BankUnited
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018Commission file number: 001-35039 BankUnited, Inc.(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization) 27-0162450(I.R.S. EmployerIdentification No.)14817 Oak Lane, Miami Lakes, FL(Address of principal executive offices) 33016(Zip Code)Registrant's telephone number, including area code: (305) 569-2000Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, $0.01 par value New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ýIndicate 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 preceding12 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 oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted andposted 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 andpost such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant'sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.Large accelerated filer ý Accelerated filer oNon-accelerated filer o Smaller reporting company o Emerging growth company oIf 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ýThe aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2018 was 4,287,268,982.The number of outstanding shares of the registrant's common stock, $0.01 par value, as of February 25, 2019, was 98,591,661.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrant's definitive proxy statement for the 2019 annual meeting of stockholders are incorporated by reference in this Annual Report on Form 10-K inresponse to Part II. Item 5 and Part III. Items 10, 11, 12, 13 and 14. BANKUNITED, INC.Form 10-KFor the Year Ended December 31, 2018TABLE OF CONTENTS Page PART I Item 1.Business1Item 1A.Risk Factors11Item 1B.Unresolved Staff Comments21Item 2.Properties22Item 3.Legal Proceedings22Item 4.Mine Safety Disclosures22 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities23Item 6.Selected Consolidated Financial Data26Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations28Item 7A.Quantitative and Qualitative Disclosures About Market Risk76Item 8.Financial Statement and Supplementary Data77Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure150Item 9A.Controls and Procedures150Item 9B.Other Information150 PART III Item 10.Directors, Executive Officers and Corporate Governance150Item 11.Executive Compensation150Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters150Item 13.Certain Relationships and Related Transactions, and Director Independence150Item 14.Principal Accountant Fees and Services151 PART IV Item 15.Exhibits and Financial Statement Schedules152 Signatures156iGLOSSARY OF DEFINED TERMSThe following acronyms and terms may be used throughout this Form 10-K, including the consolidated financial statements and related notes.ACI Loans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)AFS Available for saleALCO Asset/Liability CommitteeALLL Allowance for loan and lease lossesAOCI Accumulated other comprehensive incomeARM Adjustable rate mortgageASC Accounting Standards CodificationASU Accounting Standards UpdateATM Automated teller machineBasel Committee International Basel Committee on Banking SupervisionBHC Act Bank Holding Company Act of 1956BHC Bank holding companyBKU BankUnited, Inc.BankUnited BankUnited, National AssociationThe Bank BankUnited, National AssociationBridge Bridge Funding Group, Inc.Buyout loans FHA and VA insured mortgages from third party servicers who have exercised their right to purchase theseloans out of GNMA securitizationsCCA Cloud Computing ArrangementsCET1 Common Equity Tier 1 capitalCECL Current expected credit lossCFPB Consumer Financial Protection BureauCME Chicago Mercantile ExchangeCMOs Collateralized mortgage obligationsCommercial Shared-Loss Agreement A commercial and other loans shared-loss agreement entered into with the FDIC in connection with the FSBAcquisitionCovered assets Assets covered under the Loss Sharing AgreementsCovered loans Loans covered under the Loss Sharing AgreementsCRA Community Reinvestment ActDIF Deposit insurance fundDodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010EPS Earnings per common shareFailed Bank BankUnited, FSBFASB Financial Accounting Standards BoardFDIA Federal Deposit Insurance ActFDIC Federal Deposit Insurance CorporationFHLB Federal Home Loan BankFHA loan Loan guaranteed by the Federal Housing AdministrationFICO Fair Isaac Corporation (credit score)FNMA Federal National Mortgage AssociationFRB Federal Reserve BankiiFSB Acquisition Acquisition of substantially all of the assets and assumption of all of the non-brokered deposits andsubstantially all of the other liabilities of BankUnited, FSB from the FDIC on May 21, 2009GAAP U.S. generally accepted accounting principlesGDP Gross Domestic ProductGLB Act The Gramm-Leach-Bliley Financial Modernization Act of 1999GNMA Government National Mortgage AssociationHTM Held to maturityIPO Initial public offeringIRS Internal Revenue ServiceISDA International Swaps and Derivatives AssociationLIBOR London InterBank Offered RateLIHTC Low Income Housing Tax CreditsLoss Sharing Agreements Two loss sharing agreements entered into with the FDIC in connection with the FSB AcquisitionLTV Loan-to-valueMBS Mortgage-backed securitiesMSRs Mortgage servicing rightsNon-ACI Loans acquired without evidence of deterioration in credit quality since originationNon-Covered Loans Loans other than those covered under the Loss Sharing AgreementsOCI Other comprehensive incomeOCC Office of the Comptroller of the CurrencyOFAC U.S. Department of the Treasury's Office of Foreign Assets ControlOREO Other real estate ownedOTTI Other-than-temporary impairmentProxy Statement Definitive proxy statement for the Company's 2019 annual meeting of stockholdersPSU Performance Share UnitPinnacle Pinnacle Public Finance, Inc.RSU Restricted Share UnitSAR Share Appreciation RightSBA U.S. Small Business AdministrationSBF Small Business Finance UnitSEC Securities and Exchange CommissionSingle Family Shared-Loss Agreement A single-family loan shared-loss agreement entered into with the FDIC in connection with the FSB AcquisitionTCJA The Tax Cuts and Jobs Act of 2017TDR Troubled-debt restructuringTri-State New York, New Jersey and ConnecticutUPB Unpaid principal balanceUSDA U.S. Department of AgricultureVIEs Variable interest entities2010 Plan 2010 Omnibus Equity Incentive Plan2014 Plan 2014 Omnibus Equity Incentive Plan401(k) Plan BankUnited 401(k) PlaniiiForward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," "project," "predict," "will" and similar expressions identify forward-looking statements.These forward-looking statements are based on management's current views with respect to future results, and are subject to risks and uncertainties.Forward-looking statements are based on beliefs and assumptions made by management using currently available information, such as market and industrymaterials, historical performance and current financial trends. These statements are only predictions and are not guarantees of future performance. Theinclusion of forward-looking statements should not be regarded as a representation by the Company that the future plans, estimates or expectationscontemplated by a forward-looking statement will be achieved. Forward-looking statements are subject to various risks and uncertainties and assumptions,including those relating to the Company's operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or moreof these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, the Company's actual results could differmaterially from those contemplated by a forward-looking statement. These risks and uncertainties include, without limitation:•the impact of conditions in the financial markets and economic conditions generally;•credit risk, relating to our portfolios of loans, leases and investments overall, as well as loans and leases exposed to specific industry conditions;•real estate market conditions and other risks related to holding loans secured by real estate or real estate received in satisfaction of loans;•an inability to successfully execute our fundamental growth strategy;•geographic concentration of the Company's markets in Florida and the New York metropolitan area;•natural or man-made disasters;•risks related to the regulation of our industry;•inadequate allowance for credit losses;•interest rate risk;•liquidity risk;•loss of executive officers or key personnel;•competition;•dependence on information technology and third party service providers and the risk of systems failures, interruptions or breaches of security;•failure to comply with the terms of the Company's Loss Sharing Agreements (as defined below) with the FDIC (as defined below);•inadequate or inaccurate forecasting tools and models;•ineffective risk management or internal controls;•a variety of operational, compliance and legal risks; and•the selection and application of accounting methods and related assumptions and estimates.Additional factors are set forth in the Company's filings with the Securities and Exchange Commission, or the SEC, including this Annual Report onForm 10-K.Forward-looking statements speak only as of the date on which they are made. The Company expressly disclaims any obligation to update or revise anyforward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.As used herein, the terms the "Company," "we," "us," and "our" refer to BankUnited, Inc. and its subsidiaries unless the context otherwise requires.ivPART IItem 1. BusinessOverviewBankUnited, Inc., with total consolidated assets of $32.2 billion at December 31, 2018, is a 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 ofbanking services to individual and corporate customers through 80 banking centers located in 14 Florida counties and 5 banking centers in the New Yorkmetropolitan area. The Bank also provides certain commercial lending and deposit products through national platforms. The Company has built, primarilythrough organic growth, a premier commercially focused regional bank with a long-term value oriented business model serving primarily small and mediumsized businesses. We endeavor to provide, through our experienced lending and relationship banking teams, personalized customer service and offer a fullrange of traditional banking products and services to both our commercial and consumer customers.The FSB Acquisition and the Loss Sharing AgreementsOn May 21, 2009, BankUnited entered into the "Purchase and Assumption Agreement" with the FDIC, Receiver of BankUnited, FSB, and acquiredsubstantially all of the assets and assumed all of the non-brokered deposits and substantially all other liabilities of the Failed Bank from the FDIC in the FSBAcquisition.Concurrently with the FSB Acquisition, the Bank entered into two Loss Sharing Agreements with the FDIC, covering certain legacy assets, including theentire legacy loan portfolio and OREO and certain purchased investment securities. We refer to assets covered by the Loss Sharing Agreements as coveredassets or, in certain cases, covered loans. The Loss Sharing Agreements do not apply to assets acquired, purchased or originated subsequent to the FSBAcquisition. At December 31, 2018, the covered assets, consisting of residential loans had an aggregate carrying value of $201 million. The total UPB of thecovered assets at December 31, 2018 was $401 million.Pursuant to the terms of the Loss Sharing Agreements, the covered assets were subject to a stated loss threshold whereby the FDIC was obligated toreimburse the Bank for 80% of losses up to a $4.0 billion stated threshold and 95% of losses in excess of the $4.0 billion stated threshold. The Bank wasobligated to reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid the Bank a reimbursement under the Loss SharingAgreements. The FDIC's obligation to reimburse the Company for losses with respect to the covered assets began with the first dollar of loss incurred. Wehave received reimbursements of $2.7 billion for claims submitted to the FDIC under the Loss Sharing Agreements as of December 31, 2018.The Loss Sharing agreements consisted of the Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement. The Single FamilyShared-Loss Agreement originally provided for FDIC loss sharing and the Bank's reimbursement for recoveries to the FDIC for ten years from May 21, 2009,or through May 21, 2019, for single family residential and home equity loans and related OREO. The Single Family Shared-Loss Agreement was terminatedon February 13, 2019. The Commercial Shared-Loss Agreement provided for FDIC loss sharing for five years from May 21, 2009, or through May 21, 2014,and for the Bank's reimbursement for recoveries to the FDIC for eight years from May 21, 2009, or through the quarter ended June 30, 2017, for all othercovered assets.Our Market AreasOur primary banking markets are Florida and the Tri-State market of New York, New Jersey and Connecticut. We believe both represent long-termattractive banking markets. In Florida, our largest concentration is in the Miami metropolitan statistical area; however, we are also focused on developingbusiness in other markets in which we have a presence, such as the Broward, Palm Beach, Orlando, Tampa and Jacksonville markets. We operate severalnational commercial lending platforms, purchase residential loans on a national basis through established correspondent channels and have a nationalcommercial deposit business.According to estimates from the United States Census Bureau and SNL Financial, from 2015 to 2018, Florida added over 1.2 million new residents, thesecond most of any U.S. state, and had a total population of 21.5 million and a median household annual income of $55,629 in 2018. The Floridaunemployment rate decreased to 3.3% at December 31, 2018. The Moody's home price index for Florida reflected a year over year increase of 5.3% atSeptember 30, 2018. According to CoStar Commercial Repeat-Sale Indices, commercial real estate values in the South region reflected a year over yearincrease of 9% at December 31, 2018. According to a report published in December, 2018 by the University of Central Florida, personal income1in Florida is expected to average 3.1% growth from 2018 to 2021 while Florida's Real Gross State Product is forecast to expand at an average annual rate of3.3% from 2018 to 2021.We had five banking centers in metropolitan New York at December 31, 2018 serving the Tri-State area. Three banking centers were in Manhattan, onein Long Island and one in Brooklyn. According to the FDIC, at June 30, 2018, the Tri-State area had approximately $2.2 trillion in deposits, with the majorityof the market concentrated in the New York metropolitan area. The Tri-State area had a total population of 32.5 million and a median household annualincome of $73,648 in 2018, while the unemployment rate decreased to 3.7% at December 31, 2018. According to CoStar Commercial Repeat-Sale Indices,commercial real estate values in the Northeast region reflected a year over year increase of 1% at December 31, 2018.Through two commercial lending subsidiaries of BankUnited, we engage in equipment, franchise and municipal finance on a national basis. The Bankalso originates small business loans through programs sponsored by the SBA and to a lesser extent the USDA and provides mortgage warehouse finance on anational basis. We refer to our commercial lending subsidiaries, our small business finance unit, our mortgage warehouse lending operations and ourresidential loan purchase program as national platforms. We also offer a suite of commercial deposit and cash management products through a nationalplatform.Products and ServicesLending and LeasingGeneral—Our primary lending focus is to serve small and middle-market businesses and their executives with a variety of financial products andservices, while maintaining a disciplined credit culture.We offer a full array of lending products that cater to our customers' needs including small business loans, commercial real estate loans, equipment loansand leases, term loans, formula-based loans, municipal and non-profit loans and leases, commercial lines of credit, residential mortgage warehouse lines ofcredit, letters of credit and consumer loans. We also purchase performing residential loans through established correspondent channels on a national basis.We have attracted and invested in experienced lending teams in our Florida, Tri-State and national markets, resulting in significant growth in our non-covered loan portfolio. At December 31, 2018, our loan portfolio included $21.8 billion in non-covered loans, including $17.0 billion in commercial andcommercial real estate loans and $4.7 billion in residential and other consumer loans. Continued loan growth in both the Florida and Tri-State markets andacross our national lending and leasing platforms is a core component of our current business strategy.Commercial loans—Our commercial loans, which are generally made to growing small business, middle-market and larger corporate entities, includeequipment loans, secured and unsecured lines of credit, formula-based loans, mortgage warehouse lines, letters of credit, SBA product offerings and businessacquisition finance credit facilities.Commercial real estate loans—We offer term financing for the acquisition or refinancing of properties, primarily rental apartments, mixed-usecommercial properties, industrial properties, warehouses, retail shopping centers, free-standing single-tenant buildings, office buildings and hotels. Otherproducts that we provide include real estate secured lines of credit, and, to a limited extent, acquisition, development and construction loan facilities andconstruction financing. We make commercial real estate loans secured by both owner-occupied and non-owner occupied properties. Construction lending isnot a primary area of focus for us; construction and land loans comprised 1.0% of the loan portfolio at December 31, 2018.National Commercial Lending Platforms—Through the Bank's two commercial lending subsidiaries, we provide municipal, equipment and franchisefinancing on a national basis. Pinnacle, headquartered in Scottsdale, Arizona, provides financing to state and local governmental entities directly andthrough vendor programs and alliances. Pinnacle offers a full array of financing structures on a national basis including equipment lease purchase agreementsand direct (private placement) bond refundings and loan agreements. Bridge offers large corporate and middle market businesses equipment leases and loansincluding direct finance lease and operating lease structures through its equipment finance division. Bridge offers franchise equipment, acquisition andexpansion financing through its franchise division. Bridge is headquartered in Baltimore, Maryland. SBF offers an array of SBA, and to a lesser extent, USDAloan products. We typically sell the government guaranteed portion of the loans SBF originates on a servicing retained basis, and retain the unguaranteedportion in portfolio. We also engage in residential mortgage warehouse lending on a national basis.Residential mortgages—The non-covered residential loan portfolio is primarily comprised of loans purchased on a national basis through selectcorrespondent channels. This national purchase program allows us to diversify our loan portfolio, both by product type and geographically. Residential loanspurchased are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. We do not originate or purchasenegatively amortizing or sub-prime residential loans.2Home equity loans and lines of credit are not a significant component of the loan portfolio.Consumer loans— Consumer loans are not a material component of our loan portfolio.Credit Policy and ProceduresBankUnited, Inc. and the Bank have established asset oversight committees to administer the loan portfolio and monitor and manage credit risk. Thesecommittees include: (i) the Commercial Loan Committee, (ii) the Credit Risk Management Committee, (iii) the Asset Recovery Committee, (iv) the CriticizedAsset Committee and (v) the Residential Credit Risk Management Committee. These committees meet at least quarterly.The credit approval process provides for prompt and thorough underwriting and approval or decline of loan requests. The approval method used is ahierarchy of individual lending authorities for new credits and renewals. The Credit Risk Management Committee approves authorities for lending and creditpersonnel, which are ultimately submitted to our Board for ratification. Lending authorities are based on position, capability and experience of theindividuals filling these positions. Authorities are periodically reviewed and updated.BankUnited has established in-house borrower lending limits which are significantly lower than its legal lending limit of approximately $471 million atDecember 31, 2018. In-house lending limits at December 31, 2018 ranged from $75 million to $150 million. These limits are reviewed periodically by theCredit Risk Management Committee and approved annually by the Board of Directors.DepositsWe offer traditional deposit products including commercial and consumer checking accounts, money market deposit accounts, savings accounts andcertificates of deposit with a variety of terms and rates as well as a robust suite of treasury and cash management services. We offer commercial and retaildeposit products across our primary geographic footprint and certain commercial deposit and treasury management services on a national platform. We havea limited on-line deposit product offering. Our deposits are insured by the FDIC up to statutory limits. Demand deposit balances are concentrated incommercial and small business accounts. Our service fee schedule and rates are competitive with other financial institutions in our markets.Investment SecuritiesThe primary objectives of our investment policy are to provide liquidity, provide a suitable balance of high credit quality and diversified assets to theconsolidated balance sheet, manage interest rate risk exposure, and generate acceptable returns given the Company's established risk parameters.The investment policy is reviewed annually by our Board of Directors. Overall investment goals are established by our Board, Chief Executive Officer,Chief Financial Officer, and members of the ALCO. The Board has delegated the responsibility of monitoring our investment activities to ALCO. Day-to-dayactivities pertaining to the investment portfolio are conducted within the Company's Treasury division under the supervision of the Chief Investment Officerand Chief Financial Officer.Risk Management and OversightOur Board of Directors oversees our risk management framework. Our Board approves the Company's business plan, risk appetite statement and thepolicies that set standards for the nature and level of risk the Company is willing to assume. The Board and its established committees receive regularreporting on the Company's management of critical risks and the effectiveness of risk management systems. While our full Board maintains the ultimateoversight responsibility for the risk management framework, its committees, including the audit committee, the risk committee, the compensation committeeand the nominating and corporate governance committee, oversee risk in certain specified areas.Our Board has assigned responsibility to our Chief Risk Officer for maintaining a risk management framework to identify, measure, monitor, control andmitigate risks to the achievement of our strategic goals and objectives and ensure we operate in a safe and sound manner in accordance with the Board'sstated risk appetite and Board approved policies. We have invested significant resources to establish a robust enterprise-wide risk management framework tosupport the planned growth of our Company. Our framework is consistent with common industry practices and regulatory guidance and is appropriate to oursize, structure and the complexity of our business activities. Significant elements include a Risk Appetite Statement and risk metrics approved by the Board,ongoing identification and assessments of risk, executive management level risk committees to oversee compliance with the Board approved risk policiesand adherence to risk limits, and ongoing testing and reporting by independent internal audit, credit review, and regulatory compliance groups. Executivelevel oversight of the risk management framework is provided by the Enterprise Risk Management Committee which is chaired by the Chief Risk Officer andattended by the senior executives of the Company. Reporting to the Enterprise Risk Management Committee are sub-committees3dedicated to guiding and overseeing management of critical categories of risk, including the Credit Risk Management, Asset/Liability, Compliance RiskManagement, Operational Risk Management, Corporate Disclosure, Enterprise Data, Ethics, and BSA/AML committees.Marketing and DistributionWe conduct our banking business through 80 banking centers located in 14 Florida counties, 5 banking centers in the New York metropolitan area, andour national lending and commercial deposit gathering platforms. Our distribution network also includes ATMs, fully integrated on-line banking, mobilebanking and a telephone banking service. We target small businesses, middle market and larger commercial enterprises, as well as individual consumers.In order to market our products, we use local television, radio, digital, print and direct mail advertising as well as a variety of promotional activities.CompetitionOur markets are highly competitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of thecountry's largest commercial banks. We compete with other state, national and international banks as well as savings associations, savings banks and creditunions with physical presence in our market areas or targeting our market areas digitally for deposits and loans. In addition, we compete with financialintermediaries such as FinTech companies, consumer finance companies, mortgage banking companies, insurance companies, securities firms, mutual fundsand several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. Our largestbanking competitors in the Florida market include BB&T, JPMorgan Chase, PNC, Regions Bank, SunTrust Bank, TD Bank, Wells Fargo, Bank of Americaand a number of community banks. In the Tri-State market, we also compete with, in addition to the national and international financial institutions listed,Capital One, Signature Bank, New York Community Bank, Valley National Bank, M&T Bank and numerous community banks.Interest rates on both loans and deposits and prices of fee-based services are significant competitive factors among financial institutions generally. Otherimportant competitive factors include convenience, quality of customer service, availability of on-line, mobile and remote banking products, communityreputation, continuity of personnel and services, and, in the case of larger commercial customers, relative lending limits and ability to offer sophisticated cashmanagement and other commercial banking services. While we continue to provide competitive interest rates on both depository and lending products, webelieve that we can compete most successfully by focusing on the financial needs of growing companies and their executives and small and middle-marketbusinesses, offering them a broad range of personalized services and sophisticated cash management tools tailored to their businesses.Regulation and SupervisionThe U.S. banking industry is highly regulated under federal and state law. These regulations affect the operations of BankUnited, Inc. and itssubsidiaries.Statutes, regulations and policies limit the activities in which we may engage and the conduct of our permitted activities and establish capitalrequirements with which we must comply. The regulatory framework is intended primarily for the protection of depositors, borrowers, customers and clients,the FDIC insurance funds and the banking system as a whole, and not for the protection of our stockholders or creditors. In many cases, the applicableregulatory authorities have broad enforcement power over bank holding companies, banks and their subsidiaries, including the power to impose substantialfines and other penalties for violations of laws and regulations. Further, the regulatory system imposes reporting and information collection obligations. Weincur significant costs related to compliance with these laws and regulations. Banking statutes, regulations and policies are continually under review byfederal and state legislatures and regulatory agencies, and a change in them, including changes in how they are interpreted or implemented, could have amaterial impact on our business.The material statutory and regulatory requirements that are applicable to us are summarized below. The description below is not intended to summarizeall laws and regulations applicable to us.Bank and Bank Holding Company RegulationBankUnited is a national bank. As a national bank organized under the National Bank Act, BankUnited is subject to ongoing and comprehensivesupervision, regulation, examination and enforcement by the OCC.Any entity that directly or indirectly controls a bank must be approved by the Federal Reserve Board under the BHC Act to become a BHC. BHCs aresubject to regulation, inspection, examination, supervision and enforcement by the Federal Reserve4Board under the BHC Act. The Federal Reserve Board's jurisdiction also extends to any company that is directly or indirectly controlled by a BHC.BankUnited, Inc., which controls BankUnited, is a BHC and, as such, is subject to ongoing and comprehensive supervision, regulation, examination andenforcement by the Federal Reserve Board.Broad Supervision, Examination and Enforcement PowersA principal objective of the U.S. bank regulatory system is to protect depositors by ensuring the financial safety and soundness of banking organizations.To that end, the banking regulators have broad regulatory, examination and enforcement authority. The regulators regularly examine the operations ofbanking organizations. In addition, banking organizations are subject to periodic reporting requirements.The regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects,management, liquidity or other aspects of a banking organization's operations are unsatisfactory. The regulators may also take action if they determine thatthe banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things:•enjoin "unsafe or unsound" practices;•require affirmative actions to correct any violation or practice;•issue administrative orders that can be judicially enforced;•direct increases in capital;•direct the sale of subsidiaries or other assets;•limit dividends and distributions;•restrict growth;•assess civil monetary penalties;•remove officers and directors; and•terminate deposit insurance.The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or thatthe institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by theinstitution's regulatory agency. Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreementscould subject BankUnited, Inc., the Bank and their subsidiaries or their officers, directors and institution-affiliated parties to the remedies described aboveand other sanctions.Notice and Approval Requirements Related to ControlBanking laws impose notice, approval, and ongoing regulatory requirements on any stockholder or other party that seeks to acquire direct or indirect"control" of an FDIC-insured depository institution. These laws include the BHC Act, the Change in Bank Control Act, and the Home Owners' Loan Act.Among other things, these laws require regulatory filings by individuals or companies that seek to acquire direct or indirect "control" of an FDIC-insureddepository institution. The determination of whether an investor "controls" a depository institution is based on all of the facts and circumstances surroundingthe investment. As a general matter, a party is deemed to control a depository institution or other company if the party owns or controls 25% or more of anyclass of voting stock. Subject to rebuttal, a party may be presumed to control a depository institution or other company if the investor owns or controls 10%or more of any class of voting stock. Ownership by affiliated parties, or parties acting in concert, is typically aggregated for these purposes. If a party'sownership of BankUnited, Inc. were to exceed certain thresholds, the investor could be deemed to "control" the Company for regulatory purposes. This couldsubject the investor to regulatory filings or other regulatory consequences.In addition, except under limited circumstances, BHCs are prohibited from acquiring, without prior approval:•control of any other bank or BHC or all or substantially all the assets thereof; or•more than 5% of the voting shares of a bank or BHC which is not already a subsidiary.5Permissible Activities and InvestmentsBanking laws generally restrict the ability of BankUnited, Inc. to engage in activities other than those determined by the Federal Reserve Board to be soclosely related to banking as to be a proper incident thereto. The GLB Act expanded the scope of permissible activities for a BHC that qualifies as a financialholding company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities that are financial innature or incidental or complementary to a financial activity. Those activities include, among other activities, certain insurance and securities activities.BHCs and their subsidiaries must be well-capitalized and well-managed in order for the BHC and its nonbank affiliates to engage in the expanded financialactivities permissible only for a financial holding company. BankUnited, Inc. is not a financial holding company.In addition, as a general matter, the establishment or acquisition by BankUnited, Inc. of a non-bank entity, or the initiation of a non-banking activity,requires prior regulatory approval. In approving acquisitions or the addition of activities, the Federal Reserve Board considers, among other things, whetherthe acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competitionor gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest orunsound banking practices.Regulatory Capital Requirements and Capital AdequacyThe federal bank regulators view capital levels as important indicators of an institution's financial soundness. As a general matter, FDIC-insureddepository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. The finalsupervisory determination on an institution's capital adequacy is based on the regulator's assessment of numerous factors. Both BankUnited, Inc. andBankUnited are subject to regulatory capital requirements.The Federal Reserve Board has established risk-based and leverage capital guidelines for BHCs, including BankUnited, Inc. The OCC has establishedsubstantially similar risk-based and leverage capital guidelines applicable to national banks, including BankUnited. BankUnited, Inc. and BankUnited aresubject to capital rules implemented under the framework promulgated by the International Basel Committee on Banking Supervision (the "Basel III CapitalRules"). While some provisions of the rules are tailored to larger institutions, the Basel III Capital Rules generally apply to all U.S. banking organizations,including BankUnited, Inc. and BankUnited.The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios:(i)4.5% based upon CET1;(ii)6.0% based upon tier 1 capital; and(iii)8.0% based upon total regulatory capital.The Basel III Capital Rules require institutions to retain a capital conservation buffer of 2.5% above these required minimum capital ratio levels. Aminimum leverage ratio (tier 1 capital as a percentage of average total assets) of 4.0% is also required under the Basel III Capital Rules. Bankingorganizations that fail to maintain the minimum required capital conservation buffer could face restrictions on capital distributions or discretionary bonuspayments to executive officers, with distributions and discretionary bonus payments being completely prohibited if no capital conservation buffer exists, orin the event of the following: (i) the banking organization's capital conservation buffer was below 2.5% (or the minimum amount required) at the beginningof a quarter; and (ii) its cumulative net income for the most recent quarterly period plus the preceding four calendar quarters is less than its cumulative capitaldistributions (as well as associated tax effects not already reflected in net income) during the same measurement period.6Prompt Corrective ActionUnder the FDIA, the federal bank regulatory agencies must take "prompt corrective action" against undercapitalized U.S. depository institutions. U.S.depository institutions are assigned one of five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantlyundercapitalized," and "critically undercapitalized," and are subjected to differential regulation corresponding to the capital category within which theinstitution falls. As of December 31, 2018, a depository institution was deemed to be "well capitalized" if the banking institution had a total risk-basedcapital ratio of 10.0% or greater, a tier 1 risk-based capital ratio of 8.0% or greater, a CET1 risk-based capital ratio of 6.5% and a leverage ratio of 5.0% orgreater, and the institution was not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain aspecific level for any capital measure. Under certain circumstances, a well-capitalized, adequately-capitalized or undercapitalized institution may be treatedas if the institution were in the next lower capital category. A banking institution that is undercapitalized is required to submit a capital restoration plan.Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory agencies, including:termination of deposit insurance by the FDIC, restrictions on certain business activities, and appointment of the FDIC as conservator or receiver. As ofDecember 31, 2018, BankUnited, Inc. and BankUnited were well capitalized.Source of strengthAll companies, including BHCs, that directly or indirectly control an insured depository institution are required to serve as a source of strength for theinstitution. Under this requirement, BankUnited, Inc. in the future could be required to provide financial assistance to BankUnited should it experiencefinancial distress. Such support may be required at times when, absent this statutory and Federal Reserve Policy requirement, a BHC may not be inclined toprovide it.Regulatory Limits on Dividends and DistributionsFederal law currently imposes limitations upon certain capital distributions by national banks, such as certain cash dividends, payments to repurchase orotherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. The FederalReserve Board and OCC regulate all capital distributions by BankUnited directly or indirectly to BankUnited, Inc., including dividend payments.BankUnited may not pay dividends to BankUnited, Inc. if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage capital ratio requirements, or in the event the OCC notified BankUnited that it was in need of more thannormal supervision. Under the FDIA, an insured depository institution such as BankUnited is prohibited from making capital distributions, including thepayment of dividends, if, after making such distribution, the institution would become "undercapitalized." Payment of dividends by BankUnited also may berestricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice.BankUnited is subject to supervisory limits on its ability to declare or pay a dividend or reduce its capital unless certain conditions are satisfied.In addition, it is the policy of the Federal Reserve Board that BHCs should pay cash dividends on common stock only out of income available over thepast year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy providesthat BHCs should not maintain a level of cash dividends that undermines the BHC’s ability to serve as a source of strength to its banking subsidiaries.Reserve RequirementsPursuant to regulations of the Federal Reserve Board, all banking organizations are required to maintain average daily reserves at mandated ratiosagainst their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. These reserves must be maintained in theform of vault cash or in an account at a Federal Reserve Bank.Limits on Transactions with Affiliates and InsidersInsured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other related parties. Section 23A ofthe Federal Reserve Act imposes quantitative limits, qualitative requirements, and collateral requirements on certain transactions by an insured depositoryinstitution with, or for the benefit of, its affiliates. Transactions covered by Section 23A include loans, extensions of credit, investment in securities issued byan affiliate, and acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act requires that most types of transactions by an insureddepository institution with, or for the benefit of, an affiliate be on terms at least as favorable to the insured depository institution as if the transaction wereconducted with an unaffiliated third party.7The Federal Reserve Board's Regulation O and OCC regulations impose restrictions and procedural requirements in connection with the extension ofcredit by an insured depository institution to directors, executive officers, principal stockholders and their related interests.The Volcker RuleThe Volcker Rule generally prohibits "banking entities" from engaging in "proprietary trading" and making investments and conducting certain otheractivities with "covered funds."Although the rule provides for some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Ruleapply to banking entities of any size, including BankUnited, Inc. and BankUnited. Banking entities with total assets of $10 billion or more that engage inactivities subject to the Volcker Rule are required to establish a compliance program to address the prohibitions of, and exemptions from, the Volcker Rule.The banking agencies have proposed rules that would tailor a banking organization's Volcker compliance program based on the extent of the bankingentity's trading assets and liabilities.Corporate governanceThe Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly tradedcompanies, including BankUnited, Inc. The Dodd-Frank Act (1) granted stockholders of U.S. publicly traded companies an advisory vote on executivecompensation; (2) enhanced independence requirements for compensation committee members; (3) required companies listed on national securitiesexchanges to adopt incentive-based compensation claw-back policies for executive officers; and (4) provided the SEC with authority to adopt proxy accessrules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in acompany's proxy materials.Examination FeesThe OCC currently charges fees to recover the costs of examining national banks, processing applications and other filings, and covering direct andindirect expenses in regulating national banks. Various regulatory agencies have the authority to assess additional supervision fees.FDIC Deposit InsuranceThe FDIC is an independent federal agency that insures the deposits of federally insured depository institutions up to applicable limits. The FDIC alsohas certain regulatory, examination and enforcement powers with respect to FDIC-insured institutions. The deposits of BankUnited are insured by the FDICup to applicable limits. As a general matter, the maximum deposit insurance amount is $250,000 per depositor.Additionally, FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The amount of a particular institution'sdeposit insurance assessment is based on that institution's risk classification under an FDIC risk-based assessment system. An institution's risk classification isassigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.Depositor PreferenceThe FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of theinstitution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver willhave priority over other general unsecured claims against the institution. Insured and uninsured depositors, along with the FDIC, will have priority inpayment ahead of unsecured, non-deposit creditors, including BankUnited, Inc., with respect to any extensions of credit they have made to such insureddepository institution.Federal Reserve System and Federal Home Loan Bank SystemAs a national bank, BankUnited is required to hold shares of capital stock in a Federal Reserve Bank. BankUnited holds capital stock in the FederalReserve Bank of Atlanta. As a member of the Federal Reserve System, BankUnited has access to the Federal Reserve discount window lending and paymentclearing systems.BankUnited is a member of the Federal Home Loan Bank of Atlanta. Each FHLB provides a central credit facility primarily for its member institutions aswell as other entities involved in home mortgage lending. Any advances from a FHLB8must be secured by specified types of collateral. As a member of the FHLB, BankUnited is required to acquire and hold shares of capital stock in the FHLB ofAtlanta. BankUnited is in compliance with this requirement.Anti-Money Laundering and OFACUnder federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, andcontrols; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Financialinstitutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for duediligence and customer identification in their dealings with non-U.S. financial institutions and non-U.S. customers. Financial institutions must takereasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and lawenforcement authorities have been granted increased access to financial information maintained by financial institutions. Bank regulators routinely examineinstitutions for compliance with these obligations and they must consider an institution's compliance in connection with the regulatory review ofapplications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed "cease and desist" orders and civil moneypenalty sanctions against institutions found to be violating these obligations.The U.S. Department of the Treasury's OFAC is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibitedparties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations, and countries suspected of aiding,harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If BankUnited, Inc. or BankUnited finds a name onany transaction, account or wire transfer that is on an OFAC list, BankUnited, Inc. or BankUnited must freeze or block such account or transaction, file asuspicious activity report and notify the appropriate authorities.Consumer Laws and RegulationsBanking organizations are subject to numerous laws and regulations intended to protect consumers. These laws include, among others:•Truth in Lending Act;•Truth in Savings Act;•Electronic Funds Transfer Act;•Expedited Funds Availability Act;•Equal Credit Opportunity Act;•Fair and Accurate Credit Transactions Act;•Fair Housing Act;•Fair Credit Reporting Act;•Fair Debt Collection Act;•Gramm-Leach-Bliley Act;•Home Mortgage Disclosure Act;•Right to Financial Privacy Act;•Real Estate Settlement Procedures Act;•laws regarding unfair and deceptive acts and practices; and•usury laws.Many states and local jurisdictions have consumer protection laws analogous, and in addition to, those listed above. These federal, state and local lawsregulate the manner in which financial institutions deal with customers when taking deposits, making loans, or conducting other types of transactions.Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneysgeneral, and civil or criminal liability.9CFPBThe CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conductof providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products andservices offered to bank and thrift consumers. For banking organizations with assets of $10 billion or more, such as BankUnited, Inc. and the Bank, the CFPBhas exclusive rule making and examination, and primary enforcement authority under federal consumer financial law. In addition, states are permitted toadopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB.The Community Reinvestment ActThe CRA is intended to encourage banks to help meet the credit needs of their service areas, including low and moderate-income neighborhoods,consistent with safe and sound operations. The bank regulators examine and assign each bank a public CRA rating.The CRA requires bank regulators to take into account the bank's record in meeting the needs of its service area when considering an application by abank to establish or relocate a branch or to conduct certain mergers or acquisitions. The Federal Reserve Board is required to consider the CRA records of aBHC's controlled banks when considering an application by the BHC to acquire a banking organization or to merge with another BHC. If BankUnited, Inc. orBankUnited applies for regulatory approval to make certain investments, the regulators will consider the CRA record of target institutions and BankUnited,Inc.'s depository institution subsidiaries. An unsatisfactory CRA record could substantially delay approval or result in denial of an application. Theregulatory agency's assessment of the institution's record is made available to the public. Following its most recent CRA examination in September 2015,BankUnited received an overall rating of "Satisfactory."EmployeesAt December 31, 2018, we employed 1,735 full-time employees and 55 part-time employees. None of our employees are parties to a collectivebargaining agreement. We believe that our relations with our employees are good.Available InformationOur website address is www.bankunited.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports onForm 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) are available free of charge on the website as soon as reasonablypracticable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this AnnualReport. In addition, the SEC maintains a website that contains reports and other information filed with the SEC. The website can be accessed athttp://www.sec.gov.10Item 1A. Risk FactorsRisks Related to Our BusinessOur business may be adversely affected by conditions in the financial markets and economic conditions generally.Deterioration in business or economic conditions generally, or more specifically in the principal markets in which we do business, could have one ormore of the following adverse effects on our business, financial condition and results of operations:•A decrease in demand for our loan and deposit products;•An increase in delinquencies and defaults by borrowers or counterparties;•A decrease in the value of our assets;•A decrease in our earnings;•A decrease in liquidity; and•A decrease in our ability to access the capital markets.Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject, or in reducing the potential for lossesin connection with such risks.Our enterprise risk management framework is designed to identify and minimize or mitigate the risks to which we are subject, as well as any lossesstemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diversifiedset of risk monitoring and mitigation techniques in the process, those techniques are inherently limited in their ability to anticipate the existence ordevelopment of risks that are currently unknown and unanticipated. The ineffectiveness of our enterprise risk management framework in mitigating theimpact of known risks or the emergence of previously unknown or unanticipated risks may result in our incurring losses in the future that could adverselyimpact our financial condition and results of operations.Our business is highly susceptible to credit risk.As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that the collateral securing thepayment of their loans, if any, may be insufficient to ensure repayment. Credit losses are inherent in the business of making loans. We are also subject tocredit risk that is embedded in our securities portfolio. Our credit standards, procedures and policies may not prevent us from incurring substantial creditlosses, particularly if economic or market conditions deteriorate. It is difficult to determine the many ways in which a decline in economic or marketconditions may impact the credit quality of our assets.Our allowance for loan and lease losses may not be adequate to cover actual credit losses.We maintain an allowance for loan and lease losses ("ALLL") that represents management's estimate of probable incurred losses inherent in our creditportfolio. This estimate requires management to make significant assumptions and involves a high degree of judgment, which is inherently subjective,particularly as our loan portfolio has not exhibited performance through a full credit cycle. Management considers numerous factors in determining theamount of the ALLL, including, but not limited to, historical loss severities and net charge-off rates of BankUnited and other comparable financialinstitutions, internal risk ratings, loss forecasts, collateral values, delinquency rates, the level of non-performing, criticized, classified and restructured loansin the portfolio, product mix, underwriting and credit administration policies and practices, portfolio trends, concentrations, industry conditions, economictrends and other factors considered by management to have an impact on the ability of borrowers to repay their loans.If management's assumptions and judgments prove to be incorrect, our current allowance may be insufficient and we may be required to increase ourALLL. In addition, regulatory authorities periodically review our ALLL and may require us to increase our provision for loan losses or recognize further loancharge-offs, based on judgments different than those of our management. Adverse economic conditions could make management's estimate even morecomplex and difficult to determine. Any increase in our ALLL will result in a decrease in net income and capital and could have a material adverse effect onour financial condition and results of operations. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Analysis of the Allowance for Loan and Lease Losses" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Allowance for Loan and Lease Losses."11The FASB issued an ASU that will result in a significant change in how we and other financial institutions recognize credit losses in the financialstatements and may have a material impact on our financial condition and results of operations or on the industry more broadly.In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments- Credit Losses (Topic 326), Measurement of Credit Losses on FinancialInstruments," which replaces the current "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the CECL model.Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about pastevents, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly fromthe "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The adoption of the CECLmodel is likely to significantly impact the methodology used to determine our ALLL and could require us to significantly increase our ALLL, resulting in anadverse impact to our financial condition, regulatory capital levels and results of operations. Moreover, the CECL model may create more volatility in thelevel of our ALLL. We are not yet able to reasonably estimate the impact that adoption of ASU 2016-13 will have on our financial condition, regulatorycapital levels or results of operations. The ASU will be effective for us on January 1, 2020.Additionally, uncertainty exists around whether adoption of the CECL model by the financial services industry more broadly will have an impact onloan demand, how loan products are structured, the availability and pricing of credit in the markets or regulatory capital levels for the industry.We depend on the accuracy and completeness of information about clients and counterparties in making credit decisions.In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by or onbehalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients andcounterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.The credit quality of our loan portfolio and results of operations are affected by residential and commercial real estate values and the level ofresidential and commercial real estate sales and rental activity.A material portion of our loans are secured by residential or commercial real estate. The ability of our borrowers to repay their obligations and ourfinancial results may therefore be adversely affected by changes in real estate values. Commercial real estate valuations in particular are highly subjective, asthey are based on many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate,economic conditions, occupancy rates, the level of rents, interest rates and, in many cases, the results of operations of businesses and other occupants of thereal property. The properties securing income-producing investor real estate loans may not be fully leased at the origination of the loan. A borrower's abilityto repay these loans is dependent upon stabilization of the properties and additional leasing through the life of the loan or the borrower's successful operationof a business. Weak economic conditions may impair a borrower's business operations, lead to elevated vacancy rates or lease turnover, slow the execution ofnew leases or result in falling rents. These factors could result in further deterioration in the fundamentals underlying the commercial real estate market andthe deterioration in value of some of our loans. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing atreasonable interest rates, the level of supply of available housing, governmental policy regarding housing and housing finance and general economicconditions affecting consumers.We make credit and reserve decisions based on current real estate values, the current conditions of borrowers, properties or projects and our expectationsfor the future. If real estate values or fundamentals underlying the commercial and residential real estate markets decline, we could experience higherdelinquencies and charge-offs beyond that provided for in the ALLL.Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the underlying real estate, we maybe subject to the increased costs and risks associated with the ownership of commercial or residential real property, which could have an adverse effect onour business or results of operations.A significant portion of our loan portfolio is secured by residential or commercial real property. During the ordinary course of business, we may forecloseon and take title to properties securing certain loans, in which case, we are exposed to the risks inherent in the ownership of real estate. The amount that we,as a mortgagee, may realize after a default is dependent upon factors outside of our control, including:12•general or local economic conditions;•environmental cleanup liability;•neighborhood values;•interest rates;•commercial real estate rental and vacancy rates;•real estate tax rates;•operating expenses of the mortgaged properties;•supply of and demand for properties;•ability to obtain and maintain adequate occupancy of the properties;•zoning laws;•governmental rules, regulations and fiscal policies; and•hurricanes or other natural or man-made disasters.These same factors may impact the ability of borrowers to repay their obligations that are secured by real property.Our business is susceptible to interest rate risk.Our business and financial performance are impacted by market interest rates and movements in those rates. Since a high percentage of our assets andliabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes in rates, in the shape of the yield curve or in spreadsbetween different types of rates can have a material impact on our results of operations and the values of our assets and liabilities. Changes in the value ofinvestment securities available for sale and certain derivatives directly impact equity through adjustments of accumulated other comprehensive income andchanges in the values of certain other assets and liabilities may directly or indirectly impact earnings. Interest rates are highly sensitive to many factors overwhich we have no control and which we may not be able to anticipate adequately, including general economic conditions and the monetary and tax policiesof various governmental bodies, particularly the Federal Reserve Board.Our earnings and cash flows depend to a great extent upon the level of our net interest income. Net interest income is the difference between the interestincome we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits andborrowings. The flattening of the yield curve and tight credit spreads has limited our ability to add higher yielding assets to the balance sheet than what mayotherwise might have been realized in a more normalized rate environment with a positively shaped yield curve. If the flat rate environment persists beyondcurrent forecasts, or the curve flattens further or inverts, downward pressure on our net interest margin may be exacerbated, negatively impacting our netinterest income in the future. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities mayreact differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or reprice more quickly than interest earningassets in a period of rising rates, an increase in interest rates could reduce net interest income. When interest earning assets mature or reprice more quicklythan interest bearing liabilities, falling interest rates could reduce net interest income. Additionally, an increase in interest rates may, among other things,reduce the demand for loans and our deposit products, decrease loan repayment rates and negatively affect borrowers' ability to meet their obligations. Adecrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securitiesportfolios. Competitive conditions may also impact the interest rates we are able to earn on new loans or are required to pay on deposits, negativelyimpacting both our ability to grow deposits and interest earning assets and our net interest income.We attempt to manage interest rate risk by adjusting the rates, maturity, repricing, mix and balances of the different types of interest-earning assets andinterest bearing liabilities and through the use of hedging instruments; however, interest rate risk management techniques are not precise, and we may not beable to successfully manage our interest rate risk. Our ability to manage interest rate risk could be negatively impacted by longer fixed rate terms on loansbeing added to our portfolio or by unpredictable behavior of depositors in various interest rate environments. A rapid or unanticipated increase or decrease ininterest rates, changes in the shape of the yield curve or in spreads between rates could have an adverse effect on our net interest margin and results ofoperations.13Possible replacement of the LIBOR benchmark interest rate may have an impact on our business, financial condition and results of operations.In July 2017, the Financial Conduct Authority, a regulator of financial services firms in the United Kingdom, announced that it intends to stoppersuading or compelling banks to submit LIBOR rates after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannotand will not be guaranteed after 2021. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it isimpossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or othersecurities or financial arrangements, given LIBOR's role in determining market interest rates globally. Uncertainty as to the nature of alternative referencerates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans and securities in ourportfolio, and may impact the availability and cost of hedging instruments and borrowings. If LIBOR rates are no longer available, and we are required toimplement substitute indices for the calculation of interest rates under our loan agreements with our borrowers, we may incur significant expenses in effectingthe transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices,which could have an adverse effect on our results of operations.A failure to maintain adequate liquidity could adversely affect our financial condition and results of operations.Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customerdeposit maturities and withdrawals and other cash commitments under both normal operating conditions and under extraordinary or unpredictablecircumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms thatare acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that coulddetrimentally impact our access to liquidity sources include a downturn in economic conditions in the geographic markets in which our operations areconcentrated or in the financial or credit markets in general. Our access to liquidity in the form of deposits may also be affected by the liquidity needs of ourdepositors and by competition for deposits in our primary markets. A substantial portion of our liabilities consist of deposit accounts that are payable ondemand or upon several days' notice, while by comparison, the majority of our assets are loans, which cannot be called or sold in the same time frame.Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future.A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition.We may not be successful in executing our fundamental business strategy.Organic growth and diversification of our business are essential components of our business strategy. Commercial and consumer banking, for both loanand deposit products, in our primary markets is highly competitive. Our ability to achieve profitable organic growth is also dependent on economicconditions, on the interest rate environment, which is in turn dependent to a large degree on fiscal and monetary policy, and on depositor behavior andpreferences. There is no guarantee that we will be able to successfully or profitably execute our organic growth strategy.While acquisitions have not historically been a primary contributor to our growth, we opportunistically consider potential acquisitions of financialinstitutions and complementary non-bank businesses. There are risks that may inhibit our ability to successfully execute such acquisitions. We compete withother financial institutions for acquisition opportunities and there are a limited number of candidates that meet our acquisition criteria. Consequently, wemay not be able to identify suitable candidates for acquisitions. If we do identify suitable candidates, there is no assurance that we will be able to obtain therequired regulatory approvals in order to acquire them. If we do succeed in consummating future acquisitions, acquisitions involve risks that the acquiredbusinesses may not achieve anticipated results. In addition, the process of integrating acquired entities may divert significant management time andresources. We may not be able to integrate successfully or operate profitably any financial institutions or complementary businesses we may acquire.Growth, whether organic or through acquisition is dependent on the availability of capital and funding. Our ability to raise capital through the sale ofstock or debt securities may be affected by market conditions, economic conditions or regulatory changes. There is no assurance that sufficient capital orfunding to enable growth will be available in the future, upon acceptable terms or at all.The geographic concentration of our markets in Florida and the New York metropolitan area makes our business highly susceptible to local economicconditions.Unlike some larger financial institutions that are more geographically diversified, our operations are concentrated in Florida and the New Yorkmetropolitan area. Additionally, a significant portion of our loans secured by real estate are secured by commercial and residential properties in thesegeographic regions. Accordingly, the ability of our borrowers to repay their14loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in these regions or by changes in the localreal estate markets. Disruption or deterioration in economic conditions in the markets we serve could result in one or more of the following:•an increase in loan delinquencies;•an increase in problem assets and foreclosures;•a decrease in the demand for our products and services; or•a decrease in the value of collateral for loans, especially real estate, in turn reducing customers' borrowing power, the value of assets associated withproblem loans and collateral coverage.Hurricanes and other weather-related events, as well as man-made disasters, could cause a disruption in our operations or other consequences thatcould have an adverse impact on our results of operations.Our geographic markets in Florida and other coastal areas are susceptible to severe weather, including hurricanes, flooding and damaging winds. Theoccurrence of a hurricane or other natural disaster to which our markets are susceptible or a man-made catastrophe such as terrorist activity could disrupt ouroperations, result in damage to our facilities and negatively affect the local economies in which we operate. These events may lead to a decline in loanoriginations, an increase in deposit outflows, reduce or destroy the value of collateral for our loans, particularly real estate, negatively impact the businessoperations of our customers, and cause an increase in delinquencies, foreclosures and loan losses. Our business and results of operations may be materially,adversely impacted by these and other negative effects of such events.Our portfolio of assets under operating lease is exposed to fluctuations in the demand for and valuation of the underlying assets.Our equipment leasing business is exposed to asset risk resulting from ownership of the equipment on operating lease. Asset risk arises from fluctuationsin supply and demand for the underlying leased equipment. We are exposed to the risk that, at the end of the lease term or in the event of early termination,the value of the asset will be lower than expected, resulting in reduced future lease income over the remaining life of the asset or a lower sale value. Demandfor and the valuation of the leased equipment is sensitive to shifts in general and industry specific economic and market trends, governmental regulations andchanges in trade flows from specific events such as natural or man-made disasters. A significant portion of our equipment under operating lease consists ofrail cars used directly or indirectly in oil and gas drilling activities. Although we regularly monitor the value of the underlying assets and the potentialimpact of declines in oil and natural gas prices on the value of railcars on operating lease, there is no assurance that the value of these assets will not beadversely impacted by conditions in the energy industry.Our reported financial results depend on management's selection and application of accounting policies and methods and related assumptions andestimates.Our accounting policies and estimates are fundamental to our reported financial condition and results of operations. Management is required to makedifficult, complex or subjective judgments in selecting and applying many of these accounting policies. In some cases, management must select anaccounting policy or method from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in us reportingmaterially different results than would have been reported under a different alternative.From time to time, the FASB and SEC may change the financial accounting and reporting standards that govern the preparation of our financialstatements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. Insome cases, we could be required to apply a new or revised standard retrospectively, resulting in a restatement of prior period financial statements. See Note 1to the consolidated financial statements for more information about recent accounting pronouncements that may have a material impact on our reportedfinancial results.Our internal controls may be ineffective.Management regularly monitors, evaluates and updates our internal controls over financial reporting, disclosure controls and procedures, and corporategovernance policies and procedures. Any system of controls, however well designed and operated, can provide only reasonable, not absolute, assurances thatthe objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controlsand procedures could have a material adverse effect on our financial condition and results of operations.15We depend on our executive officers and key personnel to execute our long-term business strategy and could be harmed by the loss of their services.We believe that our continued growth and future success will depend in large part on the skills of our senior management team. We believe our seniormanagement team possesses valuable knowledge about and experience in the banking industry and that their knowledge and relationships could be difficultto replicate. The composition of our senior management team and our other key personnel may change over time. Although our Chairman, President andChief Executive Officer has entered into an employment agreement with us, he may not complete the term of his employment agreement or renew it uponexpiration. Other members of our senior management team are not subject to employment agreements. Our success also depends on the experience of otherkey personnel and on their relationships with the customers and communities they serve. The loss of service of one or more of our executive officers or keypersonnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition oroperating results.We face significant competition from other financial institutions and financial services providers, which may adversely impact our growth orprofitability.The primary markets we currently serve are Florida and the New York metropolitan area. Commercial and consumer banking in these markets is highlycompetitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of the country's largestcommercial banks. We compete with other state and national banks as well as savings and loan associations, savings banks and credit unions located inFlorida, New York and adjoining states as well as those targeting our markets digitally for deposits and loans. In addition, we compete with financialintermediaries, such as FinTech companies, consumer finance companies, marketplace lenders, mortgage banking companies, insurance companies, securitiesfirms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financialservices. The variety of entities providing financial services to businesses and consumers, as well as the technologies and delivery channels through whichthose services are provided are rapidly evolving.The financial services industry is likely to become even more competitive as a result of legislative, regulatory and technological changes and continuedconsolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually anytype of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Increased competitionamong financial services companies may adversely affect our ability to market our products and services. Technology has lowered barriers to entry and madeit possible for banks to compete in our markets without a retail footprint by offering competitive rates, as well as non-banks, including online providers, tooffer products and services traditionally provided by banks. Many of our competitors have fewer regulatory constraints and may have lower cost structures.Additionally, due to their size, many competitors may offer a broader range of products and services as well as better pricing for certain products and servicesthan we can.Our ability to compete successfully depends on a number of factors, including:•the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe andsound banking practices;•our ability to pro-actively and quickly respond to technological change;•the ability to attract and retain qualified employees to operate our business effectively;•the ability to expand our market position;•the scope, relevance and pricing of products and services offered to meet customer needs and demands;•the rate at which we introduce new products and services relative to our competitors;•customer satisfaction with our level of service; and•industry and general economic trends.Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability,which, in turn, could harm our business, financial condition and results of operations.Crypto-currencies and blockchain technology eventually may be the foundation for greatly enhancing transactional security throughout the bankingindustry, but also may eventually greatly reduce the need for banks as financial deposit-keepers and intermediaries.16The inability of BankUnited, Inc. to receive dividends from its subsidiary bank could have a material adverse effect on the ability of BankUnited, Inc.to make payments on its debt, pay cash dividends to its shareholders or execute share repurchases.BankUnited, Inc. is a separate and distinct legal entity from the Bank, and the substantial majority of its revenue consists of dividends from the Bank.These dividends are the primary funding source for the dividends paid by BankUnited, Inc. on its common stock, the interest and principal payments on itsdebt and any repurchases of outstanding common stock. Various federal and state laws and regulations limit the amount of dividends that a bank may pay toits parent company. In addition, our right to participate in a distribution of assets upon the liquidation or reorganization of a subsidiary may be subject to theprior claims of the subsidiary’s depositors and other creditors. If the Bank is unable to pay dividends, BankUnited, Inc. might not be able to service its debt,pay its obligations, pay dividends on its common stock or make share repurchases.We rely on analytical and forecasting models that may prove to be inadequate or inaccurate, which could adversely impact the effectiveness of ourstrategic planning and our results of operations.The processes we use to forecast future performance and estimate expected credit losses, the effects of changing interest rates, sources and uses ofliquidity, cash flows from ACI loans, real estate values, and economic indicators such as unemployment on our financial condition and results of operationsdepend upon the use of analytical and forecasting tools and models. These tools and models reflect assumptions that may not be accurate, particularly intimes of market stress or other unforeseen circumstances. Furthermore, even if our assumptions are accurate predictors of future performance, the tools andmodels they are based on may prove to be inadequate or inaccurate because of other flaws in their design or implementation. If these tools prove to beinadequate or inaccurate, our strategic planning processes, earnings and capital may be adversely impacted.Changes in taxes and other assessments may adversely affect us.The legislatures and taxing authorities in the tax jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes towhich we and our customers are subject. The effects of these changes and any other changes that result from interpreting and implementing regulations orenactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon ourbusiness.Tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subjectto prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense, filing returns and establishing thevalue of deferred tax assets and liabilities for purposes of its financial statements, the Company must make judgments and interpretations about theapplication of these inherently complex tax laws. If the judgments, estimates and assumptions the Company uses in establishing provisions, preparing its taxreturns or establishing the value of deferred tax assets and liabilities for purposes of its financial statements are subsequently found to be incorrect, therecould be a material effect on our results of operations.Operational RisksWe are subject to a variety of operational, legal and compliance risks, including the risk of fraud or theft by employees or outsiders, which mayadversely affect our business and results of operations.We are exposed to many types of operational risks, including legal and compliance risk, the risk of fraud or theft by employees or outsiders andoperational errors, including clerical or record-keeping errors or those resulting from faulty or disabled technology. The occurrence of any of these eventscould cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.17Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before theyare discovered and successfully rectified. Our necessary dependence upon automated systems to record and process transactions and our large transactionvolume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult todetect. We also may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control which may give riseto disruption of service to customers and to financial loss or liability. The occurrence of any of these events could result in a diminished ability to operate ourbusiness as well as potential liability to customers and counterparties, reputational damage and regulatory intervention, which could adversely affect ourbusiness, financial condition or results of operations.We are dependent on our information technology and telecommunications systems. System failures or interruptions could have an adverse effect onour financial condition and results of operations.Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems. Werely on these systems to process new and renewed loans, gather deposits, provide customer service, facilitate collections, and share data across ourorganization. The failure of these systems could interrupt our operations. Because our information technology and telecommunications systems interfacewith and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail orexperience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewedloans, gather deposits, provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business,and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financialcondition and results of operations.We are dependent on third-party service providers for significant aspects of our business infrastructure, information technology, andtelecommunications systems.We rely on third parties to provide key components of our business infrastructure and major systems including, but not limited to, core banking systemssuch as loan servicing and deposit transaction processing systems, our electronic funds transfer transaction processing, cash management and online bankingservices. While we select and monitor the performance of third-party vendors carefully, we do not control their actions. Any problems caused by these thirdparties, including those resulting from disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes,failure of a vendor to provide services for any reason or poor performance of services, or the termination of a third-party software license or service agreementon which any of these systems is based, could adversely affect our ability to deliver products and services to our customers and otherwise conduct ourbusiness. In many cases, our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large numberof transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. Financial or operationaldifficulties of a third-party vendor could also adversely affect our operations if those difficulties interfere with the vendor's ability to serve us effectively or atall. Replacing these third-party vendors could also create significant delays and expense. Accordingly, use of such third parties creates an unavoidableinherent risk to our business operations.Failure by us or third parties to detect or prevent a breach in information security or to protect customer information and privacy could have anadverse effect on our business.In the normal course of our business, we collect, process, and retain sensitive and confidential client and customer information. Despite the securitymeasures we have in place, our facilities and systems may be vulnerable to cyber attacks, security breaches, acts of vandalism, computer viruses, misplaced orlost data, programming and/or human errors, or other similar events, especially because, in the case of any intentional breaches, the techniques used changefrequently or are not recognized until launched, and cyber attacks can originate from a wide variety of sources, including third parties.We provide our customers the ability to bank remotely, including online, via mobile devices and over the telephone. The secure transmission ofconfidential information over the internet and other remote channels is a critical element of remote banking. Our network could be vulnerable tounauthorized access, computer viruses, phishing schemes and other security breaches. In addition to cyber attacks or other security breaches involving thetheft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of serviceattacks, designed to disrupt key business services such as customer-facing websites. We may be required to spend significant capital and other resources toprotect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. Any cyber attack or othersecurity breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage ourreputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations andhave a material adverse effect on our business.18In addition, we interact with and rely on financial counterparties for whom we process transactions and who process transactions for us and rely on otherthird parties, as discussed above. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins, and other cybersecurity breaches described above. The cyber security measures that they maintain to mitigate the risk of such activity may be different from our own and, inmany cases, we do not have any control over the types of security measures they may choose to implement. We may also incur costs as a result of data orsecurity breaches of third parties with whom we do not have a significant direct relationship. As a result of financial entities and technology systemsbecoming more interdependent and complex, a cyber incident, information breach or loss, or technology failure that compromises the systems or data of oneor more financial entities could have a material impact on counterparties or other market participants, including us.Concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, couldcause us to lose customers or potential customers for our products and services and thereby reduce our revenues.We have taken measures to implement safeguards to support our operations, but our ability to conduct business may be adversely affected by anysignificant disruptions to us or to third parties with whom we interact. We have a comprehensive set of information security policies and protocols and adedicated information security division that reports to the Chief Information Officer, with oversight by the Chief Risk Officer and the Risk Committee of theBoard of Directors. The Risk Committee receives regular reporting related to information security risks and the monitoring and management of those risks.Failure to keep pace with technological changes could have a material adverse impact on our ability to compete for loans and deposits, and thereforeon our financial condition and results of operations.Financial products and services have become increasingly technology driven. Our ability to meet the needs of our customers competitively, and in acost-efficient manner, is dependent on our ability to keep pace with and pro-actively and quickly respond to technological advances and to invest in newtechnology as it becomes available. Many of our larger competitors have greater resources to invest in technology than we do and may be better equipped tomarket new technology-driven products and services. The widespread adoption of new technologies, including, but not limited to, digitally-enabled productsand delivery channels and payment systems, could require us to incur substantial expenditures to modify or adapt our existing products and services. Ourfailure to respond to the impact of technological change could have a material adverse impact on our business and results of operations.The soundness of other financial institutions, particularly our financial institution counterparties, could adversely affect us.Our ability to engage in routine funding and other transactions could be adversely affected by the stability and actions of other financial servicesinstitutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty, and other relationships. We have exposureto an increasing number of financial institutions and counterparties. These counterparties include institutions that may be exposed to various risks overwhich we have little or no control.Adverse developments affecting the overall strength and soundness of the financial services industry as a whole and third parties with whom we haveimportant relationships could have a negative impact on our business even if we are not subject to the same adverse developments.Reputational risks could affect our results.Our ability to originate new business and maintain existing customer relationships is highly dependent upon customer and other external perceptions ofour business practices. Adverse perceptions regarding our business practices could damage our reputation in the customer, funding and capital markets,leading to difficulties in generating and maintaining accounts as well as in financing them. Negative public opinion can result from our actual or allegedconduct in any number of activities, including lending practices, employee relations, corporate governance and acquisitions and from actions taken bygovernment regulators and community organizations in response to those activities. Adverse developments with respect to external perceptions regarding thepractices of our competitors, or our industry as a whole, or the general economic climate may also adversely impact our reputation. These perceptions aboutus could cause our business to be negatively affected and exacerbate the other risks that we face. In addition, adverse reputational impacts on third partieswith whom we have important relationships may adversely impact our reputation. Adverse reputational impacts or events may also increase our litigationrisk. We carefully monitor internal and external developments for areas of potential reputational risk and have established governance structures to assist inevaluating such risks in our business practices and decisions.19Risks Relating to the Regulation of Our IndustryWe operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executivecompensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.We are subject to extensive regulation, supervision, and legal requirements that govern almost all aspects of our operations, see Item 1"Business—Regulation and Supervision." Intended to protect customers, depositors, the DIF, and the overall financial stability of the United States, these lawsand regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limitthe dividend or distributions that BankUnited can pay to BankUnited, Inc., restrict the ability of institutions to guarantee our debt, and impose specificaccounting requirements on us. Banking regulators may also from time to time focus on issues that may impact the pace of growth of our business andoperations, such as commercial real estate lending concentrations. Compliance with laws and regulations can be difficult and costly, and changes to laws andregulations often impose additional compliance costs. In addition, federal banking agencies, including the OCC and Federal Reserve Board, periodicallyconduct examinations of our business, including compliance with laws and regulations. Our failure to comply with these laws and regulations, even if thefailure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines, remedial actions,administrative orders and other penalties, any of which could adversely affect our results of operations and capital base.Further, federal, state and local legislators and regulators regularly introduce measures or take actions that would modify the regulatory requirementsapplicable to banks, their holding companies and other financial institutions. Changes in laws, regulations or regulatory policies could adversely affect theoperating environment for the Company in substantial and unpredictable ways, increase our cost of doing business, impose new restrictions on the way inwhich we conduct our operations or add significant operational constraints that might impair our profitability. We cannot predict whether new legislationwill be enacted and, if enacted, the effect that it, or any implementing regulations, would have on our business, financial condition or results of operations.Our ability to expand through acquisition or de novo branching requires regulatory approvals, and failure to obtain them may restrict our growth.We may identify opportunities to complement and expand our business by pursuing strategic acquisitions of financial institutions and othercomplementary businesses. We must generally receive federal regulatory approval before we can acquire an institution or business. In determining whether toapprove a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, our financialcondition, our future prospects, and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios andlevels, the competence, experience, and integrity of management and its record of compliance with laws and regulations, the convenience and needs of thecommunities to be served (including the acquiring institution's record of compliance under the CRA) and the effectiveness of the acquiring institution incombating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required tosell or close branches as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce thebenefit of any acquisition.In addition to the acquisition of existing financial institutions, as opportunities arise, we may continue de novo branching as a part of our internal growthstrategy and possibly enter into new markets through de novo branching. De novo branching and any acquisition carries with it numerous risks, including theinability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novobranches may impact our business plans and restrict our growth.Financial institutions, such as BankUnited, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-moneylaundering statutes and regulations.The Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute andmaintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The Financial CrimesEnforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil moneypenalties for violations of those requirements, and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well asthe U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. There is also increased scrutiny of compliance with thesanctions programs and rules administered and enforced by the U.S. Treasury Department's Office of Foreign Assets Control.20In order to comply with regulations, guidelines and examination procedures in this area, we dedicate significant resources to the ongoing execution ofour anti-money laundering program, continuously monitor and enhance as necessary our policies and procedures and maintain a robust automated anti-money laundering software solution. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of financialinstitutions that we may acquire in the future are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictionson our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our expansionplans.We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lendingrequirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. Asuccessful challenge to an institution's performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, includingthe required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictionson expansion activity. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class actionlitigation.The FDIC's restoration plan and any future related increased assessments could adversely affect our earnings.Insured depository institutions such as BankUnited are required to pay deposit insurance premiums to the FDIC. If the current level of deposit premiumsis insufficient for the DIF to meet its funding requirements in the future, special assessments or increases in deposit insurance premiums may be required. Achange in BankUnited's risk classification within the FDICs' risk-based assessment framework could also result in increased deposit insurance premiums. Weare generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institutionfailures in the future, we may be required to pay FDIC premiums higher than current levels. Any future additional assessments or increases in FDIC insurancepremiums may adversely affect our results of operations.We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or anotherincident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect ouroperations and financial condition.Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in variousinformation systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We are subject to complexand evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliersand other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on ourability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures tocustomers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us withnonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information securityprogram containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customerinformation we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacteddata security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certaincircumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicablelaws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and other thirdparties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information istransmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, we could beexposed to litigation or regulatory sanctions under personal information laws and regulations. Any failure or perceived failure to comply with applicableprivacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify orcease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect ouroperations and financial condition.Item 1B. Unresolved Staff CommentsNone.21Item 2. PropertiesBankUnited's corporate headquarters is located in Miami Lakes, Florida. The headquarters space is used for office and operations. At December 31, 2018,we provided banking services at 85 branches located in Florida and New York. In Florida, we had 80 branch locations in 14 Florida counties. Of the 80Florida branch properties, we leased 77 locations and owned 3 branch locations. In New York, we leased 5 branch locations, including 3 branch locations inNew York City, 1 branch location in Brooklyn and 1 branch location in Melville. We also leased office space in Florida at 7 locations excluding thecorporate headquarters and in New York at 5 locations.For our two commercial lending subsidiaries, we had leased office and operations space in Hunt Valley, Maryland to house Bridge Funding Group andoperations space in Scottsdale, Arizona to house Pinnacle.We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.Item 3. Legal ProceedingsThe Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, basedupon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to theCompany’s consolidated financial position, results of operations or cash flows.Item 4. Mine Safety DisclosuresNone.PART II - FINANCIAL INFORMATIONItem 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket Information and Holders of RecordShares of our common stock trade on the NYSE under the symbol "BKU". The last sale price of our common stock on the NYSE on February 25, 2019was $36.73 per share. As of February 25, 2019, there were 565 stockholders of record of our common stock.Equity Compensation Plan InformationThe information set forth under the caption "Equity Compensation Plan Information" in our definitive proxy statement for the Company's 2019 annualmeeting of stockholders (the "Proxy Statement") is incorporated herein by reference.Dividend PolicyThe Company declared a quarterly dividend of $0.21 per share on its common stock for each of the four quarters of 2018 and 2017, resulting in totaldividends for 2018 and 2017 of $89.9 million and $92.2 million, respectively, or $0.84 per common share for each of the years ended December 31, 2018 and2017. Dividends from the Bank are the principal source of funds for the payment of dividends on our common stock. The Bank is subject to certainrestrictions that may limit its ability to pay dividends to us. See "Business—Regulation and Supervision—Regulatory Limits on Dividends andDistributions". The quarterly dividends on our common stock are subject to the discretion of our board of directors and dependent on, among other things,our financial condition, results of operations, capital requirements, restrictions contained in financing instruments and other factors that our board of directorsmay deem relevant.23Stock Performance GraphThe graph set forth below compares the cumulative total stockholder return on an initial investment of $100 in our common stock between December 31,2013 and December 31, 2018, with the comparative cumulative total return of such amount on the S&P 500 Index and the S&P 500 Bank Index over thesame period. Reinvestment of all dividends is assumed to have been made in our common stock.The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is notnecessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.Index12/31/201312/31/201412/31/201512/31/201612/31/201712/31/2018BankUnited, Inc.100.0090.94115.28123.70135.79102.88S&P 500100.00113.69115.26129.05157.22150.33S&P Bank100.00115.51116.49144.81177.47148.30Recent Sales of Unregistered SecuritiesNone.24Purchases of Equity Securities by the Issuer and Affiliated Purchasers Issuer Purchases of Equity SecuritiesPeriod Total number ofshares purchased(1) Average price paidper share Total number ofshares purchased aspart of publiclyannounced plans orprograms Maximum number (orapproximate dollar value) ofshares that may yet be purchasedunder the plans or programs(2)October 1 – October 31, 2018 724,190 $32.61 724,190 $126,382,321November 1 – November 30, 2018 2,259,462 33.81 2,259,462 $50,000,002December 1 – December 31, 2018 1,682,379 29.7 1,682,379 $27,395Total 4,666,031 $32.14 4,666,031 (1)The total number of shares purchased during the periods indicated includes shares purchased as part of a publicly announced program.(2)On October 23, 2018, the Company's Board of Directors authorized a now completed share repurchase program under which the Company repurchased $150 million of itsoutstanding common stock25Item 6. Selected Consolidated Financial DataYou should read the selected consolidated financial data set forth below in conjunction with "Item 7. Management's Discussion and Analysis ofFinancial Condition and Results of Operations," and the audited consolidated financial statements and the related notes thereto included elsewhere in thisForm 10-K. The selected consolidated financial data set forth below is derived from our audited consolidated financial statements. At December 31, 2018 2017 2016 2015 2014 (dollars in thousands)Consolidated Balance Sheet Data: Cash and cash equivalents$382,073 $194,582 $448,313 $267,500 $187,517Investment securities8,166,878 6,690,832 6,073,584 4,859,539 4,585,694Loans, net21,867,077 21,271,709 19,242,441 16,510,775 12,319,227FDIC indemnification asset— 295,635 515,933 739,880 974,704Equipment under operating lease, net702,354 599,502 539,914 483,518 314,558Total assets32,164,326 30,346,986 27,880,151 23,883,467 19,210,529Deposits23,474,223 21,878,479 19,490,890 16,938,501 13,511,755Federal Home Loan Bank advances4,796,000 4,771,000 5,239,348 4,008,464 3,307,932Notes and other borrowings402,749 402,830 402,809 402,545 10,627Total liabilities29,240,493 27,320,924 25,461,722 21,639,569 17,157,995Total stockholder's equity2,923,833 3,026,062 2,418,429 2,243,898 2,052,534Covered assets201,376 505,722 616,600 813,525 1,053,317 Years Ended December 31, 2018 2017 2016 2015 2014 (dollars in thousands, except per share data)Consolidated Income Statement Data: Interest income$1,449,144 $1,204,461 $1,059,217 $880,816 $783,744Interest expense399,051 254,189 188,832 135,164 106,651Net interest income1,050,093 950,272 870,385 745,652 677,093Provision for loan losses25,925 68,747 50,911 44,311 41,505Net interest income after provision for loan losses1,024,168 881,525 819,474 701,341 635,588Non-interest income132,022 157,904 106,417 102,224 84,165Non-interest expense740,540 634,968 590,447 506,672 426,503Income before income taxes415,650 404,461 335,444 296,893 293,250Provision (benefit) for income taxes (1)90,784 (209,812) 109,703 45,233 89,035Net income$324,866 $614,273 $225,741 $251,660 $204,215Share Data: Earnings per common share, basic$3.01 $5.60 $2.11 $2.37 $1.95Earnings per common share, diluted$2.99 $5.58 $2.09 $2.35 $1.95Cash dividends declared per common share$0.84 $0.84 $0.84 $0.84 $0.84Dividend payout ratio27.95% 14.99% 39.85% 35.75% 43.06%26 As of or for the Years Ended December 31, 2018 2017 2016 2015 2014 (dollars in thousands, except per share data)Other Data (unaudited): Financial ratios Return on average assets1.05% 2.13% 0.87% 1.18% 1.21%Return on average common equity10.57% 23.36% 9.64% 11.62% 10.13%Yield on earning assets (2)5.04% 4.58% 4.51% 4.64% 5.33%Cost of interest bearing liabilities1.66% 1.12% 0.93% 0.84% 0.87%Tangible common equity to tangible assets8.87% 9.74% 8.42% 9.10% 10.37%Net interest margin (2)3.67% 3.65% 3.73% 3.94% 4.61%Loan to deposit ratio (3)93.78% 98.04% 99.72% 98.50% 91.89%Tangible book value per common share$28.71 $27.59 $22.47 $20.90 $19.52Asset quality ratios Non-performing loans to total loans (3) (4)0.59% 0.81% 0.70% 0.44% 0.32%Non-performing assets to total assets (5)0.43% 0.61% 0.53% 0.35% 0.28%Non-performing non-covered assets to total assets (5)(6)0.43% 0.60% 0.51% 0.26% 0.17%ALLL to total loans0.50% 0.68% 0.79% 0.76% 0.77%ALLL to non-performing loans (4)84.63% 83.53% 112.55% 172.23% 239.24%Net charge-offs to average loans(7)0.28% 0.38% 0.13% 0.10% 0.15%Non-covered net charge-offs to average non-coveredloans0.28% 0.38% 0.13% 0.09% 0.08% At December 31, 2018 2017 2016 2015 2014Capital ratios Tier 1 leverage8.99% 9.72% 8.41% 9.35% 10.70%CET1 risk-based capital12.57% 13.11% 11.63% 12.58% N/ATier 1 risk-based capital12.57% 13.11% 11.63% 12.58% 15.45%Total risk-based capital13.08% 13.78% 12.45% 13.36% 16.27% (1)Includes discrete income tax benefits of $327.9 million and $49.3 million recognized during the years ended December 31, 2017 and 2015, respectively.(2)On a tax-equivalent basis, at a federal income tax rate of 21% for 2018 and 35% for years 2017, 2016, 2015 and 2014.(3)Total loans include premiums, discounts, deferred fees and costs and loans held for sale.(4)We define non-performing loans to include non-accrual loans, and loans, other than ACI loans and government insured residential loans, that are past due 90 days or more andstill accruing. Contractually delinquent ACI loans on which interest continues to be accreted are excluded from non-performing loans.(5)Non-performing assets include non-performing loans, OREO and other repossessed assets.(6)Ratio for non-covered assets is calculated as non-performing non-covered assets to total assets.(7)The ratio of charge-offs of taxi medallion loans to average total loans was 0.18%, 0.28% and 0.06% for the years ended December 31, 2018, 2017 and 2016, respectively.27Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is intended to assist readers in understanding the consolidated financial conditionand results of operations of BankUnited, Inc. and its subsidiary (the "Company", "we", "us" and "our") and should be read inconjunction with the consolidated financial statements, accompanying footnotes and supplemental financial data includedherein. In addition to historical information, this discussion contains forward-looking statements that involve risks,uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors thatcould cause such differences are discussed in the sections entitled "Forward-looking Statements" and "Risk Factors." We assume no obligation to updateany of these forward-looking statements.OverviewPerformance HighlightsIn evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, levels and composition ofnon-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios,including the ratio of non-performing loans to total loans, non-performing assets to total assets, and portfolio delinquency and charge-off trends. We considergrowth in earning assets and deposits, trends in funding mix and cost of funds. We analyze these ratios and trends against our own historical performance, ourbudgeted performance and the financial condition and performance of comparable financial institutions.Performance highlights include:•Net income for the year ended December 31, 2018 was $324.9 million, or $2.99 per diluted share, compared to $614.3 million, or $5.58 per dilutedshare, for the year ended December 31, 2017. Excluding the impact of a discrete income tax benefit and professional fees, net income was $291.3million or $2.65 per diluted share for the year ended December 31, 2017. Earnings for the year ended December 31, 2018 generated a return onaverage stockholders' equity of 10.57% and a return on average assets of 1.05%.•Net interest income for the year ended December 31, 2018 was $1.1 billion, an increase of $99.8 million over the prior year. The net interest margin,calculated on a tax-equivalent basis, was 3.67% for the year ended December 31, 2018 compared to 3.65% for the year ended December 31, 2017.Significant factors contributing to the increase in the net interest margin included increases in accretion on covered loans and in yields on othercategories of interest earning assets, offset by an increase in the cost of interest bearing liabilities and the impact on tax equivalent yields of thereduction in the statutory federal income tax rate. See "Results of Operations" below for further discussion.The following chart provides a comparison of net interest margin, the interest rate spread, the average yield on interest earning assets and the averagerate paid on interest bearing liabilities for the years ended December 31, 2018 and 2017 (on a tax equivalent basis):28•Total deposits increased by $1.6 billion for the year ended December 31, 2018, of which $550 million was non-interest bearing demand deposits,representing an 18% increase over the prior year-end. The average cost of total deposits increased to 1.28% for the year ended December 31, 2018 from0.83% for 2017. The following charts illustrate the composition of deposits at December 31, 2018 and 2017:•Non-covered loans and leases, including equipment under operating lease, grew by $965 million to $22.5 billion for the year ended December 31, 2018compared to $21.5 billion at December 31, 2017. During the year ended December 31, 2018, commercial loans grew by $311 million; equipment underoperating lease grew by $103 million; and non-covered residential and other consumer loans grew by $552 million. The following charts compare thecomposition of our loan and lease portfolio at December 31, 2018 and 2017:•Asset quality remained strong. At December 31, 2018, 98.2% of the commercial loan portfolio was rated "pass" and 99.5% of the 1-4 single familyresidential portfolio, excluding government insured residential loans, was current. The ratio of non-performing loans to total loans was 0.59% andthe ratio of non-performing assets to total assets was 0.43% at December 31, 2018. Our nonperforming assets ratio at December 31, 2018, 2017 and2016 is presented in the chart below:29•During the year ended December 31, 2018, the Company repurchased approximately 8.4 million shares of its common stock for an aggregatepurchase price of $300 million.•The Bank executed a final sale of covered loans and OREO pursuant to the terms of the Single Family Shared-Loss Agreement in the fourth quarterof 2018. See the section entitled "Results of Operations" below for further information. The Single Family Shared-Loss Agreement was terminated onFebruary 13, 2019.•During the quarter ended December 31, 2018, the Bank sold substantially all of its taxi medallion finance loans.•Book value per common share grew to $29.49 at December 31, 2018 from $28.32 at December 31, 2017. Tangible book value per common shareincreased to $28.71 from $27.59 over the same period.•The Company’s and the Bank's capital ratios exceeded all regulatory “well capitalized” guidelines. The charts below present the Company's and theBank's regulatory capital ratios compared to regulatory guidelines as of December 31, 2018 and 2017:BankUnited, Inc:30BankUnited, N.A.:•The operating agreement between the Bank and the OCC was terminated in November 2018.Strategic PrioritiesManagement has identified the following strategic priorities for our Company:•Our strategy emphasizes safety and soundness, long-term profitability and sustainable growth.•Optimization of the deposit mix, emphasizing growth in non-interest bearing demand deposits.•Continued organic growth in Florida and the Tri-State markets, both of which we believe to be attractive banking markets, as well as across ournational lending and deposit platforms.•Maintaining a culture of disciplined credit underwriting.•Focus on expense management and a scalable and efficient operating model.•Identifying opportunities to augment revenue consistent with our commercial and small business focus.•Strategic technology investments that enhance delivery of products and services to our customers as well as our supporting infrastructure.