UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
Commission File Number: 001-35039
BankUnited, Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
Delaware
14817 Oak Lane
(Address of principal executive offices)
Miami Lakes
FL
27-0162450
(I.R.S. Employer Identification No.)
33016
(Zip Code)
Registrant’s telephone number, including area code: (305) 569-2000
Securities registered pursuant to Section 12(b) of the Act:
Class
Common Stock, $0.01 Par Value
Trading Symbol
BKU
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No o
Indicate 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 ☒
Name of Exchange on Which Registered
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No o
Indicate 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's knowledge, 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. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
☐
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2019 was 3,190,724,266
The number of outstanding shares of the registrant common stock, $0.01 par value, as of February 26, 2020 was 93,719,239.
Portions of the registrant's definitive proxy statement for the 2020 annual meeting of stockholders are incorporated by reference in this Annual Report on Form 10-K in response to Part II. Item 5
and Part III. Items 10, 11, 12, 13 and 14.
DOCUMENTS INCORPORATED BY REFERENCE:
BANKUNITED, INC.
Form 10-K
For the Year Ended December 31, 2019
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
Page
1
10
21
21
21
21
22
25
27
64
65
128
128
128
129
129
129
129
129
130
134
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The following acronyms and terms may be used throughout this Form 10-K, including the consolidated financial statements and related notes.
GLOSSARY OF DEFINED TERMS
ACI
AFS
ALCO
ALLL
AOCI
ARM
ASC
ASU
ATM
Loans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)
Available for sale
Asset/Liability Committee
Allowance for loan and lease losses
Accumulated other comprehensive income
Adjustable rate mortgage
Accounting Standards Codification
Accounting Standards Update
Automated teller machine
Basel Committee
International Basel Committee on Banking Supervision
BHC Act
BHC
BKU
BankUnited
The Bank
Bridge
Buyout loans
CCA
CET1
CECL
CFPB
CME
CLOs
CMOs
Bank Holding Company Act of 1956
Bank holding company
BankUnited, Inc.
BankUnited, National Association
BankUnited, National Association
Bridge Funding Group, Inc.
FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these
loans out of GNMA securitizations
Cloud Computing Arrangements
Common Equity Tier 1 capital
Current expected credit loss
Consumer Financial Protection Bureau
Chicago Mercantile Exchange
Collateralized loan obligations
Collateralized mortgage obligations
Commercial Shared-Loss Agreement
A commercial and other loans shared-loss agreement entered into with the FDIC in connection with the FSB
Acquisition
Covered assets
Covered loans
CRA
CUSIP
DIF
DSCR
EPS
EVE
FASB
FDIA
FDIC
FHLB
FHA loan
FICO
FRB
Assets covered under the Loss Sharing Agreements
Loans covered under the Loss Sharing Agreements
Community Reinvestment Act
Committee on Uniform Securities Identification Procedures
Deposit insurance fund
Debt Service Coverage Ratio
Earnings per common share
Economic value of equity
Financial Accounting Standards Board
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation
Federal Home Loan Bank
Loan guaranteed by the Federal Housing Administration
Fair Isaac Corporation (credit score)
Federal Reserve Bank
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FSB Acquisition
FSB Loans
GAAP
GDP
GLB Act
GNMA
HTM
IPO
IRS
ISDA
LIBOR
LTV
MBS
MSRs
Acquisition of substantially all of the assets and assumption of all of the non-brokered deposits and
substantially all of the other liabilities of BankUnited, FSB from the FDIC on May 21, 2009
1-4 single family residential loans acquired in the FSB Acquisition that were formally covered by the Single
Family Shared-Loss Agreement
U.S. generally accepted accounting principles
Gross Domestic Product
The Gramm-Leach-Bliley Financial Modernization Act of 1999
Government National Mortgage Association
Held to maturity
Initial public offering
Internal Revenue Service
International Swaps and Derivatives Association
London InterBank Offered Rate
Loan-to-value
Mortgage-backed securities
Mortgage servicing rights
Non-Covered Loans
Loans other than those covered under the Loss Sharing Agreements
NYSE
OCC
OFAC
OREO
OTTI
New York Stock Exchange
Office of the Comptroller of the Currency
U.S. Department of the Treasury's Office of Foreign Assets Control
Other real estate owned
Other-than-temporary impairment
Proxy Statement
Definitive proxy statement for the Company's 2019 annual meeting of stockholders
PSU
Pinnacle
ROU Asset
RSU
SAR
SBA
SBF
SEC
Performance Share Unit
Pinnacle Public Finance, Inc.
Right-of-use Asset
Restricted Share Unit
Share Appreciation Right
U.S. Small Business Administration
Small Business Finance Unit
Securities and Exchange Commission
Single Family Shared-Loss Agreement
A single-family loan shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition
SOFR
REIT
TDR
Tri-State
UPB
USDA
VA loan
VIEs
2010 Plan
2014 Plan
401(k) Plan
Secured Overnight Financing Rate
Real Estate Investment Trust
Troubled-debt restructuring
New York, New Jersey and Connecticut
Unpaid principal balance
U.S. Department of Agriculture
Loan guaranteed by the U.S. Department of Veterans Affairs
Variable interest entities
2010 Omnibus Equity Incentive Plan
2014 Omnibus Equity Incentive Plan
BankUnited 401(k) Plan
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Forward-Looking Statements
This 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 industry
materials, historical performance and current financial trends. These statements are only predictions and are not guarantees of future performance. The
inclusion of forward-looking statements should not be regarded as a representation by the Company that the future plans, estimates or expectations
contemplated 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 more of
these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, the Company's actual results could differ
materially from those contemplated by a forward-looking statement. These risks and uncertainties include, without limitation:
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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;
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 on
Form 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 any
forward-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.
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PART I - FINANCIAL INFORMATION
Item 1. Business
Overview
BankUnited, Inc., with total consolidated assets of $32.9 billion at December 31, 2019, 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 of banking
services to individual and corporate customers through 74 banking centers located in 14 Florida counties and 5 banking centers in the New York metropolitan
area. The Bank also provides certain commercial lending and deposit products through national platforms. The Company has built, primarily through organic
growth, a premier commercially focused regional bank with a long-term value oriented business model serving primarily small and medium sized businesses.
We endeavor to provide, through our experienced lending and relationship banking teams, personalized customer service and offer a full range of traditional
banking products and services to both our commercial and consumer customers.
Our Market Areas
Our primary banking markets are Florida and the Tri-State market of New York, New Jersey and Connecticut. We believe both represent long-term
attractive banking markets. In Florida, our largest concentration is in the Miami metropolitan statistical area; however, we are also focused on developing
business in other markets in which we have a presence, such as the Broward, Palm Beach, Orlando, Tampa and Jacksonville markets. In 2019, we also began
lending operations in Atlanta. We operate several national commercial lending platforms, purchase residential loans on a national basis through established
correspondent channels and have a national commercial deposit business.
According to estimates from the United States Census Bureau and S&P Global Market Intelligence, from 2016 to 2019, Florida added over 1.0 million
new residents, the second most of any U.S. state, had a total population of 21.8 million and a median household annual income of $58,586 in 2019. The
Florida unemployment rate decreased to 2.5% at December 31, 2019. The Moody's home price index for Florida reflected a year over year increase of 3.7% at
September 30, 2019. According to CoStar Commercial Repeat-Sale Indices, commercial real estate values in the South region reflected a year over year
increase of 1.67% at December 31, 2019. According to a report published in September 2019 by the University of Central Florida, personal income in Florida
is expected to average 3.7% growth from 2019 to 2022 while Florida's Real Gross State Product is expected to expand at an average annual rate of 3.4% from
2019 to 2022.
We had five banking centers in metropolitan New York at December 31, 2019 serving the Tri-State area. Three banking centers were in Manhattan, one
in Long Island and one in Brooklyn. According to the FDIC, at June 30, 2019, the Tri-State area had approximately $2.2 trillion in deposits, with the majority
of the market concentrated in the New York metropolitan area. The Tri-State area had a total population of 32.0 million and a median household annual
income of $76,999 in 2019, while the unemployment rate decreased to 3.6% at December 31, 2019. According to CoStar Commercial Repeat-Sale Indices,
commercial real estate values in the Northeast region reflected a year over year increase of 2.23% at December 31, 2019.
Through two commercial lending subsidiaries of BankUnited, we engage in equipment, franchise and municipal finance on a national basis. The Bank
originates small business loans through programs sponsored by the SBA and to a lesser extent the USDA and provides mortgage warehouse finance on a
national basis. We also offer a suite of commercial deposit and cash management products through a national platform.
Products and Services
Lending and Leasing
General—Our primary lending focus is to serve small, middle-market and larger corporate businesses with a variety of financial products and services,
while maintaining a disciplined credit culture.
We offer a full array of lending products that cater to our customers' needs and have attracted and invested in experienced lending teams in our Florida,
Tri-State and national markets. At December 31, 2019, our loan portfolio included $23.2 billion in loans, including $17.5 billion in commercial and
commercial real estate loans and $5.7 billion in residential and other consumer loans.
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Commercial loans—Our commercial loans, which are generally made to growing small business, middle-market and larger corporate entities, include
equipment loans, secured and unsecured lines of credit, formula-based loans, owner-occupied commercial real estate term loans and lines of credit, mortgage
warehouse lines, letters of credit, SBA product offerings, trade finance and business acquisition finance credit facilities.
Through the Bank's two commercial lending subsidiaries, we provide municipal, equipment and franchise financing on a national basis. Pinnacle,
headquartered in Scottsdale, Arizona, provides financing to state and local governmental entities directly and through vendor programs and
alliances. Pinnacle offers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond refundings
and loan agreements. Bridge offers large corporate and middle market businesses equipment loans and leases including finance lease and operating lease
structures through its equipment finance division. Bridge offers franchise equipment, acquisition and expansion financing through its franchise division.
Bridge is headquartered in Baltimore, Maryland. SBF offers an array of SBA, and to a lesser extent, USDA loan products on a national basis. We typically
sell the government guaranteed portion of the loans SBF originates on a servicing retained basis, and retain the unguaranteed portion in portfolio. We also
engage in residential mortgage warehouse lending on a national basis.
Commercial real estate loans—We offer term financing for the acquisition or refinancing of properties, primarily rental apartments, mixed-use
commercial properties, industrial properties, warehouses, retail shopping centers, free-standing single-tenant buildings, office buildings and hotels. Other
products that we provide include real estate secured lines of credit, and, to a limited extent, acquisition, development and construction loan facilities and
construction financing. Construction lending is not a primary area of focus for us; construction and land loans comprised 1.1% of the loan portfolio at
December 31, 2019.
Residential mortgages—The residential loan portfolio is primarily comprised of loans purchased on a national basis through select correspondent
channels. This national purchase program allows us to diversify our loan portfolio, both by product type and geography. Residential loans purchased are
primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. A limited portion of the portfolio is secured by
investor-owned properties. We do not originate or purchase negatively amortizing or sub-prime residential loans. We also acquire non-performing FHA and
VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations. Such loans that re-
perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of
these loans into new securitizations.
Other consumer loans— Home equity loans and lines of credit and other consumer loans are not significant components of our loan portfolio or of our
lending strategy.
Credit Policy and Procedures
We have established asset oversight committees to administer the loan portfolio and monitor and manage credit risk. These committees include: (i) the
Executive Credit Committee, (ii) the Credit Risk Management Committee, (iii) the Asset Recovery Committee, (iv) the Criticized Asset Committee and (v)
the Residential Credit Risk Management Committee. These committees meet at least quarterly.
The credit approval method used is a risk-based hierarchy of individual or committee authorities for new credits and renewals, supplemented by annual
reviews of existing credits. The Credit Risk Management Committee approves authorities for lending and credit personnel, which are ultimately submitted to
our Board for ratification. Credit authorities are based on position, capability and experience of the individuals 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 $475 million at
December 31, 2019. In-house lending limits at December 31, 2019 ranged from $75 million to $150 million determined on a risk-based matrix considering
borrower's financial condition and industry. These limits are reviewed periodically by the Credit Risk Management Committee and approved annually by the
Board of Directors.
Deposits
We offer traditional deposit products including commercial and consumer checking accounts, money market deposit accounts, savings accounts and
certificates 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 retail
deposit products across our primary geographic footprint and certain commercial deposit and treasury management products and services nationally. We have
a limited on-line deposit product offering. Our deposits are insured by the FDIC up to statutory limits. Demand deposit balances are concentrated in
commercial and small business accounts. Our service fee schedule and rates are competitive with other financial institutions in our markets.
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Investment Securities
The primary objectives of our investment policy are to provide liquidity, provide a suitable balance of high credit quality and diversified assets to the
consolidated 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-day
activities pertaining to the investment portfolio are conducted within the Company's Chief Investment Office and Treasury division under the supervision of
the Chief Investment Officer and Chief Financial Officer.
Risk Management and Oversight
Our Board of Directors oversees our risk management framework. Our Board approves the Company's business plan, risk appetite statement and the
policies that set standards for the nature and level of risk the Company is willing to assume. The Board and its established committees receive regular
reporting on the Company's management of critical risks and the effectiveness of risk management systems. While our full Board maintains the ultimate
oversight responsibility for the risk management framework, its committees, including the audit committee, the risk committee, the compensation committee
and 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 and
mitigate 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's stated
risk appetite and Board approved policies. We have invested significant resources to establish a robust enterprise-wide risk management framework to support
the planned growth of our Company and execution of our business strategy. Our framework is consistent with common industry practices and regulatory
guidance and is appropriate to our size, 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 policies and adherence to risk limits, and ongoing testing and reporting by independent internal audit, credit review, and regulatory
compliance groups. Executive level oversight of the risk management framework is provided by the Enterprise Risk Management Committee, which is
chaired by the Chief Risk Officer and attended by the senior executives of the Company. Reporting to the Enterprise Risk Management Committee are sub-
committees dedicated to guiding and overseeing management of critical categories of risk, including the Credit Risk Management, Asset/Liability,
Compliance Risk Management, Operational Risk Management, Corporate Disclosure, Technical Steering, Enterprise Data, Ethics, and Financial Crimes
Compliance committees.
Marketing and Distribution
We conduct our banking business through 74 banking centers located in 14 Florida counties, 5 banking centers in the New York metropolitan area, and
our national lending and commercial deposit gathering platforms. Our distribution network also includes ATMs, fully integrated on-line banking, mobile
banking 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.
Competition
Our markets are highly competitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of the
country's largest commercial banks. We compete with other state, national and international banks as well as savings associations, savings banks and credit
unions with physical presence in our market areas or targeting our market areas digitally for deposits and loans. In addition, we compete with financial
intermediaries such as FinTech companies, consumer finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds
and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. Our largest
banking competitors in the Florida market include Truist, JPMorgan Chase, PNC, Regions Bank, TD Bank, Wells Fargo, Bank of America, First Horizon,
Synovus and 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. Other
important competitive factors include convenience, quality of customer service,
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availability of on-line, mobile and remote banking products, community reputation, continuity of personnel and services, and, in the case of larger
commercial customers, relative lending limits and ability to offer sophisticated cash management and other commercial banking services. While we continue
to provide competitive interest rates on both depository and lending products, we believe that we can compete most successfully by focusing on the financial
needs of growing companies and small and middle-market businesses, offering them a broad range of personalized services and sophisticated cash
management tools tailored to their businesses.
Regulation and Supervision
The U.S. banking industry is highly regulated under federal and state law. These regulations affect the operations of BankUnited, Inc. and its subsidiaries.
Statutes, regulations and policies limit the activities in which we may engage and the conduct of our permitted activities and establish capital
requirements 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 applicable
regulatory authorities have broad enforcement power over bank holding companies, banks and their subsidiaries, including the power to impose substantial
fines and other penalties for violations of laws and regulations. Further, the regulatory system imposes reporting and information collection obligations. We
incur significant costs related to compliance with these laws and regulations. Banking statutes, regulations and policies are continually under review by
federal and state legislatures and regulatory agencies, and a change in them, including changes in how they are interpreted or implemented, could have a
material 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 summarize
all laws and regulations applicable to us.
Bank and Bank Holding Company Regulation
BankUnited is a national bank. As a national bank organized under the National Bank Act, BankUnited is subject to ongoing and comprehensive
supervision, 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 are
subject to regulation, inspection, examination, supervision and enforcement by the Federal Reserve 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 and
enforcement by the Federal Reserve Board.
Broad Supervision, Examination and Enforcement Powers
A 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 of banking
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 that the
banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things:
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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;
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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 that
the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the
institution's regulatory agency. Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements
could subject BankUnited, Inc., the Bank and their subsidiaries or their officers, directors and institution-affiliated parties to the remedies described above and
other sanctions.
Notice and Approval Requirements Related to Control
Banking 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-insured
depository institution. The determination of whether an investor "controls" a depository institution is based on all of the facts and circumstances surrounding
the 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 any
class 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's
ownership of BankUnited, Inc. were to exceed certain thresholds, the investor could be deemed to "control" the Company for regulatory purposes. This could
subject the investor to regulatory filings or other regulatory consequences.
In addition, except under limited circumstances, BHCs are prohibited from acquiring, without prior approval:
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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.
Permissible Activities and Investments
Banking laws generally restrict the ability of BankUnited, Inc. to engage in activities other than those determined by the Federal Reserve Board to be so
closely 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 financial
holding company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities that are financial in
nature or incidental or complementary to a financial activity. 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, whether
the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or
gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or
unsound banking practices.
Regulatory Capital Requirements and Capital Adequacy
The federal bank regulators view capital levels as important indicators of an institution's financial soundness. As a general matter, FDIC-insured
depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. The final
supervisory determination on an institution's capital adequacy is based on the regulator's assessment of numerous factors. Both BankUnited, Inc. and
BankUnited 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 established
substantially similar risk-based and leverage capital guidelines applicable to national banks, including BankUnited. BankUnited, Inc. and BankUnited are
subject to capital rules implemented under the framework promulgated by the International Basel Committee on Banking Supervision (the "Basel III Capital
Rules"). 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.
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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. A
minimum leverage ratio (tier 1 capital as a percentage of average total assets) of 4.0% is also required under the Basel III Capital Rules. Banking
organizations that fail to maintain the minimum required capital conservation buffer could face restrictions on capital distributions or discretionary bonus
payments to executive officers, with distributions and discretionary bonus payments being completely prohibited if no capital conservation buffer exists, or in
the event of the following: (i) the banking organization's capital conservation buffer was below 2.5% at the beginning of 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 capital distributions (as well as associated tax
effects not already reflected in net income) during the same measurement period.
Prompt Corrective Action
Under 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," "significantly
undercapitalized," and "critically undercapitalized," and are subjected to differential regulation corresponding to the capital category within which the
institution falls. As of December 31, 2019, a depository institution was deemed to be "well capitalized" if the banking institution had a total risk-based capital
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% or greater,
and the institution was not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific level
for any capital measure. Under certain circumstances, a well-capitalized, adequately-capitalized or undercapitalized institution may be treated as 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 of December 31, 2019,
BankUnited, Inc. and BankUnited were well capitalized.
Source of strength
All companies, including BHCs, that directly or indirectly control an insured depository institution, are required to serve as a source of strength for the
institution. Under this requirement, BankUnited, Inc. in the future could be required to provide financial assistance to BankUnited should it experience
financial distress. Such support may be required at times when, absent this statutory and Federal Reserve Policy requirement, a BHC may not be inclined to
provide it.
Regulatory Limits on Dividends and Distributions
Federal law currently imposes limitations upon certain capital distributions by national banks, such as certain cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. The Federal
Reserve 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 than
normal supervision. Under the FDIA, an insured depository institution such as BankUnited is prohibited from making capital distributions, including the
payment of dividends, if, after making such distribution, the institution would become "undercapitalized." Payment of dividends by BankUnited also may be
restricted 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 the
past year and only if prospective earnings retention is consistent with the organization’s expected
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future needs and financial condition. The policy provides that 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 Requirements
Pursuant to regulations of the Federal Reserve Board, all banking organizations are required to maintain average daily reserves at mandated ratios against
their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. These reserves must be maintained in the form of
vault cash or in an account at a Federal Reserve Bank.
Limits on Transactions with Affiliates and Insiders
Insured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other related parties. Section 23A of
the Federal Reserve Act imposes quantitative limits, qualitative requirements, and collateral requirements on certain transactions by an insured depository
institution with, or for the benefit of, its affiliates. Transactions covered by Section 23A include loans, extensions of credit, investment in securities issued by
an affiliate, and acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act requires that most types of transactions by an insured
depository 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 were
conducted with an unaffiliated third party.
The Federal Reserve Board's Regulation O and OCC regulations impose restrictions and procedural requirements in connection with the extension of
credit by an insured depository institution to directors, executive officers, principal stockholders and their related interests.
Examination Fees
The OCC currently charges fees to recover the costs of examining national banks, processing applications and other filings, and covering direct and
indirect expenses in regulating national banks. Various regulatory agencies have the authority to assess additional supervision fees.
FDIC Deposit Insurance
The FDIC is an independent federal agency that insures the deposits of federally insured depository institutions up to applicable limits. The FDIC also
has certain regulatory, examination and enforcement powers with respect to FDIC-insured institutions. The deposits of BankUnited are insured by the FDIC
up 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's
deposit insurance assessment is based on that institution's risk classification under an FDIC risk-based assessment system. An institution's risk classification is
assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.
Depositor Preference
The FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of the institution
(including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have
priority over other general unsecured claims against the institution. Insured and uninsured depositors, along with the FDIC, will have priority in payment
ahead of unsecured, non-deposit creditors, including BankUnited, Inc., with respect to any extensions of credit they have made to such insured depository
institution.
Federal Reserve System and Federal Home Loan Bank System
As a national bank, BankUnited is required to hold shares of capital stock in a Federal Reserve Bank. BankUnited holds capital stock in the Federal
Reserve Bank of Atlanta. As a member of the Federal Reserve System, BankUnited has access to the Federal Reserve discount window lending and payment
clearing 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 as
well as other entities involved in home mortgage lending. Any advances from a FHLB 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 of Atlanta. BankUnited is in compliance with this requirement.
Anti-Money Laundering and OFAC
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Under federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and
controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Financial
institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due
diligence and customer identification in their dealings with non-U.S. financial institutions and non-U.S. customers. Financial institutions must take reasonable
steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement
authorities have been granted increased access to financial information maintained by financial institutions. Bank regulators routinely examine institutions for
compliance with these obligations and they must consider an institution's compliance in connection with the regulatory review of applications, including
applications for banking mergers and acquisitions. The regulatory authorities have imposed "cease and desist" orders and civil money penalty 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 prohibited
parties, 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 on
any transaction, account or wire transfer that is on an OFAC list, BankUnited, Inc. or BankUnited must freeze or block such account or transaction, file a
suspicious activity report and notify the appropriate authorities.
Consumer Laws and Regulations
Banking organizations are subject to numerous laws and regulations intended to protect consumers. These laws include, among others:
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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 laws
regulate 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 attorneys general, and
civil or criminal liability.
CFPB
The CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct
of providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products and
services offered to bank and thrift consumers. For banking organizations with assets of $10 billion or more, such as BankUnited, Inc. and the Bank, the CFPB
has exclusive rule making
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and examination, and primary enforcement authority under federal consumer financial law. In addition, states are permitted to adopt consumer protection laws
and regulations that are stricter than those regulations promulgated by the CFPB.
The Community Reinvestment Act
The 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 a
bank 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 a
BHC's controlled banks when considering an application by the BHC to acquire a banking organization or to merge with another BHC. If BankUnited, Inc. or
BankUnited 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. The regulatory
agency's assessment of the institution's record is made available to the public. Following its most recent CRA performance evaluation in September 2018,
BankUnited received an overall rating of "Satisfactory."
Employees
At December 31, 2019, we employed 1,493 full-time employees and 18 part-time employees. None of our employees are parties to a collective
bargaining agreement. We believe that our relations with our employees are good.
Available Information
Our website address is www.bankunited.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on
Form 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 reasonably
practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this Annual
Report. In addition, the SEC maintains a website that contains reports and other information filed with the SEC. The website can be accessed at
http://www.sec.gov.
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Item 1A. Risk Factors
Risks Related to Our Business
Our 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 or
more of the following adverse effects on our business, financial condition and results of operations:
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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
losses in 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 losses
stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diversified
set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited in their ability to anticipate the existence or
development of risks that are currently unknown and unanticipated. The ineffectiveness of our enterprise risk management framework in mitigating the
impact of known risks or the emergence of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely
impact 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 the
payment 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 to
credit risk that is embedded in our securities portfolio. Our credit standards, procedures and policies may not prevent us from incurring substantial credit
losses, particularly if economic or market conditions deteriorate. It is difficult to determine the many ways in which a decline in economic or market
conditions 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 credit
portfolio. 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 the
amount of the ALLL, including, but not limited to, historical loss severities and net charge-off rates of BankUnited and other comparable financial
institutions, internal risk ratings, loss forecasts, collateral values, delinquency rates, the level of non-performing, criticized, classified and restructured loans in
the portfolio, product mix, underwriting and credit administration policies and practices, portfolio trends, concentrations, industry conditions, economic trends
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 our
ALLL. In addition, regulatory authorities periodically review our ALLL and may require us to increase our provision for loan losses or recognize further loan
charge-offs, based on judgments different than those of our management. Adverse economic conditions could make management's estimate even more
complex 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 on
our 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."
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The FASB issued an ASU that will result in a significant change in how we and other financial institutions recognize credit losses in the financial
statements 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 Financial
Instruments," 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 past
events, 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 from the
"incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The adoption of the CECL model
will significantly impact the methodology used to determine our ALLL and will require us to increase our ALLL, resulting in an adverse impact to our
financial condition, regulatory capital levels and results of operations. Moreover, the CECL model may create more volatility in the level of our ALLL. The
ASU will be effective for us on January 1, 2020. Note 1 to the consolidated financial statements provides further information about the expected impact of the
adoption of ASU 2016-13.
Additionally, uncertainty exists around whether adoption of the CECL model by the financial services industry more broadly will have an impact on
loan 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 on behalf
of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties
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 of
residential 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 our
financial results may therefore be adversely affected by changes in real estate values. Commercial real estate valuations in particular are highly subjective, as
they 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 the
real property. The properties securing income-producing investor real estate loans may not be fully leased at the origination of the loan. A borrower's ability
to repay these loans is dependent upon stabilization of the properties and additional leasing through the life of the loan or the borrower's successful operation
of a business. Weak economic conditions may impair a borrower's business operations, lead to elevated vacancy rates or lease turnover, slow the execution of
new leases or result in falling rents. These factors could result in further deterioration in the fundamentals underlying the commercial real estate market and
the deterioration in value of some of our loans. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing at
reasonable interest rates, the level of supply of available housing, governmental policy regarding housing and housing finance and general economic
conditions affecting consumers.
We make credit and reserve decisions based on current real estate values, the current conditions of borrowers, properties or projects and our expectations
for the future. If real estate values or fundamentals underlying the commercial and residential real estate markets decline, we could experience higher
delinquencies 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
may be subject to the increased costs and risks associated with the ownership of commercial or residential real property, which could have an adverse
effect on our 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 foreclose
on 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:
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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 and
liabilities 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 spreads between
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 of investment
securities available for sale and certain derivatives directly impact equity through adjustments of accumulated other comprehensive income and changes in
the values of certain other assets and liabilities may directly or indirectly impact earnings. Interest rates are highly sensitive to many factors over which we
have no control and which we may not be able to anticipate adequately, including general economic conditions and the monetary and tax policies of 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 interest
income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings.
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 may otherwise
might have been realized in a more normalized rate environment with a positively shaped yield curve. If the flat rate environment persists beyond current
forecasts, or the curve flattens further or inverts, downward pressure on our net interest margin may be exacerbated, negatively impacting our net interest
income in the future. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react
differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or reprice more quickly than interest earning assets
in a period of rising rates, an increase in interest rates could reduce net interest income. When interest earning assets mature or reprice more quickly than
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. A decrease in
the general level of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securities portfolios.
Competitive conditions may also impact the interest rates we are able to earn on new loans or are required to pay on deposits, negatively impacting 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 and
interest bearing liabilities and through the use of hedging instruments; however, interest rate risk management techniques are not precise, and we may not be
able to successfully manage our interest rate risk. Our ability to manage interest rate risk could be negatively impacted by longer fixed rate terms on loans
being added to our portfolio or by unpredictable behavior of depositors in various interest rate environments. A rapid or unanticipated increase or decrease in
interest 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 of
operations.
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The anticipated discontinuance 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 stop persuading
or compelling banks to submit LIBOR rates after 2021. The announcement indicated that the continuation of LIBOR on the current basis cannot and will not
be guaranteed after 2021. At this time, no final consensus exists as to what rate or rates may become acceptable alternatives to LIBOR, although alternative
reference rates such as SOFR are under consideration, and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based
securities and variable rate loans, derivatives, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally.
There is uncertainty with respect to the impact the likely discontinuation of LIBOR may have on credit, securities and derivatives markets broadly.
Uncertainty as to the nature of alternative reference rates 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 our portfolio, and may impact the markets in which we lend to customers and the availability and cost of
hedging instruments and borrowings. If LIBOR rates are no longer available, and we are required to implement substitute indices for the calculation of
interest rates under our loan agreements with our borrowers, we may incur significant expenses in effecting the 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.
To manage the Company's likely transition from LIBOR to one or more alternative reference rates, we have completed a gap assessment, identified the
population of our current exposures to LIBOR-indexed instruments and the systems and models that may be impacted by the transition, established a formal
governance structure for LIBOR transition, updated the standard fall-back language incorporated in new bilateral loan agreements, and have prepared and are
in the process of executing a detailed implementation plan.
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, customer
deposit maturities and withdrawals and other cash commitments under both normal operating conditions and under extraordinary or unpredictable
circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that
are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could
detrimentally impact our access to liquidity sources include a downturn in economic conditions in the geographic markets in which our operations are
concentrated 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 our
depositors and by competition for deposits in our primary markets. A substantial portion of our liabilities consist of deposit accounts that are payable on
demand 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.
Optimizing risk adjusted returns and continued organic, diversified growth of our loan and deposit customer base are essential components of our
business strategy. Commercial and consumer banking, for both loan and deposit products, in our primary markets is highly competitive. Our ability to achieve
profitable organic growth is also dependent on economic conditions, on the interest rate environment, which is in turn dependent to a large degree on fiscal
and monetary policy, and on depositor behavior and preferences. There is no guarantee that we will be able to successfully or profitably execute our
fundamental business strategy.
While acquisitions have not historically been a primary component of our business strategy, we opportunistically consider potential acquisitions of
financial institutions and complementary non-bank businesses. There are risks that may inhibit our ability to successfully execute such acquisitions. We
compete with other financial institutions for acquisition opportunities and there are a limited number of candidates that meet our acquisition criteria.
Consequently, we may 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 the required regulatory approvals in order to acquire them. If we do succeed in consummating future acquisitions, acquisitions involve risks that
the acquired businesses may not achieve anticipated results. In addition, the process of integrating acquired entities may divert significant management time
and resources. 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 of
stock or debt securities may be affected by market conditions, economic conditions or regulatory
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changes. There is no assurance that sufficient capital or funding 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
economic conditions.
Unlike some larger financial institutions that are more geographically diversified, our operations are concentrated in Florida and the New York
metropolitan area. Additionally, a significant portion of our loans secured by real estate are secured by commercial and residential properties in these
geographic regions. Accordingly, the ability of our borrowers to repay their 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 local real estate markets. Disruption or deterioration in economic conditions in the
markets we serve could result in one or more of the following:
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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 with
problem loans and collateral coverage.
Hurricanes and other weather-related events or other natural disasters, man-made disasters, and pandemic outbreaks could cause a disruption in our
operations or other consequences that could 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. The
occurrence of a hurricane or other natural disaster to which our markets are susceptible;a man-made catastrophe such as terrorist activity; or pandemic
outbreaks and other global health emergencies could disrupt our operations, result in damage to our facilities, jeopardize our ability to continue to provide
essential services to our customers and negatively affect the local economies in which we operate. These events may lead to a decline in loan originations, an
increase in deposit outflows, reduce or destroy the value of collateral for our loans, particularly real estate, negatively impact the business operations 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 operating lease equipment 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 fluctuations
in 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. Demand
for and the valuation of the leased equipment is sensitive to shifts in general and industry specific economic and market trends, governmental regulations and
changes in trade flows from specific events such as natural or man-made disasters. A significant portion of our equipment under operating lease consists of
rail cars used directly or indirectly in oil and gas drilling activities. Although we regularly monitor the value of the underlying assets and the potential impact
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 be adversely
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 and
estimates.
Our accounting policies and estimates are fundamental to our reported financial condition and results of operations. Management is required to make
difficult, complex or subjective judgments in selecting and applying many of these accounting policies. In some cases, management must select an accounting
policy or method from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in us reporting materially 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 financial
statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In
some cases, we could be required to apply a new or revised standard retrospectively, resulting in a restatement of prior period financial statements. See Note 1
to the consolidated financial
14
statements for more information about recent accounting pronouncements that may have a material impact on our reported financial results.
Our internal controls may be ineffective.
Management regularly monitors, evaluates and updates our internal controls over financial reporting, disclosure controls and procedures, and corporate
governance policies and procedures. Any system of controls, however well designed and operated, can provide only reasonable, not absolute, assurances that
the objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls
and procedures could have a material adverse effect on our financial condition and results of operations.
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 and key personnel. We
believe our senior management team possesses valuable knowledge about and experience in the banking industry and that their knowledge and relationships
could be difficult to replicate. The composition of our senior management team and our other key personnel may change over time. Although our Chairman,
President and Chief Executive Officer has entered into an employment agreement with us, he may not complete the term of his employment agreement or
renew it upon expiration. Other members of our senior management team are not subject to employment agreements. Our success also depends on the
experience of other key 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 key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business,
financial condition or operating results.
We face significant competition from other financial institutions and financial services providers, which may adversely impact our growth or
profitability.
