XNYS:BKU BankUnited Inc Quarterly Report 10-Q Filing - 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to

 

Commission File Number: 001-35039

 

BankUnited, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-0162450

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

14817 Oak Lane, Miami Lakes, FL

 

33016

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (305) 569-2000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

May 7, 2012

Common Stock, $0.01 Par Value

 

93,977,695 Shares

 

 

 



Table of Contents

 

BankUnited, Inc.

 

Form 10-Q

 

For the Quarterly Period Ended March 31, 2012

 

TABLE OF CONTENTS

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

3

 

 

 

 

ITEM 1.

 

Financial Statements (Unaudited)

3

 

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

Consolidated Statements of Operations

4

 

 

Consolidated Statements of Comprehensive Income (Loss)

5

 

 

Consolidated Statements of Cash Flows

6

 

 

Consolidated Statements of Stockholders’ Equity

8

 

 

Notes to Consolidated Financial Statements

9

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

63

 

 

 

 

ITEM 4.

 

Controls and Procedures

63

 

 

 

 

PART II.

 

OTHER INFORMATION

64

 

 

 

 

ITEM 1.

 

Legal Proceedings

64

 

 

 

 

ITEM 1A.

 

Risk Factors

64

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

64

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

64

 

 

 

 

ITEM 5.

 

Other Information

64

 

 

 

 

ITEM 6.

 

Exhibits

64

 

 

 

 

SIGNATURES

 

 

66

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(In thousands, except share data)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

Non-interest bearing

 

$

43,804

 

$

39,894

 

Interest bearing

 

26,678

 

13,160

 

Interest bearing deposits at Federal Reserve Bank

 

238,567

 

247,488

 

Federal funds sold

 

3,012

 

3,200

 

Cash and cash equivalents

 

312,061

 

303,742

 

Investment securities available for sale, at fair value (including covered securities of $235,176 and $232,194)

 

4,661,945

 

4,181,977

 

Non-marketable equity securities

 

176,041

 

147,055

 

Loans held for sale

 

2,173

 

3,952

 

Loans (including covered loans of $2,313,893 and $2,422,811)

 

4,709,283

 

4,137,058

 

Allowance for loan and lease losses

 

(56,474

)

(48,402

)

Loans, net

 

4,652,809

 

4,088,656

 

FDIC indemnification asset

 

1,786,512

 

2,049,151

 

Bank owned life insurance

 

205,012

 

204,077

 

Other real estate owned, covered by loss sharing agreements

 

106,950

 

123,737

 

Deferred tax asset, net

 

83,834

 

19,485

 

Goodwill and other intangible assets

 

70,329

 

68,667

 

Other assets

 

141,218

 

131,539

 

Total assets

 

$

12,198,884

 

$

11,322,038

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Demand deposits:

 

 

 

 

 

Non-interest bearing

 

$

1,022,860

 

$

770,846

 

Interest bearing

 

510,386

 

453,666

 

Savings and money market

 

3,932,111

 

3,553,018

 

Time

 

2,620,124

 

2,587,184

 

Total deposits

 

8,085,481

 

7,364,714

 

Securities sold under repurchase agreements and short-term borrowings

 

11,199

 

206

 

Federal Home Loan Bank advances

 

2,231,412

 

2,236,131

 

Income taxes payable

 

80,215

 

53,171

 

Advance payments by borrowers for taxes and insurance

 

30,803

 

21,838

 

Other liabilities

 

114,841

 

110,698

 

Total liabilities

 

10,553,951

 

9,786,758

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01 per share 400,000,000 shares authorized; 93,982,328 and 97,700,829 shares issued and outstanding

 

940

 

977

 

Preferred stock, 100,000,000 shares authorized; 5,415,794 shares of Series A preferred, $0.01 par value, issued and outstanding at March 31, 2012

 

54

 

 

Paid-in capital

 

1,290,279

 

1,240,068

 

Retained earnings

 

308,946

 

276,216

 

Accumulated other comprehensive income

 

44,714

 

18,019

 

Total stockholders’ equity

 

1,644,933

 

1,535,280

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

12,198,884

 

$

11,322,038

 

 

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

 

3



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(In thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans

 

$

136,297

 

$

114,651

 

Investment securities available for sale

 

33,039

 

32,549

 

Other

 

954

 

1,006

 

Total interest income

 

170,290

 

148,206

 

Interest expense:

 

 

 

 

 

Deposits

 

16,960

 

20,306

 

Borrowings

 

15,521

 

15,573

 

Total interest expense

 

32,481

 

35,879

 

Net interest income before provision for loan losses

 

137,809

 

112,327

 

Provision for loan losses (including provision for covered loans of $1,600 and $10,017)

 

8,767

 

11,456

 

Net interest income after provision for loan losses

 

129,042

 

100,871

 

Non-interest income:

 

 

 

 

 

Accretion of discount on FDIC indemnification asset

 

6,787

 

