XNYS:BKU BankUnited Inc Quarterly Report 10-Q Filing - 6/30/2012

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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 June 30, 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

 

August 3, 2012

Common Stock, $0.01 Par Value

 

94,035,513 Shares

 

 

 



Table of Contents

 

BankUnited, Inc.

 

Form 10-Q

 

For the Quarter Ended June 30, 2012

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Financial Statements (Unaudited)

 

 

 

 

 

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

42

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

71

 

 

 

ITEM 4.

Controls and Procedures

72

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

73

 

 

 

ITEM 1A.

Risk Factors

73

 

 

 

ITEM 6.

Exhibits

73

 

 

 

SIGNATURES

75

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS — UNAUDITED

(In thousands, except share and per share data)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

Non-interest bearing

 

$

41,691

 

$

39,894

 

Interest bearing

 

22,038

 

13,160

 

Interest bearing deposits at Federal Reserve Bank

 

97,830

 

247,488

 

Federal funds sold

 

2,585

 

3,200

 

Cash and cash equivalents

 

164,144

 

303,742

 

Investment securities available for sale, at fair value (including covered securities of $227,028 and $232,194)

 

4,758,509

 

4,181,977

 

Non-marketable equity securities

 

154,376

 

147,055

 

Loans held for sale

 

2,970

 

3,952

 

Loans (including covered loans of $2,182,133 and $2,422,811)

 

5,078,698

 

4,137,058

 

Allowance for loan and lease losses

 

(55,635

)

(48,402

)

Loans, net

 

5,023,063

 

4,088,656

 

FDIC indemnification asset

 

1,711,526

 

2,049,151

 

Bank owned life insurance

 

205,842

 

204,077

 

Other real estate owned, covered by loss sharing agreements

 

93,724

 

123,737

 

Deferred tax asset, net

 

88,187

 

19,485

 

Goodwill and other intangible assets

 

70,142

 

68,667

 

Other assets

 

157,478

 

131,539

 

Total assets

 

$

12,429,961

 

$

11,322,038

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Demand deposits:

 

 

 

 

 

Non-interest bearing

 

$

1,134,689

 

$

770,846

 

Interest bearing

 

518,883

 

453,666

 

Savings and money market

 

3,948,350

 

3,553,018

 

Time

 

2,624,692

 

2,587,184

 

Total deposits

 

8,226,614

 

7,364,714

 

Securities sold under repurchase agreements and short-term borrowings

 

42,581

 

206

 

Federal Home Loan Bank advances

 

2,226,978

 

2,236,131

 

Income taxes payable

 

82,061

 

53,171

 

Advance payments by borrowers for taxes and insurance

 

36,151

 

21,838

 

Other liabilities

 

123,325

 

110,698

 

Total liabilities

 

10,737,710

 

9,786,758

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01 per share 400,000,000 shares authorized; 94,024,521 and 97,700,829 shares issued and outstanding

 

940

 

977

 

Preferred stock, 100,000,000 shares authorized 5,415,794 shares of Series A, $0.01 par value per share issued and outstanding at June 30, 2012

 

54

 

 

Paid-in capital

 

1,298,201

 

1,240,068

 

Retained earnings

 

340,470

 

276,216

 

Accumulated other comprehensive income

 

52,586

 

18,019

 

Total stockholders’ equity

 

1,692,251

 

1,535,280

 

Total liabilities and stockholders’ equity

 

$

12,429,961

 

$

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 June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans

 

$

142,621

 

$

122,243

 

$

278,918

 

$

236,894

 

Investment securities available for sale

 

34,059

 

29,237

 

67,098

 

61,786

 

Other

 

1,235

 

617

 

2,189

 

1,623

 

Total interest income

 

177,915

 

152,097

 

348,205

 

300,303

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

17,047

 

19,024

 

34,007

 

39,330

 

Borrowings

 

15,071

 

15,751

 

30,592

 

31,324

 

Total interest expense

 

32,118

 

34,775

 

64,599

 

70,654

 

Net interest income before provision for (recovery of) loan losses

 

145,797

 

117,322

 

283,606

 

229,649

 

Provision for (recovery of) loan losses (including $(1,484) $(6,443), $116 and $3,574 for covered loans)