The primary markets we currently serve are Florida and the New York metropolitan area. Commercial and consumer banking in these markets is highly
competitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of the country's largest
commercial banks. We compete with other state and national banks as well as savings and loan associations, savings banks and credit unions located in
Florida, New York and adjoining states as well as those targeting our markets digitally for deposits and loans. In addition, we compete with financial
intermediaries, such as FinTech companies, consumer finance companies, marketplace lenders, mortgage banking companies, insurance companies, securities
firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial
services. The variety of entities providing financial services to businesses and consumers, as well as the technologies and delivery channels through which
those 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 continued
consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any
type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Increased competition
among financial services companies may adversely affect our ability to market our products and services. Technology has lowered barriers to entry and made
it possible for banks to compete in our markets without a retail footprint by offering competitive rates, as well as non-banks, including online providers, to
offer 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 services
than 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 and sound
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
15
•
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 banking
industry, but also may eventually greatly reduce the need for banks as financial deposit-keepers and intermediaries.
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 its
debt and any repurchases of outstanding common stock. Various federal and state laws and regulations limit the amount of dividends that a bank may pay to
its 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 the
prior 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 our
strategic 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 of
liquidity, real estate values, and economic indicators such as unemployment on our financial condition and results of operations depend upon the use of
analytical and forecasting tools and models. These tools and models reflect assumptions that may not be accurate, particularly in times of market stress or
other unforeseen circumstances. Furthermore, even if our assumptions are accurate predictors of future performance, the tools and models 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 be inadequate 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 to
which we and our customers are subject. The effects of these changes and any other changes that result from interpreting and implementing regulations or
enactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon our
business.
Tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject
to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense, filing returns and establishing the value
of deferred tax assets and liabilities for purposes of its financial statements, the Company must make judgments and interpretations about the application of
these inherently complex tax laws. If the judgments, estimates and assumptions the Company uses in establishing provisions, preparing its tax returns or
establishing the value of deferred tax assets and liabilities for purposes of its financial statements are subsequently found to be incorrect, there could be a
material effect on our results of operations.
Share Price Volatility
The price of our common stock may be volatile or may decline. The price of our common stock may fluctuate as a result of a number of factors, many of
which are outside of management's control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the
market prices of the shares of many companies, including BankUnited, Inc. Among the factors that could affect our stock price are:
•
•
•
•
actual or anticipated quarterly fluctuations in the Company's operating results and financial condition;
changes in interest rates;
failure to meet analysts' revenue or earnings estimates;
changes in expectations as to our future financial performance, including financial estimates or recommendations by securities analysts and
investors; and
16
•
actions by institutional shareholders.
Operational Risks
We are subject to a variety of operational, legal and compliance risks, including the risk of fraud or theft by employees or outsiders, which may
adversely 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 and
operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled technology. The occurrence of any of these events
could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.
Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they
are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process transactions and our large transaction
volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to
detect. 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 rise
to 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 our
business as well as potential liability to customers and counterparties, reputational damage and regulatory intervention, which could adversely affect our
business, 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 on
our financial condition and results of operations.
Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems. We
rely on these systems to process new and renewed loans, gather deposits, process customer transactions, provide customer service, facilitate collections, and
share data across our organization. The failure of these systems could interrupt our operations. Because our information technology and telecommunications
systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-
party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process
new and renewed loans, gather deposits, process customer transactions, 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 financial condition and results of operations.
We are dependent on third-party service providers for significant aspects of our business infrastructure, information technology, and
telecommunications systems.
We rely on third parties to provide key components of our business infrastructure and major systems including, but not limited to, core banking systems
such as loan servicing and deposit transaction processing systems, our electronic funds transfer transaction processing, cash management and online banking
services. While we have an established third party risk management framework and select and monitor the performance of third-party vendors carefully, we
do not control their actions. Any problems caused by these third parties, 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 agreement on which any of these systems is based, could adversely affect our ability to deliver
products and services to our customers and otherwise conduct our business. In many cases, our operations rely heavily on the secure processing, storage and
transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could
have significant consequences. Financial or operational difficulties 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 at all. Replacing these third-party vendors could also create significant delays and expense.
Accordingly, use of such third parties creates an unavoidable inherent 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 an
adverse 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 security
measures we have in place, our facilities and systems may be vulnerable to cyber attacks, security breaches, acts of vandalism, computer viruses, misplaced or
lost data, programming and/or human errors, or other
17
similar events, especially because, in the case of any intentional breaches, the techniques used change frequently 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 of
confidential information over the internet and other remote channels is a critical element of remote banking. Our network could be vulnerable to unauthorized
access, computer viruses, phishing schemes and other security breaches. In addition to cyber attacks or other security breaches involving the theft of sensitive
and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks, designed to
disrupt key business services such as customer-facing websites. We may be required to spend significant capital and other resources to protect against the
threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. Any cyber attack or other security breach
involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage our reputation, erode
confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material
adverse effect on our business.
In addition, we interact with and rely on financial counterparties for whom we process transactions and who process transactions for us and rely on other
third parties, as discussed above. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins, and other cyber
security breaches described above. The cyber security measures that they maintain to mitigate the risk of such activity may be different from our own and, in
many 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 or
security breaches of third parties with whom we do not have a significant direct relationship. As a result of financial entities and technology systems
becoming more interdependent and complex, a cyber incident, information breach or loss, or technology failure that compromises the systems or data of one
or 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, could
cause 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 any
significant disruptions to us or to third parties with whom we interact. We have a comprehensive set of information security policies and protocols and a
dedicated information security division that reports to the Chief Information Officer, with oversight by the Chief Risk Officer and the Risk Committee of the
Board 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 therefore
on 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 a cost-
efficient manner, is dependent on our ability to keep pace with and pro-actively and quickly respond to technological advances and to invest in new
technology as it becomes available. Many of our larger competitors have greater resources to invest in technology than we do and may be better equipped to
market new technology-driven products and services. The widespread adoption of new technologies, including, but not limited to, digitally-enabled products
and delivery channels and payment systems, could require us to incur substantial expenditures to modify or adapt our existing products and services. Our
failure 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 services
institutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty, and other relationships. We have exposure to
an increasing number of financial institutions and counterparties. These counterparties include institutions that may be exposed to various risks over which 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 have
important relationships could have a negative impact on our business even if we are not subject to the same adverse developments.
18
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 of
our 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 alleged
conduct in any number of activities, including lending practices, employee relations, corporate governance and acquisitions and from actions taken by
government regulators and community organizations in response to those activities. Adverse developments with respect to external perceptions regarding the
practices of our competitors, or our industry as a whole, or the general economic climate may also adversely impact our reputation. These perceptions about
us could cause our business to be negatively affected and exacerbate the other risks that we face. In addition, adverse reputational impacts on third parties
with whom we have important relationships may adversely impact our reputation. Adverse reputational impacts or events may also increase our litigation risk.
We carefully monitor internal and external developments for areas of potential reputational risk and have established governance structures to assist in
evaluating such risks in our business practices and decisions.
Risks Relating to the Regulation of Our Industry
We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive
compensation 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 laws and
regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the
dividend or distributions that BankUnited can pay to BankUnited, Inc., restrict the ability of institutions to guarantee our debt, and impose specific accounting
requirements on us. Banking regulators may also from time to time focus on issues that may impact the pace of growth of our business, our ability to execute
our business strategy and our operations. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose
additional compliance costs. In addition, federal banking agencies, including the OCC and Federal Reserve Board, periodically conduct examinations of our
business, including compliance with laws and regulations. Our failure to comply with these laws and regulations, even if the failure 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 requirements
applicable to banks, their holding companies and other financial institutions. Changes in laws, regulations or regulatory policies could adversely affect the
operating environment for the Company in substantial and unpredictable ways, increase our cost of doing business, impose new restrictions on the way in
which we conduct our operations or add significant operational constraints that might impair our profitability. We cannot predict whether new legislation will
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 other
complementary businesses. We must generally receive federal regulatory approval before we can acquire an institution or business. In determining whether to
approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, our financial
condition, our future prospects, and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios and
levels, the competence, experience, and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the
communities to be served (including the acquiring institution's record of compliance under the CRA) and the effectiveness of the acquiring institution in
combating 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 to
sell 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 the
benefit of any acquisition.
19
In addition to the acquisition of existing financial institutions, as opportunities arise, we may continue de novo branching as a part of our organic growth
strategy and possibly enter into new markets through de novo branching. De novo branching and any acquisition carries with it numerous risks, including the
inability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo
branches 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-money
laundering statutes and regulations.
The Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain
an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement
Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for
violations of those requirements, and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S.
Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. There is also increased scrutiny of compliance with the sanctions
programs and rules administered and enforced by the U.S. Treasury Department's Office of Foreign Assets Control.
In order to comply with regulations, guidelines and examination procedures in this area, we dedicate significant resources to the ongoing execution of our
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 financial institutions that
we may acquire in the future are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to
pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our expansion plans.
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 lending
requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A
successful challenge to an institution's performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including
the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions
on expansion activity. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action
litigation.
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 premiums
is insufficient for the DIF to meet its funding requirements in the future, special assessments or increases in deposit insurance premiums may be required. A
change in BankUnited's risk classification within the FDIC's risk-based assessment framework could also result in increased deposit insurance premiums. We
are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution
failures in the future, we may be required to pay FDIC premiums higher than current levels. Any future additional assessments or increases in FDIC insurance
premiums 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 another
incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our
operations and financial condition.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information
systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We are subject to complex and evolving
laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third
parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to
share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about
our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third
parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program
containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we
process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also
20
enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain
circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable
laws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and other third
parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is
transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, we could be
exposed to litigation or regulatory sanctions under personal information laws and regulations. Any failure or perceived failure to comply with applicable
privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or
cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our
operations and financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
BankUnited's corporate headquarters is located in Miami Lakes, Florida. The headquarters space is used for office and operations. At December 31,
2019, we provided banking services at 79 banking centers located in Florida and New York. In Florida, we had 74 banking centers in 14 counties. Of the 74
Florida banking centers, we leased 72 locations and owned 2 locations. In New York, we leased 5 banking centers, including 3 banking centers in New York
City, 1 banking center in Brooklyn and 1 banking center in Melville.
For our two commercial lending subsidiaries, we leased office and operations space in Hunt Valley, Maryland to house Bridge Funding Group and
operations 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 Proceedings
The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based
upon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the
Company’s consolidated financial position, results of operations or cash flows.
We received a subpoena from the United States Department of Justice in October 2019 requesting documentation related to the taxi medallion line of
business formerly conducted by the Bank. We are cooperating with this request.
Item 4. Mine Safety Disclosures
None.
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II - FINANCIAL INFORMATION
Market Information and Holders of Record
Shares 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 26, 2020
was $31.46 per share. As of February 26, 2020, there were 551 stockholders of record of our common stock.
Equity Compensation Plan Information
The information set forth under the caption "Equity Compensation Plan Information" in our definitive proxy statement for the Company's 2020 annual
meeting of stockholders (the "Proxy Statement") is incorporated herein by reference.
Dividend Policy
The Company declared a quarterly dividend of $0.21 per share on its common stock for each of the four quarters of 2019 and 2018, resulting in total
dividends for 2019 and 2018 of $83.2 million and $89.9 million, respectively, or $0.84 per common share for each of the years ended December 31, 2019 and
2018. Dividends from the Bank are the principal source of funds for the payment of dividends on our common stock. The Bank is subject to certain
restrictions that may limit its ability to pay dividends to us. See "Business—Regulation and Supervision—Regulatory Limits on Dividends and Distributions".
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 directors may deem
relevant.
22
Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on an initial investment of $100 in our common stock between December 31,
2014 and December 31, 2019, with the comparative cumulative total return of such amount on the S&P 500 Index and the S&P 500 Bank Index over the same
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 not
necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
Index
BankUnited, Inc.
S&P 500 Index
S&P 500 Bank Index
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
100.00
100.00
100.00
115.28
115.26
116.49
123.70
129.05
144.81
135.79
157.22
177.47
102.88
150.33
148.30
141.64
173.86
180.55
Recent Sales of Unregistered Securities
None.
23
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Period
October 1 – October 31, 2019
November 1 – November 30, 2019
December 1 – December 31, 2019
Total
Issuer Purchases of Equity Securities
Total number of
shares purchased(1)
Average price paid per
share
Total number of
shares purchased as
part of publicly
announced plans or
programs
Maximum number (or approximate
dollar value) of shares that may yet
be purchased under the plans or
programs(2)
123,176 $
—
—
123,176 $
32.72
—
—
32.72
123,176 $
— $
— $
123,176
145,969,701
145,969,701
145,969,701
(1) The total number of shares purchased during the periods indicated includes shares purchased as part of a publicly announced program.
(2) On September 12, 2019, the Company's Board of Directors authorized a share repurchase program under which the Company may repurchase up to $150 million of its outstanding common
stock. No time limit was set for the completion of the share repurchase program. The authorization does not require the Company to acquire any specified number of common shares and may
be commenced, suspended or discontinued without prior notice. Under this authorization, $145,969,701 remained available for purchase at December 31, 2019.
24
Item 6. Selected Consolidated Financial Data
You should read the selected consolidated financial data set forth below in conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the audited consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K.
The selected consolidated financial data set forth below is derived from our audited consolidated financial statements.
Consolidated Balance Sheet Data:
Cash and cash equivalents
Investment securities
Loans, net
FDIC indemnification asset
Operating lease equipment, net
Total assets
Deposits
FHLB advances
Notes and other borrowings
Total liabilities
Total stockholder's equity
Consolidated Income Statement Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Provision (benefit) for income taxes (1)
Net income
Share Data:
Earnings per common share, basic
Earnings per common share, diluted
Cash dividends declared per common share
$
$
$
$
2019
2018
2017
2016
2015
At December 31,
(dollars in thousands)
$
214,673 $
382,073 $
194,582 $
448,313 $
7,769,237
8,166,878
6,690,832
6,073,584
267,500
4,859,539
23,046,317
21,867,077
21,271,709
19,242,441
16,510,775
—
—
698,153
702,354
295,635
599,502
515,933
539,914
32,871,293
32,164,326
30,346,986
27,880,151
24,394,591
23,474,223
21,878,479
19,490,890
4,480,501
4,796,000
4,771,000
5,239,348
429,338
402,749
402,830
402,809
739,880
483,518
23,883,467
16,938,501
4,008,464
402,545
29,890,514
29,240,493
27,320,924
25,461,722
21,639,569
2,980,779
2,923,833
3,026,062
2,418,429
2,243,898
2019
2018
2017
2016
2015
Years Ended December 31,
(dollars in thousands, except per share data)
$
1,281,870
$
1,449,144
$
1,204,461
$
1,059,217
$
529,085
752,785
8,904
743,881
147,204
487,089
403,996
90,898
399,051
1,050,093
25,925
1,024,168
132,022
740,540
415,650
90,784
254,189
950,272
68,747
881,525
157,904
634,968
404,461
(209,812)
188,832
870,385
50,911
819,474
106,417
590,447
335,444
109,703
313,098
$
324,866
$
614,273
$
225,741
$
3.14
3.13
0.84
$
$
$
3.01
2.99
0.84
$
$
$
5.60
5.58
0.84
$
$
$
2.11
2.09
0.84
$
$
$
880,816
135,164
745,652
44,311
701,341
102,224
506,672
296,893
45,233
251,660
2.37
2.35
0.84
Dividend payout ratio
26.75%
27.95%
14.99%
39.85%
35.75%
25
Other Data (unaudited):
Financial ratios
Return on average assets
Return on average common equity
Yield on earning assets (2)
Cost of interest bearing liabilities
Tangible common equity to tangible assets
Net interest margin (2)
Loan to deposit ratio
Tangible book value per common share
$
Asset quality ratios
Non-performing loans to total loans (3)
Non-performing assets to total assets (4)
ALLL to total loans
ALLL to non-performing loans (3)
Net charge-offs to average loans(5)
Capital ratios
Tier 1 leverage
CET1 risk-based capital
Tier 1 risk-based capital
Total risk-based capital
As of or for the Years Ended December 31,
2019
2018
2017
2016
2015
(dollars in thousands, except per share data)
0.95%
10.63%
4.16%
2.09%
8.85%
2.47%
95.07%
30.52
$
0.88%
0.63%
0.47%
53.07%
0.05%
1.05%
10.57%
5.04%
1.66%
8.87%
3.67%
93.78%
28.71
$
0.59%
0.43%
0.50%
84.63%
0.28%
2.13%
23.36%
4.58%
1.12%
9.74%
3.65%
98.04%
27.59
$
0.81%
0.61%
0.68%
83.53%
0.38%
0.87%
9.64%
4.51%
0.93%
8.42%
3.73%
99.72%
22.47
$
0.70%
0.53%
0.79%
112.55%
0.13%
1.18%
11.62%
4.64%
0.84%
9.10%
3.94%
98.50%
20.90
0.44%
0.35%
0.76%
172.23%
0.10%
2019
2018
2017
2016
2015
At December 31,
8.90%
12.32%
12.32%
12.79%
8.99%
12.57%
12.57%
13.08%
9.72%
13.11%
13.11%
13.78%
8.41%
11.63%
11.63%
12.45%
9.35%
12.58%
12.58%
13.36%
(1)
Includes a discrete income tax benefit of $327.9 million during the year ended December 31, 2017.
(2) On a tax-equivalent basis, at a federal income tax rate of 21% for 2019 and 2018, and 35% for years 2017, 2016 and 2015.
(3) 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
and still accruing. Contractually delinquent ACI loans on which interest continues to be accreted are excluded from non-performing loans.
(4) Non-performing assets include non-performing loans, OREO and other repossessed assets.
(5) 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.
26
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 condition and results of operations of
BankUnited, Inc. and its subsidiary (the "Company", "we", "us" and "our") and should be read in conjunction with the consolidated financial statements,
accompanying footnotes and supplemental financial data included herein. 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 that
could cause such differences are discussed in the sections entitled "Forward-looking Statements" and "Risk Factors." We assume no obligation to update any
of these forward-looking statements.
Overview
Performance Highlights
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, levels and composition of non-
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 consider
growth in earning assets and deposits, trends in funding mix and cost of funds. We analyze these ratios and trends against our own historical performance, our
budgeted performance and the financial condition and performance of comparable financial institutions.
Performance highlights include:
•
Net income for the year ended December 31, 2019 was $313.1 million, or $3.13 per diluted share, compared to $324.9 million, or $2.99 per diluted
share, for the year ended December 31, 2018. Diluted earnings per share for the year ended December 31, 2019 represented a 33% increase over
non-loss share diluted earnings per share for the year ended December 31, 2018 of $2.36. For the year ended December 31, 2019, the return on
average stockholders' equity was 10.6% and the return on average assets was 0.95%. While a decline in earnings following the termination of the
Residential Shared-Loss Agreement was expected, 2019 results demonstrate that we have already replaced a significant portion of the loss-share
related earnings stream.
• We are beginning to see the impact of our BankUnited 2.0 initiative on operating results and remain on track to achieve our previously disclosed
target of incremental annual pre-tax impact of $40 million in cost reductions and $20 million in incremental revenue by mid-2021. Some of the
significant milestones achieved to date include:
◦ We have completed the re-organization of our corporate and commercial business lines, better aligning teams with customer segments and
creating specialty groups to focus on and support niche markets across banking teams.
◦
◦
Our new commercial Card program is well positioned for a 2020 launch.
New treasury management fee programs and enhanced customer penetration initiatives have been implemented.
◦ We have re-aligned our retail and small business banking teams with a focus on core deposit growth and growth in small business lending,
begun implementation of an automated underwriting platform for small loans and begun to execute on our branch optimization strategy.
◦
Operational excellence initiatives such as robotic process automation and select expense management programs continue to gain
momentum.
27
•
•
•
Net interest income for the year ended December 31, 2019 was $752.8 million, a decrease of $297.3 million from the prior year. The net interest
margin, calculated on a tax-equivalent basis, was 2.47% for the year ended December 31, 2019, compared to 3.67% for the year ended December 31,
2018. The most significant reason for these expected declines in net interest income and the net interest margin for the year ended December 31,
2019 compared to the year ended December 31, 2018 was the decrease in accretion on formerly covered residential loans. 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 average rate paid on interest bearing liabilities for the years ended December 31, 2019 and 2018 (on a tax
equivalent basis):
Recurring operating expenses declined by 4% for the year ended December 31, 2019 compared to the year ended December 31, 2018, reflecting both
the execution of our BankUnited 2.0 initiative and cost reductions resulting from the termination of the Residential Shared-Loss Agreement. See
section entitled "Results of Operations—Non-Interest Expense" for further details.
Total deposits increased by $920 million for the year ended December 31, 2019, of which $674 million or 73% was non-interest bearing demand
deposits. Non-interest bearing demand deposits increased by 19% in 2019, to 18% of total deposits at December 31, 2019. The following charts
illustrate the composition of deposits at December 31, 2019 and 2018:
28
•
•
•
•
•
The average cost of total deposits increased to 1.63% for the year ended December 31, 2019 from 1.28% for 2018. The cost of deposits started to
decline in the second half of 2019, declining by 0.03% during the third quarter and 0.19% during the fourth quarter.
Loans and leases, including operating lease equipment, grew by $1.2 billion or 5.2% during the year ended December 31, 2019, reflecting growth
across all major lending categories with the exception of multi-family, owner occupied commercial real estate and Pinnacle. The following charts
compare the composition of our loan and lease portfolio at December 31, 2019 and 2018:
(1) Includes operating lease equipment.
At December 31, 2019, 98% of the commercial loan portfolio was rated "pass" and 99% of the 1-4 single family residential portfolio, excluding
government insured residential loans, was current. The ratio of non-performing loans to total loans was 0.88% and the ratio of non-performing assets
to total assets was 0.63% at December 31, 2019.
During the year ended December 31, 2019, the Company repurchased approximately 4.5 million shares of its common stock for an aggregate
purchase price of $154 million, at a weighted average price of $34.34 per share. During the first quarter of 2020, through February 14, 2020, the
Company repurchased an additional 1.0 million shares of its common stock for an aggregate purchase price of $39 million, at a weighted average
price of $33.63 per share.
Book value per common share grew to $31.33 at December 31, 2019 from $29.49 at December 31, 2018 while tangible book value per common
share increased to $30.52 from $28.71 over the same period.
29
•
The Company’s and the Bank's capital ratios exceeded all regulatory “well capitalized” guidelines. The charts below present the Company's and the
Bank's regulatory capital ratios compared to regulatory guidelines as of December 31, 2019 and 2018:
BankUnited, Inc:
BankUnited, N.A.:
Strategic Priorities
Management has identified the following strategic priorities for our Company:
• Maximizing risk adjusted returns through a combination of sustainable, prudently managed organic growth and capital optimization.
•
•
Optimizing our deposit mix, emphasizing growth in non-interest bearing demand and other core deposits and lowering the cost of funds.
Continuing to execute on our BankUnited 2.0 initiative, emphasizing operational excellence, enhanced revenue streams consistent with our
commercial focus, and growth of our small business customer base.
• Maintaining a culture of disciplined credit underwriting.
•
•
Investing in technology to enhance delivery of tailored products and services to our customers and to streamline our infrastructure.
Providing robust digital-enabled customer experiences.
30
Challenges confronting our Company, some of which impact the banking industry more broadly, include:
•
•
•
The current interest rate environment, characterized by generally low interest rates, a flat yield curve, and relatively tight spreads, may impact our
ability to achieve margin expansion.
Our cost of funds remains higher than that of most of our peers.
Competition for both loans and deposits may impact our ability to execute our profitable organic growth strategy.
• While most domestic economic indicators remain favorable, uncertainty about future economic conditions as we move through the credit cycle may
present challenges to our business strategy.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of
these accounting principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the
consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe
to be reasonable and appropriate under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and
liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions
may have resulted 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 reviewing
our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve a
heightened 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 Losses
The ALLL represents management's estimate of probable incurred loan losses inherent in the Company's loan portfolio at the balance sheet date.
Determining the amount of the ALLL is considered a critical accounting estimate because of its complexity and because it requires significant judgment and
estimation. Estimates that are particularly 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 loss factors; and
determination of the amount of specific reserves for impaired loans.
The adoption of ASU 2016-13 in the first quarter of 2020 will result in significant changes in the methodology used to determine the amount of the
allowance for expected credit losses.
Note 1 to the consolidated financial statements describes the methodology used to determine the ALLL and provides further information about the
expected impact of the adoption of ASU 2016-13.
Fair Value Measurements
The Company measures certain of its assets and liabilities at fair value on a recurring or non-recurring basis. Assets and liabilities measured at fair value
on a recurring basis include investment securities available for sale, marketable equity securities, servicing rights, and derivative instruments. Assets that may
be measured at fair value on a non-recurring basis include impaired loans or the underlying collateral, OREO and other repossessed assets, loans held for sale,
goodwill, and impaired long-lived assets. The consolidated financial statements also include disclosures about the fair value of financial instruments that are
not recorded at fair value.
31
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 market
for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to determine fair value measurements are
prioritized 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, and
Level 3—unobservable inputs requiring significant management judgment or estimation.
When observable market prices are not available, fair value is estimated using modeling techniques such as discounted cash flow analyses and option
pricing 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 valuation
techniques or underlying assumptions could result in fair value estimates that are higher or lower than the amounts recorded or disclosed in our consolidated
financial statements. Considerable judgment may be involved in determining the amount that is most representative of fair value. The Company had no assets
or liabilities measured at fair value on a recurring basis that were classified as level 3 at December 31, 2019.
Because of the degree of judgment involved in selecting valuation techniques and underlying assumptions, fair value measurements are considered
critical accounting estimates.
Notes 1, 3, 10 and 14 to our consolidated financial statements contain further information about fair value estimates.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the
primary driver of core earnings. Net interest income is impacted by the mix of interest earning assets and interest bearing liabilities, the ratio of interest
earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yield curve, 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, by management's
continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of interest
bearing liabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against
relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's
markets and the availability and pricing of other sources of funds.
32
The following table presents, for the years ended December 31, 2019, 2018 and 2017, information about (i) average balances, the total dollar amount of
taxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on
interest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrual and
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 federal
income taxes, at a federal tax rate of 21% during the years ended December 31, 2019 and 2018 and 35% during the year ended December 31, 2017 (dollars in
thousands):
Average
Balance
2019
Interest (1)
Yield/
Rate (1)
Average
Balance
2018
Interest (1)
Yield/
Rate (1)
Average
Balance
2017
Interest(1)
Yield/
Rate (1)
847,588
368,161
1,215,749
238,602
17,812
1,472,163
4.00% $
86.13%
5.63%
3.35%
3.52%
5.04%
730,701
300,540
1,031,241
201,363
14,292
1,246,896
3.75%
55.22%
5.15%
3.02%
2.63%
4.58%
Assets:
Interest earning assets:
Non-covered loans
Covered loans
Total loans
Investment securities (2)
Other interest earning assets
Total interest earning assets
Allowance for loan and lease losses
Non-interest earning assets
998,130
—
998,130
284,849
19,902
1,302,881
$
22,553,250
$
—
22,553,250
8,231,858
555,992
31,341,100
(112,890)
1,625,579
4.43% $
—%
4.43%
3.46%
3.58%
4.16%
$
21,169,705 $
427,437
21,597,142
7,124,372
506,154
29,227,668
(136,758)
1,878,284
30,969,194
Total assets
$
32,853,789
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits
$
1,824,803
Savings and money market deposits
Time deposits
Total interest bearing deposits
Short term borrowings
FHLB advances
Notes and other borrowings
Total interest bearing liabilities
Non-interest bearing demand deposits
Other non-interest bearing liabilities
Total liabilities
Stockholders' equity
10,922,819
6,928,499
19,676,121
124,888
5,089,524
403,704
25,294,237
3,950,612
662,590
29,907,439
2,946,350
25,054
197,942
162,184
385,180
2,802
119,901
21,202
529,085
1.37% $
1.81%
2.34%
1.96%
2.24%
2.36%
5.25%
2.09%
18,391
146,324
119,848
284,563
1,035
92,234
21,219
399,051
1,627,828
10,634,970
6,617,006
18,879,804
48,940
4,637,247
402,795
23,968,786
3,389,191
538,575
27,896,552
3,072,642
30,969,194
19,478,071 $
544,279
20,022,350
6,658,145
543,338
27,223,833
(156,471)
1,758,032
28,825,394
1,586,390
9,730,101
6,094,336
17,410,827
—
4,869,690
402,921
22,683,438
3,069,565
443,019
26,196,022
2,629,372
28,825,394
$
1.13% $
1.38%
1.81%
1.51%
2.11%
1.99%
5.27%
1.66%
$
Total liabilities and stockholders' equity $
32,853,789
$
Net interest income
Interest rate spread
Net interest margin
$
773,796
$
1,073,112
$
992,708
2.07%
2.47%
3.38%
3.67%
(1) On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $16.7 million, $17.5 million, and $29.4 million, and the tax-equivalent adjustment for tax-
exempt investment securities was $4.3 million, $5.5 million and $13.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
(2) At fair value except for securities held to maturity.
Increases and decreases in interest income, calculated on a tax-equivalent basis, and interest expense result from changes in average balances (volume) of
interest earning assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest
earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated. The effect of changes in volume is
determined by multiplying the change in volume by the previous year's average rate. Similarly, the effect of rate changes is calculated by multiplying the
change in
33
12,873
80,397
77,663
170,933
—
61,996
21,259
254,188
0.81%
0.83%
1.27%
0.98%
—%
1.27%
5.28%
1.12%
3.46%
3.65%
average rate by the previous year's volume. Changes applicable to both volume and rate have been allocated to volume (in thousands):
Interest Income Attributable to:
Loans
Investment securities
Other interest earning assets
Total interest income
Interest Expense Attributable to:
Interest bearing demand deposits
Savings and money market deposits
Time deposits
Total interest bearing deposits
Short term borrowings
FHLB advances
Notes and other borrowings
Total interest expense
2019 Compared to 2018
2018 Compared to 2017
Change Due to
Volume
Change Due to
Rate
Increase
(Decrease)
Change Due to
Volume
Change Due to
Rate
Increase
(Decrease)
$
41,547 $
(259,166) $
(217,619) $
88,401 $
96,107 $
184,508
38,410
1,786
81,743
2,756
5,888
7,266
15,910
1,703
10,509
64
7,837
304
46,247
2,090
15,267
(1,316)
21,972
4,836
37,239
3,520
(251,025)
(169,282)
102,352
122,915
225,267
3,907
45,730
35,070
84,707
64
17,158
(81)
6,663
51,618
42,336
100,617
1,767
27,667
(17)
442
12,411
9,276
22,129
1,035
(4,824)
—
5,076
53,516
32,909
5,518
65,927
42,185
91,501
113,630
—
35,062
(40)
1,035
30,238
(40)
28,186
101,848
130,034
18,340
126,523
144,863
Increase (decrease) in net interest income
$
53,557 $
(352,873) $
(299,316) $
84,012 $
(3,608) $
80,404
Net interest income, calculated on a tax-equivalent basis, was $773.8 million for the year ended December 31, 2019 compared to $1.1 billion for the year
ended December 31, 2018, a decrease of $299.3 million. The decrease in net interest income was comprised of a decrease in tax-equivalent interest income of
$169.3 million and an increase in interest expense of $130.0 million for the year ended December 31, 2019, compared to the year ended December 31, 2018.
The decrease in tax-equivalent interest income was comprised primarily of (i) decrease in interest income from loans of $217.6 million for the year ended
December 31, 2019 compared to the year ended December 31, 2018; partially offset by (ii) an increase in interest income from investment securities of $46.2
million for the year ended December 31, 2019 compared to the year ended December 31, 2018.
The decline in interest income from loans was mainly the result of the decrease in accretion on formerly covered residential loans. Interest income on
formerly covered residential loans declined by $305.2 million for the year ended December 31, 2019 compared to the year ended December 31, 2018. Both
the average balance of and yield on these loans declined. The decline in the average balance resulted from the sale of a substantial portion of the loans during
2018 in anticipation of the termination of the Single Family Shared-Loss Agreement. The decline in the yield was due primarily to changes in assumptions
about the remaining period over which accretable yield would be realized, attributable to management's decision to retain certain loans beyond expiration of
the Single Family Shared-Loss Agreement.
34
The following table presents further details of the composition of the tax equivalent yield on loans for the years ended December 31, 2019, 2018 and
2017 (dollars in thousands):
Average
Balance
2019
Interest (1)
Yield/
Rate (1)
Average
Balance
2018
Interest (1)
Yield/
Rate (1)
Average
Balance
2017
Interest (1)
Yield/
Rate (1)
Loans:
Non-covered loans
$
22,369,837 $
935,168
4.18% $
21,169,705 $
847,588
4.00% $
19,478,071 $
730,701
3.75%
Formerly covered
loans
183,413
62,962
34.33%
427,437
368,161
86.13%
544,279
300,540
Total loans
$
22,553,250 $
998,130
4.43% $
21,597,142 $ 1,215,749
5.63% $
20,022,350 $ 1,031,241
55.22%
5.15%
(1) On a tax-equivalent basis where applicable.
Increased interest income on loans, other than formerly covered residential loans, for the year ended December 31, 2019 compared to the year ended
December 31, 2018 was attributable to increases in both the yield on and average balance of those loans. The tax-equivalent yield increased by 0.18% for the
year ended December 31, 2019 compared to the year ended December 31, 2018, while the average balance outstanding increased by $1.2 billion for the year
ended December 31, 2019 compared to the year ended December 31, 2018. The most significant factor contributing to the increased yield was the impact of
increases in benchmark interest rates in 2018.
The average balance of investment securities increased by $1.1 billion for the year ended December 31, 2019 compared to the year ended December 31,
2018. The tax-equivalent yield increased to 3.46% from 3.35% for the year ended December 31, 2018, primarily due to increases in coupon interest rates,
partially offset by increased prepayment speeds.
The primary components of the increase in interest expense for the year ended December 31, 2019 compared to the year ended December 31, 2018 were
an increase of $100.6 million in interest expense on deposits and an increase of $27.7 million in interest expense on FHLB advances.
