Document
 
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, 2017
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
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 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 7, 2017
Common Stock, $0.01 Par Value
 
106,800,372
 


Table of Contents

BANKUNITED, INC.
Form 10-Q
For the Quarter Ended June 30, 2017
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 6.
 
 
 
 
 
 


i


GLOSSARY OF DEFINED TERMS

The following acronyms and terms may be used throughout this Form 10-Q, including the consolidated financial statements and related notes.
ACI
 
Loans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)
ALCO
 
Asset/Liability Committee
ALLL
 
Allowance for loan and lease losses
AOCI
 
Accumulated other comprehensive income
ARM
 
Adjustable rate mortgage
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
BKU
 
BankUnited, Inc.
BankUnited
 
BankUnited, National Association
The Bank
 
BankUnited, National Association
Bridge
 
Bridge Funding Group, Inc.
CET1
 
Common Equity Tier 1 capital
CECL
 
Current expected credit losses
CME
 
Chicago Mercantile Exchange
CMOs
 
Collateralized mortgage obligations
Commercial Shared-Loss Agreement
 
A commercial and other loans shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
Covered assets
 
Assets covered under the Loss Sharing Agreements
Covered loans
 
Loans covered under the Loss Sharing Agreements
EPS
 
Earnings per common share
EVE
 
Economic value of equity
FASB
 
Financial Accounting Standards Board
FDIA
 
Federal Deposit Insurance Act
FDIC
 
Federal Deposit Insurance Corporation
FHLB
 
Federal Home Loan Bank
FICO
 
Fair Isaac Corporation (credit score)
FRB
 
Federal Reserve Bank
FSB Acquisition
 
Acquisition of substantially all of the assets and assumption of all of the non-brokered deposits and substantially all of the other liabilities of BankUnited, FSB from the FDIC on May 21, 2009
GAAP
 
U.S. generally accepted accounting principles
GDP
 
Gross Domestic Product
HAMP
 
Home Affordable Modification Program
IPO
 
Initial public offering
ISDA
 
International Swaps and Derivatives Association
LIBOR
 
London InterBank Offered Rate
Loss Sharing Agreements
 
Two loss sharing agreements entered into with the FDIC in connection with the FSB Acquisition
LTV
 
Loan-to-value
MBS
 
Mortgage-backed securities
MSA
 
Metropolitan Statistical Area
MSRs
 
Mortgage servicing rights
New Loans
 
Loans originated or purchased since the FSB Acquisition

ii


Non-ACI
 
Loans acquired without evidence of deterioration in credit quality since origination
NYTLC
 
New York City Taxi and Limousine Commission
OCC
 
Office of the Comptroller of the Currency
OREO
 
Other real estate owned
OTTI
 
Other-than-temporary impairment
PSU
 
Performance Share Unit
Pinnacle
 
Pinnacle Public Finance, Inc.
RSU
 
Restricted Share Unit
SBA
 
U.S. Small Business Administration
SBF
 
Small Business Finance Unit
SEC
 
Securities and Exchange Commission
Single Family Shared-Loss Agreement
 
A single-family loan shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
TDR
 
Troubled-debt restructuring
UPB
 
Unpaid principal balance
2014 Plan
 
2014 Omnibus Equity Incentive Plan


iii

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,
2017
 
December 31,
2016
ASSETS
 

 
 

Cash and due from banks:
 

 
 

Non-interest bearing
$
37,639

 
$
40,260

Interest bearing
105,081

 
35,413

Interest bearing deposits at Federal Reserve Bank
85,640

 
372,640

Cash and cash equivalents
228,360

 
448,313

Investment securities available for sale, at fair value
6,727,327

 
6,073,584

Investment securities held to maturity
10,000

 
10,000

Non-marketable equity securities
271,947

 
284,272

Loans held for sale
29,016

 
41,198

Loans (including covered loans of $527,310 and $614,042)
20,231,336

 
19,395,394

Allowance for loan and lease losses
(155,648
)
 
(152,953
)
Loans, net
20,075,688

 
19,242,441

FDIC indemnification asset
406,820

 
515,933

Bank owned life insurance
243,082

 
239,736

Equipment under operating lease, net
573,075

 
539,914

Deferred tax asset, net
26,181

 
62,940

Goodwill and other intangible assets
77,919

 
78,047

Other assets
324,321

 
343,773

Total assets
$
28,993,736

 
$
27,880,151

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Demand deposits:
 

 
 

Non-interest bearing
$
3,021,959

 
$
2,960,591

Interest bearing
1,558,174

 
1,523,064

Savings and money market
10,071,034

 
9,251,593

Time
6,126,673

 
5,755,642

Total deposits
20,777,840

 
19,490,890

Federal Home Loan Bank advances
4,949,785

 
5,239,348

Notes and other borrowings
402,823

 
402,809

Other liabilities
282,468

 
328,675

Total liabilities
26,412,916

 
25,461,722

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock, par value $0.01 per share, 400,000,000 shares authorized; 106,800,972 and 104,166,945 shares issued and outstanding
1,068