19,570

 

Income (loss) from resolution of covered assets, net

 

7,282

 

(710

)

Net gain on indemnification asset

 

134

 

26,322

 

FDIC reimbursement of costs of resolution of covered assets

 

6,516

 

10,500

 

Service charges and fees

 

3,055

 

2,684

 

Mortgage insurance income

 

3,690

 

1,301

 

Investment services income

 

1,132

 

2,404

 

Other non-interest income

 

7,802

 

2,191

 

Total non-interest income

 

36,398

 

64,262

 

Non-interest expense:

 

 

 

 

 

Employee compensation and benefits

 

46,625

 

149,306

 

Occupancy and equipment

 

11,822

 

7,605

 

Impairment of other real estate owned

 

3,547

 

9,599

 

Foreclosure expense

 

2,719

 

4,470

 

Loss on sale of other real estate owned

 

1,401

 

12,210

 

Other real estate owned expense

 

2,276

 

4,343

 

Deposit insurance expense

 

1,150

 

4,189

 

Professional fees

 

3,649

 

3,229

 

Telecommunications and data processing

 

3,230

 

3,448

 

Other non-interest expense

 

7,699

 

5,940

 

Total non-interest expense

 

84,118

 

204,339

 

Income (loss) before income taxes

 

81,322

 

(39,206

)

Provision for income taxes

 

31,050

 

28,454

 

Net income (loss)

 

$

50,272

 

$

(67,660

)

 

 

 

 

 

 

Earnings (loss) per common share, basic and diluted (see Note 2)

 

$

0.49

 

$

(0.72

)

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.17

 

$

0.14

 

 

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

 

4



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net income (loss)

 

$

50,272

 

$

(67,660

)

Other comprehensive income, net of tax:

 

 

 

 

 

Unrealized gains (losses) on investment securities available for sale:

 

 

 

 

 

Net unrealized holding gain (loss) arising during the period

 

24,615

 

(490

)

Reclassification adjustment for net securities gains realized in income

 

(10

)

(2

)

Net change in unrealized gains (losses) on securities available for sale

 

24,605

 

(492

)

Unrealized gains (losses) on derivative instruments:

 

 

 

 

 

Net unrealized holding gain (loss) arising during the period

 

(631

)

1,732

 

Reclassification adjustment for net losses realized in income

 

2,721

 

2,888

 

Net change in unrealized losses on derivative instruments

 

2,090

 

4,620

 

Other comprehensive income

 

26,695

 

4,128

 

Comprehensive income (loss)

 

$

76,967

 

$

(63,532

)

 

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

 

5



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

50,272

 

$

(67,660

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

Accretion of fair values of assets acquired and liabilities assumed

 

(117,636

)

(109,919

)

Amortization of fees, discounts and premiums, net

 

2,911

 

(2,578

)

Provision for loan losses

 

8,767

 

11,456

 

Accretion of discount on FDIC indemnification asset

 

(6,787

)

(19,570

)

(Income) loss from resolution of covered assets, net

 

(7,282

)

710

 

Net gain on indemnification asset

 

(134

)

(26,322

)

Net gain on sale of loans

 

(256

)

(131

)

Increase in cash surrender value of bank owned life insurance

 

(935

)

(669

)

Gain on sale of investment securities available for sale

 

(16

)

(3

)

Loss on sale of other real estate owned

 

1,401

 

12,210

 

Equity based compensation

 

10,127

 

116,778

 

Depreciation and amortization

 

3,382

 

1,203

 

Impairment of other real estate owned

 

3,547

 

9,599

 

Deferred income taxes

 

(69,364

)

13,235

 

Proceeds from sale of loans held for sale

 

11,933

 

8,321

 

Loans originated for sale, net of repayments

 

(9,919

)

(8,145

)

Realized tax benefits from dividend equivalents and equity based compensation

 

(118

)

 

Gain on acquisition

 

(5,288

)

 

Other:

 

 

 

 

 

(Increase) decrease in other assets

 

(2,478

)

7,578

 

Increase in other liabilities

 

30,252

 

3,129

 

Net cash used in operating activities

 

(97,621

)

(50,778

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Net cash paid in business combination

 

(1,626

)

 

Purchase of investment securities available for sale

 

(427,178

)

(573,574

)

Purchase of non-marketable equity securities

 

(26,700

)

 

Proceeds from repayments of investment securities available for sale

 

135,802

 

144,033

 

Proceeds from sale of investment securities available for sale

 

5,847

 

2,946

 

Maturities and calls of investment securities available for sale

 

4,250

 

 

Purchases of loans

 

(165,908

)

(33,515

)

Loan originations, repayments and resolutions, net

 

(25,670

)

209,417

 

Decrease in FDIC indemnification asset for claims filed

 

269,560

 

286,148

 

Purchase of office properties and equipment, net

 

(8,462

)

(11,036

)

Proceeds from sale of other real estate owned

 