The increase in interest expense on deposits was attributable to an increase in average interest bearing deposits of $796 million for the year ended
December 31, 2019 compared to the year ended December 31, 2018 and an increase in the average cost of interest bearing deposits of 0.45% to 1.96% for the
year ended December 31, 2019 from 1.51% for the year ended December 31, 2018. This increase was generally driven by the growth of deposits in
competitive markets and a rising short-term interest rate environment in 2018.
The increase in interest expense on FHLB advances resulted from an increase in the average cost of advances of 0.37% to 2.36% for the year ended
December 31, 2019 from 1.99% for the year ended December 31, 2018. The increased cost was driven primarily by increased market rates. The average
balance of advances increased by $452 million for the year ended December 31, 2019 compared to the year ended December 31, 2018.
The impact of increases in benchmark interest rates throughout 2018 on yields and costs for 2019, in the aggregate, more than offset the impact of
declines in those rates over the latter half of 2019.
Provision for Loan Losses
The 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 absorb
probable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. The amount of the
provision is impacted by loan growth, portfolio mix, historical loss rates, the level of charge-offs and specific reserves for impaired loans, and management's
evaluation of qualitative factors in the determination of general reserves. The determination of the amount of the ALLL is complex and involves a high degree
of judgment and subjectivity. Our determination of the amount of the allowance and corresponding provision for loan losses considers ongoing evaluations of
the credit quality of and level of credit risk inherent in various segments of the loan portfolio and of individually significant credits, levels of non-performing
loans and charge-offs, historical and statistical trends and economic and other relevant factors. See “Analysis of the Allowance for Loan and Lease Losses”
below for more information about how we determine the appropriate level of the allowance.
For the years ended December 31, 2019 and 2018, the Company recorded provisions for loan losses of $8.9 million and $25.9 million, respectively. The
provision for the year ended December 31, 2018 included a provision of $26.2 million related to taxi medallion loans.
35
The most significant factor contributing to the decrease in the provision for loan losses for the year ended December 31, 2019 compared to the year ended
December 31, 2018 was the reduction in the provision related to taxi medallion loans. Other contributing factors included (i) a decrease in the non-taxi
provision related to specific reserves; and (ii) changes in the composition of portfolio growth; offset by (iii) net increases related to the relative impact on the
provision of changes in certain quantitative and qualitative loss factors.
The provision for loan losses declined to $25.9 million for the year ended December 31, 2018 from $68.7 million for the year ended December 31, 2017
primarily due to a reduction in the provision related to taxi medallion loans.
Non-Interest Income
The following table presents a comparison of the categories of non-interest income for the years ended December 31, 2019, 2018 and 2017 (in
thousands):
2019
2018
2017
Income from resolution of covered assets, net
$
— $
11,551 $
Net loss on FDIC indemnification
Gain on sale of covered loans, net
Other
Non-interest income related to the impact of transactions in the formerly covered assets
Deposit service charges and fees
Gain on sale of non-covered loans, net
Gain on investment securities, net
Lease financing
Other non-interest income
Non-interest income
—
—
—
—
16,539
12,119
21,174
66,631
30,741
(4,199)
5,732
1,214
14,298
14,412
10,132
3,159
61,685
28,336
27,450
(22,220)
17,406
1,626
24,262
13,180
10,183
33,466
53,837
22,976
$
147,204 $
132,022 $
157,904
The decline in non-interest income related to the impact of transactions in the formerly covered assets resulted from the termination of the Single Family
Shared-Loss Agreement in February 2019.
The most significant contributor to the increase in deposit service charges and fees for the year ended December 31, 2019 compared to the year ended
December 31, 2018 was higher treasury management fee income, beginning to reflect the implementation of our BankUnited 2.0 initiative, particularly
enhanced pricing discipline and greater customer penetration.
The most significant components of gain on sale of non-covered loans are (i) gains from the sale of Pinnacle loans totaling $2.4 million for the year
ended December 31, 2019; (ii) gains on sales of the guaranteed portions of SBA loans totaling $4.8 million for the year ended December 31, 2019 compared
to $8.6 million for the year ended December 31, 2018, and (iii) gains on sale of government insured residential loans totaling $4.8 million for the year ended
December 31, 2019 compared to $1.2 million for the year ended December 31, 2018. The year-over-year fluctuations in gains on sales of SBA and
government insured residential loans were primarily attributed to changes in the volume of loans sold.
Gain on investment securities, net for the year ended December 31, 2019 reflected (i) net realized gains of $18.5 million from the sale of investment
securities available for sale, including $9.0 million in gains related to a strategic decision to sell certain formerly covered securities and (ii) net unrealized
gains on marketable equity securities of $2.6 million, compared to net unrealized losses of $2.9 million for the year ended December 31, 2018. Gains from the
sale of investment securities available for sale generally relate to the sale of securities in the course of managing the Company's liquidity position, portfolio
duration and risk adjusted returns.
Period over period increases in income from lease financing generally corresponded to the average balance growth in the portfolio of operating lease
equipment.
36
Non-Interest Expense
The following table presents the components of non-interest expense for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Employee compensation and benefits
Occupancy and equipment
Amortization of FDIC indemnification asset
Deposit insurance expense
Professional fees
Technology and telecommunications
Depreciation of operating lease equipment
Loss on debt extinguishment
Other non-interest expense
Total non-interest expense
Less:
Amortization of FDIC indemnification asset
Depreciation of operating lease equipment
Loss on debt extinguishment
Costs incurred directly related to implementation of BankUnited 2.0
2019
235,330 $
2018
254,997 $
$
56,174
55,899
—
261,763
16,991
20,352
47,509
48,493
3,796
58,444
18,984
16,539
35,136
40,025
—
57,197
487,089
740,540
2017
237,824
58,100
176,466
22,011
23,676
31,252
35,015
—
50,624
634,968
—
(261,763)
(176,466)
(48,493)
(40,025)
(35,015)
(3,796)
(14,802)
—
(1,899)
—
—
Recurring operating expenses (1)
$
419,998 $
436,853 $
423,487
(1) Recurring operating expenses is a non-GAAP measure. See section entitled "Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measurements to their
comparable GAAP financial measurements.
Employee compensation and benefits
As is typical for financial institutions, employee compensation and benefits represents the single largest component of recurring non-interest expense.
Employee compensation and benefits declined by $19.7 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018,
primarily due to a reduction in headcount.
Amortization of FDIC indemnification asset
The FDIC indemnification asset was amortized to zero during the fourth quarter of 2018 in light of the expected termination of the Single Family Shared-
Loss Agreement
Deposit insurance expense
The decrease in 2019 was attributed to the discontinuance of the large bank surcharge assessment in the fourth quarter 2018.
Professional fees
Professional fees increased by $3.8 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The increase was
primarily attributable to consulting services related to our BankUnited 2.0 initiative of $10.8 million in 2019.
Technology and telecommunications
Technology and telecommunications increased by $12.4 million for the year ended December 31, 2019 as compared to the year ended December 31,
2018. This increase related primarily to investments we are making in cloud technology, our digital platforms, data initiatives and enhancement of some of
our product offerings and risk management capabilities.
37
Depreciation of operating lease equipment
Depreciation of operating lease equipment increased by $8.5 million for the year ended December 31, 2019 compared to the year ended December 31,
2018. This increase generally corresponds to the average balance growth in the portfolio of operating lease equipment and includes an impairment charge of
$1.9 million for the year ended December 31, 2019.
Loss on debt extinguishment
The loss on debt extinguishment during the year ended December 31, 2019 related to the extinguishment of certain higher cost FHLB advances.
Other non-interest expense
The most significant components of other non-interest expense are advertising, promotion and business development, costs related to lending activities
and deposit generation, expenses related to workouts and foreclosures, regulatory examination assessments, travel and general office expense. Other non-
interest expense included a loss on the sale of one commercial OREO property of $2.4 million for the year ended December 31, 2019.
Costs incurred directly related to the implementation of our BankUnited 2.0 initiative during the year ended December 31, 2019 included professional
fees of $10.8 million; branch closure expenses $2.4 million; and severance costs of $1.6 million. Costs directly related to BankUnited 2.0 for the year ended
December 31, 2018 included professional fees of $1.9 million.
Income Taxes
The provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 was $90.9 million, $90.8 million and $(209.8) million,
respectively. The effective income tax rate was 22.5%, 21.8% and (51.9)% for the years ended December 31, 2019, 2018 and 2017, respectively. The effective
income tax rate differed from the statutory federal income tax rate of 21% for the year ended December 31, 2019 due primarily to the impact of state income
taxes, partially offset by the benefit of income not subject to federal tax.
The benefit for income taxes and effective income tax rate for the year ended December 31, 2017 reflected a discrete income tax benefit of $327.9
million related 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
to the basis assigned to certain loans acquired in the FSB Acquisition should be refunded to the Company, in light of guidance issued after the relevant returns
had been filed.
For more information about income taxes, see Note 9 to the consolidated financial statements.
Analysis of Financial Condition
Average interest-earning assets increased $2.1 billion to $31.3 billion for the year ended December 31, 2019 from $29.2 billion for the year ended
December 31, 2018. This increase was driven by a $1.0 billion increase in the average balance of outstanding loans and a $1.1 billion increase in the average
balance of investment securities.
Average interest bearing liabilities increased $1.3 billion to $25.3 billion for the year ended December 31, 2019 from $24.0 billion for the year ended
December 31, 2018, due primarily to an increase of $0.8 billion in average interest bearing deposits. Average non-interest bearing deposits increased by $561
million to $4.0 billion for the year ended December 31, 2019.
Average stockholders' equity decreased by $126 million, due primarily to the repurchase of common stock, partially offset by the retention of earnings.
38
Investment Securities
The following table shows the amortized cost and carrying value, which, with the exception of investment securities held to maturity, is fair value, of
investment securities at December 31, 2019, 2018 and 2017 (in thousands):
2019
2018
2017
Amortized
Cost
Carrying Value
Amortized
Cost
Carrying Value
Amortized
Cost
Carrying Value
24,953
U.S. Treasury securities
$
70,243 $
70,325 $
39,885 $
39,873 $
24,981 $
U.S. Government agency and sponsored enterprise
residential MBS
2,018,853
2,022,175
1,885,302
1,897,474
2,043,373
2,058,027
U.S. Government agency and sponsored enterprise
commercial MBS
366,787
370,976
374,569
374,787
Private label residential MBS and CMOs
1,001,337
1,012,177
1,539,058
1,534,198
233,522
613,732
234,508
628,247
Private label commercial MBS
1,719,228
1,724,684
1,486,835
1,485,716
1,033,022
1,046,415
Single family rental real estate-backed securities
467,459
470,025
406,310
402,458
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
Other debt securities
1,204,905
1,197,366
1,239,355
1,235,198
194,171
257,528
359,808
—
194,904
273,302
362,731
—
204,372
398,810
514,765
1,393
10,000
204,067
398,429
519,313
4,846
10,000
559,741
720,429
119,939
640,511
534,534
4,090
10,000
562,706
723,681
121,747
657,203
550,682
9,120
10,000
Investment securities held to maturity
10,000
10,000
Marketable equity securities
$
7,670,319
7,708,665 $
8,100,654
8,106,359 $
6,537,874
6,627,289
60,572
60,519
$
7,769,237
$
8,166,878
63,543
$
6,690,832
Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest
rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of
the portfolio in high quality liquid securities including U.S. Treasury securities, GNMA securities, SBA securities and U.S. Government Agency MBS.
Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products,
including private-label commercial and 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
rate risk. Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of December 31, 2019 was 4.5 years. The
effective duration of the investment portfolio as of December 31, 2019 was 1.26 years. The model results are based on assumptions that may differ from
actual results.
39
A summary of activity in the investment securities portfolio for the years ended December 31, 2019 and 2018 follows (in thousands):
Balance at December 31, 2017
Purchases
Repayments, maturities and calls
Sales
Amortization of discounts and premiums, net
Change in unrealized gains
Balance at December 31, 2018
Purchases
Repayments, maturities and calls
Sales
Amortization of discounts and premiums, net
Change in unrealized gains
Balance at December 31, 2019
$
6,690,832
4,138,994
(1,538,943)
(1,027,651)
(12,644)
(83,710)
8,166,878
3,896,234
(1,359,113)
(2,954,085)
(13,318)
32,641
$
7,769.237
The following table shows the scheduled maturities, carrying values and current yields for investment securities available for sale as of December 31,
2019, as well as the carrying value and yield of marketable equity securities. Scheduled maturities have been adjusted for anticipated prepayments when
applicable. 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 Year
Through Five Years
After Five Years
Through Ten Years
After Ten Years
Total
Carrying
Value
$
70,325
166,450
2,700
289,725
48,536
10,281
11,803
15,216
1,579
68,478
$
685,093
U.S. Treasury securities
U.S. Government agency and sponsored
enterprise residential MBS
U.S. Government agency and sponsored
enterprise commercial MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed
securities
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
Marketable equity securities with no
scheduled maturity
Total investment securities available for
sale and marketable equity securities
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
1.82% $
—
—% $
—
—% $
—
—% $
70,325
2.57%
2.90%
3.72%
3.81%
927,658
42,067
562,030
1,321,565
2.50%
2.77%
3.54%
3.32%
742,624
207,775
133,837
333,763
923,270
209,447
3.07%
3.20%
3.80%
1.96%
2.94%
175,113
3.15% $ 4,302,451
112,911
28,390
262,293
250,297
2.90%
3.47%
3.01%
2.85%
2.86%
82,638
3.15% $ 2,274,946
196,282
65,437
2.46%
2.62%
3.49%
2.97%
3.07%
4.00%
2.75%
3.99%
2.81%
3.00% $
185,443
118,434
26,585
20,820
—
—
1,340
47,051
36,502
436,175
2.44%
3.14%
3.26%
3.02%
—%
—%
2.61%
4.08%
2.76%
2.91%
2,022,175
370,976
1,012,177
1,724,684
470,025
1,197,366
194,904
273,302
362,731
7,698,665
60,572
$ 7,759,237
1.82%
2.49%
2.80%
3.58%
3.26%
2.99%
3.58%
2.98%
3.87%
2.86%
3.09%
7.18%
3.12%
The investment securities available for sale portfolio was in a net unrealized gain position of $38.3 million at December 31, 2019 with aggregate fair
value equal to 100.5% of amortized cost. Net unrealized gains included $60.0 million of gross unrealized gains and $21.6 million of gross unrealized losses.
Investment securities available for sale in an unrealized loss position at December 31, 2019 had an aggregate fair value of $3.1 billion. At December 31,
2019, 99.2% of investment securities available for sale were backed by the U.S. Government, U.S. Government agencies or sponsored enterprises or were
rated AAA, AA or A, based on the most recent third-party ratings. Investment securities available for sale totaling $62.9 million were not rated at
December 31, 2019. These securities have been determined by management to be of investment grade quality.
40
We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether any of the investments in unrealized loss positions
are other-than-temporarily impaired. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of which
varies 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;
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, 2019, 2018 and 2017, or during the years then ended.
We do not intend to sell securities in significant unrealized loss positions at December 31, 2019. Based on an assessment of our liquidity position and
internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in
significant unrealized loss positions prior to recovery of amortized cost basis. Unrealized losses in the portfolio at December 31, 2019 were primarily
attributable to widening spreads.
The timely repayment of principal and interest on U.S. Treasury, SBA and U.S. Government agency and sponsored enterprise securities in unrealized loss
positions is explicitly or implicitly guaranteed by the full faith and credit of the U.S. Government. Management performed projected cash flow analyses of the
private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and non-mortgage asset-backed securities in
unrealized loss positions, incorporating CUSIP level assumptions consistent with the collateral characteristics of each security including collateral default
rate, voluntary prepayment rate, severity and delinquency assumptions. Based on the results of this analysis, no credit losses were projected. Management's
analysis of the credit characteristics of individual securities and the underlying collateral and levels of subordination for each of the single family rental real
estate-backed securities in unrealized loss positions is not indicative of projected credit losses.
For further discussion of our analysis of investment securities for OTTI, see Note 3 to the consolidated financial statements.
At December 31, 2019, 85%, 12% and 3% of CLOs were rated AAA, AA and A, respectively, based on the most recent third-party ratings, with a
weighted-average subordination level at 41.2%, ranging from 25.3% to 48.1%. Management performs a thorough analysis prior to purchasing CLOs,
including extensive vetting of the asset manager and stress testing of collateral. Management engages an independent third party to perform ongoing credit
surveillance of the CLO portfolio, performs periodic stress testing of the portfolio and continuously monitors exposure, default status, and other relevant
security characteristics.
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 we
have a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing written documentation
of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailed assumptions used
to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation of the nature of the
significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challenge process that includes a
review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations
from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security
is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and
their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation
sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primary pricing services utilize observable
inputs when available, and employ unobservable inputs and proprietary
41
models only when observable inputs are not available. As a matter of course, the services validate prices by comparison to recent trading activity whenever
such activity exists. Quotes obtained from the pricing services are typically non-binding.
We also have a quarterly price validation process to assess the propriety of the pricing methodologies utilized by our primary pricing services by
independently verifying the prices of a sample of securities in the portfolio. Sample sizes vary based on the type of security being priced, with higher sample
sizes applied to more difficult to value security types. Verification procedures may consist of obtaining prices from an additional outside source. We have
established acceptable percentage deviations from the price provided by the initial pricing source. If deviations fall outside the established parameters, we will
obtain and evaluate more detailed information about the assumptions and inputs used by each pricing source or, if considered necessary, employ an additional
valuation source to price the security in question. Pricing issues identified through this evaluation are addressed with the applicable pricing service and
methodologies or inputs are revised as determined necessary. Depending on the results of the validation process, sample sizes may be extended for particular
classes of securities. Results of the validation process are reviewed by the treasury front office and by senior management.
The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities
are classified within level 1 of the hierarchy.
For additional discussion of the fair values of investment securities, see Note 14 to the consolidated financial statements.
Loans Held for Sale
Loans held for sale at December 31, 2019 included $28.6 million of the guaranteed portion of SBA loans held for sale in the secondary market and $9.3
million of other commercial loans transferred to held for sale. At December 31, 2018, loans held for sale consisted entirely of the guaranteed portion of SBA
loans. SBA loans are generally sold with servicing retained.
42
Loans
The loan portfolio comprises the Company’s primary interest-earning asset. The following tables show the composition of the loan portfolio at December
31 of each of the years indicated (dollars in thousands):
Residential and other consumer loans
$
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
Total loans
2019
Total
5,661,119
2,217,705
5,030,904
243,925
2,062,808
4,655,349
1,202,430
627,482
684,794
768,472
Percent of
Total
24.5% $
9.6%
21.7%
1.1%
8.9%
20.1%
5.2%
2.6%
3.0%
3.3%
2018
Total
4,948,989
2,585,421
4,688,880
226,840
2,119,880
4,358,526
1,462,655
517,305
636,838
431,674
Percent of
Total
22.5% $
11.8%
21.4%
1.0%
9.6%
19.8%
6.6%
2.4%
2.9%
2.0%
2017
Total
4,699,198
3,218,953
4,474,801
310,484
2,012,742
3,678,439
1,524,650
434,582
603,267
459,388
Percent of
Total
22.0%
15.0%
20.9%
1.4%
9.4%
17.3%
7.1%
2.0%
2.8%
2.1%
23,154,988
100.0%
21,977,008
100.0%
21,416,504
100.0%
Allowance for loan and lease losses
(108,671)
(109,931)
(144,795)
Loans, net
$
23,046,317
$
21,867,077
$
21,271,709
Residential and other consumer loans
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
Total loans
Allowance for loan and lease losses
Loans, net
$
2016
Total
4,109,816
3,829,674
3,731,808
310,913
1,735,850
3,064,834
1,317,820
426,661
545,713
322,305
Percent of
Total
21.3% $
19.7%
19.2%
1.6%
8.9%
15.8%
6.8%
2.2%
2.8%
1.7%
2015
Total
3,770,056
3,476,609
2,905,218
346,970
1,273,881
2,769,590
1,085,981
440,375
486,290
81,633
Percent of
Total
22.7%
20.9%
17.5%
2.1%
7.7%
16.6%
6.5%
2.6%
2.9%
0.5%
19,395,394
100.0%
16,636,603
100.0%
(152,953)
(125,828)
$
19,242,441
$
16,510,775
Total loans increased by $1.2 billion to $23.2 billion at December 31, 2019, from $22.0 billion at December 31, 2018.
Residential and other consumer loans grew by $712 million for the year ended December 31, 2019, of which $434 million was government insured pool
buyout loans, a portfolio segment that we expect will continue to grow. Multi-family loans declined by $368 million for the year ended December 31, 2019,
primarily due to net runoff of the New York portfolio of $348 million, continuing to reflect changes in strategy around this portfolio segment, while other
categories of commercial real estate loans grew by $359 million. Commercial and industrial loans, inclusive of owner occupied commercial real estate, grew
by $240 million for the year ended December 31, 2019. The Pinnacle portfolio declined by $260 million, impacted by the sale of $168 million of loans during
the year. Since the reduction in the corporate income tax rate at the end of 2017, pricing has made growth in this portfolio segment less attractive. Mortgage
warehouse outstandings increased by $337 million during the year ended December 31, 2019.
43
We continue to see growth opportunities in our core commercial and commercial real estate portfolio segments and in mortgage warehouse lending. We
expect the New York multi-family portfolio to continue to decline in 2020, as the 2015 vintage matures.
Residential mortgages and other consumer loans
The following table shows the composition of residential and other consumer loans at December 31, 2019 and 2018 (in thousands):
1-4 single family residential
Government insured residential
Other consumer loans
2019
2018
$
$
4,953,936 $
698,644
8,539
5,661,119 $
4,664,920
266,729
17,340
4,948,989
The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased through
established correspondent channels. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgages for 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. At December 31, 2019,
$95 million or 1.9% of residential mortgage loans were interest-only loans, substantially all of which begin amortizing 10 years after origination. At
December 31, 2019, $442 million or 9% were secured by investor-owned properties.
The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase 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 Company and the servicer share in the economics of the sale of these loans into new
securitizations. The balance of buyout loans totaled $676 million at December 31, 2019. The Company is not the servicer of these loans.
The following charts present the distribution of the 1-4 single family residential mortgage portfolio at December 31, 2019 and 2018:
See Note 4 to the consolidated financial statements for information about geographic concentrations in the 1-4 single family residential portfolio.
The following table presents a breakdown of the 1-4 single family residential mortgage portfolio, excluding government insured residential loans,
categorized between fixed rate loans and ARMs at December 31, 2019 and 2018 (dollars in thousands):
Fixed rate loans
ARM loans
2019
2018
Total
1,460,439
3,493,497
4,953,936
$
$
Percent of Total
29.5% $
70.5%
Total
1,448,046
3,216,874
100.0% $
4,664,920
Percent of Total
31.0%
69.0%
100.0%
44
Commercial loans and leases
Commercial loans include commercial and industrial loans and leases, loans secured by owner-occupied commercial real-estate, multi-family properties
and other income-producing non-owner occupied commercial real estate, and a limited amount of construction and land loans.
Commercial real estate loans include term loans secured by 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, hotels, real estate secured
lines of credit, as well as credit facilities to institutional real estate entities such as REITs and commercial real estate investment funds.
The following charts present the distribution of non-owner occupied commercial real estate loans by property type at December 31, 2019 and 2018:
The Company’s commercial real estate underwriting standards generally provide for loan terms of five to seven years, with amortization schedules of no
more than thirty years. LTV ratios are typically limited to no more than 75%. Construction and land loans represented only 1.1% of the total loan portfolio at
December 31, 2019. Construction and land loans are generally made for projects expected to stabilize within eighteen months of completion in sub-markets
with strong fundamentals and, to a lesser extent, for-sale residential projects to experienced developers with a strong cushion between market prices and loan
basis.
45
The New York legislature recently enacted a number of rent regulation reform measures that generally have the impact of limiting landlords' ability to
increase rents on stabilized units and to convert stabilized units to market rate units. The following table presents the amount of loans secured by New York
multi-family properties in which some or all units are rent regulated at December 31, 2019 (in thousands):
Loans secured by stabilized properties subject to rent regulation
Loans secured by non-stabilized properties subject to rent regulation
$
$
1,261,396
39,184
1,300,580
We believe loans secured by non-stabilized properties may present a heightened level of risk as these loans were underwritten to expected cash flows
upon stabilization; those expected cash flows may be impacted by the recent rent regulation reform measures.
The following tables present the distribution of stabilized rent-regulated multi-family loans, by DSCR and LTV at December 31, 2019 (in thousands):
DSCR
Less than 1.11
1.11 - 1.24
1.25 - 1.50
1.51 or greater
LTV
Less than 50%
50% - 65%
66% - 75%
More than 75%
$
$
$
$
134,107
369,320
352,559
405,410
1,261,396
292,027
708,077
250,463
10,829
1,261,396
The LTVs in the table above are based on the most recent appraisal obtained, which may not be fully reflective of changes in valuations that may result
from the impact of the recent rent regulation reforms. Loans with DSCR less than 1.11 may be those with temporary vacancies or those for which expenses,
particularly real estate taxes, have increased more rapidly than rents. All of the loans included in the tables above are current and performing.
Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and not-for-profit entities and include
equipment loans, secured and unsecured working capital facilities, formula-based loans, trade finance, mortgage warehouse lines, SBA product offerings and
business acquisition finance credit facilities. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of
credit which may have multi-year maturities. The Bank also provides financing to state and local governmental entities generally within our geographic
markets. Commercial loans included shared national credits totaling $2.3 billion at December 31, 2019, the majority of which were relationship based loans to
borrowers in Florida and New York. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely
aligned with that of commercial and industrial loans than with other types of commercial real estate loans.
Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment and franchise financing on a national basis using both
loan and lease structures. Pinnacle provides essential use equipment financing to state and local governmental entities directly and through vendor programs
and alliances. Pinnacle offers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond re-
fundings and loan agreements. Bridge has two operating divisions. The franchise finance division offers franchise acquisition, expansion and equipment
financing, typically to experienced operators in well-established concepts. The franchise finance portfolio is made up primarily of quick service restaurant and
fitness concepts comprising 65% and 28% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment
financing through a variety of loan and lease structures. The Bank also engages in mortgage warehouse lending on a national basis.
46
Geographic Concentrations
The Company's commercial and commercial real estate portfolios are concentrated in Florida and the Tri-state area. Excluding loans originated through
our national platforms, 46.7% and 46.1% of commercial real estate loans were secured by collateral located in Florida and the Tri-state area, respectively;
while 55.1% and 27.0% of commercial and industrial and owner-occupied real estate loans were to borrowers in Florida and the Tri-state area, respectively.
The following table presents the five states with the largest concentration of commercial loans and leases originated through our national platforms,
including Bridge, Pinnacle, SBF and our mortgage warehouse finance unit at December 31, 2019 and 2018 (dollars in thousands):
California
Florida
New Jersey
Maryland
Virginia
All others
Loan Maturities
2019
2018
Total
Percent of Total
Total
Percent of Total
$
$
585,222
465,146
178,514
152,663
142,856
2,021,994
3,546,395
16.5% $
13.1%
5.0%
4.3%
4.0%
57.1%
100.0% $
498,842
595,843
116,060
55,040
153,619
1,881,289
3,300,693
15.1%
18.1%
3.5%
1.7%
4.7%
56.9%
100.0%
The following table sets forth, as of December 31, 2019, the maturity distribution of our loan portfolio by category, excluding government insured
residential loans. Commercial and other consumer loans are presented by contractual maturity, including scheduled payments for amortizing loans.
Contractual maturities of residential loans have been adjusted for an estimated rate of voluntary prepayments, based on historical trends, current interest rates,
types of loans and refinance patterns (in thousands):
Residential and other consumer:
1-4 single family residential
Other consumer loans
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
One Year or
Less
After One
Through Five
Years
After Five
Years
Total
$
1,260,662 $
2,627,638 $
1,065,636 $
4,953,936
1,521
4,303
2,715
8,539
1,262,183
2,631,941
1,068,351
4,962,475
592,533
463,080
18,776
100,860
791,028
42,597
44,793
21,819
768,472
2,843,958
1,273,035
3,169,278
108,919
767,920
3,186,617
253,884
320,710
499,270
—
352,137
1,398,546
116,230
1,194,028
677,704
905,949
261,979
163,705
—
9,579,633
5,070,278
$
4,106,141 $
12,211,574 $
6,138,629 $
2,217,705
5,030,904
243,925
2,062,808
4,655,349
1,202,430
627,482
684,794
768,472
17,493,869
22,456,344
47
The following table shows the distribution of those loans that mature in more than one year between fixed and adjustable interest rate loans as of
December 31, 2019 (in thousands):
Residential and other consumer:
1-4 single family residential
Other consumer loans
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Interest Rate Type
Fixed
Adjustable
Total
$
1,052,317 $
2,640,957 $
3,697
1,056,014
1,299,950
2,728,182
117,783
1,320,596
839,927
1,159,833
504,908
589,547
3,321
2,644,278
325,222
1,839,642
107,366
641,352
3,024,394
—
77,781
73,428
$
8,560,726
9,616,740 $
6,089,185
8,733,463 $
3,693,274
7,018
3,700,292
1,625,172
4,567,824
225,149
1,961,948
3,864,321
1,159,833
582,689
662,975
14,649,911
18,350,203
Excluded from the tables above are government insured residential loans. Resolution of these loans is generally accomplished through the re-
securitization and sale of the loans after they re-perform, either through modification or self-cure, or through pursuit of the applicable guarantee.
Operating lease equipment, net
Operating lease equipment, net of accumulated depreciation totaled $698 million at December 31, 2019, including off-lease equipment, net of
accumulated depreciation totaling $75 million. The portfolio consists primarily of railcars, non-commercial aircraft and other transport equipment. We have a
total of 5,326 railcars with a carrying value of $420 million at December 31, 2019, 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 2,415 hopper cars and 1,594 tank cars, primarily used
to ship sand and petroleum products, respectively, for the energy industry.
Bridge had exposure to the energy industry of $344 million at December 31, 2019. The majority of our energy exposure is in the operating lease
equipment portfolio totaling $295 million, consisting of $235 million in railcars, $41 million in helicopters and $19 million in vessels. The remaining balance
of energy exposure was comprised of loans and direct or sales type financing leases totaling $49 million.
48
The chart below presents operating lease equipment by type at December 31, 2019 and 2018:
At December 31, 2019, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year current leases are
scheduled to expire was as follows (in thousands):
Years Ending December 31:
2020
2021
2022
2023
2024
Thereafter through 2033
Asset Quality
Commercial Loans
$
$
81,897
62,562
73,656
45,514
31,852
327,883
623,364
We have a robust credit risk management framework, an experienced team to lead the workout and recovery process for the commercial and commercial
real estate portfolios and a dedicated internal credit review function. Loan performance is monitored by our credit administration and workout and recovery
departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if
circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of
smaller balance commercial loans may be monitored collectively. The credit quality and risk rating of commercial loans as well as our underwriting and
portfolio management practices are regularly reviewed by our internal credit review department. The Company utilizes a 13 grade internal asset risk
classification system as part of its efforts to monitor and maintain commercial asset quality. Loans exhibiting potential credit weaknesses that deserve
management’s close attention and, that if left uncorrected, may result in deterioration of the repayment capacity of the borrower are categorized as special
mention. These borrowers may exhibit negative 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. These borrowers may exhibit payment defaults, inadequate cash flows, operating losses, increasing balance sheet leverage, project
cost overruns, unreasonable construction delays, exhausted interest reserves, declining collateral values, frequent overdrafts or past due real estate taxes.
Loans with weaknesses so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors have
not been charged off, are assigned an internal risk rating of doubtful.
49
We believe internal risk rating is the best indicator of the credit quality of commercial loans. The following table summarizes the Company's commercial
credit exposure, based on internal risk rating, at at December 31, 2019 and 2018 (in thousands):
Pass
Special mention
Substandard
Doubtful
2019
2018
Total
17,054,702
$
72,881
366,286
—
Percent of Total
97.5% $
0.4%
2.1%
—%
Total
16,728,534
81,070
210,026
8,389
$
17,493,869
100.0% $
17,028,019
Percent of Total
98.2%
0.5%
1.2%
0.1%
100.0%
See Note 4 to the consolidated financial statements for more information about the risk rating distribution of the Company's commercial loans. Criticized
and classified loans as a percentage of total loans was 1.9% and 1.4% at December 31, 2019 and 2018, respectively.
Operating Lease Equipment, net
Two operating lease relationships with a carrying value of assets under lease totaling $20 million, of which $17 million were exposures to the energy
industry, were internally risk rated substandard at December 31, 2019. The Company recognized an impairment charge of $1.9 million during 2019 related to
one of these relationships. One operating lease relationship had been restructured as of December 31, 2019.
The primary risks inherent in the equipment leasing business are asset risk resulting from ownership of the equipment on 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 original lease
terms generally ranging from three to ten years. We are exposed to the risk that, at the end of the lease term, the value of the asset will 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 also lead to changes in
depreciation as a result of changes in the residual values of the leased assets or through impairment of asset carrying values.
Asset risk is evaluated and managed by a dedicated internal staff of asset managers, managed by seasoned equipment finance professionals with a broad
depth and breadth of experience in the leasing business. Additionally, we have partnered with an industry leading, experienced service provider who provides
fleet management and servicing relating to the railcar fleet, including lease administration and reporting, a Regulation Y compliant full service maintenance
program and railcar re-marketing. Risk is managed by setting appropriate residual values at inception and systematic reviews of residual values based on
independent appraisals, performed at least annually. Additionally, our internal management team and our external service provider closely follow the rail
markets, monitoring traffic flows, supply and demand trends and the impact of new technologies and regulatory requirements. Demand for railcars is sensitive
to shifts in general and industry specific economic and market trends and shifts in trade flows from specific events such as natural or man-made disasters. 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 are expected 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 lessor
deploys a portion of the useful life of the asset. Credit 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 this portfolio by leasing to high credit quality obligors.