 
1,042

Paid-in capital
1,488,159

 
1,426,459

Retained earnings
1,032,308

 
949,681

Accumulated other comprehensive income
59,285

 
41,247

Total stockholders' equity
2,580,820

 
2,418,429

Total liabilities and stockholders' equity
$
28,993,736

 
$
27,880,151

 

The accompanying notes are an integral part of these consolidated financial statements.
1

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 

 
 

Loans
$
249,409

 
$
220,630

 
$
485,771

 
$
435,206

Investment securities
46,054

 
36,710

 
89,773

 
70,251

Other
3,372

 
3,124

 
6,829

 
5,814

Total interest income
298,835

 
260,464

 
582,373

 
511,271

Interest expense:
 
 
 
 
 
 
 
Deposits
39,514

 
28,833

 
74,242

 
55,459

Borrowings
19,732

 
17,321

 
37,949

 
34,661

Total interest expense
59,246

 
46,154

 
112,191

 
90,120

Net interest income before provision for loan losses
239,589

 
214,310

 
470,182

 
421,151

Provision for (recovery of) loan losses (including $1,653, $57, $2,432 and $(674) for covered loans)
13,619

 
14,333

 
25,719

 
18,041

Net interest income after provision for loan losses
225,970

 
199,977

 
444,463

 
403,110

Non-interest income:
 
 
 
 
 
 
 
Income from resolution of covered assets, net
8,361

 
9,545

 
15,666

 
17,543

Net loss on FDIC indemnification
(2,588
)
 
(4,114
)
 
(9,336
)
 
(10,403
)
Service charges and fees
5,539

 
4,796

 
10,616

 
9,358

Gain (loss) on sale of loans, net (including $(3,447), $(4,151), $(1,565) and $(4,863) related to covered loans)
(404
)
 
(903
)
 
4,154

 
587

Gain on investment securities available for sale, net
627

 
3,858

 
2,263

 
7,057

Lease financing
13,141

 
10,974

 
26,780

 
21,574

Other non-interest income
5,217

 
4,701

 
7,894

 
6,339

Total non-interest income
29,893

 
28,857

 
58,037

 
52,055

Non-interest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
60,388

 
55,752

 
120,059

 
111,212

Occupancy and equipment
19,251

 
19,065

 
37,860

 
38,332

Amortization of FDIC indemnification asset
45,663

 
38,060

 
90,126

 
77,754

Deposit insurance expense
5,588

 
4,231

 
11,063

 
7,923

Professional fees
4,785

 
3,604

 
9,825

 
6,235

Telecommunications and data processing
3,745

 
3,721

 
7,029

 
7,054

Depreciation of equipment under operating lease
8,733

 
6,647

 
16,750

 
13,149

Other non-interest expense
12,282

 
13,032

 
24,280

 
24,561

Total non-interest expense
160,435

 
144,112

 
316,992

 
286,220

Income before income taxes
95,428

 
84,722

 
185,508

 
168,945

Provision for income taxes
29,021

 
27,997

 
56,808

 
57,346

Net income
$
66,407

 
$
56,725

 
$
128,700

 
$
111,599

Earnings per common share, basic (see Note 2)
$
0.60

 
$
0.53

 
$
1.18

 
$
1.04

Earnings per common share, diluted (see Note 2)
$
0.60

 
$
0.52

 
$
1.17

 
$
1.03

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.
2

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,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net income
$
66,407

 
$
56,725

 
$
128,700

 
$
111,599

Other comprehensive income (loss), net of tax:
 
 


 
 
 
 

Unrealized gains on investment securities available for sale:
 
 


 
 
 
 

Net unrealized holding gain arising during the period
8,092

 
42,555

 
24,269

 
50,274

Reclassification adjustment for net securities gains realized in income
(379
)
 
(2,334
)
 
(1,369
)
 
(4,270
)
Net change in unrealized gains on securities available for sale
7,713

 
40,221

 
22,900

 
46,004

Unrealized losses on derivative instruments:
 
 


 
 
 
 

Net unrealized holding loss arising during the period
(8,598
)
 
(14,638
)
 
(8,167
)
 
(40,003
)
Reclassification adjustment for net losses realized in income
1,556

 
2,604

 
3,305

 
5,632

Net change in unrealized losses on derivative instruments
(7,042
)
 
(12,034
)
 
(4,862
)
 
(34,371
)
Other comprehensive income
671

 
28,187

 
18,038

 
11,633

Comprehensive income
$
67,078

 
$
84,912

 
$
146,738

 
$
123,232



The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 

 
 

Net income
$
128,700

 
$
111,599

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and accretion, net
(49,408
)
 
(61,404
)
Provision for loan losses
25,719

 
18,041

Income from resolution of covered assets, net
(15,666
)
 
(17,543
)
Net loss on FDIC indemnification
9,336

 
10,403

Gain on sale of loans, net
(4,154
)
 
(587
)
Increase in cash surrender value of bank owned life insurance
(3,503
)
 
(2,029
)
Gain on investment securities available for sale, net
(2,263
)
 
(7,057
)
Equity based compensation
9,705

 
8,850

Depreciation and amortization
29,837

 
26,013

Deferred income taxes
24,983

 
25,936

Proceeds from sale of loans held for sale
92,660

 
89,537

Loans originated for sale, net of repayments
(71,499
)
 