•Opportunistic evaluation of potential strategic acquisitions.Challenges confronting our Company include:•While most economic indicators remain favorable, uncertainty about future economic conditions as we move through the credit cycle may presentchallenges to our business strategy.•Competitive market conditions for both loans and deposits may impact our ability to execute our balance sheet growth and profitability strategy.•Managing the cost of funds while growing deposits in a volatile or uncertain interest rate environment presents a strategic challenge.•The current flat yield curve may pressure our net interest margin.Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application ofthese principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financialstatements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable andappropriate under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities31that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may haveresulted in significantly different estimates. Actual results may differ from these estimates.Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewingour reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve aheightened level of management judgment due to the complexity, subjectivity and sensitivity involved in their application.Note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies.Allowance for Loan and Lease LossesThe ALLL represents management's estimate of probable loan losses inherent in the Company's loan portfolio. Determining the amount of the ALLL isconsidered a critical accounting estimate because of its complexity and because it requires significant judgment and estimation. Estimates that areparticularly susceptible to change that may have a material impact on the amount of the ALLL include:•the selection of proxy data used to calculate quantitative loss factors for portfolio segments that have not yet exhibited an observable loss trend;•our evaluation of loss emergence and historical loss experience periods;•our evaluation of the risk profile of various loan portfolio segments, including internal risk ratings;•the value of underlying collateral, which may impact loss severity and certain cash flow assumptions for impaired, criticized and classified loans;•our selection and evaluation of qualitative factors; and•the amount and timing of expected future cash flows from ACI loans and impaired loans.Note 1 to the consolidated financial statements describes the methodology used to determine the ALLL.Accounting for ACI Loans and the FDIC Indemnification AssetThe accounting for ACI loans requires the Company to estimate the timing and amount of cash flows to be collected from these loans and to continuallyupdate estimates of the cash flows expected to be collected over the lives of the loans. Similarly, the accounting for the FDIC indemnification asset requiresthe Company to estimate the timing and amount of cash flows to be received from the FDIC in reimbursement for losses and expenses related to the coveredloans; these estimates are directly related to estimates of cash flows to be received from the covered loans. Estimated cash flows impact the rate of accretionon ACI loans and the rate of amortization on the FDIC indemnification asset as well as the amount of any ALLL to be established related to ACI loans. Thesecash flow estimates are considered to be critical accounting estimates because they involve significant judgment and assumptions as to their amount andtiming. In conjunction with the final sale of covered loans pursuant to the terms of the Single Family Shared-Loss Agreement, the FDIC indemnification assetwas amortized to zero as of December 31, 2018 as expectations of losses eligible for indemnification with respect to any retained loans prior to finaltermination of the Single Family Shared-Loss Agreement were insignificant. The Single Family Shared-Loss Agreement was terminated in February 2019.Acquired 1-4 single family residential and home equity loans were placed into homogenous pools for purposes of accounting and estimation of expectedcash flows at the time of the FSB Acquisition. At acquisition, the fair value of the pools was measured based on the expected cash flows to be derived fromeach pool. For ACI pools, the difference between total contractual payments due and the cash flows expected to be received at acquisition was recognized asnon-accretable difference. The excess of expected cash flows over the recorded fair value of each ACI pool at acquisition was recognized as accretable yieldto be accreted into interest income over the expected life of each pool.We monitor the pools quarterly by updating our expected cash flows to determine whether any changes have occurred in expected cash flows that wouldbe indicative of impairment or necessitate reclassification between non-accretable difference and accretable yield. Initial and ongoing cash flow expectationsincorporate significant assumptions regarding prepayment rates, the timing of resolution of loans, the timing and amount of loan sales and related pricing,frequency of default, delinquency and loss severity, which is dependent on estimates of underlying collateral values. These assumptions have a materialimpact on the amount of the ALLL related to the ACI loans as well as on the rate of accretion on these loans and the corresponding rate of amortization of theFDIC indemnification asset.32Fair Value MeasurementsThe Company measures certain of its assets and liabilities at fair value on a recurring or non-recurring basis. Assets and liabilities measured at fair valueon a recurring basis include investment securities available for sale, marketable equity securities, servicing rights, and derivative instruments. Assets that maybe measured at fair value on a non-recurring basis include impaired loans, OREO and other repossessed assets, loans held for sale, goodwill, and impairedlong-lived assets. The consolidated financial statements also include disclosures about the fair value of financial instruments that are not recorded at fairvalue.Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous marketfor the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to determine fair value measurements areprioritized into a three level hierarchy based on observability and transparency of the inputs, summarized as follows:Level 1—observable inputs that reflect quoted prices in active markets for identical assets,Level 2—inputs other than quoted prices in active markets that are based on observable market data, andLevel 3—unobservable inputs requiring significant management judgment or estimation.When observable market quotes are not available, fair value is estimated using modeling techniques such as discounted cash flow analyses and optionpricing models. These modeling techniques utilize assumptions that we believe market participants would use in pricing the asset or the liability.Particularly for estimated fair values of assets and liabilities categorized within level 3 of the fair value hierarchy, the selection of different valuationtechniques or underlying assumptions could result in fair value estimates that are higher or lower than the amounts recorded or disclosed in our consolidatedfinancial statements. Considerable judgment may be involved in determining the amount that is most representative of fair value.Because of the degree of judgment involved in selecting valuation techniques and underlying assumptions, fair value measurements are consideredcritical accounting estimates.Notes 1, 3, 11 and 15 to our consolidated financial statements contain further information about fair value estimates.Recent Accounting PronouncementsSee Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.Results of OperationsNet Interest IncomeNet interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is theprimary driver of core earnings. Net interest income is impacted by the relative mix of interest earning assets and interest bearing liabilities, the ratio ofinterest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yieldcurve, levels of non-performing assets and pricing pressure from competitors.The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets and bymanagement's continual assessment of the rate of return and relative risk associated with various classes of earning assets. The mix of interest bearingliabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed againstrelationships with customers and growth expectations and is impacted by competition for deposits in the Company's markets and the availability and pricingof other sources of funds.Net interest income is also impacted by the accounting for ACI loans acquired in conjunction with the FSB Acquisition. ACI loans were initiallyrecorded at fair value, measured based on the present value of expected cash flows. The excess of expected cash flows over carrying value, known asaccretable yield, is recognized as interest income over the lives of the underlying loans.The impact of ACI loan accounting on net interest income makes it difficult to compare our net interest margin and interest rate spread to those reportedby other financial institutions.33The following table presents, for the years ended December 31, 2018, 2017 and 2016, information about (i) average balances, the total dollar amount oftaxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense oninterest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrualand restructured loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included.Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federalincome taxes, at a federal tax rate of 21% during the year ended December 31, 2018 and 35% during the years ended December 31, 2017 and 2016 (dollars inthousands): Years Ended December 31, 2018 2017 2016 AverageBalance Interest (1) Yield/Rate (1) AverageBalance Interest (1) Yield/Rate (1) AverageBalance Interest (1) Yield/Rate (1)Assets: Interest earning assets: Non-covered loans$21,169,705 $847,588 4.00% $19,478,071 $730,701 3.75% $17,282,886 $617,863 3.58%Covered loans427,437 368,161 86.13% 544,279 300,540 55.22% 721,268 301,614 41.82%Total loans21,597,142 1,215,749 5.63% 20,022,350 1,031,241 5.15% 18,004,154 919,477 5.11%Investment securities (2)7,124,372 238,602 3.35% 6,658,145 201,363 3.02% 5,691,617 161,385 2.84%Other interest earning assets506,154 17,812 3.52% 543,338 14,292 2.63% 541,816 12,204 2.25%Total interest earning assets29,227,668 1,472,163 5.04% 27,223,833 1,246,896 4.58% 24,237,587 1,093,066 4.51%Allowance for loan and lease losses(136,758) (156,471) (139,469) Non-interest earning assets1,878,284 1,758,032 1,923,298 Total assets$30,969,194 $28,825,394 $26,021,416 Liabilities and Stockholders'Equity: Interest bearing liabilities: Interest bearing demand deposits$1,627,828 18,391 1.13% $1,586,390 12,873 0.81% $1,382,717 8,343 0.60%Savings and money market deposits10,634,970 146,324 1.38% 9,730,101 80,397 0.83% 8,361,652 51,774 0.62%Time deposits6,617,006 119,848 1.81% 6,094,336 77,663 1.27% 5,326,630 59,656 1.12%Total interest bearing deposits18,879,804 284,563 1.51% 17,410,827 170,933 0.98% 15,070,999 119,773 0.79%Federal funds purchased48,940 1,035 2.11% — — —% — — —%FHLB advances4,637,247 92,234 1.99% 4,869,690 61,996 1.27% 4,801,406 47,773 0.99%Notes and other borrowings402,795 21,219 5.27% 402,921 21,259 5.28% 403,197 21,287 5.28%Total interest bearing liabilities23,968,786 399,051 1.66% 22,683,438 254,188 1.12% 20,275,602 188,833 0.93%Non-interest bearing demanddeposits3,389,191 3,069,565 2,968,192 Other non-interest bearing liabilities538,575 443,019 435,645 Total liabilities27,896,552 26,196,022 23,679,439 Stockholders' equity3,072,642 2,629,372 2,341,977 Total liabilities and stockholders'equity$30,969,194 $28,825,394 $26,021,416 Net interest income $1,073,112 $992,708 $904,233 Interest rate spread 3.38% 3.46% 3.58%Net interest margin 3.67% 3.65% 3.73% (1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $17.5 million, $29.4 million and $23 million, and the tax-equivalentadjustment for tax-exempt investment securities was $5.5 million, $13.1 million and $10.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.(2)At fair value except for securities held to maturity.34The TCJA was signed into law in 2017, reducing the statutory corporate federal income tax rate from 35% to 21%, effective January 1, 2018. For the yearended December 31, 2018 as compared to the year ended December 31, 2017, the tax rate change negatively impacted net interest margin by approximately0.08%.Increases and decreases in interest income, calculated on a tax-equivalent basis, and interest expense result from changes in average balances (volume) ofinterest earning assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interestearned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated. The effect of changes in volume isdetermined by multiplying the change in volume by the previous year's average rate. Similarly, the effect of rate changes is calculated by multiplying thechange in average rate by the previous year's volume. Changes applicable to both volume and rate have been allocated to volume (in thousands): 2018 Compared to 2017 2017 Compared to 2016 Change Due toVolume Change Due toRate Increase(Decrease) Change Due toVolume Change Due toRate Increase(Decrease)Interest Income Attributable to: Loans$88,401 $96,107 $184,508 $104,562 $7,202 $111,764Investment securities15,267 21,972 37,239 29,733 10,245 39,978Other interest earning assets(1,316) 4,836 3,520 29 2,059 2,088Total interest income102,352 122,915 225,267 134,324 19,506 153,830Interest Expense Attributable to: Interest bearing demand deposits442 5,076 5,518 1,626 2,904 4,530Savings and money market deposits12,411 53,516 65,927 11,064 17,559 28,623Time deposits9,276 32,909 42,185 10,017 7,990 18,007Total interest bearing deposits22,129 91,501 113,630 22,707 28,453 51,160Federal funds purchased1,035 — 1,035 — — —FHLB advances(4,824) 35,062 30,238 779 13,444 14,223Notes and other borrowings— (40) (40) (28) — (28)Total interest expense18,340 126,523 144,863 23,458 41,897 65,355Increase (decrease) in net interest income$84,012 $(3,608) $80,404 $110,866 $(22,391) $88,475Year ended December 31, 2018 compared to year ended December 31, 2017Net interest income, calculated on a tax-equivalent basis, was $1.1 billion for the year ended December 31, 2018 compared to $992.7 million for the yearended December 31, 2017, an increase of $80.4 million. The increase in net interest income was comprised of an increase in tax-equivalent interest income of$225.3 million, offset by an increase in interest expense of $144.9 million.The increase in tax-equivalent interest income was comprised primarily of a $184.5 million increase in interest income from loans and an $37.2 millionincrease in interest income from investment securities.Increased interest income from loans was attributable to a $1.6 billion increase in the average balance and a 0.48% increase in the tax-equivalent yield to5.63% for the year ended December 31, 2018 from 5.15% for the year ended December 31, 2017. Offsetting factors contributing to the increase in the yield onloans included:•The tax-equivalent yield on non-covered loans increased to 4.00% for the year ended December 31, 2018 from 3.75% for the year ended December31, 2017. The most significant factor contributing to the increased yield on non-covered loans was an increase in benchmark interest rates, partiallyoffset by the impact of the decline in the statutory federal income tax rate.•Interest income on covered loans totaled $368.2 million and $300.5 million for the year ended December 31, 2018 and 2017, respectively. The yieldon those loans increased to 86.13% for the year ended December 31, 2018 from 55.22% for the year ended December 31, 2017, reflecting additionalaccretion related to acceleration of the timing of the final covered loan sale that occurred in the fourth quarter of 2018. This acceleration resultedfrom changes in both the expected timing of cash flows from the final loan sale and in the estimated selling price of loans included in the salecompared to assumptions previously modeled.35•The impact on the overall yield on loans of increased yields on both covered and non-covered loans considered individually was partially offset bythe continued increase in lower-yielding non-covered loans as a percentage of the portfolio. Non-covered loans represented 98.00% of the averagebalance of loans outstanding for the year ended December 31, 2018 compared to 97.30% for the year ended December 31, 2017.•The reduction of the statutory corporate federal income tax rate from 35% to 21%, effective January 1, 2018, negatively impacted tax-equivalentyields on non-covered loans by approximately 0.09% for the year ended December 31, 2018.The average balance of investment securities increased by $466 million for the year ended December 31, 2018 from the year ended December 31, 2017,while the tax-equivalent yield increased to 3.35% from 3.02%. The increase in tax-equivalent yield primarily reflects changes in portfolio composition tosecurities with higher tax-equivalent yields and resetting of coupon rates on floating-rate securities, partially offset by the reduction of the statutory corporatefederal income tax rate discussed above.The primary components of the increase in interest expense for the year ended December 31, 2018 as compared to the year ended December 31, 2017were a $113.6 million increase in interest expense on deposits and a $30.2 million increase in interest expense on FHLB advances.The increase in interest expense on deposits was attributable to an increase of $1.5 billion in average interest bearing deposits and an increase in theaverage cost of interest bearing deposits of 0.53% to 1.51% for the year ended December 31, 2018 from 0.98% for the year ended December 31, 2017. Thiscost increase was driven by the growth of deposits in competitive markets and a rising short-term interest rate environment.The increase in interest expense on FHLB advances was primarily a result of an increase in the average cost of advances of 0.72% to 1.99% for the yearended December 31, 2018 from 1.27% for the year ended December 31, 2017. The increased cost was driven by increased market rates and an extension ofmaturities through interest rate swaps.The net interest margin, calculated on a tax-equivalent basis, for the year ended December 31, 2018 was 3.67% as compared to 3.65% for the year endedDecember 31, 2017. The interest rate spread decreased to 3.38% for the year ended December 31, 2018 from 3.46% for the year ended December 31, 2017.The increase in net interest margin is primarily attributed to the accelerated accretion related to the final covered loan sale discussed above.Year ended December 31, 2017 compared to year ended December 31, 2016Net interest income, calculated on a tax-equivalent basis, was $992.7 million for the year ended December 31, 2017 compared to $904.2 million for theyear ended December 31, 2016, an increase of $88.5 million. The increase in net interest income was comprised of an increase in tax-equivalent interestincome of $153.8 million, offset by an increase in interest expense of $65.4 million.The increase in tax-equivalent interest income was comprised primarily of a $111.8 million increase in interest income from loans and a $40.0 millionincrease in interest income from investment securities.Increased interest income from loans was attributable to a $2.0 billion increase in the average balance and a 0.04% increase in the tax-equivalent yield to5.15% for the year ended December 31, 2017 from 5.11% for the year ended December 31, 2016. Offsetting factors contributing to the increase in the yield onloans included:•The tax-equivalent yield on non-covered loans increased to 3.75% for the year ended December 31, 2017 from 3.58% for the year ended December31, 2016. The most significant factor contributing to the increased yield on non-covered loans was increases in market interest rates.•Interest income on covered loans totaled $300.5 million and $301.6 million for the year ended December 31, 2017 and 2016, respectively. The tax-equivalent yield on those loans increased to 55.22% for the year ended December 31, 2017 from 41.82% for the year ended December 31, 2016,reflecting improvements in expected cash flows for ACI loans, as well as an increase in higher-yielding pools as a percent of total covered loans. Theincrease in yield largely offset the impact of the decline in the average balance of covered loans outstanding.•The impact on the overall yield on loans of increased yields on both covered and non-covered loans considered individually was largely offset bythe continued increase in lower-yielding non-covered loans as a percentage of the portfolio. Non-covered loans represented 97.3% of the averagebalance of loans outstanding for the year ended December 31, 2017 compared to 96.0% for the year ended December 31, 2016.The average balance of investment securities increased by $1.0 billion for the year ended December 31, 2017 from the year ended December 31, 2016while the tax-equivalent yield increased to 3.02% from 2.84%. The increase in tax-equivalent yield36primarily reflected resetting of coupon rates on floating-rate securities. The tax-equivalent yield was reduced by 5 basis points in 2017 as a result of aretrospective adjustment to the amortization of premiums on SBA securities.The components of the increase in interest expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016 were a$51.2 million increase in interest expense on deposits and a $14.2 million increase in interest expense on FHLB advances.The increase in interest expense on deposits was attributable to an increase of $2.3 billion in average interest bearing deposits and an increase in theaverage cost of interest bearing deposits of 0.19% to 0.98% for the year ended December 31, 2017 from 0.79% for the year ended December 31, 2016. Thesecost increases were generally driven by the growth of deposits in competitive markets and a rising short-term interest rate environment.The increase in interest expense on FHLB advances was primarily a result of an increase in the average cost of advances of 0.28% to 1.27% for the yearended December 31, 2017 from 0.99% for the year ended December 31, 2016. The increased cost was driven by increased market rates and, to a lesser extent,an extension of maturities through interest rate swaps.The net interest margin, calculated on a tax-equivalent basis, for the year ended December 31, 2017 was 3.65% as compared to 3.73% for the year endedDecember 31, 2016. The interest rate spread decreased to 3.46% for the year ended December 31, 2017 from 3.58% for the year ended December 31, 2016.The declines in net interest margin and interest rate spread resulted primarily from the cost of interest-bearing liabilities increasing by more than the yield oninterest earning assets. This difference was driven primarily by the decline in covered loans as a percentage of total loans.Provision for Loan LossesThe provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the ALLL at an adequate level to absorbprobable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. The determination ofthe amount of the ALLL is complex and involves a high degree of judgment and subjectivity. Our determination of the amount of the allowance andcorresponding provision for loan losses considers ongoing evaluations of the credit quality of and level of credit risk inherent in various segments of the loanportfolio and of individually significant credits, levels of non-performing loans and charge-offs, historical and statistical trends and economic and otherrelevant factors. See “Analysis of the Allowance for Loan and Lease Losses” below for more information about how we determine the appropriate level of theallowance.For the years ended December 31, 2018, 2017 and 2016, the Company recorded provisions for loan losses of $25.9 million, $68.7 million and $50.9million, respectively, substantially all of which related to non-covered loans. The provision for loan losses related to taxi medallion loans totaled $26.2million, $58.2 million and $11.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. The amount of the provision is impacted byloan growth, portfolio mix, historical loss rates, the level of charge-offs and specific reserves for impaired loans, and management's evaluation of qualitativefactors in the determination of general reserves.Significant factors impacting the decrease in the provision for loan losses related to non-covered loans for the year ended December 31, 2018 comparedto 2017 were (i) a decrease in the provision related to taxi medallion loans; (ii) lower loan growth; and (iii) a net decrease in the provision related to certainquantitative and qualitative loss factors; partially offset by (iv) an increase in the provision related to specific reserves for loans other than taxi medallionloans.The increase in the provision for loan losses related to non-covered loans for the year ended December 31, 2017 compared to 2016 included an increaseof $46.3 million in the provision related to taxi medallion loans. The provision related to taxi medallion loans totaled $58.2 million for the year endedDecember 31, 2017 compared to $11.9 million for the year ended December 31, 2016. The increased provision related to taxi medallion loans was partiallyoffset by (i) decreases in quantitative and qualitative loss factors, (ii) the impact of lower loan growth and (iii) a decrease in provisions for classified andspecifically reserved loans.The provision for loan losses related to covered loans was not material for any period presented.37Non-Interest IncomeThe following table presents a comparison of the categories of non-interest income for the periods indicated (in thousands): Years Ended December 31, 2018 2017 2016Income from resolution of covered assets, net$11,551 $27,450 $36,155Gain (loss) on sale of covered loans, net5,732 17,406 (14,470)Net loss on FDIC indemnification(4,199) (22,220) (17,759)Other1,214 1,626 1,100Non-interest income related to the covered assets14,298 24,262 5,026Deposit service charges and fees14,040 12,997 12,780Gain on sale of non-covered loans, net10,132 10,183 10,064Gain on investment securities, net3,159 33,466 14,461Lease financing61,685 53,837 44,738Other service charges and fees8,946 7,867 6,683Other non-interest income19,762 15,292 12,665 $132,022 $157,904 $106,417Refer to the section titled "Impact of the Covered Loans, the FDIC Indemnification Asset and the Loss Sharing Agreements" below for further informationabout non-interest income related to the covered assets.Increases in deposit service charges and fees for the year ended December 31, 2018 compared to the year ended December 31, 2017 corresponded to thegrowth in core deposits.The most significant component of gain on sale of non-covered loans, net for the years ended December 31, 2018, 2017 and 2016 was gains on sales ofthe guaranteed portions of SBA loans by SBF.Gain on investment securities, net for the year ended December 31, 2018 reflected net realized gains of $6.1 million from the sale of investment securitiesavailable for sale, offset by the net unrealized loss on marketable equity securities of $2.9 million. Gain on investment securities, net for the year endedDecember 31, 2017 included gains from the sale of certain securities formerly covered under the Commercial Shared-Loss Agreement and originally acquiredat significant discounts in the FSB Acquisition.Year over year increases in income from lease financing generally corresponded to the growth in the portfolio of equipment under operating lease. Leasefinancing includes gains on the sale of equipment under operating lease of $4.5 million for the year ended December 31, 2018.Other non-interest income for the year ended December 31, 2018 reflected increases in fair value adjustments of $7.7 million related to residential MSRs.All of the Company's residential MSRs were sold in the fourth quarter 2018.38Non-Interest ExpenseThe following table presents the components of non-interest expense for the years ended December 31, 2018, 2017 and 2016 (in thousands): 2018 2017 2016Employee compensation and benefits$254,997 $237,824 $223,011Occupancy and equipment55,899 58,100 59,022Amortization of FDIC indemnification asset261,763 176,466 160,091Deposit insurance expense18,984 22,011 17,806Professional fees16,539 23,676 14,249Technology and telecommunications35,136 31,252 31,324Depreciation of equipment under operating lease40,025 35,015 31,580Other non-interest expense57,197 50,624 53,364 $740,540 $634,968 $590,447Consolidated statement of income line item "technology and telecommunications" includes reclassifications from "occupancy and equipment" of $17.3million and $17.0 million, respectively, for the years ended December 31, 2017 and 2016. The reclassification adjustments relate to hardware and softwaresupport and maintenance fees and depreciation of software. Excluding amortization of the FDIC indemnification asset, non-interest expense as a percentageof average assets was 1.5%, 1.6% and 1.7%, respectively, for years ended December 31, 2018, 2017 and 2016, respectively. The more significant changes inthe components of non-interest expense are discussed below.Employee compensation and benefitsAs is typical for financial institutions, employee compensation and benefits represents the single largest component of recurring non-interest expense.Employee compensation and benefits for the year ended December 31, 2018 increased by $17.2 million compared to the year ended December 31, 2017. Theincrease for the year ended December 31, 2018 primarily reflected an increase in the number of employees and compensation increases. Employeecompensation and benefits for the year ended December 31, 2017 increased $14.8 million compared to the year ended December 31, 2016. This increasereflected general increases in salaries and the cost of benefits as well as changes in the composition of the employee base.Amortization of FDIC indemnification assetSee the section titled "Impact of Covered Loans, the FDIC Indemnification Asset and the Loss Sharing Agreements" below for more information aboutamortization of the FDIC indemnification asset.Deposit insurance expenseDeposit insurance expense totaled $19.0 million, $22.0 million and $17.8 million respectively, for the years ended December 31, 2018, 2017 and 2016.The decrease in 2018 was attributed to discontinuance of the large bank surcharge assessment in the fourth quarter. The increase for 2017 reflected the growthof the balance sheet, the large bank surcharge imposed by the FDIC, which began in the third quarter of 2016, and increases in certain components of theBank's assessment rate.Professional FeesProfessional fees decreased by $7.1 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily due to areduction in the advisory fees related to the discrete income tax benefit recognized in 2017.Technology and telecommunicationsTechnology and telecommunications expense increased by $3.9 million for the year ended December 31, 2018 compared to the year ended December31, 2017. This increase is primarily attributed to hardware and software licenses, support and maintenance as well as data processes and services.39Depreciation of equipment under operating leaseDepreciation of equipment under operating lease increased by $5.0 million for the year ended December 31, 2018compared to the year ended December 31, 2017 and by $3.4 million for the year ended December 31, 2017 compared with the year ended December 31,2016. These increases generally corresponded to the growth in the portfolio of equipment under operating lease. Depreciation of equipment under operatinglease for the year ended December 31, 2016 also included impairment of $4.1 million related to a group of tank cars impacted by new safety regulations.Other non-interest expenseThe most significant components of other non-interest expense are advertising, promotion and business development, costs related to lending activitiesand deposit generation, expenses and losses related to OREO, foreclosure and repossessed assets, regulatory examination assessments, travel and generaloffice expense.Impact of the Covered Loans, FDIC Indemnification Asset and the Loss Sharing AgreementsThe accounting for covered loans, the indemnification asset and the provisions of the Loss Sharing Agreements have materially impacted our financialcondition and results of operations. The more significant ways in which our financial statements have been impacted are:•Interest income and the net interest margin reflect the impact of accretion related to the covered loans;•Non-interest expense includes the effect of amortization of the FDIC indemnification asset;•The Single Family Shared-Loss Agreements has afforded the Company significant protection against credit losses related to residential coveredassets. The impact of any provision for loan losses related to the residential covered loans, losses related to covered OREO and expenses related toresolution of covered assets has been significantly mitigated by loss sharing with the FDIC. The Single Family Shared-Loss Agreement wasterminated on February 13, 2019; there will be no mitigating impact of loss sharing with the FDIC on losses and expenses related to formerlycovered loans retained in portfolio subsequent to the termination date;•Under the acquisition method of accounting, the assets acquired and liabilities assumed in the FSB Acquisition were initially recorded on theconsolidated balance sheet at their estimated fair values as of the acquisition date. The carrying amounts of covered loans and the FDICindemnification asset continue to be impacted by acquisition accounting adjustments. The carrying amount of covered loans, particularly ACIloans, is materially less than their UPB. Additionally, no ALLL was recorded with respect to acquired loans at the FSB Acquisition date;•Non-interest income includes gains and losses associated with the resolution of covered assets and the related effect of indemnification under theterms of the Single Family Shared-Loss Agreement. The impact of gains or losses related to transactions in covered assets prior to termination of thatagreement in February 2019 was significantly mitigated by FDIC indemnification; and•ACI loans that are contractually delinquent may not be reflected as non-accrual loans or non-performing assets due to the accounting treatmentaccorded such loans under ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality."During the quarter ended December 31, 2018, the Bank executed a portfolio sale of certain covered loans and OREO. Covered loans with UPB totalingapproximately $260 million and covered OREO totaling $5.2 million were sold during the quarter ended December 31, 2018. In conjunction with the sale,the FDIC indemnification asset was amortized to zero as of December 31, 2018 as expectations of losses eligible for indemnification with respect to anyretained loans prior to final termination of the Single Family Shared-Loss Agreement were insignificant.Covered loans with UPB totaling $401 million and a carrying value of $201 million as of December 31, 2018 were retained in portfolio. Based on ourupdated estimates of expected cash flows, we expect total accretion on the retained covered residential loans over their expected remaining lives toapproximate $287 million. The yield on the retained loans as of December 31, 2018 was 32.9%.40The following table summarizes the net impact on pre-tax earnings of transactions in the covered assets for the years ended December 31, 2018, 2017 and2016 (in thousands): 2018 2017 2016Interest income on covered loans$368,161 $300,540 $301,614Amortization of FDIC indemnification asset(261,763) (176,466) (160,091) 106,398 124,074 141,523Income from resolution of covered assets, net11,551 27,450 36,155Gain (loss) on sale of covered loans, net5,732 17,406 (14,470)Net loss on FDIC indemnification(4,199) (22,220) (17,759)Other, net(655) 1,058 (4,215) 12,429 23,694 (289)Net impact on pre-tax earnings of transactions in the covered assets$118,827 $147,768 $141,234 Combined yield on covered loans and indemnification asset (1)17.06% 12.98% 10.20% (1)The combined yield on the covered loans and the FDIC indemnification asset presented above is calculated as the interest income on the covered loans, net of the amortization ofthe FDIC indemnification asset, divided by the average combined balance of the covered loans and FDIC indemnification asset.The table above does not reflect any allocation of employee compensation or other general operating expenses that may be associated with holding andmaintaining the covered assets or insuring compliance with the terms of the Shared-Loss Agreements.Interest income on covered loans and amortization of the FDIC indemnification assetThe yield on covered loans increased to 86.13% for the year ended December 31, 2018 from 55.22% and 41.82% for the years ended December 31, 2017and 2016, respectively. See "Net Interest Income" above for further discussion of trends in interest income and yields on the covered loan portfolio.The FDIC indemnification asset was initially recorded at its estimated fair value at the date of the FSB Acquisition, representing the present value ofestimated future cash payments from the FDIC for probable losses on covered assets. As projected cash flows from the ACI loans have improved, the yield onthe loans has increased accordingly and the estimated future cash payments from the FDIC have decreased. This change in estimated cash flows from theFDIC is recognized prospectively, consistent with the recognition of the estimated increased cash flows from the ACI loans. As a result, the FDICindemnification asset is being amortized to the amount of the estimated future cash payments from the FDIC. For the year ended December 31, 2018, theaverage rate at which the FDIC indemnification asset was amortized was 133.51%, compared to 42.90% and 25.14% during the years ended December 31,2017 and 2016, respectively. These increases correspond to increases in the yield on covered loans; which in 2018, was impacted by increased accretionrelated to changes in assumptions about the timing and pricing of the final covered loan sale pursuant to the terms of the Single Family Shared-LossAgreement discussed above. The amount of amortization is impacted by both the change in the amortization rate and the decrease in the average balance ofthe indemnification asset. As discussed above, the FDIC indemnification asset was amortized to zero as of December 31, 2018.See Note 5 to the consolidated financial statements for additional information about transactions in the covered assets and a rollforward of the FDICindemnification asset for the years ended December 31, 2018, 2017 and 2016.Non-interest income related to the covered assetsThe most significant components of non-interest income related to the covered assets are income from resolution of covered assets, gain (loss) on sale ofcovered loans and the related gain or loss on indemnification asset.Covered loans may be resolved through prepayment, short sale of the underlying collateral, foreclosure, sale of the loans or charge-off. For loans resolvedthrough prepayment, short sale or foreclosure, the difference between consideration received in resolution of the loans and the allocated carrying value of theloans is recorded in the consolidated statement of income line item “Income from resolution of covered assets, net.” Both gains and losses on individualresolutions are included in this line item. For loans resolved through sale of the loans, the difference between consideration received and the allocatedcarrying value of the loans is recorded in the consolidated statement of income line item "Gain (loss) on sale of loans, net." Losses from the resolution ofcovered loans increase the amount recoverable from the FDIC under the Single-Family Shared Loss Agreement.41Gains from the resolution of covered loans reduce the amount recoverable from the FDIC under the Single-Family Shared Loss Agreement. These additions toor reductions in amounts recoverable from the FDIC related to the resolution of covered loans are recorded in non-interest income in the line item “Net losson FDIC indemnification” and reflected as corresponding increases or decreases in the FDIC indemnification asset. The amount of income or loss recorded inany period will be impacted by the amount of covered loans resolved, the amount of consideration received, and our ability to accurately project cash flowsfrom ACI loans in future periods.For each of the years ended December 31, 2018, 2017 and 2016 the substantial majority of Income from resolution of covered assets, net, resulted frompayments in full. Decreases in Income from resolution of covered assets, net, reflected decreases in both the number of resolutions and the average income perresolution.The following table summarizes the gain (loss) recorded on the sale of covered residential loans and the impact of related FDIC indemnification for theperiods indicated (in thousands): 2018 2017 2016Net gain (loss) on sale of covered loans$5,732 $17,406 $(14,470)Net gain (loss) on FDIC indemnification3,388 (1,514) 11,615Net impact on pre-tax earnings$9,120 $15,892 $(2,855)Pricing received on the sale of covered loans may varied based on (i) market conditions, including the interest rate environment, the amount of capitalseeking investment and the secondary supply of loans with a particular performance history or collateral type, (ii) the type and quality of collateral, (iii) theperformance history of loans included in the sale and (iv) whether or not the loans have been modified.The net loss on FDIC indemnification related to covered loan sales for the years ended December 31, 2018 and 2017 did not bear the 80% relationship tothe net gain on sale that might generally be expected. This was primarily due to the sale of loan pools where there was an acceleration in the expected timingof cash flows, resulting in a gain, with no impact on the total expected credit losses and no related adjustment on the FDIC indemnification asset.Other items of non-interest income and expense related to the covered assetsOther items of non-interest income and expense related to the covered assets, comprising the line item "Other, net" in the table above presenting theimpact on pre-tax earnings of transactions in the covered assets, include the provision for (recovery of) covered loan losses; foreclosure expenses related tocovered assets; gains, losses and other expenses related to covered OREO; FDIC reimbursement of certain expenses related to resolution of covered assets,and modification incentives. None of these items had a material impact on results of operations for any period presented.Income TaxesThe provision (benefit) for income taxes for the years ended December 31, 2018, 2017 and 2016 was $90.8 million, $(209.8) million and $109.7 million,respectively. The effective income tax rate was 21.8%, (51.9)% and 32.7% for the years ended December 31, 2018, 2017 and 2016, respectively.The income tax benefit and effective income tax rate for the year ended December 31, 2017 reflected a discrete income tax benefit of $327.9 millionrelated to a matter that arose during an ongoing audit of the Company's 2013 federal income tax return. During that audit, the Company asserted that U.S.federal income taxes paid in respect of certain income previously reported by the Company on its 2012, 2013 and 2014 federal income tax returns related tothe basis assigned to certain loans acquired in the FSB Acquisition should be refunded to the Company, in light of guidance issued after the relevant returnshad been filed. The discrete income tax benefit recognized in 2017 included expected refunds of federal income tax of $295.0 million, as well as $8.7 millionin estimated interest on the federal refund and estimated refunds of $24.2 million from certain state and local taxing jurisdictions. In 2018, the Companyreceived refunds of federal income tax of $293.0 million, as well as $13.5 million of interest related to the discrete income tax benefit recognized.The Company is continuing to evaluate whether it has claims in other state jurisdictions and whether it may have any claims for federal or state incometaxes relating to tax years prior to 2012. The Company has not reached any conclusion as to when or to what extent it may have any claims relating to suchother state and local taxing jurisdictions or in respect of prior tax years.42Excluding, for the year ended December 31, 2017, the impact of the discrete income tax benefit discussed above and the initial impact of enactment ofthe TCJA, the effective income tax rate was 21.8%, 30.1% and 32.7% for the years ended December 31, 2018, 2017 and 2016 respectively. Significantcomponents included in the reconciliation of the Company's effective income tax rate to the statutory federal tax rate of 21% for the year ended December 31,2018 included the effect of state income taxes, partially offset by the impact of income not subject to federal tax. For the years ended December 31, 2017 and2016, the Company's adjusted effective income tax rate differed from the statutory federal tax rate of 35.0% primarily due to the impact of income not subjectto federal tax, partially offset by the effect of state income taxes.The decline in the effective income tax rate for the year ended December 31, 2018 compared to the prior years, excluding the impact of the discreteincome tax benefit discussed above for the year ended December 31, 2017, was primarily attributable to the reduction of the statutory corporate federalincome tax rate from 35% to 21%, effective January 1, 2018.For more information about income taxes, see Note 10 to the consolidated financial statements.Analysis of Financial ConditionAverage interest-earning assets increased $2.0 billion to $29.2 billion for the year ended December 31, 2018 from $27.2 billion for the year endedDecember 31, 2017. This increase was driven by a $1.6 billion increase in the average balance of outstanding loans and a $466 million increase in theaverage balance of investment securities. The increase in average loans reflected growth of $1.7 billion in average non-covered loans outstanding, partiallyoffset by a $117 million decrease in the average balance of covered loans. A $120 million increase in average non-interest earning assets was primarilyattributed to an increase in income taxes receivable related to a discrete income tax benefit recognized during the fourth quarter of 2017, partially offset by adecrease in the average balance of the FDIC indemnification asset.Average interest bearing liabilities increased $1.3 billion to $24.0 billion for the year ended December 31, 2018 from $22.7 billion for the year endedDecember 31, 2017, due to increases of $1.5 billion in average interest bearing deposits, offset by a decrease of $232 million in average FHLB advances.Average non-interest bearing deposits increased by $320 million.Average stockholders' equity increased by $443 million, due primarily to the retention of earnings, including the discrete income tax benefit recordedduring the fourth quarter of 2017, and also reflecting proceeds from the exercise of stock options, offset by the repurchase of common stock.Investment SecuritiesThe following table shows the amortized cost and fair value of investment securities at December 31, 2018, 2017 and 2016 (in thousands): 2018 2017 2016 AmortizedCost Carrying Value AmortizedCost Carrying Value AmortizedCost Carrying ValueU.S. Treasury securities$39,885 $39,873 $24,981 $24,953 $4,999 $5,005U.S. Government agency and sponsored enterpriseresidential MBS1,885,302 1,897,474 2,043,373 2,058,027 1,513,028 1,527,242U.S. Government agency and sponsored enterprisecommercial MBS374,569 374,787 233,522 234,508 126,754 124,586Private label residential MBS and CMOs1,539,058 1,534,198 613,732 628,247 334,167 375,098Private label commercial MBS1,486,835 1,485,716 1,033,022 1,046,415 1,180,386 1,187,624Single family rental real estate-backed securities406,310 402,458 559,741 562,706 858,339 861,251Collateralized loan obligations1,239,355 1,235,198 720,429 723,681 487,678 487,296Non-mortgage asset-backed securities204,372 204,067 119,939 121,747 187,660 186,736State and municipal obligations398,810 398,429 640,511 657,203 705,884 698,546SBA securities514,765 519,313 534,534 550,682 517,129 523,906Other debt securities1,393 4,846 4,090 9,120 3,999 8,091Marketable equity securities60,519 60,519 59,912 63,543 76,180 88,203Investment securities held to maturity10,000 10,000 10,000 10,000 10,000 10,000 $8,161,173 $8,166,878 $6,597,786 $6,690,832 $6,006,203 $6,083,58443Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managinginterest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significantportion of the portfolio in high quality liquid securities including U.S. Treasury securities, GNMA securities, SBA securities and U.S. Government AgencyMBS. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products,including commercial MBS, residential MBS, collateralized loan obligations, single family rental real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, provide us with attractive yields. Relatively short effective portfolio duration helps mitigate interest raterisk. The weighted average expected life of the investment portfolio as of December 31, 2018 was 4.5 years and the effective duration was 1.4 years.A summary of activity in the investment securities portfolio for the years ended December 31, 2018 and 2017 follows (in thousands):Balance at December 31, 2016$6,083,584 Purchases3,131,798 Repayments, maturities and calls(1,268,588) Sales(1,254,125) Amortization of discounts and premiums, net(17,502) Change in unrealized gains15,665Balance at December 31, 20176,690,832 Purchases4,138,994 Repayments, maturities and calls(1,538,943) Sales(1,027,651) Amortization of discounts and premiums, net(12,644) Change in unrealized gains(83,710)Balance at December 31, 2018$8,166,87844The following table shows the scheduled maturities, carrying values and current yields for investment securities available for sale as of December 31,2018, as well as the carrying value and yield of marketable equity securities. Scheduled maturities have been adjusted for anticipated prepayments whenapplicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21% (dollars in thousands): Within One Year After One YearThrough Five Years After Five YearsThrough Ten Years After Ten Years Total CarryingValue WeightedAverageYield CarryingValue WeightedAverageYield CarryingValue WeightedAverageYield CarryingValue WeightedAverageYield CarryingValue WeightedAverageYieldU.S. Treasury securities$39,873 2.29% $— —% $— —% $— —% $39,873 2.29%U.S. Government agency and sponsoredenterprise residential MBS223,898 3.44% 838,349 3.34% 727,213 3.25% 108,014 3.21% 1,897,474 3.31%U.S. Government agency and sponsoredenterprise commercial MBS6,269 4.29% 53,887 4.30% 229,526 3.19% 85,105 3.63% 374,787 3.47%Private label residential MBS and CMOs359,701 3.86% 898,830 3.80% 231,820 3.67% 43,847 3.63% 1,534,198 3.79%Private label commercial MBS155,136 4.48% 1,028,374 4.17% 293,689 3.56% 8,517 3.44% 1,485,716 4.08%Single family rental real estate-backedsecurities11,200 2.94% 168,812 3.29% 222,446 3.59% — —% 402,458 3.45%Collateralized loan obligations32,327 4.61% 708,085 4.34% 494,786 4.60% — —% 1,235,198 4.45%Non-mortgage asset-backed securities22,296 4.32% 140,013 3.37% 41,033 3.10% 725 2.81% 204,067 3.42%State and municipal obligations1,567 1.96% 26,230 2.52% 298,854 3.59% 71,778 4.27% 398,429 3.64%SBA securities90,240 3.29% 235,386 3.20% 123,282 3.14% 70,405 3.06% 519,313 3.18%Other debt securities— —% — —% — —% 4,846 15.85% 4,846 15.85% $942,507 3.77% $4,097,966 3.82% $2,662,649 3.63% $393,237 3.57% 8,096,359 3.74%Marketable equity securities with noscheduled maturity 60,519 7.47%Total investment securities availablefor sale and marketable equitysecurities $8,156,878 3.77%The investment securities available for sale portfolio was in a net unrealized gain position of $5.7 million at December 31, 2018 with aggregate fairvalue equal to 100.1% of amortized cost. Net unrealized gains included $49.0 million of gross unrealized gains and $43.3 million of gross unrealized losses.Investment securities available for sale in an unrealized loss position at December 31, 2018 had an aggregate fair value of $4.3 billion. At December 31,2018, 99.4% of investment securities available for sale were backed by the U.S. Government, U.S. Government agencies or sponsored enterprises or were ratedAAA, AA or A, based on the most recent third-party ratings. At December 31, 2018, 83%, 14% and 3% of Collateralized loan obligations were rate AAA, AAand A, respectively, based on the most recent third-party ratings, with a weighted-average subordination level at 41.8%, ranging from 27.1% to 43.8%.Investment securities available for sale totaling $46 million were rated below investment grade or not rated at December 31, 2018.We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether any of the investments in unrealized loss positionsare other-than-temporarily impaired. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of whichvaries depending on the circumstances pertinent to each individual security:•our intent to hold the security until maturity or for a period of time sufficient for a recovery in value;•whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis;•the length of time and extent to which fair value has been less than amortized cost;•adverse changes in expected cash flows;•collateral values and performance;•the payment structure of the security, including levels of subordination or over-collateralization;•changes in the economic or regulatory environment;•the general market condition of the geographic area or industry of the issuer;45•the issuer’s financial condition, performance and business prospects; and•changes in credit ratings.No securities were determined to be other-than-temporarily impaired at December 31, 2018 and 2017, or during the years then ended. During the yearended December 31, 2016, the Company recognized OTTI in the amount of $463 thousand on two positions in one private label commercial MBS security,which was determined to be other-than-temporary impaired. This security was sold prior to the end of 2016.We do not intend to sell securities in significant unrealized loss positions at December 31, 2018. Based on an assessment of our liquidity position andinternal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities insignificant unrealized loss positions prior to recovery of amortized cost basis. Unrealized losses in the portfolio at December 31, 2018 were primarilyattributable to an increase in market interest rates subsequent to the date the securities were acquired.The timely repayment of principal and interest on U.S. Treasury and U.S. Government agency and sponsored enterprise securities in unrealized losspositions is explicitly or implicitly guaranteed by the full faith and credit of the U.S. Government. Management performed projected cash flow analyses ofthe private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and non-mortgage asset-backed securities inunrealized loss positions, incorporating CUSIP level assumptions consistent with the collateral characteristics of each security including collateral defaultrate, voluntary prepayment rate, severity and delinquency assumptions. Based on the results of this analysis, no credit losses were projected. Management'sanalysis of the credit characteristics of individual securities and the underlying collateral and levels of subordination for each of the single family rental realestate-backed securities in unrealized loss positions is not indicative of projected credit losses. Management's analysis of the state and municipal obligationsin unrealized loss positions included reviewing the ratings of the securities and the results of credit surveillance performed by an independent third party.Given the expectation of timely repayment of principal and interest, the impairments were considered to be temporary.For further discussion of our analysis of investment securities for OTTI, see Note 3 to the consolidated financial statements.We use third-party pricing services to assist us in estimating the fair value of investment securities. We perform a variety of procedures to ensure that wehave a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing writtendocumentation of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailedassumptions used to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation ofthe nature of the significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challengeprocess that includes a review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over monthfluctuations or deviations from our expectations based on recent observed trading activity and other information available in the marketplace that wouldimpact the value of the security is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptionsincorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained fromadditional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primarypricing services utilize observable inputs when available, and employ unobservable inputs and proprietary models only when observable inputs are notavailable. As a matter of course, the services validate prices by comparison to recent trading activity whenever such activity exists. Quotes obtained from thepricing services are typically non-binding.We have also established a quarterly price validation process to assess the propriety of the pricing methodologies utilized by our primary pricingservices by independently verifying the prices of a sample of securities in the portfolio. Sample sizes vary based on the type of security being priced, withhigher sample sizes applied to more difficult to value security types. Verification procedures may consist of obtaining prices from an additional outsidesource or internal modeling, generally based on Intex. We have established acceptable percentage deviations from the price provided by the initial pricingsource. If deviations fall outside the established parameters, we will obtain and evaluate more detailed information about the assumptions and inputs used byeach pricing source or, if considered necessary, employ an additional valuation source to price the security in question. Pricing issues identified through thisevaluation are addressed with the applicable pricing service and methodologies or inputs are revised as determined necessary. Depending on the results of thevalidation process, sample sizes may be extended for particular classes of securities. Results of the validation process are reviewed by the treasury front officeand by senior management.The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and equity securities areclassified within level 1 of the hierarchy. At December 31, 2018 and 2017, 0.5% and 0.9%, respectively, of our investment securities were classified withinlevel 3 of the fair value hierarchy. Securities classified within level 3 of the hierarchy at December 31, 2018 included certain private label residential MBSand trust preferred securities. These securities were classified within level 3 of the hierarchy because proprietary assumptions related to voluntary prepaymentrates, default46probabilities, loss severities and discount rates were considered significant to the valuation. There were no transfers of investment securities between levels ofthe fair value hierarchy during the years ended December 31, 2018 and 2017.For additional discussion of the fair values of investment securities, see Note 15 to the consolidated financial statements.Loans Held for SaleLoans held for sale at December 31, 2018 and 2017 included $37 million and $34 million, respectively, of commercial loans originated by SBF with theintent to sell in the secondary market. Commercial loans held for sale are comprised of the portion of loans guaranteed by U.S. government agencies,primarily the SBA. Loans are generally sold with servicing retained. Commercial servicing activity did not have a material impact on the results of operationsfor the years ended December 31, 2018 and 2017.LoansThe loan portfolio comprises the Company’s primary interest-earning asset. The following tables show the composition of the loan portfolio and thebreakdown of the portfolio among non-covered loans, covered ACI loans and covered non-ACI loans at December 31, of each of the years indicated (dollarsin thousands):2018 Covered Loans Percent of TotalNon-Covered Loans ACI Non-ACI Total Residential and other consumer: 1-4 single family residential$4,404,047 $190,223 $12,558 $4,606,828 21.0%Government insured residential265,701 — — 265,701 1.2%Home equity loans and lines of credit1,393 — — 1,393 —%Other consumer loans15,976 — — 15,976 0.1%4,687,117 190,223 12,558 4,889,898 22.3%Commercial: Multi-family2,583,331 — — 2,583,331 11.8%Non-owner occupied commercial real estate4,700,188 — — 4,700,188 21.4%Construction and land227,134 — — 227,134 1.0%Owner occupied commercial real estate2,122,381 — — 2,122,381 9.7%Commercial and industrial4,801,226 — — 4,801,226 21.9%Commercial lending subsidiaries2,608,834 — — 2,608,834 11.9%17,043,094 — — 17,043,094 77.7%Total loans21,730,211 190,223 12,558 21,932,992 100.0%Premiums, discounts and deferred fees and costs, net45,421 — (1,405) 44,016 Loans including premiums, discounts and deferred fees andcosts21,775,632 190,223 11,153 21,977,008 Allowance for loan and lease losses(109,901) — (30) (109,931) Loans, net$21,665,731 $190,223 $11,123 $21,867,077 472017 Covered Loans Percent of TotalNon-Covered Loans ACI Non-ACI Total Residential and other consumer: 1-4 single family residential$4,089,994 $479,068 $27,198 $4,596,260 21.5%Government insured residential26,820 — — 26,820 0.1%Home equity loans and lines of credit1,654 — — 1,654 —%Other consumer loans20,512 — — 20,512 0.1%4,138,980 479,068 27,198 4,645,246 21.7%Commercial: Multi-family3,215,697 — — 3,215,697 15.0%Non-owner occupied commercial real estate4,485,276 — — 4,485,276 21.0%Construction and land310,999 — — 310,999 1.5%Owner occupied commercial real estate2,014,908 — — 2,014,908 9.4%Commercial and industrial4,145,785 — — 4,145,785 19.4%Commercial lending subsidiaries2,553,576 — — 2,553,576 12.0%16,726,241 — — 16,726,241 78.3%Total loans20,865,221 479,068 27,198 21,371,487 100.0%Premiums, discounts and deferred fees and costs, net48,165 — (3,148) 45,017 Loans including premiums, discounts and deferred fees andcosts20,913,386 479,068 24,050 21,416,504 Allowance for loan and lease losses(144,537) — (258) (144,795) Loans, net$20,768,849 $479,068 $23,792 $21,271,709 2016 Covered Loans Percent of Total Non-Covered Loans ACI Non-ACI Total Residential and other consumer: 1-4 single family residential$3,392,323 $532,348 $36,675 $3,961,346 20.4%Government insured residential30,102 — — 30,102 0.2%Home equity loans and lines of credit1,120 3,894 47,629 52,643 0.3%Other consumer loans24,365 — — 24,365 0.1%3,447,910 536,242 84,304 4,068,456 21.0%Commercial: Multi-family3,824,973 — — 3,824,973 19.8%Non-owner occupied commercial real estate3,739,235 — — 3,739,235 19.3%Construction and land311,436 — — 311,436 1.6%Owner occupied commercial real estate1,736,858 — — 1,736,858 9.0%Commercial and industrial3,391,614 — — 3,391,614 17.5%Commercial lending subsidiaries2,280,685 — — 2,280,685 11.8%15,284,801 — — 15,284,801 79.0%Total loans18,732,711 536,242 84,304 19,353,257 100.0%Premiums, discounts and deferred fees and costs, net48,641 — (6,504) 42,137 Loans including premiums, discounts and deferred fees andcosts18,781,352 536,242 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 48 2015 Covered Loans Non-Covered Loans ACI Non-ACI Total Percent of TotalResidential and other consumer: 1-4 single family residential$2,849,051 $699,039 $46,110 $3,594,200 21.7%Government insured residential34,419 — — 34,419 0.2%Home equity loans and lines of credit806 4,831 67,493 73,130 0.4%Other consumer loans35,183 — —35,183 0.2%2,919,459 703,870 113,6033,736,932 22.5%Commercial: Multi-family3,472,162 — — 3,472,162 20.9%Non-owner occupied commercial real estate2,910,327 — — 2,910,327 17.5%Construction and land347,676 — — 347,676 2.1%Owner occupied commercial real estate1,354,751 — — 1,354,751 8.2%Commercial and industrial2,770,875 — — 2,770,875 16.7%Commercial lending subsidiaries2,003,984 — — 2,003,984 12.1%12,859,775 — — 12,859,775 77.5%Total loans15,779,234 703,870 113,603 16,596,707 100.0%Premiums, discounts and deferred fees and costs, net47,829 — (7,933) 39,896 Loans including premiums, discounts and deferred fees andcosts15,827,063 703,870 105,670 16,636,603 Allowance for loan and lease losses(120,960) — (4,868) (125,828) Loans, net$15,706,103 $703,870 $100,802 $16,510,775 49 2014 Covered Loans Non-Covered Loans ACI Non-ACI Total Percent of TotalResidential and other consumer: 1-4 single family residential$2,448,879 $874,522 $56,138 $3,379,539 27.3%Government insured residential37,393 — — 37,393 0.3%Home equity loans and lines of credit1,827 22,657 101,142 125,626 1.0%Other consumer loans26,307 — — 26,307 0.2%2,514,406 897,179 157,280 3,568,865 28.8%Commercial: Multi-family1,952,189 — — 1,952,189 15.8%Non-owner occupied commercial real estate1,784,079 — — 1,784,079 14.4%Construction and land169,720 — — 169,720 1.4%Owner occupied commercial real estate1,043,370 — — 1,043,370 8.4%Commercial and industrial2,403,293 — — 2,403,293 19.4%Commercial lending subsidiaries1,456,751 — — 1,456,751 11.8%8,809,402 — — 8,809,402 71.2%Total loans11,323,808 897,179 157,280 12,378,267 100.0%Premiums, discounts and deferred fees and costs, net47,097 — (10,595) 36,502 Loans including premiums, discounts and deferred fees andcosts11,370,905 897,179 146,685 12,414,769 Allowance for loan and lease losses(91,350) — (4,192) (95,542) Loans, net$11,279,555 $897,179 $142,493 $12,319,227 Total loans, including premiums, discounts and deferred fees and costs, increased by $561 million to $22.0 billion at December 31, 2018, from $21.4billion at December 31, 2017. Non-covered loans grew by $862 million, while covered loans declined by $302 million from December 31, 2017 toDecember 31, 2018.Residential and other consumer loans grew by $552 million for the year ended December 31, 2018. Multi-family loans declined by $634 million for theyear ended December 31, 2018, primarily due to continued run-off of the New York portfolio, which decreased by $573 million. Commercial and industrialloans, inclusive of owner occupied commercial real estate, grew by $760 million for the year ended December 31, 2018, driven largely by growth in theFlorida portfolio.Included in multi-family and non-owner occupied commercial real estate loans above at December 31, 2018 were $97 million and $14 million,respectively, in re-positioning loans. These loans, substantially all of which are in New York, provided financing for some level of improvements by theborrower to the underlying collateral to enhance the cash flow generating capacity of the collateral. The primary purpose of these loans was not forconstruction.Residential mortgages and other consumer loansResidential mortgages and other consumer loans totaled $4.9 billion, or 22.3% of total loans, at December 31, 2018 and $4.6 billion, or 21.7% of totalloans, at December 31, 2017.50The following table shows the composition of residential and other consumer loans at December 31, 2018 and 2017. Amounts are net of premiums,discounts and deferred fees and costs (in thousands): 2018 2017Residential and other consumer loans: 1-4 single family residential$4,463,544 $4,145,879Government insured residential266,729 28,074Home equity loans and lines of credits1,393 1,654Other consumer loans15,947 20,473Covered loans201,376 503,118 $4,948,989 $4,699,198The 1-4 single family residential loan portfolio is primarily comprised of loans purchased on a national basis through established correspondentchannels. The portfolio also includes loans originated through retail channels in our Florida and New York geographic footprint prior to the termination ofour retail residential mortgage origination business in 2016. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgagesfor the purchase or re-finance of owner occupied property. The loans have terms ranging from 10 to 30 years, with either fixed or adjustable interest rates. AtDecember 31, 2018, $131 million or 2.9% of non-covered residential mortgage loans were interest-only loans, substantially all of which begin amortizing 10years after origination.The following tables present a breakdown of the non-covered and covered 1-4 single family residential mortgage portfolio, excluding governmentinsured residential loans, categorized between fixed rate loans and ARMs at December 31, 2018 and 2017. Amounts are net of premiums, discounts anddeferred fees and costs (dollars in thousands): 2018 Non-Covered Loans Covered Loans Total Percent of TotalFixed rate loans $1,418,579 $29,467 $1,448,046 31.0%ARM loans 3,044,965 171,909 3,216,874 69.0% $4,463,544 $201,376 $4,664,920 100.0% 2017 Non-Covered Loans Covered Loans Total Percent of TotalFixed rate loans $1,274,278 $133,413 $1,407,691 30.3%ARM loans 2,871,601 369,705 3,241,306 69.7% $4,145,879 $503,118 $4,648,997 100.0%In 2018, the Company began acquiring non-performing FHA and VA insured mortgages from third party servicers who have exercised their right topurchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform,either through modification or self-cure, may be eligible for re-securitization. The balance of government insured residential loans buyout loans totaled $241million at December 31, 2018. The Company is not the servicer of these loans.51The following charts present the distribution of the non-covered 1-4 single family residential mortgage portfolio, excluding government insuredresidential loans, by product type at December 31, 2018 and 2017:The geographic concentration of the non-covered 1-4 single family residential portfolio, excluding government insured residential loans, is summarizedas follows at December 31, 2018 and 2017 (dollars in thousands): 2018 Percent of TotalNon-CoveredLoans Covered Loans Total Non-CoveredLoans Total LoansCalifornia$1,172,470 $4,751 $1,177,221 26.3% 25.2%New York971,121 6,025 977,146 21.8% 20.9%Florida520,427 124,593 645,020 11.7% 13.8%DC182,399 812 183,211 4.1% 3.9%Virginia179,132 5,624 184,756 4.0% 4.0%Others (1)1,437,995 59,571 1,497,566 32.1% 32.2% $4,463,544 $201,376 $4,664,920 100.0% 100.0% 2017 Percent of TotalNon-CoveredLoans Covered Loans Total Non-CoveredLoans Total LoansCalifornia$1,094,047 $23,780 $1,117,827 26.4% 24.0%New York871,331 16,847 888,178 21.0% 19.1%Florida526,540 281,396 807,936 12.7% 17.4%DC169,502 1,933 171,435 4.1% 3.7%Virginia181,912 22,290 204,202 4.4% 4.4%Others (1)1,302,547 156,872 1,459,419 31.4% 31.4% $4,145,879 $503,118 $4,648,997 100.0% 100.0%(1)No other state represented borrowers with more than 4.0% of 1-4 single family residential loans outstanding at December 31, 2018 or December 31, 2017.Home equity loans and lines of credit are not significant.Other consumer loans are comprised primarily of consumer installment financing, loans secured by certificates of deposit, unsecured personal lines ofcredit and demand deposit account overdrafts.52Commercial loans and leasesThe commercial portfolio segment includes loans secured by multi-family properties, loans secured by both owner-occupied and non-owner occupiedcommercial real estate, a limited amount of construction and land loans, commercial and industrial loans and direct financing leases. Management’s loanorigination strategy is heavily focused on the commercial portfolio segment, which comprised 78.4% and 80.2% of non-covered loans as of December 31,2018 and 2017, respectively.The following table shows the composition of the commercial loan portfolio at December 31, 2018 and 2017. Amounts are net of premiums, discountsand deferred fees and costs (in thousands): 2018 2017Commercial: Multi-family$2,585,421 $3,218,953Non-owner occupied commercial real estate4,611,573 4,378,704Construction and land210,516 295,360Owner occupied commercial real estate2,007,603 1,907,242Commercial and industrial4,312,213 3,648,410Commercial lending subsidiaries: Pinnacle1,462,655 1,524,650Bridge - franchise finance517,305 434,582Bridge - equipment finance636,838 603,267SBF252,221 246,750Mortgage warehouse lending431,674 459,388 $17,028,019 $16,717,306Commercial real estate loans include term loans secured by owner and non-owner occupied income producing properties including rental apartments,mixed-use properties, industrial properties, retail shopping centers, free-standing single-tenant buildings, office buildings, warehouse facilities and hotels aswell as real estate secured lines of credit.53The following charts present the distribution of non-owner occupied commercial real estate by product type at December 31, 2018 and 2017:The Company’s commercial real estate underwriting standards generally provide for loan terms of five to seven years, with amortization schedules of nomore than thirty years. LTV ratios are typically limited to no more than 80%. Owner-occupied commercial real estate loans typically have risk profiles moreclosely aligned with that of commercial and industrial loans than with other types of commercial real estate loans. Construction and land loans representedonly 1.0% of the total loan portfolio at December 31, 2018. Construction and land loans are generally made for projects expected to stabilize within eighteenmonths of completion in sub-markets with strong fundamentals and, to a lesser extent, for-sale residential projects to experienced developers with a strongcushion between market prices and loan basis.Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and include equipment loans, secured andunsecured working capital facilities, formula-based loans, trade finance, mortgage warehouse lines, SBA product offerings and business acquisition financecredit facilities. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may havemulti-year maturities. The Bank also provides financing to state and local governmental entities within its geographic footprint. Commercial loans includeshared national credits totaling $1.9 billion at December 31, 2018, typically relationship based loans to borrowers in Florida and New York.Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment and franchise financing on a national basis using bothloan and lease structures. Pinnacle provides financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacleoffers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond re-fundings and loanagreements. Bridge has two operating divisions. The franchise finance division offers franchise acquisition, expansion and equipment financing, typically toexperienced operators in well-established concepts. The equipment finance division provides primarily transportation equipment financing through a varietyof loan and lease structures. The Bank's SBF unit primarily originates SBA guaranteed commercial and commercial real estate loans, generally selling theguaranteed portion in the secondary market and retaining the unguaranteed portion in portfolio. The Bank engages in mortgage warehouse lending on anational basis.54The geographic concentration of the commercial loans and direct financing leases in the national platforms is summarized as follows at December 31,2018 and 2017. Amounts include premiums, discounts and deferred fees and costs (dollars in thousands): 2018 2017Florida$595,843 18.1% $639,474 19.6%California498,842 15.1% 486,733 14.9%Arizona149,087 4.5% 175,704 5.4%Virginia153,619 4.7% 148,884 4.6%Utah156,732 4.7% 123,027 3.8%Texas150,878 4.6% 160,606 4.9%Iowa151,036 4.6% 151,935 4.6%All others (1)1,444,656 43.7% 1,382,274 42.2% $3,300,693 100.0% $3,268,637 100.0% (1)No other state represented borrowers with more than 4.0% of loans outstanding at December 31, 2018 or 2017.Loan MaturitiesThe following table sets forth, as of December 31, 2018, the maturity distribution of our loan portfolio by category, based on UPB. Commercial loans arepresented by contractual maturity, including scheduled payments for amortizing loans. Contractual maturities of 1-4 single family residential loans havebeen adjusted for an estimated rate of voluntary prepayments on all loans, based on historical trends, current interest rates, types of loans and refinancepatterns (in thousands): One Year orLess After OneThrough FiveYears After FiveYears TotalResidential and other consumer: 1-4 single family residential$895,973 $2,661,788 $1,512,152 $5,069,913 Home equity loans and lines of credit461 226 706 1,393Other consumer loans3,141 8,924 3,911 15,976 899,575 2,670,938 1,516,769 5,087,282Commercial: Multi-family528,888 1,842,057 213,071 2,584,016 Non-owner occupied commercial real estate823,108 2,890,294 990,104 4,703,506 Construction and land58,355 70,485 98,294 227,134 Owner occupied commercial real estate307,883 924,866 887,642 2,120,391 Commercial and industrial1,656,453 2,817,603 327,170 4,801,226 Commercial lending subsidiaries532,032 1,267,872 808,930 2,608,834 3,906,719 9,813,177 3,325,211 17,045,107 $4,806,294 $12,484,115 $4,841,980 $22,132,38955The following table shows the distribution of UPB of those loans that mature in more than one year between fixed and adjustable interest rate loans as ofDecember 31, 2018 (in thousands): Interest Rate Type Fixed Adjustable TotalResidential and other consumer: 1-4 single family residential$1,763,821 $2,410,119 $4,173,940 Home equity loans and lines of credit— 932 932Other consumer loans10,884 1,951 12,835 1,774,705 2,413,002 4,187,707Commercial: Multi-family1,862,994 192,134 2,055,128 Non-owner occupied commercial real estate2,462,985 1,417,413 3,880,398 Construction and land92,126 76,653 168,779 Owner occupied commercial real estate1,237,369 575,139 1,812,508 Commercial and industrial702,144 2,442,629 3,144,773 Commercial lending subsidiaries1,989,602 87,200 2,076,802 8,347,220 4,791,168 13,138,388 $10,121,925 $7,204,170 $17,326,095Equipment under Operating LeaseEquipment under operating lease totaled $702 million at December 31, 2018. The portfolio consisted primarily of railcars, non-commercial aircraft andother transport equipment. We have a total of 5,394 railcars with a carrying value of $424 million at December 31, 2018, including hoppers, tank cars,boxcars, auto carriers, center beams and gondolas leased to North American commercial end-users. The largest concentrations of rail cars were 2,064 hoppercars and 1,595 tank cars, primarily used to ship sand and petroleum products, respectively, for the energy industry. Equipment with a carrying value of $288million at December 31, 2018 was leased to companies for use in the energy industry.56The chart below presents equipment under operating lease by type at December 31, 2018 and 2017:At December 31, 2018, the breakdown of carrying values of equipment under operating lease by the year current leases are scheduled to expire was asfollows (in thousands):Years Ending December 31: 2019 (1)$64,598202099,029202167,037202260,656202352,139Thereafter through 2033358,895 $702,354 (1)Includes $9.0 million of equipment off-lease as of December 31, 2018.Asset QualityCommercial LoansWe have a robust credit risk management framework, an experienced team to lead the workout and recovery process for the commercial and commercialreal estate portfolios and a dedicated internal credit review function. Loan performance is monitored by our credit administration and workout and recoverydepartments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently ifcircumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups ofsmaller balance commercial loans may be monitored collectively. Additionally, commercial loans as well as underwriting and portfolio managementpractices are regularly reviewed by our internal credit review department. The Company utilizes a 13 grade internal asset risk classification system as part ofits efforts to monitor and maintain commercial asset quality. Loans exhibiting potential credit weaknesses that deserve management’s close attention and thatif left uncorrected may result in deterioration of the repayment capacity of the borrower are categorized as special mention. These borrowers may exhibitnegative financial trends or erratic financial performance, strained liquidity, marginal collateral coverage, declining industry trends or weak management.Loans with well-defined credit weaknesses that may result in a loss if the deficiencies are not corrected are assigned a risk rating of substandard. Theseborrowers may exhibit payment defaults, inadequate cash flows, operating losses, increasing balance sheet leverage, project cost overruns, unreasonableconstruction delays, exhausted interest reserves, declining collateral values, frequent overdrafts or past due real estate taxes. Loans with weaknesses so severethat collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors have not been charged off, areassigned an internal risk rating of doubtful.57We believe internal risk rating is the best indicator of the credit quality of commercial loans. The following table summarizes the Company's commercialcredit exposure, based on internal risk rating, at December 31, 2018 and 2017 (in thousands): 2018 2017 Balance Percent of Total Balance Percent of TotalPass$16,728,534 98.3% $16,189,392 96.8%Special mention81,070 0.5% 183,234 1.1%Substandard (1)210,026 1.2% 338,405 2.0%Doubtful8,389 —% 6,275 0.1% $17,028,019 100.0% $16,717,306 100.0% (1)The balance of substandard loans at December 31, 2018 and 2017 included $0.8 million and $105 million, respectively, of taxi medallion finance loans. See Note 4 to theconsolidated financial statements for more detailed information about risk rating of commercial loans.Taxi Medallion FinanceDuring the fourth quarter of 2018, the Company sold substantially the entire taxi medallion portfolio leaving an exposure of $0.8 million atDecember 31, 2018. The remaining taxi medallion loans were on non-accrual status and risk rated substandard as of December 31, 2018.We are no longer originating taxi medallion loans.Equipment Under Operating LeaseTwo operating lease relationships with a carrying value of assets under lease totaling $36 million, of which $31 million were exposures to the energyindustry, were internally risk rated substandard at December 31, 2018. The present value of remaining lease payments on these leases and their residualvalues totaled approximately $13 million and $30 million, respectively at December 31, 2018, of which $9 million and $27 million, respectively wereexposures to the energy industry. There have been no missed payments related to the operating lease portfolio to date. One relationship has been restructuredto date, with no decrease in total minimum lease payments.The primary risks inherent in the equipment leasing business are asset risk resulting from ownership of the equipment on operating lease and credit risk.Asset risk arises from fluctuations in supply and demand for the underlying leased equipment. The equipment is leased to commercial end-users with originallease terms generally ranging from three to ten years at December 31, 2018. We are exposed to the risk that, at the end of the lease term, the value of the assetwill be lower than expected, potentially resulting in reduced future lease income over the remaining life of the asset or a lower sale value. Asset risk may alsolead to changes in depreciation as a result of changes in the residual values of the operating lease assets or through impairment of asset carrying values. Assetrisk may be higher for long-lived equipment such as railcars, which have useful lives of approximately 35-50 years.Asset risk is evaluated and managed by a dedicated internal staff of asset managers, managed by seasoned equipment finance professionals with a broaddepth and breadth of experience in the leasing business. Additionally, we have partnered with an industry leading, experienced service provider whoprovides fleet management and servicing relating to the railcar fleet, including lease administration and reporting, a Regulation Y compliant full servicemaintenance program and railcar re-marketing. Risk is managed by setting appropriate residual values at inception and systematic reviews of residual valuesbased on independent appraisals, performed at least annually. Additionally, our internal management team and our external service provider closely followthe rail markets, monitoring traffic flows, supply and demand trends and the impact of new technologies and regulatory requirements. Demand for railcars issensitive to shifts in general and industry specific economic and market trends and shifts in trade flows from specific events such as natural or man-madedisasters. We seek to mitigate these risks by leasing to a stable end-user base, by maintaining a relatively young and diversified fleet of assets that areexpected to maintain stronger and more stable utilization rates despite impacts from unexpected events or cyclical trends and by staggering lease maturities.We regularly monitor the impact of oil prices on the estimated residual value of rail cars being used in the petroleum/natural gas extraction sector.Credit risk in the leased equipment portfolio results from the potential default of lessees, possibly driven by obligor specific or industry-wide conditions,and is economically less significant than asset risk, because in the operating lease business, there is no extension of credit to the obligor. Instead, the lessordeploys a portion of the useful life of the asset. Credit58losses, if any, will manifest through reduced rental income due to missed payments, time off lease, or lower rental payments due either to a restructuring or re-leasing of the asset to another obligor. Credit risk in the operating lease portfolio is managed and monitored utilizing credit administration infrastructure,processes and procedures similar to those used to manage and monitor credit risk in the commercial loan portfolio. We also mitigate credit risk in thisportfolio by leasing only to high credit quality obligors.Residential and Other Consumer LoansThe majority of our non-covered residential mortgage portfolio consists of loans purchased through established correspondent channels. Most of ourpurchases are of performing jumbo mortgage loans which have FICO scores above 700, primarily are owner-occupied and full documentation, and have acurrent LTV of 80% or less although loans with LTVs higher than 80% may be extended to selected credit-worthy borrowers. We perform due diligence onthe purchased loans for credit, compliance, counterparty, payment history and property valuation.We have a dedicated residential credit risk management function, and the residential portfolio is monitored by our internal credit review function.Residential mortgage loans and consumer loans are not individually risk rated. Delinquency status is the primary measure we use to monitor the creditquality of these loans. We also consider original LTV and FICO score to be significant indicators of credit quality for the non-covered 1-4 single familyresidential portfolio.The following tables show the distribution of non-covered 1-4 single family residential loans, excluding government insured residential loans, byoriginal FICO and LTV at December 31, 2018 and 2017: 2018 FICOLTV 720 or less 721 - 740 741 - 760 761 orgreater Total60% or less 2.4% 2.8% 4.4% 18.2% 27.8%60% - 70% 2.7% 2.4% 3.8% 13.4% 22.3%70% - 80% 3.5% 4.6% 8.4% 28.3% 44.8%More than 80% 0.4% 0.8% 0.8% 3.1% 5.1% 9.0% 10.6% 17.4% 63.0% 100.0% 2017 FICOLTV 720 or less 721 - 740 741 - 760 761 orgreater Total60% or less 2.2% 2.8% 4.6% 19.7% 29.3%60% - 70% 2.4% 2.5% 3.6% 14.2% 22.7%70% - 80% 3.6% 4.4% 7.8% 27.5% 43.3%More than 80% 0.4% 0.7% 0.7% 2.9% 4.7% 8.6% 10.4% 16.7% 64.3% 100.0%At December 31, 2018, the non-covered 1-4 single family residential loan portfolio, excluding government insured residential loans, had the followingcharacteristics: substantially all were full documentation with a weighted-average FICO score of 765 and a weighted-average LTV of 67.6%. The majority ofthis portfolio was owner-occupied, with 85.7% primary residence, 7.7% second homes and 6.6% investment properties. In terms of vintage, 25.1% of theportfolio was originated pre-2015, 16.9% in 2015, 20.1% in 2016, 22.8% in 2017 and 15.1% in 2018.Non-covered 1-4 single family residential loans, excluding government insured residential loans past due more than 30 days totaled $23.5 million and$28.9 million at December 31, 2018 and 2017, respectively. The amount of these loans 90 days or more past due was $6.9 million and $3.7 million atDecember 31, 2018 and 2017, respectively.At December 31, 2018, the recorded investment in covered single family residential loans was $201 million, past due more than 30 days totaled $0.7million and $30.9 million at December 31, 2018 and December 31, 2017, respectively. The amounts of these loans 90 days or more past due was $44thousand and $17.8 million December 31, 2018 and December 31, 2017, respectively. The Single Family Shared-Loss Agreement was terminated on February13, 2019.59At December 31, 2018, the covered single family residential loans had a current weighted average FICO and LTV of 754 and 46.6%, respectively.Other Consumer LoansAll consumer loans were current at December 31, 2018 and substantially all were current at December 31, 2017.Impaired Loans and Non-Performing AssetsNon-performing assets generally consist of (i) non-accrual loans, including loans that have been modified in TDRs and placed on non-accrual status,(ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding ACI loans and government insured residential loans,and (iii) OREO and repossessed assets. Impaired loans also typically include loans modified in TDRs that are accruing and ACI loans or pools for whichexpected cash flows at acquisition (as adjusted for any additional cash flows expected to be collected arising from changes in estimates after acquisition)have been revised downward since acquisition, other than due to changes in interest rate indices and prepayment assumptions.The following table summarizes the Company's impaired loans and non-performing assets at December 31 of the years indicated (dollars in thousands): 2018 2017 2016 CoveredAssets Non-CoveredAssets Total CoveredAssets Non-CoveredAssets Total CoveredAssets Non-CoveredAssets TotalNon-accrual loans Residential and other consumer: 1-4 single family residential$— $6,316 $6,316 $1,341 $9,705 $11,046 $918 $566 $1,484Home equity loans and linesof credit— — — — — — 2,283 — 2,283Other consumer loans— 288 288 — 821 821 — 2 2Total residential and otherconsumer loans— 6,604 6,604 1,341 10,526 11,867 3,201 568 3,769Commercial: Multi-family— 25,560 25,560 — — — — — —Non-owner occupiedcommercial real estate— 16,050 16,050 — 12,716 12,716 — 559 559Construction and land— 9,923 9,923 — 1,175 1,175 — 1,238 1,238Owner occupied commercialreal estate— 19,789 19,789 — 29,020 29,020 — 19,439 19,439Commercial and industrial Taxi medallion loans— 775 775 — 106,067 106,067 — 60,660 60,660Other commercial andindustrial— 27,809 27,809 — 7,049 7,049 — 16,036 16,036Commercial lendingsubsidiaries— 22,733 22,733 — 3,512 3,512 — 32,645 32,645Total commercial loans— 122,639 122,639 — 159,539 159,539 — 130,577 130,577Total non-accrual loans— 129,243 129,243 1,341 170,065 171,406 3,201 131,145 134,346Loans past due 90 days and stillaccruing— 650 650 — 1,948 1,948 — 1,551 1,551Total non-performing loans— 129,893 129,893 1,341 172,013 173,354 3,201 132,696 135,897OREO— 8,432 8,432 2,862 7,018 9,880 4,658 4,882 9,540Repossessed assets— 1,085 1,085 — 2,128 2,128 — 3,551 3,551Total non-performing assets— 139,410 139,410 4,203 181,159 185,362 7,859 141,129 148,988Impaired ACI loans and poolson accrual status— — — — — — — 1,335 1,335Performing TDRs Taxi medallion loans— — — — — — — 36,848 36,848Other— 7,898 7,898 1,264 24,723 25,987 11,166 26,282 37,448Total impaired loans andnon-performing assets$— $147,308 $147,308 $5,467 $205,882 $211,349 $19,025 $205,594 $224,619 Non-performing loans to totalloans (1) (3) 0.60% 0.59% 0.82% 0.81% 0.71% 0.70%Non-performing assets to totalassets (2) 0.43% 0.43% 0.60% 0.61% 0.51% 0.53%ALLL to total loans (1) 0.50% 0.50% 0.69% 0.68% 0.80% 0.79%ALLL to non-performing loans 84.61% 84.63% 84.03% 83.53% 113.68% 112.55%Net charge-offs to averageloans(4) 0.28% 0.28% 0.38% 0.38% 0.13% 0.13% (1)Total loans for purposes of calculating these ratios include premiums, discounts and deferred fees and costs.(2)Ratio for non-covered assets is calculated as non-performing non-covered assets to total assets.(3)Non-performing taxi medallion loans comprised 0.51% and 0.32% of total non-covered loans at December 31, 2017 and 2016 respectively.(4)The ratio of charge-offs of taxi medallion loans to average total loans was 0.18%, 0.28% and 0.06% for the years ended December 31, 2018, 2017 and 2016, respectively. 2015 2014 CoveredAssets Non-CoveredAssets Total CoveredAssets Non-CoveredAssets TotalNon-accrual loans Residential and other consumer: 1-4 single family residential$594 $2,007 $2,601 $604 $49 $653Home equity loans and lines of credit4,724 — 4,724 3,808 — 3,808Other consumer loans— 7 7 — 173 173Total residential and other consumer loans5,318 2,014 7,332 4,412 222 4,634Commercial: Non-owner occupied commercial real estate— — — — 1,326 1,326Construction and land— — — — 209 209Owner occupied commercial real estate— 8,274 8,274 — 3,362 3,362Commercial and industrial— — — — 13,666 13,666Taxi medallion loans— 9,920 9,920 — 9,226 9,226Other commercial and industrial— 2,557 2,557 — — —Commercial lending subsidiaries— 35,225 35,225 — — —Total commercial loans— 55,976 55,976 — 27,789 27,789Total non-accrual loans5,318 57,990 63,308 4,412 28,011 32,423Loans past due 90 days and still accruing156 1,369 1,525 174 715 889TDRs7,050 1,175 8,225 2,188 4,435 6,623Total non-performing loans12,524 60,534 73,058 6,774 33,161 39,935OREO8,853 — 8,853 13,645 135 13,780Repossessed assets— 2,337 2,337 — — —Total non-performing assets21,377 62,871 84,248 20,419 33,296 53,715Performing TDRs Taxi medallion loans 633 633 Performing TDRs3,988 4,902 8,890 3,866 797 4,663Total impaired loans and non-performing assets$25,365 $68,406 $93,771 $24,285 $34,093 $58,378 Non-performing loans to total loans (2) 0.38% 0.40% 0.29% 0.32%Non-performing assets to total assets (3) 0.26% 0.35% 0.17% 0.28%ALLL to total loans (2) 0.76% 0.76% 0.80% 0.77%ALLL to non-performing loans 199.82% 172.23% 275.47% 239.24%Net charge-offs to average loans 0.09% 0.10% 0.08% 0.15% (1)Includes TDRs on accrual status.(2)Total loans for purposes of calculating these ratios include premiums, discounts and deferred fees and costs.(3)Ratio for non-covered assets is calculated as non-performing non-covered assets to total assets.The decreases in the ratios of non-performing loans to total loans and non-performing assets to total assets at December 31, 2018 compared toDecember 31, 2017 were primarily attributable to the sale of substantially all taxi medallion loans during the fourth quarter 2018. The increases in the ratiosof non-performing loans to total loans and non-performing assets to total assets and the decrease in the ratio of the ALLL to non-performing loans atDecember 31, 2017 compared to December 31, 2016 were each primarily attributable to the increase in non-accrual taxi medallion loans during thoseperiods.Contractually delinquent ACI loans with remaining accretable yield are not reflected as non-accrual loans and are not considered to be non-performingassets because accretion continues to be recorded in income. Accretion continues to be recorded as long as there is an expectation of future cash flows inexcess of carrying amount from these loans. The carrying value of ACI loans contractually delinquent by more than 90 days but on which income was stillbeing recognized was insignificant at December 31, 2018 and $18 million at December 31, 2017. Contractually delinquent government insured residentialloans are excluded from non-performing loans as defined in the table above. The carrying value of such loans contractually delinquent by more than 90 dayswas $218 million and $2 million at December 31, 2018 and 2017, respectively. The increase is attributable to the government insured pool buyout activitywhich began in 2018.Commercial loans, other than ACI loans, are placed on non-accrual status when (i) management has determined that full repayment of all contractualprincipal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process ofcollection. Residential and consumer loans, other than ACI loans and government insured pool buyout loans, are generally placed on non-accrual statuswhen 90 days of interest is due and unpaid. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interestincome. Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remainingcontractual principal and interest is reasonably assured. Residential loans are generally returned to accrual status when less than 90 days of interest is due andunpaid. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.A loan modification is considered a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants aconcession to the borrower that the Company would not otherwise grant. These concessions may take the form of temporarily or permanently reduced interestrates, payment abatement periods, restructuring of payment terms, extensions of maturity at below market terms, or in some cases, partial forgiveness ofprincipal. Under GAAP, modified ACI loans accounted for in pools are not accounted for as TDRs and are not separated from their respective pools whenmodified. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.The following table summarizes loans modified in TDRs at December 31, 2018 (dollars in thousands): Number of TDRs Recorded Investment Related SpecificAllowanceResidential and other consumer47 $7,690 $134Commercial23 36,150 3,595 70 $43,840 $3,729Potential Problem LoansPotential problem loans have been identified by management as those commercial loans included in the "substandard accruing" risk rating category.These loans are typically performing, but possess specifically identified credit weaknesses that, if not remedied, may lead to a downgrade to non-accrualstatus and identification as impaired in the near-term. Substandard accruing commercial loans totaled $96 million at December 31, 2018, substantially all ofwhich were current as to principal and interest at December 31, 2018.Loss Mitigation StrategiesCriticized or classified commercial loans in excess of certain thresholds are reviewed quarterly by the Criticized Asset Committee, which evaluates theappropriate strategy for collection to mitigate the amount of credit losses. Criticized asset reports for each relationship are presented by the assignedrelationship manager and credit officer to the Criticized Asset Committee until such time as the relationships are returned to a satisfactory credit risk rating orotherwise resolved. The Criticized Asset Committee may require the transfer of a loan to our workout and recovery department, which is tasked to effectivelymanage the loan with the goal of minimizing losses and expenses associated with restructure, collection and/or liquidation of collateral. Commercial loanswith a risk rating of substandard; impaired loans on non-accrual status; loans modified as TDRs; or assets classified as OREO or repossessed assets are usuallytransferred to workout and recovery. Oversight of the workout and recovery department is provided by the Asset Recovery Committee.We evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, orforeclosure. We offer a modification program modeled after the FNMA standard modification program.Analysis of the Allowance for Loan and Lease LossesThe ALLL relates to (i) loans originated or purchased since the FSB acquisition, (ii) estimated additional losses arising on non-ACI loans subsequent tothe FSB Acquisition, and (iii) impairment recognized as a result of decreases in expected cash flows on ACI loans due to further credit deterioration. Thedetermination of the amount of the ALLL is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in materialchanges to the level of the ALLL. General economic conditions including but not limited to unemployment rates, the level of business investment andgrowth, real estate values, vacancy rates and rental rates in our primary market areas, the level of interest rates, and a variety of other factors that affect theability of borrowers’ businesses to generate cash flows sufficient to service their debts will impact the future performance of the portfolio. Adoption of theCECL model in the first quarter of 2020 will result in significant changes60to the methodology employed to determine the amount of the ALLL, and may materially impact the amount of the ALLL recorded in the consolidatedfinancial statements.Commercial loansThe allowance is comprised of specific reserves for loans that are individually evaluated and determined to be impaired as well as general reserves forloans that have not been identified as impaired.Commercial relationships graded substandard or doubtful and on non-accrual status with committed credit facilities greater than or equal to $1.0 million,as well as loans modified in TDRs, are individually evaluated for impairment. Other commercial relationships on non-accrual status with committed balancesunder $1.0 million may also be evaluated for impairment, at management's discretion. For loans evaluated individually for impairment and determined to beimpaired, a specific allowance is established based on the present value of expected cash flows discounted at the loan’s effective interest rate, the estimatedfair value of the loan, or the estimated fair value of collateral less costs to sell.We believe that loans rated special mention, substandard or doubtful that are not individually evaluated for impairment exhibit characteristics indicativeof a heightened level of credit risk. We apply a quantitative loss factor for loans rated special mention based on average annual probability of default andimplied severity, derived from internal and external data. Loss factors for substandard and doubtful loans that are not individually evaluated are determinedby using default frequency and severity information applied at the loan level. Estimated default frequencies and severities are based on available industryand internal data. In addition, we apply a floor to these calculated loss factors, based on the loss factor applied to the special mention portfolio.To the extent, in management's judgment, commercial portfolio segments have sufficient observable loss history, the quantitative portion of the ALLL isbased on the Bank's historical net charge-off rates. These commercial segments include commercial and industrial loans and the Bridge portfolios. Forcommercial portfolio segments that have not yet exhibited an observable loss trend, the quantitative loss factors are based on peer group average annualhistorical net charge-off rates by loan class and the Company’s internal credit risk rating system. These commercial segments include multifamily, non-owneroccupied commercial real estate and construction and land loans. Quantitative loss factors for SBF loans are based on historical charge-off rates published bythe SBA. For Pinnacle, quantitative loss factors are based primarily on historical municipal default data. For most commercial portfolio segments, we use a 20quarter look-back period in the calculation of historical net charge-off rates.Where applicable, the peer group used to calculate average annual historical net charge-off rates used in estimating general reserves is made up of 26banks included in the OCC Midsize Bank Group plus five additional banks not included in the OCC Midsize Bank Group that management believes to becomparable based on size, geography and nature of lending operations. Peer bank data is obtained from the Statistics on Depository Institutions Reportpublished by the FDIC for the most recent quarter available. These banks, as a group, are considered by management to be comparable to BankUnited in size,nature of lending operations and loan portfolio composition. We evaluate the composition of the peer group annually, or more frequently if, in our judgment,a more frequent evaluation is necessary. Our internal risk rating system comprises 13 credit grades; grades 1 through 8 are “pass” grades. The risk ratings aredriven largely by debt service coverage. Peer group historical loss rates are adjusted upward for loans assigned a lower “pass” rating.As noted above, we generally use a 20 quarter look-back period to calculate quantitative loss rates. We believe this look-back period to be consistentwith the range of industry practice and appropriate to capture a sufficient range of observations reflecting the performance of our loans, which were originatedin the current economic cycle. With the exception of the Pinnacle municipal finance portfolio, a four quarter loss emergence period is used in the calculationof general reserves. A twelve quarter loss emergence period is used in the calculation of general reserves for the Pinnacle portfolio.The primary assumptions underlying estimates of expected cash flows for ACI commercial loans are default probability and severity of loss givendefault. Assessments of default probability and severity are based on net realizable value analyses prepared at the individual loan level. Based on ouranalysis, no ALLL related to ACI commercial loans was recorded at December 31, 2018 or 2017.Residential and other consumer loansNon-covered LoansThe non-covered loan portfolio has not yet developed an observable loss trend. Therefore, the ALLL for non-covered residential loans is based primarilyon relevant proxy historical loss rates. The ALLL for non-covered 1-4 single family residential loans, excluding government insured residential loans, isestimated using average annual loss rates on prime residential mortgage securitizations issued between 2003 and 2008 as a proxy. Based on thecomparability of FICO scores and61LTV ratios between loans included in those securitizations and loans in the Bank’s portfolio and the geographic diversity in the new purchased residentialportfolio, we determined that prime residential mortgage securitizations provide an appropriate proxy for incurred losses in this portfolio class. A peer group20-quarter average net charge-off rate is used to estimate the ALLL for the non-covered home equity and other consumer loan classes. See further discussionof peer group loss factors above. The non-covered home equity and other consumer loan portfolios are not significant components of the overall loanportfolio.Covered non-ACI LoansThe methodology for estimating the ALLL for non-ACI 1-4 single family residential mortgages is consistent with the methodology used to calculate theALLL for the non-covered residential portfolio segment discussed above.Qualitative FactorsQualitative adjustments are made to the ALLL when, based on management’s judgment, there are internal or external factors impacting probable incurredlosses not taken into account by the quantitative calculations. Potential qualitative adjustments are categorized as follows: •Portfolio performance trends, including trends in and the levels of delinquencies, non-performing loans and classified loans; •Changes in the nature of the portfolio and terms of the loans, specifically including the volume and nature of policy and procedural exceptions;•Portfolio growth trends; •Changes in lending policies and procedures, including credit and underwriting guidelines and portfolio management practices; •Economic factors, including unemployment rates and GDP growth rates and other factors considered relevant by management;•Changes in the value of underlying collateral;•Quality of risk ratings, as evaluated by our independent credit review function; •Credit concentrations; •Changes in and experience levels of credit administration management and staff; and•Other factors identified by management that may impact the level of losses inherent in the portfolio, including but not limited to competition andlegal and regulatory considerations.Covered ACI LoansFor ACI loans, a valuation allowance is established when periodic evaluations of expected cash flows reflect a deterioration resulting from credit relatedfactors from the level of cash flows that were estimated to be collected at acquisition plus any additional expected cash flows arising from revisions in thoseestimates. We perform a quarterly analysis of expected cash flows for ACI loans.Expected cash flows for ACI 1-4 single family residential loans are estimated at the pool level. The analysis of expected cash flows incorporatesassumptions about expected prepayment rates, default rates, delinquency levels and loss severity given default.No ALLL related to 1-4 single family residential ACI pools was recorded at December 31, 2018 or 2017.62The following tables provide an analysis of the ALLL, provision for loan losses and net charge-offs for the periods from December 31, 2013 throughDecember 31, 2018 (in thousands): Non-Covered Loans Covered Loans TotalBalance at December 31, 2013$57,330 $12,395 $69,725Provision for (recovery of) loan losses41,748 (243) 41,505Charge-offs: 1-4 single family residential— (269) (269) Home equity loans and lines of credit— (2,737) (2,737) Other consumer loans(1,083) (324) (1,407) Multi-family— (285) (285) Non-owner occupied commercial real estate(52) (3,031) (3,083) Construction and land— (648) (648) Owner occupied commercial real estate— (356) (356) Commercial and industrial(6,033) (1,050) (7,083) Commercial lending subsidiaries(1,586) — (1,586)Total Charge-offs(8,754) (8,700) (17,454)Recoveries: Home equity loans and lines of credit— 19 19 Other consumer loans498 — 498 Multi-family— 4 4 Non-owner occupied commercial real estate— 3 3 Commercial and industrial506 714 1,220 Commercial lending subsidiaries22 — 22Total Recoveries1,026 740 1,766Net Charge-offs:(7,728) (7,960) (15,688)Balance at December 31, 201491,350 4,192 95,542Provision for loan losses:42,060 2,251 44,311Charge-offs: 1-4 single family residential— (16) (16) Home equity loans and lines of credit— (1,664) (1,664) Owner occupied commercial real estate(263) — (263) Commercial and industrial(5,731) — (5,731) Commercial lending subsidiaries(7,725) — (7,725)Total Charge-offs(13,719) (1,680) (15,399)Recoveries: Home equity loans and lines of credit— 39 39 Other consumer loans32 — 32 Multi-family— 4 4 Non-owner occupied commercial real estate2 — 2 Commercial and industrial1,082 62 1,144 Commercial lending subsidiaries153 — 153Total Recoveries1,269 105 1,374Net Charge-offs:(12,450) (1,575) (14,025)Balance at December 31, 2015$120,960 $4,868 $125,82863 Non-Covered Loans Covered Loans TotalBalance at December 31, 2015$120,960 $4,868 $125,828Provision for (recovery of) loan losses52,592 (1,681) 50,911Charge-offs: 1-4 single family residential— (442) (442) Home equity loans and lines of credit— (774) (774) Other consumer loans(152) — (152) Non-owner occupied commercial real estate(128) — (128) Construction and land(93) — (93) Owner occupied commercial real estate(2,827) — (2,827) Commercial and industrial Taxi medallion loans(11,141) — (11,141) Other commercial and industrial(9,121) — (9,121) Commercial lending subsidiaries(2,432) — (2,432)Total Charge-offs(25,894) (1,216) (27,110)Recoveries: Home equity loans and lines of credit— 80 80 Other consumer loans26 — 26 Owner occupied commercial real estate1,193 — 1,193 Commercial and industrial Other commercial and industrial698 49 747 Commercial lending subsidiaries1,278 — 1,278Total Recoveries3,195 129 3,324Net Charge-offs:(22,699) (1,087) (23,786)Balance at December 31, 2016150,853 2,100 152,953Provision for (recovery of) loan losses:67,389 1,358 68,747Charge-offs: 1-4 single family residential(1) (24) (25)Home equity loans and lines of credit— (3,303) (3,303)Non-owner occupied commercial real estate(255) — (255)Construction and land(63) — (63)Owner occupied commercial real estate(2,612) — (2,612)Commercial and industrial Taxi medallion loans(56,615) — (56,615)Other commercial and industrial(18,320) — (18,320)Total Charge-offs(77,866) (3,327) (81,193)Recoveries: Home equity loans and lines of credit— 67 67Other consumer loans26 — 26Owner occupied commercial real estate2 — 2Commercial and industrial Taxi medallion loans— — —Other commercial and industrial2,689 60 2,749Commercial lending subsidiaries1,444 — 1,444Total Recoveries4,161 127 4,288Net Charge-offs:(73,705) (3,200) (76,905)Balance at December 31, 2017$144,537 $258 $144,79564 Non-Covered Loans Covered Loans TotalBalance at December 31, 2017$144,537 $258 $144,795Provision for (recovery of) loan losses: 1-4 single family residential456 948 1,404Home equity loans and lines of credit(4) (196) (200)Other consumer loans(172) — (172)Multi-family(16,595) — (16,595)Non-owner occupied commercial real estate(10,331) — (10,331)Construction and land(1,547) — (1,547)Owner occupied commercial real estate(22) — (22)Commercial and industrial Taxi medallion loans26,187 — 26,187Other commercial and industrial22,318 — 22,318Commercial lending subsidiaries Pinnacle303 — 303Bridge - franchise finance2,077 — 2,077Bridge - equipment finance2,503 — 2,503Total Provision25,173 752 25,925Charge-offs: 1-4 single family residential— (1,175) (1,175)Home equity loans and lines of credit— (25) (25)Other consumer loans(265) — (265)Multi-family— — —Non-owner occupied commercial real estate(184) — (184)Construction and land(79) — (79)Owner occupied commercial real estate(6,472) — (6,472)Commercial and industrial Taxi medallion loans(39,676) — (39,676)Other commercial and industrial(19,208) — (19,208)Total Charge-offs(65,884) (1,200) (67,084)Recoveries: Home equity loans and lines of credit— 220 220Other consumer loans281 — 281Non-owner occupied commercial real estate151 — 151Owner occupied commercial real estate2,682 — 2,682Commercial and industrial Taxi medallion loans1,275 — 1,275Other commercial and industrial1,508 — 1,508Commercial lending subsidiaries Bridge - franchise finance178 — 178Total Recoveries6,075 220 6,295Net Charge-offs:(59,809) (980) (60,789)Balance at December 31, 2018$109,901 $30 $109,93165The following tables show the distribution of the ALLL, broken out between covered and non-covered loans, at December 31 of the years indicated(dollars in thousands): 2018 Non-CoveredLoans Covered Loans Total %(1)Residential and other consumer: 1 - 4 single family residential$10,596 $30 $10,626 22.2%Home equity loans and lines of credit3 — 3 —%Other consumer loans159 — 159 0.1% 10,758 30 10,788 22.3%Commercial: Multi-family7,399 — 7,399 11.8%Non-owner occupied commercial real estate30,258 — 30,258 21.4%Construction and land1,378 — 1,378 1.0%Owner occupied commercial real estate9,799 — 9,799 9.7%Commercial and industrial Taxi medallion loans— — — —%Other commercial and industrial34,316 — 34,316 21.9%Commercial lending subsidiaries Pinnacle875 — 875 6.6%Bridge - franchise finance5,560 — 5,560 2.4%Bridge - equipment finance9,558 9,558 2.9% 99,143 — 99,143 77.7% $109,901 $30 $109,931 100.0% 2017 Non-CoveredLoans Covered Loans Total %(1)Residential and other consumer: 1 - 4 single family residential$10,140 $257 $10,397 21.6%Home equity loans and lines of credit7 1 8 —%Other consumer loans315 — 315 0.1% 10,462 258 10,720 21.7%Commercial: Multi-family23,994 — 23,994 15.0%Non-owner occupied commercial real estate40,622 — 40,622 21.0%Construction and land3,004 — 3,004 1.5%Owner occupied commercial real estate13,611 — 13,611 9.4%Commercial and industrial Taxi medallion loans12,214 — 12,214 0.6%Other commercial and industrial29,698 — 29,698 18.8%Commercial lending subsidiaries Pinnacle572 — 572 7.1%Bridge - franchise finance3,305 — 3,305 2.1%Bridge - equipment finance7,055 7,055 2.8% 134,075 — 134,075 78.3% $144,537 $258 $144,795 100.0%66 2016 Non-CoveredLoans Covered Loans Total %(1)Residential and other consumer: 1 - 4 single family residential$9,279 $181 $9,460 20.6%Home equity loans and lines of credit7 1,919 1,926 0.3%Other consumer loans117 — 117 0.1% 9,403 2,100 11,503 21.0%Commercial: Multi-family25,009 — 25,009 19.8%Non-owner occupied commercial real estate35,604 — 35,604 19.3%Construction and land2,824 — 2,824 1.6%Owner occupied commercial real estate11,424 — 11,424 9.0%Commercial and industrial Taxi medallion loans10,655 — 10,655 0.9%Other commercial and industrial38,067 — 38,067 16.6%Commercial lending subsidiaries Pinnacle6,586 — 6,586 4.3%Bridge - franchise finance4,458 — 4,458 2.9%Bridge - equipment finance6,823 — 6,823 4.6% 141,450 — 141,450 79.0% $150,853 $2,100 $152,953 100.0% 2015 Non-CoveredLoans Covered Loans Total %(1)Residential and other consumer: 1-4 single family residential$11,086 $564 $11,650 21.9% Home equity loans and lines of credit4 4,304 4,308 0.4% Other consumer loans253 — 253 0.2% 11,343 4,868 16,211 22.5%Commercial: Multi-family22,317 — 22,317 20.9% Non-owner occupied commercial real estate26,179 — 26,179 17.5% Construction and land3,587 — 3,587 2.1% Owner occupied commercial real estate7,490 — 7,490 8.2% Commercial and industrial33,661 — 33,661 16.7% Commercial lending subsidiaries Pinnacle6,138 — 6,138 4.5%Bridge - franchise finance5,691 — 5,691 4.2%Bridge - equipment finance4,554 — 4,554 3.4% 109,617 — 109,617 77.5% $120,960 $4,868 $125,828 100.0%67 2014 Non-CoveredLoans Covered Loans Total %(1)Residential and other consumer: 1-4 single family residential$7,116 $945 $8,061 27.6% Home equity loans and lines of credit17 3,247 3,264 1.0% Other consumer loans190 — 190 0.2% 7,323 4,192 11,515 28.8%Commercial: Multi-family14,970 — 14,970 15.8% Non-owner occupied commercial real estate17,615 — 17,615 14.4% Construction and land2,725 — 2,725 1.4% Owner occupied commercial real estate8,273 — 8,273 8.4% Commercial and industrial25,867 — 25,867 19.4% Commercial lending subsidiaries Pinnacle4,605 — 4,605 3.7%Bridge - franchise finance4,549 — 4,549 3.7%Bridge - equipment finance5,423 — 5,423 4.4% 84,027 — 84,027 71.2% $91,350 $4,192 $95,542 100.0% (1)Represents percentage of loans receivable in each category to total loans receivable.The balance of the ALLL for non-covered loans at December 31, 2018 decreased $34.6 million from the balance at December 31, 2017. This overallreduction in the ALLL was attributable to declines in both historical charge-off rates used to estimate general quantitative reserves and in certain qualitativeloss factors as well as the elimination of specific reserves for the taxi medallion portfolio in conjunction with the sale of substantially all of the taxi medallionloans. Factors influencing the change in the ALLL related to specific loan types at December 31, 2018 as compared to December 31, 2017, include:•A decrease of $16.6 million for multi-family loans was primarily attributable to a decrease in the balance of loans outstanding, a decrease in certainqualitative loss factors and a decline in specific reserves for loans determined individually to be impaired.