Residential and Other Consumer Loans
The majority of our residential mortgage portfolio consists of loans purchased through established correspondent channels. Most of our purchases are of
performing jumbo mortgage loans which have FICO scores above 700, primarily are owner-occupied and full documentation, and have a current LTV of 80%
or less although loans with LTVs higher than 80% may be
50
extended to selected credit-worthy borrowers. We perform due diligence on the 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 credit quality
of these loans. We also consider original LTV and FICO score to be significant indicators of credit quality for the 1-4 single family residential portfolio,
excluding FSB loans and government insured residential loans.
The following tables show the distribution of 1-4 single family residential loans, excluding FSB loans and government insured residential loans, by
original FICO and LTV at December 31, 2019 and 2018:
LTV
Less than 61%
61% - 70%
71% - 80%
More than 80%
LTV
Less than 61%
61% - 70%
71% - 80%
More than 80%
2019
FICO
720 or less
721 - 740
741 - 760
761 or
greater
Total
2.5%
2.8%
4.0%
0.4%
9.7%
2.6%
2.5%
5.0%
0.6%
10.7%
3.9%
3.9%
9.1%
0.7%
17.6%
16.5%
13.8%
29.0%
2.7%
62.0%
25.5%
23.0%
47.1%
4.4%
100.0%
2018
FICO
720 or less
721 - 740
741 - 760
761 or
greater
Total
2.4%
2.7%
3.5%
0.4%
9.0%
2.8%
2.4%
4.6%
0.8%
10.6%
4.4%
3.8%
8.4%
0.8%
17.4%
18.2%
13.4%
28.3%
3.1%
63.0%
27.8%
22.3%
44.8%
5.1%
100.0%
At December 31, 2019, the 1-4 single family residential loan portfolio, excluding FSB loans and government insured residential loans, had the following
characteristics: substantially all were full documentation with a weighted-average FICO score of 762 and a weighted-average LTV of 68.1%. The majority of
this portfolio was owner-occupied, with 84% primary residence, 7.0% second homes and 9.0% investment properties. In terms of vintage, 36.3% of the
portfolio was originated pre-2016, 16.5% in 2016, 17.4% in 2017, 12.7% in 2018 and 17.1% in 2019.
1-4 single family residential loans, excluding government insured residential loans, past due more than 30 days totaled $66.3 million and $23.5 million at
December 31, 2019 and 2018, respectively. The amount of these loans 90 days or more past due was $11.1 million and $7.0 million at December 31, 2019
and 2018, respectively.
Other Consumer Loans
All other consumer loans were current at December 31, 2019 and 2018.
Impaired Loans and Non-Performing Assets
Non-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 which
expected 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):
Non-accrual loans
Residential and other consumer:
1-4 single family residential
Other consumer loans
Total residential and other consumer loans
2019
2018
2017
2016
2015
$
18,877
$
6,316
$
11,046
$
17
18,894
288
6,604
821
11,867
$
1,484
2,285
3,769
2,601
4,731
7,332
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Taxi medallion loans
Other commercial and industrial
Bridge - franchise finance
Bridge - equipment finance
Total commercial loans
Total non-accrual loans
Loans past due 90 days and still accruing
TDRs(1)
Total non-performing loans
OREO and repossessed assets
Total non-performing assets
Performing TDRs(2)
6,138
40,097
3,191
27,141
442
74,315
13,631
20,939
185,894
204,788
—
—
204,788
3,897
208,685
75,416
25,560
16,050
9,923
19,789
775
27,809
5,308
17,425
122,639
129,243
650
—
—
12,716
1,175
29,020
106,067
7,049
191
3,321
159,539
171,406
1,948
559
1,238
19,439
60,660
16,036
20,102
12,543
130,577
134,346
1,551
—
—
—
129,893
9,517
139,410
7,898
173,354
12,008
185,362
25,987
135,897
13,091
148,988
75,631
Total impaired loans and non-performing assets
$
284,101
$
147,308
$
211,349
$
224,619
$
Non-performing loans to total loans(3)
Non-performing assets to total assets (3)
ALLL to total loans
ALLL to non-performing loans
Net charge-offs to average loans(4)
0.88%
0.63%
0.47%
53.07%
0.05%
0.59%
0.43%
0.50%
84.63%
0.28%
0.81%
0.61%
0.68%
83.53%
0.38%
0.70%
0.53%
0.79%
112.55%
0.13%
—
—
—
8,274
9,920
27,862
9,239
681
55,976
63,308
1,525
8,225
73,058
11,190
84,248
9,523
93,771
0.40%
0.35%
0.76%
172.23%
0.10%
(1) Effective January 1, 2016, we are no longer reporting accruing TDRs as non-performing.
(2) Performing TDRs include $53.4 million of government insured residential loans at December 31, 2019.
(3) Non-performing loans and assets include the guaranteed portion of non-accrual SBA loans totaling $45.7 million or 0.20% of total loans and 0.14% of total assets, at
December 31, 2019; compared to $17.8 million or 0.08% of total loans and 0.06% of total assets, at December 31, 2018.
(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.
The most significant components of the increase in non-performing loans at December 31, 2019 compared to the prior year-end were the transfer to non-
accrual status during the fourth quarter of 2019 of one $41 million Florida commercial loan and the $27.9 million increase in the guaranteed portion of SBA
loans on non-accrual status. In 2018, the Company adopted a general practice of repurchasing the guaranteed portion of these non-performing SBA loans
from the secondary market to better control the workout strategy.
Contractually delinquent ACI loans with remaining accretable yield are not reflected as non-accrual loans and are not considered to be non-performing
assets because accretion continues to be recorded in income. Accretion continues to be recorded as long as there is an expectation of future cash flows in
excess of carrying amount from these loans. There were no ACI loans contractually delinquent by more than 90 days at December 31, 2019 or 2018.
Contractually delinquent government insured residential loans are excluded from non-performing loans as defined in the table above due to their government
guarantee. The carrying value of such loans contractually delinquent by more than 90 days was $529 million and $218 million at December 31, 2019 and
2018, respectively.
Commercial loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal 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 of collection. Residential and
consumer loans, other than ACI loans and government insured pool buyout loans, are generally placed on non-accrual status when they are 90 days past due.
When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged as a reduction to interest income. Commercial loans are
returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractual principal and interest is
reasonably assured. Residential loans are generally returned to accrual status when less than 90 days past due. 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 a
concession to the borrower that the Company would not otherwise grant. These concessions may take the form of temporarily or permanently reduced interest
rates, payment abatement periods, restructuring of payment terms, extensions of maturity at below market terms, or in some cases, partial forgiveness of
principal. Modified ACI loans accounted for in pools are not accounted for as TDRs and are not separated from their respective pools when modified.
Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.
The following table summarizes loans that have been modified in TDRs at December 31, 2019 and 2018 (dollars in thousands):
Residential and other consumer (1)
Commercial
Number of TDRs
2019
Recorded
Investment
Related Specific
Allowance
Number of TDRs
2018
Recorded
Investment
Related Specific
Allowance
361 $
57,117 $
25
56,736
386 $
113,853 $
12
6,311
6,323
47 $
23
70 $
7,690 $
36,150
43,840 $
134
3,595
3,729
(1)
Includes 346 government insured residential loans modified in TDRs totaling $53.4 million at December 31, 2019; and 31 government insured residential loans modified
in TDRs totaling $3.5 million at December 31, 2018.
See Note 4 to the consolidated financial statements for additional information about TDRs.
Potential Problem Loans
Potential 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-accrual
status and identification as impaired in the near-term.
The following table summarizes the Company's substandard accruing loans, substantially all of which were current as to principal and interest, at
December 31, 2019 and 2018 (in thousands):
Multi-family
Non-owner occupied commercial real estate
Owner occupied commercial real estate
Commercial and industrial
Bridge - franchise finance
Bridge - equipment finance
$
$
2019
2018
26,797 $
52,697
16,241
43,518
41,127
—
180,380 $
9,093
45,226
9,113
16,930
9,912
5,521
95,795
Management closely monitors each of these loans as well as indicators of potential negative trends developing within any particular portfolio segment.
The increase in substandard accruing loans at December 31, 2019 compared to December 31, 2018 does not appear to be concentrated in any one industry,
geography, product type or asset class, with the exception of the identification of correlated risk characteristics related to quick service restaurant exposures
delivered through Bridge's franchise finance division. We believe this sector is experiencing margin pressure due to rising labor costs and technological
disruption in the form of app-based food delivery services. This exposure totals $406 million, or 64.7% of total franchise exposure and 1.8% of total loans at
December 31, 2019.
Loss Mitigation Strategies
Criticized or classified commercial loans in excess of certain thresholds are reviewed quarterly by the Criticized Asset Committee, which evaluates the
appropriate strategy for collection to mitigate the amount of credit losses. Criticized asset reports for each relationship are presented by the assigned
relationship manager and credit officer to the Criticized Asset Committee until such time as the relationships are returned to a satisfactory credit risk rating or
otherwise resolved. The Criticized Asset Committee may require the transfer of a loan to our workout and recovery department, which is tasked to effectively
manage the loan with the goal of minimizing losses and expenses associated with restructure, collection and/or liquidation of collateral. Commercial loans
with a risk rating of substandard, impaired loans on non-accrual status, loans modified as TDRs or assets classified as OREO or repossessed assets are usually
transferred to workout and recovery. Oversight of the workout and recovery department is provided by the Asset Recovery Committee.
Our servicers evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, or
foreclosure, and pursue the alternative most suitable to the consumer and to mitigate losses to the bank.
Analysis of the Allowance for Loan and Lease Losses
The determination of the amount of the ALLL is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in
material changes to the level of the ALLL. General economic conditions including but not limited to unemployment rates, the level of business investment
and growth, 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
the ability of borrowers’ businesses to generate cash flows sufficient to service their debts will impact the future performance of the portfolio. Adoption of the
CECL model in the first quarter of 2020 will result in significant changes to the methodology employed to determine the amount of the ALLL, and may
materially impact the amount of the allowance and provision for credit losses recorded in the consolidated financial statements in the future. See Note 1 to the
consolidated financial statements for further discussion of the expected impact of CECL.
Commercial loans
The allowance is comprised of specific reserves for loans that are individually evaluated and determined to be impaired as well as general reserves for
loans 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 balances
under $1.0 million may also be evaluated individually for impairment, at management's discretion. For loans evaluated individually for impairment and
determined to be impaired, a specific allowance is established based on the present value of expected cash flows discounted at the loan’s effective interest
rate, the estimated fair value of the loan, or the estimated fair value of collateral less costs to sell.
51
We believe that loans rated special mention, substandard or doubtful that are not individually evaluated for impairment exhibit characteristics indicative
of a heightened level of credit risk. We apply a quantitative loss factor for loans rated special mention based on average annual probability of default and
implied severity, derived from internal and external data. Loss factors for substandard and doubtful loans that are not individually evaluated are determined by
using default frequency and severity information applied at the loan level. Estimated default frequencies and severities are based on available industry and
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 is
based on the Bank's historical net charge-off rates. These commercial segments include commercial and industrial loans, owner-occupied commercial real
estate, the Bridge portfolios and SBF loans. For commercial portfolio segments that have not yet exhibited an observable loss trend, the quantitative loss
factors are based on peer group average annual historical net charge-off rates by loan class and the Company’s internal credit risk rating system. These
commercial segments include multifamily, non-owner occupied commercial real estate and construction and land loans. For Pinnacle, quantitative loss factors
are based primarily on historical municipal default data.
Where applicable, the peer group used to calculate average annual historical net charge-off rates used in estimating general reserves is made up of 24
banks included in the OCC Midsize Bank Group plus five additional banks not included in the OCC Midsize Bank Group that management believes to be
comparable based on size, geography and nature of lending operations. Peer bank data is obtained from the Statistics on Depository Institutions Report
published 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 are
driven largely by debt service coverage. Peer group historical loss rates are adjusted upward for loans assigned a lower “pass” rating.
For most commercial portfolio segments, we use a 20-quarter look-back period to calculate quantitative loss rates. We believe this look-back period to be
consistent with the range of industry practice and appropriate to capture a sufficient range of observations reflecting the performance of our loans, which were
originated in the current economic cycle. With the exception of the Pinnacle municipal finance portfolio, a four quarter loss emergence period is used in the
calculation of general reserves. A twelve quarter loss emergence period is used in the calculation of general reserves for the Pinnacle portfolio.
Residential and other consumer loans
The residential and other consumer loan portfolio has not yet developed an observable loss trend. Therefore, the ALLL for residential loans is based
primarily on relevant proxy historical loss rates. The ALLL for 1-4 single family residential loans, excluding government insured residential loans and ACI
loans, is estimated using average annual loss rates on prime residential mortgage securitizations issued between 2003 and 2008 as a proxy. Based on the
comparability of FICO scores and LTV ratios between loans included in those securitizations and loans in the Bank’s portfolio and the geographic diversity in
the purchased residential portfolio, we determined that prime residential mortgage securitizations provide an appropriate proxy for incurred losses in this
portfolio class. A peer group 20-quarter average net charge-off rate is used to estimate the ALLL for the home equity and other consumer loan classes. See
further discussion of peer group loss factors above. The home equity and other consumer loan portfolios are not significant components of the overall loan
portfolio.
Qualitative Factors
Qualitative adjustments are made to the ALLL when, based on management’s judgment, there are internal or external factors impacting probable incurred
losses 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;
52
•
•
•
•
•
•
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 and
legal and regulatory considerations.
ACI Loans
For ACI loans, a valuation allowance is established when periodic evaluations of expected cash flows reflect a deterioration resulting from credit related
factors from the level of cash flows that were estimated to be collected at acquisition plus any additional expected cash flows arising from revisions in those
estimates. 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 incorporates
assumptions 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, 2019 or 2018.
The primary assumptions underlying estimates of expected cash flows for ACI commercial loans are default probability and severity of loss given
default. Assessments of default probability and severity are based on net realizable value analyses prepared at the individual loan level. Based on our analysis,
no ALLL related to ACI commercial loans was recorded at December 31, 2019 or 2018. Commercial ACI loans are not a significant portion of the loan
portfolio.
53
The following table provides an analysis of the ALLL, provision for loan losses and net charge-offs for the periods from December 31, 2014 through
December 31, 2019 (in thousands):
Balance at beginning of period:
Provision for (recovery of) loan losses:
1-4 single family residential
Home equity loans and lines of credit
Other consumer loans
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial(1)
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
Total Provision
Charge-offs:
1-4 single family residential
Home equity loans and lines of credit
Other consumer loans
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial(2)
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Total Charge-offs
Recoveries:
Home equity loans and lines of credit
Other consumer loans
Multi-family
Non-owner occupied commercial real estate
Owner occupied commercial real estate
Commercial and industrial
Bridge - franchise finance
Bridge - equipment finance
Total Recoveries
Net Charge-offs:
Balance at end of period
2019
109,931 $
2018
144,795 $
2017
152,953 $
2016
125,828 $
2015
95,542
$
459
(190)
(115)
(2,375)
(4,402)
(538)
(1,770)
15,830
(155)
5,367
(2,507)
(700)
8,904
—
—
—
(2,762)
(76)
(827)
(12,112)
—
(1,764)
—
1,404
(200)
(172)
(16,595)
(10,331)
(1,547)
(22)
48,585
303
2,077
2,503
(80)
962
1,318
172
(1,015)
5,273
243
4,797
65,790
(6,014)
(2,597)
232
(414)
(1,748)
(1,688)
(10)
2,692
5,568
(670)
9,553
3,605
2,669
31
7,343
8,825
862
(783)
33,493
11,982
478
(109)
2,269
1,083
1,533
2,813
5,032
399
25,925
68,747
50,911
44,311
(1,175)
(25)
(265)
(184)
(79)
(6,472)
(58,884)
—
—
—
(25)
(3,303)
—
(255)
(63)
(2,612)
(74,935)
—
—
—
(442)
(774)
(152)
(128)
(93)
(2,827)
(20,262)
(30)
(2,402)
—
(17,541)
(67,084)
(81,193)
(27,110)
189
23
—
146
864
6,151
—
4
7,377
(10,164)
220
281
—
151
2,682
2,783
178
—
6,295
(60,789)
67
26
—
—
2
2,749
1,444
—
4,288
(76,905)
80
26
—
—
1,193
747
1,278
—
3,324
(23,786)
$
108,671 $
109,931 $
144,795 $
152,953 $
(16)
(1,664)
—
—
—
(263)
(5,731)
—
(1,824)
(5,901)
(15,399)
39
32
4
2
—
1,144
153
—
1,374
(14,025)
125,828
(1)
(2)
Includes provisions of $26.2 million, $58.2 million and $11.9 million related to taxi medallion loans during the years ended December 31, 2018, 2017 and 2016,
respectively.
Includes charge-offs of $39.7 million, $56.6 million and $11.1 million related to taxi medallion loans during the years ended December 31, 2018, 2017 and 2016,
respectively.
54
The following table shows the distribution of the ALLL at December 31 of the years indicated (dollars in thousands):
Residential and other consumer:
1 - 4 single family residential
Other consumer loans
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
Residential and other consumer:
1 - 4 single family residential
Other consumer loans
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
2019
2018
2017
Total
%(1)
Total
%(1)
Total
%(1)
$
11,085
24.4% $
10,626
22.4% $
10,397
69
11,154
5,024
23,240
764
8,066
43,098
720
9,163
7,055
387
0.1%
24.5%
9.6%
21.7%
1.1%
8.9%
20.1%
5.2%
2.6%
3.0%
3.3%
162
10,788
7,399
30,258
1,378
9,799
33,229
875
5,560
9,558
1,087
0.1%
22.5%
11.8%
21.4%
1.0%
9.6%
19.8%
6.6%
2.4%
2.9%
2.0%
323
10,720
23,994
40,622
3,004
13,611
40,745
572
3,305
7,055
1,167
97,517
75.5%
99,143
77.5%
134,075
$
108,671
100.0% $
109,931
100.0% $
144,795
21.9%
0.1%
22.0%
15.0%
21.0%
1.4%
9.4%
17.2%
7.1%
2.0%
2.8%
2.1%
78.0%
100.0%
2016
2015
Total
%(1)
Total
%(1)
$
9,460
2,043
11,503
25,009
35,604
2,824
11,424
47,141
6,586
4,458
6,823
1,581
21.1% $
0.1%
21.2%
19.7%
19.2%
1.6%
9.0%
15.8%
6.8%
2.2%
2.8%
1.7%
11,650
4,561
16,211
22,317
26,179
3,587
7,490
33,163
6,138
5,691
4,554
498
141,450
78.8%
109,617
$
152,953
100.0% $
125,828
22.5%
0.2%
22.7%
20.9%
17.5%
2.1%
7.7%
16.6%
6.5%
2.6%
2.9%
0.5%
77.3%
100.0%
(1) Represents percentage of loans receivable in each category to total loans receivable.
The balance of the ALLL at December 31, 2019 decreased $1.3 million from the balance at December 31, 2018, to 0.47% of total loans from 0.50% of
total loans. One factor contributing to this decline is a shift in portfolio mix; at December 31, 2019 the residential, particularly government insured residential,
and mortgage warehouse portfolio segments, which carry lower reserves than the portfolio average, constituted a larger percentage of the total loan portfolio.
Factors influencing the change in the ALLL related to specific loan types at December 31, 2019 as compared to December 31, 2018 include:
•
A decrease of $2.4 million for multi-family loans was primarily attributable to a decrease in the balance of loans outstanding and a decrease in
quantitative and qualitative loss factors.
55
•
•
•
•
•
A decrease of $7.0 million for non-owner occupied commercial real estate loans was primarily attributable to a decrease in quantitative loss factors,
partially offset by loan growth.
A decrease of $1.7 million for owner occupied commercial real estate loans was primarily attributable to a decrease in quantitative and qualitative
loss factors, partially offset by an increase in classified loans.
An increase of $9.9 million for other commercial and industrial loans was primarily attributable to loan growth and increases in specific reserves,
particularly related to one $41 million Florida loan, and in classified loans.
An increase of $3.6 million for franchise finance loans was primarily attributable to increases in specific reserves and classified loans, and to a
smaller effect, loan growth.
A decrease of $2.5 million for equipment finance loans was primarily attributable to a decrease in specific reserves.
For additional information about the ALLL, see Note 4 to the consolidated financial statements.
Deposits
A further breakdown of deposits as of December 31, 2019 and 2018 is shown below:
(1) The majority of brokered deposits are time deposits at December 31, 2019 and 2018.
The following table shows scheduled maturities of certificates of deposit with denominations greater than or equal to $100,000 as of December 31, 2019
(in thousands):
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
$
$
1,412,583
1,060,763
915,563
108,189
3,497,098
See Note 6 to the consolidated financial statements for more information about the Company's deposits.
FHLB Advances, Notes and Other Borrowings
In addition to deposits, we utilize FHLB advances as a funding source; the advances provide us with additional flexibility in managing both term and cost
of funding and in managing interest rate risk. FHLB advances are secured by FHLB stock, qualifying residential first mortgage and commercial real estate
loans, and MBS.
The Bank utilizes federal funds purchased to manage the daily cash position. At December 31, 2019, the Company had $100 million in federal funds
purchased.
See Note 7 to the consolidated financial statements for more information about the Company's FHLB advances and senior notes. Additionally, see Note
10 to the consolidated financial statements for more information about derivative instruments the
56
Company uses to manage interest rate risk related to variability in cash flows due to changes in interest rates on variable rate borrowings and changes in fair
value of outstanding fixed rate borrowings.
Capital Resources
Pursuant to the FDIA, the federal banking agencies have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the
financial institutions they supervise. At December 31, 2019 and 2018, BankUnited and the Company had capital levels that exceeded both the regulatory
well-capitalized guidelines and all internal capital ratio targets. See Note 13 to the consolidated financial statements for more information about the
Company's and the Bank's regulatory capital ratios.
Stockholders' equity increased by approximately 2% at December 31, 2019 compared to December 31, 2018. The repurchase of common shares was
offset by the retention of earnings. Our dividend payout ratio was 26.8% and 28.0% for the years ended December 31, 2019 and 2018, respectively.
In 2019, the Company repurchased approximately 4.5 million shares of its common stock for an aggregate purchase price of $154 million, at a weighted
average price of $34.34 per share.
In September 2019 the Board of Directors of the Company authorized the repurchase of up to an additional $150 million in shares of its outstanding
common stock. The new repurchase program replaced any prior repurchase program. Any repurchases will be made in accordance with applicable securities
laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will
depend upon a variety of factors, including market conditions, the Company’s capital position, regulatory requirements and other considerations. No time
limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.
We have an active shelf registration statement on file with the SEC 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 in
issuing capital instruments and enables us to more readily access the capital markets as needed to pursue future growth opportunities and to ensure continued
compliance with regulatory capital requirements. Our ability to issue securities pursuant to the shelf registration is subject to market conditions.
Liquidity
Liquidity involves our ability to generate adequate funds to support planned interest earning asset growth, meet deposit withdrawal requests, maintain
reserve requirements, conduct routine operations, pay dividends, service outstanding debt and meet other contractual obligations.
BankUnited's liquidity needs have been and continue to be met by cash flows from operations, deposit growth, the investment portfolio and FHLB
advances.
For the years ended December 31, 2019, 2018 and 2017 net cash provided by operating activities was $635.7 million, $824.3 million, and $318.6 million,
respectively. When compared with the year ended December 31, 2018, operating cash flows were negatively impacted by approximately $106 million as a
result of the daily cash settlement of derivative positions. These settlements, which are reported in cash flows from operating activities, are directly affected
by changes in market interest rates. Accretion on ACI loans, which is reflected as a non-cash reduction in net income to arrive at operating cash flows, totaled
$63.9 million, $369.9 million and $301.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. Accretable yield on ACI loans
represents the 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 differ from the timing of income recognition. These cash flows from the repayment of ACI loans, inclusive of amounts that have been accreted through
earnings over time, are recognized as cash flows from investing activities in the consolidated statements of cash flows upon receipt.
BankUnited has access to additional liquidity through FHLB advances, other collateralized borrowings, wholesale deposits or the sale of available for
sale securities. At December 31, 2019, unencumbered investment securities totaled $5.3 billion. At December 31, 2019, BankUnited had available borrowing
capacity at the FHLB of $4.3 billion, unused borrowing capacity at the FRB of $637 million and unused Federal funds lines of credit totaling $185 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 liquidity to
fund new loans.
Continued growth of deposits and loans are the most significant trends expected to impact the Bank’s liquidity in the near term.
57
The ALCO policy has established several measures of liquidity which are monitored monthly by the ALCO and quarterly by the Board of Directors. The
ALCO policy establishes limits for the ratio of available liquidity to volatile liabilities, the ratio of wholesale funding to total assets, the ratio of brokered
deposits to total deposits and a government backed securities holding ratio, measured as the ratio of U.S. Government backed securities to total securities. At
December 31, 2019 BankUnited was in compliance with all of these ALCO policy limits.
An additional primary measure of liquidity monitored by management is the 30-day total liquidity ratio, defined as (a) the sum of cash and cash
equivalents, pledgeable securities 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, liabilities maturing within the 30 day time frame and a measure of funds expected to be used in operations over the next 30 days. ALCO policy
thresholds stipulate that BankUnited’s liquidity is considered acceptable if the 30-day total liquidity ratio exceeds 100%. At December 31, 2019,
BankUnited’s 30-day total liquidity ratio was 181%. Management also monitors a one-year liquidity ratio, defined as (a) cash and cash equivalents,
pledgeable securities, unused borrowing capacity at the FHLB, and loans and non-agency securities maturing within one year; divided by (b) forecasted
deposit outflows and borrowings maturing within one year. This ratio allows management to monitor liquidity over a longer time horizon. The acceptable
threshold established by the ALCO for this liquidity measure is 100%. At December 31, 2019, BankUnited’s one-year liquidity ratio was 191%. Additional
measures of liquidity regularly monitored by the ALCO include the ratio of FHLB advances to total funding, concentrations of large deposits, a measure of on
balance sheet available liquidity and the ratio of non-interest bearing deposits to total deposits, which is reflective of the quality and cost, rather than the
quantity, of available liquidity. The Company also has a comprehensive contingency liquidity funding plan and conducts a quarterly liquidity stress test, the
results of which are reported to the risk committee of the Board of Directors.
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 own
available for sale securities portfolio. There are regulatory limitations that affect the ability of the Bank to pay dividends to BankUnited, Inc. Management
believes 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 Risk
The principal component of the Company’s risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is interest
rate 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 primary
objective 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 with
these policies. The thresholds 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 interest
rate 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 that
they will do so. Income simulation also attends to the relative interest rate sensitivities of these items, and projects their behavior over an extended period of
time. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also of
proposed 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 most
likely rate scenario based on consensus forward interest rate curves versus net interest income in alternative rate scenarios. Simulations are generated based
on both static and dynamic balance sheet assumptions. Management continually reviews and refines its interest rate risk management process in response to
changes in the interest rate environment and economic climate. Currently, our model projects instantaneous rate shocks of down 200, down 100, 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 being
modeled with a view toward adapting them to changing economic conditions, expectations and trends.
58
The Company’s ALCO policy provides that net interest income sensitivity will be considered acceptable if decreases in forecast net interest income in
specified parallel rate shock scenarios are within specified percentages of forecast net interest income in the most likely rate scenario over the next twelve
months and in the second year. At December 31, 2019, the most likely rate scenario contemplated one 25 basis point rate cut over the forecast horizon. The
following table illustrates the thresholds set forth in the ALCO policy and the impact on forecasted net interest income in the indicated simulated scenarios at
December 31, 2019 and 2018:
Policy Thresholds:
In year 1
In year 2
Model Results at December 31, 2019 - increase (decrease):
In year 1
In year 2
Model Results at December 31, 2018 - increase (decrease):
In year 1
In year 2
Down 200
Down 100
Plus 100
Plus 200
Plus 300
Plus 400
(10.0)%
(13.0)%
(3.8)%
(10.3)%
(4.3)%
(9.7)%
(6.0)%
(9.0)%
(1.1)%
(4.8)%
(0.8)%
(3.0)%
(6.0)%
(9.0)%
(10.0)%
(13.0)%
(14.0)%
(17.0)%
(18.0)%
(21.0)%
1.0 %
4.6 %
0.3 %
3.6 %
0.1 %
7.2 %
(0.9)%
4.4 %
(2.1)%
8.7 %
(2.4)%
4.0 %
(5.1)%
9.4 %
(5.6)%
3.1 %
Management also simulates changes in EVE in various interest rate environments. The ALCO policy has established parameters of acceptable risk that
are defined in terms of the percentage change in EVE from a base scenario under eight rate scenarios, derived by implementing immediate parallel
movements of plus and down 100, 200, 300 and 400 basis points from current rates. We did not simulate decreases in interest rates greater than 200 basis
points at December 31, 2019 or 2018 due to the relatively low level of market interest rates. The following table illustrates the acceptable thresholds as
established by ALCO and the modeled change in EVE in the indicated scenarios at December 31, 2019 and 2018:
Policy Thresholds
Model Results at December 31, 2019 - increase (decrease):
Model Results at December 31, 2018 - increase (decrease):
Down 200
Down 100
Plus 100
Plus 200
Plus 300
Plus 400
(18.0)%
(8.2)%
0.6 %
(9.0)%
(1.5)%
2.5 %
(9.0)%
(0.7)%
(3.1)%
(18.0)%
(27.0)%
(3.1)%
(7.5)%
(6.2)%
(12.4)%
(36.0)%
(9.7)%
(17.3)%
These measures fall within an acceptable level of interest rate risk per the thresholds established in the ALCO policy.
Many assumptions were used by the Company to calculate the impact of changes in interest rates, including the change in rates. Actual results may not be
similar to the Company’s projections due to several factors including the timing and frequency of rate changes, market conditions, changes in depositor
behavior and loan prepayment speeds 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 Instruments
Interest rate swaps designated as cash flow or fair value hedging instruments are one of the tools we use to manage interest rate risk. These derivative
instruments are used to mitigate exposure to changes in interest cash flows on variable rate borrowings and to changes in the fair value of fixed rate
borrowings, in each case caused by fluctuations in benchmark interest rates, as well as to manage duration of liabilities. The fair value of derivative
instruments designated as hedges is included in other assets and other liabilities in our consolidated balance sheets. Changes in fair value of derivative
instruments designated as cash flow hedges are reported in accumulated other comprehensive income. Changes in the fair value of derivative instruments
designated as fair value hedges are recognized in earnings, as is the offsetting gain or loss on the hedged item. At December 31, 2019, outstanding interest
rate swaps designated as cash flow hedges had an aggregate notional amount of $3.1 billion and outstanding interest rate swaps designated as fair value
hedges had an aggregate notional amount of $250 million. The aggregate fair value of interest rate swaps designated as cash flow hedges included in other
liabilities was $1.6 million.
Interest rate swaps and caps not designated as hedges had an aggregate notional amount of $3.0 billion at December 31, 2019. The aggregate fair value of
these interest rate swaps and caps included in other assets was $43.7 million and the aggregate fair value included in other liabilities was $17.4 million. These
interest rate swaps and caps were entered into as accommodations to certain of our commercial borrowers. To mitigate interest rate risk associated with these
derivatives, the Company enters into offsetting derivative positions with primary dealers.
59
See Note 10 to the consolidated financial statements for additional information about derivative financial instruments.
Off-Balance Sheet Arrangements
We routinely enter into commitments to extend credit to our customers, including commitments to fund loans or lines of credit and commercial and
standby letters of credit. The credit risk associated with these commitments is essentially the same as that involved in extending loans to customers and they
are subject to our normal credit policies and approval processes. While these commitments represent contractual cash requirements, a significant portion of
commitments to extend credit may expire without being drawn upon.
For more information on commitments, see Note 15 to the consolidated financial statements.