(71,168
)
Other:
 
 
 
(Increase) decrease in other assets
12,525

 
(15,617
)
Increase (decrease) in other liabilities
(58,035
)
 
29,009

Net cash provided by operating activities
128,937

 
143,983

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchase of investment securities available for sale
(1,658,461
)
 
(1,529,380
)
Proceeds from repayments and calls of investment securities available for sale
608,060

 
283,318

Proceeds from sale of investment securities available for sale
427,923

 
494,185

Purchase of non-marketable equity securities
(99,238
)
 
(122,500
)
Proceeds from redemption of non-marketable equity securities
111,563

 
70,763

Purchases of loans
(636,876
)
 
(581,982
)
Loan originations, repayments and resolutions, net
(167,525
)
 
(945,908
)
Proceeds from sale of loans, net
98,421

 
83,490

Decrease in FDIC indemnification asset for claims filed
9,678

 
18,028

Acquisition of equipment under operating lease, net
(49,911
)
 
(8,568
)
Other investing activities
(18,405
)
 
(15,885
)
Net cash used in investing activities
(1,374,771
)
 
(2,254,439
)
 
 
 
(Continued)


The accompanying notes are an integral part of these consolidated financial statements.
4

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (Continued)
(In thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from financing activities:
 

 
 

Net increase in deposits
1,286,950

 
1,293,552

Additions to Federal Home Loan Bank advances
2,820,000

 
2,365,000

Repayments of Federal Home Loan Bank advances
(3,110,000
)
 
(1,430,000
)
Dividends paid
(45,549
)
 
(44,860
)
Exercise of stock options
61,519

 
222

Other financing activities
12,961

 
18,716

Net cash provided by financing activities
1,025,881

 
2,202,630

Net increase (decrease) in cash and cash equivalents
(219,953
)
 
92,174

Cash and cash equivalents, beginning of period
448,313

 
267,500

Cash and cash equivalents, end of period
$
228,360

 
$
359,674

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
108,036

 
$
89,129

Income taxes paid, net
$
41,298

 
$
937

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Transfers from loans to other real estate owned and other repossessed assets
$
3,602

 
$
13,141

Transfers from loans to loans held for sale
$
5,190

 
$

Dividends declared, not paid
$
23,034

 
$
22,482

Obligations incurred in acquisition of affordable housing limited partnerships
$

 
$
12,750


The accompanying notes are an integral part of these consolidated financial statements.
5

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
(In thousands, except share data)
 
Common
Shares
Outstanding
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
Balance at December 31, 2016
104,166,945

 
$
1,042

 
$
1,426,459

 
$
949,681

 
$
41,247

 
$
2,418,429

Comprehensive income

 

 

 
128,700

 
18,038

 
146,738

Dividends

 

 

 
(46,073
)
 

 
(46,073
)
Equity based compensation
591,999

 
6

 
7,380

 

 

 
7,386

Forfeiture of unvested shares and shares surrendered for tax withholding obligations
(262,080
)
 
(3
)
 
(7,176
)
 

 

 
(7,179
)
Exercise of stock options
2,304,108

 
23

 
61,496

 

 

 
61,519

Balance at June 30, 2017
106,800,972

 
$
1,068

 
$
1,488,159

 
$
1,032,308

 
$
59,285

 
$
2,580,820

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
103,626,255

 
$
1,036

 
$
1,406,786

 
$
813,894

 
$
22,182

 
$
2,243,898

Comprehensive income

 

 

 
111,599

 
11,633

 
123,232

Dividends

 

 

 
(44,962
)
 

 
(44,962
)
Equity based compensation
617,617

 
7

 
8,197

 

 

 
8,204

Forfeiture of unvested shares
(87,072
)
 
(1
)
 
1

 

 

 

Exercise of stock options
10,000

 

 
222

 

 

 
222

Tax benefits from dividend equivalents and equity based compensation

 

 
552

 

 

 
552

Balance at June 30, 2016
104,166,800

 
$
1,042

 
$
1,415,758

 
$
880,531

 
$
33,815

 
$
2,331,146

 


The accompanying notes are an integral part of these consolidated financial statements.
6

