnings per common share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Income allocated to common stockholders for basic earnings per common share
$
98,287

 
$
51,437

 
$
187,819

 
$
151,166

Adjustment for earnings reallocated from participating securities
25

 
5

 
30

 
14

Income used in calculating diluted earnings per common share
$
98,312

 
$
51,442

 
$
187,849

 
$
151,180

Denominator:
 
 


 
 
 
 
Weighted average shares for basic earnings per common share
102,327,137

 
100,481,821

 
101,942,511

 
100,425,537

Dilutive effect of stock options
989,661

 
140,006

 
839,518

 
142,035

Weighted average shares for diluted earnings per common share
103,316,798

 
100,621,827

 
102,782,029

 
100,567,572

Diluted earnings per common share
$
0.95

 
$
0.51

 
$
1.83

 
$
1.50

The following potentially dilutive securities were outstanding at September 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  
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Unvested shares
1,192,732

 
1,222,148

 
1,192,732

 
1,222,148

Stock options and warrants
1,851,376

 
6,386,424

 
1,851,376

 
6,386,424

 

10
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 30, 2015

Note 3    Investment Securities
Investment securities available for sale consisted of the following at the dates indicated (in thousands):
 
September 30, 2015
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
U.S. Treasury securities
$
54,947

 
$
339

 
$
—

 
$
55,286

U.S. Government agency and sponsored enterprise residential mortgage-backed securities
1,267,439

 
24,783

 
(461
)
 
1,291,761

U.S. Government agency and sponsored enterprise commercial mortgage-backed securities
91,325

 
1,763

 
—

 
93,088

Resecuritized real estate mortgage investment conduits (“Re-Remics”)
110,809

 
1,947

 
(22
)
 
112,734

Private label residential mortgage-backed securities and collateralized mortgage obligations ("CMOs")
494,572

 
50,969

 
(998
)
 
544,543

Private label commercial mortgage-backed securities
1,098,343

 
12,049

 
(2,438
)
 
1,107,954

Single family rental real estate-backed securities
578,743

 
136

 
(6,587
)
 
572,292

Collateralized loan obligations
309,595

 
150

 
(2,785
)
 
306,960

Non-mortgage asset-backed securities
57,284

 
1,950

 
—

 
59,234

Preferred stocks
75,823

 
9,253

 
—

 
85,076

State and municipal obligations
175,047

 
3,362

 
(218
)
 
178,191

Small Business Administration ("SBA") securities
242,340

 
4,298

 
(598
)
 
246,040

Other debt securities
3,818

 
4,469

 
—

 
8,287

 
$
4,560,085

 
$
115,468

 
$
(14,107
)
 
$
4,661,446

 
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
September 30, 2015

Investment securities held to maturity at September 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 September 30, 2015 and December 31, 2014. The bond matures in 2024.
At September 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
$
627,272

 
$
638,794

Due after one year through five years
2,299,502

 
2,337,361

Due after five years through ten years
1,090,732

 
1,114,166

Due after ten years
466,756

 
486,049

Preferred stocks with no stated maturity
75,823

 
85,076

 
$
4,560,085

 
$
4,661,446

Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of September 30, 2015 was 3.9 years. The effective duration of the investment portfolio as of September 30, 2015 was 1.5 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 $1.2 billion and $1.0 billion at September 30, 2015 and December 31, 2014, respectively. 
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,
 
2015
 
2014
 
2015
 
2014
Proceeds from sale of investment securities available for sale
$
324,536


$
83,536

 
$
799,450

 
$
203,360

 
 
 
 
 
 
 
 
Gross realized gains
$
2,343

 
$
795

 
$
5,968

 
$
2,075

Gross realized losses
—

 
—

 
(475
)
 
(919
)
Gain on investment securities available for sale, net
$
2,343

 
$
795

 
$
5,493

 
$
1,156


12
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 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): 
 
September 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
$
1,276

 
$
(6
)
 
$
105,195

 
$
(455
)
 
$
106,471

 
$
(461
)
Re-Remics
8,004

 
(22
)
 
—

 
—

 
8,004

 
(22
)
Private label residential mortgage-backed securities and CMOs
54,758

 
(721
)
 
11,715

 
(277
)
 