56,021

 

107,479

 

Net cash provided by (used in) investing activities

 

(184,064

)

131,898

 

 

(Continued)

 

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

 

6



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Cash flows from financing activities:

 

 

 

 

 

Net increase (decrease) in deposits

 

285,490

 

(259,357

)

Additions to Federal Home Loan Bank advances

 

(230,000

)

 

Repayments of Federal Home Loan Bank advances

 

230,000

 

 

Increase (decrease) in short-term borrowings

 

10,993

 

(387

)

Settlement of FDIC warrant liability

 

 

(25,000

)

Increase in advances from borrowers for taxes and insurance

 

8,169

 

7,417

 

Issuance of common stock

 

 

99,476

 

Dividends paid

 

(14,888

)

(14,000

)

Realized tax benefits from dividend equivalents and equity based compensation

 

118

 

 

Exercise of stock options

 

122

 

6

 

Net cash provided by (used in) financing activities

 

290,004

 

(191,845

)

Net increase (decrease) in cash and cash equivalents

 

8,319

 

(110,725

)

Cash and cash equivalents, beginning of period

 

303,742

 

564,774

 

Cash and cash equivalents, end of period

 

$

312,061

 

$

454,049

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Interest paid on deposits and borrowings

 

$

37,895

 

$

43,095

 

Income taxes paid

 

$

73,095

 

$

150

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

47,078

 

$

111,682

 

Dividends declared, not paid

 

$

17,542

 

$

14,248

 

Reclassification of PIU liability to equity

 

$

 

$

44,964

 

Rescission of surrender of bank owned life insurance

 

$

 

$

20,846

 

Unsettled securities trades

 

$

 

$

71,838

 

Exchange of common stock for Series A preferred stock

 

$

54

 

$

 

Equity consideration issued in business combination

 

$

39,861

 

$

 

 

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

 

7



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

(In thousands, except share data)

 

 

 

Common
shares
outstanding

 

Common stock

 

Preferred
shares
outstanding

 

Preferred 
stock

 

Paid-in capital

 

Retained
earnings

 

Accumulated
other
comprehensive
income

 

Total
stockholders’
equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

97,700,829

 

$

977

 

 

$

 

$

1,240,068

 

$

276,216

 

$

18,019

 

$

1,535,280

 

Comprehensive income

 

 

 

 

 

 

50,272

 

26,695

 

76,967

 

Exchange of common shares for preferred shares

 

(5,415,794

)

(54

)

5,415,794

 

54

 

 

 

 

 

Equity consideration issued in acquisition

 

1,676,060

 

17

 

 

 

39,844

 

 

 

39,861

 

Dividends

 

 

 

 

 

 

(17,542

)

 

(17,542

)

Equity based compensation

 

10,817

 

 

 

 

10,127

 

 

 

10,127

 

Exercise of stock options

 

10,416

 

 

 

 

122

 

 

 

122

 

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 

 

118

 

 

 

118

 

Balance at March 31, 2012

 

93,982,328

 

$

940

 

5,415,794

 

$

54

 

$

1,290,279

 

$

308,946

 

$

44,714

 

$

1,644,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010

 

92,971,850

 

$

930

 

 

$

 

$

950,831

 

$

269,781

 

$

31,966

 

$

1,253,508

 

Comprehensive loss

 

 

 

 

 

 

(67,660

)

4,128

 

(63,532

)

Proceeds from issuance of common stock, net of direct costs of $3,126

 

4,000,000

 

42

 

 

 

99,434

 

 

 

99,476

 

Dividends

 

 

 

 

 

 

(14,248

)

 

(14,248

)

Reclassification of PIU liability to equity

 

 

 

 

 

44,964

 

 

 

44,964

 

Equity based compensation

 

265,840

 

 

 

 

116,778

 

 

 

116,778

 

Exercise of stock options

 

617

 

 

 

 

6

 

 

 

6

 

Balance at March 31, 2011

 

97,238,307

 

$

972

 

 

$

 

$

1,212,013

 

$

187,873

 

$

36,094

 

$

1,436,952

 

 

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

 

8



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

Note 1            Basis of Presentation

 

BankUnited, Inc. (“BankUnited, Inc.” or “BKU”) is a bank holding company with three wholly-owned subsidiaries: BankUnited, National Association (“BankUnited”), Herald National Bank (“Herald”), and BankUnited Investment Services, Inc. (collectively, the “Company”). BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporate customers through 94 branches located in 15 Florida counties. Herald is a national banking association with 3 branch locations in the New York metropolitan area.