•A decrease of $10.4 million for non-owner occupied commercial real estate loans, despite an increase in the outstanding balance, was primarilyattributable to decreases in both historical net charge-off rates for the peer group and certain qualitative loss factors.•A decrease of $3.8 million for owner occupied commercial real estate loans was primarily attributable to a decrease in specific reserves for oneimpaired loan relationship, which was fully charged-off during the year ended December 31, 2018, and a decrease in certain qualitative loss factors.•A decrease of $12.2 million for taxi medallion loans, resulting from the sale of substantially the entire portfolio during the fourth quarter 2018.•An increase of $4.6 million for other commercial and industrial loans was attributable to loan growth, offset by a decrease in the historical netcharge-off rate.•A $2.3 million increase for Bridge franchise finance primarily reflected an increase in specific reserves for one impaired loan relationship and anincrease in certain qualitative loss factors, partially offset by a decline in historical net charge-off rates.•A $2.5 million increase for Bridge equipment finance primarily reflected an increase in specific reserves for one impaired loan relationship, offset bya decline in the historical net charge-off rate and in certain qualitative factors.For additional information about the ALLL, see Note 4 to the consolidated financial statements.68GoodwillGoodwill consists of $59 million recorded in conjunction with the FSB Acquisition, $8 million recorded in conjunction with the acquisition of twocommercial lending subsidiaries in 2010 and $10 million recorded in conjunction with the SBF acquisition in May 2015. The Company has a singlereporting unit. We perform goodwill impairment testing in the third quarter of each fiscal year. As of the 2018 impairment testing date, the estimated fairvalue of the reporting unit substantially exceeded its carrying amount; therefore, no impairment was indicated.DepositsA further breakdown of deposits as of December 31, 2018 and 2017 is shown below:(1) Brokered deposits includecertain time deposits at December 31, 2018 and 2017.The following table shows scheduled maturities of certificates of deposit with denominations greater than or equal to $100,000 as of December 31, 2018(in thousands):Three months or less$1,233,867Over three through six months488,522Over six through twelve months1,236,723Over twelve months1,162,899 $4,122,011See Note 8 to the consolidated financial statements for more information about the Company's deposits.FHLB Advances, Notes and Other BorrowingsIn addition to deposits, we utilize FHLB advances to fund growth in interest earning assets; the advances provide us with additional flexibility inmanaging both term and cost of funding. FHLB advances are secured by FHLB stock, qualifying residential first mortgage, commercial real estate and homeequity loans, and MBS.The Bank utilizes federal funds purchased to manage the daily cash position. At December 31, 2018, the Company had $175 million in federal fundspurchased.See Note 9 to the consolidated financial statements for more information about the Company's FHLB advances and senior notes. Additionally, see Note11 to the consolidated financial statements for more information about derivative instruments the Company uses to manage interest rate risk related tovariability in cash flows due to changes in interest rates on variable rate borrowings.69Capital ResourcesPursuant to the FDIA, the federal banking agencies have adopted regulations setting forth a five-tier system for measuring the capital adequacy of thefinancial institutions they supervise. At December 31, 2018 and 2017, BankUnited and the Company had capital levels that exceeded both the regulatorywell-capitalized guidelines and all internal capital ratio targets. See Note 14 to the Consolidated Financial Statements for more information about theCompany's and the Bank's regulatory capital ratios.Stockholders' equity decreased to $2.9 billion at December 31, 2018, a decrease of $102 million, or 3.38%, from December 31, 2017, due primarily to therepurchase of common shares and payment of dividends, offset by the retention of earnings. Our dividend payout ratio was 28.0% and 15.0% for the yearsended December 31, 2018 and 2017, respectively.In 2018, the Company repurchased approximately 8.4 million shares of common stock for an aggregate purchase price of approximately $300 million.In January 2019 the Board of Directors of the Company authorized the repurchase of up to an additional $150 million in shares of its outstandingcommon stock, subject to any applicable regulatory approvals. Any repurchases will be made in accordance with applicable securities laws from time to timein open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a varietyof factors, including market conditions, the Company’s capital position, regulatory requirements and other considerations. No time limit was set for thecompletion of the share repurchase program, and the program may be suspended or discontinued at any time.We filed a shelf registration statement with the SEC in October 2018 that allows the Company to periodically offer and sell in one or more offerings,individually or in any combination, our common stock, preferred stock and other non-equity securities. The shelf registration provides us with flexibility inissuing capital instruments and enables us to more readily access the capital markets as needed to pursue future growth opportunities and to ensure continuedcompliance with regulatory capital requirements. Our ability to issue securities pursuant to the shelf registration is subject to market conditions.LiquidityLiquidity involves our ability to generate adequate funds to support planned interest earning asset growth, meet deposit withdrawal requests, maintainreserve requirements, conduct routine operations, pay dividends, service outstanding debt and meet other contractual obligations.Primary sources of liquidity include cash flows from operations, deposit growth, the available for sale securities portfolio and FHLB advances.For the years ended December 31, 2018, 2017 and 2016 net cash provided by operating activities was $824.3 million, $318.6 million, and $308.5million, respectively. Accretion on ACI loans, which is reflected as a non-cash reduction in net income to arrive at operating cash flows, totaled $369.9million, $301.8 million and $303.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. Accretable yield on ACI loans representsthe excess of expected future cash flows over the carrying amount of the loans, and is recognized as interest income over the expected lives of the loans.Amounts recorded as accretion are realized in cash as individual loans are paid down or otherwise resolved; however, the timing of cash realization may differfrom the timing of income recognition. These cash flows from the repayment or resolution of covered loans, inclusive of amounts that have been accretedthrough earnings over time, are recognized as cash flows from investing activities in the consolidated statements of cash flows upon receipt. Cash paymentsfrom the FDIC in the form of reimbursements of losses related to the covered loans under the Single Family Shared-Loss Agreement are also characterized asinvesting cash flows. Cash generated by the repayment and resolution of covered loans and reimbursements from the FDIC totaled $707.0 million, $469.3million and $558.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Single Family Shared-Loss Agreement was terminatedon February 13, 2019.In addition to cash provided by operating activities, the repayment and resolution of covered loans and payments under the Single Family Shared-LossAgreement from the FDIC, BankUnited’s liquidity needs, particularly liquidity to fund growth of interest earning assets, have been and continue to be met bydeposit growth and FHLB advances. The investment portfolio also provides a source of liquidity.BankUnited has access to additional liquidity through FHLB advances, other collateralized borrowings, wholesale deposits or the sale of available forsale securities. At December 31, 2018, unencumbered investment securities totaled $5.9 billion. At December 31, 2018, BankUnited had available borrowingcapacity at the FHLB of $3.7 billion, unused borrowing capacity at the FRB of $410 million and unused Federal funds lines of credit totaling $85 million.Management also has the ability to exert substantial control over the rate and timing of growth of the loan portfolio, and resultant requirements for liquidityto fund loans.70Continued growth of deposits and loans are the most significant trends expected to impact the Bank’s liquidity in the near term.The ALCO policy has established several measures of liquidity which are monitored monthly by the ALCO and quarterly by the Board of Directors. Oneprimary measure of liquidity monitored by management is the 30 day total liquidity ratio, defined as (a) the sum of cash and cash equivalents, pledgeablesecurities and a measure of funds expected to be generated by operations over the next 30 days; divided by (b) the sum of potential deposit runoff, liabilitiesmaturing within the 30 day time frame and a measure of funds expected to be used in operations over the next 30 days. BankUnited’s liquidity is consideredacceptable if the 30 day total liquidity ratio exceeds 100%. At December 31, 2018, BankUnited’s 30 day total liquidity ratio was 210%. Management alsomonitors a one year liquidity ratio, defined as (a) cash and cash equivalents, pledgeable securities, unused borrowing capacity at the FHLB, and loans andnon-agency securities maturing within one year; divided by (b) forecasted deposit outflows and borrowings maturing within one year. This ratio allowsmanagement to monitor liquidity over a longer time horizon. The acceptable threshold established by the ALCO for this liquidity measure is 100%. AtDecember 31, 2018, BankUnited’s one year liquidity ratio was 165%. Additional measures of liquidity regularly monitored by the ALCO include the ratio ofwholesale funding to total assets, a measure of available liquidity to volatile liabilities, the ratio of brokered deposits to total deposits, the ratio of FHLBadvances to total funding, the percentage of investment securities backed by the U.S. government and government agencies and concentrations of largedeposits. At December 31, 2018, BankUnited was within acceptable limits established by the ALCO and the Board of Directors for each of these measures.As a holding company, BankUnited, Inc. is a corporation separate and apart from its banking subsidiary, and therefore, provides for its own liquidity.BankUnited, Inc.’s main sources of funds include management fees and dividends from the Bank, access to capital markets and, to a lesser extent, its ownavailable for sale securities portfolio. There are regulatory limitations that affect the ability of the Bank to pay dividends to BankUnited, Inc. Managementbelieves that such limitations will not impact our ability to meet our ongoing near-term cash obligations.We expect that our liquidity requirements will continue to be satisfied over the next 12 months through the sources of funds described above.Interest Rate RiskThe principal component of the Company’s risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is interestrate risk, including the risk that assets and liabilities with similar re-pricing characteristics may not reprice at the same time or to the same degree. A primaryobjective of the Company’s asset/liability management activities is to maximize net interest income, while maintaining acceptable levels of interest rate risk.The ALCO is responsible for establishing policies to limit exposure to interest rate risk, and to ensure procedures are established to monitor compliance withthese policies. The guidelines established by the ALCO are approved at least annually by the Board of Directors.Management believes that the simulation of net interest income in different interest rate environments provides the most meaningful measure of interestrate risk. Income simulation analysis is designed to capture not only the potential of all assets and liabilities to mature or reprice, but also the probability thatthey will do so. Income simulation also attends to the relative interest rate sensitivities of these items, and projects their behavior over an extended period oftime. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also ofproposed strategies for responding to them.The income simulation model analyzes interest rate sensitivity by projecting net interest income over twelve and twenty-four month periods in a mostlikely rate scenario based on consensus forward interest rate curves versus net interest income in alternative rate scenarios. Simulations are generated basedon both static and dynamic balance sheet assumptions. Management continually reviews and refines its interest rate risk management process in response tochanges in the interest rate environment and economic climate. Currently, our model projects instantaneous rate shocks of down 200, down100, plus 100,plus 200, plus 300 and plus 400 basis point shifts as well as flattening and inverted yield curve scenarios. We continually evaluate the scenarios beingmodeled with a view toward adapting them to changing economic conditions, expectations and trends.71The Company’s ALCO policy provides that net interest income sensitivity will be considered acceptable if decreases in forecast net interest income,based on a dynamic forecasted balance sheet, in specified rate shock scenarios are within specified percentages of forecast net interest income in the mostlikely rate scenario over the next twelve months and in the second year. The following table illustrates the acceptable limits as defined by policy and theimpact on forecasted net interest income of down 200, down 100, plus 100, plus 200, plus 300 and plus 400 basis point rate shock scenarios at December 31,2018 and 2017: Down 200 Down 100 Plus 100 Plus 200 Plus 300 Plus 400Policy Limits: In year 1(10.0)% (6.0)% (6.0)% (10.0)% (14.0)% (18.0)%In year 2(13.0)% (9.0)% (9.0)% (13.0)% (17.0)% (21.0)%Model Results at December 31, 2018 - increase (decrease): In year 1(4.3)% (0.8)% 0.3 % (0.9)% (2.4)% (5.6)%In year 2(9.7)% (3.0)% 3.6 % 4.4 % 4.0 % 3.1 %Model Results at December 31, 2017 - increase (decrease): In year 1N/A (0.3)% (0.1)% (0.5)% (1.4)% (2.7)%In year 2N/A (3.5)% 1.8 % 3.2 % 4.3 % 4.8 %Management also simulates changes in EVE in various interest rate environments. The ALCO policy has established parameters of acceptable risk thatare defined in terms of the percentage change in EVE from a base scenario under eight rate scenarios, derived by implementing immediate parallelmovements of plus and down 100, 200, 300 and 400 basis points from current rates. Prior to December 31, 2018, we did not simulate decreases in interestrates greater than 200 basis points due to lower rate environment at that time. The following table illustrates the acceptable limits as established by ALCOand the modeled change in EVE in plus or down 200, down 100, plus 200, plus 300 and plus 400 basis point scenarios at December 31, 2018 and 2017: Down 200 Down 100 Plus 100 Plus 200 Plus 300 Plus 400Policy Limits(18.0)% (9.0)% (9.0)% (18.0)% (27.0)% (36.0)%Model Results at December 31, 2018 - increase (decrease):0.6 % 2.5 % (3.1)% (7.5)% (12.4)% (17.3)%Model Results at December 31, 2017 - increase (decrease):N/A 1.9 % (3.8)% (8.0)% (12.4)% (16.9)%These measures fall within an acceptable level of interest rate risk per the policies established by the ALCO and the Board of Directors. In the event themodels indicate an unacceptable level of risk, the Company could undertake a number of actions that would reduce this risk, including the sale or re-positioning of a portion of its investment portfolio, restructuring of borrowings, or the use of derivatives such as interest rate swaps and caps.Many assumptions were used by the Company to calculate the impact of changes in interest rates, including the change in rates. Actual results may notbe similar to the Company’s projections due to several factors including the timing and frequency of rate changes, market conditions, changes in depositorbehavior and the shape of the yield curve. Actual results may also differ due to the Company’s actions, if any, in response to changing rates and conditions.Derivative Financial InstrumentsInterest rate swaps are one of the tools we use to manage interest rate risk. These derivative instruments are used to mitigate exposure to changes ininterest rates on variable rate borrowings such as FHLB advances and to manage duration of liabilities. These interest rate swaps are designated as cash flowhedging instruments. The fair value of these instruments is included in other assets and other liabilities in our consolidated balance sheets and changes in fairvalue are reported in accumulated other comprehensive income. At December 31, 2018, outstanding interest rate swaps designated as cash flow hedges hadan aggregate notional amount of $2.8 billion. The aggregate fair value of interest rate swaps designated as cash flow hedges included in other assets was $3.4million.Interest rate swaps and caps not designated as cash flow hedges had an aggregate notional amount of $2.3 billion at December 31, 2018. The aggregatefair value of these interest rate swaps and caps included in other assets was $26.2 million and the aggregate fair value included in other liabilities was $23.9million. These interest rate swaps and caps were entered into as accommodations to certain of our commercial borrowers.72See Note 11 to the consolidated financial statements for additional information about derivative financial instruments.Off-Balance Sheet ArrangementsWe routinely enter into commitments to extend credit to our customers, including commitments to fund loans or lines of credit and commercial andstandby letters of credit. The credit risk associated with these commitments is essentially the same as that involved in extending loans to customers and theyare subject to our normal credit policies and approval processes. While these commitments represent contractual cash requirements, a significant portion ofcommitments to extend credit may expire without being drawn upon.For more information on commitments, see Note 16 to the consolidated financial statements.Contractual ObligationsThe following table contains supplemental information regarding our significant outstanding contractual obligations, including interest to be paid onFHLB advances, long-term borrowings and time deposits, as of December 31, 2018 (in thousands): Total Less than1 year 1 - 3 years 3 - 5 years More than5 yearsFHLB advances$4,860,020 $4,191,503 $668,517 $— $—4.875% Senior notes due 2025536,500 19,500 39,000 39,000 439,000Operating lease obligations120,103 21,207 33,487 22,425 42,984Time deposits6,955,654 5,225,960 1,654,991 74,703 —Capital lease obligations12,808 1,878 3,928 4,177 2,825 $12,485,085 $9,460,048 $2,399,923 $140,305 $484,80973Non-GAAP Financial MeasuresTangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capitalposition and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful base for comparability to otherfinancial institutions. The following table reconciles the non-GAAP financial measurement of tangible book value per common share to the comparableGAAP financial measurement of book value per common share at December 31, of the years indicated (in thousands except share and per share data): 2018 2017 2016 2015 2014Total stockholders' equity$2,923,833 $3,026,062 $2,418,429 $2,243,898 $2,052,534Less: goodwill and other intangible assets77,718 77,796 78,047 78,330 68,414Tangible stockholders’ equity$2,846,115 $2,948,266 $2,340,382 $2,165,568 $1,984,120 Common shares issued and outstanding99,141,374 106,848,185 104,166,945 103,626,255 101,656,702 Book value per common share$29.49 $28.32 $23.22 $21.65 $20.19 Tangible book value per common share$28.71 $27.59 $22.47 $20.90 $19.52 Total assets$32,164,326 $30,346,986 $27,880,151 $23,883,467 $19,210,529Less: goodwill and other intangible assets77,718 77,796 78,047 78,330 68,414Tangible assets$32,086,608 $30,269,190 $27,802,104 $23,805,137 $19,142,115 Equity to assets ratio9.09% 9.97% 8.67% 9.40% 10.68% Tangible common equity to tangible assetsratio8.87% 9.74% 8.42% 9.10% 10.37%Net income and earnings per diluted common share, in each case excluding the impact of a discrete income tax benefit and related professional fees arenon-GAAP financial measures. Management believes disclosure of these measures enhances readers' ability to compare the Company's financial performancefor the current period to that of other periods presented. The following table reconciles these non-GAAP financial measurements to the comparable GAAPfinancial measurements of net income and earnings per diluted common share for the year ended December 31, 2017 (in thousands except share and per sharedata):74 Year EndedDecember 31, 2017Net income excluding the impact of a discrete income tax benefit and related professional fees: Net income (GAAP)$614,273 Less discrete income tax benefit(327,945) Add back related professional fees (net of tax of $1,802 and $524)4,995Net income excluding the impact of a discrete income tax benefit and related professional fees (non-GAAP)$291,323 Diluted earnings per common share, excluding the impact of a discrete income tax benefit and related professional fees: Diluted earnings per common share (GAAP)$5.58Less impact on diluted earnings per common share of discrete income tax benefit and related professional fees, before allocation to participating securities(non-GAAP)(3.05)Less impact on diluted earnings per common share of discrete income tax benefit and related professional fees allocated to participating securities (non-GAAP)0.12Diluted earnings per common share, excluding the impact of a discrete income tax benefit and related professional fees (non-GAAP)$2.65 Impact on diluted earnings per common share of discrete income tax benefit and related professional fees, before allocation to participating securities: Discrete income tax benefit and related professional fees, net of tax$322,950Weighted average shares for diluted earnings per share (GAAP)105,857,487Impact on diluted earnings per common share of discrete income tax benefit and related professional fees, before allocation to participating securities(non-GAAP)$3.05 Impact on diluted earnings per common share of discrete income tax benefit and related professional fees allocated to participating securities: Discrete income tax benefit and related professional fees, net of tax, allocated to participating securities$(12,424)Weighted average shares for diluted earnings per share (GAAP)105,857,487Impact on diluted earnings per common share of discrete income tax benefit and related professional fees allocated to participating securities (non-GAAP)$(0.12)The effective tax rate excluding the impact of the discrete income tax benefit and the impact of the change in the federal statutory rate on existingdeferred tax assets and liabilities is a non-GAAP financial measure. Management believes disclosure of this measure enhances readers' ability to compare theCompany's financial performance for the current period to that of other periods presented. The following table reconciles this non-GAAP financialmeasurement to the comparable GAAP financial measurement of the effective tax rate for the for the year ended December 31, 2017 (dollars in thousands):75 Year Ended December31, 2017Effective income tax rate, excluding the impact of a discrete income tax benefit and impact of enactment of the Tax Cuts and Jobs Act of 2017: Effective income tax rate (GAAP)(51.9)%Less impact on effective income tax rate of discrete income tax benefit and enactment of the Tax Cuts and Jobs Act of 2017 (non-GAAP)82.0 %Effective income tax rate, excluding the impact of a discrete income tax benefit and enactment of the Tax Cuts and Jobs Act of 2017 (non-GAAP)30.1 % Impact on effective income tax rate of discrete income tax benefit and enactment of the Tax Cuts and Jobs Act of 2017 (non-GAAP): Discrete income tax benefit$(327,945)Tax benefit recognized from enactment of the Tax Cuts and Jobs Act of 2017(3,744) $(331,689)Income before income taxes (GAAP)404,461Impact on effective income tax rate of discrete income tax benefit and enactment of the Tax Cuts and Jobs Act of 2017 (non-GAAP)(82.0)%Item 7A. Quantitative and Qualitative Disclosures About Market RiskSee the section entitled “Interest Rate Risk” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”76Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Item 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageManagement's Report on Internal Control Over Financial Reporting78BankUnited, Inc. Consolidated Financial Statements for the Years ended December 31, 2018, 2017 and 2016 Reports of Independent Registered Public Accounting Firm79Consolidated Balance Sheets as of December 31, 2018 and December 31, 201781Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 201682Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 201683Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 201684Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017 and 201686Notes to Consolidated Financial Statements8777MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the SecuritiesExchange Act of 1934 Rule 13a-15(f). The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management anddirectors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe Company's assets that could have a material effect on the financial statements.Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.Under the supervision and with the participation of management, including the Company's principal executive officer and principal financial officer,the Company conducted an evaluation of the effectiveness of the Company's internal control over financial reporting based on the framework in InternalControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company'sevaluation under the framework in Internal Control—Integrated Framework, management concluded that the Company's internal control over financialreporting was effective as of December 31, 2018.The effectiveness of the Company's internal control over financial reporting as of December 31, 2018 has been audited by KPMG LLP, an independentregistered public accounting firm, as stated in their report which is included herein.78Report of Independent Registered Public Accounting FirmTo the stockholders and board of directorsBankUnited, Inc.:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of BankUnited, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017,the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for each of the years in the three‑year periodended December 31, 2018, and the related notes (collectively, the "consolidated financial statements"). In our opinion, the consolidated financial statementspresent fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cashflows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2019 expressed an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting.Basis for OpinionThese consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures thatrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/KPMG LLPWe have served as the Company's auditor since 2009.Miami, FloridaFebruary 27, 201979Report of Independent Registered Public Accounting FirmTo the stockholders and board of directorsBankUnited, Inc.:Opinion on Internal Control Over Financial ReportingWe have audited BankUnited, Inc.'s and subsidiaries’ (the "Company") internal control over financial reporting as of December 31, 2018, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In ouropinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidatedbalance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, cash flows, andstockholders’ equity for each of the years in the three‑year period ended December 31, 2018, and the related notes (collectively, the "consolidated financialstatements"), and our report dated February 27, 2019 expressed an unqualified opinion on those consolidated financial statements.Basis for OpinionThe Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/KPMG LLPMiami, FloridaFebruary 27, 201980BANKUNITED, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2018 December 31, 2017ASSETS Cash and due from banks: Non-interest bearing$9,392 $35,246Interest bearing372,681 159,336Cash and cash equivalents382,073 194,582Investment securities (including securities recorded at fair value of $8,156,878 and $6,680,832)8,166,878 6,690,832Non-marketable equity securities267,052 265,989Loans held for sale36,992 34,097Loans (including covered loans of $201,376 and $503,118)21,977,008 21,416,504Allowance for loan and lease losses(109,931) (144,795)Loans, net21,867,077 21,271,709FDIC indemnification asset— 295,635Bank owned life insurance263,340 252,462Equipment under operating lease, net702,354 599,502Goodwill and other intangible assets77,718 77,796Other assets400,842 664,382Total assets$32,164,326 $30,346,986 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Demand deposits: Non-interest bearing$3,621,254 $3,071,032Interest bearing1,771,465 1,757,581Savings and money market11,261,746 10,715,024Time6,819,758 6,334,842Total deposits23,474,223 21,878,479Federal funds purchased175,000 —Federal Home Loan Bank advances4,796,000 4,771,000Notes and other borrowings402,749 402,830Other liabilities392,521 268,615Total liabilities29,240,493 27,320,924 Commitments and contingencies Stockholders' equity: Common stock, par value $0.01 per share, 400,000,000 shares authorized; 99,141,374 and 106,848,185 shares issuedand outstanding991 1,068Paid-in capital1,220,147 1,498,227Retained earnings1,697,822 1,471,781Accumulated other comprehensive income4,873 54,986Total stockholders' equity2,923,833 3,026,062Total liabilities and stockholders' equity$32,164,326 $30,346,986 The accompanying notes are an integral part of these consolidated financial statements.81BANKUNITED, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share data) Years Ended December 31, 2018 2017 2016Interest income: Loans$1,198,241 $1,001,862 $896,154Investment securities233,091 188,307 150,859Other17,812 14,292 12,204Total interest income1,449,144 1,204,461 1,059,217Interest expense: Deposits284,563 170,933 119,773Borrowings114,488 83,256 69,059Total interest expense399,051 254,189 188,832Net interest income before provision for loan losses1,050,093 950,272 870,385Provision for (recovery of) loan losses (including $752, $1,358, and $(1,681) for covered loans)25,925 68,747 50,911Net interest income after provision for loan losses1,024,168 881,525 819,474Non-interest income: Income from resolution of covered assets, net11,551 27,450 36,155Net loss on FDIC indemnification(4,199) (22,220) (17,759)Deposit service charges and fees14,040 12,997 12,780Gain (loss) on sale of loans, net (including $5,732, $17,406 and $(14,470) related to covered loans)15,864 27,589 (4,406)Gain on investment securities, net3,159 33,466 14,461Lease financing61,685 53,837 44,738Other non-interest income29,922 24,785 20,448Total non-interest income132,022 157,904 106,417Non-interest expense: Employee compensation and benefits254,997 237,824 223,011Occupancy and equipment55,899 58,100 59,022Amortization of FDIC indemnification asset261,763 176,466 160,091Deposit insurance expense18,984 22,011 17,806Professional fees16,539 23,676 14,249Technology and telecommunications35,136 31,252 31,324Depreciation of equipment under operating lease40,025 35,015 31,580Other non-interest expense57,197 50,624 53,364Total non-interest expense740,540 634,968 590,447Income before income taxes415,650 404,461 335,444Provision (benefit) for income taxes90,784 (209,812) 109,703Net income$324,866 $614,273 $225,741Earnings per common share, basic$3.01 $5.60 $2.11Earnings per common share, diluted$2.99 $5.58 $2.09The accompanying notes are an integral part of these consolidated financial statements.82BANKUNITED, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands)Years Ended December 31,2018 2017 2016 Net income$324,866 $614,273 $225,741Other comprehensive income (loss), net of tax: Unrealized gains on investment securities available for sale: Net unrealized holding gain (loss) arising during the period(57,041) 29,724 14,271Reclassification adjustment for net securities gains realized in income(4,486) (20,247) (8,749)Net change in unrealized gain on securities available for sale(61,527) 9,477 5,522Unrealized gains on derivative instruments: Net unrealized holding gain (loss) arising during the period3,981 (1,559) 3,766Reclassification adjustment for net (gains) losses realized in income(1,469) 5,821 9,777Net change in unrealized gains on derivative instruments2,512 4,262 13,543Other comprehensive income (loss)(59,015) 13,739 19,065Comprehensive income$265,851 $628,012 $244,806The accompanying notes are an integral part of these consolidated financial statements.83BANKUNITED, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years Ended December 31, 2018 2017 2016Cash flows from operating activities: Net income$324,866 $614,273 $225,741Adjustments to reconcile net income to net cash provided by operating activities: Amortization and accretion, net(86,549) (95,145) (113,979)Provision for loan losses25,925 68,747 50,911Income from resolution of covered assets, net(11,551) (27,450) (36,155)Net loss on FDIC indemnification4,199 22,220 17,759(Gain) loss on sale of loans, net(15,864) (27,589) 4,406Gain on investment securities, net(3,159) (33,466) (14,461)Equity based compensation23,137 22,692 18,032Depreciation and amortization64,268 61,552 56,444Deferred income taxes67,778 57,801 30,189Proceeds from sale of loans held for sale268,589 158,621 163,088Loans originated for sale, net of repayments(155,974) (142,682) (148,195)Other: (Increase) decrease in other assets236,461 (319,629) 21,371Increase (decrease) in other liabilities82,126 (41,319) 33,359Net cash provided by operating activities824,252 318,626 308,510 Cash flows from investing activities: Purchase of investment securities(4,138,994) (3,131,798) (3,058,106)Proceeds from repayments and calls of investment securities1,533,951 1,260,444 724,666Proceeds from sale of investment securities1,030,810 1,287,591 1,127,983Purchase of non-marketable equity securities(308,126) (248,405) (255,100)Proceeds from redemption of non-marketable equity securities307,063 266,688 190,825Purchases of loans(1,308,772) (1,300,996) (1,266,097)Loan originations, repayments and resolutions, net404,769 (672,338) (1,394,916)Proceeds from sale of loans, net544,745 196,413 171,367Proceeds from sale of equipment under operating lease52,134 4,950 583Proceeds from sale of residential MSRs34,573 — —Acquisition of equipment under operating lease(190,500) (99,553) (88,559)Other investing activities(3,184) (15,572) 21,123Net cash used in investing activities(2,041,531) (2,452,576) (3,826,231) (Continued)The accompanying notes are an integral part of these consolidated financial statements.84BANKUNITED, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(In thousands) Years Ended December 31, 2018 2017 2016Cash flows from financing activities: Net increase in deposits1,595,744 2,387,589 2,552,389Net increase in federal funds purchased175,000 — —Additions to Federal Home Loan Bank advances4,647,000 4,916,000 4,025,000Repayments of Federal Home Loan Bank advances(4,622,000) (5,385,000) (2,795,000)Dividends paid(91,305) (91,628) (89,824)Exercise of stock options7,727 62,095 791Repurchase of common stock(299,972) — —Other financing activities(7,424) (8,837) 5,178Net cash provided by financing activities1,404,770 1,880,219 3,698,534Net increase (decrease) in cash and cash equivalents187,491 (253,731) 180,813Cash and cash equivalents, beginning of period194,582 448,313 267,500Cash and cash equivalents, end of period$382,073 $194,582 $448,313 Supplemental disclosure of cash flow information: Interest paid$387,801 $247,548 $186,525Income taxes (refunded) paid, net$(288,267) $69,231 $16,464 Supplemental schedule of non-cash investing and financing activities: Transfers from loans to other real estate owned and other repossessed assets$9,709 $13,313 $17,045Transfers from loans to loans held for sale$108,503 $1,973 $2,090Dividends declared, not paid$21,673 $23,055 $22,510Obligations incurred in acquisition of affordable housing limited partnerships$4,710 $— $12,750The accompanying notes are an integral part of these consolidated financial statements.85BANKUNITED, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands, except share data) CommonSharesOutstanding CommonStock Paid-inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome TotalStockholders’EquityBalance at December 31, 2015103,626,255 $1,036 $1,406,786 $813,894 $22,182 $2,243,898Comprehensive income— — — 225,741 19,065 244,806Dividends ($0.84 per common share)— — — (89,954) — (89,954)Equity based compensation651,760 7 18,026 — — 18,033Forfeiture of unvested shares(159,049) (1) (484) — — (485)Exercise of stock options47,979 — 791 — — 791Tax benefits from dividendequivalents and equity basedcompensation— — 1,340 — — 1,340Balance at December 31, 2016104,166,945 1,042 1,426,459 949,681 41,247 2,418,429Comprehensive income— — — 614,273 13,739 628,012Dividends ($0.84 per common share)— — — (92,173) — (92,173)Equity based compensation621,806 6 16,990 — — 16,996Forfeiture of unvested shares andshares surrendered for taxwithholding obligations(271,954) (3) (7,294) — — (7,297)Exercise of stock options2,331,388 23 62,072 — — 62,095Balance at December 31, 2017106,848,185 1,068 1,498,227 1,471,781 54,986 3,026,062Cumulative effect of adoption of newaccounting standards— — — (8,902) 8,902 —Comprehensive income— — — 324,866 (59,015) 265,851Dividends ($0.84 per common share)— — — (89,923) — (89,923)Equity based compensation696,729 7 20,640 — — 20,647Forfeiture of unvested shares andshares surrendered for taxwithholding obligations(252,091) (3) (6,556) — — (6,559)Exercise of stock options291,689 3 7,724 — — 7,727Repurchase of common stock(8,443,138) (84) (299,888) — — (299,972)Balance at December 31, 201899,141,374 $991 $1,220,147 $1,697,822 $4,873 $2,923,833 The accompanying notes are an integral part of these consolidated financial statements.86Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Note 1 Basis of Presentation and Summary of Significant Accounting PoliciesBankUnited, Inc. is a national bank holding company with one wholly-owned subsidiary, BankUnited; collectively, the Company. BankUnited, anational banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporatecustomers in it's geographic footprint in Florida and the New York metropolitan area. The Bank also offers certain commercial lending and deposit productsthrough national platforms.In connection with the FSB Acquisition, BankUnited entered into two loss sharing agreements with the FDIC. The Loss Sharing Agreements consisted ofthe Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement. Assets covered by the Loss Sharing Agreements are referred to ascovered assets or, in certain cases, covered loans. The Single Family Shared-Loss Agreement provided for FDIC loss sharing and the Bank’s reimbursementfor recoveries to the FDIC through its termination on February 13, 2019 for single family residential loans and OREO. Loss sharing under the CommercialShared-Loss Agreement terminated on May 21, 2014. The Commercial Shared-Loss Agreement continued to provide for the Bank’s reimbursement ofrecoveries 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 were subject to a stated lossthreshold whereby the FDIC reimbursed BankUnited for 80% of losses related to the covered assets up to $4.0 billion and 95% of losses in excess of thisamount, beginning with the first dollar of loss incurred. The consolidated financial statements have been prepared in accordance with GAAP and prevailing practices in the banking industry.The Company has a single reportable segment.Accounting EstimatesIn 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 thefair values of investment securities and other financial instruments.Principles of ConsolidationThe consolidated financial statements include the accounts of BankUnited, Inc. and its wholly-owned subsidiary. All significant intercompany balancesand transactions have been eliminated in consolidation. VIEs are consolidated if the Company is the primary beneficiary; i.e., has (i) the power to direct theactivities of the VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses or the right to receive benefits thatcould potentially be significant to the VIE. The Company has variable interests in affordable housing limited partnerships that are not required to beconsolidated because the Company is not the primary beneficiary.Fair Value MeasurementsCertain of the Company's assets and liabilities are reflected in the consolidated financial statements at fair value on either a recurring or non-recurringbasis. Investment securities available for sale, marketable equity securities, servicing rights and derivative instruments are measured at fair value on arecurring basis. Assets measured at fair value or fair value less cost to sell on a non-recurring basis may include collateral dependent impaired loans, OREOand other repossessed assets, loans held for sale, goodwill and impaired long-lived assets. These non-recurring fair value measurements typically involvelower-of-cost-or-market accounting or the measurement of impairment of certain assets.Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous marketfor the asset or liability in an orderly transaction between market participants at the measurement date. GAAP establishes a hierarchy that prioritizes inputsused to determine fair value measurements into three levels based on the observability and transparency of the inputs:87Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018•Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.•Level 2 inputs are observable inputs other than level 1 inputs, including quoted prices for similar assets and liabilities, quoted prices for identicalassets and liabilities in less active markets and other inputs that can be corroborated by observable market data.•Level 3 inputs are unobservable inputs supported by limited or no market activity or data and inputs requiring significant management judgment orestimation.The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fairvalue. Unobservable inputs are utilized in determining fair value measurements only to the extent that observable inputs are unavailable. The need to useunobservable inputs generally results from a lack of market liquidity and diminished observability of actual trades or assumptions that would otherwise beavailable to value a particular asset or liability.Cash and Cash EquivalentsCash and cash equivalents include cash and due from banks, both interest bearing and non-interest bearing, including amounts on deposit at the FederalReserve Bank, and federal funds sold. Cash equivalents have original maturities of three months or less. For purposes of reporting cash flows, cash receiptsand payments pertaining to FHLB advances with original maturities of three months or less are reported net.Investment SecuritiesDebt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost.Debt securities that the Company may not have the intent to hold to maturity are classified as available for sale at the time of acquisition and carried at fairvalue with unrealized gains and losses, net of tax, excluded from earnings and reported in AOCI, a separate component of stockholders' equity. Securitiesclassified as available for sale may be used as part of the Company's asset/liability management strategy and may be sold in response to liquidity needs,regulatory changes, changes in interest rates, prepayment risk or other market factors. The Company does not maintain a trading portfolio. Purchase premiumsand discounts on debt securities are amortized as adjustments to yield over the expected lives of the securities, using the level yield method. Premiums areamortized to the call date if the call is considered to be clearly and closely related to the host contract. Realized gains and losses from sales of securities arerecorded on the trade date and are determined using the specific identification method.The Company reviews investment securities for OTTI at least quarterly. An investment security is impaired if its fair value is lower than its amortized costbasis. The Company considers many factors in determining whether a decline in fair value below amortized cost represents OTTI, including, but not limitedto:•the Company's intent to hold the security until maturity or for a period of time sufficient for a recovery in value;•whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis;•the length of time and extent to which fair value has been less than amortized cost;•adverse changes in expected cash flows;•collateral values and performance;•the payment structure of the security including levels of subordination or over-collateralization;•changes in the economic or regulatory environment;•the general market condition of the geographic area or industry of the issuer;•the issuer's financial condition, performance and business prospects; and•changes in credit ratings.88Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The relative importance assigned to each of these factors varies depending on the facts and circumstances pertinent to the individual security beingevaluated.The Company recognizes OTTI of a debt security for which there has been a decline in fair value below amortized cost if (i) management intends to sellthe security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, or (iii) theCompany does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security, or if it is more likely than notit will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized costbasis and fair value of the security. Otherwise, the amount by which amortized cost exceeds the fair value of a debt security that is considered to be other-than-temporarily impaired is separated into a component representing the credit loss, which is recognized in earnings, and a component related to all otherfactors, which is recognized in other comprehensive income. The measurement of the credit loss component is equal to the difference between the debtsecurity's amortized cost basis and the present value of its expected future cash flows discounted at the security's effective yield.Marketable equity securities with readily determinable fair values are reported at fair value with unrealized gains and losses included in earningseffective January 1, 2018. Equity securities that do not have readily determinable fair values are reported at cost and re-measured at fair value uponoccurrence of an observable price change or recognition of impairment.Non-marketable Equity SecuritiesThe Bank, as a member of the FRB system and the FHLB, is required to maintain investments in the stock of the FRB and FHLB. No market exists for thisstock, and the investment can be liquidated only through redemption by the respective institutions, at the discretion of and subject to conditions imposed bythose institutions. The stock has no readily determinable fair value and is carried at cost. Historically, stock redemptions have been at par value, which equalsthe Company's carrying value. The Company monitors its investment in FHLB stock for impairment through review of recent financial results of the FHLB,including capital adequacy and liquidity position, dividend payment history, redemption history and information from credit agencies. The Company hasnot identified any indicators of impairment of FHLB stock.Loans Held for SaleThe guaranteed portion of SBA and USDA loans originated with the intent to sell are carried at the lower of cost or fair value, determined in theaggregate. A valuation allowance is established through a charge to earnings if the aggregate fair value of such loans is lower than their cost. Gains or lossesrecognized upon sale are determined on the specific identification basis.Loans not originated or otherwise acquired with the intent to sell are transferred into the held for sale classification at the lower of carrying amount or fairvalue when they are specifically identified for sale and a formal plan exists to sell them. Acquired credit impaired loans accounted for in pools are removedfrom the pools at their carrying amounts when they are sold.LoansThe Company's loan portfolio contains 1-4 single family residential first mortgages, government insured residential mortgages, home equity loans andlines of credit, consumer, multi-family, owner and non-owner occupied commercial real estate, construction and land, and commercial and industrial loans,mortgage warehouse lines of credit and direct financing leases. The Company segregates its loan portfolio between covered and non-covered loans. Coveredloans are loans acquired from the FDIC in the FSB Acquisition that are covered under the Single Family Shared-Loss Agreement. Covered loans are furthersegregated between ACI loans and non-ACI loans.Non-covered LoansNon-covered loans, other than non-covered ACI loans, are carried at UPB, net of premiums, discounts, unearned income, deferred loan origination feesand costs, and the ALLLInterest income on these loans is accrued based on the principal amount outstanding. Non-refundable loan origination fees, net of direct costs oforiginating or acquiring loans, as well as purchase premiums and discounts, are deferred and recognized as adjustments to yield over the contractual lives ofthe related loans using the level yield method.89Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Direct Financing LeasesDirect financing leases are carried at the aggregate of lease payments receivable and estimated residual value of the leased property, if applicable, lessunearned income. Interest income on direct financing leases is recognized over the term of the leases to achieve a constant periodic rate of return on theoutstanding investment. Initial direct costs are deferred and amortized over the lease term as a reduction to interest income using the effective interestmethod.ACI LoansACI loans, all of which were acquired in the FSB Acquisition and the substantial majority of which are covered under the Single Family Shared-LossAgreement, are those for which, at acquisition, management determined it probable that the Company would be unable to collect all contractual principaland interest payments due. These loans were recorded at estimated fair value at acquisition, measured as the present value of all cash flows expected to bereceived, discounted at an appropriately risk-adjusted discount rate. Initial cash flow expectations incorporated significant assumptions regardingprepayment rates, frequency of default and loss severity.The difference between total contractually required payments on ACI loans and the cash flows expected to be received represents non-accretabledifference. The excess of all cash flows expected to be received over the Company's recorded investment in the loans represents accretable yield and isrecognized as interest income on a level-yield basis over the expected life of the loans.The Company aggregated ACI 1-4 single family residential mortgage loans and home equity loans and lines of credit with similar risk characteristicsinto homogenous pools at acquisition. A composite interest rate and composite expectations of future cash flows are used in accounting for each pool. Theseloans were aggregated into pools based on the following characteristics:•delinquency status;•product type, in particular, amortizing as opposed to option ARMs;•loan-to-value ratio; and•borrower FICO score.Loans that do not have similar risk characteristics, primarily commercial and commercial real estate loans, are accounted for on an individual loan basisusing interest rates and expectations of cash flows for each loan.The Company is required to develop reasonable expectations about the timing and amount of cash flows to be collected related to ACI loans and tocontinue to update those estimates over the lives of the loans. Expected cash flows from ACI loans are updated quarterly. If it is probable that the Companywill be unable to collect all the cash flows expected from a loan or pool at acquisition plus additional cash flows expected to be collected arising fromchanges in estimates after acquisition, the loan or pool is considered impaired and a valuation allowance is established by a charge to the provision for loanlosses. If there is an increase in expected cash flows from a loan or pool, the Company first reduces any valuation allowance previously established by theamount of the increase in the present value of expected cash flows, and then recalculates the amount of accretable yield for that loan or pool. The adjustmentof accretable yield due to an increase in expected cash flows, as well as changes in expected cash flows due to changes in interest rate indices and changes inprepayment assumptions is accounted for prospectively as a change in yield. Additional cash flows expected to be collected are transferred from non-accretable difference to accretable yield and the amount of periodic accretion is adjusted accordingly over the remaining life of the loan or pool.The Company may resolve an ACI loan either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by shortsale of the collateral, or by foreclosure. When a loan accounted for in a pool is resolved, it is removed from the pool at its allocated carrying amount. In theevent of a sale of the loan, the Company recognizes a gain or loss on sale based on the difference between the sales proceeds and the carrying amount of theloan. For loans resolved through pre-payment or short sale of the collateral, the Company recognizes the difference between the amount of the paymentreceived and the carrying amount of the loan in the income statement line item "Income from resolution of covered assets, net". For loans resolved throughforeclosure, the difference between the fair value of the collateral obtained through foreclosure less estimated cost to sell and the carrying amount of the loanis recognized in the income statement line item "Income from resolution of covered assets, net". Any remaining accretable discount related to loans notaccounted for in pools that are90Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018resolved by full or partial pre-payment, short sale or foreclosure is recognized in interest income at the time of resolution, to the extent collected.Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying value of a poolbeing reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of apool is reduced to zero, any future proceeds, which may include cash or real estate acquired in foreclosure, from the remaining loans, representing furtherrealization of accretable yield, are recognized as interest income upon receipt.Covered Non-ACI LoansLoans acquired in the FSB Acquisition without evidence of deterioration in credit quality since origination were initially recorded at estimated fair valueon the acquisition date. Non-ACI 1-4 single family residential mortgage loans and home equity loans and lines of credit with similar risk characteristics wereaggregated into pools for accounting purposes at acquisition. Non-ACI loans are carried at the principal amount outstanding, adjusted for unamortizedacquisition date fair value adjustments and the ALLL. Interest income is accrued based on the UPB and, with the exception of home equity loans and lines ofcredit, acquisition date fair value adjustments are amortized using the level-yield method over the expected lives of the related loans. For non-ACI 1-4 familyresidential mortgage loans accounted for in pools, prepayment estimates are used in determining the periodic amortization of acquisition date fair valueadjustments. Acquisition date fair value adjustments related to revolving home equity loans and lines of credit are amortized on a straight-line basis.Non-accrual LoansCommercial loans, other than ACI loans, are placed on non-accrual status when (i) management has determined that full repayment of all contractualprincipal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process ofcollection. Residential and consumer loans, other than ACI loans, are generally placed on non-accrual status when 90 days of interest is due and unpaid.When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Payments received on nonaccrualcommercial loans are applied as a reduction of principal. Interest payments are recognized as income on a cash basis on nonaccrual residential loans.Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractualprincipal and interest is reasonably assured. Residential and consumer loans are returned to accrual status when there is no longer 90 days of interest due andunpaid. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.Contractually delinquent ACI loans are not classified as non-accrual as long as discount continues to be accreted on the loans or pools.Impaired LoansLoans, other than ACI loans and government insured residential loans, are considered impaired when, based on current information and events, it isprobable that the Company will be unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loanagreements. Commercial relationships with committed balances greater than or equal to $1.0 million that have internal risk ratings of substandard or doubtfuland are on non-accrual status, as well as loans that have been modified in TDRs, are individually evaluated for impairment. Other commercial relationshipson non-accrual status with committed balances under $1.0 million may also be evaluated individually for impairment at management's discretion. Thelikelihood of loss related to loans assigned internal risk ratings of substandard or doubtful is considered elevated due to their identified credit weaknesses.Factors considered by management in evaluating impairment include payment status, financial condition of the borrower, collateral value, and other factorsimpacting the probability of collecting scheduled principal and interest payments when due.An ACI pool or loan is considered to be impaired when it is probable that the Company will be unable to collect all the cash flows expected atacquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition. 1-4 single family residential and homeequity ACI loans accounted for in pools are evaluated collectively for impairment on a pool by pool basis based on expected pool cash flows. CommercialACI loans are individually evaluated for impairment based on expected cash flows from the individual loans. Discount continues to be accreted on ACI loansor pools as long as there are expected future cash flows in excess of the current carrying amount of the loans or pools.91Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Troubled Debt RestructuringsIn certain situations, due to economic or legal reasons related to a borrower's financial difficulties, the Company may grant a concession to the borrowerfor other than an insignificant period of time that it would not otherwise consider. At that time, except for ACI loans accounted for in pools, the related loan isclassified as a TDR and considered impaired. The concessions granted may include rate reductions, principal forgiveness, payment forbearance, extensions ofmaturity at rates of interest below that commensurate with the risk profile of the loans, modification of payment terms and other actions intended to minimizeeconomic loss. A TDR is generally placed on non-accrual status at the time of the modification unless the borrower was performing prior to the restructuring.Modified ACI loans accounted for in pools are not accounted for as TDRs, are not separated from the pools and are not classified as impaired loans.Allowance for Loan and Lease LossesThe ALLL represents the amount considered adequate by management to absorb probable incurred losses inherent in the loan portfolio at the balancesheet date. The ALLL consists of both specific and general components. The ALLL is established as losses are estimated to have occurred through a provisioncharged to earnings. Individual loans are charged off against the ALLL when management determines them to be uncollectible.An assessment of collateral value is made at no later than 120 days delinquency for non-covered open- and closed-end loans secured by residential realestate; any outstanding loan balance in excess of fair value less cost to sell is charged off at no later than 180 days delinquency. Additionally, anyoutstanding balance in excess of fair value of collateral less cost to sell is charged off (i) within 60 days of receipt of notification of filing from thebankruptcy court, (ii) within 60 days of determination of loss if all borrowers are deceased or (iii) within 90 days of discovery of fraudulent activity. Coverednon-ACI loans secured by residential real estate are generally charged off at final resolution which is consistent with the terms of the Single Family Shared-Loss Agreement. Consumer loans are typically charged off at 120 days delinquency. Commercial loans are charged off when management deems them to beuncollectible. Subsequent recoveries are credited to the ALLL.Commercial loansThe allowance is comprised of specific reserves for loans that are individually evaluated and determined to be impaired as well as general reserves forloans that have not been identified as impaired.Management believes that loans rated special mention, substandard or doubtful that are not individually evaluated for impairment exhibit characteristicsindicative of a heightened level of credit risk. A quantitative loss factor is applied to loans rated special mention based on average annual probability ofdefault and implied severity, derived from internal and external data. Loss factors for substandard and doubtful loans that are not individually evaluated aredetermined by using default frequency and severity information applied at the loan level. Estimated default frequencies and severities are based on availableindustry and internal data. In addition, a floor is applied to these calculated loss factors, based on the loss factor applied to the special mention portfolio.To the extent, in management's judgment, commercial portfolio segments have sufficient observable loss history, the quantitative portion of the ALLL isbased on the Bank's historical net charge-off rates. These commercial segments include commercial and industrial loans and the Bridge portfolios. Forcommercial portfolio segments that have not yet exhibited an observable loss trend, the quantitative loss factors are based on peer group average annualhistorical net charge-off rates by loan class and the Company’s internal credit risk rating system. These commercial segments include multifamily, non-owneroccupied commercial real estate and construction and land loans. Quantitative loss factors for SBF loans are based on historical charge-off rates published bythe SBA. For Pinnacle, quantitative loss factors are based primarily on historical municipal default data. For most commercial portfolio segments, we use a 20quarter look-back period in the calculation of historical net charge-off rates.Where applicable, the peer group used to calculate average annual historical net charge-off rates used in estimating general reserves is made up of 26banks included in the OCC Midsize Bank Group plus five additional banks not included in the OCC Midsize Bank Group that management believes to becomparable based on size, geography and nature of lending operations. Peer bank data is obtained from the Statistics on Depository Institutions Reportpublished by the FDIC for the most recent quarter available. These banks, as a group, are considered by management to be comparable to BankUnited in size,nature of lending operations and loan portfolio composition. We evaluate the composition of the peer group annually, or more frequently if, in our judgment,a more frequent evaluation is necessary. Our internal risk rating system comprises 13 credit grades; grades 192Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018through 8 are “pass” grades. The risk ratings are driven largely by debt service coverage. Peer group historical loss rates are adjusted upward for loansassigned a lower “pass” rating.As noted above, management generally use a 20 quarter look-back period to calculate quantitative loss rates. Management believes this look-backperiod to be consistent with the range of industry practice and appropriate to capture a sufficient range of observations reflecting the performance of ourloans, which were originated in the current economic cycle. With the exception of the Pinnacle municipal finance portfolio, a four quarter loss emergenceperiod is used in the calculation of general reserves. A twelve quarter loss emergence period is used in the calculation of general reserves for the Pinnacleportfolio.The primary assumptions underlying estimates of expected cash flows for ACI commercial loans are default probability and severity of loss givendefault. Assessments of default probability and severity are based on net realizable value analyses prepared at the individual loan level.Residential and other consumer loansNon-covered LoansThe non-covered loan portfolio has not yet developed an observable loss trend. Therefore, the ALLL for non-covered residential loans is based primarilyon relevant proxy historical loss rates. The ALLL for non-covered 1-4 single family residential loans, excluding government insured residential loans, isestimated using average annual loss rates on prime residential mortgage securitizations issued between 2003 and 2008 as a proxy. Based on thecomparability of FICO scores and LTV ratios between loans included in those securitizations and loans in the Bank’s portfolio and the geographic diversityin the new purchased residential portfolio, we determined that prime residential mortgage securitizations provide an appropriate proxy for incurred losses inthis portfolio class. A peer group 18-quarter average net charge-off rate is used to estimate the ALLL for the non-covered home equity and other consumerloan classes. The non-covered home equity and other consumer loan portfolios are not significant components of the overall loan portfolio. No quantitativeALLL is provided for U.S. Government insured residential loans.Covered non-ACI LoansThe reserving methodology for the non-ACI 1-4 single family residential mortgages is consistent with the methodology to calculated the ALLL for non-covered residential portfolio segment discussed above.Qualitative FactorsQualitative adjustments are made to the ALLL when, based on management’s judgment, there are internal or external factors impacting probable incurredlosses not taken into account by the quantitative calculations. Potential qualitative adjustments are categorized as follows: •Portfolio performance trends, including trends in and the levels of delinquencies, non-performing loans and classified loans; •Changes in the nature of the portfolio and terms of the loans, specifically including the volume and nature of policy and procedural exceptions;•Portfolio growth trends; •Changes in lending policies and procedures, including credit and underwriting guidelines and portfolio management practices; •Economic factors, including unemployment rates and GDP growth rates and other factors considered relevant by management;•Changes in the value of underlying collateral;•Quality of risk ratings, as evaluated by our independent credit review function; •Credit concentrations; 93Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018•Changes in and experience levels of credit administration management and staff; and•Other factors identified by management that may impact the level of losses inherent in the portfolio, including but not limited to competition andlegal and regulatory considerations.Covered ACI LoansFor ACI loans, a valuation allowance is established when periodic evaluations of expected cash flows reflect a deterioration resulting from credit relatedfactors from the level of cash flows that were estimated to be collected at acquisition plus any additional expected cash flows arising from revisions in thoseestimates. A quarterly analysis of expected cash flows is performed for ACI loans.Expected cash flows are estimated on a pool basis for ACI 1-4 single family residential loans. The analysis of expected cash flows incorporates updatedexpected prepayment rate, default rate, delinquency level and loss severity given default assumptions.Reserve for Unfunded CommitmentsThe reserve for unfunded commitments represents the estimated probable losses related to unfunded lending commitments. The reserve is calculated in amanner similar to the general reserve for non-covered loans, while also considering the timing and likelihood that the available credit will be utilized as wellas the exposure upon default. The reserve for unfunded commitments is presented within other liabilities on the consolidated balance sheets, distinct from theALLL, and adjustments to the reserve for unfunded commitments are included in other non-interest expense in the consolidated statements of income.FDIC Indemnification AssetThe FDIC indemnification asset was initially recorded at the time of the FSB Acquisition at fair value, measured as the present value of the estimatedcash payments expected from the FDIC for probable losses on covered assets. The FDIC indemnification asset is measured separately from the related coveredassets. It is not contractually embedded in the covered assets and it is not transferable with the covered assets should the Company choose to dispose of them.Impairment of expected cash flows from covered assets results in an increase in cash flows expected to be collected from the FDIC. These increasedexpected cash flows from the FDIC are recognized as increases in the FDIC indemnification asset and as non-interest income in the same period that theimpairment of the covered assets is recognized in the provision for loan losses. Increases in expected cash flows from covered assets result in decreases in cashflows expected to be collected from the FDIC. These decreases in expected cash flows from the FDIC are recognized immediately in earnings to the extentthat they relate to a reversal of a previously recorded valuation allowance related to the covered assets. Any remaining decreases in cash flows expected to becollected from the FDIC are recognized prospectively through an adjustment of the rate of accretion or amortization on the FDIC indemnification asset,consistent with the approach taken to recognize increases in expected cash flows on the covered assets. Amortization of the FDIC indemnification assetresults from circumstances in which, due to improvement in expected cash flows from the covered assets, expected cash flows from the FDIC are less than thecarrying value of the FDIC indemnification asset. Accretion or amortization of the FDIC indemnification asset is recognized in earnings using the effectiveinterest method over the period during which cash flows from the FDIC are expected to be collected, which is limited to the lesser of the contractual term ofthe indemnification agreement and the remaining life of the indemnified assets.Gains and losses from resolution of ACI loans are included in the income statement line item "Income from resolution of covered assets, net." These gainsand losses represent the difference between the expected losses from ACI loans and consideration actually received in satisfaction of such loans that wereresolved either by payment in full, foreclosure or short sale. The Company may also realize gains or losses on the sale or impairment of covered loans orcovered OREO. When the Company recognizes gains or losses related to the resolution, sale or impairment of covered assets in earnings, correspondingchanges in the estimated amount recoverable from the FDIC under the Loss Sharing Agreements are reflected in the consolidated financial statements asincreases or decreases in the FDIC indemnification asset and in the consolidated statement of income line item "Net loss on FDIC indemnification."The FDIC indemnification asset was amortized to zero as of December 31, 2018 as expectations of losses eligible for indemnification with respect to theremaining covered assets prior to final termination of the Single Family Shared-Loss Agreement were insignificant. See Notes 4 and 5 to our consolidatedfinancial statements for further discussion.94Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Bank Owned Life InsuranceBank owned life insurance is carried at the amount that could be realized under the contract at the balance sheet date, which is typically cash surrendervalue. Changes in cash surrender value are recorded in non-interest income.Equipment Under Operating LeaseEquipment under operating lease is carried at cost less accumulated depreciation and is depreciated to estimated residual value using the straight-linemethod over the lease term. Estimated residual values are re-evaluated at least annually, based primarily on current residual value appraisals. Rental revenueis recognized on a straight-line basis over the contractual term of the lease.A review for impairment of equipment under operating lease is performed at least annually or when events or changes in circumstances indicate that thecarrying amount of long-lived assets may not be recoverable. Impairment of assets is determined by comparing the carrying amount to future undiscountednet cash flows expected to be generated. If an asset is impaired, the measure of impairment is the amount by which the carrying amount exceeds the fair valueof the asset.GoodwillGoodwill of $78 million at both December 31, 2018 and 2017 represents the excess of consideration transferred in business combinations over the fairvalue of net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is tested for impairment annually or more frequently if eventsor circumstances indicate that impairment may have occurred. The Company performs its annual goodwill impairment test in the third fiscal quarter. TheCompany has a single reporting unit. The impairment test compares the estimated fair value of the reporting unit to its carrying amount. If the fair value of thereporting unit exceeds its carrying amount, no impairment is indicated. If the fair value of the reporting unit is less than its carrying amount, impairment ofgoodwill is measured as the excess of the carrying amount over fair value. The estimated fair value of the reporting unit is based on the market capitalizationof the Company's common stock. The estimated fair value of the reporting unit at each impairment testing date substantially exceeded its carrying amount;therefore, no impairment of goodwill was indicated.Foreclosed Property and Repossessed AssetsForeclosed property and repossessed assets consists of real estate assets acquired through, or in lieu of, loan foreclosure and personal property acquiredthrough repossession. Such assets are included in other assets in the accompanying consolidated balance sheets. These assets are held for sale and are initiallyrecorded at estimated fair value less costs to sell, establishing a new cost basis. Subsequent to acquisition, periodic valuations are performed and the assets arecarried at the lower of the carrying amount at the date of acquisition or estimated fair value less cost to sell. Significant property improvements are capitalizedto the extent that the resulting carrying value does not exceed fair value less cost to sell. Legal fees, maintenance, taxes, insurance and other direct costs ofholding and maintaining these assets are expensed as incurred.Premises and EquipmentPremises and equipment are carried at cost less accumulated depreciation and amortization and are included in other assets in the accompanyingconsolidated balance sheets. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The lives of improvementsto existing buildings are based on the lesser of the estimated remaining lives of the buildings or the estimated useful lives of the improvements. Leaseholdimprovements are amortized over the shorter of the expected terms of the leases at inception, considering options to extend that are reasonably assured, ortheir useful lives. The estimated useful lives of premises and equipment are as follows:•buildings and improvements - 30 years;•leasehold improvements - 5 to 20 years;•furniture, fixtures and equipment - 5 to 7 years; and•computer equipment - 3 to 5 years.95Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Software and CCASoftware and CCA are carried at cost less accumulated depreciation and amortization and are included in other assets in the accompanying consolidatedbalance sheets. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Direct costs of materials and servicesassociated with developing or obtaining and implementing internal use computer software incurred during the application and development stage arecapitalized and amortized over the estimated useful lives of the software. The estimated useful life of software, software licensing rights and CCAimplementation costs range from 3 to 5 years.Loan Servicing RightsLoan servicing rights are measured at fair value, with changes in fair value subsequent to acquisition recognized in earnings. Loan servicing rights areincluded in other assets in the accompanying consolidated balance sheets. Servicing fee income is recorded net of changes in fair value in other non-interestincome. Neither the loan servicing rights nor related income have had a material impact on the Company's financial statements to date.Investments in Affordable Housing Limited PartnershipsThe Company has acquired investments in limited partnerships that manage or invest in qualified affordable housing projects and provide the Companywith low-income housing tax credits and other tax benefits. These investments are included in other assets in the accompanying consolidated balance sheets.The Company accounts for investments in qualified affordable housing projects using the proportional amortization method if certain criteria are met. Underthe proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and theamortization is recognized in the income statement as a component of income tax expense. The investments are evaluated for impairment when events orchanges in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be realized.Income TaxesThe Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based on differencesbetween the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for periods in which the differences are expected toreverse. The effect of changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date. Avaluation allowance is established for deferred tax assets when management determines that it is more likely than not that some portion or all of a deferred taxasset will not be realized. In making such determinations, the Company considers all available positive and negative evidence that may impact therealization of deferred tax assets. These considerations include the amount of taxable income generated in statutory carryback periods, future reversals ofexisting taxable temporary differences, projected future taxable income and available tax planning strategies.The Company recognizes tax benefits from uncertain tax positions when it is more likely than not that the related tax positions will be sustained uponexamination, including resolutions of any related appeals or litigation processes, based on the technical merits of the tax positions. An uncertain tax positionis a position taken in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law.The Company measures tax benefits related to uncertain tax positions based on the largest benefit that has a greater than 50% likelihood of being realizedupon settlement. If the initial assessment fails to result in recognition of a tax benefit, the Company subsequently recognizes a tax benefit if (i) there arechanges in tax law or case law that raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not, (ii) the statute oflimitations expires, or (iii) there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. TheCompany recognizes interest and penalties related to uncertain tax positions, as well as interest income or expense related to tax settlements, in the provisionfor income taxes.96Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Equity Based CompensationThe Company periodically grants unvested or restricted shares of common stock and other share-based awards to key employees. For equity classifiedawards, compensation cost is measured based on the estimated fair value of the awards at the grant date and is recognized in earnings on a straight-line basisover the requisite service period for each award. Liability-classified awards are remeasured each reporting period at fair value until the award is settled, andcompensation cost is recognized in earnings on a straight-line basis over the requisite service period for each award, adjusted for changes in fair value eachreporting period. Compensation cost related to awards that embody performance conditions is recognized when it is probable that the performance conditionswill be achieved. The number of awards expected to vest is estimated in determining the amount of compensation cost to be recognized related to share-basedpayment transactions.The fair value of unvested shares is based on the closing market price of the Company's common stock at the date of grant. Market conditions embeddedin awards are reflected in the grant-date fair value of the awards.Derivative Financial Instruments and Hedging ActivitiesInterest rate derivative contractsThe Company uses interest rate derivative contracts, such as swaps, caps, floors and collars, in the normal course of business to meet the financial needsof its customers and to manage exposure to changes in interest rates. Interest rate contracts are recorded as assets or liabilities in the consolidated balancesheets at fair value. Interest rate swaps that are used as a risk management tool to hedge the Company's exposure to changes in interest rates have beendesignated as cash flow hedging instruments. The gain or loss resulting from changes in the fair value of interest rate swaps designated and qualifying as cashflow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same periodin which the hedged transaction affects earnings.The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in thecash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, management determines that the designation of the derivative as ahedging instrument is no longer appropriate or the occurrence of the forecasted transaction is no longer probable. When hedge accounting is discontinued,any subsequent changes in fair value of the derivative are recognized in earnings. The cumulative unrealized gain or loss related to a discontinued cash flowhedge continues to be reported in AOCI and is subsequently reclassified into earnings in the same period in which the hedged transaction affects earnings,unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period, in which case the cumulative unrealizedgain or loss reported in AOCI is reclassified into earnings immediately.Cash flows resulting from derivative financial instruments that are accounted for as hedges are classified in the cash flow statement in the same categoryas the cash flows from the hedged items.Changes in the fair value of interest rate contracts not designated as, or not qualifying as, hedging instruments are recognized currently in earnings.Transfers of Financial AssetsTransfers of financial assets are accounted for as sales when control over the assets has been surrendered. A gain or loss is recognized in earnings uponcompletion of the sale based on the difference between the sales proceeds and the carrying value of the assets. Control over the transferred assets is deemed tohave been surrendered when: (i) the assets have been legally isolated from the Company, (ii) the transferee obtains the right (free of conditions that constrainit from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over thetransferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.Advertising CostsAdvertising costs are expensed as incurred.97Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Earnings per Common ShareBasic earnings per common share is calculated by dividing income allocated to common stockholders for basic earnings per common share by theweighted average number of common shares outstanding for the period, reduced by average unvested stock awards. Unvested stock awards with non-forfeitable rights to dividends, whether paid or unpaid, and stand-alone dividend participation rights are considered participating securities and are includedin the computation of basic earnings per common share using the two class method whereby net income is allocated between common stock and participatingsecurities. In periods of a net loss, no allocation is made to participating securities as they are not contractually required to fund net losses. Diluted earningsper common share is computed by dividing income allocated to common stockholders for basic earnings per common share, adjusted for earnings reallocatedfrom participating securities, by the weighted average number of common shares outstanding for the period increased for the dilutive effect of unexercisedstock options, warrants and unvested stock awards using the treasury stock method. Contingently issuable shares are included in the calculation of earningsper common share as if the end of the respective period was the end of the contingency period.Revenue From Contracts with CustomersRevenue from contracts with customers within the scope of Topic 606 "Revenue from Contracts with Customers", is recognized in an amount that reflectsthe consideration the Company expects to be entitled to receive in exchange for those goods or services as the related performance obligations are satisfied.The majority of our revenues, including revenues from loans, leases, investment securities, derivative instruments and letters of credit and from transfers andservicing of financial assets, are excluded from the scope of Topic 606. Deposit service charges and fees is the most significant category of revenue within thescope of the standard. These service charges and fees consist primarily of monthly maintenance fees and other transaction based fees. Revenue is recognizedwhen our performance obligations are complete, generally monthly for account maintenance fees or when a transaction, such as a wire transfer, is completed.Payment is typically received at the time the performance obligation is satisfied. The aggregate amount of revenue that is within the scope of Topic 606 fromsources other than deposit service charges and fees is not material.ReclassificationsCertain amounts presented for prior periods have been reclassified to conform to the current period presentation.New Accounting Pronouncements Adopted in 2018ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), superseded the revenue recognition requirements in Topic 605, RevenueRecognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. The amendments in this updateaffect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assetsunless those contracts are within the scope of other standards. The amendments establish a core principle requiring the recognition of revenue to depict thetransfer 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 orservices and require expanded disclosure about revenue from contracts with customers that are within the scope of the standard. Revenue from financialinstruments and lease contracts are generally outside the scope of Topic 606 as are revenues that are in the scope of ASC 860 "Transfers and Servicing", ASC460 "Guarantees" and ASC 815 "Derivatives and Hedging". The Company adopted this standard in the first quarter of 2018 with respect to contracts notcompleted on the date of adoption using the modified retrospective transition method. Substantially all of the Company's revenues are generated fromactivities outside the scope of Topic 606; existing revenue recognition policies for contracts with customers that are within the scope of the standard areconsistent with the principles in Topic 606. Therefore, there was no impact at adoption to the Company's consolidated financial position, results ofoperations, or cash flows.ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Theamendments in the ASU addressed certain aspects of recognition, measurement, presentation and disclosure of certain financial instruments. The mainprovisions of this ASU that are applicable to the Company are to (1) eliminate the available for sale classification for equity securities and requireinvestments in equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to bemeasured at fair value with changes in fair value recognized in net income, provided that equity investments that do not have readily determinable fair valuesmay be re-measured at fair value upon occurrence of an observable price change or recognition of impairment, (2) eliminate the requirement to disclose themethod(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost onthe balance sheet, and (3) require public98Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments also clarifiedthat 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'sother deferred tax assets, which is consistent with the Company's previous practice. The Company adopted this ASU in the first quarter of 2018 using themodified retrospective transition method. The cumulative effect adjustment to reclassify unrealized gains on equity securities from AOCI to retained earningstotaled $2.2 million, net of tax, at adoption.ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This amendment providedguidance on eight specific cash flow classification issues where there had been diversity in practice. The provisions of this ASU that are expected to beapplicable to the Company include requirements to: (1) classify cash payments for debt prepayment or extinguishment costs to be classified as cash outflowsfor financing activities, (2) classify proceeds from settlement of insurance claims on the basis of the nature of the loss and (3) require cash payments fromsettlement of bank-owned life insurance policies to be classified as cash flows from investing activities. The Company adopted this ASU for the first quarterof 2018; the provisions of the ASU were generally consistent with the Company's existing practice, therefore, adoption did not have an impact on theCompany's consolidated cash flows.ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated OtherComprehensive Income. The amendments in this ASU allowed a reclassification from AOCI to retained earnings of stranded tax effects in AOCI resulting fromenactment of the TCJA that reduced the statutory federal tax rate from 35 percent to 21 percent. The Company’s existing accounting policy was to releasestranded tax effects only when the entire portfolio of the type of item that created them is liquidated. This ASU was early adopted effective January 1, 2018and a cumulative-effect adjustment was recorded to reclassify stranded tax effects totaling $11.1 million from AOCI to retained earnings.ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.The amendments in this ASU modified the disclosure requirements on fair value measurements by removing certain disclosures not considered costbeneficial, clarifying certain disclosure requirements and adding some additional disclosures. The provisions of the ASU that are applicable to the fair valuedisclosures of the Company include: (1) adding disclosure of the changes in unrealized gains and losses for the period included in other comprehensiveincome for recurring level 3 fair value measurements, (2) adding the range and weighted average of significant unobservable inputs used to develop level 3fair value measurements, (3) removing the requirement to disclose the amount of and reasons for transfers between level 1 and level 2 of the fair valuehierarchy, (4) removing the requirement to disclose the policy for timing of transfers between levels of the fair value hierarchy, and (5) removing disclosure ofthe valuation processes for level 3 fair value measurements. The Company early adopted this ASU for the third quarter of 2018.ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation CostsIncurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The amendments in thisASU require customers in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to capitalize certain implementation costs inthe same manner as software developed for internal use. The guidance allows for qualifying costs incurred during the application and development stage tobe capitalized, which may include: (1) integration, (2) customization, (3) configuration, (4) installation, (5) architecture and design, (6) coding, and (7)testing. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hostingarrangement, beginning when the applicable component of the hosting arrangement is ready for its intended use. The accounting for the cost of the hostingcomponent of the arrangement is not affected by this ASU. The Company early adopted this ASU in the third quarter of 2018 using the prospective transitionapproach with no significant impact to the Company's consolidated financial position, results of operations, or cash flows.Accounting Pronouncements Not Yet AdoptedASU 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 makelease payments and a right-of-use asset representing its right to use the underlying asset for leases with terms longer than one year. Accounting applied bylessors is largely unchanged by this ASU. The ASU also will require both qualitative and quantitative disclosures that provide additional information aboutthe amounts recorded in the consolidated financial statements. The amendments in this ASU are effective for the Company for interim and annual periods infiscal years beginning after December 15, 2018. Early adoption is permitted; however, the Company did not early adopt this ASU. The most significantimpact of adoption is expected to be the recognition, as lessee, of new right-of-use assets and lease99Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018liabilities on the Consolidated Balance Sheet for real estate leases currently classified as operating leases. Under a package of practical expedients that theCompany plans to elect, the Company will not be required to (i) re-assess whether expired or existing contracts contain leases, (ii) re-assess the classificationof expired or existing leases, (iii) re-evaluate initial direct costs for existing leases or (iv) separate lease components of certain contracts from non-leasecomponents. The Company also plans to elect the transition method that allows entities the option of applying the provisions of the ASU at the effective datewithout adjusting the comparative periods presented. Management has finalized its evaluation of the impact of adoption of this ASU on its processes andcontrols. The Company has completed its review of contractual arrangements for embedded leases. The Company has acquired and implemented software tofacilitate calculation and reporting of the lease liability and right-of-use asset. Relevant accounting policy decisions have been made including use of theincremental borrowing rate to determine the discount rate and assumptions around inclusion of renewals in lease terms. Based on the population of leasecontracts existing at December 31, 2018 and an incremental borrowing rate determined as of that date, the Company recognized a lease liability and relatedright-of-use asset of approximately $104 million and $95 million, respectively, on adoption at January 1, 2019. The Company does not expect the impact ofadoption to be material to its consolidated results of operations or cash flows.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on FinancialInstruments. The ASU introduces new guidance which makes substantive changes to the accounting for credit losses. The ASU introduces the CECL modelwhich applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. This includesloans, loan commitments, standby letters of credit, net investments in leases recognized by a lessor and HTM debt securities. The CECL model requires anentity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions and reasonable andsupportable forecasts, and is generally expected to result in earlier recognition of credit losses. The ASU also modifies certain provisions of the current OTTImodel for AFS debt securities. Credit losses on AFS debt securities will be limited to the difference between the security's amortized cost basis and its fairvalue, and be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis. The ASU also provides for asimplified accounting model for purchased financial assets with more than insignificant credit deterioration since their origination. The ASU requiresexpanded disclosures including, but not limited to (i) information about the methods and assumptions used to estimate expected credit losses, includingchanges in the factors that influenced management's estimate and the reasons for those changes, (ii) for financing receivables and net investment in leasesmeasured at amortized cost, further disaggregation of information about the credit quality of those assets and (iii) a rollforward of the allowance for creditlosses for AFS and HTM securities. The amendments in this ASU are effective for the Company for interim and annual periods in fiscal years beginning afterDecember 15, 2019. Early adoption is permitted, however, the Company does not intend to early adopt this ASU. Management is in the process of evaluatingthe impact of adoption of this ASU on its consolidated financial statements, processes and controls and is not currently able to reasonably estimate the impactof adoption on the Company's consolidated financial position, results of operations or cash flows; however, adoption is likely to lead to significant changesin accounting policies related to, and the methods employed in estimating, the ALLL. It is possible that the impact will be material to the Company'sconsolidated financial position and results of operations. To date, the Company has completed a gap analysis, adopted a detailed implementation plan,established a formal governance structure for the project, documented accounting policy elections, selected and implemented credit loss models for keyportfolio segments and in the process of completing model validations, chosen loss estimation methodologies for key portfolio segments, selected a softwaresolution to serve as its CECL platform. The Company has also established an economic forecast committee, and is in the process of documenting processesand controls.In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR)Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The ASU adds the Overnight Index Swap (OIS) rate based onSecured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes. The ASU is effective for the Company for interim andannual periods in fiscal years beginning after December 15, 2018. The Company does not expect the impact of adoption to be material to its consolidatedfinancial position, results of operations, or cash flows.100Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Note 2 Earnings Per Common ShareThe computation of basic and diluted earnings per common share is presented below for the years ended December 31, 2018, 2017 and 2016 (inthousands, except share and per share data):20182017 2016Basic earnings per common share: Numerator: Net income$324,866 $614,273 $225,741Distributed and undistributed earnings allocated to participating securities(13,047) (23,250) (8,760)Income allocated to common stockholders for basic earnings per common share$311,819 $591,023 $216,981Denominator: Weighted average common shares outstanding104,916,865 106,574,448 104,097,182Less average unvested stock awards(1,171,994) (1,104,035) (1,157,378)Weighted average shares for basic earnings per common share103,744,871 105,470,413 102,939,804Basic earnings per common share$3.01 $5.60 $2.11Diluted earnings per common share: Numerator: Income allocated to common stockholders for basic earnings per common share$311,819 $591,023 $216,981Adjustment for earnings reallocated from participating securities(195) (263) 62Income used in calculating diluted earnings per common share$311,624 $590,760 $217,043Denominator: Weighted average shares for basic earnings per common share103,744,871 105,470,413 102,939,804Dilutive effect of stock options332,505 387,074 716,366Weighted average shares for diluted earnings per common share104,077,376 105,857,487 103,656,170Diluted earnings per common share$2.99 $5.58 $2.09Included in participating securities above are unvested shares and 3,023,314 dividend equivalent rights outstanding at December 31, 2018 that wereissued 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 December 31, 2018, 2017 and 2016 but excluded from the calculation of dilutedearnings per common share for the periods indicated because their inclusion would have been anti-dilutive: 2018 2017 2016Unvested shares and share units1,463,607 1,431,761 1,303,208Stock options and warrants1,960 1,850,279 1,850,279 101Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Note 3 Investment SecuritiesInvestment securities include investment securities available for sale, marketable equity securities, and investment securities held to maturity. Theinvestment securities portfolio consisted of the following at December 31, 2018 and 2017 (in thousands): 2018Amortized Cost Gross Unrealized Carrying Value (1) Gains Losses Investment securities available for sale: U.S. Treasury securities$39,885 $2 $(14) $39,873U.S. Government agency and sponsored enterprise residentialMBS1,885,302 16,580 (4,408) 1,897,474U.S. Government agency and sponsored enterprise commercialMBS374,569 1,293 (1,075) 374,787Private label residential MBS and CMOs1,539,058 10,138 (14,998) 1,534,198Private label commercial MBS1,486,835 5,021 (6,140) 1,485,716Single family rental real estate-backed securities406,310 266 (4,118) 402,458Collateralized loan obligations1,239,355 1,060 (5,217) 1,235,198Non-mortgage asset-backed securities204,372 1,031 (1,336) 204,067State and municipal obligations398,810 3,684 (4,065) 398,429SBA securities514,765 6,502 (1,954) 519,313Other debt securities1,393 3,453 — 4,846 8,090,654 $49,030 $(43,325) 8,096,359Marketable equity securities60,519 60,519Investment securities held to maturity10,000 10,000 $8,161,173 $8,166,878102Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017Amortized Cost Gross Unrealized Carrying Value (1) Gains Losses Investment securities available for sale: U.S. Treasury securities$24,981 $— $(28) $24,953U.S. Government agency and sponsored enterprise residentialMBS2,043,373 16,094 (1,440) 2,058,027U.S. Government agency and sponsored enterprise commercialMBS233,522 1,330 (344) 234,508Private label residential MBS and CMOs613,732 16,473 (1,958) 628,247Private label commercial MBS1,033,022 13,651 (258) 1,046,415Single family rental real estate-backed securities559,741 3,823 (858) 562,706Collateralized loan obligations720,429 3,252 — 723,681Non-mortgage asset-backed securities119,939 1,808 — 121,747Marketable equity securities59,912 3,631 — 63,543State and municipal obligations640,511 17,606 (914) 657,203SBA securities534,534 16,208 (60) 550,682Other debt securities4,090 5,030 — 9,120 6,587,786 $98,906 $(5,860) 6,680,832Investment securities held to maturity10,000 10,000 $6,597,786 $6,690,832 (1)At fair value except for securities held to maturity.Investment securities held to maturity at December 31, 2018 and 2017 consisted of one State of Israel bond with a carrying value of $10 millionmaturing in 2024.At December 31, 2018, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments of mortgage-backed andother pass-through securities, were as follows (in thousands): Amortized Cost Fair ValueDue in one year or less$939,802 $942,507Due after one year through five years4,097,200 4,097,966Due after five years through ten years2,662,298 2,662,649Due after ten years391,354 393,237$8,090,654 $8,096,359Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of December 31, 2018 was 4.5 years. Theeffective duration of the investment portfolio as of December 31, 2018 was 1.4 years. The model results are based on assumptions that may differ from actualresults. The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at theFRB totaled $2.1 billion and $2.6 billion at December 31, 2018 and 2017, respectively.103Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following table provides information about gains and losses on investment securities for the years ended December 31, 2018, 2017 and 2016 (inthousands):2018 2017 2016Proceeds from sale of investment securities available for sale$1,030,810 $1,287,591 $1,127,983 Gross realized gains: Investment securities available for sale$8,616 $37,530 $14,924Gross realized losses: Investment securities available for sale(2,514) (4,064) —Net realized gain6,102 33,466 14,924 Net unrealized losses on marketable equity securities recognized in earnings(2,943) — — OTTI on investment securities available for sale— — (463) Gain on investment securities, net$3,159 $33,466 $14,461During the year ended December 31, 2016, OTTI was recognized on two positions in one private label commercial MBS. These positions were sold at aloss before the end of 2016.The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeded fair value for investment securitiesavailable for sale in unrealized loss positions, aggregated by investment category and length of time that individual securities had been in continuousunrealized loss positions at December 31, 2018 and 2017 (in thousands): 2018Less than 12 Months 12 Months or Greater TotalFair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized LossesU.S. Treasury securities$14,921 $(14) $— $— $14,921 $(14)U.S. Government agency and sponsoredenterprise residential MBS450,666 (1,828) 87,311 (2,580) 537,977 (4,408)U.S. Government agency and sponsoredenterprise commercial MBS146,096 (352) 25,815 (723) 171,911 (1,075)Private label residential MBS and CMOs759,921 (7,073) 278,108 (7,925) 1,038,029 (14,998)Private label commercial MBS742,092 (5,371) 39,531 (769) 781,623 (6,140)Single family rental real estate-backedsecurities234,305 (1,973) 85,282 (2,145) 319,587 (4,118)Collateralized loan obligations749,047 (5,217) — — 749,047 (5,217)Non-mortgage asset-backed securities136,100 (1,336) — — 136,100 (1,336)State and municipal obligations208,971 (3,522) 46,247 (543) 255,218 (4,065)SBA securities215,975 (1,391) 31,481 (563) 247,456 (1,954)$3,658,094 $(28,077) $593,775 $(15,248) $4,251,869 $(43,325)104Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017Less than 12 Months 12 Months or Greater TotalFair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized LossesU.S. Treasury securities$24,953 $(28) $— $— $24,953 $(28)U.S. Government agency and sponsoredenterprise residential MBS471,120 (1,141) 13,028 (299) 484,148 (1,440)U.S. Government agency and sponsoredenterprise commercial MBS26,265 (344) — — 26,265 (344)Private label residential MBS and CMOs330,068 (1,858) 5,083 (100) 335,151 (1,958)Private label commercial MBS81,322 (258) — — 81,322 (258)Single family rental real estate-backedsecurities94,750 (858) — — 94,750 (858)State and municipal obligations30,715 (49) 60,982 (865) 91,697 (914)SBA securities21,300 (10) 15,427 (50) 36,727 (60)$1,080,493 $(4,546) $94,520 $(1,314) $1,175,013 $(5,860)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 years ended December 31, 2018 or 2017. As discussed above, OTTI was recognized on two positions in one privatelabel commercial MBS during the year ended December 31, 2016. The Company does not intend to sell securities that are in significant unrealized losspositions at December 31, 2018 and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortizedcost basis, which may be at maturity. At December 31, 2018, 218 securities were in unrealized loss positions. The amount of impairment related to 53 of thesesecurities was considered insignificant both individually and in the aggregate, totaling approximately $596 thousand and no further analysis with respect tothese securities was considered necessary. The basis for concluding that impairment of the remaining securities was not other-than-temporary is furtherdescribed belowU.S. Government agency and sponsored enterprise residential and commercial MBSAt December 31, 2018, thirty-six U.S. Government agency and sponsored enterprise residential MBS and seven U.S. Government agency and sponsoredenterprise commercial MBS were in unrealized loss positions. Impairment of these securities was primarily attributable to increases in market interest ratessubsequent to the date of acquisition. 