Contractual Obligations
The following table contains supplemental information regarding our significant outstanding contractual obligations, including interest to be paid on
FHLB advances, long-term borrowings and time deposits, as of December 31, 2019 (in thousands):
FHLB advances
4.875% Senior notes due 2025
Operating leases
Time deposits
Finance leases
Total
4,513,917 $
$
Less than
1 year
1 - 3 years
3 - 5 years
More than
5 years
4,261,659 $
252,258 $
— $
517,000
129,843
19,500
22,741
7,413,580
7,260,547
49,412
3,836
39,000
37,731
133,265
7,302
39,000
27,515
19,768
6,809
$
12,623,752 $
11,568,283 $
469,556 $
93,092 $
60
—
419,500
41,856
—
31,465
492,821
Non-GAAP Financial Measures
Tangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capital
position and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful base for comparability to other
financial institutions. The following table reconciles the non-GAAP financial measurement of tangible book value per common share to the comparable
GAAP financial measurement of book value per common share at December 31, of the years indicated (in thousands except share and per share data):
Total stockholders’ equity
Less: goodwill and other intangible assets
Tangible stockholders’ equity
Common shares issued and outstanding
Book value per common share
Tangible book value per common share
Total assets
Less: goodwill and other intangible assets
Tangible assets
$
$
$
$
$
$
2019
2,980,779
77,674
$
2018
2,923,833
77,718
$
2017
3,026,062
77,796
$
2016
2,418,429
78,047
$
2,903,105
$
2,846,115
$
2,948,266
$
2,340,382
$
2015
2,243,898
78,330
2,165,568
95,128,231
99,141,374
106,848,185
104,166,945
103,626,255
31.33
$
29.49
$
28.32
$
23.22
$
30.52
$
28.71
$
27.59
$
22.47
$
21.65
20.90
32,871,293
$
32,164,326
$
30,346,986
$
27,880,151
$
23,883,467
77,674
77,718
77,796
78,047
78,330
32,793,619
$
32,086,608
$
30,269,190
$
27,802,104
$
23,805,137
Equity to assets ratio
9.07%
9.09%
9.97%
8.67%
9.40%
Tangible common equity to tangible assets
ratio
8.85%
8.87%
9.74%
8.42%
9.10%
Recurring operating expenses is a non-GAAP financial measure. Management believes disclosure of this measure provides readers with information that
may be useful in comparing current period results to prior periods and in interpreting trends in operational costs, particularly in light of our BankUnited 2.0
initiative. The following table reconciles the non-GAAP financial measurement of recurring operating expenses to the comparable GAAP financial
measurement of total non-interest expense for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Total non-interest expense (GAAP)
Less:
Amortization of FDIC indemnification asset
Depreciation of operating lease equipment
Loss on debt extinguishment
Costs incurred directly related to implementation of BankUnited 2.0
2019
487,089 $
2018
740,540 $
2017
634,968
$
—
(48,493)
(3,796)
(14,802)
(261,763)
(40,025)
—
(1,899)
(176,466)
(35,015)
—
—
Recurring operating expenses (non-GAAP)
$
419,998 $
436,853 $
423,487
61
Non-loss share diluted earnings per share is a non-GAAP financial measure. Management believes disclosure of this measure provides readers with
information that may be useful in understanding the impact of the covered loans and FDIC indemnification asset on the Company’s earnings for periods prior
to the termination of the Single Family Shared-Loss Agreement. The following table reconciles this non-GAAP financial measurement to the comparable
GAAP financial measurement of diluted earnings per common share for the year ended December 31, 2018 (in millions except share and per share data,
shares in thousands):
Net Income (GAAP)
Less Loss Share Contribution
Net Income as reported, minus Loss Share Contribution
Diluted earnings per common share, excluding Loss Share Contribution:
Diluted earnings per common share (GAAP)
Less: Net impact on diluted earnings per common share of Loss Share Contribution (non-GAAP)
Non-loss share diluted earnings per common share (non-GAAP)
Non-loss share diluted earnings per share:
Loss Share Contribution
Weighted average shares for diluted earnings per common share (GAAP)
Impact on diluted earnings per common share of Loss Share Contribution (non-GAAP)
Impact on diluted earnings per common share of Loss Share Contribution:
Loss Share Contribution, net of tax, allocated to participating securities
Weighted average shares for diluted earnings per common share (GAAP)
Impact on diluted earnings per common share of Loss Share Contribution allocated to participating securities (non-GAAP)
Net impact on diluted earnings per common share of Loss Share Contribution (non-GAAP)
Year Ended December 31,
2018
$
$
$
$
$
$
324.9
(69.6)
255.3
2.99
(0.63)
2.36
69.6
104,077
0.67
(3.8)
104,077
(0.04)
0.63
62
Supplemental Calculations
Calculation of Loss Share Contribution and Non-Loss Share Earnings Per Share
Non-Loss Share Earnings are calculated by removing the total Loss Share Contribution from Net Income. The Loss Share Contribution is a hypothetical
presentation of the impact of the covered loans and FDIC indemnification asset on earnings for each respective quarter, reflecting the excess of Loss Share
Earnings over hypothetical interest income that could have been earned on alternative assets (in millions except share and per share data):
Net Income As Reported
Calculation of Loss Share Contribution:
Interest Income - Covered Loans (Accretion)
Net impact of sale of covered loans
Amortization of FDIC Indemnification Asset
Loss Share Earnings
Hypothetical interest income on alternate assets (1)
Loss Share Contribution, pre-tax
Income taxes (2)
Loss Share Contribution, after tax
Net Income as reported, minus Loss Share Contribution
Diluted Earnings Per Common Share, as Reported
Earnings Per Share, Loss Share Contribution
Non-Loss Share Diluted Earnings Per Share
Year Ended December 31,
2018 (3)
324.9
368.2
9.1
(261.8)
115.5
(20.9)
94.6
(25.1)
69.6
255.3
2.99
0.63
2.36
$
$
$
$
$
$
(1) See section entitled "Supplemental Calculations - Calculation of Hypothetical Interest Income on Alternate Assets" below for calculation of these amounts and underlying
assumptions.
(2) An assumed marginal tax rate of 26.5% was applied.
(3) Calculation variances of $0.1 million in the table above are due to rounding.
63
Calculation of Hypothetical Interest Income on Alternate Assets
The hypothetical interest income calculated below reflects the estimated income that may have been earned if the average balance of covered loans and
the FDIC indemnification asset were liquidated and the proceeds assumed to be invested in securities at the weighted average yield on the Company’s
investment securities portfolio as reported. Historically, cash received from the repayment, sale, or other resolution of covered loans and cash payments
received from the FDIC under the terms of the Shared Loss Agreement have generally been reinvested in non-covered loans or investment securities. There is
no assurance that the hypothetical results illustrated below would have been achieved if the covered loans and FDIC indemnification asset had been liquidated
and proceeds reinvested (dollars in millions):
Average Balances (1)
Average Covered Loans
Average FDIC Indemnification Asset
Average Loss Share Asset
Yield
Yield on securities - reported (2)
Hypothetical interest income on alternate assets
(1) Calculated as the simple average of beginning and ending balances reported.
(2) The weighted average yield on the Company’s investment securities as reported.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Year Ended December 31,
2018
$
$
$
427
196
623
3.35%
20.9
See the section entitled “Interest Rate Risk” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
64
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Report on Internal Control Over Financial Reporting
BankUnited, Inc. Consolidated Financial Statements for the Years ended December 31, 2019, 2018 and 2017
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Note 1 Basis of Presentation and Summary of Significant Accounting Policies
Note 2 Earnings Per Common Share
Note 3 Investment Securities
Note 4 Loans and Allowance for Loan and Lease Losses
Note 5 Leases
Note 6 Deposits
Note 7 Borrowings
Note 8 Premises, Equipment and Software
Note 9 Income Taxes
Note 10 Derivatives and Hedging Activities
Note 11 Stockholders’ Equity
Note 12 Equity Based and Other Compensation Plans
Note 13 Regulatory Requirements and Restrictions
Note 14 Fair Value Measurements
Note 15 Commitments and Contingencies
Note 16 Condensed Financial Statements of BankUnited, Inc.
Note 17 Quarterly Financial Information (Unaudited)
65
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120
124
125
127
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities
Exchange Act of 1934 Rule 13a-15(f). The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors
of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
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 preparation
of 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 are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may 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 Internal Control
—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company's evaluation
under the framework in Internal Control—Integrated Framework, management concluded that the Company's internal control over financial reporting was
effective as of December 31, 2019.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
66
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
BankUnited, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of BankUnited, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the
related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for each of the years in the three‑year period ended
December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for
each of the years in the three‑year period ended December 31, 2019, 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’s
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2020 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission 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 reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan and lease losses related to loans collectively evaluated for impairment
As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for loan and lease losses related to loans collectively
evaluated for impairment (Allowance) was $88.2 million of a total allowance for loan and lease losses of $108.7 million as of December 31, 2019. The
Allowance estimate consists of both quantitative and qualitative loss factors. The Company estimated the quantitative Allowance for the classified
commercial portfolio using loss factors based on default and severity information derived from both internal and external data. For pass rated commercial
portfolios, the quantitative Allowance is estimated using either internal or external peer group historical net charge-off rates or default data. The
quantitative Allowance for the residential portfolio is estimated using external industry proxy loss data. Qualitative adjustments to such quantitative loss
factors are made when internal and external factors are identified that are not taken into account by the quantitative Allowance.
We identified the assessment of the Allowance as a critical audit matter because it involved significant measurement uncertainty requiring complex
auditor judgment, and knowledge and experience in the industry. The assessment of the
67
Allowance encompassed evaluating (1) the methodologies and data used to derive the quantitative loss factors, including the relevance of external peer
group historical net charge-off rates or default data and external industry proxy loss data, (2) the key assumptions including the pooling of loans with
similar characteristics, historical observation periods and loss emergence periods, (3) the selection and evaluation of qualitative factor adjustments, and
(4) the internal risk ratings used to identify pass and classified commercial loans.
The primary procedures performed to address the critical audit matter included the following. We tested certain internal controls over the (1)
development of the methodologies and loss factors, including key assumptions, (2) determination of the qualitative factor adjustments, (3) periodic
assessment of commercial loan internal risk ratings, and (4) analysis of the overall allowance estimate, trends and ratios. We tested the pooling of loans
with similar characteristics by evaluating trends in the loan portfolio including: loan mix, geographic concentrations, levels of delinquencies, non-
performing loans and net charge-offs. We tested the relevance and reliability of sources of internal and external data and the historical observation period
by (1) evaluating that loss data in the historical observation period is representative of the credit characteristics of the current portfolio, (2) evaluating the
sufficiency of loss data within the historical observation period, and (3) assessing the use of additional sources of data or assumptions. We assessed the
appropriateness of the loss emergence period assumption by considering the Company’s credit risk policies and testing observable loss data. We tested
the qualitative factor framework and related adjustments by (1) assessing the maximum qualitative factor adjustment, (2) evaluating the metrics,
including the relevance of sources of data and assumptions, used to allocate the qualitative factor adjustments, (3) evaluating the determination of each
qualitative factor adjustment, and (4) evaluating trends in the total allowance, inclusive of the qualitative factor adjustments, for consistency with trends
in loan portfolio growth (attrition) and credit performance. We involved credit risk professionals with industry knowledge and experience who assisted
in:
•
•
•
•
evaluating the Company’s Allowance methodology for compliance with U.S. generally accepted accounting principles,
assessing the resulting quantitative loss factors, including key assumptions,
assessing that limitations of the methodology are addressed by qualitative factor adjustments, and
testing the internal risk ratings for commercial loans.
We have served as the Company's auditor since 2009.
Miami, Florida
February 28, 2020
/s/KPMG LLP
68
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
BankUnited, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited BankUnited, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established 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 consolidated
balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and
stockholders’ equity for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial
statements), and our report dated February 28, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable 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 reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we 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 Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely 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 of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Miami, Florida
February 28, 2020
/s/KPMG LLP
69
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Cash and due from banks:
Non-interest bearing
Interest bearing
Cash and cash equivalents
Investment securities (including securities recorded at fair value of $7,759,237 and $8,156,878)
Non-marketable equity securities
Loans held for sale
Loans (including covered loans of $201,376 at December 31, 2018)
Allowance for loan and lease losses
Loans, net
Bank owned life insurance
Operating lease equipment, net
Goodwill and other intangible assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Demand deposits:
Non-interest bearing
Interest bearing
Savings and money market
Time
Total deposits
Federal funds purchased
Federal Home Loan Bank advances
Notes and other borrowings
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 95,128,231 and 99,141,374 shares issued
and outstanding
Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2019
December 31,
2018
$
7,704 $
206,969
214,673
9,392
372,681
382,073
7,769,237
8,166,878
253,664
37,926
267,052
36,992
23,154,988
21,977,008
(108,671)
(109,931)
23,046,317
21,867,077
282,151
698,153
77,674
491,498
263,340
702,354
77,718
400,842
$
32,871,293 $
32,164,326
$
4,294,824 $
3,621,254
2,130,976
1,771,465
10,621,544
11,261,746
7,347,247
6,819,758
24,394,591
23,474,223
100,000
175,000
4,480,501
4,796,000
429,338
486,084
402,749
392,521
29,890,514
29,240,493
951
1,083,920
1,927,735
(31,827)
991
1,220,147
1,697,822
4,873
2,980,779
2,923,833
$
32,871,293 $
32,164,326
The accompanying notes are an integral part of these consolidated financial statements
70
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Interest income:
Loans
Investment securities
Other
Total interest income
Interest expense:
Deposits
Borrowings
Total interest expense
Net interest income before provision for loan losses
Provision for loan losses (including $752 and $1,358 for covered loans for the years ended December 31,
2018 and 2017, respectively)
Net interest income after provision for loan losses
Non-interest income:
Income from resolution of covered assets, net
Net loss on FDIC indemnification
Deposit service charges and fees
Gain on sale of loans, net (including $5,732 and $17,406 related to covered loans for the years ended
December 31, 2018 and 2017, respectively)
Gain on investment securities, net
Lease financing
Other non-interest income
Total non-interest income
Non-interest expense:
Employee compensation and benefits
Occupancy and equipment
Amortization of FDIC indemnification asset
Deposit insurance expense
Professional fees
Technology and telecommunications
Depreciation of operating lease equipment
Loss on debt extinguishment
Other non-interest expense
Total non-interest expense
Income before income taxes
Provision (benefit) for income taxes
Net income
Earnings per common share, basic
Earnings per common share, diluted
Years Ended December 31,
2019
2018
2017
$
981,408 $
1,198,241 $
1,001,862
280,560
19,902
233,091
17,812
188,307
14,292
1,281,870
1,449,144
1,204,461
385,180
143,905
529,085
752,785
8,904
743,881
—
—
16,539
12,119
21,174
66,631
30,741
284,563
114,488
399,051
1,050,093
25,925
1,024,168
11,551
(4,199)
14,412
15,864
3,159
61,685
29,550
170,933
83,256
254,189
950,272
68,747
881,525
27,450
(22,220)
13,180
27,589
33,466
53,837
24,602
147,204
132,022
157,904
235,330
56,174
—
16,991
20,352
47,509
48,493
3,796
58,444
487,089
403,996
90,898
254,997
55,899
261,763
18,984
16,539
35,136
40,025
—
57,197
740,540
415,650
90,784
$
$
$
313,098 $
324,866 $
3.14 $
3.13 $
3.01 $
2.99 $
237,824
58,100
176,466
22,011
23,676
31,252
35,015
—
50,624
634,968
404,461
(209,812)
614,273
5.60
5.58
The accompanying notes are an integral part of these consolidated financial statements
71
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Unrealized gains on investment securities available for sale:
Net unrealized holding gain (loss) arising during the period
Reclassification adjustment for net securities gains realized in income
Net change in unrealized gain on securities available for sale
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period
Reclassification adjustment for net (gains) losses realized in income
Net change in unrealized losses on derivative instruments
Other comprehensive income (loss)
Comprehensive income
Years Ended December 31,
2019
2018
2017
$
313,098 $
324,866 $
614,273
37,616
(13,625)
23,991
(58,760)
(1,931)
(60,691)
(36,700)
(57,041)
(4,486)
(61,527)
3,981
(1,469)
2,512
(59,015)
$
276,398 $
265,851 $
29,724
(20,247)
9,477
(1,559)
5,821
4,262
13,739
628,012
The accompanying notes are an integral part of these consolidated financial statements
72
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31,
2019
2018
2017
$
313,098 $
324,866 $
614,273
Amortization and accretion, net
Provision for loan losses
Income from resolution of covered assets, net
Net loss on FDIC indemnification
Gain on sale of loans, net
Gain on investment securities, net
Equity based compensation
Depreciation and amortization
Deferred income taxes
Loss on debt extinguishment
Proceeds from sale of loans held for sale
Loans originated for sale, net of repayments
Other:
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities
Proceeds from repayments and calls of investment securities
Proceeds from sale of investment securities
Purchase of non-marketable equity securities
Proceeds from redemption of non-marketable equity securities
Purchases of loans
Loan originations, repayments and resolutions, net
Proceeds from sale of loans, net
Proceeds from sale of operating lease equipment
Proceeds from sale of residential MSRs
Acquisition of operating lease equipment
Other investing activities
Net cash used in investing activities
(37,319)
8,904
—
—
(12,119)
(21,174)
23,367
72,425
24,529
3,796
412,034
(86,568)
17,749
(83,016)
635,706
(86,549)
25,925
(11,551)
4,199
(15,864)
(3,159)
23,137
64,268
67,778
—
268,589
(155,974)
236,461
82,126
824,252
(95,145)
68,747
(27,450)
22,220
(27,589)
(33,466)
22,692
61,552
57,801
—
158,621
(142,682)
(319,629)
(41,319)
318,626
(3,896,234)
(4,138,994)
(3,131,798)
1,370,584
2,975,259
(411,825)
425,213
1,533,951
1,030,810
(308,126)
307,063
1,260,444
1,287,591
(248,405)
266,688
(2,197,484)
(1,308,772)
(1,300,996)
477,805
265,582
19,269
—
(63,786)
(39,879)
404,769
544,745
52,134
34,573
(190,500)
(3,184)
(672,338)
196,413
4,950
—
(99,553)
(15,572)
(1,075,496)
(2,041,531)
(2,452,576)
(Continued)
The accompanying notes are an integral part of these consolidated financial statements
73
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Cash flows from financing activities:
Net increase in deposits
Net (decrease) increase in federal funds purchased
Additions to Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Dividends paid
Exercise of stock options
Repurchase of common stock
Other financing activities
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Interest paid
Income taxes (refunded) paid, net
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans to other real estate owned and other repossessed assets
Transfers from loans to loans held for sale
Transfers from loans held for sale to loans
Dividends declared, not paid
Obligations incurred in acquisition of affordable housing limited partnerships
$
$
$
$
$
$
$
$
Years Ended December 31,
2019
2018
2017
920,368
(75,000)
1,595,744
2,387,589
175,000
—
4,512,000
4,647,000
4,916,000
(4,827,000)
(4,622,000)
(5,385,000)
(84,083)
5,817
(154,030)
(25,682)
272,390
(167,400)
382,073
(91,305)
7,727
(299,972)
(7,424)
(91,628)
62,095
—
(8,837)
1,404,770
1,880,219
187,491
194,582
(253,731)
448,313
194,582
214,673 $
382,073 $
518,856 $
387,801 $
229 $
(288,267) $
247,548
69,231
3,211 $
9,709 $
536,227 $
108,503 $
19,716 $
20,775 $
— $
— $
21,673 $
4,710 $
13,313
1,973
—
23,055
—
The accompanying notes are an integral part of these consolidated financial statements
74
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common
Shares
Outstanding
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
104,166,945
$
1,042
$
1,426,459
$
949,681 $
614,273
(92,173)
—
41,247 $
13,739
—
—
Balance at December 31, 2016
Comprehensive income
Dividends ($0.84 per common share)
Equity based compensation
Forfeiture of unvested shares and shares
surrendered for tax withholding
obligations
Exercise of stock options
Balance at December 31, 2017
Cumulative effect of adoption of new
accounting standards
Comprehensive income
Dividends ($0.84 per common share)
Equity based compensation
Forfeiture of unvested shares and shares
surrendered for tax withholding
obligations
Exercise of stock options
Repurchase of common stock
Balance at December 31, 2018
Comprehensive income
Dividends ($0.84 per common share)
Equity based compensation
Forfeiture of unvested shares and shares
surrendered for tax withholding
obligations
Exercise of stock options
Repurchase of common stock
Balance at December 31, 2019
—
—
621,806
(271,954)
2,331,388
106,848,185
—
—
—
696,729
(252,091)
291,689
(8,443,138)
99,141,374
—
—
591,739
(344,766)
225,127
(4,485,243)
95,128,231
$
—
—
6
(3)
23
1,068
—
—
—
7
(3)
3
(84)
991
—
—
6
(3)
2
(45)
—
—
16,990
(7,294)
62,072
1,498,227
—
—
—
20,640
(6,556)
7,724
(299,888)
1,220,147
—
—
18,454
(6,511)
5,815
(153,985)
2,418,429
628,012
(92,173)
16,996
(7,297)
62,095
3,026,062
—
265,851
(89,923)
20,647
(6,559)
7,727
(299,972)
2,923,833
276,398
(83,185)
18,460
(6,514)
5,817
(154,030)
2,980,779
—
—
1,471,781
(8,902)
324,866
(89,923)
—
—
—
—
1,697,822
313,098
(83,185)
—
—
—
—
—
—
54,986
8,902
(59,015)
—
—
—
—
—
4,873
(36,700)
—
—
—
—
—
(31,827) $
951
$
1,083,920
$
1,927,735 $
The accompanying notes are an integral part of these consolidated financial statements
75
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 1 Basis of Presentation and Summary of Significant Accounting Policies
BankUnited, Inc. is a national bank holding company with one wholly-owned subsidiary, BankUnited; collectively, the Company. BankUnited, a national
banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporate customers in its
geographic footprint, primarily Florida and the New York metropolitan area. The Bank also offers certain commercial lending and deposit products through
national platforms.
In connection with the FSB Acquisition, BankUnited entered into two loss sharing agreements with the FDIC. The Loss Sharing Agreements consisted
of the Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement. Assets covered by the Loss Sharing Agreements are referred to
as covered assets or, in certain cases, covered loans. The Single Family Shared-Loss Agreement provided for FDIC loss sharing and the Bank’s
reimbursement for recoveries to the FDIC through its termination on February 13, 2019 for single family residential loans and OREO. Loss sharing under the
Commercial Shared-Loss Agreement terminated on May 21, 2014. The Commercial Shared-Loss Agreement continued to provide for the Bank’s
reimbursement of recoveries to the FDIC through June 30, 2017 for all other covered assets, including commercial real estate, commercial and industrial and
consumer loans, certain investment securities and commercial OREO. Pursuant to the terms of the Loss Sharing Agreements, the covered assets were subject
to a stated loss threshold 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 this amount, beginning with the first dollar of loss incurred. Transactions in the covered assets and the Loss Sharing Agreements had a material
impact on the Company's financial statements for periods prior to the year ended December 31, 2019.
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 Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.
Significant estimates include the ALLL and the fair values of investment securities and other financial instruments.
Principles of Consolidation
The consolidated financial statements include the accounts of BankUnited, Inc. and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation. VIEs are consolidated if the Company is the primary beneficiary; i.e., has (i) the power to direct the
activities 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 that
could potentially be significant to the VIE. The Company has variable interests in affordable housing limited partnerships that are not required to be
consolidated because the Company is not the primary beneficiary.
Fair Value Measurements
Certain of the Company's assets and liabilities are reflected in the consolidated financial statements at fair value on either a recurring or non-recurring
basis. Investment securities available for sale, marketable equity securities, servicing rights and derivative instruments are measured at fair value on a
recurring basis. Assets measured at fair value or fair value less cost to sell on a non-recurring basis may include collateral dependent impaired loans, OREO
and other repossessed assets, loans held for sale, goodwill and impaired long-lived assets. These non-recurring fair value measurements typically involve
lower-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 market
for the asset or liability in an orderly transaction between market participants at the measurement date. GAAP establishes a hierarchy that prioritizes inputs
used to determine fair value measurements into three levels based on the observability and transparency of the inputs:
76
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
•
•
•
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 identical
assets 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 or
estimation.
The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair
value. Unobservable inputs are utilized in determining fair value measurements only to the extent that observable inputs are unavailable. The need to use
unobservable inputs generally results from a lack of market liquidity and diminished observability of actual trades or assumptions that would otherwise be
available to value a particular asset or liability.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, both interest bearing and non-interest bearing, including amounts on deposit at the Federal
Reserve Bank, and federal funds sold. Cash equivalents have original maturities of three months or less. For purposes of reporting cash flows, cash receipts
and payments pertaining to FHLB advances with original maturities of three months or less are reported net.
Investment Securities
Debt 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 fair
value with unrealized gains and losses, net of tax, excluded from earnings and reported in AOCI, a separate component of stockholders' equity. Securities
classified 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
premiums and discounts on debt securities are amortized as adjustments to yield over the expected lives of the securities, using the level yield method.
Premiums are amortized to the call date for callable securities. Realized gains and losses from sales of securities are recorded 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
cost basis. The Company considers many factors in determining whether a decline in fair value below amortized cost represents OTTI, including, but not
limited to:
•
•
•
•
•
•
•
•
•
•
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.
77
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The relative importance assigned to each of these factors varies depending on the facts and circumstances pertinent to the individual security being
evaluated.
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 sell
the 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) the
Company 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 not it
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 cost
basis 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 other
factors, which is recognized in other comprehensive income. The measurement of the credit loss component is equal to the difference between the debt
security'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 earnings. Equity
securities that do not have readily determinable fair values are reported at cost and re-measured at fair value upon occurrence of an observable price change or
recognition of impairment.
Non-marketable Equity Securities
The 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
this stock, and the investment can be liquidated only through redemption by the respective institutions, at the discretion of and subject to conditions imposed
by those institutions. The stock has no readily determinable fair value and is carried at cost. Historically, stock redemptions have been at par value, which
equals the 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
has not identified any indicators of impairment of FHLB stock.
Loans Held for Sale
The 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 the
aggregate. 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 losses
recognized 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 fair
value when they are specifically identified for sale and a formal plan exists to sell them.
Loans
The Company's loan portfolio contains 1-4 single family residential first mortgages, government insured residential mortgages, an insignificant amount
of home equity loans and lines of credit and other consumer loans, multi-family, owner and non-owner occupied commercial real estate, construction and
land, and commercial and industrial loans, mortgage warehouse lines of credit, sales-type leases and direct financing leases.
Loans, other than ACI loans, are carried at UPB, net of premiums, discounts, unearned income, deferred loan origination fees and costs, and the ALLL.
Interest income on loans is accrued based on the principal amount outstanding. Non-refundable loan origination fees, net of direct costs of originating or
acquiring loans, as well as purchase premiums and discounts, are deferred and recognized as adjustments to yield over the contractual lives of the related
loans using the level yield method.
ACI Loans
ACI loans, all of which were acquired in the FSB Acquisition, are those for which, at acquisition, management determined it probable that the Company
would be unable to collect all contractual principal and interest payments due. These loans were recorded at estimated fair value at acquisition, measured as
the present value of all cash flows expected to be received, discounted at an appropriately risk-adjusted discount rate. Initial cash flow expectations
incorporated significant assumptions regarding prepayment rates, frequency of default and loss severity.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The difference between total contractually required payments on ACI loans and the cash flows expected to be received represents non-accretable
difference. The excess of all cash flows expected to be received over the Company's recorded investment in the loans represents accretable yield and is
recognized 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 characteristics into
homogenous pools at acquisition. A composite interest rate and composite expectations of future cash flows are used in accounting for each pool. These loans
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 basis
using 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 to
continue 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 Company
will 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 from changes
in estimates after acquisition, the loan or pool is considered impaired and a valuation allowance is established by a charge to the provision for loan losses. If
there is an increase in expected cash flows from a loan or pool, the Company first reduces any valuation allowance previously established by the amount 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 adjustment of
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 in
prepayment 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.
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 pool
being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of a
pool is reduced to zero, any future proceeds, which may include cash or real estate acquired in foreclosure, from the remaining loans, representing further
realization of accretable yield, are recognized as interest income upon receipt.
Non-accrual Loans
Commercial loans, other than ACI loans, are placed on non-accrual status when (i) management has determined that full repayment of all contractual
principal 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 of
collection. Residential loans, other than ACI loans and government insured residential loans, are generally placed on non-accrual status when they are 90 days
past due. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Payments received on
nonaccrual commercial 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
contractual principal and interest is reasonably assured. Residential loans are returned to accrual status when less than 90 days past due. 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 government insured residential loans are not classified as non-accrual due to the nature of the guarantee. Contractually
delinquent ACI loans are not classified as non-accrual as long as discount continues to be accreted on the loans or pools.
79
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Impaired Loans
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Loans, other than ACI loans, are considered impaired when, based on current information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreements. Commercial relationships with
committed balances greater than or equal to $1.0 million that have internal risk ratings of substandard or doubtful and are on non-accrual status, as well as
loans that have been modified in TDRs, are individually evaluated for impairment. Other commercial relationships on non-accrual status with committed
balances under $1.0 million may also be evaluated individually for impairment at management's discretion. The likelihood 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 factors impacting 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 at
acquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition. 1-4 single family residential and home
equity ACI loans accounted for in pools are evaluated collectively for impairment on a pool by pool basis based on expected pool cash flows. Commercial
ACI loans are individually evaluated for impairment based on expected cash flows from the individual loans. Discount continues to be accreted on ACI loans
or pools as long as there are expected future cash flows in excess of the current carrying amount of the loans or pools.
Troubled Debt Restructurings
In certain situations, due to economic or legal reasons related to a borrower's financial difficulties, the Company may grant a concession to the borrower
for 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 is
classified as a TDR and considered impaired. The concessions granted may include rate reductions, principal forgiveness, payment forbearance, extensions of
maturity at rates of interest below that commensurate with the risk profile of the loans, modification of payment terms and other actions intended to minimize
economic 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.
Sales-type and Direct Financing Leases
Sales-type and direct financing leases are carried at the aggregate of lease payments receivable and estimated residual value of the leased property, if
applicable, less unearned income. Interest income is recognized over the term of the leases to achieve a constant periodic rate of return on the outstanding
investment.
Allowance for Loan and Lease Losses
The ALLL represents the amount considered adequate by management to absorb probable incurred losses inherent in the loan portfolio at the balance
sheet date. The ALLL consists of both specific and general components. The ALLL is established as losses are estimated to have occurred through a
provision charged 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 open- and closed-end loans secured by residential real estate; any
outstanding loan balance in excess of fair value less cost to sell is charged off at no later than 180 days delinquency. Additionally, any outstanding 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 the bankruptcy court, (ii) within 60
days of determination of loss if all borrowers are deceased or (iii) within 90 days of discovery of fraudulent activity. Consumer loans are typically charged off
at 120 days delinquency. Commercial loans are charged off when management deems them to be uncollectible. Subsequent recoveries are credited to the
ALLL.
Commercial loans
The allowance is comprised of specific reserves for loans that are individually evaluated and determined to be impaired as well as general reserves for
loans 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 characteristics
indicative of a heightened level of credit risk. A quantitative loss factor is applied to loans
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
rated special mention based on average annual probability of default and implied severity, derived from internal and external data. Loss factors for
substandard and doubtful loans that are not individually evaluated are determined by using default frequency and severity information applied at the loan
level. Estimated default frequencies and severities are based on available industry 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 is
based on the Bank's historical net charge-off rates. These commercial segments include commercial and industrial loans, owner-occupied commercial real
estate, the Bridge portfolios and SBF loans. For commercial portfolio segments that have not yet exhibited an observable loss trend, the quantitative loss
factors are based on peer group average annual historical net charge-off rates by loan class and the Company’s internal credit risk rating system. These
commercial segments include multifamily, non-owner occupied commercial real estate and construction and land loans. For Pinnacle, quantitative loss factors
are based primarily on historical municipal default data. For most commercial portfolio segments, we use a 20 quarter 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 24
banks included in the OCC Midsize Bank Group plus five additional banks not included in the OCC Midsize Bank Group that management believes to be
comparable based on size, geography and nature of lending operations. Peer bank data is obtained from the Statistics on Depository Institutions Report
published 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 are
driven largely by debt service coverage. Peer group historical loss rates are adjusted upward for loans assigned 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-back period
to be consistent with the range of industry practice and appropriate to capture a sufficient range of observations reflecting the performance of our loans, which
were originated in the current economic cycle. With the exception of the Pinnacle municipal finance portfolio, a four quarter loss emergence period is used in
the calculation of 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 given
default. Assessments of default probability and severity are based on net realizable value analyses prepared at the individual loan level.
Residential and other consumer loans
This loan portfolio has not yet developed an observable loss trend. Therefore, the ALLL for residential loans is based primarily on relevant proxy
historical loss rates. The ALLL for 1-4 single family residential loans, excluding government insured residential loans, is estimated using average annual loss
rates on prime residential mortgage securitizations issued between 2003 and 2008 as a proxy. Based on the comparability of FICO scores and LTV ratios
between loans included in those securitizations and loans in the Bank’s portfolio and the geographic diversity in the new purchased residential portfolio, we
determined that prime residential mortgage securitizations provide an appropriate proxy for incurred losses in this portfolio class. A peer group 20-quarter
average net charge-off rate is used to estimate the ALLL for the home equity and other consumer loan classes. The home equity and other consumer loan
portfolios are not significant components of the overall loan portfolio. No quantitative ALLL is provided for U.S. Government insured residential loans.
Qualitative Factors
Qualitative adjustments are made to the ALLL when, based on management’s judgment, there are internal or external factors impacting probable incurred
losses 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;
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
•
•
•
•
•
•
•
•
•
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 and
legal and regulatory considerations.
ACI Loans
For ACI loans, a valuation allowance is established when periodic evaluations of expected cash flows reflect a deterioration resulting from credit related
factors from the level of cash flows that were estimated to be collected at acquisition plus any additional expected cash flows arising from revisions in those
estimates. 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 updated
expected prepayment rate, default rate, delinquency level and loss severity given default assumptions.
Reserve for Unfunded Commitments
The reserve for unfunded commitments represents the estimated probable losses related to unfunded lending commitments. The reserve is calculated in a
manner similar to the general reserve, while also considering the timing and likelihood that the available credit will be utilized as well as the exposure upon
default. The reserve for unfunded commitments is presented within other liabilities on the consolidated balance sheets, distinct from the ALLL, and
adjustments to the reserve for unfunded commitments are included in other non-interest expense in the consolidated statements of income.
Leases
The Company determines whether a contract is or contains a lease at inception. For leases with terms greater than twelve months under which the
Company is lessee, ROU assets and lease liabilities are recorded at the commencement date. Lease liabilities are initially recorded based on the present value
of future lease payments over the lease term. ROU assets are initially recorded at the amount of the associated lease liabilities plus prepaid lease payments
and initial direct costs, less any lease incentives received. The cost of short term leases is recognized on a straight line basis over the lease term. The lease
term includes options to extend if the exercise of those options is reasonably certain and includes termination options if there is reasonable certainty the
options will not be exercised. Lease payments are discounted using the Company's FHLB borrowing rate for borrowings of a similar term unless an implicit
rate is defined in the contract or is determinable, which is generally not the case. Leases are classified as financing or operating leases at commencement;
generally, leases are classified as finance leases when effective control of the underlying asset is transferred. The substantial majority of leases under which
the Company is lessee are classified as operating leases. For operating leases, lease cost is recognized in the consolidated statements of income on a straight
line basis over the lease terms. For finance leases, interest expense on lease liabilities is recognized on the effective interest method and amortization of ROU
assets is recognized on a straight line basis over the lease terms. Variable lease costs are recognized in the period in which the obligation for those costs is
incurred. The Company has elected not to separate lease from non-lease components of its lease contracts.
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Bank Owned Life Insurance
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Bank owned life insurance is carried at the amount that could be realized under the contract at the balance sheet date, which is typically cash surrender
value. Changes in cash surrender value are recorded in non-interest income.
Operating Lease Equipment
Operating lease equipment is carried at cost less accumulated depreciation and is depreciated to estimated residual value using the straight-line method
over the lease term. Estimated residual values are re-evaluated at least annually, based primarily on current residual value appraisals. Rental revenue is
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 the
carrying amount of long-lived assets may not be recoverable. Impairment of assets is determined by comparing the carrying amount to future undiscounted
net 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 value
of the asset.