 

On May 21, 2009, BankUnited acquired substantially all of the assets and assumed all of the non-brokered deposits and substantially all of the other liabilities of BankUnited, FSB from the Federal Deposit Insurance Corporation (“FDIC”) in a transaction referred to as the “FSB Acquisition.” In connection with the FSB Acquisition, BankUnited entered into Loss Sharing Agreements with the FDIC (“Loss Sharing Agreements”) that cover single family residential mortgage loans, commercial real estate, commercial and industrial and consumer loans, certain investment securities and other real estate owned (“OREO”), collectively referred to as the “covered assets.” Pursuant to the terms of the Loss Sharing Agreements, the covered assets are subject to a stated loss threshold whereby the FDIC will reimburse BankUnited for 80% of losses up to $4.0 billion and 95% of losses in excess of this amount, beginning with the first dollar of loss incurred.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”).  Accordingly, they do not include all of the information and footnotes required for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in the BKU’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected in future periods.

 

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. Management has made significant estimates in certain areas, such as the allowance for loan and lease losses, the amount and timing of expected cash flows from covered assets and the FDIC indemnification asset, the valuation of OREO, the valuation of deferred tax assets, the value of equity based compensation, the evaluation of investment securities for other than-temporary impairment and the fair values of financial instruments. Actual results could differ from these estimates.

 

The Company’s presentation of other comprehensive income has been revised retrospectively to comply with newly applicable guidance requiring that the components of net income and other comprehensive income be presented either in a single statement of comprehensive income or in two separate but consecutive statements. Previously, the components of other comprehensive income were presented in the consolidated statements of stockholders’ equity.

 

Certain amounts for the prior period have been reclassified to conform to the current period presentation.

 

Note 2                 Earnings Per Share

 

Basic earnings per common share is calculated by dividing income attributable to common stockholders by the weighted average number of common shares outstanding for the period, reduced by average unvested stock awards. Unvested stock awards and stock option awards with non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, and participating preferred stock are considered participating securities and are included in the computation of basic earnings per common share using the two class method. Diluted earnings per common share is computed by dividing income attributable to common stockholders 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 and by the dilutive effect of convertible preferred stock using the if converted method.

 

The computation of basic and diluted earnings per common share is presented below (in thousands except share and per share data):

 

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Basic earnings (loss) per common share:

 

 

 

 

 

Numerator:

 

 

 

 

 

Net income (loss)

 

$

50,272

 

$

(67,660

)

 

 

 

 

 

 

Distributed and undistributed earnings allocated to participating securities

 

(4,182

)

 

Income (loss) attributable to common stockholders

 

$

46,090

 

$

(67,660

)

Denominator:

 

 

 

 

 

Weighted average common shares outstanding

 

96,386,890

 

94,304,787

 

Less average unvested stock awards

 

(1,641,200

)

 

Weighted average shares for basic earnings (loss) per common share

 

94,745,690

 

94,304,787

 

Basic earnings (loss) per common share

 

$

0.49

 

$

(0.72

)

Diluted earnings (loss) per common share:

 

 

 

 

 

Numerator:

 

 

 

 

 

Income (loss) attributable to common stockholders

 

$

46,090

 

$

(67,660

)

Adjustment for earnings reallocated from participating securities

 

4

 

 

Income (loss) used in calculating diluted earnings per common share

 

$

46,094

 

$

(67,660

)

Denominator:

 

 

 

 

 

Average shares for basic earnings per common share

 

94,745,690

 

94,304,787

 

Dilutive effect of stock options

 

166,030

 

 

Weighted average shares for diluted earnings per common share

 

94,911,720

 

94,304,787

 

Diluted earnings (loss) per common share

 

$

0.49

 

$

(0.72

)

 

At March 31, 2012 and 2011, the following potentially dilutive securities were outstanding but excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive:

 

 

 

March 31,

 

 

 

2012

 

2011

 

Options and warrants

 

6,986,454

 

5,496,597

 

Unvested shares

 

1,588,576

 

2,197,585

 

Convertible preferred shares

 

5,415,794

 

 

 

Note 3            Acquisition Activity

 

On February 29, 2012, BKU completed the acquisition of Herald for a purchase price of $65.0 million consisting of cash of $25.2 million, 1,676,060 shares of common stock valued at $38.6 million and stock options and warrants valued at $1.2 million. Common stock issued was valued at the closing price of BKU common stock on the acquisition date.  The options and warrants were valued using a Black-Scholes option pricing model. The acquisition of Herald was determined to be a business combination and was accounted for using the acquisition method of accounting; accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values at the acquisition date. The acquisition of Herald allowed the Company to expand its banking operations to the New York metropolitan area.