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017



Note 1    Basis of Presentation and Summary of Significant Accounting Policies
BankUnited, Inc. is a national bank holding company with one wholly-owned subsidiary, BankUnited, 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 90 banking centers located in 15 Florida counties and 6 banking centers located in the New York metropolitan area at June 30, 2017. The Bank also offers certain commercial lending and deposit products through national platforms.
In connection with the FSB Acquisition, BankUnited entered into two loss sharing agreements with the FDIC. The Loss Sharing Agreements consist of the Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement. Assets covered by the Loss Sharing Agreements are referred to as covered assets or, in certain cases, covered loans. 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 OREO. Loss sharing under the Commercial Shared-Loss Agreement terminated on May 21, 2014. The Commercial Shared-Loss Agreement continued to provide for the Bank’s reimbursement of recoveries to the FDIC through June 30, 2017 for all other covered assets, including commercial real estate, commercial and industrial and consumer loans, certain investment securities and commercial OREO. 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 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 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, 2016 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, 2017 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 ALLL, 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.
New Accounting Pronouncements Adopted
ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU simplified several aspects of the accounting for share-based payment transactions. The Company adopted this ASU in the first quarter of 2017. The amendment requiring the recognition of excess tax benefits and deficiencies as income tax benefit or expense in the income statement as opposed to being recognized as additional paid-in-capital was applied prospectively and resulted in the recognition of $0.3 million and $2.9 million in excess tax benefits in the consolidated statement of income line item "Provision for income taxes" for the three and six months ended June 30, 2017, increasing net income by the same amount in each period. The adoption had no impact on basic and diluted earnings per share for the three months ended June 30, 2017 and increased basic and diluted earnings per share by $0.03 and $0.02, respectively, for the six months ended June 30, 2017. The Company retrospectively adopted the amendments requiring the classification of excess tax benefits and deficiencies with other income tax cash flows as operating activities and cash paid when directly withholding shares as financing activities in the accompanying consolidated statements of cash flows; the impact was not material. The Company has elected to continue its current practice of estimating the number of awards expected to vest in determining the amount of compensation cost to be recognized related to share based payment transactions.

7

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU require certain premiums on callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased as a discount will not be impacted. The Company early-adopted this ASU in the first quarter of 2017 with no material impact on the Company's consolidated financial position, results of operations or cash flows.
ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments in this ASU clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. A company performing the assessment under these amendments is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence, without also considering whether the contingency is related to interest rates or credit risks. The Company adopted this ASU in the first quarter of 2017 with no impact on its consolidated financial position, results of operations or cash flows.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this update affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts, including leases and insurance contracts, are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict the transfer of goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. The amendments also require expanded disclosures concerning the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. Financial instruments and lease contracts are generally outside the scope of the ASU as are revenues that are in the scope of ASC 860 "Transfers and Servicing", ASC 460 "Guarantees" and ASC 815 "Derivatives and Hedging". The FASB has issued subsequent ASUs to clarify certain aspects of ASU 2014-09, without changing the core principle of the guidance and to defer the effective date of ASU 2014-09 to annual periods and interim periods within fiscal years beginning after December 15, 2017. Entities should apply the amendments in this ASU retrospectively to each prior reporting period presented incorporating certain practical expedients, or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. Although management has not finalized its evaluation of the impact of adoption of this ASU, substantially all of the Company's revenues have historically been, and are expected to continue to be, generated from activities that are outside the scope of the ASU. Therefore, management does not expect adoption to have a material impact on the Company's consolidated financial position, results of operations or cash flows. Service charges on deposit accounts, which totaled approximately $6.5 million for the six months ended June 30, 2017, is the most significant category of revenue identified as within the scope of the ASU; management does not expect the amount and timing of recognition of such revenue to be materially impacted by adoption, which management expects to apply retrospectively.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in the ASU that are expected to be most applicable to the Company (1) eliminate the available for sale classification for equity securities and require investments in equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, provided that equity investments that do not have readily determinable fair values may be re-measured at fair value upon occurrence of an observable price change or recognition of impairment, (2) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and (3) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments also clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity's other deferred tax assets, which is consistent with the Company's current practice. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2017 and will be adopted by means of a cumulative-effect adjustment to the balance sheet, except for amendments related to equity securities without readily determinable fair values, which will be applied prospectively. Although management has not finalized its evaluation of the impact of adoption of this ASU, adoption is not expected to have any impact on the Company's consolidated financial position or cash flows. The carrying value of equity

8

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


investments for which fair value changes will be recognized in earnings after adoption totaled $72 million and had unrealized gains of $10.9 million at June 30, 2017. Adoption of the ASU will impact the Company's disclosures about the fair value of certain financial instruments.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for lease terms longer than one year. Accounting applied by lessors is largely unchanged by this ASU. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2018. Early adoption is permitted; however, the Company does not intend to early adopt this ASU. Lessees and lessors are required to apply the provisions of the ASU at the beginning of the earliest period presented using a modified retrospective approach. Management has not completed its evaluation of the impact of adoption of this ASU and is not currently able to reasonably estimate the impact of adoption on the consolidated financial statements; however, the most significant impact is expected to be the recognition, as lessee, of new right-of-use assets and lease liabilities on the consolidated balance sheet for real estate leases currently classified as operating leases.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. The ASU introduces new guidance which makes substantive changes to the accounting for credit losses. The ASU introduces the CECL model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. This includes loans, loan commitments, standby letters of credit, net investments in leases recognized by a lessor and held-to-maturity debt securities. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions and reasonable and supportable forecasts. The ASU also modifies the current OTTI model for available for sale debt securities requiring an estimate of expected credit losses only when the fair value of an available for sale debt security is below its amortized cost. Credit losses on available for sale debt securities will be limited to the difference between the security's amortized cost basis and its fair value. The ASU also provides for a simplified accounting model for purchased financial assets with more than insignificant credit deterioration since their origination. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2019. Management has not yet completed its evaluation of the impact of adoption of this ASU and is not currently able to reasonably estimate the impact of adoption on the consolidated financial statements; however, adoption is likely to lead to significant changes in accounting policies related to, and the methods employed in estimating, the ALLL. It is possible that the impact will be material to the Company's consolidated financial position and results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU provide guidance on eight specific cash flow classification issues where there has been diversity in practice. The guidance in the ASU that is expected to be most applicable to the Company requires: (1) cash payments for debt prepayment or extinguishment costs to be classified as cash outflows for financing activities, (2) proceeds from settlement of insurance claims to be classified on the basis of the nature of the loss and (3) cash proceeds from settlement of bank-owned life insurance policies to be classified as cash flows from investing activities. Cash payments for premiums on bank-owned life insurance may be classified as cash flows for investing activities, operating activities or a combination thereof. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2017 and will be applied retrospectively to each period presented. The provisions of this ASU are generally consistent with the Company's current practice and adoption is not expected to materially impact the Company's consolidated cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. As amended, an entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative test for a reporting unit to determine if the quantitative impairment test is necessary. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Entities should apply the amendment prospectively. Early adoption is permitted, including in an interim period, for impairment tests performed after January 1, 2017. The Company generally performs its goodwill impairment test in the third quarter of each fiscal year, and intends to early adopt this ASU for the impairment test performed in the third quarter of 2017. While it is not possible to determine the future relationship of the carrying amount of a reporting unit to its fair value, the Company currently has a single reporting unit and historically, the fair value of that reporting unit has substantially exceeded its carrying amount.