Goodwill
Goodwill of $78 million at both December 31, 2019 and 2018 represents the excess of consideration transferred in business combinations over the fair
value of net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is tested for impairment annually or more frequently if events
or circumstances indicate that impairment may have occurred. The Company performs its annual goodwill impairment test in the third fiscal quarter. The
Company has a single reporting unit.
When assessing goodwill for impairment, the Company may elect to perform a qualitative assessment to determine if a quantitative impairment test is
necessary. If a qualitative assessment is not performed, or if the qualitative assessment indicates it is likely that the fair value of a reporting unit is less than its
carrying amount, a quantitative test is performed. The quantitative impairment test compares the estimated fair value of the reporting unit to its carrying
amount. If the fair value of the reporting unit exceeds its carrying amount, no impairment is indicated. If the fair value of the reporting unit is less than its
carrying amount, impairment of goodwill 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 capitalization of 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 Assets
Foreclosed property and repossessed assets consists of real estate assets acquired through, or in lieu of, loan foreclosure and personal property acquired
through repossession. Such assets are included in other assets in the accompanying consolidated balance sheets. These assets are held for sale and are initially
recorded at estimated fair value less costs to sell, establishing a new cost basis. Subsequent to acquisition, periodic valuations are performed and the assets are
carried at the lower of the carrying amount at the date of acquisition or estimated fair value less cost to sell. Significant property improvements are capitalized
to 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 of
holding and maintaining these assets are expensed as incurred.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization and are included in other assets in the accompanying
consolidated balance sheets. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The lives of improvements
to existing buildings are based on the lesser of the estimated remaining lives of the buildings or the estimated useful lives of the improvements. Leasehold
improvements are amortized over the shorter of the expected terms of the leases at inception, considering options to extend that are reasonably assured, or
their 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
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•
computer equipment - 3 to 5 years.
Software and CCA
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Software and CCA are carried at cost less accumulated depreciation and amortization and are included in other assets in the accompanying consolidated
balance sheets. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets which for CCA is
based on the term of the associated hosting arrangements plus any reasonably certain renewals. Direct costs of materials and services associated with
developing or obtaining and implementing internal use software and hosting arrangements that are service contracts incurred during the application
development stage are capitalized. The estimated useful life of software, software licensing rights and CCA implementation costs range from 3 to 5 years.
Loan Servicing Rights
Loan servicing rights relate to the portion of SBA and USDA loans sold in the secondary market and are measured at fair value, with changes in fair
value subsequent to acquisition recognized in earnings. Loan servicing rights are included in other assets in the accompanying consolidated balance sheets.
Servicing fee income is recorded net of changes in fair value in other non-interest income. 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 Partnerships
The Company has acquired investments in limited partnerships that manage or invest in qualified affordable housing projects and provide the Company
with 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. Under
the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the
amortization is recognized in the income statement as a component of income tax expense. The investments are evaluated for impairment when events or
changes in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be realized.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for periods in which the differences are expected to
reverse. 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. A
valuation 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 tax
asset will not be realized. In making such determinations, the Company considers all available positive and negative evidence that may impact the realization
of deferred tax assets. These considerations include the amount of taxable income generated in statutory carryback periods, future reversals of existing 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 upon
examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the tax positions. An uncertain tax position
is 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 realized
upon settlement. If the initial assessment fails to result in recognition of a tax benefit, the Company subsequently recognizes a tax benefit if (i) there are
changes 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 of
limitations expires, or (iii) there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. The
Company recognizes interest and penalties related to uncertain tax positions, as well as interest income or expense related to tax settlements, in the provision
for income taxes.
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Equity Based Compensation
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The Company periodically grants unvested or restricted shares of common stock and other share-based awards to key employees. For equity classified
awards, 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 basis
over the requisite service period for each award. Liability-classified awards are remeasured each reporting period at fair value until the award is settled, and
compensation cost is recognized in earnings on a straight-line basis over the requisite service period for each award, adjusted for changes in fair value each
reporting period. Compensation cost related to awards that embody performance conditions is recognized when it is probable that the performance conditions
will be achieved. The number of awards expected to vest is estimated in determining the amount of compensation cost to be recognized related to share-based
payment 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 embedded
in awards are reflected in the grant-date fair value of the awards.
Derivative Financial Instruments and Hedging Activities
Interest rate derivative contracts
The Company uses interest rate derivative contracts, such as swaps, caps, floors and collars, in the normal course of business to meet the financial needs
of its customers and to manage exposure to changes in interest rates. Interest rate contracts are recorded as assets or liabilities in the consolidated balance
sheets 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 been
designated as cash flow or fair value hedging instruments. The gain or loss resulting from changes in the fair value of interest rate swaps designated and
qualifying as cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in
the same period in which the hedged transaction affects earnings. Changes in the fair value of interest rate swaps designated as fair value hedging instruments
as well as changes in the fair value of the hedged items caused by fluctuations in the designated benchmark interest rates are recognized in earnings.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the
cash flows or fair value of the hedged item, the derivative expires or is sold, terminated, or exercised, management determines that the designation of the
derivative as a hedging instrument is no longer appropriate or, for a cash flow hedge, the occurrence of the forecasted transaction is no longer probable. When
hedge accounting on a cash flow hedge 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 flow hedge 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 unrealized gain or loss reported in AOCI is reclassified into earnings immediately. When hedge
accounting on a fair value hedge is discontinued, adjustments to the carrying amount of the hedged item due to changes in fair value are also discontinued.
Cash flows resulting from derivative financial instruments that are accounted for as hedges are classified in the cash flow statement in the same category
as 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 Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. A gain or loss is recognized in earnings upon
completion 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 to
have been surrendered when: (i) the assets have been legally isolated from the Company, (ii) the transferee obtains the right (free of conditions that constrain
it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Advertising Costs
Advertising costs are expensed as incurred.
Earnings per Common Share
Basic earnings per common share is calculated by dividing income allocated to common stockholders for basic earnings per common share by the
weighted 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 included in
the computation of basic earnings per common share using the two class method whereby net income is allocated between common stock and participating
securities. In periods of a net loss, no allocation is made to participating securities as they are not contractually required to fund net losses. Diluted earnings
per common share is computed by dividing income allocated to common stockholders for basic earnings per common share, adjusted for earnings reallocated
from participating securities, by the weighted average number of common shares outstanding for the period increased for the dilutive effect of unexercised
stock options, warrants and unvested stock awards using the treasury stock method. Contingently issuable shares are included in the calculation of earnings
per common share as if the end of the respective period was the end of the contingency period.
Revenue From Contracts with Customers
Revenue from contracts with customers within the scope of Topic 606 "Revenue from Contracts with Customers", is recognized in an amount that reflects
the 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 and
servicing of financial assets, are excluded from the scope of Topic 606. Deposit service charges and fees is the most significant category of revenue within the
scope of the standard. These service charges and fees consist primarily of monthly maintenance fees and other transaction based fees. Revenue is recognized
when 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 from
sources other than deposit service charges and fees is not material.
Reclassifications
Certain amounts presented for prior periods have been reclassified to conform to the current period presentation.
New Accounting Pronouncements Adopted in 2019
ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU, along with subsequent ASUs issued to clarify certain provisions of Topic 842,
require a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the
underlying asset for leases with terms longer than one year. Accounting applied by lessors was largely unchanged by this ASU. The ASU also requires both
qualitative and quantitative disclosures that provide additional information about the amounts recorded in the consolidated financial statements. The
amendments in this ASU were effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2018. The most
significant impact of adoption was the recognition, as lessee, of new right-of-use assets and lease liabilities on the consolidated balance sheet for real estate
leases classified as operating leases. Under a package of practical expedients that the Company elected, as lessee and lessor, the Company did not have to (i)
re-assess whether expired or existing contracts contain leases, (ii) re-assess the classification of expired or existing leases, (iii) re-evaluate initial direct costs
for existing leases or (iv) separate lease components of certain contracts from non-lease components. The Company also elected the transition method that
allows entities the option of applying the provisions of the ASU at the effective date without adjusting the comparative periods presented. The Company
adopted this ASU in the first quarter of 2019 using the modified retrospective transition method. The Company recognized a lease liability and related right of
use asset of approximately $104 million and $95 million, respectively, upon adoption on January 1, 2019. See Note 5 to the consolidated financial statements
for more information about leases.
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 added the OIS rate based on SOFR as a benchmark interest rate for hedge
accounting purposes. The ASU was effective for the Company for
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
interim and annual periods in fiscal years beginning after December 15, 2018. The Company adopted this ASU in the first quarter of 2019 with no impact at
adoption to its consolidated financial position, results of operations, or cash flows.
Accounting Pronouncements Not Yet Adopted
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. This ASU, along with
subsequent ASUs issued to clarify certain of its provisions, introduces new guidance which makes substantive changes to the accounting for credit losses. The
ASU introduces the CECL model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet
credit exposures. This includes loans, loan commitments, standby letters of credit, net investments in leases recognized by a lessor and HTM debt securities.
The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current
conditions and reasonable and supportable forecasts, and is generally expected to result in earlier recognition of credit losses. The ASU also modifies certain
provisions of the current OTTI model 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 fair value, and will be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis.
The ASU also provides for a simplified accounting model for purchased financial assets with more than insignificant credit deterioration since their
origination. The ASU requires expanded disclosures including, but not limited to, (i) information about the methods and assumptions used to estimate
expected credit losses, including changes in the factors that influenced management's estimate and the reasons for those changes, (ii) for financing receivables
and net investment in leases measured at amortized cost, further disaggregation of information about the credit quality of those assets and (iii) a rollforward of
the allowance for credit losses for AFS and HTM securities.
The Company will adopt this ASU in the first quarter of 2020. At adoption, we will record a cumulative effect adjustment to retained earnings for the
amount of the change in our allowance for credit losses. Banking regulators have provided an optional phase-in for the initial impact of adopting the new
standard for regulatory capital adequacy purposes which the Company intends to elect, allowing CECL's regulatory capital effects to be phased in at 25
percent per year, beginning in the first quarter of the year of adoption.
The Company has completed the execution of a detailed implementation plan, including establishment of a formal governance structure, the selection and
implementation of estimation methodologies and credit loss models for all significant portfolio segments, implementation of a software solution to serve as its
CECL platform, and development of processes and controls governing the CECL estimate and has executed a "parallel run" of the CECL estimation process.
Based on our portfolio mix as of December 31, 2019, the current economic environment, our economic forecast and other assumptions, we expect an
increase in the amount of the allowance for credit losses of approximately $25 million to $30 million, resulting in a ratio of the allowance for credit losses to
total loans, measured as of December 31, 2019, ranging from approximately 0.58% to 0.61%, compared to the current 0.47%. Additionally, upon adoption,
we expect an increase in the reserve for unfunded commitments of approximately $5 million to $6 million. During the first quarter of 2020, we expect all
internal reviews of the adjustment recorded upon initial adoption to be finalized and all processes and controls surrounding the ongoing estimate to be fully
implemented and documented. The impact of CECL with respect to our HTM and AFS securities portfolios will not be significant at the date of adoption.
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by
removing certain exceptions stipulated in ASC 740 and making some other targeted changes to the accounting for income taxes. This ASU is effective for the
Company for interim and annual periods in fiscal years beginning after December 15, 2020. The Company has not finalized its evaluation of the impact of
adoption on its consolidated financial position, results of operations, and cash flows, but the impact is not currently expected to be material.
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Note 2 Earnings Per Common Share
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The computation of basic and diluted earnings per common share is presented below for the years ended December 31, 2019, 2018 and 2017 (in
thousands, except share and per share data):
c
Basic earnings per common share:
Numerator:
Net income
Distributed and undistributed earnings allocated to participating securities
Income allocated to common stockholders for basic earnings per common share
Denominator:
Weighted average common shares outstanding
Less average unvested stock awards
Weighted average shares for basic earnings per common share
Basic earnings per common share
Diluted earnings per common share:
Numerator:
Income allocated to common stockholders for basic earnings per common share
Adjustment for earnings reallocated from participating securities
Income used in calculating diluted earnings per common share
Denominator:
Weighted average shares for basic earnings per common share
Dilutive effect of stock options
Weighted average shares for diluted earnings per common share
Diluted earnings per common share
2019
2018
2017
313,098 $
324,866 $
(13,371)
(13,047)
299,727 $
311,819 $
614,273
(23,250)
591,023
96,581,290
104,916,865
106,574,448
(1,127,275)
(1,171,994)
(1,104,035)
95,454,015
103,744,871
105,470,413
3.14 $
3.01 $
5.60
299,727 $
311,819 $
591,023
(175)
(195)
(263)
299,552 $
311,624 $
590,760
95,454,015
103,744,871
105,470,413
202,890
332,505
387,074
95,656,905
104,077,376
105,857,487
3.13 $
2.99 $
5.58
$
$
$
$
$
$
Included in participating securities above are unvested shares and 3,023,314 dividend equivalent rights outstanding at December 31, 2019 that were
issued in conjunction with the IPO of the Company's common stock. These dividend equivalent rights expire in 2021 and participate in dividends on a one-
for-one basis.
The following potentially dilutive securities were outstanding at December 31, 2019, 2018 and 2017 but excluded from the calculation of diluted
earnings per common share for the periods indicated because their inclusion would have been anti-dilutive:
Unvested shares and share units
Stock options and warrants
2019
1,050,455
—
2018
1,463,607
1,960
2017
1,431,761
1,850,279
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Note 3 Investment Securities
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Investment securities include investment securities available for sale, marketable equity securities, and investment securities held to maturity. The
investment securities portfolio consisted of the following at December 31, 2019 and 2018 (in thousands):
Investment securities available for sale:
U.S. Treasury securities
U.S. Government agency and sponsored enterprise residential
MBS
U.S. Government agency and sponsored enterprise commercial
Amortized Cost
Gains
Losses
Carrying Value (1)
$
70,243 $
219 $
(137) $
70,325
2,018,853
9,835
(6,513)
2,022,175
2019
Gross Unrealized
MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed securities
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
Investment securities held to maturity
Marketable equity securities
366,787
1,001,337
1,719,228
467,459
1,204,905
194,171
257,528
359,808
4,920
11,851
6,650
4,016
322
1,780
15,774
4,587
7,660,319 $
59,954 $
10,000
$
7,670,319
(731)
(1,011)
(1,194)
(1,450)
(7,861)
(1,047)
—
(1,664)
(21,608)
$
370,976
1,012,177
1,724,684
470,025
1,197,366
194,904
273,302
362,731
7,698,665
10,000
7,708,665
60,572
7,769,237
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Investment securities available for sale:
U.S. Treasury securities
U.S. Government agency and sponsored enterprise residential
MBS
U.S. Government agency and sponsored enterprise commercial
MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed securities
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
Other debt securities
Investment securities held to maturity
Marketable equity securities
2018
Gross Unrealized
Amortized Cost
Gains
Losses
Carrying Value (1)
$
39,885 $
2 $
(14) $
39,873
1,885,302
16,580
(4,408)
1,897,474
374,569
1,539,058
1,486,835
406,310
1,239,355
204,372
398,810
514,765
1,393
1,293
10,138
5,021
266
1,060
1,031
3,684
6,502
3,453
(1,075)
(14,998)
(6,140)
(4,118)
(5,217)
(1,336)
(4,065)
(1,954)
—
8,090,654 $
49,030 $
(43,325)
10,000
$
8,100,654
$
374,787
1,534,198
1,485,716
402,458
1,235,198
204,067
398,429
519,313
4,846
8,096,359
10,000
8,106,359
60,519
8,166,878
(1) At fair value except for securities held to maturity.
Investment securities held to maturity at December 31, 2019 and 2018 consisted of one State of Israel bond maturing in 2024.
At December 31, 2019, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments when applicable, were as
follows (in thousands):
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Amortized Cost
Fair Value
$
$
680,739 $
4,293,764
2,253,815
432,001
7,660,319 $
685,093
4,302,450
2,274,947
436,175
7,698,665
The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at the
FRB totaled $2.4 billion and $2.1 billion at December 31, 2019 and 2018, respectively.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table provides information about gains and losses on investment securities for the years ended December 31, 2019, 2018 and 2017 (in
thousands):
Proceeds from sale of investment securities available for sale
Gross realized gains:
Investment securities available for sale
Gross realized losses:
Investment securities available for sale
Net realized gain
$
$
2019
2,975,259 $
2018
1,030,810 $
2017
1,287,591
21,961 $
8,617 $
37,530
(3,424)
18,537
(2,514)
6,103
(4,064)
33,466
Net unrealized gains (losses) on marketable equity securities recognized in earnings
2,637
(2,944)
—
Gain on investment securities, net
$
21,174 $
3,159 $
33,466
The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeded fair value for investment securities
available for sale in unrealized loss positions, aggregated by investment category and length of time that individual securities had been in continuous
unrealized loss positions at December 31, 2019 and 2018 (in thousands):
Less than 12 Months
12 Months or Greater
Total
2019
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
(137)
U.S. Treasury securities
$
20,056 $
(137) $
— $
— $
20,056 $
U.S. Government agency and sponsored
enterprise residential MBS
U.S. Government agency and sponsored
enterprise commercial MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed
securities
Collateralized loan obligations
Non-mortgage asset-backed securities
SBA securities
579,076
(3,862)
243,839
(2,651)
822,915
(6,513)
99,610
180,398
648,761
(696)
(838)
(1,060)
241,915
(1,445)
63,310
78,964
10,236
(846)
(962)
(2)
6,477
41,636
76,302
5,460
682,076
7,883
142,204
(35)
(173)
(134)
(5)
(7,015)
(85)
(1,662)
106,087
222,034
725,063
247,375
745,386
86,847
152,440
(731)
(1,011)
(1,194)
(1,450)
(7,861)
(1,047)
(1,664)
$
1,922,326 $
(9,848) $
1,205,877 $
(11,760) $
3,128,203 $
(21,608)
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Less than 12 Months
12 Months or Greater
Total
2018
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
(14)
U.S. Treasury securities
$
14,921 $
(14) $
— $
— $
14,921 $
U.S. Government agency and sponsored
enterprise residential MBS
U.S. Government agency and sponsored
enterprise commercial MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed
securities
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
450,666
(1,828)
87,311
(2,580)
537,977
(4,408)
146,096
759,921
742,092
234,305
749,047
136,100
208,971
215,975
(352)
(7,073)
(5,371)
(1,973)
(5,217)
(1,336)
(3,522)
(1,391)
25,815
278,108
39,531
(723)
(7,925)
(769)
171,911
1,038,029
781,623
85,282
(2,145)
—
—
46,247
31,481
—
—
(543)
(563)
319,587
749,047
136,100
255,218
247,456
(1,075)
(14,998)
(6,140)
(4,118)
(5,217)
(1,336)
(4,065)
(1,954)
$
3,658,094 $
(28,077) $
593,775 $
(15,248) $
4,251,869 $
(43,325)
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, 2019, 2018 and 2017. The Company does not intend to sell securities that are in significant
unrealized loss positions at December 31, 2019 and it is not more likely than not that the Company will be required to sell these securities before recovery of
the amortized cost basis, which may be at maturity. At December 31, 2019, 155 securities available for sale were in unrealized loss positions. The amount of
impairment related to 65 of these securities was considered insignificant both individually and in the aggregate, totaling approximately $538 thousand and no
further analysis with respect to these securities was considered necessary. The basis for concluding that impairment of the remaining securities was not other-
than-temporary is further described below.
U.S. Treasury securities
At December 31, 2019, one U.S Treasury security was in an unrealized loss position. The timely payment of principal and interest on this security is
explicitly guaranteed by the U.S. Government. Given the limited severity of impairment and the exception of timely payments of principal and interest, the
impairment is considered to be temporary.
U.S. Government agency and sponsored enterprise residential and commercial MBS
At December 31, 2019, thirty-two U.S. Government agency and sponsored enterprise residential MBS and four U.S. Government agency and sponsored
enterprise commercial MBS were in unrealized loss positions. Impairment of these floating rate securities was primarily attributable to widening spreads. The
timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. Given the expectation of timely
payment of principal and interest the impairments were considered to be temporary.
Private label residential MBS and CMOs
At December 31, 2019, nine private label residential MBS and CMOs were in unrealized loss positions, primarily as a result of widening spreads. These
securities were assessed for OTTI using credit and prepayment behavioral models that incorporate CUSIP level constant default rates, voluntary prepayment
rates and loss severity and delinquency assumptions. The results of these assessments were not indicative of credit losses related to any of these securities as
of December 31, 2019. Given the expectation of timely recovery of outstanding principal the impairments were considered to be temporary.
92
Table of Contents
Private label commercial MBS
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
At December 31, 2019, ten private label commercial MBS were in unrealized loss positions, primarily as a result of widening spreads. These securities
were assessed for OTTI using credit and prepayment behavioral models incorporating assumptions consistent with the collateral characteristics of each
security. The results of this analysis were not indicative of expected credit losses. Given the expectation of timely recovery of outstanding principal the
impairments were considered to be temporary.
Single family rental real estate-backed securities
At December 31, 2019, four single family rental real estate-backed securities were in unrealized loss positions. The unrealized losses were primarily due
to widening spreads. Management's analysis of the credit characteristics, including loan-to-value and debt service coverage ratios, and levels of subordination
for each of the securities is not indicative of projected credit losses. Given the absence of projected credit losses the impairments were considered to be
temporary.
Collateralized loan obligations:
At December 31, 2019, nineteen collateralized loan obligations were in unrealized loss positions, primarily due to widening spreads for this asset class.
These securities were assessed for OTTI using credit and prepayment behavioral models incorporating assumptions consistent with the collateral
characteristics of each security. The results of this analysis were not indicative of expected credit losses. Given the expectation of timely recovery of
outstanding principal, the impairments were considered to be temporary.
Non-mortgage asset-backed securities
At December 31, 2019, four non-mortgage asset-backed securities were in unrealized loss positions, due primarily to widening spreads. These securities
were assessed for OTTI using a credit and prepayment behavioral model incorporating assumptions consistent with the collateral characteristics of the
security. The results of this analysis were not indicative of expected credit losses. Given the expectation of timely recovery of outstanding principal, the
impairment was considered to be temporary.
SBA Securities
At December 31, 2019, seven SBA securities were in unrealized loss positions. These securities were purchased at a premium and the impairment was
attributable primarily to increased prepayment speeds. The timely payment of principal and interest on these securities is guaranteed by the SBA. Given the
expectation of timely payment of principal and interest, the impairments were considered to be temporary.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 4 Loans and Allowance for Loan and Lease Losses
At December 31, 2019 and 2018, loans consisted of the following (dollars in thousands):
Residential and other consumer:
1-4 single family residential
Government insured residential
Other consumer loans
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Pinnacle
Bridge - franchise finance
Bridge - equipment finance
Mortgage warehouse lending
Total loans
Allowance for loan and lease losses
Loans, net
2019
2018
Total
Percent of Total
Total
Percent of Total
$
4,953,936
21.4% $
4,664,920
698,644
8,539
5,661,119
2,217,705
5,030,904
243,925
2,062,808
4,655,349
1,202,430
627,482
684,794
768,472
17,493,869
23,154,988
(108,671)
3.0%
0.1%
24.5%
9.6%
21.7%
1.1%
8.9%
20.1%
5.2%
2.6%
3.0%
3.3%
75.5%
100.0%
266,729
17,340
4,948,989
2,585,421
4,688,880
226,840
2,119,880
4,358,526
1,462,655
517,305
636,838
431,674
17,028,019
21,977,008
(109,931)
$
23,046,317
$
21,867,077
21.2%
1.2%
0.1%
22.5%
11.8%
21.4%
1.0%
9.6%
19.8%
6.6%
2.4%
2.9%
2.0%
77.5%
100.0%
Premiums, discounts and deferred fees and costs totaled $50 million and $44 million at December 31, 2019 and 2018, respectively.
During the years ended December 31, 2019 and 2018, the Company purchased 1-4 single family residential loans totaling $2.2 billion and $1.3 billion,
respectively. Purchases for the years ended December 31, 2019 and 2018 included $844 million and $371 million, respectively, of government insured
residential loans.
At December 31, 2019, the Company had pledged loans with a carrying value of approximately $10.2 billion as security for FHLB advances and Federal
Reserve discount window borrowings.
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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following presents the Company's recorded investment in ACI loans, included in the table above, as of December 31, 2019 and 2018 (in thousands):
Residential
Commercial
2019
2018
$
$
149,580 $
17,180
166,760 $
190,223
17,925
208,148
At December 31, 2019 and 2018, the UPB of ACI loans was $321 million and $408 million, respectively. The accretable yield on ACI loans represents
the amount by which undiscounted expected future cash flows exceed recorded investment. Changes in the accretable yield on ACI loans for the years ended
December 31, 2019, 2018 and 2017 were as follows (in thousands):
Balance at December 31, 2016
Reclassifications from non-accretable difference
Accretion
Balance at December 31, 2017
Reclassifications from non-accretable difference, net
Accretion
Other changes, net (1)
Balance at December 31, 2018
Reclassifications to non-accretable difference, net
Accretion
Other changes, net (1)
Balance at December 31, 2019
$
$
675,385
81,501
(301,827)
455,059
128,499
(369,915)
78,204
291,847
(565)
(63,853)
(15,789)
211,640
(1) Represents changes in cash flows expected to be collected due to the impact of changes in prepayment assumptions or changes in benchmark interest rates.
Allowance for loan and lease losses
Activity in the ALLL for the years ended December 31, 2019, 2018 and 2017 is summarized in the table below (in thousands):
2019
2018
2017
Residential and
Other
Consumer
Commercial
Total
Residential and
Other
Consumer
Commercial
Total
Residential and
Other
Consumer
Commercial
Total
Beginning
balance
Provision
Charge-offs (1)
(2)
Recoveries
$
10,788 $
99,143 $
109,931 $
10,720 $
134,075 $ 144,795 $
11,503 $
141,450 $ 152,953
154
—
212
8,750
8,904
1,032
24,893
25,925
2,452
66,295
68,747
(17,541)
(17,541)
7,165
7,377
(1,465)
501
(65,619)
(67,084)
(3,328)
(77,865)
(81,193)
5,794
6,295
93
4,195
4,288
Ending balance
$
11,154 $
97,517 $
108,671 $
10,788 $
99,143 $ 109,931 $
10,720 $
134,075 $ 144,795
(1)
(2)
Includes charge-offs of $39.7 million and $56.6 million related to taxi medallion loans during the years ended December 31, 2018 and 2017, respectively.
Includes charge-offs of $1.2 million and $3.3 million related to formerly covered residential loans during the years ended December 31, 2018 and 2017, respectively.
95
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table presents information about the balance of the ALLL and related loans as of December 31, 2019 and 2018 (in thousands):
2019
2018
Residential and
Other Consumer
Commercial
Total
Residential and
Other Consumer
Commercial
Total
Allowance for loan and lease losses:
Ending balance
Ending balance: loans individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment
Ending balance: ACI loans
Loans:
Ending balance
$
$
$
$
$
11,154
11,145
9
$
$
$
— $
97,517
20,481
77,036
$
$
$
— $
108,671
20,490
88,181
$
$
$
— $
10,788 $
134 $
10,654 $
— $
99,143 $
12,143 $
87,000 $
— $
109,931
12,277
97,654
—
Ending balance: loans individually evaluated for impairment (1) $
57,117
Ending balance: loans collectively evaluated for impairment
Ending balance: ACI loans
$
$
5,454,422
149,580
5,661,119
$
$
$
$
17,493,869
187,788
17,288,901
17,180
$
$
$
$
0
23,154,988
244,905
22,743,323
166,760
$
$
$
$
4,948,989 $
7,690 $
4,751,076 $
190,223 $
17,028,019 $
108,841 $
16,901,253 $
17,925 $
21,977,008
116,531
21,652,329
208,148
(1) Includes government insured residential loans modified in TDRs of $53.4 million at December 31, 2019.
Credit quality information
The table below presents information about loans identified as impaired as of December 31, 2019 and 2018 (in thousands):
With no specific allowance recorded:
1-4 single family residential
Government insured residential
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Bridge - franchise finance
Bridge - equipment finance
With a specific allowance recorded:
1-4 single family residential
Non-owner occupied commercial real estate
Owner occupied commercial real estate
Commercial and industrial
Bridge - franchise finance
Bridge - equipment finance
Total:
Residential and other consumer
Commercial
Recorded
Investment
2019
UPB
Related
Specific
Allowance
Recorded
Investment
2018
UPB
Related
Specific
Allowance
$
992
$
989
$
53,428
6,138
38,345
3,191
17,419
10,585
4,115
6,807
2,697
—
2,522
63,531
21,011
14,124
53,350
6,169
38,450
3,155
17,488
10,574
4,117
6,793
2,652
—
2,509
63,709
21,050
14,024
— $
—
—
—
—
—
—
—
—
9
—
401
13,992
2,953
3,135
2,204 $
3,520
25,560
12,293
9,923
9,007
13,514
3,152
—
1,966
1,666
3,316
10,939
2,047
17,424
2,170 $
3,435
25,592
12,209
9,925
9,024
13,519
3,149
—
1,941
1,667
3,322
10,946
2,046
17,339
$
$
57,117
$
56,991
$
187,788
188,038
244,905
$
245,029
$
9
$
20,481
20,490
$
7,690 $
108,841
116,531 $
7,546 $
108,738
116,284 $
—
—
—
—
—
—
—
—
—
134
731
844
3,831
1,427
5,310
134
12,143
12,277
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Included in the table above is the guaranteed portion of impaired SBA loans totaling $46.1 million and $13.1 million at December 31, 2019 and 2018,
respectively. Interest income recognized on impaired loans was $1.9 million and $9.6 million for the years ended December 31, 2019 and 2017, respectively.
The interest income recognized on impaired loans was immaterial for the year ended December 31, 2018.
The following table presents the average recorded investment in impaired loans for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Residential and other consumer:
1-4 single family residential
Government insured residential
Home equity loans and lines of credit
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial (1)
Bridge - franchise finance
Bridge - equipment finance
2019
2018
2017
$
4,525 $
5,227 $
18,574
—
23,099
20,972
25,814
7,621
14,250
36,698
10,195
13,981
1,426
—
6,653
25,679
14,106
6,551
16,207
97,388
1,986
7,771
129,531
169,688
$
152,630 $
176,341 $
3,213
—
12,265
15,478
4,259
5,537
2,789
19,882
147,252
14,438
8,427
202,584
218,062
(1)
Includes average recorded investment in taxi medallion loans totaling $80 million and $109 million during the years ended December 31, 2018 and 2017, respectively.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table presents the recorded investment in loans on non-accrual status as of December 31, 2019 and 2018 (in thousands):
Residential and other consumer:
1-4 single family residential
Other consumer loans
Commercial:
Multi-family
Non-owner occupied commercial real estate
Construction and land
Owner occupied commercial real estate
Commercial and industrial
Bridge - franchise finance
Bridge - equipment finance
2019
2018
18,877 $
17
18,894
6,138
40,097
3,191
27,141
74,757
13,631
20,939
185,894
204,788 $
6,316
288
6,604
25,560
16,050
9,923
19,789
28,584
5,308
17,425
122,639
129,243
$
$
Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $45.7 million and $17.8 million at December 31, 2019 and 2018,
respectively. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their
contractual terms was approximately $7.5 million and $5.0 million for the years ended December 31, 2019 and 2018, respectively.
Management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity and
consumer 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 1-4 single family residential loans, other than the FSB loans and
government insured loans.