 

The following table summarizes the estimated fair values of assets acquired and liabilities assumed (in thousands):

 

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

Assets:

 

 

 

Cash and cash equivalents

 

$

23,538

 

Investment securities available for sale

 

160,971

 

Loans

 

305,954

 

Deferred tax asset, net

 

12,023

 

Intangible assets

 

1,780

 

Other assets

 

4,141

 

Total assets

 

508,407

 

Liabilities:

 

 

 

Deposits

 

435,500

 

Other liabilities

 

2,594

 

Total liabilities

 

438,094

 

Estimated fair value of net assets acquired

 

70,313

 

Consideration issued

 

65,025

 

Excess of fair value of net assets acquired over consideration issued

 

$

5,288

 

 

The Company recognized a gain of $5.3 million on the acquisition of Herald, representing the excess of the fair value of net assets acquired over the value of consideration issued. Pursuant to the terms of the merger agreement between BKU and Herald, the determination of the final purchase price was dependent on the price of BKU’s common stock at the time of the merger. A decline in the stock price between the execution of the agreement and consummation of the acquisition led to this gain, which is included in the consolidated statement of operations line item “other non-interest income”. Transaction costs of $1.2 million related to the acquisition of Herald are included in the consolidated statement of operations line item “other non-interest expense” for the three months ended March 31, 2012. The results of operations of Herald have been included in the Company’s financial statements from the date of acquisition and are not material. Financial statements of Herald and pro-forma financial information are not required to be presented due to the immateriality of this acquisition to the Company’s consolidated financial position and results of operations.

 

Valuation methodologies used to estimate the fair values of significant assets acquired and liabilities assumed are summarized as follows:

 

·                  Loans were valued using a discounted cash flow technique incorporating market based probability of default, loss severity given default, recovery lag and appropriately risk weighted discount rate assumptions.

·                  Investment securities were valued using the same methodologies employed to estimate the fair value of the Company’s investment securities available for sale summarized in Note 11.

·                  Demand, savings and money market deposits were valued at the amount due on demand at the valuation date.  Time deposits were valued using a discounted cash flow technique incorporating discount rates based on current market rates for deposits with similar maturities.

·                  Intangible assets consist of a core deposit intangible asset, valued using an after tax cost savings methodology.

 

The gross contractual amount receivable related to acquired loans is approximately $395.2 million. The estimated amount not expected to be collected based on probability of default and loss severity given default assumptions applied in estimating fair value is $12.1 million. No loans were specifically identified as impaired at the acquisition date.

 

Deferred tax assets and liabilities have been recorded for the tax effects of differences between the tax bases of assets acquired and liabilities assumed and the fair values assigned to those assets and liabilities. The most significant component of the net deferred tax asset is an acquired net operating loss carryforward.

 

Certain of the assets acquired and liabilities assumed, including deferred tax assets, the estimated fair value of acquired loans and certain liabilities have been recorded based on provisional amounts and are subject to revision within the measurement period.

 

Note 4            Investment Securities Available for Sale

 

Investment securities available for sale at March 31, 2012 and December 31, 2011 consisted of the following (in thousands):

 

 

 

March 31, 2012

 

 

 

Covered Securities

 

Non-Covered Securities

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and Government agency securities

 

$

 

$

 

$

 

$

 

$

64,526

 

$

28

 

$

(131

)

$

64,423

 

U.S. Government agency and sponsored enterprise mortgage-backed securities

 

 

 

 

 

2,007,075

 

50,776

 

(817

)

2,057,034

 

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

 

 

 

 

 

686,865

 

6,535

 

(3,172

)

690,228

 

Private label residential mortgage-backed securities and CMOs

 

161,794

 

51,207

 

(269

)

212,732

 

229,863

 

2,050

 

(228

)

231,685

 

Private label commercial mortgage-backed securities

 

 

 

 

 

281,157

 

9,810

 

(357

)

290,610

 

Non-mortgage asset-backed securities

 

 

 

 

 

446,098

 

2,825

 

(1,998

)

446,925

 

Mutual funds and preferred stocks

 

16,382

 

479

 

(554

)

16,307

 

247,722

 

8,362

 

(9

)

256,075

 

State and municipal obligations

 

 

 

 

 

23,501

 

280

 

(5

)

23,776

 

Small Business Administration securities

 

 

 

 

 

354,074

 

3,299

 

(390

)

356,983

 

Other debt securities

 

3,880

 

2,257

 

 

6,137

 

9,066

 

17

 

(53

)

9,030

 

 

 

$

182,056

 

$

53,943

 

$

(823

)

$

235,176

 

$

4,349,947

 

$

83,982

 

$

(7,160

)

$

4,426,769

 

 

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

 

 

December 31, 2011

 

 

 

Covered Securities

 

Non-Covered Securities

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency and sponsored enterprise mortgage-backed securities

 

$

 

$

 

$

 

$

 

$

1,952,095

 

$

34,823

 

$

(1,205

)

$

1,985,713

 

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

 

 

 

 

 

544,924

 

4,972

 

(3,586

)

546,310

 

Private label residential mortgage-backed securities and CMOs

 

165,385

 

44,746

 

(310

)

209,821

 

177,614

 

1,235

 

(983

)

177,866

 

Private label commercial mortgage-backed securities

 

 

 

 

 

255,868

 

6,694

 

 

262,562

 

Non-mortgage asset-backed securities

 

 

 

 

 

414,274

 

2,246

 

(5,635

)

410,885

 

Mutual funds and preferred stocks

 