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 CMOsAt December 31, 2018, thirty-eight private label residential MBS and CMOs were in unrealized loss positions, primarily as a result of an increase inmedium and long-term market interest rates subsequent to acquisition. These securities were assessed for OTTI using credit and prepayment behavioralmodels that incorporate CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The results of theseassessments were not indicative of credit losses related to any of these securities as of December 31, 2018. Given the expectation of timely recovery ofoutstanding principal the impairments were considered to be temporary.Private label commercial MBSAt December 31, 2018, twenty-seven private label commercial MBS were in unrealized loss positions, primarily as a result of an increase in marketinterest rates. These securities were assessed for OTTI using credit and prepayment behavioral models incorporating assumptions consistent with thecollateral characteristics of each security. The results of this analysis were not indicative of expected credit losses. Given the expectation of timely recoveryof outstanding principal the impairments were considered to be temporary.105Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Single family rental real estate-backed securitiesAt December 31, 2018, thirteen single family rental real estate-backed securities were in unrealized loss positions. The unrealized losses were primarilydue to increases in market interest rates since the purchase of the securities. Management's analysis of the credit characteristics, including loan-to-value anddebt service coverage ratios, and levels of subordination for each of the securities is not indicative of projected credit losses. Given the absence of projectedcredit losses the impairments were considered to be temporary.Collateralized loan obligations:At December 31, 2018, eighteen collateralized loan obligations were in unrealized loss positions, primarily due to widening credit spreads. The amountof impairment of each of the individual securities was 3% or less of amortized cost. These securities were assessed for OTTI using credit and prepaymentbehavioral models incorporating assumptions consistent with the collateral characteristics of each security. The results of this analysis were not indicative ofexpected credit losses. Given the limited severity of impairment and the expectation of timely recovery of outstanding principal, the impairments wereconsidered to be temporary.Non-mortgage asset-backed securitiesAt December 31, 2018, six non-mortgage asset-backed securities were in unrealized loss positions, due primarily to increases in market interest ratessubsequent to the date of acquisition. The amount of impairment each of the individual securities was less than 3% of amortized cost. These securities wereassessed 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 ofoutstanding principal, the impairments were considered to be temporary.State and municipal obligationsAt December 31, 2018, fourteen state and municipal obligations were in unrealized loss positions. The impairments are primarily attributable to increasesin market interest rates and changes in statutory tax rates. All of the securities are rated investment grade by nationally recognized statistical ratingsorganizations. Management's evaluation of these securities for OTTI also encompassed the review of credit scores and analysis provided by a third party firmspecializing in the analysis and credit review of municipal securities. Given the absence of expected credit losses, the impairments were considered to betemporary.SBA SecuritiesAt December 31, 2018, six SBA securities were in unrealized loss positions. The amount of impairment of each of these securities was 3% or less ofamortized cost. These securities were purchased at a premium and the impairment was attributable primarily to increased prepayment speeds. The timelypayment of principal and interest on these securities is guaranteed by this U.S. Government agency. Given the limited severity of impairment and theexpectation of timely payment of principal and interest, the impairments were considered to be temporary.106Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Note 4 Loans and Allowance for Loan and Lease LossesAt December 31, 2018 and 2017, loans consisted of the following (dollars in thousands): 2018 Covered Loans Percent of TotalNon-Covered Loans ACI Non-ACI Total Residential and other consumer: 1-4 single family residential$4,404,047 $190,223 $12,558 $4,606,828 21.0%Government insured residential265,701 — — 265,701 1.2%Home equity loans and lines of credit1,393 — — 1,393 —%Other consumer loans15,976 — — 15,976 0.1%4,687,117 190,223 12,558 4,889,898 22.3%Commercial: Multi-family2,583,331 — — 2,583,331 11.8%Non-owner occupied commercial real estate4,700,188 — — 4,700,188 21.4%Construction and land227,134 — — 227,134 1.0%Owner occupied commercial real estate2,122,381 — — 2,122,381 9.7%Commercial and industrial4,801,226 — — 4,801,226 21.9%Commercial lending subsidiaries2,608,834 — — 2,608,834 11.9%17,043,094 — — 17,043,094 77.7%Total loans21,730,211 190,223 12,558 21,932,992 100.0%Premiums, discounts and deferred fees and costs, net45,421 — (1,405) 44,016 Loans including premiums, discounts and deferred fees andcosts21,775,632 190,223 11,153 21,977,008 Allowance for loan and lease losses(109,901) — (30) (109,931) Loans, net$21,665,731 $190,223 $11,123 $21,867,077 107Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017 Covered Loans Percent of TotalNon-Covered Loans ACI Non-ACI Total Residential and other consumer: 1-4 single family residential$4,089,994 $479,068 $27,198 $4,596,260 21.5%Government insured residential26,820 — — 26,820 0.1%Home equity loans and lines of credit1,654 — — 1,654 —%Other consumer loans20,512 — — 20,512 0.1%4,138,980 479,068 27,198 4,645,246 21.7%Commercial: Multi-family3,215,697 — — 3,215,697 15.0%Non-owner occupied commercial real estate4,485,276 — — 4,485,276 21.0%Construction and land310,999 — — 310,999 1.5%Owner occupied commercial real estate2,014,908 — — 2,014,908 9.4%Commercial and industrial4,145,785 — — 4,145,785 19.4%Commercial lending subsidiaries2,553,576 — — 2,553,576 12.0%16,726,241 — — 16,726,241 78.3%Total loans20,865,221 479,068 27,198 21,371,487 100.0%Premiums, discounts and deferred fees and costs, net48,165 — (3,148) 45,017 Loans including premiums, discounts and deferred fees andcosts20,913,386 479,068 24,050 21,416,504 Allowance for loan and lease losses(144,537) — (258) (144,795) Loans, net$20,768,849 $479,068 $23,792 $21,271,709 Included in non-covered loans above are $18 million and $34 million at December 31, 2018 and 2017, respectively, of ACI commercial loans acquiredin the FSB Acquisition.Through two subsidiaries, the Bank provides commercial and municipal equipment and franchise financing utilizing both loan and lease structures. AtDecember 31, 2018 and 2017, the commercial lending subsidiaries portfolio included a net investment in direct financing leases of $739 million and $738million, respectively.The following table presents the components of the investment in direct financing leases as of December 31, 2018 and 2017 (in thousands): 2018 2017Total minimum lease payments to be received$808,921 $792,064Estimated unguaranteed residual value of leased assets7,355 17,872Gross investment in direct financing leases816,276 809,936Unearned income(81,864) (76,900)Initial direct costs4,833 5,184 $739,245 $738,220108Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018As of December 31, 2018, future minimum lease payments to be received under direct financing leases were as follows (in thousands):Years Ending December 31: 2019$197,0042020169,4372021109,057202269,242202356,312Thereafter207,869 $808,921During both of the years ended December 31, 2018 and 2017, the Company purchased 1-4 single family residential loans totaling $1.3 billion. Purchasesfor the year ended December 31, 2018 included $371 million of government insured residential loans.At December 31, 2018, the Company had pledged real estate loans with UPB of approximately $9.8 billion and recorded investment of approximately$9.6 billion as security for FHLB advances.Covered loansCovered loans with UPB totaling $401 million and a carrying value of $201 million as of December 31, 2018 were retained in portfolio. During the yearsended December 31, 2018, 2017 and 2016, the Company sold covered residential loans to third parties on a non-recourse basis. The following tablesummarizes the impact of these transactions (in thousands): 2018 2017 2016UPB of loans sold$539,853 $203,970 $241,348 Cash proceeds, net of transaction costs$488,972 $169,828 $171,367Recorded investment in loans sold483,240 152,422 185,837Gain (loss) on sale of covered loans, net$5,732 $17,406 $(14,470) Gain (loss) on FDIC indemnification, net$3,388 $(1,523) $11,615 109Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018At December 31, 2018 and 2017, the UPB of ACI loans was $408 million and $1.1 billion, respectively. The accretable yield on ACI loans represents theamount by which undiscounted expected future cash flows exceed recorded investment. Changes in the accretable yield on ACI loans for the years endedDecember 31, 2018, 2017 and 2016 were as follows (in thousands):Balance at December 31, 2015$902,565Reclassifications from non-accretable difference76,751Accretion(303,931)Balance at December 31, 2016675,385Reclassifications from non-accretable difference, net81,501Accretion(301,827)Balance at December 31, 2017455,059Reclassifications from non-accretable difference, net128,499Accretion(369,915)Other changes, net (1)78,204Balance at December 31, 2018$291,847 (1)Represents changes in cash flows expected to be collected due to the impact of changes in prepayment assumptions.Allowance for loan and lease losses Activity in the ALLL for the years ended December 31, 2018, 2017 and 2016 is summarized in the tables below (in thousands):2018 Residential and OtherConsumer Commercial TotalBeginning balance$10,720 $134,075 $144,795Provision for loan losses: Covered loans752 — 752Non-covered loans280 24,893 25,173Total provision1,032 24,893 25,925Charge-offs: Covered loans(1,200) — (1,200)Non-covered loans(265) (65,619) (65,884)Total charge-offs(1,465) (65,619) (67,084)Recoveries: Covered loans220 — 220Non-covered loans281 5,794 6,075Total recoveries501 5,794 6,295Ending balance$10,788 $99,143 $109,931110Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 20182017 Residential and OtherConsumer Commercial TotalBeginning balance$11,503 $141,450 $152,953Provision for (recovery of) loan losses: Covered loans1,418 (60) 1,358Non-covered loans1,034 66,355 67,389Total provision2,452 66,295 68,747Charge-offs: Covered loans(3,327) — (3,327)Non-covered loans(1) (77,865) (77,866)Total charge-offs(3,328) (77,865) (81,193)Recoveries: Covered loans67 60 127Non-covered loans26 4,135 4,161Total recoveries93 4,195 4,288Ending balance$10,720 $134,075 $144,7952016 Residential and OtherConsumer Commercial TotalBeginning balance$16,211 $109,617 $125,828Provision for (recovery of) loan losses: Covered loans(1,632) (49) (1,681)Non-covered loans(1,814) 54,406 52,592Total provision(3,446) 54,357 50,911Charge-offs: Covered loans(1,216) — (1,216)Non-covered loans(152) (25,742) (25,894)Total charge-offs(1,368) (25,742) (27,110)Recoveries: Covered loans80 49 129Non-covered loans26 3,169 3,195Total recoveries106 3,218 3,324Ending balance$11,503 $141,450 $152,953111Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following table presents information about the balance of the ALLL and related loans as of December 31, 2018 and 2017 (in thousands): 2018 2017Residential andOther Consumer Commercial Total Residential andOtherConsumer Commercial TotalAllowance for loan and lease losses: Ending balance$10,788 $99,143 $109,931 $10,720 $134,075 $144,795Covered loans: Ending balance$30 $— $30 $258 $— $258Ending balance: non-ACI loans individually evaluated forimpairment$— $— $— $118 $— $118Ending balance: non-ACI loans collectively evaluated forimpairment$30 $— $30 $140 $— $140Non-covered loans: Ending balance$10,758 $99,143 $109,901 $10,462 $134,075 $144,537Ending balance: loans individually evaluated forimpairment$134 $12,143 $12,277 $63 $18,776 $18,839Ending balance: loans collectively evaluated forimpairment$10,624 $87,000 $97,624 $10,399 $115,299 $125,698Loans: Covered loans: Ending balance$201,376 $— $201,376 $503,118 $— $503,118Ending balance: non-ACI loans individually evaluated forimpairment$— $— $— $2,221 $— $2,221Ending balance: non-ACI loans collectively evaluated forimpairment$11,153 $— $11,153 $21,829 $— $21,829Ending balance: ACI loans$190,223 $— $190,223 $479,068 $— $479,068Non-covered loans: Ending balance$4,747,604 $17,028,028 $21,775,632 $4,196,080 $16,717,306 $20,913,386Ending balance: loans, other than ACI loans, individuallyevaluated for impairment$7,690 $108,841 $116,531 $1,234 $173,706 $174,940Ending balance: loans, other than ACI loans, collectivelyevaluated for impairment$4,739,914 $16,901,262 $21,641,176 $4,194,846 $16,509,824 $20,704,670Ending balance: ACI loans$— $17,925 $17,925 $— $33,776 $33,776112Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Credit quality informationThe table below presents information about loans or ACI pools identified as impaired as of December 31, 2018 and 2017 (in thousands): 2018 2017 RecordedInvestment UPB RelatedSpecificAllowance RecordedInvestment UPB RelatedSpecificAllowanceNon-covered loans: With no specific allowance recorded: 1-4 single family residential (1)$5,724 $5,605 $— $120 $122 $—Multi-family25,560 25,592 — — — —Non-owner occupied commercial real estate12,293 12,209 — 10,922 10,838 —Construction and land9,923 9,925 — 1,175 1,175 —Owner occupied commercial real estate9,007 9,024 — 22,002 22,025 —Commercial and industrial Taxi medallion loans775 775 — 13,560 13,559 —Other commercial and industrial12,739 12,744 — 345 374 —Commercial lending subsidiaries3,152 3,149 — — — —With a specific allowance recorded: 1-4 single family residential (1)1,966 1,941 134 1,114 1,090 63Multi-family— — — 23,173 23,175 1,732Owner occupied commercial real estate3,316 3,322 844 3,075 3,079 2,960Non-owner occupied commercial real estate1,666 1,667 731 — — —Commercial and industrial Taxi medallion loans— — — 92,507 92,508 12,214Other commercial and industrial10,939 10,946 3,831 3,626 3,624 1,540Commercial lending subsidiaries19,471 19,385 6,737 3,321 3,296 330Total: Residential and other consumer$7,690 $7,546 $134 $1,234 $1,212 $63Commercial108,841 108,738 12,143 173,706 173,653 18,776 $116,531 $116,284 $12,277 $174,940 $174,865 $18,839Covered loans: Non-ACI loans: With no specific allowance recorded: 1-4 single family residential$— $— $— $1,061 $1,203 $—With a specific allowance recorded: 1-4 single family residential— — — 1,160 1,314 118 $— $— $— $2,221 $2,517 $118 (1)Includes government insured residential loans at December 31, 2018 and 2017.Interest income recognized on impaired loans and pools was insignificant for the year ended December 31, 2018 and approximately $9.6 million for theyear ended December 31, 2017.113Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following table presents the average recorded investment in impaired loans for the years ended December 31, 2018, 2017 and 2016 (in thousands):2018 2017 2016Non-CoveredLoans Covered Non-ACILoans Non-CoveredLoans Covered Non-ACILoans Non-CoveredLoans Covered Non-ACILoansResidential and other consumer: 1-4 single family residential$4,910 $1,743 $868 $2,345 $301 $3,067Home equity loans and lines of credit— — — 8,403 — 9,2254,910 $1,743 868 $10,748 301 $12,292Commercial: Multi-family25,679 4,259 — Non-owner occupied commercial real estate14,106 5,537 710 Construction and land6,551 2,789 797 Owner occupied commercial real estate16,207 19,882 14,645 Commercial and industrial Taxi medallion loans79,786 108,977 45,012 Other commercial and industrial17,602 38,275 40,443 Commercial lending subsidiaries9,757 22,865 15,052 169,688 202,584 116,659 $174,598 $203,452 $116,960 In addition to the above, a pool of ACI home equity loans and lines of credit was impaired during 2017. All of the loans from this pool were sold in thefourth quarter of 2017. The average balance of impaired ACI home equity loans and lines of credit for the year ended December 31, 2017 was $3.9 million.114Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following table presents the recorded investment in loans on non-accrual status as of December 31, 2018 and 2017 (in thousands): 2018 2017 Non-CoveredLoans CoveredNon-ACI Loans Non-CoveredLoans CoveredNon-ACILoansResidential and other consumer: 1-4 single family residential$6,316 $— $9,705 $1,341Other consumer loans288 — 821 —6,604 $— 10,526 $1,341Commercial: Multi-family25,560 — Non-owner occupied commercial real estate16,050 12,716 Construction and land9,923 1,175 Owner occupied commercial real estate19,789 29,020 Commercial and industrial Taxi medallion loans775 106,067 Other commercial and industrial27,809 7,049 Commercial lending subsidiaries22,733 3,512 122,639 159,539 $129,243 $170,065 Non-covered loans contractually delinquent by 90 days or more and still accruing totaled $0.7 million and $1.9 million at December 31, 2018 and 2017,respectively. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with theircontractual terms was approximately $5.0 million and $4.1 million for the years ended December 31, 2018 and 2017, respectively.Management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity andconsumer loans. Delinquency statistics are updated at least monthly. See "Aging of loans" below for more information on the delinquency status of loans.Original LTV and original FICO score are also important indicators of credit quality for the non-covered 1-4 single family residential portfolio. Internal risk ratings are considered the most meaningful indicator of credit quality for commercial loans. Internal risk ratings are a key factor inidentifying loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of theALLL. Internal risk ratings are updated on a continuous basis. Generally, relationships with balances in excess of defined thresholds, ranging from $1 millionto $3 million, are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. Loans exhibitingpotential credit weaknesses that deserve management’s close attention and that if left uncorrected may result in deterioration of the repayment capacity of theborrower are categorized as special mention. Loans with well-defined credit weaknesses, including payment defaults, declining collateral values, frequentoverdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due realestate taxes or exhausted interest reserves, are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highlyquestionable or improbable, but because of certain reasonably specific pending factors has not been charged off, will be assigned an internal risk rating ofdoubtful. 115Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following tables summarize key indicators of credit quality for the Company's loans as of December 31, 2018 and 2017. Amounts include premiums,discounts and deferred fees and costs (in thousands): 1-4 Single Family Residential credit exposure for non-covered loans, excluding government insured residential loans, based on original LTV andFICO score: 2018 FICOLTV 720 or less 721 - 740 741 - 760 761 orgreater Total60% or less $105,812 $123,877 $197,492 $813,944 $1,241,12560% - 70% 120,982 109,207 170,531 597,659 998,37970% - 80% 156,519 203,121 374,311 1,264,491 1,998,442More than 80% 17,352 35,036 36,723 136,487 225,598 $400,665 $471,241 $779,057 $2,812,581 $4,463,544 2017 FICOLTV 720 or less 721 - 740 741 - 760 761 orgreater Total60% or less $91,965 $117,318 $185,096 $815,792 $1,210,17160% - 70% 100,866 103,387 147,541 590,493 942,28770% - 80% 149,209 183,064 324,884 1,139,902 1,797,059More than 80% 16,116 30,408 28,149 121,689 196,362 $358,156 $434,177 $685,670 $2,667,876 $4,145,879116Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Commercial credit exposure, based on internal risk rating: 2018 Commercial and Industrial Commercial LendingSubsidiaries Multi-Family Non-OwnerOccupiedCommercialReal Estate Constructionand Land OwnerOccupiedCommercialReal Estate TaxiMedallionLoans OtherCommercial andIndustrial Pinnacle Bridge TotalPass$2,547,835 $4,611,029 $216,917 $2,077,611 $— $4,706,666 $1,462,655 $1,105,821 $16,728,534Specialmention2,932 16,516 — 13,368 — 38,097 — 10,157 81,070Substandard34,654 61,335 9,923 28,901 775 42,916 — 31,522 210,026Doubtful— — — — — 1,746 — 6,643 8,389 $2,585,421 $4,688,880 $226,840 $2,119,880 $775 $4,789,425 $1,462,655 $1,154,143 $17,028,019 2017 Commercial and Industrial Commercial LendingSubsidiaries Multi-Family Non-OwnerOccupiedCommercialReal Estate Constructionand Land OwnerOccupiedCommercialReal Estate TaxiMedallionLoans OtherCommercial andIndustrial Pinnacle Bridge TotalPass$3,124,819 $4,360,827 $305,043 $1,954,464 $— $3,965,241 $1,524,622 $954,376 $16,189,392Specialmention34,837 33,094 — 22,161 — 37,591 — 55,551 183,234Substandard59,297 80,880 5,441 33,145 104,682 27,010 — 27,950 338,405Doubtful— — — 2,972 1,385 1,918 — — 6,275 $3,218,953 $4,474,801$310,484 $2,012,742$106,067$4,031,760 $1,524,622 $1,037,877$16,717,306117Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Aging of loans:The following table presents an aging of loans as of December 31, 2018 and 2017. Amounts include premiums, discounts and deferred fees and costs (inthousands): 2018 2017 Current 30 - 59Days PastDue 60 - 89Days PastDue 90 Days orMore PastDue Total Current 30 - 59Days PastDue 60 - 89Days PastDue 90 Days orMore PastDue TotalNon-covered loans: 1-4 single familyresidential$4,440,061 $14,736 $1,838 $6,909 $4,463,544 $4,121,624 $15,613 $4,941 $3,701 $4,145,879Government insuredresidential31,348 8,342 8,871 218,168 266,729 23,455 1,611 1,153 1,855 28,074Home equity loansand lines of credit1,393 — — — 1,393 1,633 21 — — 1,654Other consumerloans15,947 — — — 15,947 19,958 15 — 500 20,473Multi-family2,585,421 — — — 2,585,421 3,218,953 — — — 3,218,953Non-owneroccupiedcommercial realestate4,682,443 3,621 1,374 1,442 4,688,880 4,464,967 7,549 — 2,285 4,474,801Construction andland224,828 916 — 1,096 226,840 309,309 — — 1,175 310,484Owner occupiedcommercial realestate2,106,104 2,826 1,087 9,863 2,119,880 2,004,397 1,292 499 6,554 2,012,742Commercial andindustrial Taxi medallionloans155 — — 620 775 88,394 6,048 3,333 8,292 106,067Other commercialand industrial4,772,823 6,732 926 8,944 4,789,425 4,025,784 4,291 291 1,394 4,031,760Commercial lendingsubsidiaries Pinnacle1,462,655 — — — 1,462,655 1,524,622 — — — 1,524,622Bridge1,152,312 603 — 1,228 1,154,143 1,037,025 852 — — 1,037,877 $21,475,490 $37,776 $14,096 $248,270 $21,775,632 $20,840,121 $37,292 $10,217 $25,756 $20,913,386Covered loans: Non-ACI loans: 1-4 single familyresidential$11,153 $— $— $— $11,153 $21,106 $1,603 $— $1,341 $24,050ACI loans: 1-4 single familyresidential$189,557 $334 $288 $44 $190,223 $448,125 $10,388 $2,719 $17,836 $479,0681-4 single family residential ACI loans that are contractually delinquent by more than 90 days and accounted for in pools on which discount continuesto be accreted totaled $44 thousand and $18 million at December 31, 2018 and 2017, respectively. Government insured residential loans on accrual statusthat are delinquent by more than 90 days totaled $218 million at December 31, 2018.118Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Loan Concentrations:At December 31, 2018 and 2017, 1-4 single family residential loans outstanding, excluding government insured residential loans, were collateralized byproperty located in the following states (dollars in thousands):2018 Percent of Total Non-CoveredLoans Covered Loans Total Non-CoveredLoans Total LoansCalifornia$1,172,470 $4,751 $1,177,221 26.3% 25.2%New York971,121 6,025 977,146 21.8% 20.9%Florida520,427 124,593 645,020 11.7% 13.8%DC182,399 812 183,211 4.1% 3.9%Virginia179,132 5,624 184,756 4.0% 4.0%Others1,437,995 59,571 1,497,566 32.1% 32.2% $4,463,544 $201,376 $4,664,920 100.0% 100.0%2017 Percent of Total Non-CoveredLoans Covered Loans Total Non-CoveredLoans Total LoansCalifornia$1,094,047 $23,780 $1,117,827 26.4% 24.0%New York871,331 16,847 888,178 21.0% 19.1%Florida526,540 281,396 807,936 12.7% 17.4%Virginia181,912 22,290 204,202 4.4% 4.4%DC169,502 1,933 171,435 4.1% 3.7%Others1,302,547 156,872 1,459,419 31.4% 31.4%$4,145,879 $503,118 $4,648,997 100.0% 100.0%No other state represented borrowers with more than 4.0% of total 1-4 single family residential loans outstanding, excluding government insuredresidential loans, at December 31, 2018 or 2017. At December 31, 2018, 44.8% and 32.5% of loans in the commercial portfolio were to borrowers in Floridaand the New York tri-state area, respectively. At December 31, 2017, 43.4% and 36.4% of loans in the non-covered commercial portfolio were to borrowers inFlorida and the New York tri-state area, respectively.Foreclosure of residential real estateThe carrying amount of foreclosed residential real estate properties included in "Other assets" in the accompanying consolidated balance sheets totaled$6 million and $3 million at December 31, 2018 and December 31, 2017, respectively. The recorded investment in non-government insured residentialmortgage loans in the process of foreclosure was insignificant at December 31, 2018 and $11 million at December 31, 2017. The recorded investment ingovernment insured residential loans in the process of foreclosure totaled $85 million at December 31, 2018.119Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Troubled debt restructuringsThe following tables summarize loans that were modified in TDRs during the years ended December 31, 2018, 2017 and 2016, as well as loans modifiedduring the years ended December 31, 2018, 2017 and 2016 that experienced payment defaults during the periods (dollars in thousands): 2018 Loans Modified in TDRs During the Period TDRs Experiencing Payment Defaults During the Period Number ofTDRs RecordedInvestment Number ofTDRs RecordedInvestmentNon-covered loans: 1-4 single family residential(1)36 $6,462 18 $2,489Non-owner occupied commercial real estate3 5,932 1 2,949Owner occupied commercial real estate2 1,076 — —Commercial and industrial6 6,646 2 217 47 $20,116 21 $5,655 2017 Loans Modified in TDRs During the Period TDRs Experiencing Payment Defaults During the Period Number ofTDRs RecordedInvestment Number ofTDRs RecordedInvestmentNon-covered loans: 1-4 single family residential7 $676 5 $595Multi-family2 23,173 — —Owner occupied commercial real estate3 4,685 — —Commercial and industrial Taxi medallion loans110 48,526 8 2,725Other commercial and industrial2 1,378 — — 124 $78,438 13 $3,320 2016 Loans Modified in TDRs During the Period TDRs Experiencing Payment Defaults During the Period Number ofTDRs RecordedInvestment Number ofTDRs RecordedInvestmentNon-covered loans: 1-4 single family residential2 $326 — $—Owner occupied commercial real estate3 5,117 1 491Commercial and industrial Taxi medallion loans74 64,854 15 8,657Other commercial and industrial8 23,247 2 1,482Commercial lending subsidiaries6 6,735 1 2,500 93 $100,279 19 $13,130Covered loans: Non-ACI loans: Home equity loans and lines of credit17 $2,016 1 $370 ACI loans: Owner occupied commercial real estate1 $825 — $— (1)Includes government insured residential loans modified during the year ended December 31, 2018.120Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Modifications during the years ended December 31, 2018, 2017 and 2016 included interest rate reductions, restructuring of the amount and timing ofrequired periodic payments, extensions of maturity and covenant waivers. Included in TDRs are residential loans to borrowers who have not reaffirmed theirdebt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material. Modified ACI loans accounted for in pools are not consideredTDRs, are not separated from the pools and are not classified as impaired loans.Note 5 FDIC Indemnification AssetWhen the Company recognizes gains or losses related to covered assets in its consolidated financial statements, changes in the estimated amountrecoverable from the FDIC under the Loss Sharing Agreements with respect to those gains or losses are also reflected in the consolidated financial statements.Covered loans may be resolved through prepayment, short sale of the underlying collateral, foreclosure, sale of the loans or charge-off. For loans resolvedthrough prepayment, short sale or foreclosure, the difference between consideration received in satisfaction of the loans and the allocated carrying value ofthe loans is recognized in the consolidated statement of income line item “Income from resolution of covered assets, net.” Losses from the resolution ofcovered loans increase the amount recoverable from the FDIC under the Loss Sharing Agreements. Gains from the resolution of covered loans reduce theamount recoverable from the FDIC under the Loss Sharing Agreements. Similarly, differences in proceeds received on the sale of covered OREO and coveredloans and their allocated carrying amounts result in gains or losses and reduce or increase the amount recoverable from the FDIC under the Loss SharingAgreements. Increases in valuation allowances or impairment charges related to covered assets also increase the amount estimated to be recoverable from theFDIC. These additions to or reductions in amounts recoverable from the FDIC related to transactions in the covered assets are recorded in the consolidatedstatement of income line item “Net loss on FDIC indemnification” and reflected as corresponding increases or decreases in the FDIC indemnification asset.The following tables summarize the components of the gains and losses associated with covered assets, along with the related additions to or reductionsin the amounts recoverable from the FDIC under the Loss Sharing Agreements, as reflected in the consolidated statements of income for the years endedDecember 31, 2018, 2017 and 2016 (in thousands):2018TransactionIncome (Loss) Net Loss on FDICIndemnification Net Impacton Pre-taxEarningsProvision for losses on covered loans$(752) $523 $(229)Income from resolution of covered assets, net11,551 (9,332) 2,219Gain on sale of covered loans5,732 3,388 9,120Loss on covered OREO(1,620) 1,222 (398) $14,911 $(4,199) $10,7122017TransactionIncome (Loss) Net Loss on FDICIndemnification Net Impacton Pre-taxEarningsProvision for losses on covered loans$(1,358) $1,039 $(319)Income from resolution of covered assets, net27,450 (21,912) 5,538Gain on sale of covered loans17,406 (1,514) 15,892Loss on covered OREO(203) 167 (36) $43,295 $(22,220) $21,075121Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 20182016TransactionIncome (Loss) Net Loss on FDICIndemnification Net Impacton Pre-taxEarningsRecovery of losses on covered loans$1,681 $(1,472) $209Income from resolution of covered assets, net36,155 (28,946) 7,209Loss on sale of covered loans(14,470) 11,615 (2,855)Loss on covered OREO(1,301) 1,044 (257) $22,065 $(17,759) $4,306Changes in the FDIC indemnification asset for the years ended December 31, 2018, 2017 and 2016, were as follows (in thousands): Balance at December 31, 2015$739,843Amortization(160,091)Reduction for claims filed(46,083)Net loss on FDIC indemnification(17,759)Balance at December 31, 2016515,910Amortization(176,466)Reduction for claims filed(21,589)Net loss on FDIC indemnification(22,220)Balance at December 31, 2017295,635Amortization(261,763)Reduction for claims(29,673)Net loss on FDIC indemnification(4,199)Balance at December 31, 2018$—The FDIC indemnification asset was amortized to zero as of December 31, 2018 as expectations of losses eligible for indemnification with respect to theremaining covered loans prior to final termination of the Single Family Shared-Loss Agreement were insignificant.Note 6 Equipment Under Operating LeaseEquipment under operating lease consists primarily of railcars and other transportation equipment. The components of equipment under operating leaseas of December 31, 2018 and 2017, are summarized as follows (in thousands): 2018 2017Equipment under operating lease$802,302 $674,434Less: accumulated depreciation(99,948) (74,932)Equipment under operating lease, net$702,354 $599,502The Company recognized impairment of $4.1 million during the year ended December 31, 2016, related to a group of tank cars impacted by new safetyregulations. This impairment charge is included in "Depreciation of equipment under operating lease" in the accompanying consolidated statements ofincome. No impairment was recognized during the years ended December 31, 2018 and 2017.122Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018At December 31, 2018, scheduled minimum rental payments under operating leases were as follows (in thousands):Years Ending December 31: 2019$65,201202059,512202149,987202243,482202335,342Thereafter through 2033100,170 $353,694Note 7 Premises and Equipment, Lease Commitments, Software and CCAPremises and equipment are included in other assets in the accompanying consolidated balance sheets and are summarized as follows as of December 31,2018 and 2017 (in thousands): 2018 2017Buildings and improvements$18,793 $18,793Leasehold improvements69,651 70,298Furniture, fixtures and equipment36,581 35,675Computer equipment22,218 21,078Software and software licensing rights47,653 42,908Aircraft and automobiles11,614 11,744Capitalized implementation costs of CCA879 — 207,389 200,496Less: accumulated depreciation(135,743) (121,477)Premises and equipment, net$71,646 $79,019Buildings and improvements includes $11 million related to property under capital lease at both December 31, 2018 and 2017.Depreciation and amortization expense related to premises and equipment, including amortization of assets recorded under capital leases, was $18.5million, $19.4 million and $21.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.The Company leases branch and office facilities under operating leases, most of which contain renewal options under various terms. Total rent expenseunder operating leases for the years ended December 31, 2018, 2017 and 2016 was $26.0 million, $27.5 million, and $27.6 million, respectively.123Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018As of December 31, 2018, future minimum rentals under non-cancelable operating leases with initial or remaining terms in excess of one year were asfollows (in thousands):Years ending December 31: 2019$21,207202017,629202115,858202212,114202310,311Thereafter through 203442,984 $120,103Note 8 DepositsThe following table presents average balances and weighted average rates paid on deposits for the years ended December 31, 2018, 2017 and 2016(dollars in thousands): 2018 2017 2016 AverageBalance AverageRate Paid AverageBalance AverageRate Paid AverageBalance AverageRate PaidDemand deposits: Non-interest bearing$3,389,191 —% $3,069,565 —% $2,968,192 —%Interest bearing1,627,828 1.13% 1,586,390 0.81% 1,382,717 0.60%Money market10,350,772 1.41% 9,364,498 0.85% 7,946,447 0.64%Savings284,198 0.26% 365,603 0.21% 415,205 0.23%Time6,617,006 1.81% 6,094,336 1.27% 5,326,630 1.12% $22,268,995 1.28% $20,480,392 0.83% $18,039,191 0.66%Time deposit accounts with balances of $100,000 or more totaled approximately $4.1 billion at both December 31, 2018 and 2017. Time depositaccounts with balances of $250,000 or more totaled $2.4 billion and $2.3 billion at December 31, 2018 and 2017, respectively.The following table presents maturities of time deposits as of December 31, 2018 (in thousands):Maturing in: 2019$5,119,27920201,533,117202194,973202222,316202350,073 $6,819,758Included in deposits at December 31, 2018 are public funds deposits of $2.6 billion and brokered deposits of $2.5 billion. Investment securities availablefor sale with a carrying value of $1.3 billion were pledged as security for public funds deposits at December 31, 2018.124Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Interest expense on deposits for the years ended December 31, 2018, 2017 and 2016 was as follows (in thousands): 2018 2017 2016Interest bearing demand$18,391 $12,873 $8,343Money market145,585 79,645 50,802Savings739 752 972Time119,848 77,663 59,656 $284,563 $170,933 $119,773Note 9 BorrowingsThe following table presents information about outstanding FHLB advances as of December 31, 2018 (dollars in thousands): Range of Interest Rates Amount Minimum Maximum Weighted AverageRateMaturing in: 2019—One month or less$2,325,000 2.24% 2.53% 2.41%2019—Over one month1,821,000 1.46% 2.76% 2.58%2020375,000 1.67% 2.91% 2.49%2021275,000 2.73% 3.02% 2.89%Carrying value$4,796,000 The table above reflects contractual maturities of outstanding advances and does not incorporate the impact that interest rate swaps designated as cashflow hedges have on the duration of borrowings. The terms of the Company's security agreement with the FHLB require a specific assignment of collateralconsisting of qualifying first mortgage loans, commercial real estate loans, home equity lines of credit and mortgage-backed securities with unpaid principalamounts discounted at various stipulated percentages at least equal to 100% of outstanding FHLB advances. As of December 31, 2018, the Company hadpledged investment securities and real estate loans with an aggregate carrying amount of approximately $10.2 billion as collateral for advances from theFHLB.At December 31, 2018 and 2017 outstanding senior notes payable and other borrowings consisted of the following (dollars in thousands): 2018 2017Principal amount of 4.875% senior notes$400,000 $400,000Unamortized discount and debt issuance costs(5,610) (6,275) 394,390 393,725Capital lease obligations8,359 9,105 $402,749 $402,830The senior notes mature on November 17, 2025 with interest payable semiannually. The notes have an effective interest rate of 5.12%, afterconsideration of issuance discount and costs. The notes may be redeemed by the Company, in whole or in part, at any time prior to August 17, 2025 at thegreater of a) 100% of the principal balance or b) the sum of the present values of the remaining scheduled payments of principal and interest on the securitiesdiscounted to the redemption date at i) the rate on a United States Treasury security with a maturity comparable to the remaining maturity of the senior notesthat would be used to price new issues of corporate debt securities with a maturity comparable to the remaining maturity of the senior notes plus ii) 40 basispoints. The senior notes may be redeemed at any time after August 17, 2025 at 100% of principal plus accrued and unpaid interest.125Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018At December 31, 2018, BankUnited had available borrowing capacity at the FHLB of approximately $3.7 billion, unused borrowing capacity at the FRBof approximately $410 million and unused Federal funds lines of credit with other financial institutions totaling $85 million.Note 10 Income TaxesThe components of the provision (benefit) for income taxes for the years ended December 31, 2018, 2017 and 2016 wereas follows (in thousands): 2018 2017 2016Current: Federal$2,172 $(251,880) $51,806 State20,834 (15,733) 27,708 23,006 (267,613) 79,514Deferred: Federal51,303 46,377 35,045 State16,475 11,424 (4,856) 67,778 57,801 30,189 $90,784 $(209,812) $109,703A reconciliation of expected income tax expense at the statutory federal income tax rate of 21% during the year ended December 31, 2018 and 35%during the years ended December 31, 2017 and 2016, respectively, to the Company's effective income tax rate follows (dollars in thousands): 2018 2017 2016 Amount Percent Amount Percent Amount PercentTax expense calculated at the statutory federalincome tax rate$87,286 21.00 % $141,561 35.00 % $117,405 35.00 %Increases (decreases) resulting from: Income not subject to tax(18,923) (4.55)% (29,511) (7.30)% (23,215) (6.92)%State income taxes, net of federal tax benefit31,182 7.50 % 19,332 4.78 % 15,894 4.74 %Discrete income tax benefit— — % (327,945) (81.08)% — — %Other, net(8,761) (2.11)% (13,249) (3.27)% (381) (0.12)% $90,784 21.84 % $(209,812) (51.87)% $109,703 32.70 %The discrete income tax benefit recognized in the year ended December 31, 2017 related to a matter that arose during an ongoing audit of the Company's2013 federal income tax return. During that audit, the Company asserted that U.S. federal income taxes paid in respect of certain income previously reportedby the Company on its 2012, 2013 and 2014 federal income tax returns related to the basis assigned to certain loans acquired in the FSB Acquisition shouldbe refunded to the Company, in light of guidance issued after the relevant returns had been filed. The discrete income tax benefit recognized in 2017included expected refunds of federal income tax of $295.0 million, as well as $8.7 million in estimated interest on the federal refund and estimated refunds of$24.2 million from certain state and local taxing jurisdictions.The Company is continuing to evaluate whether it has claims in other state jurisdictions and whether it may have any claims for federal or state incometaxes relating to tax years prior to 2012. The Company has not reached any conclusion as to when or to what extent it may have any claims relating to suchother state and local taxing jurisdictions or in respect of prior tax years.The TCJA was signed into law in 2017, reducing the statutory corporate federal income tax rate from 35% to 21%, effective January 1, 2018. A taxbenefit of $3.7 million, representing the impact of the rate change on deferred tax assets and126Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018liabilities existing at the date of enactment, was recognized in earnings during the quarter ended December 31, 2017 and is included in the "Other, net" lineitem in the reconciliation above.The components of deferred tax assets and liabilities at December 31, 2018 and 2017 were as follows (in thousands): 2018 2017Deferred tax assets: Excess of tax basis over carrying value of acquired loans$52,341 $66,395 Allowance for loan and lease losses25,599 33,309 Net operating loss and tax credit carryforwards17,209 15,892 Other33,330 31,859 Gross deferred tax assets128,479 147,455Deferred tax liabilities: Net unrealized gains on investment securities available for sale1,757 24,657 Lease financing, due to differences in depreciation167,856 113,161 Other9,195 13,468 Gross deferred tax liabilities178,808 151,286 Net deferred tax liability$(50,329) $(3,831)Based on the evaluation of available evidence, management has concluded that it is more likely than not that the existing deferred tax assets will berealized. The primary factors supporting this conclusion are the amount of taxable income available for carryback and the amount of future taxable incomethat will result from the scheduled reversal of existing deferred tax liabilities.At December 31, 2018, remaining carryforwards included federal net operating loss carryforwards in the amount of $7.6 million expiring from 2029through 2032, Florida net operating loss carryforwards in the amount of $108.8 million, expiring from 2030 through 2037, and state tax credit carryforwardsin the amount of $10.9 million, expiring in 2019.The Company has investments in affordable housing limited partnerships which generate federal Low Income Housing Tax Credits and other taxbenefits. The balance of these investments, included in other assets in the accompanying consolidated balance sheet, was $64 million at both December 31,2018 and 2017. Unfunded commitments for affordable housing investments, included in other liabilities in the accompanying consolidated balance sheet,were $21 million and $26 million at December 31, 2018 and 2017, respectively. The maximum exposure to loss as a result of the Company's involvementwith these limited partnerships at December 31, 2018 was approximately $78 million. While the Company believes the likelihood of potential losses fromthese investments is remote, the maximum exposure was determined by assuming a scenario where the projects completely fail and do not meet certaingovernment compliance requirements resulting in recapture of the related tax credits. These investments did not have a material impact on income taxexpense for the years ended December 31, 2018, 2017 and 2016127Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The Company has a liability for unrecognized tax benefits relating to uncertain federal and state tax positions in several jurisdictions. A reconciliation ofthe beginning and ending amount of gross unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016 follows (in thousands): 2018 2017 2016Balance, beginning of period$59,220 $72,736 $43,412 Additions for tax positions related to the current year2,399 1,882 2,713 Additions for tax positions related to prior periods77,101 1,661 25,168 Reductions due to change in tax position(26,037) (15,316) — Reductions due to settlements with taxing authorities— — (200) Reductions due to lapse of the statute of limitations(675) (2,229) — 112,008 58,734 71,093 Interest and penalties4,073 486 1,643Balance, end of period$116,081 $59,220 $72,736As of December 31, 2018, 2017 and 2016, the Company had $78.2 million, $43.6 million and $45.0 million of unrecognized federal and state taxbenefits, net of federal tax benefits, that if recognized would have impacted the effective tax rate. Unrecognized tax benefits related to state income taxcontingencies that may decrease during the 12 months subsequent to December 31, 2018 as a result of settlements with taxing authorities range from zero to$42.8 million.Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes in the consolidated statements of income. AtDecember 31, 2018 and 2017, accrued interest and penalties included in the consolidated balance sheets, net of federal tax benefits, were $6.5 million and$3.2 million, respectively. The total amounts of interest and penalties, net of federal tax benefits, recognized through income tax expense were $3.2 million,$0.3 million and $1.1 million in 2018, 2017 and 2016, respectively.The Company and its subsidiaries file a consolidated federal income tax return as well as combined state income tax returns where combined filings arerequired. Income tax returns for the tax years ended December 31, 2018, 2017, 2016 and 2015 remain subject to examination in the U.S. Federal and variousstate tax jurisdictions. The tax years ended December 31, 2009, 2010, 2011 and 2012, 2013 and 2014 remain subject to examination by certain states.Note 11 Derivatives and Hedging ActivitiesThe Company uses interest rate swaps to manage interest rate risk related to liabilities that expose the Company to variability in cash flows due tochanges in interest rates. The Company enters into LIBOR-based interest rate swaps that are designated as cash flow hedges with the objective of limiting thevariability of interest payment cash flows resulting from changes in the benchmark interest rate LIBOR. Changes in the fair value of interest rate swapsdesignated as cash flow hedging instruments are reported in AOCI and subsequently reclassified into interest expense in the same period in which the relatedinterest on the floating-rate debt obligations affects earnings.The Company also enters into interest rate derivative contracts with certain of its commercial borrowers to enable those borrowers to manage theirexposure to interest rate fluctuations. To mitigate interest rate risk associated with these derivative contracts, the Company enters into offsetting derivativecontract positions with primary dealers. These interest rate derivative contracts are not designated as hedging instruments; therefore, changes in the fair valueof these derivatives are recognized immediately in earnings. The impact on earnings related to changes in fair value of these derivatives for the years endedDecember 31, 2018, 2017 and 2016 was not material.The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. TheCompany assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. TheCompany manages dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA masteragreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to beposted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its borrower128Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company does not currently anticipate any lossesfrom failure of interest rate derivative counterparties to honor their obligations.The CME legally characterizes variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposures rather thancollateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting andfinancial reporting purposes. The Company's clearing agent for interest rate derivative contracts centrally cleared through the CME settles the variationmargin daily with the CME; therefore, those interest rate derivative contracts the Company clears through the CME are reported at a fair value ofapproximately zero at December 31, 2018 and 2017.The following tables set forth certain information concerning the Company’s interest rate contract derivative financial instruments and related hedgeditems at December 31, 2018 and 2017 (dollars in thousands): 2018 WeightedAveragePay Rate WeightedAverageReceive Rate WeightedAverageRemainingLife in Years NotionalAmount Balance SheetLocation Fair ValueHedged Item Asset LiabilityDerivatives designated ascash flow hedges: Pay-fixed interest rateswapsVariability of interest cashflows on variable rateborrowings 2.38% 3-Month Libor 4.0 $2,846,000 Other assets / Otherliabilities $3,405 $—Derivatives not designatedas hedges: Pay-fixed interest rateswaps 4.10% Indexed to 1-month Libor 6.0 1,048,196 Other assets / Otherliabilities 14,883 (6,991)Pay-variable interest rateswaps Indexed to 1-month Libor 4.10% 6.0 1,048,196 Other assets / Otherliabilities 11,318 (16,874)Interest rate capspurchased, indexed to1-month Libor 3.43% 1.2 98,407 Other assets 9 —Interest rate caps sold,indexed to 1-monthLibor 3.43% 1.2 98,407 Other liabilities — (9) $5,139,206 $29,615 $(23,874)129Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017 WeightedAveragePay Rate WeightedAverageReceive Rate WeightedAverageRemainingLife in Years NotionalAmount Balance SheetLocation Fair ValueHedged Item Asset LiabilityDerivatives designated ascash flow hedges: Pay-fixed interest rateswapsVariability of interest cashflows on variable rateborrowings 1.77% 3-Month Libor 4.3 $2,046,000 Other assets / Otherliabilities $2,350 $—Derivatives not designatedas hedges: Pay-fixed interest rateswaps 3.87% Indexed to 1-month Libor 6.4 1,028,041 Other assets / Otherliabilities 10,856 (13,173)Pay-variable interest rateswaps Indexed to 1-month Libor 3.87% 6.4 1,028,041 Other assets / Otherliabilities 14,410 (12,189)Interest rate capspurchased, indexed to1-month Libor 2.81% 1.3 145,354 Other assets 11 —Interest rate caps sold,indexed to 1-monthLibor 2.81% 1.3 145,354 Other liabilities — (11) $4,392,790 $27,627 $(25,373)The following table provides information about the amount of gain (loss) related to derivatives designated as cash flow hedges reclassified from AOCIinto interest expense for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands): 2018 2017 2016 Location of Gain (Loss) Reclassified fromAOCI into IncomeInterest rate contracts$1,999 $(9,621) $(16,161) Interest expense on borrowingsDuring the years ended December 31, 2018, 2017 and 2016, no derivative positions designated as cash flow hedges were discontinued and none of thegains and losses reported in AOCI were reclassified into earnings as a result of the discontinuance of cash flow hedges or because of the early extinguishmentof debt. As of December 31, 2018, the amount of net gain expected to be reclassified from AOCI into earnings during the next twelve months was $7.9million. Some of the Company’s ISDA master agreements with financial institution counterparties contain provisions that permit either counterparty to terminatethe agreements and require settlement in the event that regulatory capital ratios fall below certain designated thresholds, upon the initiation of other definedregulatory actions or upon suspension or withdrawal of the Bank’s credit rating. Currently, there are no circumstances that would trigger these provisions ofthe agreements.The Company does not offset assets and liabilities under master netting agreements for financial reporting purposes. Information on interest rate swapssubject to these agreements is as follows at December 31, 2018 and 2017 (in thousands): 2018 Gross AmountsOffset in BalanceSheetNet AmountsPresented inBalance SheetGross Amounts Not Offset inBalance Sheet Gross AmountsRecognizedDerivativeInstrumentsCollateralPledgedNet AmountDerivative assets$18,297 $— $18,297 $(5,264) $(13,129) $(96)Derivative liabilities(6,991) — (6,991) 5,264 436 (1,291)$11,306 $— $11,306 $— $(12,693) $(1,387)130Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017 Gross AmountsOffset in BalanceSheet Net AmountsPresented inBalance Sheet Gross Amounts Not Offset inBalance Sheet Gross AmountsRecognized DerivativeInstruments CollateralPledged Net AmountDerivative assets$13,217 $— $13,217 $(7,996) $(5,221) $—Derivative liabilities(13,173) — (13,173) 7,996 4,962 (215) $44 $— $44 $— $(259) $(215)The difference between the amounts reported for interest rate swaps subject to master netting agreements and the total fair value of interest rate contractderivative financial instruments reported in the consolidated balance sheets is related to interest rate contracts entered into with borrowers not subject tomaster netting agreements.At December 31, 2018, the Company had pledged net financial collateral of $0.4 million as collateral for initial margin requirements on centrally clearedderivatives and interest rate swaps in a liability position that are not centrally cleared. Financial collateral of $15 million was pledged by counterparties tothe Company for interest rate swaps in an asset position. The amount of collateral required to be posted varies based on the settlement value of outstandingswaps and in some cases may include initial margin requirements. Note 12 Stockholders’ EquityAccumulated Other Comprehensive IncomeChanges in other comprehensive income are summarized as follows for the years ended December 31, 2018, 2017 and 2016 (in thousands):2018Before Tax Tax Effect Net of TaxUnrealized gains on investment securities available for sale: Net unrealized holding loss arising during the period$(77,607) $20,566 $(57,041)Amounts reclassified to gain on investment securities available for sale, net(6,103) 1,617 (4,486)Net change in unrealized gains on investment securities available for sale(83,710) 22,183 (61,527)Unrealized losses on derivative instruments: Net unrealized holding gain arising during the period5,416 (1,435) 3,981Amounts reclassified to interest expense on borrowings(1,999) 530 (1,469)Net change in unrealized losses on derivative instruments3,417 (905) 2,512Other comprehensive loss$(80,293) $21,278 $(59,015)2017Before Tax Tax Effect Net of TaxUnrealized gains on investment securities available for sale: Net unrealized holding gain arising during the period$49,131 $(19,407) $29,724Amounts reclassified to gain on investment securities available for sale, net(33,466) 13,219 (20,247)Net change in unrealized gains on investment securities available for sale15,665 (6,188) 9,477Unrealized losses on derivative instruments: Net unrealized holding loss arising during the period(2,577) 1,018 (1,559)Amounts reclassified to interest expense on borrowings9,621 (3,800) 5,821Net change in unrealized losses on derivative instruments7,044 (2,782) 4,262Other comprehensive income$22,709 $(8,970) $13,739131Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 20182016Before Tax Tax Effect Net of TaxUnrealized gains on investment securities available for sale: Net unrealized holding gain arising during the period$23,588 $(9,317) $14,271Amounts reclassified to gain on investment securities available for