66,473

 
(998
)
Private label commercial mortgage-backed securities
271,225

 
(2,101
)
 
62,726

 
(337
)
 
333,951

 
(2,438
)
Single family rental real estate-backed securities
308,633

 
(2,107
)
 
213,699

 
(4,480
)
 
522,332

 
(6,587
)
Collateralized loan obligations
222,653

 
(2,175
)
 
49,390

 
(610
)
 
272,043

 
(2,785
)
State and municipal obligations
14,927

 
(218
)
 
—

 
—

 
14,927

 
(218
)
SBA securities
25,613

 
(598
)
 
—

 
—

 
25,613

 
(598
)
 
$
907,089

 
$
(7,948
)
 
$
442,725

 
$
(6,159
)
 
$
1,349,814

 
$
(14,107
)
 
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 nine months ended September 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 September 30, 2015, 47 securities were in unrealized loss positions. The amount of impairment related to eight of these securities was considered insignificant, totaling approximately $76 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: 

13
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 30, 2015

U.S. Government agency and sponsored enterprise residential mortgage-backed securities:
At September 30, 2015, three 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 3% 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 September 30, 2015, five 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 credit and prepayment behavioral models that incorporate 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, 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 September 30, 2015, eleven private label commercial mortgage-backed securities were in unrealized loss positions. The unrealized losses were primarily attributable to widening credit spreads and for certain securities, an increase in medium and long-term market interest rates subsequent to acquisition. The amount of impairment of each of the individual securities was 1% or less of amortized cost.  These securities were assessed for OTTI using credit and prepayment behavioral 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, 2015, thirteen 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 amount of impairment of each of the individual securities was 2% or less of amortized cost.  Management's analysis of the credit characteristics, including loan-to-value and debt service coverage ratios, and levels of subordination for each of the securities is not indicative of projected credit losses. Given the limited severity of impairment and the absence of projected credit losses, the impairments were considered to be temporary.
Collateralized loan obligations:
At September 30, 2015, four collateralized loan obligations were in unrealized loss positions, due to widening credit spreads. The amount of impairment of each of the individual securities was less than 2% of amortized cost. Given the limited severity of impairment, levels of subordination and the results of independent analyses of the credit quality of loans underlying the securities, the impairments were considered to be temporary.
State and municipal obligations:
At September 30, 2015, two state and municipal obligations were in unrealized loss positions. These securities had been in unrealized loss positions for less than six months and the amount of impairment of each of the individual securities was less than 2% of amortized cost. Given the limited severity and duration of impairment and the results of independent credit surveillance, the impairments were considered to be temporary.

14
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 30, 2015

SBA securities:
At September 30, 2015, one SBA security was in an unrealized loss position. The amount of impairment was 2% of amortized cost and was attributable primarily to increased prepayment speeds. 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):
 
September 30, 2015
 
Non-Covered Loans
 
Covered Loans
 
 
 
Percent of Total
 
New Loans
 
ACI
 
ACI
 
Non-ACI
 
Total
 
Residential:
 

 
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
2,906,939

 
$
—

 
$
738,532

 
$
47,957

 
$
3,693,428

 
24.0
%
Home equity loans and lines of credit
1,121

 
—

 
3,456

 
72,833

 
77,410

 
0.5
%
 
2,908,060

 
—

 
741,988

 
120,790

 
3,770,838

 
24.5
%
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
3,021,768

 
24,588

 
—

 
—

 
3,046,356

 
19.8
%
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
1,172,156

 
21,805

 
—

 
—

 
1,193,961

 
7.8
%
Non-owner occupied
2,507,484

 
25,295

 
—

 
—

 
2,532,779

 
16.4
%
Construction and land
308,512

 
—

 
—

 
—

 
308,512

 
2.0
%
Commercial and industrial
2,704,590

 
1,199

 
—

 
—

 
2,705,789

 
17.6
%
Commercial finance subsidiaries
1,802,979

 
—

 
—

 
—

 
1,802,979

 
11.7
%
 
11,517,489

 
72,887

 
—

 
—

 
11,590,376

 
75.3
%
Consumer
33,250

 
11

 
—

 
—

 
33,261

 
0.2
%
Total loans
14,458,799

 
72,898

 
741,988

 
120,790

 
15,394,475

 
100.0
%
Premiums, discounts and deferred fees and costs, net
45,571

 
—

 
—

 
(8,661
)
 