 

2,725

 

(2,892

)

11,492

 

8,564

 

Net interest income after provision for (recovery of) loan losses

 

143,072

 

120,214

 

272,114

 

221,085

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Accretion of discount on FDIC indemnification asset

 

4,294

 

14,873

 

11,081

 

34,443

 

Income from resolution of covered assets, net

 

14,803

 

3,076

 

22,085

 

2,366

 

Net gain (loss) on indemnification asset

 

(12,537

)

11,312

 

(12,403

)

37,634

 

FDIC reimbursement of costs of resolution of covered assets

 

3,333

 

8,241

 

9,849

 

18,741

 

Service charges and fees

 

3,229

 

2,648

 

6,345

 

5,332

 

Gain on sale of investment securities available for sale, net

 

880

 

100

 

896

 

103

 

Mortgage insurance income

 

2,649

 

6,784

 

6,339

 

8,085

 

Investment services income

 

1,091

 

2,110

 

2,223

 

4,515

 

Other non-interest income

 

3,924

 

3,714

 

11,649

 

5,901

 

Total non-interest income

 

21,666

 

52,858

 

58,064

 

117,120

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

43,951

 

41,364

 

90,576

 

190,670

 

Occupancy and equipment

 

13,229

 

8,791

 

25,051

 

16,396

 

Impairment of other real estate owned

 

3,048

 

8,187

 

6,595

 

17,786

 

Foreclosure expense

 

3,892

 

6,057

 

6,611

 

10,527

 

(Gain) loss on sale of other real estate owned

 

(1,490

)

12,264

 

(89

)

24,474

 

Other real estate owned expense

 

1,161

 

2,589

 

3,437

 

6,932

 

Deposit insurance expense

 

1,946

 

2,329

 

3,096

 

6,518

 

Professional fees

 

3,953

 

3,507

 

7,602

 

6,736

 

Telecommunications and data processing

 

3,121

 

3,418

 

6,351

 

6,866

 

Other non-interest expense

 

10,220

 

7,383

 

17,919

 

13,323

 

Total non-interest expense

 

83,031

 

95,889

 

167,149

 

300,228

 

Income before income taxes

 

81,707

 

77,183

 

163,029

 

37,977

 

Provision for income taxes

 

32,778

 

33,188

 

63,828

 

61,642

 

Net income (loss)

 

48,929

 

43,995

 

99,201

 

(23,665

)

Preferred stock dividends

 

921

 

 

1,841

 

 

Net income (loss) available to common stockholders

 

$

48,008

 

$

43,995

 

$

97,360

 

$

(23,665

)

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

 

$

0.48

 

$

0.44

 

$

0.96

 

$

(0.25

)

Cash dividends declared per common share

 

$

0.17

 

$

0.14

 

$

0.34

 

$

0.28

 

 

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 June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

48,929

 

$

43,995

 

$

99,201

 

$

(23,665

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains on investment securities available for sale:

 

 

 

 

 

 

 

 

 

Net unrealized holding gain arising during the period

 

10,243

 

8,547

 

34,858

 

8,057

 

Reclassification adjustment for net securities gains realized in income

 

(540

)

(61

)

(550

)

(63

)

Net change in unrealized gains on securities available for sale

 

9,703

 

8,486

 

34,308

 

7,994

 

Unrealized losses on derivative instruments:

 

 

 

 

 

 

 

 

 

Net unrealized holding loss arising during the period

 

(4,567

)

(10,309

)

(5,198

)

(8,577

)

Reclassification adjustment for net losses realized in income

 

2,736

 

2,928

 

5,457

 

5,816

 

Net change in unrealized losses on derivative instruments

 

(1,831

)

(7,381

)

259

 

(2,761

)

Other comprehensive income

 

7,872

 

1,105

 

34,567

 

5,233

 

Comprehensive income (loss)

 

$

56,801

 

$

45,100

 

$

133,768

 

$

(18,432

)

 

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)

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

99,201

 

$

(23,665

)

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

 

 

 

 

 

Accretion of fair values of assets acquired and liabilities assumed

 

(233,739

)

(226,294

)

Amortization of fees, discounts and premiums, net

 