Internal risk ratings are considered the most meaningful indicator of credit quality for commercial loans. Internal risk ratings are a key factor in
identifying loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the
ALLL. Internal risk ratings are updated on a continuous basis. Generally, relationships with balances in excess of defined thresholds, ranging from $1 million
to $3 million, are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. Loans exhibiting
potential credit weaknesses that deserve management’s close attention and that if left uncorrected may result in deterioration of the repayment capacity of the
borrower are categorized as special mention. Loans with well-defined credit weaknesses, including payment defaults, declining collateral values, frequent
overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due real
estate 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 highly
questionable or improbable, but because of certain reasonably specific pending factors has not been charged off, will be assigned an internal risk rating of
doubtful.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following tables summarize key indicators of credit quality for the Company's loans as of December 31, 2019 and 2018 (in thousands):
1-4 Single Family Residential credit exposure for loans, excluding FSB loans and government insured residential loans, based on original LTV and
FICO score:
LTV
Less than 61%
61% - 70%
71% - 80%
More than 80%
LTV
Less than 61%
61% - 70%
71% - 80%
More than 80%
2019
FICO
720 or less
721 - 740
741 - 760
761 or
greater
$
118,914 $
126,349 $
188,526 $
792,065 $
135,062
192,761
18,660
118,652
239,697
27,247
189,188
434,013
32,147
660,414
1,392,906
128,928
Total
1,225,854
1,103,316
2,259,377
206,982
$
465,397 $
511,945 $
843,874 $
2,974,313 $
4,795,529
2018
FICO
720 or less
721 - 740
741 - 760
761 or
greater
$
105,812 $
123,877 $
197,492 $
813,944 $
120,982
156,519
17,352
109,207
203,121
35,036
170,531
374,311
36,723
597,659
1,264,491
1,998,442
136,487
225,598
Total
1,241,125
998,379
$
400,665 $
471,241 $
779,057 $
2,812,581 $
4,463,544
Commercial credit exposure, based on internal risk rating:
Non-Owner
Occupied
Commercial Real
Estate
Multi-Family
Construction
and Land
Owner Occupied
Commercial Real
Estate
Commercial
and Industrial
Pass
$
2,184,771
$
4,932,279
$
240,734
$
1,991,556
$
4,508,563
Pinnacle
$ 1,202,430
Bridge -
Franchise
Finance
Bridge -
Equipment
Finance
Mortgage
Warehouse
Lending
Total
$
562,042
$
663,855
$
768,472
$
17,054,702
Special mention
—
Substandard
32,934
5,831
92,794
—
3,191
27,870
43,382
28,498
118,288
—
—
10,682
54,758
—
20,939
—
—
72,881
366,286
$
2,217,705
$
5,030,904
$
243,925
$
2,062,808
$
4,655,349
$ 1,202,430
$
627,482
$
684,794
$
768,472
$
17,493,869
2019
2018
Non-Owner
Occupied
Commercial Real
Estate
Multi-Family
Construction
and Land
Owner Occupied
Commercial Real
Estate
Commercial
and Industrial
Pass
$
2,547,835
$
4,611,029
$
216,917
$
2,077,611
$
4,285,478
Pinnacle
$ 1,462,655
Bridge -
Franchise
Finance
Bridge -
Equipment
Finance
Mortgage
Warehouse
Lending
Total
$
492,853
$
612,968
$
421,188
$
16,728,534
Special mention
Substandard
Doubtful
2,932
34,654
—
16,516
61,335
—
—
9,923
—
13,368
28,901
—
27,611
43,691
1,746
—
—
—
9,232
15,220
—
925
16,302
6,643
10,486
—
—
81,070
210,026
8,389
$
2,585,421
$
4,688,880
$
226,840
$
2,119,880
$
4,358,526
$ 1,462,655
$
517,305
$
636,838
$
431,674
$
17,028,019
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Table of Contents
Aging of loans:
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table presents an aging of loans as of December 31, 2019 and 2018 (in thousands):
Current
30 - 59
Days Past
Due
2019
60 - 89
Days Past
Due
90 Days or
More Past
Due
Total
Current
30 - 59
Days Past
Due
2018
60 - 89
Days Past
Due
90 Days or
More Past
Due
Total
$
4,887,618
$
45,634
$
9,578
$
11,106
$
4,953,936
$
4,640,771
$
15,070
$
2,126
$
6,953
$
4,664,920
93,560
45,347
30,426
529,311
698,644
1-4 single family
residential
Government insured
residential
Home equity loans and
lines of credit
Other consumer loans
Multi-family
Non-owner occupied
commercial real
estate
1,320
7,219
2,217,705
5,015,458
—
—
—
—
—
—
—
928
—
Construction and land
240,647
2,396
Owner occupied
commercial real
estate
Commercial and
industrial
Pinnacle
Bridge - franchise
finance
Bridge - equipment
finance
Mortgage warehouse
lending
2,041,352
4,595,847
1,202,430
610,315
677,089
768,472
1,336
2,313
4,420
4,301
—
—
—
3,840
7,705
—
2,501
10,826
—
—
—
—
—
—
—
14,518
882
15,700
52,888
1,320
7,219
31,348
1,393
15,947
2,217,705
2,585,421
5,030,904
4,682,443
243,925
224,828
2,062,808
2,106,104
4,655,349
1,202,430
627,482
684,794
768,472
4,341,304
1,462,655
516,077
636,235
431,674
8,342
8,871
218,168
266,729
—
—
—
3,621
916
2,826
6,732
—
—
603
—
—
—
—
1,374
—
1,087
926
—
—
—
—
—
—
—
1,442
1,096
9,863
9,564
—
1,228
—
—
1,393
15,947
2,585,421
4,688,880
226,840
2,119,880
4,358,526
1,462,655
517,305
636,838
431,674
$
22,359,032
$
108,571
$
52,154
$
635,231
$
23,154,988
$
21,676,200
$
38,110
$
14,384
$
248,314
$
21,977,008
Included in the table above is the guaranteed portion of SBA loans past due by 90 days or more totaling $36.3 million and $8.8 million at December 31,
2019 and 2018, respectively. Loans contractually delinquent by 90 days or more and still accruing totaled $531 million, of which $529 million were
government insured residential loans at December 31, 2019 and $219 million, of which $218 million were government insured residential loans at
December 31, 2018.
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Loan Concentrations
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table presents the five states with the largest geographic concentrations of 1-4 single family residential loans, excluding government
insured residential loans, at December 31, 2019 and 2018 (dollars in thousands):
California
New York
Florida
Virginia
New Jersey
All others
2019
2018
$
Total
1,280,243
1,057,926
597,359
189,869
189,018
Percent of Total
25.8% $
21.4%
12.1%
3.8%
3.8%
Total
1,177,221
977,146
645,020
184,756
158,863
1,639,521
33.1%
1,521,914
$
4,953,936
100.0% $
4,664,920
Percent of Total
25.2%
20.9%
13.8%
4.0%
3.5%
32.6%
100.0%
The following table presents the largest geographic concentrations of commercial real estate loans and commercial and industrial loans, including owner-
occupied commercial real estate loans at December 31, 2019 and 2018:
2019
2018
Florida
New York Tri-state
Other
Foreclosure of residential real estate
Commercial Real Estate
46.4%
Commercial and
Industrial
Commercial Real Estate
42.8%
40.5%
45.7%
7.9%
100.0%
21.1%
38.4%
100.0%
50.3%
6.9%
100.0%
Commercial and
Industrial
46.3%
18.5%
35.2%
100.0%
The recorded investment in residential loans in the process of foreclosure was $257 million, of which $248 million was government insured, at
December 31, 2019 and $85 million, all of which was government insured, at December 31, 2018. The carrying amount of foreclosed residential real estate
included in "Other assets" in the accompanying consolidated balance sheet was zero and $6 million at December 31, 2019 and 2018, respectively.
Troubled debt restructurings
The following tables summarize loans that were modified in TDRs during the years ended December 31, 2019, 2018 and 2017, as well as loans modified
during the years ended December 31, 2019, 2018 and 2017 that experienced payment defaults during the periods (dollars in thousands):
1-4 single family residential
Government insured residential
Non-owner occupied commercial real estate
Owner occupied commercial real estate
Commercial and industrial
Bridge - franchise finance
2019
Loans Modified in TDRs
During the Period
TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs
Recorded
Investment
Number of
TDRs
Recorded
Investment
2 $
324
1
1
7
4
339 $
557
51,022
11,496
908
20,239
15,288
99,510
— $
112
—
1
2
—
115 $
—
17,421
—
908
8,673
—
27,002
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
1-4 single family residential
Government insured residential
Non-owner occupied commercial real estate
Owner occupied commercial real estate
Commercial and industrial
1-4 single family residential
Multi-family
Owner occupied commercial real estate
Commercial and industrial(1)
2018
Loans Modified in TDRs
During the Period
TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs
Recorded
Investment
Number of
TDRs
Recorded
Investment
10 $
26
3
2
6
3,669
2,793
5,932
1,076
6,646
3 $
15
1
—
2
47 $
20,116
21 $
929
1,560
2,949
—
217
5,655
2017
Loans Modified in TDRs
During the Period
TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs
Recorded
Investment
Number of
TDRs
Recorded
Investment
7 $
2
3
112
124 $
676
23,173
4,685
49,904
78,438
5 $
—
—
8
13 $
595
—
—
2,725
3,320
(1)
Includes taxi medallion loans totaling $48.5 million modified during the year ended December 31, 2017.
Modifications during the years ended December 31, 2019, 2018 and 2017 included interest rate reductions, restructuring of the amount and timing of
required periodic payments, extensions of maturity and covenant waivers. Included in TDRs are residential loans to borrowers who have not reaffirmed their
debt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material. Modified ACI loans accounted for in pools are not considered TDRs,
are not separated from the pools and are not classified as impaired loans.
Note 5 Leases
Leases under which the Company is the lessee
The Company leases branches, office space and a small amount of equipment under either operating or finance leases with remaining terms ranging from
one to 15 years, some of which include extension options.
The following table presents ROU assets and lease liabilities as of December 31, 2019 (in thousands):
ROU assets:
Operating leases
Finance leases
Lease liabilities:
Operating leases
Finance leases
$
$
$
$
92,553
31,587
124,140
102,264
34,248
136,512
ROU assets and lease liabilities for operating leases are included in "other assets" and "other liabilities", respectively, in the accompanying consolidated
balance sheets. ROU assets and lease liabilities for finance leases are included in "other assets" and "notes and other borrowings", respectively.
102
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The weighted average remaining lease term and weighted average discount rate at December 31, 2019 were:
Weighted average remaining lease term:
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
The following table presents the components of lease expense for the year ended December 31, 2019 (in thousands):
Operating lease cost:
Fixed costs
Impairment of ROU assets
Total operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Total finance lease cost
Variable lease cost
Short-term lease costs and sublease income were immaterial for the year ended December 31, 2019.
Additional information related to operating and finance leases for the year ended December 31, 2019 follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Lease liabilities recognized from obtaining ROU assets:
Operating lease liabilities recognized upon adoption of ASC 842
Operating leases
Finance leases
103
7.66 years
13.55 years
3.3%
2.9%
20,284
1,278
21,562
1,642
1,002
2,644
3,950
1,002
20,795
2,529
24,326
104,064
15,778
27,415
147,257
$
$
$
$
$
$
$
$
$
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Future lease payment obligations under leases with terms in excess of one year and a reconciliation to lease liabilities as of December 31, 2019 were as
follows (in thousands):
Years ending December 31:
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
Less: interest component
Lease liabilities
Operating Leases
Finance Leases
Total
$
19,817 $
2,916 $
18,232
15,045
12,990
11,550
38,419
116,053
(13,789)
3,088
2,525
2,603
2,701
27,996
41,829
(7,581)
$
102,264 $
34,248 $
22,733
21,320
17,570
15,593
14,251
66,415
157,882
(21,370)
136,512
At December 31, 2018, future minimum rentals under non-cancelable operating leases with initial or remaining terms in excess of one year were as
follows (in thousands):
Years ending December 31:
2019
2020
2021
2022
2023
Thereafter
$
$
21,207
17,629
15,858
12,114
10,311
42,984
120,103
Leases under which the Company is the lessor
Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment financing using a variety of loan and lease structures.
Pinnacle provides essential use equipment financing to state and local governmental entities. Bridge provides primarily transportation equipment financing.
Direct or Sales Type Financing Leases
The following table presents the components of the investment in direct or sales type financing leases, included in loans in the consolidated balance
sheets as of December 31, 2019 and 2018 (in thousands):
Total minimum lease payments to be received
Estimated unguaranteed residual value of leased assets
Gross investment in direct or sales type financing leases
Unearned income
Initial direct costs
$
$
2019
2018
804,103 $
8,471
812,574
(84,175)
4,453
732,852 $
808,921
7,355
816,276
(81,864)
4,833
739,245
104
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
At December 31, 2019, future minimum lease payments to be received under direct or sales type financing leases were as follows (in thousands):
Years Ending December 31:
2020
2021
2022
2023
2024
Thereafter
Operating Lease Equipment
$
$
199,591
149,480
100,849
78,914
61,969
213,300
804,103
Operating lease equipment consists primarily of railcars, non-commercial aircraft and other transportation equipment leased to commercial end users.
Original lease terms generally range from three to ten years. Asset risk is evaluated and managed by a dedicated internal staff of seasoned equipment finance
professionals with a broad depth and breadth of experience in the leasing business. The Company has partnered with an industry leading, experienced service
provider who provides fleet management and servicing relating to the railcar fleet. Residual risk is managed by setting appropriate residual values at inception
and systematic reviews of residual values based on independent appraisals, performed at least annually. The Company endeavors to lease to a stable end user
base, maintain a relatively young and diversified fleet of assets and stagger lease maturities.
The following table presents the components of operating lease equipment as of December 31, 2019 and 2018 (in thousands):
Operating lease equipment
Less: accumulated depreciation
Operating lease equipment, net
2019
2018
$
$
844,015 $
(145,862)
698,153 $
802,302
(99,948)
702,354
The Company recognized impairment of $1.9 million during the year ended December 31, 2019. This impairment charge is included in "depreciation of
operating lease equipment" in the accompanying consolidated statements of income. No impairment was recognized during the years ended December 31,
2018 and 2017.
105
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
At December 31, 2019, scheduled minimum rental payments under operating leases were as follows (in thousands):
Years Ending December 31:
2020
2021
2022
2023
2024
Thereafter
$
60,176
51,155
44,368
37,060
31,930
80,196
$
304,885
The following table summarizes lease income recognized for operating leases and direct or sales type finance leases for the year ended December 31,
2019 (in thousands):
Operating leases
Direct or sales type finance leases
Note 6 Deposits
2019
Location of Lease Income on Consolidated Statements of
Income
66,631 Non-interest income from lease financing
21,865 Interest income on loans
88,496
$
$
The following table presents average balances and weighted average rates paid on deposits for the years ended December 31, 2019, 2018 and 2017
(dollars in thousands):
2019
2018
2017
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Demand deposits:
Non-interest bearing
$
Interest bearing
Money market
Savings
Time
3,950,612
1,824,803
10,716,274
206,545
6,928,499
—% $
1.37%
1.84%
0.24%
2.34%
3,389,191
1,627,828
10,350,772
284,198
6,617,006
—% $
1.13%
1.41%
0.26%
1.81%
3,069,565
1,586,390
9,364,498
365,603
6,094,336
$
23,626,733
1.63% $
22,268,995
1.28% $
20,480,392
—%
0.81%
0.85%
0.21%
1.27%
0.83%
Time deposit accounts with balances of $100,000 or more totaled approximately $3.5 billion and $4.1 billion at December 31, 2019 and 2018,
respectively. Time deposit accounts with balances of $250,000 or more totaled $1.9 billion and $2.4 billion at December 31, 2019 and 2018, respectively.
106
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table presents maturities of time deposits as of December 31, 2019 (in thousands):
Maturing in:
2020
2021
2022
2023
2024
$
7,196,988
106,416
24,289
17,898
1,656
$
7,347,247
Included in deposits at December 31, 2019 are public funds deposits of $2.6 billion and brokered deposits of $3.7 billion. Investment securities available
for sale with a carrying value of $1.0 billion were pledged as security for public funds deposits at December 31, 2019.
Interest expense on deposits for the years ended December 31, 2019, 2018 and 2017 was as follows (in thousands):
Interest bearing demand
Money market
Savings
Time
Note 7 Borrowings
2019
2018
2017
25,054 $
18,391 $
197,445
497
162,184
385,180 $
145,585
739
119,848
284,563 $
12,873
79,645
752
77,663
170,933
$
$
The following table presents information about outstanding FHLB advances as of December 31, 2019 (dollars in thousands):
Amount
Minimum
Maximum
Weighted Average Rate
Range of Interest Rates
Maturing in:
2020 - One month or less
2020 - Over one month
2021
Total contractual balance outstanding
Cumulative fair value hedging adjustments
Carrying value
$
760,000
3,471,000
250,000
4,481,000
(499)
$
4,480,501
1.66%
1.67%
2.75%
2.02%
2.90%
3.02%
1.77%
1.98%
2.91%
The table above reflects contractual maturities of outstanding advances and does not incorporate the impact that interest rate swaps designated as cash
flow hedges have on the duration of borrowings. The terms of the Company's security agreement with the FHLB require a specific assignment of collateral
consisting of qualifying first mortgage loans, commercial real estate loans, home equity lines of credit and mortgage-backed securities with unpaid principal
amounts discounted at various stipulated percentages at least equal to 100% of outstanding FHLB advances. As of December 31, 2019, the Company had
pledged investment securities and real estate loans with an aggregate carrying amount of approximately $11.5 billion as collateral for advances from the
FHLB.
At December 31, 2019 and 2018 outstanding senior notes payable and other borrowings consisted of the following (dollars in thousands):
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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Principal amount of 4.875% senior notes
Unamortized discount and debt issuance costs
Finance leases
2019
2018
400,000 $
(4,910)
395,090
34,248
429,338 $
400,000
(5,610)
394,390
8,359
402,749
$
$
The senior notes mature on November 17, 2025 with interest payable semiannually. The notes have an effective interest rate of 5.12%, after consideration
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 the greater 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 securities discounted 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 notes that 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 basis points. The
senior notes may be redeemed at any time after August 17, 2025 at 100% of principal plus accrued and unpaid interest.
At December 31, 2019, BankUnited had available borrowing capacity at the FHLB of approximately $4.3 billion, unused borrowing capacity at the FRB
of approximately $637 million and unused Federal funds lines of credit with other financial institutions totaling $185 million.
Note 8 Premises, Equipment and Software
Premises and equipment and capitalized software costs are included in other assets in the accompanying consolidated balance sheets and are summarized
as follows as of December 31, 2019 and 2018 (in thousands):
2019
2018
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Computer equipment
Software and software licensing rights
Aircraft and automobiles
Capitalized implementation costs of CCA
Less: accumulated depreciation
Premises, equipment and software, net
Buildings held for sale, net
$
— $
72,627
36,492
22,729
57,687
11,593
1,881
203,009
(144,905)
58,104 $
$
$
7,938
69,651
36,581
22,218
47,727
11,614
805
196,534
(130,702)
65,832
6,789 $
—
Depreciation and amortization expense related to premises, equipment and software was $19.2 million, $17.5 million and $18.4 million for the years
ended December 31, 2019, 2018 and 2017, respectively. The Company measures assets held for sale at the lower of carrying amount or estimated fair value.
108
Table of Contents
Note 9 Income Taxes
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The components of the provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 were
as follows (in thousands):
Current:
Federal
State
Deferred:
Federal
State
2019
2018
2017
$
58,996 $
2,172 $
7,373
66,369
8,255
16,274
24,529
20,834
23,006
51,303
16,475
67,778
(251,880)
(15,733)
(267,613)
46,377
11,424
57,801
$
90,898 $
90,784 $
(209,812)
A reconciliation of expected income tax expense at the statutory federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and
35% for the year ended December 31, 2017, to the Company's effective income tax rate follows (dollars in thousands):
Tax expense calculated at the statutory federal
income tax rate
$
84,839
21.00 % $
87,286
21.00 % $
141,561
35.00 %
2019
2018
2017
Amount
Percent
Amount
Percent
Amount
Percent
Increases (decreases) resulting from:
Income not subject to tax
State income taxes, net of federal tax benefit
Discrete income tax benefit
Other, net
(17,950)
19,956
—
4,053
(4.44)%
4.94 %
— %
1.00 %
$
90,898
22.50 % $
(18,923)
31,182
—
(8,761)
90,784
(4.55)%
7.50 %
(29,511)
19,332
— %
(327,945)
(2.11)%
(13,249)
21.84 % $
(209,812)
(7.30)%
4.78 %
(81.08)%
(3.27)%
(51.87)%
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'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 to the basis assigned to certain loans acquired in the FSB Acquisition should
be refunded to the Company, in light of guidance issued after the relevant returns had been filed.
109
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The components of deferred tax assets and liabilities at December 31, 2019 and 2018 were as follows (in thousands):
Deferred tax assets:
Excess of tax basis over carrying value of acquired loans
Allowance for loan and lease losses
Net operating loss and tax credit carryforwards
Net unrealized loss on investment securities available for sale and cash flow hedges
Other
Gross deferred tax assets
Deferred tax liabilities:
Lease financing, due to differences in depreciation
Other
Gross deferred tax liabilities
Net deferred tax liability
2019
2018
$
50,089 $
23,151
5,947
11,475
55,205
145,867
176,269
31,227
207,496
$
(61,629) $
52,341
25,599
17,209
—
33,330
128,479
167,856
10,952
178,808
(50,329)
Based on the evaluation of available evidence, the Company has concluded that it is more likely than not that the existing deferred tax assets will be
realized. The primary factor supporting this conclusion is the amount of future taxable income that will result from the scheduled reversal of existing deferred
tax liabilities.
At December 31, 2019, remaining net operating loss and tax credit carryforwards included federal net operating loss carryforwards in the amount of $5.3
million, expiring from 2029 through 2032, and Florida net operating loss carryforwards in the amount of $111.1 million. Florida net operating loss
carryforwards consisted of $106.1 million expiring from 2030 through 2037 and $5.0 million that can be carried forward indefinitely.
The Company has investments in affordable housing limited partnerships which generate federal Low Income Housing Tax Credits and other tax
benefits. The balance of these investments, included in other assets in the accompanying consolidated balance sheet, was $57 million and $64 million at
December 31, 2019 and 2018, respectively. Unfunded commitments for affordable housing investments, included in other liabilities in the accompanying
consolidated balance sheet, were $8 million and $21 million at December 31, 2019 and 2018, respectively. The maximum exposure to loss as a result of the
Company's involvement with these limited partnerships at December 31, 2019 was approximately $78 million. While the Company believes the likelihood of
potential losses from these investments is remote, the maximum exposure was determined by assuming a scenario where the projects completely fail and do
not meet certain government compliance requirements resulting in recapture of the related tax credits. These investments did not have a material impact on
income tax expense for the years ended December 31, 2019, 2018 and 2017.
The Company has a liability for unrecognized tax benefits relating to uncertain federal and state tax positions in several jurisdictions. A reconciliation of
the beginning and ending amount of gross unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017 follows (in thousands):
Balance, beginning of period
Additions for tax positions related to the current year
Additions for tax positions related to prior periods
Reductions due to change in tax position
Reductions due to lapse of the statute of limitations
Interest and penalties
Balance, end of period
2018
2017
2019
116,081 $
$
5,352
280,449
(564)
(406)
400,912
6,214
59,220 $
2,399
77,101
(26,037)
(675)
112,008
4,073
72,736
1,882
1,661
(15,316)
(2,229)
58,734
486
59,220
$
407,126 $
116,081 $
110
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
As of December 31, 2019, 2018 and 2017, the Company had $368.9 million, $78.2 million and $43.6 million of unrecognized federal and state tax
benefits, net of federal tax benefits, that if recognized would have impacted the effective tax rate. Unrecognized tax benefits related to state income tax
contingencies that may decrease during the 12 months subsequent to December 31, 2019 as a result of settlements with taxing authorities range from zero to
$44.5 million.
Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes in the consolidated statements of income. At
December 31, 2019 and 2018, accrued interest and penalties included in the consolidated balance sheets, net of federal tax benefits, were $11.4 million and
$6.5 million, respectively. The total amounts of interest and penalties, net of federal tax benefits, recognized through income tax expense were $4.9 million,
$3.2 million and $0.3 million during the years ended December 31, 2019, 2018 and 2017, respectively.
The Company and its subsidiaries file a consolidated federal income tax return as well as combined state income tax returns where combined filings are
required. Income tax returns for the tax years ended December 31, 2019, 2018, 2017, 2016, and 2015 remain subject to examination in the U.S. Federal and
various state tax jurisdictions. The tax years ended December 31, 2009, 2010, 2011, 2012, 2013 and 2014 remain subject to examination by certain states.
Note 10 Derivatives and Hedging Activities
The Company enters into LIBOR-based interest rate swaps that are designated as cash flow hedges with the objective of limiting the variability of
interest payment cash flows resulting from changes in the benchmark interest rate LIBOR. The Company also enters into LIBOR-based interest rate swaps
designated as fair value hedges designed to hedge changes in the fair value of outstanding fixed rate borrowings caused by fluctuations in the benchmark
interest rate.
The Company enters into interest rate derivative contracts with certain of its commercial borrowers to enable those borrowers to manage their exposure
to interest rate fluctuations. To mitigate interest rate risk associated with these derivative contracts, the Company enters into offsetting derivative contract
positions with primary dealers. These interest rate derivative contracts are not designated as hedging instruments; therefore, changes in the fair value of these
derivatives are recognized immediately in earnings. For the years ended December 31, 2019, 2018 and 2017, the impact on earnings, included in "other non-
interest income" in the accompanying consolidated statements of income, related to changes in fair value of these derivatives was $9.6 million, $2.1 million
and $3.0 million, respectively.
The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The
Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. The
Company manages dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master
agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to be
posted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its commercial borrower counterparties
through its normal loan underwriting and credit monitoring policies and procedures. The Company does not currently anticipate any losses from 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 than
collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial
reporting purposes. The Company's clearing agent for interest rate derivative contracts centrally cleared through the CME settles the variation margin daily
with the CME; therefore, those interest rate derivative contracts the Company clears through the CME are reported at a fair value of approximately zero at
both December 31, 2019 and 2018.
111
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following tables set forth certain information concerning the Company’s interest rate contract derivative financial instruments and related hedged
items at December 31, 2019 and 2018 (dollars in thousands):
Derivatives designated as cash
flow hedges:
Pay-fixed interest rate
swaps
Derivatives designated as fair
value hedges:
Receive-fixed interest rate
swaps
Derivatives not designated as
hedges:
Pay-fixed interest rate
swaps
Pay-variable interest rate
swaps
Interest rate caps purchased,
indexed to 1-month
LIBOR
Interest rate caps sold,
indexed to 1-month
LIBOR
Derivatives designated as cash
flow hedges:
Pay-fixed interest rate
swaps
Derivatives not designated as
hedges:
Pay-fixed interest rate
swaps
Pay-variable interest rate
swaps
Interest rate caps purchased,
indexed to 1-month
LIBOR
Interest rate caps sold,
indexed to 1-month
LIBOR
Hedged Item
Weighted
Average
Pay Rate
Weighted
Average
Receive Rate
Variability of interest cash
flows on variable rate
borrowings
2.37%
3-Month LIBOR
Variability of fair value of
fixed rate borrowings
3-Month
LIBOR
1.55%
3.72%
Indexed to 1-
month LIBOR
Indexed to 1-
month LIBOR
3.72%
3.30%
3.30%
Hedged Item
Weighted
Average
Pay Rate
Weighted
Average
Receive Rate
Variability of interest cash
flows on variable rate
borrowings
2.38%
3-Month LIBOR
4.10%
Indexed to 1-
month LIBOR
Indexed to 1-
month LIBOR
4.10%
3.43%
3.43%
112
2019
Weighted
Average
Remaining
Life in Years
Notional
Amount
Balance Sheet
Location
Fair Value
Asset
Liability
3.2
1.6
6.4
6.4
0.6
0.6
$ 3,131,000 Other liabilities
$
— $
(1,607)
250,000 Other liabilities
—
—
1,460,355
1,460,355
Other assets / Other
liabilities
Other assets / Other
liabilities
876
(15,307)
42,810
(2,115)
61,004 Other assets
—
61,004 Other liabilities
$ 6,423,718
—
43,686 $
$
—
—
(19,029)
2018
Weighted
Average
Remaining
Life in Years
Notional
Amount
Balance Sheet
Location
Fair Value
Asset
Liability
4.0
6.0
6.0
1.2
1.2
$ 2,846,000
Other assets / Other
liabilities
$
3,405 $
—
1,048,196
1,048,196
Other assets / Other
liabilities
Other assets / Other
liabilities
14,883
11,318
(6,991)
(16,874)
98,407 Other assets
9
98,407 Other liabilities
$ 5,139,206
—
29,615 $
$
—
(9)
(23,874)
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following table provides information about the amount of gain (loss) related to derivatives designated as cash flow hedges reclassified from AOCI
into interest expense for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Interest rate contracts
$
2,627 $
1,999 $
(9,621) Interest expense on borrowings
2019
2018
2017
Location of Gain (Loss) Reclassified from AOCI
into Income
During the years ended December 31, 2019, 2018 and 2017, no derivative positions designated as cash flow hedges were discontinued and none of the
gains and losses reported in AOCI were reclassified into earnings as a result of the discontinuance of cash flow hedges or because of the early extinguishment
of debt. As of December 31, 2019, the amount of net loss expected to be reclassified from AOCI into earnings during the next twelve months was $20.0
million.
There were no fair value hedges during the years ended December 31, 2018 and 2017. The following table provides information about the amount of gain
(loss) related to derivatives designated as fair value hedges recognized in earnings for the year ended December 31, 2019 (in thousands):
Fair value adjustment on derivatives
Fair value adjustment on hedged items
Gain recognized on fair value hedges (ineffective portion)
$
$
(486) Interest expense on borrowings
499 Interest expense on borrowings
13
2019
Location of Gain (Loss) in Consolidated Statements of Income
The following table provides information about the hedged items related to derivatives designated as fair value hedges at December 31, 2019 and 2018
(in thousands):
Carrying value of hedged item
Cumulative fair value hedging adjustments
2019
250,000 $
(499) $
$
$
2018
Location in Consolidated Balance Sheets
— Federal Home Loan Bank advances
— Federal Home Loan Bank advances
Some of the Company’s ISDA master agreements with financial institution counterparties contain provisions that permit either counterparty to terminate
the agreements and require settlement in the event that regulatory capital ratios fall below certain designated thresholds, upon the initiation of other defined
regulatory actions or upon suspension or withdrawal of the Bank’s credit rating. Currently, there are no circumstances that would trigger these provisions of
the agreements.
The Company does not offset assets and liabilities under master netting agreements for financial reporting purposes. Information on interest rate swaps
subject to these agreements is as follows at December 31, 2019 and 2018 (dollars in thousands):
Gross Amounts
Recognized
Gross Amounts
Offset in Balance
Sheet
Net Amounts
Presented in
Balance Sheet
Gross Amounts Not Offset in
Balance Sheet
Derivative
Instruments
Collateral
Pledged
2019
Derivative assets
Derivative liabilities
$
$
876 $
(16,914)
(16,038) $
876 $
(16,914)
(16,038) $
(876) $
876
— $
— $
16,038
16,038 $
— $
—
— $
113
Net Amount
—
—
—
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Gross Amounts
Recognized
Gross Amounts
Offset in Balance
Sheet
Net Amounts
Presented in
Balance Sheet
Gross Amounts Not Offset in
Balance Sheet
Derivative
Instruments
Collateral
Pledged
Net Amount
2018
Derivative assets
Derivative liabilities
$
$
18,297 $
(6,991)
11,306 $
— $
—
— $
18,297 $
(5,264) $
(13,129) $
(6,991)
11,306 $
5,264
436
— $
(12,693) $
(96)
(1,291)
(1,387)
The difference between the amounts reported for interest rate swaps subject to master netting agreements and the total fair value of interest rate contract
derivative financial instruments reported in the consolidated balance sheets is related to interest rate derivative contracts not subject to master netting
agreements.
At December 31, 2019, the Company had pledged net financial collateral of $18.4 million as collateral for interest rate swaps in a liability position that
are not centrally cleared. The amount of collateral required to be posted varies based on the settlement value of outstanding swaps and in some cases may
include initial margin requirements.
Note 11 Stockholders’ Equity
Accumulated Other Comprehensive Income
Changes in other comprehensive income are summarized as follows for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Unrealized gains on investment securities available for sale:
Net unrealized holding gain arising during the period
Amounts reclassified to gain on investment securities available for sale, net
Net change in unrealized gains on investment securities available for sale
Unrealized losses on derivative instruments:
Net unrealized holding loss arising during the period
Amounts reclassified to interest expense on borrowings
Net change in unrealized losses on derivative instruments
Other comprehensive loss
Unrealized gains on investment securities available for sale:
Net unrealized holding loss arising during the period
Amounts reclassified to gain on investment securities available for sale, net
Net change in unrealized gains on investment securities available for sale
Unrealized losses on derivative instruments:
Net unrealized holding gain arising during the period
Amounts reclassified to interest expense on borrowings
Net change in unrealized losses on derivative instruments
Other comprehensive loss
114
2019
Before Tax
Tax Effect
Net of Tax
$
51,178 $
(13,562) $
(18,537)
32,641
(79,945)
(2,627)
(82,572)
4,912
(8,650)
21,185
696
21,881
$
(49,931) $
13,231 $
37,616
(13,625)
23,991
(58,760)
(1,931)
(60,691)
(36,700)
2018
Before Tax
Tax Effect
Net of Tax
$
(77,607) $
20,566 $
(6,103)
(83,710)
5,416
(1,999)
3,417
1,617
22,183
(1,435)
530
(905)
(57,041)
(4,486)
(61,527)
3,981
(1,469)
2,512
$
(80,293) $
21,278 $
(59,015)
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Unrealized gains on investment securities available for sale:
Net unrealized holding gain arising during the period
Amounts reclassified to gain on investment securities available for sale, net
Net change in unrealized gains on investment securities available for sale
Unrealized losses on derivative instruments:
Net unrealized holding loss arising during the period
Amounts reclassified to interest expense on borrowings
Net change in unrealized losses on derivative instruments
Other comprehensive income
2017
Before Tax
Tax Effect
Net of Tax
$
49,131 $
(19,407) $
(33,466)
15,665
(2,577)
9,621
7,044
13,219
(6,188)
1,018
(3,800)
(2,782)
$
22,709 $
(8,970) $
29,724
(20,247)
9,477
(1,559)
5,821
4,262
13,739
The categories of AOCI and changes therein are presented below for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Balance at December 31, 2016
Other comprehensive income
Balance at December 31, 2017
Cumulative effect of adoption of new accounting standards
Other comprehensive loss
Balance at December 31, 2018
Other comprehensive loss
Balance at December 31, 2019
Note 12 Equity Based and Other Compensation Plans
Description of Equity Based Compensation Plans
Unrealized Gain (Loss) on
Investment Securities
Available for Sale
Unrealized Gain (Loss)
on Derivative
Instruments
Total
$
$
47,057 $
(5,810) $
9,477
56,534
9,187
(61,527)
4,194
23,991
28,185 $
4,262
(1,548)
(285)
2,512
679
(60,691)
(60,012) $
41,247
13,739
54,986
8,902
(59,015)
4,873
(36,700)
(31,827)
In 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 the
Company's stockholders approved the 2014 Plan. The 2010 Plan and 2014 Plans are administered by the Board of Directors or a committee thereof and
provide for the grant of non-qualified stock options, SARs, restricted shares, deferred shares, performance shares, unrestricted shares and other share-based
awards to selected employees, directors or independent contractors of the Company and its affiliates. The number of shares of common stock authorized for
award under the 2010 Plan is 7,500,000, of which 118,847 shares remain available for issuance as of December 31, 2019. The number of shares of common
stock authorized for award under the 2014 Plan is 4,000,000, of which 1,612,961 shares remain available for issuance as of December 31, 2019. Shares of
common stock delivered under the plans may consist of authorized but unissued shares or previously issued shares reacquired by the Company. The term of a
share 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 value
of the Company's common stock at the date of grant. Unvested awards generally become fully vested in the event of a change in control, as defined.