sale, net(14,461) 5,712 (8,749)Net change in unrealized gains on investment securities available for sale9,127 (3,605) 5,522Unrealized losses on derivative instruments: Net unrealized holding gain arising during the period6,225 (2,459) 3,766Amounts reclassified to interest expense on borrowings16,161 (6,384) 9,777Net change in unrealized losses on derivative instruments22,386 (8,843) 13,543Other comprehensive income$31,513 $(12,448) $19,065The categories of AOCI and changes therein are presented below for the years ended December 31, 2018, 2017 and 2016 (in thousands): Unrealized Gain (Loss) onInvestment SecuritiesAvailable for Sale Unrealized Gain (Loss)on DerivativeInstruments TotalBalance at December 31, 2015$41,535 $(19,353) $22,182Other comprehensive income5,522 13,543 19,065Balance at December 31, 2016$47,057 $(5,810) $41,247Other comprehensive income9,477 4,262 13,739Balance at December 31, 2017$56,534 $(1,548) $54,986Cumulative effect of adoption of new accounting standards9,187 (285) 8,902Other comprehensive loss(61,527) 2,512 (59,015)Balance at December 31, 2018$4,194 $679 $4,873 OtherIn January 2019, the Company's Board of Directors authorized the repurchase of up to $150 million of its outstanding common stock. Any repurchaseswill be made in accordance with applicable securities laws from time to time in open market or private transactions. The program may be commenced,suspended or discontinued without prior notice.In conjunction with a previous acquisition, the Company had issued 1,834,160 warrants to purchase its common stock. The warrants expired unexercisedin November 2018.Note 13 Equity Based and Other Compensation PlansDescription of Equity Based Compensation PlansIn connection with the IPO of the Company's common stock in 2011, the Company adopted the 2010 Plan. In 2014, the Board of Directors and theCompany's stockholders approved the 2014 Plan. The 2010 Plan and 2014 Plans are administered by the Board of Directors or a committee thereof andprovide for the grant of non-qualified stock options, SARs, restricted shares, deferred shares, performance shares, unrestricted shares and other share-basedawards to selected employees, directors or independent contractors of the Company and its affiliates. The number of shares of common stock authorized foraward under the 2010 Plan is 7,500,000, of which 118,847 shares remain available for issuance as of December 31, 2018. The number of shares of commonstock available for issuance under the 2014 Plan is 4,000,000, of which 2,061,087 shares remain available for issuance as of December 31, 2018. Shares ofcommon stock delivered under the plans may consist of authorized but unissued shares or previously issued shares reacquired by the Company. The term of ashare option or SAR issued under the plans may not exceed ten years from the date of grant and the exercise price may not be less than the fair market valueof the132Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Company's common stock at the date of grant. Unvested awards generally become fully vested in the event of a change in control, as defined.Compensation Expense Related to Equity Based AwardsThe following table summarizes compensation cost related to equity based awards for the years ended December 31, 2018, 2017 and 2016 (inthousands): 2018 2017 2016Compensation cost of equity based awards: Unvested and restricted share awards$19,415 $18,087 $16,885Executive share-based awards3,027 3,416 1,482Incentive awards798 1,289 —Total compensation cost of equity based awards23,240 22,792 18,367Related tax benefits(5,783) (8,576) (6,899)Compensation cost of equity based awards, net of tax$17,457 $14,216 $11,468Share AwardsUnvested share awardsA summary of activity related to unvested share awards follows for the years ended December 31, 2018, 2017 and 2016 follows: Number of ShareAwards Weighted AverageGrant Date FairValueUnvested share awards outstanding, December 31, 20151,040,385 $31.86Granted651,760 31.00Vested(428,167) 31.79Canceled or forfeited(143,278) 31.31Unvested share awards outstanding, December 31, 20161,120,700 31.46Granted621,806 40.24Vested(553,007) 31.67Canceled or forfeited(81,022) 34.51Unvested share awards outstanding, December 31, 20171,108,477 36.06Granted683,137 40.06Vested(532,662) 34.64Canceled or forfeited(72,714) 38.43Unvested share awards outstanding, December 31, 20181,186,238 $38.86133Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Unvested share awards are generally valued at the closing price of the Company's common stock on the date of grant. All of the shares vest in equalannual installments over a period of three years from the date of grant. The following table summarizes the range of the closing price of the Company's stockon the date of grant for shares granted and the aggregate grant date fair value of shares vesting for the years ended December 31, 2018, 2017 and 2016 (inthousands, except per share data): 2018 2017 2016Range of the closing price on date of grant$33.44 - $42.8 $33.21 - $40.84 $29.78 - $33.76Aggregate grant date fair value of shares vesting$18,451 $17,514 $13,613The total unrecognized compensation cost of $26.5 million for all unvested share awards outstanding at December 31, 2018 will be recognized over aweighted average remaining period of 1.70 years.Executive share-based awardsCertain of the Company's executives are eligible to receive annual awards of RSUs and PSUs (collectively, the "share units"). Annual awards of RSUsrepresent a fixed number of shares and vest on December 31st in equal tranches over three years. PSUs are initially granted based on a target value. Thenumber of PSUs that ultimately vest at the end of a three-year performance measurement period will be based on the achievement of performance criteria pre-established by the Compensation Committee of the Board of Directors. The performance criteria established for the PSUs granted in 2018, 2017 and 2016include both performance and market conditions. Upon vesting, the share units will be converted to common stock on a one-for-one basis, or may be settledin cash at the Company's option. The share units will accumulate dividends declared on the Company's common stock from the date of grant to be paidsubsequent to vesting.The Company has cash settled all tranches of RSUs that have vested through December 31, 2017. RSUs vested on December 31, 2018 have not yetsettled. As a result of the previous cash settlements, all RSUs and PSUs have been determined to be liability instruments and are remeasured at fair value eachreporting period until the awards are settled. The RSUs are valued based on the closing price of the Company's common stock at the reporting date. The PSUsare valued based on the closing price of the Company's common stock at the reporting date net of a discount related to any applicable market conditions,considering the probability of meeting the defined performance conditions. Compensation cost related to PSUs is recognized during the performance periodbased on the probable outcome of the respective performance conditions.A summary of activity related to executive share-based awards for the years ended December 31, 2018, 2017 and 2016 follows: RSU PSUUnvested executive share-based awards outstanding, December 31, 2015— —Granted97,852 57,873Vested(19,291) —Unvested executive share-based awards outstanding, December 31, 201678,561 57,873Granted47,848 47,848Vested(35,238) —Unvested executive share-based awards outstanding, December 31, 201791,171 105,721Granted52,026 52,026Vested(52,585) (57,873)Unvested executive share-based awards outstanding, December 31, 201890,612 99,874The total liability for the share units was $5.5 million at December 31, 2018. The total unrecognized compensation cost of $3.9 million for these shareunits at December 31, 2018 will be recognized over a weighted average remaining period of 1.78 years.134Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Incentive awardsThe Company's annual incentive compensation arrangements for employees other than those eligible for the executive share-based awards discussedabove provide for settlement through a combination of cash payments and unvested share awards following the end of the annual performance period. Thedollar value of share awards to be granted is based on the achievement of performance criteria established in the incentive arrangements. The number ofshares of common stock to be awarded is variable based on the closing price of the Company's stock on the date of grant; therefore, these awards are initiallyclassified as liability instruments, with compensation cost recognized from the beginning of the performance period. The awards vest in equal installmentsover a period of three years from the date of grant. The total liability for incentive share awards was $0.8 million at December 31, 2018. The totalunrecognized compensation cost of $2.3 million for incentive share awards at December 31, 2018 will be recognized over a weighted average remainingperiod of 3.00 years. The accrued liability and unrecognized compensation cost are based on management's current estimate of the likely outcome of theperformance criteria established in the incentive arrangements and may differ from actual results.The 683,137 unvested share awards granted during the year ended December 31, 2018, as discussed above, included 77,050 unvested share awardsgranted under the Company's annual incentive compensation arrangements based on the achievement of established performance criteria for the year endedDecember 31, 2017.Option AwardsA summary of activity related to stock option awards for the years ended December 31, 2018, 2017 and 2016 follows: Number ofOptionAwards WeightedAverageExercise PriceOption awards outstanding, December 31, 20153,651,152 $26.62Exercised(47,979) 16.50Canceled or forfeited(1,097) 63.74Option awards outstanding, December 31, 20163,602,076 26.74Exercised(2,331,388) 26.63Option awards outstanding, December 31, 20171,270,688 26.93Exercised(291,689) 26.49Canceled or forfeited(14,159) 11.14Option awards outstanding and exercisable, December 31, 2018964,840 $27.30The intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $4.6 million, $25.8 million and $0.9 million,respectively. The related tax benefit of options exercised was $1.1 million, $4.0 million and $0.3 million, respectively, during the years ended December 31,2018, 2017 and 2016.135Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018There were no option awards granted during the years ended December 31, 2018, 2017 and 2016. Additional information about options outstanding andexercisable at December 31, 2018 is presented in the following table: Outstanding and Exercisable OptionsRange of Exercise PricesNumber ofOptions WeightedAverageRemainingContractualTerm (inyears) AggregateIntrinsicValue (inthousands)$11.143,910 0.73 $74$15.94 - $19.9729,145 1.59 357$22.18 - $22.3140,917 2.42 314$27888,908 2.08 2,613$63.741,960 0.18 —964,840 2.07 3,358Deferred Compensation PlanThe Company has a non-qualified deferred compensation plan for a select group of key management or highly compensated employees whereby aparticipant, upon election, may defer a portion of eligible compensation. The deferred compensation plan provides for discretionary Company contributions.Generally, the Company has elected not to make contributions. The Company credits each participant's account with income based on either an annualinterest rate determined by the Company's Compensation Committee or returns of selected investment portfolios, as elected by the participant. A participant'selective deferrals and interest thereon are at all times 100% vested. Company contributions and interest thereon will become 100% vested upon the earlier ofa change in control, as defined, or the participant's death, disability, attainment of normal retirement age or the completion of two years of service. Participantdeferrals and any associated earnings will be paid upon separation from service or based on a specified distribution schedule, as elected by the participant.Deferred compensation expense was $1.3 million, $1.5 million and $1.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.Deferred compensation liabilities of $24 million and $21 million were included in other liabilities in the accompanying consolidated balance sheets atDecember 31, 2018 and 2017, respectively.BankUnited 401(k) PlanUnder the terms of the 401(k) Plan sponsored by the Company, eligible employees may contribute a portion of compensation not exceeding the limitsset by law. Employees are eligible to participate in the plan after one month of service. The 401(k) Plan allows a matching employer contribution equal to100% of elective deferrals that do not exceed 1% of compensation, plus 70% of elective deferrals that exceed 1% but are less than 6% of compensation.Matching contributions are fully vested after two years of service. For the years ended December 31, 2018, 2017 and 2016, BankUnited made matchingcontributions to the 401(k) Plan of approximately $6.3 million, $5.5 million and $5.2 million, respectively.Note 14 Regulatory Requirements and RestrictionsThe Company and the Bank are subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimumcapital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a directmaterial effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, theCompany and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet itemscalculated pursuant to regulation. The capital amounts and classification also are subject to qualitative judgments by the regulators about components, riskweightings and other factors. Banking regulations identify five capital categories for insured depository institutions: well-capitalized, adequatelycapitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2018 and 2017, all capital ratios of theCompany and the Bank exceeded the "well capitalized" levels under the regulatory framework for prompt corrective action. Quantitative measuresestablished by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total,136Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018common equity tier 1 and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of tier 1 capital to average tangible assets(leverage ratio).The following tables provide information regarding regulatory capital for the Company and the Bank as of December 31, 2018 and 2017 (dollars inthousands): 2018 Actual Required to beConsidered WellCapitalized Required to beConsideredAdequatelyCapitalized Required to be ConsideredAdequatelyCapitalized Under CapitalConservation Buffer Amount Ratio Amount Ratio Amount Ratio Amount RatioBankUnited, Inc.: Tier 1 leverage$2,839,302 8.99% N/A (1) N/A (1) $1,263,725 4.00% N/A N/ACET1 risk-based capital$2,839,302 12.57% $1,467,693 6.50% $1,016,095 4.50% $1,580,593 7.00%Tier 1 risk-based capital$2,839,302 12.57% $1,806,392 8.00% $1,354,794 6.00% $1,919,291 8.50%Total risk based capital$2,952,464 13.08% $2,257,990 10.00% $1,806,392 8.00% $2,370,889 10.50%BankUnited: Tier 1 leverage$3,026,106 9.60% $1,575,712 5.00% $1,260,569 4.00% N/A N/ACET1 risk-based capital$3,026,106 13.45% $1,462,054 6.50% $1,012,191 4.50% $1,574,519 7.00%Tier 1 risk-based capital$3,026,106 13.45% $1,799,451 8.00% $1,349,588 6.00% $1,911,917 8.50%Total risk based capital$3,139,268 13.96% $2,249,314 10.00% $1,799,451 8.00% $2,361,779 10.50% 2017 Actual Required to beConsidered WellCapitalized Required to beConsideredAdequatelyCapitalized Amount Ratio Amount Ratio Amount RatioBankUnited, Inc.: Tier 1 leverage$2,892,069 9.72% N/A (1) N/A (1) $1,189,944 4.00%CET1 risk-based capital$2,892,069 13.11% $1,434,193 6.50% $992,903 4.50%Tier 1 risk-based capital$2,892,069 13.11% $1,765,161 8.00% $1,323,871 6.00%Total risk based capital$3,041,004 13.78% $2,206,451 10.00% $1,765,161 8.00%BankUnited: Tier 1 leverage$3,107,920 10.47% $1,483,796 5.00% $1,187,037 4.00%CET1 risk-based capital$3,107,920 14.13% $1,429,999 6.50% $989,999 4.50%Tier 1 risk-based capital$3,107,920 14.13% $1,759,999 8.00% $1,319,999 6.00%Total risk based capital$3,255,221 14.80% $2,199,999 10.00% $1,759,999 8.00% (1) There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.For purposes of risk based capital computations, the FDIC Indemnification asset and the covered assets are risk-weighted at 20% due to the conditionalguarantee represented by the Loss Sharing Agreements.BankUnited is subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or abovecertain minimums, and to remain "well-capitalized" under the prompt corrective action regulations. The Company does not expect that any of these laws,regulations or policies will materially affect the ability of BankUnited to pay dividends in the future.137Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Beginning January 1, 2019, the Bank and the Company will have to maintain a capital conservation buffer composed of CET1 capital equal to 2.50% ofrisk-weighted assets above the amounts required to be adequately capitalized in order to avoid limitations on capital distributions, including dividendpayments and certain discretionary bonus payments to executive officers.BankUnited is required by the Board of Governors of the Federal Reserve System to maintain reserve balances in the form of vault cash or deposits withthe FRB. At December 31, 2018, the reserve requirement for BankUnited was $148 million.Note 15 Fair Value MeasurementsAssets and liabilities measured at fair value on a recurring basisFollowing is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and thelevel within the fair value hierarchy in which those measurements are typically classified.Investment securities available for sale and marketable equity securities—Fair value measurements are based on quoted prices in active markets whenavailable; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certainpreferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics,quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classifiedwithin level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferredstock investments for which level 1 valuations are not available, corporate debt securities, non-mortgage asset-backed securities, single family rental realestate-backed securities, certain private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state andmunicipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securitiesinclude benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates,historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historicalconstant default rates and default severities. Investment securities available for sale generally classified within level 3 of the fair value hierarchy includecertain private label MBS and trust preferred securities. The Company typically values these securities using third-party proprietary pricing models, primarilydiscounted cash flow valuation techniques, which incorporate both observable and unobservable inputs. Unobservable inputs that may impact the valuationof these securities include risk adjusted discount rates, projected prepayment rates, projected default rates and projected loss severity.The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of themethodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation deskpersonnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robustprice challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected monthover month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from anadditional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process.The results of price challenges are subject to review by executive management. The Company has also established a quarterly process whereby pricesprovided by its primary pricing service for a sample of securities are validated. Any price discrepancies are resolved based on careful consideration of theassumptions and inputs employed by each of the pricing sources.Servicing rights—Commercial servicing rights are valued using a discounted cash flow methodology incorporating contractually specified servicingfees and market based assumptions about prepayments, discount rates, default rates and costs of servicing. Prepayment and default assumptions are based onhistorical industry data for loans with similar characteristics. Assumptions about costs of servicing are based on market convention. Discount rates are basedon rates of return implied by observed trades of underlying loans in the secondary market.All of the Company's residential mortgage servicing rights were sold in 2018.Derivative financial instruments—Fair values of interest rate swaps are determined using widely accepted discounted cash flow modeling techniques.These discounted cash flow models use projections of future cash payments and receipts that are discounted at mid-market rates. Observable inputs that mayimpact the valuation of these instruments include LIBOR swap138Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018rates and LIBOR forward yield curves. These fair value measurements are generally classified within level 2 of the fair value hierarchy.The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands): 2018Level 1 Level 2 Level 3 TotalInvestment securities available for sale: U.S. Treasury securities$39,873 $— $— $39,873U.S. Government agency and sponsored enterprise residential MBS— 1,897,474 — 1,897,474U.S. Government agency and sponsored enterprise commercial MBS— 374,787 — 374,787Private label residential MBS and CMOs— 1,499,514 34,684 1,534,198Private label commercial MBS— 1,485,716 — 1,485,716Single family rental real estate-backed securities— 402,458 — 402,458Collateralized loan obligations— 1,235,198 — 1,235,198Non-mortgage asset-backed securities— 204,067 — 204,067State and municipal obligations— 398,429 — 398,429SBA securities— 519,313 — 519,313Other debt securities— — 4,846 4,846Marketable equity securities60,519 — — 60,519Servicing rights— — 9,525 9,525Derivative assets— 29,615 — 29,615Total assets at fair value$100,392 $8,046,571 $49,055 $8,196,018Derivative liabilities$— $23,874 $— $23,874Total liabilities at fair value$— $23,874 $— $23,874139Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017Level 1 Level 2 Level 3 TotalInvestment securities available for sale: U.S. Treasury securities$24,953 $— $— $24,953U.S. Government agency and sponsored enterprise residential MBS— 2,058,027 — 2,058,027U.S. Government agency and sponsored enterprise commercial MBS— 234,508 — 234,508Private label residential MBS and CMOs— 576,033 52,214 628,247Private label commercial MBS— 1,046,415 — 1,046,415Single family rental real estate-backed securities— 562,706 — 562,706Collateralized loan obligations— 723,681 — 723,681Non-mortgage asset-backed securities— 121,747 — 121,747Marketable equity securities63,543 — — 63,543State and municipal obligations— 657,203 — 657,203SBA securities— 550,682 — 550,682Other debt securities— 3,791 5,329 9,120Servicing rights— — 30,737 30,737Derivative assets— 27,627 — 27,627Total assets at fair value$88,496 $6,562,420 $88,280 $6,739,196Derivative liabilities$— $25,373 $— $25,373Total liabilities at fair value$— $25,373 $— $25,373The following table reconciles changes in the fair value of assets and liabilities measured at fair value on a recurring basis and classified in level 3 of thefair value hierarchy during the years ended December 31, 2018, 2017 and 2016 (in thousands): 2018 Private LabelResidentialMBS Other DebtSecurities Servicing RightsBalance at beginning of period$52,214 $5,329 $30,737Gains (losses) for the period included in: Net income1,319 — 761Other comprehensive income(5,193) (289) —Discount accretion2,916 809 —Purchases or additions— — 12,600Sales(5,120) — (34,573)Settlements(11,452) (1,003) —Balance at end of period$34,684 $4,846 $9,525Change in unrealized gains or losses included in OCI for assets held at the end of thereporting period$(3,724) $(289) 140Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018 2017 Private LabelResidentialMBS Other DebtSecurities Servicing RightsBalance at beginning of period$120,610 $4,572 $27,159Gains (losses) for the period included in: Net income25,547 — (5,821)Other comprehensive income(27,569) 766 —Discount accretion6,181 280 —Purchases or additions— — 9,399Sales(45,524) — —Settlements(27,031) (289) —Balance at end of period$52,214 $5,329 $30,737Change in unrealized gains or losses included in OCI for assets held at the end of thereporting period$(3,345) $766 2016 Private LabelResidentialMBS Other DebtSecurities Servicing RightsBalance at beginning of period$140,883 $4,532 $20,017Gains (losses) for the period included in: Net income— — (6,023)Other comprehensive income(2,229) (9) —Discount accretion5,947 116 —Purchases or additions— — 13,165Settlements(23,991) (67) —Balance at end of period$120,610 $4,572 $27,159Change in unrealized gains or losses included in OCI for assets held at the end of thereporting period$(2,229) $(9) Gains on private label residential MBS recognized in net income during the years ended December 31, 2018 and 2017 are included in the consolidatedstatement of income line item "Gain on investment securities, net." Changes in the fair value of servicing rights are included in the consolidated statement ofincome line item “Other non-interest income.” Changes in fair value include changes due to valuation assumptions, primarily discount rates and prepaymentspeeds, as well as other changes such as runoff and the passage of time. The amount of net unrealized losses included in earnings for the years endedDecember 31, 2018, 2017 and 2016 that were related to servicing rights held at December 31, 2018, 2017 and 2016 totaled approximately $1.5 million, $1.0million and $1.8 million, respectively, and were primarily due to changes in discount rates and prepayment speeds.Securities for which fair value measurements are categorized in level 3 of the fair value hierarchy at December 31, 2018 consisted of pooled trustpreferred securities with a fair value of $5 million and private label residential MBS and CMOs with a fair value of $35 million. The trust preferred securitiesare not material to the Company’s financial statements. Private label residential MBS consisted of senior and mezzanine tranches collateralized by primefixed rate and hybrid 1-4 single family residential mortgages originated before 2005. Substantially all of these securities have variable rate coupons.Weighted average subordination levels at December 31, 2018 were 12.8% and 10.1% for investment grade and non-investment grade securities, respectively.141Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following table provides information about the valuation techniques and unobservable inputs used in the valuation of private label residential MBSand CMOs falling within level 3 of the fair value hierarchy as of December 31, 2018 (dollars in thousands): Fair Value at Valuation Technique UnobservableInput Range (WeightedAverage) December 31, 2018 Investment grade $22,675 Discounted cash flow Voluntary prepayment rate 4.30% - 25.50% (12.28%) Probability of default 0.00% - 5.85% (1.03%) Loss severity 15.00% - 100.00% (18.84%) Discount rate 2.35% - 7.71% (2.95%) Non-investment grade $12,009 Discounted cash flow Voluntary prepayment rate 1.20% - 25.00% (16.51%) Probability of default 0.00% - 5.85% (2.31%) Loss severity 15.00% - 76.60% (29.16%) Discount rate 1.06% - 9.95% (4.91%)The significant unobservable inputs impacting the fair value measurement of private label residential MBS and CMOs include voluntary prepaymentrates, probability of default, loss severity given default and discount rates. Generally, increases in probability of default, loss severity or discount rates wouldresult in a lower fair value measurement. Alternatively, decreases in probability of default, loss severity or discount rates would result in a higher fair valuemeasurement. For securities with less favorable credit characteristics, decreases in voluntary prepayment speeds may be interpreted as a deterioration in theoverall credit quality of the underlying collateral and as such, lead to lower fair value measurements. The fair value measurements of those securities withhigher levels of subordination will be less sensitive to changes in these unobservable inputs other than discount rates, while securities with lower levels ofsubordination will show a higher degree of sensitivity to changes in these unobservable inputs other than discount rates. Generally, a change in theassumption used for probability of default is accompanied by a directionally similar change in the assumption used for loss severity given default and adirectionally opposite change in the assumption used for voluntary prepayment rate. The following table provides information about the valuation techniques and significant unobservable inputs used in the valuation of servicing rights asof December 31, 2018 (dollars in thousands): Fair Value at Valuation Technique UnobservableInput Range (WeightedAverage) December 31, 2018 Commercial servicing rights $9,525 Discounted cash flow Prepayment rate 2.82% - 17.09% (12.34%) Discount rate 4.84% - 17.07% (13.33%)Increases in prepayment rates or discount rates would result in lower fair value measurements and decreases in prepayment rates or discount rates wouldresult in higher fair value measurements. Although the prepayment rate and the discount rate are not directly interrelated, they generally move in oppositedirections.Assets and liabilities measured at fair value on a non-recurring basisFollowing is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified. Impaired loans, OREO and other repossessed assets—The carrying amount of collateral dependent impaired loans is typically based on the fair value ofthe underlying collateral, which may be real estate, taxi medallions, or other business assets, less estimated costs to sell. The carrying value of OREO isinitially measured based on the fair value of the real estate acquired in foreclosure and subsequently adjusted to the lower of cost or estimated fair value, lessestimated cost to sell. Fair values of real estate collateral and OREO are typically based on third-party real estate appraisals which utilize market and incomeapproaches to valuation incorporating both observable and unobservable inputs. When current appraisals are not available, the142Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Company may use brokers’ price opinions, home price indices or other available information about changes in real estate market conditions to adjust thelatest appraised value available. These adjustments to appraised values may be subjective and involve significant management judgment. The fair value ofrepossessed assets, other than taxi medallions, or collateral consisting of other business assets may be based on third-party appraisals or internal analyses thatuse market approaches to valuation incorporating primarily unobservable inputs. The valuation of New York City taxi medallions is based on prices obtainedin a fourth quarter 2018 sale of taxi medallion loans and repossessed taxi medallions. At December 31, 2018, the Company's investment in taxi medallionloans and repossessed taxi medallions was not material.Fair value measurements related to collateral dependent impaired loans, OREO and other repossessed assets are classified within levels 2 and 3 of the fairvalue hierarchy.Equipment under operating lease—Fair values of equipment under operating lease are typically based upon discountedcash flow analysis, considering expected lease rates and estimated end of life residual values. These fair value measurements are classified within level 3 ofthe fair value hierarchy.The following tables present the carrying value of assets for which non-recurring changes in fair value have been recorded for the periods indicated (inthousands): 2018 Losses from Fair Value ChangesLevel 1 Level 2 Level 3 Total Year Ended December 31, 2018OREO and repossessed assets$— $1,085 $486 $1,571 $(1,864)Impaired loans$— $775 $35,397 $36,172 $(6,816) 2017 Losses from Fair Value ChangesLevel 1 Level 2 Level 3 Total Year Ended December 31, 2017OREO and repossessed assets$— $— $5,790 $5,790 $(2,078)Impaired loans$— $— $93,051 $93,051 $(65,716) 2016 Losses from Fair Value ChangesLevel 1 Level 2 Level 3 Total Year Ended December 31, 2016OREO and repossessed assets$— $— $12,466 $12,466 $(1,156)Impaired loans$— $— $78,121 $78,121 $(25,573)Equipment under operating lease$— $— $8,173 $8,173 $(4,100)Included in the tables above are impaired taxi medallion loans with carrying values of $0.8 million, $86.0 million and $50.7 million at December 31,2018, 2017 and 2016, respectively, the majority of which were in New York City. Losses from fair value changes included in the tables above include $0.5million, $62.4 million and $12.7 million were recognized on impaired taxi medallion loans during the years ended December 31, 2018, 2017 and 2016,respectively. In addition, OREO and repossessed assets reported above included repossessed taxi medallions with carrying values of $1.1 million, $2.1million and $2.5 million at December 31, 2018, 2017 and 2016, respectively. Losses of $1.0 million, $1.3 million and $0.2 million were recognized onrepossessed taxi medallions during the years ended December 31, 2018, 2017 and 2016, respectively.143Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018The following table presents the carrying value and fair value of financial instruments and the level within the fair value hierarchy in which thosemeasurements are classified at December 31, 2018 and 2017 (dollars in thousands): 2018 2017Level Carrying Value Fair Value Carrying Value Fair ValueAssets: Cash and cash equivalents1 $382,073 $382,073 $194,582 $194,582Investment securities1/2/3 8,166,878 8,167,127 6,690,832 6,690,832Non-marketable equity securities2 267,052 267,052 265,989 265,989Loans held for sale2 36,992 39,931 34,097 37,847Loans: Covered3 201,346 207,813 502,860 922,888Non-covered3 21,665,731 21,660,445 20,768,849 20,759,567FDIC indemnification asset3 — — 295,635 148,356Derivative assets2 29,615 29,615 27,627 27,627Liabilities: Demand, savings and money market deposits2 $16,654,465 $16,654,465 $15,543,637 $15,543,637Time deposits2 6,819,758 6,820,355 6,334,842 6,324,010Federal funds purchased2 175,000 175,000 — —FHLB advances2 4,796,000 4,810,446 4,771,000 4,774,160Notes and other borrowings2 402,749 416,142 402,830 435,361Derivative liabilities2 23,874 23,874 25,373 25,373Note 16 Commitments and Contingencies The Company issues off-balance sheet financial instruments to meet the financing needs of its customers. These financial instruments includecommitments to fund loans, unfunded commitments under existing lines of credit, and commercial and standby letters of credit. These commitments exposethe Company to varying degrees of credit and market risk which are essentially the same as those involved in extending loans to customers, and are subject tothe same credit policies used in underwriting loans. Collateral may be obtained based on the Company’s credit evaluation of the counterparty. TheCompany’s maximum exposure to credit loss is represented by the contractual amount of these commitments.Commitments to fund loansThese are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loansgenerally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expirewithout being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements. Unfunded commitments under lines of creditUnfunded commitments under lines of credit include commercial, commercial real estate, home equity and consumer lines of credit to existingcustomers. Some of these commitments may mature without being fully funded. Commercial and standby letters of creditLetters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of creditare primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as thatinvolved in extending loan facilities to customers. 144Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Total lending related commitments outstanding at December 31, 2018 were as follows (in thousands):Commitments to fund loans$508,074Commitments to purchase loans518,054Unfunded commitments under lines of credit2,853,431Commercial and standby letters of credit85,446 $3,965,005Legal ProceedingsThe Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, basedupon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to theCompany’s consolidated financial position, results of operations or cash flows.Note 17 Condensed Financial Statements of BankUnited, Inc.Condensed financial statements of BankUnited, Inc. are presented below (in thousands):Condensed Balance Sheets December 31, 2018 December 31, 2017Assets: Cash and cash equivalents$143,843 $131,696Investment securities available for sale, at fair value60,519 63,543Investment in BankUnited, N.A.3,110,638 3,239,717Deferred tax asset, net10,088 9,456Other assets27,319 8,462Total assets$3,352,407 $3,452,874Liabilities and Stockholders' Equity: Notes payable$394,390 $393,725Other liabilities34,184 33,087Stockholders' equity2,923,833 3,026,062Total liabilities and stockholders' equity$3,352,407 $3,452,874145Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Condensed Statements of Income Years Ended December 31, 2018 2017 2016Income: Interest and dividends on investment securities available for sale$3,532 $3,580 $4,280Service fees from subsidiary21,000 18,787 21,957Equity in earnings of subsidiary349,937 639,250 242,874Loss on investment securities(2,805) — —Total371,664 661,617 269,111Expense: Interest on borrowings20,165 20,132 20,100Employee compensation and benefits28,477 27,032 27,143Other5,617 5,047 4,466Total54,259 52,211 51,709Income before income taxes317,405 609,406 217,402Benefit for income taxes(7,461) (4,867) (8,339)Net income$324,866 $614,273 $225,741146Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Condensed Statements of Cash Flows Years Ended December 31, 2018 2017 2016Cash flows from operating activities: Net income$324,866 $614,273 $225,741Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries70,064 (519,250) (157,374)Equity based compensation23,137 22,692 18,032Other(15,654) 3,343 7,438Net cash provided by operating activities402,413 121,058 93,837Cash flows from investing activities: Capital contributions to subsidiary— (55,000) —Purchase of investment securities available for sale— — (20,150)Proceeds from repayments, sale, maturities and calls of investment securities available forsale— 15,000 19,401Other(156) (250) (3)Net cash used in investing activities(156) (40,250) (752)Cash flows from financing activities: Dividends paid(91,305) (91,628) (89,824)Proceeds from exercise of stock options7,727 62,095 791Repurchase of common stock(299,972) — —Other(6,560) (7,297) 856Net cash used in financing activities(390,110) (36,830) (88,177)Net increase in cash and cash equivalents12,147 43,978 4,908Cash and cash equivalents, beginning of period131,696 87,718 82,810Cash and cash equivalents, end of period$143,843 $131,696 $87,718Supplemental schedule of non-cash investing and financing activities: Dividends declared, not paid$21,673 $23,055 $22,510Dividends received by BankUnited, Inc. from the Bank totaled $420 million, $120 million and $85.5 million for the years ended December 31, 2018,2017, and 2016, respectively.147Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Note 18 Quarterly Financial Information (Unaudited)Financial information by quarter for the years ended December 31, 2018 and 2017 follows (in thousands, except per share data): 2018 Fourth Quarter Third Quarter Second Quarter First Quarter TotalInterest income$414,796 $357,717 $348,855 $327,776 $1,449,144Interest expense119,743 105,749 93,592 79,967 399,051Net interest income before provision for loan losses295,053 251,968 255,263 247,809 1,050,093Provision for loan losses12,583 1,200 8,995 3,147 25,925Net interest income after provision for loan losses282,470 250,768 246,268 244,662 1,024,168Non-interest income33,328 38,735 31,973 27,986 132,022Non-interest expense246,678 170,798 161,247 161,817 740,540Income before income taxes69,120 118,705 116,994 110,831 415,650Provision for income taxes16,717 21,377 27,094 25,596 90,784Net income$52,403 $97,328 $89,900 $85,235 $324,866Earnings per common share, basic$0.50 $0.90 $0.82 $0.78 $3.01Earnings per common share, diluted$0.50 $0.90 $0.82 $0.77 $2.99 2017 Fourth Quarter Third Quarter Second Quarter First Quarter TotalInterest income$312,645 $309,443 $298,835 $283,538 $1,204,461Interest expense73,819 68,179 59,246 52,945 254,189Net interest income before provision for loan losses238,826 241,264 239,589 230,593 950,272Provision for loan losses5,174 37,854 13,619 12,100 68,747Net interest income after provision for loan losses233,652 203,410 225,970 218,493 881,525Non-interest income46,541 53,326 29,893 28,144 157,904Non-interest expense161,271 156,705 160,435 156,557 634,968Income before income taxes118,922 100,031 95,428 90,080 404,461Provision (benefit) for income taxes(298,872) 32,252 29,021 27,787 (209,812)Net income$417,794 $67,779 $66,407 $62,293 $614,273Earnings per common share, basic$3.80 $0.62 $0.60 $0.57 $5.60Earnings per common share, diluted$3.79 $0.62 $0.60 $0.57 $5.58Earnings for the fourth quarter 2017 benefited from a discrete income tax benefit of $327.9 million. See Note 10 to the consolidated financial statementsfor more information about the discrete income tax benefit.148Table of ContentsBANKUNITED, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018Note 19 Subsequent EventsTermination of Single Family Shared-Loss AgreementOn February 13, 2019, the Bank entered into a termination agreement with the FDIC that terminated the Bank’s Single Family Shared-Loss Agreementwith the FDIC effective immediately. The Bank has made a payment of approximately seven thousand dollars to the FDIC in connection with the terminationand all rights and obligations of the Bank and the FDIC under the Single Family Shared-Loss Agreement have been terminated.149Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation under the supervision and with the participation ofour management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosurecontrols and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the ChiefFinancial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2018.Changes in Internal Control over Financial ReportingNone.Management's Report on Internal Control Over Financial ReportingManagement's report, which is included in Part II, Item 8 of this Form 10-K, is incorporated herein by reference.Attestation Report of the Registered Public Accounting FirmThe effectiveness of the Company's internal control over financial reporting as of December 31, 2018 has been audited by KPMG LLP, an independentregistered public accounting firm, as stated in their report, which is included in Part II, Item 8 of this Form 10-K.Item 9B. Other InformationNone.PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceInformation regarding the directors and executive officers of BankUnited, Inc. and information regarding Section 16(a) compliance, the Audit and RiskCommittees, the Company's code of ethics, background of the directors and director nominations appearing under the captions "Section 16(a) BeneficialOwnership Reporting Compliance," "Committees of the Board of Directors," "Corporate Governance Guidelines, Code of Conduct and Code of Ethics,""Director Nominating Process and Diversity" and "Election of Directors" in the Company's Proxy Statement for the 2019 annual meeting of stockholders ishereby incorporated by reference.Item 11. Executive CompensationInformation appearing under the captions "Director Compensation" and "Executive Compensation" in the 2019 Proxy Statement (other than the"Compensation Committee Report," which is deemed furnished herein by reference) is hereby incorporated by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation setting forth the security ownership of certain beneficial owners and management appearing under the caption "Beneficial Ownership of theCompany's Common Stock" and information in the "Equity Compensation Plans" table appearing under the caption "Equity Compensation PlanInformation" in the 2019 Proxy Statement is hereby incorporated by reference.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation regarding certain related transactions appearing under the captions "Certain Related Party Relationships" and information regarding directorindependence appearing under the caption "Director Independence" in the 2019 Proxy Statement is hereby incorporated by reference.150Item 14. Principal Accountant Fees and ServicesInformation appearing under the captions "Auditor Fees and Services" and "Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors" in the 2019 Proxy Statement is hereby incorporated by reference.151PART IVItem 15. Exhibits, Financial Statement Schedules(a)List of documents filed as part of this report:1)Financial Statements:Management's Report on Internal Control Over Financial ReportingReports of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2018 and December 31, 2017Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017 and 2016 Notes to Consolidated Financial Statements2)Financial Statement Schedules:Financial statement schedules are omitted as not required or not applicable or because the information is included in the Consolidated FinancialStatements or notes thereto.3)List of Exhibits:The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this report.152EXHIBIT INDEXExhibitNumber Description Location2.1a Purchase and Assumption Agreement, dated as of May 21, 2009, amongthe Federal Deposit Insurance Corporation, Receiver of BankUnited,FSB, Coral Cables, Florida, the Federal Deposit Insurance Corporationand BankUnited (Single Family Shared-Loss Agreement and Commercialand Other Shared-Loss Agreement included as Exhibits 4.15A and 4.15Bthereto, respectively)† Exhibit 2.1a to the Registration Statement on Form S-1of the Company filed January 18, 20112.1b Addendum to Purchase and Assumption Agreement, dated as of May 21,2009, by and among the Federal Deposit Insurance Corporation,Receiver of BankUnited, FSB, Coral Gables, Florida, BankUnited, andthe Federal Deposit Insurance Corporation Exhibit 2.1b to the Registration Statement on Form S-1of the Company filed January 10, 20112.1c Amendment No. 1 to the BankUnited Single Family Shared-LossAgreement with the FDIC, dated as of November 2, 2010 Exhibit 2.1c to the Registration Statement on Form S-1of the Company filed January 18, 20112.1d Amendment No. 2 the BankUnited Single Family Shared-LossAgreement with the FDIC, dated as of December 22, 2010 Exhibit 2.1d to the Registration Statement on Form S-1of the Company filed January 18, 20113.1 Amended and Restated Certificate of Incorporation Exhibit 3.1 to the Annual Report on Form 10-K of theCompany filed February 28, 20183.2 Amended and Restated By-Laws Exhibit 3.1 to the Current Report on Form 8-K of theCompany filed August 15, 20164.1 Specimen common stock certificate Exhibit 4.1 to the Registration Statement on Form S-1of the Company filed January 18, 20114.2 Indenture dated as of November 17, 2015 between BankUnited, Inc. andU.S. Bank National Association, as trustee Exhibit 4.1 to the Current Report on Form 8-K of theCompany filed November 17, 20154.3 First Supplemental Indenture dated as of November 17, 2015 betweenBankUnited, Inc. and U.S. Bank National Association, as trustee Exhibit 4.2 to the Current Report on Form 8-K of theCompany filed November 17, 20154.4 Form of 4.875% Senior Note due 2025 (included as part of Exhibit 4.3above) Exhibit 4.3 to the Current Report on Form 8-K of theCompany filed November 17, 201510.1 BankUnited, N.A. Non-Qualified Deferred Compensation Plan Exhibit 10.1b to the Annual Report on Form 10-K ofthe Company filed February 26, 201510.1a Amendment to the BankUnited, N.A. Non-Qualified DeferredCompensation Plan Exhibit 10.1a to the Annual Report on Form 10-K ofthe Company filed February 26, 201610.2 BankUnited, Inc. (formerly known as BU Financial Corporation) 2009Stock Option Plan Exhibit 10.7 to the Registration Statement on Form S-1of the Company filed October 29, 201010.3a BankUnited, Inc. 2010 Omnibus Equity Incentive Plan Exhibit 10.8 to the Registration Statement on Form S-1of the Company filed January 18, 2011153ExhibitNumber Description Location10.3b BankUnited, Inc. 2014 Omnibus Equity Incentive Plan Appendix A to the Proxy Statement on Schedule 14Aof the Company filed April 11, 201410.4a Registration Rights Agreement by and among BankUnited, Inc., John A.Kanas, Rajinder P. Singh, Douglas J. Pauls and John Bohlsen, and eachof the other parties thereto Exhibit 10.9 to Annual Report on Form 10-K of theCompany filed March 31, 201110.4b Amendment No. 1, dated February 29, 2012, to Registration RightsAgreement, dated February 2, 2011, by and among BankUnited, Inc.,John A. Kanas, Rajinder P. Singh, Douglas J. Pauls and John Bohlsen,and each of the other parties thereto Exhibit 10.3 to the Current Report on Form 8-K of theCompany filed March 6, 201210.5 Form of indemnification agreement between BankUnited, Inc. and eachof its directors and executive officers Exhibit 10.1 to the Current Report on Form 8-K of theCompany filed February 16, 201110.6 BankUnited, Inc. Policy on Incentive Compensation Arrangements Exhibit 10.6 of the Company's Annual Report onForm 10-K filed February 26, 201510.7 Heritage Bank, N.A. 2008 Stock Incentive Plan Exhibit 10.1 to the Registration Statement on Form S-8of the Company filed February 29, 201210.8 Stock Warrant Agreement, dated as of November 24, 2008, by HeritageBank, N.A. in favor of the parties listed on Exhibit A thereto Exhibit 10.4 to the Current Report on Form 8-K of theCompany filed March 6, 201210.9 Supplemental Warrant Agreement, dated as of February 29, 2012, by andbetween BankUnited, Inc. and Heritage Bank, N.A. Exhibit 10.5 to the Current Report on Form 8-K of theCompany filed March 6, 201210.10a Amended and Restated Employment Agreement, dated February 2, 2016,by and between BankUnited, Inc. and John A. Kanas Exhibit 10.10 to the Annual Report on Form 10-K ofthe Company filed February 26, 201610.10b Amendment, dated May 6, 2016, to Amended and Restated EmploymentAgreement, dated February 2, 2016, by and between BankUnited, Inc.and John A. Kanas Exhibit 10.1 to the Current Report on Form 8-K of theCompany filed May 6, 201610.11a Amended and Restated Employment Agreement, dated February 2, 2016,by and between BankUnited, Inc. and Rajinder P. Singh Exhibit 10.11 to the Annual Report on Form 10-K ofthe Company filed February 26, 201610.11b Amendment, dated May 6, 2016, to Amended and Restated EmploymentAgreement, dated February 2, 2016, by and between BankUnited, Inc.and Rajinder P. Singh Exhibit 10.2 to the Current Report on Form 8-K of theCompany filed May 6, 201610.11c Second Amendment, dated January 4, 2017, to Amended and RestatedEmployment Agreement, dated February 2, 2016, as amended on May 6,2016, by and between BankUnited, Inc. and Rajinder P. Singh Exhibit 10.2 to the Current Report on Form 8-K/A ofthe Company filed January 4, 201710.12 Advisor and Restrictive Covenant Agreement, dated December 29, 2016,by and between BankUnited, Inc. and John A. Kanas Exhibit 10.1 to the Current Report on Form 8-K of theCompany filed January 3, 201710.13 Restricted Share Unit Agreement, dated December 29, 2016, by andbetween BankUnited, Inc. and Rajinder P. Singh Exhibit 10.3 to the Current Report on Form 8-K of theCompany filed January 3, 201710.14 Termination Agreement, dated as of February 13, 2019, by and amongthe Federal Deposit Insurance Corporation as Receiver of BankUnited,FSB, Coral Gables, Florida, BankUnited n/k/a BankUnited, N.A., and theFederal Deposit Insurance Corporation. Exhibit 10.1 to the Current Report on Form 8-K of theCompany filed February 14, 2019154ExhibitNumber Description Location21.1 Subsidiaries of BankUnited, Inc. Filed herewith23.1 Consent of KPMG LLP Filed herewith31.1 Rule 13a-14(a) Certification of Chief Executive Officer of the Companyin accordance with Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith31.2 Rule 13a-14(a) Certification of Chief Financial Officer of the Companyin accordance with Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith32.1 Section 1350 Certification of Chief Executive Officer of the Company inaccordance with Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith32.2 Section 1350 Certification of Chief Financial Officer of the Company inaccordance with Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith101.INS XBRL Instance Document Filed herewith101.SCH XBRL Taxonomy Extension Schema Filed herewith101.CAL XBRL Taxonomy Extension Calculation Linkbase Filed herewith101.DEF XBRL Taxonomy Extension Definition Linkbase Filed herewith101.LAB XBRL Taxonomy Extension Label Linkbase Filed herewith101.PRE XBRL Taxonomy Extension Presentation Linkbase Filed herewith____________________________________†Schedules and similar attachments to the Purchase and Assumption Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Theregistrant will furnish supplementally a copy of any omitted schedules or similar attachment to the SEC upon request.155SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on itsbehalf by the undersigned, thereunto duly authorized. BANKUNITED, INC. Date:February 27, 2019By: /s/ RAJINDER P. SINGH Name: Rajinder P. Singh Title: Chairman, President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the datesindicated.Signature Title Date /s/ RAJINDER P. SINGH Chairman, President and Chief Executive Officer(Principal Executive Officer) February 27, 2019Rajinder P. Singh /s/ LESLIE N. LUNAK Chief Financial Officer (Principal Financial andAccounting Officer) February 27, 2019Leslie N. Lunak /s/ TERE BLANCA Director February 27, 2019Tere Blanca /s/ EUGENE F. DEMARK Director February 27, 2019Eugene F. Demark /s/ JOHN N. DIGIACOMO Director February 27, 2019John N. DiGiacomo /s/ MICHAEL J. DOWLING Director February 27, 2019Michael J. Dowling /s/ DOUGLAS J. PAULS Director February 27, 2019Douglas J. Pauls /s/ A. GAIL PRUDENTI Director February 27, 2019A. Gail Prudenti /s/ WILLIAM S. RUBENSTEIN Director February 27, 2019William S. Rubenstein /s/ SANJIV SOBTI Director February 27, 2019Sanjiv Sobti /s/ LYNNE WINES Director February 27, 2019Lynne Wines 156Exhibit 21.1 List of Subsidiaries The following is a list of the subsidiaries of BankUnited, Inc. as of December 31, 2018, including the name of each subsidiary and its jurisdiction ofincorporation:1.BankUnited, N.A.USA2.Bridge Funding Group, Inc.Delaware3.BU Delaware, Inc.Delaware4.CRE Properties, Inc.Florida5.Pinnacle Public Finance, Inc.DelawareExhibit 23.1 Consent of Independent Registered Public Accounting FirmThe Board of DirectorsBankUnited, Inc.:We consent to the incorporation by reference in the registration statements on Form S‑3ASR (No. 333-227995) and Form S‑8 (Nos. 333‑172035,333‑179800, 333‑188925, 333‑190586, 333‑192222 and 333-197808) of BankUnited, Inc. and subsidiaries (the "Company") of our reports datedFebruary 27, 2019, with respect to the consolidated balance sheets of the Company as of December 31, 2018 and 2017, and the related consolidatedstatements of income, comprehensive income, cash flows, and stockholders’ equity for each of the years in the three‑year period ended December 31, 2018,and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31,2018 annual report on Form 10‑K of the Company./s/KPMG LLPFebruary 27, 2019Miami, FloridaExhibit 31.1 Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Rajinder P. Singh, certify that: 1.I have reviewed this annual report on Form 10-K of BankUnited, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. /s/ Rajinder P. SinghRajinder P. SinghPresident and Chief Executive OfficerDate: February 27, 2019Exhibit 31.2 Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Leslie N. Lunak, certify that: 1.I have reviewed this annual report on Form 10-K of BankUnited, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. /s/ Leslie N. LunakLeslie N. LunakChief Financial OfficerDate: February 27, 2019Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of BankUnited, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Rajinder P. Singh, as Chief Executive Officer of the Company, certify, to the best ofmy knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1)The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Rajinder P. SinghRajinder P. SinghPresident and Chief Executive Officer Date: February 27, 2019Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of BankUnited, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Leslie N. Lunak, as Chief Financial Officer of the Company, certify, to the best ofmy knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1)The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Leslie N. LunakLeslie N. LunakChief Financial Officer Date: February 27, 2019

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