6,164

 

(4,203

)

Provision for loan losses

 

11,492

 

8,564

 

Accretion of discount on FDIC indemnification asset

 

(11,081

)

(34,443

)

Income from resolution of covered assets, net

 

(22,085

)

(2,366

)

Net (gain) loss on indemnification asset

 

12,403

 

(37,634

)

Net gain on sale of loans

 

(509

)

(252

)

Increase in cash surrender value of bank owned life insurance

 

(1,765

)

(2,036

)

Gain on sale of investment securities available for sale

 

(896

)

(103

)

(Gain) loss on sale of other real estate owned

 

(89

)

24,474

 

Equity based compensation

 

17,015

 

126,195

 

Depreciation and amortization

 

6,893

 

3,108

 

Impairment of other real estate owned

 

6,595

 

17,786

 

Deferred income taxes

 

(78,384

)

35,801

 

Proceeds from sale of loans held for sale

 

22,652

 

14,536

 

Loans originated for sale, net of repayments

 

(21,224

)

(12,777

)

Realized tax benefits from dividend equivalents and equity based compensation

 

(511

)

(200

)

Gain on acquisition

 

(5,288

)

 

Other:

 

 

 

 

 

Increase in other assets

 

(15,313

)

(7,112

)

Increase (decrease) in other liabilities

 

38,103

 

(2,385

)

Net cash used in operating activities

 

(170,366

)

(123,006

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Net cash paid in business combination

 

(1,626

)

 

Purchase of investment securities available for sale

 

(815,844

)

(1,057,582

)

Proceeds from repayments of investment securities available for sale

 

296,321

 

274,668

 

Proceeds from sale of investment securities available for sale

 

139,254

 

69,347

 

Maturities and calls of investment securities available for sale

 

16,305

 

 

Purchase of non-marketable equity securities

 

(33,208

)

 

Proceeds from redemption of non-marketable equity securities

 

28,173

 

34,769

 

Purchases of loans

 

(341,664

)

(157,550

)

Loan originations, repayments and resolutions, net

 

(140,272

)

292,729

 

Decrease in FDIC indemnification asset for claims filed

 

336,303

 

486,558

 

Purchase of bank owned life insurance

 

 

(12,500

)

Bank owned life insurance proceeds

 

 

51,406

 

Purchase of office properties and equipment, net

 

(15,395

)

(17,792

)

Proceeds from sale of other real estate owned

 

110,860

 

210,624

 

Net cash provided by (used in) investing activities

 

(420,793

)

174,677

 

 

 

 

 

 

(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)

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

Cash flows from financing activities:

 

 

 

 

 

Net increase (decrease) in deposits

 

426,741

 

(334,405

)

Additions to Federal Home Loan Bank advances

 

1,015,000

 

 

Repayments of Federal Home Loan Bank advances

 

(1,015,000

)

 

Increase in short-term borrowings

 

42,375

 

1,673

 

Settlement of FDIC warrant liability

 

 

(25,000

)

Increase in advances from borrowers for taxes and insurance

 

13,572

 

14,210

 

Issuance of common stock

 

 

98,620

 

Dividends paid

 

(32,401

)

(27,998

)

Realized tax benefits from dividend equivalents and equity based compensation

 

511

 

200

 

Exercise of stock options

 

763

 

14

 

Net cash provided by (used in) financing activities

 

451,561

 

(272,686

)

Net decrease in cash and cash equivalents

 

(139,598

)

(221,015

)

Cash and cash equivalents, beginning of period

 

303,742

 

564,774

 

Cash and cash equivalents, end of period

 

$

164,144

 

$

343,759

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Interest paid on deposits and borrowings

 

$

74,897

 

$

84,754

 

Income taxes paid

 

$

112,839

 

$

26,831

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

87,353

 

$

187,927

 

Dividends declared, not paid

 

$

17,412

 

$

14,399

 

Reclassification of PIU liability to equity

 

$

 

$

44,964

 

Receivable for proceeds of surrender of bank owned life insurance

 

$

 

$

26,243

 

Rescission of surrender of bank owned life insurance

 

$

 

$

20,846

 

Unsettled securities trades

 

$

 

$

112,560

 

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

 

 