9

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


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
2017
 
2016
 
2017

2016
Basic earnings per common share:
 
 
 
 
 

 
 
Numerator:
 
 
 
 
 

 
 
Net income
$
66,407

 
$
56,725

 
$
128,700

 
$
111,599

Distributed and undistributed earnings allocated to participating securities
(2,483
)
 
(2,282
)
 
(4,805
)
 
(4,490
)
Income allocated to common stockholders for basic earnings per common share
$
63,924

 
$
54,443

 
$
123,895

 
$
107,109

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
106,827,077

 
104,160,894

 
106,325,244

 
104,039,977

Less average unvested stock awards
(1,144,135
)
 
(1,193,517
)
 
(1,102,836
)
 
(1,173,213
)
Weighted average shares for basic earnings per common share
105,682,942

 
102,967,377

 
105,222,408

 
102,866,764

Basic earnings per common share
$
0.60

 
$
0.53

 
$
1.18

 
$
1.04

Diluted earnings per common share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Income allocated to common stockholders for basic earnings per common share
$
63,924

 
$
54,443

 
$
123,895

 
$
107,109

Adjustment for earnings reallocated from participating securities
7

 
(81
)
 
15

 
(182
)
Income used in calculating diluted earnings per common share
$
63,931

 
$
54,362

 
$
123,910

 
$
106,927

Denominator:
 
 


 
 
 
 
Weighted average shares for basic earnings per common share
105,682,942

 
102,967,377

 
105,222,408

 
102,866,764

Dilutive effect of stock options and executive share-based awards
455,135

 
764,435

 
537,491

 
771,592

Weighted average shares for diluted earnings per common share
106,138,077

 
103,731,812

 
105,759,899

 
103,638,356

Diluted earnings per common share
$
0.60

 
$
0.52

 
$
1.17

 
$
1.03

Included in participating securities above are unvested shares and 3,023,314 dividend equivalent rights outstanding at June 30, 2017 that were issued in conjunction with the IPO of the Company's common stock. These dividend equivalent rights expire in 2021 and participate in dividends on a one-for-one basis.
The following potentially dilutive securities were outstanding at June 30, 2017 and 2016, 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,
 
2017
 
2016
 
2017
 
2016
Unvested shares and share units
1,521,817

 
1,328,003

 
1,521,817

 
1,328,003

Stock options and warrants
1,850,279

 
1,851,376

 
1,850,279

 
1,851,376

 

10

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


Note 3    Investment Securities
Investment securities available for sale consisted of the following at the dates indicated (in thousands):
 
June 30, 2017
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
U.S. Treasury securities
$
24,958

 
$

 
$
(18
)
 
$
24,940

U.S. Government agency and sponsored enterprise residential MBS
2,148,173

 
16,866

 
(621
)
 
2,164,418

U.S. Government agency and sponsored enterprise commercial MBS
115,461

 
1,032

 
(1,981
)
 
114,512

Private label residential MBS and CMOs
636,897

 
43,696

 
(911
)
 
679,682

Private label commercial MBS
1,185,598

 
13,056

 
(1,668
)
 
1,196,986

Single family rental real estate-backed securities
540,105

 
8,348

 
(228
)
 
548,225

Collateralized loan obligations
487,707

 
5,153

 

 
492,860

Non-mortgage asset-backed securities
190,100

 
2,243

 
(2,114
)
 
190,229

Preferred stocks
61,013

 
10,948

 

 
71,961

State and municipal obligations
680,854

 
13,397

 
(4,441
)
 
689,810

SBA securities
537,197

 
8,103

 
(331
)
 
544,969

Other debt securities
4,031

 
4,704

 

 
8,735

 
$
6,612,094

 
$
127,546

 
$
(12,313
)
 
$
6,727,327

 
December 31, 2016
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
U.S. Treasury securities
$
4,999