115
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Compensation Expense Related to Equity Based Awards
The following table summarizes compensation cost related to equity based awards for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Compensation cost of equity based awards:
Unvested and restricted share awards
Executive share-based awards
Incentive awards
Total compensation cost of equity based awards
Related tax benefits
Compensation cost of equity based awards, net of tax
Share Awards
Unvested share awards
2019
2018
2017
$
$
17,334 $
19,415 $
4,953
1,189
23,476
(4,068)
3,027
798
23,240
(5,783)
19,408 $
17,457 $
18,087
3,416
1,289
22,792
(8,576)
14,216
A summary of activity related to unvested share awards for the years ended December 31, 2019, 2018 and 2017 follows:
Number of Share
Awards
Unvested share awards outstanding, December 31, 2016
Granted
Vested
Canceled or forfeited
Unvested share awards outstanding, December 31, 2017
Granted
Vested
Canceled or forfeited
Unvested share awards outstanding, December 31, 2018
Granted
Vested
Canceled or forfeited
Unvested share awards outstanding, December 31, 2019
Weighted Average
Grant Date Fair Value
31.46
1,120,700 $
621,806
(553,007)
(81,022)
1,108,477
683,137
(532,662)
(72,714)
1,186,238
591,739
(561,769)
(165,753)
1,050,455 $
40.24
31.67
34.51
36.06
40.06
34.64
38.43
38.86
36.49
37.50
38.95
38.24
Unvested share awards are generally valued at the closing price of the Company's common stock on the date of grant. All shares granted prior to 2019
vest in equal annual installments over a period of three years from the date of grant. All shares granted in 2019 to Company employees vest in equal annual
installments over a period of four years from the date of grant. Shares granted to the Company's Board of Directors vest over a period of one year.
The following table summarizes the closing price of the Company's stock on the date of grant for shares granted and the aggregate grant date fair value of
shares vesting for the years ended December 31, 2019, 2018 and 2017 (in thousands, except per share data):
Range of the closing price on date of grant
Aggregate grant date fair value of shares vesting
2019
2018
2017
$31.07 - $36.65
$33.44 - $42.80
$33.21 - $40.84
$
21,064 $
18,451 $
17,514
116
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The total unrecognized compensation cost of $22.9 million for all unvested share awards outstanding at December 31, 2019 will be recognized over a
weighted average remaining period of 2.23 years.
Executive share-based awards
Certain of the Company's executives are eligible to receive annual awards of RSUs and PSUs (collectively, the "share units"). Annual awards of RSUs
represent a fixed number of shares and vest on December 31st in equal tranches over three years for awards issued prior to 2019 and over four years for
awards issued in 2019. PSUs are initially granted based on a target value. The number of PSUs that ultimately vest at the end of the 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 2019, 2018 and 2017 include 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 settled in 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 paid subsequent to vesting.
The Company has cash settled all tranches of RSUs and PSUs that have vested through December 31, 2018. RSUs and PSUs vested on December 31,
2019 have not yet settled. 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 each reporting 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 PSUs are 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 period based 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, 2019, 2018 and 2017 follows:
Unvested executive share-based awards outstanding, December 31, 2016
Granted
Vested
Unvested executive share-based awards outstanding, December 31, 2017
Granted
Vested
Unvested executive share-based awards outstanding, December 31, 2018
Granted
Vested
Unvested executive share-based awards outstanding, December 31, 2019
RSU
PSU
78,560
47,841
(35,238)
91,163
52,026
(52,580)
90,609
73,062
(51,555)
112,116
57,873
47,841
—
105,714
52,026
(57,873)
99,867
73,062
(47,841)
125,088
The total liability for these executive share-based awards was $6.4 million at December 31, 2019. The total unrecognized compensation cost of $5.9
million for unvested executive share-based awards at December 31, 2019 will be recognized over a weighted average remaining period of 2.13 years.
Incentive awards
The Company's annual incentive compensation arrangements for employees other than those eligible for the executive share-based awards discussed
above provide for settlement through a combination of cash payments and unvested share awards following the end of the annual performance period. The
dollar value of share awards to be granted is based on the achievement of performance criteria established in the incentive arrangements. The number of
shares 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 initially
classified as liability instruments, with compensation cost recognized from the beginning of the performance period. Awards related to performance periods
prior to 2019 vest over three years and awards related to the 2019 performance period vest in equal installments over a period of four years from the date of
grant. These awards are included in the summary of activity related to unvested share awards above. The total liability for incentive share awards for the 2019
performance period was $0.7 million at
117
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
December 31, 2019. The related total unrecognized compensation cost of $2.8 million for these incentive share awards at December 31, 2019 will be
recognized over a weighted average remaining period of 4.00 years. The accrued liability and unrecognized compensation cost are based on management's
current estimate of the likely outcome of the performance criteria established in the incentive arrangements and may differ from actual results.
The 591,739 unvested share awards granted during the year ended December 31, 2019, as discussed above, included 60,290 unvested share awards
granted under the Company's annual incentive compensation arrangements based on the achievement of established performance criteria for the year ended
December 31, 2018.
Option Awards
A summary of activity related to stock option awards for the years ended December 31, 2019, 2018 and 2017 follows:
Option awards outstanding, December 31, 2016
Exercised
Option awards outstanding, December 31, 2017
Exercised
Canceled or forfeited
Option awards outstanding, December 31, 2018
Exercised
Canceled or forfeited
Option awards outstanding and exercisable, December 31, 2019
Number of
Option
Awards
Weighted
Average
Exercise Price
3,602,076 $
(2,331,388)
1,270,688
(291,689)
(14,159)
964,840
(225,127)
(1,960)
737,753 $
26.74
26.63
26.93
26.49
63.74
26.53
25.84
63.74
26.64
The intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was $2.3 million, $4.6 million, and $25.8 million,
respectively. The related tax benefit of options exercised was $0.6 million, $1.1 million and $4.0 million during the years ended December 31, 2019, 2018 and
2017, respectively.
There were no option awards granted during the years ended December 31, 2019, 2018 and 2017. Additional information about options outstanding and
exercisable at December 31, 2019 is presented in the following table:
Range of Exercise Prices
$15.94 - $19.97
$22.18 - $22.24
$27
Outstanding and Exercisable Options
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (in
thousands)
361
269
6,688
7,318
0.59 $
0.96
1.08
1.06 $
Number of
Options
19,337
18,784
699,632
737,753
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan for a select group of key management or highly compensated employees whereby a
participant, 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 annual interest
rate determined by the Company's Compensation Committee or returns of selected investment portfolios, as elected by the participant. A participant's elective
deferrals and interest thereon are at all times 100% vested. Company contributions and interest thereon will become 100% vested upon the earlier of a change
in control, as defined, or the participant's death, disability, attainment of
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
normal retirement age or the completion of two years of service. Participant deferrals 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 $1.9 million, $1.3 million and $1.5 million for
the years ended December 31, 2019, 2018 and 2017, respectively. Deferred compensation liabilities of $27 million and $24 million were included in other
liabilities in the accompanying consolidated balance sheets at December 31, 2019 and 2018, respectively.
BankUnited 401(k) Plan
Under the terms of the 401(k) Plan sponsored by the Company, eligible employees may contribute a portion of compensation not exceeding the limits set
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 to 100%
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, 2019, 2018 and 2017, BankUnited made matching contributions to
the 401(k) Plan of approximately $6.1 million, $6.3 million and $5.5 million, respectively.
Note 13 Regulatory Requirements and Restrictions
The Company and the Bank are subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated
pursuant to regulation. The capital amounts and classification also are subject to qualitative judgments by the regulators about components, risk weightings
and other factors. Banking regulations identify five capital categories for insured depository institutions: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2019 and 2018, all capital ratios of the Company and the
Bank exceeded the "well capitalized" levels under the regulatory framework for prompt corrective action. Quantitative measures established by regulation to
ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total, common 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, 2019 and 2018 (dollars in
thousands):
Actual
Required to be
Considered Well
Capitalized
Required to be
Considered
Adequately
Capitalized
Required to be Considered
Adequately
Capitalized Under Capital
Conservation Buffer
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
2019
BankUnited, Inc.:
Tier 1 leverage
CET1 risk-based capital
Tier 1 risk-based capital
Total risk based capital
BankUnited:
Tier 1 leverage
CET1 risk-based capital
Tier 1 risk-based capital
Total risk based capital
$
$
$
$
$
$
$
$
2,932,939
2,932,939
2,932,939
3,044,263
3,056,820
3,056,820
3,056,820
3,168,144
8.90%
N/A (1)
N/A (1)
$
1,317,960
4.00%
N/A (1)
N/A (1)
12.32% $
1,547,531
6.50% $
1,071,368
4.50% $
1,666,572
12.32% $
1,904,654
8.00% $
1,428,490
6.00% $
2,023,694
7.00%
8.50%
12.79% $
2,380,817
10.00% $
1,904,654
8.00% $
2,499,858
10.50%
9.30% $
1,643,599
5.00% $
1,314,879
4.00%
N/A
12.89% $
1,541,738
6.50% $
1,067,357
4.50% $
1,660,333
12.89% $
1,897,524
8.00% $
1,423,143
6.00% $
2,016,119
N/A
7.00%
8.50%
13.36% $
2,371,905
10.00% $
1,897,524
8.00% $
2,490,500
10.50%
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Actual
2018
Required to be
Considered Well
Capitalized
Required to be
Considered
Adequately
Capitalized
Required to be Considered
Adequately
Capitalized Under Capital
Conservation Buffer
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
BankUnited, Inc.:
Tier 1 leverage
CET1 risk-based capital
Tier 1 risk-based capital
Total risk based capital
BankUnited:
Tier 1 leverage
CET1 risk-based capital
Tier 1 risk-based capital
Total risk based capital
$
$
$
$
$
$
$
$
2,839,302
2,839,302
2,839,302
2,952,464
3,026,106
3,026,106
3,026,106
3,139,268
8.99%
N/A (1)
N/A (1)
$
1,263,725
4.00%
N/A
12.57% $
1,467,693
6.50% $
1,016,095
4.50% $
1,580,593
12.57% $
1,806,392
8.00% $
1,354,794
6.00% $
1,919,291
N/A
7.00%
8.50%
13.08% $
2,257,990
10.00% $
1,806,392
8.00% $
2,370,889
10.50%
9.60% $
1,575,712
5.00% $
1,260,569
4.00%
N/A
13.45% $
1,462,054
6.50% $
1,012,191
4.50% $
1,574,519
13.45% $
1,799,451
8.00% $
1,349,588
6.00% $
1,911,917
N/A
7.00%
8.50%
13.96% $
2,249,314
10.00% $
1,799,451
8.00% $
2,361,779
10.50%
(1) There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.
BankUnited is subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above
certain 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.
Beginning January 1, 2019, the Bank and the Company are required to maintain a capital conservation buffer composed of CET1 capital equal to 2.50%
of risk-weighted assets above the amounts required to be adequately capitalized in order to avoid limitations on capital distributions, including dividend
payments 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 with
the FRB. At December 31, 2019, the reserve requirement for BankUnited was $177 million.
Note 14 Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis
Following 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 the
level 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 when
available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain
preferred 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 classified
within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred
stock investments for which level 1 valuations are not available, non-mortgage asset-backed securities, single family rental real estate-backed securities,
certain private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing
of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include 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, historical constant default rates and default
severities.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of the
methodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation desk
personnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robust
price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month
over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from an
additional 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 prices
provided by its primary pricing service for a sample of securities are validated. Any price discrepancies are resolved based on careful consideration of the
assumptions 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 servicing fees
and market based assumptions about prepayments, discount rates, default rates and costs of servicing. Prepayment and default assumptions are based on
historical industry data for loans with similar characteristics. Assumptions about costs of servicing are based on market convention. Discount rates are based
on rates of return implied by observed trades of underlying loans in the secondary market. These instruments are classified within level 2 of the fair value
hierarchy.
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 may
impact the valuation of these instruments include LIBOR swap rates 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 as of December 31, 2019 and 2018 (in thousands):
Investment securities available for sale:
U.S. Treasury securities
U.S. Government agency and sponsored enterprise residential MBS
U.S. Government agency and sponsored enterprise commercial MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed securities
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
Marketable equity securities
Servicing rights
Derivative assets
Total assets at fair value
Derivative liabilities
Total liabilities at fair value
121
Level 1
2019
Level 2
Total
$
70,325 $
— $
70,325
—
—
—
—
—
—
—
—
—
60,572
—
—
2,022,175
2,022,175
370,976
1,012,177
1,724,684
470,025
370,976
1,012,177
1,724,684
470,025
1,197,366
1,197,366
194,904
273,302
362,731
—
7,977
43,686
194,904
273,302
362,731
60,572
7,977
43,686
$
$
$
130,897 $
7,680,003 $
7,810,900
— $
— $
(19,029) $
(19,029) $
(19,029)
(19,029)
Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Investment securities available for sale:
U.S. Treasury securities
U.S. Government agency and sponsored enterprise residential MBS
U.S. Government agency and sponsored enterprise commercial MBS
Private label residential MBS and CMOs
Private label commercial MBS
Single family rental real estate-backed securities
Collateralized loan obligations
Non-mortgage asset-backed securities
State and municipal obligations
SBA securities
Other debt securities
Marketable equity securities
Servicing rights
Derivative assets
Total assets at fair value
Derivative liabilities
Total liabilities at fair value
Level 1
Level 2
Level 3
Total
2018
$
39,873 $
— $
— $
39,873
—
—
—
—
—
—
—
—
—
—
60,519
—
—
1,897,474
374,787
1,499,514
1,485,716
402,458
1,235,198
204,067
398,429
519,313
—
—
—
29,615
—
—
34,684
—
—
—
—
—
—
4,846
—
9,525
—
1,897,474
374,787
1,534,198
1,485,716
402,458
1,235,198
204,067
398,429
519,313
4,846
60,519
9,525
29,615
$
$
$
100,392 $
8,046,571 $
49,055 $
8,196,018
— $
— $
(23,874) $
(23,874) $
— $
— $
(23,874)
(23,874)
During the year ended December 31, 2019, the Company sold all of its level 3 securities and re-classified the servicing rights as level 2 within the fair
value hierarchy.
Assets and liabilities measured at fair value on a non-recurring basis
Following 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 of
the underlying collateral, which may be real estate or other business assets, less estimated costs to sell. The carrying value of OREO is initially 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, less estimated cost to
sell. Fair values of real estate collateral and OREO are typically based on third-party real estate appraisals which utilize market and income approaches to
valuation incorporating both observable and unobservable inputs. When current appraisals are not available, the Company may use brokers’ price opinions,
home price indices or other available information about changes in real estate market conditions to adjust the latest appraised value available. These
adjustments to appraised values may be subjective and involve significant management judgment. The fair value of repossessed assets or collateral consisting
of other business assets may be based on third-party appraisals or internal analyses that use market approaches to valuation incorporating primarily
unobservable inputs.
Fair value measurements related to collateral dependent impaired loans, OREO and other repossessed assets are generally classified within level 3 of the
fair value hierarchy.
Operating lease equipment—Fair values of impaired operating lease equipment are typically based upon discounted
cash flow analyses, considering expected lease rates and estimated end of life residual values, typically obtained from independent appraisals. These fair
value measurements are classified within level 3 of the fair value hierarchy.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
The following tables present the carrying value of assets for which non-recurring changes in fair value have been recorded for the years ended December
31, 2019, 2018 and 2017 (in thousands):
OREO and repossessed assets
Impaired loans
Operating lease equipment
OREO and repossessed assets
Impaired loans
OREO and repossessed assets
Impaired loans
2019
Losses from Fair Value Changes
Level 1
Level 2
Level 3
Total
Year Ended December 31, 2019
— $
— $
— $
— $
— $
— $
1,098 $
1,098 $
79,982 $
79,982 $
2,919 $
2,919 $
(2,351)
(7,727)
(1,856)
2018
Losses from Fair Value Changes
Level 1
Level 2
Level 3
Total
Year Ended December 31, 2018
— $
— $
1,085 $
486 $
1,571 $
775 $
35,397 $
36,172 $
(1,864)
(6,816)
2017
Losses from Fair Value Changes
Level 1
Level 2
Level 3
Total
Year Ended December 31, 2017
— $
— $
— $
— $
5,790 $
5,790 $
93,051 $
93,051 $
(2,078)
(65,716)
$
$
$
$
$
$
$
The following table presents the carrying value and fair value of financial instruments and the level within the fair value hierarchy in which those
measurements are classified as of December 31, 2019 and 2018 (dollars in thousands):
Assets:
Cash and cash equivalents
Investment securities
Non-marketable equity securities
Loans held for sale
Loans
Derivative assets
Liabilities:
Demand, savings and money market deposits
Time deposits
Federal funds purchased
FHLB advances
Notes and other borrowings
Derivative liabilities
Level
Carrying Value
Fair Value
Carrying Value
Fair Value
2019
2018
1
$
214,673 $
214,673 $
382,073 $
382,073
1/2/3 $
7,769,237 $
7,769,949 $
8,166,878 $
8,167,127
253,664 $
37,926 $
253,664 $
39,731 $
267,052 $
36,992 $
267,052
39,931
23,046,317 $
23,350,684 $
21,867,077 $
21,868,258
43,686 $
43,686 $
29,615 $
29,615
17,047,344 $
17,047,344 $
16,654,465 $
16,654,465
7,347,247 $
7,377,301 $
6,819,758 $
6,820,355
100,000 $
100,000 $
175,000 $
175,000
4,480,501 $
4,500,969 $
4,796,000 $
4,810,446
429,338 $
19,029 $
473,327 $
19,029 $
402,749 $
23,874 $
416,142
23,874
2
2
3
2
2
2
2
2
2
2
$
$
$
$
$
$
$
$
$
$
123
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 15 Commitments and Contingencies
The Company issues off-balance sheet financial instruments to meet the financing needs of its customers. These financial instruments include
commitments to fund loans, unfunded commitments under existing lines of credit, and commercial and standby letters of credit. These commitments expose
the 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 to
the same credit policies used in underwriting loans. Collateral may be obtained based on the Company’s credit evaluation of the counterparty. The Company’s
maximum exposure to credit loss is represented by the contractual amount of these commitments.
Commitments to fund loans
These are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loans
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire
without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements.
Unfunded commitments under lines of credit
Unfunded commitments under lines of credit include commercial, commercial real estate, home equity and consumer lines of credit to existing
customers. Some of these commitments may mature without being fully funded.
Commercial and standby letters of credit
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit
are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Total lending related commitments outstanding at December 31, 2019 were as follows (in thousands):
Commitments to fund loans
Commitments to purchase loans
Unfunded commitments under lines of credit
Commercial and standby letters of credit
Legal Proceedings
$
$
182,549
692,706
3,310,006
113,343
4,298,604
The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based
upon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the
Company’s consolidated financial position, results of operations or cash flows.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 16 Condensed Financial Statements of BankUnited, Inc.
Condensed financial statements of BankUnited, Inc. are presented below (in thousands):
Condensed Balance Sheets
Assets:
Cash and cash equivalents
Investment securities available for sale, at fair value
Investment in BankUnited, N.A.
Other assets
Total assets
Liabilities and Stockholders' Equity:
Notes payable
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Condensed Statements of Income
Income:
December 31, 2019
December 31, 2018
$
$
$
$
204,589 $
60,572
3,104,660
42,454
3,412,275 $
395,090 $
36,406
2,980,779
3,412,275 $
143,843
60,519
3,110,638
37,407
3,352,407
394,390
34,184
2,923,833
3,352,407
Years Ended December 31,
2019
2018
2017
Interest and dividends on investment securities available for sale
$
3,595 $
3,532 $
Service fees from subsidiary
Equity in earnings of subsidiary
Gain (loss) on investment securities
Total
Expense:
Interest on borrowings
Employee compensation and benefits
Other
Total
Income before income taxes
Benefit for income taxes
Net income
18,080
335,723
2,690
360,088
20,200
28,270
4,396
52,866
307,222
(5,876)
21,000
349,937
(2,805)
371,664
20,165
28,477
5,617
54,259
317,405
(7,461)
$
313,098 $
324,866 $
125
3,580
18,787
639,250
—
661,617
20,132
27,032
5,047
52,211
609,406
(4,867)
614,273
Table of Contents
Condensed Statements of Cash Flows
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries
Equity based compensation
Other
Net cash provided by operating activities
Cash flows from investing activities:
Capital contributions to subsidiary
Purchase of investment securities available for sale
Proceeds from repayments, sale, maturities and calls of investment securities available for
sale
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Dividends paid
Proceeds from exercise of stock options
Repurchase of common stock
Other
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental schedule of non-cash investing and financing activities:
Dividends declared, not paid
Years Ended December 31,
2019
2018
2017
$
313,098 $
324,866 $
614,273
(30,723)
23,367
(8,656)
297,086
—
(8,963)
11,575
(142)
2,470
(84,083)
5,817
(154,030)
(6,514)
(238,810)
60,746
143,843
70,064
23,137
(15,654)
402,413
—
—
—
(156)
(156)
(91,305)
7,727
(299,972)
(6,560)
(390,110)
12,147
131,696
204,589 $
143,843 $
(519,250)
22,692
3,343
121,058
(55,000)
—
15,000
(250)
(40,250)
(91,628)
62,095
—
(7,297)
(36,830)
43,978
87,718
131,696
20,775 $
21,673 $
23,055
$
$
Dividends received by BankUnited, Inc. from the Bank totaled $305 million, $420 million and $120 million for the years ended December 31, 2019,
2018, and 2017, respectively.
126
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 17 Quarterly Financial Information (Unaudited)
Financial information by quarter for the years ended December 31, 2019 and 2018 follows (in thousands, except per share data):
Interest income
Interest expense
Net interest income before provision for loan losses
Provision for (recovery of) loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per common share, basic
Earnings per common share, diluted
Interest income
Interest expense
Net interest income before provision for loan losses
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per common share, basic
Earnings per common share, diluted
Fourth Quarter
$
309,410 $
Third Quarter
2019
Second Quarter
First Quarter
Total
323,402 $
327,229 $
321,829 $
1,281,870
124,099
185,311
(469)
185,780
37,756
119,008
104,528
15,072
137,712
185,690
1,839
183,851
37,856
121,306
100,401
24,182
136,346
190,883
(2,747)
193,630
35,337
120,085
108,882
27,431
130,928
190,901
10,281
180,620
36,255
126,690
90,185
24,213
$
$
$
89,456 $
76,219 $
81,451 $
65,972 $
0.91 $
0.91 $
0.78 $
0.77 $
0.81 $
0.81 $
0.65 $
0.65 $
529,085
752,785
8,904
743,881
147,204
487,089
403,996
90,898
313,098
3.14
3.13
Fourth Quarter
$
414,796 $
Third Quarter
2018
Second Quarter
First Quarter
Total
357,717 $
348,855 $
327,776 $
1,449,144
119,743
295,053
12,583
282,470
33,328
246,678
69,120
16,717
105,749
251,968
1,200
250,768
38,735
170,798
118,705
21,377
93,592
79,967
399,051
255,263
247,809
1,050,093
3,147
25,925
244,662
1,024,168
8,995
246,268
31,973
161,247
116,994
27,094
27,986
161,817
110,831
25,596
$
$
$
52,403 $
97,328 $
89,900 $
85,235 $
0.50 $
0.50 $
0.90 $
0.90 $
0.82 $
0.82 $
0.78 $
0.77 $
127
132,022
740,540
415,650
90,784
324,866
3.01
2.99
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As 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 of
our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
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 Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019.
Changes in Internal Control over Financial Reporting
None.
Management's Report on Internal Control Over Financial Reporting
Management'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 Firm
The effectiveness of the Company's internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their report, which is included in Part II, Item 8 of this Form 10-K.
Item 9B. Other Information
None.
128
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information regarding the directors and executive officers of BankUnited, Inc. and information regarding Section 16(a) compliance, the Audit and Risk
Committees, the Company's code of ethics, background of the directors and director nominations appearing under the captions "Section 16(a) Beneficial
Ownership 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 2020 annual meeting of stockholders is
hereby incorporated by reference.
Item 11. Executive Compensation
Information appearing under the captions "Director Compensation" and "Executive Compensation" in the 2020 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 Matters
Information setting forth the security ownership of certain beneficial owners and management appearing under the caption "Beneficial Ownership of the
Company's Common Stock" and information in the "Equity Compensation Plans" table appearing under the caption "Equity Compensation Plan Information"
in the 2020 Proxy Statement is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain related transactions appearing under the captions "Certain Related Party Relationships" and information regarding director
independence appearing under the caption "Director Independence" in the 2020 Proxy Statement is hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services
Information 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 2020 Proxy Statement is hereby incorporated by reference.
129
PART IV
Item 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 Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
2) Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable or because the information is included in the Consolidated Financial
Statements 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.
130
EXHIBIT INDEX
Exhibit
Number
2.1a
2.1b
2.1c
2.1d
3.1
3.2
4.1
4.2
4.3
4.4
Description
Purchase and Assumption Agreement, dated as of May 21, 2009, among
the Federal Deposit Insurance Corporation, Receiver of BankUnited,
FSB, Coral Cables, Florida, the Federal Deposit Insurance Corporation
and BankUnited (Single Family Shared-Loss Agreement and
Commercial and Other Shared-Loss Agreement included as
Exhibits 4.15A and 4.15B thereto, respectively)†
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, and
the Federal Deposit Insurance Corporation
Location
Exhibit 2.1a to the Registration Statement on Form S-1
of the Company filed January 18, 2011
Exhibit 2.1b to the Registration Statement on Form S-1
of the Company filed January 10, 2011
Amendment No. 1 to the BankUnited Single Family Shared-Loss
Agreement with the FDIC, dated as of November 2, 2010
Exhibit 2.1c to the Registration Statement on Form S-1
of the Company filed January 18, 2011
Amendment No. 2 the BankUnited Single Family Shared-Loss
Agreement with the FDIC, dated as of December 22, 2010
Exhibit 2.1d to the Registration Statement on Form S-1
of the Company filed January 18, 2011
Amended and Restated Certificate of Incorporation
Amended and Restated By-Laws
Specimen common stock certificate
Exhibit 3.1 to the Annual Report on Form 10-K of the
Company filed February 28, 2018
Exhibit 3.1 to the Current Report on Form 8-K of the
Company filed August 15, 2016
Exhibit 4.1 to the Registration Statement on Form S-1
of the Company filed January 18, 2011
Indenture dated as of November 17, 2015 between BankUnited, Inc. and
U.S. Bank National Association, as trustee
Exhibit 4.1 to the Current Report on Form 8-K of the
Company filed November 17, 2015
First Supplemental Indenture dated as of November 17, 2015 between
BankUnited, Inc. and U.S. Bank National Association, as trustee
Exhibit 4.2 to the Current Report on Form 8-K of the
Company filed November 17, 2015
Form of 4.875% Senior Note due 2025 (included as part of Exhibit 4.3
above)
Exhibit 4.3 to the Current Report on Form 8-K of the
Company filed November 17, 2015
10.1
BankUnited, N.A. Non-Qualified Deferred Compensation Plan
Exhibit 10.1b to the Annual Report on Form 10-K of
the Company filed February 26, 2015
Exhibit 10.1a to the Annual Report on Form 10-K of
the Company filed February 26, 2016
Amendment to the BankUnited, N.A. Non-Qualified Deferred
Compensation Plan
10.1a
10.2
BankUnited, Inc. (formerly known as BU Financial Corporation) 2009
Stock Option Plan
Exhibit 10.7 to the Registration Statement on Form S-1
of the Company filed October 29, 2010
10.3a
BankUnited, Inc. 2010 Omnibus Equity Incentive Plan
Exhibit 10.8 to the Registration Statement on Form S-1
of the Company filed January 18, 2011
131
Exhibit
Number
10.3b
BankUnited, Inc. 2014 Omnibus Equity Incentive Plan
Description
10.4a
10.4b
Registration Rights Agreement by and among BankUnited, Inc., John A.
Kanas, Rajinder P. Singh, Douglas J. Pauls and John Bohlsen, and each
of the other parties thereto
Amendment No. 1, dated February 29, 2012, to Registration Rights
Agreement, 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
Location
Appendix A to the Proxy Statement on Schedule 14A
of the Company filed April 11, 2014
Exhibit 10.9 to Annual Report on Form 10-K of the
Company filed March 31, 2011
Exhibit 10.3 to the Current Report on Form 8-K of the
Company filed March 6, 2012
10.5
Form of indemnification agreement between BankUnited, Inc. and each
of its directors and executive officers
Exhibit 10.1 to the Current Report on Form 8-K of the
Company filed February 16, 2011
10.6
BankUnited, Inc. Policy on Incentive Compensation Arrangements
10.7
Heritage Bank, N.A. 2008 Stock Incentive Plan
Exhibit 10.6 of the Company's Annual Report on
Form 10-K filed February 26, 2015
Exhibit 10.1 to the Registration Statement on Form S-8
of the Company filed February 29, 2012
10.8
10.9
10.10a
10.10b
10.11a
10.11b
10.11c
10.11d
10.12
10.13
Stock Warrant Agreement, dated as of November 24, 2008, by Heritage
Bank, N.A. in favor of the parties listed on Exhibit A thereto
Exhibit 10.4 to the Current Report on Form 8-K of the
Company filed March 6, 2012
Supplemental Warrant Agreement, dated as of February 29, 2012, by and
between BankUnited, Inc. and Heritage Bank, N.A.
Exhibit 10.5 to the Current Report on Form 8-K of the
Company filed March 6, 2012
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 of
the Company filed February 26, 2016
Amendment, dated May 6, 2016, to Amended and Restated Employment
Agreement, 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 the
Company filed May 6, 2016
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 of
the Company filed February 26, 2016
Amendment, dated May 6, 2016, to Amended and Restated Employment
Agreement, dated February 2, 2016, by and between BankUnited, Inc.
and Rajinder P. Singh
Second Amendment, dated January 4, 2017, to Amended and Restated
Employment Agreement, dated February 2, 2016, as amended on May 6,
2016, by and between BankUnited, Inc. and Rajinder P. Singh
Third Amendment, dated December 19, 2019, to Amended and Restated
Employment Agreement, dated February 2, 2016, as amended on May 6,
2016 and January 4, 2017, by and between BankUnited, Inc. and
Rajinder P. Singh
Exhibit 10.2 to the Current Report on Form 8-K of the
Company filed May 6, 2016
Exhibit 10.2 to the Current Report on Form 8-K/A of
the Company filed January 4, 2017
Exhibit 10.1 to the Current Report on Form 8-K of the
Company filed December 19, 2019
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 the
Company filed January 3, 2017
Restricted Share Unit Agreement, dated December 29, 2016, by and
between BankUnited, Inc. and Rajinder P. Singh
Exhibit 10.3 to the Current Report on Form 8-K of the
Company filed January 3, 2017
132
Exhibit
Number
10.14
21.1
23.1
31.1
31.2
32.1
32.2
Description
Termination Agreement, dated as of February 13, 2019, by and among
the Federal Deposit Insurance Corporation as Receiver of BankUnited,
FSB, Coral Gables, Florida, BankUnited n/k/a BankUnited, N.A., and
the Federal Deposit Insurance Corporation
Subsidiaries of BankUnited, Inc.
Consent of KPMG LLP
Rule 13a-14(a) Certification of Chief Executive Officer of the Company
in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
Rule 13a-14(a) Certification of Chief Financial Officer of the Company
in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
Section 1350 Certification of Chief Executive Officer of the Company in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002
Section 1350 Certification of Chief Financial Officer of the Company in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
____________________________________
Location
Exhibit 10.1 to the Current Report on Form 8-K of the
Company filed February 14, 2019
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
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. The
registrant will furnish supplementally a copy of any omitted schedules or similar attachment to the SEC upon request.
133
Pursuant 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 its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BANKUNITED, INC.
Date: February 28, 2020
By:
/s/ RAJINDER P. SINGH
Name:
Title:
Rajinder P. Singh
Chairman, President and Chief Executive Officer
Pursuant 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
dates indicated.
Signature
Title
Date
/s/ RAJINDER P. SINGH
Rajinder P. Singh
/s/ LESLIE N. LUNAK
Leslie N. Lunak
/s/ TERE BLANCA
Tere Blanca
/s/ JOHN N. DIGIACOMO
John N. DiGiacomo
/s/ MICHAEL J. DOWLING
Michael J. Dowling
/s/ DOUGLAS J. PAULS
Douglas J. Pauls
/s/ A. GAIL PRUDENTI
A. Gail Prudenti
/s/ SANJIV SOBTI
Sanjiv Sobti
/s/ LYNNE WINES
Lynne Wines
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer (Principal Financial and
Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
134
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
Exhibit 21.1
List of Subsidiaries
The following is a list of the subsidiaries of BankUnited, Inc. as of December 31, 2019, including the name of each subsidiary and its jurisdiction of
incorporation:
1.
2.
3.
4.
5.
BankUnited, N.A.
Bridge Funding Group, Inc.
BU Delaware, Inc.
CRE Properties, Inc.
Pinnacle Public Finance, Inc.
USA
Delaware
Delaware
Florida
Delaware
The Board of Directors
BankUnited, Inc.:
Consent of Independent Registered Public Accounting Firm
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 dated February 28, 2020, with
respect to the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of income,
comprehensive income, cash flows, and stockholders’ equity for each of the years in the three‑year period ended December 31, 2019, and the related notes,
and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear in the December 31, 2019 annual report on
Form 10‑K of the Company.
Exhibit 23.1
Miami, Florida
February 28, 2020
/s/KPMG LLP
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
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 the
statements 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 the
financial 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 Exchange
Act 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 the
registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that 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 our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes 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 effectiveness
of 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 fiscal
quarter (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 the
registrant’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 reasonably
likely 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 over
financial reporting.
/s/ Rajinder P. Singh
Rajinder P. Singh
Chairman, President and Chief Executive Officer
Date: February 28, 2020
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
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 the
statements 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 the
financial 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 Exchange
Act 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 the
registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that 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 our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes 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 effectiveness
of 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 fiscal
quarter (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 the
registrant’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 reasonably
likely 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 over
financial reporting.
/s/ Leslie N. Lunak
Leslie N. Lunak
Chief Financial Officer
Date: February 28, 2020
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of BankUnited, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Rajinder P. Singh, as Chief Executive Officer of the Company, certify, to the best
of my 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. Singh
Rajinder P. Singh
Chairman, President and Chief Executive Officer
Date: February 28, 2020
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report of BankUnited, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Leslie N. Lunak, as Chief Financial Officer of the Company, certify, to the best of
my 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. Lunak
Leslie N. Lunak
Chief Financial Officer
Date: February 28, 2020