 

 

 

 

99,201

 

34,567

 

133,768

 

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

 

 

 

 

 

 

(34,947

)

 

(34,947

)

Equity based compensation

 

7,745

 

 

 

 

17,015

 

 

 

17,015

 

Exercise of stock options

 

55,681

 

 

 

 

763

 

 

 

763

 

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 

 

511

 

 

 

511

 

Balance at June 30, 2012

 

94,024,521

 

$

940

 

5,415,794

 

$

54

 

$

1,298,201

 

$

340,470

 

$

52,586

 

$

1,692,251

 

 

 

 

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, 2010

 

92,971,850

 

$

930

 

 

$

 

$

950,831

 

$

269,781

 

$

31,966

 

$

1,253,508

 

Comprehensive loss

 

 

 

 

 

 

(23,665

)

5,233

 

(18,432

)

Proceeds from issuance of common stock net of direct costs of $3,979

 

4,000,000

 

42

 

 

 

98,578

 

 

 

98,620

 

Dividends

 

 

 

 

 

 

(28,396

)

 

(28,396

)

Reclassification of PIU liability to equity

 

 

 

 

 

44,964

 

 

 

44,964

 

Equity based compensation

 

276,790

 

 

 

 

126,195

 

 

 

126,195

 

Exercise of stock options

 

1,234

 

 

 

 

14

 

 

 

14

 

Tax benefits from dividend equivalents and equity based compensation

 

 

 

 

 

200

 

 

 

200

 

Balance at June 30, 2011

 

97,249,874

 

$

972

 

 

$

 

$

1,220,782

 

$

217,720

 

$

37,199

 

$

1,476,673

 

 

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

June 30, 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 95 branches located in 15 Florida counties. Herald is a national banking association with 2 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 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 six months ended June 30, 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 as well as 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 (loss) 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 (loss) allocated to common stockholders for basic earnings (loss) per common share 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 (loss) per common share is computed by dividing income (loss) allocated to common stockholders for basic earnings (loss) per common share, adjusted for earnings reallocated from

 

9



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2012

 

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 (loss) per common share is presented below (in thousands except share and per share data):

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

48,929

 

$

43,995

 

$

99,201

 

$

(23,665

)

Preferred stock dividends

 

(921

)

 

(1,841

)

 

Net income (loss) available to common stockholders

 

48,008

 

43,995

 

97,360

 

(23,665

)

Distributed and undistributed earnings allocated to participating securities

 

(3,687

)

(2,216

)

(6,968

)

 

Income (loss) allocated to common stockholders for basic earnings (loss) per common share

 

$

44,321

 

$

41,779

 

$

90,392

 

$

(23,665

)

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

93,994,226

 

97,243,931

 

95,190,558

 

96,432,334

 

Less average unvested stock awards

 

(1,168,872

)

(1,785,151

)

(1,405,036

)

(1,547,363

)

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

 

92,825,354

 

95,458,780

 

93,785,522

 

94,884,971

 

Basic earnings (loss) per common share

 

$

0.48

 

$

0.44

 

$

0.96

 

$

(0.25

)

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Income (loss) allocated to common stockholders for basic earnings (loss) per common share

 

$

44,321

 

$

41,779

 

$

90,392

 

$

(23,665

)

Adjustment for earnings reallocated from participating securities

 

2,583

 

2

 

10

 

 

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

 

$

46,904

 

$

41,781

 

$

90,402

 

$

(23,665

)

Denominator:

 

 

 

 

 

 

 

 

 

Average shares for basic earnings (loss) per common share

 

92,825,354

 

95,458,780

 

93,785,522

 

94,884,971

 

Dilutive effect of stock options and preferred shares

 

5,626,620

 

166,601

 

189,209

 

 

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

 

98,451,974

 

95,625,381

 

93,974,731

 

94,884,971

 

Diluted earnings (loss) per common share

 

$

0.48

 

$

0.44

 

$

0.96

 

$

(0.25

)

 

For the three and six months ended June 30, 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:

 

10



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2012

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Unvested shares

 

654,165

 

1,281,297

 

654,165

 

1,281,297

 

Stock options and warrants

 

6,979,788

 

4,534,970

 

6,979,788

 

5,471,627

 

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 for the ten trading days preceding 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):

 

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 for the ten trading days preceding 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 “professional fees” for the six months ended June 30, 2012. The results of operations of Herald have been included in the Company’s consolidated 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:

 

11



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2012

 

·                  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.