 
$
6

 
$

 
$
5,005

U.S. Government agency and sponsored enterprise residential MBS
1,513,028

 
15,922

 
(1,708
)
 
1,527,242

U.S. Government agency and sponsored enterprise commercial MBS
126,754

 
670

 
(2,838
)
 
124,586

Private label residential MBS and CMOs
334,167

 
42,939

 
(2,008
)
 
375,098

Private label commercial MBS
1,180,386

 
9,623

 
(2,385
)
 
1,187,624

Single family rental real estate-backed securities
858,339

 
4,748

 
(1,836
)
 
861,251

Collateralized loan obligations
487,678

 
868

 
(1,250
)
 
487,296

Non-mortgage asset-backed securities
187,660

 
2,002

 
(2,926
)
 
186,736

Preferred stocks
76,180

 
12,027

 
(4
)
 
88,203

State and municipal obligations
705,884

 
3,711

 
(11,049
)
 
698,546

SBA securities
517,129

 
7,198

 
(421
)
 
523,906

Other debt securities
3,999

 
4,092

 

 
8,091

 
$
5,996,203

 
$
103,806

 
$
(26,425
)
 
$
6,073,584

Investment securities held to maturity at June 30, 2017 and December 31, 2016 consisted of one State of Israel bond with a carrying value of $10 million. Fair value approximated carrying value at June 30, 2017 and December 31, 2016. The bond matures in 2024.

11

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


At June 30, 2017, 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
$
725,336

 
$
739,352

Due after one year through five years
3,324,587

 
3,371,368

Due after five years through ten years
2,107,020

 
2,136,465

Due after ten years
394,138

 
408,181

Preferred stocks with no stated maturity
61,013

 
71,961

 
$
6,612,094

 
$
6,727,327

Based on the Company’s proprietary assumptions, the estimated weighted average life of the investment portfolio as of June 30, 2017 was 4.8 years. The effective duration of the investment portfolio as of June 30, 2017 was 1.7 years. The model results are based on assumptions that may differ from actual results. 
The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at the FRB totaled $2.0 billion and $1.8 billion at June 30, 2017 and December 31, 2016, 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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Proceeds from sale of investment securities available for sale
$
166,368


$
272,838

 
$
427,923

 
$
494,185

 
 
 
 
 
 
 
 
Gross realized gains
$
656

 
$
3,858

 
$
2,292

 
$
7,057

Gross realized losses
(29
)
 

 
(29
)
 

Gain on investment securities available for sale, net
$
627

 
$
3,858

 
$
2,263

 
$
7,057


12

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


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, 2017
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
U.S. Treasury securities
$
24,940

 
$
(18
)
 
$

 
$

 
$
24,940

 
$
(18
)
U.S. Government agency and sponsored enterprise residential MBS
288,059

 
(273
)
 
67,444

 
(348
)
 
355,503

 
(621
)
U.S. Government agency and sponsored enterprise commercial MBS
52,707

 
(1,874
)
 
21,194

 
(107
)
 
73,901

 
(1,981
)
Private label residential MBS and CMOs
232,666

 
(719
)
 
6,643

 
(192
)
 
239,309

 
(911
)
Private label commercial MBS
151,745

 
(1,668
)
 

 

 
151,745

 
(1,668
)
Single family rental real estate-backed securities
14,696

 
(204
)
 
26,872

 
(24
)
 
41,568

 
(228
)
Non-mortgage asset-backed securities
105,246

 
(2,114
)
 

 

 
105,246

 
(2,114
)
State and municipal obligations
304,441

 
(4,441
)
 

 

 
304,441

 
(4,441
)
SBA securities
2,517

 
(2
)
 
18,595

 
(329
)
 
21,112

 
(331
)
 
$
1,177,017

 
$
(11,313
)
 
$
140,748

 
$
(1,000
)
 
$
1,317,765

 
$
(12,313
)
 
December 31, 2016
 
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 MBS
$
191,463

 
$
(628
)
 
$
112,391

 
$
(1,080
)
 
$
303,854

 
$
(1,708
)
U.S. Government agency and sponsored enterprise commercial MBS
89,437

 
(2,838
)
 

 

 
89,437

 
(2,838
)
Private label residential MBS and CMOs
122,142

 
(1,680
)
 
8,074

 
(328
)
 
130,216

 
(2,008
)
Private label commercial MBS
169,535

 
(2,370
)
 
24,985

 
(15
)
 
194,520

 
(2,385
)
Single family rental real estate-backed securities
139,867

 
(842
)
 
176,057

 
(994
)
 
315,924

 
(1,836
)
Collateralized loan obligations
69,598

 
(402
)
 
173,983

 
(848
)
 
243,581

 
(1,250
)
Non-mortgage asset-backed securities
139,477

 
(2,926
)
 

 

 
139,477

 
(2,926
)
Preferred stocks
10,087

 
(4
)
 

 

 
10,087

 
(4
)
State and municipal obligations
448,180

 
(11,049
)
 

 

 
448,180

 
(11,049
)
SBA securities
4,204

 
(13
)
 
20,076

 
(408
)
 
24,280

 
(421
)
 
$
1,383,990

 
$
(22,752
)
 
$
515,566

 
$
(3,673
)
 
$
1,899,556

 
$
(26,425
)