16,382

 

491

 

(556

)

16,317

 

235,705

 

3,071

 

(1,276

)

237,500

 

State and municipal obligations

 

 

 

 

 

24,994

 

278

 

(2

)

25,270

 

Small Business Administration securities

 

 

 

 

 

301,109

 

2,664

 

(96

)

303,677

 

Other debt securities

 

3,868

 

2,188

 

 

6,056

 

 

 

 

 

 

 

$

185,635

 

$

47,425

 

$

(866

)

$

232,194

 

$

3,906,583

 

$

55,983

 

$

(12,783

)

$

3,949,783

 

 

At March 31, 2012, investment securities available for sale by contractual maturity, adjusted for anticipated prepayments of mortgage-backed and other pass-through securities are shown below (in thousands):

 

 

 

Amortized
Cost

 

Fair Value

 

Due in one year or less

 

$

691,641

 

$

712,452

 

Due after one year through five years

 

1,841,333

 

1,894,836

 

Due after five years through ten years

 

1,221,401

 

1,253,049

 

Due after ten years

 

513,524

 

529,226

 

Mutual funds and preferred stocks with no stated maturity

 

264,104

 

272,382

 

 

 

$

4,532,003

 

$

4,661,945

 

 

Based on the Company’s proprietary model and prepayment assumptions, the estimated weighted average life of the investment portfolio as of March 31, 2012 was 4.7 years. The effective duration of the investment portfolio as of March 31, 2012 was 1.7 years. The model results are based on assumptions that may differ from the eventual outcome.

 

The carrying value of securities pledged as collateral for Federal Home Loan Bank (“FHLB”) advances, public deposits, interest rate swaps, securities sold under agreements to repurchase and to secure borrowing capacity at the Federal Reserve Bank totaled $1.3 billion and $1.2 billion at March 31, 2012 and December 31, 2011, respectively.

 

The following table provides information about gains and losses on the sale of investment securities available for sale for the periods indicated (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Proceeds from sale of investment securities available for sale

 

$

5,847

 

$

2,946

 

Gross realized gains

 

$

19

 

$

4

 

Gross realized losses

 

(3

)

(1

)

Net realized gain

 

$

16

 

$

3

 

 

The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeds fair value for investment securities that are in unrealized loss positions at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities had been in continuous unrealized loss positions (in thousands):

 

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

 

 

March 31, 2012

 

 

 

Less than 12 Months

 

12 Months or Greater

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and Government agency securities

 

$

51,882

 

$

(131

)

$

 

$

 

$

51,882

 

$

(131

)

U.S. Government agency and sponsored enterprise mortgage-backed securities

 

116,070

 

(817

)

 

 

116,070

 

(817

)

Re-Remics

 

350,179

 

(3,006

)

18,918

 

(166

)

369,097

 

(3,172

)

Private label residential mortgage-backed securities and CMOs

 

55,757

 

(369

)

6,457

 

(128

)

62,214

 

(497

)

Private label commercial mortgage backed securities

 

24,893

 

(357

)

 

 

24,893

 

(357

)

Non-mortgage asset-backed securities

 

238,469

 

(1,998

)

 

 

238,469

 

(1,998

)

Mutual funds and preferred stocks

 

1,998

 

(102

)

14,982

 

(461

)

16,980

 

(563

)

State and municipal obligations

 

2,125

 

(5

)

 

 

2,125

 

(5

)

Small Business Administration securities

 

60,749

 

(390

)

 

 

60,749

 

(390

)

Other debt securities

 

7,350

 

(53

)

 

 

7,350

 

(53

)

 

 

$

909,472

 

$

(7,228

)

$

40,357

 

$

(755

)

$

949,829

 

$

(7,983

)

 

 

 

December 31, 2011

 

 

 

Less than 12 Months

 

12 Months or Greater

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency and sponsored enterprise mortgage-backed securities

 

$

211,168

 

$

(830

)

$

70,049

 

$

(375

)

$

281,217

 

$

(1,205

)

Re-Remics

 

254,826

 

(3,344

)

19,491

 

(242

)

274,317

 

(3,586

)

Private label residential mortgage-backed securities and CMOs

 

114,915

 

(1,120

)

6,469

 

(173

)

121,384

 

(1,293

)

Non-mortgage asset-backed securities

 

221,904

 

(5,590

)

8,772

 

(45

)

230,676

 

(5,635

)

Mutual funds and preferred stocks

 

77,811

 

(1,371

)

14,982

 

(461

)

92,793

 

(1,832

)

State and municipal obligations

 

1,002

 

(2

)

 

 

1,002

 

(2

)

Small Business Administration securities

 

29,774

 

(96

)

 

 

29,774

 

(96

)

 

 

$

911,400

 

$

(12,353

)

$

119,763

 

$

(1,296

)

$

1,031,163

 

$

(13,649

)

 