36,910

 
 
Loans including premiums, discounts and deferred fees and costs
14,504,370

 
72,898

 
741,988

 
112,129

 
15,431,385

 
 
Allowance for loan and lease losses
(114,800
)
 
—

 
—

 
(3,485
)
 
(118,285
)
 
 
Loans, net
$
14,389,570

 
$
72,898

 
$
741,988

 
$
108,644

 
$
15,313,100

 
 
 

15
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 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 September 30, 2015 and December 31, 2014, the commercial finance subsidiaries portfolio included a net investment in direct financing leases of $444 million and $458 million, respectively.
During the three and nine months ended September 30, 2015 and 2014, the Company purchased 1-4 single family residential loans totaling $243 million, $678 million, $234 million and $614 million, respectively.
At September 30, 2015, the Company had pledged real estate loans with UPB of approximately $8.2 billion and recorded investment of approximately $7.1 billion as security for FHLB advances.
At September 30, 2015 and December 31, 2014, the UPB of ACI loans was $2.2 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 nine months ended September 30, 2015 and the year ended December 31, 2014 were as follows (in thousands):
Balance at December 31, 2013
$
1,158,572

Reclassifications from non-accretable difference
185,604

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

Reclassifications from non-accretable difference
118,819

Accretion
(216,219
)
Balance at September 30, 2015
$
907,912


16
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
UPB of loans sold
$
66,129

 
$
71,301

 
$
184,250

 
$
205,570

 
 
 
 
 
 
 
 
Cash proceeds, net of transaction costs
$
54,209

 
$
52,279

 
$
152,820

 
$
138,726

Recorded investment in loans sold
44,921

 
36,241

 
126,109

 
106,163

Net pre-tax impact on earnings, excluding loss on FDIC indemnification
$
9,288

 
$
16,038

 
$
26,711

 
$
32,563

 
 
 
 
 
 
 
 
Gain on sale of covered loans, net
$
9,288

 
$
3,667

 
$
26,711

 
$
4,624

Proceeds recorded in interest income
—

 
12,371

 
—

 
27,939

 
$
9,288

 
$
16,038

 
$
26,711

 
$
32,563

 
 
 
 
 
 
 
 
Loss on FDIC indemnification, net
$
(7,430
)
 
$
(4,068
)
 
$
(21,476
)
 
$
(2,823
)
 
For the three and nine months ended September 30, 2014, covered 1-4 single family residential loans with UPB of $16 million and $45 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 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 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 nine months ended September 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
September 30, 2015

During the nine months ended September 30, 2014, the Company terminated 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 September 30,
 
2015
 
2014
 
Residential
 
Commercial
 
Consumer
 
Total
 
Residential
 
Commercial
 
Consumer
 
Total
Beginning balance
$
13,429

 
$
93,757

 
$
199

 
$
107,385

 
$
14,285

 
$
60,695

 
$
491

 
$
75,471

Provision for (recovery of) loan losses:
 
 
 
 
 
 
 
 
 
 
14

 
 
 
 
ACI loans
—

 
—

 
—

 
—

 
 
 
—

 
—

 
—

Non-ACI loans
1,089

 
(16
)
 
—

 
1,073

 
(450
)
 
(450
)
 
—

 
(900
)
New loans
191

 
16,500

 
55

 
16,746

 
355

 
6,195

 
(263
)
 
6,287

Total provision
1,280

 
16,484

 
55

 
17,819

 
(95
)
 
5,745

 
(263
)
 
5,387

Charge-offs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACI loans
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Non-ACI loans
(189
)
 
—

 
—

 
(189
)
 
(1,052
)
 
—

 
—

 
(1,052
)
New loans
—

 
(6,903
)
 
—

 
(6,903
)
 
—

 
(1,469
)
 
(173
)
 
(1,642
)
Total charge-offs
(189
)
 
(6,903
)
 
—

 
(7,092
)
 
(1,052
)
 
(1,469
)
 
(173
)
 
(2,694
)
Recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-ACI loans
15

 
16

 
—

 
31

 
4

 
450

 
—

 
454

New loans
—

 
137

 
5

 
142