13

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


The Company monitors its investment securities available for sale for OTTI on an individual security basis. No securities were determined to be other-than-temporarily impaired during the six months ended June 30, 2017 or 2016. The Company does not intend to sell securities that are in significant unrealized loss positions at June 30, 2017 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, 2017, 79 securities were in unrealized loss positions. The amount of impairment related to 31 of these securities was considered insignificant, totaling approximately $268 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 MBS and commercial MBS
At June 30, 2017, six U.S. Government agency and sponsored enterprise residential MBS and four U.S. Government agency and sponsored enterprise commercial MBS were in unrealized loss positions. For eight fixed rate securities, the impairment was primarily attributable to an increase in medium and long-term market interest rates subsequent to the date of acquisition. For the remaining two variable rate securities, the amount of impairment was less than 1% 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 expectation of timely payment of principal and interest, the impairments were considered to be temporary.
Private label residential MBS and CMOs
At June 30, 2017, eight private label residential MBS and CMOs were in unrealized loss positions, primarily as a result of an increase in medium and long-term market interest rates subsequent to acquisition. The amount of impairment of each of the individual securities was less than 3% of amortized cost. 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 related to any of these securities as of June 30, 2017. 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 MBS:
At June 30, 2017, six private label commercial MBS were in unrealized loss positions. The amount of impairment of each of the individual securities was less than 3% of amortized cost. The unrealized losses were primarily attributable to increases in market interest rates since the purchase of the securities. 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 June 30, 2017, two single family rental real estate-backed securities were in unrealized loss positions. The unrealized losses were primarily due to increases in market interest rates since the purchase of the securities. The amount of impairment of each of the individual securities was less than 2% 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.
Non-mortgage asset-backed securities:
At June 30, 2017, three non-mortgage asset-backed securities were in unrealized loss positions, due primarily to increases in market interest rates subsequent to the date of acquisition. The amount of impairment of each of the individual securities was 3% 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.

14

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


State and municipal obligations:
At June 30, 2017, 18 state and municipal obligations were in unrealized loss positions, primarily due to increases in market interest rates. The amount of impairment of each of the individual securities was 4% or less of amortized cost. All of the securities are rated investment grade by nationally recognized statistical ratings organizations. Management's evaluation of these securities for OTTI also encompassed the review of credit scores and analysis provided by a third party firm specializing in the analysis and credit review of municipal securities. Given the absence of expected credit losses and management's ability and intent to hold the securities until recovery, the impairments were considered to be temporary.
SBA securities:
At June 30, 2017, one SBA security was in an unrealized loss position. The amount of impairment was less than 2% of amortized cost. This security was purchased at a premium and the impairment 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 segregates its loan portfolio between covered and non-covered loans. Non-covered loans include new loans and commercial and consumer loans acquired in the FSB Acquisition for which loss share coverage has terminated. Covered loans are further segregated between ACI loans and non-ACI loans.
Loans consisted of the following at the dates indicated (dollars in thousands):
 
June 30, 2017
 

 
Covered Loans
 
 
 
Percent of Total
 
Non-Covered Loans
 
ACI
 
Non-ACI
 
Total
 
Residential and other consumer:
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
3,806,895

 
$
456,065

 
$
31,788

 
$
4,294,748

 
21.3
%
Home equity loans and lines of credit
1,531

 
4,692

 
40,149

 
46,372

 
0.2
%
Other consumer loans
21,134

 

 

 
21,134

 
0.1
%
 
3,829,560

 
460,757

 
71,937

 
4,362,254

 
21.6
%
Commercial:
 
 
 
 
 
 
 
 
 
Multi-family
3,718,286

 

 

 
3,718,286

 
18.4
%
Non-owner occupied commercial real estate
3,933,110

 

 

 
3,933,110

 
19.5
%
Construction and land
249,002

 

 

 
249,002

 
1.2
%
Owner occupied commercial real estate
1,882,952

 

 

 
1,882,952

 
9.3
%
Commercial and industrial
3,615,000

 

 

 
3,615,000

 
17.9
%
Commercial lending subsidiaries
2,430,892

 

 

 
2,430,892

 
12.1
%
 
15,829,242

 

 

 
15,829,242

 
78.4
%
Total loans
19,658,802

 
460,757

 
71,937

 
20,191,496

 
100.0
%
Premiums, discounts and deferred fees and costs, net
45,224

 

 
(5,384
)
 
39,840

 
 
Loans including premiums, discounts and deferred fees and costs
19,704,026

 
460,757

 
66,553

 
20,231,336

 
 
Allowance for loan and lease losses
(151,099
)
 
(1,812
)
 
(2,737
)
 
(155,648
)
 
 
Loans, net
$
19,552,927

 
$
458,945

 
$
63,816

 
$
20,075,688

 
 
 

15

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


 
December 31, 2016
 

 
Covered Loans
 
 
 
Percent of Total
 
Non-Covered Loans
 
ACI
 
Non-ACI
 
Total
 
Residential and other consumer:
 

 
 

 
 

 
 

 
 