The Company monitors its investment securities available for sale for other than temporary impairment (“OTTI”) on an individual security basis. No securities were determined to be other-than-temporarily impaired during the three months ended March 31, 2012 and 2011. The Company does not intend to sell securities that are in unrealized loss positions and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. At March 31, 2012, ninety securities were in unrealized loss positions. The amount of impairment related to twenty-seven of these securities was considered insignificant, totaling approximately $88 thousand and no further analysis with respect to these securities was considered necessary. The basis for concluding that impairment of the remaining securities is not other-than-temporary is further described below:

 

U.S. Treasury, government agency and Small Business Administration securities:

 

At March 31, 2012, three U.S. Treasury and government agency securities and two Small Business Administration securities were in unrealized loss positions. All of these securities have been in unrealized loss positions for less than twelve months. The amount of impairment of each of the individual securities is less than 1% of amortized cost. The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. Given the limited severity and duration of impairment and the expectation of timely payment of principal and interest, the impairments are considered to be temporary.

 

U.S. Government agency and sponsored enterprise mortgage-backed securities:

 

At March 31, 2012, seven U.S. Government agency and sponsored enterprise mortgage-backed securities were in unrealized loss positions. All of these securities have been in unrealized loss positions for less than twelve months.  The amount of impairment of each of the individual securities is less than 2% of amortized cost. The timely payment of principal and interest on these securities is

 

13



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

explicitly or implicitly guaranteed by the U.S. Government. Given the limited severity and duration of impairment and the expectation of timely payment of principal and interest, the impairments are considered to be temporary.

 

Private label mortgage-backed securities and CMOs and Re-Remics:

 

At March 31, 2012, thirty private label residential and commercial mortgage-backed securities and Re-Remics were in unrealized loss positions. These securities were assessed for OTTI using third-party developed credit and prepayment behavioral models and CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The results of this evaluation were not indicative of credit losses related to any of these securities as of March 31, 2012. The majority of these securities have been in unrealized loss positions for less than twelve months and evidence unrealized losses less than 2% of amortized cost. Unrealized losses in this portfolio segment result primarily from widening spreads on senior tranches and increased discount rates on subordinate tranches. Given the generally limited duration and severity of impairment and the expectation of timely recovery of outstanding principal, the impairments are considered to be temporary.

 

Non-mortgage asset-backed securities:

 

At March 31, 2012, seventeen non-mortgage asset-backed securities were in unrealized loss positions. All of these securities had been in continuous unrealized loss positions for twelve months or less at March 31, 2012.  The amount of impairment of each of the individual securities is less than 3% of amortized cost. These securities were assessed for OTTI using a third-party developed credit and prepayment behavioral model and CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The results of this evaluation were not indicative of credit losses related to these securities as of March 31, 2012.   Most of the unrealized losses in this portfolio sector were largely driven by the impact of recent events on spreads for student loan-backed securities, which management believes to be temporary.  Given the limited severity and duration of impairment and the expectation of timely recovery of outstanding principal, the impairments are considered to be temporary.

 

Other debt securities:

 

At March 31, 2012, two corporate debt securities were in unrealized loss positions.  These securities had been in unrealized loss positions for less than one month and aggregate unrealized losses were not material.  Given the limited duration and severity of impairment, the impairment is considered to be temporary.

 

Mutual funds:

 

At March 31, 2012, one mutual fund investment was in an unrealized loss position and had been in a continuous unrealized loss position for nineteen months. The majority of the underlying holdings of the mutual fund are either explicitly or implicitly guaranteed by the U.S. Government. Impairment has been driven primarily by intermediate term interest rates and lack of liquidity in the market for the security.  The unrealized loss related to this security is approximately 3% of its cost basis. Given the limited severity, the impairment is considered to be temporary.

 

Preferred stocks:

 

At March 31, 2012, one position in agency preferred stock was in an unrealized loss position.  This security traded above the Company’s cost basis as recently as December 2011.  Given the limited duration and immaterial amount of impairment, this impairment is considered to be temporary.

 

Note 5            Loans and Allowance for Loan and Lease Losses

 

A significant portion of the Company’s loan portfolio consists of loans acquired in the FSB Acquisition. Substantially all of these loans are covered under BankUnited’s Loss Sharing Agreements (the “covered loans”).  Loans originated or purchased since the FSB Acquisition (“new loans”) are not covered by the Loss Sharing Agreements. Covered loans may be further segregated between those acquired with evidence of deterioration in credit quality since origination (“Acquired Credit Impaired” or “ACI” loans) and those acquired without evidence of deterioration in credit quality since origination (“non-ACI” loans).