 

Note 4   Investment Securities Available for Sale

 

Investment securities available for sale at June 30, 2012 and December 31, 2011 consisted of the following (in thousands):

 

 

 

June 30, 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

 

$

 

$

 

$

 

$

 

$

52,517

 

$

106

 

$

 

$

52,623

 

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

 

 

 

 

 

2,007,780

 

55,278

 

(158

)

2,062,900

 

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

 

 

 

 

 

114,697

 

1,355

 

 

116,052

 

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

 

 

 

 

 

666,589

 

6,578

 

(2,145

)

671,022

 

Private label residential mortgage-backed securities and CMOs

 

156,122

 

47,479

 

(266

)

203,335

 

281,031

 

3,684

 

(60

)

284,655

 

Private label commercial mortgage-backed securities

 

 

 

 

 

357,111

 

12,023

 

 

369,134

 

Non-mortgage asset-backed securities

 

 

 

 

 

337,667

 

3,281

 

(1,334

)

339,614

 

Mutual funds and preferred stocks

 

16,382

 

875

 

(420

)

16,837

 

238,024

 

11,854

 

 

249,878

 

State and municipal obligations

 

 

 

 

 

24,216

 

282

 

(3

)

24,495

 

Small Business Administration securities

 

 

 

 

 

347,736

 

4,526

 

(129

)

352,133

 

Other debt securities

 

3,893

 

2,963

 

 

6,856

 

9,098

 

 

(123

)

8,975

 

 

 

$

176,397

 

$

51,317

 

$

(686

)

$

227,028

 

$

4,436,466

 

$

98,967

 

$

(3,952

)

$

4,531,481

 

 

12



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 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 residential mortgage-backed securities

 

$

 

$

 

$

 

$

 

$

1,952,095

 

$

34,823

 

$

(1,205

)

$

1,985,713

 

Re-Remics

 

 

 

 

 

544,924

 

4,972

 

(3,586

)

546,310

 

Private label residential mortgage-backed securities and CMO’s

 

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 June 30, 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

 

Fair

 

 

 

Cost

 

Value

 

 

 

 

 

 

 

Due in one year or less

 

$

668,957

 

$

690,658

 

Due after one year through five years

 

1,856,252

 

1,915,990

 

Due after five years through ten years

 

1,291,272

 

1,327,228

 

Due after ten years

 

541,976

 

557,918

 

Mutual funds and preferred stocks with no stated maturity

 

254,406

 

266,715

 

 

 

$

4,612,863

 

$

4,758,509

 

 

Based on the Company’s proprietary model and prepayment assumptions, the estimated weighted average life of the investment portfolio as of June 30, 2012 was 4.9 years. The effective duration of the investment portfolio as of June 30, 2012 was 1.8 years. The model results are based on assumptions that may differ from actual results.

 

The carrying value of securities pledged as collateral for Federal Home Loan Bank (“FHLB”) advances, public deposits, interest rate swaps, securities sold under agreements to repurchase and to secure borrowing capacity at the Federal Reserve Bank totaled $1.0 billion and $1.2 billion at June 30, 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 June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of investment securities available for sale

 

$

133,406

 

$

66,401

 

$

139,254

 

$

69,347

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

$

1,176

 

$

102

 

$

1,194

 

$

106

 

Gross realized losses

 

(296

)

(2

)

(298

)

(3

)

Net realized gain

 

$

880

 

$

100

 

$

896

 

$

103

 

 

13



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2012

 

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 June 30, 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):

 

 

 

June 30, 2012

 

 

 

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 residential mortgage-backed securities

 

$

34,988

 

$

(158

)

$

 

$

 

$

34,988

 

$

(158

)

Re-Remics

 

303,769

 

(2,014

)

17,618

 

(131

)

321,387

 

(2,145

)

Private label residential mortgage-backed securities and CMOs

 

804

 

(50

)

6,658

 

(276

)

7,462

 

(326

)

Non-mortgage asset-backed securities

 

81,106

 

(280

)

49,905

 

(1,054

)

131,011

 

(1,334

)

Mutual funds and preferred stocks

 

20

 

(93

)

15,116

 

(327

)

15,136

 

(420

)

State and municipal obligations

 

1,324

 

(3

)

 

 

1,324

 

(3

)

Small Business Administration securities

 

60,355

 

(129

)

 

 

60,355

 

(129

)

Other debt securities

 

8,975

 

(123

)

 

 

8,975

 

(123

)

 

 

$

491,341

 

$

(2,850

)

$

89,297

 

$

(1,788

)

$

580,638

 

$

(4,638

)

 

 

 

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 residential 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 CMO’s

 

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 and six months ended June 30, 2012 and 2011. The Company does not intend to sell securities that are in significant unrealized loss positions and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. At June 30, 2012, 61 securities were in unrealized loss positions. The amount of impairment related to 15 of these securities was considered insignificant, totaling approximately $64.4 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:

 

Small Business Administration securities:

 

At June 30, 2012, two Small Business Administration securities were in unrealized loss positions. Both of these securities had been in unrealized loss positions for less than twelve months. The amount of impairment of each of the individual securities was less than 1% of amortized cost. The timely payment of principal and interest on these securities is 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.

 

14



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2012

 

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

 

At June 30, 2012, four U.S. Government agency and sponsored enterprise residential mortgage-backed securities were in unrealized loss positions. All of these securities had been in unrealized loss positions for less than twelve months.  The amount of impairment of each of the individual securities was less than 2% 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.

 

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

 

At June 30, 2012, 25 private label residential 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 June 30, 2012. The majority of these securities had been in unrealized loss positions for less than twelve months and evidenced unrealized losses less than 2% of amortized cost. 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 June 30, 2012, ten non-mortgage asset-backed securities were in unrealized loss positions. Five of these securities had been in continuous unrealized loss positions for less than twelve months at June 30, 2012.  The amount of impairment of each of the individual securities was 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 June 30, 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 June 30, 2012, three corporate debt securities were in unrealized loss positions.  These securities had been in unrealized loss positions for less than 12 months and aggregate unrealized losses were not material.  These securities are rated “AAA”. Given the limited duration and severity of impairment, the impairment is considered to be temporary.

 

Mutual funds:

 

At June 30, 2012, one mutual fund investment was in an unrealized loss position and had been in a continuous unrealized loss position for twenty-two 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 2% of its cost basis. Given the limited severity, the impairment is considered to be temporary.

 

Preferred stocks:

 

At June 30, 2012, one position in agency preferred stock was in an unrealized loss position.  This security traded above the Company’s cost basis during June 2012. Given the limited duration and immaterial amount of impairment, this impairment is considered to be temporary.

 

15



Table of Contents

 

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2012

 

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 June 30, 2012 and December 31, 2011, loans consisted of the following (dollars in thousands):

 

 

 

June 30, 2012

 

 

 

Covered Loans

 

Non-Covered Loans

 

 

 

Percent of

 

 

 

ACI

 

Non-ACI

 

ACI

 

New Loans

 

Total

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

$

1,527,179

 

$

104,218

 

$

 

$

712,259

 

$

2,343,656

 

45.9

%

Home equity loans and lines of credit

 

62,809

 

168,759

 

 

1,611

 

233,179

 

4.6

%

 

 

1,589,988

 

272,977

 

 

713,870

 

2,576,835

 

50.5

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

56,941

 

754

 

 

243,417

 

301,112

 

5.9

%

Commercial real estate

 

200,582

 

21,946

 

4,159

 

587,852

 

814,539

 

16.0

%

Construction

 

3,782

 

 

 

28,957

 

32,739

 

0.6

%

Land

 

26,099

 

159

 

 

23,766

 

50,024

 

1.0

%

Commercial loans and leases

 

17,526

 

16,796

 

 

1,274,439

 

1,308,761

 

25.7

%

 

 

304,930

 

39,655

 

4,159

 

2,158,431

 

2,507,175

 

49.2

%

Consumer

 

2,654

 

 

 

10,847

 

13,501

 

0.3

%

Total loans