1-4 single family residential
$
3,422,425

 
$
532,348

 
$
36,675

 
$
3,991,448

 
20.6
%
Home equity loans and lines of credit
1,120

 
3,894

 
47,629

 
52,643

 
0.3
%
Other consumer loans
24,365

 

 

 
24,365

 
0.1
%
 
3,447,910

 
536,242

 
84,304

 
4,068,456

 
21.0
%
Commercial:
 
 
 
 
 
 
 
 
 
Multi-family
3,824,973

 

 

 
3,824,973

 
19.8
%
Non-owner occupied commercial real estate
3,739,235

 

 

 
3,739,235

 
19.3
%
Construction and land
311,436

 

 

 
311,436

 
1.6
%
Owner occupied commercial real estate
1,736,858

 

 

 
1,736,858

 
9.0
%
Commercial and industrial
3,391,614

 

 

 
3,391,614

 
17.5
%
Commercial lending subsidiaries
2,280,685

 

 

 
2,280,685

 
11.8
%
 
15,284,801

 

 

 
15,284,801

 
79.0
%
Total loans
18,732,711

 
536,242

 
84,304

 
19,353,257

 
100.0
%
Premiums, discounts and deferred fees and costs, net
48,641

 

 
(6,504
)
 
42,137

 
 
Loans including premiums, discounts and deferred fees and costs
18,781,352

 
536,242

 
77,800

 
19,395,394

 
 
Allowance for loan and lease losses
(150,853
)
 

 
(2,100
)
 
(152,953
)
 
 
Loans, net
$
18,630,499

 
$
536,242

 
$
75,700

 
$
19,242,441

 
 
Included in non-covered loans above are $38 million and $47 million at June 30, 2017 and December 31, 2016, respectively, of ACI commercial loans acquired in the FSB Acquisition.
Through two subsidiaries, the Bank provides commercial and municipal equipment and franchise financing utilizing both loan and lease structures. At June 30, 2017 and December 31, 2016, the commercial lending subsidiaries portfolio included a net investment in direct financing leases of $699 million and $643 million, respectively.
During the three and six months ended June 30, 2017 and 2016, the Company purchased 1-4 single family residential loans totaling $297 million, $637 million, $328 million and $582 million, respectively.
At June 30, 2017, the Company had pledged real estate loans with UPB of approximately $10.4 billion and recorded investment of approximately $9.7 billion as security for FHLB advances.
At June 30, 2017 and December 31, 2016, the UPB of ACI loans was $1.3 billion and $1.5 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, 2017 and the year ended December 31, 2016 were as follows (in thousands):
Balance at December 31, 2015
$
902,565

Reclassifications from non-accretable difference
76,751

Accretion
(303,931
)
Balance at December 31, 2016
675,385

Reclassifications from non-accretable difference
53,338

Accretion
(153,199
)
Balance at June 30, 2017
$
575,524


16

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


Covered 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,
 
2017
 
2016
 
2017
 
2016
UPB of loans sold
$
69,143

 
$
58,699

 
$
123,737

 
$
115,552

 
 
 
 
 
 
 
 
Cash proceeds, net of transaction costs
$
53,007

 
$
40,954

 
$
98,421

 
$
83,490

Recorded investment in loans sold
56,454

 
45,105

 
99,986

 
88,353

Gain (loss) on sale of covered loans, net
$
(3,447
)
 
$
(4,151
)
 
$
(1,565
)
 
$
(4,863
)
 
 
 
 
 
 
 
 
Gain on FDIC indemnification, net
$
2,759

 
$
3,363

 
$
1,257

 
$
3,932

 
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,
 
2017
 
2016
 
Residential and Other Consumer
 
Commercial
 
Total
 
Residential and Other Consumer
 
Commercial
 
Total
Beginning balance
$
11,790

 
$
139,491

 
$
151,281

 
$
13,828

 
$
111,816

 
$
125,644

Provision for (recovery of) loan losses:
0

 
0

 
 
 
 
 
 
 
 
ACI loans
981

 

 
981

 

 

 

Non-ACI loans
677

 
(5
)
 
672

 
67

 
(10
)
 
57

New loans
93

 
11,873

 
11,966

 
(991
)
 
15,267

 
14,276

Total provision
1,751

 
11,868

 
13,619

 
(924
)
 
15,257

 
14,333

Charge-offs:
 
 
 
 
 
 
 
 
 
 
 
Non-ACI loans

 

 

 
(501
)
 

 
(501
)
New loans

 
(10,237
)
 
(10,237
)
 

 
(5,325
)
 
(5,325
)
Total charge-offs

 
(10,237
)
 
(10,237
)
 
(501
)
 
(5,325
)
 
(5,826
)
Recoveries:
 
 
 
 
 
 
 
 
 
 
 
Non-ACI loans
2

 
5

 
7

 
2

 
10

 
12

New loans
7

 
971

 
978

 
10

 
1,545

 
1,555

Total recoveries
9

 
976

 
985

 
12

 
1,555

 
1,567

Ending balance
$
13,550

 
$
142,098

 
$
155,648

 
$
12,415

 
$
123,303

 
$
135,718


17

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2017


 
Six Months Ended June 30,
 
2017
 
2016
 
Residential and Other Consumer
 
Commercial
 
Total
 
Residential and Other Consumer
 
Commercial