 

At March 31, 2012 and December 31, 2011, loans consisted of the following (dollars in thousands):

 

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Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

 

 

March 31, 2012

 

 

 

Covered Loans

 

Non-Covered Loans

 

 

 

Percent of

 

 

 

ACI

 

Non-ACI

 

ACI

 

New Loans

 

Total

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

$

1,611,942

 

$

110,925

 

$

 

$

588,251

 

$

2,311,118

 

48.9

%

Home equity loans and lines of credit

 

66,972

 

177,167

 

 

1,722

 

245,861

 

5.2

%

 

 

1,678,914

 

288,092

 

 

589,973

 

2,556,979

 

54.1

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

62,353

 

773

 

 

167,457

 

230,583

 

4.9

%

Commercial real estate

 

208,023

 

32,602

 

4,196

 

508,118

 

752,939

 

15.9

%

Construction

 

4,546

 

 

 

25,259

 

29,805

 

0.6

%

Land

 

25,894

 

161

 

 

23,335

 

49,390

 

1.0

%

Commercial loans and leases

 

21,111

 

17,757

 

 

1,061,124

 

1,099,992

 

23.2

%

 

 

321,927

 

51,293

 

4,196

 

1,785,293

 

2,162,709

 

45.6

%

Consumer

 

2,726

 

 

 

10,942

 

13,668

 

0.3

%

Total loans

 

2,003,567

 

339,385

 

4,196

 

2,386,208

 

4,733,356

 

100.0

%

Premiums, discounts and deferred costs and fees, net

 

 

(29,059

)

 

4,986

 

(24,073

)

 

 

Loans net of discounts, premiums, deferred costs and fees

 

2,003,567

 

310,326

 

4,196

 

2,391,194

 

4,709,283

 

 

 

Allowance for loan and lease losses

 

(14,591

)

(10,915

)

 

(30,968

)

(56,474

)

 

 

Loans, net

 

$

1,988,976

 

$

299,411

 

$

4,196

 

$

2,360,226

 

$

4,652,809

 

 

 

 

 

 

December 31, 2011

 

 

 

Covered Loans

 

Non-Covered Loans

 

 

 

Percent of

 

 

 

ACI

 

Non-ACI

 

ACI

 

New Loans

 

Total

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

$

1,681,866

 

$

117,992

 

$

 

$

461,431

 

$

2,261,289

 

54.1

%

Home equity loans and lines of credit

 

71,565

 

182,745

 

 

2,037

 

256,347

 

6.1

%

 

 

1,753,431

 

300,737

 

 

463,468

 

2,517,636

 

60.2

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

61,710

 

791

 

 

108,178

 

170,679

 

4.1

%

Commercial real estate

 

219,136

 

32,678

 

4,220

 

311,434

 

567,468

 

13.6

%

Construction

 

4,102

 

 

 

23,252

 

27,354

 

0.7

%

Land

 

33,018

 

163

 

 

7,469

 

40,650

 

1.0

%

Commercial loans and leases

 

24,007

 

20,382

 

 

799,978

 

844,367

 

20.2

%

 

 

341,973

 

54,014

 

4,220

 

1,250,311

 

1,650,518

 

39.6

%

Consumer

 

2,937

 

 

 

3,372

 

6,309

 

0.2

%

Total loans

 

2,098,341

 

354,751

 

4,220

 

1,717,151

 

4,174,463

 

100.0

%

Premiums, discounts and deferred costs and fees, net

 

 

(30,281

)

 

(7,124

)

(37,405

)

 

 

Loans net of discounts, premiums, deferred costs and fees

 

2,098,341

 

324,470

 

4,220

 

1,710,027

 

4,137,058

 

 

 

Allowance for loan and lease losses

 

(16,332

)

(7,742

)

 

(24,328

)

(48,402

)

 

 

Loans, net

 

$

2,082,009

 

$

316,728

 

$

4,220

 

$

1,685,699

 

$

4,088,656

 

 

 

 

At March 31, 2012 and December 31, 2011, the unpaid principal balance (“UPB”) of ACI loans was $5.1 billion and $5.3 billion, respectively.

 

During the three months ended March 31, 2012 and 2011, the Company purchased 1-4 single family residential loans totaling $165.9 million and $33.5 million, respectively.

 

At March 31, 2012, the Company had pledged real estate loans with UPB of approximately $4.9 billion and carrying amounts of approximately $2.5 billion as security for FHLB advances.

 

The following table presents information about the ending balance of the allowance for loan and lease losses (“ALLL”) and related loans as of March 31, 2012 and summarizes the activity in the ALLL for the three months ended March 31, 2012 (in thousands):

 

15



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

March 31, 2012

 

 

 

As of and for the Three Months Ended March 31, 2012

 

 

 

Residential

 

Commercial

 

Consumer

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

10,175

 

$

38,176

 

$

51

 

$

48,402

 

Provision for loan losses:

 

 

 

 

 

 

 

 

 

ACI loans

 

 

(1,011

)

 

(1,011

)

Non-ACI loans

 

3,790

 

(1,179

)

 

2,611

 

New loans

 

1,242

 

5,934

 

(9

)

7,167

 

Total provision

 

5,032

 

3,744

 

(9

)

8,767

 

Charge-offs: